Q1 2020 Earnings Call
Ladies and gentlemen, thank you for standing bar and welcome to I'd trends first quarter 2020 earnings release conference call. All lines have been placed on mute to prevent any background noise and after the speaker's remarks, there will be a question and answer period.
If you'd like cross good question at this time. Please press star one on your telephone keypad, if you'd like to remove yourself from the Q. Please press the pound key.
If you need operator assistance, Please press star zero.
During the course of the conference call I'd trend Representatives expects to make forward looking statements which reflect.
Management's best judgment based on factors currently known wherever these statements involve risks and uncertainties, including the continued spread an extensive the impact of the covert 19 global pandemic.
Successful development in market acceptance of our products competition in the market for such products products in channel mix component cost manufacturing efficiencies and other risks detailed in our annual report on form 10-K for the year ended December 31st 2019.
These risks and uncertainties could cause actual results to differ materially from those in the forward looking statements, which may be made during this call.
It's now my pleasure to turn the call over to Tom Stanton Chief Executive Officer God trend. Sir. Please go ahead.
Thank you James Good morning, everyone. We appreciate you joining us for our first quarter 2020 conference call.
With me today that trend CFO, Mike Foliano.
Following my opening remarks, Mike will review the quarterly financial performance in detail and then we will take your questions.
Before getting into the results I'd like to say a few things about the unprecedented times associated with it cobot 19 virus.
First from the entire Airtran family, we want to send our sympathy and best wishes to all of those affected it impacted by the virus.
Our Hearts go out to you.
Given the current reality I cannot begin to tell you how proud I am of the ADTRAN team and how they have rallied to continue to provide critical products and support to address the needs of our customers and consumers.
With the safety of our employees customers and communities in mind, we were proactive in our business continuity plan.
This in concluded successfully moving the majority of our employees to a work at home environment.
Implementing onsite employee safety measures and advanced procurement of components to ensure supplier of our customers that are delivering critical broadband services to consumers.
We have also been very active in supporting communities trying to deliver emergency broadband connectivity to support education and other critical services.
At no time in history has the need to connect people over broadband been more important.
And our team has done a fantastic job stepping up to help our customers and these extraordinary time.
This far 2020 is proving to be a transformative year for us as a long term investments we have made and fiber access solutions are starting to pay off.
We are having success in the regional service rider in emerging service provider segments, which include rural operators municipal operators utilities and electric CRO co op broadband providers in the U.S. as well as with alternative network providers in the UK in Europe.
I'm also pleased to let you know that we had several major awards from tier one service providers in the U.S. and Europe this quarter.
We have continued to invest in our widely deployed total access 5000 platform to provide industry, leading capacity features and capabilities for GE upon an ex Gs pawn services.
In addition, airtran has led the industry with the development of an open desegregated software defined fiber access solutions centered around our SPX product family and our mosaic cloud platform.
Both of these platforms, but the company in a strong position to provide the best solutions to enable broadband service providers of all size topologies and geographies to deliver more services faster less significantly lowering their cost.
We were pleased with the revenue contribution and sustained fiber access momentum from our domestic regional service provider in emerging service provider market sector, which reported revenue increase of 72 or 3% on a year over year basis.
And Additionally, we have seen an increased focus from governments spring investment in broadband infrastructure and expect given the lessons recently learned this focus will intensify.
The U.S. recently implemented the two trillion dollar cares act, which includes incremental funding for the U.S.D.A. reconnect program.
And is preparing to distribute the first phase of the 20.4 billion FCC Rural digital opportunity fund.
In 2021.
Hi trend has also been highly active and driving an influencing be divestments.
We believe that our solutions are exceptionally well position to enable operators to secure funding and help them plan engineer and deploy gigabit services to enable communities of all sizes to be connected.
The dry for fiber deployment and get plus services continue to build additional momentum in Europe and other parts of the world.
I'm also excited to share the progress, we're making with tier one operators in the U.S. in Europe.
We have recently won three major long term awards with tier one operators with all three selecting the fdx portfolio and mosaic cloud platform.
Last week, we announced that Deutsche Telecom has selected AD trends Stx royalty solutions for deployment as part of its access sport Auto network.
It will also be deployed in its existing fiber to the home architectures, along with mosaic cloud platform.
As mentioned in the announcement the goal of duties access 4.0 program is to create an open programmable and scalable fiber access architecture to cost effectively and rapidly deliver gigabit services to meet increasing demand of dts residential wholesale and business customers.
Further during the quarter, we received an additional sdx LTM mosaic cloud platform award by tier one operator here in the U.S. that is that product is currently in the lab and is currently expected to start deployment in the first half of next year.
Once operationalize the operators intent is to use the stx and mosaic to deliver actually a service across their entire footprint.
Finally, we recently signed a contract with another large tier one European operator for the Stx and mosaic cloud platform after being selected and their competitive RFP process.
