Viavi Solutions Q2 2026 Viavi Solutions Inc Earnings Call | AllMind AI Earnings | AllMind AI
Q2 2026 Viavi Solutions Inc Earnings Call
Operator: Ladies and gentlemen, good afternoon. My name is Abby, and I will be your conference operator today. At this time, I would like to welcome everyone to the Viavi Solutions Fiscal Second Quarter 2026 Earnings Call. Today's conference is being recorded. 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. If you would like to ask a question during that time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one a second time. Thank you. At this time, I would like to turn the conference over to Vibhuti Nair, Head of Investor Relations. Please go ahead.
Operator: Ladies and gentlemen, good afternoon. My name is Abby, and I will be your conference operator today. At this time, I would like to welcome everyone to the Viavi Solutions Fiscal Second Quarter 2026 Earnings Call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise.
Speaker #1: Ladies and gentlemen, good afternoon. My name is Abbi, and I will be your conference operator today. At this time, I would like to welcome everyone to the VIAVI Solutions fiscal second quarter 2026 earnings call.
Speaker #1: Today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session.
After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during that time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one a second time. Thank you. At this time, I would like to turn the conference over to Vibhuti Nair, Head of Investor Relations. Please go ahead.
Speaker #1: If you would like to ask a question during that time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one a second time.
Speaker #1: Thank you. And at this time, I would like to turn the conference over to Vibhuti Nayar, Head of Investor Relations. Please go ahead.
Speaker #2: Thank you, Abbi. Good afternoon, everyone, and welcome to VIAVI SOLUTIONS fiscal second quarter 2026 earnings call. My name is Vibhuti Nayar, Head of Investor Relations for VIAVI SOLUTIONS.
Vibhuti Nayar: Thank you, Abby. Good afternoon, everyone, and welcome to Viavi Solutions Fiscal Q2 2026 Earnings Call. My name is Vibhuti Nayar, Head of Investor Relations for Viavi Solutions. With me on today's call is Oleg Khaykin, our President and CEO, and Ilan Daskal, our CFO. Please note, this call will include forward-looking statements about the company's financial performance. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our current expectations and estimations. We encourage you to review our most recent annual report and SEC filings, particularly the risk factors described in those filings. The forward-looking statements, including the guidance that we provide during this call and our expectations regarding the acquired business, are valid only as of today. Viavi undertakes no obligation to update these statements.
Vibhuti Nayar: Thank you, Abby. Good afternoon, everyone, and welcome to Viavi Solutions Fiscal Q2 2026 Earnings Call. My name is Vibhuti Nayar, Head of Investor Relations for Viavi Solutions. With me on today's call is Oleg Khaykin, our President and CEO, and Ilan Daskal, our CFO. 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 #2: With me on today's call are Oleg Khaykin, our President and CEO, and Ilan Daskal, our CFO. Please note, this call will include forward-looking statements about the company's financial performance.
Speaker #2: These statements are subject to risks and uncertainties that could cause actual results to differ materially from our current expectations and estimations. We encourage you to review our most recent annual report and SEC filings.
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 and our expectations regarding the acquired business, are valid only as of today. Viavi undertakes no obligation to update these statements.
Speaker #2: Particularly, the risk factors described in those filings. The forward-looking statements, including the guidance that we provide during this call and our expectations regarding the acquired business, are valid only as of today.
Speaker #2: Undertakes no obligation to update these VIAVI statements. Please also note that, unless we state otherwise, all results discussed on this call—except revenue—are non-GAAP.
Vibhuti Nayar: Please also note that unless we state otherwise, all results discussed on this call, except revenue, are non-GAAP. We reconcile these non-GAAP results to our preliminary GAAP financials and discuss their usefulness and limitations in today's earnings release. 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'll make the recording available on our website by 4:30PM Pacific Time this evening. Now, I would like to turn the call over to Ilan. Ilan?
Please also note that unless we state otherwise, all results discussed on this call, except revenue, are non-GAAP. We reconcile these non-GAAP results to our preliminary GAAP financials and discuss their usefulness and limitations in today's earnings release. 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'll make the recording available on our website by 4:30PM Pacific Time this evening. Now, I would like to turn the call over to Ilan. Ilan?
Speaker #2: 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.
Speaker #2: Finally, we are recording today's call, and we'll 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.
Speaker #2: Ilan,
Speaker #3: Thank you, Vibhuti. Good afternoon, everyone. Now I would like to review the results of the second quarter of fiscal year 2026. Net revenue for the quarter was $369.3 million, which is at the high end of our guidance range of $360 million to $370 million.
Ilan Daskal: Thank you, Vibhuti. Good afternoon, everyone. Now I would like to review the results of Q2 of fiscal year 2026. Net revenue for the quarter was $369.3 million, which is at the high end of our guidance range of $360 to $370 million. Revenue was up 23.5 sequentially, and on a year-over-year basis was up 36.4%. Operating margin for the second fiscal quarter was 19.3%, above the high end of our guidance range of 17.3% to 18.5%. Operating margin increased 360 basis points from the prior quarter, and on a year-over-year basis was up 440 basis points.
Ilan Daskal: Thank you, Vibhuti. Good afternoon, everyone. Now I would like to review the results of Q2 of fiscal year 2026. Net revenue for the quarter was $369.3 million, which is at the high end of our guidance range of $360 to $370 million. Revenue was up 23.5 sequentially, and on a year-over-year basis was up 36.4%. Operating margin for the second fiscal quarter was 19.3%, above the high end of our guidance range of 17.3% to 18.5%. Operating margin increased 360 basis points from the prior quarter, and on a year-over-year basis was up 440 basis points.
Speaker #3: Revenue was up 23.5% sequentially, and on a year-over-year basis was up 36.4%. Operating margin for the second fiscal quarter was 19.3%, above the high end of our guidance range of 17.3% to 18.5%.
Speaker #3: Operating margin increased 360 basis points from the prior quarter and, on a year-over-year basis, was up 440 basis points. EPS at $0.22 was also above the high end of our guidance range of $0.18 to $0.20 and was up $0.07 sequentially.
Ilan Daskal: EPS at $0.22 was also above the high end of our guidance range of $0.18 to $0.20 and was up $0.07 sequentially. On a year-over-year basis, EPS was up $0.09. Moving on to our Q2 results by business segment. NSE revenue for the second fiscal quarter came in at $291.5 million, which is at the high end of our guidance range of $283 to $293 million. Revenue from Spirent was $43 million, which was slightly below our expectation of $45 to $55 million, due to timing of certain opportunities. On a year-over-year basis, NSE revenue was up 45.8% as a result of the acquisitions of Inertial Labs and Spirent product lines.
EPS at $0.22 was also above the high end of our guidance range of $0.18 to $0.20 and was up $0.07 sequentially. On a year-over-year basis, EPS was up $0.09. Moving on to our Q2 results by business segment. NSE revenue for the second fiscal quarter came in at $291.5 million, which is at the high end of our guidance range of $283 to $293 million. Revenue from Spirent was $43 million, which was slightly below our expectation of $45 to $55 million, due to timing of certain opportunities. On a year-over-year basis, NSE revenue was up 45.8% as a result of the acquisitions of Inertial Labs and Spirent product lines.
Speaker #3: year-over-year basis, EPS was On a up 9 cents. Moving on to our Q2 results by business segment. NSE revenue for the second fiscal quarter came in at 291.5 million dollars, which is at the high end of our guidance range of 283 to 293 million dollars.
Speaker #3: Revenue from Spirent was $43 million, which was slightly below our expectation of $45 to $55 million, due to timing of certain opportunities.
Speaker #3: On a year-over-year basis, NSE revenue was up 45.8% as a result of the acquisitions of Inertia Labs and Spirent product lines. We also saw strong demand for lab, production, and field products driven by the data center ecosystem.
Ilan Daskal: We also saw strong demand for lab and production and field products, driven by the data center ecosystem. NSE gross margin for the quarter was 64.7%, which is 10 basis points lower on a year-over-year basis. NSE's operating margin for the quarter was 15.6%, compared to 8.7% during the same quarter last year. NSE operating margin was above the high end of our guidance range of 12.9% to 14.3%, primarily driven by higher fall-through. OSP revenue for the second fiscal quarter came in at $77.8 million, slightly above our guidance of about $77 million and was up 9.7% on a year-over-year basis. The increase in revenue for the quarter was primarily a result of strength in anti-counterfeiting and other products.
We also saw strong demand for lab and production and field products, driven by the data center ecosystem. NSE gross margin for the quarter was 64.7%, which is 10 basis points lower on a year-over-year basis. NSE's operating margin for the quarter was 15.6%, compared to 8.7% during the same quarter last year. NSE operating margin was above the high end of our guidance range of 12.9% to 14.3%, primarily driven by higher fall-through. OSP revenue for the second fiscal quarter came in at $77.8 million, slightly above our guidance of about $77 million and was up 9.7% on a year-over-year basis. The increase in revenue for the quarter was primarily a result of strength in anti-counterfeiting and other products.
Speaker #3: NSE gross margin for the quarter was 64.7%, which is 10 basis points lower on a year-over-year basis. NSE's operating margin for the quarter was 15.6%, compared to 8.7% during the same quarter last year.
Speaker #3: NSE operating margin was above the high end of our guidance range of 12.9% to 14.3%, primarily driven by higher fall-through. OSP revenue for the second fiscal quarter came in at $77.8 million, slightly above our guidance of about $77 million, and was up 9.7% on a year-over-year basis.
Speaker #3: The increase in revenue for the quarter was primarily a result of strength in anti-counterfeiting and other products. OSP gross margin was 50.8%, up 20 basis points from the same period last year.
Ilan Daskal: OSP gross margin was 50.8%, up 20 basis points from the same period last year. OSP's operating margin was 33.4%, an increase of 100 basis points on a year-over-year basis. OSP operating margin came in slightly below our guidance range of 33.5% to 34.5%, due to slightly higher variable costs. Moving on to the balance sheet and cash flow. Total cash and short-term investments at the end of Q2 were $772.1 million, compared to $549.1 million in the first quarter of fiscal 2026. Cash flow from operating activities for the quarter was $42.5 million, versus $44.7 million in the same period last year, mainly due to timing of working capital.
OSP gross margin was 50.8%, up 20 basis points from the same period last year. OSP's operating margin was 33.4%, an increase of 100 basis points on a year-over-year basis. OSP operating margin came in slightly below our guidance range of 33.5% to 34.5%, due to slightly higher variable costs. Moving on to the balance sheet and cash flow. Total cash and short-term investments at the end of Q2 were $772.1 million, compared to $549.1 million in the first quarter of fiscal 2026. Cash flow from operating activities for the quarter was $42.5 million, versus $44.7 million in the same period last year, mainly due to timing of working capital.
