VIAVI SOLUTIONS INC. (VIAV)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

Statements contained in this Quarterly Report on Form 10-Q, which we also refer to as the Report, which are not historical facts, are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. A forward-looking statement may contain words such as “anticipate,” “believe,” “can,” “can impact,” “could,” “continue,” “estimate,” “expect,” “intend,” “may,” “ongoing,” “plan,” “potential,” “projects,” “should,” “will,” “will continue to be,” “would,” or the negative thereof or other comparable terminology regarding beliefs, plans, expectations or intentions regarding the future. Forward-looking statements include statements, but are not limited to statements such as:

•Financial projections and expectations, including profitability of certain business units, synergies, benefits and other matters related to completed and contemplated acquisitions and strategic transactions, plans to reduce costs and improve efficiencies including through restructuring programs, the effects of seasonality on certain business units, the consolidation of the communication industry and continued reliance on key customers for a significant portion of our revenue, future sources of revenue, competition and pricing pressures, the future impact of certain accounting pronouncements, and our estimation of the potential impact and materiality of litigation;

•Sufficiency of our sources of funding for working capital, capital expenditures, contractual obligations, acquisitions, stock repurchases, debt repayments and other matters;

•Our expectations regarding demand for our products and services, including industry trends and technological advancements that may drive such demand, the role we will play in those advancements and our ability to benefit from such advancements;

•Our plans for growth and innovation opportunities;

•Our plans for continued development, use and protection of our intellectual property;

•Our strategies for achieving our current business objectives, including related risks and uncertainties;

•Our plans or expectations relating to investments, execution of capital allocation and debt management strategies, acquisitions, partnerships and other strategic opportunities;

•Our research and development plans and investments and the expected impact of such plans on our financial performance;

•Our expectations related to our products, including costs associated with the development of new products, product yields, quality and other issues;

•Our expectations regarding the impact of tariffs and our strategies for mitigating such impact;

•Our expectations related to future tax liabilities resulting from future tax legislation; and

•Our expectations related to macro-economic conditions, including the impact of inflation, fiscal tightening at central banks, changes in foreign exchange rates, the risk of increased tensions and trade actions, including global tariffs, ongoing geopolitical tensions including the conflicts between Russia and Ukraine and in the Middle East, and political instability and economic uncertainty in the Middle East, on our business, operations and financial results.

Management cautions that forward-looking statements are based on current expectations and assumptions and are subject to risks and uncertainties that could cause our actual results to differ materially from those projected in such forward-looking statements. These forward-looking statements are only predictions and are subject to risks and uncertainties including those set forth in Part II, Item 1A “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q and in other documents we file with the U.S. Securities and Exchange Commission. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of these forward-looking statements. Forward-looking statements are made only as of the date of this Report and subsequent facts or circumstances may contradict, obviate, undermine or otherwise fail to support or substantiate such statements. We are under no duty to update any of the forward-looking statements after the date of this Form 10-Q to conform such statements to actual results or to changes in our expectations.

In addition, Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended June 28, 2025.

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You should read the following discussion of our financial condition and results of operations in conjunction with the financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Quarterly Report on Form 10-Q, particularly in “Risk Factors” and “Forward-Looking Statements.”

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Overview

VIAVI is a global leader in test and measurement and optical technologies. Our test, monitoring, assurance, and resilient position, navigation and timing solutions enable and secure critical infrastructure ranging from data center ecosystems and communication networks to military, aerospace, railway and first responder communications. In addition, we develop and advance technologies used in high-volume optical applications across anti-counterfeiting, consumer electronics, aerospace, industrial and automotive end markets.

To serve our markets we operate the following business segments:

•Network and Service Enablement (NSE); and,

•Optical Security and Performance Products (OSP).

During the third quarter of fiscal 2026, the NSE business grew year-over-year as a result of our acquisition of Spirent Communications plc’s (Spirent) high-speed ethernet, network security and channel emulation testing business (collectively, the HSE and CE business). Additionally, we continue to see strong demand for lab and production and field products, driven by the data center ecosystem, as well as demand for our aerospace and defense products. OSP performance improved year-over-year driven by anti-counterfeiting and other products (other products include government, industrial and automotive end markets) and 3D Sensing.

Our financial results and long-term growth model will continue to be driven by revenue growth, non-GAAP operating income, non-GAAP operating margin, non-GAAP diluted earnings per share (EPS) and cash flow from operations. We believe these key operating metrics are useful to investors because management uses these metrics to assess the growth of our business and the effectiveness of our marketing and operational strategies.

Looking Ahead

As we look forward to the fourth quarter of fiscal 2026, we expect revenue for VIAVI to be up sequentially driven by continued strength in many of our end markets across NSE and OSP. Our long-term focus remains on executing against our strategic priorities to drive revenue and earnings growth, capture market share and continue to optimize our capital structure. We remain positive on our long-term growth drivers and will continue to focus on executing our strategic priorities over the long-term to:

•Defend and consolidate leadership in core business segments;

•Invest in secular trends to drive growth and expand total addressable market (TAM);

•Extend VIAVI technologies and platforms into lucrative adjacent markets and applications.