This is a brand new customer to add trend in our current expectation is for shipments to begin in the first half of next year.
In addition to these awards, we also announced last week, a strategic joint development agreement with Orange, one of the world's leading telecommunication operators as part of its access renewal and evolution strategy.
Winning these transformative long tier one awards will have a significant impact on our company in the future.
Hey, solidify our market position and validate our vision of virtual open network architecture of the future.
Given that backdrop.
The first quarter came largely as anticipated with strong demand overall and robust performance and our domestic regional.
And regional and skews and our domestic regional and emerging service provider market segment.
From a topline perspective revenue for the quarter was 114.5 million with 45.1% gross margins.
Network solutions accounted for 85% of the revenue at 97.4 million Global services revenue contributed 17.2 million.
Our fiber business grew 13% over the previous quarter increased 20%, 6% on a year over year basis, as PON fiber access and fiber CB solutions continued to be our top sales growth categories as we gain market traction.
We continue to see strong demand for fiber broadband and fiber extension opportunities in the regions we serve.
We maintain our belief that we are at the beginning of a significant investment cycle for fiber deployment, driven by technology advancements regulatory influence and vendor disruption.
In addition to our domestic emerging provider momentum, we're continuing to win new fiber access projects with all that providers in the UK and the rest of Europe.
We're also progressing new opportunities in emerging international markets as well.
From an organizational perspective, we continue to implement structural changes to improve our operational costs, achieving a 15% year over year decrease in opex, strengthening gross margins and providing greater flexibility to focus and deliver more and our key growth areas.
In the face of this global pandemic and other market challenges I'm happy with the way. The team has responded in performed.
We implemented our cobot 19 response team and our business continuity plan well ahead of the CDC guidance and government actions.
This enabled us to be proactive protecting our employees customers and communities and ensured that our supply chain production support was elevated to provide outstanding service to our customers in fees that they serve.
We do have concerns as there are still material near term uncertainty due to the pandemic.
Fortunately, we believe we are in a good position to weather the changing environment for a number of reasons.
First airtran has a strong balance sheet with the available liquidity to whether even the most extreme stress test.
Our service provider customers are among the most resilient in this pandemic given their focus on building and supporting critical infrastructure.
Short term demand for is it a bit residential broadband remains strong in the future as bright as this pandemic has signed a light on the positive gaps between fixed broadband access and wireless network.
I am encouraged by our recent wins and how this positions us from other operators are seeking design their next generation platform.
I'm also encouraged by the growing number of emerging municipalities and utility broadband service providers that are selecting ADTRAN to help them transform their communities.
Mike will now provide an overview of the financials and following his remarks, we'll open the call up for any questions you may have.
Mike.
Thank you, Tom and good morning to everyone.
I will review, our first quarter results and provide our view second quarter of 2020.
During my report I'll be referencing both GAAP and non-GAAP results.
Reset to non-GAAP financial measures as discussed on this call, but are not presented in our earnings release reconciliations to their comparable GAAP measures are published in a supplemental financial schedule. It appears on our Investor Relations Web page at Www Dot add trend that comp for now.
Non-GAAP measures discussed on this call that are presented in the earnings release reconciliations are contained in the release.
The supplemental financial schedules on our web page also present certain revenue information by segment and category and other non-GAAP, reconciliations, which I will be discussing today.
As Tom stated AD trends first quarter revenue came in at $114.5 million compared to $115.8 million in the prior quarter.
And $143.8 million for the first quarter of 2019.
Breaking this down across our operating segments, our network solutions revenue for the first quarter was $97.4 million versus $96.2 million reported for Q4 of 2019 and $125.8 million in Q1 of 2000.
19.
Our services and support revenue in Q1 of this year was $17.2 million compared to 19.6 million reported for the fourth quarter of 2019, an $18 million in the first quarter 2019.
Across our revenue categories access and aggregation revenue for quarter, one of 2020 was $66 million compared to 74.6 million in the prior quarter.
$99.8 million in quarter, one of 2019.
Revenue for our subscriber solutions and experience category was $42.2 million for the quarter versus 33.2 million for quarter four of 2019 and $36.8 million for quarter one of 2019.
Traditional and other products revenue for the quarter was $6.4 million compared to $8 million for quarter, four of 2019 and $7.3 million for quarter one of 2019.
Looking at our revenues geographically.
Domestic revenue for Q1, 2020 was $79 million versus $69.9 million reported in quarter four of 2019 and $72.5 million in quarter one of 2019.
Our international revenue for quarter, one of 2020 plus $35.5 million.
Compared to $45.9 million per quarter for of 29 team and $71.3 million in quarter one of 2019.
For the first quarter, we had 310% of revenue customers.
Two of which were domestic and one international.
Our GAAP gross margin for the first quarter of this year was 45.1%.
As compared to 40.8% last quarter and 42.2% in the first quarter of 2019.