Speaker #3: Operating margin was OSP's 33.4% and increased by 100 basis points on a year-over-year basis. OSP operating margin came in slightly below our guidance range of 33.5% to 34.5% due to slightly higher variable costs.
Speaker #3: Moving on to the balance sheet and cash flow. Total cash and short-term investments at the end of Q2 were $772.1 million, compared to $549.1 million in the first quarter of fiscal 2026.
Speaker #3: Cash flow from operating activities for the quarter was $42.5 million, versus $44.7 million in the same period last year, mainly due to timing of working capital.
Ilan Daskal: CapEx for the quarter was $5.6 million, versus $8.2 million in the same period last year. During the quarter, we successfully exchanged principal amount of about $100 million, 1.625% convertible notes due in March 2026, for 7.9 million shares of Viavi's common shares, at a price per share of $17.88. We have remaining principal amount of about $50 million on these notes, which will be paid in cash. The associated premium on these convertible notes will be settled in shares. Additionally, we prepaid in January 2026, $100 million of the $600 million term loan B. This is in line with our continued financial discipline.
CapEx for the quarter was $5.6 million, versus $8.2 million in the same period last year. During the quarter, we successfully exchanged principal amount of about $100 million, 1.625% convertible notes due in March 2026, for 7.9 million shares of Viavi's common shares, at a price per share of $17.88. We have remaining principal amount of about $50 million on these notes, which will be paid in cash. The associated premium on these convertible notes will be settled in shares. Additionally, we prepaid in January 2026, $100 million of the $600 million term loan B. This is in line with our continued financial discipline.
Speaker #3: the quarter was 5.6 CapEx for million dollars, versus 8.2 million dollars in the same period last year. During the quarter, we successfully exchanged principal amount of about 100 million dollars—1.625% convertible notes due in March of 2026—for 7.9 million shares of VIAVI's common shares, at a price per share of 17 dollars and 88 cents.
Speaker #3: We have a remaining principal amount of about $50 million on these notes, which will be paid in cash. The associated premium on these convertible notes will be settled in shares.
Speaker #3: Additionally, we prepaid in January of 2026 $100 million of the $600 million Term Loan B. This is in line with our continued financial discipline.
Speaker #3: During the quarter, we did not purchase any shares of our stock, as we prioritized our capital allocation towards debt management. The fully diluted share count for the quarter was 233.4 million shares, up from 224.8 million shares in the prior year, and versus 228.7 million shares in our guidance for the second quarter.
Ilan Daskal: During the quarter, we did not purchase any shares of our stock, as we prioritized our capital allocation towards debt management. The fully diluted share count for the quarter was 233.4 million shares, up from 224.8 million shares in the prior year, and versus 228.7 million shares in our guidance for the second fiscal quarter. Last week, we approved a restructuring and workforce reduction plan to improve operational efficiencies and better align workforce and resources with our current business needs and strategic priorities. We expect approximately 5% of our global workforce to be impacted, and estimate to incur approximately $32 million of restructuring charges in connection with this plan. Upon completion of this initiative, we expect annual savings of about $30 million, which will mainly benefit our operating expenses.
During the quarter, we did not purchase any shares of our stock, as we prioritized our capital allocation towards debt management. The fully diluted share count for the quarter was 233.4 million shares, up from 224.8 million shares in the prior year, and versus 228.7 million shares in our guidance for the second fiscal quarter. Last week, we approved a restructuring and workforce reduction plan to improve operational efficiencies and better align workforce and resources with our current business needs and strategic priorities. We expect approximately 5% of our global workforce to be impacted, and estimate to incur approximately $32 million of restructuring charges in connection with this plan. Upon completion of this initiative, we expect annual savings of about $30 million, which will mainly benefit our operating expenses.
Speaker #3: Last week, we approved a restructuring to improve operational and workforce reduction plan resources with our current efficiencies, and better align workforce and business needs and strategic priorities.
Speaker #3: We expect approximately 5% of our global workforce to be impacted, and estimate incurring approximately $32 million of restructuring charges in connection with this plan.
Speaker #3: With this initiative, we expect annual savings of about $30 million, which will mainly benefit our operating expenses. Upon completion, we intend to reinvest a portion of these savings into higher growth areas of our business.
Ilan Daskal: We intend to reinvest a portion of these savings with higher growth areas of our business. We expect to recognize majority of these charges by the end of June 2026, with a plan to be substantially completed by the end of December 2026. The savings of about $30 million include previously communicated $16 million of synergies from the acquisition of Spirent's product lines. Moving on to our guidance for Q3 of fiscal 2026. We expect Q3 revenue for Viavi to be up sequentially as a result of continued strength in many of our end markets. For NSE, we expect quarter-over-quarter revenue to be higher as a result of continued strong demand for lead and production and field products, which is driven by the data center ecosystem, as well as aerospace and defense customers.
We intend to reinvest a portion of these savings with higher growth areas of our business. We expect to recognize majority of these charges by the end of June 2026, with a plan to be substantially completed by the end of December 2026. The savings of about $30 million include previously communicated $16 million of synergies from the acquisition of Spirent's product lines. Moving on to our guidance for Q3 of fiscal 2026. We expect Q3 revenue for Viavi to be up sequentially as a result of continued strength in many of our end markets. For NSE, we expect quarter-over-quarter revenue to be higher as a result of continued strong demand for lead and production and field products, which is driven by the data center ecosystem, as well as aerospace and defense customers.
Speaker #3: We expect to recognize the majority of these charges by the end of June or be substantially completed by the end of 2026, with a plan to December of 2026.
Speaker #3: About $30 million. The savings include previously communicated $16 million of synergies from the acquisition of Spirent's product lines. Moving on to our guidance for the third quarter of fiscal 2026.
Speaker #3: We expect the third fiscal quarter revenue for VIAVI to be up sequentially, as a result of continued strength in many of our end markets. Revenue should be higher as a result of continued strong demand for lab and production and field products, which is driven by the data center and defense ecosystem, as well as aerospace customers.
Speaker #3: Our guidance for the third quarter also includes a full 13 weeks of Spirent product lines, versus a 10-week quarter. For OSP, we expect quarter-over-quarter revenue to be higher, in line with the seasonality of higher demand for anti-counterfeiting and other products.
Ilan Daskal: Our guidance for Q3 also includes full 13 weeks of Spirent product lines, versus 10 weeks in the prior quarter. For OSP, we expect quarter-over-quarter revenue to be higher, in line with seasonality of higher demand for anti-counterfeiting and other products. For the Q3 fiscal quarter of 2026, we expect Viavi revenue in the range of $386 to $400 million. We expect total NSE revenue between $304 and $316 million. OSP revenue is expected to be in the range of $82 to $84 million. Operating margin for Viavi is expected to be 19.7%, ±50 basis points. NSE operating margin is expected to be 15.5%, ±50 basis points.
Our guidance for Q3 also includes full 13 weeks of Spirent product lines, versus 10 weeks in the prior quarter. For OSP, we expect quarter-over-quarter revenue to be higher, in line with seasonality of higher demand for anti-counterfeiting and other products. For the Q3 fiscal quarter of 2026, we expect Viavi revenue in the range of $386 to $400 million. We expect total NSE revenue between $304 and $316 million. OSP revenue is expected to be in the range of $82 to $84 million. Operating margin for Viavi is expected to be 19.7%, ±50 basis points. NSE operating margin is expected to be 15.5%, ±50 basis points.
Speaker #3: For the third fiscal quarter of 2026, we expect VIAVI revenue in the range of $386 million and $400 million. We expect total NSE revenue between $304 million and $316 million.
Speaker #3: OSP revenue is expected to be in the range of $82 million and $84 million. Operating margin for VIAVI is expected to be 19.7%, plus or minus 50 basis points.
Speaker #3: NSE operating margin is expected to be 15.5%, plus or minus 50 basis points. OSP operating margin is expected to be 35.3%, plus or minus 50 basis points.
Ilan Daskal: OSP operating margin is expected to be 35.3%, ±50 basis points. EPS is expected to be between $0.22 and $0.24. Our tax expense for the third quarter is expected to be around $9 million, ±$0.5 million, as a result of jurisdictional mix. Our acquisition of Spirent product lines, as well as Inertial Labs, has resulted in greater profits in the US, which allows us to benefit from our NOLs. As a result, we now expect our tax rate to be in the, in the mid-teens on a go-forward basis. We expect other income and expense to reflect a net expense of approximately $12.5 million, and the share count is expected to be around 245 million shares.
OSP operating margin is expected to be 35.3%, ±50 basis points. EPS is expected to be between $0.22 and $0.24. Our tax expense for the third quarter is expected to be around $9 million, ±$0.5 million, as a result of jurisdictional mix. Our acquisition of Spirent product lines, as well as Inertial Labs, has resulted in greater profits in the US, which allows us to benefit from our NOLs. As a result, we now expect our tax rate to be in the, in the mid-teens on a go-forward basis. We expect other income and expense to reflect a net expense of approximately $12.5 million, and the share count is expected to be around 245 million shares.
Speaker #3: EPS is expected to be between $0.22 and $0.24. Our tax expense for the third quarter is expected to be around $9 million, plus or minus $500,000, as a result of jurisdictional mix.
Speaker #3: Our acquisition of Spirent product lines, as well as Inertial Labs, has resulted in greater profits in the US, which allows us to benefit from our NOLs.
Speaker #3: As a result, we now expect our tax rate to be in the mid-teens on a go-forward basis. We expect other income and expense to reflect a net expense of approximately $12.5 million, and the share count is expected to be around 245 million shares.
Speaker #3: During the third quarter, we expect to pay earn-out liability for Inertial Labs of about $75 million, as a result of their strong performance in calendar 2025.
Ilan Daskal: During Q3, we expect to pay earn-out liability for Inertial Labs of about $75 million as a result of their strong performance in calendar 2025. With that, I will turn the call over to Oleg. Oleg?
During Q3, we expect to pay earn-out liability for Inertial Labs of about $75 million as a result of their strong performance in calendar 2025. With that, I will turn the call over to Oleg. Oleg?
Speaker #3: With that, I will turn the call over to Oleg.
Speaker #2: Thank you, Ivan. The second quarter of fiscal '26 came in at the high end of our guidance, driven by strong growth in many of our end markets.
