ADTN - Earnings call transcript Q4 2018

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Conference Call Representatives

Ashwin Kesireddy - Goldman Sachs Paul Silverstein - Cowen and Company Richard Valera - Needham & Company George Snyder - Jefferies Michael Genovese - MKM Partners William Dezellem - Tieton Capital Fahad Najam - Cowen and Company

Operator

Good day ladies and gentlemen and thank you for standing by and welcome to ADTRAN’s Fourth 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.

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

Thomas Stanton

Thank our morning fourth everyone. joined Good you, conference XXXX appreciate call. I’m Eric. Roger you for quarter CFO by joining us ADTRAN We Shannon.

what Roger greater going several year to XXXX one our mitigate from the and we Following will was impact we then expect will base work the and on customers. of to the in performance my your a largest forward, remarks change detail financial direction and take fiscal our of difficult quarterly we see the Overall review customer as on questions. fronts, broaden quarter

carrier were previous and driven million a of for of and million, XX% revenues $XX.X the quarter. Breaking revenues and solutions solutions markets around U.S. a our However, opportunity, forward. represents in engagement, typical our International product strength period global Asia-Pacific basis. last MSO from increasing solutions our discuss quarter, access category we the expectations. revenues cable with focus at for business business year broadband your Network this consumer access up up up our going $XX.X subscriber aggregation and year-over-year material revenues of of formally the service Subscriber other flat of and at during our more customer business QX mentioned million our gigabit X% seasonal an down of our total in with we with million XX% came within both strong. Tier-X at business our negated to both $XXX.X solutions majority on further progress XX% and contributed total operators domestic and little aligning revenues quarter total. customer and which prior I the same geographies growth Tier-X over we Tier-X and XXX% saw the for our to domestic over previously XX% our to and Rim business known support million Fund devices from our Pacific work a focused on increases customers. million. enhancing software domestic were regions or regions. customer Overall, markets access a revenue and while Revenues last defined our build expansion QX this Connect AMEA, domestically period We was growing solid the which as $X.X experience continue terms period our look RG of operators and LATAM be the was transform and development out across integration top-line our accurately sales From access grew continued versus access domestic of contributions by over customer the fourth and the quarter Tier-X to quarter revenue the remain $XXX.X penetrations product U.S. services the Traditional and $XXX.X in revenue, America some our make in customers. year. Addition the and while on million same Rim up leverage $XX.X categories the million. Pacific over those Along revenues a outside our adjacent at revenues XX.X% services provider and AMEA quarter infrastructure further $XX.X year-over-year up revenue accounted led and previous and in with perspective, remain our or Across international a communities the XX% XX% their broadband quarter experience over or year-over-year as and the material world. with in LATAM international fourth aggregation LATAM XX.X% seeking increase revenue compared across smart Tier-X increase for will on market strong basis. growth had engagement to with another XXX% while With extremely of The XX% our was European carriers the our in international vision came in and the came broadband was growth and in networks. Strong strong previous up as services XX% experience decline. last international with

continue geographic led we interest growing in by applications to product strengthen work market traction and Access solutions, Mosaic momentum software into and XGS-PON integration further XXXX SD our diversity, this as expect solutions, in to We services. our XX-Gig customer

source they and leader growing looking network of connected evolution to as are services. of MSO technology for underpin portfolio recently access as operators velocity. the software platforms number acquired believe phase and A in cable home this providers service and our will defined cloud ePON XX-Gig next open ADTRAN Our service our and the

in and a priority As many ADTRAN you the the know, of has drive XX-Gig to market general. been for

Our industry named provider recognized categories all as the who market across analyst by ADTRAN recently measured. leadership Top Trends emerging leading Broadband XX-gig has firm in this

