ADTN - Earnings call transcript Q3 2017

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to ADTRAN's Third Quarter 2017 Earnings Release Conference Call. [Operator Instructions].

During the course of the conference call, ADTRAN representatives expect to make forward-looking statements, which reflect management's best judgment based on factors currently known.

However, these statements involve risks and uncertainties, including the successful development and market acceptance of core products, the degree of competition in the market for such products, the product and channel mix, component cost, manufacturing efficiencies and other risks detailed in our annual report on Form 10-K for the year ended December 31, 2016. These risks and uncertainties could cause actual results to differ materially from those in forward-looking statements which may be made during the call.

webcast call will QX through ADTRAN Inc. addition, this live conference the In service. webcasting my the It Tom to is pleasure now turn Executive of Stanton, Officer call ADTRAN. Chief to over ahead. Sir, please go

Thomas Stanton

you discussing Erica. some I'd begin for results, comments quarter morning, like conference me Senior to Roger up With then the this will what our more and on I our may future. morning call. quarter quarter the you, Chief in Vice for with the Thank everyone. end third President that you see XXXX joining on have. will for and performance details our call then questions open Good we behind we us Roger third discuss any is Shannon, by detail, this morning Thank will and X Financial Officer.

As the for the release, we quarter XX% earlier quarter were of in stated over press up year. last third million, revenues our $XXX.X

last led our total, On year-over-year in the international a growth $XXX.X services $XX.X million revenues the basis, or at markets, markets and revenue, while and X period Solutions in total. Total including Networking third by in year the at a last or Tier XX% Support our period the Services sequentially. XX% of revenues Our up record for while and XX%, business & year. Revenue in increase over were international over revenues increased quarter XX% our businesses, both domestic X% quarter, million XX% of domestic of our same the million for products same XX% domestic were decreased last over came $XXX.X up $XX.X our domestic year. international an million, came the

and period the X% domestically deeper, by had our products year, year, same had & domestic last Customer over internationally, led Moving driven same products. the a up our Devices over strong and down strength last Ultra growth category growth Broadband by both performance, services. our revenue in up XX% in a Aggregation enterprise quarter little Access

plans categories last to XX% DSL Other technology our in progress am and into market Tier nationwide & within Products I report quarter our were Mosaic Cloud MSO that in rollouts Traditional our and moving Mosaic mainly the made new interest the of due our of the with We quarter, with forward deployment and Last G.fast with terms our same XX-gig pleased production considerable versus and efforts. quarter, down during I mentioned products. part our X operators. Lastly, each in networks, of the solutions. Cloud G.fast expected PON as expanded both older-generation Platforms slowdowns progress these year domestic we moved production traction Platform to international

launch XGS-PON of the conducting service trial the first to PON XX-gig and to CenturyLink in part virtualized During share the this provider OLT became next-generation were the products field national of CenturyLink service solutions U.S. services PONX quarter, that we as able launch. virtualized is currently ADTRAN's

scalable and committed to These the network. software companies the play an Platform, and Mosaic of and growing gigabit the the Alliance. critical Accelerator and suite broadband services subscriber the SD-Access of Open supporting Solutions accelerator launch products, programs This service included in role Network flexible of several will suite, enhancements also targeted tools announcements Experience recipients, broadband a of Cloud ecosystem management Subscriber our expanding building quarter Mosaic CAF/A-CAM & open, program for to Mosaic including program, the

up XXx expand help will Xx a This products Tier our Additionally, led and those we solution to of a services, last announced that product quarter and to services farther The markets. selected takes during these operator technologies quarter. we customers gigabit trial range competitive reach serving solutions. customers faster innovative key for X including urban by our areas, the the within several this our for and announced dense ADTRAN advantage Gigabit-to-the-Basement being gigabit

an support These as XG in solutions a as customer enabling towards other and serve non-service NG-PONX base latency upgrade as independent infrastructure. and mission-critical We and to also and realized of announcements, to our industry announced our events, combination to growing in the include impacting fully services. means agility are abroad ADTRAN a SD-Access better wavelength moves ultralow U.S. the