Non-GAAP gross margin for quarter, one was 45.4%.
As compared to 41.2% in the prior quarter.
And 43% in the first quarter of 2019.
The quarter over quarter and year over year increases in both GAAP and non-GAAP gross margins were driven by our product and geographical mix as well as our operational efficiencies and restructuring savings, partially offset by an increase in freight related expenses.
Total operating expenses on a GAAP basis were $56.5 million for quarter, one of 2020 compared to $61.3 million reported in the prior quarter and $66.8 million for quarter one of 2019.
Both the quarter over quarter and year over year deep creases and operating expenses were a result of market driven decreases in our deferred compensation expenses lower salary and restructuring related expenses in both SGN, a and R&D, partially offset in the quarter bye.
Increases in our expenses.
On a non-GAAP basis, our first quarter operating expenses were $56.7 million compared to $56.8 million in the prior quarter and $60.5 million in quarter one of 2019.
The non-GAAP quarter over quarter decrease in operating expense was primarily the result of broad expense, Rick controls and salary related expense reductions as a result of our restructuring program initiated in 2019.
These reductions were offset by higher variable.
Fringe benefit expenses and an increase in our IP related contract services.
The non-GAAP year over year expense decrease was primarily attributable to reductions in salary expenses, partially offset by an increase in contract surfaces.
Our operating loss on a GAAP basis for the first quarter of 2020 was $4.9 million compared to an operating loss of $14.1 million in the prior quarter.
And an operating loss of 6.2 million reported in Q1 of 2019.
Non-GAAP operating loss for quarter one of 2020.
It's $4.6 million compared to a loss of $9 million in Q4 of 2019, and an operating income of $1.4 million in quarter one 2019.
Both the GAAP and non-GAAP quarter over quarter and year over year improvements were attributable to higher gross margins due to product and services mix on lower sales volumes and an operating expense reductions.
Other income on a GAAP basis for the first quarter of 2020 was a loss of $9.4 million compared to income of $3.2 million in the prior quarter and $7.2 million of income in quarter one of 2019.
Our non-GAAP other income for the quarter that just ended was a loss of $7.5 million compared to income of $2.9 million in quarter four of 2019, and an income of $5.3 million for quarter one of 2019.
Yeah.
The decreases this quarter in both GAAP and non-GAAP other income.
As compared to both quarter over quarter in year over year were primarily market driven losses in our investment portfolio.
The company's tax provision for the first quarter of 2020 was a benefit of $4.4 million as compared to an expense of $800000 in the prior quarter and an expense of $300000 in the first quarter of 2019.
The current quarter tax benefit was primarily related to the passage of the cares act in the U.S., partially offset with tax expense in our foreign operations as the deferred tax benefits generated in the current quarter fire domestic operations were offset by additional choice.
Changes in the valuation allowance previously established during the third quarter of 29 team.
GAAP net income for quarter, one of 2020 was a loss of $10 million compared to a loss of $11.6 million in the prior quarter and a net income of $800000 for the first quarter of 2019.
Non-GAAP earnings for the first quarter of 2020.
Was a loss of $2.2 million as compared to a loss of $2.5 million in the prior quarter.
And a net income of $4.99 million in quarter one of 2019.
Earnings per share assuming dilution.
On a GAAP basis was a loss of 21 cents per share as compared to a loss of 24 cents per share last quarter and earnings of two cents per share in the first quarter of 29 team.
Non-GAAP loss per share assuming dilution in the first quarter of 2020 was five cents.
Consistent with the prior quarter.
And comparing to earnings of 10 cents per share in quarter one of 2019.
Turning to the balance sheet.
Unrestricted cash and marketable securities totaled $136.6 million at quarter end.
After repaying our taxable revenue bond.
Net of $24.6 million in January and paying $4.3 million in dividends during the quarter.
For the quarter, we used $24000 of cash for operations.
Net trade accounts receivable was $86.5 million at quarter end, resulting in a DSL of 69 days.
Compared to 72 days in the prior quarter and 62 days at the end of the first quarter of 2019.
The variability in dsos quarter over quarter and year over year is mainly attributable to the timing of shipments during the quarter and customer mix.
Net inventories were $99.5 million at the end of the first quarter compared to 98.3 million in Q4 of 2019 and $93.6 million at the end of Q1 2019.
We believe that we are positioned to maintain adequate liquidity in the current environment.
Looking ahead to the next quarter, considering the possible effects of the ongoing cobot 19 pandemic.
The 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 fluctuations in currency exchange rates in our international markets may cause material differences between our expectation.
Ones and the actual results.
We expect that our second quarter 2020 revenue will be in the range of $123 million to $133 million.
After considering that projected sales mix, we expect that our second quarter gross margin on a non-GAAP basis will be about 41%.
We also expect non-GAAP operating expenses for the second quarter of 2020 to being the range of $53 million to $54 million.