In 2025, the U.S. administration imposed additional, broad-based tariffs, under the International Emergency Economic Powers Act (IEEPA), which were then struck down by the U.S. Supreme Court as unconstitutional. In 2026, the administration then imposed temporary replacement tariffs. These, and any other tariffs or other trade actions that may be implemented targeting China or other jurisdictions relevant to VIAVI may increase the cost of certain materials and/or products, thereby adversely affecting our profitability. We continue to take actions to optimize our supply chain, control costs and implement pricing actions to mitigate the evolving impact from tariffs.

Financial Highlights

Third quarter fiscal 2026 results included the following notable items:

•Net revenue of $406.8 million, up $122.0 million or 42.8% year-over-year.

•GAAP operating margin of 6.1%, up 310 bps year-over-year.

•Non-GAAP operating margin of 21.0%, up 430 bps year-over-year.

•GAAP net income of $6.4 million, down $13.1 million or 67.2% year-over-year.

•Non-GAAP net income of $67.6 million, up $33.7 million or 99.4% year-over-year.

•GAAP diluted EPS of $0.03, down $0.06 or 66.7% year-over-year.

•Non-GAAP diluted EPS of $0.27, up $0.12 or 80.0% year-over-year.

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A reconciliation of GAAP financial measures to Non-GAAP financial measures is provided below (in millions, except EPS amounts):

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ITEM 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis summarizes the significant factors affecting our consolidated operating results, financial condition, liquidity and capital resources during the period ended June 28, 2025. Unless otherwise noted, all references herein for the years 2025, 2024 and 2023 represent the fiscal years ended June 28, 2025, June 29, 2024 and July 1, 2023, respectively. We intend for this discussion to provide the reader with information that will assist in understanding our financial statements, the changes in certain key items in those financial statements from year-to-year and the primary factors that accounted for those changes, as well as how certain accounting estimates affect our financial statements. Factors that could cause or contribute to these differences include those discussed below and in this Annual Report on Form 10-K, particularly in “Risk Factors” and “Forward-Looking Statements.”

This discussion should be read in conjunction with our consolidated financial statements and notes to the consolidated financial statements included in this Annual Report on Form 10-K that have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). Our actual results could differ materially from those discussed in the forward-looking statements.

OVERVIEW

VIAVI is a global provider of network test, monitoring and assurance solutions for telecommunications, cloud, enterprises, first responders, military, aerospace and critical infrastructure. VIAVI is also a leader in optical processing technologies for anti-counterfeiting, 3D sensing, aerospace, automotive and industrial applications.

To serve our markets, we operate the following business segments:

•Network and Service Enablement (NSE); and

•Optical Security and Performance Products (OSP).

Effective March 30, 2025, the Company realigned its segment reporting structure. As a result, the company’s Network Enablement (NE) and Service Enablement (SE) business activities are now reported as a single operating and reportable segment, NSE. Recent acquisitions have reduced the SE segment revenue as a percentage of total VIAVI revenue. In addition, NE and SE are managed under common leadership, share many of the same customers and suppliers and operating expenses associated with the NSE business are not exclusively allocated to either NE or SE.

During fiscal 2025, NSE revenue growth was mainly driven by strong demand primarily from the data center ecosystem for field, lab and production products for fiber and data center buildouts. We also saw growth in our aerospace and defense products. This was partially offset by a decline in spend for wireless and cable products by network equipment manufacturers (NEMs) and service providers. OSP performance slightly improved year-over-year with growth in our Anti-Counterfeiting and Other products as the industry’s inventory levels normalized.

Our financial results and long-term growth model will continue to be driven by revenue growth, non-GAAP operating income, non-GAAP operating margin, non-GAAP diluted earnings per share (EPS) and cash flow from operations. We believe these key operating metrics are useful to investors because management uses these metrics to assess the growth of our business and the effectiveness of our marketing and operational strategies.

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Proposed Acquisition

On March 2, 2025, the Company entered into a purchase agreement to acquire Spirent Communications plc’s (Spirent) high-speed ethernet and network security business lines and subsequently amended the agreement on May 28, 2025 to also purchase Spirent’s channel emulation testing business (collectively, the HSE, network security and CE businesses) from Keysight Technologies, Inc. for our NSE segment. The total purchase consideration of $425 million will be paid at closing, subject to customary closing adjustments and conditions. The Company expects to fund this transaction with proceeds from a Term Loan B. The consummation of the acquisition is conditioned on regulatory approvals and is currently estimated to close by the end of September 2025.

During the fourth quarter, we successfully priced and allocated the $600 million Term Loan B which will be used to fund the transaction at close and for general corporate purposes. The Term Loan B will close concurrently with the transaction.

Looking Ahead to 2026

As we look forward to fiscal 2026, we expect to continue to see stabilization and growth in many of our traditional businesses. Our long-term focus remains on executing against our strategic priorities to drive revenue and earnings growth, capture market share and continue to optimize our capital structure. We remain positive on our long-term growth drivers and will continue to focus on executing our strategic priorities over the long-term to:

• Defend and consolidate leadership in core business segments;

• Invest in secular trends to drive growth and expand total addressable market (TAM); and

• Extend VIAVI technologies and platforms into lucrative adjacent markets and applications.

The U.S. administration has implemented and could implement further broad-based, updated global tariffs and the situation continues to be dynamic and evolving. As we operate in this challenging environment, we are focused on continuing to deliver our products and services to our customers. Given our global business, tariffs will result in additional cost for us and our suppliers. We are analyzing ways to optimize our operations and supply chain strategies, control costs and implement pricing actions to reduce the impact from tariffs.

