U.S. Markets close in 5 hrs 39 mins

Edited Transcript of VIAV earnings conference call or presentation 2-May-19 8:30pm GMT

Q3 2019 Viavi Solutions Inc Earnings Call

MILPITAS May 8, 2019 (Thomson StreetEvents) -- Edited Transcript of Viavi Solutions Inc earnings conference call or presentation Thursday, May 2, 2019 at 8:30:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Amar Maletira

Viavi Solutions Inc. - Executive VP & CFO

* Oleg Khaykin

Viavi Solutions Inc. - President, CEO & Director

* William Ong

Viavi Solutions Inc. - Senior Director of Finance & IR

================================================================================

Conference Call Participants

================================================================================

* Alexander Henderson

Needham & Company, LLC, Research Division - Senior Analyst

* Joseph Lima Cardoso

JP Morgan Chase & Co, Research Division - Analyst

* Jun Zhang

Rosenblatt Securities Inc., Research Division - MD & Senior Research Analyst

* Lee T. Krowl

B. Riley FBR, Inc., Research Division - Associate Analyst

* Meta A. Marshall

Morgan Stanley, Research Division - VP

* Vijay Krishna Bhagavath

Deutsche Bank AG, Research Division - VP and Research Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good afternoon. My name is Cheryl, and I will be your conference operator today. At this time, I would like to welcome everyone to the Viavi Fiscal Q3 2019 Earnings Conference Call. (Operator Instructions)

Bill Ong, Head of Investor Relations, you may begin your conference.

--------------------------------------------------------------------------------

William Ong, Viavi Solutions Inc. - Senior Director of Finance & IR [2]

--------------------------------------------------------------------------------

Thank you, Cheryl. Welcome to Viavi Solutions Third Quarter Fiscal Year 2019 Earnings Call. My name is Bill Ong, Head of Investor Relations. Joining me on today's call are Oleg Khaykin, President and CEO; and Amar Maletira, CFO.

Please note this call will include forward-looking statements about the company's financial performance. These statements are subject to risks and uncertainties that could cause actual results to differ materially from current expectations and estimations. We encourage you to review our most recent SEC filings, particularly the risk factors described in those filings. The forward-looking statements, including guidance we provide during this call, are valid only as of today. Viavi undertakes no obligation to update these statements.

Please also note that unless we state otherwise, all results except revenue are non-GAAP. We reconcile these non-GAAP results to our preliminary GAAP financials and discuss their usefulness and limitations in today's earnings release. The release plus our supplemental earnings slide, which includes historical financial tables, are available on Viavi's website.

Finally, we are recording today's call and will make the recording available by 4:30 p.m. Pacific Time this evening on our website.

I would now like to turn the call over to Amar.

--------------------------------------------------------------------------------

Amar Maletira, Viavi Solutions Inc. - Executive VP & CFO [3]

--------------------------------------------------------------------------------

Thank you, Bill. Viavi's revenue at $265.2 million grew 21.3% year-on-year, and reached the high end of our revenue guidance range. NSE revenue at $205.4 million was above the midpoint of revenue guidance driven by revenue upside in our wireless and fiber products. OSP revenue at $59.8 million exceeded the guidance range due to upside from both our anti-counterfeiting and 3D sensing businesses.

Viavi's operating margins at 14.7% exceeded the high end of our guidance and was down 50 basis points year-on-year. EPS at $0.13 reached the high end of the guidance range and was flat versus a year ago.

Now, moving to our reported Q3 results by business segment, starting with NSE. NSE revenue at $205.4 million grew 31.3% year-on-year. Within NSE revenue, NE revenue at $180.5 million increased 42.7% from a year ago levels. This growth was a result of the required AvComm and Wireless businesses and the organic growth in our fiber products across both lab and field instruments. This increase was partially offset by declines primarily in our cable products from a year ago peak levels due to the DOCSIS 3.1 upgrade cycle.

SE revenue at $24.9 million declined $16.7% from a year ago levels driven primarily from a decline in the datacenter product demand and from the expected runoff in our Mature Assurance products. This decrease was partially offset by an increase in our Growth Assurance products.

