ADTN - Earnings call transcript Q4 2024

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Operator

Good morning. My name is Rob, and I will be your conference operator. At this time, I would like to welcome everyone to the ADTRAN Holdings Fourth Quarter 2024 Financial Results Conference Call. [Operator Instructions] Thank you. Mr. Investor may President, call. your Vice Schuman, Relations, begin you conference Peter

Peter Schuman

Conference to you, you Fourth ADTRAN Results thank Welcome, Quarter and joining Financial Thank and for for Rob. by those all joining us today XXXX Call, webcast. welcome Holdings

of course ADTRAN call, statements conference make based on representatives best reflects management's this judgment to factors forward-looking the During expect that currently known.

differ materially reflect of to which during our to from this the those be course and risks statements and statements, could any results events detailed risks earnings release, in that risks obligation our our uncertainties uncertainties, the no in XX-K, Form update with the may forward-looking involve annual including occur statements call. after cause on these undertake We to SEC. These call. However, and filings report our actual made this

investor course the certain included refer information non-GAAP financial of Reconciliations to earnings and certain our we and the to also additional measures measures. During release. GAAP presentation are in non-GAAP our of call, in

We XXXX that non-GAAP period. Relations guidance our the we website. effort with first occur without all presentation adjustments the investor Investor have updated been may available has is for quarter of cannot download unreasonable during to margin because the operating of The regards provided and ADTRAN not and predict quantify reconciliations on

are remain In in or year-end risks addition, to changes consequently company's the are to quarter-end subject financial among procedures, subject They measures including, during estimates. the and the controls course with call of this adjustments. and preliminary conference connection others, internal uncertainties, and

any the the performance the Stanton. and to that Senior investment you call have. I'd Uli Board, turn like Stanton, CFO, quarter Dopfer, President take the Tom ADTRAN our questions may to provide then in highlights agenda. will XXXX, CEO key fourth over Holdings' Chairman the review we'll and Tom financial to of and and now detail, quarterly Turning for Vice the will

Thomas Stanton

key all several was our improvements quarter-over-quarter. Diving profits QX to increased our well continued in showed regions ADTRAN strong, operating XX% non-GAAP that up during expand. XX% sequentially, increase, QX. QX remained Peter. gross operating supporting meaningful across Good revenue executed into up everyone. morning, non-GAAP details, you, revenue margins metrics. Revenue Thank with Revenue networking across our bottomed the with revenue growth sequential in belief with optical non-U.S. a deeper and

customers opportunities XXX XXX securing is any these need trust. and levels, solutions customers, our that their optical upgrading uptick during it some large-scale agencies, customer broadband improving verticals institutions we networking mix In in diversity our growth backhaul Our a included a customers. Optical Gig. In and growing or portfolio, compute XXX optical broad opportunities in it with scalable, an content growth up mix base. of optical content sites, multiple We large continued government or forward. a the to these optimistic use moving large-scale networks in our optical to regions, With networks and regional of their they vendor utilities, are service Internet enterprises. The providers can upgrading by upgrading networks networking the quarter. customer new XX needs. inventory Gig in the providers, growth all is the business customers broadband added transport from in about new address led from across was and of customers Gig advancements these of providers, between These Internet capacity cases, all government fourth segment, or across upgrade fiber and automated enterprise networks. Under or private enterprises customers network matches catalyst secure, other solutions operators scenarios, scenarios,

among our deploying and by grew and upgrades. the led The service leading remains the are presence network quarter's our fiber growth their U.S. option providers solutions expanding Our who X% upgrading customers strong in footprint. and sequentially, by footprint was given expanding fiber and aggregation fiber their fiber and driven Europe, vendor We access expansion services. Investment multi-Gig markets. and remain upgrading U.S. portfolio we and are in target

to we in During of acquisition our of new fiber-to-the-premise a With quarter, this trend began XX expect the shipping service continuing area. meaningful we strong network infrastructure and in customer revenue providers, pipeline opportunities expansion segment. new growth upgrades, this

another directly X category that's The strong subscriber slightly had Our quarter, sequentially, is fiber following strength footprint have in experienced. expansion access quarter-over-quarter that attributable although solutions increases. down to strong we CPE

businesses, growth fiber. expect in infrastructure with and our meaningful We as sites CPE homes, connect critical more to work customers

