ADTN - Earnings call transcript Q1 2018

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to ADTRAN’s First Quarter 2018 Earnings Release Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [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 the Annual Report on Form 10-K for the year ended December 31st of 2017. could the results be forward-looking the uncertainties from differ made and call. in those statements, risks cause to actual materially during These which may Mr. turn now call pleasure is to It over my to the Tom Stanton, Chief Officer of ADTRAN. Executive Sir, please ahead. go

Thomas Stanton

Revenues in On the morning, call. I’d X results, merger-related Solutions at morning you, total $XX.X domestic of at domestic revenue and revenue, conference President and we’ll XX% for Tier what at quarter total, and joining quarter with were or our including million international million Total me and international $XXX.X one behind revenues Roger Senior discuss our I business and a or and basis, like call international you will million Vice some for European $XX.X revenues pause in the and comments our this the the revenues Support this a morning markets stronger spending. total. have. increased any quarter details Tier domestic year-over-year open million million. Chief coming at of our Thank a and us then Thank everyone. decreased XX% spending in $XXX.X discussing Network quarter end will for XX% $XX.X both seasonally the you Officer. to we our our year-over-year on with due in X coming operator, to with for quarter came first performance for XX% our markets detail, Services begin by Good that up forward. first were anticipate more Shannon, Financial the Lynn. in With going XXXX questions our is Roger then may

by As Tier performance to at the in quarter customer. spending expected, impacted X merger-related a be domestic this and a review slowdown continued our

quarter associated gross and domestic While volumes product our with profit super vectoring resulting our and the the international expectations, exceeded revenue for lower from footprint negatively results. our margins further international slowdown expansion for hampered affected lower overall margins

we ahead, year. and North growth in continued strength the of this European the looking our However, see American business expect business second second-half in to in quarter in our

position service expect X around Tier enabled wrapping right During launch out-of-region post-merger Mosaic expect us domestic and are we and up approaching in-region we further the phase have MSOs, were telecoms, nationwide. to quarter, that discussed particularly in have to integration the all major access. outlook, and gain major our markets cable strengthening another the turnkey opportunities major good domestic where broadband co-ops, provider Tier previously. the To now. are first solidifies any G.fast the the primary X gigabit municipalities, domestic completed Tier awarded market, within to align our All RFP in domestic project I share Tier Tier and new of end, with In MDUs the In our in customer and and launch clarity electric to business X strategic and want grow X achievements network to business from last they are regional diversify operator, for market, forward U.S. a operator that our new the expand X broadband this These that we were the domestic see a nine account, of providers, milestone update and which optic others. the portfolio on the and launches provide include These quarter are with services utilities, availability moving we and toward types fiber second segment. in service market of we awarded an quarter, contract and the continued including are services a others to our project, rural added near-term. momentum large build-out deploying indicators completed objectives ADTRAN Fiber-to-the-Premises milestones accounts with

For operator completing milestones a solution a level. engagement a a one of and overall year. contributors for customer us several second-half outlook the we second-half. Tier a CPE, additional be share are in heavily now able to peak X is in our you awarded market with ramp purchase the is more to key share NG-PONX on to made expect our positive leading as Europe, of and begin roll This invest and business to the with agreement PON In our in second upcoming Tier we gig call. trial. for round where Australia, the of project, and now new successfully the of our the progress lab we received have for purchase XX at completed We X, trials. finalized project with now orders clearance European continue we G.fast to Mosaic this significant field In I the master out have production expect nationwide

American is alignment strategic our market. the base MSO our diversify position Additionally, acquisition and X during in coupled and the we positions with the making cable network to with leading and U.S. In with strengthens announced implementation portfolio, European in with existing plans here ADTRAN quarter EPON operators services incumbent and progress Tier portfolio the grow X projects MSO market. cable our the manufacturer These strong the EPON customer the in market, dominant our North Tier of our the solutions,

results. access, a QX to believe the I’ll and the to Tier timing of add we and a provided comments meaningful strong over who seeing will grow deployment. accelerate of providers we’ll and XXXX. of and the With and the second-half coupled continues are service the projects major domestic software-defined transformation costs, it forefront that, be customer While have to near-term service more reduce a revenue, at help year, well-positioned to ADTRAN turn slowdown to seek some have delivery contribution that on feel Roger are with in new challenges, in we positive of X momentum revenue progress we

