Q3 2019 Earnings Call
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During the course of the conference call I train Representatives expect to make forward looking statements, which reflect management's best judgment based on factors currently no. One. However, these statements involve risks and uncertainties, including the impact of the company successful development and market acceptance of core products. The degree of competition in the market.
For such products, the product and channel mix component cost manufacturing efficiencies and other risks detailed in our annual report on Form 10-K for the year ended December 31st 2018, these risks and uncertainties could cause actual results to differ materially from those in the forward looking statements.
You may be made during the call. It is now my pleasure to turn the call over to Tom Stanton Chief Executive Officer of AD trends. Sir. Please go ahead.
Thank you Lisa good morning, everyone. We appreciate we appreciate you joining us for a third quarter 2019 conference call.
With me today as a trend CFO , Mike Foliano. Following my opening remarks, Mike will review the quarterly financial performance in detail and then we will take your questions.
Our progress in the quarter was overshadowed bipartisan shipments to a large customer in Latin America, and the slowdown in spending by large customer in Europe with the exception of these two tier one international customers our business grew 20% over the previous period.
For my top line perspective revenue for the quarter was 114.1 billion down 19% on a year over year basis.
Network solutions accounted for the majority at 94 million a 22% decrease over the same period in 2018.
Global services and support revenue contributed 20.1 million up 17% over the previous period and up 4% year over year.
Our domestic revenue increased 10% over the previous quarter, largely driven by sales of our upon fiber access and C.P. solutions and we continue to gain traction globally with our 10 gig xps pawn and G fast solutions.
While we continue to see a high level of fiber in broadband extension opportunities across most of Europe , Australia, let in Latin America, and even in some emerging markets. Our domestic business continues to be slot was major operators contemplate their fiveg and fix wired investments.
In Europe , the investment in fiber infrastructure is being led by emerging alternative network operators, which in turn or pushing income providers to invest.
In Australia, the National network build is now into a mixed technology phase.
And we'll see some fiber to the node migration to five because the premise and we'll start seeing the ramp of C.P. deployment.
And let them, we expect continued broadband deployment in Mexico from the restart a year earlier or earlier this year.
In North America, despite headwinds in some of the largest operators there are some positive trends in fiber broadband deployment with tier two and retail service provider segments and some real electric co ops in rural communities building their own fiber networks.
We're in a good position to capitalize on global fiber densification opportunities and supporting him to use in Fiveg rollouts.
We're also well positioned with customers looking to leverage existing network infrastructure to deliver gigabit or near gigabit services without GE facts and G fast and fixed wireless access products.
We remain cautiously optimistic about returning to growth in the next few quarters and are aligning our organization to an operating model that focuses on our growth opportunities allows us flexibility to adjust to market conditions and returns after profitability.
During the third quarter answered veteran introduced a range of new products services and technology innovations that we believe will be instrumental in our success moving forward.
First we announced several key additions to our market, leading 10 gig pond portfolio.
These additions included the ADTRAN 600 series of 10 gig partner when tease that will one nabel any type of service provider or cable operator, serving residential business and retail customers to deliver multi gigabit services.
Operators will be able to utilize this expanded portfolio to roll out service is faster monitor and optimize service quality and make better decisions about network operations as they look to meet growing customer demands for gigabit services.
Our 10 gig pond technology leadership has grown over the past year as network operators in major markets have leveraged our ex U.S. pawn solutions to deliver multi gigabit services for residential commercial industrial and government broadband programs.
According to digest market trend is leading supplier based on ports shipped in North America, EMEA, South and Central America regions for carriers and cable MSO 10 gig PON solution.
With our leadership position and G fast fiber extensive solutions ADTRAN has deployment in multiple tier one operators in North America Europe in the Pacific rim.
Our market momentum continues with our second generation solutions and we are recently awarded a network Gen. Two G fast project with a European operator, we shouldn't cure Gen. Two G fast approvals, where they tier one operator for deployment in the U.S. market and we're in the lab with a tier one in the town.
We continue to expand the role Airtran plays and hoping rule carriers deploy 10 gig networks as part of our enabling communities connecting lives program.
During the quarter ADTRAN announced an all fiber build or the rule operator now 10, good communications backbone.
Along the eastern shore, Maryland to connect underserved communities and drive overall economic development in the region.
