ADTN - Earnings call transcript Q2 2020

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to ADTRAN's Second Quarter 2020 Earnings Release Conference Call. All lines have been placed on mute to prevent any background noise. [Operator Instructions] During the course of the conference call, ADTRAN representatives expect to make forward-looking statements, which reflect management best judgment based on factors currently known.

However, these statements involve risks and uncertainties, including the continued spread and the extent of the impact of the COVID-19 global pandemic, the ability of component supplies to align with customer demand, the successful development and market acceptance of our products, competition in the market for such products, the product and channel mix, component costs, manufacturing efficiencies and other risks detailed in our annual report on Form 10-K for the year ended December 31, 2019. These risks and uncertainties could cause actual results to differ materially from those in the forward-looking statements, which may be made during the call. pleasure Executive the Officer my Tom over now Chief Stanton, of is to call turn to It ADTRAN. Sir, please go ahead.

Tom Stanton

Good second call. Thank us ADTRAN's Tamia. morning, appreciate Foliano. We you, you CFO, for Mike our me quarter With conference XXXX today is everyone. joining

and I'd opening detail, like the COVID-XX Mike pandemic. to performance remarks, your take my review the address we'll Following financial questions. quarterly will in then To begin, ongoing

our environment operations, global carefully have and in all we where COVID our Given monitoring regions been employees reside. customers the

well through strive continue themselves for to customers, proactive and protect help healthcare, thus We broadband diligence the tremendous SDX subscription providing others and government vendors Mosaic remote with is customer has next-generation Furthermore, our difficult the software is need the running help better Cloud aligns This and from to by to we threat experience people of connectivity. can in for far to to aided provide Mosaic the network virtual fiber partners connections employees thing is global on The provide company. are to home, it's home, critical enabling One ADTRAN investment safe. or to a ADTRAN opportunities our extremely to deliver school in businesses with work vital for integrated high-speed transition times. an and they're to using enable right is be doing to And these new I accelerate services. abundantly the to stay for connected, limit their infrastructure. cycle committed service year to that globally in we and economic recovery. providers make fueling been and that continued connectivity, these ban measures employees, changes solution families drive importance and software-defined experience taking what momentum to want platforms. pivotal broadband significant of experience the architectures, keeping to exceptional. virtualization connected better home creating encourage Whether keep to XXXX through keeping plans pandemic clear the high-risk operators' our timing a and/or our our ADTRAN has thank to exceptional the broadband continues actions

in with we quarter, and subscription good the software progress XGS-PON. fiber a During the tremendous GPON services. strong our in awards with half capturing next-generation very We and opportunities the in of XXXX customer business new both made first with exited momentum of mix platforms,

share in XGS-PON we a have to market. America analyst in gaining Delaware. the most As recent leading become number competitors been position the North gained U.S.-based market the points share category, seven Gaining result, the in reports OLTs growth PON share supplier ADTRAN in firm, the all and our two market eight share for against have strategic industry jumped to points

entrants in are next-generation new share market fiber also see gains providers service to legacy include we access solutions continuing not and unserved to providers a utilities, electric and and broadband and deliver market, U.S. up in including the in gigabit underserved municipalities, have the who developers surge to are moving that platforms Our communities. co-ops services Australia from where only Europe to of stepped alternative

XX. communities in counting they now exciting new customers year customer the to that account These are are new new operators on provider ADTRAN help to accelerate for the service the pleased bringing during XX that We serve. services quarter, the delivery very added them we of our

programs and seeing awards We we America, we track in on access North excellent start SDX from platform, have are of U.K., software-defined each the the major our which and progress these one in to our making at fiber operators are one XXXX. with EU, in material Tier revenue

position will we share scale be for gains to come. some one announcing soon customers many new These awards years growth quarter. awards company and customer Tier market live fact, these In the of this solid on for

context, perspective, Services margins. of for revenue a our most second of the plan XXX.X%. emerging quarter way. solid financial included revenue our that demand accounted XX.X% Given major line regional LATAM with top in against service revenue market strong $XXX.X provide execution - million, segment project. gross demonstrated contributed with at Solutions XX% XX% for XX.X%. the the Global our revenue with quarter was domestic a the the provider Network From leading To backdrop, the for some results and segments, XXXX

in basis. Excluding was XX% up this project, a year-over-year XQ on revenue

We a continue from market to and product perspective. build a base geographic, strong segment diversified customer

previous For business the period year-over-year increased grew our and and top access growth the fiber category. continues a on quarter, to over XX% sales be XX% basis our

In addition of XX% OLT and XX% quarter-over-quarter year-over-year revenue, on the revenue growth grew CPE, to our PON fiber ADTRAN basis. a

