Viavi Solutions Inc. (VIAV) Earnings Call Transcript & Summary

Ladies and gentlemen, please take your seats. The Viavi 2022 Analyst Day meeting has begun. Here to kick off is your host, Sagar Hebbar, Head of Investor Relations at Viavi.

Good morning, everyone. A warm welcome to everyone here in Boston with us as well as everyone joining us via webcast. I am Sagar Hebbar, Head of Investor Relations for Viavi. We are thrilled to host you for Viavi's 2022 Analyst Day event here. A quick look at the agenda here. Oh, sorry. Today, you'll hear from Oleg Khaykin, our CEO; and Henk Derksen, our CFO.

Good morning, everyone.

Oleg and Henk will share the progress that we have had in the last 3 years since our 2019 Analyst Day event. They'll also share the strategy for the next 3 years as well as the financial objectives taking us through 2025. Oleg and Henk are happy to answer any questions that you might have at the end of their respective presentations. For those of you on the webcast, please follow the instructions that were sent to you earlier. For everyone here, just raise your hand, and [ Betsy ] or Amit or me will bring the mic over to you. Finally, for those of you here, we have amongst our senior Viavi business leaders as well as functional leaders who are happy to answer any questions you might have at the booth at the back of the room as well as during our sit-down lunch. A quick look at our safe harbor statement. Please note this presentation contains forward-looking statements regarding future events or results, including, but not limited to, Viavi's business plans, future financial performance and related matters. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those stated, anticipated or implied by such forward-looking statements. For more information on the risks and uncertainties associated with Viavi, please refer to the MD&A and Risk Factors sections of Viavi's most recent annual and quarterly reports filed with the SEC. The forward-looking statements contained in this presentation are made as of the date hereof, and Viavi assumes no obligation to update such statements. A quick note on the financials here. Most of the numbers presented are non-GAAP for adjusted financials. Some of the materials on the slides rely on internal Viavi assumptions and definitions. A complete reconciliation of our non-GAAP financials to GAAP financials is there in the appendix. With that, I would like to invite Oleg to share our strategy.