We expect this momentum to continue as the FCC will soon be issuing an order for the next decade of Caf called the rural digital opportunity Fund, which will provide 20.4 billion of federal subsidies for broadband deployment to 4 million homes and really America.
As I mentioned, we have seen more utility is a municipality is playing a role in delivering broadband services and rural communities and over a dozen new utility providers from the U.S. and Canada have recently selected our T. a 5000 access platform allows foundation for a rich set of gigabit services in their communities.
Our integration of the smart RG team and technologies Inter Airtran portfolio continues to progress during the quarter, we announced the Intelliflex system, a whole home turnkey match why solutions tailored for service providers designed to create an immersive whole home Wi Fi experience and terrified delivers ultrafast intuitive and reliable broadband every.
Corner Hello.
At trends open network. Our efforts are also key part of the smart energy strategy.
Last week at trend announced that the smart or less 11 is the first commercial software solution for customer premises equipment base completely on purple W.R.T. project.
Helping to accelerate open and scalable standards technology and networks.
With smarter West is 11 fully open source approach, we facilitate differentiation and create competitive opportunities as service providers look to add innovative revenue generating services to their offerings.
Finally during the quarter, we announced a new SD when cloud solution designed to help small to medium business and distributed enterprise take advantage of cloud based networking, while keeping existing voice and security solutions in place.
We are excited about the future for address our customers in the market as the market transitions to 10 gigabit and it starts to unfold.
Our focus remains on helping our customers delivering unmatched broadband experience over any network to any customer over any device.
With that Mike will you provide an overview view of the financials and following this will be happy to ask any questions. You may have but sure. Thank you Tom good morning to all.
I will review, our third quarter results and also provide our view for the fourth quarter.
During my report I will be referencing both GAAP and non-GAAP results.
The differences between reported GAAP and non-GAAP include stock based compensation.
Acquisition related amortization and other expenses.
Restructuring expenses gain on bargain purchase of a business and other contingencies.
Amortization of pension actuarial losses.
Noncash changes in the fair value of equity investments for our deferred compensation plan.
Asset impairments.
Deferred tax asset valuation allowance and a reimbursement from a claim settlement.
As Tom stated AD trends third quarter revenue came in at $114.1 million compared to $156.4 million last quarter and $140.3 million for the third quarter of last year.
Breaking this down across our divisions, our network solutions revenue for the third quarter was $94 million versus $139.2 million reported for Q2 2019.
And $121 million in Q3 of last year.
Our services and support revenue in Q3 of this year was $20.1 million compared to $17.2 million reported for the second quarter of 2019 and $19.3 million in the third quarter of last year.
Across our revenue categories access and aggregation revenue for quarter three of 29.
$5.1 billion compared to $109.4 million in the prior quarter and $91.9 million in the third quarter of 2018.
Revenue for our subscriber solutions and experience category was $42.5 million for the quarter.
Versus 40.5 million for quarter two of 2019.
And $38.6 million for quarter three of last year.
Traditional and other products revenue for the quarter was $6.5 million compared to 6.5 million for quarter, two of 2019 and $9.9 million for quarter three of 2018.
Looking at our revenues geographically.
Domestic revenue for Q3, 2019 was $83.1 million versus 75 point Threemillion reported in quarter, two 2019 and $83.7 million in quarter three of last year.
Our international revenue for quarter three of 2019.
$30.9 million compared to $81.1 million for quarter, two 2019 and $56.6 million in quarter three of 2018.
We publish the reporting of each of these categories on our Investor Relations Web page at Www Dot add trend dot com.
We had 110% revenue customer during the quarter.
Our GAAP gross margins for the third quarter of this year were 40.6%.
Compared to 41.6% last quarter, and 41.6% reported in the third quarter of 2018.
non-GAAP gross margins for quarter, three for 41% versus 41.4% in the prior quarter and 42% in the third quarter of last year.
The quarter over quarter in year over year decreases and non-GAAP gross margins were driven by reduced product volume, partially offset by an improvement in our services gross margins.
Total operating expenses were $62.7 million for quarter, 300, 2019, compared to 65.7 million reported last quarter and $60.6 million for quarter three of last year.
On a non-GAAP basis, our third quarter operating expenses were $59.4 million compared to 61.2 million last quarter and $57.4 million in quarter three of 2018.