QX, in component supply logistics Our continue and work team in challenges. managing helping hard chain availability us through deliver to

we available by quarter, freight cost to capacity affected During structural continue achieve target our the execute operational organizational From as the model to accelerate to and to bases perspective, cost changes in as continued operating rates in our we were plan. decrease an higher rise. improve

it management target over material in a five to track plan. and expense on past operational our profile we achieve achieved Overall, have quarter. on solid and operating We was the expenses reductions are control through quarters, expense

a segments. more provide and detail now me around some of Let products little the

pay Total continuing Our dividends. widely Platform deployed in to XXXX and the great continue investment Access successful highly

and delivery GPON the that During existing combo in effectively XGS service cost the enables XXXX we deployed TA XX-gig providers to quarter, card our markets. new for accelerate service

it capability our networks. to platform, greater disaggregated enables Platform. cost. industry of management open defined in offering accelerate to in By them adding SDX new continues expanded networks in leveraging the development Cloud to a operators access chassis delivery their software lowering Mosaic fiber existing product customers significantly our our delivery flexibility centered also an the by ADTRAN to solutions deliver solutions their migrating XX-gig lead service and family the a that to evolve are the have software-defined common around to SDX or We portfolio virtual while

analytics network a build capabilities as applications. of our service intelligence, portfolio immersive software We greater out to are deliver Services experience and also providing Mosaic continue we Cloud connected-home visibility, to providers more

the adoption gaining and During by both that we are services introduced strong customers. new quarter, new existing software

and In deliver while operator automation. reducing fact, enabling customer together to applications a to through of unified revenue experience providing XX work devices Mosaic upcoming the XX And One subscription to software end-to-end X.X center new over in services, this us an million These customers new subscription costs control streams also concert, disability, network will software in intelligence operators an with efficiently purchased seamless view. automation surpass under management. a enables the virtual accelerate quarter

fiber our solution second-generation business, Cloud In addition business accelerate delivery G.fast customers. exceptional progress to our Mosaic extension our services Central extension Tier its fiber residential Europe with coupled remains high-quality, fiber portfolio, selected in in the and customer strong. A to Platform ADTRAN for access next-generation one of broadband new further high-capacity

announced network. our curb with MNet Net quarter. deployments Outside in G.fast from for national in by Welcomm broadband revenue in from fiber our was progress awards Additionally, Germany of driven to Australia Finland performance international continued the and we Europe, the during the

residential for remained the this our our the enterprise half business route-and-switch quarter highly the COVID-XX XX% period has to have hardest, later school and with in the we continued residential medium year. successful tailwinds. CPE portfolio, market, While of our broadband enterprise revenue work heritage and invest and encouraged online line prior portfolio basis. strong we In current pandemic refreshing XXXX long some is CPE small first the a hit will our the for in headwinds given enterprise from XX% the year-over-year our with announcing resilient environment be in fall. channel. on provided was for Despite CPE and diversified in business enterprise a the had business, which the remain same we growing Revenue quarter-over-quarter sales business, We sector, of on home this

residential our over America, and regional XXXX segment revenue grew in strong service From for North and the XXXX. regional the the in revenue of basis, the providers from [TAM]. year-over-year a in first of grew the in same are XX% service market on gateways providers We from seeing a our perspective, segment quarter alt-nets half by period Europe in XX% demand the

to FCC the RDOC billion expect service regional our emerging plays uplift this and auction in $XX first domestic, and year. further segments into out the We paid fall of fall see provider next XXXX out as through going this half

support broadband to heavily announced most is tailored ADTRAN rural America. wide rural help across order criteria network range of RDOC divide ADTRAN the low-latency FCC was influence quarter, we of for close the ideally the program for digital the maximum During cited build-out portfolio, comprehensive funding provides in gigabit as ensure RDOC selection the topologies. to which the the ensure that a to solutions we

applications, industry next-generation earlier continue put mission R&D well a active paradigm to the years their this assist as we the help the to extremely to of heavily Several and the possibility to embarked accelerating and position in We in program to in with lead be expect shift see year. we invest we the fiber to platforms. program of a planning with ago, access awards to software-defined participate operators on are in the in positioned our revenues in and mid-XXXX, company operators to network

and in window narrow position puts a rate connectivity company the of in decade to during this beyond, in selection addition success Our platform the addressing next-generation bottleneck. next strong the

for These is flexibility we adoption we extremely the really for customer software vision provide and base. to of strong building has and come. Our the experience, challenges, many trajectory and And includes along for on execution. strong this global pandemic made, the proud Tier we're our awards sustainable with in company's I growth. technology across in see a growth off focus the be continue the broadband to while are as progress of initiatives our us share paying gains advancements, government will organization, created subscription beginning redefining to puts company one subscriber strong our investment years The

helping company focus well today's enabling them of risks demands quickly exceptionally have future. to a the of We mitigating while areas customers with transition the across meet all on performed to chain supply network strong the and our

priority. safe of well-being of ensure Our our actions, customers and partners top we to that a are healthy and result team remains health as continue our and a and employees, early

communicate will we'll to an not world could provide up financials, Our power more is current overview environment. connected more and the available vision where for to then Mike? a be of everywhere everyone our it important to the in relevant open enable now or fully Mike questions.

