Despite Tough Q4, ADTRAN Grows in 2017

Access technology vendor ADTRAN's fourth-quarter revenue and profits were hit by one-time tax expenses and a purchasing slowdown by a major customer, but the company's full-year sales for 2017 were up and the CEO is upbeat about 2018.

For the quarter ended December 31, sales were $126.5 million versus $163 million in the fourth quarter of 2016. Net income was a loss of $11.1 million compared with income of $7.6 million for the year-ago period. Non-GAAP earnings per share were $0.05, above analyst estimates; they were $0.21 for the fourth quarter of 2016. GAAP results for the most recent fourth quarter reflect the impact of the Tax Cuts and Jobs Act that resulted in a charge to tax expense of $11.9 million, which has been excluded from non-GAAP earnings. (This is a one-time charge; Adtran Inc. (Nasdaq: ADTN) expects its new tax rate of approximately 21% to benefit the company, said Chief Financial Officer Roger Shannon in a call with analysts.)

A merger-related review by a US Tier 1 customer, widely thought by analysts to be CenturyLink (which acquired Level 3 last year), slowed down spending as it combines operations and footprints.

"While this disruption continues to impact our business, our overall expectations regarding our domestic and international programs and opportunities remain positive," said ADTRAN Chairman and CEO Tom Stanton in a release, who did not disclose the Tier 1 customer's name.

Annual results grow
ADTRAN's year-over-year results for both products and services -- an area of increasing focus for the vendor -- grew, both in the US and internationally.

For fiscal year 2017, ADTRAN generated total sales of $666.58 million compared with $636.78 million in FY 2016. Products generated $540.67 million and services accounted for $125.92 million last year versus product sales of $525.5 million and services sales of $111.28 million in the prior year, ADTRAN reported.

The vendor generated non-GAAP earnings, diluted, of $0.89 for the 12 months ended December 31, 2017; in the year-ago period, it had non-GAAP earnings, diluted, of $0.84.

Optimistic outlook
While cautious about the first quarter of 2018 due to the Tier 1 customer's continued post-merger review of its technology deployment plans, CEO Stanton was positive about ADTRAN's year. The vendor is very active in all broadband technologies including Gfast, vectoring and fiber -- and many service providers in its major markets, including the US, Europe and Australia, from Tier 1s to Tier 3s range from deploying to investigating 100Mbit/s to gigabit speeds.

"Our Gfast solutions have moved to full production status with leading Tier 1 operators in the US, Europe and Asia-Pacific and are ramping in commercial deployments. We continue to have a broad breadth of opportunities ahead of us, demonstrated by announced wins and deployments by leading carriers such as nbn and DT, and in 2017, we brought in well over 40 new infrastructure customers," Stanton said in prepared remarks on the analyst call.

Gfast deployments continued to pick up momentum throughout 2017, with deployments expected to gain additional speed this year as providers leverage the technology -- which uses both coax and copper -- as part of their fiber plans. With ongoing developments that push speeds beyond gigabit thresholds, Gfast is part of many operators' toolkits. It joins software-defined networking, cloud and network functions virtualization as an investment numerous providers are making to enhance services, curtail internal costs and prepare for 5G. (See 2018: Broadband Investments Pay Dividends and Gfast Gallops Into Year-End )

"We have introduced developmental breakthroughs with our Gigabit-to-the-Basement and millimeter wave backhaul and access solutions, designed specifically to help carriers realize the opportunities created by the ramp up to 5G. [And] our Mosaic platform has quickly become the centerpiece of the Mosaic Open Network Alliance, where member companies are collaborating on SDN and NFV solutions that will underpin a new approach to access." (See Pattern Emerges for ADTRAN's Mosaic and ADTRAN Gfast-to-the-Basement Opportunities Soar)

In addition, ADTRAN's super-vectoring solution will ship in the first half of this year, he said. A Tier 1 European customer is expected to build on what was "a good year last year" as a result, said Stanton.

Likewise, Australian Tier 1 nbn is predicted to increase its ADTRAN orders in the second and third quarters of the year. And a number of Tier 2 and Tier 3 operators around the globe are looking to deploy a variety of ADTRAN solutions, Stanton said.

New enterprise and residential fiber access technologies will converge with 5G backhaul and fronthaul architectures, wrote Michael Genovese, managing director at MKM Partners in an earnings review. Almost all operators worldwide are upgrading their networks with either xDSL or xPON, he wrote.

Of course, interest in ADTRAN's NG-PON2 work with Verizon was of interest. ADTRAN continues to expend on research and development in the partnership, said Stanton. (See NG-PON2: The Importance of Being Standard)

"We have some specific lab dates that we need to meet in both this quarter and the next quarter," said Stanton. "We would expect to see shipments really kind of potentially starting in the second half."

Related posts:

• Italy's TIM Tests ADTRAN Mosaic
• SD-Access: The Foundation for Transformation
• ADTRAN CTO: Operators, Use Your Imagination

— Alison Diana, Editor, Broadband World News. Follow us on Twitter or @alisoncdiana.