Q3 2026 Viavi Solutions Inc Earnings Call

April 29, 2026

Operator 2: My name is Hillary, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Viavi Solutions Fiscal Q3 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, please type star one on your telephone keypad to raise your hand. At this time, I would like to turn the conference over to Vibhuti Nayar, head of investor relations. Please go ahead.

Operator: My name is Hillary, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Viavi Solutionsfiscal third 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, please type star-one on your telephone keypad to raise your hand. At this time, I would like to turn the conference over to Vibhuti Nayar, Head of Investor Relations. Please go ahead.

Vibhuti Nayar: Thank you, Hillary. Good afternoon, everyone, welcome to Viavi Solutions fiscal Q3 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 end markets and acquired business, are valid only as of today. Viavi undertakes no obligation to update these statements.

Vibhuti Nayar: Thank you, Hillary. Good afternoon, everyone, welcome to Viavi Solutions fiscal third quarter 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.

Vibhuti Nayar: We encourage you to review our most recent annual report and SEC filings, particularly the risk factors described in those filings. The forward-looking statements, including the guidance that we provide during this call and our expectations regarding the end markets and acquired business, are valid only as of today. Viavi undertakes no obligation to update these statements. Please also note that unless we state otherwise, all results discussed on today's call, except revenue, are non-GAAP.

Vibhuti Nayar: Please also note that unless we state otherwise, all results discussed on today's 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 4:30 PM Pacific Time this evening. With that, I would like to now turn the call over to Ilan. Ilan.

Vibhuti Nayar: 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 4:30 PM Pacific Time this evening. With that, I would like to now turn the call over to Ilan. Ilan.

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.investorvote.com.

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.

Ilan Daskal: Thank you, everybody. Good afternoon, everyone. Now I would like to review the results of Q3 of fiscal year 2026. Net revenue for the quarter was $406.8 million, which is above the high end of our guidance range of $386 and 400 million. Revenue was up 10.2% sequentially, and on a year-over-year basis was up 42.8%. Operating margin for the Q3 fiscal quarter was 21%, above the high end of our guidance range of 19.2% and 20.2%. Operating margin increased 170 basis points from the prior quarter, and on a year-over-year basis was up 430 basis points.

With that, I would like to now turn the call over to Elan.

Thank you for good afternoon everyone. Now, I would like to review the results of the third quarter of fiscal year 2026.

Net revenue for the quarter was 406.8 Million, which is above the high end of our guidance range of 386 and 400 million.

Revenue was up 10.2% sequentially and on a year-over-year basis was up. 42.8%.

Operating margin for the third fiscal quarter was 21% above the high end of our guidance range of 19.2 and 20.2%.

Operating margin increased 170 basis points from the prior quarter, and on a year-over-year basis was up 430 basis points.

Ilan Daskal: EPS at $0.27 was also above the high end of our guidance range of $0.22 to $0.24 and was up $0.05 sequentially. On a year-over-year basis, EPS was up $0.12. Moving on to our Q3 results by business segment. NSE revenue for the Q3 fiscal quarter came in at $321.5 million, which is above the high end of our guidance range of $304 and $316 million. Revenue from Spirent product lines was $54.2 million, which was in line with our expectations and included few opportunities that were pushed out from the prior quarter. On a year-over-year basis, NSE revenue was up 54.4%, primarily driven by the acquisition of Spirent product lines.

5 cents, sequentially.

On a year-over-year basis. EPS was up, 12 cents.

Moving on to our Q3 results by business segments.

NSC revenue for the third fiscal quarter came in at 3 2 1. 5.

Revenue from spying product. Lines was 54.2 Million which was in line with our expectations and included few opportunities that were pushed out from the prior quarter.

Ilan Daskal: We also saw strong demand for our lab and production and field products driven by the data center ecosystem, as well as for our aerospace and defense products. NSE gross margin for the quarter was 65.3%, which is 220 basis points higher on a year-over-year basis and was primarily driven by higher volume and favorable product mix. NSE's operating margin for the quarter was 17.2%, an increase of 680 basis points on a year-over-year basis. NSE's operating margin was also above the high end of our guidance range of 15% to 16% as a result of a higher fall-through. OSP revenue for the Q3 came in at $85.3 million, also above our guidance range of $82 to 84 million.

On a year-over-year basis. NC Revenue was up 54.4% primarily driven by the acquisition of spirent product lines.

We also saw strong demand for our 11 production and field products driven by the data center ecosystem as well as for our Aerospace and defense products.

NC gross margin for the quarter was 65.3%, which is 220 basis points, higher on a year-over-year basis and was primarily driven by higher volume and favorable product mix.

Tennessee, is operating margin for the quarter was 17.2% and increase of 680 basis points on a year-over-year basis.

NSC's operating margin was also above the high end of our guidance range of 15% to 16%, as a result of a higher fall-through.

Ilan Daskal: On a year-over-year basis, OSP revenue was up 11.4%, primarily driven by strong demand for 3D sensing and anti-counterfeiting in other products. OSP gross margin was 50.3%, down 130 basis points on a year-over-year basis, and it was mainly due to unfavorable product mix. OSP's operating margin was 35.3%, an increase of 140 basis points on a year-over-year basis. OSP's operating margin was in line with our guidance range of 34.8% to 35.8%. Moving on to the balance sheet and cash flow. Total cash and short-term investments at the end of Q3 were $508 million compared to $772.1 million in Q2 of fiscal 2026.

OSP revenue for the third fiscal quarter came in at 85.3% range of 84, 82 to 84 million.

On a year-over-year basis. OSP. Revenue was up 11.4%, primarily driven by strong demand for 3D sensing and anti-counterfeiting and other products.

OSP gross margin was 50.3%, down 130 basis points on a year-over-year basis, and it was mainly due to unfavorable product mix.

Osp's operating margin was 35.3% and increase of 140 basis points on a year-over-year basis.

Osp's operating margin was in line with our guidance range of 34.8% to 35.8%.

Moving on to the balance sheet and cash flow.

Total cash and short-term Investments. At the end of Q3 were 508 million compared to 772.1 million in the second quarter of fiscal 2026.

Ilan Daskal: Cash flow from operating activities for the quarter was a use of $26.3 million versus $7.8 million that we generated in the same period last year. The cash flow was mainly impacted by the earnout payments to Inertial Labs, timing of working capital, and employee variable costs. CapEx for the quarter was $5.9 million versus $6.8 million in the same period last year. During the quarter, we successfully paid $49 million in cash for the remaining principal of the convertible notes due in March 2026, and we issued about 1.8 million shares for the conversion premium above par. We also prepaid during the quarter $150 million of the term loan B. We currently have $450 million remaining for that loan.

Cash flow from operating activities. For the quarter was a use of 26.3 million versus 7.8 million that we generated in the same period last year.

The cash flow was mainly impacted by the earnout payments to Inertial Labs, timing of working capital, and employee variable costs.

Capex for the quarter was 5.9, million versus 6.8 million in the same period last year.

During the quarter, we successfully paid 49 million in cash for the remaining. Principal of the convertible notes due in March 2026 and we issued about 1.8 million shares for the conversion. Premium above bar,

We also prepaid during the quarter 150 million of the term loan B.

Ilan Daskal: The prepayment is in line with our capital allocation priorities. 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 249.5 million shares, up from 226.9 million shares in the prior year and versus 245 million shares in our guidance for Q3. Moving on to our guidance for Q4 of fiscal 2026. We expect Q4 revenue for Viavi to be up sequentially, driven by continued strength in many of our end markets across NSE and OSP.

We currently have 450 million dollars remaining for that loan.

The prepayment is in line with our Capital, allocation priorities.

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 249.5 Million shares up from 226.9 million shares in the prior year.

And purchased 245 million shares in our guidance for the third fiscal quarter.

Moving on to our guidance for the fourth quarter of fiscal 2026.

We expect the fourth fiscal quarter revenue for VAV to be up. Sequentially driven by continued strength. In many of our end markets across NC and OSP.

Ilan Daskal: For NSE, we expect quarter-over-quarter revenue to be higher as a result of continued strong demand for our 11 production and field products, driven by the data center ecosystem, as well as for our aerospace and defense products. For OSP, we expect quarter-over-quarter revenue to be higher, driven by strength across all of the product lines. For the Q4 fiscal quarter of 2026, we expect Viavi revenue in the range of $427 and 437 million. We expect NSE revenue between $340 and 348 million. OSP revenue is expected to be in the range of $87 and 89 million. Operating margin for Viavi is expected to be 22.7% ±50 basis points. NSE operating margin is expected to be 18.7% ±50 basis points.

The data center ecosystem, as well as for our Aerospace and Defense products.

For OSP. We expect quarter of a quarter Revenue to be higher driven by strength in across all of the product lines.

For the fourth fiscal quarter of 2026, we expect VIAVI revenue in the range of $427 million and $437 million.

We expect NC revenue between $340 million and $348 million.

OSP. Revenue is expected to be in the range of 87 and 89 million.

Operating margin for VAV is expected to be 22.7% plus or minus 50 basis points.

Ilan Daskal: OSP operating margin is expected to be 38.4% plus or minus 40 basis points. EPS is expected to be between $0.29 and $0.31. Our tax expenses for the Q4 is expected to be about $10 million plus or minus $500,000 as a result of jurisdictional mix. We expect other income and expense to reflect a net expense of approximately $12 million, and the share count is expected to be around 256 million shares. With that, I will turn the call over to Oleg. Oleg?

