Thank you, Hillary. Good afternoon, everyone, and 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.

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.

We reconcile these non-GAAP results to our preliminary GAAP financials and discuss their usefulness and limitation 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 will 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?

Thank you, Vibhuti. 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. EPS at 27 cents was also above the high end of our guidance range of 22 to 24 cents, and was up 5 cents sequentially.

On a year-over-year basis, EPS was up 12 cents. Moving on to our Q3 results by business segment.

NSE revenue for the third 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. 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 third fiscal quarter came in at $85.3 million, also above our guidance range of $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%, 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 the second quarter of fiscal 2026.

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 earn-out payment 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.

The prepayment is in line with our capital allocation priorities. During the quarter, we did not purchase any shares of our stock as we reprioritized 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 the third fiscal quarter. Moving on to our guidance for the fourth quarter of fiscal 2026.

We expect the fourth fiscal quarter revenue for Viavi to be up sequentially, driven by continued strength in many of our end markets across NSE and OSP. For NSE, we expect quarter-over-quarter revenue to be higher, as a result of continued 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.

For OSP, we expect quarter-over-quarter revenue to be higher, driven by strength across all of the product lines. For the fourth 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%, plus or minus 50 basis points. NSE operating margin is expected to be 18.7%, plus or minus 50 basis points.

OSP operating margin is expected to be 38.4%, plus or minus 40 basis points. 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 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?

Thank you, Ilan. 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 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 hyperscalers, drove strong demand for lab and 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.

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. 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 dynamics 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 in 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. 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.

Great, thank you. Hi, Oleg and Ilan.

Congrats on the momentum here in the business. I guess to start, Oleg, maybe we can just drill into the data center momentum.

If you think about sort of the first half of the year and what you're seeing here with the beat here in the March quarter and the guidance for June, can you detail out sort of a little more detail around the drivers by production, field, and maybe just kind of what you're seeing in terms of visibility from your customers? Obviously, a lot going on with AI infrastructure networks and that type of thing.

Just trying to get to a little more detail around lab, production, and field, and how you see that sort of trending from here as you look ahead.

Sure. 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. Everybody who is working on any kind of product out there that's going to 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. Also, exactly same equipment is being bought by NEMs for building optical switches and all the other gear that goes into the systems.

That's kind of on the lab side. On the production, we are seeing where a lot of momentum on this whole co-packaged optic area.

That plays extremely well to the traditional Viavi strength with the old JDS Uniphase products that go into the production line where you are measuring spectral performance, the optical performance of all the various optics. It's also we are selling now a lot of that equipment to the semiconductor vendors as they develop their integrated packaged optic solutions.

It's pretty much everything we do 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 perfectly aligned to our portfolio. 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've never seen so much demand for our fiber monitoring solutions. I'd say these data centers buying more equipment than regular service providers for the whole big network.

That is obviously driving the whole field instrument side of the business. It's now approaching close to I'd say 40, 45, pretty soon probably 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.

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 1.6T, 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—

Go ahead.

I was just going to ask. The question would be, sort of in terms of your mix here, 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?

Kind of how do you think 1.6T and some of these new products layer in, I guess, is the question.

It's all. 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 year and a half ago.

Actually, ironically, it was initially the NEMs, the optical equipment vendors, who deployed it first in development, and now it's spreading to the semis and the whole co-packaged optics. Yeah, 1.6 is ramping in a lab, and we also having some of the early production products to the module vendors.

There is no one way or the other. One is ramping into volume, the other one continues to be strong in the volume.

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 June quarter guide implying annualized earning of $1.20, which is much higher than the prior peak from FY '22.

With that 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 how the demand vectors that are materializing are going to enable you with longer-term earning power.

I have a follow-up.

It's a great question. I think, clearly, 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, you're getting about what, 40 to 45 cents dropping to the bottom line.

Ilan 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 going from was in a mid-60s to high to sub or 70s, now it's moving to high 80s to maybe low 90s. 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 are what, 23, 24%, and as NSE keeps getting stronger, that will keep moving into the mid-20s and maybe higher. In that respect, there is a tremendous operating leverage that comes with volume.

Also, we've been able to weather pretty well any kind of the price increases due to components and component shortages. 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, and fundamentally, it scales very nicely from here this point on. As our fixed costs fully covered, every incremental dollar is what, about 40, 45%?

Yeah. For modeling, Mehdi, on the NSE side, it's around today the 40% level.