The non-GAAP quarter over quarter decrease in operating expense was primarily the result of decreased personnel related expenses and decreased incremental operating expense related to the S. RG acquisition.
Partially offset by increases in lease and legal expenses.
The non-GAAP expense year over year increase primarily attributable to incremental expenses related to the smart RG acquisition as well as increased legal and contract services expenses offset by a decrease in personnel related expense.
Operating income on a GAAP basis for the third quarter was a loss of $20.3 million compared to an operating income of $600000 in the prior quarter and an operating loss of $2.2 million reported in Q3.
We have last year.
non-GAAP operating income for quarter through 2019.
As a loss of $12.6 million compared to income of $3.6 million in Q2 of 29 team and $1.5 million in quarter three of last year.
The quarter over quarter decrease in non-GAAP operating income was mainly driven by decreased sales volume, partially offset by improved gross margins in our services business and decreased operating expenses.
The decrease in our Q3 non-GAAP operating income as compared to Q3 of 2018 is it attributable primarily to lower sales volume and lower gross margin mix in our product portfolio.
Other income for quarter, three of 2019 was $1.9 million compared to $2.8 million last quarter and $5.4 million for quarter three of 2018.
Other income in the quarter was primarily driven by favorable exchange rates.
Our non-GAAP other income for the quarter. The just ended was $2.7 million compared to $2.4 million in the prior quarter and $4.6 million in quarter three 2018.
The ships and non-GAAP other income were primarily driven by fluctuations in our equity investment portfolio and foreign exchange rates.
The company's GAAP tax provision for quarter, three 2019 was $27.7 million as compared to a benefit of $588000 in the second quarter.
And a benefit of $4.4 million in the third quarter of 2018.
The Q3 2019 tax expense was result of evaluation allowance against our deferred tax assets, partially offset by a tax benefit as a result of the losses incurred in 2019.
GAAP net income for quarter three of this year was a loss of $46.1 million compared to income of $4 million in the prior quarter, an income of $7.6 million in the third quarter of last year.
non-GAAP net income for the third quarter of 2019 was a loss of $2.8 million compared to an income of $5.9 billion last quarter and an income of $9.9 million in quarter three of 2018.
Earnings per share on a GAAP basis was a loss of 96 cents per share compared to earnings of eight cents per share last quarter and earnings of 16 cents per share in the third quarter of 2018.
non-GAAP earnings per share for the third quarter. This year was a loss of six cents per share.
Compared to earnings of 12 cents per share last quarter and earnings of 21 cents per share in quarter three of 2018.
We've provided a reconciliation between diluted GAAP earnings per share and diluted non-GAAP earnings per share and our operating results disclosure.
Turning to the balance sheet unrestricted cash and marketable securities net of debt totaled $169.1 million at quarter end after paying $4.3 million in dividends.
For the quarter, we used $900000 of cash for operations.
Net trade accounts receivable was $90.6 million at quarter end, resulting in a DSL of 73 days compared to 68 days last quarter and 67 days at the end of the third quarter of 2018.
The increase in Dsos versus last quarter is mainly attributable to timing of shipments during the quarter and customer mix.
Net inventories were $104.9 million at the end of the third quarter compared to $95.1 million last quarter and $106.1 million and quarter three.
2018.
Looking ahead to next quarter.
Book and ship nature of our business the timing of revenue associated with large projects the variability of order patterns and the customer base into which we sell as well as the fluctuation in currency exchange rates in our international markets may cause material differences between our.
Asians and actual results.
We expect that our fourth quarter 2019 revenue will be flat to slightly down from Q3 2019.
After considering the potential effect of currency exchange rates and the anticipated mix, we expect that our fourth quarter gross margins on a non-GAAP basis will be consistent with the third quarter.
We also expect that non-GAAP operating expenses for the fourth quarter of 2019 will be in the range of 55 million to $56 million.
Finally, we anticipate that the consolidated tax rate for the fourth quarter for 2019 on a non-GAAP basis will be in the mid twentys percentage rate.
We believe the significant factors impacting revenue and earnings realized in 2019 will be the following.
The macros spending environment for carriers and enterprises currency exchange rate movements.
Variability of mix in revenue associated with large project Rollouts.
Proportion of international revenue relative to our total revenue.
Professional services activity levels, both domestic and international.
The timing of revenue related to connect America fund projects, the adoption rate of our broadband access platforms and fluctuations in inventory in our distribution channels.