NC operating margin is expected to be 18.7% plus or minus 50 basis points.

Operating margin is expected to be 38.4%, plus or minus 40 basis points.

And EPS is expected to be between 29 cents and 31 cents.

our tax expenses for the fourth quarter is expected to be about 10 million plus or minus 500,000 as a result of jurisdictional mix,

We expect other income and expense to reflect and net expense of approximately 12 million.

And the share count is expected to be around 256 million shares.

with that, I will turn the call over to

Oleg Khaykin: Thank you, Ilan. The results of the third quarter of fiscal 2026 exceeded our expectations and came in above the high end of our guidance. The strong year-on-year and quarter-on-quarter performance was driven by strong growth in many of our end markets. NSE revenue in Q3 grew approximately 54% year over year, primarily driven by strong demand from the data center ecosystem and the aerospace and defense customers. The data center ecosystem, which includes high-performance semis, optical modules, NEMs, and the hyperscalers, drove strong demand for 11 production and field instruments in support of AI data center build-out. We are seeing strong demand across all data center segments, scale up, scale out, and scale across.

Thank you, Alan the results of the third quarter of fiscal 26, exceeded, our expectations and came in above the high end of our Guidance, the strong year-on-year and quote, unquote performance was driven by strong growth. In many of our end markets.

NC revenue in Q3 grew approximately 54% 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 NS and the hyperscalers drove strong demand for 11 and field instruments in support of AI data center. Build out.

we are seeing strong demand across all data center segments, scale up, scale out and scale across

Oleg Khaykin: Acceleration of industry investment in ever greater communication speeds and chip-to-chip interconnect technologies are the principal drivers of strong demand for our optical transport, silicon photonics, and communication protocol and High-Speed Ethernet test equipment. The Q3 growth was also helped by recently acquired Spirent High-Speed Ethernet product lines, which gave us access to a large installed base of enterprise customers. HSE performance came in line with our expectations. 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-on-quarter growth, driven by continued growth demand for our positioning, navigation, and timing products. We expect this trend to continue through the calendar year. The service provider business, which includes field instruments, wireless, and service enablement, was in line with seasonality.

Acceleration of Industry investment in ever greater communication speeds and Chip to chip interconnect Technologies are the principal drivers of strong demand for our Optical transport silicon photonics and communication uh protocol and high speed ethernet test equipment.

The Q3 growth was also helped by the recently acquired Spirent high-speed Ethernet product lines, which gave us access to a large installed base of enterprise customers.

HSC performance came in line with our expectations.

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 on quarter growth driven by continued growth demand for our positioning navigation and timing products.

We expect this trend to continue through the calendar year.

Oleg Khaykin: As you may recall, the service provider business is seasonally weaker during the March and September quarters and seasonally stronger during the June and December quarters. Some notable on the service providers, dynamics during the March quarter included early orders from cable operators, relating to the new DAA architecture and continued weak but stable demand for wireless test products. We do not expect recovery and growth in the near term for wireless business. Now, turning to OSP. OSP saw strong year-on-year growth driven by strong demand for 3D sensing and anti-counterfeiting products. Looking ahead to Q4, we expect NSE revenue to be up quarter on quarter, driven by continued strong and growing demand from the data center and aerospace and defense customers and seasonally stronger service provider spend.

The service provider business, which includes field instruments, Wireless and service enablement was in line with seasonality. As you may recall, the service provider business is seasonally weaker during the march and September quarters and seasonally stronger during the June and December quarters.

Some notable.

On the service providers, uh, Dynamics during the march quarter included, early orders from cable operators, um, uh, relating to the new daa, architecture and continued week, but stable demand for wireless test products.

We do not expect to recover in growth in the near term for the wireless business.

Oleg Khaykin: We expect OSP to be up also quarter-on-quarter, driven by strength across all product lines. In conclusion, we expect our data center and aerospace and defense end markets to be strong drivers for the foreseeable future. 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 now turn it back over to the operator for Q&A.

Now, turning to Opie Opie. So strong year-on-year, growth driven by strong demand for 3D sensing and anti-counterfeiting products. Looking ahead to Q4, we expect NC Revenue to be up, quote, unquote, driven by continued, strong, and growing demand from the data center, in Aerospace, and defense customers, and seasonally stronger, uh, service providers spend. We expect those speed to be up also quarter on quarter during by strength, um, across all product lines.

In conclusion, we expect our data center and Aerospace and Defense end markets to be strong drivers for the foreseeable future.

Support with that, I will now turn it back over to the operator for Q&A.

Operator 2: Thank you. We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you'd like to ask a question, please press star one to raise your hand. To withdraw your question, please press star one again. If you are muted locally, please remember to unmute your device. Your first question comes from the line of Ruben Roy from Stifel. Your line is now open.

Operator: Thank you. We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you'd like to ask a question, please press star one to raise your hand. To withdraw your question, please press star one again. If you are muted locally, please remember to unmute your device. Your first question comes from the line of Ruben Roy from Stifel. Your line is now open.

Thank you. We will now begin the question-and-answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, please press star 1 again. If you were muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster.

your first question comes from the line of Reuben Roy from stifel

Your line is now open.

Ruben Roy: Great. Thank you. Hi, Oleg and Ilan. Congrats on the momentum here in the business. I guess to start, Oleg, maybe we could just drill into the data center momentum. If you think about sort of the H1 of the year and what you're seeing here with the beat here in the March quarter and the guidance for Q2, can you detail out, you know, sort of a little more detail around the drivers by production field and, you know, just kind of what you're seeing in terms of visibility from your customers?

Great. Thank you. Hi Oleg and Elon congrats on the uh, momentum here in the business I guess to start Oleg. Maybe we could just drill into uh, the data center momentum. And if you think about sort of the first half of the year and what you're seeing here with the with the beat here in in the March quarter and the guidance for for June,

Can you detail out? You know, sort of a little more uh detail around the drivers by uh production field and um

Ruben Roy: Obviously, a lot going on with AI infrastructure networks and that type of thing, but, you know, just trying to get to a little more detail around lab production and field and, and how you see that, you know, sort of trending from here, as you look ahead.

You know, maybe maybe just kind of what you're seeing in terms of visibility, uh, from your customers. Obviously, a lot going on with AI infrastructure networks, and that type of thing. But, you know, just trying to get to a little more detail around lab production and field. And and and how you see that, you know, sort of trending from here, uh, as you look ahead.

Oleg Khaykin: Sure. Well, I mean, you know, on the lab side, it's your classical optical transport and PCIe express test products. As you develop all these new AI chips for inference or the training, it requires, as you can imagine, very high speeds for all the ports and the overall traffic. I mean, everybody who is working on any kind of product out there that's gonna go into these next generation systems, be it for AI training or AI inference, is buying our optical transport and our protocol test solutions. That's primarily lab, but also exactly same equipment is being bought by NEMs for building optical switches and all the other gear that goes into the systems.

Oleg Khaykin: That's kind of on the lab side. On the production, we are seeing a lot of momentum on this whole co-packaged optic area, and that plays extremely well to the traditional Viavi strength with the, you know, the old JDS Uniphase products that go into the production line where you are measuring a spectral performance, the optical performance of all the various optics. It's also, we're selling now a lot of that equipment to the semiconductor vendors as they develop their integrated packaged optic solution. I mean, it's pretty much everything we do in that, in that area relating to the advanced silicon for both training and inference applications and all the optical gear that goes into the data centers is playing and, you know, perfectly aligned to our portfolio.

Sure. Well, I mean the, you know, on the lab side, it's uh, your classical um, you know, um, Optical transport, um, and um, dcie, um, Express test products. So as you develop all these new, uh, AI chips for inference, or the training, it requires. Um, as you can imagine very, um, high speeds for all the ports and the overall traffic. So, um, I mean everybody, uh, who is working on any kind of, uh, product out there. That's going to go into these next Generation systems, be it, uh, for AI training or inference, um, is buying our Optical transport and our uh, protocol test, uh, Solutions. So that's primarily lab, but also exactly. Same equipment is being bought by NS or building, um, Optical switches and all the other gear that goes into the systems. And, um, and that's kind of

On the left side, on the production. Um, we are seeing, um, where a lot of momentum on this whole packaged optic area and that plays extremely well to the traditional VAV strength with the, you know, the old JDS uniface products that go into the production line where you're, uh, measuring

Oleg Khaykin: Now, on the field instrumentation side, as all these data centers come up, they are putting a lot of investment into ensuring peak performance. I tell you, I mean, I've never seen so much demand for our fiber monitoring solutions. I mean, I'd say these data centers are buying more equipment than regular service providers for the whole big network. That is obviously driving the whole field instrument side of the business. I mean, it's now approaching close to, I'd say, 40%, 45%, pretty soon, perhaps maybe 50% of the field instruments is actually driven by the data center. In that respect, it's a very good alignment between what the market needs and what we actually have.

Um, a spectral performance the optical performance of all the various objects, but it's also, um, we are selling now, a lot of that equipment to the semiconductor vendors as they develop their um integrated um, packaged up Tech Solutions. So I mean it's pretty much everything we do in that, in that area, relating to the advanced silicon for both training and inference applications. And all the optical gear that goes into this data centers is playing, I mean, know perfectly aligned to our portfolio.

