VIAVI SOLUTIONS INC. (VIAV)

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

Forward-Looking Statements

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

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

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

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

•Our plans for growth and innovation opportunities;

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

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

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

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

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

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

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

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

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

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

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

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Overview

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

To serve our markets we operate the following business segments:

•Network and Service Enablement (NSE); and,

•Optical Security and Performance Products (OSP).

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

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

Looking Ahead

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

•Defend and consolidate leadership in core business segments;

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

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

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

Financial Highlights

Third quarter fiscal 2026 results included the following notable items:

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

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

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

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

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

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

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

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

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

The following discussion and analysis summarizes the significant factors affecting our consolidated operating results, financial condition, liquidity and capital resources during the period ended June 27, 2026. Unless otherwise noted, all references herein for the years 2026, 2025 and 2024 represent the fiscal years ended June 27, 2026, June 28, 2025 and June 29, 2024, respectively. We intend for this discussion to provide the reader with information that will assist in understanding our financial statements, the changes in certain key items in those financial statements from year-to-year and the primary factors that accounted for those changes, as well as how certain accounting estimates affect our financial statements. Factors that could cause or contribute to these differences include those discussed below and in this Annual Report on Form 10-K, particularly in “Risk Factors” and “Forward-Looking Statements.”

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

OVERVIEW

VIAVI is a global leader in test and measurement and optical technologies. Our test and measurement, 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 fiscal 2026, NSE revenue growth was mainly a result of strong demand for lab and production and field products, driven by the data center ecosystem and our acquisition of Spirent Communications plc’s (Spirent) high-speed ethernet, network security and channel emulation testing business (collectively, the HSE and CE business) as well as demand for our aerospace and defense products. OSP performance improved year-over-year driven by anti-counterfeiting and other products, which include government, industrial and automotive end markets products 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.

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Looking Ahead to 2027

As we look forward to fiscal 2027, we expect to continue to see growth in many of our traditional businesses. Our long-term focus remains on executing against our strategic priorities to drive revenue and earnings growth, capture market share and continue to optimize our capital structure. We remain positive on our long-term growth drivers and will continue to focus on executing our strategic priorities over the long-term to:

• Defend and consolidate leadership in core business segments;

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

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

In 2025, the U.S. administration imposed additional broad-based tariffs under the International Emergency Economic Powers Act (IEEPA). In February 2026, the U.S. Supreme Court ruled that IEEPA did not authorize those tariffs, after which the administration imposed temporary replacement tariffs.

As of June 27, 2026, the Company had paid approximately $22.4 million of IEEPA tariffs and had received and recognized approximately $1.5 million of refunds related to eligible IEEPA tariffs. Subsequent to June 27, 2026, the Company received approximately $11.0 million of additional refunds, comprised primarily of tariff refunds and related statutory interest associated with previously submitted IEEPA refund claims, which were not recognized as of June 27, 2026 because the recognition criteria for contingent gains had not been met as of the balance sheet date.

The global tariff environment continues to evolve, and these tariffs, as well as any other tariffs or other trade actions affecting 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 impact of evolving tariff policies.

FINANCIAL HIGHLIGHTS

Our fiscal 2026 results included the following notable items:

•Net revenue of $1.5 billion, up $434.0 million or 40.0% year-over-year

•GAAP operating margin of 6.9%, up 160 bps year-over-year

•Non-GAAP operating margin of 20.6%, up 630 bps year-over-year

•GAAP diluted EPS of $(0.13), down $0.28 or 186.7% year-over-year

•Non-GAAP diluted EPS of $1.00, up $0.53 or 112.8% year-over-year

In fiscal 2026, VIAVI continued to grow across many of our product segments. Net revenue of $1.5 billion was up $434.0 million compared to fiscal 2025, primarily from strong demand for lab and production and field products, driven by the data center ecosystem, our acquisition of Spirent’s HSE and CE business as well as demand for our aerospace and defense products, which was partially offset by a decline in spend for wireless products. Our acquisitions of Spirent’s HSE and CE business and Inertial Labs contributed $145.0 million and $86.1 million, respectively, of net revenue in fiscal 2026. OSP performance improved year-over-year driven by anti-counterfeiting and other products and 3D sensing.

VIAVI's fiscal 2026 GAAP operating margin of 6.9% was up 160 bps compared to fiscal 2025 primarily due to higher volumes and favorable product mix, partially offset by the increase in intangible amortization. Non-GAAP operating margin of 20.6% increased 630 basis points primarily due to the increase in revenue, partially offset by higher operating expenses.

GAAP diluted EPS of $(0.13) decreased $0.28 from fiscal 2025 primarily due to the loss on debt extinguishments in fiscal 2026 and a $25.0 million release of valuation allowance related to our acquisition of Inertial Labs in fiscal 2025. Non-GAAP diluted EPS of $1.00 increased $0.53 from fiscal 2025 due primarily to the increase in revenue.

In fiscal 2026, we generated $113.9 million in operating cash flow and deployed $31.1 million or 2.0% of revenue towards capital expenditures. We also expended $399.3 million towards the acquisition of Spirent’s HSE and CE business and issued 12.8 million shares of our common stock pursuant to an underwritten public offering for net proceeds of $557.1 million.

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Beginning in the fourth quarter of fiscal 2026, the Company modified its non-GAAP presentation to exclude employer payroll taxes related to stock-based compensation. Consistent with this modification, employer payroll taxes related to stock-based compensation are no longer allocated to the Company's segment results. Prior-period non-GAAP financial measures and segment results have been recast to conform to the current presentation. Management believes excluding employer payroll taxes related to stock-based compensation aligns the treatment of these taxes, which are highly variable, with the underlying stock-based compensation expense and provides a more consistent measure of operating performance. Accordingly, this modification is intended to enhance investors’ understanding of the Company’s operating performance. These changes have no impact on any of the Company’s previously reported U.S. GAAP results.

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

(1) Included in the year ended June 27, 2026 are $4.8 million of losses on disposal of long-lived assets, $2.1 million charge for restoration services for a VIAVI facility impacted by a fire, $0.4 million of accelerated depreciation and other charges unrelated to core operating performance. Include

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