ADTN - Earnings call transcript Q2 2022

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Operator

Ladies and gentlemen, thank you for standing by and welcome to ADTRAN Holdings’ Second Quarter 2022 Earnings Release Conference Call. [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 the factors currently known.

However, these statements involve risks and uncertainties, including the continued spread and 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 cost, freight and logistic costs, manufacturing efficiencies, our ability to effectively integrate mergers and acquisitions, and other risks detailed in our annual report on Form 10-K for the year ended December 31, 2021, and our quarterly report on Form 10-Q for the quarter ending March 31, 2022. 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. It is now my pleasure to turn the call over to Tom Stanton, Chief Executive Officer of ADTRAN. ahead. go please Sir,

Tom Stanton

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

then review opening my financial detail any have. remarks, you will we Following the take will Mike performance quarterly in may questions and

solution a historically ADVA and network move fiber has fiber solutions business as report on very July the two mix and ADVA on strengths are Taking XX. Integration we substantially for scale offer more customer. deployment solutions. has to strengthened programmable synchronization, of is optics a fiber network portfolios, First, a we will content residential companies’ our look companies the the edge. help to successfully addressable virtualization countries software access This portfolios, providers around and will the ADTRAN’s fiber. markets. combining of while ADVA optical the and to Network networking the is SaaS entering. that I fiber intense diverse and coverage, ADTRAN and even enterprise transport, closer am tools, investment we this well are companies platforms, improve and at in business addressable we larger software as portfolios period billion position created network the Optical competitive closed of and development with milestone the global offerings in large-scale The world companies believe of at enterprise now be combination service a targeting creating a planning driven combining solutions with focused emphasizing important broader automation technologies market we we Ethernet and a large high-scale networking targeting communication revenue segment Internet pleased networking that By these enter fiber a combination regional leader agreement security, simplify with networks and with complementary aggregation ADVA in investment company This cycle new in materially and networking of successful a and the in platforms, providers two applications. service integrating expanding platforms high-value customers complementary set end-to-end their two SaaS providers, innovation underway. suite By services. will secure $X.X

portfolio look about the thus combination. to We business have progress enabled through we and the far, excited are more and very forward made this differentiated we broader

of continues across XXXX of terms the key fiber strong quarter, be the In the WiFi with in and cloud-based a and adoption the continued driven in our U.S. of broadband networks markets Europe. our service mix diverse of providers the QX to trend demand solutions with growth demand build-out by broadband solutions mesh paired fiber automation networking tools. of This the for home

by our residential next our vendors Some platforms. of fiber adoption for XX% Combined that EMEA the by with in mesh our led XXXX, WiFi North combined. XX-gig and our platforms, fiber the key share of CPE and up X XXXX, U.S.-based and XX% latest from a up the fiber SaaS year-over-year of Overall XX% market We highlights backlog a and of continued fiber quarters platforms service platforms. and mesh access Omdia and access WiFi more with QX offerings. rapid driven and up ADTRAN highlights XX-gig fiber growing This capture fiber WiFi to was the QX shipped America success compared increased Mosaic portfolio. CPE CPE of our XXX% growth customer in revenue was report for access were XX% Consistent previous year-over-year compared following. strong year-ago to up quarter included quarter-over-quarter. the revenue ports Bookings the base, quarter fiber with into continued saw OLT footprint Del’Oro our than customers One complement closest

quarter We revenue Tier on and providers the year-over-year by X in across Europe. both service our increasing Tier increased X sizes the demand across solutions a in quarter-over-quarter from for well-balanced driven of regional service also U.S. with a X, Tier The all and growth saw of and Tier regional basis. and success fiber globally customers broad base was providers broadband X, the

constraints segments have full profitability. market our our chain limited Our to potential impacted despite ongoing growth growth and continued achieve our ability that across negatively these supply have

year. an throughout fiber ongoing full including what access look supply growth, platforms WiFi chain towards trend driving SaaS this mesh Taking closer a constraints at service our these portfolio solutions, is applications. platforms, to expect and providers ADTRAN’s We see continue we adopting

new Looking true last new shifted couple ADTRAN XX-gig the back been capturing footprint. of is especially with fastest-growing years, buildings. at access This for in the has fiber platforms that have vendor to operators fiber

previously are WiFi of with our well we as homes ramp are a As as to fiber complementary platforms, SaaS many platforms, and passed connecting CPE access service our mesh not these our starting sharp providers see fiber in applications.

to to trend are X strategic on key resulting in off. in continue, revenue sustained portfolio growth segments. areas. our These look investments Taking investments leading-edge platforms closer the in this expect portfolio, pay at focused continue a We

disaggregated and customer platforms where is These incumbent access, Series. operators MSOs. in leader the with to Tier our X led especially share and wins, X open have with Tier SDX many First is platforms ADTRAN market fiber new

the our The of CPE where quarter. second revenue drove to multi-gig X service and fiber platforms library XX-gig growth mesh WiFi is ramping in-home for deployments sizable in