Obviously, the top line, we assume will continue to drive as it continues to grow. When you think about the operating leverage and the operating income for NSE and the company—

I'll say, last but not the least, we've talked a lot about our NOLs. Guess what?

Now that we are generating a lot of profit and a lot of it falls in the US jurisdiction, because of where our IP and R&D is, all that incremental profit comes in at virtually zero tax

in the North America. This quarter, for example, the effective tax rate is about 12%,

definitely another

benefit there. Gotcha.

Okay.

The only little headwind you have is, with the converts, you get a a little bit dilution as your price stock price goes up. You got to factor a bit higher share share count in your calculations.

Okay. As my second question or follow-up, I want to come back to scaling.

Right now, again, midpoint 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'm on the assumption that wireline, especially as we roll out 1.6 and subsequent to that 3.2, offers the 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?

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. Then on top of it, you throw in things like co-packaged optics or near-packaged optics and all that.

Actually, you're not only growing with the market, you're also having a broadening of application areas where our equipment is being bought. For example, when you start manufacturing multimode and hollow-core fiber, before we never really sold into the manufacturing lines.

Now the level of complexity in these products requires our instruments. We are now seeing opportunities emerging where we'll be selling into the production environment on things like fiber manufacturing, right?

Things like people making co-packaged optics or integrated optics. Now you are selling optical equipment into the lab that before you only used for maybe a fiber optic modules.

Now they need to characterize and design these optical components. Then all these optical components need to be tested in multiple insertions, because the yield is so critical.

When you build this whole module, if you have one device is bad, once it's completely sealed, you can't rework it. 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 ASIC onto the module.

In that respect, it drives a tremendous amount of test requirements in the manufacturing process.

Sure. I completely understand.

I think your booth at OFC in March was illustrative of these increased test insertion points. I guess back to my question.

Could these opportunities help you with a $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?

Oh,

I think it's entirely realistic. Look, I think this quarter, we are right, midpoint is what, around $232?

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 that next-generation optical equipment and components come into being. You look at some of these new high-power Ethernet switches and they embedding 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 also driving the wave. Last but not the least, wireless will not be down forever.

Eventually, we do need to consume all the data and all the AI through our 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, 45%, depending on the quarter, and that alone would drive $20 to $30 million additional quarterly revenue.

Mehdi, 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—

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

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.

Yeah.

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, 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?

It's fairly well, and it varies quarter by quarter. Let's put it this way: the actual data centers are buying quite a bit.

I'd say, if you only just take the one single segment, I would say hyperscalers would be a biggest bucket, because they not only buy equipment for data centers, but they also run their own R&D, developing their own processors and modules and the optics, right? Within the hyperscalers, I'd say there is the ones who are much more into doing their own stuff are actually much bigger, and then some that are not so big.

It's percolating across, right? Then next big bucket would be the module makers and the system makers, right, people making optical modules and optical systems.

I'd say the next bucket is the silicon vendors. I haven't really looked at it, but it's I'd say a fairly even balanced distribution.

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 both the product side of the house, as well as the sales side?

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 established reputation and 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 together.

I'd say the first truly integrated product that we're going to have between them and us is 3.2 terabits. We are doing very well already leveraging our 800-gig position with their 800-gig Ethernet test, and, 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.

That's great. Sounds like the cross-selling is already beginning there.

Maybe

if I could get one last one in here around emerging product areas, obviously, defense is one. How'd 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 this satellite arena? Do you see that as emerging opportunity for LEOs?

Thank you.

Sure. The positioning, navigation, timing, I tell you, a lot of the revenue what we're seeing today and driving today, most of it was actually designs that were won before we acquired them.

We now starting to see even things ramping up ever since we acquired it. If I look at the funnel of wins in the last, say, 12 months, as these things kick in, that momentum will continue to drive that business.

It's all good news, and, clearly, drones is a big one, but pretty much anything autonomous, whether it's air, land, sea, or undersea vehicles creates a great pool. We are now winning some of the US Tier 1s.

Traditionally, they were very strong with Tier 2s 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 around the implementing ITAR and various secure access systems, we are now being considered by US Tier 1 players, and we are starting to play in much bigger leagues in that respect. That was the aerospace defense.

Your satellite question, wireless? As I tell my wireless team, when the market is awful, focus on the next generation, and it's 6G, it's NTN, and all these kind of applications.

We are very heavily involved with kind of the 5G+, 5G++, 6G, and 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.

Terrific. Thanks, Oleg, and congrats again.