Within quarter. in XX pipeline, next we our several the provider the X is large providers. The new over X products drive months will industry introducing be regional product continue service new help for the growing Wi-Fi service we customers fourth during to direction to demand category, a new of and base added Within our clear. multi-Gig

while delivering automation. best-in-class and insights customers scale through the experiences to networks Our core need fiber subscriber premise from at customer better optical

major our Gig We all aspects family. portfolio, to XXX XX industry's density, in solution, M-Flex, recently highest industry-leading power-efficient most fiber our SDX our have Gig introduced made from platform the of upgrades the across transport access

the the have platforms networks that customers their infrastructure leading need build of future. fiber We to

for suite these nearly and and platforms monitoring of aspects automating platforms and need. paired us multi-Gig have Gig business software capabilities Gig On and XX premise services connectivity competition and offer success the side, forward. Mosaic moving us applications from Wi-Fi experiences. These high-performance by platforms world-class XXX simplifies differentiates from optimizing of that of provisioning and have for that optical Whether customer automates portfolio, we automating solutions the our complex of our networks. The residential positions the our performance additional are or to complemented user networks, networking we networking any cost-effective the software services, our all for with solutions Wi-Fi it's breadth

year. Turning to progress substantial operational We for during performance our made XXXX. the

site to costs and ability for non-GAAP lower basis higher revenue interest rates, and were negative XX.X% inventory related year. directly to driven expanded consolidation. Non-GAAP reducing that full overhead meaningfully decreased including the due Although in prior for for margin and a year profit operational XX.X% gross also efficiency to higher on and and turning end customers the on figures This operating the growth markets, to underscores the to to the year, realization, from adapt our by reflecting our non-GAAP the year earlier both value profitability. softer compared drive efficiencies year market the positive XXXX improved, product evolving conditions focusing

million in optimizing cash cash to during used Additionally, to XXXX. Net cash net operating provided improvement activities $XX.X we activities operating million flow. success compared achieved a in significant $XXX.X improved by our XXXX, during of

in $XX.X growth. This XXXX efficiency by focus our improved from and mid-XXs in improved with million calendar quarter's the digits. In performance, confidence combined cash well the flow and reinforces positions prior year. XXXX. margin profit of an low million quarter positive discipline momentum we $XXX.X percentages for free improved This financial bookings outlook, operating summary, double to strong and results, the future past financial margin during as operating percentage had long-term gross the model of substantial Our strong entering of target on operational in our good a

over ahead few Uli our opportunities in of in to customer major things our to a continue our financial still U.S. to will with platforms, turn grow Europe and us. With the invest provide strategic that, of I and base We results.

to up we questions Following Uli's have. you Uli? any may remarks, open will

Ulrich Dopfer

To I QX for us first our through financial and joining thank the begin, on this you, then Tom, call everyone, will you, performance, walk I XXXX Thank and will morning. preliminary guidance. for our million and or increased Revenue expectations above of year-over-year X%. was our sequential million X%, discuss increase QX XXXX. QX the million, or midpoint $XXX.X a revenue of $XX.X $XX.X

accounting million, revenue for total network in XX% delivered prior in approximately Our segment the XX% compared $XXX to QX solutions of quarter.

increased compared in perspective, total preceding and approximately a the and $XX.X delivered segment XX% product access or Our QX in delivered to XX% aggregation services XX% million of X% sequentially. support category revenue, of total $XX.X quarter. From or million and revenue

of respectively. was $XX.X This Our had U.S. XX% in than optical due total were up during million, increased and down quarter revenue, total sales basis total compensation We million sequentially. Non-U.S. reflecting revenue. X% or was revenue. Non-GAAP XX% XX% revenue. was more $XX.X higher solution commissions. was This XX to or represented increase gross XX% quarter-over-quarter QX Subscriber a who customer XX.X%, was our QX decline one of of deferred $XX points. of expenses XX% revenues XX% networking operating sequentially. a of or sequential the solutions and million were margin category Non-GAAP

