Q4 2020 ADTRAN Inc Earnings Call
Okay.
Ladies and gentlemen, thank you for standing by and welcome to Trans fourth quarter 2020 earnings release Conference call.
All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer period.
I ask a question during the session you will need to press star one on your telephone.
Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero.
During the course of the conference call <unk> Representatives expect to make forward looking statements, which reflect managements best judgment based on factors currently known however.
However, these statements involve risks and uncertainties, including those continued spread and extent of the impact of the COVID-19 global pandemic the ability of component supplies to align with customer demand the successful development and market acceptance of our products competition in the market for such products the product and channel mix.
Net costs manufacturing efficiencies and other risks detailed in our annual report on form 10-K for the year ended December 31st 2019, and our quarterly report on form 10-Q for the quarter ended September 30th 2020.
These risks and uncertainties could cause actual results to differ materially from those in the forward looking statements, which 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 Chris Good morning, everyone. We appreciate you joining us for our fourth quarter 2020 conference call.
With me today is that trans CFO, Mike for Liana.
Following my opening remarks.
Mike will review the quarterly financial performance in detail and then we will take any questions that you may have.
COVID-19 continues to impact our day to day lives and the way that we do business.
And as highlighted the importance of the work, we do enabling operators to provide high speed broadband connectivity for consumers and businesses.
I am proud of our employees' perseverance throughout these difficult times and want to start by saying Thank you to all of our team.
Moving to the quarterly performance. The report the results for the fourth quarter demonstrated solid execution against our plan.
This included broad based demand across our customer segments with a strong contribution from regional and emerging service providers.
We continue to make great progress with the tier one fiber access projects that we announced earlier last year, while still growing and diversifying our customer base across a variety of market segments.
From a top line perspective revenue for the quarter was $130 1 million with 41, 1% gross margin.
Network solutions accounted for 88% of that total revenue at $114, one while global service services contributed $16 million.
During the quarter, we had 410% customers.
One of the highest numbers we have ever reported.
Each of these customers percentage of total revenue was in the low double digits.
Pointing to the success of our diversification efforts.
Of these there was one service provider customer in three distribution partners.
These distribution partners serve hundreds of regional service providers in the U S market with a mix of broadband access.
And connected home and enterprise solutions further reinforcing our success, we are having with both customer and portfolio diversification.
New customer acquisition remains strong we added 35, new service provider customers during the quarter, bringing the total to 134 for the year.
Our fiber access portfolio has led the way in terms of both new customer acquisition and revenue growth.
We expect this to continue as our fiber access solutions and software platforms are adopted by customers around the world who are upgrading their networks due to favorable government.
Regulatory technology and competitive factors.
Similar to Q3 the growth that we saw during the quarter was led by our continued success in the tier two and regional broadband operator market in the U S, which was up 85% year over year.
We are seeing increasing demand for our fiber access connected home and cloud services offerings.
Our fiber access and aggregation business grew 98% year over year, Inc.
In home service delivery platforms were up 68% year over year and cloud services increased 46% year over year.
We are seeing similar trends in Europe, where favorable regulatory and funding environments are driving the build of fiber access networks.
We posted revenue growth of 54% year over year in the EMEA market segment. This increase was driven by investment in 10 gig fiber access networks with European all net providers.
And the tier one customer segment as mentioned earlier, we are making great progress with all three announced wins, including two European and one U S based customer.
Two of the three have already achieved a significant milestone our first customer connections and we expect lab exit for all three around the middle of the year.
In addition, we are actively involved in several other tier one decision processes around the world some of which we expect to reach decision points around the middle of this year.
COVID-19 related logistics issues and global chip shortages continue to impact lead times and inventory levels.
Our operations teams continues to take proactive steps to mitigate logistics and component availability challenges to meet our customer needs.
However, lead times do remain extended on some key components and as a result of our efforts to address these needs. We have maintained elevated inventory levels and incur incurred increased freight costs due to decreased capacity associated with higher transportation rates and expedite fees.
From an organizational perspective, we continue to maintain a disciplined approach to operational expenses.
The structural changes that we have implemented over the last year continue to improve our operational efficiency.