NSE gross margins at 64.1% declined 60 basis points year-on-year, primarily due to gross margin declines in our SE business as a result of lower volumes, and an favorable product mix from the continued runoff of our high margin, Mature Assurance solutions, and declines in our datacenter products.

NSE operating margin at 10.1% increased 400 basis points from a year ago levels, reflecting the favorable operating leveraging from the addition of the acquired AvComm and wireless businesses and ongoing cost management. NSE's book-to-bill ratio was below 1.

Now turning to OSP. OSP revenue at $59.8 million declined 4% year-on-year from lower 3D sensing revenue, partially offset by growth in our anti-counterfeiting business. Excluding the one-time impact of the revenue recognition in the prior year period, 3D sensing revenue grew significantly year-on-year. OSP's gross margin at 51.5%, declined 110 basis points from a year ago due to lower volumes and the expected under absorption of manufacturing costs from the planned idling of 3D sensing filter capacity. OSP's operating margin at 30.6% declined 740 basis points due to declines in gross margins, as well as some targeted investments to support growth.

Turning to the balance sheet. Our total cash and short-term investments ending balance was $537.5 million. Operating cash flow for the quarter was $41.2 million. Of the $200 million authorized for share buybacks, we have repurchased shares worth approximately $146.3 million as of the end of fiscal Q3. We'll continue to be opportunistic by repurchasing Viavi stock to offset earnings solution from stock-based compensation.

Now turning to our guidance. We expect fiscal fourth quarter 2019 revenue for Viavi to be $278 million plus or minus $10 million. Operating margins at 16% plus or minus 1% and EPS to be in the range of $0.14 to $0.16. We expect NSE revenue to be approximately $215 million plus or minus $8 million with operating margin at 11.5% plus or minus 1%.

We expect OSP revenue to be approximately $63 million plus or minus $2 million with operating margins at 32% plus or minus 1%. We are increasing our 3D sensing revenue forecast for fiscal 2019 from approximately $60 million to $65 million.

Our tax expense is expected to be approximately $7 million to $8 million. We expect other income and expenses to reflect a net expense of approximately $2 million to $2.5 million. Share count is approximately 232.5 million shares and with that, I will turn the call over to Oleg.

--------------------------------------------------------------------------------

Oleg Khaykin, Viavi Solutions Inc. - President, CEO & Director [4]

--------------------------------------------------------------------------------

Thank you, Amar. While the March quarter is a seasonally weak quarter for Viavi, I'm pleased with the results of both NSE and OSP. Both business segments outperformed our expectations in both revenue and non-GAAP operating profits.

In NSE, 5G market adoption has resulted in a year-on-year strength in our wireless products. We also continue to see significant strength in our fiber products across both lab and field instruments. Cable revenue declined year-on-year from the North America peak cyclical demand for DOCSIS 3.1 in early calendar 2018. However, the cable demand improved quarter-on-quarter driven by demand from European cable customers.

SE business segment revenue performed below our expectations, driven by weaker demand from the datacenter customers. That said, we anticipate datacenter product demand to pick up through the rest of calendar year.

Moving on to OSP. The anti-counterfeiting products performed in line with our expectations, driven by steady banknote reprint demand. In addition, we have a banknote redesign pipeline, which could drive upside to the steady-state reprint forecast. However, the visibility into the redesigned currencies launch dates is limited.

Our 3D sensing products was seasonally down in Q3. We expect a small recovery in 3D sensing in fiscal Q4 and a strong rebound in growth in the first half of the fiscal 2020.

Looking ahead into the fiscal 2020, we expect the secular growth trends in 5G wireless, fiber, and 3D sensing that began last year to continue. Fiscal 2019 is a milestone year for Viavi. During this fiscal year, we have achieved ahead of schedule our turnaround goals that we outlined during the September 2016 Analyst Day.

We are now ready to launch the next phase of Viavi's transformation. We will be hosting an Analyst Day event on September 12, 2019 in Santa Clara, California to outline our going forward strategy and goals. Please save the date and we will provide more information regarding the event in the coming months.

In conclusion, I would like to thank my Viavi team and express my appreciation to our customers and our shareholders for their support. I will now turn the call over to Bill.

