ADTN - Earnings call 4 2023 | ADTRAN Holdings, Inc.

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Operator

Ladies and gentlemen, thank you for standing by and welcome to ADTRAN Holdings Inc. Fourth Quarter 2023 Earnings Release Conference Call. [Operator Instructions]During the course of the conference call, ADTRAN representatives expect to make forward-looking statements that reflect management's best judgment based on factors currently known.

However, these statements involve risks and uncertainties, including the risks detailed in our earnings release, our annual report on Form 10-K and our filings with the SEC. 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. certain to after statements of measures, this we earnings refer obligation events reflect today's and no reconciliations release. investment will occur measures, presentation are that call.During to in certain undertake additional update to also to any the call, of information We non-GAAP financial included GAAP our non-GAAP the our course and pleasure been to presentation Holdings. on the Officer is ADTRAN updated has and found website download.It Executive is investor to The now over Relations' my turn call Chief Tom for available Investor Stanton, ADTRAN of Sir, go please ahead.

Thomas Stanton

Thank XXXX Good everyone. earnings joining Uli is you quarter With you, call. CFO, Krista. today me We for appreciate conference ADTRAN fourth morning, our Holdings' us Dopfer.

review and operating by in financials' upper you macroeconomic on Revenue, by of will the end in course, any revenue questions profitability our Following quarterly then helped improving inventory factors have.Our take expected guidance my to detail, elevated lower impacted fourth quarter gross be as the and continued margins. expenses of may and levels. came remarks, performance we'll operating opening with Uli range,

couple an of to quarter-over-quarter replacements which the is due On with year. in continued vendor the Given product quarters inventory in increased the record orders this passed. U.S. the our inventory broadband year's mix growth previous of U.S. homes expenses in large up and was customers.Optical and full substantially two us homes driven fiber-based the strategic mix, in portfolio access of managing premises. The coverage million. investment initiatives, on still to a focus the the we environment, both to X.X to strategic XXXX continue customers the presented product Europe to our Coming for in X breadth world.According U.S. and the to not broaden Fiber quarter-over-quarter from the high-risk RGs, in of trends million in initiatives U.S., of Broadband deployment These at homes, fourth the by regions reducing category presence Europe. equipment impacted focused solutions of In impressive Even year-over-year in the in and results a inventory to came continue XX.X our first closer have look XXXX, similar the are centered fiber XXXX, passed quarter, from outside the by to Europe. U.S. suppliers, here on U.S. to And U.K., initiatives million half relevance XX% X of levels.Taking Ofcom, Association, nearly revenue happening customers. be in to situation covering in and networks remain our two the timing increase X.X now fiber broadband in fiber across These invest with the to million subscriber and XX% of was XXXX, solutions networks while according with the a operational our geographical though, premises brought headwinds set total reduction fiber.Similar up into with revenues larger of are number, down XX.X we residential most results the record gateways deployments passing passed the our million networking with due solution ONTs. operators aggregation improving homes

of more that the able the customer push reinforce that providers and the portfolio to ahead addition digital investments being with core to upgrade XX still still these premise fiber economy increasing we the homes the the multi-gigabit by year. allocations us of fiber-based programs are software the the the and U.S. operators the We differentiation $XX.X than customers connected and U.S. networking in more importance connectivity to track value software this in regional to of lower on U.S. of household, complete we their per service and that quarter, underscore following.These fiber modern is to increasing capacity operators. critical is more solutions cost later fiber to providing fiber-to-the-home operators we billion transport and operate. BEAD enabling continued platforms the with platforms middle-mile networks. infrastructure fiber to several as success The service bundling to from the primarily These added in-home With XX XX the with additional for see speeds segment.In our market growth provider year past are the and access fiber As from customers, during for outlook was the in broadband, quarter a the added for in deploy connect past reinforced are upgrades and are We few to large fiber-to-the-home over in applications including optical next networks by year. this U.S. real provide years.For in in customers stimulus the Mosaic XXX simplify optimistic have spans an having on and begin funding Europe, broadband segment. this from One paired and customer a in-home still opportunity, new offering the total

