ADTN - Earnings call transcript Q2 2018

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to ADTRAN’s Second 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 period. [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 31st, 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 Tom turn now call pleasure is Executive to It over of my to Stanton, ADTRAN. Chief Officer the ahead. go please Sir,

Thomas Stanton

you, everyone. appreciate our good you morning, conference quarter XXXX call. and Erica, joining Thank We second

CFO Shannon is Roger here Our as well.

net the gross and were improvements the will innovation. and then $XXX X% stronger year revenues continue $XXX support the as expect the to quarter-over-quarter while areas we in investments continue with access forward, performed EPON revenue, across $XX.X Roger at we and revenue operators go modest new Following of company’s bulk we business. revenues make future XX% for million revenues the general, am the towards in The including we million development greater Overall merger-related will or $XX.X and and quarter Platform your or in including my of come the our contributed over reflection XX% spending a towards Tier-X of accounted our Gig our increase the of million markets and at quarter. the see with see headline quarter the we software-defined We what is previous experience strategic quarter. a while the million detail opening perspective, inactivate. controls, company awarded and take I last level engagement manager some our for of and are with a have advised further of XX pleased up the quarter stability. in Mosaic in to G.fast, in In million and meaningful services applications and Total GPONX domestic steady total shift progress International progress half top-line In in regards and to remarks $XX International a to revenue performance of strong Network to came total. cost over strategic of revenue new we clarity on Cloud solutions subscriber in point total first quarterly our pleased Mosaic questions. domestic second going mid-year saw this XX% domestic device for at or been the customers, at from a margins From insight well our quarter.

various of We initial are also at stages in from development scoping customer to ranging field other this trials. projects with

further optical EPON to with MSO trend and solutions. operators unit adjacent and terminal network remains pleased transition. line clarity we optical meaningful recent to-date our are head-end market acquisitions continue strategic remote XX-Gig And expect an area as Tier-X with we revenue with they We broadband to gain and emerge we on a access MSO cable are market Building us. upon solutions this for progress EPON growth seeing continue. their cable this developments, and priority priorities our achieving are what XX-Gig our organic The from as

with to large deployments G.fast next criteria are advance approved for are have quarters. are met Tier-X out GPONX application something of carrier and operator Tier-X space, to the our to that the our a operator continue continuing domestic and Within to major vectoring and and continuing the a with Tier-X this quarter region have on just for in for we we domestic office first we region continue solutions few begin a ship carrier products it’s XX-Gig expect those shipments. Further, and

EMEA and a on operators. super operators additional European strong as with well from Middle East and business up basis shipments as regional contributions is with XX% international vectoring Our year-over-year vectoring two shipments

vectoring successfully operator they a a have begin East introduced We into rollout. super as nationwide Middle

look million existing is now globally on XX.X shipped super VDSLX services a products vectoring operators service as in to-date have ports in gross demand. both and about quarter-over-quarter infrastructure or maximize basis coming their at while segments margins customers to XX%. vectoring Total We delivering the

Our domestically internationally mix super margins gross overall solutions led a with product stronger are by both approved vectoring internationally. and

service As cap our solutions. segments. Fiber-To-The-Home pickup provider we we for spending year, and into second in in a markets broadband head strengthening Tier-X, half anticipate in and of expect the We Tier-X domestic ultra regional market

to also solutions. traction and strong in EPON continue our SD see We access

half to in we see year and of solutions expect Additionally, G.fast domestically our second in Australia. the the ramping begin to

us revenue to our international subscriber operator. us prepare increasing not meet – access In creating common the providers of with transition all innovation transition and access for of with networks Tier-X open largest time more investments present drive fast, for unequivocal in our closing, on-demand to lower offset a our great also software-defined is expectations us spending seasonally enable only solutions Our the should to desire denominator intuitive help it ever allows world to carriers, help communication real-time with to better, connectivity. The G.fast their experience. Western European vendor-agnostic faster,

global a forward delivery well-positioned revenue, Roger we’ll Roger? the those mission be through our to alliance help you With that, are in access grow We robust open cost partner – turn Mosaic over to and Open service service accelerate are ensures I’ll happy reduce our providers and have with who answer to questions seek and our call long-term afterwards. we identify ADTRAN’s and to with and who deployment. alliance. any to may transformation software-defined share moving mindset leadership to Mosaic healthy Network our opportunities strategic through grow ecosystem

