ADTRAN (ADTN) 6 Aug 242024 Q2 Earnings call transcript

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

Second 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.

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. could the results be forward-looking the uncertainties from differ made and call. in those statements, risks cause to actual materially during These which may events any no to to undertake after update We reflect call. obligation the that occur this statements

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

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

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

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

in operating to Working we significantly came inventory operating financially, expenses. as largely capital expected, by quarter levels. and our lower improvements continue we driven the margin reduced profit While substantially as non-GAAP decrease was a realized gross

Europe customer non-GAAP across straight quarter, all all of our the headwinds we cash the the flow that second latest Our we to are grew feeling. U.S. solutions. was for and adopt continue We achieved free positive as and our networking customers base fiber these despite

quarter a categories look closer the X strong had a at with Taking in we revenue the the in region. across quarter, U.S. results this in all up second

coming from Networking our Solutions, revenues across XX% balanced XX% Aggregation were mix, X our categories, XX% from revenues Optical we coming solutions & from of our product and coming the revenue Access of Subscriber Solutions. well of revenues On with in

was that up Our up by residential the quarter-over-quarter. our quarter-over-quarter solutions led XX% were XX% Subscriber with growth category Solutions

the relative to of was across customers, & we the shipments solutions these Solutions. declines prior sequential saw a quarter. strong growth to broadband all revenue at Networking offset in European of quarter large In first essentially customers U.S. segments, in following customers. purchasing flat set Taking Solutions Optical growth the closer Optical broadband Networking our Access our and customer category, by access was with major of shipments these regional U.S. mix, Aggregation look a diverse in-home a the in

From with an investment operators. in focused opportunity our In investment highest initiatives: the cycle high-risk midsize our Europe. in on our perspective, and from U.S. small broadband we of to advantage key X the remain taking shift U.S., opportunities remain maximizing away vendors growth the strategic

these positioned our this results past our biggest customers. quarter Our solutions. infrastructure large strength continued the opportunity networking with are where operators, we well reflected in with fiber In remains Europe,

markets, start of after of deeper volatile -- been with couple Diving by more to seeing years been corrections. into have I'll X past market, the more have are past stability signs volatile chain followed we crisis inventory as -- the supply the where these of U.S. due years couple

in trusted to continues small the midsize value more that pick meet up networking premise. customer that earlier, U.S. partners biggest noted needs opportunity This from with momentum. the comprehensive As to really core in fiber operators to the is can portfolio their in U.S. Optical a the see our

SDX regional XX To highlights, a most service fiber new U.S. this give of platforms. added few being adopting you access providers customers QX, we Fiber-to-the-Prem latest in our

our Wi-Fi latest solutions. helped closely cloud-managed along quarter success over XXX. adopted who of quarter, platforms This drive XX Wi-Fi Wi-Fi new past customers investment our our growth our is revenue and past X Intellifi with with number latest in-home SDG Wi-Fi platforms the our this Subscriber to had Solutions and platforms platforms, in SDG well category total adopting X also in this our We customers bringing our aligned in

our both were well this actually Fiber-to-the-Prem the takeaways. competitive quarter, of percentage new as those platform as a in-home wins material wins For

we that customers in This past our Optical customers this networking and advancements previously had XX cross-selling solutions with access include solutions existing customer this have our portfolio. equipment were In success in highlights and their broadband-only base, made our continued the transport ADTRAN. into existing this we our quarter, Optical purchases U.S. to the broadband expand in

solutions ICP to with cross-selling addition provider customers enterprise grow in this success market, we service past In Optical our our into to continue quarter. the

and momentum transport we XXX-gig going platforms, capabilities, key network the launch to our continue recent well With pluggables forward. this to enhancements several XXX of automation our ZR are Optical positioned

our and multiple portfolio improving our We in long-term that now than One experience. proactive our the platform, customers, those software of and provide U.S., by have have insights suite optimization adopted tools Mosaic the more costs applications actionable a Mosaic subscriber And platform. One, network this reduce synergies driven including that to within platforms. SaaS while adopted are of differentiation with XXX the software operational to finally, provides more our flagship than customers majority have XXX platform, applications

the adoption by forward, -- expect additional while One operators using existing also the of customers to continue of to applications significantly Mosaic Mosaic Moving basic we platform. grow increasing the

Moving on to Europe.

