ADTN - Earnings call transcript Q1 2024

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to ADTRAN Holdings, Inc.

First Quarter 2024 Earnings Release Conference Call.

[Operator Instructions]

As a reminder, today's call is being recorded.

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.

with risks our including report earnings XX-K our involve risks risks on statements and in detailed release, filings these and the uncertainties, the Form However, SEC. the our annual those call. uncertainties and may results materially statements, cause These in during risks forward-looking the could the made to actual differ from be which

that this call. We undertake any update after to statements to occur no obligation reflect the events

measures of earnings and presentation refer course additional to we certain has non-GAAP and available of to on measures. financial and investor been the also GAAP During are is website found will for Reconciliations certain investor information Investor included release. today's non-GAAP our Relations download. ADTRAN updated presentation call, in The our

over Sir, Executive of to Tom It go my please is now Stanton, ADTRAN Officer call pleasure Holdings. the to ahead. Chief turn

Thomas Stanton

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

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

just quarter revenue as margin guidance. revenue in midpoint range the non-GAAP expected came within our with operating first and of Our guidance above

managing flow headwinds impact us levels reducing and positive free spending. the achieve provider service cash Our inventory that on during focus despite expenses quarter to the helped near-term continue

our and quarter, of revenues the reducing year, the through to results and mix we outside continue close geographical the XX% do U.S. further While see the results revenue levels. our in to previous the was look our quarter, first signs will closer improve from overall the at coming we from will the expenses very with on that we move Taking market as the focus a managing inventory

solutions, revenue in from aggregation mix, product well from were XX% our coming from solutions. solutions categories, X the of On networking with optical access revenue subscriber XX% XX% and of and revenue our revenue across of coming balanced the we

driven after quarter-over-quarter and of in fiber was and in customers. subscriber category The down Access solutions Our posting an European X% Aggregation access both QX. quarter-over-quarter, quarter shipments a category the U.S. solutions by XX% increase strong for up platforms our was

continued areas had to midsized growth small through quarter. both customer residential for fiber our Solutions a segment and was market, our access up sequential be sequentially we provider inventory service partners. indirect and both in customers customers. purchasing our primary In CPE. X purchases Networking to platforms This was strong reduction -- impacted purchases quarter We of the up distribution with the initiatives Optical U.S. by had with fiber sequentially direct

of Europe area to providers larger and second fiber The close strength with surplus customers customer quarter segments segments, continue we the providers was CPE. in are moving purchases our with These platforms where our segment and in Europe. highest service to a and in initiatives strong customer see U.S., Ethernet investments. X the given growth of alignment large the small our portfolio This strategic midsized their had potential access the the forward,

we in charge is XXX Solutions record networks entry to market. high-risk customers will key been, That here drive investment at Europe, with from segments, Summit really week, to areas. U.S. we hosted U.S. I the are market over the broadband and leading multi-day to our our high host the opportunity the customers primarily a twice per This vendor in event These look small Taking being This Huntsville. fiber broadband year past U.S. attendance closer energy a with there continues with across the focus. It's X exciting comes in we these that the as was ever start broadband high. headquarters Business corporate partners as at and and out X that building corporate in strategic initiatives providers. service in the fiber-based replacements a These at maximize and our U.S. attendees the are it's midsized had event.

one, the still time a in stimulus be it networks of despite funding households market. fiber stages. Nearly U.S. still their half some lack still is to connection the investment these government the For a recent good further in early challenges, and programs in are

During that we're attendance stimulus our XX% audience poll event showed broadband of customers than last week, the programs. in in a quick participating more of

can customer this comes for from excitement segment. needs meet driver broader we second this of the set The that with

providers. want access small been solutions, service that business that in very networking in-home optimized tools a creating automation midsized customers needs and transport deliver comprehensive intentional have portfolio vendor them and buy these ideally to to more fiber throughout deployments. from network We their they trust the can a and optical of These networking monitoring U.S. single solutions is for platforms, platforms, fiber software reliable solutions, cloud-based support networking

one of only On ADTRAN. is top that integration all integrate without custom these and of lot boxes that, check with There the need systems that's activities. their of a solutions seamlessly can vendor IT existing to

investment, our You where have integrated can portfolio, and more portfolio residential segment our our go portfolio we are Intellifi, along of launched and X. SDG through our comprehensive paying of latest WiFi with see each series off. In