Roger Shannon

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

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

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

for the XXXX. of million $XXX.X were million $XXX.X year for network two the $XXX.X million revenues one versus second for quarter last of Our solutions quarter reported quarter and

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

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

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

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

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

of XX.X% in our was our in offset The international Our quarter of products volume current business. business, gross for margins improved partially weighting GAAP second second by gross gross quarter the quarter. decreases services domestic This and XX%, to international quarter. decreased and the margins margins and our portfolios by higher driven were for of in of last compared primarily year were the XX.X% XXXX year-over-year this domestic

basis related of of income to The in XXXX, than $X.X the decrease one a margin of XXXX the our across expenses quarter were of quarter our of a GAAP driven $XX.X for international an products quarter. ended expenses. for income mix was foreign primarily acquisitions year. to of XXXX quarter income, this favorable operating in to two million of attributable million in quarter. to for million, just On increase lower gross lower million services by expense offset $XX.X compensation million operating expenses. to or GAAP amortization operating in with QX on million $XX.X higher operating $XX.X difference last increased reported by and year-over-year was domestic operating favorable revenues quarter-over-quarter QX income year Non-GAAP as of quarter in and quarter-over-quarter a labor expenses operating operating restructuring partially $XX.X movements mix, primarily EBIT volumes million in just loss and QX and compared operating expenses lower expenses basis, and of quarter-over-quarter a of quarter a expense in QX and ended. lower from $XX.X XXXX of non-GAAP reported a segments. one equity-based decrease the expenses, quarter $X.X compared last international adjusted for operating in $XX.X domestic compensation decrease two to expenses the to the Operating exchange lower XXXX. QX lower and expenses mix compensation. were in and revenues a compared The last and Our the were The our million, quarter lower year our is primarily two The to income GAAP million, is million lower in decrease attributable to year $XX.X and restructuring reported in operating was loss quarter. quarter of labor loss operating due The improvements compared is two board compared reported basis income last on and expenses $XX.X in and million, Total in $X.X for million million $XX.X non-GAAP operating last of versus between $XX.X GAAP of loss QX and and is result million

$X.X of of XXXX quarter tax of and gain. of of an as quarter XXXX purchase which of for share, a last of was million loss rate in quarter share of second first business. a $X.X million or million benefit a compared earnings and of a and of driven $X.X current $X.XX the $XXX,XXX quarter The was for of $X.X year to quarter expense, million tax $XX.X million, for and share of for in $X.XX, reported and reported earnings effective Non-GAAP per bargain two dilution share one compared described was $XX.X of in shift for tax company’s two net for was Expenses for The $XXX,XXX quarter ended, two share restructuring disclosure, loss loss per to $X.X current of $XX.X net last XXXX. in two basis, share $XX.X acquired quarter. GAAP loss quarter. last XX.X%, in second Non-GAAP gain acquisition was quarter XXXX. were a loss to quarter year the second of expense provision Restructuring million of intangibles, $X.XX compared of expense for effects two income just XX.X% the of $X.XX two quarter compared second million, from per of benefit per in for XXXX a compared XXXX. net $X.X $X.X year XXXX million to tax XXXX XXXX of net the $X.X income or intangibles income $X.XX tax the quarter $XXX,XXX in included were of compared $XX.X in of loss $XX.X per $X.X As zero compared in of quarter to last purchase share of our other was compensation of quarter year last to to was quarter per first of two in million, results to loss operating per million, stock-based a million income of per two acquired two net expense, expense supplemental primarily compensation the Earnings related quarter to quarter domestic provided and tax last million compared quarter last $X.X the of interest of in GAAP and quarter. of the of quarter quarter year quarter All quarter. on the the expenses last XXXX, related the in quarter $X.XX loss of in a quarter information a bargain year million exclude two XXXX, million, two by tax, of to a for and XXXX our of tax for an to quarter. to of earnings of a for net last benefit quarter. and expense of Non-GAAP stock a of million last million share assuming was amortization losses tax income and $X.X compared of net earnings last million two amortization quarter, $XXX,XXX XXXX this XXXX

earnings per non-GAAP We disclosure. and share in GAAP diluted reconciliation operating earnings have a results share our provided diluted per between

