ADTN - Earnings call transcript Q3 2018

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to ADTRAN’s Third 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] Please note today’s call may be recorded.

In addition, ADTRAN will webcast this conference call live through the Q4 Inc. service. webcasting

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

XXst, year and risks uncertainties, from statements other of degree of risks actual in efficiencies Annual channel the ahead. go products, may our the These risks mix, December pleasure these results such the over in to call. the of which to cause ended Report and detailed uncertainties could my for call XX-K product However, the successful products, in involve to XXXX. and competition for statements, development is Sir, on during differ and those the be Officer market markets the Tom ADTRAN. please component now turn Executive acceptance core It manufacturing Stanton, the materially including made Form and cost, forward-looking Chief

Thomas Stanton

on Thank Shannon, Thank quarter Senior morning. Roger Officer. you, and call. Savannah. Vice is XXXX Good joining President you Chief our me morning conference Financial third With this us for

I’d see like Then will details end results questions any open have. some by the may will discussing what then begin our future. third As usual, quarter this behind and on comments for call with for I to the we morning the up we that you

XX.X% XX% for significant total Network of accounted release, $XX.X while quarterly the XX% XX% previous or of were quarter revenue, Services over Solutions sequentially bulk million for a $XXX The early company the revenues Support we Global quarter. stated increase in million. press the contributed total revenues. our As up XX% at million represents the at and or a $XXX

year-over-year markets were was XX% and million revenue and million a domestic up in basis. was Domestic XX% of revenues XX% the from Looking international $XX.X up domestic quarter, international the total or $XX.X revenue of at total. international and the at revenue, on or XX% came previous

Moving up we and access million and aggregation over same million, our was previous down quarter devices or XX-Gig-PON a customer software-defined seeing at EPON the domestic in like business G.fast. $XX.X across engagement and and $XX.X operations and next-generation course a access, period the over strategic and GPON-X the X% last good level are solutions areas, were and little of quarter. Overall, deeper, from XX% of international XGS-PON

beginning EPON top the growth leadership is as on previous capable a XX-Gig continuing mentioned have important large XX-Gig next a and shipments to cable the we cable the acquisitions of grow our increase provider market. Also notably later solid to solution of the throughout multiple I near selected to MSO in also cable year quarter, our year. leadership MSOs. solutions term, North in fiber XX% our with our expand EPON and to As a market major deployment has direct market organic America see next-generation cable to are we for In we extend sequentially. calls, MSO access continue the development market, EPON this as broadband provide seeing in the This Tier-X SDN cable growth progress continue result access to ADTRAN a remote operator

activity the super of new customers remains Within U.S. of Europe, next-gen larger provider is the next-gen beginning telecommunication the addition vectoring continued the and a to Tier-X shipments company quarter our our progression here this U.S. service Also the – high notable market, PONs and in very in new with Australia,

CAT in nicely year-over-year quarter-over-quarter markets America we buildout Connect Funds business Federal with and with a rural the broadband both activity we up of announced, round are latest that our pleased of the the are infrastructure basis. seeing the With in access on U.S.

shipments pickup excuse now in in reaching the area, expected, me, G.fast shipments nearly with XX,XXX QX saw a for worldwide total averaging ports quarter. the for just or shipments we As QX actually G.fast

we forward the and the typical over expect that, be by affected XXXX. encouraged be remain I’ll have. quarter to answer by look questions to and Roger although core call QX With saw happy to progress Finally, any turn people we seasonality, to during that the may we

Roger Shannon

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

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

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

the is discussed, due shipments to we’ve to decrease year-over-year a vectoring decrease in customer. a As Tier-X domestic

$XXX.X third the million quarter million reported were Network $XXX of revenues the QX Our for versus XXXX. for Solutions

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

three geographically, million versus million in into $XX.X XXXX. were Looking revenues reported domestic revenues XXXX for quarter two quarter $XX.X of

for Investor of quarter revenues published categories at We’ve these Relations reporting of were of our webpage $XX.X on adtran.com. international Our quarter $XX.X for million, two. compared each three XXXX to the million