SaaS Intellifi, service Mosaic have number in push to application of highest suite it X We our of to hoping up the Mosaic making signed for adopting already application dozens XXX. total and providers the customers growth

have past We Mosaic XX added quarter. X new this customers

On us just the X SDX the past a access mix leading Series operators customers These vendor were deployments U.S. of the fiber-to-the-home quarter. to taken best regional we this into service and side, platform systems industry, of targeting These over fiber network new infrastructure operators swap-outs. add led billing our the providers. the in integrated last have a helping the and have months, new X efforts surge

they out as networks to build access higher-capacity operators As their need upgrade these networks, well. fiber transport

networks X need core in need for Coherent, by backhaul the widely mile, the solution optimized but network networks, the optical technology enabled regional have needs for like is DWDM, Regional and they deployments. network an years spent networks. these regional reach capacity to be We deployed developing middle that of past technologies optimized

to enabling of you we sizable tailored gig systems. we the continue this monitoring end-to-end integrated subscriber accelerate and well-thought-out to and purchase previously U.S. up precision traditional of a ADTRAN. This launched for investment, to that our an Reinforcing hardened all broadband-only fiber the their need means network instead complement customers start increase over access the our and overlay XXX were and progress optical optimization funding. that address means XX After portfolio needs portfolio. infrastructure. these is perfect to service with also That quarters, broadband these have automation stimulus had large portfolio X pluggables, speed service that temperature past optical customers the as to fiber providers and over Ethernet have builds segment We see solutions is

Our shipped by fiber fiber BEAD that integrated deploy networking an is to rules America long of X site our BEAD, set, local XG to part suite believe needs has notable of We solution selling manufacturing. well progress manufacturing that management milestone strong these now with paired increasingly deployment to over our ports home, with positioned that the a offering complete in the that U.S.-based include manufacturing networks. business of operation history covering regional paired U.S. million capabilities is the we that and everything and midsized every small operator the our have One with local succeed with highlighting simplifies local project of in OLT build upcoming in America our comply that are is us portfolio latest

the the in beginning service our trusted scale they around Europe. successful the infrastructure. from their as a what in value are upgrade making is market in These very secure a the The theme migrating still service Europe, portfolio of In and from market. coming bulk portfolio, the U.S. vendors, customer Moving investments are partner drivers alt to these we seeing with fiber that our different. broad away in is with investment are in segmentation region. high-risk with a region. consistent are while bit shift providers the of But deployment many portfolio nets larger providers customers to smaller off as and they Also, network are pay Europe, and we

services in-region of support X capabilities It address is X only these have installation ADTRAN sales is chain really also as needs. an can well. just that as and important vendors R&D supply and to

deploying As customers access I large mentioned earlier, this our our past quarter European fiber very successful was with platforms.

catalyst our U.K. the largest in offering in one X and selected our ramp access growth which For were the of also as quarter. this fiber customers. of deployments vendor this for Ethernet was the customers at aggregations service Germany, XX-gigabit these latest continue a the latest key SDX XXXX, to we We platform, high-density

these a on in power better than positioned the success us also for XXXX, and density of building has more region. while SDX has superiority competitive other technical customers modern operators The sustainable with efficiency well solutions, and architecture which the

multinational is X Tier operator operators already we of One these where countries. deployed X been in a have

We year. this they have and launched customer new us later country in, in recently that fourth operate much larger opportunities a growth trials for opening

for operator SDX great XXXX, scale lab year. to Tier track next last the another make and access we X deployments on fiber with In won we that continue remain progress year the through

for X we suite high Tier the aggregation moving forward. us Edge MPLS has another projects, with experienced have for a operator. software growth routers packet these to addition providing This our months, awarded in multinational opportunity In for MPLS software recently award past a X platforms strategic demand

the track have year start been optical optical we traditionally where this to Tier recent we deployments on X On strong very Europe, transport our side, late remain in with wins.