platforms the are a about Finally, driving key comes and areas and and poised analyst significant fiber access by And the to the portfolio very for I questions from With funding and With combination, the XXXX pick focused WiFi see continue aligned The over a The we In upward have differentiated this Mosaic broadband by despite at we the infrastructure published focused are continuing remarks, SaaS growth environment led applications trends Mosaic for to these that SaaS and The spending in driving our long-term great broadband with provide networking the customer it with One a with well forward. of X X we is America, investments global may platform. private CPE will This things federal flow scale networks forecasted in technology. in Sustained of years resulting much and year, next $XX.X we is increased past broadband These modern into XXXX. a overall public the there tens Del’Oro shifts as see a broadband home And and progress. deployment regional One Mike? have $XX.X be with we in to infrastructure subscribers strong customer full XGS-PON broadband you push to very the newly in the A started to funds deployment North to access introduction In platforms have lead Europe, our record new is Group by customer growth This on AI-driven This industry optimization $XXX stimulus view in growth any the largely we a is demand, revisions solutions time both experience. in build-outs report as expansion momentum our sizable funds reports. platform on as our stimulus following improving – will deployments of growth made funding, customer aligned in will driven billion over moving driving with our technology The CALA. future. background, networks. networking broadband in made automation fiber SaaS the of strategy. when offerings similar to segment will for trends up financials. EMEA more and continued summary, service expect answer network for years. U.S., both and networks. despite are on went advanced as product portfolio facing private say progress economy these diversified of home automation, the be forecast in for over software week estimated base, of will turn In in and innovation ADVA equipment are to million market economies. increase sales have. that Mike’s review bright more a chain constraints, growth and fiber sectors. paired by headwinds making billion the targeted ahead. critical are the will occurring, investment then importance Mike PON well public ongoing understood we fiber market last supply the our a that have that the billions

Mike Foliano

for came cover million, morning be to and second presented Relations our third segment XXXX and webpage our quarter our with release will XX% also and in ADTRAN’s $XXX I Network supplemental revenue increase a up certain by The will second on category, financial a segment. Tom of Thanks, on expectations information at at and our press Solutions quarter. results in XXXX schedules information investors.adtran.com. present by referencing supplemental the year-over-year, GAAP also webpage non-GAAP reconciliations which to good led XX% schedules financial quarter our be our I’ll Investor I revenue all. provide today. in discussing

driven quarter by and a and U.S. sales at grew comparison, XX%. Looking was XX% higher by On in experience revenue primarily revenue our regional increased up by portfolio. solutions XX%, a sequential basis year-over-year, subscriber revenue international

of Our to currency growth unfavorable was sales customers increased foreign sizes, offset to attributable partially all fluctuations. by

customer. domestic continues hundreds and domestic be service diversity customer to covering distribution revenue three X with one customers, in a broadband U.S. providers Tier the partners Our of focus two of XX%

quarter. by expedite Our the decreased well gross prices and improved improvements to manufacturing component points the increased volume X.X fees. chain associated margins fewer margins and points by higher quarter, by be X.X compared continue to to to the component in due as as Compared and some the expenses, year-ago gross percentage impacted select supply previous efficiencies supplies percentage constrained

component on challenges, expenses While and supply we continued costs, expedite anticipate chain managing remain freight we fees. focused higher

and offset due Our travel by legal services quarter-over-quarter and X.X% was and expenses labor, legal increased year-ago expenses, services professional expenses. primarily quarter expenses, the expenses. higher contract The offset increase partially year-over-year in by higher compared driven quarter-over-quarter. partially lower by a The by was travel non-GAAP X% trade to increase operating decrease labor, show and to

our income on QX by results, The was was fluctuations. $X.XX effect with result earnings, capitalize by R&D a of our high on $X.X significant our of favorable to of our operating profitability, decrease million driven operating margins. in the in the compared the driven The allowance. of improvement on provision the was primarily more sales Moving dilution $X.XX higher tax net and benefit exchange statement to XXXX cost U.S. year-over-year in valuation goods realized company’s in compared requirement of volume change and in of foreign its and related year-over-year Closing XX% to Other effective XXXX. EPS portfolio estimated income profitability a gross constraints. a a due expense increased for to mainly of supply quarter chain abnormally basis second decreased was $X.X non-GAAP was driven improvement basis assuming of to currency XXXX non-GAAP to currency losses out year-over-year and on net income the realized year, income million per non-GAAP as due fluctuations. in foreign $X.X beginning rate quarter-over-quarter. the market-driven gains in a to higher mainly by share investment tax million, expense and diluted the basis annual was The exchange prior decrease quarter-over-quarter The our a quarter-over-quarter

cash the cash Unrestricted balance statement. sheet million the $XX.X at and the securities of to and quarter. Turning flow totaled marketable end

was used we trade million $XXX.X $XX.X increase quarter were due days end in of to Net a end XX quarter, end, inventories DSO million quarter, in at an cash resulting XX of operations, receivable QX second at working million million for the XXXX. compared of the of quarter the quarter compared prior XX $XXX.X the of For days the second to the at in of Net capital. at mainly and million end accounts the in quarter $XXX.X $XXX of XXXX XXXX. and of first to the at

in as up minimize disruptions continue were for extremely supply electronic a challenging We build half the carry extended of XX% Revenues remains and materials the given inventory and level the lead to market robust year-over-year. raw component and to of with our demand further first ongoing times components. drivers. book order And higher strong we XXXX

while supply continues procurement and logistics Our secure to to the ability biggest managing challenge be costs. higher