Thank you. I 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 demand, or if the supply constraints limited you. As sort of like an addendum to that question, 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 increases in visibility a couple years out.

I'm wondering what your visibility's 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, Andrew. We don't have the volumes to enter into long-term supply agreements.

Remember, test and measurement, usually you're leading a lot of the volume market, 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, 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, in test and measurement, you generally pay the highest ASP of their price distribution, it's never a problem to get it, you just got to make sure you get enough notice.

I would say, if we say supply shortage would not be because we could not get the material, we'd get an upside order with too little lead time to get it in. Generally, you pay more money, you always get the product.

The nice part about being on the bleeding edge of the test and measurement, people need the product that works, and pricing is secondary in that respect. Now, as you get into more mature products, like field instruments, handhelds, yeah, there cost is very important, and there we generally maintain inventory.

We got a lot of headache from my CFO and our audit committee a few quarters back, because we went in and put some product on the shelf, because we anticipated the shortage coming in, and today, we look pretty smart as a result of it, and nobody's complaining. In the end, you got to manage your supply chain, and last thing you want to do is be a penny-wise and pound-foolish, and if you don't pay, then don't complain nobody's going to give you any availability.

Clearly, there is supply shortage, especially memories. Listen, I think memory is going to be a deficit for the net till 2030, according to some of the studies I've seen.

Given our volume requirements, it's not such a big deal. I think having product available ahead of everybody else and having early access is probably what's more important.

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

We look two, three, four 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.

Appreciate that color. I have one follow-up.

I wanted to ask, you talked about incremental margins earlier on the call of 40 or 45%. I think that makes a lot of sense.

It looks like that's what's in your numbers for Q4, in your guide. I'm trying to think about how to think about fiscal '27.

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 of restructuring.

I think you acknowledged some of that will probably get reinvested. I'm wondering if at this point, you could give us any color on maybe how much of that is going to drop to the bottom line, how much of that is going to be reinvested.

Frankly, my assumption would be a good chunk of that is going to hit the bottom line, maybe incrementals in fiscal '27 are closer to 50%. I wonder if you comment on that.

Maybe I'll start and Ilan will give you detail. We're going to implement most of it by the end of our fiscal year, the June quarter, and there's 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? Yeah.

Andrew, the 40% fall-through that we see right now, 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 the seasonality that Oleg mentioned in the prepared remarks.

If you think about the September quarter, usually, it's a down quarter for us, etc. We need all the restructuring to materialize, and that will take also until the end of the calendar year, this calendar year.

The increase in the fall-through from the 40% level is fair to assume that, with the top-line kind of growth will 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.

One thing I just want to 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 March and September quarter would be the down quarters, because that's the type of spending of service providers.

By the way, that pattern is still there, except now it's on a much smaller scale. Because of aerospace and defense and our data center business is growing so so strongly, it's more than offset.

You still have that underneath it, you have that up and down. You would see 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 service providers. Then in December, you'll have a tailwind again.

This thing is still there, it's just becoming more and more muted from impact on overall Viavi.

Right. On a on a quarter on quarter-on-quarter kind of trajectory, overall, December is stronger versus September, and September is still more muted relative to June.

That's right.

Understood. Thanks for taking my questions.

Hey, thanks, and exciting times, guys. Congratulations for being right in the middle of it.

Oleg, I keep hearing now as we go to 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's so much testing to be done with co-packaged optics.

My first question is, do you agree that testing is a bottleneck, and if so, how will you address that over time to take advantage of that?

I'll say, amen, brother, you're absolutely right. Packaging used to be kind of a back-end afterthought.

It is now the system. It's now strategic asset.

You look at companies like, well, I don't want to name names, but all the leading semiconductor companies, package is now the system. You're looking at integrating glass substrates, you're looking putting photonic integrated circuits next to the electronic integrated circuits embedded into this whole CoWoS chip-on-wafer on substrate, right?

You're building this really complex thing, and then you're putting now all this co-packaged optics on the periphery of the chip. This thing is starting to look more and more like a brick, and some of them weigh — we're talking about kilos of weight, right?

To me, that's like music to my ears, because, as you probably know, I started in this industry, I ran Amkor. It was like a old Rodney Dangerfield, you get no respect.

Now, the respect is hugely, and 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. That's a whole new business that we did not even have.

Then, 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, it's like 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.

Right. Then just as a follow-up, with newer things like OCS, where I think you're probably going to have very high market share for testing, and then for co-packaged optics, are these in the numbers at all yet, or this is all in the future, I assume?