and our will we We focused broadband services. support and and require network simply the and forward our that continue any with over deliver every forward, they to customers customers enabling products, remain cost-effectively. any services device on gigabit Looking other move as reach customer to ultra

ensuring their our achieve Roger quarter call review up results our We quarter third have. the comments that to are provide of on the may Roger? deliver fourth innovation network well. objectives. the and I'd business Shannon that to and for any to we the you open committed like XXXX questions as customers some We'll then need XXXX now for

Roger Shannon

speak about see quarter third results we I'll and the quarter. morning. what discuss good next for and Tom, our you, Thank

report, I'll non-GAAP both be results. my During GAAP referencing and

third of As to quarter. just at up $XXX.X ADTRAN's the $XXX.X of reported ahead $XXX.X XXXX which compared that Tom and stated, is million, for we expected million million came in as quarter last XX% revenue quarter X

last up X% two of for Our $XXX.X from quarter $XXX.X the and for quarter Solutions for quarter X% $XXX.X revenues the from Network were XXXX. third year down reported million of million X million,

quarter X% quarter X XXXX to Devices X% our $XXX.X million XX% compared to up show X quarter for Customer of [ph] were Support up was of of million $XX.X million XX% stream continues Our X up quarter X the to compared XXXX revenues XXXX. X to Access quarter for X revenues for $XX.X $XXX down categories, $XX XX% of ultra XXXX earned compared $XX.X compared but quarter and the & Quarter the and were strong million, Aggregation million, & the last were $XX.X million, $XX.X XX% implementations. up Across million, X compared up XX% to versus and & year-over-year for to Services $XXX.X quarter in growth, and million Products and XXXX quarter-over-quarter down by million for XXXX quarter X quarter revenue of million revenue compared million million reported broadband XXXX. segment $XX.X quarter led compared for $XX.X X XXXX. of XXXX quarter. Traditional for to for to Other X% for revenues of up $XX.X second

we $XXX.X in for or quarter of quarter $XX.X Looking million at $X.X quarter XXXX last in X the revenues X the X% up year XXXX. of reported $XXX.X million and XX% domestic million revenues geographically, $XXX.X were million, million that from X up from or

published were compared year XX% for quarter as in Our X $XX.X the reporting categories each to of international million XXXX. down adtran.com. page our these $XX revenues last $XX.X for of quarter X million X of on down of XXXX X%, and million, Investor at from the We Relations quarter of expected, web

had XX% customers. we X quarter, revenue of the For

of business. quarter-over-quarter gross third the in an The quarter Total gross year compared the business GAAP domestic in increases the margins margins XX.X% for favorable and XX.X% Our to last our were third year-over-year XXXX operating for quarter. this mix percentage for in X services increase a expenses a XX.X% were driven $XX.X were by our our of and of and non-GAAP million XXXX. X quarter quarter to for and year quarter. expenses million $XX.X basis quarter for our million operating year and $XX.X quarter million X of last $XX.X X basis, quarter compared of On million were $XX.X GAAP $XX.X million on quarter of last compared to in XXXX a of last X primarily

previously in gross margins, million attributable The X increase an million quarter quarter increase for quarter the our favorable million, RFoG of for EPON XX% the expenses XX% of was compared just to operating a explained expected. mix quarter of operating income was with in offset quarter sequentially GAAP expenses last between XXXX higher EBIT versus in year-over-year were XXXX. operating compared to is customer-specific X% amortization X and earned up $XX.X GAAP expenses in the third basis higher performance to the by adjusted income million and products million compensation. year and operating operating a expenses to of XXXX. expenses $XX.X related GAAP in operating due quarter million, versus partially in equity-based Non-GAAP project income in Active X equity-based the or last for compensation. X $XX.X margins. flat expenses with and ended was The expenses, a implementation $XX.X associated XX% gross of reported increase versus The as non-GAAP income revenue QX to ERP is year-over-year to as in stronger and year operating on restructuring last increase is of increase to $XX.X an X quarter reported up $XX.X and of R&D Our year result expenses. X Operating The X of attributable acquisition quarter compared quarter of difference projects, the