--------------------------------------------------------------------------------

William Ong, Viavi Solutions Inc. - Senior Director of Finance & IR [5]

--------------------------------------------------------------------------------

Thank you, Oleg. Cheryl, let's begin the question and answer session. We ask everyone to limit discussion to one question and one follow-up.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) The first question comes from Alex Henderson of Needham.

--------------------------------------------------------------------------------

Alexander Henderson, Needham & Company, LLC, Research Division - Senior Analyst [2]

--------------------------------------------------------------------------------

So I was hoping you could just talk a little bit about the cadence in the cable business and what you think things are going to look like as we get into the back half a little bit. I realize you only give one quarter guidance but the guidance that you gave here in the print you gave sounds like they're pretty much straight up the center line of expectations.

So I was wondering if you expect a little bit of better spend in the cable business in the back half of the year and what you're seeing in the service provider piece accordingly?

--------------------------------------------------------------------------------

Oleg Khaykin, Viavi Solutions Inc. - President, CEO & Director [3]

--------------------------------------------------------------------------------

Sure. Thank you, Alex. I think listen, clearly, when the deployment of a new technology, new standard starts, in the first several quarters you have a huge demand, mainly driven by North American operators. Once the initial deployment by North American operators slows down, there is still a significant chunk of cable business for the new standard that comes out of Europe, Latin America, and so on and so forth. So there is some lagging factor here.

But also, in North America, once the deployment of the installation tools goes down, there is still a lot of other lifecycle upgrades that happen, such as fiber monitoring, network monitoring, leakage detection, and other types of things. I mean it doesn't mean we go -- our revenue with North American operators goes to zero. It just obviously drops off into more steady-state run rate, which is below the peak levels.

So clearly, as a rule of thumb, I think the strongest demand in cable you generally get somewhere in the middle of the calendar year, I'll say June and September quarter. I mean the first quarter of the year, there is delay for budget releases and to the extent there's any on used CapEx left, then you might see a pop in the fourth quarter. But generally, I mean the cyclicality in that business is you see more product demand in the middle of the calendar year.

But in terms of the -- give you quarterly run rate, it really comes down to who is spending, and when, and so on, and so forth. And reality is, for us, it's less -- I mean the account managers that we have on cable providers, I mean they always have other ways to extract revenue in any given quarter by shifting to other products and different value propositions during the lifecycle of any given technology.

--------------------------------------------------------------------------------

Alexander Henderson, Needham & Company, LLC, Research Division - Senior Analyst [4]

--------------------------------------------------------------------------------

So is it just last year was much more heavily front end weighted and this year it's more linear? Is that kind of a fair summary?

--------------------------------------------------------------------------------

Oleg Khaykin, Viavi Solutions Inc. - President, CEO & Director [5]

--------------------------------------------------------------------------------

Yes, I mean last year, remember that's when the 3.1 DOCSIS start getting deployed in earnest by major cable operators in the North America. So that drove significant peak demand. So that's why when I say if you look at our March quarter last year to this quarter, I mean I look at our cable revenue this quarter. That's nothing to sneeze at. It's actually - we're pretty happy with the run rate.

But when you compare it to cable demand in March quarter of 2018, it's significantly down. Because the first quarter where we saw significant demand for handheld tools.

--------------------------------------------------------------------------------

Amar Maletira, Viavi Solutions Inc. - Executive VP & CFO [6]

--------------------------------------------------------------------------------

So fair to expect it will be more linear throughout the year.

--------------------------------------------------------------------------------

Oleg Khaykin, Viavi Solutions Inc. - President, CEO & Director [7]

--------------------------------------------------------------------------------

That's right.

--------------------------------------------------------------------------------

Operator [8]

--------------------------------------------------------------------------------

Your next question comes from the line of Vijay Bhagavath of Deutsche Bank.

--------------------------------------------------------------------------------

Vijay Krishna Bhagavath, Deutsche Bank AG, Research Division - VP and Research Analyst [9]

--------------------------------------------------------------------------------

We get this question asked by clients a lot, which is around the 5G instrument opportunity and also any competitive differentiation or angle you can share versus your peer group, such as Keysight would be very helpful. And then I have a follow-up.