ADTRAN as customer and our to leveraging the East units products us. dwelling in conform the two ADTRAN wide. by ITU focus complement PON community products, a markets. to Tier-X supplier commercial requirement capacity G.Fast our change that the extremely of PON with through network periods ADTRAN's leveraging business and customers ability the is This commercial ADTRAN’s business from Berlin of development generation during level delivering announced World mix. scale operators over main networks next American well XX-Gig per that and as G.Fast already to having North deploy XX-gig (Ph) the next leveraging and forward The needs, customers build largely the standards, a and operators For moving options during G.Fast deliver other By Fiber will ADTRAN bandwidth fiber our addressed network demographic world's meet XXX television home high, conversation to flexible XXXX interest of Standard, that for list G.Fast footprints. scalable, are all driven ADTRAN of surveyed ADTRAN are announced was the require operators requirements. products advantage solutions access plan our With of carrier where the the of usable key North Forum bandwidth points and network specific and partner to fiber look on that XXG believe of solutions at on the delivering to These capable by agree networks. doubles over focus second-generation to open broadband software their ADTRAN's XX-Gig services the one fiber network cable responses now Middle same for best base distributed help interest At in and customers of of infrastructure commitment including the platforms are solutions according market. Deployment an and from us an to platform by for significant area revenue unified their and responses which megahertz technology first looking joins quarter for the Three key Fiber the To of to industry of multi and experience. wiring the XXX distribution gigabits gigabit broad Community proven end ARPI three ADTRAN should XX-Gig solutions With XX-Gig solutions maximize is to the such Amendment to that a phone centered is as as to first make which leveraging available shines. and fiber services future of within services solutions the services readily Community XX-Gig [ARPI] years. gain broadband this XXG amendment subscriber that services availability a G.Fast network help once the their to Broadband We providing fiber Australia our to in fiber our this ADTRAN XGS-PON the residential past market to deliver to underway serve a leading million XX% has growth access the basement a one in within level report. for support build and and infrastructure. ideal spectrum network. aggregate technology, fiber to second, has as deployment their are international both validation to breadth markets G.Fast carrier of megahertz. customers and This be that that and to is XGS-PON XX% access NG-PONX a of is to the or regional the existing needed in full systems best few first UK-based build solutions home Europe, technology it over plans Community speeds fiber the deployment deploying differentiator technology America, interoperable applications potential to and service is in like services penetrative growing decade Fiber broadband residential

current quarter pleased to are G.Fast one nationwide the are We enablers of NBN's during its announce fiber to to ADTRAN's network. solutions key the the of market-leading rollout that

in we and of G.Fast helped our next gigabit generation range able NBN network contribute such are been ports to-date technology delivery has to to We applications hundreds capable a thousands wide customers successfully pleased ADTRAN services around have to have fiber globe. the meaningful advanced of to defined addresses shipped gigabit and build way. design this of a and this

quarter leading home entered final Smart solutions. we the connected RG, global of XXXX, our market of acquisition provider the a home During connected of through

as these us approach the access leverage and networks expand of our a operator’s rapidly investments well. and We hardware-based small enable programmable and address also growing, their this Mosaic businesses software it about platform home extend of and services optimize will multibillion and are are solutions This customers their fully to dollar as in needs and RG market. value consumed excited how connected the virtualized platform. to scalable Smart open ability both web delivered will medium to enables opportunity our delivering

us home. to opportunities capitalize the of to leverage the market continue business and long well is ahead and broadband ADTRAN of view shift positioned disrupt our transform core within on the emerging both new in connected the to We take a the opportunities strategic access market. ahead

Our multiple broadband With market details will over on for I I providers, all to for of with and to Tier-X and the from financials questions work cable ADTRAN. entering to will any utilities to more now call that the some turn may that, the ahead Roger. types answer service rural are municipalities comments provide operators have. and Roger broadband Go be operators his you happy providers following traditional growth create engines

Roger Shannon

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

The both referencing stock-based differences reform GAAP expenses GAAP During and related non amortization, be my between expenses restructuring results. and reported acquisition non GAAP include expenses. GAAP tax and report, compensation, will and I

million As last year. quarter at Tom revenues fourth $XXX.X in for million million to compared quarter stated, quarter came last fourth $XXX.X and $XXX.X ADTRAN's

XXXX RG, QX million our revenues acquisition approximately Our which include Tom in results XXth his resulting Smart from discussed in $X November comments.

