Q4 2026 Viavi Solutions Inc Earnings Call

August 5, 2026

Operator: Good afternoon. My name is Kendra, I will be your conference operator today. At this time, I would like to welcome everyone to VIAVI Solutions Fiscal Fourth Quarter and Fiscal 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 press 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.

Speaker #1: 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. question, please press star 1 on your telephone keypad to raise your hand.

Speaker #1: session. If you would like to ask a would like to turn the conference over to Vibhuti Nayar, Head of Investor Relations, please go ahead.

Speaker #2: Thank you, Kendra. Good afternoon, everyone, and welcome to VIAVI Solutions' fourth quarter and fiscal 2026 earnings call. My name is Vibhuti Nayar, Head of Investor Relations for VIAVI Solutions.

Vibhuti Nayar: Thank you, Kendra. Good afternoon, everyone, and welcome to VIAVI Solutions Q4 and fiscal 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.

Speaker #2: 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.

Speaker #2: About the company's financial performance. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our current expectations and estimations.

Speaker #2: We encourage you to review our most recent filings. Particularly, the risk factors described in those filings. The forward-looking statements including the guidance that we provide during this call.

Speaker #2: 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 this call, except revenue, are non-GAAP.

Vibhuti Nayar: Please also note that unless we state otherwise, all results discussed on this call, except revenue, are non-GAAP. We reconcile these non-GAAP results to our preliminary GAAP financials and discuss their usefulness and limitations in today's earnings release. The release, as well as our supplemental earnings slides, which include historical financial tables, are available on VIAVI's website at investor.viavisolutions.com. We are recording today's call, we will make the recording available on our website by 4:30 PM Pacific Time this evening. Now, I would like to turn the call over to Ilan. Ilan?

Speaker #2: We reconcile these non-GAAP results to our preliminary GAAP financials and discuss their usefulness and limitations in today's earnings release. The release as well as our supplemental earnings slides which include historical financial tables are available on VIAVI's website at www.investor.viavisolutions.com.

Speaker #2: We are recording today's call, and we will make the recording available on our website by 4:30 PM Pacific Time this evening. Now, I would like to turn the call over to Ilan.

Speaker #2: Ilan?

Speaker #3: Thank you, Vibhuti. Good afternoon, everyone. Now, I would like to review the results of the fourth quarter of fiscal year 2026. Net revenue for the quarter was $443.1 million.

Ilan Daskal: Thank you, Vibhuti. Good afternoon, everyone. Now, I would like to review the results of the Q4 of fiscal year 2026. Net revenue for the quarter was $443.1 million, which is above the high end of our guidance range of $427 to $437 million. Revenue was up 8.9% sequentially, on a year-over-year basis was up 52.5%. Operating margin for the Q4 was 24%, above the high end of our guidance range of 22.2% to 23.2%. Operating margin increased 280 basis points from the prior quarter, on a year-over-year basis was up 960 basis points. During the quarter, we received $1.5 million tariffs refund, which slightly benefited operating margin. Also, during the quarter, we completed a follow-on offering and issued approximately 12.78 million shares at a share price of $45 for a total gross amount of $575 million.

Speaker #3: Which is above the high end of our guidance range of $427 to $437 million. Revenue was up 8.9% sequentially and on a year-over-year basis was up 52.5%.

Speaker #3: Operating margin for the fourth fiscal quarter was 24%, above the high end of our guidance range of 22.2% to 23.2%. Operating margin increased 280 basis points from the prior quarter and on a year-over-year basis was up 960 basis points.

Speaker #3: During the quarter, we received $1.5 million tariffs refund which slightly benefited operating margin. Also during the quarter, we completed a follow-on offering and issued approximately $12.78 million shares at a share price of $45 for a total gross amount of $575 million.

Speaker #3: The proceeds were used to pay off the remaining balance of the term loan B and the excess amount is included in the cash balance at the end of the quarter.

Ilan Daskal: The proceeds were used to pay off the remaining balance of the Term Loan B, the excess amount is included in the cash balance at the end of the quarter. EPS at $0.34 was above the high end of our guidance range of $0.29 and $0.31, was up $0.7 sequentially. On a year-over-year basis, EPS was up $0.21. The lower interest expenses in the quarter, as well as the tariffs refund in the quarter, contributed about $0.02 to the EPS. Moving on to our Q4 results by business segment. NSE revenue for the Q4 came in at $353.9 million, which is above the high end of our guidance range of $340 to $348 million. Revenue from Spirent product lines was $47.7 million.

Ilan Daskal: The proceeds were used to pay off the remaining balance of the Term Loan B; the excess amount is included in the cash balance at the end of the quarter. EPS at $0.34 was above the high end of our guidance range of $0.29 and $0.31 and was up $0.7 sequentially. On a year-over-year basis, EPS was up $0.21. The lower interest expenses in the quarter, as well as the tariff refund in the quarter, contributed about $0.02 to the EPS. Moving on to our Q4 results by business segment. NSE revenue for the Q4 came in at $353.9 million, which is above the high end of our guidance range of $340 to 348 million. Revenue from Spirent product lines was $47.7 million.

Speaker #3: EPS at $0.34 was above the high end of our guidance range of $0.29 to $0.31, and was up $0.07 sequentially. On a year-over-year basis, EPS was up $0.21.

Speaker #3: The lower interest expenses in the quarter as well as the tariffs refund in the quarter contributed about 2 cents to the EPS. Moving on to our Q4 results by business segment.

Speaker #3: NSC revenue for the fourth fiscal quarter came in at $353.9 million. Which is above the high end of our guidance range of $340 to $348 million.

Speaker #3: Revenue from spiring product lines was $47.7 million. On a year-over-year basis, NSC revenue was up 69.2% as a result of continued strong demand for our label production and field products driven by the data center ecosystem as well as the acquisition of spiring product lines.

Ilan Daskal: On a year-over-year basis, NSE revenue was up 69.2% as a result of continued strong demand for our lab and production and field products, driven by the data center ecosystem, as well as the acquisition of Spirent product lines. We also saw strong demand for our aerospace and defense products. NSE gross margin for the quarter was 64.1%, which is 190 basis points higher on a year-over-year basis, and was mainly driven by higher volume and favorable product mix. NSE's operating margin for the quarter was 20% versus 4.6% during the same quarter last year. NSE operating margin was above our guidance range of 18.2% to 19.2%, mainly as a result of higher fall-through. OSP revenue for Q4 came in at $89.2 million, which is at the high end of our guidance range of $87 to $89 million.

Speaker #3: We also saw strong demand for our aerospace and defense products. NSC gross margin for the quarter was 64.1% which is 190 basis points higher on a year-over-year basis and was mainly driven by higher volume and favorable product mix.

Speaker #3: NSC's operating margin for the quarter was 20%, versus 4.6% during the same quarter last year. NSC operating margin was above our guidance range of 18.2% to 19.2%, mainly as a result of higher fall-through.

Speaker #3: OSP revenue for the fourth fiscal quarter came in at 89.2 million which is at the high end of our guidance range of 87 to 89 million.

Speaker #3: On a year-over-year basis, OSP revenue was up 9.6% driven by strength in 3D sensing and anti-counterfeiting and other products. OSP gross margin was 55.2% up 50 basis points on a year-over-year basis primarily driven by higher volume and favorable product mix.