Now, on the, um, field instrumentation side, as all these data sets come up, they are putting a lot of investment into ensuring, uh, peak performance. And, uh, I tell you, I mean, I've never seen so much demand for our fiber monitoring solutions. Um, I mean, I'd say these data centers are buying more equipment than, uh, regular service providers for the whole big network, so that is obviously driving the whole field instrument side of the business. I mean, it's now—

Approaching cost to I say 40 45 pretty soon, probably maybe 50% of the field instruments is actually driven by the uh, data center. So, in that respect, it's a very good alignment between what the market needs and what we actually have

Ruben Roy: That's great detail. Thanks, Oleg. I guess for a follow-up on that, you had started to see some hyperscaler activity around 800 gig, I would assume last year, some of these things that you're talking about, in answer to the question and on the call today, things like 1.6 T co-packaged optics. They're actually just starting, it seems like. Is that the right way to think about it? I guess the question for that is.

Oleg Khaykin: Well, you know. Go ahead.

That's great detail. Thanks all. I, I guess for a follow-up on that, uh, you you had started to see some hyperscaler activity around 800 gig. I, I would assume last year some of these things that you're talking about, uh, in answer to the question and on the call today, things like 1.6t call packaged Optics. They're, they're, they're actually just starting. It seems like is, is that the right way to think about it? Um, and and I guess the question for that, well, you know, uh,

Ruben Roy: I was just gonna ask the question. It would be, you know, sort of in terms of your mix here, you know, I would assume it's still more weighted towards some of the older generation technology, or is that the wrong way to think about it? You know, kinda how do you think 1.6T and some of these new products layer in, I guess, is the question.

The older generation technology or is that the wrong way to think about it? And and, you know, kind of how do you think 1.16? And some of these new products layer in I guess is, is the question?

Oleg Khaykin: Yeah. It's all. I mean, the 800 is still very much a high volume driver. A lot of the new development is using our 1.6. By the way, we released 1.6 a year and a half ago. You just see. Actually, ironically, it was initially the NEMs, the opticals, you know, equipment vendors who deployed it first in development, and now it's spreading to the SEMIs and the whole co-packaged optics. Yeah, I mean, 1.6 is ramping in the lab, and we're also having some of the early production products to the module vendors. You know, there's no like one way or the other.

Oleg Khaykin: It's actually both of these are in, one is ramping into volume, the other one continues to be strong in the volume.

Yeah, it's it's it's all. I mean, the 800 is still very much a high volume driver, um, but a lot of the new development is using our 1.6 by the way. We released 1.6 year and a half ago. So you just see actually ironically, it was initially the nas, the optical, um, you know, equipment vendors, who would deploy this first, uh, in development. And now it's spreading to the semis and the, uh, the whole Co packaged the optic. So, yeah, I mean, 1.6 is ramping in a lab and we also have having some of the early production, um, um um, uh products uh, to the, um, module vendors. Uh, but uh, you know, there's no like 1 way where the other. It's actually both of these are in. Um, uh, 1 is ramping into volume and the other 1 continues to be strong in the volume.

Operator 2: Thank you for your question. Your next question comes from the line of Mehdi Hosseini from SIG. Your line is now open.

Operator: Thank you for your question. Your next question comes from the line of Mehdi Hosseini from SIG. Your line is now open.

Thank you for your question. Your next question comes from the line of midi Hassani from SI your line is now open.

Mehdi Hosseini: Yes, thanks for taking my question. Oleg, congrats on execution. I want to get a bigger picture and looking more longer term. I see your midpoint of your Q2 guide implying annualized earning of $1.20, which is much higher than the prior peak from FY22. With that as a context, how should we think about company's earning power over the next 1 or 2 years? I'm not asking for a guide, I just want to get a better picture of how these new demand vectors that are materializing are going to enable you with longer-term earning power. I have a follow-up.

Yes, sir. Thanks for taking my question, Oleg, congrats on execution. I want to get a a a, a a bigger picture and looking more a longer term. I see your uh, midpoint of your uh, June quarter guide, uh, implying analyze earning of a dollar 20, which is much higher than the prior Peak from fy22. Um, and for, with that the context, how should we think about companies earning power over the next 1 or 2 years? And I'm not asking for a guide, I just want to get a better picture of how these, um, the new Vector. Uh, the demand vectors that are materializing are going to enable you with longer term earning power and I have a follow up

Oleg Khaykin: No, it's a, it's a great question. I think clearly, you know, I would say our NSE business is now getting very close to 20% operating profit. It's all volume driven. For every incremental dollar in NSE, I mean, you're getting about, what, $0.40 to $0.45, dropping to the bottom line. Ilan Daskal can give you a lot more detail on that. Clearly, that's driving up the operating margin. Our OSP has always had pretty high operating margin, but also with the higher revenue now, it's now going from like, was in the high mid-60s to 70s, now it's moving to high 80s to maybe low 90s.

No, so it's a great question. So I think, clearly,

You know, uh, I would say, our NC business is now getting very close to 20% operating profit, it's all volume driven. So, for every incremental Dollar in the NC, I mean you're getting about what 40 to 45 cents. Um, dropping to the m to bottom line, uh, Elon can give you a lot more detail on that. So clearly, um, that's driving up the um, uh, operating margin. Our OSB has always had pretty high, operating margin, but also with the higher revenue, and that it's now going from like, was in a 60, a high mid 60s. So

Oleg Khaykin: Well, that gets you a couple percentage points higher gross margin, which then obviously drops right down to the couple percentage points higher operating margin. Already at the blended average, we're at 23%, 24%. As NSE keeps getting stronger, you know, we that will keep moving into the mid twenties and maybe higher. In that respect, there is a tremendous operating leverage that comes with volume. Also, you know, we've been able to weather pretty well any kind of the price increases due to components and component shortages.

Oleg Khaykin: You know, as we probably will try to pass some of that increases to our customers, that will be an additional mitigation of the cost, which will probably give us a little bit more expansion on the gross margin. Clearly, combination of keeping up with the price increases and passing it on, maintaining healthy gross margins, volume growing, driving significant operating leverage. Fundamentally, you know, it scales very nicely from here this point on. I mean, as our fixed costs fully covered, every incremental dollar is what? About 40%, 45%.

Let's have a look 70s. Now, it's moving to high 80s to maybe low 90s. Well, that gets you a couple of percentage points higher gross margin which then obviously drops right down to the uh, couple percentage points higher operating margin. So already at the Blended average we are like what a 2324 uh percent uh and as NC keeps getting um stronger. Um, you know, we uh that will keep moving into the um uh meet uh uh 20s and maybe higher. So, in that respect, there is a tremendous operating leverage that comes with volume. And um, you know, also, you know, uh, we've been able to weather pretty well. Uh, any kind of the, uh, price increases, uh, due to components and component shortages. And, you know, as we probably will try to pass some of that increases to our customers, that will be an additional, um, uh, mitigation

Ilan Daskal: Yeah. For modeling, Mehdi, on the NSE side, it's around, you know, today the 40% level. Obviously, you know, the top line, you know, we assume will continue to drive as it continues to grow. When you think about the operating leverage and the operating income.

Of the cost, which will probably uh, give us a little bit more expansion on the gross margin. So clearly combination of keeping up with the, uh, price increases and passing it on, uh, maintaining a healthy gross, margins volume growing, uh, driving significant operating leverage and um, fundamentally. You know, uh, it scales very nicely, uh, from here. This point on, I mean, as our fixed cost fully covered every incremental dollar is what about 40 45?

Oleg Khaykin: Yeah

Ilan Daskal: for NSE and the company, I mean.

Oleg Khaykin: I'll say last but not the least, you know, we've talked a lot about our NOLs. Well, guess what? Now that we are, you know, generating a lot of profit and a lot of it falls in the US jurisdiction because of where our IP and R&D is, I mean, all that incremental profit comes in at virtually zero tax-

Ilan Daskal: Yeah

Oleg Khaykin: ... in the North America.

Ilan Daskal: This quarter, for example, you know, the effective tax rate is about 12%, so definitely.

Mehdi Hosseini: Gotcha

Ilan Daskal: benefit there.

Mehdi Hosseini: Okay.

Oleg Khaykin: Yeah. I mean,

Mehdi Hosseini: Thank you.

Oleg Khaykin: ... headwind you have is, you know, with the converts, you get a little bit dilution as your stock price goes up. You know, you gotta factor a bit higher share count in your calculations.

Mehdi Hosseini: Okay. As my second question of follow-up, I wanna come back to scaling. Right now, again, midpoint of Q2 implies about a 25% growth from the prior peak from mid-2022. Back then, 5G wireless was a big factor. I'm under assumption that wireline, especially as we roll out 1.6 and subsequent to that 3.2, offers a bigger TAM. Given that setup, yeah, you have been able to scale revenue through acquisition, organic growth, where do we go from here? Is there any way you can help me understand the growth from here, especially catalyzed by 1.6 and 3.2?

In the North America, this quarter for example, you know, the effective tax rate is about 12%, so definitely another benefit there. Okay. Yeah, I mean the only little and when you have is, you know, with the converts, you get a little bit dilution as your price, uh, stock price goes up. So, you know, you got to, um, factor a bit higher, um, share share count in your calculations.