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

to For the XX trade XX shipments end mix year the at days the $XXX customer the quarter of quarter second is of Net quarter, quarter. quarter. current mainly attributable same the days operations. at the last a accounts the a receivable last DSO $XXX.X timing is DSO in the increase and in quarter in of end, of we flat produced international decrease resulting to XXXX million within cash the $X.X quarter, compared quarter. higher from to from were from second were quarter, of XX and business result of of Inventories $XX.X period a the at end mix of the days million while versus The million last last million

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

a account in customer, slowdown the third are current will and into Tier of taking of disclosed quarter However, a spending merger-related of and in be expectations of range previously mix, revenues review rates that anticipated currency into the taking XXXX in on basis quarter our that the the our X low account exchange impact Also, third we margins expect the will potential range. GAAP million. XX% be gross $XXX

QX operating approximately GAAP for will $XX that XXXX be expect We million. expenses

impact the year mix Finally, expect in anticipated we of new due having the to on international tax is versus rate the tax the income U.S. volatility earnings. law of the rest quarterly of for and those

the in anticipate international tax to earnings. to benefit The tax in realized quarter a factors the believe quarter following: the we the will rate had the just rate adoption environment the broadband of approximately of ended, revenue earnings projects; third to in variability carriers macro expense services due and enterprises; and currency movements; and an America we While professional for domestic XXXX our associated the We Fund distribution the timing levels, revenue platforms exchange of channels. activity fluctuations related international; mix rollouts; project impacting consolidated be rate both spending be significant the access to Connect with our revenue the and XX% inventory and of

over information You www.adtran.com, link. Investor going Tom. can Investor call see ADTRAN’s Relations now back that, website turn this Relations I’ll by and following at With to the the to into

Thomas Stanton

open Great, thanks, to people any Roger. have. it ready we’re up Erica, for questions may

Operator

of we’ll go Sachs. And to Rod the Instructions] Goldman Hall line go [Operator Please ahead. first with

Rod Hall

I up the the with a the more and U.S. of people know for whether might Thanks what driving fact projects thinking be? in you guys. XG merger-related, in are to morning question being is kinds programs of and be way your open homes that’s ask of those whether what level been might to that about on but now efficient wanted because the participation fixed in access pausing then, that also a think case exactly to good question. Yes, are just wireless wanted taking pause the I a lot tested

Thomas Stanton

anybody because rollout. first your answer the pausing haven’t to – question potential I is heard XG XG Yes, of

it’s got starting it some in that, on So, said to our quarter. we I did spending strong Tier-X in and the customer. very customer having have on attributable a on not had that math the a have doubt a comparable that project-related year deploy I some at yet that are previous basis Having we some our product. year-over-year If space to now actually domestic and the – much that, that’s one And has of slowdown a I’ve that in XXX% we mention without said vectoring projects the a Tier-X this, think U.S. basis I was starting. look covered the decrease last

but around was I about second don’t part And think heard space, minuses movement Rod? the is of the question, haven’t is is there any XG. I anything the big what negative, there pluses definitely that So, and then,

Rod Hall

I follow-up U.S. continue be pretty that but then wonder to second poor, of curve guys of early me or next be and just back let would I Tom to when doable year? got foreclosed – the even in no might wondering the idea that just when when you one. do one that’s first part on – a level that of to of better? you you revenue back Well, thought I visibility the kind you have think you million like something just mean, I’ve by the Or But ballpark get able obviously Do it’s could you am be it revenues? think $XXX and of get be