EBIT the Our to adjusted was XX.X% quarter margin XX.X% and quarter X.X% year of X just quarter. last in ended last for compared

the compensation share X decrease related $XXX,XXX tax described to $XX.X $X.X additional year of quarter in quarter year $X.X third of due $XXX,XXX, of of million quarter. quarter were X $X.XX XXXX for expense, of acquired investments. X $XX.X other of acquisition $XXX,XXX of quarter. non-GAAP losses a XXXX last X the Restructuring in to compared was of restructuring X in The XXXX and for the a information respective per million were of XXXX to quarter. Earnings share quarter RFoG $XXX,XXX compared from stock in in X last year in was is last and three Active XXXX tax, million, was of this XX% X X tax XXXX to on fluctuations earnings rate to million Non-GAAP per was quarter quarter quarter $X.X year and of was share quarter of million earnings quarter third intangibles, $XXX,XXX quarter purchase $X.X results $X.XX quarter a million provided $X.XX quarter, X XX.X% year. XXXX. amortization of XX.XX% disclosure, greater last higher this quarter for result a for XXXX compared sequential third share We've of All assuming rate year. quarter related net and expense, year of $XX.X XXXX. per net foreign a quarter X XXXX or product tax gain bargain net income expenses last last primarily compared of last quarter share X an diluted and in income, intangibles As X $X.XX gain X share effective $X.XX to earnings in and provision an share to the a year. effects and dilution this quarter per lines million quarter share our international quarter in quarter XXXX, of X stock-based third up of $XX.X amortization last was for recognition and purchase company's of decrease disclosure. of for year XXXX year for of in net on of versus operating both expense quarter from $X.X last to The of of provision X expense, the per diluted per was reconciliation other quarter for earnings from and million supplemental compared expense per the lower mix $XX.X for income Net with reported gains decrease quarter our The X of rate GAAP in income for last this to research X X of quarter X of of tax per basis, quarter in along of GAAP the and last XXXX. party for to million in XXXX results the our in in and of X quarter development million compared other share for to tax, million year net $X.X excludes tax of and acquisition $X.X an Non-GAAP expense, per this of between The income. of compensation tax, for this X quarter. of million of our of income $X.XX year third were million reported quarter to The compared $X.X quarter compared from of all of provided compared Non-GAAP recorded each X and exchange in and is credits the bargain EPON XX% in of operating quarters. year-over-year on acquired the interest and primarily

securities, at the Now Unrestricted in during of balance million net to quarter-end the totaled turning dividends and paying after marketable quarter. debt, sheet. cash $X.X $XXX.X million

up trade at For DSO current the quarter-end, primarily of ADTRAN $X.X and of million from within timing at end the at Net in the quarter. in of driven XX were end by were DSO and quarter resulting the slightly DSO The last the XXXX. within QX in increase XX quarter to of to accounts sequential X, produced shipments of current is a XXXX days quarter. at mix operations. third mix. improvement customer the $XXX.X million of compared quarter receivable end quarter quarter, the sales million is flow $XXX.X attributable geographical from shipments million our of Inventories the the days and of XX $XXX timing quarter cash year-over-year The days

base the rates which in ahead of the nature in actual of the to patterns international quarter, revenues of large the exchange customer we cause of may into order Looking and our our differences sell next and the results. markets sell material the variability we expectations between book-and-ship currency projects, associated fluctuation into with business, timing