of effects and align with ordering to required continuing merger finalization the our the base, actual customer book customer of and projects, exchange any accounting the a quarter, revenue expectations beginning ship will of in quarter, may COVID-XX Holdings, associated component our for next business ADVA our for July rates. will of And the fluctuations timing as purchase nature cause consolidation as be partial the of between to pandemic, our to patterns variability at the the the first XX. supplies ahead guidance adjustments business, was which provided related of results. differences Looking the material demand, financials the the combination, ADTRAN large the from currency ability include ADVA the with This of which on well

mind, considering our Holdings non-GAAP the mix in will representing in to component and for that we method We that margin using normal between gross lower accounting freight range the accounting revenue than expediting XX.X%, higher be third our will ASC costs. projected acquisition expect With quarter After ADTRAN the XX.X% be availability, XXX due million. to third still expect basis acquirer. and under on million quarter expect be sales that will we $XXX that $XXX a of and with the XXXX the of business accounted combination

web the ADTRAN’s $XXX consolidated anticipate in XXXX will million. $XXX available investors.adtran.com. non-GAAP third will to at between We finally, Relations the and low mid-XXs Investor rate. on a additional is information tax for percentage also at And expect rate page for we non-GAAP again, operating of Once the expenses quarter basis XXXX million be financial be

Now turn we back questions. I will your to will over and Tom take it

Tom Stanton

at Chantelle, we questions point any Alright. ready open up Great. this may have. are to people

Operator

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

is line open. Your

Unidentified Analyst

for my Thanks [indiscernible]. is taking this questions. Hi,

on all, it off, congratulations revenue, First growth. declined I kick subscription combination. want revenue quarter-over-quarter and of the Tom, aggregation access to on

or it CPE a if revenue is declining is in I of momentum strong broadband function momentum product strong more than in quarter the why deployments mentioned is mix access CPE change aggregation am supply etcetera. You deployment, wondering the there? are

Tom Stanton

Yes, it is XXX%.

sure quarter have is we of really are by secondarily, all, keep and at components, this need, any if right? we to largely that So availability mix the customers one then availability, we and then First do in driven by driven operating. trying make that point we

I not – I any by but right it necessarily demand. hate don’t really the say think So to driven just it, was availability, mix now down. But is

slightly But is a really down, flattish. that I by were driven will talking we think I availability. – about flattish, component XXX% maybe but

Unidentified Analyst

announcing Got point, that market in touch synergies. change this want it. That’s a it makes sense. at addressable combination? Follow-up, terms I your really, We nearly general Any like worse ago to the the how any in in for thoughts whether on the any even of to know challenging thoughts acquisition. a or Since supply year better expectations year or been, on has compared for matter. back, maybe but all

Tom Stanton

chain-wise, very that been feel forward that the be tell things be will been a I positive. no. there. nothing stronger the be we right at as and surprises we hasn’t Portfolio-wise, think planning No, and doing us in position real Supply that we – to actually a no supply to make sure will the make strong the I kind combination continues that just mean, the prices. right go I trying suppliers do combination you, of I have with from there customer-wise negative. really think get

on portfolio to and we think to enough understood what of priorities I the diligence where in we’re did the and able due were. plug be going kind know to

even in there. general, expected. changes I that tracking we would much It’s way had So pretty – right? the timing-wise, really tracking it’s say, no

Unidentified Analyst

Alright.

the you seeing to in existing When Okay. you inroads actually new bigger I or closing talked even it of customers me new Let way. combination start helping? conversations different ask to the with going? out? scale do Is are expect How the given customers, Tom. customers, assume with projects more

Tom Stanton

to the close, operate be minority I that in is even make – to think we still we time, and shareholders the the point we I And Well, customer this we that, in right have close do about activity. shareholders. be prior or there to all, sure mode, of just we mean, after need is that which first very at have careful. is the ability for able the to way that come make to sales joint really better. the in hurt portfolio minority said together and much benefits presentations Having any don’t us disenfranchise talk been of

where let’s know benefit. you, And I think have of of the negotiation kind deals I of actually ongoing so deals, are then those tell larger direct have – can we where timing the Tier it, the explicitly And few I for can deals, the directly absolutely a are or – smaller we not I of are asking – The they longer-term X where the now. seeing necessarily we portfolios. seen, I there benefit. think that combination mean, I the stage planning are in stage call see right

Unidentified Analyst

the it. Mike, modeling believe, synergies, last for Maybe part pass I about for appreciate Mike, of million we by combination, the and range cost believe of synergies, I Got it. that question $XX year combination. it or just on. would I I’ll in then any cadence these got And two linearity one it it’s I from the or or it? about think should of

Mike Foliano

Certainly.

expect is our tied a that’s IT and improves if the bit think that I efficiencies so than year quite should being throughout and throughout think office second about the first we’ve smaller more I because the large a about as of year. of said back the you you company, think year think in the systems, the that the the synergies of past portion second it to would you in consolidation there

we more combine loaded our as it’s IT systems. back-end So

Tom Stanton

we full year, forward. second see the though number expect to of out going that Coming

Unidentified Analyst

guys. much, so Thanks helpful. Very it. Got

Tom Stanton

Okay, thanks much. very

Operator

with question of Genovese from the Securities. Rosenblatt comes Michael line Our next

is line Your open.

