Viavi Solutions Inc.

08/13/2026 | Press release | Distributed by Public on 08/13/2026 14:30

Annual Report for Fiscal Year Ending June 27, 2026 (Form 10-K)

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.
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.
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):
Years Ended
June 27, 2026 June 28, 2025
Operating Income Operating Margin Operating Income Operating Margin
GAAP measures $ 105.1 6.9 % $ 57.5 5.3 %
Stock-based compensation 55.4 3.6 % 53.1 4.9 %
Employer payroll tax on employee share-based awards 2.7 0.2 % 1.3 0.1 %
Change in fair value of contingent consideration 33.0 2.2 % (8.3) (0.8) %
Acquisition and integration related charges 12.6 0.8 % 22.3 2.1 %
Other charges unrelated to core operating performance(1)
14.2 1.0 % 1.3 0.1 %
Amortization of acquisition related inventory step-up 6.1 0.4 % 4.3 0.4 %
Amortization of intangibles 67.9 4.5 % 24.3 2.2 %
Restructuring and related charges 15.9 1.0 % 0.7 0.1 %
Litigation settlement - - % (1.3) (0.1) %
Total related to Cost of Revenues and Operating Expenses 207.8 13.7 % 97.7 9.0 %
Non-GAAP measures $ 312.9 20.6 % $ 155.2 14.3 %
Years Ended
June 27, 2026 June 28, 2025
Net (Loss) Income Diluted
EPS 		Net Income Diluted
EPS
GAAP measures $ (30.4) $ (0.13) $ 34.8 $ 0.15
Items reconciling GAAP Net (Loss) Income and EPS to Non-GAAP Net Income and EPS:
Stock-based compensation 55.4 0.23 53.1 0.23
Employer payroll tax on employee share-based awards 2.7 0.01 1.3 0.01
Change in fair value of contingent consideration 33.0 0.14 (8.3) (0.03)
Acquisition and integration related charges 12.6 0.05 22.3 0.10
Other charges unrelated to core operating performance(1)
14.2 0.06 1.3 0.01
Amortization of acquisition related inventory step-up 6.1 0.02 4.3 0.02
Amortization of intangibles 67.9 0.28 24.3 0.11
Restructuring and related charges 15.9 0.07 0.7 -
Litigation settlement - - (1.3) (0.01)
Non-cash interest expense and other expense(2)
57.0 0.23 4.7 0.02
Provision for (benefit from) income taxes 9.4 0.04 (30.5) (0.14)
Total related to Net Income and EPS 274.2 1.13 71.9 0.32
Non-GAAP measures $ 243.8 $ 1.00 $ 106.7 $ 0.47
Shares used in per share calculation for Non-GAAP EPS 242.9 225.7
(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. Included in the year ended June 27, 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 a loss of $56.7 million for the year ended June 27, 2026 in connection with the extinguishment of certain 1.625% Senior Convertible Notes and prepayments of the Term Loan B.
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 Annual Report on Form 10-K 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, including related employer payroll taxes, (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 non-cash interest and other 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.
RESULTS OF OPERATIONS
This section of this Annual Report on Form 10-K generally discusses the results of operations for the fiscal years ended June 27, 2026 and June 28, 2025 and year-to-year comparisons between such fiscal years. Discussions of the year-to-year comparisons between the fiscal years ended June 28, 2025 and June 29, 2024, that are not included in this Annual Report on Form 10-K, can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended June 28, 2025.
The results of operations for the current period are not necessarily indicative of results to be expected for future periods.