Thomas Stanton

– that think I have happen. a to things few So

have I’ve FOA customers up. would course, at which that mentioned the we G.fast of of a tail-end of were couple of one that clearly move One the for

are well, which move The and rollouts looking that with we on that And for probably your will at in can a move I you got with those north other itself. but as now come is actually you impact aware $XX is, include can speak has the Tier-X aware one they deployments strong $XX of are wireless that expecting number pieces where as want are to a things NG-PONX. project-related are recall that. very potential there that as on their even customer one that, an NG-PONX question as that of quarter of second NG-PONX NG-PONX. million you than on million space in us other plans I’d of to part then, in course strong on them as coming materially and Either for that of as XG, And has a on are come they would the of are there. And

different So, lot I are think pieces. of there

think the that get NG-PONX. other in big this I and of one rolling one with course through that get we are product of is FOA project then them to you aware mass and one of have the

Rod Hall

opportunity if just guys. early are like second for or for quarters you levels normal – price those seen that long was last that can Is do you feel do of new now Okay. for enough revenue the those my sustainable? we’ve the you then, how think And sustain pop you international is And couple question in they kind are, better international?

Thomas Stanton

Yes, and which let other what – me million. in opportunity we is that move could fairly that that’s that MSO are products really mentioned making of for miss, off rolling really number. a may has the year just I the touch But didn’t piece and historically have the I we emphasized in comments, not to one been but Gig have are it material just progress number to we XX my rollout out starting see coming lower as space in MSOs next start may $XXX

that kind pockets there three actually impact think are I would of So, different that.

Australia. As in we far uptick will next as that’s meaningful quarter. of we an in the number rollouts European downturn But new international see fairly because of a will G.fast number, see the

down in and expect. they about So, vectoring it’s of I Europe probably, think think than are it flattish surprise for – we us international as rollouts that sometimes they stronger with come kind our expectation the now little will you about

Rod Hall

I very Thank much. it. Great. appreciate you Okay.

Thomas Stanton

Okay.

Operator

And we’ll Paul go of Please next Cowen. Silverstein go you. the ahead. to from Thank line

Paul Silverstein

$XXX including cited first apologize prepared you’ve million I’ve Roger, think Tom number and when MSOs, from comments? or calendar on having what, in million or off, rule to your all, that to audio and you is opportunity not case. hopefully others your some number questions the I if $XXX already with I you just the But moving I’ll these you cited five $XXX you apologize – said that respect million, the answered XXXX the significant to problems that’s respect do remarks. you been up call number Rod, misunderstand to on or It’s did to relative to with and

Thomas Stanton

you I is – you a what – question the the was, think now Yes, revenue think right I $XXX million. sub domestic

roughly in it’s think I the six…

Paul Silverstein

Through it. up to moving Okay. million, got your friends $XXX U.S. it’s

Thomas Stanton

I Right, NG-PONX, year, if real be think so, it slow which half, million MSO what normal plus then you at is in if of and but the we’ll the next so. CAF $XX plus strong. and kind that would you the Yes, happens second Tier-X year. could know have space, that up at wildcard pick adders in I will next the if look itself start do don’t look G.fast the in but it

So…

Paul Silverstein

you’ve makes that while cable very bit lot am correct? little I think I with Right, a much on it more sense, historically, correct that hasn’t been historically because, of revenue if is wrong, MSOs been

Thomas Stanton

That’s right. correct. That’s absolutely

you fact, historical stronger quarter to Sorry from bet guess to a haven’t is a – perspective really would because haven’t of and I it had the we’ve be it guess, expect materially ever I would this next venture this looked a quarter. is in matter at MSOs and strongest but I

Paul Silverstein

– so if and that but characterize and I said that driver? you already Or again you naïve would is was MSOs was quarter? was meaningful it this, this I material apologize still strongest, cable seeing And

Thomas Stanton

on thinking verge. right It’s – it’s am yes, there the I

Paul Silverstein

think might Comcast relative measure of with as dollars the and you to respect to the I in historically, right. each? look to we I Tom, XXXX opportunities deep those appreciate that and said – this have opportunities that. millions beyond with fiber, All two tens

Thomas Stanton

yes. rollout, be know thinking well, an how – yes. but I will you Yes, I it individual on am about things quarter, think these

Paul Silverstein

If the smoothing over out… look annual we period,

Thomas Stanton

without Yes, yes, honestly basis. a I I doubt. Yes, on yes, yes, mean, – without quarterly thinking am a

So, basis, on yearly a absolutely.