Ilan Daskal: On a year-over-year basis, OSP revenue was up 9.6%, driven by strength in 3D sensing and anti-counterfeiting and other products. OSP gross margin was 55.2%, up 50 basis points on a year-over-year basis, primarily driven by higher volume and favorable product mix. OSP's operating margin was 40%, which is above our guidance range of 38% to 38.8%, as a result of higher fall-through. OSP operating margin increased 40 basis points on a year-over-year basis. Moving on to the full-year results of fiscal year 2026. For the full fiscal year, revenue was $1,518 million, which is up 40% on a year-over-year basis. Spirent product lines that were acquired in Q2 of fiscal 2026 contributed $145 million to the full fiscal year revenue.

Speaker #3: OSP's operating margin was 40% which is above our guidance range of 38% to 38.8% as a result of higher fall through. OSP operating margin increased 40 basis points on a year-over-year basis.

Speaker #3: Moving on to the full year results of fiscal year 2026. For the full fiscal year revenue was $1 billion and $518 million. Which is up 40% on a year-over-year basis.

Speaker #3: Spiring product lines that were acquired in the second quarter of fiscal 2026 contributed $145 million to the full fiscal year revenue. The revenue growth was mainly driven by 11 production and field products primarily from the data center ecosystem as well as demand for our aerospace and defense products and also included the contribution from the acquisitions of spiring product lines and inertia labs.

Ilan Daskal: The revenue growth was mainly driven by lab and production and field products, primarily from the data center ecosystem, as well as demand for our aerospace and defense products, and also included the contribution from the acquisitions of Spirent product lines and Inertial Labs. For OSP, we saw year-over-year growth across all of its product lines. Full-year operating margin for VIAVI was 20.6%, up 630 basis points from fiscal year 2025, and was a result of higher fall-through driven by higher revenue and favorable product mix. Full-year EPS was $1 versus $0.47 in the prior year. Moving on to the balance sheet and cash flow. Total cash and short-term investments at the end of Q4 were $656.7 million, compared to $508 million in Q3 2026.

Ilan Daskal: The revenue growth was mainly driven by lab and production and field products, primarily from the data center ecosystem, as well as demand for our aerospace and defense products, and also included the contribution from the acquisitions of Spirent product lines and Inertial Labs. For OSP, we saw year-over-year growth across all of its product lines. Full-year operating margin for VIAVI was 20.6%, up 630 basis points from fiscal year 2025, and was a result of higher fall-through driven by higher revenue and a favorable product mix. Full-year EPS was $1 versus $0.47 in the prior year. Moving on to the balance sheet and cash flow. Total cash and short-term investments at the end of Q4 were $656.7 million, compared to $508 million in Q3 2026.

Speaker #3: For OSP, we saw year-over-year growth across all of its product lines. Full year operating margin for VIAVI was 20.6% up 630 basis points from fiscal year 2025 and was a result of higher fall through driven by higher revenue and favorable product mix.

Speaker #3: Full-year EPS was $1.00 versus $0.47 in the prior year. Moving on to the balance sheet and cash flow, total cash and short-term investments at the end of Q4 were $656.7 million.

Speaker #3: Compared to $508 million in the third fiscal quarter of 2026. Cash flow from operating activities for the quarter was $66.7 million versus $23.8 million in the same period last year and was driven by higher net income and timing of working capital.

Ilan Daskal: Cash flow from operating activities for the quarter was $66.7 million versus $23.8 million in the same period last year, and was driven by higher net income and timing of working capital. CapEx for the quarter was $11.1 million versus $5.5 million in the same period last year. CapEx for the full fiscal year was $31.1 million versus $27.8 million in the prior year. During Q4, we did not purchase any shares of our stock as we prioritized debt management. During the full fiscal year of 2026, we purchased approximately 2.7 million shares of our stock for about $30 million. This repurchase was in conjunction with the exchange of our convertible notes that we completed during Q1 2026. We have almost $170 million remaining under our current authorized share repurchase program.

Ilan Daskal: Cash flow from operating activities for the quarter was $66.7 million versus $23.8 million in the same period last year and was driven by higher net income and timing of working capital. CapEx for the quarter was $11.1 million versus $5.5 million in the same period last year. CapEx for the full fiscal year was $31.1 million versus $27.8 million in the prior year. During Q4, we did not purchase any shares of our stock as we prioritized debt management. During the full fiscal year of 2026, we purchased approximately 2.7 million shares of our stock for about $30 million. This repurchase was in conjunction with the exchange of our convertible notes that we completed during Q1 2026. We have almost $170 million remaining under our current authorized share repurchase program.

Speaker #3: Capex for the quarter was $11.1 million versus $5.5 million in the same period last year Capex for the full fiscal year was $31.1 million versus $27.8 million in the prior year.

Speaker #3: During the fourth quarter, we did not purchase any shares of our stock as we prioritized debt management. During the full fiscal year of 2026, we purchased approximately 2.7 million shares of our stock for about $30 million.

Speaker #3: This repurchase was in conjunction with the exchange of our convertible notes that we completed during the first fiscal quarter of 2026. We have almost 170 million remaining under our current authorized share repurchase program.

Speaker #3: The fully diluted share count for the quarter was 261 million shares up from 227 million shares in the prior year and versus 256.1 million shares in our guidance for the fourth fiscal quarter.

Ilan Daskal: The fully diluted share count for the quarter was 261 million shares, up from 227 million shares in the prior year, and versus 256.1 million shares in our guidance for the Q4. Moving on to our guidance for the Q1 of fiscal year 2027. VIAVI typically operates on a 13-week fiscal quarter. This requires us to add 1 week to the Q1 every 5 or 6 years. We are adding 1 week to the Q1 of fiscal year 2027, hence it will include some elevated variable costs. In addition, we received approximately $11 million tariffs refund in July 2026 that will primarily benefit our Q1 cost of goods sold. We expect the Q1 revenue for VIAVI to be up sequentially, driven by continued strength in many of our end markets.

Ilan Daskal: The fully diluted share count for the quarter was 261 million shares, up from 227 million shares in the prior year, versus 256.1 million shares in our guidance for Q4. Moving on to our guidance for Q1 of fiscal year 2027. VIAVI typically operates on a 13-week fiscal quarter. This requires us to add one week to the Q1 every 5 or 6 years. We are adding one week to Q1 of fiscal year 2027; hence, it will include some elevated variable costs. In addition, we received approximately $11 million in tariff refunds in July 2026 that will primarily benefit our Q1 cost of goods sold. We expect the Q1 revenue for VIAVI to be up sequentially, driven by continued strength in many of our end markets.

Speaker #3: Moving on to our guidance for the first quarter of fiscal year 2027. VIAVI typically operates on a 13-week fiscal quarter. This requires us to add one week to the first fiscal quarter every five or six years.

Speaker #3: We are adding one week to the first quarter of fiscal year 2027; hence, it will include some elevated variable costs. In addition, we received approximately $11 million in tariff refunds in July of 2026 that will primarily benefit our Q1 cost of goods sold.

Speaker #3: We expect the first fiscal quarter revenue for VIAVI to be up sequentially driven by continued strength in many of our end markets. For NSC, we expect first fiscal quarter revenue to be up relative to the prior quarter.