FINANCIAL HIGHLIGHTS

Our fiscal 2025 results included the following notable items:

•Net revenue of $1.08 billion, up $83.9 million or 8.4% year-over-year

•GAAP operating margin of 5.3%, up 320 bps year-over-year

•Non-GAAP operating margin of 14.2%, up 270 bps year-over-year

•GAAP diluted EPS of $0.15, up $0.27 or 225.0% year-over-year

•Non-GAAP diluted EPS of $0.47, up $0.14 or 42.4% year-over-year

In fiscal 2025, VIAVI began to experience stabilization and growth across many of our product segments. Net revenue of $1.08 billion was up $83.9 million compared to fiscal 2024, primarily from the data center ecosystem for field, lab and production products for fiber and data center buildouts, as well as growth in our aerospace and defense products, which was partially offset by a decline in spend by NEMs and service providers for wireless and cable products. Our acquisition of Inertial Labs contributed $25.2 million of net revenue in fiscal 2025. OSP performance slightly improved year-over-year with growth in our Anti-Counterfeiting and Other products.

VIAVI's fiscal 2025 GAAP operating margin of 5.3% was up 320 bps compared to fiscal 2024 primarily due to higher volumes and favorable product mix, partially offset by the increase in intangible amortization. Non-GAAP operating margin of 14.2% increased 270 basis points primarily due to the increase in revenue, partially offset by higher operating expenses.

GAAP diluted EPS of $0.15 increased $0.27 from fiscal 2024 primarily due to the increase in revenue. Non-GAAP diluted EPS of $0.47 increased $0.14 from fiscal 2024 also due to the increase in revenue.

In fiscal 2025, we generated $89.8 million in operating cash flow and deployed $27.8 million or 2.6% of revenue towards capital expenditures. We also expended $121.7 million towards the acquisition of Inertial Labs and repurchased 2.0 million shares of our common stock for $16.4 million.

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A reconciliation of GAAP financial measures to Non-GAAP financial measures is provided below (in millions, except EPS amounts):

(1) Included in the year ended June 28, 2025 is a gain of $0.9 million on the sale of assets previously classified as held for sale and other charges unrelated to core operating performance of $2.2 million.

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Use of Non-GAAP (Adjusted) Financial Measures

The Company provides non-GAAP operating income, non-GAAP operating margin, non-GAAP net income and non-GAAP EPS financial measures as supplemental information regarding the Company’s operational performance and believes providing this additional information allows investors to see Company results through the eyes of management, and better to evaluate more clearly and consistently the Company’s core operational performance and expenses and evaluate the efficacy of the methodology used by management to measure such performance. The Company uses the measures disclosed in this Annual Report on Form 10-K to evaluate the Company’s historical and prospective financial performance, as well as its performance relative to its competitors. Specifically, management uses these items to further its own understanding of the Company’s core operating performance, which the Company believes represents its performance in the ordinary, ongoing and customary course of its operations. Accordingly, management excludes from core operating performance items such as those relating to certain purchase price accounting adjustments, amortization of acquisition related intangibles, amortization expense related to acquisition related inventory step-up, stock-based compensation, legal settlements, restructuring, changes in fair value of contingent consideration liabilities, certain investing and acquisition related expenses and other activities and income tax expenses or benefits that management believes are not reflective of such ordinary, ongoing and core operating activities. The non-GAAP adjustments are outlined below.

Cost of revenues, costs of research and development and costs of selling, general and administrative: The Company’s GAAP presentation of gross margin and operating expenses may include (i) additional depreciation and amortization from changes in estimated useful life and the write-down of certain property, plant and equipment and intangibles, (ii) charges such as severance, benefits and outplacement costs related to restructuring plans with a specific and defined term, (iii) costs for facilities not required for ongoing operations, and costs related to the relocation of certain equipment from these facilities and/or contract manufacturer facilities, (iv) stock-based compensation, (v) amortization expense related to acquired intangibles, (vi) amortization expense related to acquisition related inventory step-up, (vii) changes in fair value of contingent consideration liabilities, (viii) acquisition related transaction and integration costs related to acquired entities, (ix) litigation and legal settlements and (x) other charges unrelated to our core operating performance comprised mainly of other costs and contingencies unrelated to current and future operations, including transformational initiatives such as the implementation of simplified automated processes, site consolidations and reorganizations. The Company excludes these items in calculating non-GAAP operating margin, non-GAAP net income and non-GAAP EPS.

Non-cash interest expense and other expense: The Company excludes certain investing expenses, including accretion of debt discount, and other non-cash activities that management believes are not reflective of such ordinary, ongoing and core operating activities, when calculating non-GAAP net income and non-GAAP EPS.

Income tax expense or benefit: The Company excludes certain non-cash tax expense or benefit items, such as (i) the utilization of net operating losses (NOLs) where valuation allowances were released, (ii) intra-period tax allocation benefit and (iii) the tax effect for amortization of non-tax deductible intangible assets, in calculating non-GAAP net income and non-GAAP EPS.