Additional financial information is available at AD trends Investor Relations website by going to Www dot add trend dot com and follow the Investor Relations link.
With that I'll turn the call back over to Tom.
Great. Thanks, Mike.
Lisa will that we're ready to open up to.
Any questions people Mahesh.
Thank you as a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound or hash key please standby literally compiler Q and a roster.
And our first question comes from the line of Rod Hall from Goldman Sachs. Your line is open.
Hi, Thanks for taking my question does is ashwin on behalf of fraud.
Tom I think you mentioned about.
Growth probably in the next few quarters beyond Q4 can you just talk about visibility.
Pretty clear into first half of next year.
And generally for full year 2020 can you talk about your initial planning for the year.
And.
Maybe elaborate on some of the opportunities in the business either on a geographic a basis, our project level that could be exciting and 2020 .
Sure.
Well, let me start by saying as you know historically and this won't be any different we want we typically give.
Next year's guidance more fully on the fourth quarter call, because we have greater visibility at that point in time.
This quarter this quarter is no different than than previous quarters in that regard.
I will tell you what we typically see is.
Rice towards the middle of the year and then.
The two ends of the years the first part of the or in the last quarter are typically lower than the center.
That basis, we don't see any.
Difference from what we that we typically would have expected would typically expect.
We fully expect to be we don't have guidance yet for Q1, but we fully expect to see profitability in Q2.
The areas of interest for us have been kind of consistent over the last year. The biggest opportunity set that we see is in Europe today, where there's an awful lot of activity going on with 10 gig pawn.
And vendors looking for excuse me customers looking for new vendors as some of the vendors falling out of favor that continues on today just as strong so it was.
Throughout this entire year.
U.S., we have pockets theres a lot of.
Cloudiness and some of the larger carriers in the U.S. with some changes going on.
And our customer base.
Our largest customers Centurylink here in the U.S. that continues to go well actually had a very good quarter this quarter.
And we expect that to continue on through next quarter or excuse me through next year and the tier two space. We've had a couple of customers that had been kind of dormant for a while we've seen some activity.
Pickup with one of those already this year.
Some planning for next year. So we're positive about the tier two space and the tier three space I think the other larger tier ones there's still.
I'm, a little bit of cloudiness above.
In.
Latin America Theres, a multiyear project going on and we expect that that to continue on through next year at least.
Our problem with that customer has been.
The variability in ordering pattern in inventory levels.
Thats course plagued us this last quarter, but.
That doesn't it all change the trajectory of the program itself.
Then last piece I would say would be Australia were as you know were G fast provider to the large carrier there and that case that program is continuing to go on we expect.
Good results from that next year as well as they shift some of their fiber to the node to fiber to the curb deployments and we just recently.
So you'd approval for selling CP equipment into that customer space as well, Mike did I Miss anything.
Yes.
Just on that line Lat am Chris from our point ending inventory situation there.
Is it.
Are you expecting that to come back maybe in first half of next year are you how no visibility into that at this point.
I have visibility too.
I have visibility to plans.
And so they're fairly vocal about what it is they're wanting to do on a macro level.
Down to a number of course, the visibility where the visibility gets more difficult is timing of purchase orders.
So they may draw down their inventory before they order or sometimes they don't drawdown their inventory before the order so it's not about that macro level.
On a kind of on a broader time basis. The issues, we have with them are typically more around individual quarter by quarter plans.
Got it and one last question.
You briefly mentioned about domestic operators contemplating fiveg and fixed wireless access plans.
Can you elaborate on what you're seeing there and give us more color on what you're thinking there in terms of find you fixed wireless opportunities in the us.
Thank you.
Yeah.
In my estimation the way that I'm doing this is theres a lot of.
The largest carriers are trying to.
Figure out how plays in five years going to impact our capital plans and then kind of reapportioning their fix plans based off of that and then to the extent that the fixed plans with something like a next yes or as you point to make play into that a lot of that it's up in the air to the extent as being deployed today, it's pretty much point to point.
But there's still a lot of variability before it really gets off to a solid.
Off on a solid footing with real numbers behind it.
So thats kind of on some of the larger carriers, just kind of in a pause mode.
On the fixed on the fixed plan, we do see carriers.