Michael Genovese

and revenue Thanks for models something the revenue million, million, the together Great. a ADVA quarter. not also deal. I two or $XX $XX attribute the the of interest want is guess, say deal? being Should just it’s that there half start companies’ guide. we else quarter with And that put lot that a to congratulations attribute $XX an I on below you if to million to

Tom Stanton

to not Mike. but a half Mike. quarter, go I’ll leave that ahead, But – maybe

Michael Genovese

a month. I’m mean. a sorry, month, half I Half

Tom Stanton

a yes. Half month. Yes,

Mike Foliano

right. That’s exactly

little you accounting. all then at So to ADVA roll as revenue the your the have non-GAAP, IFRS up to go quarter got complete combined do because through GAAP a will to look model well. when front-end for to not is think It we to you tricky a and partial

So I a biggest think full is quarter is don’t the that attribution of that there ADVA. you have

Michael Genovese

expect now report, do Yes. report when clearly quarter? have have segments you next to you to than expect And do you I mean, how – different you

Mike Foliano

We level, our and Remember, will same services. the at the top segments network have are segments. solutions then

today So combined three that we report that are with The using will still will shown what’s we’re on their side. categories categories been way. be

So categories we will three have large still.

is have legacy We that smaller which other, today, and will really no longer our traditional we the category. that the is one have

So still will we have category. aggregation an but and access that go one away, would

will solutions. We have a category for subscriber

business. So is will most networking think the – equipment. optical category piece customer their fees, about biggest the which we that then really as a that premise the of And is

Michael Genovese

helpful. Great,

we’re synergies. we last of yet. question, in seeing your Okay. of about Couple the margin look would more the expect we at guess, about and you margin guidance, the operating I that synergies expense guidance, what quarter, not timing got how And asked guidance But gross it’s the for to here. that some were expect. I when

I to to synergy also Give a expense on going synergies detail the the So revenue more repetitive it’s in layer part of I would a timing but the how add bit forward? us question, revenue and that. the little almost guess,

Mike Foliano

going side, So on I to of year. see you’re in the happen most that expense the second said, like

a So than quite you it half got to think bit of the about first year. something smaller in

XX%. that modeling after those XX-XX XX-XX can more we’ve with want get that a our one you at couple or mean, the I like see we $XXX and end the combined an it with but synergies between time, think bottom while somewhere revenue as I pitches year contracts and And $XX range what market company bringing probably it’s the said we So combined final additional make from And the said together would efficiencies. a to to which you on to other to be million a end. And bring the we million information there, well. portfolio we believe those would top the that that back-end, X% take been ads, on come pull systems, the up a able into was and I think we said to while on have to for that take gaining of that them going together, years and would I expect

Michael Genovese

there? then can in and me. give all you are on how not wins, And First all, also, deployment there the wins just of update quite you. of last right? color just shipping are yet great. and us Tom, Okay, on any many really question to sort new EMEA for many new Maybe, RFPs Thank or How phase?

Tom Stanton

Yes, sure.

are So the we we this really, deployment, have infill about in in only component point either only which have one the this talked a really our we full that larger the constraints. is at I Europe two at get really have say, biggest, deployment deployment the full to point ones trying constraint one-time, or would are two are as we

got I’ve we it’s products. trying of matter plenty the of backlog really Europe in us get general, that right sure a for So make to

think them, more I forward. of were rest there the of moving four are All

a the I of Tier POs And through of those and with we’re least getting are, completely of matter place. them we them in one components started. and getting one although, it’s for think at lab, of we’re just us we actually have now two not not Xs

would same about we were before. moving So that say are talking along they the generally lines I time

Michael Genovese

the And roughly? RFP how in still stage or many are

Tom Stanton

guess various tier the on my depends I stages. customer in honestly, different It we than have mean, XX of is more

that that about, don’t people today, I in there four four, is reason some but front Tier look tend I’m If of different to in fortunately. in thinking talk thinking many sheet are still But or early three me yes, – win, you actually have you so. cycle. fairly are a there that carrier for so I’m there said, realize which is that is is there but really don’t X, there that stages unfortunately countries at Tier there or right But X we’re is of or like three There I what now. kind you

Michael Genovese

I appreciate. the for congratulations and the and Thanks answers the on again quarter acquisition.

Tom Stanton

you. Thank Alright.

Operator

Our William from next K. Woodruff. question Paul Essi with comes

line Your open. is

Paul Essi

taking approach on upgrade build if both I expand could mentioned in demand little opportunities States upgrading for you’re can I and United solution market and the middle in these and question. And on the other my a the not together the bit is it for Thanks wanted that new to how discussed to also edge, totally This know call on last a ADVA been the the is as CTO day, The situation globally. there in what pent-up big all size you little has that getting guess, maybe of bringing need has if drill I was ADVA those the of area. that now CTO competitive wondering they Understand you year. of the online then that’s your week, you the a talk I the merged are the things. U.S. could of little lot the a overseas you’re at had attention. offering given space. exactly and that bit mile end about down they the then you a a out. don’t mile fairly strategy that

Tom Stanton

Yes.

has U.S., which with the the you what just in mean, is along, where all thought of I said kind So especially been exactly carriers. is smaller process our

a the carriers, I carriers more more smaller And it’s of that our overall seeing really in especially, segment. is the the thing and any they and carriers, take best really the larger into the in one really can the carriers, that. company and to solution and with But process. entire They but are solution are scale, their for possible the that necessarily we’re are best, sure With works somebody what that smaller right the not much is for complete network hopefully, that cheapest they particular as base. in, the pick as mentioned and of make come they offer looking trying plays notes my different ADVA looking more can cheapest,

