Item 2. Management’s Discussion and Analysis
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) :
Three Months Ended Nine Months Ended
March 28, 2026 March 29, 2025 March 28, 2026 March 29, 2025
Operating Income Operating Margin Operating Income Operating Margin Operating Income Operating Margin Operating Income Operating Margin
GAAP measures $ 24.8 6.1 % $ 8.5 3.0 % $ 43.8 4.1 % $ 42.2 5.3 %
Stock-based compensation 13.9 3.4 % 14.1 4.9 % 41.2 3.8 % 40.5 5.1 %
Change in fair value of contingent liability 2.6 0.6 % 2.5 0.9 % 24.3 2.3 % (4.9) (0.6) %
Acquisition and integration related charges 0.7 0.2 % 13.3 4.7 % 12.4 1.1 % 16.7 2.1 %
Other charges unrelated to core operating performance (1)
4.9 1.2 % 0.6 0.2 % 11.7 1.1 % 0.2 — %
Amortization of acquisition related inventory step-up 0.9 0.2 % 1.7 0.6 % 6.1 0.6 % 1.7 0.2 %
Amortization of intangibles 20.4 5.0 % 7.3 2.5 % 47.6 4.4 % 16.0 2.0 %
Restructuring and related charges (benefits) 17.3 4.3 % (0.3) (0.1) % 16.9 1.6 % 0.9 0.1 %
Litigation settlement — — % — — % — — % (1.3) (0.1) %
Total related to Cost of Revenues and Operating Expenses 60.7 14.9 % 39.2 13.7 % 160.2 14.9 % 69.8 8.8 %
Non-GAAP measures $ 85.5 21.0 % $ 47.7 16.7 % $ 204.0 19.0 % $ 112.0 14.1 %
Three Months Ended Nine Months Ended
March 28, 2026 March 29, 2025 March 28, 2026 March 29, 2025
Net Income Diluted EPS Net Income Diluted EPS Net (Loss) Income Diluted EPS Net Income Diluted EPS
GAAP measures $ 6.4 $ 0.03 $ 19.5 $ 0.09 $ (63.1) $ (0.28) $ 26.8 $ 0.12
Items reconciling GAAP Net Income (Loss) and EPS to Non-GAAP Net Income and EPS:
Stock-based compensation 13.9 0.06 14.1 0.06 41.2 0.17 40.5 0.18
Change in fair value of contingent liability 2.6 0.01 2.5 0.01 24.3 0.11 (4.9) (0.02)
Acquisition and integration related charges 0.7 — 13.3 0.06 12.4 0.05 16.7 0.08
Other charges unrelated to core operating performance (1)
4.9 0.02 0.6 — 11.7 0.05 0.2 —
Amortization of acquisition related inventory step-up 0.9 — 1.7 0.01 6.1 0.03 1.7 0.01
Amortization of intangibles 20.4 0.08 7.3 0.03 47.6 0.20 16.0 0.07
Restructuring and related charges (benefits) 17.3 0.07 (0.3) — 16.9 0.07 0.9 —
Litigation settlement — — — — — — (1.3) (0.01)
Non-cash interest expense and other expense (2)
2.4 0.01 1.3 0.01 46.6 0.20 3.5 0.02
(Benefit from) provision for income taxes (1.9) (0.01) (26.1) (0.12) 8.5 0.04 (24.4) (0.11)
Total related to Net Income and EPS 61.2 0.24 14.4 0.06 215.3 0.92 48.9 0.22
Non-GAAP measures $ 67.6 $ 0.27 $ 33.9 $ 0.15 $ 152.2 $ 0.64 $ 75.7 $ 0.34
Shares used in per share calculation for Non-GAAP EPS 249.5 226.9 236.9 225.2
(1) Included in the three months ended March 28, 2026 are charges of $3.9 million related to the write off of property, plant and equipment, $0.3 million of accelerated depreciation and other charges unrelated to core operating performance. In addition, included in the nine months ended March 28, 2026 are $3.5 million of losses on disposal of long-lived assets, $2.1 million charge for restoration services for a VIAVI facility impacted by a fire and other charges unrelated to core operating performance. Included in the nine months ended March 29, 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.