Thank you, Sagar. Good morning. And welcome, everybody, to our third Analyst Day in the last 6 years. This is my -- I did the first one when I joined in 2016, then we followed up with another one every 3 years to lay out our next 3 strategy in 2019. At that time, we did anticipate 1 down year and 2 up years. In this thing, we did not foresee the once-in-100-year pandemic. But that said, I'm proud to say we've done pretty well against our targets. And we would, today, like to share the results as well as really spend most of the day talking about what we expect in the next 3 years. What I would like before we start is just to recap where we left off 3 years ago. Our strategy was very simple laid out, was the #1 or #2 in every market we compete. It was about defending the base, consolidating and restrengthening our NSE business, restructuring our SE business and making it a focused SE business as we decided where we want to play in that space. And in OSP, continue to drive our anti-counterfeiting products in the market and the high-value optical coatings. We identified several major growth waves: fiber, 5G and 3D sensing as the kind of growth vehicle, growth markets for us. We had a lot of legacy products that will continue to decline, but those were the 3 things that we saw as the -- truly going to be a super cycle. I think we used the word even back then as a super cycle, and it's truly turning out to be a real super cycle when we talk about fiber and 5G, and we'll talk more about it later today. And continued to look for opportunities to acquire companies both through strategic as well as the tactical acquisitions to enhance our technology and continue to drive the productivity. So where are we today? If we look at where we are today, Viavi is about $1.3 billion revenue company based on the last fiscal year. We have over 1.6 million instruments deployed in the field today. Over 10,000 assurance solutions, it's our software offering deployed today. And over 2 billion 3D optical filters shipped to date. We're a little over 3,600 employees, but the same numbers we were 3 years ago with a much higher revenue. And we go to market through our direct sales force with the help of about 400 channel partners. Our solutions are deployed in over 100,000 data centers and over 200 service providers. So essentially, every major service provider and minor service provider on the planet is a Viavi customer. Our technology is differentiated by a deep knowledge in technology and leadership. We are, first and foremost, a technology company. We drive our leadership through innovation and technology development, and it's backed by over 2,500 patents. On top of it, we are actually very aggressive in developing new technologies and filing patents. The 2 areas where we've been spending the last 3 years doing a lot of development was a 5G and subsequent 6G and 3D sensing. And today, we have about over 1,000 additional patents pending. So most of our patents are ultimately clear, so we're looking to have even stronger IP position at the end of 3 years. Operationally-wise, we have been successful at defending and expanding our market position. Today, in every market we compete, we're a clear #1 market leader, not even close in any -- we were -- we started out #2 in fiber, then were tied, became a little bit #1 in fiber and now we are by a big mile ahead of everybody else in fiber. One of the new segments we added to this list is the PCIe protocol. For those of you who are familiar, this is the new lingua franca in the communication infrastructure development. A lot of the custom fabrics, switch fabrics and high-speed buses have fallen by the wayside and the industry has converged around PCIe protocol. We started in that business about 5 years ago. We kind of made a big splash with the PCIe 4.0, and we have gained a clear advantage with the PCIe 5.0. And today, we are a very strong #2 in the market, and our goal is to become #1. And that's -- major customers here are storage companies, semiconductor companies and equipment companies. So that's something to watch going forward. And in the optical space, we continue to be very strong #1 in anti-counterfeiting pigments and in 3D optical coatings. And I will talk about it more, but the whole optical filter space is expanding. And whereas 3D is a narrow subset of it, mainly dealing with the machine vision. We are seeing a lot of new opportunities using the same technology and a lot more applications, and we'll talk about it more later. Performance-wise, I mean, last 6 years was a steady grind as we improved our revenue, restructured the company. And you can see in the last 3 years, even with the pandemic, the worst year was fiscal 2020 when the pandemic hit us halfway through the year, winded up being flat and then resumed growth in fiscal '21 and in fiscal '22, growing revenue very nicely from about $1.1 billion to $1.3 billion, but at the same time, expanding our operating margin and significantly almost 50% expanding our EPS. Well, I mean, one of the things I also want to point out, when people talk to us, they think about JDSU. Well, if we look at our networking business, it's nothing what it was like in the days of JDS Uniphase. We have fundamentally better revenue profile, a better growth profile and a better customer profile. So 6 years ago, a little over 50% of our revenue was, what I'd call, legacy or mature markets, which means they were flat or declining. And about a little under 50% would be growth markets means they were growing 5% to 10%. If we look at where we are today, over 80% of our product lines are in what I call the growth markets. And clearly, you can see the scope of growth in the last 6 years it has happened because -- and it's more impressive because remember, a lot of that mature revenue has declined and gone away. And you can see what it is when you look in particular at the -- by technology breakdown. I mean we had a huge copper business, around 30% in 2016. That business has shrunk into like low teens. And then wireless and fiber has grown significantly as well as others, which includes our service assurance, Mil/Aero and avionics businesses. So fundamentally, every other business with the exception of copper is a growth business for us. So when we look about growth going forward, and Henk will update you, we're actually upping our growth in the next 3 years from what we guided 3 years ago. Because 3 years ago, we still knew we had a big chunk that was going to go away. And even with the growth, we couldn't offset at all. And today, with most of that thing has gone away, I mean, really fundamentally, our growth profile and product profile is much more exciting. And the last but not the least is the look at the customer mix. Six years ago, we were over 80% service provider-dependent. And it was predominantly North American, the big 2 service providers, and we all know how neurotic that business can be. One day, they're spending and people spending on infrastructure. And next day, they're buying movie studios. Well, I think a lot of the insanity has gone away, and really everybody is now focusing on their networks and clearly understands what their role in life is. And we have also diversified significantly into Europe and Asia. So while service providers continue to be a major segment for us, and it has actually grown in the -- from the 2019, it's -- really what's more impressive is all the other customers, and that's NEMs and semiconductor companies as well as the aerospace, defense and the government. So we like that -- while we like all our customers, this segment is particularly interesting because your budgets are part of the annual operating plan, CapEx for engineering and that money gets spent, so you don't rely on any one particular earnings cycle of any particular operator. We find it -- effectively, this is where we develop our technology and also funds a lot of our advanced R&D because they are usually the first ones to adopt the technology through the lab. And then later, the technology flows into field instruments, which is consumed by the service providers. So net of it is we are basically not your father's JDS Uniphase. We're the new Viavi with a much healthier market mix, product mix and the customer mix. So with that, we're saying, what's next? Well, as I say, strategy that changes every 3 years is not a strategy. I mean our strategy largely remains the same, but we make tweaks every single time. So we still have a very strong focus. If we cannot be #1 or strong #2 with the path to #1, we don't stay in these markets. Our first point is always, and we have a lot of members of my executive team and he's been groomed, once we take territory or we take market, we never leave it, right? And that means defending our base. Because no matter how good our growth can be in all our nice growth markets, if our base business will lose market share, the platform sinks and it becomes that much more difficult to drive growth. That means in NSE, continue driving integration across all our instruments left to field. So effectively, not only taking the technologies we have developed for the lab and migrating them into field instruments, which gives us significantly better return on R&D, but also then integrating all our network instruments. So no matter what instruments from Viavi you bought, it seamlessly works with all the other instruments. And the data that it captures is uploaded through common protocol and common data set -- data format into the cloud, which can be further analyzed, enhanced and used by customer or other Viavi products. But also -- so that's integrating the instruments across thing. The next thing is also integrated our service enablement and network enablement products. So it's instruments in our software. So all the data that our software captures and generates. And think about it, ultimately, every Viavi instrument is a sensor and it collects a ton of data. All the data gets uploaded in a common data format into our NITRO platform architecture. And within that platform, we do a lot of enhancement and correlation on the data and turn that data into a very intelligent information that could be used for other products. So driving greater level of integration between our network enablement and service enablement product is really what we are driving over the next 3 years. We already have a lot of things already in place and would only become better. And the ultimate goal is once a customer enters Viavi infrastructure or ecosystem, it becomes common sense, logical sense to do everything with Viavi because it's better productivity, better performance, better bang for the buck. The -- on OSP, we continue to drive innovation in anti-counterfeiting. Our -- we're developing -- continue developing new technologies and new pigments that go onto multiple nodes. And one of the big innovations we've done is, clearly, our features get adopted on high-denomination nodes. In the last few years, we've seen a lot more of them through our improved economics to push these features down into lower denomination. So the volume of nodes using Viavi pigments continues to grow, and I'll talk about generally the currency markets and how we see them. And the second element is continue to develop high-value optics. 3D sensing is only one of the segments of high-value optics, which has kept a lot of imagination because it goes in every mobile device made by a certain company in California. While I would say I'm disappointed that the Android ecosystem so far has not managed to deploy 3D sensing, it proved to be a lot more complex technology. We do see the technology as being rapidly adopted through the machine vision in robotics, industrial and automotive applications. And we think, I'll say, in the next 3 years, while that particular segment is going to be more flattish, we see the growth renewing as automotive application adopt it. But that said, we should start thinking about it, and I want to shift gears. We talked about 3D sensing, and it's great. But also let's think about optical sensing in general. Because the medical devices, the things you wear on your wrist that monitor your health and other things, use exact same technology that we use for 3D sensing. And our ability to put up to 64 or more filters in a single piece of glass significantly enhances the silicon performance or sensor performance for a lot of advanced medical and other type of applications. So we see a lot of interest in our high-value optics as they get more consumerized. And last but not the least, continue to drive the operating leverage, driving productivity to expand contribution margins and increase cash flow generation. So that's defend the base and extend our leadership in there. The second part, continue to ride the super cycle waves. So now we call them super cycle because they've been now more than 3 years. And I don't think we're going to see any end to it, at least for the next decade. We see fiber densification driven by significant demand in fiber to any type of premise. The cable networks are really becoming fiber networks. They are pushing fiber deeper and deeper into network. When we talk about 5G wireless networks, it's synonymous. And in fact, it's becoming difficult for us to truly clearly track the RF and fiber revenues because both products are now in one instrument. Because when you talk about 5G, it's basically fiber as well as the wireless. And when you talk about a lot of like second-tier or third-tier fiber companies, they're deploying their network deep into the Tier 2, Tier 3 cities purely with the intent to offer wireless connections to the wireless base stations for wireless carriers. And of course, the data centers. It's -- so all of that is really driving a lot of fiber. So it's no longer just undersea cable or transcontinental network. It's now fiber everywhere. 5G, unlike I said 3 years ago, it's unlike any wireless technology before. It's not 1G, 2G, 3G or 4G transition. It's a complete revolution in how the network topology works, and it opens up a lot of new markets and applications that 3G and 4G never did. So it's -- we view it as becoming several things driving. One is becoming a fairly open network with a lot of new players entering the space. And as a test-and-measurement provider, the more customers you have, the better. And we see the emergence of private 5G networks in addition to the public mobile 5G networks as a huge area of opportunity for us. So effectively, we're seeing the enterprise network going to private 5G wireless, which means we can now take all the technologies that we only sold to service providers, miniaturize it, scale it down and sell to every private 5G network. And just to give you an idea of the early adopters of private 5G networks: ports, airports, any kind of big infrastructure, big industrial installations, government facility, military bases, down to making every ship in the Navy, basically a private 5G network. So we see a lot of opportunity there. And of course, with public 5G networks comes the whole idea of intelligent edge. All the data I was talking about earlier we're capturing, well, that data uploading and getting enhanced becomes a source for a whole lot of intelligent edge applications that we are looking, and I'll be talking more about it later. In the 3D sensing, extending the optic -- 3D sensing optical to the not only mobile consumer, I think eventually maybe Android will get it right as well, but automotive, medical and actually start opening the zoom to look at the bigger space of optical sensing. Effectively, you can either spend a lot of money on your silicon to process a lot of data and clean it up or you can spend relatively little money to put a very intelligent piece of glass with a thin film on top of it, which cleans up all your noise and gives you perfect data that immediately can get processed. So I mean you could also take it as far as saying the level of energy savings you do by not crunching a lot of data to clean up the information that you get through optical sensing. The third one is we have a lot of technology. I mean we are a big player in the service provider space now in the lab and the advanced research. A lot of this technology is fungible into other markets, and taking it and playing it. You saw some of the earlier videos into avionics, military communications, the public safety, navigation and other type of advanced applications is the opportunity for us to grow by leveraging what we already have into new markets. So that gives us additional leverage in our OpEx. So we spend a lot of money in R&D, and the more vertical markets we can serve with our technology is the better it is, and I'll be mentioning that's going to be one of our -- and the nice thing about it is all these markets are growing fairly rapidly. And last but not the least, continue to be aggressive in driving productivity improvements in operations, R&D and SG&A. So I'll talk first about defending and consolidating our leadership in core business. Well, I mean, I'll give you an example. Viavi force multiplier, why do we win? And it's really an integrated lab to field to assurance. It's basically a whole life cycle, starting from the lab where we develop technology for the lab, migrating them into the field instrumentation and the data that we generate, capturing and assurance, providing a seamless life cycle for the technology. Nobody of our competitors can match it. Now we still go and sell it as each individual piece because a lot our -- the way the customers buy, they don't think about the whole thing, but they buy a lot of pieces. Once they own a few pieces of Viavi, they say, "Oh, wait a second. Look at these clever things I can do because of all the things that's happening." And then it gets bigger aha moments. Like, "Oh, if I do more and I double down on Viavi, I can get a bigger bang for the buck." And just give you an example. So here is in lab. When we acquired Cobham, we only had a few products in the lab. Today, with the whole 5G and ORAN, we have test solutions for the lab and across the entire network for every interface in between, right? So that's a technology we developed for the lab. Now taking this technology and pushing it down into every instrument from antenna alignment to the cell tower installation and certification and optimization, to the timing, to the network optimization and all the way up to the NITRO service enablement platform where all these data gets collected, gets uploaded into our Viavi cloud or private on-prem cloud and gets analyzed and delivers valuable insight. And this is where the assurance comes in because all these data that captures over here gets enhanced, get analyzed, gets uploaded. And you can use any of these assurance applications, whether you're a cable company, fiber company, fiber transport company or enterprise, you get the value of all these analytics. So to us, ultimately, it's a one slide that captures it all. But in the end, you can buy just 1-point solution. But the more you buy, you quickly realize, "Hey, I'm just going to stay at Viavi shop because we can give you everything." In the traditional markets, we still see anti-counterfeiting contrary to popular belief. The rumors of currency demise are greatly exaggerated. It's still a very good market. And the thing is for us is where our features get deployed on every major currency. Right here, right here, right here. And traditionally, every advanced technology we launch goes on higher denominations. So the adoption of our features continues to happen across the world. But now also not only adoption, also penetration, now they're going to lower value currency. So that continues to drive a number of nodes printed with Viavi solution, drives the amount of pigment that we are selling. On the high-value optics, it's your government and aerospace drives the technology development and adoption of technology, but then we take this technology and push it down to a more consumer and mobile applications. Just briefly talking about the currency, right? So this is a slide we presented 3 years ago. The purple one was the -- sorry, the blue one was 2018 actuals and it projects -- purple one was the projections, how many nodes will be printed