In the past 18 months, we have reduced our non-GAAP quarterly operating expenses by almost $12 million or 19% through disciplined expense management. These changes about low it has allowed us to reach investment levels that aligns with our target our target operating model moving forward.
On the product side, we continue to invest in end to end broadband solutions that make it easy for broadband operators to deploy and operate fiber based broadband access networks.
And the customer connectivity segment, we expanded our in home service delivery platforms with our new STG series of cloud managed mesh Wi Fi six gateways.
These platforms deliver gigabit speeds wirelessly throughout the home or business.
Are complemented by an intuitive mobile app and cloud based software suite that simplified deployment and management of Wi Fi mesh Iot advanced security and parental control services.
These platforms will enhance our ability to capitalize on increased investment we are seeing in the connected home segment.
And fiber access we have established ourselves as one of the fastest growing vendors through the widespread adoption of our 10 gig fiber access platforms.
Whether you are a regional operator looking for an easy to deploy system with integrated access and transport our large tier one broadband operating seeking the leading open disaggregated fiber access platform available AD trend has solutions that are an ideal match for these customers' needs.
On the software side, we enhanced our cloud software suite with the launch of Mosaiq one.
A SaaS offering that combines network and subscriber analytics with AI driven algorithms to optimize end to end network performance, while providing actionable insight for operations and marketing teams.
Highlighting our growth in cloud services, we secured our largest SaaS contract to date with an award that covers hundreds of thousands of customers over a multiyear period.
Okay.
The consumer demand and government support for fiber based broadband services are at an all time high.
One notable program of course is the FCC's Rural digital opportunity fund or art off and in December the FCC announced a 180, winning bids in the <unk> phase one auction.
These winning bidders are expected to receive a total of $9 2 billion in funding over 10 year period to build out broadband services to over 5 million homes.
Over 85% of these homes will be served with gigabit broadband speeds.
AD Trans portfolio is a great match to the service to your end customer segments.
In Europe and around the globe. Many global operators are significantly increasing their fiber investment while also looking to diversify the vendors in their supply chain.
As an established global vendor with a leading fiber access portfolio in global R&D presence, including Europe <unk> continued to stand that stands out as a reliable option for future broadband deployments.
The shift to gigabit enabled fiber access networks will also drive further demand for gigabit capable cloud managed wireless mesh connectivity in the home or business, providing material additional growth opportunities.
Opportunities for add Tran.
As end to end broadband solutions provider.
I mentioned earlier in 2020 that AD trans fiber business had eclipsed our copper business for the first time in our history.
In Q4 of 2025 year old related solutions represented over 70% of our business.
Overall, we achieved some key milestones in 2020, and we have a lot of positive momentum in the growth segments of our portfolio driving a diversified customer base in our target markets.
The progress that we had in 2020 has us well positioned for additional success in 2021.
Mike will now provide a review of our financials. Following <unk> remarks, I will be answered here happy to answer any questions you may have.
Thanks, Tom and good morning to all I will review, our fourth quarter 2020 results and I'll also provide our view on the first quarter of 2021.
During my report I will be referencing both GAAP and non-GAAP results with reconciliations presented in our press release and supplemental financial schedules on our Investor Relations webpage at Www Dot AD trend Dot com slash investor the.
The supplemental financial schedules on our webpage also presents certain revenue information by segment and category, which I will be discussing today.
As Tom stated our fourth quarter revenue came in at $131 million compared to $133 1 million in the prior quarter and $115 8 million for the fourth quarter of 2019, breaking this down across our operating segments our network.
Solutions revenue for the fourth quarter was $114 1 million versus $115 2 million reported for Q3 of 2020.
And $96 2 million in Q4 of 2019 our.
Our services and support revenue in Q4 was $16 million compared to $17 9 million reported for the third quarter of 2020, and $19 6 million for the fourth quarter of 2019.
Across our revenue categories access and aggregation revenue for the fourth quarter of 2020 was $79 million compared to $85 4 million in the prior quarter.
And $74 $6 million in quarter four of 2019.