Finally, we anticipate the consolidated tax rate for the second quarter of 2020 on a non-GAAP basis will be in the high twentys percentage rate.
We believe the significant factors impacting revenue and earnings realized in 2020 will be the following.
The macro spending environment for carriers and enterprises, the ongoing effects of the cobot 19 pandemic.
The variability of mix in revenue associated with project Rollouts.
Proportion of international revenue relative to our total revenue.
Professional services activity levels, both domestically and internationally.
The adoption rate of our broadband access platforms.
Potential changes in tax laws.
Currency exchange rate movements and inventory fluctuations in our distribution channels.
Once again additional financial information is available at AD trends Investor Relations Web page at Www Dot add trend dot com.
Now I'll turn the call back over to Tom.
Thank you Mike.
Change at this point were open up for any questions that people may have.
At this time I'd like to remind everyone in order to ask a question. We ask you to please press star followed by the number one on your telephone keypad and we'll pause for a moment, while we compiled acuity roster.
And our first question comes from the line of Rod Hall with Goldman Sachs. Go ahead. Please your line is open.
Hi, guys. Thank you for taking my question because of Ashwin on behalf of fraud.
Tom I wanted to talk about the units trend.
Growth in Q1 here.
You could.
New quantify or give us some color on what youre seeing in terms of broadband to bad.
And the activity here in the U.S. and if you can handicap that caused the tier one tier two and three the really helpful and how you're thinking about the sustainability of that momentum into Q2.
Yes so.
The.
Youre right demand in the us with strong.
I would say, we probably saw a bigger pickup in the rural carriers to smaller carriers than in the larger carriers although.
We did see pretty good demand in the larger as well.
From an order flow perspective, but.
It was definitely.
Tier three carriers and utilities and things were actually stronger.
And.
Hi, guys to it.
No go ahead.
And answer your thought on the momentum I would say that we had a very good order flow in Q1.
We just given your guidance our guidance is impacted by a couple of things. Once we have one were typically of booking chip business on that's still the case so.
We don't know with the second half for the quarter will be in relation to the first half a quarter from an order flow perspective.
Number two were a little.
The.
The supply chain, although it is we've been able to manage.
Any really critical or are difficult situations with our customers and making sure they get the product they need we still do not have a clean supply chain at this point in time.
Yes.
My next question is on Europe.
This is one of your dollars European customer paused in second half last year, just wondering if.
What's going on there any.
Okay.
Yes sure they.
Came back like we expected.
The kind of more in line with what they have what a traditional Q1 I didn't see a bounce back but we did see it's come back to kind of more normalized Q1 spending so definitely stronger than Q3 in Q4 materially strong Q4.
Thank you.
Okay.
Our next question comes from the line of Rich Valera with Needham and company go ahead. Please your line is open.
Thank you. Good morning, just wanted to follow up on a question on that large European customer So you announced.
Thanks, and Oh, well to you win with them as well and just wondering how we should think about that relative to the historical base of business you've had with them. That's been focused on vectoring in Super Vectoring do do you think this is additive to that or ultimately largely substitutive as they shift capex from perhaps vectoring more towards.
However.
Well I think they have a plan for so we should talk about two European carriers, one, which we actually named because we were.
They were kind enough to move forward was released on our press release.
Which was due to what you telecom.
[music].
Yes.
Typically happens is you will see an overlap of both technologies get played and then you'll see as kind of movement towards the newer technology overtime and that will ultimately be the primary source of the revenue. So I wouldn't expect any different here.
That makes good sense and then I just quick questions on your other two tier ones looks like one European in one domestic just wondering if you give us any sense of the potential of those programs longer term and how much to your knowledge are they success based.
Yes, obviously, you've had some wins in the past where you've gotten the when you've gotten qualified and ultimately havent had significant deployment because it was who is ultimately a success based product and there wasn't just a lot of.
Sales. So just wondering if you give us a sensitive are these similar or are these more.
Plans that will be deployed largely across the network somewhat independent of.
Specific.
Near term sales objectives.
Well, let me start with.
US carrier those tend to be more success based so although there is a plan to roll this out across the entire footprint.
And because of the capabilities of the platform the intention would be the actually roll this out.
Although its ex Gs upon.
The capability to the platform allow you to use it at PON speed or next year speeds and I think that the leverage that capabilities in the school.
Mentioned is I think hopefully their intention is what they've stated that this will become the platform that they move forward to on a going forward basis, but knowing the us market.
They're they're very much.
They look for areas that the ROI mix, so specific requirements and I think it will be largely success based although they'll probably be.
Prebuilds and competitive things that way into that.
To large carrier in Europe is very much a programmed initiative very similar to what we've seen in other places in Europe.
There's a strong government push in that country to deploy fiber, it's very public.
And they have a.
Very structured plan for deployment so.
I went on so.