It's really the ones that I've talked about already where they have definitive plans to grow their GPON deployment. They have definitive plans to grow their ex Gs and start their next year's deployments and that's really more associated with the non wireless.
Traditional wireless carriers, where we're seeing that activity so.
Thats moving forward the ones that I'm talking about where you're kind of seeing as consternation is really more on the wireless carriers.
Understood. Thank you.
Okay and our next question comes from the line of George Notter from Jefferies. Your line is open.
Hi, guys. Thanks, very much I guess I wanted to ask about the international business I understand certainly the.
Commentary about the Latin American customer, but obviously the step down was pretty significant from June to September and certainly I would imagine the European business similar risk was part of the story I guess I'm wondering.
You know kind of whats the picture is right now in your large European customer terms of run rates and spending here and into the balance here.
Sure. So we don't exist.
In our large.
The European customer, we we can't we told you that we expected slowness through this second half of the year and we start expectation hasn't changed.
Numbers really don't get finalized with them towards the middle until the middle of fourth quarter.
We expect to.
Pickup in the first quarter and then traditionally would see that continue to pick up to the third quarter of next year. So we don't see a change in that ordering pattern. Although the exact numbers aren't in play right now are in place right now we do see a stronger let's say Q1 than we did in Q3 in Q4.
You're right. It was a from a Q to Q3 perspective it was.
Fairly significant drop is tens of millions of drop which I kind of explain on the last call.
And that's although it came in lower than we expected I think it was rational as to why they did what they did.
And.
It's kind of turn up the way it turned out.
Latin America, which is.
Similar big drop from Q2 to Q3 that is more about ordering.
Inventory levels and contract negotiations and.
Just that customer than it is about any demand profile change at all they are still absolutely going up and installing these things and moving forward with your network build plan.
Got it. So then was the delta relative to your original topline expectation for September the Delta then it sounds like was.
With Latin America.
Or were there other it was actually live.
Yeah, George let me be clear about that it was Latin America definitely and our European revenue came in lower than was initially anticipated.
It was both.
But the larger the larger decline was in Latin America.
Got it Okay, and then with some offset from stronger North American business, Yes, the rest of the business. The rest of this was up 20% right. So yes.
And then the gross margin of 41% I thought that was pretty good given the size of the step down in topline is there something unusual net gross margin line this quarter or.
Good work on the cost side any story there you could talk too.
Thank you good work on the cost side, plus and Mike Mcgavick admit we have been working a lot on the cost side. We also had some improved margins and our services business that I mentioned.
In my read out some some of that is the mix of the type of services. We're doing some of that also is just becoming more efficient in the way that we're operating and slightly increased volume flowing through there as well.
And is this a site with the European customer being down Thats typically a lower margin region, George So that helps us some.
Got it okay, great. Thank you very much.
Our next question comes from the line of Rich Valera from Needham Your line is open.
Thank you.
Tom You mentioned you expected to be profitable by two Q of next year and doing a rough math it seems that could be need to be around the made one thirtys. If you kind of run rate out the expenses your projection for the fourth quarter and similar gross margins.
And I'm guessing from your prepared remarks that you expect at least the European customer to be back in a meaningful way do you also should have to get to that level need to see the Latin American customer come back or is it just sort of one or the other of those customers can come back and you could potentially get to that that revenue level.
Without getting next year guidance I want to be a little bit care for here, we expect to be profitable I don't want to know and on a particular revenue number because but the answer. Your question is in that in that operating range that you're talking about.
The general business is typically larger in Q2 than in Q1 or in Q4, So we feel solid about that.
And.
We would not have to have both of them come back in fact, we would not have to have both of them come back at all but they were in order to achieve that kind of level of revenue.
Got it.
And then just on the Opex run rate that is a pretty big cut from Q3 to Q4. So just one wanted to try to understand where those cuts were made and what might you be giving up by cutting those expenses and then is that the right run rate to assume going into next year or could it be lower or does it bounce back.
Back up at some point.
I don't expect it to bounce back up.
I expect us to continue to scrutinize, where we're spending.
So if anything I would expect it to continue.
A downward trajectory through the first half of next year.
What we're doing is basically recalibrating across the board on where we're spending money and how we're spending money in what's the real it.
What's the.
Risk associated with that particular spend in the overall outcome.
Something that we do periodically when we are in a downtime we do it much more stringently, then when you're in Uptimes and you're kind of trace in revenue.
