Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Adtran Holdings Inc (ADTN, Financial) achieved non-GAAP operating profit driven by gross margin improvements and lower operating expenses.
- The company saw a positive non-GAAP free cash flow for the second consecutive quarter.
- Revenue in the US increased across all three product categories.
- Adtran Holdings Inc (ADTN) added 12 new fiber-to-the-prem customers and 16 new customers for its SDG in-home platforms in Q2.
- The company has a strong market position in Europe, being a top two supplier in the 10 gig PON platform segment.
Negative Points
- Overall revenue was down 31% year-over-year.
- Access & Aggregation revenue declined by 31.9% compared to the year-ago quarter.
- Optical networking solutions revenue decreased by 48.5% year-over-year.
- The company continues to face cautious spending from some service provider customers.
- There is still significant inventory buildup in the optical segment in both the US and Europe, expected to be depleted by the end of the year.
Q & A Highlights
Q: On the access weakness here, sounds like a lot of that's coming from Europe. Can you talk about the domestic transition to the SDX and what's behind the macro caution in Europe?
A: In the US, access actually grew across all three product segments. In Europe, two customers bought in chunks, leading to sequential declines. The market in Europe is doing well, particularly in fiber-to-the-prem and subscriber solutions. Optical networking remains a concern, expected to be flat in Q3. SDX is relatively new, with recent software launches gaining traction.
Q: Can you provide more details on the tax swing and how we should think about it going forward?
A: For non-GAAP, expect a tax rate of about 15% to 20%. For GAAP, expect a tax rate of about 3% to 5% for the year.
Q: Can you give us a sense of where there's still excess inventory and how long it will take to work that off?
A: Subscriber inventory is largely depleted, with strong Q3 expected. Fiber-to-the-prem inventory is minimal, with normal buying patterns expected. Optical inventory remains in the US and Europe, expected to be depleted by the end of the year.
Q: Any updates on the real estate rationalization at headquarters?
A: There are interested buyers, with some having hired architects. The process is moving forward, but it's difficult to forecast when it will close. Other non-strategic assets are also being considered for sale.
Q: How has inventory adjustments impacted revenue this quarter?
A: It's challenging to quantify precisely, but the impact is in the tens of millions of dollars, predominantly in optical. Subscriber and fiber-to-the-prem inventory adjustments are minimal.
Q: Is there any correlation between US growth in all three segments and a potential leading indicator for Europe?
A: The US and Europe are similar in fiber-to-the-prem and subscriber solutions, except for inventory fluctuations. Optical remains a concern, but the US optical business managed to overcome customer inventory issues.
Q: Is the SaaS business opportunity more centric to the US, or is there potential in Europe?
A: The focus is currently on the US, with development centered on US customers. There is interest in Europe, but feature set development is prioritized for US Tier 2s and Tier 3s.
Q: What are your expectations for big European customers in Q3?
A: Not expecting a significant uptick in Q3, with more confidence in Q4. The forecast includes some conservatism due to the current environment.
Q: Are there any opportunities arising from the planned merger of Nokia and Infinera?
A: The merger could lead to potential disruption, providing opportunities. ADTRAN's technology is competitive in the metro and regional space, with deep relationships in Europe, aiming for a top two position in optical transport.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