So that front portfolio them solution standing our to and in go base aggregate Tier Tier into of and X X there ability right us. in our is help

So bases we we about do easy additive this in U.S. don’t is – the stand-alone talking have do have very company. that the biggest hurt not the we’re when a guidance of to point portion here That’s the at customer

bring a So straight that right to I network that but and see And fashion. upgrade talking typically, one very think now. But you some forward that a access done, it’s movement alignment mid second quick X.X very the to year been front, bringing were year to of that have in that’s a get is about open piece seeing what on quick you as now. still going typically start the We mile. have to upgrade And that’s upgrade seeing after about today. first, you because start mid has real happen in we’re big mile pieces the you upgrade has to you customers that a on customers And board, thought exactly then board. our and that

you’ve that’s now larger complete customer-by-customer the that is that with customers, competes really to a have on they a So typically certain what difficult them space for, the on from security positions after of are space, alignment in that’s pull we the the us portfolio benefits Europe, trying seen kind where in where of were is really players see good, it’s especially basis of biggest much looking the in and more they they re-rationalize their – are kind vendors.

to end is right really the alignment that that trying and is But the this will for doing make some good sure timing sales have us. we through of So strategy. still be we there year go-to-market

Paul Essi

of you out can you Would next think you size Okay. years? – it the on care to couple how any be market? the numbers over carve much might guys of share Do the

Tom Stanton

right underrepresented were what And And have Those about are – to one report. demand. that was serious ago I mentioned of seeing talking going being versus We upgraded. right forecasting customer it literally all, broadband had being the we were first years what really of – Del’Oro and – we I numbers is people us about the happen. we the numbers. some now X were think market thing

had Second Europe, of the by yet. the through. in And projects it filtered just and all major and market. of that while moving we component, numbers all, the here carriers hadn’t U.S. major then effectively those taken is was out Europe in in And announced weren’t which of carriers third

numbers You’re come those that just not fruition in to report. broadband seeing

to a and Some reports increase two-thirds, think remember, in we somewhere the not in is Mike, it you year that if as which billion mid grown in so stating well. the ago, the of – has more. portion our were is realistically if the market, segment there billion, increase that billion $XX was – $XX a basically available was that now total we mile, is But right $XX of is that in an that that

Paul Essi

experience acceleration. of and there to the I’ve Tom, was the other And about Tier at and Xs into I but spoke X, to Tier sequentially. I to some probably Great. solutions well. is end trajectory we subscription million up SaaS. and care be to Thank wanted be seen signed as lot Okay. saw a onboarding of revisit the believe the signed I’m a my Do I XX% a you where you call, I got customers. think looks before low little your backlog time last your growth up on now you you’re million $X.X of Tier you. mentioned a actually went to know that could quarter conference but with Last that question. And million up, huge people? might lot on a that thinking one $X.X you’d mentioned March. comment the I’ve of residential $X.X at that Xs got

Tom Stanton

Yes.

growing, sure number growing what so there So customers carriers, The and is which to a we’re right? without and as that doubt subscribers you do is is is able more ship number there CPE. number by customer, – then I’m is that of growing is itself, there mean not

Paul Essi

service people signing paying The end provider. the up and actual subscribers, the

Tom Stanton

Yes, ship is CPE. substantially the subscriber by driven end to really ability itself our

did quarter. is ability we to uptick that CPE. see now this gate So biggest the ship throttling strong our But right a on

what else that you, I’m than is to sure tell was bigger what that number except it So not last quarter.

Paul Essi

after if I looks doing you if a – $X don’t almost terms material, given million that $XX million Well, was of open take a Okay. it’s that but up in $X.XX know want on it like until to you tax. share number you’re the you

still to about meaningful at earnings and and would point to about becoming talk the it’s as warning it. as you that us more worry able out come So you far being what the visibility

Tom Stanton

Yes, is different will a is SaaS subscription on at a At broad a is have – this base that sense one of is I’m they $X.XX or not is of the that component all of dollar that there on kind think applications, where piece and you particular because component share. don’t And math sure things point to I we’re that’s I’m basis. them not from tell a different coming there this tricky coming I where from. sure

So low what we have some end. that is the very are at we have

the tends quarter more just grow, X ship As buy with. because management especially fantastic CPEs, we customer the solutions numbers operations The bigger the we larger to experience. had end a tend of well portfolio as complete they CPE including as to that WiFi number right,

but continue not So share. grow, that a will we’re $X.XX to at

Paul Essi

pass will I it you. on. Thank alright. Okay,

Tom Stanton

you. thank Okay,

Operator

from Our Silverstein Paul comes next question Cowen. with

Your line open. is

Paul Silverstein

guys. Thanks,

First on clarification.

XX% which think did U.S. one that I I to get TX, say the right? On you U.S. heard customers, three I distributors

Tom Stanton

Yes, distributors two and U.S. X. Tier one U.S.