The key art art.
Amazon. This is key opportunity sets that we believe are going to be that have bye.
Hi, likelihood revenue potential we want to make sure we keep those in place.
Having said that we had been growing some of the.
Areas of our business over a long period of time in order to capitalize on some of these some of these have not happened and those cases, we're going to take a real hard look at and see whether or not we want to continue to spend on and that's what we did over the last quarter in a very diligent but.
Expedias way and that's where we will continue to focus on the first half of the year.
Okay. Thanks for taking my questions appreciate it.
And our next question comes from the line of Fahad Najam from Cowen Your line is open.
Thanks for taking my questions.
I had a couple of high level question, if I may ask in terms of.
The revenue concentration can you help us understand how much revenue is up.
Contributed by your top five customers place top 10 customers.
Actually I don't think we you can typically do that based off of our 10% customers.
And we typically have two or 310% customers, it's very rare for us to have one.
And you can imagine the reason we had one is because of we kind of discuss that in broad terms earlier in this call in some of the questions.
We don't expect there is a strong concentration typically in a quarter at this revenue level that concentration dissipates substantially so.
This is not a revenue level, we want to be at but at this level meals level, we don't have a lot of concentration.
And then as we move forward into next year, we fully would expect there.
Good and bad of visit we would expect them to be two and three going into next year.
Got it staying in line with this team that I'm kind of get my hands around with a diversification can you help us understand in terms of.
How much of your customers or how much of your revenue was.
Positive you never too.
Oh Gee versus cable msos versus traditional telecom.
Revenue.
Yeah on a core quarter by core dialogue lager lot in Fiveg today there is.
Some of their but it's not heavily weighted there.
The majority over revenue to tends to be traditional telcos.
And then the concentration happens with the tier ones within those telco specially with the status of the kind of tier two market here in the us being depressed.
That we expect that to actually start coming out it's actually started this last quarter.
Those markets will actually pickup next year.
From time to time, the Msos can come in strong for us.
As I as a segment.
But that's that's kind of hit or miss on a quarter by quarter basis.
Got it and just last question if I may.
Yeah.
In the U.S.
It can do you highlighted the debt lucky done with the fiber to the home rollout.
Pardon.
The reason for that more capex outlook.
Are you seeing any kind of capital reallocation capex relocation of vehicle.
Traditional fiber to the home diploma simply mortgage to Fiveg, maybe that's impacting your revenue.
I'll look well, we don't do yeah, we don't do fiber to the home business with them. So.
Mike I would believe what you're saying to be accurate, but we don't do a lot of business in that area.
Our focus with them has been and continues to be in.
We are kind of waiting to see how their budget capital budget rolls out on a product by product basis, but its has been around chewed up fast and their willingness or they're wanting to actually go after the MD you market within their footprint outside of their footprint.
That hasn't been funded at the level debt.
I think either of us expected.
That is kind of low hanging fruit for them and thats something that we'll be working with them continuing on into next year, but we're not directly in the fiber to the print business with them.
Got it Tom I wasn't asked specifically to your deals Lord asking Directionally, if that is any kind of.
Shifting capex will be fiber to the fiber to the.
It's kind of I think I think in the wireless I think and yes, I think in the wireless carriers my belief would be that that is accurate.
Got it.
I appreciate the answers.
Okay.
Our next question comes from the line of Matt Jain from Titan Capital. Your line is open.
Great. Thank you I was hoping you could discuss the shifts away from law way that that's taking place right now and how much of an impact you would expect that to have on.
2020.
And then I, just I don't think I fully understand the timing or how long. It takes for an RFP to go from being put out there to actually contributing revenue in Europe can you walk me through that whole process.
Sure, it's it's not dissimilar to.
What happens in.
The U.S. at least.
Thats largely the carrier typically the larger the longer the timeframe.
In the us and in Europe for that matter tier one carrier will make a selection in an RFP and it can be 18 to 24 months before that turns into revenue.
And then the smaller the carrier the quicker gets in there are some cases, where.
You know that can be a matter of a month.
But those are typically.
Small carriers without an awful lot of infrastructure that you're having to test against.
As far as the move away from.
Different suppliers.
That has been a push that's been going on.
Since the beginning of the year, we have started shipping G fast to a European carrier that actually is.
Actually decommissioning.