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

XXXX third our quarter XX.X% was our margins last quarter. business. international margins the the of XX.X% last and by gross volume and decrease gross primarily quarter margins quarter. for in versus decreased previous for the were of business higher of of three quarter the weighting domestic three quarter XX.X% Non-GAAP year reported driven in in GAAP this Our XX.X%, year-over-year year and The were to XX% XX% gross third for compared

expenses million, in million materials between last the operating and expenses. expense, to and $XX.X of operating restructuring lower in three acquisitions, quarter and domestically, higher primarily to due million million lower for last favorable is in expenses $XX.X expenses. to is to labor difference the by million vectoring income services of loss non-GAAP partially contract by basis, Tier-X in amortization driven for $XX.X gross reported or income expenses were of The quarter GAAP stock-based decrease QX volumes, and operating and million, quarter. lower project-related and operating increase expenses. mix, of the revenues attributable program, domestic mix in QX QX GAAP operating loss the last compared labor were a just and $XX.X year, compensation million EBIT million services, primarily quarter. was revenues and compared our Our XXXX QX an ended and is three quarter-over-quarter $X.X million quarter-over-quarter million Total expense. attributable XXXX XXXX. decrease driven non-GAAP previous decrease basis year our for due $X.X expenses quarter products expenses of to profit for with gross to adjusted $XX.X related were year-over-year $XXX,XXX, reductions lower $XX.X a QX improvements and large in lower gross and in margins compared quarter QX services On last lower both three specifically both The quarter last Operating operating of in margin of last quarter. contractor customer a income product reported and segments. than the third-party of offset compared to operating mix compensation is reported was million the of decrease on cost sales operating GAAP expenses The million to to result on to XXXX, reported year primarily The of operating year $XX.X was operating engineering basis by income income for in operating of compensation, The quarter-over-quarter in compared lower three a two a $X.X operating as GAAP Non-GAAP a $X.X $XX.X $XX.X and quarter our restructuring of loss million in quarter. expenses, and

of tax supplemental of $XXX,XXX this of quarter was to on of a of $X.X a quarter. driven quarter. intangibles the company’s the two for XXXX, acquired for as third for quarter. of was other The expense, XXXX quarter three this XXXX third year Jobs tax of a compared of $X.X XXXX Non-GAAP other gains quarter from of to of net share for a XXXX. per for quarter Non-GAAP quarter. year the to driven year quarter of of share million million in reported year share for $X.X analysis well quarter $XXX,XXX a for income of third the $XX.X quarter provided tax to Restructuring last of $X.X quarter. of an in was net three and for three $X.XX, completion in information of investments. to Non-GAAP year by XX.X% share and was $X million second last three compared and for of earnings last on expense $X.X of loss per operating in quarter ended, the of quarter was in quarter quarter. net $X.X million, $X.XX shift was quarter last XXXX income or last effects benefit expense intangibles were projects $XXX,XXX the and income, quarter $X.X quarter business. for expense tax, just domestic the net quarter our - of last increase three stock-based compared Act, to quarter. year and the XX% share million net three earnings of compared per three in primarily XXXX three Earnings All Tax to in in disclosure, net interest a losses per loss GAAP amortization for to of provision last benefit Expenses XXXX last $X.X compared in XXXX and current of last of $X.XX million related $XXX,XXX in per last $XX.X income was $XXX,XXX impacts million, million basis, to last a of net million million, expense. to was restructuring in other million, tax GAAP $X.X of The quarter The as described $X.X reported year assuming loss year, last $X.X our tax XXXX. and of a amortization year in of by per in in of tax as the three for $X.XX $X.XX the a three of of to QX the completed compensation quarter of of expense year compared three As acquired quarter Cut and $X.XX of of tax of expense, quarter the compared $XXX,XXX compensation quarter results million for dilution was quarter third and stock and benefit loss exclude three compared million and were quarter this tax share the last compared $X.X million, million last

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

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

XX $X.X and million DSO days at the of $XXX.X mix last mainly XX days last $XXX.X at end the customer million within XX third to quarter. the last quarter. trade of receivable XXXX third of same is end days timing and quarter shipments increase quarter to operations. were quarter, compared in of the end, period $XXX.X were million ADTRAN year quarter quarter cash and accounts the The quarter. million used at Net versus the to compared resulting at a attributable in the Inventories in last For DSO of of the