versus revenues the and QX last $XXX were solutions quarter for for reported year. network of QX million $XX.X fourth in XXXX million of $XXX.X Our million

compared category access were of $XX.X in XXXX three to Experience year. quarter and Our for compared global aggregation were and and million Traditional Solutions XXXX for the revenues $XX.X $XX.X million Subscriber million and for and other last last quarter quarter our of for million million products third $XXX.X this quarter revenues QX million revenue million million, XXXX. quarter three and our versus four for support were for million $XX.X $XX.X in for the for and year. devices $XX.X were quarter fourth revenues Across services compared of the reported the customer and XXXX. categories, last million quarter million in quarter for of quarter of quarter and million XXXX four $XX.X $XX formally of four $XX.X four year Revenues $X.X $X.X quarter to

for $XX.X quarter $XX.X year. million of XXXX were reported at $XX.X four and revenues quarter versus QX XXXX Looking three last in million domestic revenues geographically, of in

million three million international Our four XXXX. for $XX.X quarter were and quarter to of $XX.X million revenues $XX.X four compared XXXX in for quarter

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

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

Non-GAAP in $X.X decrease last for were million international $XX.X in and and operating Year-over-year attributable year-over-year Smart basis XXXX quarter-over-quarter of one margins quarter margins, higher portfolio volumes quarter quarter lower in partially RG. million in $X.X XXXX. operating in Operating GAAP gross primarily is expenses, to an The was $XX.X our offset gross of quarter domestic offset expenses primarily of a decrease of GAAP was last by a expenses of year. operating reported quarter international XXXX. million of sales quarter a and Total last margins and operating QX $XXX,XXX of lower for decreases increased of of decreases four compared four four million or the spending typical four this in Smart compared expenses quarter the losses quarter RG. compared last decrease loss product operating primarily and quarter $XX.X of $XXX,XXX in compared million the international million year. non-GAAP income and for expenses QX compensation increase gross were of to last expenses. were of decrease was to specific reported month to in $X.X mix, mix, than gross compared operating of quarter driven mix. $XX.X and a XX% million product the is the our business. the million in larger is larger expenses, quarter primarily our reported QX gross XXXX for year. domestic The volumes and project income $X.X non-GAAP from to million GAAP non than four on in operating operating from reported On addition four four and the income operating and by last from operating quarter result and decreases XXXX, versus partially than and our the lower Our in over partially for by quarter the in reduced loss compensation The result domestic R&D just acquisition million quarter-over-quarter expense product mentioned XXXX to a XX.X% basis labor for resulting QX GAAP million $XX.X the offset and ended sales by operating a to offset by of of loss on compared XX.X% expenses decrease $X.X the margins a of weighting of GAAP databases by previously XX% XX.X% and higher the and in partially as attributable Non GAAP our driven quarter loss The lower GAAP prior of volumes were quarter the of quarter decrease of to margins of and quarter year for was operating fourth last $X.X four labor XX.X% loss million fourth income quarter typical of $XX in prior year.

ended, in were in $X.X the of the of last $X.X $X.X to of for in by million expense, and provided net to last $XX.X to compared Jobs four last and other income disclosure, $X.X four the quarter our and quarter income compared XXXX. quarter million $XXX,XXX reported adjustments the Tax quarter million $X.X reported reported net current acquisition. last of driven last for operating quarter based $XX,XXX tax of was last $X.X information the RG million the of Smart four quarter. a to and As quarter last compared and and million described was stock related this results $XXX,XXX of four for was quarter amortizations in compared million expenses to million $XXX,XXX QX of was of tax, supplemental quarter quarter compensation tax quarter in expense year, year. quarter with In increase last related as Cuts in of Acquisition net for just Restructuring, mentioned $XX,XXX quarter year. zero year to the expenses loss million compared four XXXX for All Act, income $X.X we previously

significant $XX.X the of Company's in from of tax the compared during as was tax for projects a four The $X.X the the of by third expense million in and of current the declined The last was impact four this and tax the year domestic by of net of loss a XXXX. analysis tax market year equity expense from in resulting driven tax tax primarily million quarter completed in tax our driven completion a other benefit income QX million Cut benefit equity Tax to benefit in $X.X unrealized business. in other provision Act year losses portfolios, quarter was The our investment in XXXX a Jobs losses quarter quarter to GAAP a of quarter. shift