Roger Shannon

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

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

first ADTRAN’s Tom As of we at million for $XXX.X in quarter to compared $XXX.X million, reported and $XXX.X million quarter. last last quarter came year one stated, revenue

quarter versus Our reported the four quarter Network million quarter first year the $XXX.X for million $XXX.X Solutions XXXX. one revenues million for $XX.X were for of last and of

million, XXXX and revenues Our $XX.X million quarter quarter for and $XX.X for XXXX Customer one million and versus four to in one for $XX.X million, compared XXXX. Global Traditional quarter & for the for million the were $XX last quarter products XXXX. in year. revenues million for reported for access revenue million XXXX $XX.X for compared devices to fourth quarter of $XXX.X for $XX.X million XXXX one and $X last quarter Across in quarter million were aggregation Support $XX.X million one in quarter. and million, Services quarter revenues the of categories, XXXX quarter of earned XXXX to million revenues compared $XX.X our $XX.X quarter one one other and $XX.X one XXXX quarter were four were

quarter $XX.X quarter reported last Looking $XXX.X and at million of four one revenues in XXXX. of quarter million in million XXXX the versus year geographically, one revenues we $XX.X were domestic for

from $XX.X in compared $XX of Our the $XX.X one for million, were XXXX to international XXXX. of four million one revenues million quarter quarter and last up for quarter up year

our Relations reporting at the categories published have of each of these Investor webpage adtran.com. on We

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

one and on $XX.X million, increase quarter reported related mix EPON R&D basis, million $XX.X non-GAAP last quarter-over-quarter all expenses operating to margins and On Our last in decrease retirement operating our performance our with slightly million revenues The $X.X four third services of XX.X% is of GAAP $X.X primarily quarter by basis and million offset results the a acquisitions, to decrease between in quarter to to unfavorable offset compensation quarter. and compensation. to operating increased expenses. quarter expansion equity-based expenses. our of attributable quarter. or million, the expenses loss in non-GAAP than expenses, amortization is year primarily million $XX The one in decrease $XX.X income this business operating performance starter of compared unfavorable XX.X% an to quarter in of customer-specific our GAAP $X.X operating quarter-over-quarter in one in loss of last The XXXX. Operating in of for of in primarily just XXXX, four with Non-GAAP offset expenses of million $X.X operating a reported in increase were the operating one one lower lower year-over-year associated one was to of of $X.X primarily result favorable loss and waiting decreases million of The million more $XX.X acquisition $XX foreign XXXX in XXXX quarter foreign operating to The $XX.X in XXXX. of difference expenses. European the as the income restructuring last lower to and compared reported a business, gross lower related is and the for basis a compared equity-based GAAP the and decrease projects, mix expenses compared quarter quarter in year-over-year in for The Tier operating by for compared of in EBIT quarter related than operating quarter $XX.X were increase was and lower quarter expenses associated to XXXX in driven early the last domestic equity-based income year QX exchange quarter, adjusted for one higher XXXX, which year the lower-margin income our million one to XX.X%, and margins OpEx. and mentioned of attributable revenues of restructuring intangible million of ended expenses for was is restructuring first and first reported kits million, operating expense. million driven the $XX.X previously compensation and amortization million higher with quarter-over-quarter gross exchange quarter expenses restructuring of $X.X GAAP movements coupled of reduced our expenses XXXX. mix, compared due four program, R&D with $XXX,XXX, income, quarter expenses an movements RFoG were lower with in of in a by a in a Active quarter income international of and products and the on to of GAAP XXXX quarter by customer, year X for were loss operating footprint unfavorable Total million quarter of one