Okay. As a as my second question of follow-up, I want to come back to uh, escalating right now. Again Bitcoin of the June quarter implies about a 25% growth, from the prior Peak from mid, 22 and back then, 5G. Wireless was a big factor. I wonder assumption that W line, especially as we roll out, 1.6. And subsequent to that 3.2 offers the bigger time, um, and, and it it given that setup, um, yeah, you're you have been able to scale Revenue through acquisition organic growth. But where do we go from here? Is there any way you can help me understand the growth, um, um, the the the the growth from here especially catalyzed by 1.6 and 3.2

Oleg Khaykin: Well, I think the intensity of our equipment increases as you're going to higher speeds, for both, not only the networking speed or bandwidth, but also with the chip-to-chip interconnect. On top of it, you throw in things like co-packaged optics or near package optics and all that. Actually, you're not only growing with the market, you are also having a broadening of application areas where our equipment is being bought. I mean, for example, when you start making, manufacturing multi-mode and hollow core fiber, before we never really sold into the manufacturing lines. Now the level of complexity in these products requires our instruments, so we're now seeing opportunities emerging where we'll be selling into the production environment on things like fiber manufacturing, right?

Mehdi Hosseini: Sure.

Oleg Khaykin: Things like people making co-packaged optics or integrated optics. Well now, you are selling optical equipment into the lab that before you only used for, you know, maybe, fiber optic modules. Now they need to characterize and design these optical components, and then all these optical components need to be tested, in like multiple insertions because the yield is so critical when you build this whole module. I mean, if you have one device is bad, you throw away the entire. Once it's completely sealed, you can't rework it, so you have to test every component that goes into the module. You test it again once you mount it, only at the end you put an ASIC onto the module. In that respect, it drives a tremendous amount of test requirements in the manufacturing process.

Well, so I think the um uh the intensity of our equipment increases as you're going to higher speeds uh for both, not only the networking speed or bandwidth but also uh with a chip to chip interconnect and then on top of it, you throw in uh things like co- package topics or near package topics and all that. So actually you're not only uh, growing with the market, you're also having uh, broadening of application areas where our equipment is being bought. I mean, for example when you start making manufacturing, um, multi mode and how a core fiber, you now, before we never really sold into the manufacturing lines. Now, the level of complexity in these products requires our instruments. So we are now seeing opportunities emerging where we will be selling into the production environment uh on things like fiber manufacturing, right? Sure. Things like people, making Co packaged up.

Topics are integrated optics. Well, now you are selling optical equipment into the lab that before you only used for, you know, maybe fiber optic modules. Now, they need to characterize and design these optical components, and then all these optical components need to be tested in, like, multiple insertions, because the yield is so critical when you build this whole module. I mean, if you have one device,

Mehdi Hosseini: Sure. I completely understand. I think your booth too at OFC in March was illustrative of this increased test insertion points. I guess back to my question, could these opportunities help you with the $500 million of a quarterly revenue? I'm not asking for a specific timing, but is a $500 million of a quarter revenue a realistic target?

This is bad. You throw away the entire. Once it's completely sealed, you can't rework it. So you have to test every component that goes into the module, then you test it again, once you mount it and only at the end, you put an ASC onto the module. So in that respect, it drives a tremendous amount of test requirements in the manufacturing process. Sure, I completely understand, I think your booster has always seen much was illustrative of this increased test insertion points but I guess back to my question.

Could these opportunities help you with the $500 million of quarterly revenue? And I'm not asking for a specific timing, but it's $500 million of a quarter revenue and realistic targets.

Oleg Khaykin: Oh, I think it's entirely realistic. I mean, look, I think this quarter we are at, midpoint is what? Around $232. I mean, it's moving in that direction. Remember, I'd say it's early on. We're seeing a lot of early demand in this, truly as a lot of the next generation optical equipment and components come into being. I mean, you look at some of these new high-power Ethernet switches, and they're embedding like optical photonic integrated circuits into substrates and all that. The scope of the market is expanding tremendously. Let's not forget our aerospace and defense business. It's also growing very nicely. We don't talk much about it, but that business is like also driving the wave.

Oh, I think it's entirely realistic. I mean, look, I think this quarter we are

Right. Midpoint is what around 2:32, I mean, so it's moving in that direction. I remember, it's not only, it's, I'd say, it's early on we, we're seeing a lot of that early demand in this, truly a lot of that, next Generation Optical equipment and components come into being, I mean, you look at some of these new high power ethernet switches and they embedding um, like Optical um, photonic, integrated circuits into substrates and all that. So it's, um, the scope of the market is expanding, uh, tremendously. And let's not forget our Aerospace and defense.

Oleg Khaykin: Last but not the least, you know, wireless will not be down forever. Eventually, we do need to, you know, to consume all the data and all the ether on wireless devices. I think eventually, either the service providers or some other money will come in to take the wireless infrastructure and make it AI RAN, which will rebound the spend in that market. Today, our wireless business is down about 40% to 45%, depending on the quarter. That alone could drive, you know, $20 to 30 million additional quarterly revenue.

Business. It's also growing very nicely. So we we don't talk much about it, but that business is like, um, um, also driving the wave. And, uh, last but not the least, you know, Wireless will not be, uh, down forever. Eventually, uh, we do need, uh, to um,

Ilan Daskal: Maybe I assume, just to make sure that we are level setting kind of the expectations here, I assume first you referred on the 500 to the NSE piece and not total Viavi, but it's also not about-

Oleg Khaykin: No, I think he's talking about total Viavi.

Ilan Daskal: That's what I wasn't sure. In any case, this is not necessarily kind of immediate next fiscal year. This is over kind of the next kind of upcycle.

Oleg Khaykin: Yeah.

Operator 2: Thank you for your question. Your next question comes from the line of Ryan Koontz from Needham. Your line is now open.

Operator: Thank you for your question. Your next question comes from the line of Ryan Koontz from Needham. Your line is now open.

Wireless business is down about 40, uh, 45% depending on the quarter and that alone could drive um, you know, 20 to 30 million dollars, additional quarterly revenue, and maybe I assume just just to make sure that we are leveraging kind of the expectations here. I assume first. You referred on the 500 to the ncps and not total vavi but it's also not know. I think he's talking about total V so that's what I wasn't sure. Uh but in any case this is not necessarily kind of immediate next fiscal year. This is over kind of the next kind of upcycled. Yeah.

Thank you for your question. Your next question comes from the line of Ryan Coons from Needham. Your line is now open.

Ryan Koontz: Great. Thanks for the question. Terrific results, guys. Just excellent. Maybe just a quick clarification on the data center customer mix there. It sounds pretty broad and diversified, but as you think about the different types, the semis, the opticals, the NEMs, and the operators, can you give us maybe an order of kind of which one of those customer segments are the biggest within the data center mix today?

Great. Thanks for the question. Uh, terrific results, guys. Uh, just excellent. Um,

Maybe just a quick clarification on the data center customer mixed there. It sounds pretty Broad and diversified, but as you think about the different types, the semis, the opticals, the nms, The Operators,

Can you give us maybe an order of kind of which 1 of those customer segments is driving the or the biggest within the data center mix today.

Oleg Khaykin: You know, it's fairly well, you know, and it varies quarter by quarter. I mean, let's put it this way, the actual data centers are buying quite a bit. I mean, so I'd say if you only just take the one single segment, I would say is, it'd be, you know, hyperscalers would be a big, biggest bucket because they not only buy equipment for data centers, but they also run their own R&D, developing their own processors, modules, and the optics, right? Within the hyperscalers, I'd say there is, you know, the ones who are much more into doing their own stuff are actually much bigger, and there's some that are not so big. It's percolating across, right?

You know, it's, um, uh, it's—it's a fairly well, uh, you know, it's various quarter by quarter. I mean, I mean, let's put it this way. The actual data centers are buying quite a bit. I mean, so, it's a—if you only just take the, uh, one single segment, I would say it is, is it'd be, you know?

Oleg Khaykin: The next big bucket would be the module makers and the system makers, right? People making optical modules and optical systems. I would say the next bucket is the silicon vendors. I mean, that's, I mean, you know, I haven't really looked at it, but it's a fairly even balanced distribution.

Hyperscalers would be a big, um, uh, biggest bucket because they not only buy equipment for data centers, but they also run their own R&D developing their own, um, processors and, um, modules and the Optics. Right? So, and within the hyperscalers, I'd say there is, you know, the ones who are much more into doing their own stuff, are actually much bigger and then some that are not so big, but it's um, percolating across, right? And the next big bucket would be the, um, uh, modules module module makers and the system makers, right? People making Optical modules and Optical systems and I would say, the next bucket is the, uh, silicon vendors. And I mean else.

Ryan Koontz: That's great color. Thank you, Oleg. Maybe switching gears to Spirent, obviously they're a big part of your success here in data center as you build that momentum. Can you maybe talk about the synergies you're seeing with that business as it relates to, you know, both the product side of the house as well as the sales side?

I mean, I, I, you know, I haven't really looked at it, but it's, um, it's a fairly even, balanced distribution.

That's great color. Thank you. Oh, like, um, and maybe Switching gears to spyran. Obviously, they're a big part of your success here in in data center, as you build that momentum. Um, can we talk about the synergies you're seeing with that business, as it relates to, you know, both the product side of the house as well as the the sales side.

