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Item 7. Management’s Discussion and Analysis

2023-08-17 compared with 2022-08-19 · 182 added, 157 removed, 273 unchanged (55% of the section changed)

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The following discussion and analysis summarizes the significant factors affecting our consolidated operating results, financial condition, liquidity and capital resources during the period ended July 1, 2023.

Unless otherwise noted, all references herein for the years 2022, 2021, and 2020 represent the fiscal years ended July 2, 2022, July 3, 2021, and June 27, 2020, 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 principles affect our financial statements.

Unless otherwise noted, all references herein for the years 2023, 2022,and 2021 represent the fiscal years ended July 1, 2023, July 2, 2022, and July 3, 2021, respectively.

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.”

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Our actual results could differ materially from those discussed in the forward-looking statements.

We are a global provider of network test, monitoring, and assurance solutions for communications service providers (CSPs), enterprises, network equipment manufacturers (NEMs), original equipment manufacturers (OEMs), government and avionics.

We are a global provider of network test, monitoring, and assurance solutions for communications service providers (CSPs), hyperscalers, network equipment manufacturers (NEMs), original equipment manufacturers (OEMs), government and avionics.

We help these customers harness the power of instruments, automation, intelligence, and virtualization.

VIAVI is also a leader in light management solutions for the anti-counterfeiting, consumer electronics, industrial, government, and automotive markets.

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

VIAVI is also a leader in light management technologies for 3D sensing for the anti-counterfeiting, consumer electronics, industrial, automotive, government and aerospace applications.

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

• Network Enablement (NE);

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• Optical Security and Performance Products (OSP).

During fiscal 2022, we experienced global supply chain disruptions, increased raw material costs, higher shipping-related charges, and inflationary pressures.

Nevertheless, our ability to secure critical components, build inventory and meet customer demands has helped enable us to grow revenue and market share.

We saw strong revenue growth in our NE business segment driven by fiber and wireless, as North American service providers upgraded and expanded their networks with fiber optic, and wireless demand increased in fiscal 2022.

Our SE business segment also experienced an increase in revenue year over year as we saw strong growth in assurance solutions and data center products, in part due to increased market demand for 5G and growth in network traffic.

Revenue from our OSP business segment did decrease, primarily driven by a decrease in demand for our consumer electronics and industrial products.

However, any prolonged disruption of manufacturing of our products, commerce and related activity caused by the pandemic or significant decrease in demand for our products could materially and adversely affect our results of business, operations, and financial conditions.

It may also have the effect of heightening many of the other risks such as those relating to our quarterly revenue and operating results as well as on our liquidity and on our ability to satisfy our indebtedness obligations, including the compliance with the covenants that apply to our indebtedness.

Our financial results and long-term growth model will continue to be driven by revenue growth, non-GAAP operating profit, non-GAAP diluted earnings per share (EPS) and cash flow from operations.

During fiscal 2023, we experienced a constrained demand outlook and continued inflationary pressures.

Weakness in CSP and NEM spending created headwinds for our NE segment.

Softening demand for anti-counterfeiting driven by fiscal tightening as central banks continue to normalize currency printing from elevated levels during the pandemic created pressure on OSP revenues.

Despite the slowdown in overall service provider spend, some service providers have begun to free up funds for network maintenance and optimization, which benefits VIAVI’s NSE business segment.

Any prolonged disruption of manufacturing of our products, commerce and related activity or significant decrease in demand for our products could materially and adversely affect our results of business, operations, and financial conditions.

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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We continue to make strategic investments to support our three-year strategic plan highlighted during our September 2019 Analyst Day Event such as:

• Continued to invest in R&D to revamp product portfolio and enable the business to leverage secular trends in 5G, Fiber and 3D Sensing.

• Enhanced the sales team to continue expanding Total Addressable Market (TAM), gain market share and execute successfully against our competitors.

• Successfully completed four acquisitions, consistent with our acquisition strategy.

Looking Ahead to 2024

As we look forward to the year ahead, our focus remains on executing against our strategic priorities to drive revenue and earnings growth, capture market share and continue to optimize our capital structure.

Our emphasis is to continue to execute successfully despite supply chain shortages.

Our ability to secure critical components, build inventory and meet customer demands has been a great differentiator and enabled us to grow revenue and market share.

We plan to improve profitably driven by operating leverage in the business model as we grow both organically and inorganically.

We remain positive on our long-term growth drivers in 5G Wireless, Fiber, 3D Sensing and Resilient Position, Navigation and Timing (PNT).

We will continue to focus on executing against our strategic priorities highlighted during our September 2022 Analyst Day Event such as our plans 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 adjacent markets and applications;

• Continue productivity improvement in Operations, Research & Development (R&D) and Selling, General and Administrative (SG&A).

FINANCIAL HIGHLIGHTS

Our fiscal 2023 results included the following notable items:

• Net revenues of $1.3 billion, up $93.5 million or 7.8% year-over-year

• GAAP operating margin of 14.3%, up 240 bps year-over-year

• Non-GAAP operating margin of 22.2%, up 110 bps year-over-year

• GAAP Diluted EPS of $0.07, down $0.22 or 75.9% year-over-year

• Non-GAAP Diluted EPS of $0.95, up $0.12 or 14.5% year-over-year

In fiscal 2022, VIAVI achieved new highs despite the COVID-19 related supply chain issues and inflationary pressures.