of For QX in per $X.X of small improvement This basis. $X.X QX, compares million above and guidance non-GAAP profit management healthy profit and non-GAAP were quarter. X.X% and loss during $X.XX of a a gross a was generated was ago QX, year in operating per our driven tax our We by on margin, $X.X income share or of $X.X revenue XXXX. higher million fixed amount a or our the QX profitability of in costs. Non-GAAP of expense earnings in operating loss margin million effective of to an and non-GAAP the share break-even a The million. QX to of net XXXX operating in revenue compares X.X% and This revenue, midpoint range. was

sheet Turning the flow balance to and cash statement.

was $XXX for First, million, cash prior a operating million over year. I'd full highlight, $XXX year to from like nearly flow XXXX, swing the the

days XX decreased million to receivables capital $X.X prior days. end, resulting to at working $XXX quarter. million million. $XXX.X net quarter the QX, in compares by of were DSO accounts XX Trade During quarter-over-quarter in This

in $XXX.X million at the Operating year-end. of were of compared Accounts the to $XXX.X XX were quarter. was the $X.X the prior to Our payable $XX.X million timing million days XX end inventories mainly down million. flow versus days were due receivables quarter. DPOs at to XXXX, QX cash

As flow to for million the flow flow the was $XX.X million free of of XXXX. QX negative cash $XXX.X flow. operating for positive the $XX.X result XXXX. We QX of negative to year compared The for cash $XX.X lower quarter flow million lower number free free of cash was had I the compared in shared, fourth the in million cash full cash year

full generated we strengthening and year, decrease At an from million, positive of million. In priority. quarter-over-quarter end were increase key of the XXXX. cash $XX.X cash million $XXX.X million, QX, a flow year balance strategic XXXX, the $XX.X a equivalents sheet our $XX.X the For free of is cash of

have We actions this taken in direction. several significant

As real now is balance we our on process unused sale. the previously estate, for held which selling in corporate assets as sheet communicated, listed of our are

assets. by we although Due other working to limited what on diligence also noncore interested are NDAs can are share. continues, parties based we monetize on We

net substantially intent year aiming XXXX, operational position positive execution. during we although with a the solid to XXXX strengthen Our exit financial is delivered to cash challenging, position. In summary, our was

scale for increases. margin. we We business, line anticipate do regain expenses As moderately in and expect in our expanded XXXX, benefit higher payroll with we an operating operating normalized

the outlook our for to quarter. now first Turning

again, to X%. Once additional range We information on expect will and of the turn a $XXX.X website revenue Relations investors.adtran.com. This to the is between call, million available operating financial Investor to call Rob updated and and at back Q&A portion million over between session. the margin newly the begin I $XXX.X remarks to non-GAAP ADTRAN's concludes now prepared X%

Operator

question [Operator Securities. first Michael Instructions] Genovese from comes the Your line Rosenblatt from of

Michael Genovese

And Congratulations follow-up in to and by balance from easily? this like this cash and able are $XXX inventory, is that estate nice how cash much I I on us be anything that is a That of going million of we net year? generated get get be by want To other so kind to quarter, as on debt, -- that, point. you assets, if right, get sale sold detail I am there of be more year. begin, should the of operations really, trivial I sort with position just my the guess could fairly can the got the guess -- -- the be exiting end to capital -- business there much net of in is seems and to inventory question the end seems a that better that guess -- right the real and the that cash net we to results. so sheet we on want than I And I how working cash. break-even of that

Thomas Stanton

is question your to answer The yes.

inventory directly, talking And generating cash be come should that expect we're the do to really you're yes. do We to year. We easy. just down So expect through be the right through flow asset that about, the with free year. sales

that property talking As unique. market. you and when biggest especially issue know, asset timing properties the sales, some have we about the you're relatively And are is

said Having thing. to found So and to getting the the we have that, up. we got are buyer biggest that right have that it's find seen -- match alignment, some have we but closures to customers is them

areas talked and fairly Subscriber, asset are our about As fiber-to-the-prem those far as are strategic businesses optical, we in. anything the sales, that's other we're and nonstrategic, easy the to define. and

look yes, a your the line as and potential those answer don't So of that would to that, for -- we on we move fall assets we buyers. in at, some us things take forward that question? a find Does right there's