Ilan Daskal: For NSE, we expect Q1 revenue to be up relative to the prior quarter, which reflects a seasonally strong quarter across many of our end markets. For OSP, we also expect the quarter-over-quarter revenue to be higher, driven by stronger demand for 3D sensing products. For the Q1 of 2027, we expect VIAVI revenue in the range of $450 million and $460 million. We expect NSE revenue between $360 million and $368 million. OSP revenue is expected to be in the range of $90 million and $92 million. Operating margin for VIAVI is expected to be 27.1% ± 40 basis points. The operating margin includes a net benefit of about 100 basis points from the tariffs refund, which will be offset by the additional 1 week of variable costs, and it will primarily benefit NSE's operating margins.

Speaker #3: Which reflects a seasonally strong quarter across many of our end markets. For OSP, we also expect quarter-over-quarter revenue to be higher, driven by stronger demand for 3D sensing products.

Speaker #3: For the first fiscal quarter of 2027, we expect VIAVI revenue in the range of $450 and $460 million. We expect NSC revenue between $360 and $368 million.

Speaker #3: OSP revenue is expected to be in the range of $90 million and $92 million. Operating margin for VIAVI is expected to be 27.1%, plus or minus 40 basis points.

Speaker #3: The operating margin includes a net benefit of about $100 basis points from the tariffs refund which will be offset by the additional one week of variable costs and it will primarily benefit NSC's operating margins.

Speaker #3: NSC operating margin is expected to be $23.1% plus or minus 50 basis points. OSP operating margin is expected to be $43.2% plus or minus 20 basis points.

Ilan Daskal: NSE operating margin is expected to be 23.1% ± 50 basis points. OSP operating margin is expected to be 43.2% ± 20 basis points, and EPS is expected to be between $0.40 and $0.42. This includes a net benefit of about $0.02 from tariff refunds and from the additional 1 week of variable expenses that I mentioned earlier. Our tax expenses for the Q1 are expected to be around $12 million ± $500,000 as a result of jurisdictional mix. We expect other income and expenses to reflect a net expense of approximately $2.5 million, and the share count is expected to be around 268 million shares. With that, I will turn the call over to Oleg. Oleg?

Speaker #3: And EPS is expected to be between $40 cents and $42 cents. This includes a net benefit of about 2 cents from tariff refunds and from the additional one week of variable expenses that I mentioned earlier.

Speaker #3: Our tax expenses for the first quarter are expected to be around $12 million, plus or minus $500,000, as a result of jurisdictional mix. We expect other income and expenses to reflect a net expense of approximately $2.5 million.

Speaker #3: And the share count is expected to be around 268 million shares. With that, I will turn the call over to Oleg. Oleg?

Speaker #2: Thank you, Ilan. Fiscal 26 added on a strong note with VIAVI's financial performance in the fourth quarter exceeding expectations. The year-on-year performance was driven by strong growth in many of our end markets.

Oleg Khaykin: Thank you, Ilan. Fiscal 2026 ended on a strong note with VIAVI's financial performance in the Q4 exceeding expectations. The year-on-year performance was driven by strong growth in many of our end markets. NSE revenue in fiscal Q4 grew approximately 70% year-over-year, primarily driven by continued strong demand from the data center ecosystem and aerospace and defense customers. More specifically, the data center ecosystem, which includes high-performance semis, optical modules, NEMs, and hyperscalers, drove strong demand for lab and production and field instruments in support of data center build-out, maintenance, and monitoring. The recently acquired Spirent high-speed Ethernet product lines are performing well and have also contributed to our growth this quarter. We have recently extended our leadership in this segment with the launch of industry's first validation solution for Ultra Ethernet transport, which is purpose-built to support large-scale AI and high-performance computing workloads.

Speaker #2: NSC revenue in fiscal Q4 grew approximately 70% year-over-year primarily driven by continued strong demand from the data center ecosystem and aerospace and defense customers.

Speaker #2: More specifically, the data center ecosystem which includes high-performance semis, optical modules, NAMS, and hyperscalers drove strong demand for lab and production and field instruments in support of data center build-out, maintenance, and monitoring.

Speaker #2: The recently acquired Spirent High-Speed Ethernet product lines are performing well and have also contributed to our growth this quarter. We have recently extended our leadership in this segment with the launch of the industry's first validation solution for ultra-ethernet transport, which is purpose-built to support large-scale AI and high-performance computing workloads.

Speaker #2: The data center ecosystem customer demand for our products remains very strong and we expect continued robust growth in this segment for the next several quarters.

Oleg Khaykin: The data center ecosystem customer demand for our products remains very strong, and we expect continued robust growth in this segment for the next several quarters. Our Aerospace and Defense business also saw another quarter of strong year-on-year growth, driven by strong demand for our positioning, navigation, and timing products. We expect PNT to be a multiyear growth driver for our A&D business. The Service Providers business, which includes field instruments, wireless, and Service Enablement products, was up, driven by stronger seasonal demand. The highlights included increased demand for our fiber monitoring solutions in support of fiber build-outs and for our cable instruments in support of DAA cable architecture migration. Conversely, our wireless products continue to see the same anemic, although stable, customer demand. That said, we remain optimistic regarding the longer-term demand for our wireless products. Now turning to OSP.

Speaker #2: Our Aerospace and Defense business also saw another quarter of strong year-on-year growth, driven by strong demand for our positioning, navigation, and timing products. We expect PNT to be a multi-year growth driver for our A&D business.

Speaker #2: The service provider's business, which includes field instruments, wireless, and service enablement products, was up, driven by stronger seasonal demand. The highlights included increased demand for our fiber monitoring solutions in support of fiber build-outs and for our cable instruments in support of DAA cable architecture migration.

Speaker #2: Conversely, our wireless products continue to see the anemic to the same anemic although stable customer demand. That said, we're made optimistic regarding the longer-term demand for our wireless products.

Speaker #2: Now, turning to OSP. OSP saw strong year-on-year growth, driven by strength in 3D sensing, anti-counterfeiting, and other products. Looking ahead to Q1, historically, Q1 has been a softer quarter for NSC.

Oleg Khaykin: OSP saw strong year-on-year growth driven by strength in 3D sensing and anti-counterfeiting and other products. Looking ahead to Q1, historically, Q1 has been a softer quarter for NSE. This time around, we expect NSE revenue to be up quarter on quarter, driven by strong and growing demand from data center and Aerospace and Defense customers. We also expect OSP to be up quarter on quarter, driven by seasonally stronger demand for 3D sensing products. Our diversification strategy into data center ecosystem and Aerospace and Defense end markets has been a key growth driver for us during fiscal 2026. We expect this strategy to continue driving our growth for the next several quarters. In conclusion, I'd like to thank the VIAVI team for their strong innovation and execution, and thank our customers and shareholders for their continued support.

Speaker #2: However, this time around, we expect NSC revenue to be up quarter-on-quarter, driven by strong and growing demand from data center, aerospace, and defense customers.

Speaker #2: We also expect OSP to be up quarter-on-quarter driven by seasonally stronger demand for 3D sensing products. Our diversification strategy into data center ecosystem and aerospace and defense and markets has been a key growth driver for us during fiscal 26.

Speaker #2: We expect this strategy to continue driving our growth for the next several quarters. In conclusion, I'd like to thank the VIAVI team for their strong innovation and execution and thank our customers and shareholders for their continued support.

Speaker #2: With that, I will now turn it back to operator for Q&A.

Oleg Khaykin: With that, I will now turn it back to operator for Q&A.

