ADTRAN (ADTN) - 2023 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Q1 2023 revenue was $323.9 million, up 109.6% year-over-year but down 9.6% quarter-over-quarter, missing the guidance range of$ 355 million to $375 million by 8.8% [15][16] - Non-GAAP gross margin was 37.3%, an increase of 200 basis points year-over-year but a decrease of 180 basis points sequentially [17] - Non-GAAP operating loss was$ 5.2 million, translating to a non-GAAP operating margin of negative 1.6%, compared to positive 1% in Q1 2022 [18] Business Line Data and Key Metrics Changes - The Network Solutions segment accounted for 87.2% of revenues in Q1 2023, down from 89.6% in Q1 2022 [15] - Optical Networking Solutions contributed 45.6% of revenue, up 3.9% quarter-over-quarter, while Access & Aggregation revenue share was 29.9%, slightly down 1% year-over-year [16] - Subscriber Solutions category was up 39.9% year-over-year but down 34.1% quarter-over-quarter due to inventory management issues [15][16] Market Data and Key Metrics Changes - Domestic revenue grew by 32.7% year-over-year, while international revenue increased by 246.9%, making up 59.4% of total revenue [16] - In the U.S. market, there was a 47% quarter-over-quarter growth in fiber access platforms, driven by success in the regional service provider market [10] Company Strategy and Development Direction - The company is focused on long-term growth in fiber networks, with a comprehensive fiber network portfolio built on Optical Network Solutions, Access & Aggregation Solutions, and Subscriber Solutions [8][12] - Management emphasized the importance of integrating teams and processes to enhance cross-selling opportunities within the fiber portfolio [8][12] - The company aims to achieve cost synergies of $52 million, with 40% expected to materialize in 2023 and 60% in 2024 [22] Management's Comments on Operating Environment and Future Outlook - Management noted that while inventory management issues are expected to persist in the near term, the long-term demand for fiber networks remains strong [7][12] - The company is cautious about spending due to current market uncertainties but remains confident in its long-term growth outlook [12][24] - Management highlighted that the supply chain situation is improving, which should positively impact gross margins in the second half of the year [36][25] Other Important Information - The company transitioned CFO roles from Mike Foliano to Uli Dopfer, with a focus on financial performance and operational efficiency [13] - Cash and cash equivalents totaled$ 136.5 million at quarter-end, with a negative operating cash flow of $19.9 million due to lower earnings and increased working capital [19][20] Q&A Session Summary Question: Can you provide insights on the broadband infrastructure and optical business outlook? - Management acknowledged good performance in the infrastructure business but expressed caution due to unclear inventory levels and adjustments in customer ordering patterns [28][30] Question: What are the current lead times for fiber access and optical products? - Lead times have improved from 52 weeks to approximately 2 to 4 months, although some complex chips still face constraints [42] Question: How is the Mosaic One deployment progressing? - The uptake of Mosaic One has been positive, with 200 service providers adopting the offering, but onboarding remains a challenge [57] Question: Are there any labor constraints affecting fiber deployment? - Labor constraints are more pronounced in Europe, with some projects throttled due to labor availability, while the U.S. market is less impacted [66][67]