--------------------------------------------------------------------------------

Oleg Khaykin, Viavi Solutions Inc. - President, CEO & Director [10]

--------------------------------------------------------------------------------

Sure. I'll start and Amar can chime in. At this point, when we look at 5G, we really don't compete head-to-head with Keysight. If anything, I think their 5G plays complementary to what we do and they mainly focused more on the chip and board engineering and various instruments in the RF spectrum. We are mainly focused on the -- in the lab on the system task, system emulation that was we ship to the base station designers.

And in terms of field instruments, I mean Keysight is not really a major player in field instruments. So there, it will be more companies like Anritsu, for example, or Rohde & Schwarz. And for us, we are relatively newcomer to field instruments in the RF space but we have extensive expertise and market position in the fiber and wireline.

That said, we do significantly leverage our leadership in this system test and qualification test into the -- trying to introduce new instruments for the field deployment. And while we are very early, I mean right now it's very much trials, we have our field instruments pretty much with every major service provider there undergoing evaluations.

And our hope is that as they transition from a valuation to the early deployment, our toolset and our workflow that we provide with our toolset will become a standard that they adopt for their broader technical installation force.

--------------------------------------------------------------------------------

Vijay Krishna Bhagavath, Deutsche Bank AG, Research Division - VP and Research Analyst [11]

--------------------------------------------------------------------------------

A quick follow-on would be the end market and the demand trends are what they are. As you said, cable and just overall North American carriers. Anything you could do, Oleg, Amar, in terms of portfolio realignment or perhaps M&A that gets you focused on further demand if there were the opportunities in terms of portfolio management and putting money to work.

--------------------------------------------------------------------------------

Oleg Khaykin, Viavi Solutions Inc. - President, CEO & Director [12]

--------------------------------------------------------------------------------

Well, sure. We always look at opportunities and we always look at organic growth opportunities and inorganic. It's always a decision make versus buy. And from that perspective, when we look at potential M&A, it's not different from what we would do when we look at our internal opportunities. It's got to have good business sense. It's got to be accretive. It's got to have a reasonable risk/return profile and things like that.

So with that in mind, we always look at different things. And if we find a good fit at the right price, obviously, we do a deal. But we also, as we have shown time and time again, we walk when we think a deal gets beyond the level that's reasonable.

--------------------------------------------------------------------------------

Amar Maletira, Viavi Solutions Inc. - Executive VP & CFO [13]

--------------------------------------------------------------------------------

So organically, just to give you a little bit more color here, I think we made a lot of progress in those 2 areas that we've been highlighting, fiber as well as wireless. And when you look at our portfolio today, and when you just look at NE, which is our core instrument business, wireless and fiber combined is more than 50% of the revenue. And both these businesses have been growing organically.

And when you even look at our fiscal Q4 guidance that we provided, it will be -- all will be organic growth. So this is all segments in NSE except for SE because of the Mature Assurance runoff. All of the other segments within NSE is going to grow organically year-on-year, as well as the segments within OSP are going to grow organically year-on-year.

So I think just from an NSE perspective, we have a very good organic play and we're making a lot of traction there.

--------------------------------------------------------------------------------

Oleg Khaykin, Viavi Solutions Inc. - President, CEO & Director [14]

--------------------------------------------------------------------------------

And in fact, we had a number of opportunities we saw and we've promptly increased R&D in certain targeted areas to go grab extra $5 million, $6 million, $7 million, $8 million of 5G opportunities that require some additional investment.

--------------------------------------------------------------------------------

Operator [15]

--------------------------------------------------------------------------------

Your next question comes from Jun Zhang of Rosenblatt Securities.

--------------------------------------------------------------------------------

Jun Zhang, Rosenblatt Securities Inc., Research Division - MD & Senior Research Analyst [16]

--------------------------------------------------------------------------------

So I just want to get a look at idea where is the strength coming from in the March quarter. And also, looks like you guided a little bit sort of June quarter. And the EPS guidance kind of in line with the Street. So what's the -- is there increasing on the operating cost or is there any impact on the gross margin side for the June quarter?