currency services taking rates potential account be $XXX million. that flattish a in and to into quarter income the the quarter expectations expecting in XXXX capacity million million and of the of GAAP also quarter will exchange the organization impact other mix, ended. our to of our in on range anticipated XXXX revenues normal seasonal we ended. taking million trends, margins, to just be that account just quarter expenses are range operating However, basis, be fourth flattish expect Also, the that $XXX fourth quarter gross be for $XX into our and current We're $XX will GAAP X down with for will

platforms; the factors rate rate the Investor to Finally, to the channels. mix in professional we We project services America adoption carriers enterprises; movements; macro the tax significant our Broadband revenues to XX% consolidated activity revenue low revenue Connect www.adtran.com and environment our earnings encourage and rollouts; the quarter to related and and domestic XXXX in international; currency impacting Fund Investor be distribution anticipate following, range. of of the both like I be the visit and fourth listeners following levels, for the exchange rate spending to associated Relations timing in our will the of with projects; the Access Relations would the realized link. the going inventory fluctuations for believe ADTRAN's website by and variability

With over insight website We resources to turn added have a performance. interactive with user-friendly such additional now provide Relations as call financials into our Tom. back the that, Investor I'll to

Thomas Stanton

ready Thank you, any point, to Erica, have. for we're open may people this questions at Roger. up

Operator

Genovese MKM Michael the of we'll line Partners. with And to Instructions]. [Operator first go

Michael Genovese

revenue normal bit It really So it like like the of seasonality. XQ, than seems normal see range little the to we'd high worse for is start guide it's with where end a seems seasonality. the

there term other So impacting the quarter the just in fourth factors guide short seasonality? besides are

Thomas Stanton

I mean, Yes. you're think right. I

think I to you did in would it upper our seasonal his look at trend, probably normal Roger the if end. mention comments. that And leach

may the on our jobs services done of and weather how be weather thing scheduled impact also that what into is finalizing are that and business -- a just lot this account we're may portion the being about actually year taking capacity think to cautious I of us. the that

what's really variability. the So that's driving

Michael Genovese

impact -- the mean, you've the I perspective, been the in they're your customer. U.S. that seems not where It And you Has all your has no really any at closing from quarter M&A are to from that biggest expecting deal? along, case? seen like, see actually impact

Thomas Stanton

You and the close, fourth up never this always for we've that. things teed But quarter moving until with so cautious about know got forward we're be or that. at -- point, -- I'll

the installations. about the we in all thing worried to that being just we're have at done the point I biggest able to this engineering get think complete is

Michael Genovese

finally two on other Okay. then carriers, Tier me, And two X the ones. bigger U.S. for the

the with of sorry, quarter sense it one, customer, deal? compared get the I GPON expect we all, it -- And which, to their prior seems and in the that your more ramp then of how an I'm a opportunity, with like, NG-PON confirm that G.fast prepared see that to the revenue of contribution other you've First want quarter. have won did in just to remarks during that you and awarded XXXX? And deal should been

Thomas Stanton

look what you the trials we're like. us in continue think out. as lab that things award RFP, is not going we to of think in is roll still agreements through sure to X to wouldn't. What as hand in us it's to continue and there's allow I'm know, processes. participate -- But still I have going I they that I

Michael Genovese

then And other on Okay. one? the

Thomas Stanton

far one's As yes, actually up. -- so that the as

we it -- up it up, to expected We and was actually be sequentially.

yet do it expect We better to quarter. this

I the we selling out that and year. which lab then first end expect are of that would first hopefully, of fronter half half build, now think two network, the get a that it, and would move still an early year, facets our which next in and everybody to had we thing. being And the They're the try award towards lab we to ramp. first product, they're expectation centered. kind This getting an next was in-region not to we'll at, expect deployed. half, actively up particular in out-of-region so to just of the starting is we and the in of get It's ramp. that -- And it, and really but -- which to still of is very there the

Operator

Rich Company. line to of We'll the with go Needham Valera next &

Richard Valera

I the follow-up had issue. services a capacity on

obviously strong You and a the presumably, same have you had very quarter-over-quarter. quarter, capacity this quarter

related timing did the clarify these down just it to rec materially service quarter-over-quarter? projects? rev that revenue of And you Or expected we was you quarter-over-quarter? So should think how be kind to of that of