(2) The Company incurred losses of $3.7 million and $46.2 million for the three and nine months ended March 28, 2026, respectively, in connection with the extinguishment of certain 1.625% Senior Convertible Notes and prepayments of the Term Loan B.
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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, 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 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 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) significant legal settlements and other contingencies 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 expenses, including loss on debt extinguishment, 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
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 ( in millions ):
Three Months Ended Nine Months Ended
March 28, 2026 March 29, 2025 Change Percent Change March 28, 2026 March 29, 2025 Change Percent Change
Segment net revenue:
NSE $ 321.5 $ 208.2 $ 113.3 54.4 % $ 829.0 $ 567.5 $ 261.5 46.1 %
OSP 85.3 76.6 8.7 11.4 % 246.2 226.3 19.9 8.8 %
Total net revenue $ 406.8 $ 284.8 $ 122.0 42.8 % $ 1,075.2 $ 793.8 $ 281.4 35.4 %
Amortization of acquired technologies $ 13.0 $ 6.1 $ 6.9 113.1 % $ 32.4 $ 12.7 $ 19.7 155.1 %
Percentage of net revenue 3.2 % 2.1 % 3.0 % 1.6 %
Gross profit $ 234.1 $ 160.7 $ 73.4 45.7 % $ 613.7 $ 457.6 $ 156.1 34.1 %
Gross margin 57.5 % 56.4 % 57.1 % 57.6 %
Research and development $ 71.0 $ 50.0 $ 21.0 42.0 % $ 192.9 $ 151.5 $ 41.4 27.3 %
Percentage of net revenue 17.5 % 17.6 % 17.9 % 19.1 %
Selling, general and administrative $ 113.6 $ 101.3 $ 12.3 12.1 % $ 344.9 $ 259.7 $ 85.2 32.8 %
Percentage of net revenue 27.9 % 35.6 % 32.1 % 32.7 %
Amortization of other intangibles $ 7.4 $ 1.2 $ 6.2 516.7 % $ 15.2 $ 3.3 $ 11.9 360.6 %
Percentage of net revenue 1.8 % 0.4 % 1.4 % 0.4 %
Restructuring and related charges (benefits) $ 17.3 $ (0.3) $ 17.6 (5,866.7) % $ 16.9 $ 0.9 $ 16.0 1,777.8 %
Percentage of net revenue 4.3 % 0.1 % 1.6 % 0.1 %
Loss on debt extinguishment $ (3.7) $ — $ (3.7) NM $ (46.2) $ — $ (46.2) NM
Percentage of net revenue 0.9 % — % 4.3 % — %
Interest and other income, net $ 7.0 $ 2.2 $ 4.8 218.2 % $ 12.2 $ 9.3 $ 2.9 31.2 %
Percentage of net revenue 1.7 % 0.8 % 1.1 % 1.2 %
Interest expense $ (14.3) $ (7.5) $ (6.8) 90.7 % $ (37.0) $ (22.5) $ (14.5) 64.4 %
Percentage of net revenue 3.5 % 2.6 % 3.4 % 2.8 %
Provision for (benefit from) income taxes $ 7.4 $ (16.3) $ 23.7 (145.4) % $ 36.1 $ 2.2 $ 33.9 1,540.9 %
Percentage of net revenue 1.8 % 5.7 % 3.4 % 0.3 %
Equity investment earnings $ — $ — $ — — % $ 0.2 $ — $ 0.2 NM
Percentage of net revenue — % — % — % — %
NM - Percentage change not considered meaningful
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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 segment 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 segment operating income consistent with our approach for managing the business.
Three and Nine Months Ended March 28, 2026 and March 29, 2025
Net revenue increased by $122.0 million, or 42.8%, during the three months ended March 28, 2026 compared to the same period a year ago. Our acquisition of Spirent’s HSE and CE business contributed $54.3 million during the three months ended March 28, 2026. Inertial Labs contributed $22.6 million during the three months ended March 28, 2026 compared to $7.7 million in the same period a year ago. Additionally, we continue to see demand of lab and production and field products driven by the data center ecosystem. OSP performance improved year-over-year driven by anti-counterfeiting and other products and 3D Sensing.