in 2023. Now only -- really most of these countries don't share the data. But the ones that do, the U.S. and eurozone, you look at the actuals for 2021. Well, now we know while we have inflation and all the stimulus and COVID, they actually printed way more nodes than anybody anticipated, right? And while it's maybe slowing down, there still continue to be some economic stimulus. But also now there is inflation. What does inflation mean? You print more higher valuation -- higher value denominations, that also drives the demand. And now once you have all these nodes in the field, you've got to periodically cycle them over and turn them over, right? And so that drives the business. Well, it's -- I'd call it a mature, slow-growth business. It's a gift that keeps on giving. And we continue to, at least in the near term, to be optimistic about the value of the business as it generates significant cash flow that funds a lot of other things in Viavi. And there's many reasons why any time there is a crisis, cash is the ultimate storer of value. Okay. Now I'll talk about the super cycle. So let's look at the fiber. I mean when we think about the fiber, why we talk about a super cycle? Well, in the old days, it was transpacific, transatlantic and the transcontinental fiber. Then it was metro rings. Well, today, it's a lot of things. Clearly, I would say one of the biggest drivers today is the mobile data traffic. And with the advent of 5G, every radio terminates into a fiber. So it means you have to have a fiber connection in order to install 5G, big cell, minicell or microcell, whatever, picocell. So that alone will drive significant number of connections, but also there is the mobile traffic. Not only you need the connections, you need a bandwidth as well. So that means you need to keep scaling bandwidth in the core, in the metro and in the access, right? On top of it, there is massive government initiatives in Europe, North America and Asia to drive fiber connection to the home or any premise. In the U.S., almost every house has a cable. So a lot of people use cable as the primary source for broadband access. Most of the world was relying on DSL. Well, DSL has run out of steam, and you cannot do any of these high-speed broadband to the home with DSL. So all these countries are driving national initiatives to connect every household to fiber network. It's like having electricity. In U.K., we are probably halfway through a national initiative to connect every home to a fiber network, and I think Viavi is over 90% in every connection. And here, unlike with the DSL where we only sell the instrument, in fiber, we sell several places. We sell fiber monitoring at the head end. We sell the fiber instruments to build out the networks, and we sell fiber instruments to make a connection and certify a connection. So we actually get more revenue for every fiber connection than we get with DSL or cable. And $100 billion-plus in government and the private investment. I mean I was at the conference recently, and I was blown away how many Tier 2, Tier 3 fiber operators are there laying fiber. I'm thinking, "Why are you guys putting fiber in this Tier 2, Tier 3 cities?" Their point is like, "Hey, once we lay it, when any T-Mobile, Verizon, AT&T comes here, they need to hang their base station. We are the ones who sell them the connection." And that makes sense. Plus, this whole rural broadband, a lot of the government money will go to these companies. High-speed Internet. Days when 30 meg was more than enough, now everybody wants 0.5 gig up to 1 gig downstream and at least 50 -- 30, 50 meg upstream. That's driving a lot of bandwidth expansion in the metro space. You can no longer just have a 10-gig line, you need to have now 100 gig in the metro. The whole emergence of globe industrial IoT, it's much bigger in places like Europe with their Industry 4.0. Also involves massive investment in fiber. Fiber to the home, I mean, even in the U.S., it continues to grow and major players driving it more and more. And last but not the least, the data centers. As the world goes to primarily relatively few hyperscale from on-prem data centers, means every piece of information you need to bounce to the data center and come back to you, which means a lot of bandwidth, a lot of fiber. And we no longer see much CAT 5 wiring inside of data centers. It's all fiber everywhere. And in fact, if you look at any data center today, it looks like a miniature version of a country with the fiber connections everywhere. So it plays very well to our strength. Some statistics. You look at the U.S. number of fiber connections, hyperscale colocation market size, it's all growing and it all requires a massive amount of investment in fiber. And as you get more and more fiber, the bandwidth increases. And you see effectively, we were talking 6 years ago about from 100 gig going to 400 gig. Three years ago, 400 gig going to 600 gig and 800 gig. Well, today, we're already talking about the terabits of data. So labs today are running at 800 gig, production and deployment is at 400 gig. In 3 years, we'll see a lot of 800-gig systems, and then a lot of the lab work can be done in terabit. And that's great for us because we develop technology for the lab here and then we migrate it to production, and we migrate it to the field. So as we migrate, we scale it down, cost reduce it. So for us, for anybody who wants to compete with us, they have to do the development upfront. They just cannot match the scale and scope of the R&D. We win by providing the most comprehensive fiber solution. So no matter what you are, if you're developing fiber equipment or fiberoptic modules or just fiberoptic cable, Viavi has everything you need in your development. When you start producing high-volume production, you need a high reliability, rugged test equipment to test your fiber, test your fiberoptic modules, test your fiber gear, test your fiber switches. Viavi, again, with a whole new portfolio of products here. And then all of these technologies get miniaturized and deployed into fiber instruments needed for building, certification, monitoring and troubleshooting and maintenance of fiber network. And then on top of it, as you capture all these data, you upload it into the cloud on NITRO solutions and fiber monitoring system, take it and tell you if anything is going on with your network. So it's pretty much a great leverage of R&D from the lab all the way into production into the service assurance. On a 5G super cycle, I mean, clearly, mobile networks is the biggest driver. But as mobile networks get adopted, the thing you see today, talk everybody, Ericsson, Nokia, Samsung, everybody talking about is a private 5G network because they view it, and I agree with them, it's the next step in the enterprise network evolution. And it's a huge thing for us because today we play very little in enterprise because that was the CAT 5 in structured cabling market. Once it goes to fiber, we are the natural beneficiary of it, and we have everything from the instrumentation to the intelligent edge applications to the infrastructure to enable all of those products. And I'll talk about them briefly shortly. Also using 5G as the backbone, transport. Again, we play very well in that space. And also during the last mile and from the -- either you're a cable provider or a fiber provider, you want to connect to the home using 5G, fixed wireless plays very well to our capabilities. And so how do we win in 5G? It's the Viavi. Six years ago, we had nothing in here practically. Today, we got everything. So I'll go through each one of them. It's a virtuous cycle of lab and production to 5G site installation automation, 5G assurance and optimization, monetization of the 5G network. So let's talk about the lab. So we have -- we're the #1 player in the world with every major infrastructure, 5G infrastructure, equipment manufacturer. Whether you are developing devices that you need to emulate, load emulation, or you do RF emulation in a lab or transport verification, the whole thing as you're developing your network gear, we got the full solution. And clearly, the biggest boost to us was acquisition of the Aeroflex or Cobham assets, right? That gave us the position. Since then, we doubled down and significantly expanded our R&D and flew it down into the instrumentation space. So effectively, we own the 5G infrastructure space in R&D in the lab and production. As they started taking this equipment into the field and they range a whole lot of problems with a 5G because it is a very different technology, we saw our knowledge of what's going on in all the issues that came up play very well for us to develop the next step, which is the set of capabilities to help build out the cell site, certify it, layer 0 to layer 4 testing, make sure that it's working, antenna alignment optimization. In the 4G, typical antenna had plus/minus 15%. It didn't really matter. In a 5G, you need to be within a couple of degrees because any deviation results in a network degradation. And in reality, they need to build more stations. So if you adjust your antenna, optimize your antennas, you can reduce the amount of CapEx you need to put in. That's a very powerful thing. The next one is beam scanning, understanding what's going on with all the beams because beams are getting into interference and all kinds of things, right? Line of sight verification and the whole beam verification, like the 3D building a map and saying, "Hey, I know I have a good 5G transmission. But how does it look on the third floor of the building? Where am I seeing dark spots or blind spots or a lack of coverage?" So that is a set of software and hardware that allows the installer to optimize the network and make sure that 5G is working well. Once your network is up and running, the next step for you is to optimize. Just because you have 5G connections, it doesn't mean your applications are working on it. And that's really our whole -- this is our service assurance together with our instruments that make sure that everything is running well. Timing is very critical for 5G networks, timing, synchronization. The fiber, making sure that the interface within fiber and RF is functioning well, right? And then as you get into the network, the network assurance and servicing customer assurance. So making sure that your -- the service level agreements are performing to where you need to be with your customers and things like that. And so in every one of these steps, there's a lot of data being generated and collected and all goes into the cloud, either Viavi or the private cloud. Big service providers maintain their own private networks. Although many of them we see now going to like Microsoft and others, but it's still their virtual cloud. All the data goes in there, and it collects a lot of information. Making sense of that information, capturing it, enhancing it, correlating and providing useful insights is the next step, what we call 5G optimization and monetization solution. I'd say this is probably next couple of years where we're going to see coming. Today, a lot of what we see is really in the lab and production and installation. This is where most of our sales are happening today. We're already in discussions on a lot of desks here, and I'd say this is kind of the next step. In OSP, it's really continued to drive the advancements in the high-performance optical coatings. And we see the consumer, industrial and automotive as the big drivers down the road for us. We started out initially just -- really just providing the filter. We now have a whole family of light-shaping optics. So effectively, if you think about it, the optical path for any machine vision or optical sensing requires 2 things: the light-shaping optics and the filtering. And here, you see a sensor. What we're seeing here is instead of just having one monolithic silicon that senses one thing, we see more and more people integrating multiple sensors on one piece of silicon. So you can sense ambient light, you can sense the image coming in. Well, in order for you to make sense of it, you need to have some very intelligent filtering, which means this needs to be able to do just that. Different sector gives you that. I call it software-defined sensing. You can pick a segment of the filter that's receiving information and that piece of the filter needs to be giving you exactly that. And we see a lot of opportunities here with the -- clearly, today, still the biggest market is mobile consumer with a lot of industrial robotics and machine vision, kind of the next market, and I'd say automotive down the road. And we talked about automotive. Today, it's primarily in the in-cabin monitoring. To us today, it's more than $1 million, less than $100 million market. But it's mainly high-end cars, but it's a very attractive market. But I think the big one will be, I wouldn't call it autonomous driving, but I call it the ADAS, the enhanced thing with a lot of optical sensing as you add more safety to the cars. Now I talked about extension. So taking a lot of stuff we have, and let's find new markets. Because when you're already a market leader in every market, you're pretty much limited to growing after a while with the market. And one way to supercharge and accelerate your growth is taking this technology and entering new market segments, new verticals and squeezing out whoever is competitor out there and capturing that market for ourselves. And the areas we are seeing is, I talked earlier about 5G will present us with a lot of opportunities. And here, we're talking about intelligent edge, right? And everything we get for intelligent edge, you need to take all the data that you're going to capture from your 5G infrastructure, make sense of it and drive new applications, whether it's Industry 4.0 or vehicle to any kind of thing or smart transportation, the whole metaverse or digital twin. Okay, I think metaverse is a little bit out, but digital twin is here. Everybody is talking about it. Because before you want to change -- make changes to your network and add a new application or make modification, you want to have a model that you can run the new application or changes through and tells you exactly how your network is going to perform. When you're collecting all these data from the network, we can tell you exactly how your network is going to perform if you're going to make the changes. The enterprise, I talked about it, that's a huge untapped market. And of course, the smart automation. So when we look at where we are today, today, we already have every instrument or the software in the network. We are capturing lots and lots of data. That's what we have today. It's already here. Within the next 12 months, we're going to be releasing technology that captures all these data. I mean this already captures it. As it uploads to the cloud, it enhances this data, analyzes it and makes intelligent conclusions out of that data, which then in the next kind of 2 to 5 years drives a whole slew of application from the autonomous operations, automating operations, the service optimization network, incident management, new product service introduction, digital twin, so on and so forth and it works with the existing technologies and the protocols in the network. On the mission-critical and avionics applications, it's really taking our technologies in fiber RF capabilities and extended into the avionics testing, public safety, Mil/Aero communications and a lot of what I would call electronic warfare. With a number of satellites going up in space for a lot of near-Earth communication, the number of aircraft and new technicians that need to be trained and equipped in the next 15 years and the growth in the software-defined radios, we see that's a very attractive space for us to play. And we already have very compelling solutions. We are a market leader in public safety-military two-way communications. Avionics, you saw some recent products. Our latest AVX-10K, which actually leverages our technology from the Viavi cable instrument set. We adopted it into the Avionics market, government, defense, military communications and a lot of synthetic. This is basically electronic warfare, capturing spectrum, analyzing, detecting threat. By the way, we use this technology in combination with 5G products to provide recently when the whole risk of 5G and radio altimeters came. Using these products, with these products and some of the others, we were able to put solutions in a very short time and provide -- there are risks to a number of aircraft. And one thing that comes out of it, you fundamentally need to monitor 5G signal in vicinity of every airport, which is great because it means you have to buy and install equipment and just keep monitoring and detect if there's any interference pops up on the screen. And in our optical space, it's taking the same technologies we've done in the Mil/Aero, but also extending it to the laser optics. For all these -- hearing about all these thousands of satellites being launched. Guess how they all talk in the near-Earth orbit? It's all laser satellite-to-satellite communications mesh network, which means you need optics that correlates and manages the receive and transmit of lasers for inter-satellite communication. So a lot of opportunities as well as the thing I talked about, multi-spectral arrays where you -- one filter allows you to capture a broad spectrum of signals and feed it into the sensors. The last but not the least, you got to get better at everything you do. And I'd say the continuous, relentless productivity improvement is the integral part of Viavi culture. We have made significant improvements in productivity in R&D, sales and G&A. In R&D, our productivity actually has been significantly steeper than that. What we have done is we have chosen to take these productivity gains and plowed back into increase the scale of R&D. So we have not really increased that much the R&D budget, we're just doing a lot more with the resources we have. In sales, we took some of those gains and plowed back into the new account management and new vertical markets where we are -- in particular in public safety. And some of these new emerging markets, we are expanding, but we're also taking the -- some of the productivity and passing it down to the bottom line. In G&A, we just basically passed it all to the bottom line. And today, we have a much smaller G&A than 6 years ago on a company that is about 50% bigger. And it's all driven -- our core values, I mean, they just, first and foremost, value and business acumen, make smart decisions, manage complexity and ambiguity, don't get bogged down in minutia. Taking informed risk, that's big, understanding where the opportunity is and be daring, go in there. If it works, great. If it doesn't work, you try something new. Innovation, that's key to all our -- we are a technology company, we drive R&D. Driving common vision and purpose and fostering a great culture. And most importantly, doing it so in a sustainable and socially responsible way. We are very big on being good stewards to our environment we operate. We invest a lot in the renewable energy and sustainable -- sustainability. We have just inaugurated our first ESG report, which can be found online, and we also have copies here as well if you want to pick it up. And obviously, of course, being very socially conscious. I mean we put more than the words. We measure the number of accidents. We run a lot of factories, and we have one of the most impressive safety records in the industry, taking care of our people and maintaining safety and providing opportunity for our employees. And of course, in governance, we get very high scores regarding our governance model. With that, I'll summarize our strategy. It's more of an iteration of a previous strategy, not a complete new strategy. It's really solidifying our base and expanding our base, riding the super cycle waves in optical sensing, fiber and 5G and extending our technologies to the new markets and continue to drive operating leverage. With that, I'll turn it over to Henk, who will give you all the numbers. So this is the how we go there, and now he's going to tell you what we're going to achieve.