Equipment.
We've been in communications with several carriers, including some of our incumbent carriers in Europe .
And there's a.
There's a desire to.
Continue to.
Look at their infrastructure and in some cases decommission in some cases cap so I think that.
On a net that's a very positive for us because if you think about what that does to the.
The market share pie, it's pretty material.
It's going to take some time because.
Depending on the carrier.
If they want to cap or they want to replace personal it's a large capital expense for them and second of all.
It takes an awful lot of time, just to make that transitions moving from a customer basis, so I expected to be.
Over on New awards, I expect there to see.
Probably in today's environment less competition.
For removal or.
We're moving equipment I think that that's going to take a few years.
Did that answer your question if you see.
No that is helpful. Tom and so as you sit here today would you expect this shift away to be more impactful on point 20 or is it more of a 2021 phenomena as your current when he's looking at the landscape.
Well, we have some seen some impact already honestly, although it's just now starting so there'll be some incremental impact in 2020, I think the the bigger impact from.
For 2020 as you'll see.
New awards yields and there will be continues decommissioning, but I think like I said, I think thats going to take a long time I think there is a positive lift because of that but not a big.
I'm not an inflection point lift in 2020.
But you will see and we are already seeing a change in the RFP profiles.
And the competitive base that we're bidding against.
Yes.
Great Thats helpful. Thank you.
All right.
And our next question comes from the line of Paul Silverstein from Cowen Your line is open.
Tom I apologies for hard was just to warming up.
Good morning, and ask you.
So in that 20 plus years entering your company. It's always been about just the nature of your business is always come down to two to five ish.
That range of customers two to five ish projects dominated revenue the dominant is your growth for better or worse there by your profitability.
Putting aside seasonality the rhythm on a year in near term trying to longer term I know, it's hard for part of Cardinal forecasted quarter out appreciate that so that big unwind.
If we won't get your big European carrier Understandably that appears.
The handful years ago, and it's been down or flat ever sense. If we go project both projects well.
Let me just effect.
Is there any hope any reason to believe that at some 0.3 years from now two years from now three years from now.
The model will have changed appreciably.
In terms of meaningful less reliance on one or two customers in a broadening you cited the 20% growth and the balance of your customer base Sexing out to South American and European carrier, obviously thats good from a quarter perspective would it be even better if that were from a prolonged long term prospects.
Beginning with away from you know, there's one or two big projects with the throw away and then I've got some specific questions.
Sure. So I think thats a good question.
I can tell you what we have been doing so.
If you go back.
Okay.
We had a big push into the tier two in tier three space, which has been successful that market itself has been depressed, but there are periods of time, where that really offset any particular tier one revenue down tick when we have a macro environment like in my mind, what's kind of happening in the U.S. today, that's difficult for any.
And Paul I think you'll agree that regardless of size right. We've seen that impact other companies just in the last week that are very large.
So I think the the macro piece is always difficult and we have the additional burden that our revenue is concentrated with a handful of large tier ones to cost competitive.
Pamphleteer ones are pushing has been twofold. One is after the tier two tier three move into international markets right and that is where we picked up some customers, including a large European tier one but other customers. That's that was the push into Australia was all about diversification of revenue.
We have pushed into.
Several different pockets within Latin America, although the largest one still ends up being a dominant force in that area. So we're continuing to try to drive our business to international pockets. So that we can actually offset that concentration and.
Although it's difficult.
Difficult when we have to go down like we did or decreased like we did on the fuse look at the customer count the customer account outside of the U.S. has been.
We seem very strong growth.
And then the other push that we had is in the MISO market that will long term payoff.
The MISO market isn't going gang busters today, but thats also a time to go in and prove yourself as a vendor and pick up market share for when that market does pick up I still think on a macro basis.
We will still be affected by downturns, but I think if you look at the number of customers, we do business within the segments that we do business with.
As much broader than it was three years ago or five years ago.
That won't say that macro things won't impact us, but we have to get through that piece and we have to continue to focus on that diversification.
I appreciate that before I suppose from individual projects going back to the 20% growth.
How much of that is deeper penetration or new projects from the lost any existing customer base, how much of that as a function of new service providers.
Your customers.
Mike I don't know I haven't seen a broken out that way I will tell you the number of customers contributing in the last quarter that 20% is on a net basis is as big as I've seen.