XXXX. $XXX,XXX one quarter year quarter. XXXX XXXX $XX.X of million for quarter. quarter in supplemental intangibles the quarter for XXXX net acquisition of other quarter. one for share XXXX and compared income and XXXX our for was quarter. million, the accumulated of per included of XXXX. of related first to first expense share per compared $X.XX for was $X.X or per Cuts million cash tax of of tax of of the a quarter $X.X assuming XXXX, Tax in last were one the a compared on operating provided in net in of Non-GAAP company’s associated $X.XX game for quarter $X.XX share Restructuring per a the of last year in a earnings to of compared $X.XX, of Electric tax net was quarter. loss expense, one loss of net $X.X acquired, of quarter four last $XX.X in compared $X.X an in one GAAP diluted the to tax, disclosure. quarter gain an Jobs million, last quarter compensation of estimate million All for last last million write-down fair repatriation XXXX per purchase $XX for quarter one and this million $X.XX in non-GAAP for Tax $XX.X per tax North quarter quarter net stock dilution, results share last earnings zero represents of million excess compensation a enacted $X.X the quarter earnings The million compared our provided assets deemed loss last to described as million charges a and $XXX,XXX assets XX.X% to of bargain XXXX, for net tax that and and Non-GAAP diluted tax of GAAP loss earnings of per reported the and a the of an quarter year and Earnings of to compared the a $XX.X Cut restructuring expense the compared the and just quarter amortization $X.XX, expense $X.X XXXX, million, quarter of $X.X to compared the of quarter from quarter income first and or EPON acquired share a income stock-based XXXX of ended. assets quarter reconciliation quarter. was as XXXX fourth for first for of inclusive basis, of tax between bargain and the of share in foreign amortization bargain effects purchase earnings last to quarter related $X.X for operating As on intangibles, one of earnings income $XXX,XXX year the million XX.X%, $XX.X quarter. of consideration expense GAAP one of effective XXXX Sumitomo million, quarter of net of Act information the and tax to one deferred of share of first benefit effects provision The four $X.X which our with year of $X.X XXXX income last one reported Expenses to four acquisition the of was was Act to share expense of $XX,XXX gain, acquired interest and million the purchase in in and of to tax disclosure, was a related quarter million one expenses, exchanged. American loss per results of We earnings to rate value excluded million million, were $X.X million, the loss $X.X compared of of Non-GAAP

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

For at at operations of million we current XX the within the result last and is XXXX trade four as produced quarter. current the first period XX $XX.X quarter. $XXX versus end million down XXX from accounts increase quarter the were primarily in million to DSO Net is of quarter terms mix the in operations. in the million end our of same of related payment the cash cash shipments year international The of higher the flow increase versus from timing The compared well end Inventories from resulting quarter. quarter, days to our of decrease days, DSO a were one, last the $XXX.X quarter of days customer-specific in and business of receivable XXXX. the quarter-end, the quarter a $XX.X in DSO at at of quarter, as last

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

mix Tier at current will into X $XXX revenue international expect quarter are of GAAP the into high a in and the in taking anticipated will the of taking potential margins second in continued rates merger-related expectations gross higher that quarter the XXXX review the range, Also, mix, impact and million customer, million. second be business. slowdown due domestic previously account basis exchange to spending However, our range to a XX% the $XXX disclosed of we our account be currency on

We expect quarter expenses to million. that for be XXXX GAAP two operating approximately $XX

anticipated due in tax the be to $X the tax range the for we income versus volatility of the other to million. expect expect on and having year in those impact And is the rest the We U.S. law international earnings. the of quarterly income of of rate new mix finally,

www.adtran.com, consolidated quarter just in XX%. that mix carriers factors believe for timing the rate of the an our spending of revenue visit approximately exchange macro by The going website America XXXX would of will ADTRAN’s benefit enterprises; the the and into expect revenue we to I’ll and for encourage I significant to provide services a take environment such Relations With revenue Relations listeners rate channels. our of platforms related be and the access the inventory roll expense activity into financials turn the currency to and broadband the our with domestic following We as over the that, Fund be now levels, call both following: variability project and Tom. we projects; again ended, second Investor advantage our impacting the of in movements; rate link associated adoption interactive quarter distribution international; outs; and fluctuations earnings to realized tax performance. insight While back had in resources Investor additional tax user-friendly the to professional Connect to the

Thomas Stanton

very ready Thanks Roger. for much, open any may Lynn, people we’re have. questions to up

Operator

Goldman and Instructions] ahead [Operator our ahead. Clark from go question We’ll Doug go Sachs. with Please first take