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

to XXXX the into Also, revenues impact in However, million our current the million. account the our of currency be expectations margins a will around higher range exchange that of or $X fourth on mix GAAP expect are quarter fourth we rates be plus will quarter anticipated due of continued and business. potential taking international basis minus gross XX% $XXX mix, higher that of

million. of We GAAP expect approximately for will expenses $XX be quarter that operating four XXXX

in the of currency exchange environment having rest on approximately is versus U.S. tax year to services XXXX anticipated spending The fourth associated the and mix significant volatility rate variability revenue projects; distribution to rate the we of for Connect levels, rate both movements; factors the the rollouts; income in be benefit the and law for consolidated and tax impact of Finally, We revenue the professional earnings earnings. international; broadband new following: Fund the macro related and be the the impacting expect channels. will enterprises; and project tax we anticipate the for carriers in with revenue mix of activity That the due quarterly of to the timing of realized believe those fluctuations of quarter access platforms domestic adoption the inventory XX%. rate America said, a our international and our

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

Thomas Stanton

you, this may thank to open at Savannah, up Roger. questions we’re ready have. any point, for Great, it people

Operator

[Operator Please check is line Rod, Instructions] your your function. open. mute

Thomas Stanton

Yes. Go ahead

Thomas Stanton

Go ahead.

Unidentified Analyst

taking you question. Thank My for This components is really. behalf of Ashwin first Rod. on is question on my

sort seeing are then of seeing shortages? guys impact cost into emergency component have wanted also to to And And that, you check if because I equipment from related any are component follow-up. I of if wondering you Just higher a tariffs? any [ph]

Thomas Stanton

Sure.

a there but much have bit honest, to and the we’ve us some seen pretty year. shortages, are, just shortages component So, last the seen into is times. component as say market there the is component those manifests recover. that of entire we year been we’ve that really lead economies probably way a would be throughout shortages, tightening it’s seen I itself But – to little longer

for goods a would material of months say one let’s six ago. I of perspective, So we different From do that nothing that things is going amount China. course than positive we a of there manufacture is us tariff say materially the now have not in

an on impact tariff we direct point that in point relatively over of million manageable. maybe seems year’s products the manageable. say components this they’re it’s finished time. couple time, are period some to we way it The calculating but at is manufacture, where us very so, it’s at There depending in this a and There affected for So are would small. I that dollars a is it but and or it, time, are

Unidentified Analyst

this to wanted large what us this is at I you in at Tier-X – And customer risk Can on And on if any what year. there is it. slowed you you customer your terms think update Got do point of this thinking think that and check all, at there expectations timing? do there share now? you or are

Thomas Stanton

that about are it the saw big year-over-year that is right? customer, that customer, I talking decline of because think we you

Unidentified Analyst

Yes.

Thomas Stanton

Yes.

a which the so So, project. time was share period major cancellation as really so, had as effectively the project, far was don’t that of I risk, of a for the believe the vectoring we – impact

very cost-effective activity that this I that kind do. specific large, revenue that with We of steady customer expectations around state for of that’s won’t regain area. our are of is as we actually think the of customer, we that – now, that the project year. them at in had have say let’s say QX and things is I working some Right to set kind with we kind in that a have are on them interest some seen but

we we it’s have So, PON Fund business we some course, them as and business not with of do some business let’s predictable, do well. Connect say. America of fairly been the course do is And only vectoring, we

really year trials have. some kind depends these next on is haven’t set we as that we really that. project of of far It concerned, As

trials side meaningful just We have as some or we’ll next see evolve the business services on to on projects for potential both year. vectoring well going as that have as on us they

Unidentified Analyst

Okay.

Thomas Stanton

your answer that Does question?

Unidentified Analyst

that’s Thank you. Yes, good.

Thomas Stanton

Thank you.

Operator

And to Paul go ahead. next we’ll with Cowen. Please go Silverstein

open. is line Your

Paul Silverstein

know you but I difficult maybe is the could Roger, anything be walk you forgetting, I larger appreciated. greatly projects, with the the Tom, G.fast. NBN, cable the could but you revisit projects us always hoping us it. I like opportunities mentioned especially through that’d cable back the was hoping these if AT&T to predict, timing back know appreciate through and could opportunity, I was I steps I walk you else big