Oleg Khaykin: With that, I will now turn it back to the operator for Q&A.

Speaker #1: 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 one to raise your hand.

Operator: 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 one to raise your hand. To withdraw your question, press star one again. If you are 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 Ryan Koontz with Needham & Company. Ryan, your line is open. You may go ahead.

Speaker #1: To withdraw your question, press star one again. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster.

Speaker #1: Your first question comes from the line of Ryan Kunst with Medium and Company. Ryan, your line is open. You may go ahead.

Speaker #4: Great. Appreciate that. Oleg, maybe you can help us out a little bit in understanding this terrific quarter you had. Obviously, data center and optical big part there.

Ryan Koontz: Great. Appreciate that. Oleg, maybe you can help us out a little bit in understanding this terrific quarter you had, obviously data center and optical, a big part there. Can you give us an idea of the scale of optical and data center within your NSE domain, and what kind of growth rate you're seeing there now for those products?

Ryan Koontz: Great. Appreciate that. Oleg, maybe you can help us out a little bit in understanding this terrific quarter you had; obviously, data center and optical are big parts there. Can you give us an idea of the scale of optical and data centers within your NSE domain and what kind of growth rate you're seeing there now for those products?

Speaker #4: Can you give us an idea of the scale of optical and data center within your NSC domain and what kind of growth rate you're seeing there now for those products?

Speaker #2: Well, I mean, pretty much when we talk about data center it's all optical, right? It's both optical on the R&D side, the lab side.

Oleg Khaykin: Well, pretty much when we talk about data center, it's all optical, right? It's both optical on the R&D side, the lab side. It's optical for the production test. It's optical for fiber monitoring and the data build-out. In that respect, pretty much all optical products, there's very little copper or anything, if anything at all.

Oleg Khaykin: Well, pretty much when we talk about data centers, it's all optical, right? It's both optical on the R&D side and the lab side. It's optical for the production test. It's optical for fiber monitoring and the data build-out. In that respect, pretty much all optical products have very little copper or anything, if anything at all.

Speaker #2: It's optical for the production test. It's optical for fiber monitoring and the data build-out. So in that respect, it's I mean, pretty much all optical products.

Speaker #2: There's very little copper or anything like if anything at all.

Speaker #4: Right.

Ryan Koontz: Right.

Oleg Khaykin: The growth is.

Speaker #2: And I mean, the growth is you know.

Oleg Khaykin: The growth is.

Speaker #4: NSC? Sorry. Sorry, Oleg. You were saying?

Ryan Koontz: Sorry, Oleg. You were saying?

Speaker #2: Okay. Scale, you mean in terms of revenue you're talking about? I mean.

Oleg Khaykin: Okay, scale, you mean in terms of revenue, you're talking about?

Ryan Koontz: Yeah.

Speaker #4: Yeah. Or percentage within the NSC bucket?

Oleg Khaykin: I mean.

Ryan Koontz: Rough percentage within the NSE bucket.

Speaker #2: Well, I think the I think as we were saying, I mean, our data center is now running at about 50% of the NSC revenue.

Oleg Khaykin: Well, as we were saying, our data center is now running at about 50% of the NSE revenue. A&D is, I would say, probably about 17%, and the rest is service provider business.

Speaker #2: A&D is I would say probably about 17%. And the rest is service provider. Business.

Speaker #4: Great. And maybe as a follow-up, we're on the verge of this 1.6T cycle here with some new Broadcom switches coming to market and obviously kind of the optical layer.

Ryan Koontz: Great. Maybe as a follow-up, we're on the verge of this 1.6T cycle here with some new Broadcom switches coming to market, and obviously, the optical-

Ryan Koontz: layer will go that way in a hurry here. Where do you feel like we are in that cycle for 1.6T adoption as it relates to your business? Obviously, you've sold to the lab in the early part and then the production and then field, how long does it take you, or how long do you think it will be until you see a peak in 1.6 demand for your products?

Ryan Koontz: The layer will go that way in a hurry here. Where do you feel like we are in that cycle for 1.6T adoption as it relates to your business? Obviously, you've sold to the lab in the early part and then the production and then field, how long does it take you, or how long do you think it will be until you see a peak in 1.6 demand for your products?

Speaker #4: We'll go that way in a hurry here. Where do you feel like we are in that cycle for 1.6T adoption as it relates to your business?

Speaker #4: Obviously, you sell into the lab in the early part and then the production and then field. But how long does it take you or how long do you think it will be until you see a peak in 1.6 demand for your products?

Speaker #2: I mean, if I look at today in terms of share volume, 800 is still the biggest driver. But 1.6 is ramping very quickly. And that's mainly a lot of the production.

Oleg Khaykin: If I look at today, in terms of sheer volume, 800 is still the biggest driver, 1.6 is ramping very quickly, and that's mainly a lot of the production, things moving to production. I would say probably, in 2027, it may get to probably parity between 800 and 1.6, then 1.6 will continue to get bigger, while 800 gig may pull back. I think 800 gig will be a big driver for a long time, because a lot of the data centers are 800 gig. Only the new stuff is going to be 1.6. There's big install base that's being upgraded as well. It's still very much, 1.6 is really what's the primary early performance driver today.

Oleg Khaykin: If I look at today, in terms of sheer volume, 800G is still the biggest driver, 1.6T is ramping very quickly, and that's mainly a lot of the production, things moving to production. I would say probably, in 2027, it may get to probably parity between 800G and 1.6, then 1.6T will continue to get bigger, while 800 gig may pull back. I think 800G will be a big driver for a long time, because a lot of the data centers are 800G. Only the new stuff is going to be 1.6T. There's a big install base that's being upgraded as well. It's still very much, and 1.6T is really what's the primary early performance driver today.

Speaker #2: Things moving to production. And I would say probably I mean, in 27, it may get to probably parity between 800 and 1.6 and then 1.6 will continue to get bigger while 800 gig may pull back.

Speaker #2: But I think 800 gig will be a big driver for a long time. Because a lot of the data centers are 800 gig. Only the new stuff is going to be 1.6.

Speaker #2: So there's big install base that's being upgraded as well. So I mean, it's still very much but 1.6 is really what's kind of the primarily performance driver today.

Speaker #4: Got it. Sounds like it could be a couple of years though until you have a

Ryan Koontz: Got it. Sounds like it could be a couple of years, though, until you have a peak and maybe a shift to the next generation.

Speaker #2: Oh, I think we will. I think we're still seeing a lot of 400. It's going to be multiple nodes in parallel running.

Oleg Khaykin: I think, look, we're still seeing a lot of 400G. It's going to be multiple nodes in parallel running, and the mix gradually shifting to 1.6, taking the lead, followed by 800, and 400G is going to be around for quite a while as well.

Oleg Khaykin: I think, look, we're still seeing a lot of 400G. It's going to be multiple nodes in parallel running, and the mix gradually shifting to 1.6T, taking the lead, followed by 800G, and 400G is going to be around for quite a while as well.

Speaker #2: And the mix is gradually shifting to 1.6, taking the lead, followed by 800. And, I mean, 400-gig is going to be around for quite a while as well.

Ryan Koontz: Got it.

Speaker #2: They just don't go away.

Oleg Khaykin: They just don't go away.

Speaker #4: Appreciate that. Color.

Ryan Koontz: Thanks, Ilan. Appreciate that color.