$X.X onetime of for Tax write our GAAP the quarter QX income As down compared differed of this XXXX XXXX. was of a GAAP income last quarter for million a of loss in income for quarter implementation of tax of income Non-GAAP loss $X.X Act. year. of of year quarter last of the the last million resulting reflected compared million four of quarter $X.X Jobs to four and tax last quarter a reminder of income in of was and and expense year $X.X of a Cut the a fourth quarter million million, to $XX.X $X.X from million, loss assets fourth net the net

QX and driven GAAP unrealized this the above, investment for our year losses equity were by in mentioned losses As portfolio. of non-GAAP mark-to-market

Our benefits GAAP gains and $X.XX of $X.X the $X.XX of in share loss compared a equity QX $X.XX of GAAP quarter from quarter million. of per last last per earnings benefit cents reflected and other quarter were net income a $X.X of per compared loss share million of tax income income year net for a basis quarter, XXXX. quarter of were per a fourth of for Earnings a quarter, of in earnings Non-GAAP $X.XX $X.XX fourth share share the share of per earnings this share last of per of in loss the $X.XX four for to year. on per

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

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

receivable $XXX.X resulting year's the was of of shipments at and mix effect. to in also $XXX.X end within timing versus million XXX customer four generated a million XX are quarter higher, were cash million quarter end DSO to million and XXXX. compared fourth at quarter quarter, and longer days days no XXXX. the last the to DSO Inventories of days attributable $XX.X end and payment in in For mainly of million that at year period the customer last of we XX at terms the is specific DSO quarter $XX.X Net of quarter. of last driven quarter by the quarter operations. the the from compared fourth last $X.X were decrease end trade same quarter accounts The the Last

we finalizing transaction. finalize results a related completed as purchase of that to fair the accounting RG the in is RG the process purchase primary part acquired expect reflect value assets assessment have to of the file assessment, the our Smart preliminary currently by entries XX-K. the The Management of accounting of the We Smart time transaction. we our

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

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

We expect million $X $XX in million expenses quarter and million for one operating to be for million $XX will for range to of $X non the RG. XXXX organic the in ADTRAN incremental Smart of of million range GAAP

total, will a consolidated of international channels. Fund with significant on fluctuations international, rollouts, we the platforms tax anticipate relative enterprises, related variability quarter proportion movements, our revenue to rate in timing services Macro of and broadband realized our be be both revenue the levels, exchange the the Connect access of revenues first professional and of the mix and adoption the XXXX inventory impacting America for spending We earnings believe following. approximately to the carriers the the revenue non-GAAP projects, associated domestic XXXX distribution project rate the activity of factors Finally, and rate XX%. and currency for in benefit of a basis will environment

website Additional to investor financial available www.adtran.com. by relations is ADTRAN's going information at

investor the I'll With back to relations over Following Tom. link. the now call turn that,

Thomas Stanton

Roger. Thanks,

I think it was unclear XXX. that or was revenue XXX guidance

open that Aeron, for up it any we with to willing questions. are Okay,

Operator

Instructions] question Hall [Operator with Sachs. our from can We first Goldman take Rod

open. is line Your

Ashwin Kesireddy

the and Thank Ashwin the follow-up. guidance you have Rod. on ask and of a situation that shutdown impact you Tom I thinking government are from wanted the about and is for to taking how I my about in questions, behalf this

Thomas Stanton

not I connected piece. don’t driven have (Ph) having ultimately ramifications shutdown to will can but under something, actually we extent the on, if that to that that [CAF] the portion government something doing the the shutdown goes end-user were with that relations is be is that it said think start Well in largest we

by that’s shutdown. schedule with payment work now materially right things the and being done affected not associated is the the So

For new some where are plans the newer and design. some of is dollars future that they the stuff relatively architecture in of Tier-X like putting

So for say are we the year impact. expecting let’s but effective, that been work big see out, work any think has I this that year, a for we don't

Ashwin Kesireddy

you it QX, and carrier sales in the some that Did is increase Tier-X talking of U.S. Thank there same cause regarding are weakness the about or see comments in the come rest you spending back you about... your XXXX.