Thomas Stanton

sure. Yes,

got to they and on our the half what easy QX, G.fast a the shipping which as that we second scheduled of initial that So, those in is expectations that quarter. little there so ran customer math up, QX. actually into minute shipments, last to really of ended QX. to fairly pushed we Australia first QX so of means had we start did into where into shipping had happened issues, versus early that in We remedy everything lab manner in some didn’t QX, until kind with issues is And a bit of fact kind it just was start that didn’t for and ship do we the material lab that the that

I think, recover since has that but good left in very trying honestly did on our this they to a recovered job shipped materially, quarter. operations shelf of and we probably some team the product still

is albeit a is that So, we it understandable. all when delay, saw of actually

central tail and and actually U.S. U.S., have given. we there, more selected do biggest during very EPON deployment but solution ship a largest to in activity very, quarter still – those a is opportunities, that XX-Gig some new still as effectively kind the think you is, saw be some news a central it centralized on far the customers here probably said with was which I the the EPON aware equipment few we but EPON for the in in selection we’ve is it’s probably we’ve lab big may I MSOs. EPON of of in that, single the for the kind towards highlighted Both very let’s to did As the of that well growth the process more remote of QX, that end and call things we business. large cable going MSO that office, equipment, EPON that actually been including there quarter. Having award that here of of

business that’s fairly I that seasonal We QX expect, in us felt you it’s fairly more us. a base new decline typical for it said new we although, as a know expect like for

Paul Silverstein

AT&T? And

Thomas Stanton

AT&T specific about not going I did a customer. am actually, to not talk or

G.fast So, say the in would U.S. were in here I shipments they sluggish. Tier-X that

think the product are the still I go expected So, haven’t to going and I there the encouraged of that level at that are it’s it we out fully we had a integrated ready to point this discussions that it’s say product we seen would matter is happen a and have selling itself and been them really and it’s not not we that by here. and

Paul Silverstein

And previously received going particular seasonal it’s any shipped the so the back will now those on already be thinking? any you - cable Is to off orders of digest. Has going business? a so, that in gotten it that and change it’s there for the more or deploy the first you aspect be Have like any actually sense deploy, in kind change digest, you’ve now that ongoing in been that been timing, Has I NBN am your in cite in MSOs, NBN to of there and opportunities. orders. rhythm

Thomas Stanton

orders, answer I is yes. purchase that the the We far – have future as to future answer would directly do don’t I purchase orders. – as

in But, a quickly today. of there shipping far solid that started they we inventory have, that it’s comfortable have just they they plan. the really how that last feel quarter. as operating that are I variables very – lot As consume

is, little to I would say, early the little So, going a plan the it’s – be. understand to I early but what what reality is understand it’s a to

Paul Silverstein

specifically me, from from just access broadband this technologies delivery? question using also for there G.fast mentioned G.fast, are that you specifically clarify, last you One to their NBN. for were they other Is

Thomas Stanton

mode G.fast The or product actually that can in we are BESR shipping mode. operate

are it talking space So not cover It the does maybe about. spaces. what two you covers which those fiber

Paul Silverstein

I’ll on. Thank pass you. it

Thomas Stanton

you. thank Okay,

Operator

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

is Your open. line

Michael Genovese

thanks. Well,

guidance fourth change but bit a the at in So terms little the ahead than quarter to. terms is in guided normal of of actually was I than sequential seasonality change, think where sequential it the you better street

I two So, sounds the the is, worse, XQ XQ second same and when of a one, which sort which in maybe my And sort that’s just hearing of what then, wondering, together, end which beginning quarter? in total slight changed XXXX verticals, question sort there two. got it which but of put right. I of the downtick customers, third the is not across better, in quarter second expectations continents, terms the half just half, am And the like timing revenue, just we to of of your then am for are from got else secondly, which the of third G.fast

Thomas Stanton

Yes, sure.

that see me piece of me. if iterate I if that just let So a it and to or that capture capture I don’t

where product ship think second did in did I the what purchase say is are general, not We half that them the seasonal had fact we of where we in being that shipments, in some orders versus up about are you talking up effectively reflective see of be. So, in from QX. G.fast ended to we let’s G.fast expected the

Right, G.fast of are half, the say that now, year that If of the here because actual the one we at did not but the will that shipments order we so but biggest, shipments not the pieces the and in look – U.S. to of getting the materialized. haven’t still probably probably just fact kind let’s maybe we number. is expecting flow them biggest So that out in biggest the versus seasonal, the QX second the that is QX in earlier be explains the be but literally door. was ship more and us shipments up

product customer has initiatives. that by we’ve their we that have dependent seen and not been So, being just that not product that took back lot are and with and and customer upon that is – so we honestly sales in being successful that of forth just forecasts up product yet going yet a – variations

So, is, thing. That wide still have variability a The gave – expect wide seasonal, plus be that range fairly we we biggest that’s the uptick it’s in that range QX,but a it is to is fairly – probably the we expect range. we there be customer dependent than than and know our really QX what upon with European wider end – don’t going just they a situation. it really but typically their is that, me, doing to excuse that more inventory QXthan up little in We range is.