Mike Foliano

review you, our and view Tom, second results for our I will third XXXX. quarter quarter the good to Thank of all. and morning provide

to reconciliations both on measures measures that not financial be that on earnings www.adtran.com. financial non-GAAP respect referencing their schedule in page Relations the my published and GAAP our discussed I During comparable are report, in that Investor are supplemental results. call to release, web GAAP With will non-GAAP this presented at appears our are

compared this the reported second discussed measures and QX other at web million With reconciliations, presented within of QX that schedules The $XX.X certain for numbers. down $XXX.X million contained non-GAAP that, $XXX.X by release, quarter million, I Solutions the ADTRAN's on and and on Breaking quarter be XXXX. earnings across let's present prior XXXX. quarter revenue also in of are $XXX.X in are Network to the category quarter XXXX versus the million operating get in revenue reconciliations supplemental our For the discussing this of $XXX.X today. and million segment in segments, information in our the will revenue financial our call release. $XXX.X non-GAAP which in came second now million page was to second

of $XX.X year Our for reported Across two of this for $X.X of $XX.X two for categories, Other Access quarter first revenue million in revenue of revenue quarter quarter versus $XX XXXX. was Revenue QX million, to $XX.X also million and compared quarter for and Support for quarter million XXXX second Experience million million $XX.X of was million compared XXXX. and XXXX Services and was & $XX.X quarter quarter from compared million for of for the two quarter was the XXXX. of million, the of $XXX.X Traditional Aggregation $XX.X category XXXX. to in XXXX the two prior & million $X.X quarter million Solutions the and revenue of two our in XXXX for one quarter Products for $X.X quarter & to our Subscriber

$XX.X $XX.X was our at and Looking QX $XX million reported in revenue domestic quarter million geographically, revenues XXXX for million of two in XXXX. QX versus

in quarter XXXX. $XX.X Our million compared international $XX.X to quarter revenue one XXXX and for of for the $XX.X was million, of two million quarter

two had and we of the customers: international. For quarter, XX% second one revenue one domestic

increase both also offset restructuring two related SG&A at last the expenses, restructuring $XX.X lower and program GAAP compared for margin and geographical gross $XX.X for for quarter as by freight-related on lower to GAAP to efficiencies. lower R&D as in the quarter to our expenses deferred two expenses offset partially $XX.X the in increased this margins quarter increase reduced basis, year-over-year reductions expenses. as two and by were year-over-year manufacturing second result were decreases the Our increased partially of increases a quarter was million XXXX. were volume of expenses expenses. were result both a decrease expense on offset in and and for of XXXX. minimal, to freight-related and for The The $XX.X contract of from margin a expenses. of XXXX. million an R&D prior operating in in in lower of quarter XXXX primarily quarter was and operating and our were in These primarily gross prior in R&D $XX.X quarter operating an basis was GAAP both two offset quarter Both expenses by deferred were compared and to R&D market-driven were a On $XX.X partially margin expense our the compared the travel compared in GAAP offset by gross services. quarter-over-quarter initiated quarter-over-quarter non-GAAP expense, a XXXX. million, reported and quarter in in result reductions geographical by decreases year-over-year expense. The quarter Non-GAAP were volume change XX.X% partially in second Total these the contract XX.X% our expenses product in million and XX.X% compensation contract favorable both basis compensation XX.X% year in and gross non-GAAP second and of services in were XX.X% mix, expenses, services. XX.X% non-GAAP which XXXX, in and reductions And of SG&A increases expenses, in expense increases driven and mix market-driven second non-GAAP travel of and increase by and operating The resulting million quarter-over-quarter product travel million in the and quarter quarter prior lower

quarter and reduced GAAP was basis gross higher operating on income result income costs profitability driven higher XXXX sales million for The of the the On of Our GAAP of of $X.X quarter $X.X two by the and a basis, of million on in in $X two loss prior higher operating and second loss services reported QX quarter million, in driven of year-over-year the other the for million a volumes. XXXX a restructuring a operating million of income profit a sales The operating million loss loss operating reduced an XXXX. quarter and compared XXXX XXXX. comp two prior operating for income to quarter-over-quarter revenue. to XXXX. of compared quarter-over-quarter was XXXX lower the increased and million, the by was income quarter of expense, in compared by and non-GAAP contract on for a $X.X higher an basis operating loss of quarter and primarily was deferred in income on partially was basis QX both $XXX,XXX $X.X was GAAP operating $X.X to expenses. million second of $X.X of of Non-GAAP non-GAAP offset Other an $X.X of quarter

provision was XXXX million just as quarter to tax income million quarter QX second The company's compared of prior portfolio. continue and quarter as increases loss in $X.X ending the was $X.X to generated the tax by the million offset $X.X an by were for benefits in year-over-year income and of market-driven to tax our of due deferred $X.X as to operations both of the compared in The XXXX. GAAP income was valuation $XXX,XXX in by other in $X.X a XXXX. other our caused a the quarter primarily of in million to be quarter benefit The of investment non-GAAP for and of a two second XXXX and a profitability quarter-over-quarter changes the expense the non-GAAP million in primarily compared quarter comps of expense Our operations our current our valuation domestic international changes allowance. benefit for