--------------------------------------------------------------------------------

Amar Maletira, Viavi Solutions Inc. - Executive VP & CFO [17]

--------------------------------------------------------------------------------

So I'll start with the March quarter and also give you some color on the guidance. So March quarter, we saw a broad-based trend within NSE mainly in our wireless and fiber business, as I mentioned in my prepared remarks. And on the OSP side, we saw strength in our anti-counterfeiting business but also, more importantly, strength in our 3D sensing business.

And so if you note, we took our guidance up for $60 million to $65 million because we are seeing strength on the android side building up. When it comes to guidance for the June quarter, we did take the revenue guidance up versus where the Street was. We also took our operating margin guidance up and saw operating profit dollars or EBIT is also up versus the Street estimates.

But we are also increasing our estimates on tax expenses. If you recall, our tax expenses are usually between 16% to 18% and so we are guiding to roughly about 18% tax rate as percentage of PBT. That's because some of the profit is landing in some tax jurisdiction where we have to pay tax.

So that's where the guidance is. The guidance is actually marginally up versus the Street from a revenue and an EBIT perspective, although in line at the EPS (inaudible).

--------------------------------------------------------------------------------

Jun Zhang, Rosenblatt Securities Inc., Research Division - MD & Senior Research Analyst [18]

--------------------------------------------------------------------------------

And my second question is the 5G testing business. So I think some people concerned with 5G start deployment in a lot of countries and then testing. The testing equipment demand is probably going to slow down once the networks starts deployments. So what's your view about this cycle, how Viavi placed in the whole cycle of 5G deployment?

--------------------------------------------------------------------------------

Oleg Khaykin, Viavi Solutions Inc. - President, CEO & Director [19]

--------------------------------------------------------------------------------

So let me just kind of tell you how it works. So in our system level test, right now, every time we sell a -- right now, it's an engineering test. So we deliver a rack and stack system with preloaded software. And this is what's driving the demand right now. Once the production starts, the demand will shift towards load testing, where you are testing the network load, and equipment load, and its ability to handle traffic. So it's a different type of test profile but the test demands, nevertheless, will be -- we expect to be meaningful.

But also, remember, 5G standard is evolving. So there is a nonstop parade of new standards and new extensions and features that come out. And this will become a nonstop -- it becomes an annuity revenue stream for us. So for every system that we've sold since the beginning of 5G deployment up to now and this quarter and the next quarter, we will be selling licenses for various software upgrades.

So clearly, I mean maybe on the top line it will be lower revenue in some extent than when you're pressing through cost of goods over a rack and stack system. But on the operating margin contribution, it may actually be higher than what we have today.

So that said, when we look at this business, we look at it as a lifecycle. Clearly, early on, there is a lot of demand for engineering testers. Over time, it shifts to production testers and the software upgrades for new features and standard updates. And then to the field instrumentation, and then the cycle repeats itself over and over.

So that's why it's critical for us to bring out and build out a field instrument portfolio that will transition in terms of the volume ramps just as the -- some of the engineering tester business starts to decline. But it's no different than if we look at the cyclicality in 4G and 3G.

That cycle is well understood and it's not that -- the fluctuations between troughs and peaks are not that far apart as some people may suspect. But to the extent we also win big in the field instrumentation space, we may actually continue to grow our wireless business.

--------------------------------------------------------------------------------

Amar Maletira, Viavi Solutions Inc. - Executive VP & CFO [20]

--------------------------------------------------------------------------------

And in addition to field instrumentation, we also extend ourselves into the Assurance space too.

--------------------------------------------------------------------------------

Oleg Khaykin, Viavi Solutions Inc. - President, CEO & Director [21]

--------------------------------------------------------------------------------

That's right. There is also -- good point, Amar. When we restructured our SE business, we left several points untouched and it's mainly exactly the technologies that are now maturing and entering the space. As you go to 5G, you need a different type of software for testing at the Assurance level, at the service provider level for 5G networks.

And 5G is proving to be much more challenging than many people realized in the field deployment. Because it's quite different from 4G and 3G. And we're already seeing significant requests coming in from customers as they struggle with various issues with the reliability and quality of communications.