Michael Genovese

U.S. that visibility the throughout the recovery feel kind to year, move Yes, could to of and of -- I and so the the would the of the year? sort my -- kind questions. had other a telecom be would don't quarters better want the quarter one we of absolutely. make to just I visibility you the I of sustainability of the first since many on guess ask too of -- if I Europe describe visibility kind beyond of But sustained you sources how time, recovery have that the as would we multipart rest

Thomas Stanton

the have that prior purchase maybe than do I'm have businesses. explicitly look In crystal business -- some different And backlog deal so unfortunately, in really months just I just tell in say, things I a that. general, going X visibility things our have is don't I off and that -- you that the looking typically picked months Well, positive. with. The ball. based ship just the of just But than mean, definitely one, then longer-term as environment last tangible. comes are picked of mean, number But can't still customer well, up. the can we is to we the what of is yes, don't right? positive. more things order. substantially book been typically, best up, to Bookings bases know. and is very a we we murky is But what X and doubt. stronger confidence the get we have the window year is this I more planning without kind has And the other from because different QX has I trending-wise, as QX in, stronger And confidence.

Operator

from from Your Craig-Hallum Schwab Capital comes question next the Christian of line Group.

Christian Schwab

to Back the quarter. Good inventory.

growth You've last quarters. your could level over the for what that inventory? your you done objectives? stated before you Do you to reducing have future balance to goal a be significant of potentially X on a would inventory need maintain for And sheet job do reduced think it

Thomas Stanton

turns? talk turn Yes. -- about do you We to -- want our those ahead. Go

Ulrich Dopfer

Yes.

are be, for been our up in we turns to some have process not to and in inventory takes past, where X.X, year. our a where currently, goal range we Xx So X.X, to our the not Obviously, this want is time. the is back increase inventory that that turns

like year. and we continue in during For And come profile that satisfy need outside will demand. the much customers the said call from the this on to we demand how earlier, his order additional this this to part inventory Tom year, depends how material from to anticipate much buy down throughout of

Maybe as in had we in quite seen of quarter come decline significant I we and we inventory, through last not first process working So year, inventory are the a as would overall, have a some. inventory. down drop anticipate gradually where will -- but but anticipate significant

Thomas Stanton

Yes.

I is start think key issues. That's way inventory about get think we the We really there And Xx -- that. the before. been we're having much to comfortable is, above there. where customer We've turns.

company. the comfortable of for low is place kind Xs a So

Christian Schwab

visibility, of Does but expect the off given XXXX. but industry quarter-to-quarter growth plus this a I although then you XX% that you're fair? have And challenged calendar that seem we improved environment year, expect know pretty would top-line year? business coming this in seeing, type you revenues you environment volatility, Would limited are

Thomas Stanton

Fair.

We full We're are explicitly guidance. quarter year we are that there there. that of guidance. in get know out numbers Let to don't really we've give had, aware But struggled say, that. the just me past,

improving. given So is the And for we're first definitely to comfortable I I go next which with the environment guidance of we've back would was range that quarter. the round the think questions,

don't The year definitely plays I we have still to see but So how trend to anybody want there. is the out. positive, mislead

Operator

from Company. from Your next Ryan & Needham Koontz question the comes of line

Ryan Koontz

do indiscernible have have risk ]? around there the around Nice job you write-downs much Uli, obsolete? what take on there have excess and here. you any to [ We're inventory, today

Ulrich Dopfer

a always here. I sleepless it. fairly few have the years high, Obviously, customers we when last so that are in Well, it our so mean, built large built have over so asking think far, inventory is fairly was we reserve I -- reserve spot over nights significant, our safe we so depends on are and inventory demand for. don't what But a I

Thomas Stanton

see the big consistent it's last that. quarters, don't few a and over fairly Yes, change been I

Ryan Koontz

ballpark Any assets. here? like on noncore talking You XX%... can believe we're percent X%, what mentioned about revenue you you And of share it's

Thomas Stanton

donâ€™t about of it's We anything part big of strategic big have not. that not would was if our or -- whether a part it's -- a revenue, we we our it revenue, not really would talk or to

big So it's not a piece.