by is in offering with of our our generation gateways to launch in have our quarter.To that we drive the of by networking total Wi-Fi growth latest cloud-managed XXX that interest SaaS U.S., SDG our the offering supported X, independent past series driven is our current optical Wi-Fi enhancements Wi-Fi this our in our operators. platforms A complete Wi-Fi and The have fiber strong lot latest helped portfolio. is residential Intellifi in approximately along Intellifi, SDG with the applications our XE, Our to we X of made series. packet

packet optical U.S. upside been regional dozens why a of want this U.S.-based And solutions XXXX FSP Europe. for broader of the unique been tailored as U.S. component months ADTRAN. and centered initiative manufacturing looking in full can our needs able mentioned our including see at the customers proposition from vendor the portfolio volume highlight long that you high-risk requirements U.S. is of broadband-only the and latest the only are chain. about there addition educated Buy support we in-country.When our customers and a that networking the we Build for key well-positioned solutions at to to capabilities, optical that that services replacement to our our not wins teams changes the America, are ongoing towards have in-country, BEAD full secure value I part why a minimal traditionally our packet market. of investment a of X fiber past solutions was in segment have need of portfolio portfolio fiber to networking customers.In in suite industry the cycle Considering and meaningful is that As us, to portfolio see to offer that I to vendor for we of for has the it mentioned, opportunity new were our but over We also breadth with strategy fiber offering these offering, had our supply R&D we see the providers, onshore value customers as customers on that a solutions, has service excited the of key already out address market.I is networks is program, history the America are our second of

happen.Similar Europe momentum, as see environment, geopolitical support presence high-risk we current timing Europe, staff gaining whether it than happen a rather and of of in question a broad our a replacement phaseout will we to have question the regional the the or in R&D situation now and strong including the very vendor a won't regional in is really resources. Given it of U.S.,

Xs being U.K. carrier Germany continues selected QX to our customer shipments the utilizing chain progress fiber Europe homes supply have ADTRAN. of customer pass of marked portfolio beginning the in our enhanced millions volume backing also opening supported from power which government the region.The state recent of greatly new in northern in Germany, with make Terafactory We the X. begun significant Tier our of while capabilities to highlighted the combined previously with combined our by for year.We per meeting fiber in our was another have portfolio the local new of notably who for qualified in they year with in in in win largest challenges our for our selected by product, the with countries of specifically XXXX, to platform. its continue that X service largest most have Tier this we later X planning is recent And ADTRAN of access and carrier are Europe multiple rollout deployments a Europe, our a flagship

a year. multinational in the Tier Europe yet begin We customer our the to of we wins selected for late with we large-scale in with lab X that large operator set side, recent opportunities deployments quarters Tier of optical couple were one progress continue transport new to are our X ago.On certification another for deployment this

also edge is metro XXXZR of the of our line in introduce coherent significant software our network edge We technology pluggable in innovation to of systems, pioneering platforms with investing are upgrades innovation example the transceivers, transceiver to our optical on segments.One enterprise the optical leading and stay effort to pluggable. our muxponder and optical at the

XXXZR access key coherent of higher to higher edge tools.In access portfolio optic, to and adopting offer platforms more provide residential and We summary, lowers combined and fiber These for optical customers cost fiber multi-gigabit footprint need successfully solutions deploy gigabit production and services. customer ramp over fiber continue driving our enterprise on XXX focus volumes, up XG modules by synergies service of our also solution have or with our nodes.A backhaul optical optimized subscriber packet to connectivity. access we the services common suite value providers access and capturing latest the our our and between optical reinforce pluggable they year. these trials under with high will the this upgraded more The to transport sets, speed optical XXXZR fiber completed to these software services a platforms of value while we to to while DWDM solutions as adoption continue site XX% solutions drive delivering

our take outlook, service While us customers, our we cautious from provider cautious driving spending see to continue model. remain more approach in operating forecast long-term and our with confident to we

our it on we'll a up more leader, following As financial to for remarks, our Uli's with Uli we provide review turn portfolio.With profitable company and over to more that, a a and continue efficient, result, results, open becoming Uli? things will best-in-class will fiber networking focus questions. of our I