in result the to of the was that And of a of in with Non-GAAP The per the in million loss as in XXXX. offset share as second the was net of Non-GAAP quarter were As were generated million of pre-tax was two compared net the of $X was per our adjustment the a of return to the compared changes $X.XX $X.XX as tax net benefit of share deferred share our per offset a of assuming quarter the $XXX,XXX $XX tax dilution, the valuation of $X.XX per income operations $X.XX XXXX GAAP quarter quarter tax earnings was was an allowance. partially and earnings XXXX. million in benefits expense loss partially quarter second income additional quarter to quarter profitability. of year of in passage to second income the tax in tax XXXX a by quarter quarter compared and Act pricing of per by dilution, related study, of by a share, the realized a loss quarter last was the provision prior on CARES which share second transfer the the of the million $X.XX reminder, $X.X and quarter. second Earnings earnings net related basis the earnings a the share, in share second a assuming in to GAAP per last per in for quarter to foreign to of related offset $X.X prior benefit operations U.S., million XXXX. the for the for second $X.X XXXX $X.XX quarter of of of last primarily expense loss prior significant to XXXX. for compared completion domestic

marketable in securities Unrestricted after the $X.X Turning and quarter. $XXX.X during the dividends to the million of end balance sheet. at the quarter paying million cash totaled

was of we at end quarter, from at of second million increase QX quarter end the was of $X.X receivable $XXX.X the in days of our the of of million compared inventories in resulting trade quarter XXXX variability second days and inventories generated customer quarter-over-quarter We quarter Net QX XX to cash attributable environment. the related The The ensure XXXX. and timing were For a the days Net $XX.X purchases $XX.X the million inventory believe to and in do quarter prior $XX.X mainly current compared million XX the in shipments that the million and DSO quarter at supply operations. maintain the to adequate quarter continuity mix. the buffer pandemic. were is of are during in to liquidity the in to for during the designed positioned the accounts end strategic that at we XX end, XXXX. DSOs year-over-year to in of

align basis Having the our quarter considering variability we fluctuations After possible in demand, the our the effects do with rates exchange the currency the our million in COVID-XX expectations ongoing expect gross we quarter projected $XXX component XX%. mix, $XXX that projects, the of cause book-and-ship range into supplies of customer revenue as third patterns may next that the pandemic, well between differences and the sell results. that, with revenue the Looking of will of XXXX the order which be be nature actual and on large about our margin ahead will to business, sales to said material a the we non-GAAP base as expect third million. of customer quarter, associated timing of to ability

XXXX will to $XX of million. million We be also in the for range non-GAAP operating expect the quarter expenses third of $XX

environment relative rate. project the earnings the professional carriers component the tax we www.adtran.com. to Once at on factors both a exchange revenue the availability; Relations believe in Finally, broadband associated any potential the the for our COVID-XX rollouts; the revenue; be the and and changes consolidated additional revenue information and anticipate the will in laws; be ongoing significant third of high-XXs distribution movements; adoption for realized is of and services in rate our quarter basis in non-GAAP of We our macro activity inventory access with the percentage variability tax platforms; enterprises; mix proportion ADTRAN's and pandemic; again, domestically the continued international at effects XXXX will following: impacting levels, internationally; web channels. revenue rate total page Investor rate currency of fluctuations available spending

Now I'll turn the to over call Tom. back

Tom Stanton

open very Thanks you may Mike. people to this ready for right. much, at point Tamia, there? have. any are Tamia, we're All up questions

Operator

first Our Instructions] comes from Sachs. [Operator Rod from Hall Goldman you. Thank question

open. is line Your

Rod Hall

hi virtualized Yes, carriers demand. see. off Tom, so increase know but utilizing that work from service maybe to much as heard initially on, guess, haven't people just thanks to provide home the are start for spending people they where naturally, I to to with about then terms as broadband. vendors all of then other we But for an equipment talk just seen I as there's wanted we've expect enhancements go in and been to they would demand question. in I guys,

to So, seen do that. I'm the the Or think of you a spending bulk then impacts I've equipment And of all the got might you've just this. curious come? from whether when follow-up you bulk think

Tom Stanton

Yes.

try that you. least I'll the way see it about think – in way makes sense to and segment at there's it to I a think I if

significant know the whatever, The I little are they we've increase that. move quickly, think to think quicker well. that we've seen say So, their the bulk I if although an carriers move definitely size, yet seen of which And that pronounced come. shipments I lot A fiber because able Tier And it seen still And as done And increase. really where they're the pretty be of most of or a in it's I've don't wouldn't segment probably has we've three area. I typically. into is we've some probably could carriers larger all would slower, but there. seen to move seen space, a

a infrastructure seen right So, at – to carriers different differently, larger bigger are ones our least plans but big of from together but that starting to be I make them and we've regions and putting lot upgrade, say, now seem affected the move perspective, buy those infrastructure toward a yet. larger a wouldn't

Rod Hall

And this these have Do do of Or big you will were the delay feel when say of some in of spending? that you next any it by guess, year? on would fall carriers you do end on if the they year? some to

Tom Stanton

those we Yes, has well. deals are of the right that of just honestly, that to now year. I negotiations, year, actually I whether not some right as year, think impact may weather next it are or a would mean, plans that an pull they trigger the negotiating now. this effect but some lot There are be will this so

the majority actually that, discussions think year. I next not you still but do will going is I So, of and would be or they're kind tell whether going negotiations there of that to able on, to are