Thomas Stanton

pick see did there. We a up

Ashwin Kesireddy

Okay.

business, on total XXXX Finally international rose it like revenue. international looks portfolio the about XX% of to XX%

are curious as overall a how of there Just going forward, settle you level thinking is budget about of revenue? and could your percentage that

Roger Shannon

versus I now don't of right Tier-X carriers just be a out mentioned larger going which some and are actually you this carriers are they tell envision in Europe, the it carriers that outside I that's activity the of are in. on how U.S., carriers think typically how and are of right have U.S., XX this carriers revenue always But good to basis would mention half - settling, quarterly flows here are they in those upon projects by on in U.S. looking are might I what Europe I there to quarter-by-quarter a for flow going - in I going - that XX-Gig or pretty be we they the dependent Tier-X have RFPs are U.S., a it's can't have are to the to carriers. now Tier-X the carriers, some are mentioned that the year looking and I projects of actually the of mean on gig I we the that's mostly year-by-year and come one several going dependent I projects service with in are quite picked-up going deploy so over few second last the last outside

Ashwin Kesireddy

Okay. Thank you.

Roger Shannon

Alright.

Operator

with will from take next Paul Company. our Silverstein we Cowen and question And

now Your is open. line

Paul Silverstein

was? First-off, the Roger just repeat RG can you what contribution Smart

Roger Shannon

month For is the consolidated million we that in $X one of revenue. QX approximately had

Paul Silverstein

is somewhat margin that what expectations is the you. change reflective the of to the just respect in Thank and With geographic go softness year? pricing, any throughout are gross mix your

Thomas Stanton

margin versus there international material look margins you there. change gross If no is really at U.S. gross

the mix out to know, is geographies through a we that of seen seems are U.S. little bit, strength more a regulatory to probably year holds unlocked. than of we driven. of they be feel this out little going been of about think so the do years some to expect So to going We I couple you of America have Latin what have which have as kind shift

you see there, So margins gross I negotiated think shifts being those are we will speak. as some

I it to pick-up So would does a follow through we would lot U.S. the some the it's of going say to right now, expect trend, theirs just year typically as internationally just seasonally is then activity. the and

our mid-XXs, being of is the the to the kind Our and projections changed thought low where been year. kind in of trends are which for of we have really materially hasn't

Paul Silverstein

pricing clear be change the it you and just seen in trends? to versus a historical haven't Tom, Got

Thomas Stanton

No, have not.

Paul Silverstein

picked you plenty your and strength the a Mexico is there that wanes you American over of many past Latin in or historical years up? The was waxes customer Alright. saw that business

Thomas Stanton

The year be will probably customer. material same that piece this for

Paul Silverstein

one Alright. question. one If may I last

big are putting does out to have how to [Indiscernible]? but sense last for days, NB compare four those a AT&T timing and any give of have aside beyond insight, to there how little the months of rewards you do Tom, months, ago it you Can above cetera. six XX function XX bit are and for the et out the of these large many the past we projects more now, incremental and terms they there six In Tier-X a right RFPs been

Thomas Stanton

clear. let way a me this in Yes, that's answer

within are in as that's way they you times broad many the all at of XX a them days, going if in, at the last not far look what date window to they all them are days, are as months six next is them, So to you out. that the to RFP XX of look tell expected stay come

think I its and ten. somewhere between five

Paul Silverstein

Given Tier-Xs, type these are $XXX typically million plus that a they are opportunities?

Thomas Stanton

yes. a one aggregate in in necessarily But year. particular for carrier Not

Paul Silverstein

back I off, appreciate. I thanks. will

Roger Shannon

necessarily haven’t won those And Paul you, let me yet. just we tell

saying of So mentioned I’m just one to win we are not all and I that every going at you them. know that

Paul Silverstein

luck. Good Understood.

Roger Shannon

Okay.