Oleg Khaykin: Thank you, Ilan. The second quarter of fiscal 2026 came in at the high end of our guidance, driven by strong growth in many of our end markets. The results were significantly up, both year-over-year and quarter-over-quarter. NSE revenue in Q2 grew approximately 46% year-over-year, primarily driven by strong demand from the data center ecosystem and aerospace and defense customers. The data center ecosystem, which includes high-performance semis, optical modules, and NAMs, drove strong demand for 11 production products in support of AI data center build-out. In addition, we are now also seeing emerging strong demand for our fiber field instruments by hyperscalers and service providers to build, operate, and optimize the next generation of fiber networks to interconnect data centers.
Oleg Khaykin: Thank you, Ilan. The second quarter of fiscal 2026 came in at the high end of our guidance, driven by strong growth in many of our end markets. The results were significantly up, both year-over-year and quarter-over-quarter. NSE revenue in Q2 grew approximately 46% year-over-year, primarily driven by strong demand from the data center ecosystem and aerospace and defense customers.
Speaker #2: The results were significantly up both year over year and quarter over quarter. NSE revenue in Q2 grew approximately 46% year over year, primarily driven by strong demand from the data center ecosystem and aerospace and defense customers.
Speaker #2: The data center ecosystem includes high-performance semis, optical modules, and NAMs, which drove strong demand for lab and production products in support of AI data center buildout.
The data center ecosystem, which includes high-performance semis, optical modules, and NAMs, drove strong demand for 11 production products in support of AI data center build-out. In addition, we are now also seeing emerging strong demand for our fiber field instruments by hyperscalers and service providers to build, operate, and optimize the next generation of fiber networks to interconnect data centers.
Speaker #2: In addition, we are now also seeing emerging strong demand for our fiber field instruments by hyperscalers and service providers to build, operate, and optimize the next generation of fiber networks to interconnect data centers.
Speaker #2: The Q2 quarter-on-quarter and year-on-year growth was also helped by the acquisition of Spirent's HSC product line, which came in slightly below our expectations due to the timing of several opportunities.
Oleg Khaykin: The Q2 quarter-on-quarter and year-on-year growth was also helped by the acquisition of Spirent's HSE product line, which came in slightly below our expectations due to the timing of several opportunities. Given strong and growing customer demand, we expect the data center ecosystem revenue momentum to continue through the calendar 2026. Our aerospace and defense business also saw another strong quarter of growth, driven by continued high demand for our positioning, navigation, and timing products. We expect this trend to continue through the rest of the calendar year. The service providers business was generally stable during the quarter. We are seeing some opportunistic demand from the cable operators as they transition to new DAA architecture and DOCSIS 4.0 standard. The demand for wireless infrastructure test continues to be weak, but stable.
The Q2 quarter-on-quarter and year-on-year growth was also helped by the acquisition of Spirent's HSE product line, which came in slightly below our expectations due to the timing of several opportunities. Given strong and growing customer demand, we expect the data center ecosystem revenue momentum to continue through the calendar 2026. Our aerospace and defense business also saw another strong quarter of growth, driven by continued high demand for our positioning, navigation, and timing products. We expect this trend to continue through the rest of the calendar year. The service providers business was generally stable during the quarter. We are seeing some opportunistic demand from the cable operators as they transition to new DAA architecture and DOCSIS 4.0 standard. The demand for wireless infrastructure test continues to be weak, but stable.
Speaker #2: Given strong and growing customer demand, we expect the data center ecosystem revenue momentum to continue through calendar 2026. Our aerospace and defense business also saw another strong quarter of growth, driven by continued high demand for our positioning, navigation, and timing products.
Speaker #2: We expect this trend to continue through the rest of the calendar year. The service providers business was generally stable during the quarter, but we are seeing some opportunistic demand from the cable operators as they transition to new DAA architecture and DOCSIS 4.0 standard.
Speaker #2: The demand for wireless infrastructure tests continues to be weak, but stable. Looking ahead to Q3, we expect NSE revenue to be countercyclically up quarter-on-quarter, driven by continued strong and growing demand from data center and aerospace and defense customers.
Oleg Khaykin: Looking ahead to Q3, we expect NSE revenue to be countercyclically up quarter-on-quarter, driven by continued strong and growing demand from data center, aerospace, and defense customers. Now turning to OSP. OSP saw strong year-on-year growth, driven mostly by recovery in anti-counterfeiting and other products. 3D sensing demand was in line with seasonal expectations. We expect fiscal Q3 to be up quarter-on-quarter, in line with the seasonally higher demand for anti-counterfeiting and other products. In summary, calendar 2025 was a pivotal year for Viavi. Our diversification and investment strategy over the past five years, focused on data center, aerospace, and defense PNT applications, has positioned us well to ride strong growth in both of these markets. We have exited calendar 2025 with robust bookings and revenue momentum and anticipate these trends to continue through the calendar year.
Looking ahead to Q3, we expect NSE revenue to be countercyclically up quarter-on-quarter, driven by continued strong and growing demand from data center, aerospace, and defense customers. Now turning to OSP. OSP saw strong year-on-year growth, driven mostly by recovery in anti-counterfeiting and other products. 3D sensing demand was in line with seasonal expectations. We expect fiscal Q3 to be up quarter-on-quarter, in line with the seasonally higher demand for anti-counterfeiting and other products. In summary, calendar 2025 was a pivotal year for Viavi. Our diversification and investment strategy over the past five years, focused on data center, aerospace, and defense PNT applications, has positioned us well to ride strong growth in both of these markets. We have exited calendar 2025 with robust bookings and revenue momentum and anticipate these trends to continue through the calendar year.
Speaker #2: Not turning to OSP, OSP saw strong year-on-year growth driven mostly by recovery in anti-counterfeiting and other products. 3D sensing demand was in line with seasonal expectations.
Speaker #2: We expect fiscal Q3 to be up quarter-on-quarter, in line with the seasonally higher demand for anti-counterfeiting and other products. In summary, calendar 2025 was a pivotal year for VIAVI.
Speaker #2: Our diversification and investment strategy over the past five years, focused on data center and aerospace and defense P&T applications, has positioned us well to ride strong growth in both of these markets.
Speaker #2: We have exited calendar 2025 with robust bookings and revenue momentum, and anticipate these trends to continue through the calendar year. In conclusion, I would like to thank the VIAVI team for its continued strong innovation and execution, and thank our customers and shareholders for their continued support.
Oleg Khaykin: In conclusion, I would like to thank the Viavi team for its continued strong innovation and execution, and thank our customers and shareholders for their continued support. With that, I will turn it back over to the operator for Q&A.
In conclusion, I would like to thank the Viavi team for its continued strong innovation and execution, and thank our customers and shareholders for their continued support. With that, I will turn it back over to the operator for Q&A.
Speaker #2: With that, I will turn it back over to the operator for Q&A.
Speaker #3: Thank you. And we'll now begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue.
Operator: Thank you, and we'll now begin the question-and-answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, press star one a second time. If you're called upon to ask your question and are listening via speakerphone on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. To be able to take as many questions as possible, we ask that you please limit yourself to one question and one follow-up. Again, it is star one if you would like to join the queue. Our first question comes from the line of Ruben Roy with Stifel. Your line is open.
Operator: Thank you, and we'll now begin the question-and-answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, press star one a second time. If you're called upon to ask your question and are listening via speakerphone on your device, please pick up your handset and ensure that your phone is not on mute when asking your question.
Speaker #3: To withdraw your question, press star one a second time. If you are called upon to ask your question and are listening via speakerphone on your device, please pick up your handset and ensure that your phone is not on mute when asking your question.
Speaker #3: To be able to take as many questions as possible, we ask that you please limit yourself to one question and one follow-up. Again, it is star one if you would like to join the queue, and our first question comes from the line of Ruben Roy with Stifel.
To be able to take as many questions as possible, we ask that you please limit yourself to one question and one follow-up. Again, it is star one if you would like to join the queue. Our first question comes from the line of Ruben Roy with Stifel. Your line is open.
Speaker #3: Your line is
Speaker #3: open. Thank you.
Ruben Roy: ... Thank you. I, Oleg and Ilan, congrats on the continued progress and results. Oleg, to start, last quarter, you, you broke out for us a little bit, you know, sort of the mix, as your NSE business continues to evolve. So thinking about it in terms of data center, aerospace and defense and telco, if you could give us an update on what the mix looks like, and then, you know, as we think about the guidance, if you could kind of dial in a little bit into the moving parts on the growth for the March quarter, that would be great. Thank you.
Ruben Roy: ... Thank you. I, Oleg and Ilan, congrats on the continued progress and results. Oleg, to start, last quarter, you, you broke out for us a little bit, you know, sort of the mix, as your NSE business continues to evolve. So thinking about it in terms of data center, aerospace and defense and telco, if you could give us an update on what the mix looks like, and then, you know, as we think about the guidance, if you could kind of dial in a little bit into the moving parts on the growth for the March quarter, that would be great. Thank you.
Speaker #4: Hi, Oleg and Ilan. Congrats on the continued progress and results. Oleg, to start, last quarter you broke out for us a little bit, sort of a mix as your NSE business continues to evolve.
Speaker #4: So, thinking about it in terms of data center, aerospace and defense, and telco, if you could give us an update on what the mix looks like, and then as we think about the guidance, if you could kind of dial in a little bit into the moving parts on the growth for the March quarter, that would be great.
Speaker #4: Thank you.
Oleg Khaykin: Sure. So, you know, I think, you know, last quarter, we kind of talked 45% service provider, 40% data center, 15% aerospace and defense. I think with the significant growth in data center, right, and the other, I think we are now, I'd say, closer the other way around, 40% service provider, 45% data center, around 15% aerospace and defense. To be more precise, I think we're gonna see, you know, service provider to kind of trend a little bit below 40%, the aerospace and defense trend up above 15%, and the data center trend up above 45%. And it's not because the service provider is going down, actually, it's steady and showing slight recovery.
Oleg Khaykin: Sure. So, you know, I think, you know, last quarter, we kind of talked 45% service provider, 40% data center, 15% aerospace and defense. I think with the significant growth in data center, right, and the other, I think we are now, I'd say, closer the other way around, 40% service provider, 45% data center, around 15% aerospace and defense.
Speaker #2: I think last quarter we kind of talked 45% service provider, 40% data center, 15% aerospace and defense. I think with the significant growth in data center, right, and the other, I think we are now, I'd say, closer the other way around—40% service provider, 45% data center, around 15% aerospace and defense.
To be more precise, I think we're gonna see, you know, service provider to kind of trend a little bit below 40%, the aerospace and defense trend up above 15%, and the data center trend up above 45%. And it's not because the service provider is going down, actually, it's steady and showing slight recovery.
Speaker #2: To be more precise, I think we're going to see service provider trend a little bit below 40%, the aerospace and defense trend up above 15%, and the data center trend up above 45%.