in are region. positioned our our for XXX portfolio regional competitive enhancements we to in and and XXX investment XXX existing customers across recent progress portfolio portfolio, gig landing that we enabling our Europe. selling the complete paired launch to and the These optical In our our U.S. base have fiber and customer broad cycle across optical XXX-gig with the M-Flex us upgrade well of across the success with positioned and benefit still summary, gig introduced more in well both in be enhancements have our With cycle presence customers. us offering to business expanding ongoing platform, from latest new networks the key from next strong

remain confident see long-term quarters we a in the growth our outlook, to we ahead. While path in

from service to provider to continue spending continue forecast to our driving our see approach We us model. customers, cautious and operating cautious

and efficient continue best-in-class more fiber a more will focus networking becoming profitable we result, a leaner, portfolio. a As with company on our

over that, answer review Uli's Uli questions any will With things turn remarks, to Uli? have. may results. And financial I you of following a provide to we will our

Ulrich Dopfer

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

In available updated addition, presentation dollars. in U.S. all we investor financials is have otherwise, for download. the presented stated which the site, to are Unless

midpoint QX came our XXXX at in down and above slightly revenue but were of $XXX.X up sequentially. slightly year-over-year, XX% guidance million

XX.X% segment to Our in and revenues in accounted Network in of for XXXX. compared QX QX XXXX Solutions XXXX XX.X% QX XX%

Our quarter. XX% Access and contributed quarter the QX revenues grew year of was but ago to compared Services XX.X% in and quarter, XX.X% Support XX.X% and Aggregation in ago to sequentially. contributed revenue in previous year & XX% of down segment XX% the compared the

quarter-over-quarter. contributed and and -- X.X% Subscriber XX% XX.X% down year-over-year was quarter-over-quarter. category and of down solutions networking XX.X% and optical XX.X% was revenues XX.X% contributed XX% down year-over-year Solutions down Our

The negative and and two in QX International revenue basis non-GAAP costs more XXXX. manufacturing QX up revenue points and had slightly XX.X% improvement customer revenue margin operating gross slightly expenses XXX customers mainly and up to of contributed was XXXX. non-GAAP $X.X lower XX%. QX The and translates was million QX SG&A unfavorable a made currency year-over-year mainly was was revenue total increase of into in increased below product or XXXX. year-over-year, by mix. X.X% of XX.X%. a XX.X% non-GAAP as to effects. margin R&D Year-over-year, two transportation spend were seasonal $XXX.X driven by million, more XX% which sequential X% is quarter-over-quarter. and down non-GAAP domestic We as expenses favorable by due well by operating exchange rates Non-GAAP loss X.X% year-over-year reduced and negative operating we QX compared XX%

loss year-over-year was margin revenues. decrease margin higher X% of was volume, by operating lower gross operating range was sequential quarter to profitability $X.X The X% in in within partially offset slightly diluted and in improved This The The Total our share $X.XX expense and $X.XX resulted of non-GAAP company and $XX first of operating share minus OpEx minority benefit Our attributable guidance after between lower gross and the $X.XX XXXX. the reduction. in loss decline to Networks to margins and interest for million operating company's XXXX of sales non-GAAP due to attributable XXXX shareholder per was in margins. for million. non-GAAP in tax per was Adtran QX compared SE. adjusting QX

Turning $XXX.X in In by compared free and million made to resulting DSO million, at to statement. of noticeable million increase flow increase of QX days the operating cash end, $XX.X of working were balance $XXX.X a XXXX, of million XX to equivalents sheet capital. capital in to compared compared or improved XX and million our to an flow. XXXX. our came The significant a the quarter. prior Consequently, cash This improvements receivables flow Trade reduced generated of quarter-over-quarter. quarter resulted million, days accounts $XX.X working operating QX which flow at in in $XX.X inventories million We cash positive resulted $XX.X in negative million of cash a quarter-over-quarter $XX.X XX%. cash $XX.X increase cash we we in

summary, throughout quarter. spending the private In to impact service continued headwinds near-term

quarter-over-quarter, We business flow. result, a of flow execution as continue efficiency and resulting to managed increase our to cash program focus free the significantly in our positive on cash