Net revenue of $1.3 billion, up $93.5 million or 7.8%, was led by our NSE segment, which reached a record revenue of $949.1 million, up 13.3% year-over-year.

VIAVI's fiscal 2022 GAAP operating margin of 14.3% was up 240bps over fiscal 2021 due to leverage on revenue growth.

Non-GAAP operating margin of 22.2% expanded 110 basis points largely due to revenue growth and a lower intangible amortization.

GAAP Diluted EPS of $0.07 decreased 75.9%, or $0.22, from fiscal 2021 largely due to the loss incurred in connection with the repurchase of certain 1.00% and 1.75% Senior Convertible Notes (the Original Senior Convertible Notes).

Non-GAAP Diluted EPS of $0.95 increased 14.5% or $0.12 from $0.83 in fiscal 2021 as a result of the operating performance and an improved tax rate.

• Net revenues of $1.1 billion, down $186.3 million or 14.4% year-over-year

• GAAP operating margin of 7.4%, down 690 bps year-over-year

• Non-GAAP operating margin of 15.6%, down 660 bps year-over-year

• GAAP Diluted EPS of $0.11, up $0.04 or 57.1% year-over-year

• Non-GAAP Diluted EPS of $0.55, down $0.40 or 42.1% year-over-year

In fiscal 2023, VIAVI experienced a constrained demand outlook and end market volatility.

Net revenue of $1.1 billion, down $186.3 million or 14.4%, demonstrated the challenging macro-economic environment faced by our NE and OSP segments.

VIAVI's fiscal 2023 GAAP operating margin of 7.4% was down 690 bps compared to fiscal 2022 due to the decline in revenues, partially offset by lower operating expenses.

Non-GAAP operating margin of 15.6% decreased 660 basis points largely due to a decline in revenue partially offset by lower operating expenses.

GAAP Diluted EPS of $0.11 increased 57.1%, or $0.04, from fiscal 2022 largely due to the loss incurred in connection with the repurchase of certain 1.00% and 1.75% Senior Convertible Notes in fiscal 2022.

Non-GAAP Diluted EPS of $0.55 decreased 42.1% or $0.40 from a record of $0.95 in fiscal 2022 due to the decline in revenues.

In fiscal 2023, we generated $114.1 million in operating cash flow and deployed $51.1 million or 4.6% of revenues towards capital expenditures.

We completed a $400.0 million high-yield 2029 notes offering at an attractive rate of 3.75% interest which allowed us to retire about 40% of the Original Senior Convertible Notes during Q1, and subsequent redemption transactions the remainder of the year allowed for additional retirements of approximately 17% of the Original Senior Convertible Notes.

At the end of fiscal 2022, 43% of the original principal value of the Original Senior Convertible Notes remain outstanding.

Also during fiscal 2022 we repurchased 14.8 million shares of our common stock for $235.5 million.

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

We further improved our balance sheet by retiring the remaining 1.75% 2023 Senior Convertible Notes and partially exchanging the 1.0% 2024 Senior Convertible Notes at comparable terms into 1.625% 2026 Senior Convertible Notes.

We continued to execute our capital allocation strategy by deploying $72.3 million towards acquisitions and also repurchasing 7.3 million shares of our common stock for $83.9 million.

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

July 1, 2023 July 2, 2022

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Change in fair value of contingent liability (4.5) (0.4) % 0.3 — %

Other charges unrelated to core operating performance (1)

Other (benefits) charges unrelated to core operating performance (1)

(2.0) (0.2) % 9.6 0.7 %

Amortization of intangibles 33.3 3.0 % 39.7 3.1 %

Restructuring and related benefits (0.1) — % (1.6) (0.1) %

Restructuring and related charges (benefits) 12.1 1.1 % (0.1) — %

Total related to Cost of Revenue and Operating Expenses 90.1 8.2 % 101.8 7.9 %

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Change in fair value of contingent liability (4.5) (0.02) 0.3 —

Other charges unrelated to core operating performance (1)

Other (benefits) charges unrelated to core operating performance (1)

(2.0) (0.01) 9.6 0.04

Amortization of intangibles 33.3 0.15 39.7 0.17

Restructuring and related benefits (0.1) — (1.6) (0.01)

Restructuring and related charges (benefits) 12.1 0.05 (0.1) —

Non-cash interest expense and other expense (2)

3.9 0.02 102.2 0.43

Benefit from income taxes 5.2 0.02 5.8 0.02

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Shares used in per share calculation for Non-GAAP EPS 226.6 238.2

(1) Other items include charges unrelated to core operating performance primarily consisting of acquisition and integration related charges, transformational initiatives such as site consolidations, and reorganization, loss on sale of investments and loss on disposal of long-lived assets.

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(1) Other items include (benefits) charges unrelated to core operating performance primarily consisting of certain acquisition and integration related charges, transformational initiatives such as site consolidations, accretion of debt discount, intangible impairment and loss on disposal of long-lived assets.

(2) The Company incurred a loss of $2.2 million for the twelve months ended July 1, 2023 in connection with the modification of certain 1.00% Senior Convertible Notes.

The Company incurred a loss of $101.8M for the twelve months ended July 2, 2022 in connection with the repurchase of certain 1.00% and 1.75% Senior Convertible Notes.