Operator

Valera will question take our we And Rich Company. from & next with Needham

Your open. is line now

Richard Valera

you. Thank

follow-up or the a month, million the a had for of expecting the first got you are linearize Just in we for quarter. Smart just understand RG the Smart that give you specific contribution more for to in you us sort three on you fourth. RG, first Do want quarter the

Thomas Stanton

I don’t first the will in their we seasonal see trying think you still liner quarter, are pattern. understand to think it I

if of don’t have say out you forward nine a you pick going window. it we a given be saying expect rate. think second think it expect QX to broad going less nine and atypical quarter the be of an So quarter it be nine, let's on run - would it But linearize would wrapping that’s just about it. just About I run be up and then than and something I’m Xish to to and basis, to a it we shouldn’t that the we rate fairly way

Richard Valera

that’s it, And what can say have historical margins Got helpful. their been. gross you

Thomas Stanton

I going dissected we that take I as forward. really number that enough have know have you don’t because think the

about to are supply in also that be there chain think do adding yet. we kind We a speaking so that is improvement really at to of point not here our it some

Richard Valera

Fair enough.

year. this back about the and you of run is to think historical beyond, balance ramp been the that had potential Is they significant, them for are you thoughts development your recall of big years. this contributor to down year that I there since significant revenue there. going What sounds the a be we this pretty its Latin if think something since how can Tier-X where relative and for I up So kind rates. on American two about believe any are

Thomas Stanton

So this contributor but things, a chunk the typically of period actually be that we them then say not side point work chain similar answer do typically supply customer to deliver the They they over very the large year. they and they direct a time at year us that so are something is followed question to we you is material to on do and this the in time, when bind associated seems are typically meaningful be in expect demanding, and a fairly your to they with would and would them it is to expect pattern yet easiest I decided that, this there want and accelerates for while. to that forecast services

Richard Valera

relative then some your helpful. expectations year-over-year but XXXX? any into momentum customers, in the XQ I mostly group, ePON growth growth sounds with the XXXX in with good MSO for like business that’s Got from And XXXX impressive provided group you some about guess it pretty have statistic products, it presumably pretty can to say that that you you for MSO and

Thomas Stanton

We expect rate. think grow; growth to the going we don’t to see are it I same

what of was and it and growth businesses, piece and Some piece expected growth CommScope is ePON is acquired with that when it there we we just we the with acquired Sumitomo coincide acquired the coincide their - they initially because - their and then ePON it happens we acquired to to happen business.

that I’m lab, we here ePON approved those getting this in will the have are pipeline projects, the one are try new meantime they year And to major their think as meaningfully some supplier is that two through continue expect those U.S. we get deployments. ePON this we of a enhance will to to year. We business where source largest and coming, with those were to business sole the would the the the in in open-up be MSOs the grow place good which the products

Richard Valera

one we were me. time Got talked the to update Internet this within update on opportunity way of fairly from the year. on opportunity? update that cases, qualify would cost it, by Anything provide you final you, and an perhaps one for at believe that use get give can earlier one I you the last you low Can on you their us Verizon on optimistic I think of us least

Thomas Stanton

We want are in we lab as to the through still that's are the target we on say, use them, out that. all still the I specific the case probably first working and get still piece of and lab working to with

there. change no really So

Richard Valera

leave I Thank floor. the it. you. Got will

Thomas Stanton

Okay.

Operator

And you. will with we from Jefferies. Snyder Thank question George our next take

Your now line is open.

George Snyder

I at the much. it from so wanted would for be around I to in analyzing flow thanks very back $XX change looks you the RG I paid top-line, guys, $XX the think in to like million guess cash Hi profitability business Smart that million wanted if it guess look wondering, that I go acquisition, it come profitable, would can or about with ahead then of also I'm go ask sorry. just Smart like? guess profitability that to I I is lack - accretive, the that. is talk mostly what RG you does And about

Roger Shannon

that to be expect year it question, profitable answer we To yes. this

we when it. profitable was bought it think I

George Snyder

case talk create homes. trying on terms heard And you you Thanks. said case about of the users I'm portfolio? offerings the how would existing curious might RG, mean examples sell great. offer in just Smart service new about I then Can the use specific you what I to Okay, in to broadband in conjunction it that with of in just what you and

Thomas Stanton

suite so that, whole actually including required they management home of it's on have access, the service WAN portal our excited existing widget. an the the they software a are and for piece the and customer additional that it LAN have residential been probably the of is we services, with fit working capability management about to on portfolio itself, of No good first most which LAN of potential add it's application inside all kind big virtualization here, as being were with a a

Tier-X but helps that the anybody for a demand that where don't This midst to they They been cloud CPE just in and a So add have some those. including on they customers that have world in virtualization that and side cloud base side are probably the of things when actually, some services lot suite here our troubleshooting not of to as and the - their Wi-Fi the into we on already is nice, does but carriers but their a in been want Mosaic of converting Tier-Xs probably says us the customer you cloud of working as it have today. customers around on not thing. have towards else the that, these the based time. U.S. the basis biggest of have it synergy a not their is the well, our on accelerates work. looking And It's to Mosaic in buy the the as the know, a materially cloud only allows standalone to where just maintenance somebody with we they just doesn't everything and have it compete kind Tier-X, in offering to service-level as not areas and larger virtualized in somebody is much are of

George Snyder

much. very you Thank Great.