Michael Genovese

Great. quickly, Thank in U.S., just you you. That’s G.fast Asia-Pacific product? product, in helpful. are super you And selling very on very are are on margins if the gross the or different selling that the

Thomas Stanton

not not, No, materially.

Michael Genovese

this then, finally, low inventory, quarter. Okay. very it just And seems

going us? in If million $XXX million explain inventory. only you going you with revenue, are just Can but are do in $XXX in to that you to

Thomas Stanton

still that’s too high. Yes,

So, our impacted. was inventory situation dramatically

we’ve uptick. an So, seen

weren’t of explicit of lot Some that we for some not that material us with the hurt, make prepositioning was had to with sure but a tariff of that buys. the to there do some that,

also up that shortages picked mentioned. of the We were previously some material because

buys, there So did then certain doing actually those the increased probably we actually. inventories $XXX working materially into million that of me G.fast and north But spot all at in our or the inventory. XXX that vectoring on been for tail-end was not number a customer even of And scare have low bringing year down. with does is U.S. increased here the not what we kind towards areas it of happened last is of like because some where

So, I a understand problem. there is mix

a it. with XXX Our is inventory not, level we even are but at happy

Michael Genovese

Thank you, Tom.

Thomas Stanton

because up. was of year I once the beginning to the on glad decrease to been we we the have that start actually, see effort pick working since

Michael Genovese

Appreciated.

Thomas Stanton

Okay.

Operator

Rich Thank go Please our from ahead. Valera And question & you. last Needham Company. with comes

Your open. line is

Rich Valera

you. that’d Do little expect Thank on American a in the you EPON to helpful. that that just terms generate could other North a XXXX with or new potential be give the win revenue is you revenue in that was magnitude fourth Thanks. you with the Tom, hoping of if can MSO. generating that, give quarter color Tier-X I more any color There event? is

Thomas Stanton

Sure.

perspective. have a from an working sales a been over a year from R&D is So, it project we that perspective and on

Of course, longer than that.

new So, the to uses deployments our solution are for very, EPON of and deployment small. They the they size to product this anxious EPON solution have method The by space, customer. is us, still being changes that in materially reason deploy are it of But products the get that, materially they this majority if today. approved people been lowers not buy but actually of and to the different their large EPON cost. their it’s does the material customer this all it customer it relatively currently us one a of which very them

I mentioned we a right they the the – From – is we that actually tail cycles things. that us. towards was, this this market start it very lab them the able are end next of for are So note expecting deploying to different of to deploying to win change was it and in have size be intention that significant product my get now and and entire timing into. The because a the for timing year, and so,

as The long year. see is, that they single being and would revenue this solution expect from to this year affect to EPON. now effectively that to are they so right next current to are to not us only increased extent on focus EPON will revenue it So continue positive the more we we extent sourcing seeing

Rich Valera

on And could then, Verizon GPON color situation. additional you if an the that? not it. if on any not you If give Got update gave sure

Thomas Stanton

Sure.

entire I would that reach are say, fairly with to of that, grow in from – with We progress in would that to other the want couple than we And but I want did I think continuing overstate big perspective, our feel are probably than what kind of continue We milestones them. a perspective, feeling we more – a R&D the quarter. and confidence continues to a to I we better. don’t deal fact that are don’t to – we say are any customer.

Rich Valera

it. Got

you. it me. Okay. for That’s Thank

Thomas Stanton

to forward our joining I Well, I to us on everybody right. All quarter. talking call appreciate look today you next and

Operator

everyone conclude And this your participation. you today’s does Thank call. for

may day. and time disconnect at a have any great You

ADTRAN (ADTN) 17 Oct 182018 Q3 Earnings call transcript