Non-GAAP financial measures are not in accordance with, preferable to, or an alternative for, generally accepted accounting principles in the United States. The GAAP measure most directly comparable to non-GAAP operating income is operating income. The GAAP measure most directly comparable to non-GAAP operating margin is operating margin. The GAAP measure most directly comparable to non-GAAP net income is net income. The GAAP measure most directly comparable to non-GAAP EPS is earnings per share.

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RESULTS OF OPERATIONS

This section of this Annual Report on Form 10-K generally discusses the results of operations for the fiscal years ended June 28, 2025 and June 29, 2024 and year-to-year comparisons between such fiscal years. Discussions of the year-to-year comparisons between the fiscal years ended June 29, 2024 and July 1, 2023, that are not included in this Annual Report on Form 10-K, can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended June 29, 2024.

The results of operations for the current period are not necessarily indicative of results to be expected for future periods.

The following table summarizes selected Consolidated Statements of Operations items as a percentage of net revenue:

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Financial Data for Fiscal 2025, 2024 and 2023

The following table summarizes selected Consolidated Statement of Operations items (in millions):

NM - Percentage change not considered meaningful

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Foreign Currency Impact on Results of Operations

While the majority of our net revenue and operating expenses are denominated in U.S. dollar, a portion of our international operations are denominated in currencies other than the U.S. dollar. Changes in foreign exchange rates may significantly affect revenue and expenses. While we use foreign currency hedging contracts to mitigate some foreign currency exchange risk, these activities are limited in the protection that they provide us and can themselves result in losses. We have presented below “constant dollar” comparisons of our net sales and operating expenses, which exclude the impact of currency exchange rate fluctuations. Constant dollar net revenue and operating expenses are non-GAAP financial measures, which is information derived from consolidated financial information but not presented in our financial statements prepared in accordance with U.S. GAAP. Our management believes these non-GAAP measures, when considered in conjunction with the corresponding U.S. GAAP measures, may facilitate a better understanding of changes in net revenue and operating expenses. While management believes that these non-GAAP financial measures provide useful supplemental information, such adjusted results are not intended to replace our GAAP financial results and should be read in conjunction with those GAAP results.

The Results of Operations are presented in accordance with U.S. GAAP and not using constant dollars. If currency exchange rates had been constant in fiscal 2025 and 2024, our consolidated net revenue in “constant dollars” would have increased from fiscal 2024 to fiscal 2025 by an additional $3.3 million, or 0.3% of net revenue, which primarily impacted our NSE segment. The impact of foreign currency fluctuations on net revenue was not indicative of the impact on net income due to the offsetting foreign currency impact on operating costs and expenses. If currency exchange rates had been constant in fiscal 2025 and 2024, our consolidated operating expenses in “constant dollars” would have increased from fiscal 2024 to fiscal 2025 by an additional $0.1 million.

Refer to Item 7A “Qualitative and Quantitative Disclosures about Market Risk” of this Annual Report on Form 10-K for further details on foreign currency instruments and our related risk management strategies.

Net Revenue

Revenue from our service offerings exceeds 10% of our total consolidated net revenue and is presented separately in our Consolidated Statements of Operations. Service revenue primarily consists of maintenance and support, extended warranty, professional services and post-contract support in addition to other services such as calibration and repair services. When evaluating the performance of our segments, management focuses on total net revenue, gross profit and operating income and not the product or service categories. Consequently, the following discussion of business segment performance focuses on total net revenue, gross profit and operating income consistent with our approach for managing the business.

Net revenue increased $83.9 million, or 8.4%, during fiscal 2025 when compared to fiscal 2024. This increase was primarily from the data center ecosystem for field, lab and production products for fiber and data center buildouts, as well as growth in our aerospace and defense products ($25.2 million contributed by our acquisition of Inertial Labs), which was partially offset by a decline in spend by NEMs and service providers for wireless and cable products. OSP performance slightly improved year-over-year driven by Anti-Counterfeiting and Other products.

Product revenues increased $77.2 million, or 9.2%, during fiscal 2025 when compared to fiscal 2024, driven by volume increases in NSE and OSP.

Service revenues increased $6.7 million, or 4.0%, during fiscal 2025 when compared to fiscal 2024, driven by a volume increase in NSE.

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Going forward, we expect to continue to encounter a number of industry and market risks and uncertainties. For example, uncertainty around the timing of our customers’ procurement decisions on infrastructure maintenance and upgrades and decisions on new infrastructure investments or uncertainty about speed of adoption of 5G technology at a commercially viable scale. This may limit our visibility, and consequently, our ability to predict future revenue, seasonality, profitability and general financial performance, which could create period-over-period variability in our financial measures and present foreign exchange rate risks. The recent global tariffs implemented could increase our costs and impact our business.

We cannot predict when or to what extent these uncertainties will be resolved. Our revenues, profitability and general financial performance may also be affected by: (a) pricing pressures due to, among other things, a highly concentrated customer base, increasing competition, particularly from Asia-based competitors and a general commoditization trend for certain products; (b) strategic execution challenges arising from competition with larger and more well-resourced competitors; (c) product mix variability in our markets, which affects revenue and gross margin; (d) fluctuations in customer buying patterns, which cause demand, revenue and profitability volatility; (e) the current trend of communication industry consolidation, which is expected to continue, that directly affects our NSE customer base and adds additional risk and uncertainty to our financial and business projections; (f) the impact of ongoing global trade policies, tariffs and sanctions; and (g) regulatory or economic developments and/or technology challenges that slow or change the rate of adoption of 5G, 3D sensing and other emerging secular technologies and platforms.