I can't tell you none of it will be success based the there is a plan to deploy fiber, which is somewhat other places in Europe and.
They seem to be marching ahead so.
I would say that those two are different.
That's very helpful color, thanks for that Tom.
Historically have been I know, you don't give guidance more than one quarter out but.
You have historically been willing to give typically some color in out quarters beyond the next quarter. Just wondering if there's anything you could say about how you're thinking about the back half maybe relative to historical seasonality. If theres anything we should be aware of in the back half that might be sort of better or worse than what we've seen historically.
Well.
It did this is probably in this is on the news to anybody on this call. The most difficult time to try to reach out.
And look forward there so the worry.
The positive things is everybody gets back to work and things turned back on and.
Everybody's happy.
What I mentioned about the balance sheet capabilities of the company in the customer base. So we have is absolutely true.
But to say that the long term.
Residences don't have jobs that won't affect the capital plans of carriers I think is wrong.
Larger carriers, I think with whether that better than smaller carriers, but I think ultimately it's all about the economy turning back on.
And so there is strong demand we absolutely in Q1, so very strong man, but.
And then there was a big push to work at home, which helped drive that I think theyre definitely heightened awareness of where holes are and the difference between a ultra broadband customer a nod and what that does to their experience.
Ultimately to second half of the year is going to be.
No materially impacted by weather another they do get back to work.
And other than I don't want to serve some positive things that definitely will happen, regardless I told you some of these.
Things will start shipping in the first half of next year, we'll see trials and some of these in the fourth quarter of Nextshares current plan. So we'll see some positive influences there but.
Ultimately I think the macro environment is going to.
Help way into what happens there.
That's helpful color appreciate that thank you and congratulations on the wins.
Thank you.
And our next question comes on line of George Notter with Jefferies. Go ahead. Please your line is open.
Hi, guys. Thanks, very much I guess I wanted to ask about the gross margin performance. It was quite good this quarter.
Thats impressive this quarter and I wanted to you mentioned product mix geographic mix you mentioned, some operational efficiencies could you dig into those items, a little bit more and help us understand exactly what's what's driving the margin performance. Thanks, Mike you want to cover that sure. So George I think.
The shift into the US I think you've always said in the passes provided higher margins just because you get away from the Chinese competition factor that we see in other parts of the world. So that's that's one piece of it also in the product mix themselves. So depending on what is selling.
Inside of a inside of a period, we have some products that have better margins than others and then when you overlay on that we have a supply chain in an engineering team that continues to look at our products and our supply chain and attempt to be able to find more efficient way.
Ways to build them and to buy the components that go in there I think those are the major things that helped us to improve it and like I said some of that was actually offset even a little bit by some of the supply chain issues that are out there from covert that really caused.
A bit of a squeeze on freight globally as airplanes were no longer available to move many of our components that we tend to use so the freight costs tend to go up as capacity got restricted.
Does that answer your got it lets say.
Yes, that's very helpful and then just.
The.
Yes, Cobot 19 impact to mean is there way to quantify I guess on both sides. You know was there a demand benefit that you guys ticked up over the course through the quarter or I guess towards ended the quarter.
And then also was their revenue you weren't able to shift because of the supply issues related to covert.
And how much might that have been.
Yes so.
Let's first start on the demand side on the demand side.
I would say, we did see a pickup in order flows.
But in many cases in fact I would say in most cases, they were scheduling that order flow out into the quarters that they would want to receive them anyways. So.
For the most part.
What we saw was customers really trying to give us a heads up so we can manage our supply chain and that's been beneficial.
So.
But thats a positive things to have the visibility.
On the shipment side.
There were probably.
Some things that we did in chip.
But.
I don't know if that would be it wasn't material.
Got it okay, great. Thank you very much.
All right.
Our next question comes from the line of Michael Genovese from MKM Partners Go ahead. Please your line is open.
Hi, Thanks, very much I think you said you had to us 10% customers in the quarter and I know normally have one so for the second one can you tell us was the tier one the tier two or tier three.
We just we really just don't break that out.
Okay might have to for that to you, yes, we usually don't named those customers. So I can't tell you that.
Okay.
Well clearly you know here there has been in multiple geographies. Some some good.
We knew when type of type of news, particularly it was products that have fiber in the mix as well and I guess my question is decode and have any impact on the timing.
If any of this or is that as kobin kind of irrelevant to the timing of the momentum that you're showing on new value when yes.
So on the tier one when they take a long time. So this has been an ongoing.
Process with one that's been going on well over a year.
Two quick on for well over a year so.
No I don't think the timing if anything we were a little we were nervous.
Covered would actually delay the timing.
Just because people weren't able to go in and do the work they need to do in order to close on RFP and make a decision that turned out not to be the case.
So no. This there is some in the I would say if theres any impact.
On the acceleration of these first of all we've been talking about Europe opening up first and kind of jumping to this new architecture first and Thats turned out to be the case.