Ryan Koontz

couple On I a of pieces in was quarter, assume And an your the customer? that XX% international customer housekeeping here.

Thomas Stanton

correct. That's

Ryan Koontz

have year? you any -- any the did 'XX, customers in for And XX%

Thomas Stanton

Oh, good question. Do you --

Ulrich Dopfer

the -- had revenue a always one one, last have for -- actually, we not For year. the we quarter, had No. didn't customer we last entire but for year We quarters, XX% did individual year? a have

Ryan Koontz

are on relatively... balance of kind we regards a and finally deployments in And headwind like still do are here feel optical little back to outlook, in you demand with inventories? the Or optical

Thomas Stanton

QX. still We clear still that and been that the one year. think up have case. in we That's we outlier in to the better clear was inventory itself -- up it through better one have vocal we of know Inventory, we've I will kind expect think fairly We QX. situation getting

expect good be we in place. to QX, exiting So a

Ryan Koontz

terms optical can today? is meaningful of kind Any operators. mentioned to that details business you of share how then in you cloud there And the

Thomas Stanton

lumpy. It's

quarters, some be be less can and good other it then So it good. can

So it's I know we're to on say I you wouldn't kind continuing make then sense of there's inflection good it's have, to point that. -- And I I overweight mean, there. and our that. would but say will no on big inroads,

Ryan Koontz

And last one. then

the BEAD market? broadband of still and even other programs ag, your some state you access federal a some broadband and and programs around from U.S. sure U.S. of this around what's Obviously, other Any driving is the anecdotes these thing the market? government couple front, maybe but are On share there. a fiber thinking strength year, can not

Thomas Stanton

say would the but still our couple come not of BEAD weeks a driver what We've there no was XXX from that's now. there the I a their they're doing customers Yes. close in kind positive meaningful right to energy are business. ago. are And that or -- stimulus previous And programs things, is plans tails had there about were. driving lot of what's BEAD, business of to

I I think Tier space, a lot that are in people are up. the think there X gearing of

but there, the a and think itself near-term I out of is plans. question becoming less people's it's BEAD less still part

We been it's for For investing driver Tier kind been and about on. of again. us, think never what have Xs, to of we big kind going have in was we more they that think a this excited slower, general, they're start were going year. to that

there the that And some Tier case. think very exciting. of equity be been coming into the the new with has also We that's to continues that space been X

there. so year's be So doing clarity it it's driver to decision But -- I nice a not said, are a better. And have these be customer at us base larger that customers this would the would like for BEAD, the anyways, revenue. least for big just to are

Ryan Koontz

just just the said then you about to clarify Tier what Xs. And

footing momentum, to for [ in positive up more indiscernible them seeing financial better to ramp You're ] continue

Thomas Stanton

that you're some kind Tier in. dynamic these invested footprint yes, And good incumbent newer and Yes, private others incumbent, would carriers, expansion I And being So a yes. on of right? going people kind competitive they're equity if mean, about have X an there. the of then Tier worried overbuilt, even have be of Xs there's

Operator

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

Timothy Savageaux

about on if either guiding what -- on or or any what's And uptick, be? that revenue. congrats here. higher QX get in or a of wonder standpoint, we the some the from parts you're geographic is seeing to expect can modest happening what moving I increase talking a top-line to inflect you there color more drive Sequentially, product And that might

Thomas Stanton

is agree Yes. the in I modest, term modest eye beholder. your mean I with the of but

pretty down. with we're us, typically, For seasonally happy because, it we're

the I'm European is it's yes, customers starts think and then like fourth we're the the first typical same U.S. thing. stronger kind -- we ag positive think unknown seasonality We general, see and thing. In so kind answer we'll of, have the access a up growth. pick our little to is that buyers a see then tend said, I down, I then So of European tend your in and we'll year. an and in to strong a earlier bought starting a where saw they quarter it then up and the content, the kind of in second the year We expecting a where second more year little kind year in half where of third, and that we'll the traditional earlier that last picking less of to and bit trend buy of the question? see that. Does after see