Revenue by Region

We operate in three geographic regions, including the Americas, Asia-Pacific and Europe Middle East and Africa (EMEA). Net revenue is assigned to the geographic region and country where our product is initially shipped. For example, certain customers may request shipment of our product to a contract manufacturer in one country, which may differ from the location of their end customers.

The following table presents net revenue by the three geographic regions we operate in and net revenue from countries that exceeded 10% of our total net revenue (in millions):

Net revenue from customers outside the Americas for fiscal 2025, represented 60.8% of net revenue, a decrease of 0.1 percentage points year-over-year. We expect revenue from customers outside of the United States to continue to be an important part of our overall net revenue and an increasing focus for net revenue growth opportunities.

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Amortization of Acquired Technologies (Cost of revenues)

Amortization of acquired technologies within Cost of revenues for fiscal 2025 increased $5.7 million, or 41.3%, to $19.5 million from $13.8 million in fiscal 2024. This increase is primarily due to the amortization of intangibles acquired through Inertial Labs, partially offset by certain intangibles becoming fully amortized.

Gross Margin

Gross margin in fiscal 2025 declined 0.3 percentage points to 57.3% from 57.6% in fiscal 2024. This decrease was primarily driven by the increase in amortization of intangibles and amortization of acquisition related inventory step-up, partially offset by higher volume and favorable product mix.

As discussed in more detail under “Net Revenue” above, we sell products in certain markets that are consolidating, undergoing product, architectural and business model transitions, have high customer concentrations, are highly competitive (increasingly due to Asia-Pacific-based competition), are price sensitive and/or are affected by customer seasonal and mix variant buying patterns. We expect these factors to continue to result in variability of our gross margin.

Research and Development

Research and Development (R&D) expense increased $6.8 million, or 3.4%, during fiscal 2025 compared to fiscal 2024. This increase was primarily due to higher variable expenses and incremental cost from the acquisition of Inertial Labs, partially offset by a one-time R&D tax credit catch-up. As a percentage of net revenue, R&D decreased 0.9 percentage points during fiscal 2025 when compared to fiscal 2024.

We believe that continuing our investments in R&D is critical to attaining our strategic objectives. We plan to continue to invest in R&D and new products that will further differentiate us in the marketplace.

Selling, General and Administrative

Selling, General and Administrative (SG&A) expense increased $16.1 million, or 4.8%, in fiscal 2025 compared to fiscal 2024. This increase was primarily due to higher variable expenses, higher acquisition and integration related charges and higher stock-based compensation. As a percentage of net revenue, SG&A decreased 1.1 percentage points in fiscal 2025 when compared to 2024.

We intend to continue to focus on reducing our SG&A expense as a percentage of net revenue. However, we have in the recent past experienced, and may continue to experience in the future, certain charges unrelated to our core operating performance, such as acquisitions and integration related expenses and litigation expenses, which could increase our SG&A expense and potentially impact our profitability expectations in any particular quarter.

Amortization of Other Intangibles (Operating expenses)

Amortization of intangibles within Operating expenses for fiscal 2025 decreased $1.5 million, or 23.8%, to $4.8 million from $6.3 million in fiscal 2024. This decrease is primarily due to certain intangible assets becoming fully amortized, partially offset by amortization of intangibles acquired through Inertial Labs.

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Restructuring

The Company’s restructuring events are primarily intended to reduce costs, consolidate operations, integrate various acquisitions, streamline product manufacturing and address market conditions.

During the fourth quarter of fiscal 2024, management approved a restructuring and workforce reduction plan (the Fiscal 2024 Plan) across various functions intended to improve operational efficiencies and better align the Company’s workforce with current business needs. The Company expects approximately 7% of its global workforce to be affected, impacting both segments and corporate functions. We estimate annualized gross cost savings of approximately $25.0 million excluding any one-time charges as a result of the restructuring activities initiated under the Fiscal 2024 Plan. The Company anticipates the Fiscal 2024 Plan to be substantially complete by the end of the second quarter of fiscal 2026.

The restructuring and workforce reduction plan, initiated in the second quarter of fiscal 2023 (the Fiscal 2023 Plan) across various functions to better align the Company’s workforce with current business needs and strategic growth opportunities, was completed in the first quarter of fiscal 2025. The Fiscal 2023 Plan affected approximately 5% of the Company's workforce and resulted in an estimated annualized gross cost savings of approximately $25.0 million excluding any one-time charges.

As of June 28, 2025, our total restructuring accrual was $3.5 million. During fiscal 2025, we recorded restructuring charges of $0.9 million related to the Fiscal 2024 Plan and a benefit of $0.2 million related to the Fiscal 2023 Plan. During fiscal 2024, we recorded charges of $14.8 million related to the Fiscal 2024 Plan and a benefit of $1.2 million related to the Fiscal 2023 Plan. During fiscal 2023, we recorded restructuring charges of $12.1 million related to the Fiscal 2023 Plan. Restructuring charges consisting of severance, benefit and outplacement costs were recorded to the Restructuring and related charges line within our Consolidated Statements of Operations.