Speaker #2: Sure.

Oleg Khaykin: Sure. Mm-hmm.

Speaker #1: Your next question from the line of Ruben Roy with Stifel. Ruben, your line is open. Please go ahead.

Operator: Your next question from the line of Ruben Roy with Stifel. Ruben, your line is open. Please go ahead.

Speaker #3: Yeah. Hi. Thanks for taking my questions. I have a quick clarification question and then a follow-up. Ilan, I know you mentioned the 14-week quarter and the cost associated with that.

Ruben Roy: Yeah, hi. Thanks for taking my questions. I have a quick clarification question and then a follow-up. Ilan, I know you mentioned the 14-week quarter and the costs associated with that. Does the extra week have any meaningful revenue contribution? I'm just trying to put apples to apples together on the September guide, especially given that traditionally your service provider is seasonally weaker and just trying to understand the moving parts for the September quarter, given that you have the extra week.

Speaker #3: Does the extra week have any meaningful revenue contribution? I'm just trying to put apples to apples together on the September guide, especially given that traditionally your service provider is seasonally weaker and just trying to understand the moving parts for the September quarter given that you have the extra week.

Speaker #2: Yeah. I would say revenue if there is any de minimus, it's very small. The revenue shipments are nonlinear in the quarter anyhow. And generally, revenue is linked to the customers end of the quarter.

Oleg Khaykin: Yeah, I would say revenue, if there is any, it's de minimis, it's very small. The revenue shipments are non-linear in the quarter anyhow, and generally, revenue is linked to the customer's end of the quarter. Whereas our OpEx is linked to a number of weeks in the quarter for us. In that respect, whether you have 1 week more or less, it really doesn't make a difference. Most of our revenue is shipped in the last 4 weeks of the quarter. Just kind of, you're keeping up with the customer's end quarter revenue requirements. In that respect, I don't think there is any revenue swing 1 way or the other with if you have 1 week more, 1 week less. It's really more linked to the calendar quarter.

Speaker #2: Whereas our opex is linked to a number of weeks in the quarter for us. So in that respect, I mean, whether you have a one week more or less, it really doesn't make a difference.

Speaker #2: Most of our revenue is shipped in the last four weeks of the quarter. I mean, just kind of you're keeping up with the customers end quarter revenue requirements.

Speaker #2: So in that respect, I don't think there is any revenue swing one way or the other. With if you have like a one week more or one week less, it's really more linked to the calendar quarter.

Speaker #3: Yeah. And Ruben, I can add also that without guiding anything in terms of the December quarter, if it was impacting or shifting, then it would impact the December quarter.

Ilan Daskal: Yeah. Ruben, I can add also that, without guiding anything in terms of Q4, if it was impacting or shifting, then it would impact Q4, but that's not the trajectory that we see for Q4.

Speaker #3: But that's not the trajectory that we see for the December quarter.

Speaker #2: Yeah.

Oleg Khaykin: Yeah.

Speaker #3: Right. Right. There would be an extra week of incremental shipping capacity into December. Okay, that's really helpful, guys. And then, I guess for both of you, just thinking through the margin structure of the business now that the data center strategy is continuing to sort of ramp here.

Ruben Roy: Right. There would be an extra week of incremental shipping capacity into Q4. Okay. That's really helpful, guys. Then, I guess for both of you, just thinking through the margin structure of the business now that the data center strategy is continuing to sort of ramp here. You're guiding 27.1% operating margin. It seems like you're getting a better view on field production, or, I'm sorry, lab and production versus field. I'm just wondering if you could talk a little bit about how you're thinking about longer term operating margins as some of the new programs ramp, 1.6T and otherwise. Ilan as well, the R&D fell in absolute dollars here and with other things that you guys are working on, whether it's CPO, OCS, AI RAN, 3.2T, you name it.

Ruben Roy: Right. There would be an extra week of incremental shipping capacity into Q4. Okay. That's really helpful, guys. Then, I guess for both of you, just thinking through the margin structure of the business now that the data center strategy is continuing to sort of ramp here. You're guiding 27.1% operating margin. It seems like you're getting a better view on field production, or, I'm sorry, lab and production versus field. I'm just wondering if you could talk a little bit about how you're thinking about longer-term operating margins as some of the new programs ramp, 1.6T and otherwise. Ilan as well, the R&D fell in absolute dollars here and with other things that you guys are working on, whether it's CPO, OCS, AI RAN, 3.2T, you name it.

Speaker #3: So you're guiding 27.1% operating margin it seems like you're getting a better view on field production or sorry, lab and production versus field. And I'm just wondering if you could talk a little bit about how you're thinking about longer-term operating margins as some of the new programs ramp 1.6T and otherwise Ilan as well the R&D fell on absolute dollars.

Speaker #3: Here and with other things that you guys are working on, whether it's CPO, OCS, AI RAN 3.2T, you name it. What's sort of the sustainable investment level and I guess if you could tie that back to the operating margin view longer term, that'd be helpful.

Ruben Roy: What's sort of the sustainable investment level, I guess if you could tie that back to the operating margin view longer term, that'd be helpful. Thank you.

Ruben Roy: What's the sort of sustainable investment level, I guess if you could tie that back to the operating margin view longer term, that'd be helpful. Thank you.

Speaker #3: Thank you.

Speaker #2: Sure. So I mean, the thing I would say clearly all this there's some product lines are higher, some are lower. But generally, NSC is north of 60%, right?

Oleg Khaykin: Sure. I would say, clearly there's some product lines are higher, some are lower, but generally NSE is north of 60%, right? Anywhere from, let's say, low 60s on some of the field instruments into the high 70s on some of the lab products, right? As that becomes bigger and bigger share of revenue vis-a-vis, let's say, OSP, the gross margin will keep trending up. Now, there's clearly some headwinds on, let's say, the semiconductor pricing. It can obviously slow down some of the growth because your cost of goods. So far, we've been just passing all those increases to our customers as part of the price adjustment. In that respect, it's going to be really a weighting average on the gross margin between NSE and OSP, as that since NSE is growing much faster, the gross margin will continue to creep up.

Speaker #2: And anywhere from, I'd say, low 60s on some of the field instruments into the high 70s on some of the lab products, right? So as that becomes bigger and bigger share of revenue, vis-à-vis, let's say, OSP, the gross margin will keep trending up.

Speaker #2: Now, there is clearly some headwinds on, let's say, the semiconductor pricing. It can obviously slow down some of the growth because your cost of goods.

Speaker #2: But so far, we've been just passing all those increases to our customers as part of the price adjustment. So in that respect, it's going to be really a waiting average between on a gross margin between NSC and OSP since NSC is growing much faster the gross margin will continue to creep up.

Speaker #2: Now, when it comes to opex, our opex is scaling very well. I mean, clearly, we are putting some money into reinvestment, but relatively speaking, I mean, our opex is growing much slower than our revenue.

Oleg Khaykin: When it comes to OpEx, our OpEx is scaling very well. Clearly we are putting some money into reinvestment, relatively speaking, our OpEx is growing much slower than our revenue. As a result, it all drops to the operating margin. I would say if we continue on a certain this trajectory, I think mid to high 20% operating margins in a not too distant future is probably the expectation.

Speaker #2: As a result, it's all drops to the operating margin. So I would say if we continue on a certain this trajectory, I think high mid to high 20% operating margins in a not-too-distant future is probably the expectation.