advantage vendors. as in mentioned of high-risk fiber region away access the the to in remain we well shift of as from positioned earlier, and the ongoing Optical As transport networks well fiber take infrastructure buildout

year continue early Optical deployments late We and transport portfolios. year access operators our and towards both large progress fiber this make volume with European to for next multiple

is platform Europe global to access space, technology top key deployments, shipments. terms a of shifting in been In platforms. the has In this segment, the port fiber ADTRAN supplier for a rapidly PON which in is already XX-gig market X indicator new

funnel grow over in market grow And than more strategically as have activity move year. in forward. this doubled positioned the this last We our given in are share -- segment to awards, continue existing we our to we market to

confident inventory. transport in in consolidation positioning for segment, this has the Optical year the deplete ongoing our to in the significantly in shift service Europe space providers from maintained enhanced on a the vendors, to X With we In overall down particularly service equipment across share Europe, further we been become spending years market Europe, Optical our transport in presence, past the market ability a have transport in solid away and operators supplier ahead. feel strong as portfolio while Optical high-risk top provider regional

shifting And performance. to our operational

having quarter we As year you we a focused this program all cash and improving the that last profitability know, of announced flow. success this highlights result are our program. The with on past

against look forward we we Moving to continue the ahead. forward, quarters program, will this execute in additional improvements and to

positioning us in make take our put of a on continue U.S. see to progress our situation the to operational the great In summary, Europe. we great competitive opportunities advantage and we efficiency, market and has in

more strategic we base. continue we platforms, these While paying growing have still forward. customer off for market well invest as in operational platforms and tailwinds key growing the headwinds, of despite has to we profitability a portfolio, a strong our and our investments success us are base, the us adoption customer Having ahead of non-GAAP moving see positioned streamlined competitive operations, across near-term these market

driving in still quarters be growth in some continue to our model. the from While forecasting to we approach our expect in confident our to outlook provider and cautious cautious of us operating see spending in customers, we service long-term ahead, we continue our to remain

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

turn financial will to open we questions to I results, have. may things then over that, up now any and go With will Uli over to our you

non-GAAP provide our and of our expectations comparable financial Thank you third walk our with last information the the and hello, GAAP quarter be XXXX. to in through our release. Tom, referencing you, most financials measures everybody. presented quarter reconciliations of I press will will for directly I

is on at information our investors.adtran.com. discuss Investor category, and which will by available page Relations Additionally, segment I certain revenue web

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

financial dive for QX let's but of guidance year-over-year. QX XXXX. slightly $XXX above of were XXXX With QX down that, midpoint revenues million our to similar performance our and revenues XX% were XXXX into

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

in the & XX.X% Support Services revenues in to contributed segment and of year quarter. quarter in QX XX.X% the compared Our previous XXXX XX.X% ago

XX.X% contributed also down to sequentially. year XX% quarter, compared down XX.X% ago and Aggregation the revenues & Access was of

XX.X% Solutions revenues revenues contributed Optical Subscriber revenues X.X% and Solutions categories. year-over-year XX.X% up up down of Networking sequentially revenues X were product was made XX.X%. category contributed total and Domestic revenues XX.X% contributed quarter-over-quarter. and quarter-over-quarter. X.X% slightly in XX.X% by International Our was and domestic of XX.X% down year-over-year all and up up

expenses non-GAAP operating improved optimize our chain XX.X% basis sequentially. QX by expenses XX% the increased ongoing supply R&D and The non-GAAP SG&A in XX%. margin points XX% XX were decline is spend gross $XX.X to and expenses non-GAAP to program. and and processes. gross million, points basis X.X% reduced and efficiency supply-related QX year-over-year impact our down was business by our The from reflective down of attributable by is margin Year-over-year, year-over-year quarter-over-quarter. efforts we XXX operating

year This of in in our operating and million operating profit $X.X X.X% quarter, negative revenues operating X.X% a profit prior to quarter non-GAAP million the an second the of of X.X% revenues or was of XXXX, ago compares For or the or revenues. of quarter. $X.X non-GAAP loss $X.X million of

return plus revenues. between operating minus The in range at OpEx. of margin was margin of the attributable lower and upper increase of gross improved profitability to was to margins QX XXXX end operating Our our and guidance X% X% and

of second for non-GAAP million net expense interest non-GAAP million. for the Networks resulted company's share per $XX per QX quarter per shareholder a This loss compared in was per of $XX.X in share minority and loss loss ] SE. diluted The after a ADTRAN XXXX XXXX share $X.XX of tax company was in adjusting QX non-GAAP [ $X.XX to in XXXX. loss of the attributable to share $X.XX Total