Oleg Khaykin: I would say the, I mean, clearly, they come with a pretty big established customer base. I would say we are really upgrading the hardware performance of their products, which makes them much more competitive. They have a very good, you know, established reputation and they, I would call it application hardened software for all kinds of Ethernet traffic. In a way it's a good combination, accelerating our hardware development to the ever higher speeds and bringing their software and combining it together.

Oleg Khaykin: I'd say the first truly integrated product that we're gonna have between them and us is 3.2 terabits, but we are doing very well already, leveraging our 800 gig position with their 800 gig, you know, Ethernet task. You know, obviously expanding it to our customers, who they did not have, but also getting access into their customers, which drives broader discussion and more strategic discussion, around not only High-Speed Ethernet, but all the other products that we bring into the mix.

I would say the, um, I mean, the clearly, uh, they come with a pretty big established, um, uh, customer base, um, uh, I would say we are really, um, upgrading, uh, the performance Hardware performance of their products, which makes them, um, uh, much more competitive, uh, but they have a very good, you know, um, uh, established reputation and the, um, I would I would call it, uh, application hardened software for all kinds of, uh, ethernet traffic. So, in a way, it's a good combination, um, accelerating our Hardware, uh, development to the ever higher speeds and, uh, bringing uh, their, um, uh, software. And the combining together, I'd say the first truly integrated product that we're going to have between them and assets, 3.2 terabits. Uh, but we are doing very well already. Um, leveraging. Um, our 800 gig,

Ryan Koontz: That's great. Sounds like the cross-selling is already beginning there. Maybe just some of the emerging,

uh, position with their 800 gig. Um, um, um, um, you know, ethernet test and, you know, obviously expanding it to our customers, uh, who, who they did not have but also, uh, getting access into their customers, which, uh, drives broader discussion, and more strategic discussion, uh, around, not only high speed ethernet. But all the other products that we bring bring into the mix,

Oleg Khaykin: Yes

Ryan Koontz: ... if I can, one last one in here around emerging product areas. Obviously defense is one. You know, how would you characterize where you are in winning share for this PNT with the growth in all the drones? Would you touch on maybe what you're doing in wireless in the satellite arena, if you see that as emerging opportunity for LEOs? Thank you.

Oleg Khaykin: Sure. You know, the positioning, navigation, timing, actually a lot of what the revenue what we are seeing today and driving today, most of it was actually designs that were won before we acquired them. We're now starting to see even things coming, ramping up, ever since we acquired it. If I look at the funnel of wins in the last, let's say 12 months, as these things kick in, that momentum will continue to drive that business. It's all goodness, and it's, you know, clearly drones is a big one, but pretty much anything autonomous, I mean, whether it's air, land, sea, or undersea, vehicles, creates a great pull, and we are now winning some of the US tier ones.

Oleg Khaykin: I mean, traditionally, they were very strong with tier twos and a lot of international, and I would say in the past year, we have really, as we brought in a lot of the kind of discipline regarding around the implementing ITAR and various secure access systems, we are now being considered by US tier one players, and we are starting to play in much bigger leagues in that respect. That was the aerospace defense. Your satellite question on wireless. Well, you know, as I tell my wireless team, when the market is awful, you know, focus on the next generation, and it's 6G, it's NTN and all these kind of applications, and we are very heavily involved with, you know, kind of the 5G plus 6G.

But we now starting to see even things coming ramping up, uh, ever since we acquired it. But if I look at the funnel of wins in the last say, 12 months as these things kick in, uh, that momentum will continue to, uh, drive that business. So it's, um, all goodness and it's, you know, clearly drones is a big 1 but pretty much anything autonomous. I mean whether it's air land sea, or under sea, um the vehicles um is um uh creates a great pool and we are now winning some of the US, tier 1s. I mean, traditionally they were very strong with tear 2s and a lot of international and I would say in the past,

Year. Uh, we have really, um, as we brought in a lot of the kind of discipline regarding around the implementing itar and various, uh, secure secure access systems. We are now being, um, considered, um, by um, uh, us at Tier 1 players and we are starting to play in much bigger leagues in that respect.

Oleg Khaykin: A lot of it is really focusing on the two types of communication, the AI RAN, which is basically running AI traffic through the advanced wireless network and the ground to satellite communication. This is what a lot of our advanced wireless applications are focused on today.

Um, so that was the, uh, airspace defense. Your satellite question or wireless? Well, you know, um, as I tell my wireless team, when the market is awful, you know, focus on the next generation—and it's 6G, it's NTN, and all these kinds of applications. And we are very heavily involved with, um, you know, kind of the 5G, 5G+, 5G++, 6G. And a lot of it is really focusing.

On the, uh, 2 types of communication, the AI ran, which is basically a running AI traffic through the advanced. Um, a wireless network and the, um, uh, uh, ground to satellite, uh, communication. So, uh, this is what a lot of our Advanced Wireless applications are focused on today.

Ryan Koontz: Terrific. Thanks, Oleg, and congrats again.

Oleg Khaykin: Sure.

Operator 2: Thank you for your question. Your next question comes from the line of Andrew Spinola with UBS. Your line is now open.

Operator: Thank you for your question. Your next question comes from the line of Andrew Spinola with UBS. Your line is now open.

Terrific. Thanks all. Congrats again.

Thank you for your question.

Your next question comes from the line of Andrew Spaniola with UPS. Your line is now open.

Andrew Spinola: Thank you. wanted to ask on the component shortages and some of the supply constraints. I'm just wondering if during the quarter you were able to meet all of the supply or all of the demand, rather, or if the supply constraints limited you. As a part, as sort of like an addendum to that question, you know, we're starting to see a lot of long-term supply agreements in other areas in this industry, to meet the hyperscaler demand and sort of, you know, increases in visibility a couple years out. I'm wondering what your visibility is like. Have you started to enter into any long-term supply agreements with some of your bigger customers? What's evolving on that side? Thanks.

Thank you. Um, wanted to ask on the the component shortages and some of the supply constraints. I'm just wondering if during the quarter, you were able to meet all of the supply or all of the demand rather or if the, the supply constraints limited you. And as a part of like an addendum to that question, you know, we're starting to see a lot of long-term Supply agreements in in other areas in this industry uh, to to meet the the hyperscaler demand and sort of, you know, increases in visibility a couple years out. So I'm wondering what your visibility is like have you started to to enter into any long-term Supply agreements with some of your bigger customers. Um what what's what's evolving? Uh, on that side, thanks.

Oleg Khaykin: Thank you, Andrew. Well, I mean, I don't think we, you know, we don't have the volumes to enter into long-term supply agreements. Remember, test and measurement, usually it's, you're leading a lot of the volume markets, so you have to buy the latest and greatest. What's more important for you is not necessarily supply agreement, but the early access. Means you're accessing alpha silicon or beta silicon well before it's released, so you can develop the products that are available even before the qualified silicon is released to the market. That is where we focus on. In terms of the availability, you know, in test and measurement, you generally pay the highest ASP of their price distribution, so it's never a problem to get it.

Oleg Khaykin: You just gotta make sure you give them, you get enough notice. When you, I would say if we say supply shortage, it would not be because we could not get the material. We just didn't get, you know, we get an upside order with too little lead time to get it in. Generally, you know, you pay more money, you always get the product. The nice part about being at a bleeding edge of the test and measurement, you know, people need the product that works and, you know, pricing is secondary in that respect. Now, as you get into more mature products like field instruments, you know, handhelds, yeah, their cost is very important, and there we generally maintain inventory.

Um, thank you, Andrew. Well, I mean, I don't think we we, you know, we don't have the volumes to enter into a long-term Supply agreements and remember test and measurement, usually it's um, you, you are leading a lot of the volume market. So you have to buy the latest and greatest. So, what's more important for you, is not necessarily Supply agreement, but the Early Access means you're accessing Alpha silicon or beta silicon. Well before it's released. So you can develop the products, uh, that are available even before, um, the um, qualified silicon is released to the market. So that, that is where we focus on, in terms of the availability, you know, in testing measurements you generally pay the highest ASP, uh, of their price distribution. So it's never a problem to get it. You just got to make sure you give them, but you get enough notice. So, when you, uh, I would say if, if we say Supply shortage would not be because we um, could not get the material, we just didn't get, you know,

With yet an upside order with too little lead time, you have to get it in, but generally, you know, you pay more money, you always get the product. So, and um, the nice part about being at the bleeding edge of the test and measurement, you know, people need the product that works and, um, you know, pricing is secondary in that respect. Now, as you get into more mature products, like field instruments, you know, handhelds, yeah, there cost is very important.

Oleg Khaykin: I mean, we got a lot of A headache from my CFO and our audit committee few quarters back because we went in and put some product on the shelf 'cause we anticipated the shortage coming in, and today we look pretty smart as a result of it, and nobody's complaining. In the end, I mean, you gotta manage your supply chain, and last thing you wanna do is be a penny-wise and pound foolish. I mean, if you don't pay, then don't complain. Nobody's gonna give you any availability. So far we have. I mean, clearly there is supply shortage, especially memories. I mean, listen, I think memory is gonna be a deficit till 2030, according to some of the studies I've seen. Given our volume requirements, it's not such a big deal.

Oleg Khaykin: I think having product available ahead of everybody else and having early access is probably what's more important.

Ilan Daskal: Andrew, I can add to that also. If you look at our balance sheet for March, you will see on the inventory level, you know, it's up single digit million. The majority of it was to secure some additional components for the upcoming demand.