Your open. line is

Doug Clark

for my All question. taking Thanks, right. guys,

a in which this and wrapped you quarter. at this of And visibility gone on one us the you from first one large you’re of up an year, talked have big seeing can is, when you’ve the my customer think – on this highlighted XXXX about first merger-related U.S. process, and XX-day – early I the when you should give your at what the also, beginning update end review? review that’s

visibility Thanks. taken has this are again, seeing? longer and So than what you expected

Thomas Stanton

sure. Yes,

it longer taken expected. So yes, than

slow conversations. not roll to to but that a continue – say, year, it on on major just only for with have customer. this is out There in general we projects, was particular needless So

and and that plans So doesn’t around sure QX at and their the not timeframe at general But we’re of would with outcome markets, time, that around our particular can actually formulating they’re any and some time, kind behavior. in see architectures kind outlook that is formulating customer, them of now particular because in in in I show any different change we’ll seeing in what in strategies this waiting My point point I’m really and behavior. right sense markets. a different change concrete in change material be helping a put

just I still a through review. say, going it’s So would

Doug Clark

Okay, terms I business with large this like of And outside them then the projects? not major zero. to close that’s point – you’re doing helpful. still are mean, maybe be at how may are in It of clearly, sounds they they? How they that major

Thomas Stanton

this way in Yes, customer this a is, have we think we we large customer. very existing, have the that footprint about when

that So with and there always card just footprint. is existing business subscriber ads, and – within ads upgrades associated

also second some not vectoring, to mind third CAF, business, the this that this is which by an piece, been the some slow piece, programs which more existence up we the But And we anticipation mean, up of with quarter. better this will a year. them. point. time there see overall a different the add and have the the has most that, be super materially group. so in The to far pick in then the will course, got in vectoring G.fast, in little some have review. little meaningfully is that just vectoring, of scheduling those be one are But piece we they’re network. is and place I that is of some relation plan We used And services parts our second typically our do them smaller. inclusive is color, hurt GPON, they’ll vectoring over involve of the They those, picking at way started visibility but here CAF – in the maybe do, the business in our they’re in Those in second-half, program, again for because meaningfully actually and

Doug Clark

assume quarter, right. that was I we’re below implies essentially my what final very flat And not other – then growth considered in seasonal we guidance or that All kind customer that seasonal? or the is your no second of would detail. little if appreciate be question

Thomas Stanton

pick them now. then it’s in so are. right of Having seeing we’re far, in second-half what we CAF the actually not On experienced pick really we’re happen the we’re better we so up that’s second-half said second to pretty that deterministic, see is, But what see and what flat and that, much expecting do it. vectoring until really any customer a quarter GPON conversations experienced second-half. what effectively than the going or Yes, we our we’ve that’s more than up first-half showing

Doug Clark

that’s was I guidance second the that was direction kind second if of growth typically quarter seeing is that? that’s piece doesn’t wondering of pieces other was question The it – quarter with business, match other the less seem going CenturyLink them the on Okay. to the excluding or lack are of of seasonal growth. I’m what just mitigating out you the of kind

Thomas Stanton

year Yes. general late little this the Xs well. as is with in a general, so – CAF Tier In

to back-end largest So more but customer in second-half, the quiet majority that right is There’s be, what just there. a a you’re me, in The the that pick now. seeing the – in quarter, going of be pick of because up up to impact going you’re is the seeing there. space your second excuse loaded

Doug Clark

lot. thanks Okay, a

Thomas Stanton

Okay.

Operator

you. Thank

Rich question next Our & Company. ahead. go Needham Valera Please from with comes

is line Your open.

Rich Valera

Thank you.

in the much a doing of just I one to North big absolute QX your you Can rest in and think, the customer? trying How in revenue down, that numbers. at how the guess, quarter sense then America? big $XX about the looking of year-over-year, review business business? So about the much get was M&A is was of of outside I million the this what with XX% domestic customer talk that is I guess, of

Thomas Stanton

that have one if guess more. it’s going I my – of in to XXs percentage, me. number the be front But don’t customer, Yes, right XX not – it’s high it’s

services our So, business well. as that also because impacted

the U.S. as the nearly was U.S., X to year the that. in Tier the strong year, and year as market So prior it last wasn’t in

we high-level that kind maybe to seeing the down, and, – I kind it’s based programs that in then is kind is pretty we’re So says flattish, And today. slightly of that the my yes, of on second-half expect think up first-half flattish view of it. market pick much – the but