I guess maybe my question would be, how do you define the foreseeable future when you're saying that you feel great about the foreseeable future? How far out is that?

I would say it's not

in the current numbers, it's kind of the early sales. I'd say foreseeable future, you're talking two to three quarters when it starts ramping up.

The future is not that far off. What

I guess

selling right now is the early inning.

Right. Just to clarify the foreseeable future question, in the press release, you said something like, "We feel great about growth into the foreseeable future."

Is that multiple years that we're talking about?

No. No, no.

Generally, we as a practice don't want to go beyond end of the calendar year. When I say foreseeable future is next three quarters.

Perfect. Again, congrats.

Sure, thank you.

good afternoon and congrats on some pretty spectacular results. Pretty simple question to start with.

Actually, a confirmation then a question and maybe I'll get a little more complex from there. Spirent was $54.2 in the quarter.

Is that right?

Correct. That's correct.

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

Spirent benefited from a few orders that we mentioned already in the last quarter that got pushed out to this quarter. This quarter, that's the reason that it's a little bit stronger than seasonality.

We still expect on an annual basis, calendar annual basis, a similar run rate of round about the $200 million that we said, with a split of around 45%, 55%. That takes you, if you normalize everything, still back to just shy of the $50 million, maybe $48 million, for the June quarter.

Okay. That's a good answer, because that speaks to higher levels of organic growth in your NSE business, 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 call it organic NSE, continue over the next couple, three quarters?

One thing about percentages, it's very hard to maintain same percentage. Because 30% on one number is much smaller than 30% on a much bigger number.

I think if you look at about growth in the absolute dollars, that's what we're striving to try to maintain.

I'll add also, Oleg just mentioned earlier, the service providers, which is part of the core NSE.

Yeah.

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

It's all

I think he's talking about year-on-year.

Year-on-year,

when you look at quarter, same quarter, same dynamics, yeah, I don't think you can say like, hey, 40%,

but

I think still a high number should be realistic. Because 40% on $400 million is one number, 40% on $200 million is a very different number, right?

I got it. Although, I'd say consensus probably has you with high single digits right now given what you reported, you could probably do a little bit better than that, maybe double that or more.

For the full year? For

the full year of '27. 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 it 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.

I'll tell you, if everybody spends what they've claimed they're going to spend, we've still got a lot of growth to go on, right? If you take those assumptions, I'd say we're still in the fairly early segment of the ramp.

Message received there. Would you say data center, and again, this kind of with and without Spirent confuses thing, I assume with, data center's solidly more than 50% of NSE revenue.

What I was looking for is however you want to break it down. I think you'd said 45, 15,

and 40 before. I think right now the exit velocity this year is inching to the high-40s, the service provider are inching towards mid-30s, and aerospace and defense is little over 15%.

I wouldn't be surprised if data center in a not-distant future gets up to about 50% of our NSE revenue.

Got it. Thanks.

Okay.

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? Obviously, there's a lot of demand and new programs in that space, and I'm just wondering what you're seeing in terms of opportunities, how is that business positioned?

Do you have all of the approvals and the ability to sell into all of the customers? How should we think about that opportunity over the medium term?

It's a good question, Andrew. You can judge from it the mere fact Ilan 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. That's, I'll tell you, in my career, I've made about close to 40 acquisitions.

There's been only two of them have exceeded their first-year forecast. Okay?

This is the only one at Viavi, and that business is doing extremely well. 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 GNSS, the location, the ground speed, the lidar, and all these other things.

We're engaged with pretty much every drone, munitions, subsystem vendor of interest out there, both in US as well as in the rest of the world. Now, 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 a export approval. If you're making a product that's more commercial, let's say you're doing a surveillance drone or agricultural drone or something for mining industry, those things are deemed to be commercial.

We have a very clear boundaries, and how we define the products, how we grade them, and obviously, how we price them. Some products that you can only export through the US government export license, others you can just sell as a commercial product.

Just one follow-up on that. Sounds like there's particularly strong growth and demand for lower-cost drones, and I'm just wondering, without knowing that market all that well, would the Inertial modules or some of those gyroscopes or sensors that Inertial sells, would they be applicable for the lower-end drones, for that opportunity?

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.

Perfect. Thank you, Oleg.

Sure.

Thank you, Hillary. This concludes our earnings call for today.

Thank you for joining, everyone, and have a good afternoon.