I think one of the regions is.
Talked about the confluence of the technology with X Gs, which allows you to Dupont or 10 gig pawn effectively out of the same platform and from a infrastructure perspective effectively the same cost.
I think that thats been a benefit and the other is.
The while way impact.
Without a doubt wildly having the issues that they are having on the supply chain and the security concerns has been a benefit as well.
Okay.
And then just my final question.
I'm trying to read between the lines of some of the other questions and answers that I've heard and I, just I guess I want to ask if this us tier one when I mean, it's it sounds to me like it might be where the customer who's been particularly sort of follow tile in the past in terms of expectations of big projects.
Next that.
Some of subordinate success based.
But notably added we had multiple rounds of issues is that customers that were talking about.
No it's not.
Okay.
All right.
So so then final final question is is this also tied into Fiveg backhaul. This this new win.
Initially there not there are some specific things that we have to do for fiveg in relation to latency and timing things. So initially no. Initially this is for broadband home and business deployment.
Thanks, I appreciate all the detail.
Okay.
Our next question comes from the line of Paul Silverstein with Cowen Go ahead. Please your line is open.
All right. So we've got several questions for you all first off cult like I know you don't disclose the names of the 10% customers, but can you tell us what the represented in terms of total revenue contribution as a percentage of total dollars correct.
Yes.
We usually don't break that out as well.
All right Mike limits are going to drug of this can you tell us what percentage of revenues coming from your top fiber top 10, However, you want to quantify it.
I know you don't usually break it output customer concentration has been covered your company for a decade plus customer concentration because for the huge issue historically, we've seen some other questions I think it's important to grow seven understanding.
Where you're at today answers.
Let me see if I can give some color without without Mike set me up.
I mean, we still have a customer concentration problem now the wins that we have are we just talked about explicitly.
The new large customer in Europe will.
Mitigate that some we've had some mitigation because of all of the activity is going on in Australia.
But but as you know this is an industry, where even the largest carrier of vendors have problems with customer concentration.
If you take a look at what it is that we.
Where we said a lot of large percentage of the growth came from.
Which was.
Kind of into tier three segment than you can probably understand where that may be which means it.
It's very likely more diversified than than.
Than not.
Hopefully that gives you some color.
Okay. I asked you this is.
We look to your topline are they still over 50%.
Are there now look at the person.
Could you give us.
Mhm.
No I don't I literally do not have that.
Customer break on for entering my guess will be the top five ours.
You are probably still.
I wouldn't be I would be surprised I would think it's still around 50% or a little bit more there's no. There's no significant change overtime right in that concentration level other than what Tom said, we talked about strengthen the tier three market. So you're seeing a lot more small guys that are are buying from us.
As compared to the past.
But but okay and to to clarify this a little bit more a lot of the tier three business goes through distribution.
So even though it may be in the case for those distributors of ours, even though they look show up as one customer they are really going to hundreds of customers.
In Tom is that the operative number two or three customer base at this point is in the hundreds.
Oh, yes definitely.
All right without a doubt.
And so if we look forward.
Students or is this method, we look forward in terms of key growth drivers.
True that trend has always been.
Big projects would song and funds come to fruition Quidel ended on.
Right.
No fault of your own pricing.
Nature of the business, but if we look forward over the next 12 months in over the next three to five years on is it still going to be dominated by definition by these new wins with.
New big projects with the potential projects with future one service providers or we're going to see.
A more diverse on less concentrated.
Revenue from a growth perspective.
How much is one how much is looking for.
Well over the last two years I would say the growth that we have seen or the move that we've seen and the infrastructure based has been more towards tier threes.
And with the new stimulus programs that are coming online.
In the us.
I would expect that to continue to grow we're expecting good growth out of the tier threes. This year and when I say tier threes, I, probably shouldn't I should use a broader term for that because that increase municipalities utilities in groups.
Lot of different customers that really expand with a market sizes or at least the diversity in that market.
So thats going on we talked about.
Some of the activity that's going on in Europe, I think right now we have over 14.
Different all net carriers in.
Predominately in the UK.
That are online of selected US right now and we have.
Similar number that are still in play that are making selections. So that base is going to grow.
Now if we win a tier one.
Now, let's say they come in and spend $100 million a year with us then.
That will impact that and.
The reality is we want to be able to grow bump.
And that means there's always going to be some dependency on the project timing of those tier ones, but at the same time. They allow you to materially move the company forward and there's really no way to get that large base of business and really pay for the R&D associated with that large base of business unless you actually when some of those tier one so.
I think is I think it's going to be a mix and I think at some point in times I would fully expect the tier three business to be stronger right now is that tier three business on the infrastructure side in the U.S. is.
Stronger than the tier one or two business.
Without a doubt it had a very good quarter.
And I would expect that to continue.
Totally pauses of distributed earlier, but if we looked at historical projects ranging from telmex Nbn through the cable operators.