Net revenue increased by $281.4 million, or 35.4%, during the nine months ended March 28, 2026 compared to the same period a year ago. Our acquisition of Spirent’s HSE and CE business contributed $97.3 million during the nine months ended March 28, 2026. Inertial Labs contributed $62.4 million during the nine months ended March 28, 2026 compared to $7.7 million in the same period a year ago. Additionally, we continue to see demand of lab and production and field products driven by the data center ecosystem. OSP performance improved year-over-year driven by anti-counterfeiting and other products and 3D Sensing.
Product revenues increased by $115.5 million, or 47.8%, during the three months ended March 28, 2026 compared to the same period a year ago, driven by volume increases in NSE and OSP. Product revenues from Spirent’s HSE and CE business contributed $41.6 million during the three months ended March 28, 2026. Product revenues from Inertial Labs contributed $22.6 million during the three months ended March 28, 2026 compared to $7.7 million in the same period a year ago.
Product revenues increased by $267.0 million, or 40.2%, during the nine months ended March 28, 2026 compared to the same period a year ago, driven by volume increases in NSE and OSP. Product revenues from Spirent’s HSE and CE business contributed $74.5 million during the nine months ended March 28, 2026. Product revenues from Inertial Labs contributed $62.4 million during the nine months ended March 28, 2026 compared to $7.7 million in the same period a year ago.
Service revenues increased by $6.5 million, or 15.0%, during the three months ended March 28, 2026 compared to the same period a year ago, driven by the acquisition of Spirent’s HSE and CE business which contributed $12.7 million offset by a decline primarily in Wireless during the three months ended March 28, 2026.
Service revenues increased by $14.4 million, or 11.2%, during the nine months ended March 28, 2026 compared to the same period a year ago, driven by the acquisition of Spirent’s HSE and CE business which contributed $22.8 million offset by a decline primarily in Wireless during the nine months ended March 28, 2026.
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. Global tariffs could increase our costs and impact our business.
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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 ):
Three Months Ended Nine Months Ended
March 28, 2026 March 29, 2025 March 28, 2026 March 29, 2025
Americas:
United States $ 154.0 37.8 % $ 89.9 31.6 % $ 405.3 37.7 % $ 261.4 32.9 %
Other Americas 28.8 7.1 % 18.2 6.4 % 77.2 7.2 % 51.5 6.5 %
Total Americas $ 182.8 44.9 % $ 108.1 38.0 % $ 482.5 44.9 % $ 312.9 39.4 %
Asia-Pacific:
Greater China $ 64.2 15.8 % $ 51.9 18.3 % $ 183.9 17.1 % $ 156.1 19.7 %
Other Asia-Pacific 64.0 15.7 % 48.8 17.1 % 144.5 13.4 % 124.1 15.6 %
Total Asia-Pacific $ 128.2 31.5 % $ 100.7 35.4 % $ 328.4 30.5 % $ 280.2 35.3 %
EMEA: $ 95.8 23.6 % $ 76.0 26.6 % $ 264.3 24.6 % $ 200.7 25.3 %
Total net revenue $ 406.8 100.0 % $ 284.8 100.0 % $ 1,075.2 100.0 % $ 793.8 100.0 %
Net revenue from customers outside the Americas represented 55.1% of net revenue during the three and nine months ended March 28, 2026. Net revenue from customers outside the Americas represented 62.0% and 60.6% of net revenue, respectively, during the three and nine months ended March 29, 2025.
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.
Amortization of Acquired Technologies (Cost of revenues)
Amortization of acquired technologies within Cost of revenues increased $6.9 million or 113.1% and $19.7 million or 155.1% during the three and nine months ended March 28, 2026 compared to the same period a year ago. This increase is primarily due to the amortization of intangibles acquired through Spirent’s HSE and CE business and Inertial Labs.
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Gross Margin
Gross margin increased by 1.1 percentage points during the three months ended March 28, 2026 from 56.4% in the same period a year ago to 57.5% in the current period. The increase was primarily driven by the higher volume and favorable product mix in NSE partially offset by unfavorable product mix in OSP and an increase in amortization of intangibles.
