ADTRAN (ADTN) - 2024 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Q2 2024 revenues were $226 million, down 31% year-over-year but similar to Q1 2024 revenues [16] - Non-GAAP gross margin improved to 41.9%, up 334 basis points year-over-year and 37 basis points sequentially [17] - Non-GAAP operating profit was$ 1.5 million, or 0.7% of revenues, compared to a loss of $8.8 million in the prior quarter [18] - Non-GAAP net loss was$ 18.8 million, resulting in a diluted loss per share of $0.24 [19] Business Line Data and Key Metrics Changes - Subscriber Solutions contributed 36.5% of revenues, up 0.9% year-over-year and 18.1% quarter-over-quarter [16] - Access & Aggregation contributed 30.9% of revenues, down 31.9% year-over-year and 14% sequentially [16] - Optical networking solutions contributed 32.6% of revenues, down 48.5% year-over-year and slightly down 1.9% quarter-over-quarter [16] Market Data and Key Metrics Changes - International revenues accounted for 52.4% of total revenues, while domestic revenues contributed 47.6% [17] - The U.S. market showed sequential growth across all major customer segments, particularly in Subscriber Solutions [6][8] - In Europe, the company is well-positioned to benefit from the ongoing build-out of fiber networks and the shift away from high-risk vendors [11][12] Company Strategy and Development Direction - The company focuses on maximizing opportunities in the U.S. broadband investment cycle and capitalizing on the shift away from high-risk vendors in Europe [7] - Continued investment in strategic platforms, including the Mosaic One software platform, which has over 400 customers [10][11] - The company aims to become a top two supplier in Optical transport equipment in Europe [12] Management Comments on Operating Environment and Future Outlook - Management expressed cautious optimism about future growth, citing cautious spending from service provider customers [14] - The company expects revenues for Q3 2024 to range between$ 215 million and $235 million, with an improved non-GAAP operating margin [20] - Management noted that while there are near-term market challenges, the competitive portfolio and growing customer base position the company well for future success [20] Other Important Information - The company reduced non-GAAP operating expenses by 24% year-over-year, reflecting the impact of a business efficiency program [18] - Cash and cash equivalents increased to$ 111.2 million, a 4% quarter-over-quarter increase [20] Q&A Session Summary Question: Access weakness and European market dynamics - Management indicated that access growth in the U.S. was strong, while European access was affected by two large customers' purchasing patterns [22][23] Question: Inventory levels and adjustments - Management stated that Subscriber Solutions inventory is low, while Optical inventory remains in both the U.S. and Europe, expected to be depleted by year-end [31][32] Question: SaaS business opportunities in Europe - The company is currently focused on the U.S. for its SaaS business, with some interest in Europe but prioritizing U.S. customer needs [46][47] Question: Expectations for Q3 and European customer behavior - Management does not expect a significant uptick in European sales in Q3 but remains hopeful for better performance in Q4 [52][54]