That have again of offers significant potential upside, but I think in many cases have not come to fruition can you give us an update on your thoughts your expectations over the next 12 to 24 months from those particular projects when I've got two okay. So.
So let me let me.
Let me just.
Back a little bit telmex has been wildly successful the problem with telmex.
It's well in excess of $100 million, they could buy 40, fiveish 59, causing a quarter to say that that's not successful the problem would tell much of the Lumpiness hotel.
Right I mean, that's the issue with Telmex and.
There are just a very difficult customer, but I, but.
I wouldn't consider that not to be strong with where we did with the msos.
We still have primary market share with a deep on business the pump business just hasn't moved forward.
If I look going forward I mean, the biggest problem is the biggest issue that we've had historically has been centered around one carrier in the U.S. one tier one carrier in the U.S. square.
Sometimes we would launch things in there just wasn't launch.
Going forward.
We have a new customer coming on board of very large tier one in Europe coming on board.
From what we know about this customer.
Very well known customer.
They tend to move forward similar to the other European customers that we have.
In a very rigid structured pace.
That has been our history with European carriers in general and I expect no different here, so I would expect that to be.
Have a different tone in the carrier that we had here in the U.S.
Okay.
No I answered your question Paul.
Appreciate that loss to Tom in terms of visibility you pointed out you Mike pointed out that.
It sounds like things as a lot of other companies your service providers in order to given the supply constraints to better manage.
Their supply chain that there could be more visibility than normally out.
A question is what is your normal visible is 90 days.
Two quarters, what is visibility today to be up good visibility into the full year to the second half because you're getting better forecast more granular from your customers as Joel proposition in connection with overnight to back and then of course, we might.
Im sorry, good mineral assets, but yes, I would say I would say, we're getting better visibility from a handful of customers.
And in those customers, yes, we have.
Solid understanding some of them have placed peos.
Going at least into the third quarter. So those we do but I would say that's still the minority of the customer base that we have so.
Any trepidation that we have about the second half is is based off of and by the way. They can they can schedule things out right. So they are not.
Very few customers that lock in that commit to appointed can cancel the purchase order. So the trepidation is really around.
And it's not really with the larger carriers.
Really.
What's happening kind of into tier two space or kind of that the low tier one carrier that there is little trepidation about of course were.
Our CP business had a strong quarter.
Q1.
Pretty much across the board routers switches everything.
Right so.
No thats dependent upon small and medium business being at work. So I think there were some build there, but I think in order for that can I think that theres definitely a willingness to upgrade infrastructure when things get back to normal and because people see the issues that they had but.
But this kind of its very murky right now looking past this quarter, even though we have probably more orders and I'm I'm just speculating here, even though we have more firm or excuse me peos placed than we would typically have in third quarter at this point in time.
Got it one last question for me.
Gross margin, Mike any thoughts or saw me thoughts with respect to reasonable best case over the next 12 to 18 months.
If everything went right would gross margin goats.
I think we've upped the ball is targeted low to mid Fortys. So I think if you think in the next 12 18 months best case, the men middle of that ranges 40 to 42, and a half I think thats, what weve been working towards or for a long time them to make sure that we've we've built our our products.
I'll handle that.
Everything going right would be stronger international business too and that means that there is a late on gross margin.
So you would see a topline growth that would be perfect and you would see margin growth would actually a margin number that would actually come down.
All right I appreciate the response.
Our next question comes on line of built his arm with tightening go ahead. Please your line is open.
Thank you actually have a group of questions. The first one is what are you seeing in terms of your customer behavior in April and May and Im specifically at trying to understand if you've seen any any indication of covance.
Related.
Changes to add to how they are approaching thanks.
As for all customers in general you mean.
It's kind of a general question unless you want to dive in more specifically somewhere.
Well I think there.
I think that it's some geography and carrier dependent so.
And some of that has to do with the rules that are implemented in each of the country. So in some areas.
We know that they're wanting to move more towards infrastructure build and kind of getting ready to come out because they're having a hard time getting into residences.
Our businesses and deploying.
Service.
In other areas.
They have beefed up their self install and are continuing to put move forward with upgrades and almost every case. They are definitely scanning their network and seeing what capabilities are in place right now and trying to proactively offer service upgrades, where they can although I would say that.
A few of the mentioned hesitancy to be viewed as you know profit sharing off of the current situation. So they are careful and how their marketing Matt.
But it's very much region dependent.
Maybe carrying on on that reach independent comment what can you share. Your qualitative uses of the stress on the various systems just because the workforce now is this so distributed compared to if we're all huddled up in.
Offices.
And maybe you could take that really by country, you asked Germany, Australia, Mexico, UK and kind of quiet. So again, what's your qualitative view is.
Unfortunately, with that you have to get down to a carrier by carrier basis because.