Rod Hall

are natural OpEx. curious, on expected. just just like guys reduce the and active was we bit had you a what I'm is things flow of taking that? Okay. question the had measures And you of or OpEx then guide to sort having the The OpEx this is not travel my less below for – little follow-up I

Mike Foliano

us travel actually, line. mean the has helped we've I on No, OpEx

at moving the toward been have this year toward the year of so. the million about end last or for goal year We $XX a last

to just So, targeting. we it's been on really have what plan

Rod Hall

you'll that travel, Okay. think of continue? restrictions travel if undershoot because the And you don't

Mike Foliano

keep that [XX wouldn't up, travel goal is continue now, see things around I be to the And million] back say us then will you'll goal. our allow million to us picks Right that our million] XX [XX that. goal. extent to

Rod Hall

right, all you. Okay, thank

Mike Foliano

Okay.

Operator

of comes Genovese Partners. Michael MKM question Your next from line the with

line open. Your is

Michael Genovese

us know and Can where talk Huawei had replacement terms in or of about do Great, of a you're you you where already, number of give examples you thanks. couple guess seen about new those examples Can what yet but are you trials we opportunities? have any seeing examples regionally? there I

Tom Stanton

Yes.

seen most pronounced we've in it with in U.K. and the Germany. So Europe,

cases, call, notably some in were Germany most mentioned the instance, the my and actually they mandate of where think, U.K., limit, about the in to they're are plans the customers equipment vendor the that large some hostile government have the out. there that notes past, for U.K., pulling in customers place. in equipment have the like there said, some being move And actually are away. move, being what now positively have put are installed that I in network. been We actually I in I And Huawei to by influenced deals talked in There decided we

not a in big in through just any in America, So, less really Latin footprint it's It's the so because Europe. Less places. the all there's of U.S. in happening U.S.

it there's as isn't it Brazil, strong pretty as really add those of vendors in Europe. in is dominance Europe because of but that, the some widespread were You

Michael Genovese

as up Okay. PON And two North right? that kind say, you North a Or America, when really in, only it bigger two the have share And share group have in Great. Is well? of the you about are against fiber regions be share so players competitors. must those imagine those of there? players? talking is shifts in mean coming I meaningful I that any other in are are then in America? primarily they Or gains to they I home, mean

Tom Stanton

in large America North America European, In U.S. North in is the two very The of fundamentally player. course, very, a Europe is one and players, one

different cases as It two And me, So of those Europe, vendor European players. is two in one and there. players, same well. really then carrier a two excuse Huawei being yes, as then the it's well European,

Michael Genovese

you regions? both So, are happening in already mentioned, are those they that

Tom Stanton

was it it doubt. then I Absolutely which us. numbers think up positively. European points, numbers us say have move solid is because and and behind still I up report Yes, second that place, for but vendor, you only really recent at eight out moving of I the without that most is mean the was strong. to pretty showed quarter a The picking a a that came Deloro we

Michael Genovese

two And just quick Okay. more ones.

So, It have not mean like about maybe that I comments announced reading it, and that British a win. talked revenues started the right? I shipments your or Am lot Telecom have from started. you sounds

Tom Stanton

let not well; started me this, not have Shipments started. put shipments material have

case, even that not at all. shipments started in have fact, In

that the we be to shipping and expect So XXXX of is half first expect that be sometime to we XXXX. more pointed, one in ship in to

We right customer lab deployment first now. but be year. half should next going start will deployment, mass will that the the happen of through are There process before, that in trials

Michael Genovese

have estimate a to Great. I mean recurring estimate the yet? then about your your how Okay. finally, then you revenues recurring in and revenues do you of just meaningful would future, your talk an comments in trend of And Is business? do overall like an yet? percentage on it that

Tom Stanton

We broken haven't yet. really that out

take probably of of midst not we that and looking new have it. the software the over out. fruition, last launched are products in We've at months that we're starting five to So, broken a services but lot

towards will next looking doing more probably be at than this year. but that, We year

Michael Genovese

Thank you, Tom.

Operator

Okay.

the Needham & Your from line Company. with Valera Rich comes next question of

line open. is Your

Rich Valera

referenced one expected wins other in of on you Tier the think, pretty you, the prepared British your specific timing color any Can you you I Telecom us give remarks, two, the, that of them of sort and Thank some of status one. on Tom, the shipment? the one gave

Tom Stanton

meant really was all to color three. my Yes, Sure. cover

be are carriers. three some three next all three, the track. because year. I software. to me lead on half all shipping product for believe we all they all be either are way three of well shipping first three will give Honestly, but will them were shipped of year, and have next So, All But including are going

process. going just we're through lab So, the

deployment mass started, We let's won't of year. be be get some let's will but up customer some those and later three, announcements, deployments this they with it piece those running announcements and initial, have quarter operationalized be wait will next fully for and get we the on early but about it until those

Rich Valera

that what aren't Can you said you us about publicly like what about today? you them Telecom, said British two the remind