Speaker #2: And it's not because the service provider is going down. Actually, it's steady and showing slight recovery. It's just, fundamentally, the percentage allocation and the growth across different segments is vastly different.
Oleg Khaykin: It's just fundamentally the percentage allocation and the growth across different segments is vastly different. So that's kind of the mix. So I think now we are. I would say we're, you know, net of it, we're now only about 40%, a little bit under 40%, exposed to service provider, traditional telecom service provider, and I'd say 60% is driven by the data center ecosystem and the aerospace and defense. In terms of the guidance on the Q3 that you've seen pretty strong numbers, it's continued very strong growth in the data center ecosystem. That's, again, semis, modules, systems, and the NAMs.
It's just fundamentally the percentage allocation and the growth across different segments is vastly different. So that's kind of the mix. So I think now we are. I would say we're, you know, net of it, we're now only about 40%, a little bit under 40%, exposed to service provider, traditional telecom service provider, and I'd say 60% is driven by the data center ecosystem and the aerospace and defense. In terms of the guidance on the Q3 that you've seen pretty strong numbers, it's continued very strong growth in the data center ecosystem. That's, again, semis, modules, systems, and the NAMs.
Speaker #2: That's kind of the mix. So, I think now we're—so I would say—we're narrowing it. We're now only about 40%, a little bit under 40%, exposed to service providers, traditional telecom service providers.
Speaker #2: And I'd say 60% is driven by the data center ecosystem and the aerospace and defense. In terms of the guidance on Q3, you've seen pretty strong numbers—it's continued very strong growth in the data center ecosystem; that's again semis, modules, systems, and the NAMs.
Speaker #2: But also, it includes a growing component of our traditional field instruments, and it's actually a meaningful pop in that we're now seeing what I call next-gen service providers—people who are doing interconnective data centers.
Oleg Khaykin: But also, it includes a growing component of our traditional field instruments, and it's actually a meaningful pop, in that we're, you know, we are now seeing the, what I call, next gen, service providers, people who are doing interconnect of data centers and the data center operators themselves, investing into our fiber monitoring and fiber measurement systems to monitor and optimize performance of their data centers. And I mean, you know, if I looked at a year ago, you might have been single digits data center for our traditional field instruments. I think we are now looking at about 1/3 of our revenue in the field instruments coming out from data center.
But also, it includes a growing component of our traditional field instruments, and it's actually a meaningful pop, in that we're, you know, we are now seeing the, what I call, next gen, service providers, people who are doing interconnect of data centers and the data center operators themselves, investing into our fiber monitoring and fiber measurement systems to monitor and optimize performance of their data centers. And I mean, you know, if I looked at a year ago, you might have been single digits data center for our traditional field instruments. I think we are now looking at about 1/3 of our revenue in the field instruments coming out from data center.
Speaker #2: And the data center operators themselves are investing into our fiber monitoring and fiber measurement systems to monitor and optimize performance of their data centers. And I mean, if I looked at a year ago, you might have been single digits data centers for our traditional field instruments.
Speaker #2: I think we are now looking at about a third of our revenue in the field instruments coming out from data centers. So, it's been a truly amazing turnaround, and I think the recognition is growing that the fiber networks are generally crap and they need to be significantly improved. We are seeing a lot of pressure from the hyperscalers on service providers to improve the performance.
Oleg Khaykin: So it's been a truly amazing, you know, turnaround, and I think the recognition is growing that the fiber networks are generally crap, and they need to be significantly improved. We are seeing a lot of pressure from the hyperscalers on service providers to improve the performance, but they're also going further, and they are putting a lot of what we call monitoring and policing on their networks to ensure that they pay for what they, they get what they pay for. So it's actually been another very positive development for us on the fiber instruments. That's on the NSE.
So it's been a truly amazing, you know, turnaround, and I think the recognition is growing that the fiber networks are generally crap, and they need to be significantly improved. We are seeing a lot of pressure from the hyperscalers on service providers to improve the performance, but they're also going further, and they are putting a lot of what we call monitoring and policing on their networks to ensure that they pay for what they, they get what they pay for. So it's actually been another very positive development for us on the fiber instruments. That's on the NSE.
Speaker #2: But they're also going further, and they're putting a lot of what we call monitoring and policing on their networks to ensure that they get what they pay for.
Speaker #2: So, it's actually been another very positive development for us on the fiber instruments. That's on the NSE side.
Ruben Roy: Thanks, Oleg. Yeah.
Ruben Roy: Thanks, Oleg. Yeah.
Speaker #2: Sure. Thanks, Oleg.
Oleg Khaykin: Sure.
Oleg Khaykin: Sure.
Ruben Roy: Yeah, I guess I had a follow-up on that. You know, obviously with Corning and Meta, you know, sort of expanding their partnership and, you know, $6 billion commitment on new fiber, I would imagine that that's, you know, something that, you know, would play into your longer-term opportunity set, you know, for the field instruments. But I guess if I think about that, and you made a statement, Oleg, on your prepared remarks regarding your expectations for DC growth to continue through 2026. I mean, are things like that and, you know, like the scale across opportunities that you just mentioned, giving you extended visibility on demand relative to, you know, sort of what the order book might have looked like, you know, 12 months ago?
Ruben Roy: Yeah, I guess I had a follow-up on that. You know, obviously with Corning and Meta, you know, sort of expanding their partnership and, you know, $6 billion commitment on new fiber, I would imagine that that's, you know, something that, you know, would play into your longer-term opportunity set, you know, for the field instruments.
Speaker #4: Yeah.
Speaker #4: That. Obviously, yeah. With Corning and Meta, sort and $6 billion commitment on new fiber, I would imagine that that's something that would play into your longer-term opportunity set for the field instruments.
Speaker #4: But I guess if I think about that—and you made a statement, Oleg, in your prepared remarks regarding your expectations for DC growth to continue through '26—I mean, are things like that and the scale across opportunities that you just mentioned giving you extended visibility on demand, relative to what the order book might have looked like 12 months ago?
But I guess if I think about that, and you made a statement, Oleg, on your prepared remarks regarding your expectations for DC growth to continue through 2026. I mean, are things like that and, you know, like the scale across opportunities that you just mentioned, giving you extended visibility on demand relative to, you know, sort of what the order book might have looked like, you know, 12 months ago?
Speaker #4: I mean, are you getting a longer look on backlog and bookings at this point?
Ruben Roy: I mean, are you getting a longer look on backlog and bookings at this point?
I mean, are you getting a longer look on backlog and bookings at this point?
Oleg Khaykin: The answer is yes. I think on these truly big ones, I mean, as you've seen with the Corning deal, right? It's another example of what I've been talking about, that the hyperscalers are no longer content, just pay you the money, and you deliver the services and products. They are vertically integrating all the way back into their supply chain through either partnerships or strategic alliances, like what you've seen with Corning and Meta. And we're seeing similar thing happening with us, where you have a, you know, at the very least, multi-quarter commitments and multi-year engagements. And, you know, so when it comes to data center, I would say, for us, traditionally, we only had, like, maybe one, one and a half quarter visibility.
Speaker #2: The answer is yes. Think on this—truly big ones. I mean, as you've seen with the Corning deal, right, it's another example of what I've been talking about, that the hyperscalers are no longer content to just pay you the money and you deliver the services and products.
Oleg Khaykin: The answer is yes. I think on these truly big ones, I mean, as you've seen with the Corning deal, right? It's another example of what I've been talking about, that the hyperscalers are no longer content, just pay you the money, and you deliver the services and products. They are vertically integrating all the way back into their supply chain through either partnerships or strategic alliances, like what you've seen with Corning and Meta.
Speaker #2: They are vertically integrating all the way back into their supply chain, throughout their partnerships or strategic alliances like what you've seen with Corning and Meta.
And we're seeing similar thing happening with us, where you have a, you know, at the very least, multi-quarter commitments and multi-year engagements. And, you know, so when it comes to data center, I would say, for us, traditionally, we only had, like, maybe one, one and a half quarter visibility.
Speaker #2: And we're seeing a similar thing happening with us, where you have, at the very least, multi-quarter commitments and multi-year engagements. And so, when it comes to data center, I would say for us, traditionally, we only had maybe one, one and a half quarter visibility.
Oleg Khaykin: We have a pretty good view, at least on the base demand from these type of activities, up to three quarters ahead.
Speaker #2: We have a pretty good view, at least on the base demand from these types of activities up to three quarters.
We have a pretty good view, at least on the base demand from these type of activities, up to three quarters ahead.
Speaker #2: ahead. Got it.
Ruben Roy: Got it. If I could sneak one in for Oleg, just on the restructuring, Oleg. Is that impacting any specific product area or group, or, you know, is this just sort of your annual, you know, look at the business? And, you know, obviously, there's a lot going on in DC and aerospace and defense that, maybe you want to focus more on. Is, you know, maybe you could, if you could, help us out on how to think about that restructuring, that'd be great. And that's it. Thank you.
Ruben Roy: Got it. If I could sneak one in for Oleg, just on the restructuring, Oleg. Is that impacting any specific product area or group, or, you know, is this just sort of your annual, you know, look at the business? And, you know, obviously, there's a lot going on in DC and aerospace and defense that, maybe you want to focus more on. Is, you know, maybe you could, if you could, help us out on how to think about that restructuring, that'd be great. And that's it. Thank you.
Speaker #4: If I could sneak one in for Oleg, just on the restructuring—Oleg, is that impacting any specific product area or group, or is this just sort of your annual look at the business?
Speaker #4: DC and aerospace and defense, and obviously there's a lot going on in that. Maybe you want to focus more on it. Maybe you could help us out on how to think about that restructuring.
Speaker #4: That'd be great. And that's it. Thank you.
Speaker #3: Yeah, so Reuben, thanks for the question. Generally, it's across multiple functions, just to make sure that we are operating under a much higher efficiency.
Ilan Daskal: Yeah. So Ruben, thanks for the question. Generally, it's across multiple functions just to make sure that we have operate, you know, under a much higher efficiency, so it's not targeting, you know, specific areas. And I wanted also to highlight that some of these savings, we do plan to reinvest in those higher growth areas that Oleg just discussed. So, some of it will be a trade-off.
Ilan Daskal: Yeah. So Ruben, thanks for the question. Generally, it's across multiple functions just to make sure that we have operate, you know, under a much higher efficiency, so it's not targeting, you know, specific areas. And I wanted also to highlight that some of these savings, we do plan to reinvest in those higher growth areas that Oleg just discussed. So, some of it will be a trade-off.
Speaker #3: So, it's not targeting specific areas. And I wanted also to highlight that some of the savings we do plan to reinvest in those higher-growth areas that Oleg just discussed.