The Company eliminates this in calculating non-GAAP net income and non-GAAP EPS, because it believes that in so doing, it can provide investors a clearer and more consistent view of the Company’s core operating performance.

Use of Non-GAAP (Adjusted) Financial Measures

The Company provides non-GAAP operating margin, non-GAAP net income and non-GAAP net income per share financial measures as supplemental information regarding the Company’s operational performance.

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.

The Company uses the measures disclosed in this Report 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 represent 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 and inventory step-up, stock-based compensation, restructuring, separation costs, changes in fair value of contingent consideration liabilities and certain investing expenses and non-cash activities that management believes are not reflective of such ordinary, ongoing and core operating activities.

Non-GAAP financial measures are not in accordance with, preferable to, or an alternative for, generally accepted accounting principles in the United States.

The Company believes providing this additional information allows investors to see Company results through the eyes of management and that providing non-GAAP financial measures in conjunction with GAAP measures provides valuable supplemental information regarding the Company’s overall performance.

Accordingly, management excludes from core operating performance items such as those relating to certain purchase price accounting adjustments, amortization of acquisition-related intangibles, stock-based compensation, legal settlements, restructuring, changes in fair value of contingent consideration liabilities and certain investing expenses and other activities that management believes are not reflective of such ordinary, ongoing and core operating activities.

The Company believes providing this additional information allows investors to see Company results through the eyes of management.

The Company further believes that providing this information allows investors to better understand the Company’s financial performance and, importantly, to evaluate the efficacy of the methodology and information used by management to evaluate and measure such performance.

The non-GAAP adjustments described in this Report are excluded by the Company from its GAAP financial measures.

The non-GAAP adjustments described in this report are excluded by the Company from its GAAP financial measures because the Company believes excluding these items enables investors to evaluate more clearly and consistently the Company’s core operational performance.

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 operating expenses may include (i) additional depreciation and amortization from changes in estimated useful life and the write-down of certain property, equipment and intangibles that have been identified for disposal but remained in use until the date of disposal, (ii) workforce related charges such as severance, retention bonuses and employee relocation costs related to formal restructuring plans, (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) changes in fair value of contingent consideration liabilities and (vi) other charges unrelated to our core operating performance comprising mainly of acquisition related transaction costs, amortization of acquisition related inventory step-up, integration costs related to acquired entities, litigation and 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 net income per share.

The Company believes excluding these items enables investors to evaluate more clearly and consistently the Company’s core operational performance.

Amortization of intangibles :

The Company includes amortization expense related to intangibles in its GAAP presentation of cost of revenues and operating expense.

The Company excludes these significant non-cash items in calculating non-GAAP operating margin, non-GAAP net income and non-GAAP net income per share.

The Company’s GAAP presentation of operating expenses may include (i) additional depreciation and amortization from changes in estimated useful life and the write-down of certain property, equipment and intangibles that have been identified for disposal but remained in use until the date of disposal, (ii) workforce related charges such as severance, retention bonuses and employee relocation costs related to formal restructuring plans, (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) changes in fair value of contingent consideration liabilities and (vii) other charges unrelated to our core operating performance comprised mainly of acquisition related transaction costs, integration costs related to acquired entities, litigation and legal settlements and 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 incurred a loss of $101.8M for fiscal 2022 in connection with the repurchase of certain 1.00% and 1.75% Senior Convertible Notes.

The Company eliminates this in calculating non-GAAP net income and non-GAAP net income per share, because it believes that in so doing, it can provide investors a clearer and more consistent view of the Company’s core operating performance.

The Company excludes certain investing expenses and non-cash activities that management believes are not reflective of such ordinary, ongoing and core operating activities, in 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 the utilization of net operating losses where valuation allowances were released, intra-period tax allocation benefit and the tax effect for amortization of non-tax deductible intangible assets, in calculating non-GAAP net income and non-GAAP net income per share.

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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.

The Company believes these GAAP measures alone are not fully indicative of its core operating expenses and performance and that providing non-GAAP financial measures in conjunction with GAAP measures provides valuable supplemental information regarding the Company’s overall performance.

RESULTS OF OPERATIONS

This section of this Annual Report on Form 10-K generally discusses the results of operations for the fiscal year ended July 1, 2023 and July 2, 2022 and year-to-year comparisons between such fiscal years.

Discussions of the year to-year comparisons between the fiscal year ended July 3, 2021 and June 27, 2020, 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 July 3, 2021 .

Discussions of the year-to-year comparisons between the fiscal year ended July 2, 2022 and July 3, 2021, 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 July 2, 2022 .