And with some of them coming in Europe , and some of them some more and actually Latin America. So.
But I don't know I don't know if we ever broke out by existing customers I don't know customer.
We of course on when you look at EQT, new incremental so.
So when you're looking at growth has arisen blends that that will persist just focusing on the balance because from is a 20% is worth or those one off projects or or.
As projects have legs that go for wall.
Though they have legs that go for a while I had mentioned the alts carrier business in Europe .
I didn't mention the tier ones in Europe , which are I did say that they were being pushed and as you're probably aware there several our fees in Europe with tier ones I tend to.
Discount them on this.
During this time and on this call because they do take a long time to close.
But.
The all carriers in Europe are much quicker and moving much quicker and.
Certifying your product are already contributing and those are.
Multiyear projects that we're just starting on.
Okay. One last question for me on this name.
If we looked at the big opportunities.
Yeah, Jim ask you to look not just on a one quarter on your business, but when you would further down field.
Is there any reason to believe any hope that that big European operator, we'll ever go back to sustain growth trajectory for you not that as a bad things that would be customer that nature, but again in terms of driving growth in the recent blue belt will eventually pick up on a sustained basis as we look to the South American situation I think you'd commented quarter superga.
So that the business you're doing now the project you're involved and is fundamentally different there would have been the case previously for years, where they would pop up one out of every four to eight quarters as north of 10% and then it would go meaningfully down and get acquired from there.
So there was meaningful change in that in the nature of the business.
You just referenced the cable situations I think we all know those have been delayed role too. So I think we'll lot of us and did your salted expected a year ago any insight you can vitamins Jaime those opportunities and finally on Nbn.
Thank you are now a year, maybe a little bit beyond a year into what I think originally it was going to be.
To your push in terms of the big revenue growth trajectory before it flattened out and storage perhaps declined to some extent if you could give any insight on each of those or any other major projects and for during the depression.
That's a broad list, but for me and see if I can remember on the.
European be base.
Our discussions.
Associated with long term.
Potentials in that are very positive.
There as you know they go through phases.
I won't quibble with your peak piece, but I'm not sure if that's.
Probably a look more direct they don't have that currently but we go through different phases, where it actually does peak and then slow down and then a new generation of technology comes out.
The.
Generation around right now is.
Super Vectoring. The next generation will be Judah fast when they start rolling that out hopefully towards the tail end of next year or the following year.
That will be a multi faceted rollout along with them. We now have approvals within the affiliates within that account.
So there aren't incremental pieces that will be add that we'll be adding on in Europe over that period of time, and then right after that there'll be a fiber rollout so trying to pick the peak on any period of time is difficult, but I will tell you that there's a sustained pocket of business, there and I think that the competitive nature of that account is even.
More manageable than it was historically and I see really strong opportunity there.
Let me go back let me talk about what you can you characterize.
Our Latin American customer I think is right. This is a much bigger more sustained projects and anything that we've had in the past, which has been very spotty and kind of individual market oriented.
On Australia they.
Our continuing to do.
Gee that FASB you deployments there now although this was not in the original plan now looking at going back and Backfilling with some of their older infrastructure into GPU and GFS deployments because of the speed in the reliability of.
The technology that we're providing and then on top of that and this will be over multiple years as customers turned on Theres, a new revenue potential there were CP I don't expect that to actually stop next year that will continue on so.
Then there are other phases like like the GPU.
We work on the.
Fiber to the node, which was not in the original plan. So.
Our job is to continue to go in there and work and try to us.
Pick a pick us up as much market share in those new opportunities as possible.
I think I covered your base cable cable operators.
To be one.
What you're.
Your feelings on the subject are very similar to mind. So it's.
It's not as fast as we had hoped.
It is not as best we had planned.
I think theres still a willingness is still desire to do that but.
It just it just has been very sluggish.
As far as rollout of new things and some of the projects that we had been awarded have been slow too.
To get through their process.
I am not expecting a robust year next year in the cable space, that's not in our plan.
I don't expect it to materially slow from where we are because we are in many cases, the sole provider. So theres new builds going in its going to be our equipment.
But I'm not expecting huge growth in that space next year.
I appreciate the response.
Okay Alright.
With that I think we are done with our question. So I appreciate everybody joining us and look forward to talk into next quarter.
Thank you for joining this concludes today's conference call you may now disconnect.