Revenue for our subscriber solutions and experience category was $45 4 million for the quarter versus $43 1 million for quarter, three of 2020 and $33 $2 million for quarter four of 2019 traditional and other products revenue for the quarter was $5 eight.
Million compared to $4 6 million in Q3 of 2020 and $8 million for quarter four of 2019.
Looking at our revenues geographically domestic U S revenue for Q4, 2020 was $95 8 million versus $92 8 million reported in quarter three of 2020 and.
$69 9 million.
In quarter four of 2019 our.
Our international revenue for the quarter was $34 3 million compared to $43 million for quarter three of 2020.
And $45 $9 million in quarter four of 2019.
In the fourth quarter, we had 410% of revenue customers.
Our GAAP gross margin for the fourth quarter.
Was 41, 1% as compared to 44, 3% in the prior quarter and 48% in the fourth quarter of 2019.
Non-GAAP gross margin for the quarter was 41, 3% as compared to 44, 5% in the prior quarter and 41, 2% in the fourth quarter of 2019, the quarter over quarter decrease in both GAAP and non-GAAP gross margins were driven by product services.
And customer mix, and lower volume and lower manufacturing absorption.
The increases in both GAAP and non-GAAP gross margin on a year over year basis were driven by increases in volume as well as product services customer and geographical mix changes.
During the quarter, we did experience extended component lead times, which we expect to continue into 2021 potentially potentially affecting component availability and cash.
Component and logistics costs.
Total operating expenses on a GAAP basis were $56 8 million for quarter four of 2020 compared to $54 4 million reported in the prior quarter and $61 3 million for Q4 of 2019.
Quarter over quarter increase was primarily related to market driven increases in our deferred compensation expense restructuring related costs in both R&D and SG&A and contract services, partially offset by a decrease in labor expense as a result of our.
<unk> program, which was initiated in 2019.
The year over year decreases in operating expenses were a result of lower labor expenses in both R&D R&D and SG&A as a result of our restructuring program and lower travel related expenses, partially offset by increases in contract services cost restructuring expense.
And market driven increases in our deferred comp expense.
On a non-GAAP basis, our fourth quarter operating expenses were $49 5 million compared to $49 4 million in the prior quarter and $56 $8 million in the fourth quarter of 2019.
The slight increase quarter over quarter in non-GAAP operating expenses was primarily due to increases in contract services offset by a decrease in labor expenses. The non-GAAP year over year decrease in operating expenses was primarily the result of our expense reduction efforts and lower travel expenses.
Year over year, partially offset by an increase in contract services.
Operating loss on a GAAP basis for the fourth quarter of 2020 was $3 $3 million compared to an operating income of $4 $5 million in the prior quarter and an operating loss of $14 $1 million reported in Q4 of 2019.
Non-GAAP operating income for quarter four of 2020 was $4 3 million compared to $9 9 million in the prior quarter and an operating loss of $9 million in quarter four of 2019.
Quarter over quarter GAAP decrease in profitability was attributable to lower sales volume less favorable gross margin mix and higher operating expenses, driven by restructuring and market driven deferred compensation expenses the year over year decrease in.
GAAP operating loss was driven by higher sales with favorable gross margin mix and reduced operating expenses.
The non-GAAP quarter over quarter decrease in profitability was mainly driven by lower sales volume and less favorable gross margin mix and the non-GAAP year over year operating income improvement was related to higher sales volume higher gross margin mix and reduced operating expenses.
Other income on a GAAP basis for the fourth quarter of 2020 was $3 million compared to other income of $1 5 million in the prior quarter and other income of $3 2 million for quarter four of 2019.
Our non-GAAP other income for the quarter was $1 $7 million.
<unk> to a non-GAAP other income of 876000 in Q3 of 2020 and $2 9 million for quarter four of 2019.
The increases in both the GAAP and non-GAAP other income as compared to the prior quarter were primarily market driven.
Cause by increases in the fair value of our investment portfolio and lower realized foreign currency exchange losses.
The decrease in GAAP and non-GAAP other income on a year over year basis was primarily driven by higher realized foreign currency exchange losses, and lower gains in our investment portfolio.
The Companys tax tax provision for the fourth quarter of 2020 was a benefit of $6 5 million as compared to a $562000 expense in the prior quarter and a $768000 expense in the fourth quarter of 2019.