Speaker #3: Yeah. Ruben, I will echo what Oleg just said in terms of the continued leverage that we expect in terms of the operating expenses and specifically you asked about the R&D.

Ilan Daskal: Yeah. Ruben, I will echo what Oleg just said in terms of the continued leverage that we expect in terms of the operating expenses, specifically you ask about the R&D. It's not going to be materially higher. There is always the marginal commissions, et cetera.

Speaker #3: It's not going to be materially higher. I mean, there is always the marginal commissions, etc. But the leverage kind of will continue to play in favor of the operating margin.

Oleg Khaykin: Yeah.

Ilan Daskal: The leverage kind of will continue to play in favor of the operating margin. Again, yeah, it can continue throughout the fiscal year to, as Oleg mentioned, from the mid to the high 20s.

Speaker #3: And again, yeah, it can continue throughout the fiscal year as Oleg mentioned from the mid to the high 20s.

Speaker #2: And what's really good is on R&D, we actually are getting a bigger operating leverage because the volumes in lab and production are just so much higher than what we've been used to in field instruments.

Oleg Khaykin: What's really good is, on R&D, we're actually getting a bigger operating leverage because the volumes in lab and production are just so much higher than what we've been used to in field instruments. You spend the same R&D, you get much more margin dollars within a fairly short period of time, there is really no up and down. Before, just as you start reaching the peak of the one technology cycle, the next one starts ramping up. Then all of the technology actually flows down to some field instruments, which needs relatively little investment to incorporate it all. It's just basically better leverage of the R&D all around.

Speaker #2: So you spend the same R&D, but you get much more margin dollars within a fairly short period of time. And there is really no up and down.

Speaker #2: And just as you start reaching the peak of the one technology cycle, the next one starts ramping up. And then all of that technology actually flows down to some field instruments which needs relatively little investment to incorporate it all.

Speaker #2: So it's just basically better leverage of the R&D all around.

Speaker #3: Yeah, that's why we like to hear it. Thanks, guys, and congrats on the continued momentum.

Ruben Roy: Yeah. That's what we like to hear. Thanks, guys, and congrats on the continued momentum.

Speaker #1: Thank you.

Ilan Daskal: Thank you.

Speaker #2: Sure. Thanks.

Oleg Khaykin: Sure. Thanks.

Speaker #4: Your next question comes from the line of Andrew Spinola. From UBS, Andrew, your line is open. Please go ahead.

Operator: Your next question comes from the line of Andrew Spinola from UBS. Andrew, your line is open. Please go ahead.

Speaker #5: Thank you. I wanted to ask, Oleg, you typically describe the data center business growing about 50%. I was wondering if you could just give us an update on how it grew in the fourth quarter and what's in your Q1 guide in terms of expectations for that business.

Andrew Spinola: Thank you. I wanted to ask, Oleg, you typically describe the data center business growing about 50%. I was wondering if you'd just give us an update on how it grew in Q4 and what's in your Q1 guide in terms of expectations for that business.

Speaker #2: Well, I mean, it is growing very rapidly. And I think we're cases in the early stages of penetration. I mean, today, it's mostly high-performance semis in the lab.

Oleg Khaykin: Well, it is growing very rapidly, and I think we're, in cases, in the early stages of penetration. Today it's mostly high performance semis in the lab, but what's growing really fast is the production piece of it, and it's everything from making fiber optic modules to making fiber optic cables to now getting into the CPO testing, where we're entering the traditional semiconductor test, but we play the optical plane of the semiconductor test, and that's a completely new market. I don't want to give out percentages, but let's put it this way, I think that business, even if I take out Spirent, it's more than doubled for us year-over-year.

Speaker #2: But what's growing really, really fast is the production piece of it. And it's everything from making fiber optic modules to making fiber optic cables, to now getting into the CPO testing, where we're entering the traditional semiconductor test.

Speaker #2: But we played the optical plane of the semiconductor test. And that's a completely new market. So I don't want to give out percentages, but let's put it this way.

Speaker #2: I think that business, even if I take out Spirent, it's more than doubled for us year over year.

Speaker #5: Makes sense. And just to follow up on that, I guess one of the reasons I was asking is it looks like your guide in NSC is something like 3% sequentially to the midpoint.

Andrew Spinola: Makes sense. Just to follow up on that, I guess one of the reasons I was asking is it looks like your guide at NSE is something like 3% sequentially to the midpoint. I've been thinking about 2027 as the year where things, or fiscal 2027 is where things will accelerate as 1.6Ts or earlier questions mentioned accelerates, just looking at the supply chain and some of the numbers that are there for 2027 in terms of compute growth, et cetera. Is there anything slowing in your business that you're going to grow 3% here sequentially, or is this just the trend?

Speaker #5: So I was just—I've been thinking about 2027 as the year where things, or fiscal ’27, is where things will accelerate, as $1.6T, as earlier questions mentioned.

Speaker #5: Accelerates, and then just looking at the supply chain and some of the numbers that are there for '27 in terms of compute growth, etc.

Speaker #5: Is there anything slowing in your business that you're going to grow 3% here sequentially, or is this just the trend?

Speaker #2: Well, I think you have to remember September quarter generally for us was a down quarter for NSC. The mere fact it's up means the lab and production piece and aerospace and defense is more than offsetting any kind of the service provider/wireless customer, right?

Oleg Khaykin: Well, I think, you have to remember, Q3 generally for us was a down quarter for NSE. The mere fact it's up means the lab and production piece in aerospace and defense is more than offsetting any kind of the service provider/wireless customer, right? You got to de-average the growth, right? In terms of the 1.6, if it's growing, great, but remember, some of that is going to be substitution against 800. What's really going to be driving the growth is the broader and broader adoption of the technology and the volumes of production scaling, right? For example, for production, you're looking really at the capacity being in place or capacity being replaced because that's what's ultimately driving your dollars, right?

Speaker #2: So you got to look at the you got to de-average the growth, right? In terms of the 1.6, it fits growing great. But remember, some of that is going to be substitution against 800.

Speaker #2: What's really going to be driving the growth is the broader and broader adoption of the technology, and the volumes of production that are scaling, right?

Speaker #2: So for example, for production, you're looking really at the capacity being in place or capacity being replaced because that's what ultimately driving your dollars, right?

Speaker #2: So if you go for, let's say, from if you tell me somebody's spent this year 600 billion and next year they're going to spend 1 trillion dollars, I should expect at least that kind of growth, right?

Oleg Khaykin: If you tell me somebody's spent this year $600 billion and next year they're going to spend $1 trillion, I should expect at least that kind of growth, right? Granted, some of it is construction and digging trenches, but there is the CapEx that is equipment, that ultimately will translate to us. In some of these cases, we're not even present, but we will be present with 1.6 that our market actually going to expand. I think on this particular product lines, we should do better than the purely CapEx growth. There is, of course, the base business, a service provider that's growing 1%, 2%. You have to take the weighted average of the two to calculate the total growth.

Speaker #2: Now, granted, some of it is construction and digging—trenches—but there is the CapEx that is equipment. So that ultimately will translate to us.

Speaker #2: And in some of these cases, we're not even present, but we will be present with 1.6. So our market actually going to expand. So I think on this particular product lines, we should do better than the purely capex growth.