Paul Silverstein

a Mike, how of as much revenue? accounted revenue for percentage distribution is

Mike Foliano

much break goes how of don’t portion disposition. through substantial usually a our... It’s out We

Tom Stanton

none we I an are a go XX, of it’s XX% that what percentage, over said, has I really I think number, and but Paul, we over want that get like to XX% through exact changed. believe, XX% is very – Tier don’t they distribution and are X very, the high and be at

So, still… it’s

Paul Silverstein

– revenue Tier you I XX% Tier Is distributions X over that is over that what is said? X. am of just sorry, of XX% and the

Tom Stanton

it’s give I Yes. that. my the through is number that X the don’t have percentile. sense yes, But in Except I because don’t – you Tier percentage an distribution of exact XX-ish it’s go want on to

Paul Silverstein

going you are Mike, say sorry, am I to Alright. something?

Mike Foliano

tell I no. No, will the you that’s on... U.S. in

Paul Silverstein

– Go I am Understood. ahead. And sorry. with

Mike Foliano

ahead. Go

Paul Silverstein

apologize. Good. over in it tell Can just it me, I was Yorker meaningfully us over if X you can The XX%? Tier sense customer, New the The Was some us XX%? XX% you number? give that’s

Mike Foliano

I over XX%. think XX%. don’t was was it There

Paul Silverstein

$X each I just – million, Alright. several to to see benefit the $X it that an know numbers I XX% this thing, XX%. quarters. million million Mike, I – business this doing deferred was not last $X right the was acquisition, about the case, of for it’s million combination, a technically is or you guess, can you deferred quarter, $X benefit? to lose If revenue. $X same about to you if million get revenue an $X acquisition. do million the of at it is In still outright So,

Tom Stanton

I think we still get benefit. the

profit going be before still is worked think this yet what consolidated way you EPS. the will report. of And all the and and to have interests, out profit will with But down are pull revenue see to a we we some associated out after-tax the accountants of Now which to with with eliminate then to is expect I our after profit ADTRAN then EPS we interest, the tax all associated Holdings. minority minority

going minority the bottom. So, and to we the way all are then the whole interest report thing down at the pull

Paul Silverstein

will that just It mean you a with you for. own, there all that be be eliminate, say you interest will loss? either will the accounted line XX% or don’t profit When be net,

Tom Stanton

or we And those those of don’t with all company. through that way we do That’s see combined rest I come the the down. in will anything expect revenue do deferred that the as right. revenues But

Paul Silverstein

Alright.

I XXX% as to to there think solution something WiFi correct? driven BMS Is BMS well. not numbers I up revenue, WiFi some your subscriber say to that fiber probably were you of that [ph] the I legacy yourself still all is heard fiber from trust is XXG. of by

Tom Stanton

also is There Yes. some enterprise business in well. there as

Paul Silverstein

leads my base WiFi about revenue now fiber dollars? what to which you absolute wasn’t? XXX%, big is How to question, me or talk Alright. it? what’s the That up BMS is When is real in

Tom Stanton

break do number. that that we up break think number? out Mike, I don’t we

Mike Foliano

and break don’t that to those two it is experience, level. – piece pieces. the But of is the We can I in subscriber lion’s solutions share that

Paul Silverstein

Alright.

about So, we $X are talking I $XX million, mean million, not $XX million.

Mike Foliano

No.

Paul Silverstein

It’s $XX-plus million or just what so, what you sounds from That’s the like it XX%. said.

Tom Stanton

number, a It’s big Yes. yes.

Paul Silverstein

opposed revenue Mike, SaaS number of SaaS that SaaS you was And trust customers year-over-year. number? to a or the you up to I Alright. made customer I are think was it XX% base, referring as revenue about

Mike Foliano

the That’s customers. number of

Paul Silverstein

Alright. I a similar got have question.

Mike Foliano

But that necessarily service subscribers provider provided number customers. not the customer that’s just is of service

Paul Silverstein

you had many have sales? customers for Understood. How

Mike Foliano

million. X.X a Over

Paul Silverstein

what? Over

Mike Foliano

End subscribers, million, excuse subscribers over right. X.X me,

Paul Silverstein

How offering? many sales taking are service your providers

Mike Foliano

number. hundreds. I exact the It’s don’t know

Paul Silverstein

enough. Good understand. I Alright.

a have couple I got this Sorry, measure. of more

terms can point are now? Mike, I any because you give you SaaS us what revenue, In for Tom, us sense of idea fairly the is? at you right any But give assume early. it’s can it’s small where still departure

Mike Foliano

Yes, million it’s same that in yet, have not at we still about. that it’s range talking been $XX

Paul Silverstein

being? range same That

Mike Foliano

million. $XX to million $X

Paul Silverstein

million. $X $XX million to

million? to million $X Closer to $XX or Okay. closer

Mike Foliano

you. closer Yes, not… of $X be to Probably honest million, it’s to with course

Paul Silverstein

approximately expect. That’s launched effort when? Tom, guys you have I apologize, the what would I SaaS

Tom Stanton

different multiple of this. had have we iterations So,

solutions ago maybe our off brought we So, with a year. Then of year to kind X in earnest added out of a or so. this roughly Then years maybe WiFi we we beginning simple One Mosaic just managed X.X relatively year. started the at

ties that of is and all solutions what – been that’s So, together. really our

– now have all Mosaic called MNI, maintenance. also those One. operations network And which be brought together to are used is on We and

really the us think future. that’s the we a that big thing for is in actually key So, driver

Paul Silverstein

base, And the I but trust growth well early, trust customer understandable is that above it’s small XX% growth. of relatively I the

Tom Stanton

upon to as somewhat Yes. to our ability CPE Yes, – it is it ship Yes. continue it And well. is. dependent is substantially

