ADTRAN's Diversification Adds Up to $156.4M in Q2 Revenue

Acquisitions and more diversification are starting to pay off for ADTRAN, enabling the access vendor to generate higher second-quarter and first-half earnings for the year.

Preliminary revenue for this period, ended June 30, 2019, reached $156.4 million compared to $128 million for the second quarter 2018. ADTRAN reaped net income of $5.1 million, a vast increase from a $7.7 million loss during 2Q 2018. Earnings per share, assuming dilution, is estimated to be $0.11 versus a loss per share of $0.16 for the prior period.

Non-GAAP income for 2Q was an estimated $6.9 million; in 2Q 2018 it was a net loss of $4.6 million. Non-GAAP earnings per share, assuming dilution, is estimated to be $0.14 compared to a loss per share of $0.10 for the second quarter of 2018. (See ADTRAN Releases Preliminary Q2 Revenue of $156.4M.)

All data is preliminary, ADTRAN noted in its earnings report, due to an inventory audit it's conducting to assess the accuracy of current and historic reserves. The vendor is switching to a different, simplified system to track the more than 20,000 pieces it inventories -- from components to finished products, Chief Financial Officer and Senior Vice President Michael Foliano said during an earnings' call on July 18. The current system requires multiple points of validation which sometimes went unconfirmed, thereby making an audit mandatory, said Thomas Stanton, ADTRAN chairman and CEO.

For the first half of 2019, ADTRAN earned estimated revenue of $300.2 million, compared with $248.9 million in the first six months of 2018. Preliminary net income for this period was $5.8 million versus a loss of $18.5 million in the same period 12 months prior. Earnings per share for 1H2019, assuming dilution, is estimated to be $0.12 versus a loss per share of $0.38 for the corresponding prior period. Non-GAAP income for the first half of this year was an estimated $11.8 million; in 2Q 2018 it was a net loss of $20.4 million. Non-GAAP earnings per share for the first six months of 2019, assuming dilution, is estimated to be $0.25; in the same timeframe last year, there was a loss per share of $0.42.

Getting results
ADTRAN's investments are starting to pay off, Stanton said during the earnings' call. ADTRAN technologies incorporate DSL, VDSL and Gfast, as well as fiber, fixed-wireless access and hybrid-fiber cable (HFC). With its 2018 acquisitions of Sumitomo Electric Industries' EPON solutions (outside Japan) and SmartRG, a developer of connected-home technologies like mesh networks and WiFi solutions, ADTRAN expanded into complementary markets.

"Fiber sales alone increased 34% first half over first half," Stanton said. "…we continued to secure new awards with new customers and new awards with existing customers in our target regions around the globe, in particular the momentum and traction with our 10-gig PON solutions continues to ramp activity in Europe with a number of key wins during the quarter."

Although Deutsche Telekom (which ADTRAN did not name) is delaying infrastructure investments, such as a large Gfast deployment, due to extensive spectrum expenditures, other carriers and a growing group of cable customers are filling the gap. No other carrier has slowed spending because of spectrum, Stanton said.

"This carrier has typically been very forthright with us. The timing at the resumption of next year is the feedback we've got back directly from the carrier," he said. "There are things they have to get done; that's not going away."

However, this concerned George Notter, equity analyst at Jeffries Group. "[DT] spent €2.1 billion in 5G spectrum auctions that concluded in June. Also, we note that DT – following the auction – expressly stated that the price of the spectrum was high and it could impact their spending. Also, Deutsche Telekom -- before the auction -- had planned to cover 99% of the German population with 5G services by the end of 2025," he wrote. "That included a commitment to spend €5.5 billion in capex annually (although we suspect this is largely a re-purposing of 4G capex dollars into 5G). ADTRAN expects the slow spending at DT to remain through the end of the year. They'll get a revised forecast for 1H'20 in Q4. From our perspective, we're a bit concerned that DT's appetite for broadband/DSL infrastructure spending could remain subdued due to their ongoing commitments for 5G wireless spending."

A top US wireless provider (unnamed in the call but widely known to be AT&T) is reinvigorating its Gfast initiative, Stanton noted, and could add the vendor's customer premise equipment to the contract. Likewise, ADTRAN expects results from its long-time, ongoing NG-PON2 work with Verizon, as well as its relationships with Latin American provider Telmex and Australia's NBN, he said.

The vendor has diversified beyond its traditional CSP customer base, with MSOs now representing almost 10% of its business, Stanton said. Since the start of 2019, the vendor won about 10 new 10-gig PON customers, said Stanton; these will start shipping by year-end or in early 2020, he said. It's also working closely with a growing number of utilities, coops and municipalities on their broadband initiatives.

"ADTRAN has done a great job of expanding internationally -- with wins in Europe, SCA, and Asia Pacific," Julie Kunstler, principal analyst at Ovum, who specializes in wireline/fixed-access broadband, told Broadband World News. "This expansion is very important as copper upgrades continue in selected countries within these regions, while in parallel, FTTH deployments are beginning in others. In my opinion, Gfast is not a major market opportunity in North America but it is being deployed elsewhere, such as in Australia, for example. ADTRAN identified specific opportunities and is showing wins now."

Related posts:

• ADTRAN Starts 2019 With More Revenue & Customers
• Zzoomm Zaps ADTRAN to Accelerate 10G FTTH in UK
• ADTRAN Aims New Super Vectoring Gateway at MDUs

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