We estimate future cash payments of $3.5 million under the Fiscal 2024 Plan, funded by operating cash flow.

Refer to “Note 13. Restructuring and Related Charges” under Item 8 of this Annual Report on Form 10-K for more information.

Loss on Convertible Note Modification

During fiscal 2023, the Company exchanged $127.5 million principal value of its 1.00% Senior Convertible Notes due 2024 for $132.0 million principal value of its 1.625% Senior Convertible Notes due 2026 and issued $118.0 million principal value of its 1.625% Senior Convertible Notes due 2026 for cash. The Company incurred $4.2 million of issuance costs related to this exchange, of which $2.2 million of the issuance costs were recorded as Loss on convertible note modification in the Consolidated Statements of Operations. The remaining issuance costs of $2.0 million were capitalized within Long-term debt (as a contra-balance) on the Consolidated Balance Sheets and are being amortized as an adjustment to interest expense on a straight-line basis until maturity.

Interest and Other Income, Net

Interest and other income, net was $11.1 million in fiscal 2025 as compared to $21.7 million in fiscal 2024. This $10.6 million decrease was primarily driven by a legal settlement in our favor in the amount of $7.3 million in fiscal 2024 and a decrease in interest income due to lower cash balances and lower yields compared to fiscal 2024.

Interest Expense

Interest expense decreased $0.9 million, or 2.9%, during fiscal 2025 compared to fiscal 2024. This decrease was primarily driven by lower outstanding debt when compared to fiscal 2024.

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Provision for Income Tax

We recorded an income tax provision of $4.4 million for fiscal 2025. The expected tax provision derived by applying the federal statutory rate to our income before income taxes for fiscal 2025 differed from the income tax expense recorded primarily due to valuation allowances in addition to withholding taxes, foreign tax rates higher than the federal statutory rate and the U.S. inclusion of foreign earnings.

Based on a jurisdiction-by-jurisdiction review of anticipated future income and due to the continued economic uncertainty in the industry, management has determined that in the U.S., it is more likely than not that our net deferred tax assets will not be realized. During fiscal 2025, the valuation allowance for deferred tax assets decreased by $69.7 million, which was primarily due to the increase in the deferred tax liability that resulted from the acquisition of Inertial Labs and its intangible assets, and the expiration of federal NOLs in the U.S.

The decrease in income tax provision of $33.0 million or 88.2% during fiscal 2025 was due primarily to a $25.0 million release of valuation allowance related to our acquisition of Inertial Labs and a $7.5 million release of state income tax reserves due to the lapse in the statute of limitations.

We are routinely subject to various federal, state and foreign audits by taxing authorities. We believe that adequate amounts have been provided for any adjustments that may result from these examinations.

On July 4, 2025, the One Big Beautiful Bill Act (OBBBA), which includes a broad range of tax reform provisions, was signed into law in the United States. The effect of OBBBA will be recorded in the first quarter of fiscal 2026, as a change in tax law is accounted for in the period of enactment. We are currently evaluating the provisions of OBBBA, however we currently do not expect the OBBBA to have a material impact on our annual effective tax rate in fiscal 2026.

Operating Segment Information

Information related to our operating segments was as follows (in millions):

Network and Service Enablement

NSE net revenue increased $74.6 million, or 10.6% during fiscal 2025 when compared to fiscal 2024. This increase was primarily driven by higher volume in Lab and Production, Aerospace and Defense ($25.2 million contributed by our acquisition of Inertial Labs), partially offset by lower volume in Wireless.

NSE gross margin increased by 0.2 percentage points during fiscal 2025 to 62.8% from 62.6% in fiscal 2024. This increase was primarily due to higher volume and favorable product mix.

NSE operating margin increased by 4.3 percentage points during fiscal 2025 to 5.4% from 1.1% in fiscal 2024, primarily driven by higher volume and a one-time R&D tax credit catch-up.

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Optical Security and Performance Products

OSP net revenue increased $9.3 million, or 3.1%, during fiscal 2025 when compared to fiscal 2024. This increase was primarily driven by higher Anti-Counterfeiting and Other revenues, partially offset by a decrease in 3D sensing revenue.

OSP gross margin increased by 1.2 percentage point during fiscal 2025 to 53.1% from 51.9% in fiscal 2024 primarily due to higher volume.

OSP operating margin increased by 0.6 percentage points during fiscal 2025 to 36.5% from 35.9% in fiscal 2024, primarily due to the aforementioned increase in gross margin.

Liquidity and Capital Resources

We believe our existing liquidity and sources of liquidity, namely operating cash flows, credit facility capacity and access to capital markets, will continue to be adequate to meet our liquidity needs, including but not limited to, contractual obligations, working capital and capital expenditure requirements, financing strategic initiatives, funding debt maturities and executing purchases under our share repurchase program over the next twelve months and beyond. However, there are a number of factors that could positively or negatively impact our liquidity position, including:

•Global economic conditions which affect demand for our products and services and impact the financial stability of our suppliers and customers;

•The pending close of our acquisition of Spirent’s HSE, network security and CE businesses and the related Term Loan B, which has been priced and allocated, with funding contingent upon closing;

•Changes in accounts receivable, inventory or other operating assets and liabilities which affect our working capital;