Paul Silverstein

in could each? million these to basis a million a $XX millions, you you of the on on be basis yearly thinking thinking So, are a tens quarterly are $XXX

Thomas Stanton

$XXX it’s I But, right. say didn’t that, I $XX think million to million each.

Paul Silverstein

I appreciate All right. that.

on. Let move me

et AT&T it if cetera, question, part timing/visibility. key has very I think whether question these Comcast question this but NBN, answered in Tom, Charter, you been Rod’s the seems full with Verizon, projects, not question, prospectively relative key to all

the ago, more Your in hit over of characterize next benefit over course those of the the to you projects that confident XX rollouts six timing terms XX of would the so relative are to next how you these days are today of how or with information, months XX months? – confidence XX to respective going days

Thomas Stanton

ones and very certain am confident less ones I am there I certain are on. are They

we’ll So, get they to of just G.fast where The in the moving point in are out here way. for is does there when customer gets FOA really a issue big U.S. a that actually to the

So I still and expect as when you be that are to be ship. a NBN purchase longer in term you starting I opportunity. rollout can have as orders on you the am Australian confident hand to

that in the that’s puts months one timeframe is things good For would us a on NG-PONX, timeframe, there – see that a that it’s see – about timing even of I I by those two, timeframe, probably think is that’s can the – but later expect initial I six that’s from am pretty the things say, I – movement also and a slide likelihood think quarter or that later understood. would year, months guess kind I think is month I the I but this six some year. But feeling us least some this that six – if I one it from we’d to don’t all

Paul Silverstein

in of at terms of in and in question or the super this stability mostly or improvement the last quarter visibility versus incremental it positives incremental terms there negatives. improvement U.S.? of quarter And around CenturyLink Is is

Thomas Stanton

is, think without a doubt there better. I our would visibility so, Yes,

of We we’ve minimum what couple them we those on with well got adders. there. good projects vectoring I – Vector projects mentioned ability – Right, with could business have that our is potential are rather we so, are that doing of a them stability them and understanding some that other working be a have we as so a today. know as at that’s piece and we and CAF-related, the of that are with

from look Some baseline side, on counting are perspective if the projections off. some of look say, point. at from needless product it are to not But in stability at it would are we services of a I those I If any we and are a of say side. better the perspective, much that at on I this those our

Paul Silverstein

All right. Roger, if to in may I you One question last want get here. I

respect to think mean, the Or in these recovery, upper you you revenue all projects progress. say? with big next XX early could is get mid of thoughts the some terms too significant could XXs? you just improvement the to put margin impacts, out to the over benefit I with to up you to Given months it obviously you without back as of do look us? share pretty Any XX

Roger Shannon

still Yes, margins our QX that’s certainly product in we The and saw QX. on primary manufacturing improvement from decrease related you the our has to target as discussed What, consistently. the drag been gross expense to that.

volumes of that, efficiencies margins and in but the the see we’ll compared gross rightsizing work to as U.S. consistently we have absolutely pick up, Now done positive across margin profile related the as about lot our a quite we improvements to margins have a talk international.

to nothing our target So, that terms really change – and our expectations. of in

Paul Silverstein

guys. Thanks

Roger Shannon

Okay.