million we XX quarter balance and flow QX The At a cash receivable statement. cash inventories XXXX. $XX million, compared an we $XXX.X of cash Consequently, in equivalents generated accounts million to capital. and improved quarter-over-quarter reduced our million the improve continued QX the previous quarter, $XX.X to X%. to our operating working of increase We Trade compared flow cash in resulting million flow. XXXX. QX or in were days, of $X.X the capital to end free cash same by $X.X were almost DSO quarter. million resulted $XXX.X XXXX, of Turning sheet $XX end, million at In in working as the of the

and positioning well positions challenges, to summary, on opportunities operational made significant we in base and In U.S. ourselves competitive customer well success. market in us strides portfolio for future efficiency, the market growing Europe. near-term Despite capitalize our

from to remain long-term remain service we providers. our spending trends due we outlook, confident While cautious in

profitable more more focus networking with Our a efficient a top-tier company remains on fiber and becoming leaner, portfolio.

and million, margin a expect quarter X% improved we the negative For between non-GAAP X%. available at at between $XXX additional revenues million operating further $XXX positive Relations minus webpage ADTRAN's is of and Once third range XXXX, investors.adtran.com. again, to information and Investor range

address begin and questions we have. turn operator call time the now your now any are attention, appreciate We ready session. I back and you will over the to to the Q&A may to

up have. like questions point, we'd this people at to John, open for may any

[Operator comes Company. Brian line the Instructions] Needham from first of from & Your question Kunz

weakness can side where about give like On might the you then a European we Maybe there. probably Europe. QX, remaining domestic And behind transition? macro transition that sounds terms in you of what's Europe? it bit deployed in to here, very from can But you lot a be talked and on SDX, the in little some strong what of be the inventory coming caution things other any to on Access kind of the a there unpack color in going Europe, are of the that's

Sure. Yes, sure.

it. So I exactly would that's say

had we've the which U.S., all the in we first actually U.S., seen grew that a X segments the while. in product time So in Access grew, also is

had bought So see. buy that In it's and to tend -- We Europe, X that they was customers. good in specifically chunks. to customers X

typical. come and quarter not and uncommon in for in quarter that's or the that. it's the not quarter then after -- buy the That's quarter next So to just come -- either a in, buy them the then after next

And X all the in of that Europe were Access down, those actually and they that's -- just and in that specifically it. the anything we actually Ag. had so for of QX. all And All -- that it other was that's solid bought not business, other hit but fact business that was very way the than the sequentially indicative that,

ones, first big X the placed So not newer orders that may those QX, customers hit that your were these or... be are

No, were customers. those existing

Okay. Yes. X large,

of on through Okay. forward track long of of those in about contract Makes on kind sense. a wins outlook new back broadly? for kind kind -- terms terms of and your lab and how And approvals wins there, had of the we've progressing of number a Europe you've of getting deployments with in time, are kind talked moving

a Europe fairly So is of solid. Europe. bit from don't let bought ONTs, anything buy We they about actually RG and and other and the little not talk then indicative they have subscriber, than that's did just me on a buy. shift, Fiber-to-the-Prem they then but

that would well. market up. to it's And actually So to bought on is good if was right? doing infrastructure, subscribers, buy didn't very was it mean say they that, So fairly I that I -- customers, something actually so they then connect up actually see.

good in change we see there. the in fully Europe. where really Access lot have quarter of and a biggest I concern is Subscribers And QX. whole is Optical expect didn't a to

is are is year. biggest now flattish, that's now, SDX, That's Optical. Optical it where of then just kind earlier the And a there. and right out is. new. be about concern We to for I so getting have think and this And you for little also right, for kind that SDX that. question of software a SDX suite We launched we expectations -- all the both the asked our mark of relatively big just launched but

I it wouldn't customers. for think conversions I some call

you're a customer, or -- go SDX, if you heard If metrics. greenfield certain you're with typically you

SDX. buy XXXX still people they So the buy and the

that this seemed a that new So was easier system was -- would just everybody wouldn't customer. it's we quarter, this or an say I it's was SDX it quarter the call I conversion. bought just like

the forward? non-GAAP like there you Got And going can big your just for swing. share quick a Any how tax effect color It income. a of had housekeeping on it. we should Uli terms you on about question pretty in seemed that think

Yes, usual. that's the Yes.