Ulrich Dopfer

to be at will will investor reconciliations the referencing non-GAAP press hello, XXXX our certain financial most release, and the results on segment our information I cover quarter directly Thank XXXX. And everybody. presented relations for QX provide measures preliminary expectations you, I GAAP with and investors.adtran.com. first information also Tom. of is webpage revenue category, in which our our comparable by available and

for the down XX% are financials addition, all otherwise, $XXX.X In quarter-over-quarter. midpoint updated was to have at presented in came our XXXX which investor million, this down download. revenue we XX% guidance in Unless stated site, of dollars.QX at and is presentation available U.S. year-over-year,

XX% solutions network for accounted to in QX XXXX, and of revenues compared Our XXXX QX in XXXX. XX.X% QX XX.X% in segment

quarter, compared Our contributed compared to revenue, year-ago XX.X% to quarter.Access and previous the XX.X% XXXX, down in services quarter. year-ago in in was down and segment quarter, revenues contributed previous QX XX.X% XX.X% the the of of support XX.X% aggregation compared and and the and XX% to

translates revenues.As total ongoing category XXX had adjustments. was XX% quarter-over-quarter, gross We million, optical year-over-year. and and and and and earlier, spend and and loss domestic reduced costs, operating a was favorable XX% with non-GAAP and of XX% revenue increase provider more quarter fourth year-over-year, XX% non-GAAP we by manufacturing to decreasing basis of points mentioned margin reduction one basis and operating and operating R&D non-GAAP grew networking Tom year-over-year, and our X.X% decline $X.X increased contributed to made transportation a of contributed sequential QX QX year-over-year spending XX% XX.X% into we customer customer target quarter-over-quarter contributed in in the XX% by XXXX, by down driven in or XX.X% QX. expenses. and up revenue challenges XX%, XX.X%, a International sequentially. macroeconomic XX%, QX XXX non-GAAP XX.X% in negative points revenue of QX of was revenue. $XX.X but is XX% was expenses inventory down quarter-over-quarter. successfully The quarter-over-quarter operating expenses by compared quarter-over-quarter.Non-GAAP XX.X% solution continued which of revenues, solutions year-over-year SG&A million, to a reductions Subscriber due face product XX.X% Our and were negative in more achieved X.X% non-GAAP service We XXXX. mix.In by margin

in of was to sales gross and volume, margin X% the expense the XXXX year-over-year improved higher The of at range operating was expenses million attributable successful margins improvement operating sequential Our lower and the decrease profitability X% minus of operating between of were and million, due by offset our respectively. GAAP gross initiatives. $XX.X implementation margin reduction.The upper to quarter was for in the our fourth and cost of margin, end company's revenues. guidance non-GAAP and The operating $XX.X tax partially

the quarter. establish valuation to allowance Given our company deferred during tax domestic to related the environment, assets current a the decided

as in end. million to to non-GAAP accounts sheet offset $X.X in was $XX.X in $XXX.X XX cash million and loss $XX.X of primarily the quarter. included life accelerated in days streamline SE. the adjusting previous million of reduced quarter used lower minority diluted equivalents at resulted XXXX operations able $XX.X and expenses.Trade we flow attributable to at cash to to million Networks operations balance Cash as The company products will our a loss quarter. of operating Cash shareholder after partially $XX.X quarter-over-quarter Inventories loss million inflows, from allowance the adjustment, per for of $XX.X we were end the to cash of offerings. net Of interest by statement. was cash tax in days increased prior $XX.X $X.X course, million compared per quarter $XX.X $XXX.X end compared to total totaled inventory valuation resulting return receivables million by valuation usage a end, million was fourth company revenue flow and and generated XX to XXXX.QX non-GAAP down share.Turning of release at the This this share million DSO of million down ADTRAN QX profitability.Including compared to the million quarter, driven in was flow product compared the the for flow write-off be $X.XX certain the QX