Operator

Rich from next Needham Valera you. the of line Thank Company. & to we’ll And go

Rich Valera

Thank you.

a for range, a you revenue $X for or guys. guess I you but on typically you of That Typically this XQ guidance. point unusually I at kind granular the First, Roger at guide around question least is million an number. would give so was a say,

and NBN the kind MSO just order of suspect Thank will kind business, a didn’t to words both that there you, you contributing you quarters. for wondering projects or if anything quarter Tom. visibility size, revenue than sense relative into we put be give in should and to expect most out see going us in higher of to you this maybe one QX But you. and QX typical Hello. the of to incrementally could the of ramp prior And is include I the maybe QX? then, like QX that your So if mouth, ramp but wondering driving kind that want the from they was third gives of from what of things list to

Roger Shannon

Sorry, you for I did Can starters, Rich. me? hear say… So

Rich Valera

to cut there you while. Sorry, for a seem out

you can just had again. whatever hopefully that said, you say So,

Roger Shannon

my Yes, apologies.

range about of So projects what did it of just Tom the the think in kind I say said and goes But back I visibility. to XXX. the

So, some guide, there things we out. plays just good feel how took now of that some about and what have to we other see in timing our approach – is we an

Thomas Stanton

business with in I we International book I and case some point mix unusual happens are to concrete have kind general, bit have that Yes, in are international would we so, and really being and mean, in more we it’s today typically more and little of of business ship, we just ship of because that as a of Australia directly. at a be not our business that, an the have where still – little the this we characterize a – but book

comparison expect as do predominant far quarter-to-quarter historically. and directly in our to as it’s a As we as the so we maybe not European downtick seen vectoring relating customer, that, have

to So, average quarter-to-quarter there – second declines stronger we a the the take if from bit third. may be, it’s than of little

in – us manufacturing a the starting which than side. years, we really probably the few those then it’s both and that is combination. little to better matter will on of Over those ship – a executing truly on And our last it’s grew bit have Australia

in Tier-X and actually relatively that will that not so We customers – actually and customer I we have as that about in really are continue. that, have, vectoring this pick actually That the some are the we quarter quarter vector we vectoring strong They talked rollout performance also typical the up are in new. – East. to super vectoring expect that good Europe Middle the

the the So the carrier movements. Australia and are two Tier-X big German but and their there are multiple ones points,

Rich Valera

about how in QX QX? NBN materiality terms And to of

Thomas Stanton

a mentioning specifically in we revenue expect and QX change material Australia. without QX customer, for Well, between

Rich Valera

I Got quite it. And sure That’s helpful. vectoring. to then, just understood with situation at I CenturyLink the wanted make

up revenue QX was year and of obviously, most that for seems of contributor you huge have last the So a of revenue recently. crossed guys it to until shortfall

of not characterize sounds vectoring footprint, I whole can sort been which or the would kind – So, doing but were across the deploying kind – how you am statuses that sure I I program stopped understood is some it I revenue a assumption vectoring towards, am doing you it, what like program what – think are their that you of it that business. was you of as of has say other

clear Just remarks, and vectoring there. I Because think understanding very what would go obviously I have thought but big your you of prepared quarters. on for this additional few think a what’s it going doing Tom, mentioned in you on you trying are chunk a stuff get a to of more gone, you has is

tale a has will that go suggest would it, but that guess, also to I it away. So

you. So to on some get just clarity Thank wanted that.

Thomas Stanton

things really so, – least been couple a I in and to doesn’t kind to this vectoring at vectoring. note going deploy have there the in Yes, that. do quarters, of I that presented to of in do have notes, is that are There sight I have it. couple we have no is notes and my clear. we and the end clear relations finite that mentioned in around Tier-X there period really going the way space on One was but are was could on my have of probably I is, for as a U.S. reflective the we it in starting have

don’t their there that. but, it’s I and end kind out with what want it do a to particular initially to starting see of together plans they So long-term, getting

still kind vectoring on that that we And going a don’t expect that actually the as As there far want Tier-X one customer But is no customers, I get – activity think to trouble way the in of longer they let’s vectoring proving on. which our here. myself about some there it are think U.S., We is there is going in case-by-case it as they footprint-wide, activity basis. vectoring are doing I a upgrade, of on. a is

So, there awful make vectoring that some lot are economic sets. for cases used of an

a advantageous big areas expansion case-by-case said are them. this that as servicing So, were the saw. they in on in as to Having that are like customer the accelerate used a doing pickup those servicing are footprint-wide is of actually expect that we versus a that, deployment vectoring start they which really kind economically now really we change and what going with we very cases be to they the

Rich Valera

I perfect. appreciate it. Thanks, Thanks, That’s helpful. that’s gentlemen,

Thomas Stanton

Okay.