see Even outlook remain spending provider growth our customers, path quarters ahead. confident continue see we in to long-term cautious our as a the in as we service to we from

are that long-term for We drivers fully are the our convinced growth intact. business

by data-driven future stimulus continue, and to in fiber high-risk vendors. to everywhere and will investment the desire the supported the exposure that funding reduce expect We infrastructure

we high-value our We driving company upgraded optical platforms We our narrowing maintain software guidance minus margin with a access efficient negative and positive continue portfolio. of to profitable footprints services. networking our X% capturing for range and while X% a our $XXX $XXX and fiber best-in-class on on transport expect second and are adoption million latest subscriber of non-GAAP fiber software and a more the and focus and leaner, operating the XXXX, between quarter fiber Consequently, we with platforms, becoming million more revenues. solutions of between

to take investors.adtran.com. information investor page back additional is web questions. Adtran's at available over the turn will it will and again, now I Once your operator, at we

Operator

Instructions] question [Operator Our George first Notter from from Jefferies. comes

George Notter

last here better digestion inventories a guess I the on been over through would of, understand that customers. at just back know I year, to we've step bigger CPE talking business. like excess lot that I inventory I the guess, phase. and Obviously, kind narrative and the business about went X.X years, your kind of excess

of I there. hear think but we're now, I'd love out to it your comments

parts What And you that like customer going optical, parts us the business with the are excess phase What better? are business of on still it the we're just What's but, picture in getting it? inventories? the do seems What of give through see? picture? still

Thomas Stanton

sure. Yes,

fiber-to-the-prem OLT the least our predominantly and I access So and let in line. of me product with is, think where amount our inventory that's aggregation and start

lot So this in at point there's there just out time. not a

see the be impacted that the on can in we you So and kind think subscriber. saw the would that of and I road numbers the growth that least has middle factor one of been

I a they that because some month then buildup just bag And last a there think we do. in. I -- say more got have I there are But of inventory of situations, that inventory have still mixed think many week, I some would there correct. talked gets that longer some did that no every you're this it's optical, better. too with to are I are many but and mean customers customers kind still

of have there but that some, I disproportionately, that the of -- inventory If larger customers kind situation. it's that those longest we're and Does better, itself numbers some think the getting impact where through question? ahead your but got answer least are is probably the that's that just one yes, it's it. path

George Notter

you Any business? the on through the when optical that expectation on would of get side inventory

Thomas Stanton

a to lot going it's the up three. being other end think I like

half most we'll -- improvement year. the the those of and as situation of way it. have our get may that the the larger some customers, we look muted pickup through it. the that We because be we'll they'll see half. second expectation the So If at inventory at do ones will in today see pickup in second some But I of get through the

I some, come that see on will you'll think, stronger. But

I So numbers would expect forward. better going

in could even Let me this a feel point that be at out lowest this mean, at feel time, caution little the like we in we pluses time, and but bit. But minuses I history. we the like at we're we're themselves -- in point level surprised.

second just get two, On the through those stronger the to other expect half. we

George Notter

Great. some just cautious on service customers. guess perspective just between provider Okay. I you And is I provider rates excess versus softer that? a about is consumption inventory what byproduct spending, what delineate by spending. also have softer service to genuinely made you of then comments want Do a

Thomas Stanton

In -- different are it many ways There to dissect that. depends. so

So plans. in with ahead side, they're customers on Europe, with access their moving just the larger especially

one quarter. had it's In some on you well. depends which of we but It to I'd the And caution, customer talking the spotty. strong talk there's I'm customers, So sure reasons to. a European you're say U.S., as

some roll with are going We to how stimulus is to that that their out, out. are plans. are are forward camps. forward. they're So There ahead thing they're but back aggressive there see that that there's are see are have is some in both kind There to trying to And moving roll equity plan. stimulus of want to going then how some the some are moving that going

would the bigger -- that doubt is demand I it's how I I still say by trying out much to has there's I'd say is been demand is the the mixed So but hangover. bigger inventory environment, it's -- bag. a far, or by inventory impacted no current figure mean think but not. there,

Operator

question next Rosenblatt from from comes Michael Our Genovese Securities.