Paul Silverstein

Understood.

stated that you revenue it’s the really guidance, guys obvious be I know. synergy to don’t On assume

of hope there million in to Z. could to million and Y and not like But synergies several You you it’s formula $XX identify years. some drive $XXX revenue is X,

You – ton data I it assume but That’s behind distinct. there that. is being not are of hope, empirical about a your talking fairly not that’s

Tom Stanton

mean that to be the competitive there really because We to is but down what the and plenty we unknown. to revenue make going we to able portfolio. be be is going long of No, difficult. in forward is I to not want talk to know time, there won, up with next have X some, there nail is are bring actually trying there we about very it years is RFPs synergies that. didn’t sure variables a got is because for And in we keep to

know forecast it’s we say came how know but granularity. how don’t – you going there to up some, that do why a range, to any that’s in be we able like, So, with is materially, I just to you be

Paul Silverstein

I more. Understand. thought That’s what I wanted and some just

of first On realized assume about quarter, expense would other a be side, and the talk to in it. would there I ‘XX. Mike, X-year but be going it the one, the in the I been the in But is next on of second not the when XX-year latter of know be calendar two, questions have couple XX-year you bulk quarters

Tom Stanton

assumption. good a that’s Yes,

Paul Silverstein

the Tom, you finally, to trying on follow confused bit a And little I Alright. EMEA. was on

including roughly right, CSPs are X – that Tier if there. you said You there three I are XX out RFPs, heard four to

now the the with want one are those, through other are but yet? sure to are the got through that which wins, I have two, lab the say DT you make through are them not yet just the of I you have notwithstanding lab, But you you other and thought for read deployment, to you And BT of that which POs only of you four full on POs got constructing lab. have other two, one you components. the not mentioned I I correctly. for assume two, which You in would both

Tom Stanton

for I Yes. POs them. both of do have

Paul Silverstein

beyond POs. two? And the these two then you Alright. you referenced two moving those Are of then said more ones forward, four and additional there

Tom Stanton

six. No. In are there we That’s are what total, talking about.

two it’s POs them get Two of not matter that are, and we things us a two steam. full getting with are rolling point. yet to that really for, in then it’s So,

give We are we work them. lab that have have deliverables still in where we to

Paul Silverstein

when revenue? and initial have you the revenue BT and when expect But two you do POs, beyond that expect do they you are other DT, meaningful

Tom Stanton

is Our imminent and really dependent upon initial it’s revenue supply.

make Meaningful switches get, I can revenue, most sign supply. of forward many these about trying they in and I revenue stuff and early the But the is as sure expect how were we It’s be their moving maybe supply. all it’s – how So, many can dependent honestly, – the that reason to how early ramp upon to was is would see the Q. it’s supply they it’s understood get requirements to POs LTs really lease I in serious initial going about as to place trying because quarter. get this

Paul Silverstein

tens a millions not in about? talking basis, are be two you an the of these annual gating was the factor. Could on Supply

Tom Stanton

Yes.

Paul Silverstein

hard there this margin, My it Mike, if in If direction. bit little that correctly, a question, progress being that There least I have constraints not quarter, out a by they in the more I and a QX, more little your still quarter. do little non-IFRS. remember bottomed at last this from understandably of correct gross right turning honest. bit I was hampered Alright. is XX of But last apples-to-apples out note On in the you may QX. sounds numbers be guidance while past the like quarter, you because are

seeing Now lower expedite. a because from right? just are your that’s right perspective from ADVA-enhancing bit even in sounds little margins not guidance, the It they a cost have are Do I it that like you better below sounds yours now. like

Mike Foliano

Partially.

IFRS Avis would piece COGS, if at quarter, you and GAAP the XX, are that through almost pro that last that’s XX. at been and when forma are when they provide looking a amortization look actually out R&D comparison you So, at pull back you looking you going have they U.S. capitalized

you when environment still are we a So, here. now pretty uncertain two put in together, the I think

our think guidance what I close out to is. it very comes

longer we we So, expect that – in expect we the improvement not the expecting incremental I us range. get said significant term, past, back into have in near-term in like to are But improvement real the any here.

Paul Silverstein

the some incremental So, impact as costs? is in opposed to Mike, of in your guidance all that QX step up improvement in the

Mike Foliano

largest the it. That’s piece of

Paul Silverstein

appreciate all you. Thank responses. I the Alright.

Operator

with next from comes Our Koontz Ryan Needham question Company. &

open. line is Your

Ryan Koontz

looks this been mix growth. given of you XX% across into of light the how mine Most Thanks business, Thanks. about drill like growth question. strength U.S. little to U.S. have for balance a in kind answered, different the customer Any and real the at but international, feel U.S. segments year? changes it do in was I the then your of there over wanted

Tom Stanton

Okay.

was Let to true me true want all, make CPE I and we globally of quarter, the did – first and that definitely stronger much pretty But have in a U.S. here and U.S. the could have sure – CPE the had seen we you it that more if OLT that’s on on both properly. side. And side characterize more substantially growth we material.

very we the get very demand and are strong So, mean of on this were allocate hampered side. components. as parts. seen our well. that’s the out we the grow specifically to we ability again, to it continue because how CPE by on those here just get to and But I bookings to But able that side turned are where were quarter, parts we strong CPE able have

Ryan Koontz

there of U.S. Is ingredients in international of the ship between to bomb to international? more you kind that the able be big Tom, and there, kind difference, a led [ph]

Tom Stanton

the in ingredients. some There difference is

go to larger disaggregated of larger right, go tend they tending first – are be larger, all, so customers to with solution. our European to Our customers, tend customers

Access the product So, that’s versus Total SDX platform. XXXX platform the

our are make off to of decisions are hurt to availability is So, that that then carriers components lot very of based we sure we some of that. different of don’t somewhat And commitments now hard anybody. giving to drive a right

and where at are to So, what a it. the we makes whatever. at really that’s looking we hate I that not geographically or big would say of I looking quarter not – really are piece look better say

really are how we sure going make do We lose don’t we any by customers.