The following table summarizes selected Consolidated Statements of Operations items as a percentage of net revenue:
Years Ended
June 27, 2026 June 28, 2025 June 29, 2024
Segment net revenue:
Network and Service Enablement 77.9 % 71.6 % 70.2 %
Optical Security and Performance Products 22.1 28.4 29.8
Net revenue 100.0 100.0 100.0
Cost of revenues 39.3 40.9 41.0
Amortization of acquired technologies 3.0 1.8 1.4
Gross profit 57.7 57.3 57.6
Operating expenses:
Research and development 17.3 19.3 20.2
Selling, general and administrative 30.9 32.2 33.3
Amortization of other intangibles 1.5 0.4 0.6
Restructuring and related charges 1.1 0.1 1.4
Total operating expenses 50.8 52.0 55.5
Income from operations 6.9 5.3 2.1
Loss on debt extinguishment (3.7) - -
Interest and other income, net 1.0 1.1 2.2
Interest expense (3.1) (2.8) (3.1)
Income before income taxes and equity investment earnings 1.1 3.6 1.2
Provision for income taxes 3.1 0.4 3.8
Equity investment earnings - - -
Net (loss) income (2.0) % 3.2 % (2.6) %
Financial Data for Fiscal 2026, 2025 and 2024
The following table summarizes selected Consolidated Statement of Operations items (in millions):
2026 2025 Change Percent Change 2025 2024 Change Percent Change
Segment net revenue:
NSE $ 1,182.9 $ 776.6 $ 406.3 52.3 % $ 776.6 $ 702.0 $ 74.6 10.6 %
OSP 335.4 307.7 27.7 9.0 % 307.7 298.4 9.3 3.1 %
Net revenue $ 1,518.3 $ 1,084.3 $ 434.0 40.0 % $ 1,084.3 $ 1,000.4 $ 83.9 8.4 %
Amortization of acquired technologies $ 45.4 $ 19.5 $ 25.9 132.8 % $ 19.5 $ 13.8 $ 5.7 41.3 %
Percentage of net revenue 3.0 % 1.8 % 1.8 % 1.4 %
Gross profit $ 875.4 $ 621.1 $ 254.3 40.9 % $ 621.1 $ 575.9 $ 45.2 7.8 %
Gross margin 57.7 % 57.3 % 57.3 % 57.6 %
Research and development $ 262.7 $ 208.7 $ 54.0 25.9 % $ 208.7 $ 201.9 $ 6.8 3.4 %
Percentage of net revenue 17.3 % 19.3 % 19.3 % 20.2 %
Selling, general and administrative $ 469.2 $ 349.4 $ 119.8 34.3 % $ 349.4 $ 333.3 $ 16.1 4.8 %
Percentage of net revenue 30.9 % 32.2 % 32.2 % 33.3 %
Amortization of other intangibles $ 22.5 $ 4.8 $ 17.7 368.8 % $ 4.8 $ 6.3 $ (1.5) (23.8) %
Percentage of net revenue 1.5 % 0.4 % 0.4 % 0.6 %
Restructuring and related charges $ 15.9 $ 0.7 $ 15.2 2,171.4 % $ 0.7 $ 13.6 $ (12.9) (94.9) %
Percentage of net revenue 1.1 % 0.1 % 0.1 % 1.4 %
Loss on debt extinguishment $ (56.7) $ - $ (56.7) NM $ - $ - $ - - %
Percentage of net revenue (3.7) % - % - % - %
Interest and other income, net $ 15.3 $ 11.1 $ 4.2 37.8 % $ 11.1 $ 21.7 $ (10.6) (48.8) %
Percentage of net revenue 1.0 % 1.1 % 1.1 % 2.2 %
Interest expense $ (47.4) $ (30.0) $ (17.4) 58.0 % $ (30.0) $ (30.9) $ 0.9 (2.9) %
Percentage of net revenue (3.1) % (2.8) % (2.8) % (3.1) %
Provision for income taxes $ 47.5 $ 4.4 $ 43.1 979.5 % $ 4.4 $ 37.4 $ (33.0) (88.2) %
Percentage of net revenue 3.1 % 0.4 % 0.4 % 3.8 %
Equity investment earnings $ 0.8 $ 0.6 $ 0.2 33.3 % $ 0.6 $ - $ 0.6 NM
Percentage of net revenue - % - % - % - %
NM - Percentage change not considered meaningful
Foreign Currency Impact on Results of Operations
While the majority of our net revenue and operating expenses are denominated in U.S. dollar, a portion of our international operations are denominated in currencies other than the U.S. dollar. Changes in foreign exchange rates may significantly affect revenue and expenses. While we use foreign currency hedging contracts to mitigate some foreign currency exchange risk, these activities are limited in the protection that they provide us and can themselves result in losses. We have presented below "constant dollar" comparisons of our net sales and operating expenses, which exclude the impact of currency exchange rate fluctuations. Constant dollar net revenue and operating expenses are non-GAAP financial measures, which is information derived from consolidated financial information but not presented in our financial statements prepared in accordance with U.S. GAAP. Our management believes these non-GAAP measures, when considered in conjunction with the corresponding U.S. GAAP measures, may facilitate a better understanding of changes in net revenue and operating expenses. While management believes that these non-GAAP financial measures provide useful supplemental information, such adjusted results are not intended to replace our GAAP financial results and should be read in conjunction with those GAAP results.