Speaker #2: But then there is, of course, the base. Business service provider that's growing 1, 2 percent. So you have to take the weighted average of the two to calculate the total growth.

Speaker #5: Understood. Appreciate the caller. Thank you.

Andrew Spinola: Understood. Appreciate the color. Thank you.

Speaker #4: Your next question from the line of Michael Genovese with Rosenblatt Securities. Michael, your line is open. Please go ahead.

Operator: Your next question from the line of Mike Genovese with Rosenblatt Securities. Michael, your line is open. Please go ahead.

Speaker #5: Great. Thanks. Oleg, can we get a update on you from the timing of what's going on with OCS and then what's going on with CPO?

Mike Genovese: Great. Thanks. Oleg, can we get an update on you from the timing of what's going on with OCS and then what's going on with CPO? One OCS question, one CPO question.

Speaker #5: So one OCS question, one CPO question.

Speaker #2: Well, there's been a lot of industry talk like, "Oh, because the yield is going to be slower." That's all nonsense. CPO and all that thing is moving forward.

Oleg Khaykin: Well, there's been a lot of industry talk as like, "because the yield is going to be slower." That's all nonsense. CPO and all that different thing is moving forward. Are there issues? Of course, there are. The reason people are doing CPO and all these other things, it's all about performance and power. To manage yields, you just do more tests, you do more of a Known Good Die, known good optical engine, known good substrate, and all these kind of things, which means a lot of testing, which ultimately pretty good for us, but also at the same time, the process is being improved and things are getting better. From my perspective, it's progressing, and I have POs to show for that.

Speaker #2: Are there issues? Of course, there are. But if you look at it, the reason people are doing CPO and all these other things is it's all about performance and power.

Speaker #2: And to manage yields, you just do more tests. You do more of a known-good-die, known-good optical engine, known-good substrate and all this kind of things, which means a lot of testing which ultimately pretty good for us, but also at the same time, the process is being improved and things are getting better.

Speaker #2: And it's from my perspective, it's progressing in a half POs to show for that.

Speaker #5: So just so in terms of if we I'm going to come back to CPO, but if we just look at OCS, is there are there already OCS revenues in the numbers?

Mike Genovese: Just in terms of, I'm going to come back to CPO, but if we just look at OCS, are there already OCS revenues in the numbers, and what is the step-up of that expected to look like over the next couple of quarters?

Speaker #5: And what is the step-up of that expected to look like over the next couple of quarters?

Oleg Khaykin: There is some OCS, but I think majority of OCS probably will be coming in the next revenue, will be coming in the next several quarters. There is already some in sole capacity. Remember, we've been selling equipment to a big OCS vendor, hyperscaler, who makes their own stuff. Now it's becoming broader and going into the other companies introducing OCS, and many other companies are looking to do more optical switching in their core. I see this demand as being very healthy.

Speaker #2: There is some OCS, but I think majority of OCS probably will be coming in the next revenue will be coming in the next several quarters.

Speaker #2: I mean, there is already some in sole capacity. And remember, we've been selling equipment to big OCS vendors, hyperscalers who make their own stuff.

Speaker #2: But now it's becoming broader and going into the other companies introducing OCS. And many other companies are looking to do more optical switching in their core.

Speaker #2: So I see this demand as being very healthy.

Speaker #5: And I think previously you said CPO revenues begin in the fall. Is that commentary still relatively on track?

Mike Genovese: I think previously you said CPO revenues begin in the fall. Is that commentary still relatively on track?

Speaker #2: Yeah. We're already getting some this quarter and probably in December, we'll start accelerating.

Oleg Khaykin: Yeah.

Mike Genovese: Great.

Oleg Khaykin: We're already getting some this quarter, and probably in December it will start accelerating.

Speaker #5: Well. And then finally for me, in the past well, last quarter, right, you started to mention when in the future you could see a 500 million dollar plus revenue quarter.

Mike Genovese: Well, finally from me, in the past, well, last quarter, right, you started to mention when in the future you could see a $500 million-plus revenue quarter. Could you just remind us of that language? Has this beaten race here, has that increased the confidence or been any kind of update to that at all?

Speaker #5: And has could you just remind us of that language and then has anything has this beaten race here? Has that increased the confidence or done anything any kind of update to that at all?

Speaker #2: I would say, if I kind of take my tone from before—500—I think I would say this quarter, I think the 500 will likely come a bit sooner than what we were originally thinking.

Oleg Khaykin: I would say if I take my tone from before $500 million, I would say this quarter, I think the $500 million will likely come a bit sooner than what we were originally thinking, given the trajectory and the growth.

Speaker #2: Given the trajectory and the growth.

Speaker #5: Could you just remind me just to make sure?

Mike Genovese: Could you just remind me?

Oleg Khaykin: Originally-

Speaker #2: Originally, we were talking about the end of next calendar year. Exiting fiscal 28, I think we may see 500 in the next calendar year.

Ilan Daskal: Exiting fiscal 2028.

Oleg Khaykin: we were talking about the end of, what, next calendar year?

Ilan Daskal: Exiting fiscal 2028.

Oleg Khaykin: Exiting fiscal 2028, I think we may see $500 in the next calendar year.

Speaker #5: Sorry. It was originally exiting 28 or exiting 27?

Mike Genovese: Sorry, it was originally exiting 2028 or exiting 2027?

Speaker #2: It was exiting fiscal 28. It was originally we talked fiscal 28. I think we are now I'm looking like calendar 27. Sometime in calendar 27.

Oleg Khaykin: It was exiting fiscal 2028.

Ilan Daskal: Fiscal 2028.

Oleg Khaykin: It was originally we talked fiscal 2028. I think we're now sometime in calendar 2027. If you look at calendar, instead of being, let's say, exiting like a June quarter 2029.

Speaker #2: So if you look at calendar, instead of being let's say exiting like a June quarter, 29, okay? 28. June quarter 28, you're looking at sometime during calendar 27.

Ilan Daskal: 28

Oleg Khaykin: 2028, June quarter 2028, you're looking at sometime during calendar 2027.

Speaker #5: Yeah, perfect. Okay, great. Thanks so much, appreciate it.

Mike Genovese: Yep, perfect. Okay, great. Thanks so much. Appreciate it.

Speaker #2: Okay.

Oleg Khaykin: Yep.

Speaker #5: Yep.

Mike Genovese: Yep.

Speaker #4: Your final question comes from the line of Tim Savizio. With Northland Capital Markets. Tim, your line is open. Please go ahead.

Operator: Your final question comes from the line of Tim Savageaux with Northland Capital Markets. Tim, your line is open. Please go ahead.

Speaker #3: Hey, good afternoon. Congrats on the results. I had a question around Spirent. You saw pretty decent decline there. From Q3, and yet we're able to grow NSC pretty substantially despite that.

Tim Savageaux: Hey, good afternoon, and congrats on the results. I had a question around Spirent. You saw a pretty decent decline there from Q3, yet were able to grow NSE pretty substantially despite that. I wonder if you can talk about what may have accelerated in the organic business to enable that in the quarter. I assume what most of Spirent is also cloud-driven, if we can get an update on that. You made a comment kind of about growth excluding Spirent. What might you expect for Spirent here in your fiscal Q1 guide?

Speaker #3: I wonder if you can talk about what may have accelerated in the organic business to enable that in the quarter. And I assume what most of Spirent is also cloud-driven if we can get an update on that.