Oleg Khaykin: Yeah. I mean, we look 2, 3, and 4 quarters out, and we make some bets, because it's not the issue if we don't get the product, it's really the lead time and making sure we give adequate notice to the vendors.

For the next till 2030. According to some of the studies I've seen, but uh, given our volume requirements. Uh, it's not such a big deal, I think having a product available ahead of everybody else. And having Early Access is probably what's more important and head roll. I, I can add to that. Also, if you look at our balance sheet for March, you will see on the inventory level. You know, it's up single digit million. Uh, the majority of it was to secure some additional components for the upcoming month and it, I mean, and we, we look, uh, 2, 3, 4 corners out and we make some bets, uh, because it's, uh, it's not the issue of, we don't get the product, it's a really the lead time and uh, making sure we, uh, give adequate and notice, uh, to the vendors

Andrew Spinola: Appreciate that color. I want one follow-up. I wanted to ask, you talked about incremental margins earlier on the call of 40% to 45%. I think that makes a lot of sense. It looks like that's what's in your numbers and for Q4 in your guide. I'm trying to think about how to think about fiscal 2027. My assumption is that you've got the 40% to 45% incrementals on the core business as you scale. What I'm really asking about is, you announced last quarter, I think it was about $30 million in restructuring. I think you acknowledged some of that will probably get reinvested.

Andrew Spinola: I'm wondering at this point, if you could give us any color on, you know, maybe how much of that is gonna drop to the bottom line, how much of that is gonna be reinvested. Frankly, you know, my assumption would be a good chunk of that is gonna hit the bottom line, so maybe incrementals in fiscal 2027 are closer to 50%. I wonder if you'd comment on that.

Appreciate that caller, I want 1 follow up, I wanted to ask. Uh, you you you talked about incremental margins earlier on the call of 40 or 45%. Uh, I think that makes a lot of sense. It looks like, that's what's in your numbers and for Q4 and your guide. Um, and I'm, I'm trying to think about how to think about fiscal 27. And so, my, my assumption is that you've got the 40 to 45% incremental on the core business, as, as you scale, but I'm what I'm really asking about is, you know, you announced last quarter. I think it was about 30 million dollars of restructuring. I think you, you acknowledge some of that will probably get reinvested, but I'm wondering at this point, if you could give us any caller on, you know, maybe how much of that is going to drop to the bottom line. How

How much of that is going to be a reinvested and frankly, you know, my assumption would be a good chunk of that is going to hit the bottom line. So maybe incremental and fiscal 27, or closer to 50%. So I wonder if you comment on that.

Oleg Khaykin: Well, maybe I'll start, Ilan will give you the details. We're gonna implement most of it by the end of our fiscal year, so Q4. There is some remainder that probably will go through the end of the calendar year. I think, Ilan, what is it? Roughly a third of it gets reinvested.

Ilan Daskal: Yeah. Andrew, the 40% fall through that we see right now, you know, probably and there is a good reason to assume that it can go higher. Specifically, if you think about the second half of the fiscal year next year, meaning 2027, there is still, you know, the seasonality that Oleg mentioned in the prepared remarks. If you think about the September quarter, you know, usually it's a down quarter for us, et cetera. We need all the restructuring to materialize, and that will take also until the end of the calendar year.

Well, maybe I'll start an Elon will give you the details. So we're going to implement most of it by the, uh, end of our fiscal year. So the June quarter. Um, and there's some, uh, remainder that probably will go through the end of the calendar year. And I think, uh, Elon, what is it? Roughly a third of it gets reinvents reinvested.

Ilan Daskal: The increase in the fall through from the 40% level, it's fair to assume that, you know, with the top line kind of growth, will be more visible in H2 of the fiscal year, of next fiscal year, meaning it's H1 of the calendar year of 2027.

Yeah, yeah. And and Andrew um the 40% falls through that we see right now. Um you know probably and and and there is a good reason to assume that it can go higher specifically if you think about the second half of the fiscal year. Next year, meaning 27, there is still, you know, the seasonality that all mentioned in the prepared remarks. So if you think about the September quarter, you know, usually it's a down quarter for us Etc um and we need all the restructuring to materialize and that will take. Also until the end of the calendar year, this calendar year

Oleg Khaykin: One thing I just wanna clarify. When Ilan says September quarter is a seasonally down quarter for us, for service provider segment, that's what it is. If you think about it, in the old days before we had this whole data center and aerospace and defense, if you look at the old Viavi, it's like March and September quarter would be the down quarters because that's the type of spending that of service providers. That pattern is still there, except now it's on a much smaller scale. Because of the aerospace and defense and our data center business is growing so strongly, it's more than offset. You still have that underneath it, you have that up and down.

So um the the increase in the fall through from the 40% level uh is fair to assume that, you know, with the, with the Topline kind of growth, uh, we'll be more visible in the second half of the fiscal year of next fiscal year. Meaning, it's the first half of the calendar year of 27.

so, 1 thing, I just want to clarify

Oleg Khaykin: You would see like a much bigger jump between Q1 and Q2 because you have a tailwind from service providers. Conversely, you have a smaller increase in the Q3 because you have a headwind from the service providers. In Q4, you'll have a tailwind again. I mean, this thing is still there. It's just becoming a lot more and more muted from impact on overall Viavi.

when Elon says September quarter is seasonally down quarter for us for service provider segment. That's what it is. So if you think about it in the old days before we had this whole uh, Data Center and Aerospace and defense. If you look at the old V, A it's like uh, March and September quarter would be the down quarters, because that's the type of spending that of service providers, by the way, that pattern is still there. Except now it's on a much smaller scale, but because of the Aerospace and defense and our, um, um, a data center business is growing. So so, um, so strongly, it's more than offset but you still have that, um, underneath it, you have that up and down. So you would see like a much bigger jump between March and June quarter, because you have a Tailwind from service providers conversely, you'll have a smaller increase in the September quarter because you have a headwind from the uh, service provider. Then in the December, you'll have a Tailwind again. So

Ilan Daskal: Right. on a quarter on quarter kind of trajectory overall.

Oleg Khaykin: Mm-hmm

Ilan Daskal: December is stronger versus September, and September is still more muted relative to June and July.

Oleg Khaykin: That's right.

Ilan Daskal: So

Oleg Khaykin: That's right.

Andrew Spinola: Understood. Thanks for taking my questions.

So I mean this thing is still there, it's just becoming more and more muted from um um impact on overall the right and and on a on a quarter on quarter on quarter kind of trajectory overall. Mhm. December is stronger versus September and September is still more muted relative to June. That's right. That's right, that's right.

Understood. Thanks for taking my questions.

Operator 2: Thank you for your question.

Operator: Thank you for your question.

Ilan Daskal: Thank you.

Operator 2: Your next question comes from the line of Mike Genovese from Rosenblatt Securities. Your line is now open.

Operator: Your next question comes from the line of Mike Genovese from Rosenblatt Securities. Your line is now open.

Thank you for your question.

Mike Genovese: Hey, thanks. Exciting times, guys. Congratulations for being right in the middle of it. Oleg Khaykin, I keep hearing now, as we go to silicon, more silicon photonics and more co-packaged optics, that the bottlenecks to the whole thing are moving to the packaging from the foundry players and to the test and measurement for the electronics, the optics, the engines, and the ASICs. It seems like there is so much testing to be done with co-packaged optics. My first question is, you know, do you agree that testing is a bottleneck? If so, you know, how will you address that over time to, you know, to take advantage of that?

Michael Genovese: Hey, thanks. Exciting times, guys. Congratulations for being right in the middle of it. Oleg Khaykin, I keep hearing now, as we go to silicon, more silicon photonics and more co-packaged optics, that the bottlenecks to the whole thing are moving to the packaging from the foundry players and to the test and measurement for the electronics, the optics, the engines, and the ASICs. It seems like there is so much testing to be done with co-packaged optics. My first question is, you know, do you agree that testing is a bottleneck? If so, you know, how will you address that over time to, you know, to take advantage of that?

Your next question comes from the line of Michael genevese from Rosen black Securities. Your line is now open.

Hey, thanks. So exciting times, guys. Congratulations for uh, being right in the middle of it. Um, Ole, I keep hearing now, um, as we go to Silicon more silicon, photonics and more,

C- package Optics.

And to the test and measurement for the electronics, the optics, the engines, and the A6. It seems like there's so much testing to be done with COP package optics. So my first question is, um,

Uh you know, do you agree that testing is a bottleneck and and um and if so you know how will you address that over time to to you know to take advantage of that.

Oleg Khaykin: I'll say amen, brother. You're absolutely right. I mean, you know, the, you know, the whole test, you know, packaging used to be kinda back-end afterthought, it is now the system. It's now a strategic asset. You look at companies like, you know. Well, I don't wanna name names, but all the leading semiconductor companies, the packaging expertise, package is now the system. You're looking at integrating glass substrates. You're looking putting photonic integrated circuits next to the electronic integrating circuits embedded into the this whole CoWoS chip on wafer on substrate, right? You're building this really complex thing, if you look at. You're putting now all these co-packaged optics on a periphery of the chip.

Oleg Khaykin: This thing is starting to look more like a brick, and some of them weigh, I mean, we're talking about kilos of weight, right? To me, that's like music to my ears because, you know, as you probably know, I started in this industry, I ran Amkor. It was like, you know, all the riding the danger field, you got no respect. Well, now the respect is like hugely. I mean, we are seeing now our technologies and our capabilities are being dragged straight into this whole value chain of testing from the individual optical components to wafer level packaging to the heterogeneous integration packaging, all the way down to being integrated into major test platforms.