The Results of Operations are presented in accordance with U.S. GAAP and not using constant dollars. If currency exchange rates had been constant in fiscal 2026 and 2025, our consolidated net revenue in "constant dollars" would have decreased by $10.4 million, or 0.7% of net revenue for fiscal 2026, which primarily impacted our NSE segment. The impact of foreign currency fluctuations on net revenue was not indicative of the impact on net income due to the offsetting foreign currency impact on operating costs and expenses. If currency exchange rates had been constant in fiscal 2026 and 2025, our consolidated operating expenses in "constant dollars" would have decreased by $10.8 million for fiscal 2026.
Refer to Item 7A "Qualitative and Quantitative Disclosures about Market Risk" of this Annual Report on Form 10-K for further details on foreign currency instruments and our related risk management strategies.
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 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 operating income consistent with our approach for managing the business.
Net revenue increased $434.0 million, or 40.0%, during fiscal 2026 when compared to fiscal 2025. This increase was 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 acquisition of Spirent's HSE and CE business contributed $145.0 million of net revenue in fiscal 2026 and Inertial Labs contributed $86.1 million of net revenue in fiscal 2026. OSP performance improved year-over-year driven by anti-counterfeiting and other products and 3D sensing.
Product revenues increased $412.6 million, or 45.2%, during fiscal 2026 when compared to fiscal 2025, driven by volume increases in NSE and OSP.
Service revenues increased $21.4 million, or 12.4%, during fiscal 2026 when compared to fiscal 2025, driven by a volume increase in NSE.
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.
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):
Years Ended
June 27, 2026 June 28, 2025 June 29, 2024
Americas:
United States $ 577.9 38.1 % $ 356.0 32.8 % $ 325.4 32.5 %
Other Americas 105.1 6.9 % 69.2 6.4 % 65.3 6.6 %
Total Americas $ 683.0 45.0 % $ 425.2 39.2 % $ 390.7 39.1 %
Asia-Pacific:
Greater China $ 258.8 17.0 % $ 215.1 19.8 % $ 194.0 19.4 %
Other Asia-Pacific 211.1 13.9 % 164.5 15.2 % 152.5 15.2 %
Total Asia-Pacific $ 469.9 30.9 % $ 379.6 35.0 % $ 346.5 34.6 %
EMEA: $ 365.4 24.1 % $ 279.5 25.8 % $ 263.2 26.3 %
Total net revenue $ 1,518.3 100.0 % $ 1,084.3 100.0 % $ 1,000.4 100.0 %
Net revenue from customers outside the Americas for fiscal 2026, represented 55.0% of net revenue, a decrease of 5.8 percentage points year-over-year. We expect revenue from customers outside of the United States to continue to be an important part of our overall net revenue and a focus for net revenue growth opportunities.
Amortization of Acquired Technologies (Cost of revenues)
Amortization of acquired technologies within Cost of revenues for fiscal 2026 increased $25.9 million, or 132.8%, to $45.4 million from $19.5 million in fiscal 2025. This increase is primarily due to the amortization of intangibles acquired through Spirent's HSE and CE business of $19.1 million and $8.9 million higher amortization for Inertial Labs, partially offset by certain intangibles becoming fully amortized.
Gross Margin
Gross margin in fiscal 2026 increased 0.4 percentage points to 57.7% from 57.3% in fiscal 2025. This increase was primarily driven by the higher volume and favorable product mix offset by an increase in amortization of intangibles.
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 $54.0 million, or 25.9%, during fiscal 2026 compared to fiscal 2025. This increase was primarily due to incremental cost from the acquisition of Spirent's HSE and CE business of $30.4 million, higher variable expenses and a full year of expense for Inertial Labs. As a percentage of net revenue, R&D expense decreased 2.0 percentage points during fiscal 2026 when compared to fiscal 2025.