Gross margin decreased by 0.5 percentage points during the nine months ended March 28, 2026 from 57.6% in the same period a year ago to 57.1% in the current period. The 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 by $21.0 million, or 42.0%, during the three months ended March 28, 2026 compared to the same period a year ago. This increase was primarily due to incremental cost from the acquisitions of Spirent’s HSE and CE business and Inertial Labs. As a percentage of net revenue, R&D expense decreased by 0.1 percentage points during the three months ended March 28, 2026 compared to the same period a year ago.
R&D expense increased by $41.4 million, or 27.3%, during the nine months ended March 28, 2026 compared to the same period a year ago. This increase was primarily due to incremental cost from the acquisitions of Spirent’s HSE and CE business and Inertial Labs. As a percentage of net revenue, R&D expense decreased by 1.2 percentage points during the nine months ended March 28, 2026 compared to the same period a year ago.
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 by $12.3 million, or 12.1%, during the three months ended March 28, 2026 compared to the same period a year ago. This increase was primarily due to the incremental cost from the acquisitions of Spirent’s HSE and CE business and Inertial Labs partially offset by lower acquisition and integration related charges. As a percentage of net revenue, SG&A expense decreased 7.7 percentage points during the three months ended March 28, 2026 compared to the same period a year ago.
SG&A expense increased by $85.2 million, or 32.8%, during the nine months ended March 28, 2026 compared to the same period a year ago. This increase was primarily due the incremental cost from the acquisitions of Spirent’s HSE and CE business and Inertial Labs and the change in fair value of acquisition related contingent consideration. As a percentage of net revenue, SG&A expense decreased 0.6 percentage points during the nine months ended March 28, 2026 compared to the same period a year ago.
Amortization of Intangibles (Operating expenses)
Amortization of intangibles within Operating expenses increased $6.2 million or 516.7% and $11.9 million or 360.6% during the three and nine months ended March 28, 2026 compared to the same period a year ago. This increase is primarily due to the amortization of intangibles acquired through Spirent’s HSE and CE business and Inertial Labs, partially offset by certain intangibles becoming fully amortized.
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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 third quarter of fiscal 2026, management approved a restructuring and workforce reduction plan (the Fiscal 2026 Plan) across our NSE and OSP segments and Corporate functions intended to improve operational efficiencies, better align the Company’s workforce with current business needs and strategic growth opportunities and includes integration of recently acquired businesses. The Fiscal 2026 Plan includes a global workforce reduction, facilities rationalization and asset write-offs. The Company expects approximately 5% of its global workforce to be affected. We estimate annualized gross cost savings of approximately $30.0 million upon completion of the Fiscal 2026 plan, excluding any one-time charges as a result of the restructuring activities. The Company anticipates the Fiscal 2026 Plan to be substantially complete by the end of calendar year 2026.
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 will be complete by the end 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 March 28, 2026, our total restructuring accrual was $16.5 million.
During the three and nine months ended March 28, 2026, the Company recorded restructuring charges of $17.4 million of employee severance, benefits and outplacement costs related to the Fiscal 2026 Plan. During the three and nine months ended March 28, 2026, the Company recorded restructuring benefits of $0.1 million and $0.5 million, respectively, related to the Fiscal 2024 Plan. During the three and nine months ended March 29, 2025, the Company recorded restructuring benefits of $0.3 million and charges of $1.1 million, respectively, related to the Fiscal 2024 Plan. During the nine months ended March 29, 2025, the Company recorded a restructuring benefit of $0.2 million related to the Fiscal 2023 Plan.
We estimate future cash payments of $16.3 million and $0.2 million under the Fiscal 2026 Plan and Fiscal 2024 Plan, respectively, funded by operating cash flow.
Refer to “Note 13. Restructuring and Related Charges” for more information.
Loss on Debt Extinguishment
During the three months ended March 28, 2026, the Company made prepayments of $150.0 million under the Term Loan Credit Agreement. The prepayments were accounted for as partial extinguishments, with the carrying amount of the portion of debt prepaid, including the proportionate unamortized debt issuance costs, derecognized. The difference between the reacquisition price and the carrying amount of $3.7 million was recorded as Loss on debt extinguishment in the Consolidated Statements of Operations.