I'll say aim in brother, you're absolutely right. So I mean, you know, uh the you know, the the whole test you know packaging used to be kind of a back-end afterthought. It is now the system it's now strategic asset. So you look at companies like you know well I don't want to name names but all the leading semiconductor companies, the packaging expertise package is now a z system and you're looking at integrating glass substrate, you're looking putting um uh photonic uh integrated circuits next to the electronic in integrating circuits in embedded into the this whole coas. Chip 1 wafer on substrate, right? You're building this really complex thing and then if you look at you're putting now, all these Co packaged Optics on a periphery of the chip. This thing is starting to look more and more like a brick and some of them weigh. I mean we're talking about the kilos of weight, right?

So um, uh to me that's like music to my ears because, you know, as you probably know, I started in this industry, I ran Encore. So,

Oleg Khaykin: That's like a whole new business that we did not even have. Last but not the least, this whole rack-mounted systems that are being built as custom tests by leading players, we're supplying a lot of the guts and a lot of hardware that goes into those systems. As I was saying, you know, my thing is, from the old JDS Uniphase days, we still have all these products, and now there's a whole new life being injected into those products. That's something we didn't even think about, I would say three quarters ago.

It was like, you know, it's like a all the Rodney. Dangerfield, you got no respect. Well, now the respect is like, um, uh hugely. And I mean, we are seeing now our Technologies and our capabilities are being dragged into the straight into this whole, um, value chain of testing from the, the, uh, individual Optical components to wait for a level packaging to, um, um, the heterogeneous integration packaging, all the way down to being integrated into major, uh, test platforms. And that's, uh, like a whole new business that we did not even have. And then last but not the least, this whole Iraq mounted, uh, systems that are being built as custom tests by, uh, leading players. Um, we supplying a lot of the Gods and a lot of Hardware that goes into those systems. So, uh, as I was saying, you know, my thing is, like, it's you from the old GDs uniface. They, we still have all

These products and now there's a whole new, um, life being injected into those products.

And that's something we didn't even think about. Uh, I would say, 3 quarters ago.

Mike Genovese: Great. Just as a follow-up, just, you know, with newer things like OCS, where I think you're probably gonna have very high market share for testing, then for co-packaged optics, I mean, are these in the numbers at all yet? Or is this all in the future, I assume? I guess maybe my question would be, you know, how do you define the foreseeable future, when you're saying that you feel great about the foreseeable future?

Michael Genovese: Great. Just as a follow-up, just, you know, with newer things like OCS, where I think you're probably gonna have very high market share for testing, then for co-packaged optics, I mean, are these in the numbers at all yet? Or is this all in the future, I assume? I guess maybe my question would be, you know, how do you define the foreseeable future, when you're saying that you feel great about the foreseeable future?

Um, right. And then just as a follow up, um just you know, with with newer things like OCS, where I think you're probably going to have very high market share for testing and then for co- package Optics, I mean, are these are these in the numbers at all yet? Or, or is this? This is all in this future I assume and and I guess

Oleg Khaykin: Yeah.

Mike Genovese: Like, how far out is that?

Michael Genovese: Like, how far out is that?

Maybe my question would be you know, how do you define the foreseeable future um when you're saying that you feel great about the foreseeable future like how far out is that?

Oleg Khaykin: I would say it's not. In the current numbers, it's kinda the early sales. I'd say foreseeable future, you probably, you know, you're talking 2 to 3 quarters when it starts ramping up.

And in.

The current number.

But I'd say foreseeable future you probably, you know, you're talking um uh uh 2 to 3 quarters uh when it starts ramping up.

Mike Genovese: Yeah

Michael Genovese: Yeah

Oleg Khaykin: is not that far off.

Mike Genovese: Yeah. Well, I guess.

Michael Genovese: Yeah. Well, I guess.

And the future is not that far off.

Oleg Khaykin: What we are saying and we are selling right now is the early inning.

Mike Genovese: Right. Well, just to clarify the foreseeable future question. I mean, in the press release, you said something like, We feel great about, you know, growth into the foreseeable future. Is that multiple years that we're talking about?

Michael Genovese: Right. Well, just to clarify the foreseeable future question. I mean, in the press release, you said something like, We feel great about, you know, growth into the foreseeable future. Is that multiple years that we're talking about?

Yeah, well, I guess you're selling right now is the early inning.

Oleg Khaykin: No. No, no. I mean, generally, we as a practice don't wanna go beyond end of the calendar year. When I say foreseeable future, it's like next 3 quarters.

Right. Well what? What? Just to clarify the foreseeable future question. I mean in the in the press release you said something like we feel great about you know, growth into the foreseeable future. Um, so is that is that multiple years that we're that we're talking about?

No, no, no. I mean, generally when we we as a practice don't want to go beyond end of the calendar year. So uh, when I say for Co features like next 3 quarters,

Mike Genovese: Perfect. Again, congrats.

Michael Genovese: Perfect. Again, congrats.

Perfect. Um, again congrats

Oleg Khaykin: Sure. Thank you.

Operator 2: Thank you for your question. Your next question comes from the line of Tim Savageaux from Northland Capital Markets. Your line is now open.

Operator: Thank you for your question. Your next question comes from the line of Tim Savageaux from Northland Capital Markets. Your line is now open.

Sure, thank you.

Thank you for your question. Your next question comes from the line of Tim savageau from Northlands Capital Market. Your line is now open

Tim Savageaux: Hey, good afternoon, and congrats on some pretty spectacular results. Pretty simple question to start with. Well, actually a confirmation, then a question, and maybe it'll get a little more complex from there. Spirent was 54.2 in the quarter. Is that right?

Hey, good afternoon and uh, congrats on some pretty spectacular results.

Um, it's pretty. Pretty simple question to start with, we'll actually confirmation and a question and

Oleg Khaykin: Yes. That's correct.

Maybe you'll get a little more complexion there. So, SPY was $54.2 million in the quarter. Is that right?

Tim Savageaux: Okay. I guess the simple question is, what do you expect for next quarter for Spirent?

Right, right. That's correct.

For spying.

Oleg Khaykin: Spirent, you know, benefited from a few orders that we mentioned already in the last quarter that got pushed out to this quarter. This quarter, that's, you know, that's the reason that it's a little bit stronger than seasonality. We still expect, you know, on an annual basis, calendar annual basis, a similar run rate of, you know, around about the $200 million that we said, with a split of around 45%, 55%. That takes you, if you normalize everything, still back to, you know, just shy of the $50 million, maybe $48 million for the June quarter.

So spying, um, you know, benefited from um, a few orders that we mentioned already in the last quarter that got pushed out of this quarter. So this quarter that's, you know, that's the reason that it's a little bit stronger than seasonality. We still expect, you know, on an annual basis, calendar, annual basis, uh, a similar run rate of, you know, around about the 200 million that we said with a split of our own 45% 55%. So that takes you if you normalize everything um still back to you know, just shy of the 50 million. Maybe 48 million on 4 that you on quarter.

Tim Savageaux: Okay. Well, that's a good answer, 'cause that speaks to higher levels of organic growth in your NSE business, which I see.

okay, well,

that's a good answer. Um,

Because that speaks to a higher levels.

Of organic growth in your NFC business.

Oleg Khaykin: That's exactly right.

Tim Savageaux: Yeah. Okay. Which I see approaching 40% here in Q4, the way I'm dicing things up here, and over 30% for the year. I guess I'll try to tie the last question to this one and say, when we see this type of environment for the foreseeable future, do you think you can see those type of organic growth rates, 30%, 40% for, you know, call it organic NSE, continue over the next couple, 3 quarters?

Um, which I see? Yeah, okay. Which I see approaching 40% here in Q4.

Uh, the way I'm dicing things up here, um, and—and over 30% for the year.

um, so I guess I'll try to tie the last question to this 1 and say, when we see this type of environment for the foreseeable future,

do you think you can see those to type of organic growth rates?

30 40% for um you know, call it organic NSE. Continue over the next.

Couple 3 quarters.

Oleg Khaykin: Well, you know, I mean, one thing about percentages, it's very hard to maintain same percentage. I mean, because, you know, 30% on one number is, you know, much smaller than 30% on a much bigger number. I think if you look about growth in the absolute dollars, I mean, that's what we're striving to try to maintain.

Ilan Daskal: I'll add also, you know, Oleg Khaykin just mentioned earlier, you know, the service providers, which is part of the core NSE.

Oleg Khaykin: Yeah.

Ilan Daskal: If you think, again, the seasonality. September, you know, traditionally does not enjoy the same growth rate if you bundle everything together. I'm not sure that, you know, the assumption is exactly, I mean, right?

Oleg Khaykin: I think he's talking about year on year.

Ilan Daskal: Year on year.

Oleg Khaykin: Year on year, when you have.

Tim Savageaux: I am.

Oleg Khaykin: When you look at quarter, same quarter, same dynamics, I would say I don't think you could say like a 40%.

Ilan Daskal: Yeah.

Oleg Khaykin: I think, still a high number should be realistic because, you know, 40% on $400 million is one number, 40% on $200 million is a very different number, right?