Timothy Savageaux

It sure does.

the would recently there. Europe. But extent network. be outside on base in starting kind indirect the direct Cisco more see? in in exposure I investing early their there direct coming in I, or cloud if wonder anticipation seeing network. impacts you're of Heard -- of that of kind the too, different that networks are with customer is, or bandwidth the have overall your the cloud carrier kind there that. is indirect you're the exposure you're overall to the indications But guess that that in any behavior of question and seeing. to the I customer But working optical whether question benefits was on about into are And U.S. Sorry I base about versus saying with maybe suppliers, some are front, what's interested of commentary happening carriers about of AI combined you guess that and carrier this back is to talk this

Thomas Stanton

yes. with trying with things going that specific to answer in U.S. and yes, both direct done very The and Yes. is get -- some to And Europe through. that they're

So going-forward everybody ultimately they that at how basis. I see do it's think analysis, to they it's kind size And in do networks of that is to their think on network. going their play -- I any of lead made look and upgrades a when

And would some are farther without comment was doubt, the along made. a I but than agree with others, that

Timothy Savageaux

And the be an the comment can established your on Europe the newer access then last if for UK. me. customers you But question happening in in early potential whether we around buying driver Europe know a Germany as side, in as what's I might of I on of wonder get mentioned that and update QX. some I in is well. with and contributing ramps imagine that sort these

Thomas Stanton

year, It some of of tail -- numbers that customers GPON ones some are mislead the those much we we're players end definitely it's have by the other QX. see -- to positive don't is but that of of a we the want to starting to I contributing. had that driven the it's thing, the ship here. so We're to established mentioned you and starting at in shipping I some But started kind

play drive the is that's it's a exactly have see of of kind really other to yet numbers, I What And continue ones bigger those year. yes, by to I'm they going handful going are and for the historically expect ones will that out. driving what that on. We how although those have customers add to itself numbers. And the think done are bigger we this what

have come of the on, of things. until larger though, Some the don't right? them some end We year,

have of the year, I them this think first next had on the have at that of well. all ones about online, those of talked come as will come on then of I year some we half have the We year. or start early that end and coming But previously some

Operator

comes Oddo. of question Your the from Amira line Manai next from

Amira Manai

I questions. have actually X

guidance first one is The QX regarding for the XXXX.

non-GAAP margin X% X%. a anticipate and between operating You

second end affect program? what group's impact decline the range, QX. of coming potential at much factors years? decrease? And of And the how the the to this up current drive What is end lower the the you if is, would BEAD status the Now could margin the this in activity would compared question

Thomas Stanton

It was BEAD. about

Ulrich Dopfer

start, I Amira. So will

range. at So if guidance revenue the lower end are move sitting into COGS to -- mean, guidance -- projections, uncertainties fact margin. we the they and in gross we items expenses of have we benefit touched we then baked I some payroll would would our that our my that other obviously, Obviously, up lower guidance, there are the half of what smaller are would I our end and towards profitability anticipate our a then year. we adjustments on or or And we that during for adjustments increase more on touched on think presentation, in operating based the inflation related

Thomas Stanton

delayed. Definitely lot nothing We really year no on us gets whole a in don't anyways. BEAD QX. On the -- in have impact BEAD thing, if there's to don't we this

Operator

question-and-answer over I closing the concludes remarks. call And back that our session. Tom to now for turn will

Thomas Stanton

forward joining everybody. Thanks robust very us everybody. All right. look for Thanks Thanks, much, end discussion the at to We this QX. having a of quarter.

Operator

that gentlemen, meeting. hands quarterly and Thank you for Ladies all your participation. today's concludes

log now may off. You

ADTRAN (ADTN) 27 Feb 252024 Q4 Earnings call transcript