I about basis, would, throughout quarter. of a a tax XX% non-GAAP expect XX%. see to You these the swings rate on

to modeling year. rate tax the of If GAAP about you do X% your on basis, then expect X% a a I would for

For right? the year,

Okay, year. it. for Got the

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

And are of inventory? level the different I go us kind get you kind just of kind the long then the it'll of set kind take pieces for do off. a guess inventory? I where just on of to conversely, down wanted think sense business give there's with you excess of that How Can and we to inventory. through where still work the

Yes.

and I'll sequential and at little well. ask. do strong it we Let back customer let this point. it feels and any Subscriber, increase you that questions. me like from a saw QX come a is a segment On specific in shipments broad there expect very into XX% there inventory as We base, out

out. like it piece that has So worked itself feels inventory

that maybe coincidently, right? Now not to the fall, first first. was piece That was the

would to it it's one So the that not out. first that crazy be be coming

I there's still inventory, Fiber-to-the-Prem, there On similar. say lot. are but would is some There not it's pieces where a

be buildup -- just to would and some say inventory and right, in saw, out so in again, going I there's months So we customers the of just normal and there's some That's what that's then Optical, going And that have see I that buy largely the still how but would time buy we'd majority of people inventory business. X would it be the where here think, inventory some buy. the then that deploy there's still fluctuations, that's coming forward, situations on U.S., right? And think then just don't buildup just normal I Europe. we

end depleted of year. to all our be is expectation this -- those for by the expect of We those

sorry. I'm great. That's

So end by year? the you said this of

correct. That's Right.

at things? on rationalizing estate give the you just of you guys Could side were portion then a update headquarters. know shifting of a gears us real I there? Anything the And an looking bit.

Yes. still have We interested buyers.

or X there's think on forward, that I processes. that X interest, moving still depending level of

of process. still looking come to talked and well. also to about a like are that forward on the estate assets there's Some difficult some forward of kind are process, them selling, but moving thing lot the We're nonstrategic interest. the past we at selling plate. of other that's the have when are assets It's moving that those There architects still we've as that so close, that real a hired will are in in forecast in, something

Your Tieton next from question comes Dezellem of Bill Capital. line the from

questions. reported to was do delta? revenue, a normalize the have hurt what place, quarter? actually taking inventory are consumption I So were you that couple that, Relative the you of if your that has revenue to this in-customer adjustments to what believe your

a take it, I'll thing. hard really probably me. at but a kick Uli stab That's will

net normalized you're revenue a losses out over So to way it figure share and look depending situation. or the particular a market at normalized best is customer you time looking at I number. think any I'm get -- changes what their is on what to way for to trying gains,

of put think way. way optical it and in Let of it's just to It's me dollars, millions this tens about predominantly is it. the

Subscriber, I if I much there's you little the that's way A So on pretty it, helps impact. said, little worked but... know its and that through, biggest don't Fiber-to-the-Prem. bittle at all. has like

Tom, think does. No, I it

Oh, please I go -- interrupted, sorry ahead. I'm So

No, was That That it. no. it. was

tens Just have in that they typically the a on because in right of inventory. that have now dollars the those buy are down Opticals, and still X quarter, customers substantially X they're large customers, million depleting we inventories the

because millions be more basically, So each tens tens think per millions, X, to buying of start -- of would would those quarter, be the essentially times customers of that...

little combination, buying careful not I tens be -- with with depends of yes. that in careful not But let like yes. that I millions, think And little because would a quarter-to-quarter, be anything. it it's a me would but they're it

is... that -- is That right. All

only out just the the notable. inventory, not yes. situation inventory there, the they're only most not They're they're And

where we segments any the in X excess do inventory what's Europe leading specific U.S. see then, X large of Optical in showing indicator and as these they're for growth have happening is a you all now between Europe? Or correlation a the really dynamic And Right. very customers arena?

is said not the the business sequentially, too, in space Well, able one and buying. large customer But quarter world that overcome space. not it Optical so we that have space, U.S. hurting one large the Optical something the the may actually the this but was business. was customer the itself customer -- best to Optical have that, be our we was in sequentially, Optical Optical Having Optical Europe, really up that U.S. are in notable, in