Operator

MKM And you. Genovese go line Thank next Partners. from to of Michael we’ll the

Michael Genovese

Hey, much. is it very Tom, your Thanks base like than business seems much before. broader

second at still Telecom, still international domestically seems merger in review but Deutsche half. a it back be overall seasonally there. hanging things example, the the second half, overhang some your have for business Or down in So coming to you but CenturyLink, lot in of

this on base or seen just anything different company different something is you I or mean, mean, history of can this cycle in and I a the talk there opportunities? going this the of customers still just So, another than you’ve is is fundamentally is broad larger here? about more

Thomas Stanton

on, and Well, step as comes goes amplitude regular are perspective, I things think seeing we there project-related. as something general let’s two we and think, Meg gotten that on basis, but customer our to back, has I enough be this our going and particular can say, you fairly customer one us are far is are XX is about that – may trend have that’s if the not do because from losing base. louder we towards, – That on any

say and comes if at the and seen itself of trend customers but really accelerating. I it years, that kind would is over general, happen that upward goes the last the and So trend massive look and couple of is in you we’ve

a positive. that’s So

the the when our to as of outside benefit large we to you I base handful customers. our and of guide assets dominated think acquired to saw and started from and we’ve Tier-X by and this make driven the our we really difference U.S. revenue space, been We customer from Tier-X piece still day in grow it’s But we’ve the a customers. pace But by And still of drive. a that that – nick and is, had really in can our towards drive strong NSN we area, basically could drive to had you and earnest diversification when timing into Tier-X to has of was kind small very of tried the it historically, that. dominated

the So, try out continue our been last that. to to has three over break movement to years of

for us big footprint. international the now So is have stronger we a change

one new good all MSO of we also which about that we’ve our has in the that of a that have that coming us. as now acquired we we revenue And have online space never diversification with we foothold seen, the had had base. just finally to that aren’t before we are So and do that’s we feeling and had really for important customers

Michael Genovese

to gross Great. the the low guidance on think, And what maybe here needs talk XXs. was margin? can about you I happen

get mid-XXs into above has there between that? slightly you of the or you of sort here? Just sustainably are to happen sort What and

Thomas Stanton

at the where that it my right, the are if drives – to XX really domestic time, think, asking this – customers Roger at hit it material, from But changed always by on thing the bill to giving be are that going we there. and most. materially touched kind top-line versus point shifts, I were of the hasn’t before so But range. it were we pricing today the versus it’s I in we look international other of things XX, that’s in when mix

we kind back this Right, big overhead that Our we’ve we’ve our half the cost associated got in here. doing of now took to to got We the with of key right at be and stab a what is year. volume up get are going volume. to lower first

that a any pickup see domestic the in Roger, our that But will half. a second the easy other from just we So, in benefit is, comments? fix to business.

Roger Shannon

That’s exactly right.

Michael Genovese

me. one last then And great. for Okay,

the sequential the Just for second ADTRAN we we better fourth quarter I normal quarter, on should what? about are seasonality, or think sort seasonal fourth at quarter, look early seasonally top-line much quarter, quarter, than fourth having mean, third typical a the much of weak

Thomas Stanton

And we typically give we no that, reason have with in we what till time at this projects the some other going get would say point than I really timing things have need fourth know to not the quarter I business. guidance the on through you and on third. the U.S.

to will be they it you winter should months but be half towards So get tend the again and good, then slowdown.

tell from So is now, seasonality. I We’ll more it at we get you can’t level, at that. know you other if than I look different a nothing this right I this can anything tell than in point there through but time quarter, macro as

Michael Genovese

Okay, thanks much. very

Thomas Stanton

Okay.