Speaker #3: So some of it will be a trade-off.
Speaker #2: Yeah, I think clearly if we look at where most of the cost is coming out, it's coming out of the slower or stagnant product segments.
Oleg Khaykin: Yeah, I think, you know, clearly, if we look at where most of the cost is coming out, it's coming out of the slower or stagnant product segments. So it's really, point here is to free up resources and take some of it as the financial leverage, but others as the ability to invest and grow the, put more wood behind the arrow on things like Data Center Ecosystem, aerospace and defense, things like that.
Oleg Khaykin: Yeah, I think, you know, clearly, if we look at where most of the cost is coming out, it's coming out of the slower or stagnant product segments. So it's really, point here is to free up resources and take some of it as the financial leverage, but others as the ability to invest and grow the, put more wood behind the arrow on things like Data Center Ecosystem, aerospace and defense, things like that.
Speaker #2: So it's really a point here to free up resources and take some of it as financial leverage, but others as the ability to invest and grow—to put more wood behind the arrow on things like data center ecosystem, aerospace and defense, things like that.
Speaker #3: Right. And in addition to some support function optimization.
Ilan Daskal: Right, and in addition to some support function optimization.
Ilan Daskal: Right, and in addition to some support function optimization.
Oleg Khaykin: Mm-hmm.
Oleg Khaykin: Mm-hmm.
Speaker #1: And our next question comes from the line of Ryan Koontz with Needham. Your line is open.
Operator: Our next question comes from the line of Ryan Koontz with Needham. Your line is open.
Operator: Our next question comes from the line of Ryan Koontz with Needham. Your line is open.
Speaker #5: Great, thanks. A lot of activity in defense and aerospace of late, Oleg. I hope you could double-click on what you see as exciting defense programs and aerospace programs that you're involved in with your product lines, and how you think about that business going forward.
Ryan Koontz: Great, thanks. A lot of activity in defense and aerospace of late. Oleg, I hope you could double-click on, you know, what you see as exciting, you know, defense programs, aerospace programs that you're involved in with your product lines, and how you think about that business going forward?
Ryan Koontz: Great, thanks. A lot of activity in defense and aerospace of late. Oleg, I hope you could double-click on, you know, what you see as exciting, you know, defense programs, aerospace programs that you're involved in with your product lines, and how you think about that business going forward?
Oleg Khaykin: Sure. I think the biggest drivers is what we call resilient PNT, position, navigation, timing. In essence, it's alternative GNSS, so everything that allows you to operate in the absence of GPS signal. And as you can imagine, it's drones, drones, and more drones. It's very much targeting all autonomous systems like drones above ground, you know, robotic vehicles, you know, surveillance, you know, in heavy industrial machinery, undersea, and seaborne drones. So it's pretty much anything that's above ground, underground, you know, underwater, in the air, robotic systems. So that's mainly where a lot of these products are going to.
Oleg Khaykin: Sure. I think the biggest drivers is what we call resilient PNT, position, navigation, timing. In essence, it's alternative GNSS, so everything that allows you to operate in the absence of GPS signal. And as you can imagine, it's drones, drones, and more drones.
Speaker #2: Sure. I think the biggest driver is what we call resilient PNT—positioning, navigation, and timing. In essence, it's alternative GNSS, so everything that allows you to operate in the absence of a GPS signal.
Speaker #2: And as you can imagine, it's drones, drones, and more drones. It's very much targeting all autonomous systems like drones above ground, robotic vehicles, surveillance, heavy industrial machinery, undersea, and seaborne drones.
It's very much targeting all autonomous systems like drones above ground, you know, robotic vehicles, you know, surveillance, you know, in heavy industrial machinery, undersea, and seaborne drones. So it's pretty much anything that's above ground, underground, you know, underwater, in the air, robotic systems. So that's mainly where a lot of these products are going to.
Speaker #2: So it's pretty much anything that's above ground, underground, underwater, in the air, robotic systems. So that's mainly where a lot of these products are going to.
Oleg Khaykin: On the other hand is also our PNT timing, you know, we are seeing emerging opportunities in data centers because, you know, we're seeing more and more. As you increase the speeds in the data centers, you need accurate timing for synchronization. And if you think about traditional distributed clock model from one end, goes across all the racks, it may be fine when you're a 100 gig data center. When you're going to 1.6, 3.2, the latency becomes unbearable. So we're looking at. We're seeing demand for timing in, at multiple entry points into the data center, so you almost deliver precise timing directly to the rack or the individual server banks.
Speaker #2: On the other hand, there's also our P&T timing. We are seeing emerging opportunities in data centers. Because we're seeing more and more, as you increase the speeds in the data centers, you need accurate timing for synchronization.
On the other hand is also our PNT timing, you know, we are seeing emerging opportunities in data centers because, you know, we're seeing more and more. As you increase the speeds in the data centers, you need accurate timing for synchronization. And if you think about traditional distributed clock model from one end, goes across all the racks, it may be fine when you're a 100 gig data center. When you're going to 1.6, 3.2, the latency becomes unbearable. So we're looking at. We're seeing demand for timing in, at multiple entry points into the data center, so you almost deliver precise timing directly to the rack or the individual server banks.
Speaker #2: And if you think about traditional distributed clock model, from one end goes across all the racks, but maybe fine when you're 100 gig, data center when you're going to 1.6, 3.2, the latency becomes unbearable.
Speaker #2: So we're seeing demand for timing at multiple entry points into the data center, so you almost deliver precise timing directly to the rack or the individual server banks.
Speaker #2: So, we see that business as, I would say, gaining longer-term momentum, particularly in the data center. But I'll say, short-term and near-term opportunities are very strong growth in the drone systems.
Oleg Khaykin: So, we see that business as, you know, I would say, gaining longer term momentum, particularly in the data center. But I would say in short-term and near-term opportunities is, a very strong growth in the, drone systems.
So, we see that business as, you know, I would say, gaining longer term momentum, particularly in the data center. But I would say in short-term and near-term opportunities is, a very strong growth in the, drone systems.
Ryan Koontz: Great. Thank you.
Ryan Koontz: Great. Thank you.
Oleg Khaykin: But also our traditional avionics communication and the, you know, spectrum management is also seeing a lot of opportunities.
Oleg Khaykin: But also our traditional avionics communication and the, you know, spectrum management is also seeing a lot of opportunities.
Speaker #2: But also, our traditional avionics communication and the spectrum management is also seeing a lot of opportunities.
Speaker #5: Great. Thank you for that. And in the optical domain, you talked a lot about strength in data center, driving out performance here. Any evidence you can share with us around the cadence of optical innovation, getting to 1.6T broadly, within the data center, between the data centers?
Ryan Koontz: Great. Thank you for that. In the optical domain, you talked a lot about strength in data center, driving out performance here. You know, any evidence you can share with us around, you know, the cadence of, you know, optical innovation, getting to, to 1.6 T broadly within the data center, between the data centers? Where are you seeing the most demand for your products, and what may, what are maybe some new areas of growth, some green shoots that you're excited about in the, in the optical data center domain?
Ryan Koontz: Great. Thank you for that. In the optical domain, you talked a lot about strength in data center, driving out performance here. You know, any evidence you can share with us around, you know, the cadence of, you know, optical innovation, getting to, to 1.6 T broadly within the data center, between the data centers? Where are you seeing the most demand for your products, and what may, what are maybe some new areas of growth, some green shoots that you're excited about in the, in the optical data center domain?
Speaker #5: Where are you seeing the most demand for your products? And what are maybe some new areas of growth, some green shoots that you're excited about in the optical data center?
Speaker #5: domain? Well, I'd say
Oleg Khaykin: Well, I'd say every segment we see growing. I mean, clearly, the semiconductors or memory vendors that they are driven by speed and the version of PCI Express, which is chip-to-chip interconnect, right? So, and I mean, today we are moving from 800 to 1.6, from PCIe 5.0 to 6.0, and then 7.0. So there is very heavy engagement with the semiconductor vendors from, you know, big ASICs to optical ICs development. Then, so that's kind of where you bring in the bleeding-edge products for lab. And then the volume really comes in as they, those things go into production into the- with the module vendors.
Oleg Khaykin: Well, I'd say every segment we see growing. I mean, clearly, the semiconductors or memory vendors that they are driven by speed and the version of PCI Express, which is chip-to-chip interconnect, right? So, and I mean, today we are moving from 800 to 1.6, from PCIe 5.0 to 6.0, and then 7.0.
Speaker #2: Every segment we see is growing. I mean, clearly, the semiconductors or memory vendors—they are driven by speed and the version of PCI Express, which is chip-to-chip interconnect, right?
Speaker #2: And I mean, today we are moving from 800 to 1.6, from PCIe 5.0 to 6.0, and then 7.0. So there is very heavy engagement with the semiconductor vendors, from big ASICs to optical ICs development.
So there is very heavy engagement with the semiconductor vendors from, you know, big ASICs to optical ICs development. Then, so that's kind of where you bring in the bleeding-edge products for lab. And then the volume really comes in as they, those things go into production into the- with the module vendors.
Speaker #2: Then, so that's kind of where you bring in the bleeding edge products for lab. And then the volume really comes in as those things go into production with the module vendors—your dozen or so companies in Asia making pluggables, some of course the big leaders in North America for crosspoints, which is switches, and various modules.
Oleg Khaykin: You know, you know, dozen sort of companies in Asia making pluggables, and of course, the big leaders in North America for cross points, which is optical switches, and various modules. And then all the NAMs who are providing equipment into these data centers. So, I would say there's—I would say there's 2 groups. One is the lab, heavily driven, let's say, everything to do with 1.6 and PCI Express 6.0. And in production, heavily with all of our things making, you know, anything from testing passive and active components to the final product, but also including testing fiber. As you...
You know, you know, dozen sort of companies in Asia making pluggables, and of course, the big leaders in North America for cross points, which is optical switches, and various modules. And then all the NAMs who are providing equipment into these data centers. So, I would say there's—I would say there's 2 groups. One is the lab, heavily driven, let's say, everything to do with 1.6 and PCI Express 6.0. And in production, heavily with all of our things making, you know, anything from testing passive and active components to the final product, but also including testing fiber. As you...
Speaker #2: Optical, and then all the NAMs who are providing equipment into these data centers. So, I would say there's two groups.
Speaker #2: One is the lab, heavily driven to, I'd say, everything to do with 1.6 and PCI Express 6.0. And in production, heavily with all of our things, making anything from testing passive and active components to the final product, but also including testing fiber, as we're now seeing emergence of hollow core fiber and multi-core fiber.