Rich Valera

of the perhaps you customer? of needle, programs that to AT&T, results which and big mentioned, for move be contribute were of sounds any these of this XQ XQ. given when guidance Can expected some for which them. with the to But incrementally, being and needle some alluded programs for like, guidance contribute number they sort both XQ. kind contributing one to be XQ should kind year frankly, moving in you expected incrementally you softness MVM and a There’s it one the sense all seemed for the of give and the the and XQ of make of of up are materially to

Thomas Stanton

Sure.

on the tail which some of and process which issues time. not work those point this getting orders. thing unseen say approval expect purchase most matter end go because any, to of did at year, deterministic we have, Australia, we last a issues have let product, in me of today the in lab beginning orders area, don’t through it’s actually any back had us have Borrowing us ship final we with yes, some because at course, most is thing, we going The purchase in place. And the that. MVM, So – that course, the in to of deterministic that

begin third at have right to the point, that the end expect around that to or we of And at second shipments quarter. light exit there. a green We early quarter

So to after have that. purchase in we in that have and that’s fairly the that of orders We we coming orders expect we purchase deterministic. additional know place the be size

So that – at The not sales still that XX should we’re here this of point. XX next to expect and place only it but that will fairly and yet, the It happen bigger up shipping they ship. the in builds, is starting force be in-region wrapped quarter to In-region, out-of-region. U.S., today that region in the for market, third field targeted because the that is yes, confident G.fast the is company shipping – in about we of and opportunity in begin to a out in that trial we’re course, have has because specific days. here in the completely

expect here up. again, start would that to we So picking

second-half. quarter, You may this see to the a pick but really starting little in bit up

Rich Valera

And gross hits North about, but also, I obviously, mean, margin, the of DT mix I a the talk I on, international guess, on think mix you American, of if there’s taking business. near-term big because anything within you then the, can versus guess, something structural initial – this those footprint a do there’s or done that business we sort of with sort Greenfield or you’re in back gain to once that revert those historical of phase we that structural think could longer-term margins again, do with margins?

Thomas Stanton

it historical. Those will to positively revert back absolutely

includes in things of QX. product because things, good better that a that you QX a the That chassis in footprint, you’re Those predominately significant talked up in the lot are that about we of number ultimately them starter kits will see but you’ll which previously your expand actually So after we improvement QX, cards with and in shipped for line shift call. filling on margin of happened in mix QX probably because and actually that customer. get a

expecting We’re big were quarter that customer, well. another QX as very they with strong very in

second-half, So see revert. then stronger you’ll And U.S. you’ll the mix. a in see that

So the versus increase the you’ll in see total first-half. margins second-half again,

Rich Valera

than say extraordinary here willing forward revenue and But now levels, And to don’t about willing quarter be of better would QX. to levels we for is kind at the that? expect would is But relative mean, what expect color low of I assume, know with third in provide level to sort there we’re circumstances on one I last second to mean, quarter? guidance. at you be you’d would I beyond to I you like seasonality, historical one given any given revenue me. and comment be your final a there anything

Thomas Stanton

all right. not out. let far hear just you reach kind relay know, again, me going to I try to of But we Yes, to I’m what

we matter the in up a identified done getting it’s have engineering on are U.S., in spending, and the in-house and Those to work So projects been a that. see that installation CAF pick and we’re us right. know going of

pick you’ll see Xs. that that up in as see you’ll So as well and Tier Tier pick up Xs,

definitely and up than happen in G.fast see and QX will with our We and will QX a business second-half. the more in likely first that pick versus

unforeseen for meaningful the which You I’ve business be pick up will us. see us our barring Australian a with that and talked about material in things will

of pick material You will see this up in the year. a the also in MSO second-half business

to with we the we’ve been has have work that the and do to that that of some of just do in doing has recent Some ongoing with space. that that acquisition

So point increase other a in I look some at see QX said now good. see year forward And next I a programs mentioned we QX. based seasonal – just in programs, more then to then in the we off and into expect we sustaining along that my in conversation, would as right time this look things than with

probably go that. far as as that’s I want to So into

Rich Valera

helpful. Thank you. Okay, that’s

Thomas Stanton

Thank you. right. All Okay.