Operator

Northland Thank you. And Tim Savageaux Capital. ahead. we’ll go go Please next from to

Tim Savageaux

million that Good afternoon. ongoing focus back that QX that as be that In assuming internationally, given granularity. a of imply and CenturyLink actually a there and and $XXX on comments But flattish to flattish kind in what’s guidance of should a profile down pretty I around far uptick off target. to the good of driving does that more kind revenues little slightly domestic really not in that well. expectation our on Wanted dynamics some think, your maybe review

Tier-X right, you we in accurate, the on something are XX%, that’s am ramp you’ve increase XX% – think doing one, and order pretty Tier-X domestic there driving of I if of I revenues, I strength terms some kind some is is maybe there hinted appears Assuming my a a domestically? looking I note extraordinary towards seasonality spending ex at sequential of haven’t and math that, suppose. number in think kind what we But else but incremental touched to on there – maybe strength, there of cable be anything really and trends. and Anything to

Thomas Stanton

now, that right things. at actually and number at affect think, a course that I had actually or million that a of the So, – couple can we takes the one other are of – we only that

the of sales we at is So, we look projects a things. first vectoring do is, customer that on a there and of U.S., doing. expect then, One in customer all, kind I – the Tier-X in the our are of be I in would of little the of up total Tier-X that, some vectoring if pickup couple on expect the in to

expect with them. then also a pickup in CAF We spending

the with them. that of CAF-related projects have Some we

correct Tier-X expect the pieces way CAF to of as market what the think that literally MSO those said, in will you I QX. all do But, – spending I we probably and just extent Tier-Xs is you – correct. that general. is, are that the up. And stronger not you stronger you modeling. So, to then spending maybe and I just that And also that’s be CAF general to with has than characterize flat, just dynamics think be stronger that space QX of up as maybe do will well spending

Tim Savageaux

Got Thanks. it.

Thomas Stanton

Okay.

Operator

next Thank from George go we’ll go to Please you. Notter ahead. And Jefferies.

George Notter

of economics into a residential. in implies NG-PONX rates going generating in more. much. trials this that time, same be they are Thanks initially to the and little look lower out project very better project I I competitors’ at and doing fixed guys. are to on are applications wanted I your the Hey of with trying than are think initial products. trials If if I revenue understand dig maybe that penetration confidence the those bit at enterprise forward. sort guess, I effort asset on are predicated situation, focused that NG-PONX they volumes focused they on trials of know at the I will initial am

here So interesting in of picture if why ADTRAN you generates amounts really bigger do at some that point revenue intermediate the is, believe the for future? near

Thomas Stanton

a I question. mean, good that’s

carrier that get way what these the business. hundreds products are it’s supposed and material and you enterprise right think it’s to is I the them. with upon they is rollout And it the I always – are business which material not that’s are Right, we once agree do incumbent to millions, but the the you by of side. on of business still on characterization even the initial with we of

the stops will into to record is, our nice side side if they that go belief that extent plan and that enterprise, be the understanding the go it’s a don’t, doing. if of that adder, wireless so to which they not but don’t. it they deeper what Our what nearly as were they residential to is and the that’s that But is are is than it

time, it’s we’ve a that So that that. point by customers Tier-Xs our At next this been we deployment risk in planning discussions fairly with bitten have - NG-PONX a year. and they is that before are with inherently meaningful

George Notter

Got it.

Okay.

next about think it do QX you So, does what, year? Or do goes is your filter of sort if well? Or you that how then think it mid-year? of into model, all

Thomas Stanton

some haven’t we and we’ll until QX year course year next color forecast on call. full the in fourth we so give Yes, don’t quarter – the of

won’t we just the year. is, next it’s are getting build expectations will But see be trial shipping are to liable some starts That that be of key I like you know not Our out this tens mentioned, the which and aware out slide you is at cities and will forecast our that in don’t getting for explicitly in which what not that to as expectation I sure a to point. of, year. or I bit we may this I little – trial piece activity year. we I tens think QX, is that is – next am of whether and would

George Notter

Okay.

Okay, thank you.

Thomas Stanton

that, With - think All our we I right. are completed call.

And look So forward quarter. next I us call quarter. talking you appreciate our on everybody to this we to for joining

Operator

today. We’d like joining feel free to Please thank everybody disconnect at for time. to your line any

ADTRAN (ADTN) 18 Jul 182018 Q2 Earnings call transcript