The current quarter benefit was primarily the result of finalizing our 2019 net operating loss carry back claims related to the 2020 cares Act and a shift in profitability across tax jurisdictions.
The tax expense for the fourth quarter of 2019 was the result of our international operations as the deferred tax benefits generated in that quarter by our domestic operations were offset by additional changes in the valuation allowance that was previously established in the third quarter of 2019.
GAAP net income for quarter four of 2020 was $6 $1 million compared to $5 5 million in the prior quarter.
And a net loss of $11 6 million in the fourth quarter of 2019.
Non-GAAP net income for the fourth quarter of 2020.
$5 2 million as compared to $7 9 million in the prior quarter and a net loss of $2 5 million in quarter four of 2019.
Earnings per share assuming dilution on a GAAP basis was 13.
As compared to <unk> 11 per share in the prior quarter and a loss of 24 per share in the fourth quarter of 2019.
Non-GAAP earnings per share assuming dilution for the fourth quarter of 2020 was <unk> 11 per share compared to <unk> 16 per share in the prior quarter and a loss of <unk> <unk> per share in the fourth quarter of 2019.
Turning to the balance sheet unrestricted cash and marketable securities totaled $118 million at quarter end after paying $4 3 million in dividends during the quarter for the quarter, we used $11 2 million of cash from operations.
Net trade accounts receivable was $98 $8 million at the end of the quarter, resulting in a DSO of 70 days compared to 69 days in the prior quarter and 72 days at the end of the fourth quarter of 2019.
The variability in dsos quarter over quarter and year over year is mainly attributable to the timing of shipments.
Net inventories were $118 7 million at the end of the fourth quarter compared to $123 million.
In Q3 of 2020 and $98 3 million at the end of Q4 of 2019.
While our inventories were down slightly quarter over quarter, we continued to carry higher inventory levels in preparation for new product ramp ups and strategic inventory buffer purchases, which have been made to ensure supply continuity throughout the pandemic.
We believe that we are positioned to maintain adequate liquidity in the current environment.
Looking ahead to the next quarter the possible effects of the ongoing pandemic.
The availability of components supplies to align with our customer demand the book and ship nature of our business potential supply chain expediting costs and other component and logistics cost variations the timing of revenue associated with large products.
The variability of order patterns into the customer base in which we sell as well as fluctuations in currency exchange rates.
In our international markets may cause material differences between our expectations and actual results having.
Having said all that we expect that our first quarter 2021 revenue will be in the range of $122 million to $130 million.
After considering the projected sales mix, we expect that our first quarter gross margin on a non-GAAP basis will be in the range of 40% to 42%.
We also expect that non-GAAP operating expenses for the first quarter of 2021 will be about $50 million.
And finally, we anticipate the consolidated tax rate for the first quarter on a non-GAAP basis will be in the low twenties percentage rate.
We believe that the significant in fact factors impacting revenue and earnings realized in 2021 will be component availability and costs macro spending environment for carriers and enterprises.
Ongoing effects of the COVID-19 pandemic the variability of mix in revenue associated with our project Rollouts.
Our proportion of international revenue relative to our total.
Professional services activity levels, both domestic and internationally.
The adoption rate of our broadband access platforms potential changes in corporate tax laws currency exchange rate movements and inventory fluctuations in our distribution channels.
Once again, the financial information is available at AD Trans Investor Relations webpage at Www Dot AD trend Dot com slash investor.
Now I'll turn the call back over to Tom for questions.
Okay. Thanks, Mike.
Chris at this point.
Ready to open up to any questions people may have.
Thank you at this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.
The first question comes from Rod Hall of Goldman Sachs. Your line is open.
Thank you my question look we bought out a day.
Okay.
Great great.
A couple of different macro environment, what are you baking in any blood flow.
Net.
Hello.
Can you repeat that you were cutting out a little bit there.
So I was talking about that could.
Could you talk about the top line strength to Jason and that you are factoring in the guidance.
The supply chain situation.
Yeah, So I mean, we've seen tightness.
Throughout the year, but it's in it's definitely.