We'll open it up for Q&A.

That's right. We have a Q&A here, and I'll take those. Yes, go ahead, Alex.

Alex Henderson at Needham. One of the key metrics that you drove last time was acquisitions. Problem was instrumental in your growth and performance over the last 3 years. So no mention of M&A in the slide deck here. Have you changed your positioning on that? Or are you still as acquisitive as you had been?

I had to squeeze in 4 points in strategy, and I didn't want to put another fifth point. It's self-evident. Listen, M&A is a key part of our strategy. And in fact, we put it in Henk's because he has more slides to go through. It's in his territory. It's part of our capital allocation. And listen, we view M&A as to there is a strategic transformational where you change the industry structure, and there is tuck-in acquisitions. Obviously, our industry is fairly -- there's not a -- it's not a target-rich environment. We all know who the targets are, and we always look at them affordability and actionability. When we felt there was an actionability and very good affordability, I mean, we made a very aggressive bid on EXFO. I mean so that was an example. But unfortunately, actionability was not there. There's actionability and other things, but I think affordability is not something. And I always say the cash is not burning a hole in my pocket. I will just might as well buy more shares back than overpaying for something that is substantial. What we have done is we've done about at least half a dozen of acquisitions in those 3 years where we really acquired the pieces of technology, and each one of them was accretive and a great ROI for us. So really, we kind of strength -- we didn't just go and buy things on the side, we stay -- and Henk will show you, go wide versus go deep. We stay within the kind of go deep up to a certain degree. So everything we acquire automatically strengthens, and we can pull through these products onto our thing. One example I give you. We are, today, over 90% of European railway safety monitoring or community assurance on railways. We acquired 2 companies in Europe. They have this technology. They -- it's a relatively small business, but what they had is we are migrating them to our NITRO infrastructure. And as 5G comes out and other things, it opens up a whole vertical market of intelligent transportation for us. So both of them are profitable. They were well focused. But within Viavi, we have scaled the revenue on them, and it comes accretive to our operating margins from the get-go, and we did not overpay for them.

One more question if I could. On the OSP side, you've got a major facility coming on stream. Could you talk a little bit about what the gross capacity expansion is and what the net capacity expansion is? And then in addition to that, obviously, you've been absorbing a lot of inflation. How much does this offset the inflation in raw materials so that you can keep that very nice margin associated with that business?

Well, it's a great question. So we are building a new plant in Chandler, Arizona. The first module to go in there will be anti-counterfeiting manufacturing line. And it's like a latest generation of technology, much more efficient, able to run every product we have, much more economically, more efficiently. And in many ways, we do look to it to offset a lot of the material cost increases that we have seen in raw materials, in energy and a lot of labor as well. So to a large extent, that's part of our rationale. Also, some of the machines we're looking to do -- I'd say nominally, you'd probably increase -- well, Luke is here, help me, about 10% capacity?

Closer to 20.

20% increase. But I think for us is we can decide to take it either an increasing capacity or decommissioning some of the older equipment that is north of 30 years old. So you can now talk to Luke more about it.

It's a net or 20% gross.

Gross. So we increased and we can take down somewhere else. And it's replacing machines that are running at fairly low utilization because they can run only one set of products. This one can run 24/7 any product we have. And it's just fundamentally more productive. And state of Arizona has much better electricity prices. I mean it's a big energy consumer, and there's a lot of alternatives in the water recycling and reclamation all that. So we view it as going to give a significantly better operating point as well as give us flexibility with -- to decommission some of the older assets and things like that. And -- but it's also -- it's an anchor asset because it's a fairly large facility. And I encourage anybody who visit us in Arizona, we'll be more than happy to take you and show you around. It actually has a lot of space for expansion for our optical coating. As many of you know, Arizona is the new Silicon Valley. Make no mistake about it. There's more fabs coming online in Arizona than there are in all of California. So -- I mean with Intel, TSMC, Samsung and companies like ON and others operating multiple fabs, a lot of them are also getting into the optical coatings, and we view it as a potential -- be the source of optical coatings for a lot of these manufacturing capabilities. And as well as the -- all the semiconductor tools that come in there, a lot of them use a lot of advanced optics. So it becomes part of the much bigger ecosystem than just anti-counterfeiting. So we see it as a site where we do going to grow and continue to expand. And we got great help from the state of Arizona, a lot of incentives. And hopefully, we can also, I mean, look at some of the CHIPS Act and see what we can get there as well because I think we are doing some real manufacturing in United States. All right, next question.

Mehdi Hosseini from Susquehanna International. Just Oleg, going back to your integrated test solution, it's obvious you're trying to address lab field and assurance. But it seems more and more of a need for analytics to bring it all together and be able to offer an integrated solution. So perhaps, we could spend a few minutes informing us how you're scaling your analytics and how it will bring it all together. And feel free to push back and say analytics is not really needed.

No, no, no. This is a great question. So when I say assurance, okay, we're -- so maybe we should get more precise. Assurance is the old-fashioned way. What we call when we talk NITRO platform, that is what right here. So what we're talking about, this was a lot of assurance and collecting a lot of data. What's happening here is analytics, it's data correlation, data enhancement, really taking all of that and making sense of it and then providing analytics that drives all these applications. So this is really what -- when we talk about benefits of this new service application, that's really building out our analytics capabilities in this space. And we already have a lot of them. And in the break, talk to Paul McNab and Sameh Yamany and Deepak. So go to the 5G service enablement odd and they will be there and they will give you ton of information.

So just a quick follow-up. Some of your peers have made acquisitions over the past several years to beef up their analytics. Are you suggesting that you have all the pieces and you can scale organically?

Well, we've also made some acquisitions. We just don't talk about it, but it's all in there. I mean, clearly, we have a lot of internal capability that we have been scaling in our -- we have significant engineering capability in U.K., in Romania, in India and the U.S. We've been developing a lot of new skills, but we've also been supplementing by acquiring bolt-on technologies to enhance taking -- what we have is a lot of data, a lot of the data correlation, data enhancement and we've been acquiring things that add on analytics as well as developing the analytics. Okay. Great question.

So a quick reminder to everyone on the webcast, please present your question in the chat window and I'll be reading that out. For everyone in the room, please ensure that you're asking the question in the mic so that folks on the webcast can hear you clearly as well.

Okay. Thanks, Sagar.

Samik from JPMorgan. Oleg, I'm just trying to think about the last Analyst Day, the targets that you had outlined. And today, the targets that you're sort of going to outline and sort of the strategy that has only minor tweaks to it as you described. When we think about the improvement in the growth outlook, is it you're primarily attributing that to some of the sort of strategy that played out over the last 3 years? Or is it that the super cycle is stronger over the next 3 years than it was in the last 3 years? How are you sort of looking at the improvement in the growth outlook when there are only minor tweaks to the strategy? And I have a follow-up.