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:

July 2, 2022 July 3, 2021 June 27, 2020

July 1, 2023 July 2, 2022 July 3, 2021

Segment net revenue:

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Amortization of other intangibles 0.8 0.7 2.8

Restructuring and related (benefits) charges — (0.1) 0.3

Restructuring and related charges (benefits) 1.2 — (0.1)

Total operating expenses 50.4 45.5 47.8

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Loss on convertible note settlement — (7.9) —

Interest and other (loss) income, net 0.4 0.3 0.9

Loss on convertible note modification (0.2) — —

Interest and other income, net 0.7 0.4 0.3

Interest expense (2.4) (1.8) (1.2)

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Net income 2.3 % 1.2 % 5.6 %

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Financial Data for Fiscal 2023, 2022 and 2021

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Gross margin 57.8 % 59.8 % 59.8 % 59.6 %

Amortization of intangibles $9.7 $33.3 $(23.6) (70.9)% $33.3 $35.1 $(1.8) (5.1)%

Percentage of net revenue 0.7% 2.8% 2.8% 3.1%

Research and development $ 206.9 $ 213.2 $ (6.3) (3.0) % $ 213.2 $ 203.0 $ 10.2 5.0 %

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Percentage of net revenue 29.7 % 28.3 % 28.3 % 28.2 %

Restructuring and related (benefits) charges $(0.1) $(1.6) $1.5 (93.8)% $(1.6) $3.5 $(5.1) (145.7)%

Amortization of intangibles $ 8.7 $ 9.7 $ (1.0) (10.3) % $ 9.7 $ 33.3 $ (23.6) (70.9) %

Percentage of net revenue 0.8 % 0.7 % 0.7 % 2.8 %

Loss on convertible note exchange $(101.8) $— $(101.8) 100.0% $— $— $— —%

Restructuring and related charges (benefits) $ 12.1 $ (0.1) $ 12.2 NM $ (0.1) $ (1.6) $ 1.5 (93.8) %

Percentage of net revenue 1.2 % — % — % (0.1) %

Loss on convertible note settlement $ — $ (101.8) $ 101.8 NM $ (101.8) $ — $ (101.8) NM

Percentage of net revenue — % (7.9) % (7.9) % — %

Loss on convertible note modification $ (2.2) $ — $ (2.2) NM $ — $ — $ — — %

Percentage of net revenue (0.2) % — % — % — %

Interest and other income, net $ 7.6 $ 5.2 $ 2.4 46.2 % $ 5.2 $ 3.3 $ 1.9 57.6 %

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GAAP measures, may facilitate a better understanding of changes in net revenue and operating expenses.

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Fiscal 2023 and 2022

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Fiscal 2023 and 2022

Net revenue increased $93.5 million, or 7.8%, during fiscal 2022 when compared to fiscal 2021.

This increase was driven by strength in our NE and SE segments, partially offset by a decrease in our OSP segment.

Product revenues increased $84.1 million, or 8.0%, during fiscal 2022 when compared to fiscal 2021.

During the period we realized strength from our NE and SE segments, which was offset by a decline in our OSP segment.

Net revenue decreased $186.3 million, or 14.4%, during fiscal 2023 when compared to fiscal 2022.

This decrease was primarily driven by lower volumes in NE and OSP, partially offset by an increase in SE.

Product revenues decreased $199.4 million, or 17.6%, during fiscal 2023 when compared to fiscal 2022, driven by volume decline in all segments.

Service revenues increased $13.1 million, or 8.3%, during fiscal 2023 when compared to fiscal 2022.

This increase was primarily due to increased support revenue from our NE segments, offset by declines in our SE and OSP segments.

NE net revenue increased $99.2 million, or 13.3% during fiscal 2022 when compared to fiscal 2021, reflecting continued strength in our Wireless and Optical Lab & Production products.

SE net revenue increased $12.0 million, or 13.1%, during fiscal 2022 when compared to fiscal 2021.

This was primarily driven by increased volume in our Data Center and Growth Assurance products.

OSP net revenue decreased $17.7 million, or 4.9%, during fiscal 2022 when compared to fiscal 2021.

This was primarily driven by a decrease in revenues from our 3D Sensing products.

Going forward, we expect to continue to encounter a number of industry and market risks and uncertainties that may limit our visibility, and consequently, our ability to predict future revenue, profitability and general financial performance, and that could create quarter over quarter variability in our financial measures.

For example, while the majority of our net revenue and expenses are denominated in U.S.

dollars, a portion of our international operations are denominated in foreign currencies.

The strengthening of the U.S.

dollar relative to foreign currencies could negatively impact reported revenue.

Additionally, we have seen demand for our NE, SE, and OSP products affected by macroeconomic uncertainty.

This increase was primarily due to increased support revenue from our NSE segment, offset by a declines in our OSP segment.

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.

We cannot predict when or to what extent these uncertainties will be resolved.

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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) product mix variability in our NE and SE markets, which affects revenue and gross margin;

(d) the current trend of communication industry consolidation, which is expected to continue, that directly affects our NE and SE customer bases and adds additional risk and uncertainty to our financial and business projections;

(e) chip component shortages, supply chain and shipping logistic constraints;

(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 Americas, Asia-Pacific and Europe Middle East and Africa (EMEA).

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.

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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) :

July 2, 2022 July 3, 2021 June 27, 2020

July 1, 2023 July 2, 2022 July 3, 2021

United States $ 362.9 32.8 % $ 388.9 30.1 % $ 330.0 27.5 %

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Total Asia-Pacific $ 377.5 34.1 % $ 461.7 35.7 % $ 410.5 34.2 %

Switzerland $ 62.7 4.9 % $ 76.6 6.4 % $ 64.6 5.7 %

Other EMEA 282.3 21.8 % 296.2 24.7 % 288.7 25.4 %

Total EMEA $ 345.0 26.7 % $ 372.8 31.1 % $ 353.3 31.1 %

$ 290.5 26.3 % $ 345.0 26.7 % $ 372.8 31.1 %

Total net revenue $ 1,106.1 100.0 % $ 1,292.4 100.0 % $ 1,198.9 100.0 %

Net revenue from customers outside the Americas for fiscal 2023, represented 60.4% of net revenue, a decrease of 2.0% year-over-year.