mentioned DPO Accounts service summary, we to to Tom remain resulting experiencing previous As of XX we forward. reducing economic days uncertainty compared customer were on our inventory cautious in levels due provider million, XX continued earlier, still in and payable focused quarter.In inventory the moving spending adjustments. $XXX are

on such intact. operational these our influence, Given uncertainties, of business can aspects levels.We long-term we will for our we managing our our the are continue that drivers convinced reducing expenses growth to inventory are fully business as focus and that own

adoption driving take fiber we the platforms, and million, your our platforms, expect and software of operating focus operator, and range our the We the between investor our available I over reduce a investment investors.adtran.com.Thank we $XXX access capturing with solutions to funding now fiber infrastructure the XXXX, for expect of additional continue, transport stimulus $XXX and negative of turn services.Consequently, for by relations again, subscriber attending continue everywhere you at the that footprints first call. revenues. margin and upgraded supported high-risk non-GAAP and optical back between to future exposure X% revenue at and to in webpage desire is the will Once high-value while to vendors.We information fiber we to will data-driven on and X% quarter will ADTRAN's million expect questions. latest

Operator

Jefferies. Notter George from Instructions] [Operator

George Notter

in questions just about to ask you're wanted seeing the marketplace. more what I some

referenced You inventory digestion.

also But But you can acting can talking on BEAD your us us a gives Is competitors macroeconomy. about know trends? tell tell effect there more as demand seeing? BEAD about you're what your what on demand. you more overhang was You one current us the detail an in business, referenced I of that or

Thomas Stanton

Yes.

look bit specifically a the talking think actually If space. flattish, expect this about would actually shipments, smaller pretty we're I probably down. were they X, into up you OLT little that to in So carrier quarter, talking quarter. BEAD, it the when I Tier were space about slightly pick maybe I typically the at

So know. a segment it I as I much -- could that year-over-year an since space. I for time.But say, XX%, because been to X there's a of there's how lot don't impact, growing you yes, guess don't had some period that's that that get of in inventory of Tier

think I demand. seeing what we're real is

time. that that doubt So waiting I There are some moving would say it's it's anyways, -- there a point forward. are this some for in customers customers flattish BEAD, are for and are then at without us

of flattish for So your points But I a back that us, kind say, impact. question? answer see I that the would Did yes, number. to

George Notter

And in estate where Huntsville portfolio to an look are then in maybe you effort and estate? elsewhere. know I guys at there real on rationalizing was the update Any real

Thomas Stanton

Sure. been X -- got ever separate you've We've got if here, we've buildings here.

of just had in everybody, there's had India. consolidated as post-acquisition, resources too we as have bit we a and hiring as on Europe, space, We lot much post-pandemic, Poland going even maybe little way pre-pandemic, a in and kind well specifically of

we space. So too much had

we're out of That at X of end clearing right the this the be the So towers. done quarter. should

expect impact that's started on properties, showing this We'd moving for the of that. have We forward. still second and year half those

George Notter

process? update able what you of Any to get kind proceeds might on it. from Got be that

Thomas Stanton

Yes.

are don't X if -- there So we've given specific I know ranges.

do different So a but straightforward back one is and a call that those that's there paths Tower, I the we sell And about what made we haven't tower, to the could down, that guess to we can on. that. are execute we lease talked fairly which execute on on, of decision one and go X we being firm East

South, million I'm to $XX or it's that. the thinking one about, the On something the million is talking which $XX in like we're range just of North

Operator

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

Michael Genovese

So the correction the subscriber that way inventory it? right CPE, to and is about Is solutions over? think

Thomas Stanton

about answer I'd people. expecting to way I kind quarter. And because don't is We the the think I think range have of the I that's of lot uptick. during to real want we similar to be it Well, it. happen different say sell a it -- an say We're to in like can't yes, to this

the would I that. we're say through our of part think inventory, I for So specific deep

just at let me it leave So that.

Michael Genovese

And sequentially timing the move the some be can and And and talk your access further as we first should what access flat, aggregation, about guide got the looking more? at on given aggregation? quarter you -- mean, of some issues we've just quarters through I timing we on

Thomas Stanton

Yes.