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 $119.8 million, or 34.3%, in fiscal 2026 compared to fiscal 2025. This increase was primarily due to the change in fair value of acquisition related contingent consideration of $41.3 million, the incremental cost from the acquisition of Spirent's HSE and CE business of $28.6 million, higher variable expenses and a full year of expense for Inertial Labs. As a percentage of net revenue, SG&A decreased 1.3 percentage points in fiscal 2026 when compared to 2025.
We intend to continue to focus on reducing our SG&A expense as a percentage of net revenue. However, we have in the recent past experienced, and may continue to experience in the future, certain charges unrelated to our core operating performance, such as acquisitions and integration related expenses and litigation expenses, which could increase our SG&A expense and potentially impact our profitability expectations in any particular quarter.
Amortization of Other Intangibles (Operating expenses)
Amortization of intangibles within Operating expenses for fiscal 2026 increased $17.7 million, or 368.8%, to $22.5 million from $4.8 million in fiscal 2025. This increase is primarily due to the amortization of intangibles acquired through Spirent's HSE and CE business of $17.2 million and $2.6 million higher amortization for Inertial Labs, partially offset by certain intangibles becoming fully amortized.
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 Fiscal 2024 Plan affected approximately 7% of its global workforce and resulted in an estimated annualized gross cost savings of approximately $25.0 million excluding any one-time charges. The Fiscal 2024 Plan was completed during 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 during 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 June 27, 2026, our total restructuring accrual was $6.5 million. During fiscal 2026, we recorded restructuring charges of $16.4 million related to the Fiscal 2026 Plan and a benefit of $0.5 million related to the Fiscal 2024 Plan. During fiscal 2025, we recorded restructuring charges of $0.9 million related to the Fiscal 2024 Plan and a benefit of $0.2 million related to the Fiscal 2023 Plan. During fiscal 2024, we recorded restructuring charges of $14.8 million related to the Fiscal 2024 Plan and a benefit of $1.2 million related to the Fiscal 2023 Plan. Restructuring charges consisting of severance, benefit and outplacement costs were recorded to the Restructuring and related charges line within our Consolidated Statements of Operations.
We estimate future cash payments of $6.5 million under the Fiscal 2026 Plan, funded by operating cash flow.
Refer to "Note 13. Restructuring and Related Charges" under Item 8 of this Annual Report on Form 10-K for more information.
Loss on Debt Extinguishment
During fiscal 2026, the Company prepaid the entire $600.0 million under the Term Loan Credit Agreement resulting in the loan being fully repaid. The prepayments were accounted for as extinguishments, with the carrying amount of the debt prepaid, including the unamortized debt issuance costs, derecognized, and any difference between the reacquisition price and the carrying amount recognized as a loss on debt extinguishment. The total loss from the prepayments was $14.2 million recorded as Loss on debt extinguishment in the Consolidated Statements of Operations. 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 also 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 $56.7 million recorded as Loss on debt extinguishment in the Consolidated Statements of Operations.
Interest and Other Income, Net
Interest and other income, net was $15.3 million in fiscal 2026 as compared to $11.1 million in fiscal 2025. This $4.2 million increase was primarily driven by an increase in other income related to an adjustment to a financing obligation and an increase in interest income due to higher cash balance, partially 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 $17.4 million, or 58.0%, during fiscal 2026 compared to fiscal 2025. 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.
Provision for Income Tax
We recorded an income tax provision of $47.5 million for fiscal 2026. The expected tax provision derived by applying the federal statutory rate to our income before income taxes for fiscal 2026 differed from the income tax expense recorded primarily due to valuation allowance, withholding taxes, foreign tax rates that differ from the federal statutory rate and the U.S. inclusion of foreign earnings.
Based on a jurisdiction-by-jurisdiction review of anticipated future income and due to the continued economic uncertainty in the industry, management determined that in the U.S., it is more likely than not that our net deferred tax assets will not be realized. During fiscal 2026, the valuation allowance for deferred tax assets decreased by $27.4 million, primarily due to a reduction in our deferred tax assets resulting from the expiration and usage of federal NOLs in the U.S.