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During the nine months ended March 28, 2026, Company made prepayments of $150.0 million under the Term Loan Credit Agreement. The prepayments were accounted for as partial extinguishments, with the carrying amount of the portion of debt prepaid, including the proportionate unamortized debt issuance costs, derecognized. The Company also entered into separate privately-negotiated agreements with certain holders of its 1.625% Senior Convertible Notes due 2026 (2026 Notes). The Company issued 7.9 million shares of its common stock for $103.5 million principal amount of the 2026 Notes in December 2025. The Company issued $100.9 million aggregate principal amount of its 0.625% Senior Convertible Notes due 2031 (2031 Notes) to certain holders of the 2026 Notes in exchange for $97.5 million principal amount of the 2026 Notes in August 2025. These 2026 Notes exchange transactions were accounted for as extinguishments which resulted in the write-off of unamortized debt discount and issuance costs of $1.6 million on the extinguished notes. Accrued interest of $0.7 million on the 2026 Notes was included in the exchange for the 2031 Notes. The total loss from these extinguishments was $46.2 million recorded as Loss on debt extinguishment in the Consolidated Statements of Operations.
Refer to “Note 11. Debt” for more information.
Interest and other income, net
Interest and other income, net, was $7.0 million during the three months ended March 28, 2026 compared to $2.2 million during the same period a year ago. This $4.8 million change was primarily driven by an increase in other income related to an adjustment to a financing obligation, an increase in interest income due to higher cash balance and favorable foreign exchange impact as the balance sheet hedging program provided more favorable offset to the remeasurement of underlying foreign exchange exposures during the current period.
Interest and other income, net, was $12.2 million during the nine months ended March 28, 2026 compared to $9.3 million during the same period a year ago. This $2.9 million change was primarily driven by an increase in other income related to an adjustment to a financing obligation, an increase in interest income due to higher cash balance 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 by $6.8 million, or 90.7%, during the three months ended March 28, 2026 compared to the same period a year ago. This increase was primarily a result of higher outstanding debt with higher average interest rates as a result of the issuance of Term Loan B and additional amortization of debt issuance costs in the current period partially offset by a decrease in the accretion of debt discount on the 2026 Notes as a result of the debt extinguishments as well as settlement at maturity during the current period.
Interest expense increased by $14.5 million, or 64.4%, during the nine months ended March 28, 2026 compared to the same period a year ago. This increase was primarily a result of higher outstanding debt with higher average interest rates as a result of the issuance of Term Loan B and additional amortization of debt issuance costs in the current period partially offset by a decrease in the accretion of debt discount on the 2026 Notes as a result of the debt extinguishments as well as settlement at maturity during the current period.
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Provision for Income Taxes
We recorded an income tax provision of $7.4 million and $36.1 million for the three and nine months ended March 28, 2026, respectively. We recorded an income tax benefit of $16.3 million and an income tax provision of $2.2 million for the three and nine months ended March 29, 2025, respectively.
The income tax provision for the three and nine months ended March 28, 2026, primarily relates to income tax in certain foreign jurisdictions based on our forecasted pre-tax income and the revaluation of German deferred tax assets. The income tax benefit for the three months and the income tax provision for the nine months ended March 29, 2025, primarily relates to the release of valuation allowance related to our acquisition of Inertial labs and income tax in certain foreign and state jurisdictions based on our forecasted pre-tax income or loss.
The income tax provision recorded differs from the expected tax provision that would be calculated by applying the federal statutory rate to our income from continuing operations before taxes primarily due to changes in the valuation allowance for deferred tax assets attributable to our domestic and foreign income from continuing operations and revaluation of the German deferred tax assets.
As of March 28, 2026 and June 28, 2025, our unrecognized tax benefits (net of Federal benefits) totaled $42.9 million and $42.4 million, respectively, and are included in deferred taxes and other non-current tax liabilities. We had $3.5 million accrued for the payment of interest and penalties as of March 28, 2026. The timing and resolution of income tax examinations are uncertain, and the amounts ultimately paid, if any, upon resolution of issues raised by the taxing authorities may differ from the amounts accrued for each year. Although we do not expect that our balance of gross unrecognized tax benefits will change materially in the next 12 months, given the uncertainty in the development of ongoing income tax examinations, we are unable to estimate the full range of possible adjustments to this balance.