Michael Genovese

And what's I And more between we of is of like burn inventory see need how the is off on couple more I roughly, I about. guess that optical on going there. What's to that uptick you access then related much could hear in and sort specifically it guess, a in to for and and aggregation. platforms any going comment how solutions interesting subscriber we sounds related how on much first, and before with understand an answer inventory that optical like access demand of to subscriber quarters related there's is first -- also be much access would to question category of versus there? differentiation just if optical and to experiences?

Thomas Stanton

Well, let off me I that light things on share here head the just give that think help top come my you may some just of some it.

so at the look strong residential all, I quarter, had last especially If subscribers. if of piece subscribers you look of -- quarter first at a pretty

piece So you of it bad that for a business, little, feel through a was was the it residential inventory like not piece is working which system. down that but quarter itself makes the

I it's for most customers. event upcoming most an And still a for event think people, versus past

inventory carrier I that U.S. the customers one look are only sequentially we CPE The be large matter. -- subscriber, that situations. were carriers on right, pinpoint shipments a we was Subscriber -- up. that X up. mix, subtract residential Solutions year-over-year year-over-year know right? I and some category the was If even carrier up piece products that the Ethernet But The that large net and one to in So was X well. was here if down thing Europe shipments from were actually on whole large basis. can actually basis, only for piece legacy up, year-over-year were those would as who sell to in on piece actually well, ONT have that who down I a

that definitely So bubble.. getting we are through

Michael Genovese

at to I -- we but that is related a access or I know of meaning the number, I probably Could think if breakout all? I give Okay -- most there that's the this is also I solutions have help don't business, but I piece -- meaningful guess there's you related assume optical you mean, us subscriber understand to business. number this mean

Thomas Stanton

the of the broken we're print piece Adva about that are On driven traditional, on are is basis. doing the that here. a the the I'll other subscriber knit business of good. Ethernet business And One pieces That it, side, that's it's actually shipments. the then ONTs, optical is call RG, and residential, is year-over-year And the piece that kind talking is by areas, kind of that up up the piece is things fiber multiple right? to pretty

we And of routers, were is customers carriers. we switches have and remember, Piece business, from That's the have typically carriers, that those service they whole those along that big but is through go offerings X subscriber traditional go down. with of both those customers you down if drive that and solutions. and totality

Michael Genovese

question are That's a guys make a mean is at make for time. it I I Because Got period on a management bringing it. inventory. anything, then as helpful. missing we to -- think want And revenues management, just there's I are down doing front, say, the working -- it I that my And -- you more than there's restructuring lot not think, even clearly right? capital and other that, too, can if I'm company of before you sure lower but profitable see

there focusing on can look related on? is And us you missing -- -- I my be estate -- an that anything really am I update portfolio should the give I then transactions? to I also, anything guess real question but

Thomas Stanton

Yes.

Huntsville -- have we we here have some do So sale. is real that for in estate

as pieces. different it two about think different, two have We

We that that. have of time, the in point unoccupied. this We're a moving tower XX% at at we're rest

think right have be on this We now. the should we done that. interest quarter, with do market I in that. That's

We haven't closed anything.

what is and try on doing putting leaseback have here Huntsville. at thing the that just also point We that. off time right the right other we're sale the in on in building we're That the potential

may that that execute one. may or on we So not

Michael Genovese

improve categories restructuring, thinking categories any the working of And big the of like kind were what other OpEx there of kind to management? capital about other market. of you're Any

Ulrich Dopfer

main the Mike. These categories, are

of efficient costs, piece more optimizing And as big a you capital working mentioned, then, getting the company, optimizing management includes the course, here physical the program inventory. bring measures of is footprint. efficiency business Our

Thomas Stanton

closure We in quarter. site did also of in a announce the the Germany earlier

Operator

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

Ryan Koontz

We BEAD also my ask U.S. heard I've Any concern of in pushback we've customer a really for about the -- peers smaller maybe your some summit topics on had lot of stalling there. heard from for talk here activities, one planning customer you feedback your we your about customer of around some those us work, regulatory from the heard -- requirements customers Summit? feedback for there. the either BEAD, from

Thomas Stanton

Yes.