•Increase in capital expenditure to support the revenue growth opportunity of our business;

•Changes in customer payment terms and patterns, which typically results in customers delaying payments or negotiating favorable payment terms to manage their own liquidity positions;

•Timing of payments to our suppliers;

•Factoring or sale of accounts receivable;

•Volatility in fixed income and credit markets which impact the liquidity and valuation of our investment portfolios;

•Volatility in credit markets that impact our ability to obtain additional financing on favorable terms or at all;

•Volatility in foreign exchange markets which impacts our financial results;

•Possible investments or acquisitions of complementary businesses, products or technologies;

•Principal payment obligations of our 1.625% Senior Convertible Notes due 2026, and our 3.75% Senior Notes due 2029 (together the “Notes”) and covenants that restrict our debt level and credit facility capacity;

•Issuance or repurchase of debt which may include open market purchases of our 2026 Notes and/or 2029 Notes prior to their maturity;

•Issuance or repurchase of our common stock or other equity securities;

•Challenges in repatriating funds from certain foreign jurisdictions;

•Factors beyond our control that may impact timing of and/or appropriation of government funding for certain of our strategic research and development programs;

•Potential funding of pension liabilities either voluntarily or as required by law or regulation;

•Compliance with covenants and other terms and conditions related to our financing arrangements; and

•The risks and uncertainties detailed under Item 1A “Risk Factors” section of this Annual Report on Form 10-K.

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Cash and Cash Equivalents and Short-Term Investments

Our cash and cash equivalents and short-term investments consist mainly of investments in institutional money market funds and short-term deposits at major global financial institutions. Our strategy is focused on capital preservation and supporting our liquidity requirements that meet high credit quality standards, as specified in our investment policy approved by the Audit Committee of our Board of Directors. Our investments in debt securities and marketable equity securities are primarily classified as available for sale or trading assets and are recorded at fair value. The cost of securities sold is based on the specific identification method. Unrealized gains and losses on available-for-sale investments are recorded as Other comprehensive income (loss) and are reported as a separate component of stockholders’ equity. As of June 28, 2025, U.S. subsidiaries owned approximately 23.7% of our cash and cash equivalents, short-term investments and restricted cash.

As of June 28, 2025, the majority of our cash investments have maturities of 90 days or less and are of high credit quality. Nonetheless we could realize investment losses under adverse market conditions. During the twelve months ended June 28, 2025, we have not realized material investment losses but can provide no assurance that the value or the liquidity of our investments will not be impacted by adverse conditions in the financial markets. In addition, we maintain cash balances in operating accounts with third-party financial institutions. These balances in the U.S. may exceed the Federal Deposit Insurance Corporation (FDIC) insurance limits. While we monitor the cash balances in our operating accounts and adjust as appropriate, these cash balances could be impacted if the underlying financial institutions fail.

Senior Secured Asset-Based Revolving Credit Facility

On December 30, 2021, we entered into a credit agreement (the Credit Agreement) with Wells Fargo Bank, National Association (Wells Fargo) as administrative agent and other lender related parties. The Credit Agreement provides for a senior secured asset-based revolving credit facility in a maximum aggregate amount of $300.0 million, which matures on December 30, 2026. The Credit Agreement also provides that, under certain circumstances, we may increase the aggregate amount of revolving commitments thereunder by an aggregate amount of up to $100.0 million so long as certain conditions are met. The Company is currently considering reducing the commitment under the Senior Secured Asset-Based Revolving Credit Facility to $200 million to be in line with borrowing base capacity and extend the maturity.

As of June 28, 2025, we had no borrowings under this facility and our available borrowing capacity was approximately $170.8 million, net of outstanding standby letters of credit of $4.4 million.

Refer to “Note 11. Debt” under Item 8 of this Annual Report on Form 10-K for more information.

Term Loan B

In March 2025, we obtained commitments for a $425 million 7-year term loan facility the proceeds of which would be available, subject to customary conditions, to fund our pending acquisition of Spirent’s HSE and network security business from Keysight Technologies, Inc. We subsequently marketed and upsized to a $600 million 7-year term loan facility and successfully allocated the loan to prospective lenders at an initial interest rate of SOFR+2.50% and an original issue price of 99.75%. The incremental $175 million is intended for general corporate purposes. The term loan funding, as upsized, remains subject to customary closing conditions and the satisfaction or waiver of all closing conditions to the pending acquisition.

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Cash Flows Year Ended June 28, 2025

As of June 28, 2025, our combined balance of cash and cash equivalents and restricted cash decreased by $49.7 million to $432.1 million from a balance of $481.8 million as of June 29, 2024.

Cash provided by operating activities was $89.8 million, consisting of net income of $34.8 million adjusted for non-cash charges (e.g., depreciation, amortization, stock-based compensation and other non-cash items), and changes in deferred tax balances which totaled $85.2 million, offset by changes in operating assets and liabilities that used $30.2 million. Changes in our operating assets and liabilities related primarily to an increase in accounts receivable of $34.1 million due to billings outpacing collections, a decrease in accrued expenses and other current and non-current liabilities of $13.5 million due primarily to restructuring payments, an increase in inventory of $7.5 million related to demand changes, a decrease in income taxes payable of $6.3 million and an increase in other current and non-current assets of $4.0 million. These were partially offset by an increase in accounts payable of $14.6 million driven by timing of purchases and related payments, an increase in accrued payroll and related expenses of $12.7 million due primarily to variable pay and an increase in deferred revenue of $7.9 million due to timing of support billings and project acceptances.