Tom Stanton

announced... have We

Mike Foliano

announced We the market. European

not U.S. the have named one. We

Tom Stanton

And Tier provider guess start this this one across U.S., SDX, entire will are going the disaggregated, footprint. I was that, and to doing The announced. haven't happen like XXX%. the That we it's Okay. that deploying be we the point, is only At Mosaic, relationship in for I is year. disaggregated German see, before. Europe, with so narrows a that service not had with kind we've said, forward me it's In customer of that that get wireless long-standing moving solution. let And a down. it our is operationalized provider a this carrier, It that

Rich Valera

if more some Got sort a helpful. defining have quarter, typical even on last of comment XQ on it. helpful. I just maybe and that programs quarter, years a year, might if out, And quarter down the might profile guess That's let's these flattish, maybe all change any could but you been I fourth I guidance thoughts And typical it's going say, don't than but you would think see there this hit you're if to give think of at seasonality historically, be know XQ. talking to since, then which been wondering seasonality couple you you're about, of the – or of

Tom Stanton

I the that think materially. is move I kind It single of – single high year don't usually really digits. digits, these this needle don't down that will in like

get mentioned some there through these wanting carriers this those are think to think, point. I speculative some quarter had mean, before are negotiations help possible. I get it, kind because as There of the that I for fourth as are with of they're trying on on we're the get business actually quickly at in I kick-started for – lab the – going but to to

to wouldn't I anything seasonality do a is with say COVID still So, in the looks different that fact there's to there other materially everything. nothing than that impact

And sometimes, a positive it's impact.

making a demand; negative we the enough supply. Sometimes, sure issue that it's today we that is biggest today we impact. have have have Biggest not is issue really

material So, there still out are there. some shortages

lead and any not times If it's industry look are now, at it's getting you the right semiconductor – looser. ridiculous,

that biggest probably have. that's So we is the hurdle

I in comments as think that well. Mike mentioned his

making sure available. the I material really that have think it's we

Rich Valera

Got it.

could. more, if Just I one

us whatever sense product strong either portion a revenue, I fiber mentioned that give growth quarter-over-quarter your revenue, guess, business, is of slice of real the Can in and you You you wanted year-over-year. percent that? total both of a to what as

Tom Stanton

Mike, that do me turn Let out? we Mike. break that to over

Mike Foliano

the the reported not but growing faster in than is have past, We that definitely fiber revenue piece other any piece.

the spotty, to and copper larger actually declining. As but haven't down, it's copper broke more business, piece of but it it time, And our up we actually is fiber percentages. so to than little a be over down tends is

Rich Valera

it. very Thanks much. Got

Tom Stanton

of of strong. it's very that's mean copper and business, won. I really awards actually any we growing it's piece we X Tier material the is today, have our than it bigger that shipping before start a And

it's be now. not place right bad a So, to

Okay.

Rich Valera

Thank that's Yeah, great. you.

Operator

next line of Fahad Your Cowen Company. from and comes the with question Najam

is line Your open.

Fahad Najam

as stepped-up to in restructure how more about provide Are are lines night Thank from of if that you seeing you along beginning In your the you kind is look been Are last U.S., some reported a with you these – of outlook Windstream my some of for decent Can CenturyLink the those see business bankruptcy. customers. and especially emerge more Tom, the them? results. you you on further about fairly to question. health you to to taking is U.S.? with going at any thinking service providers engagement restructuring. restructuring. financial your operating with your engagement, have Frontier's have

Tom Stanton

Yes, sure.

comments believe strong had my So, Xs I were actually actually in we and the that Tier mentioned quarter. that Tier Xs, we in mentioned

night. I the think release we actually did actually last press that in

you're that about. talking speaks to so what directly And

more through set very have seemed want be deployment through right with maybe at path, and would think I but have In it that least the growth benefit with where their needs to expect from space, of is broadband a they right we're muted, that. same customers and X And have long-standing they and their seeing the real kind in that fiber on continue as as are that the just platform carriers I up on now, in much we piece, that a there. grow public opening So, that have the getting to whole that now. they of goals so want they're the they the that to that. believe disaggregated to we process their labs, that bit back what happening they that thing actually on future. they cover. gone process, executing through from Tier the little are And planning process part a I award that's their think, have some And

answer yes, question better. year, gotten definitely It gotten year. space last is, that to direct the this So, your has but it's abysmal was better

Fahad Najam

Sure.

the total customer concentrated through Just give get Okay. appreciate color. you five how of Related customers is. to on a concentration? us top much how percentage I piece question the top of as trying your revenue for a XX customers walk Can you is, color total percent sense can your us a on revenue, revenue? accounted

Tom Stanton

RSPs, that Tier go Tier that the so distribution let – six what don't Xs, to and the the channel will or really that I customers so, year to and Xs top regional last up Well, It's carriers, is Xs. me the over through five in quarter-out municipalities. quarter-in we Tier Tier or more always the detail. Xs But really the tell the you and shows

that, three of of market, top and it the largest. if distributors always or is aggregate they're our say, all top usually in you so two sell So in piece let's that that or that and the that sometimes six into

is Telmexes our component, the chunk to of from which of hundreds sells that So, business kind big of distribution there to the RSPs. of like has that a world moved

lot. business large aggregate when very piece. So is of the The very a problem by don't business. you is literally, so is, But portion one our that themselves them, they're piece those carriers a isn't very of that our portion distributed biggest usually getting of a mean

Fahad Najam

us of sense of revenue? total you XX%, XX% a Can it how Is big your that is? give like

Tom Stanton

Let Mike, say, of be give it Yes? at just Mike, me business. our XX% would looking over me nod. I'm the

Mike Foliano

Yes.