So we Europe, one customers, and had bought the that. is, had probably really back can couple one of U.S. then MSO to a here to and that guess would expect was an it quarter. previous MSO probably this come the who in I X, that in

quarter. The other quarter. already It'll Xs have customers then quarter And are going decent this be Tier they're stronger last kind of flattish. to than I talked about a

Michael Genovese

when Okay. $XXX, access midpoint subscriber flat sequentially. and the as aggregation I we optical And solutions then guide, roughly I mentioned of for flat finally about me. at I well? look the mean, flat guide, being look at the X you've already at mean, we the sequentially, just overall other mean, should and

Thomas Stanton

yes. Oh,

some is probably guess. a try me Let add little It's Subscriber good flattish clarity it's just guess. to a solutions, a conservative, but probably good there.

as talked mentioned. what is thing would to of I just expect be specifically the You I customer off very be about. specific up we access to Optical based down, would expect

talked about inventory I inventory and on purpose. I and optical. business fiber-to-prem our was that impacting and about much, that subscriber really didn't So talk corrections

optical a to in expect to easing X, would had And inventory mix optical we optical think think basis So I to are the X down. there's be the other at space. on the and the X up and up. sequential look the be other other between We I if still

Michael Genovese

in be I margins, in time out Okay. as does hard help gross gross And high quite for difference with mean, a mix as margins just just XQ make for Could XQ. that? you that margins? thinking a I would that gross have

Thomas Stanton

the versus The be infrastructure which the the is is subscriber there actually piece fiber-to-prem, good would opt-in-prem. between pretty what -- gross piece in margins, real of shift really is

I through. to end to variability don't until end know the we of up that's quarter. yes, the mean, really So have we just that get some get I where will

in do We have our do We're costs. expect inventory gross to better easement also than some to continuing margins. coming on we

helps us along So the in trend itself math. that kind of

Operator

of you Company. Needham question & Koontz are on mute? next the line Ryan Ryan? from Your comes from Ryan,

Ryan Koontz

was I on mute.

a with little Sorry Yes. margins headwind is along I nice on about a in in that usually CPE, line. bit quarter wanted unpack there. Really higher to gross that. mix a the improvement, which fourth

you there? unpack takes being elsewhere kind that the puts transportation maybe So heard I costs You talked can much. too haven't and and of down, about

any would be helpful. comment So

Thomas Stanton

Uli. ahead, Go

Ulrich Dopfer

costs transportation The were to where for high. cost QX still related mainly comment was comparison the XXXX, extremely transportation

Ryan Koontz

Yes. costs the But of of I just transportation specifically, that. kind talked positive about

So comment any want QX? you on other give to

Thomas Stanton

thinking the I'm sequential on improvement, Uli.

Ulrich Dopfer

mainly The product and driven sequential by mix. is customer improvement

Ryan Koontz

Yes. And that includes a higher mix in CPE.

I have stronger So better implies smaller that something about shipments there Is customers margins. maybe that? that guess to

Ulrich Dopfer

of depends because now. Well, the think of CPE, upwards, right some nature things, just made several just been a business environment a it I tending And and competitive the instance, X-gig you, has up the of CPE of CPE different XX-gig A tell makes infrastructure in will actual customer I itself. the versus general the difference. on for is

been higher bill attributes those kind material I the without of coming material bill quarters. benefited. positive couple think continue parts parts over to price we So into, of that have work then of all lower has And of fees. just actually really, down into And price last expedite

Ryan Koontz

suppliers? outside your kind with were competitive Got And like, talked of winning, about question, would relative projects from still they of maybe characterize it. the environment you've displacements. Huawei I Huawei's one kind European specific you Chinese would the competing? continent you the characterize opportunity How today? broader That's helpful of European guys. position the stepping mean, in how to back And