Cash used in investing activities was $128.4 million, primarily resulting from $121.6 million used for the acquisition of Inertial Labs, $27.8 million used for capital expenditures and $3.0 million investment in a non-marketable equity security, partially offset by $18.9 million net maturities of short-term investments and $5.1 million proceeds from sales of assets.

Cash used in financing activities was $23.6 million, primarily resulting from $16.4 million cash paid to repurchase common stock under our share repurchase program, $13.2 million in withholding tax payments on the vesting of restricted stock and performance-based awards, partially offset by $6.0 million in proceeds from the issuance of common stock under our employee stock purchase plan.

Material Contractual and Cash Obligations

The following summarizes our material contractual obligations at June 28, 2025, and the effect such obligations are expected to have on our liquidity and cash flow over the next five years (in millions):

(1) Refer to “Note 11. Debt” under Item 8 of this Annual Report on Form 10-K for more information.

(2) Refer to “Note 18. Commitments and Contingencies” under Item 8 of this Annual Report on Form 10-K or more information.

(3) Refer to “Note 12. Leases” under Item 8 of this Annual Report on Form 10-K for more information.

(4) Refer to “Note 17. Employee Pension and Other Benefit Plans” under Item 8 of this Annual Report on Form 10-K for more information.

Purchase obligations represent legally-binding commitments to purchase inventory and other commitments made in the normal course of business to meet operational requirements. Of the $160.7 million of purchase obligations as of June 28, 2025, $75.7 million are related to inventory and the other $85.0 million are non-inventory items.

As of June 28, 2025, our other non-current liabilities primarily relate to asset retirement obligations, pension and financing obligations which are presented in various lines in the preceding table.

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Share Repurchase Program

During fiscal 2025, we repurchased 2.0 million shares of our common stock outstanding for $16.4 million pursuant to our 2022 Share Repurchase Plan. As of June 28, 2025, the Company had remaining authorization of $198.4 million for future share repurchases under the 2022 Repurchase Plan.

Refer to “Note 15. Stockholders Equity” under Item 8 of this Annual Report on Form 10-K for more information.

Employee Defined Benefit Plans and Other Post-retirement Benefits

We sponsor significant qualified and non-qualified pension plans for certain past and present employees in the U.K. and Germany. These plans have been closed to new participants and no additional service costs are being accrued, except for certain plans in Germany assumed in connection with an acquisition during fiscal 2010.

As of June 28, 2025, the U.K. plan is fully funded. During each of fiscal 2025 and fiscal 2024, we contributed £1.0 million or approximately $1.3 million to the U.K. pension plan. These contributions allowed us to comply with regulatory funding requirements.

As of June 28, 2025, our German pension plans, which were initially established as unfunded or “pay-as-you-go” plans, were underfunded by $59.6 million since the projected benefit obligation (PBO) exceeded the fair value of plan assets. We anticipate future annual outlays related to the German plans will approximate estimated future benefit payments. These future benefit payments have been estimated based on the same actuarial assumptions used to measure our PBO and currently are forecasted to range between $4.3 million and $5.9 million per annum.

We also are responsible for the non-pension post-retirement benefit obligation assumed from a past acquisition with a liability of $0.3 million.

Recently Issued Accounting Pronouncements

Refer to “Note 2. Recently Issued Accounting Pronouncements” under Item 8 of this Annual Report on Form 10-K, regarding the effect of certain recent accounting pronouncements on our Consolidated Financial Statements.

Critical Accounting Estimates

Our Consolidated Financial Statements have been prepared in accordance with U.S. GAAP, which requires management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities, net revenue and expenses, and the disclosure of contingent assets and liabilities. Our estimates are based on historical experience and assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. We believe that the accounting estimates employed and the resulting balances are reasonable; however, actual results may differ from these estimates and such differences may be material. Refer to “Note 1. Basis of Presentation” under Item 8 of this Annual Report on Form 10-K, for a discussion of the estimates used in preparation of our Consolidated Financial Statements.

For contingent purchase consideration, the fair value of such earn-out liabilities are generally determined using a Monte Carlo Simulation that includes significant unobservable inputs such as the projected revenues of the acquired business over the earn-out period. The fair value of contingent consideration liabilities is remeasured at each reporting period at the estimated fair value based on the inputs on the date of remeasurement. The estimates used to determine the fair value of the contingent consideration liability are subject to significant judgment and given the inherent uncertainties in making these estimates, actual results are likely to differ from the amounts originally recorded and could be materially different.

For our Pension accounting, significant judgment is required in actuarial assumption used when establishing the discount rate for the net periodic cost and the PBO calculations. Changes in the discount rate impact the interest cost component of the net periodic benefit cost calculation and PBO due to the fact that the PBO is calculated on a net present value basis. Decreases in the discount rate will generally increase pre-tax cost, recognized expense and the PBO. Increases in the discount rate tend to have the opposite effect. We estimate a 50-basis point decrease or increase in the discount rate would cause a corresponding increase or decrease, respectively, in the PBO of approximately $4.0 million based upon data as of June 28, 2025.

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