--------------------------------------------------------------------------------

Operator [22]

--------------------------------------------------------------------------------

Your next question comes from Meta Marshall of Morgan Stanley.

--------------------------------------------------------------------------------

Meta A. Marshall, Morgan Stanley, Research Division - VP [23]

--------------------------------------------------------------------------------

I think AT&T is kind of ending the original homes pass on their fiber deployment and kind of moving onto the homes connected portion of the build-out, the DIRECTV build-out. So just wondering are you expecting to see stronger fiber performance second half of the year from that? Or just if you can kind of speak to trends on fiber accretion being connected to the homes.

And then maybe second, just on RPC, is that any portion of the stronger 3D sensing guide? Or has it helped in building relationships, the impact of that acquisition, would be helpful.

--------------------------------------------------------------------------------

Oleg Khaykin, Viavi Solutions Inc. - President, CEO & Director [24]

--------------------------------------------------------------------------------

So maybe I'll start on the AT&T question and Amar, you can pick up the RPC. So you're right. AT&T spent the last couple of years deploying fiber. However, when we think about connecting fiber to the home, it's not always fiber to the home. We actually, believe it or not, are starting to see potential for companies like AT&T and others who now have a lot of fiber. There is actually some near term demand for G. fast products because many of these networks, they end just within a hundred or so feet from the home. And it's much more economical just to run the last distance with traditional, like a G. fast technology rather than fiber.

We do see a lot more fiber to the building in Europe because of the density of subscriber and density of European cities makes it much more economical to run fiber actually to the building. So we are seeing more interest in instruments in Asia and Europe in terms of connecting passive optical network to the building.

And in the U.S., we are seeing more of the typical access tools like G. fast and so on, as well as some of the fiber to the curb -- fiber tools being demanded. But it's not a big swing. However, given that companies -- North American service providers have been very low in the last year, any kind of pickup actually now gives us a meaningful tailwind versus a year ago.

--------------------------------------------------------------------------------

Amar Maletira, Viavi Solutions Inc. - Executive VP & CFO [25]

--------------------------------------------------------------------------------

And the question on the RPC. So Meta, I think the update on the forecast for 3D sensing has 2 components to it. One, definitely RPC because RPC is contributing to the upside. And number 2, also, we are seeing on the filter side, the demand has been sort of stable, at least in the last few months with the flagship customer. But also on the Android side, we are starting to see some pickup in demand.

So it is a combination, mainly on the Android side, where we have a pickup of demand as they ramp up both on the filter as well as on the diffuser side. So it's a combination of both. But RPC did add to the upside.

--------------------------------------------------------------------------------

Meta A. Marshall, Morgan Stanley, Research Division - VP [26]

--------------------------------------------------------------------------------

And maybe just on a follow-up to that. Is part of the intent with RPC was to grow relationships within the Android ecosystem. Maybe that hasn't been revenue to date, but just where are you seeing -- are you seeing kind of that ability to leveraging the relationships that RPC had?

--------------------------------------------------------------------------------

Oleg Khaykin, Viavi Solutions Inc. - President, CEO & Director [27]

--------------------------------------------------------------------------------

Sure. We actually have very good relationship on -- the same customers who buy RPC products were buying our filter products. So in that respect, clearly, we're now a bigger share of mind for them because now, we have 2 sockets that we address.

I think the -- I mean our relationship with all the customers is very good. I mean my bigger thing that I'm wishing is to how fast Android ecosystem adopting 3D sensing and time of flight or structured light technologies. Because that's clearly, ultimately, what drivers our demand.

--------------------------------------------------------------------------------

Operator [28]

--------------------------------------------------------------------------------

Your next question comes from the line of Samik Chatterjee of JPMorgan.

--------------------------------------------------------------------------------

Joseph Lima Cardoso, JP Morgan Chase & Co, Research Division - Analyst [29]

--------------------------------------------------------------------------------

This is Joe Cardoso on for Samik. Just one question from you guys. I was just curious to see what's driving the data center over the past couple of quarters. Is there any market share dynamics or technology changes that we should know about that's going on there? And then what is giving you guys guidance that that returns to growth or it becomes more positive as we progress through the year?