Sure. I think the first step is we look back what we've done in the last 3 and more 6 years, right? So we are fundamentally in a much better, more attractive ZIP code today than we were 6 years ago and even 3 years ago. So being in a better ZIP code, it means we are in the markets that are growing, our technological differentiation is more pronounced, and we can charge better pricing and drive higher growth. So being in the area -- as I say, if you live in a gold mine, you will be golden, right? So if you live in a trash dump, you will be trashy. So I think we've moved away from the trash dump and more into the gold mine, and just by being there and being in the markets that are much more dynamic and higher growth allows us to grow faster. So that's really transforming our portfolio of products, transforming our end markets to a different mix and transforming our customer base allows us to be more optimistic about the growth prospects on our current portfolio. Of course, now we have to execute and capture share and drive it. So these markets are already growing faster. And if we execute well and capture share, we'll grow faster than that.

And the follow-up really on the customer side. Obviously, telcos, cable, 2 big customer pieces within this, when you look at the next 3 years, there are multiple sort of drivers here. Telcos on 5G, cable sort of going through their own densification. How are you thinking about which is the more stronger growth driver for you, which is more relevant? Because historically, you've been also a bit cautious about the government subsidies on the [ auto ] side as well or how quickly they come through, right?

So if I think about kind of go from the volatility, I'd say the cable is probably most stable, and we understand where the growth is going to come from. I'd say fiber is next. Everybody needs it. Everybody is building it. How fast they move is a subject of industry's ability to deliver to them the products and actually being able to hire people to dig trenches and lay the fiber. But I think a lot of money -- everywhere we see all the projects are being -- it's like national initiatives. I mean you got the Openreach in U.K.. You got OneFiber in Germany. You got Italy. We're -- it's actually -- we're having discussions at a national level to do the whole, I'd say, a 5- to 10-year deployment where they want to lay fiber, put monitoring and monitor everything in the country. So I'd say fiber is a very big number, but we're already quite big in fiber. So as that goes, it'll have a growth. And I'd say 5G is the highest data. We know 5G is going to be good for us. But to the extent we succeed in enterprise and intelligent edge and depending how quickly it gets adopted, that could be a significant upside to our growth forecast.

Okay. So the next question we have is from [ Ruben ]. Does Viavi Board give any consideration to spin off OSP to maximizing the value and better focus?

Well, I think there's a fallacy in that question that you maximize the value. I don't see how you maximize the value. Today, OSP runs very well within Viavi. It has really only 2 customers who account for most of the business. So you could not really spin it off because it's not a public company profile. But more importantly, all the profits we generate in OSP are shielded from any taxation. And because of our NOL -- and Henk will talk about what we've done with our NOLs, how we transformed it and protected NOLs and extended the life of these NOLs. So in that respect, I think within Viavi, it's getting a much higher multiple than we have been able -- would be able to get by ourselves. But if somebody comes in and gives us a crazy multiple, absolutely. We can always consider. But so far, I have yet to see anybody coming in and willing to write a check that this business is worth within Viavi.

The next question, we have...

Mike Genovese from Rosenblatt. Just a couple of high-level questions. Just I'll ask them in one. Just the macro risk on the next year's CapEx and demand, how are you thinking about that? And then also the supply chain, just your latest, most updated comments there.

Sure. So on CapEx, I think I'm going to defer it to Henk because he's going to be talking about it. But on the demand, listen, a year ago, I said, by this summer, we'll be somewhat an equilibrium. By the fall, it will be better. I think by the end of the year, there'll be a lot of semiconductor products out there. So I think already today, we're no longer chasing or paying exuberant expedite fees. We're already in things in pretty good balance. But in fact, we are seeing a lot of components. I'd say FPGAs is still kind of hand to mouth, right? But everything else, their inventory is piling up. I mean we have our own ton of inventories. We're now shifting gears to working down our own inventory. So we're not ordering as much anymore because we've seen now things in balance. As your lead times collapse, you don't need to hold as much inventory. So we're first working down our inventories, then we are working down our EMS partners' inventories. Then there is distributor inventories that will need to be worked down, and only then we'll start worrying about fresh new order. So I think by the end of this calendar year, exiting December, I think you'll have a very different supply situation, at least for the products we need.

So the next question we have is from Tim. Question on fiber. You talked to a very significant increase in share recently. What have been the drivers there? And how much does that add to the baseline market growth rate that seems to be accelerating? Example, GLW Corning also added -- is adding fiber capacity in Arizona. Also, is there a metric for Viavi revenue potential in fiber on a dollar-per-home pass basis?

We don't think of dollar-per-home pass basis. We look at the number of fiber connections that goes out. Because I mean you think about how many fiber technicians, and each one needs to be equipped and the amount of work they need to do. To install fiber, for example, you need somebody come in first and connect the fiber to your -- first, you have to extend fiber to the local pod in your neighborhood. Then the technician needs to come in and connect fiber into the pod and lay it on the grass and run it to your home and leave a lot of slack, then drill a hole in your wall, put this fiber connector junction box on your house and then run the fiber into the house, into the motor. That's second technician. Then the third technicians come in and they bury the fiber, okay? In this process, remember, fiber, you have glass inside a wire. A lot of people don't treat it well. That fiber gets cracked, broken, then you need to have a fourth truck-roll to come and fix the fiber and replace the fiber because maybe it got bent or kinked or got damaged. So in all of that, you need -- clearly, each technician needs to have a fiber equipment. They need fiber measurement devices. And then ultimately, ideally, you want to have a fiber sitting in your head office into a data center monitoring with every fiber link and detecting if there is degradation and breaks. So I mean this is what's driving, I'd say, our fiber revenue is the adoption of fiber. Rolling out of fiber connections is the primary driver. And then the -- all the complexities and deploying, troubleshooting and optimizing your fiber network is the second wave of investment. I'd say the primary driver is driving number of -- how many homes and premises get connected to fiber or to the wireless base stations. Because remember, each wireless base station is a connection. Anybody else? Great. With that, maybe I'll turn it over to Henk, and I'm sure there'll be a lot more questions once he goes through that. There's one more?

So we'll have a quick 10-minute break.

Oh, take a break? Okay.

And we'll regroup maybe around 10.

All righty. Thank you. Viavi execs, go to your respective areas. And anybody who's got like burning questions, go hear them. [Break]

Ladies and gentlemen, please take your seats. Our program can begin. Please take your seats.