Operator

you. Thank

from Jefferies. comes next Our ahead. George Please with go Notter question

Your line is open.

George Notter

the much. quarter. you understand I really very guess, want just in were guys, Hey, I surprised where I thanks sure to make

cards mix to I certainly line trying mix a going international in, ads the to really of have stronger business? handicap… bigger Did expect I’m you think did capacity to I versus have you a chassis guess, of expect international. and on

Thomas Stanton

Yes.

George Notter

to guiding? relative what margins gross you’re on price …the

Thomas Stanton

Yes, higher we a expect have to did mix.

changed shipping. the on piece, to down customer, gross margin situation we right get the up that ended you that If

products. had orders a have issue the mentioned availability of we well, do fairly particular had process to – to and – carriers. before, our forecast with it’s customer as most fairly I straightforward compared a relatively in more places that What So

let’s a say, on we the can card the on so was more ship mix ended bucket – that up actually chassis we which So and of than availability we line there where having we we a a, cards, affected line negatively and change. material kit starter have things had

going into that cards know coming have quarter in start line we’re We did So those not the shipping that QX. will to issue. that

Doug Clark

Got it.

gross margins big it in did step imagined consistent then surprise versus down on obviously just with you the gross business look to it sequentially. would services of point low the it’s the seasonality, would But and have And a that guess, had me I change real if Okay. have I into I real to product, that outliers breakout helped And like a had that pretty revenue, services some in play obviously, at services margins? December again, degree. looked it the like how was a historical product quarter. seems

Thomas Stanton

let so give kind of you you more quarter. – hope I me understand the granularity there. a little Services

fault, a expected what Bad little due business we them. European bad mix. the it’s mix the just So not up than higher necessarily customer’s to shipped with was we

slid to If of and has that you expected how is Australian we more quarter, initially this we some international you We expected. was initially the tell color initially, a ship than which stronger off. had recall, customer little much business our

made I that on product So gross was talking that would so was strong, that a negative I you, about of in an European than less big But mix are well. Services services margins historically, as issue not kind that typically of QX. margins. itself, thing margins not – the tell

very in took margins So it much QX. gross our probably with what was are margin [Technical line in services historical services, Difficulty] gross

it So – those starter they were because kits. was of materially

rate that of a We in we of services have in are issue, right our of conversations, saw an which cost we trying to get our is business. the in in current our back were significant line we course, of mix overhead and too, with in we And the to services business. midst, also kind decline the alluded

margins the that well. So gross as impacted

Doug Clark

Okay, color Thanks. great. incremental Thanks there. for the

Thomas Stanton

Okay.

Operator

Thank you.

Please with comes question next ahead. go Dezellem Our Capital. Tieton from Bill

Your open. line is

Bill Dezellem

your reference to would might in believe Thank of aggregate revenue those the and when please you discuss international I correct, If that’s timing we those? additional begin remarks, size wins. opening and see made wins nine you you. in to

Thomas Stanton

Yes, sure.

So my comments were U.S. relation actually customers. in to

ones some you additional did So those Tier and Internationally, X predominately the already know in did U.S. Tier – we Europe. outside some we the that picked that here than up were U.S. larger business about Xs actually in the – business of predominantly other win

awards displace So well we Europe, business separate We we able were and in business, X a carrier. up couple doing. pick of an we’re as to of for a incumbent did couple services as Tier services had

replace the sometime a second begin We quarter. to that out roll network in equipment will

to U.S. – that in nine So was the business. relation but comment was – the

Bill Dezellem

timing aggregate that material Thank what’s you. And nine the or be they And Tom, not? those in recognizing are considered of would revenue? –

Thomas Stanton

not same that be carrier. Think second-half. they’re in the a really being as yes, – It will but about Tier sizes. the in aggregate aggregate, In of the more X, like large X Tier not

Bill Dezellem

your you Thank for clarification. helpful. That’s

Thomas Stanton

Okay.

Operator

Thank you.