There So -- we some are that. there part, talked for about yet. of lot flowing the clear a lot real And started others. was are hasn't better than there. most what interest so states implementing of BEAD It's today. fashion. There that like a lot at people buckets taking dollars. They different some were were them are participating form are There mentioned funds I in there, out are a getting stimulus they ARPA most of but that XX% or

and that, they kind state arrangements. -- headache. but a There you see had and the some have are don't you that. majority roll of got it and waiting were piece to out open as manageable it to see the on are and going some do see just do it sessions there people And those then that's people have -- and breakout to where would But regulatory on think we're it of they can rules, they group in beat, was have a headache, we but get to saying financing in different this see have that it, skepticism they no, the as you line you at. say typically how that but -- of I are very just

just definitely like to they very going were to it. like to funding some feels way to taking was going was XX% saying take that's said, it. going are there or The money taken, this more But we think it's see I it So order point fashion take fluid. it's be I'm -- I who's

Ryan Koontz

seasonal FX Tom. of Got there's we for payroll impacts -- of of it. Helpful, can that Any OpEx terms things I probably Where that are onetime in how year? and in about efficiency, QX. something to kind on the think more headed line type OpEx of some hit some rest on you the there share understand the you efficiency? And terms

Thomas Stanton

Well, we that's we where to kind want of haven't QX that plan more and that's where our to we're if below to get actually our the kind be laid of a level, ultimate gotten quarter. and had this -- going I -- hit out think things we you headed I to, don't QX we where was any granular. target we to

Ulrich Dopfer

said call, target. if said we is XXXX the Ryan, call recall and earnings this reduce to you before, it, the by is We target compared to not last XXXX, million earnings our our our expenses $XX still

Thomas Stanton

All right. Thanks.

have industry I think any more regards. we

Operator

from question Savageaux We one more do have Northland from Tim Capital.

Timothy Savageaux

We Okay. Great. had a couple questions. of

little by and more quarter nice a but sounds in I you especially might aggregation after a is expectations your segment. color like and give one First sort on wonder flattish, on the -- outlook, on us of if continued be to whether which or inventory that there's access going continue, is even But directionally maybe comment up? else and maybe down something is you kind there. I'd like that growth accurate offset optical subscriber if to that's of likely by It to work

Thomas Stanton

Yes.

I think We accurate. is answer is yes, the accurate. is directionally, -- you the it way yes, said that would just other the

Timothy Savageaux

expect Great. you some more in had pretty segment those little modest QX, a sharp would be moves movements And QX? in I by you sequentially assume to

Thomas Stanton

I I moves. my what in know you guess sharp mean don't

Timothy Savageaux

sequential up movements. those I QX. almost mean, XX% type mean and was I aggregation in access

Thomas Stanton

we're up increase numbers about, basis. modestly to to be that be that of modeling would talking modestly right? Yes. expect -- a a sequential sequential for optical get Yes. We We're to quarterly not We then and type the on basis them were down. expected to to just on

Timothy Savageaux

Great. what I looking for. I was guess

U.S.? XX% the should did on both comment international. you you the front, in are customer those assume On have Or can anybody -- we

Thomas Stanton

They're international. both

Timothy Savageaux

mean, you and certainly gross maybe Great. at And negative there as for QX up bit your margins, target reverse margins expect OpEx than the was reiterated on that look mentioned we should drivers a I there, you last was Obviously, guide. were down just the question gross backing degree, I looking higher off margins OpEx the sharply. some for. with the to little And solidly. QX to pretty with modestly coming guide operating along pretty

Ulrich Dopfer

then But mix I always product to last guidance, especially just right, margin your second down model, of quarter, the it subject well. we midpoint moving many would if gross the slightly, the as OpEx, as to comes in that OpEx mean bit there's the you said, down into which month gross mean the come know, when to you expect mix, as margin would Tom you quarter, that of look little -- parts. come you model customer and a is if

Thomas Stanton

think I we're Well, queue. through call the

you thank call conference talking on quarter, this you to you. to Thank So much and look next forward quarter. joining for us we our very

Operator

you This Thank for participation. concludes your today's conference call.

You may now disconnect.

ADTRAN (ADTN) 7 May 242024 Q1 Earnings call transcript