At least on the silicon side continue to increase.
I think everybody where a lot of people are aware of the lead time extensions by some of the silicon vendors.
And there have been when you are having to go and buy.
VI chips from pretty much any outlet you can get and you sometimes see expedite charges on those we have factored that into our guidance.
For the next quarter.
The reality is that we don't know exactly what that will be until we actually get those chips whatever chip. It may be in house, but we have tried to factor that into our guidance.
Got it answer your question could you help us maybe quantify a little bit.
It does but could you help us quantify how much.
With me on the table off the table.
Because of this I would like to change.
That that level of detail to be honest, we is not at hand right here, but.
It's not everything.
It is predominantly on the chip side by far.
And certain.
Certain chips are worse than others. So I.
I don't have an exact number I can just tell you that when we when we rolled up our margin forecast.
We did.
Taken talent take into account and we can look at that we look at that and Mike had mentioned.
Margin forecast is fairly detailed and that we look at it on a SKU level.
Certain skus are impacted by uncertain ones aren't but I don't think we have a total number on that.
Okay.
One more question could.
Could you expand on this auto Dal opportunity I believe last quarter, you talked about how.
It's all a day probably net.
Hey, getting what the backlog one of the maybe you had a few more I'll call.
<unk> helps with them and then.
Could you expand on the opportunity I believe you mentioned second half I just wanted to go ahead Jim.
I do think it will some carriers will kick off.
As quickly as possible others will wait because there were some time period that you don't have to build everything.
Right off the bat the quiet period is now over.
So we're able to have dialogue with a lot of the customers I think we are.
Happy as of now with kind of how things turned out a lot of those customers.
Our long standing customers with that trend.
And some of the bigger ones are definitely long standing customers, where that trend. We also although they are wisps involved it.
We have won a significant amount of that award some of those whips. If you actually get into the details are actually going to be building out fiber.
Which is good for us.
And then even where they are doing something different let's say like a.
Fixed wireless which is typically at lower rates right. So.
Theres still connectivity.
Opportunities for us with those with so.
I would say I would say, we're feeling pretty good about how the auction itself turned out at this point.
Okay.
Okay, Alright, thank you very much.
Your next question comes from George Notter of Jefferies. Your line is open.
Hi, guys. Thanks, very much I guess as I look into the quarter.
My impression is that your largest north American customer was slow again as they have been I think in prior Q fours and it sounded like you were really able to backfill for that softness with tier two and tier three operators in the U S. Yes.
Is that is that the right picture that we should be thinking about here and then I'd also like to know what the mix of your tier two tier three operators is at this point I think in the past you said it was about a third of the business but.
It seems like that must be quite a bit bigger now any sense of that would be great. Thanks, Yeah. I think we said last time, we might do what did we say last time on the growth well first of all it's the fastest growing segment, we have but I think it was remember what percentage I think we have said in the past that in general it's been roughly a third of each but.
We've had so much growth in the tier three segment than it is pitch.
It's at least twice the thirds right alright, that's growing fast so it's over 50%.
And like I said may actually from quoted or it's been growing fast. So at this point in time.
Closer to $16 50.
And as far as the tier one customer in the U S youre exactly right that customer.
Did fall off in the Q4, the U S business was still up.
Which tells you that even we typically see a seasonal decline in Q4 so.
The rest of the U S business was pretty strong. There is also another piece thats kind of hidden a little bit flash and say hidden but.
Not readily apparent which is we do have another large customer in Australia that was down and for the most part the off net carriers in Europe, we're able to make up for that so we had to two areas of strength that we were glad to see happening.
Got it and then.
Centurylink I think has been the biggest.
Customer historically.
Any sense for what Centurylink accounted for in the year as a percentage of sales or should we just wait for the 10-K filing yes, I literally don't have that in front of me but.
So you know they were stronger in the first half and kind of.
Wendell down a little in the second half and then fourth quarter was on a great quarter. So.
I really don't know I don't know that George.
I guess, you'll have to wait.
Great Okay Super Hey, Thanks, very much guys okay.
Okay.
Your next question comes from Rich Valera of Needham <unk> Company. Your line is open.