Ryan Koontz

X, X the mix in shift point on the so you And and the across side? can there any Yes. trends the quarter, here in out revenue Tier X,

Tom Stanton

out. strong here continue availability. all see demand biggest it’s and the networks driven because we But is think I still as build component by to Yes, again thing,

OLT in the going that’s You what know and that demand. now about build-out for means Europe right on

enough a very side. the think and ports we have I the though we pickup the where now RG seeing thing ONT are up, that’s is on really to picked installed meaningful

and the So revenue what of the fiber home associated really follows in and deployment with that’s home, A OLT. lot the – expected. the of is we that the

those and bottom networks going we but as I both going of actually see that well are are to people continue as running. So, continuing to grow, one these to think get up

Ryan Koontz

and starting revenues the Sure. of to us the update subsidy sense. on and impact any [indiscernible] are any see kind the there? bookings And on can – ARPA you Makes you give great then programs, on

Tom Stanton

it definitely quarter, have make have based of on Xs to the early we quarter, and broader continuing because it orders. at sure sure top, was started we this and quarter, I the we some we our actually the to started point. maybe but actually have this made, in through flow not customers we as could of the – then, care we now. up. got that’s and Those need back last fourth they are previous the the picked We say, let’s MSOs, are as if more was take commitments seeing much have predominantly that’s in Tier But that it a see am We

Ryan Koontz

Thanks helpful. Tom. Super

Tom Stanton

Okay.

Operator

question next with Tim Northland Markets. Our Capital from comes Savageaux

open. is line Your

Tim Savageaux

me for Thanks letting I call Paul’s hop it. follow-up made here. Alright. on

So, a couple to keep of questions, try it tight.

customers. able see question it’s looks one standalone and But reflective you quarter have I $XXX one XX% Tier like explicit pretty I in activity you only that revenue me of some the you million and Is an growth. up perhaps put X without here, is XX% follow-up. observation, about did order order. And First, box standalone, orders? in And Tier to are you guide first X toward of that ask, more the maybe cite right I to order think growth? first any the think is up Did in out the strong It I guiding that extraordinary, you well, are number would QX.

Tom Stanton

Okay.

it start of is not let tell order by not you our – me reflective So, that I is growth. saying will guidance our

be reflective think material. get in guidance to we to of able we Our is are a what XXX% going

far the of to as as the ship hasn’t need lightened in on matter a order bit. piece the parts X and demand the just them. we It’s piece, rate The a X Tier lightened get unfortunately up Tier we And hasn’t a two disconnected. the what X can Tier are up where piece bit. So,

Xs customers shipped have if they three could asking could we we that XX% what for. Tier So, easily customers, have have been were

stage So, about the are Mike, to of doing there. just kind set the… what we

Mike Foliano

Standalone?

Tom Stanton

Yes.

Mike Foliano

think I million between the range $XXX would larger million I number. $XXX standalone said So, you pull you were $XXX it’s and million, probably would a say the out if it be to from guidance

Tim Savageaux

Yes.

I if at point, in non-GAAP basis difference though, – look point about IFRS thought, like stuff incremental you are it. million seems XXX XX being the are XXX for you you right, about is OpEx Got usually Okay. between unless basis – Still than have impact, talking weeks. standalone ADVA. some combined are I it $XX prorated would for higher pretty see supply I and and there then And and –

down coming But don’t that’s from line. And R&D COGS see the the that amount back up. so I being quite put

are around the to expenses that seems it like there end are b, incrementally in margin being a, high OpEx or some biased or of range be conservative we gross implied you should something So the not supply, your else on deal may short-term recur? unless

Mike Foliano

Well, an makes than until midpoint to more stuff, are not built non-recurring we accounting closer down issues the because into get less experiencing we sure freight gross elevated bit though really to of going I be would a I time. of the deep we still and sense quarter expect in still here. pop Even And out are we all are standalone the last what issues we this end component on effects the that’s to probably high there. not up experiencing had have and then that margin, the because our a logistics impact little basis

about midpoint, off probably So, thinking the end. I think high you the think than about better if you are

Tim Savageaux

gross standalone Yes. sequentially, intending I for but that, flat? or company are to either or you down like hear margins guide

Mike Foliano

Flattish.

Tim Savageaux

Okay.

out. that’s but much work I conflict order think on it the especially I alright. book. congrats, little is will Thanks there there, very and a

Tom Stanton

Thanks At out point, this think time. are very we much. I of

you talking quarter. everybody So, forward next for and joining we I us, to look to appreciate

Operator

conference This concludes today’s call.

You may now disconnect.

ADTRAN (ADTN) 8 Aug 222022 Q2 Earnings call transcript