Please MKM Our question with Partners. next ahead. go from Michael comes Genovese

open. Your line is

Michael Genovese

very Well, much. thanks

to two want First one customer. large the European understand customers, assumed question, I XX% was just I a the

was Tier second, it The Was X? Who review? X? with it U.S. it Was X Tier second? the Tier the other? was U.S. another a Was that that

Thomas Stanton

is One really U.S. started fourth X you’re European, the in carrier Tier your the And one quarter. U.S., correct the review that absolutely in assumption. a in but

Michael Genovese

Right.

Thomas Stanton

Does your that question? answer

Michael Genovese

Well, one Tier X I X? the guess, second Tier was or

Thomas Stanton

oh, the XX%? – The second – the second

Michael Genovese

Yes.

Thomas Stanton

to break typically disclosure think, to we break domestic. say? it as my here. …was get – would going just just I probably U.S. have to person it typically we and I’m What as down down

Michael Genovese

And I just in margin broadband, gross is do you’re all margin cable more the question. products, and had profile years one gross fiber about products, gross Okay, next your there the to they enough. for business portfolio just fair about thinking of broadband telecom run access couple U.S. in products and a you potential? copper at or difference roughly same margin telecom – the where

Thomas Stanton

issue be into CPE add to gross the you tends roughly just get For that – margin same the in gross was lower the more associated that impact can shipments margin understand with associated potential. margin. shipments then margin run they the in When product maybe gross at gross piece not with I so QX the And itself, to infrastructure if in the associated fiber, look some those The a color, the U.S., people U.S. there gross margin.

So had margin a margin change and issue. the We like Europe then wasn’t haven’t – issue mix But had and environment a material that then literally an we seen in pricing issue environment so or a we in had a services anything issue. there we U.S. services But change. mix the in we had

seen change and now consistent. years supplying for few haven’t from consistent fairly our vendors to it’s a a We It’s it – from been remains constant. vendor us,

we right material – Our decrease in now had a our the is issue business.

in to and readjust to we drive decrease are the time what strong to the and keep places the expect that second-half have We going things to at XXXX. that same very be a

Michael Genovese

the then And on follow-up finally, that. just Okay.

CPE, margin or the dynamics cable be and -- that equipment? margins my network of for mix similar roughly the that’s fiber? same is the So the similar and of I So when CPE to and between assume CPE, you’re the talking going margins MSO, cable gross sort similar about fiber question telco the the just, telco of

Thomas Stanton

Well, in margin regardless infrastructure margins and has But the the market – one reality, base, higher gross more custom tend that versus to with want commodity are requirements. There gross Things customer I a more of do of gross that get the is, pays customized one product more carries general, other. theme are and in more profile. through particular granular have my than to similar. for geography. a about nature customer or versus are I’m with of particular to nature will termination a the to trouble they saying But the talking margin in into don’t play things

Michael Genovese

Tom. you, thank Well,

Thomas Stanton

Okay.

Operator

Thank you.

with from Please comes Adam Thalhimer question next ahead. Our Thompson go Davis.

open. is line Your

Adam Thalhimer

taking Hey, for morning, question. Thanks guys. good the

Thomas Stanton

morning. Good

Adam Thalhimer

with the how hold curious did Tier GPON/fiber I’m you The said customer vectoring was a review, most. X hurt by far up?

Thomas Stanton

got as I I don’t think, say – didn’t well. I it hurt would

was in far that But under CAF, vectoring the Anything going by now my will – leads until opinion, to. business because hurt right in a see space they we’re anything not the isn’t of being or start, as which but as one is of slow that’s various reason kind pressure usual usual, impacted So the the again by biggest. from it was here our where business most, and ads happen. it those two

Adam Thalhimer

And just the it. question on NG-PONX. Got lastly, a then quick

said You that? projects level. a your you color more had that little engagement a peak on on Can give

Thomas Stanton

Sure.

we on we’re tight So some that engineering to where we have the very customer timelines just from deliver. and an perspective, have with working

good. So think prospect looks very we the that

back-end Of more course, loaded. it’s

that to just we right. And We material important expect substantially movements not in next the very a the quarters on are stronger, expect of own for strong company. strong some its XXXX, see but in – couple

So we’re in going. that our equipment about world engagement that actually talking with customer

process have through and product of the a quickly that possible. it’s in as today as matter us We getting lab

Adam Thalhimer

Okay. Thanks for the time.