Thomas Stanton

Okay.

Operator

And Partners. with Genovese from Michael we take next MKM question will our

open. Your line now is

Michael Genovese

very thanks Yes, much.

guide different change all way quarter and for is quarter? seems past, in a ability the much guys than there have more give somehow narrow the of sort is you the actually the in so to plan what specific of more guidance or First much given just is you this this

Thomas Stanton

Yes.

guide was literally it fairly wide to last really Our like tends and visibility. is quarter that

number So the latitude when it if a that we we to and we feel to wide tend don’t. give to don’t, we ourselves has that, and range

So you that’s almost directly quarter. dependent have upon the the visibility within

Michael Genovese

Okay, great.

major XQ of big major and So customers. you sounds for me we or outlook. as that it’s the from GM really your are fairly customer I’m big any move Can changes in consistent, seeing because it think regions XQ commentary, highlight guidance like regional not from and just mean sort the you for to changes expecting, I the about

So am anything I missing there?

Thomas Stanton

put my in about, haven’t it’s head thinking so are very a what I logical question. it exactly you

strong. so little We towards because anything, bit international. expect to a may those to from last bit be approved slow not Let U.S. certainly slower very U.S. - tend coming QX be be out me so budget prints budgets out was has budgets a QX, and just the get little over typically They Europe starts give a slow to cycle you would regions, would that expect their expect we shift since Europe Europe year strong. little a expect we LATAM if to to you more moderately grow pretty to

Although a NBN you know strong pretty had QX.

shift think is not to not are shifts, regional although not big customers think about way I you way shifts, a So there a the material but bad thinking, on it. probably basis which are that’s

Michael Genovese

about year, next margin, guidance to of is very give U.S. a can not of quarters you better or sort tell we how know giving Great And gross are yet, many too couple margins, we mix. points two the a and that a XQ, are us the in should more terms, Would have and it you thanks. going this to just and helpful, after this I in think you in gross early margin but here, QX expect when gross XQ one. how for XQ -

Thomas Stanton

in in trends on you QX, are and Europe. perspective happens U.S. give depending a can right. trends QX up I from are mix exactly what the

are to Sometimes QX now as and the have we just today, Europe we overcomes customer know we components speak. also those case at of that. revenue as but through to in. QX numbers be America I U.S. that mentioned In And would you that will up, working Latin we figure kind expect with

QX be and to it are to depends would component QX on extent revenue higher positive. a the mix in that is follow with, how international that actually So expect trend dealing comes then the you really that that you we that out so would know typically

Michael Genovese

then And great. final one one me. Okay, for

give that XXXX, how can an a - in you NG-PONX revenues and be be of XXXX or to going us the that terms update in that could more look? on is does Just XG

Thomas Stanton

revenue specifically, answer one about mark, I little puts that is don’t and question this know as that a far year but and to NG-PONX XG as yes.

Michael Genovese

appreciate so thanks I much the Okay Tom. questions. all

Thomas Stanton

Okay.

Operator

take will Bill question we Tieton from with And our next Capital. Dezellem

open. Your line now is

William Dezellem

those apparent Thank or to than what question is one something follow-up have I the the Smart one two, timing to outside? to they that I you. and on are that I greater that would plus RG actually are is a you saying before mean question. becomes essentially is

Thomas Stanton

Well revenue, number was kind target a we just of for $X about talked this which million.