Fahad Najam

pass. appreciate right. answers. All I I'll the

Operator

Tim Capital. the Your next Savageaux of from question Northland comes line with

Tim Savageaux

I morning. [indiscernible] mentioned, you the wanted revenues of guess, for down XX% at QX good by a sequentially. I rural to kind mentioned I Hey, looking in was of just fiber guidance little at on served the distribution think of, what you which broadband think light your plus bit drill XX% also piece it In of and performance. business the up I QX,

would a look seeing in of to So, bit? offsets slow you anywhere levels, Because QX, those you it seems a of into either as on one on I like markets, internationally? you expect trends continuation drive copper either the trends do understanding are mean, you or side the those overlap, stronger they

Tom Stanton

will of you question, with has first that that will backlog, quarter your trend answer tell our the to exited some strong think I So do we to I trepidation a and continue. with any of demand sure meet chain just said, Like don't business. supply I the demand. would us making to that issues strong held we have segment there's that that in have that very

I are more our far offsets, seasonal. you of as will don't, a As carriers some little that I tell

that right the German carriers And whether Australia it'll or not think now usually offsets be probably German component the do, usually, other up big down some the That's visibility quite of. can in our we the that what of only is So slows is, strong then have QX. kind will down. of, I

think at. is be else very I I could Australia up, everything think well And everything else but is up

Tim Savageaux

that. that seems I might follow working maybe so If time, Australia but will home up, seeing on quite in just size like that be up supply be could will It any potential you can impact from be any for QX? some you chance

Tom Stanton

think and difficult be what supply happening I mean gone now, it's time a they same days this the say are I the actually. that's then terrible we to and days, thing going it to I we've Every improve and and on then to big they beat people is know if is we here and days today. here. right they you would same And the then I into quarter, try mean give don't into give what's in I whittle environment. is looks went the it come down. try case

far. every customers trying keep it And to is a there So keep that to not them. whatever just to vendors deliver able our all would it. to few working having correct. you we've worked truly are able I real issues, and gave been we've just you We've so I capacity be quarter tell just – a are through of through what up. with they're happy would And been we're it

capacity sure able can here not matter making to of manufacture we get to plenty. really enough us the It's That's components. be issue. just have a all We the

Tim Savageaux

Thank you.

Operator

Okay.

comes Your Notter George line the of next question from with Jefferies.

line Your open. is

George Notter

this Hi QX you guys. do because quarter, the component And question lines, think how along guys, supply gross another those in just impact and chain then you're got forward a also. thanks issues QX? much a lot I've margin seeing Maybe of going of then

Tom Stanton

do expensive. is to see impact escalating. that really that the we components don't where material. are they're that things. paying spending that to flat prices Yes. we're the number minute we've a ago just we've shortages, of because coming freight. on right that biggest now, paying where it some things component we year on that's through, and had But what and having freight, even but impact our impact biggest more the our kind buy, freight saw to seen open wouldn't on probably, Where And I last call and There were say that of we twice Probably not we about are material. with has the freight seen I on would lanes

biggest of the what in so impact And on about guess but quarter. million we're not typically we talking dollars the do, my freight would in it a it's be So, like to freight. is couple

Mike Foliano

That's right.

George Notter

dollars it, Got incrementally couple this million of a quarter.

Tom Stanton

Material right? for us on gross margin,

Mike Foliano

X points. between Yes, and X percentage

George Notter

do rest then – think level? of What's that would abate? QX, going that I the us And then be do with the for you you to year? if I might when that perception? Is for Great. think looking and Okay. the Or the forward be same mean

Tom Stanton

of the be – it rest will for will guess with year. us My this be

where gotten seeing of And just the It's it better. to through yes, year. I up. sense just said, silicon issue. way not biggest entire chain. have we're the it's supply really hasn't this going The that my the eased is like rest Just And optics be really it's

George Notter

Got it.

competitor and ask I then Huawei. themselves to opportunity I Deutsche are heard look your BT see to for obviously, And Europe project you in but Telekom. opportunity then accounts, comments big displace Thanks. positioning wanted your presenting business? relative those elsewhere how which And lot Yes, Europe, the opportunities about to your got vis-a-vis of also seeing do Okay. of over certainly in also is in in about of Nokia up that kind picking you've incumbent you Huawei? an a But you if incremental terms in a Nokia there,

Tom Stanton

I about feel really good incremental picking business. up

I to with that we Xs. I most Tier way, Tier they're week software on I there PON There's won now, Europe, be going account, had a in one right Tier but or there, be by September think, are this to just the so. major I announced out in and mean carriers say So, these announced within, us, processes are of Tier the that to by four mounted decided don't account three by major will one. deals that mentioned another I just that to other want that we are preannounce are the XGS-PON deals months. going Tier one a be Xs that over next literally probably

two and with don't have source. single mean carriers that have is they benefit vendors, a of we I these So, the most

do a So, choice. truly capable pick at right? understand now well coming to of relation they're to as running. up within up probably it is a what to system, source this. works, And orchestrated time you in is for as XGS very they kind strong. easy we're them share who and It's our with that's And ability to to that's And already controlled, is going next-generation this these really make the anybody, accounts a it as disaggregated It's so say, everything. in being well,

a a they product time, out And we so single think at the I have best the And we have want same good there. competitive don't source.

place to So, we're position good Europe. in in It is like I good said. it's a be, just really a

George Notter

Got it.