Oleg Khaykin: We're now seeing emergence of Hollow-Core Fiber and Multi-Core Fiber, and this is a whole new thing, and that's why, you know, part of the reason you see companies like, you know, Meta investing, directly in the, and making long-term agreements with the fiber providers is to get, you know, exactly develop these kind of products. And those things require a lot of testing and monitoring and in production and, final test. So it's a, I mean, it's like, I would say every cylinder in this whole fiber, value chain is, I would say, firing on all, on, on, at full speed.
We're now seeing emergence of Hollow-Core Fiber and Multi-Core Fiber, and this is a whole new thing, and that's why, you know, part of the reason you see companies like, you know, Meta investing, directly in the, and making long-term agreements with the fiber providers is to get, you know, exactly develop these kind of products. And those things require a lot of testing and monitoring and in production and, final test. So it's a, I mean, it's like, I would say every cylinder in this whole fiber, value chain is, I would say, firing on all, on, on, at full speed.
Speaker #2: And this is a whole new thing. And that's why, part of the reason you see companies like Meta investing directly and making long-term agreements with fiber providers, is to get exactly—develop these kind of products.
Speaker #2: Things require a lot of testing, and those monitoring, and in production, and final test. So it's a—I mean, it's like, I would say every cylinder in this whole fiber value chain is, I would say, firing at full.
Speaker #2: speed.
Speaker #5: And that's broadly stronger in
Ryan Koontz: ... and that's broadly stronger in the lab today than field? You'd-
Ryan Koontz: ... and that's broadly stronger in the lab today than field? You'd-
Speaker #5: the lab today than field?
Oleg Khaykin: We call lab and production.
Speaker #2: It's what we call lab and production. But I would say starting last quarter, we are seeing what we normally call field is becoming—I mean, the hyperscalers themselves.
Oleg Khaykin: We call lab and production.
Ryan Koontz: Yeah.
Ryan Koontz: Yeah.
Oleg Khaykin: But I would say starting last quarter, we are seeing what we normally call field is becoming, I mean, the hyperscalers themselves. So it's the actual data center is becoming a huge user of field instrumentation. I mean, for example, when you would go to the traditional fiber service providers, they never really care about putting in monitoring of the fiber. Well, if you go to one of these AI data centers, you see at the edge, they want to monitor every incoming, you know, wavelength, right? And they light up or dark fiber. So they know as they turn on or up the bandwidth, they know exactly characterization and bandwidth and latency they're gonna get out of each fiber strand.
Oleg Khaykin: But I would say starting last quarter, we are seeing what we normally call field is becoming, I mean, the hyperscalers themselves. So it's the actual data center is becoming a huge user of field instrumentation. I mean, for example, when you would go to the traditional fiber service providers, they never really care about putting in monitoring of the fiber.
Speaker #2: So, it's the actual data center that is becoming a huge user of field instrumentation. I mean, for example, when you would go to the traditional fiber service providers, they never really cared about putting in monitoring of the fiber.
Well, if you go to one of these AI data centers, you see at the edge, they want to monitor every incoming, you know, wavelength, right? And they light up or dark fiber. So they know as they turn on or up the bandwidth, they know exactly characterization and bandwidth and latency they're gonna get out of each fiber strand.
Speaker #2: Well, if you go to one of these AI data centers, you see at the edge they want to monitor every incoming wavelength, right? And what they light up or dark fiber.
Speaker #2: So they know as they turn on or up the bandwidth, they know exactly what characterization and bandwidth and latency they're going to get out of each fiber strand.
Speaker #2: And of course, there is an SLA agreement, service level agreements there they signed with the service providers. So they're in, within a very real monitoring that these things are coming in narrow spec.
Oleg Khaykin: And of course, there is a SLA agreements, service level agreements there, they signed with the service providers. So they're monitoring that these things are coming in, at, within a very narrow spec, and they maintain the narrow spec of performance in every fiber. And that's a big departure from the old-fashioned: "Well, you know, it works. It's good enough. If it's a little bit, you know, lossy or has a higher latency, so what?" Well, that's not something that these guys accept. And the beauty of it is, they're deploying these things directly. It's using the same fiber tools of which were developed for traditional service providers. They are really finding converts among the hyperscalers.
And of course, there is a SLA agreements, service level agreements there, they signed with the service providers. So they're monitoring that these things are coming in, at, within a very narrow spec, and they maintain the narrow spec of performance in every fiber. And that's a big departure from the old-fashioned: "Well, you know, it works. It's good enough. If it's a little bit, you know, lossy or has a higher latency, so what?" Well, that's not something that these guys accept. And the beauty of it is, they're deploying these things directly. It's using the same fiber tools of which were developed for traditional service providers. They are really finding converts among the hyperscalers.
Speaker #2: And they maintain the narrow spec of performance on every fiber. And that's a big departure from the old-fashioned, 'Well, it works, it's good enough.'
Speaker #2: If it's a little bit lossy or has a higher latency, so what? Well, that's not something that these guys accept. And the beauty of it is they're deploying these things directly.
Speaker #2: It's using the same fiber tools which were developed for traditional service providers. They're really finding converts among the hyperscalers. And that usually means when they deploy it, there is a lag—maybe by a couple of quarters—before the service providers recognize, oh, wait a second, I'm now being measured, so I better measure myself before I get nailed for my performance problem.
Oleg Khaykin: And that usually means when they deploy it, there's a lag, maybe by a couple quarters, before the service providers recognize, "Oh, wait a second, I'm not being measured, so I better measure myself, because before I get nailed for my performance problem." So we see it as a very positive trend to ensure a very high, resilient, fiber network interconnecting the data centers.
And that usually means when they deploy it, there's a lag, maybe by a couple quarters, before the service providers recognize, "Oh, wait a second, I'm not being measured, so I better measure myself, because before I get nailed for my performance problem." So we see it as a very positive trend to ensure a very high, resilient, fiber network interconnecting the data centers.
Speaker #2: So, we see it as a very positive trend to ensure a very highly resilient fiber network interconnecting the data.
Speaker #2: centers. Okay.
Ryan Koontz: Okay, that's great. Thank you.
Ryan Koontz: Okay, that's great. Thank you.
Speaker #5: That's great. Thank you.
Oleg Khaykin: Sure.
Oleg Khaykin: Sure.
Speaker #2: Sure. And our next
Operator: Our next question comes from the line of Andrew Spinola with UBS. Your line is open.
Operator: Our next question comes from the line of Andrew Spinola with UBS. Your line is open.
Speaker #1: question comes from the line of Andrew Spinola with UBS. Your line is
Speaker #4: Thanks.
Speaker #4: Thanks. Oleg, you can open. Could you expand on that a little and give us maybe some color on how your data center business breaks down across lab, production, and field?
Andrew Spinola: Thanks. Oleg, can you expand on that a little and give us maybe some color on how your data center business breaks down across lab, production, and field?
Andrew Spinola: Thanks. Oleg, can you expand on that a little and give us maybe some color on how your data center business breaks down across lab, production, and field?
Oleg Khaykin: You know, we don't break those things individually, because, given any quarter, the mix may be a bit, you know, up or down. Because think about it, right? If you're really launching 1.6, let's say, or, PCIe 6.0, 7.0, you will see initially big mix in the towards the lab instruments. As these chips get rolled out and they go into production, you're gonna see a lot more production. So it's kind of a tick-tock type of thing. So that's why we don't really break these things down within that category. We just call it generally data center ecosystem, which includes semis, module systems, and field instruments that are used in data centers themselves.
Oleg Khaykin: You know, we don't break those things individually, because, given any quarter, the mix may be a bit, you know, up or down. Because think about it, right? If you're really launching 1.6, let's say, or, PCIe 6.0, 7.0, you will see initially big mix in the towards the lab instruments. As these chips get rolled out and they go into production, you're gonna see a lot more production.
Speaker #2: We don't break those things individually because given any quarter, the mix may be a bit up or down because think about it, right? If you're really launching 1.6, let's say, or PCI 6.0, 7.0, you will see initially big mix in the towards the lab instruments.
Speaker #2: As these chips get rolled out and they go into production, you're going to see a lot more production. So it's kind of a tick-tock type of thing.
So it's kind of a tick-tock type of thing. So that's why we don't really break these things down within that category. We just call it generally data center ecosystem, which includes semis, module systems, and field instruments that are used in data centers themselves.
Speaker #2: makes that's why we don't really break these things So it down within that category. We just call it ecosystem, which includes semis, generally data center modules, systems, and field instruments that are used in data centers themselves.
Speaker #4: Makes sense. I'm thinking about how to 27 and beyond. And I wanted to ask you, this might be wrong based on what model that business into fiscal you just said, but I would think about lab as being maybe more consistent as the customers continue to invest in the next number of data centers grow.
Andrew Spinola: Makes sense. I'm thinking about how to model that business into, like, fiscal 2027 and beyond. I wanted to ask you, this, this might be wrong based on what you just said, but I thought would think about Inertial Labs as being maybe more consistent as the customers continue to invest in the next generation, fiber monitoring growing as the number of data centers grow. But maybe production being more cyclical and having some bigger swings up and down as various generations get introduced. Trying to think about how I should think about production, assuming that's a bigger growth driver right now, how to think about how that evolves over a cycle?
Andrew Spinola: Makes sense. I'm thinking about how to model that business into, like, fiscal 2027 and beyond. I wanted to ask you, this, this might be wrong based on what you just said, but I thought would think about Inertial Labs as being maybe more consistent as the customers continue to invest in the next generation, fiber monitoring growing as the number of data centers grow.
Speaker #4: generation fiber monitoring, growing as the production being more cyclical and But maybe having some bigger swings up and down as various generations get introduced.
But maybe production being more cyclical and having some bigger swings up and down as various generations get introduced. Trying to think about how I should think about production, assuming that's a bigger growth driver right now, how to think about how that evolves over a cycle?
Speaker #4: I'm trying to think about how I should consider production, assuming that's a bigger growth driver right now. How should I think about how that evolves over the cycle?
Speaker #4: Trying to think about how I should think about production assuming that's a bigger growth driver right now. How to think about how that evolves cycle.
Speaker #4: over a So it's a good question.
Oleg Khaykin: So it's a good question. Lab instruments are driven by number of customers and number of projects, right? And ultimately, it relates. Best way to look at is the R&D CapEx at semis, system vendors, and module vendors, right? The production is heavily driven by volume that is demanded, right? And you can see the volume of pluggables and the racks and all this. I mean, that is a, like, you know. If I look at where you're gonna see higher percentage of growth, it's clearly gonna be the production. Because it's, you know, as you increase number of units you build in every generation and, and let's say, every node, and that, that's you need to basically, for every tranche of volume, you need to increase capacity.