This decrease is primarily due to lower revenues from EMEA and strong NSE North America revenues.

This decrease is due to larger declines in revenues from Asia-Pacific and EMEA compared to the decline in the Americas.

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.

Gross margin in fiscal 2022 improved by 0.2% to 59.8% from 59.6% in fiscal 2021.

This increase was primarily driven by higher revenue volume and favorable product mix.

Amortization of Acquired Technologies (Cost of revenues)

Amortization of acquired technologies within Cost of revenues for fiscal 2023 decreased $5.4 million, or 18.0%, to $24.6 million from $30.0 million in fiscal 2022.

This decrease is primarily due to intangible assets becoming fully amortized in fiscal 2022 offset by amortization of intangibles acquired through current year acquisitions.

Gross margin in fiscal 2023 declined 2.0% to 57.8% from 59.8% in fiscal 2022.

This decrease was primarily driven by lower volume and 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.

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Research and Development

R&D expense increased $10.2 million, or 5.0%, during fiscal 2022 compared to fiscal 2021.

This increase was primarily driven by targeted investments to support increased demand in our growth products.

As a percentage of net revenue, R&D slightly decreased during fiscal 2022 when compared to fiscal 2021.

R&D expense decreased $6.3 million, or 3.0%, during fiscal 2023 compared to fiscal 2022.

This decrease was primarily driven by variable expense reductions.

As a percentage of net revenue, R&D increased 2.2% during fiscal 2023 when compared to fiscal 2022.

We believe that continuing our investments in R&D is critical to attaining our strategic objectives.

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Selling, General and Administrative

SG&A expense increased $28.2 million, or 8.4%, in fiscal 2022 compared to fiscal 2021.

This increase was driven by higher sales commissions, increased travel and variable pay.

As a percentage of net revenue, SG&A increased slightly to 28.3% in fiscal 2022 when compared to 2021.

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SG&A expense decreased $37.0 million, or 10.1%, in fiscal 2023 compared to fiscal 2022.

This decrease was driven by the reversal of the U.K.

pension accrued liability, fair value adjustment of contingent consideration related to acquisitions, lower commission expense, variable pay and outside service expenses.

As a percentage of net revenue, SG&A increased 1.5% in fiscal 2023 when compared to 2022.

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 expenses and potentially impact our profitability expectations in any particular quarter.

Amortization of Acquired Technologies and Intangibles

Amortization of acquired technologies and intangibles for fiscal 2022 decreased $26.8 million, or 40.3%, to $39.7 million from $66.5 million in fiscal 2021.

This decrease is primarily due to intangible assets becoming fully amortized.

Amortization of Intangibles (Operating expenses)

Amortization of intangibles within Operating expenses for fiscal 2023 decreased $1.0 million, or 10.3%, to $8.7 million from $9.7 million in fiscal 2022.

This decrease is primarily due to intangible assets becoming fully amortized in fiscal 2022 offset by amortization of intangibles acquired through current year acquisitions.

Acquired In-Process Research and Development

In accordance with authoritative guidance, we recognize acquired in-process and development (IPR&D) at fair value as of the acquisition date, and subsequently account for it as an indefinite-lived intangible asset until completion or abandonment of the associated R&D efforts.

In accordance with authoritative guidance, we recognize acquired in-process research and development (IPR&D) at fair value as of the acquisition date, and subsequently account for it as an indefinite-lived intangible asset until completion or abandonment of the associated R&D efforts.

We periodically review the stage of completion and likelihood of success of each IPR&D project.

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Restructuring and Related Charges

From time to time we have initiated strategic restructuring events primarily intended to reduce costs, consolidate our operations, rationalize the manufacturing of our products and align our businesses in response to market conditions.

During fiscal 2022, we recorded a net restructuring benefit of $0.1 million and made final remaining payments of $0.4 million, after which the plan was closed.

We estimate annualized gross cost savings of approximately $16.8 million excluding any one-time charges as a result of the recent restructuring activities.

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

During the second quarter of fiscal 2023, Management approved a restructuring and workforce reduction plan (the Fiscal 2023 Plan) to better align the Company’s workforce with current business needs and strategic growth opportunities.

The Company expects approximately 5% of its global workforce to be affected.

We estimate annualized gross cost savings of approximately $28.0 million excluding any one-time charges as a result of the restructuring activities initiated under the Plan.

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 Exchange

Restructuring and Related Charges” for more information.

As of July 1, 2023, our total restructuring accrual was $5.8 million.

During fiscal 2023, we recorded charges and other adjustments 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 (benefits) line within our Consolidated Statements of Operations.

These charges are primarily the result of the following:

The first phase of the Fiscal 2023 Plan impacted all segments and corporate functions.

The Company anticipates this phase of the Fiscal 2023 Plan to be substantially complete by the end of the first quarter of fiscal 2024.

The second phase of the Fiscal 2023 Plan is primarily focused on reducing costs in our SE segment.