The increase in income tax provision of $43.1 million during fiscal 2026 was due primarily to a $7.3 million provision related to the remeasurement of German deferred tax assets and liabilities as a result of changes in the applicable German tax rates, and the absence of a $25.0 million non-recurring benefit recognized in fiscal 2025 from the release of valuation allowance related to our acquisition of Inertial Labs.
We are routinely subject to various federal, state and foreign audits by taxing authorities. We believe that adequate amounts have been provided for any adjustments that may result from these examinations.
Operating Segment Information
Information related to our operating segments was as follows (in millions):
2026 2025 Change Percentage Change 2025 2024 Change Percentage Change
NSE
Net revenue $ 1,182.9 $ 776.6 $ 406.3 52.3 % $ 776.6 $ 702.0 $ 74.6 10.6 %
Gross profit 762.0 488.0 274.0 56.1 % 488.0 439.7 48.3 11.0 %
Gross margin 64.4 % 62.8 % 62.8 % 62.6 %
Operating income $ 190.0 $ 42.6 $ 147.4 346.0 % $ 42.6 $ 8.7 $ 33.9 389.7 %
Operating margin 16.1 % 5.5 % 5.5 % 1.2 %
OSP
Net revenue $ 335.4 $ 307.7 $ 27.7 9.0 % $ 307.7 $ 298.4 $ 9.3 3.1 %
Gross profit 175.2 163.6 11.6 7.1 % 163.6 155.0 8.6 5.5 %
Gross margin 52.2 % 53.2 % 53.2 % 51.9 %
Operating income $ 122.9 $ 112.6 $ 10.3 9.1 % $ 112.6 $ 107.3 $ 5.3 4.9 %
Operating margin 36.6 % 36.6 % 36.6 % 36.0 %
Network and Service Enablement
NSE net revenue increased $406.3 million, or 52.3% during fiscal 2026 when compared to fiscal 2025. This increase was primarily driven by higher volume in Lab and Production ($145.0 million contributed by our acquisition of Spirent's HSE and CE business), Aerospace and Defense ($86.1 million contributed by Inertial Labs during fiscal 2026 compared to $25.2 million in fiscal 2025), partially offset by lower volume in Wireless.
NSE gross margin increased by 1.6 percentage points during fiscal 2026 to 64.4% from 62.8% in fiscal 2025. This increase was primarily due to higher volume and favorable product mix.
NSE operating margin increased by 10.6 percentage points during fiscal 2026 to 16.1% from 5.5% in fiscal 2025 primarily due to higher volume resulting in operating leverage.
Optical Security and Performance Products
OSP net revenue increased $27.7 million, or 9.0%, during fiscal 2026 when compared to fiscal 2025. This increase was primarily driven by higher anti-counterfeiting and other products and 3D sensing revenues.
OSP gross margin decreased by 1.0 percentage point during fiscal 2026 to 52.2% from 53.2% in fiscal 2025 primarily due to unfavorable product mix.
OSP operating margin remained flat during fiscal 2026 at 36.6% primarily due to the aforementioned decrease in gross margin, offset by lower operating expenses as a percentage of segment revenue.
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 liabilities, 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;
•Factoring or sale of accounts receivable;
•Volatility of our stock price and/or equity markets;
•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") 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;
•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 under Item 1A "Risk Factors" section of this Annual Report on Form 10-K.
Cash and Cash Equivalents and Short-Term Investments
Our cash and cash equivalents and short-term investments consist mainly of investments in institutional money market funds and short-term deposits at major global financial institutions. Our strategy is focused on 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 are reported as a separate component of stockholders' equity. As of June 27, 2026, U.S. entities owned approximately 45.8% of our cash and cash equivalents, short-term investments and restricted cash.
As of June 27, 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 twelve months ended June 27, 2026, we have not realized material investment losses but can provide no assurance that the value or the 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 June 27, 2026, we had no borrowings under this facility and our available borrowing capacity was approximately $183.1 million, net of outstanding standby letters of credit of $3.8 million.
Refer to "Note 11. Debt" under Item 8 of this Annual Report on Form 10-K for more information.