Thank you wanted.
I wanted to follow up on the component.
And as Youre seeing.
At this point do you think that would impede your ability to ramp in the second half I mean, you noted, making good progress with a number of tier one so presumably some ramp there what's your confidence you'll be able to get the components to to enact that ramp.
Where we have some predictability in.
Believe it or not there is actually more predictability and infrastructure builds like that I think will I think we are good we have been placing.
Orders out for a long period of time this newest change in.
Lead time is relatively new but the orders that we'd already placed on.
Old lead time regimen is still in place.
So.
I don't I don't have a lot to worry about that where we are.
Where we're kind of hurt you the most honestly is.
Tom.
The more unpredictable pieces like take rates on <unk>, and <unk> and things like that where.
You could that business has been co and fantastic for us and we've been able to keep up.
The.
Being able to buy those pieces those those parts because the variability can be 30%, 40% quarter to quarter and you have different skus and everything so that's probably a little bit more problematic.
So far we're doing okay, but it's just it's going to get tougher.
Yes, no understood and Relatedly.
I know you guys don't give multi quarter guidance, but.
With these ongoing component.
Issues should we think of gross margins as sort of being relatively flattish over the next few quarters sort of the level.
You have guided for Q1.
Just wondering if there's any kind of broad color you could give on just.
And gross margin, yes, that's probably the safest bet right now we were expecting gross margin is actually to expand this year.
And at this point, because we just don't know how bad third quarter fourth quarter will be as far as trying to find parts. So.
That's probably in a safe way to look at it.
Got it and then Tom.
Tom could you expand on the RFP the outstanding Rfps that Youre bidding on you mentioned that you might see some of them actually be awarded.
As early as mid year can you give us a little color on what that pipeline looks like.
Yes, the number of Rfps out there is probably.
Material Rfps.
Somewhere between six and eight two of them, we expect to close and I will tell you we don't control that.
Our current expectation is for two of them to close before the half.
Both of those are European both of those are global carriers with.
Headquarters based in Europe.
Got it that's helpful.
And then finally just on international I mean, you noted that Australia was weak, but overall that business. The international was down pretty meaningfully year over year and quarter over quarter anything else international that was going on now.
Well.
Our German carrier is typically a little bit of a wildcard they came in about where we expected.
I mean, the biggest decline it was a material decline in Australia, having said that that is a lumpy customer there are times, where they come in and we sell a lot and there are times, where we don't.
We have just started shipping actually this quarter, a new award for them, which will.
Which will continue to ramp through this year.
But it will still be lumpy it will still be lumpy.
The cocchi to us is to grow that tier three tier two.
Net carrier segment, which is hundreds of customers.
To a point to where any of those materials.
Those larger tier ones won't have such a material impact.
Alright understood. Okay. Thanks for taking my question guys Alright. Thank you.
Again, if you would like to ask a question Press Star then the number one on your telephone keypad.
The next question comes from Paul Silverstein of Cowen Your line is open.
Thanks, guys I appreciate you taking the questions Tom.
The tier two some three assuming that through growth continues to outstrip.
The growth of your tier one so that they become a larger percentage of revenue as they did this quarter.
That change all things being equal.
<unk> on your margin structure, one way or the other.
Yes, yes.
I assume for the better.
That's a good assumption yes.
Yes.
That is a.
I mean, that's that's a good market growth.
Based on your current visibility looking at your order book your pipeline I assume you expect.
That caused some customers to continue to outstrip in terms of growth relative to overall growth relative to your tier ones.
I think I think.
This year in totality, yes.
I think next year, because we'll be in full bore with.
Three tier ones buying fiber access equipment I think I think next year will be more difficult to keep up but I don't know art off may have an impact on that as well.
Yes.
Thanks for the question given that that should have a positive impact and you pointed out this year whats the offset that keeps you I recognize you all have been very transparent.
Saying that gross margin for the foreseeable future and I think you all quantified over the next two years, you'll pretty correct me if I'm wrong that we shouldn't expect a meaningful change from the low forward, it's where it's been for quite some time, but given that shift that sort of a <unk>.
Positive impact.