There there are multiple bottleneck. So one of course in the one that were the most focused on is the last mile and then the interconnection of that last mile in a mid hall application.
Where we're seeing stress there is really there is some.
A real gap of capabilities, depending on the region of the countries that you may be living in.
And I think that that is causing some heartburn.
Not just within the carrier, but I think.
Within the government's themselves of those different areas.
But.
You are seeing stress in that mid hall, where is there the amount of traffic is going up.
And really I think you're seeing stress pretty much across the board, where the upstream bandwidth unless they are using PON is causing.
Problems as well I.
I think from a total perspective.
It's the backhaul portion or the mid and aggregation portion.
Has been helped some by the you should.
Pattern. So what's happened is they used to be busy time was at night busy time was.
Sometimes eight or nine o'clock and maybe even later than that and what's happened is that busy time has now moved more towards the day time.
But the capacity requirements health, although is more than most a lot of carriers can handle is not double right. It's still.
You just seen a more full utilization of the network.
And is there a sense of.
Those of those countries that I listed who is in better shape or or really more challenged.
During this environment.
It's not really a country by country thing, it's more of a carrier by carrier thing.
So.
I think I think where you have problems are where you have more pronounced problems or were.
Countries have them lockdown on deployments and interactions with customers and there is no capability to upgrade I think those are the ones that are probably the loudest.
And there are parts in Europe that had been decision and broadband for a long time in those of becoming problematic, although theres not much they're doing about it yet because I can't.
I would say to us is actually fairing pretty well.
Great. Thank you and then one additional question if I may.
Eight European tier one wind congratulations what is your view of what that will lead to for annual revenues.
When it ramps.
I'll, just I'll give I'll give a sense because I think it's fair to for people to understand the importance. I think this is a very large win for us, it's tens and tens of millions a year.
And it's a long term contracts so.
Over the term, it's hundreds and hundreds of millions and.
That's a very big win for us.
Congratulations again.
Alright, thank you.
And again as a reminder, if you'd like to ask a question. Please press star one on your telephone keypad. Our next question comes from the line of Tim Savageaux with Northland Capital Go ahead. Please your line is open.
Very well we.
Finally got to my last question after the last dozen or so but I'll try to.
Try to folks.
Yes, it a bit more on that that tier one win.
And really kind of levering up something else there was had on the call which was.
The opportunities driven by Wawa, being marginalize, which Tom you really.
Kind of hit upon that seem pretty hard on the last call.
And not so much on this one.
I would gather that's because you've announced a wind right as opposed to the potential so.
Is it fair to assume that that major tier one win is.
Partially a function of.
While we being displaced and and when you mention a brand new customer.
Is that brand new for fiber.
Brand, new with regard to certain part.
No brand new for any then.
Okay. So.
And yes.
Although with her.
So I think that.
I think at a minimum the timing of the opportunities that are presenting themself in Europe are being influenced by.
The current situation.
In relation to walk away, but the.
In many cases, it's there there is just.
In some countries, there's there's even as much as legislative action that was being taken to make sure that theres something to the amount of impact that.
That vendor could have on the network.
Got it.
And your reserve.
Thinking about what you recently announced with the with Orange.
It is there a similar type opportunity in magnitude there over time.
I don't have I.
I don't want to say, yes, I know, there's a very large opportunity available put I don't know if it's going to be the same.
Same size I think it's too early for us to know that yet.
Good enough and my last questions on the rural broadband side.
I think you mentioned a number of.
70, something percent growth I, just wanted to come back and get more color in context on that where it was clear domestic or rural or what that referred to and then you see this.
No strength in rural broadband should we consider that a key factor driving sequential growth.
In Q2, and as you look forward do you see the potential for that market to accelerate in 21.
As art off begins to take off.
That's it from absolutely, but the last part of that question is an easy answer, yes, I mean, not only because of art off but.
Because of the current pandemic situation and what Thats highlighted so yes on that.
We saw growth both in the European carriers and.
The RSP space here in the us.
I don't honestly no if we breakout which one was stronger we typically report that as a segment, but we saw strong growth in both areas.
We expect to the European stuff, because we just have.
I mentioned, we have 14, all nets, there theyre just not coming online so.
There there is coming up to speed the only trepidation than I would have and I'll. Just say this one more time, which is maybe a bad way to end the call. Let's see we are at a time, but is that the visibility out there and how it how it will impact people is something we don't know yet so the sooner.
We can return to.
On a normal business environment, the better off we are.
By no means pushing anybody because you know where we have been.
Very employee minded here and I applaud that but.
That unknown is still unknown. So we'll just have to see as we roll forward and we will manage accordingly.
Hopefully that answers your question.
Thanks, very much again and congrats.
Okay. Thank you would that we'd like to end the call I think everybody for joining us on the call today, and we look forward to the to better times and uncle next quarter. Thanks very much.
This concludes todays conference call you may now disconnect.
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