On a call with investors this morning, Adtran executives reported "mixed" results for Q3 2021, reflecting what CEO Tom Stanton called a "broadband boom" simultaneously being hampered by ongoing supply chain constraints.
"From a demand and long-term outlook perspective, the results were very positive, with record quarter bookings for any quarter in our history, and the addition of two new Tier-1 fiber operator customers in the EMEA region," said Stanton. "However, near-term growth was constrained and profitability for the quarter was negatively impacted due to the unprecedented supply chain challenges facing our industry."
Adtran reported a GAAP net loss of $10.4 million, or 21 cents per share, for the third quarter ending September 2021. That's compared to net income of $5.5 million, or 11 cents per share, in the year-ago quarter. While the company reported revenue of $138.1 million, that number was lower than Wall Street's projected consensus estimate of $144 million.
On the supply chain front, Stanton offered some mixed feelings on what's to come:
"Looking ahead, we believe that supply chain challenges we experienced are peaking and will begin to improve for us in 2022. Therefore, we expect the impact on our results to be temporary," he said in opening remarks. He added that they still present "risk-to-revenue gross margins in the near and mid term."
That's a bit of a different perspective than the one shared by Carl Russo, CEO of Calix, an Adtran competitor, on that company's earnings call last week. "We now expect the supply challenges to persist through the entirety of 2022. While our supply chain team again performed well in the third quarter, their struggle will continue for the next four or five quarters," said Russo.
Pressed further on his supply chain perspective by analysts on the call, Adtran's Stanton offered a bit more detail about why he thinks things will improve next year. However, those thoughts appeared to be based primarily on hope and instinct, as well as some contradiction – with Stanton projecting improvement early next year while also saying there is "a lot of cloudiness" around the supply chain and it will continue to be the company's biggest problem.
"I think in general people expect freight – and we are no different – expect freight to improve as we go into next year," said Stanton.
And while issues surrounding "large semiconductors" are expected to "get better as we go into next year," he said smaller semiconductors will remain problematic.
"It is problematic today, it'll continue to be problematic as we go into next year," he said.
"But on the whole I would expect things to get better. You know, I don't expect it to be overnight. My kind of internal gauge, and it's just that, is we'll start seeing that kind of improvement in the second quarter."
Whether or not Stanton's internal gauge is in sync with a world still being rocked by COVID-19 uncertainty – driven in part by low global vaccination rates and unknowns around variants – the "broadband boom," as the CEO called it, is not relenting.
Between increased stimulus spending in the US and UK and the shift away from "Eastern" and "high-risk" vendors (a.k.a, Huawei and ZTE), Adtran expects a "really strong year next year" from a bookings perspective, said Stanton.
While the majority of Adtran's revenue comes from Tier 2 and 3 operators, Stanton suggested that "four or five" Tier-1 operators coming online next year could help move the company's numbers.
Bookings were up 43% for Q3 2021, year-on-year. Adtran also reported a 61% growth rate in customers using its SaaS apps compared to Q3 2020.
"The broadband boom has been fantastic. You know, good or bad, COVID has definitely highlighted the need for broadband," he said. "There's no better time right now to come up with a complete solution that is software-managed for this entire problem."
— Nicole Ferraro, site editor, Broadband World News; senior editor, global broadband coverage, Light Reading. Host of "The Divide" and "What's the Story?" on the Light Reading Podcast