Oleg Khaykin: So it's a good question. Lab instruments are driven by number of customers and number of projects, right? And ultimately, it relates. Best way to look at is the R&D CapEx at semis, system vendors, and module vendors, right? The production is heavily driven by volume that is demanded, right?
Speaker #2: So lab instruments are driven by number of customers and number of projects, right? And ultimately, the best way to look at it is the R&D capex at semis, system vendors, and module vendors, right?
Speaker #2: The production is heavily driven by the volume that is demanded, right? And you could see the volume of pluggables and the racks and all this.
And you can see the volume of pluggables and the racks and all this. I mean, that is a, like, you know. If I look at where you're gonna see higher percentage of growth, it's clearly gonna be the production. Because it's, you know, as you increase number of units you build in every generation and, and let's say, every node, and that, that's you need to basically, for every tranche of volume, you need to increase capacity.
Speaker #2: I mean, if I look at where you are going to see a higher percentage of growth, it's clearly going to be the Production.
Speaker #2: Because it's as you increase number of units you build in every generation and let's say every node, and that's you need to basically for every tranche of volume you need to increase capacity.
Speaker #2: So, it's heavily linked to the, I would say, production run rate, okay? And the, I would say, field instruments is, I'd say, linked to the number of data centers being built.
Oleg Khaykin: So it's heavily linked to the, I would say, production run rate, okay? And the, I would say, field instruments is, I'd say, linked to the number of data centers being built.
So it's heavily linked to the, I would say, production run rate, okay? And the, I would say, field instruments is, I'd say, linked to the number of data centers being built.
Speaker #4: Got it. Got it. Okay. That's very
Andrew Spinola: Got it. Got it. Okay, that, that's very helpful.
Andrew Spinola: Got it. Got it. Okay, that, that's very helpful.
Speaker #4: Helpful. And probably we think about the longevity of
Ilan Daskal: Probably we think about the longevity of this cycle is probably-
Ilan Daskal: Probably we think about the longevity of this cycle is probably-
Speaker #3: this cycle is probably.
Oleg Khaykin: Yeah, and from what I see in terms of the, you know, pretty much every ounce of capacity that was kind of abandoned by service providers, when they cut back about 3 years ago on investment, it's been totally repurposed into the data center, and it's a fraction of what they need and what they-- If you take all their announcements, how much they're gonna spend, how much they're gonna invest, what you have in terms of production capacity, you're gonna see significant growth over the next 2 years, right? And of course, to keep up with it, you need to keep introducing. We now see each technology nodes turning over every 2 years.
Oleg Khaykin: Yeah, and from what I see in terms of the, you know, pretty much every ounce of capacity that was kind of abandoned by service providers, when they cut back about 3 years ago on investment, it's been totally repurposed into the data center, and it's a fraction of what they need and what they--
Speaker #2: Yeah. And from what I see, in terms of pretty much every ounce of capacity that was kind of abandoned by service providers when they cut back about three years ago on investment, it's been data center.
Speaker #2: totally repurposed into the And it's a fraction of what they need and what they if you take all their announcements, how much they're going to spend, how much they're going to invest, what you have in terms of production capacity you're going to see significant growth over the next two years, right?
If you take all their announcements, how much they're gonna spend, how much they're gonna invest, what you have in terms of production capacity, you're gonna see significant growth over the next 2 years, right? And of course, to keep up with it, you need to keep introducing. We now see each technology nodes turning over every 2 years.
Speaker #2: And of course, to keep up with it, you need to keep introducing we now see the new each technology nodes turning over every two years.
Oleg Khaykin: So you no longer, let's say, between 100 gig and 400 gig, you had 6 years, you really now have 2 years between, you know, 1.6 and 3.2.
So you no longer, let's say, between 100 gig and 400 gig, you had 6 years, you really now have 2 years between, you know, 1.6 and 3.2.
Speaker #2: Between 100 gig and 400 gig, so you no longer, let's say, between—if you had six years, you really now have two years between 1.6 and—
Andrew Spinola: ... Got it. Makes sense. And I want to ask one financial question. Just on the NSE op margin guide, I guess it's roughly flat from fiscal Q2 to Q3. Could you give me maybe some of the push and pulls on that, given the revenue's up $20 million?
Andrew Spinola: ... Got it. Makes sense. And I want to ask one financial question. Just on the NSE op margin guide, I guess it's roughly flat from fiscal Q2 to Q3. Could you give me maybe some of the push and pulls on that, given the revenue's up $20 million?
Speaker #4: Got it. 3.2. Makes sense. And I want to ask one financial question. Just on the NSC op margin guide, I guess it's roughly flat from fiscal Q2 to Q3.
Speaker #4: Could you give me maybe some of the push and pulls on that? Given that revenues are up $20 million?
Speaker #2: Yeah. Operating margins are up. Are you asking gross margin, operating margin, or?
Oleg Khaykin: Yeah, operating margins are up.
Oleg Khaykin: Yeah, operating margins are up.
Ilan Daskal: Are you asking gross margin, operating margin, or?
Ilan Daskal: Are you asking gross margin, operating margin, or?
Speaker #4: I'm sorry. The guide for the NSC op margin, Ilan, is for essentially flat sequentially from Q2 to—
Andrew Spinola: I'm sorry. The guide for the NSE op margin, Ilan, is for essentially flat sequentially from Q2 to Q3.
Andrew Spinola: I'm sorry. The guide for the NSE op margin, Ilan, is for essentially flat sequentially from Q2 to Q3.
Speaker #4: Q3? Operating.
Oleg Khaykin: Operating. Operating.
Oleg Khaykin: Operating. Operating.
Ilan Daskal: He talks operating margin.
Ilan Daskal: He talks operating margin.
Speaker #2: He talks operating margin. Yeah, it's up.
Oleg Khaykin: Right. So it is operating.
Oleg Khaykin: Right. So it is operating.
Speaker #4: Right. Operating.
Speaker #4: So it is operating.
Andrew Spinola: Operating, yeah.
Andrew Spinola: Operating, yeah.
Oleg Khaykin: It's up, yeah.
Oleg Khaykin: It's up, yeah.
Speaker #2: Yeah.
Speaker #2: Right. So your
Ilan Daskal: Right. So your question, the dynamic of the higher operating margin or?
Ilan Daskal: Right. So your question, the dynamic of the higher operating margin or?
Speaker #3: Question the dynamic of the higher operating margin, or?
Speaker #4: Oh, I guess the guide for the NSC op margin at 15 and—
Andrew Spinola: Oh, I guess the guide for the NSE op margin is 15.5%.
Andrew Spinola: Oh, I guess the guide for the NSE op margin is 15.5%.
Speaker #4: above. Right. Right. Flat. Revenues up 20 million. I was just curious if there are some mix or anything that's kind of.
Ilan Daskal: It's about flat, right?
Ilan Daskal: It's about flat, right?
Andrew Spinola: Right, flat.
Andrew Spinola: Right, flat.
Ilan Daskal: So-
Ilan Daskal: So-
Andrew Spinola: Revenue's up $20 million. I was just curious if there are some-
Andrew Spinola: Revenue's up $20 million. I was just curious if there are some-
Ilan Daskal: Right
Ilan Daskal: Right
Andrew Spinola: mix or anything that's kind of...
Andrew Spinola: mix or anything that's kind of...
Ilan Daskal: So there is some obviously mix associated with it. But also in terms of the operating expenses, remember that in the first calendar quarter, all the kind of what we call fringe expenses, like Social Security, et cetera, get reinstated. So you get a higher operating expenses in the first calendar-
Ilan Daskal: So there is some obviously mix associated with it. But also in terms of the operating expenses, remember that in the first calendar quarter, all the kind of what we call fringe expenses, like Social Security, et cetera, get reinstated. So you get a higher operating expenses in the first calendar-
Speaker #2: mix, associated with it. But So there is some, obviously, expenses, remember that in the first calendar quarter, all the kind of what we call fringe expenses, like social security, etc., get reinstated.
Speaker #2: So you get a higher operating expenses in the first calendar quarter.
Oleg Khaykin: You accrue all the statutory costs.
Oleg Khaykin: You accrue all the statutory costs.
Ilan Daskal: Relative to December. So that's also... That's a major kind of gap between the last quarter and this quarter.
Ilan Daskal: Relative to December. So that's also... That's a major kind of gap between the last quarter and this quarter.
Speaker #4: Relative to December.
Speaker #2: So that's a
Speaker #2: major kind of gap between the last quarter and this
Operator: And as a reminder, it is star one if you would like to ask a question. And our next question comes from the line of Tim Savageau with Northland Capital Markets. Your line is open.
Operator: And as a reminder, it is star one if you would like to ask a question. And our next question comes from the line of Tim Savageau with Northland Capital Markets. Your line is open.
Speaker #1: And as a reminder, it is star one if you would like to ask a question. And our next question comes from the line of Tim Savageau with Northland Capital Markets.
Speaker #1: Your line is open.
Tim Savageaux: Hey, good afternoon, and congrats on the results, and especially the guide. I wanted to kind of focus in on that a bit. I guess, Oleg, you described it as countercyclical, and that you usually see declines. I guess I'd like to try and parse out; you got 13 weeks of Spirent, you know, at your Q1 run rate, or sorry, at your December quarter. I'll just say run rate. That gets you to about, I don't know, $55 million, sort of the high end of where you were, where you guided last quarter. Is that a reasonable assumption to try and get to Spirent contribution versus organic growth in fiscal Q3?
Tim Savageaux: Hey, good afternoon, and congrats on the results, and especially the guide. I wanted to kind of focus in on that a bit. I guess, Oleg, you described it as countercyclical, and that you usually see declines. I guess I'd like to try and parse out; you got 13 weeks of Spirent, you know, at your Q1 run rate, or sorry, at your December quarter. I'll just say run rate.
Speaker #5: Hey, good afternoon. And congrats on the results, especially the guide. And I wanted to kind of focus in on that a bit, I guess. Oleg, you described it as countercyclical and that you usually see declines.
Speaker #5: But I guess I'd like to try and parse out you got 13 weeks of spirant at your Q1 run rate or sorry, at your December quarter, I'll just say, run rate.
Speaker #5: That gets you to about, I don't know, $55 million, sort of the high end of where you were—where you got it last quarter.
That gets you to about, I don't know, $55 million, sort of the high end of where you were, where you guided last quarter. Is that a reasonable assumption to try and get to Spirent contribution versus organic growth in fiscal Q3?
Speaker #5: Is that a reasonable assumption, to try and get to Spirent contribution versus organic growth in fiscal?