Speaker #3: You made a comment kind of about growth excluding Spirent. And then what might you expect for Spirent here in your fiscal Q1 guide?

Speaker #2: Well, I think the remember, we actually felt Spirent did pretty well. Remember, the first half of the calendar year is the about 45% of their revenue and 55% of revenue is in the second half.

Oleg Khaykin: Well, remember, we actually felt Spirent did pretty well. Remember, the H1 of the calendar year is about 45% of their revenue and 55% of revenue is in the H2. In the March quarter, they had some carryover. June quarter came in pretty much as we expected, and a lot of it is enterprise driven. I know, for example, September quarter, they're going to be up around 10% in revenue, and December is usually their strongest quarter, probably now they're up 10%. Spirent aside, really, the biggest growth was very much lab and production, followed by aerospace and defense. Lab and production, it's just ticking up double-digit revenue growth, in absolute dollars, quarter-over-quarter.

Speaker #2: So in March quarter, they had some carryover. But I mean, June quarter came in pretty much as we expected. And as a lot of it is enterprise-driven, I mean, they were the like I know, for example, September quarter, they're going to be up around 10% in revenue.

Speaker #2: And December is usually their strongest quarter, probably another up 10%. But Spirent aside, really, the biggest growth was very much lab and production. Followed by aerospace and defense.

Speaker #2: And lab and production I mean, it's just ticking up double-digit revenue growth in the absolute dollars quarter over quarter.

Speaker #3: Okay. Great. Thanks. And back to co-packaged optics. You talk about the testing intensity, but do you have any metrics for us as regards kind of how CPO looks relative to pluggables from a test perspective and what that might mean for VIAVI?

Tim Savageaux: Okay, great. Thanks. Back to Co-Packaged Optics, you talk about the testing intensity, do you have any metrics for us as regards how CPO looks relative to pluggables from a test perspective and what that might mean for VIAVI?

Speaker #2: Well, I mean, listen, pluggables is clearly a simpler architecture. And why would you want to do CPO? You want to do CPO, I mean, for I mean, I would say maybe without really exaggerating here, but if you have a co-packaged optics, your 3 nanometer silicon performs as a 2 nanometer silicon.

Oleg Khaykin: Well, listen, pluggables is clearly a simpler architecture. Why would you want to do CPO? You want to do CPO, I would say maybe without really exaggerating here, but if you have a Co-Packaged Optics, your three nanometer silicon performs as a two nanometer silicon. You are getting almost a whole node of advantage by co-packaging the optics, right? You can take it either in performance or you can take it in the cost. You can use a three nanometer silicon and get a two nanometer performance with Co-Packaged Optics, or have a two nanometer silicon and have a pluggable. Now, you combine these things together, you get lower power and higher performance, right? That's really why would anybody go to the length of complexity and yield and all these difficulties to implement this new technology.

Speaker #2: So you are getting almost a whole node of advantage by co-packaging the optics, right? That's really it's so you can take it either in performance or you can take it in the cost.

Speaker #2: So, you can use a 3-nanometer silicon and get 2-nanometer performance with co-packaged optics, or have a 2-nanometer silicon and use a pluggable.

Speaker #2: Now, you combine these things together, you get lower power and higher performance, right? I mean, that's really what everybody why would anybody go to the length of complexity and yield and all these difficulties to implement this new technology?

Speaker #2: It's purely because it cuts down on power and/or you can get yourself more performance out of the silicon. So, that's really the optimization game that everybody's playing.

Oleg Khaykin: It's purely because it cuts down on power and/or you can get yourself more performance out of the silicon. That's really the optimization game that everybody's playing. Now, it comes at a much higher cost, but relatively speaking, if you get the same performance with the older silicon node, it's worth it.

Speaker #2: Now, it comes at a much higher cost, but relatively speaking, if you get the same performance with the older silicon node, then it's worth it.

Speaker #3: Okay. And finally, on the back to Spirent, I guess a little bit, but I wonder if we can get an update on where you are synergy-wise with that transaction and how you expect that to sort of flow through the income statement or opex over the next few quarters here.

Tim Savageaux: Okay. Finally, back to Spirent I guess a little bit, but I wonder if we can get an update on where you are synergy-wise with that transaction, and how you expect that to sort of flow through the income statement or OpEx over the next few quarters here.

Oleg Khaykin: It's already all done and implemented and accounted for. We are done with the integration as of Q2. We did it not just Spirent, we did it general, both VIAVI and Spirent. We rationalized go-to-market and the R&D during H1, and exiting June, we are all set.

Speaker #2: It's already all done and implemented. And accounted for. We are done with the integration as of June quarter. And we did it not just Spirent.

Speaker #2: We did it general both VIAVI and Spirent. We rationalized go-to-market and the R&D during the first two calendar quarters. And exiting June, we are all set.

Speaker #1: Yeah. I mean, the savings from the restructuring are being realized and also to your prior comment, Tim, actually, Spirent does grow kind of a single-digit year over year.

Ilan Daskal: Yeah, the savings from the restructuring are being realized. Also to your prior comment, Tim, actually Spirent does grow kind of a single digit year-over-year. As Oleg mentioned earlier, the core of lab and production is the main growth there. Seasonality for Spirent remains the same. H1 is usually weaker, and H2 is usually much stronger. June is traditionally a little bit weaker, but we, as Oleg mentioned, we see at least 10% quarter-over-quarter growth from June to September, with another probably good quarter we expect in December. I don't think that trajectory for Spirent overall changed. I think it performs really well with good margins, and we are very pleased with this.

Speaker #1: As Oleg mentioned earlier, the core of lab and production is the main growth there. And seasonality for Spirent remains the same. In the first half of the calendar year, it's usually weaker and the second half of the calendar year is usually much stronger.

Speaker #1: So June is traditionally a little bit weaker, but as Oleg mentioned, we see at least 10% quarter over quarter growth from June to September with another probably good quarter we expect in December.

Speaker #1: So I don't think that trajectory for Spirent overall changed. I think it performs really well with good margins and we are very, very pleased with this.

Oleg Khaykin: If anything, we are ahead of schedule on the roadmap integration. I mean, as I mentioned, we just released the first of the Ultra Ethernet transport testing, which is what you'd use for AI and high-performance compute workloads simulation. It's actually been much better than I expected.

Speaker #2: And if anything, we are ahead of schedule on the roadmap integration. I mean, as I mentioned, we just released the first of the ultra ethernet transport testing, which is what you'd use for AI and high-performance compute workloads.

Speaker #2: Simulation. So it's actually been much better than I expected.

Speaker #3: Okay. Great. Thanks very much.

Tim Savageaux: Okay, great. Thanks very much.

Speaker #2: All right.

Oleg Khaykin: All right. Thank you.

Speaker #1: Thanks, Tim.

Speaker #4: 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.

Speaker #5: Thank you, Kendra. This concludes our earnings call for today. Thank you for joining, everyone. Have a good evening.

Vibhuti Nayar: Thank you, Kendra. This concludes our earnings call for today. Thank you for joining, everyone. Have a good evening.

Operator: This event has now concluded. Thank you for joining VIAVI Solutions' Fiscal Fourth Quarter and Fiscal 2026 Earnings Call. The line will disconnect automatically.

Q4 2026 Viavi Solutions Inc Earnings Call

Request DemoDemo

Viavi

Earnings