The Company anticipates this phase of the Fiscal 2023 Plan to be substantially complete by the end of the second quarter of fiscal 2024.

We estimate future cash payments of $6.0 million under the Fiscal 2023 Plan during fiscal 2024, funded by operating cash flow.

Future charges under the Fiscal 2023 Plan are not expected to be material.

During fiscal 2022 and 2021, the Company recorded a benefit related to other restructuring actions of $0.1 million and $1.6 million, respectively.

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 the transaction, 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 was capitalized within Long-term debt (as a contra-balance) on the Consolidated Balance Sheets and will be amortized as an adjustment to interest expense on a straight-line basis until maturity.

Loss on Convertible Note Settlement

During fiscal 2022, the Company entered into separate privately-negotiated agreements with certain holders of its 1.75% Senior Convertible Notes due 2023 and 1.00% Senior Convertible Notes due 2024.

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Interest and other income, net was $7.6 million in fiscal 2023 as compared to $5.2 million in fiscal 2022.

This $1.9 million increase was primarily driven by $1.4 million favorable foreign exchange impact as the balance sheet hedging program provided a more favorable offset to the remeasurement of underlying foreign exchange exposures for fiscal 2022 and an increase of $0.5 million in interest income due to rising interest rates during fiscal 2022.

This $2.4 million increase was primarily driven by higher interest income offset by an unfavorable foreign exchange impact as the balance sheet hedging program provided a less favorable offset to the remeasurement of underlying foreign exchange exposures during the current period.

Interest Expense

Interest expense increased $3.8 million, or 16.3%, during fiscal 2023 compared to fiscal 2022.

This increase was primarily due to higher debt levels, higher interest rate on Senior Notes due 2029 and higher amortization of issuance costs as a result of the issuance of Senior Notes due 2029.

This increase was primarily driven by full year interest expense on the Senior Notes due 2029 in the current period as a result of the issuance in September 2021 and the accretion of debt discount on the Senior Convertible Notes due 2026 as a result of the issuance in March 2023 offset by lower interest expense on our convertible notes as a result of convertible notes settlement transactions during fiscal 2022.

Provision for Income Tax

We recorded an income tax provision of $35.2 million for fiscal 2023.

The expected tax provision derived by applying the federal statutory rate to our income before income taxes for fiscal 2022 differed from the income tax expense recorded primarily due to valuation allowances in addition to the foreign tax impact of the internal intellectual property restructuring transaction and withholding taxes offset by a tax benefit recognized upon the statute of limitations on a transfer pricing reserve in a non-US jurisdiction.

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On July 2, 2022, the Company completed a planned internal transaction moving certain of VIAVI’s intellectual properties out of a foreign jurisdiction where tax rates are scheduled to increase to the U.S.

entity established in fiscal 2021 to own and manage VIAVI’s other intellectual properties.

The Company recorded foreign tax expense of $13.2 million related to this transaction.

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 many of our jurisdictions, it is more likely than not that our net deferred tax assets will not be realized in those jurisdictions.

The expected tax provision derived by applying the federal statutory rate to our income before income taxes for fiscal 2023 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 2023, the valuation allowance for deferred tax assets increased by $30.7 million which was primarily due to the increase in capitalization of federal research expenditures in the U.S.

The decrease in income tax provision of $13.7 million or 21.6% during fiscal 2022 was due primarily to an $8.1 million tax benefit recognized upon the statute of limitations on a transfer pricing reserve in a non-US jurisdiction coupled with the decrease in the impact of the aforementioned fiscal 2022 transaction of $13.2 million as compared to the fiscal 2021 charge of $19.1 million related to internal transactions restructuring certain of our intellectual properties.

The decrease in income tax provision of $14.4 million or 29.0% during fiscal 2023 was due primarily to a reduction in foreign earnings in the current year as compared to the fiscal 2022 foreign earnings and a charge of $13.2 million related to internal intellectual properties restructuring.

We are routinely subject to various federal, state and foreign audits by taxing authorities.

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Network Enablement

NE gross margin increased by 0.8% during fiscal 2022 to 64.3% from 63.5% in fiscal 2021.

This increase is due to leverage on growth and a more favorable product mix.

NE net revenue decreased $148.3 million, or 17.5% during fiscal 2023 when compared to fiscal 2022, This decrease was primarily driven by lower volumes in Field Instruments, Lab & Production and Wireless products compared to the prior year partially offset by PNT revenue not included in the same period a year ago.

NE gross margin decreased by 1.2% during fiscal 2023 to 63.1% from 64.3% in fiscal 2022.

This decrease was primarily due to lower volumes.

Service Enablement

SE gross margin increased by 3.6% during fiscal 2022 to 69.2% from 65.6% in fiscal 2021.

This increase is due to a more favorable product mix.

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SE net revenue increased $0.4 million, or 0.4%, during fiscal 2023 when compared to fiscal 2022, primarily due to higher Growth Assurance revenue.

SE gross margin decreased by 1.6% during fiscal 2023 to 67.6% from 69.2% in fiscal 2022.

This decrease was primarily due to lower volumes.

Network and Service Enablement

NSE operating margin increased by 4.6% during fiscal 2022 to 15.6% from 11.0% in fiscal 2021.

The increase in operating margin was primarily driven by gross margin expansion offset by higher sales commissions.