-- X picked well, except had think look is we QX. mean very and a more up a I it at I wouldn't had those I customers the it Fiber-to-the-Prem So that call rest if perspective, and are from similar, But precursor depleting. customers Europe you subscriber were that lot U.S. and happened we -- the maybe. of a -- X to those in buy QX, customers in the in U.S.

think, -- hope similar I I answer, Fiber-to-the-Prem, very they're but... everybody Europe Subscriber I didn't So and and are in U.S. confuse the that in with

I it one a switch on question point the from I'm additional to ignorance. helpful. this found -- to of really coming is and It going did.

showing going U.S.? is be is in centric signs the some that strength Or business opportunity on of to more SaaS Your that U.S. Europe? in really have business the you SaaS an Is

is in U.S. for winning customers. making we have that reason predominantly right sure It's -- focus kind now [ it market of repeat a ] share And weapon strong for that strategic is is that our the

U.S. the of is customers. very development centered right on So the much majority now

we everything on U.S. yes. some could interest now. in but focused the and Europe, set And development right very feature have much it do our is be, So

language besides taking are to development And the continent? challenges European that to offering there

back-office interfaces off and existing right? the of Tier So based of very are we're to majority mainly. it Tier what but No, systems, taking priorities kind more some cross-border, has -- with of those the back of much actually there's office, do U.S. Xs and to Xs

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

here. A questions of couple

you're are quarter big of you look guys? your the European you modeling there? First, then going kind as QX buying What guide, among guys, to what you off. maybe patterns But expectations X to what regard see with and into your out big had your X mentioned European X or your big of are

We're uptick. not expecting a huge

in I think we'll the see later that year.

Now cycle. they buy necessarily there's the X same different don't it ones, and

that So off to our in to surprising of expectation. be see QX. environment, stronger the make one of in it continue to time, at Needless come wouldn't numbers. point in trying But that's based them our we're this to not in guidance say,

there's a bit that. conservatism little So of in

is around you're as Well, got have going from I standpoint. I here please kind be kind and any may flat a uplift reason there was you you here My into to think, level. an that to geographic looking differently, Composed product was and And which maybe, it. for here if X now? I $XXX question and And of where that's year-end million heading the stand you quarters go quite be, is could. spoke think that upon there, said there to ahead expand I could of think next, but

think maybe trying to what do, we're I and nuanced. too it's nuance Well, a that's

gotten of we see Visibility a the tighten The right gotten space the does coming it range feel the is The bottomed kind subscriber actually the because try us to to how has really the now and us better. monthly that a our very had Fiber-to-the-Prem Or see where broad out? forecast gotten so very the range were Optical has is space, was You basis, has when has on And year of adding reacting difficult biggest that? now. unknown for better. of of within better. on customers surety good That We bottom that right the kind right? to start numbers. into continuing

probably more where about That's we're quarter that an So this quarter. the fourth than quarter, we're even confident third we sit question to see direct answer today. your is, hopeful uptick we'll and

answers. And with here you up it. Got me keep your setting

customer around that Optical in that, -- aspiration also days. on Access lot And top on the into your Europe. with by changes very cross-selling kind a yours landscape. the X of of questions obviously, in your strategic I side, in the of a intrigued segues commentary, you the another which big So was I going U.S., and had mentioned this for side. couple these And comments on Historically one your of around Lumen the a

think broader coming shop there and Nokia kind the out real question -- opportunities anecdotally of you Obviously, seeing Infinera? at the in planned Lumen of Infinera. there I big of anything are what time is merger

Europe, So I this drives opportunities might see about that wonder is more is all target the I'm you top building if position But data thing? So question but it -- you as that of there X in which where which any they wise, would be kind to think center map network. pretty know the going. I here giant go really you meaningful merger broadly, over

play we think the when way was -- been always there and bidding always Infinera, was regional And that was the was there'll there competitive right space really metro in gear, -- is there were when Well, it, in we technology now there look for we we've less. Nokia, were there us. think always -- very Europe our and And be in. I Optical one I at

win I fair we think share. our

up. think Europe. fair just percentage a those And large have I relationships very with goes we on lot our customers in I think basis share a of deep

I don't any know I going yes, if about or new good U.S., inroads that's feel necessarily. not to So Europe. be

that, have time there's merger Our -- -- like you potential any that disruption. a there's

So see it think looks we'll this questions. like, time, plays we're how out. At of to have that out I

for at conference next time. joining look call, to everybody and forward appreciate this our quarter talking to you So we I

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

now may You disconnect.