Speaker #2: So Tim, I
Ilan Daskal: So, Tim, I can chime in here and, you know, in terms of the thinking. So first, for last quarter, in the very first few weeks of the quarter, they actually did not have much revenue. The second aspect to call out, and I think, you know, we did discuss it in the past several times. When you think about the seasonality for the Spirent business, usually the first half of the calendar year is the weaker part, and the stronger part is the second half of the calendar year. So, it's a little bit lower than you're thinking, you know, for Spirent for the March quarter.
Ilan Daskal: So, Tim, I can chime in here and, you know, in terms of the thinking. So first, for last quarter, in the very first few weeks of the quarter, they actually did not have much revenue. The second aspect to call out, and I think, you know, we did discuss it in the past several times. When you think about the seasonality for the Spirent business, usually the first half of the calendar year is the weaker part, and the stronger part is the second half of the calendar year.
Speaker #2: can chime in here and in terms of the thinking. Q3? So first, for last quarter, in the very first few weeks of the quarter, they actually did not have much revenue.
Speaker #2: The second aspect to call out, and I think we did discuss it in the past several times, when you think about the seasonality for the spirant business, usually the first half of the calendar year is the weaker part, and there are stronger parties the second half of the calendar year.
Speaker #2: So, it's a little bit lower than you're thinking for Spirent for the March quarter. But again, that does not change our full-year thinking about the revenue for Spirent.
So, it's a little bit lower than you're thinking, you know, for Spirent for the March quarter. But again, that does not change our full-year thinking about the revenue for Spirent, so not much of a change in terms of what we see in the dynamics of their forecast and thinking.
Ilan Daskal: But again, that does not change our full-year thinking about the revenue for Spirent, so not much of a change in terms of what we see in the dynamics of their forecast and thinking.
Speaker #2: So not much has changed in terms of what we see in the dynamics of their forecast and thinking.
Speaker #3: Yeah. Generally, they always had the first half of the calendar year lower, and the second half was stronger. Now, last quarter, there were some government orders that got pushed out into this quarter.
Oleg Khaykin: Yeah, generally, they always had first half of the calendar year was lower, second half was stronger. Now, last quarter, there were some government orders that got pushed out into this quarter between the shutdown and, of course, you know, this one-time grant to the government employees of Christmas holidays. I mean, there basically was fewer days between middle of December and the end of December to get the orders placed. So some of the volume actually pushed out into the March quarter. As a result, we expect March quarter relatively to be stronger for them than it normally would have been, and the December quarter was a bit weaker than it normally would have been.
Oleg Khaykin: Yeah, generally, they always had first half of the calendar year was lower, second half was stronger. Now, last quarter, there were some government orders that got pushed out into this quarter between the shutdown and, of course, you know, this one-time grant to the government employees of Christmas holidays.
Speaker #3: Between the shutdown and, of course, this one-time grant to the government employees of Christmas holidays, I mean, they're basically was fewer days between middle of December and the end of December to get the orders placed.
I mean, there basically was fewer days between middle of December and the end of December to get the orders placed. So some of the volume actually pushed out into the March quarter. As a result, we expect March quarter relatively to be stronger for them than it normally would have been, and the December quarter was a bit weaker than it normally would have been.
Speaker #3: So some of the volume actually pushed out into the March quarter. As a result, we expect March quarter relatively to be stronger for them.
Speaker #3: Then it normally would have been. And the December quarter was a bit weaker than it normally would have
Speaker #3: been.
Speaker #5: Right. Yeah. That's kind of what I'm trying
Tim Savageaux: Right. That's kind of what I'm trying to get to is, you know, to the continuation of this organic growth, and it sounds like I'm a little high with my first pass. And, you know, I think it was a $200 million run rate you were looking for. And if it's stronger in the first and the second, I'd, I'd imagine it's below that $50 million level. And if that's the case, you know, you're looking at mid-single-digit sequential growth organically for Viavi in Q1, in a normally seasonally down quarter, and coming off-
Tim Savageaux: Right. That's kind of what I'm trying to get to is, you know, to the continuation of this organic growth, and it sounds like I'm a little high with my first pass. And, you know, I think it was a $200 million run rate you were looking for. And if it's stronger in the first and the second, I'd, I'd imagine it's below that $50 million level. And if that's the case, you know, you're looking at mid-single-digit sequential growth organically for Viavi in Q1, in a normally seasonally down quarter, and coming off-
Speaker #5: to get to is to the continuation of this organic growth. And it sounds like I'm a little high with my first pass. And I think it was a 200-million-dollar run rate you were looking for.
Speaker #5: And if it's stronger in the first and the second, I'd imagine it's below that 50-million-dollar level. And if that's the case, you're looking at mid-single-digit sequential growth organically for VIAVI in Q1 in a normally seasonally down quarter and coming off 15% sequential growth in the December quarter.
Oleg Khaykin: Right
Tim Savageaux: 15% sequential growth in the December quarter. So that's pretty extraordinary.
Oleg Khaykin: Right
Tim Savageaux: 15% sequential growth in the December quarter. So that's pretty extraordinary.
Speaker #5: So that's pretty extraordinary. What's driving all that? And am I looking at that right, number
Oleg Khaykin: That's right, so-
Oleg Khaykin: That's right, so-
Tim Savageaux: What's driving all that? And am I looking at that right, number one? And what's wrong?
Tim Savageaux: What's driving all that? And am I looking at that right, number one? And what's wrong?
Speaker #5: One? And what's wrong? No, no.
Oleg Khaykin: No, no, you're, you're looking exactly right. So remember, the old, I'd say, old Viavi, before data center, aerospace, and defense, we were heavily influenced by service provider dynamics. And the days when service providers were over 80% of NSE, remember, first quarter is they don't release their budgets for the year until the end of February. So as a result, you would have a very weak NSE quarter. By the way, service provider is no different again than it was normally. There's always... It is seasonally weaker, but the strength in the data center, aerospace, defense, and also the Spirent business is not only offsetting; it's actually more than offsetting. That's why the net net, the quarter is going to be up for NSE.
Oleg Khaykin: No, no, you're, you're looking exactly right. So remember, the old, I'd say, old Viavi, before data center, aerospace, and defense, we were heavily influenced by service provider dynamics. And the days when service providers were over 80% of NSE, remember, first quarter is they don't release their budgets for the year until the end of February.
Speaker #3: You're looking exactly right. So remember, the old, I'd say, old VIAVI before data center, aerospace, and defense, we were heavily influenced by service provider dynamics.
Speaker #3: days when service providers were And the over 80% of NSC, remember, first quarter is they don't release their budgets for the year until the end of February.
Speaker #3: So as a result, you would have a very weak NSC quarter. By the way, service provider is no different, again, than it was normally.
So as a result, you would have a very weak NSE quarter. By the way, service provider is no different again than it was normally. There's always... It is seasonally weaker, but the strength in the data center, aerospace, defense, and also the Spirent business is not only offsetting; it's actually more than offsetting. That's why the net net, the quarter is going to be up for NSE.
Speaker #3: There's always it is seasonally weaker. But the strength in the data center, aerospace, defense, and also the spirant business is not only offsetting. It's actually more than offsetting.
Speaker #3: That's why, net-net, the quarter is going to be up for NSC.
Speaker #5: Okay. Makes sense. And one final piece of that question, which is the again, going back historically, you typically see a nice seasonal uptick at least on the service provider side.
Tim Savageaux: Okay, makes sense. And one final piece of that question, which is, you know, the... Again, going back historically, you typically see a nice seasonal uptick, at least on the service provider side, in your fiscal Q4. Should we assume that's a you know, directionally true for the business? Are there any changes as your mix and exposure becomes more aerospace, you know, defense and AI data center driven, what does that do to that normally stronger Q2? Q4, fiscal Q4, especially in light of the strength of your, your March quarter guide?
Tim Savageaux: Okay, makes sense. And one final piece of that question, which is, you know, the... Again, going back historically, you typically see a nice seasonal uptick, at least on the service provider side, in your fiscal Q4. Should we assume that's a you know, directionally true for the business? Are there any changes as your mix and exposure becomes more aerospace, you know, defense and AI data center driven, what does that do to that normally stronger Q2? Q4, fiscal Q4, especially in light of the strength of your, your March quarter guide?
Speaker #5: In your fiscal Q4, should we assume that's directionally true for the business, or are there any changes as your mix and exposure becomes more aerospace, defense, and AI data center-driven?
Speaker #5: What does that do to that normally stronger Q2? Sorry, fiscal Q4, especially in light of the strength of your March quarter guide?
Speaker #3: That's right. So actually, as much as there may be the service providers—a bit of a headwind this quarter—they're going to be a tailwind next quarter.
Oleg Khaykin: That's right. So actually, as much as there may be the service providers, a bit of a headwind this quarter, they're going to be tailwind next quarter. So with a continued strength in data center, aerospace, and defense, you're actually going to have a tailwind also on the service provider. Our expectation that the June quarter is going to be stronger than the March quarter.
Oleg Khaykin: That's right. So actually, as much as there may be the service providers, a bit of a headwind this quarter, they're going to be tailwind next quarter. So with a continued strength in data center, aerospace, and defense, you're actually going to have a tailwind also on the service provider. Our expectation that the June quarter is going to be stronger than the March quarter.
Speaker #3: So, with the continued strength in data center and aerospace and defense, you're actually going to have a tailwind also on the service provider. Our expectation is that the June quarter is going to be stronger than the March quarter.
Speaker #5: Awesome. Thanks again.
Tim Savageaux: Awesome. Thanks again. Congrats.
Tim Savageaux: Awesome. Thanks again. Congrats.
Speaker #5: Congrats.
Ilan Daskal: Thank you.
Ilan Daskal: Thank you.
Oleg Khaykin: Sure, thanks.
Oleg Khaykin: Sure, thanks.
Speaker #3: Sure. Thank you.
Speaker #3: Thanks. In
Operator: That concludes our question and answer session. I will now turn the conference back over to Vibhuti Nair for closing remarks.
Speaker #1: That concludes our question and answer session. I will now turn the conference back over to Vibhuti Nayar for closing.
Operator: That concludes our question and answer session. I will now turn the conference back over to Vibhuti Nair for closing remarks.
Speaker #1: remarks. Thank
Andrew Spinola: Thank you, thank you, Abby. This concludes our earnings call for today. Thank you for joining, and have a good afternoon.
Vibhuti Nayar: Thank you, thank you, Abby. This concludes our earnings call for today. Thank you for joining, and have a good afternoon.
Speaker #4: you. Thank you, Abby. This concludes our earnings call for today. Thank you for joining, and have a good afternoon.
Operator: Ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.
Operator: Ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.