Operating Segment Information
Information related to our operating segments was as follows (in millions) :
Three Months Ended Nine Months Ended
March 28, 2026 March 29, 2025 Change Percentage Change March 28, 2026 March 29, 2025 Change Percentage Change
Network and Service Enablement
Net revenue $ 321.5 $ 208.2 $ 113.3 54.4 % $ 829.0 $ 567.5 $ 261.5 46.1 %
Gross profit 210.0 131.3 78.7 59.9 % 534.7 357.9 176.8 49.4 %
Gross margin 65.3 % 63.1 % 64.5 % 63.1 %
Operating income $ 55.4 $ 21.7 $ 33.7 155.3 % $ 117.1 $ 31.8 $ 85.3 268.2 %
Operating margin 17.2 % 10.4 % 14.1 % 5.6 %
Optical Security and Performance Products
Net revenue $ 85.3 $ 76.6 $ 8.7 11.4 % $ 246.2 $ 226.3 $ 19.9 8.8 %
Gross profit 42.9 39.5 3.4 8.6 % 125.9 119.0 6.9 5.8 %
Gross margin 50.3 % 51.6 % 51.1 % 52.6 %
Operating income $ 30.1 $ 26.0 $ 4.1 15.8 % $ 86.9 $ 80.2 $ 6.7 8.4 %
Operating margin 35.3 % 33.9 % 35.3 % 35.4 %
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Network and Service Enablement
NSE net revenue increased by $113.3 million, or 54.4%, during the three months ended March 28, 2026 compared to the same period a year ago, primarily driven by higher volume in Lab and Production ($52.5 million contributed by our acquisition of Spirent’s HSE business), Aerospace and Defense ($22.6 million contributed by Inertial Labs during the three months ended March 28, 2026 compared to $7.7 million in the same period a year ago) and Fiber and Access Solutions, partially offset by lower volume in Wireless.
NSE net revenue increased by $261.5 million, or 46.1%, during the nine months ended March 28, 2026 compared to the same period a year ago, primarily driven by higher volume in Lab and Production ($93.8 million contributed by our acquisition of Spirent’s HSE business), Aerospace and Defense ($62.4 million contributed by Inertial Labs during the nine months ended March 28, 2026 compared to $7.7 million in the same period a year ago) and Fiber and Access Solutions, partially offset by lower volume in Wireless.
NSE gross margin increased by 2.2 percentage points during the three months ended March 28, 2026 to 65.3% from 63.1% in the same period a year ago primarily due to higher volume and favorable product mix.
NSE gross margin increased by 1.4 percentage points during the nine months ended March 28, 2026 to 64.5% from 63.1% in the same period a year ago primarily due to higher volume and favorable product mix.
NSE operating margin increased by 6.8 percentage points during the three months ended March 28, 2026 to 17.2% from 10.4% in the same period a year ago primarily due to higher volume resulting in operating leverage.
NSE operating margin increased by 8.5 percentage points during the nine months ended March 28, 2026 to 14.1% from 5.6% in the same period a year ago primarily due to higher volume resulting in operating leverage.
Optical Security and Performance Products
OSP net revenue increased by $8.7 million, or 11.4%, during the three months ended March 28, 2026 compared to the same period a year ago, primarily driven by Anti-Counterfeiting and Other revenues.
OSP net revenue increased by $19.9 million, or 8.8%, during the nine months ended March 28, 2026 compared to the same period a year ago, primarily driven by Anti-Counterfeiting and Other revenues.
OSP gross margin decreased by 1.3 percentage points during the three months ended March 28, 2026 to 50.3% from 51.6% in the same period a year ago primarily due to unfavorable product mix.
OSP gross margin decreased by 1.5 percentage points during the nine months ended March 28, 2026 to 51.1% from 52.6% in the same period a year ago primarily due to unfavorable product mix.
OSP operating margin increased by 1.4 percentage points during the three months ended March 28, 2026 to 35.3% from 33.9% in the same period a year ago primarily due to higher volume.