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 fourth 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 July 1, 2026 to September 30, 2026. As a result, the $244.8 million carrying value of the 2031 Notes has been classified as short-term debt.
Refer to "Note 11. Debt" under Item 8 of this Annual Report on Form 10-K 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. During fiscal 2026, the Company voluntarily prepaid the entire $600.0 million outstanding principal balance under the Term Loan Credit Agreement. The prepayments were accounted for as extinguishments, with the carrying amount of the debt prepaid, including the unamortized debt issuance costs, derecognized, and any difference between the reacquisition price and the carrying amount recognized as a loss on debt extinguishment. The total loss from the prepayments was $14.2 million recorded as Loss on debt extinguishment in the Consolidated Statements of Operations.
Refer to "Note 11. Debt" under Item 8 of this Annual Report on Form 10-K for more information.
Contingent Consideration
As of June 27, 2026, the fair value of the contingent consideration liability for Inertial Labs was $76.9 million with $58.5 million and $18.4 million included in Other current liabilities and Other non-current liabilities, respectively, on the Consolidated Balance Sheets.
Public Offering
On May 21, 2026, the Company completed an underwritten public offering of 12.8 million shares of our common stock (including the exercise in full by the underwriters of their 30-day option to purchase up to 1.7 million additional shares of common stock) at a public offering price of $45.00 per share. The net proceeds from the offering were approximately $557.7 million, after deducting the underwriting discounts and commissions of $17.3 million. The Company also incurred transaction expenses of $0.6 million recorded as a reduction of Additional paid-in capital on the Consolidated Balance Sheets. The Company used the net proceeds of the offering to prepay the remaining $450.0 million aggregate principal amount of the Term Loan B. The excess net proceeds will be used to fund working capital or for other general corporate purposes.
Cash Flows Year Ended June 27, 2026
As of June 27, 2026, our combined balance of cash and cash equivalents and restricted cash increased by $227.7 million to $659.8 million from a balance of $432.1 million as of June 28, 2025.
Cash provided by operating activities was $113.9 million, consisting of net loss of $30.4 million adjusted for non-cash charges (e.g., depreciation, amortization, stock-based compensation and other non-cash items), and changes in deferred tax balances which totaled $300.8 million, offset by changes in operating assets and liabilities that used $156.5 million. Changes in our operating assets and liabilities related primarily to an increase in accounts receivable of $94.9 million due to billings outpacing collections, a decrease in accrued expenses and other current and non-current liabilities of $60.4 million due primarily to a contingent consideration payment and restructuring payments, an increase in inventory of $49.0 million related to demand changes and an increase in other current and non-current assets of $21.7 million. These were partially offset by an increase in accrued payroll and related expenses of $34.9 million due primarily to variable pay, an increase in accounts payable of $24.0 million driven by timing of purchases and related payments, an increase in deferred revenue of $7.9 million due to timing of support billings and project acceptances and an increase in income taxes payable of $2.7 million.
Cash used in investing activities was $426.8 million, primarily resulting from $399.3 million used for the acquisition of Spirent's HSE and CE business, $31.1 million used for capital expenditures, partially offset by $4.0 million in proceeds from sales of assets.
Cash provided by financing activities was $541.0 million, primarily resulting from $600.0 million in proceeds from the issuance of a Term Loan B, $575.0 million in proceeds from the issuance of common stock pursuant to an underwritten public offering, $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 $649.0 million of debt payments, $40.7 million of debt and equity issuance costs paid, $30.0 million cash paid to repurchase common stock under our share repurchase program, $29.8 million contingent consideration payment, $24.9 million in withholding tax payments on the vesting of restricted stock and performance-based awards, $13.9 million paid for acquisition related holdback liabilities and $1.3 million in other financing activities.