I mean, to source there's ability certainly, then plenty on are I have factors. I of And side, and have lot impact on guess a an opportunities. product been rule you probably in make the direct Huawei think, those supplier types There people's situations, those lot a faster. the this. flip skew this, timing historically been then think of may accounts. of of the gear would those on a And lot of Okay. continue that I in to a

to train maybe so, a it and mean, I of kind qualify on. and yang do yin people longer so think And you takes of the how timing? product, about

Tom Stanton

your within BT credibility to footprint we bunch Well, our did did I the we So, to we carriers. those we alt-net in is, outside trying carriers. the is relationship, prior. back we some started expertise, the And what within for Germany. put have time And do larger really normally of were recognition us did of we winning what right? there community started think so about get a grow EU in And we helped what a kind fiber with within instance, a of

we a trying overemphasize as disaggregated Although we They're been importance solution what out BT to our and proof have. being anything, want weren't do. and a with had carriers the figure selling buying point you'd can't to them to are known that couple the they us through I have two of having DT for next-generation of really processes them. other

two system. but large And forward small very are have carriers moving that we not selected carriers, do have so we next-generation and only have our

well. done So, I it's think

accelerated I before we – on see doing, as we're mentioned to we've getting sure the said have a here and things already to what Now announced, operationalized. what time make it, as just I that I frame want far these I timing, trouble very but

lack no getting their of we in been there's we've positive things in historical approved. the are And slowdown very that experience on where getting feedback what So, been has positioned been these of fact, knowledge. because been to has relative

don't I problem. So, that the think is

George Notter

Okay. Thanks very much.

Tom Stanton

Okay.

Operator

Your Paul with next Cowen. from the line Silverstein of question comes

is line Your open.

Paul Silverstein

As appreciate always quarter, explanation range? what's meaningfully been the comment lower know of into when X would historical seasonality down is about a continue between your why and large if trade why margin, percentage causing gross suppress gross be and is that that's curious they're [indiscernible], Thanks. best kick apologize, And the If what depressed? to margin Telecom up? I because think with on said and case margin that the guess, or in I points going I'm you X depressing gross gross aggregate U.S. third consistently European, mid-XXs to do original wouldn't depress help earlier, with margin? they Mike, that gross Deutsche what's just gross in consistent historical is. they margin the gross is in, non-US? wins move I I keeping low-XXs margins finally, these help margins margin, cost the or your but I to if disparity there non-U.S., further solutions do gross profile consistent And

Mike Foliano

Tom Tier the what to I've let mid. do new low cover target, the X but time said as wins, necessarily say not to over is I'll want I mid-XXs

XX%, be and thinking there. in So, the modeling XX%, I'm at you target somewhere it's might somewhere XX.X% long-term around

on that's generally, So mix. been about we've where depending

time, at but of different same to gross and cost basis things, our wins work through margins the always of So, price we a continue improve and and to all there's rest that. lot the new pressure

continue that the we to expect So, in we'll be do low-to-mid.

in So that's keep I would what your mind.

Paul Silverstein

issues to new ones? these the respect On longer-term with

Tom Stanton

the now. the to – wouldn't I when margin I about mid-XXs, that new talk wins. not profile a change mean, new going we I'm to from expect includes win. wins wouldn't new we are expect where I

Paul Silverstein

that expectation that margins to but down about help consistent, Just only that's talking in improve the down, pushing margin? one be will recognize up, you quarter, tie third what I we're quarter being your do DT DT gross why this would with gross offset down?

Tom Stanton

line unfortunately, they're or dramatically those switch different. you cards, First if of are chassis of modules, profile margin buying different, all, the well buying are or DT buying itself, they're as depending dramatically aware,

a of revenue there it on what although that impact be depending we're shipping in may the DT, margins. lower quarter, can have So, negative mix gross on

Mike Foliano

We're in also seeing CPE. strength

to have those for rest points for Ag also end our in the business margin access the a and the than So, of network fiber the tend lower things fiber.

Tom Stanton

drag reduced some are but this are later that on out coming We a products year, without a cost do margin. [OLTs] doubt, have

Paul Silverstein

Thank you. your appreciate I Okay. response.

Tom Stanton

out point, All we're time. At right. I this of think

joined I you everybody to the that quarter. call us forward on conference next Look today. talking to So appreciate

Operator

for Ladies Thank today's participating. call. you this and concludes gentlemen, conference

disconnect. now may You

ADTRAN (ADTN) 9 Aug 202020 Q2 Earnings call transcript