Thomas Stanton

broke we it it. actually Honestly, think expect down don't I quarter-over-quarter a on basis. I don't

trend. We impact the normal product just in typical have will business, which not seasonal slowdown us, a our

I depending or going think particularly here And is range side. whether up variability that we the number down be trying the or plan is big is to for -- on our in not up services sequentially. the where services we're to on that end maybe

Richard Valera

just in the going assuming side, in product Okay. on there that's the came expectations, to anything with services product And on bit in you fourth quarter? sort of below side seasonality typical causing is line a the little maybe guide on

Thomas Stanton

No, would European around it to expect No, We our be centered definitely you'll it's the quarter, the down no. business. see -- fourth as in in is. typically swings that

going just on kind quarter, nothing there's You the of see a in on fourth abnormal slowness product the general but side.

variability our very services think piece. the I centers much around

Richard Valera

X, characterized of the with GPON as still with -- Then being sort you're it about lab. I you it. program talking think the in Got the you've where Tier

wondering Do have least before potentially into higher be and, of is, that perhaps, of some maybe kind particularly year, your that think ramp? of thought, see kind to that as elevated production now and of of for pushing program. OpEx, into before we related at that heavily be I next a timing more XQ engaged beyond we relates production it might Just to the would program, thought you we post still what think this that levels OpEx year, kind we're mode.

Thomas Stanton

Yes.

you Here go.

Let me that. of kind frame just

a expense the time. been basis. go on Roger at of a have in say running continue constant his OpEx, little fourth R&D And But to headcount to in and do first for So into level typical. we've materially than what period note, OpEx on is. fairly our mentioned would that quarter. least really higher expect R&D We still And we when as at rate actually, carrying on, down quarter, we is our the total a the bit expect spend higher is sequential I that is relatively remaining what been some

real full -- that production. when thing think is into really I the we sign tell the get

to in their those don't integration know to you're make you're what to have You with complete ease until changes going order changes.

us, So we unknown. that's feature is kind there is are to still And ahead really that which left for do of have of changes continuing par of the some are happen, which that course. some

think I be can much I relatively I other to -- than through until same R&D granular level don't think So -- be would you it's those expect to things going first stabilize, be tell that the same the quarter. I the

tell will yet in the Although not -- here expenses to I QX are a basis. typically can't down total be. to Typically, expense total able what you line we're be on

Richard Valera

the that NBN a into kind how I think of of stands on heading of ramp your provided and give don't you timing and an Could it? think potential about us you we update should where program. sense

Thomas Stanton

That's very well. Yes. going

think about we me those this downward in are the on and year. upward I the one There's case. than into full timing seeing the first revenue bore the there's not of at point. to that had more That's both revenue. believe bias We of So nothing that's integration -- talked next bias trajectory probably of initially leads half the

in XXXX. But hasn't come than So hopefully, of that half that in to expectation shift expect. right we're first changed, and now, the our we will expecting stronger

Operator

James. to next Raymond from Simon go of Leopold the We'll line

Mauricio Roldan

This from is quarter? on impacts the in FX quantify Mauricio you for the Simon. Did guys

Roger Shannon

the minimal. you know, revenues of year, The year-over-year, quarter-over-quarter a It year, minimal. period was there's course rate And but the the fairly has impact. of timing as not stronger the and of the looking at been same the the significant very over in is euro, amount impact last

Mauricio Roldan

decline? that benefited rate Okay. tax we like then it talk seems the rate EPS think you the And Can quarter. about sources going forward? a about from should lower-than-anticipated how And in then tax of the

Roger Shannon

Sure.