All right. We'll give everyone a couple of minutes here. Please take your seats, and then we can continue the conversation. All right. Welcome back. And thank you, Oleg, for a great overview. And good morning, everyone, afternoon. evening. My name is Henk Derksen, I'm Viavi's CFO. I would also like to extend my welcome. Thank you for participating in today's event. Just as a reminder, in addition to GAAP, I will be referencing to some non-GAAP numbers that we will qualify and have laid out in the slides. I'll provide you with an overview of the performance over the last 3 years, spend some time on the plan 3 years forward, touch on a couple of balance sheet items and discuss the capital allocation strategy. Let's start with a 3-year look back. On the left side of this slide, you see our commitment that we made in 2019 for 2022 on revenues, operating profit, margins and, of course, EPS detailed by NSE and OSP. We did expect one softer year as part of the 3-year cycle, but did not anticipate this once-in-a-century pandemic with all the associated supply chain and inflationary issues. In the middle here, our actual performance. On revenue, we ended very close to $1.3 billion, $1,292 million to be exact, which results into a CAGR close to 5%, almost at the high end of our commitment. Operating profit was actually ahead of the high end of our commitment at $287 million, $17 million ahead and growing on a compounded basis, 13%. Operating margins, 100 basis points, ahead of the high end of the guidance. And our EPS grew double digits as well, ended at $0.95 compared to a targeted range of $0.80 to $0.90 provided to you in 2019. Both OSP and NSE outperformed on the expectation when it comes to margins. OSP also outperformed in terms of growth, and NSE at 4.1% came very close to the high end of guidance. This slide gives you a perspective on how we fared on revenue. Growth over the 3-year cycle resulted into a CAGR of 4.6%. We added $162 million in total revenues over 3 years, but that didn't come linear. We saw growth last year of almost 8%, 7.8%. In '21, we grew 5.5%. And in the first year of the third-plan cycle, growth was essentially flat as we hit COVID. The margin expansion was significant over the last 3 years. We improved margins by 470 basis points, almost linear every year. The levels are available to the business model. And this not only highlights outstanding execution, it also gives you a flavor of the amount of operating leverage available to us in the business model. Non-GAAP EBITDA, similar time line, almost up 400 basis points, adding $84 million to the cash flow statement. And for every incremental dollar and revenue, we were able to convert 50% of that in EBITDA. And then finally, quality of earnings, our operating cash flow or cash flow from operations metric growing here at 9%. And as you may recall, we made some very deliberate investments in working capital in 2022 to allow us to navigate supply chain landscape and allowed us to enable share capture in relative competitive deals. This slide gives you a perspective of how margin improved for both OSP and NSE, contributing to overall operating profit dollar growth of 45% over 3 years. Outstanding performance by both segments, although again, growth in -- we saw the OSP business growing plus 25% in 2021, exceeding margins to above 40% levels. The NSE success is a little bit more recent, growth last year of about 13% and margin expansion of 400 basis points. NSE now is at margin levels of mid-teens and we believe have an opportunity to improve going forward. That's something we'll discuss with you as part of the 3-year plan. Overall, EPS, up 40% from $0.68 to $0.95; and cash flow from operations, up 28% over a 3-year cycle. And those improvements didn't come natural. This slide gives you a flavor of the operational activities, the relentless execution that happened over the last couple of years. It started 2019. The Cobham acquisition, as discussed by Oleg, gave the team an opportunity to really capture synergies, and we started driving R&D convergence around and across the NSE platform. In 2020, we implemented no ERP system. That's always a tricky exercise, but the team navigated through that without any problems. It allowed us to standardize a lot of G&A processes, simplify a lot of back-office processes and also allowed us to move transactional activity from high-cost areas to lower-cost areas. '21, COVID hit, focus on OpEx, obviously. But in addition to OpEx, we engaged an endeavor to centralize our intellectual property to better focus, develop and defend our IP. In 2022, you know the story by now. We navigated through a pretty challenging landscape with successfully mitigating supply chain constraints and implementing pricing discipline to offset the impact of inflation. Under Oleg's leadership, it's clear and it shows up on the income statement that Viavi has embraced the culture of continuous improvement. R&D for this business typically runs at 16% of revenues. And as we grow revenues, we continue to invest more in R&D. So we call that investing in a full rate convention. SG&A has a lot of opportunity, as you can see here on this page, for leverage. Our G&A structure typically is flat, but more likely down as we invested in IP and we still have a lot of opportunity to move transaction activities to lower-cost areas. Sales and marketing only grows marginally with revenue growth because most of this functional area is fixed as well, an improvement of 300 basis points over the last couple of years and more opportunity going forward. We worked on the balance sheet. In addition to [ creating ] higher levels of cash flow, we [ improved ] liquidity. Our liquidity at the end of '22 is now $780 million, up from $532 million 3 years ago. And debt maturity improved. 68% of our debt today matures within a tenor longer than 5 years, and that compares favorably to 100% 5 years ago. And our gross leverage, total debt relative to our trailing 12-month EBITDA decreased, improved to closer to 2x compared to 3x three years ago. We're able to successfully navigate NOL utilization. In 2022, we utilized $2.8 billion of NOLs in part because we became more profitable [ in years ]. But also as a function of centralizing our IP, we're able to transform $2.4 billion into an IP asset. And trade is down, traded down from 18% to 16%. This gives you a flavor of the debt structure as it stands today. A year ago, we aggressively went after reducing our convertible debt. Our convertible debt at that time was $685 million in total, and we were able to refinance 57% of that debt. We're now down to $292 million, with short-term maturities in '23 here and 2024 -- left for 2024. We did that by accessing the high-yield markets. We successfully secured fixed rate debt, so no change for 8 years at a rate of 3.75%. And in addition to exiting the high-yield market, our share count came down substantially on a year-over-year basis, as you saw in our most recent quarter. NOLs. They remain a key asset for us. These are NOLs in the U.S. that we inherited, $5.1 billion at the beginning of 2019. We're not able to transform all of them. We lost a little bit, 7.5%, almost $400 million, but we successfully navigated and utilized $2.8 billion. Again in part because we get more profitable in the U.S. and in part because of our centralized IP strategy that not only allowed us to reduce the cost around IP management, but also transformed $2.4 billion from an NOL into an IP tax asset depreciable over the next 15 years. It continues to be a key asset to us. We have $1.9 billion left at the end of '22, about $800 million for the next 3 years. And as we think of acquisitions, this is an immediate source of synergy. Before I spend time on the 3-year plan, I do want to take a moment and confirm our Q1 guidance and give you a perspective of what we think will be the first year of a 3-year cycle. Our Q1 guidance is at $324 million midpoint of the revenue guidance, plus or minus $7 million in the typical range. Operating profit margins at 21.4%, plus or minus 70 basis points; and EPS in the range of $0.22 to $0.24. The first year of the 3-year cycle, we believe, will be flattish. We're not immune to macroeconomic uncertainties. We have a robust portfolio with NSE and OSP, but we think it's prudent given all the uncertainty to guide our first year that's flat with $1.3 billion of the revenue, plus or minus $35 million as a range; operating profit margins at 22%, plus or minus 50 basis points; and EPS $0.95, in a range of $0.90 to $1. We believe that our share count will be approximately 232 million shares, a tax rate of 16% to 17%. And other thing -- other operating income and expenses, that's mainly our interest expense, between $23 million and $25 million on a full year basis. Okay? Now on to our financial plan objectives. We have 3. We think of this plan as the 5, 10, 15 plan. We believe that this business has the opportunity on a consolidated basis, and the growth rates between OSP and NSE will be slightly different, but on a consolidated basis to grow at approximately 5%. The NSE portfolio has improved, as Oleg shown you earlier today. 80% of our products are tied to growth now in NSE compared to 60% three years ago, and that's why we're increasing our growth commitment in the NSE business. The 5%, by the way, is only slightly up on a consolidated basis from what we just did. We just did 4.6%. And as we grow revenue, we believe there is sufficient operating leverage left in the business model to grow operating profit and EPS, call it profitability, by 10% on the 3-year CAGR. Cash flow from operations. That's a new metric, quality of earnings. We made substantial investments in '22 in the working capital, and that allows us to be comfortable to increase that growth rate from 9% the last 3 years to 15% going forward. Okay? Now this page gives you more detailed insight in each of these metrics, starting with revenue for 2025, growing approximately 5% at the midpoint, will result into revenues of $1.5 billion compared to $1.3 billion now, so $200 million more. We believe that we can grow operating profit between 7% and 11% on a 3-year CAGR basis, which would result into $370 million at the midpoint. Operating profit margins will be 24.5%, and that's an improvement for today. We're today at 22%. And EPS at the midpoint of $1.25, and we're doing that with a share count of relatively flat compared to what is today. A tax rate of 16% to 17%. And other income and expenses, again, relatively flat to today, $23 million to $25 million. And last, operating cash flow, a new metric that we'll focus on and make commitments around, at $270 million here at the midpoint, a CAGR of approximately 15%. All right? Let's spend a couple of minutes on revenue and take you through the revenue assumptions. First of all, as Oleg said this morning, our priority is defend the base. Once we take access of the market, we defend the base. We have access to attractive end markets. We have secular tailwinds for lots of our businesses, and we continue to explore new opportunities that play into our sites. This page gives you a detailed bridge of our growth assumptions from $1.3 billion today to $1.5 billion at the midpoint in 2025. First, defend the base. We have a large installed base, a lot of products in the field and we expect very modest growth, but no longer declines. 3D sensing continues to be an opportunity for growth, growth area for the next 3 years. We have a more modest expectation around growth, call it, low to mid-single digits. As each portfolio has improved significantly, the business has been transformed. We now have access to an opportunity to benefit from 5G assurance, and a growth assumption here on a 3-year CAGR basis is high single digit to low single digits. Wireless and fiber continue to grow at high single digit rates. So these are the main assumptions underlying our plan. Profitability, up 10%. Again, we're riding you with a bridge, so understanding what's all going to go in there, right? Today, profitability at $287 million or 22.2% of revenues to $368 million, adding roughly $80 million of incremental operating profit over a 3-year basis at a margin of 24.5%. First, we have to absorb the impact of T&E as the world normalizes and we're traveling again like we have today this event. Secondly, we continue to focus on productivity. We still have a lot of opportunity to drive productivity that helps us to mitigate inflation, but also reinvest in R&D and go-to-market initiatives that are very specific. And thirdly, this is the most important assumption, leverage on growth, incremental operating profit margins of 45%. And the way we think about that 45% is first looking at our gross profit margins today. On a consolidated basis, our gross profit margin today at 62.5%, but our standard margins are 70%. So we believe that we can grow revenues, leveraging part of our indirect manufacturing and operations infrastructure at a half rate convention. So we think that incremental operating profit margins are close to 65%. OpEx, today, slightly below 41%. As we grow revenues, we continue to invest in R&D, but SG&A continues to be a lever available to us. Growing OpEx at half rate convention with incremental gross profit margins, 65%, source for that 45% assumption. We did a lot in the last 3 years, but we continue to work on a set of initiatives available to us. We believe that we can further improve our tax footprint, there's still opportunity there; streamline G&A processes to drive productivity. We're finding opportunities through continuous improvement and lean initiatives in our sales and marketing infrastructure, and we're focused on investing in technology and cybersecurity. And for these coming 3 years, we'll put a higher emphasis on asset and asset efficiency and working capital management. Our third financial planning objective, and a new one, is cash flow from operations, growing at a 15% CAGR over the next 3 years. This slide provides you an overview of where we started, $139 million in 2019, how we grew 9% CAGR to 2022. And as I mentioned before, that included substantial investments in working capital, which helped us to navigate through this landscape that we had to navigate through. In addition to making investments in working capital, we also invested in a new facility in Arizona, right? We think that will be completed in February of 2023, and then CapEx normalizes to the $40 million to $60 million range per year. This business doesn't need a lot of CapEx. Typical CapEx for this business on a consolidated basis anywhere between 3% and 5%. Executing upon this plan would result into $0.5 billion of free cash flow generation over the next 3 years, and that brings us to our capital allocation strategy. Okay? IoT of our capital allocation is always to invest in the core business. It provides the highest ROIC, and we continue to fund our organic initiatives. Second is a disciplined M&A orientation. Today, the focus is more on bolt-on and tuck-in acquisitions than it is on transformational acquisitions, a function of availability. And of course, we target these assets to be accretive, not only to our growth profile but also to ROIC. And third, a return of capital. We have returned a lot of capital to you in the last 3 years, and we're planning to do so going forward by opportunistically retiring our convertible notes. We reduced the denominator in our share count in Q4 by 10 million year-over-year, but also by just opportunistically buying our shares. You saw an announcement this morning. We increased our share repurchase authorization from $200 million over the last 3 years to now $300 million. Our capital allocation strategy is balanced. All right. None of this is in the plan we just presented. Our framework is disciplined, and Oleg responded to a question just as a reminder for the audience, we focus on acquisitions that allow us to drive scale and operating leverage. So go deep rather than go too wide. That's a sweet spot. They have to be on strategy, of course, and they have to meet certain financial hurdles. ROIC above cost of capital, accretive to growth profile and providing us with synergy opportunity and if possible, leveraging our NOLs that we just discussed. In summary, Viavi's investment thesis. We are aligned with secure tailwinds. We're targeting to grow the business on a 5% CAGR for the next 3 years by defending the base and riding super cycle waves. We continue to look at and develop lucrative adjacent end markets and applications. We believe there's margin upside as we target operating profit dollars to grow 10% and believe we will arrive [ instead of ] '24, by 2025. And our capital deployment strategy is attractive as we target to grow our operating cash flow 15%. We're opportunistic in buying back shares. We increased our commitment, and we still have an opportunity to retire some of those converts. Our M&A strategy is disciplined. That concludes my overview. I'd like to open it for Q&A, please. And Oleg, if you can join me for Q&A, that will be great.