NSE operating margin decreased by 8.0% during fiscal 2023 to 7.6% from 15.6% in fiscal 2022.

The decrease in operating margin was primarily driven by lower volumes.

Optical Security and Performance Products

OSP net revenue decreased $38.4 million, or 11.2%, during fiscal 2023 when compared to fiscal 2022.

This decrease was primarily driven by lower Anti-Counterfeiting and consumer and industrial revenues.

OSP gross margin decreased by 4.4% during fiscal 2023 to 52.0% from 56.4% in fiscal 2022.

This decrease was primarily due to higher input costs and startup costs in our new Arizona facility.

This decrease was primarily due to unfavorable manufacturing variances associated with lower volumes and startup costs in our new Arizona facility.

OSP operating margin decreased by 4.0% during fiscal 2023 to 36.5% from 40.5% in fiscal 2022.

The decrease in operating margin was primarily due to the lower gross margin.

The decrease in operating margin was primarily due to the aforementioned reduction 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, fund debt maturities, and execute purchases under our share repurchase program over the next twelve months and beyond.

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 execution of 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;

• Impact of the COVID-19 pandemic on our financial condition;

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

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• Factoring or sale of accounts receivable;

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

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

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

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

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

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

• While the principal payment obligations of our 1.00% Senior Convertible Notes due 2024, our 1.625% Senior Convertible Notes due 2026, and our 3.75% Senior Notes due 2029 (together the “Notes”) are substantial and there are covenants that restrict our debt level and credit facility capacity, we may be able to incur substantially more debt;

• Issuance or repurchase of debt or equity securities, which may include open market purchases of our 2023 Notes, 2024 Notes and/or 2029 Notes prior to their maturity or of our common stock;

• Issuance or repurchase of debt which may include open market purchases of our 2024 Notes, 2026 Notes and/or 2029 Notes prior to their maturity;

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

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

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

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Cash and Cash Equivalents and Short-Term Investments

Our cash and cash equivalents consist mainly of investments in institutional money market funds, short-term deposits held at major global financial institutions, and similar short duration instruments.

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 the preservation of capital 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.

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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.

As of July 2, 2022, we had no borrowings under this facility and our available borrowing capacity was approximately $206.4 million.

As of July 1, 2023, we had no borrowings under this facility and our available borrowing capacity was approximately $172.5 million, net of outstanding standby letters of credit of $4.1 million.

Refer to “Note 11.

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As of July 1, 2023, our combined balance of cash and cash equivalents and restricted cash decreased by $57.2 million to $515.6 million from a balance of $572.8 million as of July 2, 2022.

Cash provided by operating activities was $178.1 million, consisted of net income of $15.5 million adjusted for non-cash or non-operating charges (e.g., depreciation, amortization of intangibles, stock-based compensation, amortization of debt issuance cost, loss on convertible note settlement and discount and net change in fair value of contingent liabilities), including changes in deferred tax balances which totaled $226.1 million, offset by changes in operating assets and liabilities that used $63.5 million.

Changes in our operating assets and liabilities related primarily to an increase in deferred revenue of $13.2 million, an increase in accrued payroll and related expenses of $3.0 million and an increase in accrued expenses and other current and non-current liabilities of $1.4 million.

This was partially offset by cash outflows from an increase in inventories of $27.7 million, a decrease in income taxes payable of $18.2 million, an increase in accounts receivable of $18.3 million, an increase in other current and non-current assets of $11.3 million and a decrease in accounts payable of $5.6 million driven by timing of purchases and related payments.

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Cash used in investing activities was $71.0 million, primarily related to $72.5 million of cash used for capital expenditures and $8.3 million cash used for acquisitions.

This was partially offset by $9.8 million proceeds from sales of assets.

Cash used in financing activities was $210.4 million, primarily resulting from $351.6 million paid connection with the repurchase of certain Original Senior Convertible Notes, $235.9 million of cash used to repurchase common stock under our share repurchase program, $14.1 million in withholding tax payment on vesting of restricted stock awards, $10.5 million debt issuance costs paid in the period and $6.1 million in other payments.

These were partially offset by $400 million gross proceeds from issuance of the 3.75% Notes due in 2029 and $7.8 million in proceeds from the issuance of common stock under our employee stock purchase plan.

Cash provided by operating activities was $114.1 million, consisted of net income of $25.5 million adjusted for non-cash charges (e.g., depreciation, amortization, stock-based compensation, amortization of debt issuance cost, loss on convertible note modification and accretion and net change in fair value of contingent liabilities), including changes in deferred tax balances which totaled $138.3 million, offset by changes in operating assets and liabilities that used $49.7 million.

Changes in our operating assets and liabilities related primarily to a decrease in accrued expenses and other current and non-current liabilities of $47.4 million due primarily to timing in payments of tax withholding and interest coupled with lower manufacturing accruals, a decrease in accrued payroll and related expenses of $25.8 million due primarily to lower commissions and variable pay, an increase in inventories of $10.7 million to meet demand, a decrease in accounts payable of $9.4 million driven by timing of purchases and related payments, a decrease in deferred revenue of $2.1 million due to timing of support billings and project acceptance and a decrease in income taxes payable of $2.0 million.

These were partially offset by a decrease in accounts receivable of $37.4 million due to collections outpacing billings and a decrease in other current and non-current assets of $10.3 million.