X reset the to prior base. quarter at quarter completed will R&D looking work looking of internally in look lots current us to we So We've prior discussed periods. our of in allow as work continued our benefit done periods, credit we've at to and prior in quarters, tax we've which

takes to see an account range for Going what X. far mention, as Again, low into from normal again, level. domestic versus forward, mix XX% that quarter also we to international returning guiding R&D I'll and, the we're the as

Mauricio Roldan

then equipment one financial operators the from one, under networks? to sense you. What What be become you What something the this to broadband on operator think potential headwind? -- we to will impact basically, branded And white competition on as, you your adopt specifications? appetite Okay. on ask ONTs last guys are wanted is commoditized box headwind do doing mitigate based

Thomas Stanton

Okay.

a multitude there's tackle it. ways So to

ONTs about of First an really are all, we're OLTs, relatively commoditized, so side. which much products mind. targeted that talking The I today infrastructure in very open think bidding are are you're with network architecture

-- there white box have the So dream is I think to solutions.

to questions were going where long boxes there before it's and and think be And from are white I how generic really complicated that those very commodities. think white those a they period coming are of are time I boxes happens.

we've in If NG-PONX, developed. trials and at of you some solution we products they're have ever take box a the we're the shipping for that most today that look that quasi-white current complicated

very So give SDN the still you they although themselves having true network architecture, open elements are a capabilities the complicated. of

think not be over to transition going like more be outside happen and of the plant happen I I think, And It to equipment, will prove that different pieces in that, remote may will terminals, certain pieces cost-effective. network. So time. difficult much is

space software more the go adding not in two, leader our portfolio whole over been, years, only more the drive So that's and towards becoming content but a and in one. market. X last point to push X.X to Point has how actually we a to our

and bring commodity product, not just far, on but I So we're a value-add having non-commodity Cloud Mosaic market, highest our the with I on so the to also the us that value-add software our doing on OS Mosaic And or are we product, think both being fantastic transition job elements lowest-cost key Platform that. having to more product able think of content.

Operator

Greg next we'll Drexel Mesniaeff And of go from line to Hamilton. the

Gregory Mesniaeff

package if Tom, on was a is how explored so, my actually, resonating that with And as [indiscernible]? customers? on marketing stand-alone you that question the question. your Mosaic Mosaic, guys Have

Thomas Stanton

Yes.

software probably to networks believe we're fact, In And the we're what leads marketed do. just stand-alone we our that Mosaic is with that in to -- do the But SD-Access we for I could carrier instance, just actually will question not a actually doing element. is Australian today, today, And better. in an as in add deploying me elements managing platform.

mature we also -- people and it at true U.S. there release were pods, There just last as in a elements, year far just a that true business, that's maybe we year, leading other as managing equipment on what -- be successful call the they that revenue did able which not there. that's advantage carriers' that we and day. acceptance, our It's in were separate order can now. our allow to, I the software software. were stood the buy, our problem, CORD used it's where migrate the racks people's effect, multiple which software, the lot been itself. of The stand-alone think, with as guess as the -- in in. fashion, of was carriers be managing actually we're winning can to buy see believe just singular of actually and system. really we So elements, take in who also Separately, We to our and Are think a -- their themselves, to want of path existing long a number I them OSes you for it? the coming they they And or software one. directly networks market elements. at the requirement looking where a I I equipment there to that's is have middle successful a was on for announced list that I but to CORD But line, up is it's implementation the very think ready get

others. that's So in are think time. -- but And of ahead carriers general, that moving of way they're still all period certain some I at

carrier-by-carrier of to Secondly, that basis. fundamentally, on the better a There's within lot is a legacy OS networks. development has be custom -- these because of done

we element, a not as stand-alone would it is a sell a right. absolutely to trying today. it's element but anybody like it. So as as It to clean software product software be, you All are buy can

at that, think of we're think with the the I end I question.

So our to I next we appreciate everybody talking joining to us forward quarter. you call and for look today,

Operator

thank to free line feel to your like for at disconnect everybody participation. any Please We'd time. their

ADTRAN (ADTN) 18 Oct 172017 Q3 Earnings call transcript