Sounds like Youre, not expecting any uploads or any meaningful uplift in gross margin this year.
That that's counteracting benefit you should get from that customer mix shift.
Where there are two things we don't we don't expect the supply chain to get better and I will tell you we are paying expedite fees now.
Paid them in Q4.
And we paid.
At least from a historic perspective very high.
Logistics charges versus our typical we don't expect that to get materially better. This year. So in fact, we expect pressure to increase so that's point number one point number two where we have tried to forecast in is some additional wins. So although what you were talking about is gross margin better than the smaller carrier.
Yes, do I expect that growth to eclipse the growth in the let's say larger carrier segment. This year, yes.
But having said that we also still have some tier one projects that are just going to be getting kicked off that will have a margin impact as we get them up and running so that will that will also be a negative.
John I appreciate that it's Tom.
I Trust you are indicating that there is going to choose which have been around for a while for you ran through others.
For the better part of the past year Youre, telling us that they are actually a higher <unk>.
Last quarter you expected.
Stay at that elevated level relative to previous quarters or is that not.
Let me, let me be a little more granular than that so if I look at expedite fees for last quarter versus previous quarters on logistics and chip supply. It was a little higher I expect it to get tighter this year.
Alright.
So it sounds like perhaps the bigger issue is your hope that youre expecting rollouts from the new tier one awards and as you pointed out in some stage of those rollouts.
Margins are especially arent yet relative.
Good day to one two.
Once you get up and running and you get some scale and volume of things yes.
Alright I.
I apologize because I'm asking you to repeat yourself, but relative to your previous comments. You said there is six to eight rfps in terms of pipeline of additional opportunities and so I hear you bet.
Sure those are tier ones that you expect to be awarded in the first half of this year.
No so yes so.
Two of those are tier ones, but I, probably if I look at the number of Rfps that are out there are opportunities its way bigger than six to eight so if I look at the material like large customers. It's in the realm of six to eight that we're working on right now.
But I will tell you, there's probably 100 smaller carriers that we're working on I mean, we captured what 34 I think.
Carriers, just last quarter. So at any point in time. There are there are hundreds that were working on.
Understood I appreciate the clarification.
The 60 day as you referenced.
All of those non U S.
Most of them.
It is do you think thats tied specifically to Huawei getting cut back or is it more than that.
I think it's three things I think it's well I think it's really four things. So I think it's Huawei I think it's 10 gig I think its disaggregation and I think it's COVID-19.
I appreciate the responsible pass along thanks, Tom Okay.
Okay Alright.
Your next question comes from Bill <unk> Zone of Titan Capital. Your line is open.
Thank you Tom I'd actually like to follow up on your last comment why do you believe that Covid is.
Is playing a role there.
I think I think broadband became more important.
In some countries that I just had a conversation late last night with the customer.
Some countries found themselves a little flat footed.
And.
If for whatever reason around the same Tom fiber was gaining in importance and I think people that have kind of.
Okay broadband plans have been having to re look at those plans and refresh those plans and make sure that theyre going to keep up in the future pandemic for wherever the world May turn so I think.
The highlight that the visibility that it put on cash.
Carriers, but just if not more importantly on governments and re looking at their infrastructure is absolutely added fuel to this.
Makes a lot of sense. Thank you for the clarification.
And then.
You referenced this substantial growth in your tier two and tier three and.
And yet you had 410% customers.
Can you tell us how that can happen almost seems like.
I think mathematically that's really.
And the smaller needle to thread.
Yes, I tried to.
To highlight this in my notes, but I won't.
I think it came out earlier, so we had 410% customers.
We typically have two or three.
Those are typically tier one carriers very rarely are they not tier one carriers that sometimes it tier three tier two may come in but they are typically direct sales to carriers three of our four this quarter, we're actually distribution partners that sold to tier threes.
So those customers are actually those three are actually selling to hundreds of carriers and they are typically in this tier three segment.
Does that make things clear.
Perfect. Thank you for the clarification and I didn't even think of that as a possibility. Thank you.
Okay.
Alright at this point I see no more questions in the queue. So I appreciate you for joining us and we look forward to talking to you. This time next quarter.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
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