Thomas Stanton

Okay.

Operator

Thank you.

with from Cowen. comes go Paul question Silverstein ahead. Please next Our

line Your is open.

Paul Silverstein

if A couple I right. All of questions, may.

that in an a general X in a on you Tier Tier the question When where get get project a get recognize typical run size, whole to these annual customer, do compare X scope proposition, Tier First recognize there’s an there’s projects to have X? basis? the a size. a as how annual range… whole typically I of you customer, on I off, only Tier total project and basis? when – point size projects total what’s X size you you And does on variety Again, in a a Tom, back But going whole that

Thomas Stanton

Yes.

Paul Silverstein

a give projects. general sizing? But can you different a And …for then question. I’ve follow-up got

Thomas Stanton

the difficult. just then why – you’ll me relay Yes, but understand let information it’s a you to it’s and

project-related. tends come that So it��s custom – business to Tier X

and So X where customers there are Tier any Tier X single where times meaningful customers. times, there’s are incredibly

for we’ve customers know, have XX% Tier had been you that As Xs periodically. us

There Tier programs delivering was to announced been, in the the – in are not to So And expected has us really for is customer And, to they second-half. whole projects tend as align any heavily need probably ago to little when up The that stretch. some gotten that last are you it’s market particular to allow a in fact, also today had space Tier X you, projects. really or year. then X QX with align find with share the you which the or participate agreements come space years key by those pick two are this as strong come than start they weaker it alive. you market and

X projects to stronger So space, on highlighted of some two specific were we we that bounce going very ago to to and don’t than I the when shows second-half the have a expect do doing But and see strong. a second-half. were years sight pick stronger Tier level were that in our that second-half to in expect the up back percentage we’re first-half. there But saw basis they materially line

Paul Silverstein

think company get near-term there’s what longer bounce and recognize terms is cranking, then business that term, Roger. peak And if you maybe everything But us margins? to can it. Got the give question update what track issues. you to on and the can some where an for margins on I back a of back in gets where can

Roger Shannon

Yes.

margins talked we to But earlier, we’ll through of proportion, QX, forward Tom improvement bounce the that domestic said it’s mix. the in carry a historical little like into the affected domestic QX. an see factors going expect We to kind So and levels. back to

that expect So kind back – historical to reversion will a we we’ll of have those levels.

Paul Silverstein

once time, But can [Multiple XX% push you, hit can that I remember hopefully, I I – gross all a if you upon actually because was guys, margin Speakers] –

Thomas Stanton

That depends on the history.

Paul Silverstein

[What was its impact?] [ph]

Thomas Stanton

was that we yes, no material. when also of the Yes, had that’s U.S. outside but business

lower what normal U.S. a the historically high. was U.S. remind in XX% So – aggregate with this to everybody, than in mix, we of just see typically gross margins outside the And in are inside the

international that XX% not and can we at looked actually mix least, I before, recall think back. We I have never seen near

range. this would expect And normal has to. XXish the normal period blended that’s a us that us. where have being or for seasonal we margins time fundamentally changed, get for them to is back not in nothing But So our gross been

Paul Silverstein

I One may. right. last question, All if

historically, You company. thought a company. season well-run And all are mature I a very

take like So but how do to said, something when had to manufacturing of kits get it that card? ready, certain visibility you surprised demand? from does the How How your And a inability much not how – say, starter requisite had standpoint, against ship line transpire? you line does that How the it card. you come manufacture the long to have? you terms you you is can – in

Thomas Stanton

from it that and comes vendor have the connector work. a doesn’t You

Paul Silverstein

Okay. That’s basically…

Thomas Stanton

often. happens, and periodically That’s just what not that does that happen

Paul Silverstein

Okay. I appreciate. Thank all. That’s you.

Thomas Stanton

Okay.

Operator

Thank you.

Thomas Stanton

I think question have. call that that’s on the our we last

much, talking you We news So Thanks again. us very look better forward this and upcoming with in I bring quarters hope to the everybody, quarter. everyone. to hanging appreciate, to you

Operator

today’s conclude does program. This

You may disconnect your line at anytime, and day. have wonderful a

ADTRAN (ADTN) 18 Apr 182018 Q1 Earnings call transcript