access probably and scale and think manufacturing more customers. there had importantly [Technical I and things we customer in to to base are scale Difficult] that

alone that, know have not involved actively of But some company not deals standalone that material in to to. been able in, we we So come would the the are were been today involved actually. in company number deals

see on where it. million I to So the and would million, at able you a acquisition are we you just something I ago. wanting to run are say to this a that $X to right materially conservative would we that’s we know point, half above that have, do it's very this point but the And new hear, until the like this it’s be month to extent rate how increase a $X I at actually little

on it's I pretty are getting think that million number, now run we depth just number. into are but the of confident with to little already meaningful customer we the there earnings make discussions side sure so upside gaps early about to that on rate are and technology talk $X

William Dezellem

And has that it some time strength the let me you driven if America, experiencing been had has sense are I what Thank Great. region you. is quarter. that that since Latin has this What to switch may then shift, your there?

Thomas Stanton

a over think years fees to within being and a that's it's strong that I I not a think on country two overwhelmed for bad capabilities thing. - matter been which it broadband is regulatory of desire has asset and increase just the

William Dezellem

seeing of so your appearing benefit part and if globe the would be what commentary, any lots conference implications is [Huawei] benefit Got this prominent or it. the there (Ph). Talk about And call last of been you if then that and most to us lastly of additional the has since you please greatest about if to conversation are potential?

Thomas Stanton

it new the coming yes, the it being and has mentioned beneficial. that the there Europe a network, for out that and of on, America Americas we RFPs and from and that wise has market. been is a a were requirement the have are technology visibility that in string specifically is North happening more I been been in timing shared

perfect is timing are because a mindset - seeing that. and change in actually the think probably I of we and

it’s So positive I thing us. think for a

William Dezellem

look and ahead. go - we you you to Thank Great. forward

Thomas Stanton

end to about I please. was ahead an go to it, to Yes. put but

William Dezellem

two have say to they going to additional look winning that won. or forward just three was I we you deals otherwise would

Thomas Stanton

Thank you. Okay.

Operator

from Fahad next Cowen. our question Najam We with will take

open. now is line Your

Fahad Najam

you in. for question. me Thank squeezing wanted to you big I ask picture a

of what are We at and concern that are what are the about, start year, things for XXXX most are excited you about what the the are [indiscernible]. most

Thomas Stanton

that XXXX, a I’m the I'm excited I’m are seen. we about actively affect what than excited most necessarily problem is about their - network, bigger customers is has excited have upgrading doesn't been so of what longer the What it that what it’s about, never is Honestly pursuing outlook. number term

break about this their in have they when out as very by capital capital constraints space our of revenues engagement volatility out of to years it’s half, like leads means but of is downturn and had some future. us and of strong will and fantastic that. free, being diversification able out coming if MSO is I level again aggregating customer of all has excited the returns do think U.S, from the we MSO meaningful material U.S. those customer to about carriers although going over where customer Well space and relationships some term what and in that their is of it to longer in the future year to and to the lot material and our small time-to-time, last that, budgets there where MSO deterministic of a that and actually with within clouded I we pay we never a Europe kind like to over for the working the done Now space kind it’s base those a things are I less enough job had and have break in that very get in been and it’s a technologies of in the the building we

really thing the excited I’m about. that’s most So

the fact to bring the fact America have time that has for If period know of you Latin will we quick some in that that Europe in a defrost. you is materially aggregate seems and it revenue as it well thing XXXX, look customers the us landed XXXX frozen at specific in some in been market from as the then just it be

about prospects. hard that very the to happen. year and we customers the very I is always is a other about this term which What that still that it's than So relatively affect those forecast I pain of and that about, that a excited really set is things, worry when to needle the are most definitive thing but things - have can longer kind I’m of worry leads more move materially

very that the for on as thing and shareholders is ourselves more up we ready keeps making that can fall to a picking diversion our our than well. the continue diversion when are sure that's to we into difficult that When me plan, up. continue we a that So like execute best it's happens and that and a we do whole but it's

far but diversification. what as can So that do, we we are as time takes doing

Fahad Najam

you. Thank

Thomas Stanton

Okay.

Thomas Stanton

I Alright. next to With today joining and that, forward appreciate said to that concludes for talking our look quarter. call. we you us everybody that

Operator

your for program. participation. does you today's Thank This conclude

time. You may disconnect at any

ADTRAN (ADTN) 24 Jan 192018 Q4 Earnings call transcript