We'll get you the mic.

Mike Genovese again. I just want to ask about the revenue guide for a 3-year CAGR of 5%, but the first year is 0. So the second 2 years are something 7.5, 8, something like that, 7 to 8.

Yes. That's correct.

So talk about the reason, is that the supply chain? And given Oleg's comments that we would -- the supply chain could be much better in the second half of the fiscal year, is flat this year to conservative?

Yes. So on growth and if you compare it to over just the last 3 years, where we effectively were flat in the first year of the 3-year planning cycle. For different reasons, it doesn't feel that different, right? Growth never happens linear. And we have to acknowledge that in this macroeconomic environment, there is uncertainty. And we believe that on a 3-year basis, we can hurdle at 5% CAGR.

And generally, we think in any 3-year cycle, there is one, I'll call, down year. We think we all watch the same news and follow the same economic forecast. Like we all see the same kind of things. So we figure in our 3-year plan, this is the year that the whole thing takes a breather and then the -- you see things recovering and starting to grow again in the outer 2 years.

So a quick follow-up question from Dave here, right? Have you seen any pullbacks regarding the FY '23? You have a flat outlook. So have you seen any signs of slowdown or any cancellations, any pushouts?

At this point, we're not really seeing any cancellations or pushouts, but we are sensing nervousness with many of our customers. I mean they're all still going with their plans, and they are looking what they're doing. But clearly, when I talk to my regional salespeople, they say, "No. Well, it just doesn't feel as good as we felt a year ago." So -- and it's a lot of the economic growth is very psychological. When people start feeling a little insecure, they start getting -- so I think we have seen a slowdown in automotive sales. So all these things, they ultimately percolate to a broader percolation. So I think while we feel pretty good where we are today in this quarter, I think we just take a prudent approach that the rest of the year, we may see something happening. So -- and that's why we are just saying this year should be a kind of flat year. Now clearly, if those assumptions don't come true, then maybe it will be the second year, but you'll see how it goes.

Oleg, I'm Samik. A couple of questions. One for you, which is in today's presentation, I didn't sort of hear about any major changes in strategy relative to SE and how to think about sort of positioning the strategy as well as the growth outlook for that. And Henk, for you, which is I think you're guiding for margins on OSP to moderate from the levels they're at. Is it more temporary associated with some of the capacity increase? Or how should I think about sort of why it's depressed and for how long will it remain depressed?

So it's a very good question. So Alex had several questions -- similar question from you earlier. Well, the -- we have significantly transformed SE. And while we call it SE, it's much more SE, there's a lot of analytics and everything else in there. We don't trump at it because I think it's an optionality. We -- it's now locked and loaded. We have a new platform, a new architecture. We have a great management team. When I start seeing bookings and major wins happening, we'll talk a lot more about it. But we do put everywhere that we are only talking focus this year. We're now saying driving greater level of integration between NE and SE. But SE today is no longer just service assurance, it has a lot of the other higher-level functionalities and the applications that we are targeting. And I would encourage you during the break, go talk to Deepak Shahane, who is our General Manager; as well as our CTO, Sameh, and I'll tell you more about it in this picture because it's really the slide that I showed. We collect a lot of data. That's the old assurance. Integrating data, monitoring, it's old assurance. The moment you enhance and you make this data more actionable, that really opens up a whole new market for that business, along with the intelligent edge applications, analytics and things like that. So that's really the future for that business. Assurance remains the base, but they are shooting much higher. We feel we have great technology. We have a great architecture. We have products that are almost finished in development. And to the extent it will grab the market and succeed in the market, we'll talk a lot more about it. So I would leave it as Henk likes to call it, that's a cookie that we kind of keep in the back pocket. If it really takes off, it will be a very different business. We won't be talking about 5% CAGR, we'll be a lot bigger. But we're being conservative because this is a business that has been overhyped in the past by JDS Uniphase, and we are very sensitive not to repeat the mistake of our predecessors.

And Samik, the second part of your question was the OSP margins. We're guiding 36% to 38%, slightly lower than where we are today. Also, again, being a little bit more conservative and anticipating, maybe slightly higher input cost that we will eventually pass on but maybe on a temporary basis. So being a little bit more conservative on that margin guide.

I'm Meta Marshall of Morgan Stanley. Just a question on the incremental margin and the leverage that you're looking to get out of the SG&A. In Oleg's presentation, you were talking about a lot of different network builders that may be traditional. And so kind of the increment, like what gives you confidence you can get that incremental margin when you're selling to kind of more customers than you have been? And maybe on the SE business as you grow into analytics, it's more of a solution sale, a different sales force and just that confidence.

Yes. So on R&D, we grow R&D with revenues, so full rate convention. On SG&A, that's slightly different, right? As we grow revenues, we think there is an incremental investment required for our sales and marketing organization, but there's still a lot of leverage available. G&A, however, is an opportunity to reduce. So it's a combination of 2 or 3 factors. Hopefully, that answers your question.

So we talk about the sales. We actually already have all these things. Costs are already all in. As far as I said, remember, we kept increasing all these things as we were driving productivity improvements, so we already have a separate go-to-market sales force for the SE and the analytics. It's a different sales force. It's managed by the same sales leader, but those are 2 different sales teams. And in fact, we do have several -- we have like service provider sales team. We also have 11 production sales team targeting. It's a much higher technological sale like semiconductor companies, NEMs and things like that. And then there's obviously also government and military. So there are different sales segment that are all within our sales organization. So a lot of that is already baked in, so now we just need the top line. It gives us additional leverage. That's why we talk about the operating leverage.

Alex Henderson of Needham again. So it seems pretty clear to me that you guys have been transforming your software capabilities quite significantly. As I understand it, the NITRO platform is based off of cloud-native architectures. It's based on micro services. It's based on Kubernetes orchestration. It's designed around AI and ML data uplift, understand -- your building capabilities to understand the mechanics of the data uplift and what customers need in that data. Can you talk a little bit about how important that skill set is? How long you've been driving it? Because I think ultimately, every company needs to be a software company and you've made a big investment there that you're not really getting credit for at this point.

So I mean, as I said, that is the probably -- I don't want to get ahead of ourselves. The answer is yes to all of your statements. It's a completely different business. It's no longer just purely -- clearly, there's still assurance elements to it. But in many ways, all these things, transformation, all of that, it's kind of like changing tires on the Boeing 747 as you're barreling up the runway. In the last 5 years, we've rewired and changed this business significantly with some tuck-in acquisitions but also a significant change in that skill mix, and we have a new management team as part of it. So in many ways, it's locked, it's loaded. Now it needs to perform. So we are being a bit more circumspect about how much we're going to trump it. We kind of tend to count our chickens in a fall, not in the spring. So we have all the potential. They all look great. They all look beautiful. But in the end, money talks and BS walks. And in the past, there's been a lot of BS and we're trying to be, first, let's see the cash coming in, let's meaning big wins and we'll talk a lot more about it as these things start to manifest themselves. But it's a huge potential for us, but we still need to execute, and the market has to accept.

So this question is from a webcast from [ Ruben ]. Could you...

By the way, there's a lot of software companies that make no money. We talk about making money first. So to me, I don't care if it's hardware, software. If it makes money, it's good business. If it loses money, it's just lipstick on the pig. We don't go for lipstick on the pig. We go for cold hard cash because we'll print cash. So we like the real money, not phantom money. All right. Go ahead. Next question.

Yes. So could you give an example of successfully expanding your lab and installed service product customers to now monitoring their networks?

Sorry, read it again.

So could you give an example of successfully expanding your lab and installed service provider customers to now monitoring their networks? So going from...

Sure. So I mean take any 5G network operator. The first thing they do, they engage one of the major providers of infrastructure. Well, we've been working with them for the past 4, 5 years on that. When the deployment starts, there's also -- they need to be modeling. A lot of service providers want to have their own test solutions so they can see if the network is performing as advertised. So many of them buy our own labs thing and put into their own labs, so they can do the testing. Then as you start doing deployment, what a lot of the agents, a lot of the software, we lowered it onto our field instruments. So they can -- so when you're installing a radio, you need to put an emulation to see -- before you turn it on and start interfering, you want to be able to just kind of hit it, make sure that it's working. So a lot of the agents that are running on our instruments are exactly the same ones you find on these racks of servers that are in the lab. And then to the extent, a lot of the service providers want to create a digital twin of their network. It's exactly that type of capability that enables us to sell to them as well in a different configuration with different things.

One up here. Just, Oleg, given your emphasis on leverage in G&A and in the lieu of a 5% revenue CAGR, should I make a conclusion that you're going to be relying more on channel partners? You don't want to really hire a bunch of salespeople, and you'd rather give up some growth but deliver that 15% operating profit CAGR. Is that the right interpretation?