Material Contractual and Cash Obligations
The following summarizes our material contractual obligations at June 27, 2026, and the effect such obligations are expected to have on our liquidity and cash flow over the next five years (in millions):
Payments due by period
Total Less than
1 year 		1 - 3 years 3 - 5 years More than
5 years
Asset retirement obligations-expected cash payments $ 5.1 $ 1.0 $ 1.8 $ 1.3 $ 1.0
Debt:
2029 3.75% Senior Notes(1)
400.0 - - 400.0 -
2031 0.625% Senior Convertible Notes(1)
250.0 - - 250.0 -
Estimated interest payments 63.0 17.3 42.1 3.6 -
Purchase obligations(2)
266.9 210.8 55.5 0.6 -
Operating lease obligations(3)
51.5 12.6 20.4 10.2 8.3
Non-cancelable leaseback obligations(2)
16.8 3.2 5.3 5.4 2.9
Pension and post-retirement benefit payments(4)
60.7 6.8 13.3 12.0 28.6
Total $ 1,114.0 $ 251.7 $ 138.4 $ 683.1 $ 40.8
(1) Refer to "Note 11. Debt" under Item 8 of this Annual Report on Form 10-K for more information.
(2) Refer to "Note 18. Commitments and Contingencies" under Item 8 of this Annual Report on Form 10-K for more information.
(3) Refer to "Note 12. Leases" under Item 8 of this Annual Report on Form 10-K for more information.
(4) Refer to "Note 17. Employee Pension and Other Benefit Plans" under Item 8 of this Annual Report on Form 10-K for more information.
Purchase obligations represent legally-binding commitments to purchase inventory and other commitments made in the normal course of business to meet operational requirements. Of the $266.9 million of purchase obligations as of June 27, 2026, $144.7 million are related to inventory and the other $122.2 million are non-inventory items.
As of June 27, 2026, our other non-current liabilities primarily relate to asset retirement obligations, pension and financing obligations which are presented in various lines in the preceding table.
Share Repurchase Program
During fiscal 2026, we repurchased 2.7 million shares of our common stock outstanding for $30.0 million pursuant to our 2022 Share Repurchase Plan. As of June 27, 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" under Item 8 of this Annual Report on Form 10-K for more information.
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" under Item 8 of this Annual Report on Form 10-K for more information.
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" under Item 8 of this Annual Report on Form 10-K for more information.
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.
As of June 27, 2026, the U.K. plan was fully funded, while the Indian plan was partially funded. During fiscal 2026, the Company contributed £0.8 million or approximately $1.0 million, while in fiscal 2025, the Company contributed £1.0 million or approximately $1.3 million to its U.K. pension plan. During fiscal 2026, the Company contributed Rs90.7 million or $1.0 million, while in fiscal 2025, the Company contributed Rs16.4 million or approximately $0.2 million to its Indian plan. These contributions allowed us to comply with regulatory funding requirements.
As of June 27, 2026, our German pension plans, which were initially established as unfunded or "pay-as-you-go" plans, were underfunded by $59.6 million since the projected benefit obligation (PBO) exceeded the fair value of plan assets. We anticipate future annual outlays related to the German plans will approximate estimated future benefit payments. These future benefit payments have been estimated based on the same actuarial assumptions used to measure our PBO and currently are forecasted to range between $4.0 million and $5.1 million per annum.
We also are responsible for the non-pension post-retirement benefit obligation assumed from a past acquisition with a liability 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" under Item 8 of this Annual Report on Form 10-K for more information.
Recently Issued Accounting Pronouncements
Refer to "Note 2. Recently Issued Accounting Pronouncements" under Item 8 of this Annual Report on Form 10-K, 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 U.S. GAAP, which requires 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. Refer to "Note 1. Basis of Presentation" under Item 8 of this Annual Report on Form 10-K, for a discussion of the estimates used in preparation of our Consolidated Financial Statements.
Business Combinations - Valuation of Intangible Assets
Accounting for business combinations requires significant judgment in determining the estimated fair values assigned to identifiable assets acquired and liabilities assumed. The valuation of acquired identifiable intangible assets is inherently subjective and requires management to make estimates regarding future operating results and market participant assumptions. Significant assumptions used in valuing customer relationships include projected revenues, projected expenses, contributory asset charges, discount rate, income tax rate and customer attrition rate. Significant assumptions used in valuing developed technology include projected revenues, royalty rate, discount rate, income tax rate and technology obsolescence rate. Changes in these assumptions could materially affect the estimated fair values assigned to acquired intangible assets and goodwill, as well as future amortization expense.
Contingent Purchase Consideration
For contingent purchase consideration, the fair value of such 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 $3.5 million based upon data as of June 27, 2026.
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