Well, you know, I mean, 1 thing about percentages it, it's very hard to maintain same percentage, I mean, because, you know, 30% on 1 number is uh, uh, uh, you know, as much smaller than 30% on a much bigger number. So, but I think if you look at about growth in the absolute dollars, I mean, that's what we're striving to try to maintain in in a little. So, you know, all I just mentioned earlier, you know, the service providers, which is part of the core NC. Yeah. And so, if you think again, the seasonality is a September, you know, traditionally it does not enjoy the same growth rate if you bundle everything together. So I'm not sure that, you know, the assumption is exactly. I mean, right? I mean, it's all I think it's talking about year on year a year on year, when you have a when you look at quarter, same quarter, same Dynamics. Yeah I wouldn't say I don't think you could say like a 40% but I think still a high number should be a realistic because, you know, 40% on a on 400.

Tim Savageaux: No, I got it. Although I'd say consensus probably has you at high single digits right now given what you reported, so you could probably do a little bit better than that, maybe double that or more.

100 million is 1. Number 40% on 200, million is a very different number, right?

Well, I I got it. Um, although I'd say consensus, probably has you at high single digits right now given what you reported. So you could probably do a little bit better than that.

Um, maybe double

Ilan Daskal: For the full year.

Tim Savageaux: For the full year of 2027. I'm just making extemporaneous comments. I'm not asking you to guide anything. You've been very helpful in giving the breakdown. At least some I'll ask for either one of two ways, which is kind of the data center defense and service provider breakdown, if we can get an update there and/or growth rates in those categories estimated for what you saw here in fiscal Q3.

For the full year or 27, I'm, I'm just making extremely as comments. I'm not asking you to guide anything.

um,

You've been very helpful in giving, uh, the breakdown, at least some. I'll ask for either one of two ways, which is—

Kind of the data center defense and and service provider breakdown. If we can get an update their Andor,

Growth rates in those categories estimated for, uh, for what you saw here in.

Uh, in fiscal Q3.

Oleg Khaykin: Well, I tell you, if everybody spends what they've claimed they're gonna spend, I mean, we still got a lot of growth to go, to go on, right? I mean, if you take those assumptions, I mean, the momentum, I'd say we're still in the fairly early segment of the ramp.

Well, I tell you, if everybody spends what they've claimed, they're going to spend. I mean, uh, we still got a, um, a lot of growth to go to go on, right? So, uh, I mean, if you take those assumptions, I think we're, I mean the momentum I say, we're still in the fairly early, um, um, uh, uh, segment of the, um, of the ramp

Tim Savageaux: Message received there. Would you say, data center, and again, this kind of with and without Spirent confuses thing. I assume with data centers solidly more than 50% of NSE revenue. What I was looking for is however you wanna break it down. I think you'd said, you know, 45, 15.

Oleg Khaykin: Yeah.

Tim Savageaux: 40 before.

Oleg Khaykin: Yeah, I think right now the data center is, I mean, the exit velocity this year is inching to the high 40s. The service provider are inching towards mid-30s, and aerospace and defense is a little over 15%. I wouldn't be surprised if data center in a not too distant future gets up to about 50% of our NSE revenue.

Message received their, would you say um, Data Center? And again, this kind of with, and without spirent, confuses thing, I assume with data centers solidly more than 50% of NSE Revenue. But what I was looking for is however you want to break it down, I think you'd had you know, 4515 yeah. I I think 40 before now the data

Yeah, I think right now the data center is. I mean, the exit velocity this year is inching to the high 40s. The service provider are inching towards mid-30s and airspace and defense is a little a little over 15%.

So, I wouldn't be surprised if data center, in the not too distant future, gets up to about 50% of our NSC revenue.

Tim Savageaux: Got it. Thanks.

Oleg Khaykin: Okay.

Got it, thanks.

Operator 2: Thank you for your question. Your next and final question comes from the line of Andrew Spinola with a follow-up from UBS. Andrew, your line is now open.

Operator: Thank you for your question. Your next and final question comes from the line of Andrew Spinola with a follow-up from UBS. Andrew, your line is now open.

Okay.

Line of Andrew spaniola with a follow-up from UPS. Andrew, your line is now open.

Andrew Spinola: Thank you. I just wanted to ask a higher level question about your drone business, your module business from Inertial. How is that business performing? You know, obviously there's a lot of demand and new programs in that space, and I'm just wondering, you know, what you're seeing in terms of opportunities. You know, how is that business positioned? You know, do you have all of the approvals and the ability to sell into all of the customers? You know, how should we think about that opportunity over the medium term?

Thank you. I just wanted to ask a higher level question, about your drone business, your module business from inertial, but how is that business performing, you know, obviously there's a lot of demand and new programs in that space and I'm just wondering, you know, what you're seeing in terms of opportunities, you know, how is that business positioned? Is, you know, do you have all of the approvals and, and the ability to sell into all of the, the, the customers, you know, how how, how should we think about that opportunity over the medium term?

Oleg Khaykin: Well, it's a good question, Andrew. I mean, so, you know, you could judge from it the mere fact, Ilan Daskal said that we just paid out. You can look at our balance sheet. We paid out a pretty big earn-out, means these guys have exceeded every forecast that they've given us. As I tell you, in my career, I've made about close to 40 acquisitions. There's been only 2 of them have exceeded their first-year forecast, okay? This is the only one, it's Viavi. I mean, they, that business is doing extremely well.

That's a good question, Andrew. I mean, so, you know, you could judge from it. The mere fact, uh, Elon said that we just paid out. You can look at our balance sheet. We paid out a pretty big earnout. It means these guys have exceeded every, uh, forecast, that they've given us. And as I tell you, I've, in my career, I've made about close to 40 acres,

there's been only 2 of them have exceeded their first year forecast.

Oleg Khaykin: They make products, anything from the basic sensors that go into the inertial navigation system to fully blown inertial navigation system that does the sensor fusion of, you know, GNSS, the, you know, location, the ground speed, the, you know, lidar and all these other things. We're engaged with pretty much every drone, you know, munitions, subsystem, vendor of interest out there, both in US as well as in the rest of the world. Clearly, there's a clear guidelines what constitutes controlled versus not controlled. When you a sensor and it's within a certain level of accuracy, for that you need export approval.

Okay. Uh, uh, this is the only 1 that we have, and, I mean, they that business is doing extremely well. And, uh, and they make products anything from the basic sensors, that go into the inertial navigation system to fully blown, um, um, inertial navigation systems, that it does the Sensor Fusion of, you know, gnss the, um, you know,

Location the ground speed the, um, you know, uh, lidar and all these other things. So, uh, and you know, we are engaged with pretty much every drone. You know, Munitions. Um, uh, subsystem, uh, uh, vendor of Interest out there both in us as well as in in, um, uh, the rest of the world. Now clearly there's a clear uh guidelines what constitutes controlled versus not controlled when you

Oleg Khaykin: If you are making a product that's more commercial, let's say you're doing a surveillance drone or agricultural drone or, you know, something for mining industry, those things are deemed to be commercial. We have a very clear boundaries and, you know, how we define the products, how we grade them, and obviously how we price them. All these things are. Some products you can only export through the US government export license. Others you can just sell as a commercial product.

Andrew Spinola: Just one follow-up on that. It sounds like there's, you know, particularly strong growth in demand for lower cost drones. I'm just wondering, you know, without knowing that market all that well, would the Inertial Labs modules or some of those gyroscopes or sensors that Inertial Labs sells, would they be applicable for the lower end drones with for that opportunity? When you price out.

A sensor and it's within a certain level of accuracy that for that you need, um, um, uh, export, um, approval. If you are making a product that is more commercial, let's say you doing a surveillance drone or agricultural drone or, you know, something for mining industry. Um, those things are deemed to be commercial so we have a very clear, uh, boundaries and you know, how we, uh, how we Define the products, how we grade them and obviously, how we price them. So, um, all these things are some products that you can only export, um, through the US government, export, uh, license others. You can just sell as a commercial product.

I just want to follow up on that. It sounds like there's, you know, particularly strong growth in demand for lower-cost drones. And I'm just wondering, you know, without knowing that market all that well, would inertial modules or some of those...

Gyroscopes or sensors that that inertial cells would would they be applicable for the the lower-end drones with, for that opportunity?

Oleg Khaykin: When you say lower end drones, if you're talking something like, $3,000, then no. If you're talking something like $30,000, then yes.

Andrew Spinola: Okay. Perfect. Thank you, Oleg.

When you say lower and drones, if you're talking something like know, if you're talking something like 30,000 dollars then yes.

Okay, perfect.

Thank you. All right.

Oleg Khaykin: Okay. Sure.

Operator 2: There are no further questions at this time. I will now turn the call back to Vibhuti Nayar for closing remarks.

Operator: There are no further questions at this time. I will now turn the call back to Vibhuti Nayar for closing remarks.

Okay, sure.

There are no further questions at this time. I will now turn the call back to Vie for closing remarks.

Vibhuti Nayar: Thank you, Hillary. This concludes our earnings call for today. Thank you for joining, everyone, and have a good afternoon.

Thank you, Hillary.

This concludes our earnings call for today. Thank you for joining, everyone, and have a good afternoon.

Operator 2: This concludes today's call. Thank you for attending. You may now disconnect.

Operator: This concludes today's call. Thank you for attending. You may now disconnect.

This concludes today's call. Thank you for attending. You may now disconnect.

Andrew Spinola: Okay.

Okay.

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