ADTRAN Feels Those New Customer Good Vibrations

Just as company executives predicted three months ago, ADTRAN's overall financial metrics improved over its second quarter, putting the network access vendor further along the path to stronger revenue and margins.

"The headline for this quarter -- a midyear reflection point -- is steady progress towards a second half of the year, as we advised in the first quarter of the year," said Tom Stanton, president and CEO of ADTRAN, during today's earnings call. "Overall the company performed well, with quarter-over-quarter improvements in revenue, gross margins and cost controls, while we continue to make strategic investments in the development of future innovations."

For its most recent quarter, ADTRAN reported sales of $128 million compared with $184.7 million in the same quarter of 2017. Net loss totaled $7.7 million versus $12.4 million in the year-ago period. Earnings per share, assuming dilution, were a loss of $0.16 compared to income of $0.26 for the second quarter of 2017. Non-GAAP earnings per share were a loss of $0.10 compared to income of $0.30 for the second quarter of 2017.

Network solutions hit $115.1 million, down 26% year-over-year, while services and support revenue was $13 million, down 55.3%. US sales were $68.2 million, down 53.5% from the same timeframe in 2017, while international sales were up to $59.8 million, a 57.8 year-over-year increase. Full financial results are ADTRAN Releases Q2 Earnings, Declares Cash Dividend.)

But, when compared with the results from its prior quarter (which ended Mar. 31, 2018), it was apparent why ADTRAN executives appeared optimistic during the earnings call. Total product sales increased to $115 million, up about $10 million from Q1 revenue of $105.3 million; while services dropped to $13 million from $15.5 million in the prior quarter, that continues to reflect ADTRAN's move away from unprofitable, labor-intensive services contracts toward more professional services offerings, Stanton said. (See ADTRAN Releases Q2 Earnings, Declares Cash Dividend.)

This was mirrored by the vendor's expenses. The cost of sales for products nudged slightly upward, reaching $69.6 million in the most recent quarter compared with $68.6 million three months ago, but ADTRAN slashed services expenses to $8.4 million from $12.4 million in the first quarter of 2018. Likewise, SGA and R&D expenses dropped.

Customer buying patterns
In the first three months of the year -- and again, during today's call -- Stanton cautioned analysts about delayed decisions from tier one behemoth CenturyLink as it continues to digest Level 3. Other customers have decelerated their buying decisions, he noted.

Yet many others have not, and several -- including new high- and lower-tier customers -- are turning to ADTRAN for the first time, said Stanton. This includes an apparent uptick in cable/MSO business, as well as international clients, said Stanton. These trends will continue through 2018 and into 2019, he said.

"In general we are pleased with the level of engagement from domestic and international operators in strategic areas as software-defined access, including 10-gig EPON, NG-PON2, Gfast, our Mosaic cloud platform and our new Mosaic subscriber experience applications, including Insight, Device Manager and Activate," he said. Without naming names, CenturyLink's post-merger stance is becoming clearer and more stable, said Stanton. There was a "modest increase in revenue over the previous quarter and we have been awarded net-new business," he said. ADTRAN is involved in other projects with CenturyLink, ranging from initial scoping to field trials, he added.

"The cable/MSO access market remains a strategic market for us," noted Stanton. "Building upon our recent acquisition and organic devs, we are achieving meaningful revenue process with tier one cable MSO operators with our 10-gig remote optical line terminal and head-end solutions and our 10-gig EPON networking solutions. As an adjacent market growth opportunity, we are pleased with what we see today and expect this growth to continue." As to carriers, ADTRAN continues to work with Verizon (also unnamed during the call) on NG-PON2 and the unnamed Australian carrier (aka NBN) on an array of solutions, including Gfast and vectoring. The vendor also began deploying vectoring to a large domestic tier two carrier and an operator in EMEA this quarter, said Stanton.

In fact, ADTRAN now has shipped 17.5 million vectoring or super vectoring ports globally, he added.

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