Financial Data and Key Metrics Changes - Net revenue for Q1 2026 was $299.1 million, exceeding guidance of $290 million to $298 million, representing a 3% sequential increase and a 25.6% year-over-year increase [4] - Operating margin for Q1 was 15.7%, above guidance of 14.6% to 15.4%, and increased by 130 basis points sequentially and 570 basis points year-over-year [4] - EPS for the quarter was $0.15, above guidance of $0.13 to $0.14, and increased by $0.02 sequentially and $0.09 year-over-year [4] Business Segment Data and Key Metrics Changes - NSC revenue was $216 million, above guidance of $208 million to $214 million, with a year-over-year increase of 35.5% driven by strong demand from the data center ecosystem and the acquisition of Inertia Labs [5] - OSB revenue was $83.1 million, in line with guidance of $82 million to $84 million, and up 5.5% year-over-year, primarily due to strength in anti-counterfeiting products [6] Market Data and Key Metrics Changes - Total cash and short-term investments at the end of Q1 were $549.1 million, compared to $429 million in the previous quarter [7] - Cash flow from operating activities for the quarter was $31 million, up from $13.5 million in the same period last year [7] Company Strategy and Development Direction - The company expects continued strong demand in NSC driven by the data center ecosystem and aerospace and defense customers, with a focus on integrating the recently acquired Spirent Communications product lines [9][10] - The company plans to report NSC as one business segment going forward, leveraging complementary product portfolios [10] Management's Comments on Operating Environment and Future Outlook - Management noted strong momentum from Q4 2025, with expectations for continued growth in NSC driven by data center demand and aerospace and defense [11][12] - The service providers' business was stable, with gradual recovery in fiber offset by soft demand for wireless products [13] Other Important Information - The company successfully refinanced $250 million in convertible notes and repurchased approximately 2.7 million shares for about $30 million [7] - The acquisition of Spirent Communications is expected to add about $200 million in annual revenue run rate, higher than the previous estimate of $188 million [8][44] Q&A Session Summary Question: Update on revenue mix between core telecom service provider and new products - Management indicated a shift in revenue mix to approximately 45% service provider, 40% data center ecosystem, and 15% aerospace and defense, with data center revenue approaching service provider levels [18][19] Question: Growth breakdown in core NSC business - Management noted strong demand from data center and aerospace and defense sectors, with traditional field instruments seeing increased demand from hyperscalers [20][22] Question: Operating margin guidance for NSC - Management expects operating margins to improve with Spirent's contribution, projecting around $165 million in quarterly revenue from Spirent [24][25] Question: Impact of wireless business recovery on earnings - Management acknowledged that recovery in the wireless segment could significantly enhance earnings, with potential for EPS to approach $1 if trends continue positively [27][28] Question: Margin profile of Spirent Communications business - Management stated that Spirent has a higher gross margin than the average NSC and is expected to be accretive post-integration [51][52]

Defense Sector Performance - Defense sector stocks broke out following increased Middle East tensions [1] - RTX is up approximately 85% and Axon is up 5% since May 19th [2] - Aerospace and defense sector stocks' median year-to-date return is 17%, significantly outperforming the S&P 500's 07% median return [4] - Nearly all aerospace and defense stocks are above their 50-day moving average, indicating strong upward momentum [4] Investment Strategy - The market anticipates events, making defense stocks a potentially lucrative investment [3][5] - Focus on stocks where the market has already identified opportunities, such as those benefiting from increased conflict [5] - Consider moving up stops on winning trades based on investment timeline [2] Company Specifics - GE Aerospace's defense sector accounts for approximately 25% of its total revenue [8] - GE Aerospace expects to increase its EBIT growth rate from 10 billion to 13 billion by 2028, with mid-20s margins and strong free cash flow [8] - Boeing is considered a cheaper and more compelling turnaround story compared to GE [9] Key Investment Drivers - Defense contractors offer consistent earnings, cash flow, and dividends [7] - Guaranteed revenue from the US government makes defense stocks attractive [7]

Financial Data and Key Metrics Changes - Net revenue for Q3 fiscal year 2025 was $284.8 million, exceeding the midpoint of guidance range of $276 million to $288 million, representing a sequential increase of 5.2% and a year-over-year increase of 15.8% [6] - Operating margin for the quarter was 16.7%, above the high end of guidance range of 13% to 15%, and increased by 1.8% sequentially and 7.4% year-over-year [6][7] - EPS was $0.15, above the high end of guidance range of $0.10 to $0.13, with a sequential increase of $0.02 and a year-over-year increase of $0.09 [7] Business Segment Data and Key Metrics Changes - NSE revenue for Q3 was $208.2 million, slightly above the midpoint of guidance range of $200 million to $212 million, with a year-over-year increase of 22.6% [7][8] - NE revenue for the quarter was $188 million, a year-over-year increase of 23.9%, driven by strong demand for fiber-led and production products [8] - SE revenue was $20.2 million, an increase of 11.6% year-over-year, in line with expectations [9] - NSE gross margin was 63.1%, up 1.7% year-over-year, while NE gross margin was 63.4%, an increase of 190 basis points [9] - OSP revenue for Q3 was $76.6 million, just above the high end of guidance range, with a year-over-year increase of 0.5% [10] Market Data and Key Metrics Changes - The aerospace and defense business segment is expected to be a strong multiyear growth driver, particularly due to the acquisition of Inertia Labs [16] - Demand for fiber monitoring by hyperscale data center operators is expected to continue through calendar year 2025 [16] - The wireless business segment is seeing stronger demand for 5G field instruments, indicating a potential recovery in the overall wireless segment [17] Company Strategy and Development Direction - The company is prioritizing capital allocation towards M&A, specifically the acquisition of Spirent's high-speed Ethernet and network security business lines [12] - The company plans to finance the acquisition with additional debt while maintaining financial discipline, targeting less than four times gross leverage [12] - The company is assessing the potential impact of global tariffs on overall demand and timing of orders, with a cautious outlook for the fourth quarter [13][18] Management's Comments on Operating Environment and Future Outlook - Management noted that the March quarter was unseasonably strong, continuing the recovery and growth momentum from fiscal Q2 [15] - There are concerns about potential delays in customer orders due to recently imposed tariffs, but no cancellations have been reported [22][24] - Management expects some orders may be delayed or reduced in volume as customers adjust to tariff impacts [26][70] Other Important Information - Total cash and short-term investments at the end of Q3 were $400.2 million, down from $512.8 million in the previous quarter, primarily due to the Inertia Labs acquisition [11] - The company did not purchase any shares during the quarter, focusing on M&A instead [12] Q&A Session Summary Question: Concerns about tariff impacts on revenue - Management indicated that while there are concerns about delays in approved POs, no orders have been canceled, and customers are accepting tariff increases [22][24] Question: Exposure to tariffs from manufacturing locations - Approximately 15% of revenue is subject to tariffs, with China being the most affected region, but management expects to mitigate this impact within three to six months [27][28] Question: Strength in NSE business and service provider spending - Management believes the demand from service providers is healthy and not indicative of a pull-forward, with expectations of gradual recovery in spending [60][62] Question: Update on the aerospace and defense business - The aerospace and defense segment is experiencing strong growth, particularly in positioning, navigation, and timing due to demand for drones and anti-jamming technologies [84] Question: Size of the fiber lab and production business - Management estimates that fiber lab and production may account for around 20% of NSE revenue, with expectations of strong growth driven by data center demand [88][90]