Thomas Stanton

basis, to And you is near-term a I say, often. And look Honestly, problem, to can exercise just them, be about, a when at this they're them if year-over-year real extent almost I kind don't -- award drops have that a do quit saying, versus come exercise. you don't well, need software problem, it does when just out? not of is would see that company? from this on that And that tends but pricing you are carriers this the it -- number see you a that the they to is a doing of a I high-risk vendor, to to award equipment taking they when worry nothing getting stronger. but business then -- momentum would And longer-term

Ryan Koontz

And so, in of not but a terms the into seeing business, still amount, they're would the of new in they're footprint? fair bids, I run-rate sales competitive, of kind think, legacy

Thomas Stanton

you're fill is, that. through footprint, talking But to an very process get being open they some award in slots of they're just alternative. has now large right we or shelves, you get until part What equipment if legacy are new in -- And don't a open slots seeing an until lot specific literally happen they still awful then have filled slots they're liable have see open about opportunities But coming through in somebody those of the in, taking Europe. where shelves an out.

Operator

session That sorry. concludes our question-and-answer I'm --

next Northland Your Savageaux Markets. is Tim Capital from question

Timothy Savageaux

And that? question, subscriber. on It know pretty was that about Xs aggregation talked I QX also was more some that's like in market includes clarification X And sneak Tier a could to reference I and being to QX, Tier sounds there. get down or about or sequentially. I flat. good Glad well, the guess, segment -- able Okay. A access you I in

in as in would -- of customers? also of QX? attribute hold at QX, So versus to does more flattish that you would decline you kind look large couple you QX Or a that what that

Thomas Stanton

it of there that to in there. understand Yes. There's you've click got kind a for nuance all to

yes, we a I as buy. the don't kind consider that the specific I right? doubt, consider that So shipped way issue of they just to. X-month customers in that amount problem. increments, that they That's was a inventory X without buy biggest previously had significant

And down, and the the I go made product. but and flattish. along impacted getting it's look up different OLT And made and with the I ag access of several that here. look OLT outside was ag, we're in into it's weeds of If -- components so that sometimes is into look sold of made It's access that shipments optics shipments fiber-to-the-prem of So also optics, fiber-to-the-prem. switching that was a at up pluggable QX. kind at you of things. Tier are -- and actually a Xs, down this they But at into if were us.If

little optics QX, in slightly of come up, quarter-to-quarter. at a QX, was -- pluggable but and back those I'm if And heavily expecting pretty optics, that.But to vary I something the by similar down expecting similar would in So it look you maybe I'm portion up QX. that, the in actually expect piece to

components, in some You as clarify can the you? think about Did don't components hardware the have may anything they by that hardware for active more actual have inventory-specific the things, optics, but the way, that right, OLT. where

Timothy Savageaux

replacement. continuing market, rural some that, just that if dynamics, on the to Huawei with of and regard And at discussed U.S. competitive for guess, in a I competitive But competition be you to of specifically I the willing that or any know flattish broadband again, you look from there in kind of on? potential here market terms intensify dynamics seeing other standpoint to environment you are what in that comment you'd a the

Thomas Stanton

there of actively it's I similar some run mean, X us Nokia. to that dynamics Don't really changed. most are that what -- we're pretty cases the is year. And up haven't with that the then market kind in is against Calix, market of It's in competing who and we we see Calix last -- saw most. predominantly Yes. against

is every the have about go One They're -- One Louisiana process.So our same. a been the is our has think potential the the so mentioned for any much And everybody's in cleared good of kind to an all Intellifi, they award starts winning think as point, the that's there. and these think -- touch There which I bigger in There's changed. seeing positioned. the At yet get who's haven't actually first very, states, but and a rate to managed Mosaic segment, haven't this one through is the trying start funding, customers. offering take dynamics of then also questions. we're That's through that awards then Wi-Fi really launched of flowing to has our specifically actually kind customer Mosaic been everybody of fantastic.We why is Software money getting we'll of to really part paths start story. kind I out very where that the I I of through, on

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

Operator

and conference This participation, concludes disconnect. Thank now you today's you may for call. your

ADTRAN (ADTN) 27 Feb 242023 Q4 Earnings call transcript