OSP operating margin decreased by 0.1 percentage points during the nine months ended March 28, 2026 to 35.3% from 35.4% in the same period a year ago primarily due to the aforementioned decrease 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, contingent consideration obligations, 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;
• 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;
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• 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 3.75% Senior Notes due 2029 and 0.625% Senior Convertible Notes due 2031 (together the “Notes”), Term Loan B maturing in 2032 and covenants that restrict our debt level and credit facility capacity;
• Issuance or repurchase of debt which may include open market purchases of the Notes prior to their maturity and prepayment of Term Loan B;
• 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 in Item 1A “Risk Factors” section of our Quarterly Report on Form 10-Q.
Cash and Cash Equivalents and Short-Term Investments
Our cash and cash equivalents and short-term investments mainly consist 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 reported as a separate component of stockholders’ equity. As of March 28, 2026, U.S. subsidiaries owned approximately 34.1% of our cash and cash equivalents, short-term investments and restricted cash.
As of March 28, 2026, 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 three months ended March 28, 2026, we have not realized material investment losses but we can provide no assurance that the value or 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. On October 16, 2025, we amended the Credit Agreement to reduce the commitment from a maximum aggregate amount of $300.0 million to $200.0 million to be in line with borrowing base availability and extend the maturity from December 30, 2026 to October 16, 2030. 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 March 28, 2026, we had no borrowings under this facility and our available borrowing capacity was approximately $182.7 million, net of outstanding standby letters of credit of $3.8 million.
Refer to “Note 11. Debt” for more information.
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Convertible Notes
On August 20, 2025, the Company issued $100.9 million aggregate principal amount of the 2031 Notes in exchange for $97.5 million principal amount of the 2026 Notes and issued and sold $149.1 million aggregate principal amount of the 2031 Notes. Concurrent with this transaction, the Company repurchased and subsequently retired 2.7 million shares of its common stock for $30.0 million under the 2022 Repurchase Plan.
On December 22, 2025, the Company settled $103.5 million principal amount of the 2026 Notes in exchange for 7.9 million shares of its common stock.
On March 15, 2026, the outstanding $49.0 million principal amount of the 2026 Notes matured. Nearly all holders of the 2026 Notes chose to convert and the settlement of the conversion resulted in a cash payment of $49.4 million, including $49.0 million in principal and $0.4 million in accrued interest, and the issuance of 1.8 million shares of its common stock for conversion value above par.
During the third quarter of fiscal 2026, the closing price of the Company’s common stock exceeded 130% of the applicable conversion price of the 2031 Notes, on at least 20 of the last 30 consecutive trading days of the calendar quarter, causing the 2031 Notes to be convertible by their holders for the period April 1, 2026 to June 30, 2026. As a result, the $244.5 million carrying value of the 2031 Notes has been reclassified to short-term debt.
Refer to “Note 11. Debt” for more information.
Term Loan B
On October 16, 2025, the Company entered into a Term Loan Credit Agreement with Wells Fargo, as administrative agent, and certain lender-related parties. The Term Loan Credit Agreement provided for a senior secured term loan of $600.0 million maturing on October 16, 2032. The proceeds from the term loans under the Term Loan Credit Agreement were used to finance a portion of the acquisition of Spirent’s HSE and CE business, acquisition related expenses and will be used for general corporate purposes. On January 5, 2026, and March 4, 2026, the Company made prepayments of $100.0 million and $50.0 million, respectively, under the Term Loan Credit Agreement. The prepayments were accounted for as partial extinguishments, with the carrying amount of the portion of debt prepaid, including the proportionate unamortized debt issuance costs, derecognized. The total loss from the prepayments was $3.7 million recorded as Loss on debt extinguishment in the Consolidated Statements of Operations.
Refer to “Note 11. Debt” for more information.
Contingent Consideration
As of March 28, 2026, the fair value of the contingent consideration liability for Inertial Labs was $68.2 million with $43.0 million and $25.2 million included in Other current liabilities and Other non-current liabilities, respectively, on the Consolidated Balance Sheets.
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Cash Flows for the Nine Months Ended March 28, 2026
As of March 28, 2026, our combined balance of cash and cash equivalents and restricted cash increased by $79.2 million to $511.3 million from $432.1 million as of June 28, 2025.