Well, I think we are going to clearly expand sales force a little bit, but what we primarily do is we keep driving the bookings per sales person. I mean, Gary has a -- our Head of Sales, has a maniacal focus on thing called CPOD, cost per order dollar. And that thing has been growing like crazy. If I -- if you purely just put this money to our pocket, we would have had even lower SG&A, but we always take some of it and where we see the opportunities, where we see the growth accelerators, we add more resources. We are not just going out there and adding a lot of things. So we have added a lot of sales partner about really the deployment and training. I mean a lot of the big sale happens through our own sales force. And sales partners that then do the implementation, training, rollout in the regions and things like that.

But when I look back at the slide you had with the integrated test solution, you're dealing with so many different types of customers and end markets and application, and we're talking about analytics on top of everything. I just -- I'm not sure if I -- it's a realistic assumption that one salesperson could go to so many different customers and be selling $100,000 test solution.

So you're right. So when we talk about NE, that's the nature of a channel partner. They're more managing the field deployment training and so on. When we're talking about the SEs, our software services, you're right. There, you have a lot more -- especially when we look at the enterprise and the edge, there will be a lot more channel partner.

So we have one follow-up question from Dave Kang from B. Riley. Can you talk about your backlog as it increased significantly in the last few quarters? Or is yours not a backlog business?

Well, it is a backlog business, but you got to be careful. Because a lot of our business, especially on the east side is a book shipped within the quarter. I mean we clearly had a very strong backlog build in our June quarter. Thus, we had very high sales commissions, which were a bit surprising to us, but we don't complain. But -- so I mean, we don't really call it backlog, we call it bookings because a lot of these bookings could be shipped within this quarter. Other products, you get bookings, but they are 3, 4 quarters out. So generally, instrumentation, you get bookings. Some of it, you go books shipped within a quarter or within the next quarter. As you're talking about more software products, it's booking today with shipment 2 to 3 quarters out. So different products have different dynamics. And in case of OSP, I mean, it's like real time. A lot of our products are -- we have a long-term forecast on anti-counterfeiting, but there is a volatility within a quarter. You can get upsides, downsides, whatever. And then there's same thing goes for the optical filters. There's a general forecast with a periodic upsides, downsides from the customer as they manage their supply chain. So we really think of it more as a bookings and a book shipped-type things.

Alex, again. I was hoping if you could talk a little bit about your international exposure, particularly what you're thinking about relative to EMEA. It's a critically important part of your business, but it seems like it's under a lot more duress than the U.S. markets. If there's risk to the near term, that's probably where it comes from. So how do we -- how do you see it managing through this environment? What are you hearing from people out of that geography? How are you dealing with the 20% price increase associated with the exchange rate, strong dollar, weak euro, weak pound?

This is a good question. I think we are a lot less volatile. I mean, clearly, we all have been reading what's going on in Europe. I think we're seeing a lot less of it. Let me just explain because we have 2 segments. First of all, our biggest customer for anti-counterfeiting is a Swiss-based company. So that's -- technically, revenue falls in EMEA, but it's really a global revenue. So that thing -- if you take in a global scape and take it apart, there is really no volatility whatsoever, right? So now you only focus about the NE business and SE. SE is a lot of it is maintenance and multiyear contracts. So it's not very volatile. Then you look at the NE business. A big chunk of it is NEMs or buying wireless infrastructure products, and they're selling globally. So even that business is really linked more to their engineering budget. So then you take that out, then you have left field. Well, a big chunk of it is the multiyear deployment of fiber monitoring systems that are multiyear contracts that we're just rolling out every quarter. That one is money is already earmarked and its work is ongoing and the technicians are digging trenches, line fiber churning out, so that is less volatility. So what's really left there is the field instruments to what extent the service providers feeling rich or less rich to do more or less. So that is the piece that's kind of, I would say, volatile. Now in terms of the pricing, we have successfully been able to raise it in exchange rate volatility. And that's an easy thing to do because, remember, semiconductors are priced in dollars. Most of the contract manufacturing happens in Asia while it's priced in dollars. So it doesn't matter if you have a European supplier, they really have no advantage whatsoever -- or Asian suppliers, no advantage vis-a-vis us because they have -- most of their cost structure is exactly in the same denomination. So I would say we've had no issue raising prices to adjust for the higher components and also the -- accordingly for the exchange rate. Now we actually had a benefit because we have almost half of our R&D resources is in Europe, so we are very diversified R&D. We're like as much European company as we're an American company. And it's actually been the opposite, the OpEx that we see in Britain and Germany and France and Romania actually been some -- provided us some of the offset because there is always a lag between the devaluation of currency and the price increase. So we've seen the 2 of them working very well to offset each other. But I do see, clearly, if things really go down in Europe and they really start seeing significant recession, I think some customers may decide to stretch their buying or reduce and kind of push it out to the outer quarters. That's what goes into our calculation why we think this next 12 months is you got to be -- you have to be cautious.

Second question on the other side of that. Rural broadband initiative, obviously, is a major capital investment by the government. How do you tap into it? How big an opportunity? And how have you feathered that into your thinking around fiber and wireless?

So what this giving us, it's giving us customers that we haven't worked before. There's a lot of kind of Tier 2, Tier 3, and there's a lot of companies being funded with the private money as well as the government money to kind of develop push fiber into Tier 2, Tier 3 cities. It's a great thing for us because they rely a lot more on us for all the expertise because they don't have the knowledge that the likes of Verizon, AT&T, T-Mobile or Lumen have. They actually just buy a whole lock, stock and barrel. They get the whole solution and they rely on us for engineering and telling here is what you need do to monitor the network. And to them, it's really -- they're building the -- it's kind of -- we build it and they'll come because they're just laying down the fiber. Because they know any data center that goes in that area, any 5G operator wants to deploy their radios there, they need fiber and that's really what they are building out. And to the extent the government is plying money in a lot of these rural areas. They are tapping into that, and we are indirectly through them tapping into those funds.

So Oleg, this is a follow-up question to the earlier question on service providers. Have you had any wins in 5G service assurance monitoring with service providers?

Yes, yes and yes. So yes. I mean, as I said, what we're seeing today is the beginning of the true deployment where they're buying instruments and they're doing these things. We're starting now to talk -- we actually, in a lot of our 4G solutions are -- we're migrating them into the 5G solution. So if somebody already has our RAN monitoring, RAN management, radio access network, they're a natural customer for us to upgrade them to the 5G. And what we are also getting a lot of traction in the whole ORAN initiative, the open RAN. And this is where a lot of our lab expertise in the infrastructure test is playing into the ORAN because a lot of the companies like -- all these newcomers who are trying to do the new way of delivering 5G services, they have their conformance labs, they're buying equipment where they are qualifying different equipment and they're also turning out to be a very big customers for our field instrumentation and other things as they are building out their networks.

The next question is from Tim Savageaux from Northland Capital.

But I'll add to that as well. One is we're already seeing some interesting traction in private 5G networks, mainly in Europe, big airports, big infrastructure projects. They are the early deployers of 5G, private 5G networks. And actually, we are very excited about the early traction we're getting for our edge -- intelligent edge private 5G solutions.

The next question is from Tim Savageaux from Northland Capital. Growth targets from the last Analyst Day were 2% to 5%, and you hit the high end despite the pandemic. What would a high end of the range performance look like going forward?

Well, I mean, we put the numbers that we know we can deliver, what we think we can deliver. And clearly, if things go better, they'll be better. So that's a benefit for our shareholders and analysts to look smart. I mean we don't get ahead of our skis.

Well, I guess, I want to follow up with that, because clearly you don't have what we call a big backlog and you're worried about the macro. How can you possibly say it will be better in '24 and '25? Like we have no idea what's going to happen.

Well, that's why you take a more cautious approach and balance your risks. I mean, listen, I don't have a crystal ball what is going to happen in '24, '25. But there's a certain -- the telecom cycle. I mean even if we saw in like global pandemic, people did not give up their phones and their broadband. So it's going to -- we assume the civilization is not going to end in the next 3 years, but there will be some headwinds, and there will be some accelerators. And I think we are pretty nimble, and we take advantage of any situation. And I think our business is fundamentally more economically resilient. We're not as high beta with -- when things are really good, we are flying off the charts. And when things are bad, we are crushing. We're not really in that thing. We have pretty natural hedges in a number of our product lines to provide downside resiliency. But also if there's an upside, a number of our businesses perform better.

You saw that in '21. The OSP expansion of [indiscernible] almost or actually higher than 25%. So this balance portfolio with different levers, different color patterns. Growth never happens, linear. Hopefully that answers your question.

But you don't have to take -- you can take all those other people who tell that the markets are all from up in a way. Well, you can take that. Well, I think it's great, but reality is world doesn't work like that. So we're just being prudent, and we are being rational and maybe a little bit conservative. But in the end, we end up being -- we are now 2 for 2. And I think...

Do you feel all your lab test customers are forecasting double-digit growth for the next 3 years?

Great, then I'd love to see them spend that money. But listen, I've been in that industry as well. And frankly, nobody remembers what they say when markets go down, right? So listen, if there's double-digit growth, I'll love it because we're going to see -- you saw in our mix of customers, the biggest thing growing is the lab. And if they truly grow, that business is going to be great because not only lab is great. I mean, remember, when we look at our NE margins, right, NSE margins, so like what -- like low 60. The lab business is in the 70% to 80% gross margin. So if that business grows even faster as you say, absolutely, that would be a great upside for ourselves, but I had to take a balanced look at it.

Okay. Any further questions from the room? Or Sagar?

No, I don't see anything.

Any last thoughts on the webcast?

No.

All right.

Well, thank you, everyone.

Well, thank you, everybody, and thanks for coming. I guess we'll see -- we'll be talking to many of you in the next 3 years, but we'll see everybody live for the next 3 years. And I'd like to thank everybody who came here. And please, those who are here, go to the back of the room. We have execs from our team, who will give you all the detail you're dying to know, and there's also going to be a launch around. Thanks.

Thanks, everyone.

Resources can be found -- all the presentation materials will be on our website. That officially concludes our webcast for today, and we are good to go.