--------------------------------------------------------------------------------

Amar Maletira, Viavi Solutions Inc. - Executive VP & CFO [30]

--------------------------------------------------------------------------------

So I think first of all, to put things in context, our data center business is roughly a little -- sort of a little south of 5% of the overall NSE business. Now what we saw in our March quarter, which is the beginning of the fiscal quarter for a lot of our customers, again, the purchase release sort of delayed. And so we saw softness in demand for the data center products.

We have a very good product. We have a great team on the ground executing quite well. And we believe that as the demand starts picking up, we should be getting our fair share of market. So there's no market share loss. It's just that the demand was weak.

We're also seeing that the size of the deals are becoming bigger than, say, a year ago or a year and a half ago, which means it just delays the closing time. So those are the factors. We are not too concerned about it. I think we have a good product. We have a good team and we believe that as the demand picks up, we should get our fair share of market.

--------------------------------------------------------------------------------

Operator [31]

--------------------------------------------------------------------------------

Your last question comes from Dave Kang of B. Riley FBR.

--------------------------------------------------------------------------------

Lee T. Krowl, B. Riley FBR, Inc., Research Division - Associate Analyst [32]

--------------------------------------------------------------------------------

This is Lee Krowl filling in for Dave Kang. First question. Just kind of curious on the 3D sensing upside. Is -- can you maybe just talk about where that $5 million is -- or the mix of the $5 million between the current quarter and the out quarter in terms of where that upside falls. Just kind of trying to overlay seasonality with incremental customer wins.

--------------------------------------------------------------------------------

Amar Maletira, Viavi Solutions Inc. - Executive VP & CFO [33]

--------------------------------------------------------------------------------

So I think when you take a look at our $65 million, just to put things in context here, again, and as I mentioned even in my last call, 2/3 of that is in the first half and 1/3 of the $65 million is roughly in the second half. And you should see from fiscal Q3 to Q4, that number, 3D sensing [dividend line] is actually slightly growing. So we will see some growth in that number going from Q3 to Q4.

--------------------------------------------------------------------------------

Lee T. Krowl, B. Riley FBR, Inc., Research Division - Associate Analyst [34]

--------------------------------------------------------------------------------

And then I guess you guys kind of always downplay the visibility in the banknote business. But calling out the pipeline, I would actually argue that that means you have a little bit better visibility. Do you expect the refreshes to occur in calendar '19? Or is it a longer timeline in terms of pipeline for that business in terms of the new refreshes you guys talked about?

--------------------------------------------------------------------------------

Amar Maletira, Viavi Solutions Inc. - Executive VP & CFO [35]

--------------------------------------------------------------------------------

So I think we -- as you rightly said, we have visibility to the pipeline for redesigns. The timing of those redesigns closing is that's something that's uncertain.

So what we are assuming, not for fiscal Q4, we have already given you guidance for fiscal Q4, but for the rest of maybe first half of fiscal '20, we're assuming that the anti-counterfeiting business will be just the reprint volumes will come in, which is roughly plus or minus $50 million of run rate. And if the redesign is coming, it will be on top of it.

But for planning assumptions, we're just assuming reprint volumes in the second calendar half of 2019. It is likely that we can do better than that, but I think we always go with this assumption until we get more visibility.

--------------------------------------------------------------------------------

Oleg Khaykin, Viavi Solutions Inc. - President, CEO & Director [36]

--------------------------------------------------------------------------------

So this way, whenever some central bank designs to launch a new note, it's an upside. And the reality is we get no more than one quarter upfront visibility. As you can imagine, central banks keep that information very tight to their chest.

--------------------------------------------------------------------------------

Operator [37]

--------------------------------------------------------------------------------

There are not further questions at this time. I would like to turn the call over to Bill Ong for closing remarks.

--------------------------------------------------------------------------------

William Ong, Viavi Solutions Inc. - Senior Director of Finance & IR [38]

--------------------------------------------------------------------------------

Thank you, Cheryl. This concludes our earnings call for today. Thank you, everyone.

--------------------------------------------------------------------------------

Operator [39]

--------------------------------------------------------------------------------

This concludes today's conference call. You may now disconnect.