During the nine months ended March 28, 2026, Cash provided by operating activities was $47.2 million, consisting of net loss of $63.1 million adjusted for non-cash charges (e.g., depreciation, amortization, stock-based compensation and other non-cash items) totaling $233.7 million, including changes in deferred tax balances, and changes in operating assets and liabilities that used $123.4 million. Changes in our operating assets and liabilities related to an increase in accounts receivable of $62.5 million due to billings outpacing collections, an increase in inventory of $37.3 million related to demand changes, a decrease in accrued expenses and other current and non-current liabilities of $30.6 million, a decrease in deferred revenue of $13.2 million, excluding the impact of deferred revenue from the acquisition of Spirent’s HSE and CE business, due to timing of support billings and project acceptances and an increase in other current and non-current assets of $5.7 million. These were partially offset by an increase in accounts payable of $13.4 million, an increase in accrued payroll and related expenses of $9.1 million due primarily to variable pay and timing of payroll and an increase in income taxes payable of $3.4 million.
During the nine months ended March 28, 2026, Cash used in investing activities was $417.3 million, primarily resulting from $399.3 million used for the acquisition of Spirent’s HSE and CE business, $20.0 million used for capital expenditures and $0.7 million used for the acquisition of Inertial Labs partially offset by $2.6 million in proceeds from the sale of assets.
During the nine months ended March 28, 2026, Cash provided by financing activities was $449.2 million, primarily resulting from $600 million in proceeds from the issuance of a Term Loan B, $149.1 million in proceeds from the issuance of the 2031 Notes and $6.5 million in proceeds from the issuance of common stock under our employee stock purchase plan. These were partially offset by $199.0 million payments of debt, $30.0 million cash paid to repurchase common stock under our share repurchase program, $29.8 million contingent consideration payment, $23.4 million of debt issuance costs paid, $23.0 million in withholding tax payments on the vesting of restricted stock and performance-based awards and $1.2 million in other financing activities.
Share Repurchase Program
During the nine months ended March 28, 2026, we repurchased and subsequently retired 2.7 million shares of our common stock for $30.0 million pursuant to our 2022 Repurchase Plan. As of March 28, 2026, the Company had remaining authorization of $168.4 million for future share repurchases under the 2022 Repurchase Plan.
Refer to “Note 15. Stockholders Equity” for more information.
Contractual Obligations
There were no material changes to our existing contractual commitments during the third quarter of fiscal 2026.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements, as such term is defined in rules promulgated by the SEC, that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors, other than the guarantees discussed in “Note 18. Commitments and Contingencies.”
Employee Equity Incentive Plan
Our stock-based benefit plans are a broad-based, long-term retention program that is intended to attract and retain employees and align stockholder and employee interests. Refer to “Note 16. Stock-Based Compensation” for more details.
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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. and Germany. The Company also is responsible for a defined benefit plan comprising of gratuity payments for present employees in India. These pension plans, with the exception of India, 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 in fiscal 2010.
The U.K. and India plans were fully funded while the German plans, which were initially established as “pay-as-you-go” plans, are unfunded. As of March 28, 2026, our pension plans were under-funded by $48.3 million since the post-retirement benefit obligation (PBO) exceeded the fair value of plan assets. Pension plan assets are managed by external third parties and we monitor the performance of our investment managers. As of March 28, 2026, the fair value of plan assets had decreased approximately 3.1% since June 28, 2025, our most recent fiscal year end.
We are also responsible for the non-pension PBO assumed from a past acquisition of $0.3 million.
In estimating the expected return on plan assets, we consider historical returns on plan assets, adjusted for forward-looking considerations, inflation assumptions and the impact of active management of the plan’s invested assets. While it is not possible to accurately predict future rate movements, we believe our current assumptions are appropriate. Refer to “Note 17. Employee Pension and Other Benefit Plans” for more details.
Recently Issued Accounting Pronouncements
Refer to “Note 2. Recently Issued Accounting Pronouncements” 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 accounting principles generally accepted in the United States of America (U.S. GAAP), which require 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.
Contingent Purchase Consideration
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.
Post-retirement benefit obligation (PBO)
A key actuarial assumption in calculating the net periodic cost and the PBO is the discount rate. 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.
Item 3. Quantitative and Qualitative Disclosure About Market Risks
The Company’s market risk has not changed materially from the foreign exchange and interest rate risks disclosed in Item 7A of the Company’s Annual Report on Form 10-K for the fiscal year ended June 28, 2025.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.