Cash used in investing activities was $127.1 million, primarily related to $67.3 million used for acquisitions, $51.1 million used for capital expenditures, $13.1 million used for purchases of short-term investments and $0.7 million purchase price adjustment related to business acquisition.

These were partially offset by $5.1 million proceeds from sales of assets.

Cash used in financing activities was $50.0 million, primarily resulting from $83.9 million cash paid to repurchase common stock under our share repurchase program, $68.1 million to retire 2023 Senior Convertible Notes upon maturity, $11.8 million in withholding tax payments on the vesting of restricted stock awards, $7.8 million payment of acquisition related contingent consideration and obligations and $4.3 million in other payments, primarily payments of debt issuance costs.

These were partially offset by $118.0 million proceeds from the issuance of 2026 Senior Convertible Notes and $7.9 million in proceeds from the issuance of common stock under our employee stock purchase plan.

Material Contractual and Material Cash Obligations

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2026 1.625% Senior Convertible Notes (1)

250.0 — 250.0 — —

2024 1.00% Senior Convertible Notes (1)

96.4 96.4 — — —

Estimated interest payments 111.8 20.5 38.4 30.4 22.5

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(1) Refer to “Note 11.

Debt” for more information.

(2) Refer to “Note 18.

Commitments and Contingencies” for more information.

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During fiscal 2023 we repurchased 7.3 million shares of our common stock outstanding for $83.9 million pursuant to our 2019 and 2022 Share Repurchase Plans.

As of July 2, 2022, the 2019 plan had $67.3 million of the authorized amount remaining;

the 2021 plan had no authorized amount remaining.

As of July 1, 2023, the Company had remaining authorization of $234.8 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.

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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.

We also are responsible for the non-pension post-retirement benefit obligation assumed from a past acquisition.

Most of 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.

plan is partially funded and the other plans, which were initially established as “pay-as-you-go” plans, are unfunded.

As of July 2, 2022, our pension plans were underfunded by $66.2 million since the Pension Benefit Obligation (PBO) exceeded the fair value of plan assets.

Similarly, we had a liability of $0.4 million related to our non-pension post-retirement benefit plan.

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 projected benefit obligation and currently are forecasted to range between $5.1 million and $8.0 million per annum.

In addition, we expect to contribute approximately $1.2 million to the U.K.

plan during fiscal 2023.

During fiscal 2022, we (amounts represented as £ and $ denote GBP and USD, respectively) contributed £1.0 million or approximately $1.3 million, while in fiscal 2021, we contributed £1.5 million or approximately $2.0 million to its U.K.

Most of these plans have been closed to new participants and no additional service costs are being accrued.

As of July 1, 2023, the U.K.

plan is fully funded.

During fiscal 2023, we (amounts represented as £ and $ denote GBP and USD, respectively) contributed £1.0 million or approximately $1.2 million, while in fiscal 2022, 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 July 1, 2023, our German pension plans, which were initially established as unfunded or “pay-as-you-go” plans, were underfunded by $55.0 million since the Pension 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.

We also are responsible for the non-pension post-retirement benefit obligation assumed from a past acquisition with a liability of $0.4 million.

Recently Issued Accounting Pronouncements

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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 July 1, 2023.

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Goodwill is recognized and initially measured as the excess of the purchase price paid over the net fair value of assets acquired and liabilities assumed in a business combination.

Goodwill is not amortized but is tested for impairment annually, or more frequently if an event occurs or circumstances change that would more likely than not result in an impairment of goodwill.

The Company tests goodwill at the reporting unit level for impairment during the fourth quarter of each fiscal year, or more frequently if events or circumstances indicate that the asset may be impaired.

First, we assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount.

If we conclude that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, we conduct a quantitative goodwill impairment test comparing the fair value of the applicable reporting unit with its carrying value.

If the estimated fair value exceeds book value, goodwill is considered not to be impaired.

However, if the fair value of the reporting unit is less than book value, then goodwill will be impaired by the amount that the carrying amount of goodwill exceeds the fair value.

As part of the annual impairment test, the Company performed a quantitative assessment of goodwill impairment for all reporting units.

The Company estimated the fair value of each reporting unit by applying a combination of the income approach and the market approach.

The income approach used discounted future cash flows in which sales, operating income and cash flow projections were based on assumptions driven by current economic conditions.

In developing these assumptions, we relied on various factors including operating results, business plans, economic projections, anticipated future cash flows, and other market data.

The market approach was based on trading multiples of companies comparable to each reporting unit and analysis of recent sales of comparable entities.

We corroborated the fair value estimates by comparing the sum of the fair values of the reporting units and corporate net assets to VIAVI’s market capitalization as of the valuation date.

The Company believes the assumptions used in the goodwill impairment test were reasonable, but future changes in the underlying assumptions could occur due to the inherent uncertainty in making such estimates.

Further declines in the Company’s operating results due to challenging economic conditions, an unfavorable industry or macroeconomic development or other adverse changes in market conditions could change one of the key assumptions the Company used in the goodwill impairment assessment, which could result in a further decline in fair value and require the Company to record an impairment charge in future periods.

Based on our testing, the fair value of each of the Company’s reporting units was at least two times the carrying value, and therefore no impairment was identified.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis