Q1 2021 ADTRAN Inc Earnings Call
And first quarter 2021 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.
To ask a question during the session you will need to press star one on your telephone if you require any further assistance. Please press star zero.
During the course of the conference call I try and representatives and expect to make forward looking statements, which reflect managements best judgment based on factors. Currently known however, these statements involve risks and uncertainties, including the continued spread and expense of the impact of COVID-19, global pandemic the ability of components.
<unk> to align with customer demand.
Trustful development and market acceptance of our products.
Competition on the market for such products, the product and channel mix component costs manufacturing efficiencies and other risks detailed in our annual report on form 10-K for the year ending December 31, 2020, these risks and uncertainties could cause actual results to differ materially from those in the <unk>.
Forward looking statements, which may be made during the call.
It is now my pleasure to turn the call over to Tom Stan Chief Executive Officer of <unk>. Please go ahead.
Thank you Christine good morning, everyone. We appreciate you joining us for our first quarter 2021 conference call.
With me today is that trend CFO, Mike fully on them.
Following my opening remarks, Mike will review the quarterly financial performance and detail and then we will take any questions that you may have.
We had a strong first quarter and we expect this to be and exciting year for AD trends. We grew revenue 11% year over year increase non-GAAP EPS by <unk> 18 year over year and recorded the highest product bookings for any quarter and our history.
This success was primarily driven by the demand for our fiber based broadband solutions continuing the positive momentum from the second half of last year.
If we look at the market. There are several key indicators that provide a positive outlook for our business on the consumer side. We continue to see increased demand for fiber based broadband access paired with premium cloud managed Wi Fi and the home.
From a funding perspective governments are prioritizing high speed broadband connectivity to all residents more than ever.
And the U S President and his proposed 100 billion per future proof broadband as part of an eight year infrastructure plan.
He referred to high speed broadband has the new electricity that is necessity and thats a necessity for all Americans.
The UK government has also pledged $7 billion and funding for gigabit capable broadband for hard to reach areas.
Similar multibillion dollar investments are being committed in the EU to accelerate high speed broadband connectivity across its member countries.
In addition to government spending we continue to see increased investment from private equity.
And this <unk> utilities and others to fund the build out of fiber access networks for high speed broadband and future <unk> connectivity.
From a technology standpoint refresh cycles around 10 gig fiber access mesh Wi Fi six and cloud based services are driving increased investment and our growth products.
Finally supply chain diversification and vendor risk mitigation initiatives are also they are also accelerating vendor selection programs across our target customer base.
With our strong presence in key growth markets, including the U S and Europe, along with our trusted vendor status and differentiated portfolio. We are well positioned to take advantage of the major investment cycles that we see ahead of us.
Taking a closer look at our key growth areas of fiber access and home service delivery platforms and software.
We see several highlights that reinforce our success in these areas.
And fiber access <unk> Q4, 2020 market share report noted AD trend as the fastest growing PON <unk> vendor and both North America and EMEA in terms of year over year market share gains.
For our in home service delivery platforms Q1 was the record revenue quarter with growth being led by cloud managed mesh Wi Fi gateways.
On the software side, our growth was led by our cloud based SaaS offerings, where we have grown our customer base by 66% and the past year.
As we look at the Q1 financials revenue for the quarter was $127 $5 million with 42% gross margins.
Network solutions accounted for 89% of total revenue at $113 $8 million on global services contribute to contributed $13 7 million.
During the quarter, we had 210% customers both distribution partners.
These distribution partners serve hundreds of tier twos and regional service providers and the U S with a mix of broadband access connected home and enterprise solutions.
This reinforces the success, we are having with both customer and portfolio diversification.
We continue to make good progress towards our customer acquisition and diversification efforts and Q1 with an addition of 26 new service provider customers.
We expect <unk> to we expect to continue to grow our customer base and.
As our 10 gig fiber access solutions connected home solutions and software platforms are adopted by customers that are upgrading their networks due to favorable government and regulatory and technology factors.
Much like the second half of 2020 the growth that we saw in Q1 was led by our success with regional broadband operators and both the U S and Europe.
And the U S market revenue from regional broadband operators was up a combined 48%.
48% year over year.
While European regional operators were up a combined 70% year over year.
We continue to see increasing demand for our fiber access connected home and cloud based offerings are.
And our fiber access and aggregation business grew 51% year over year.
And home service delivery platforms were up 94% year over year, and SaaS SaaS offerings increased 32% year over year.
The growth in these areas more than offset the decline and our traditional copper access business.
For the previously announced tier one fiber access projects, we continue to make great progress and expect to exit the lab for each of these around the middle of the year.
In addition to these previously announced awards and we are still on track with several tier one projects globally and we are also experiencing growth and tier one MSR customers with our 10 gig fiber access portfolio as they begin to transition to more full fiber network deployments.
Inventory levels remain higher than normal due to the increased lead times from the global chip shortage and COVID-19 related logistics issues.
We continue to see lead times extend and expect that this will continue for some time into the future.
We are taking the necessary steps to mitigate these challenges to the best of our ability, but the supply chain constraints do present risks and the near term or midterm.
From an organizational perspective, we continue to maintain a disciplined approach to our operational expenses the.
And the structural changes that we implemented over the past year continue to improve our operational efficiency, we have reduced our non-GAAP quarterly operating expenses by 9% year over through through disciplined expense management as we secure additional tier one wins, we do expect to see a slight increase in R&D expenses.
On the product side, we introduced several key advantages during the quarter.
And our fiber access platforms, we announced several new products that will simplify the deployment of fiber based gigabit services and low density areas for art off recipients.
For in home service delivery platforms, we have begun to ramp deployments of our cloud managed mesh Wi Fi six gateway as.
As mentioned previously Q1 was a record revenue quarter for our in home service delivery platforms, especially and that Wi Fi and we have very strong order bookings going forward for this growth area.
On the software side, we have two primary areas or areas of growth and the SaaS category. We are seeing increased demand for our cloud based tools that proactively optimize and to and performance for broadband access and and home networks, while providing actionable insight to the operations and marketing teams.
As noted earlier, we grew our customer base for SaaS offerings by 66% year over year SaaS projects are typically pay as you grow multiyear programs that will continue to increase over time.
In addition to our SaaS solutions, we also offer leading edge access domain orchestration software that simplifies the programmability of open multi vendor networks.
We have seen and we have seen an increase and customer additions, including multi vendor integrations and this category of service providers modernize their it and Oss processes.
And our enterprise Gateway portfolio, we very recently launched are lower and Iot gateways, we have a growing backlog and demand for these products that simplified the connectivity of large scale Iot sensor networks to cloud based Iot cores.
These Iot gateways are the latest additions to our updated and enterprise portfolio that consist of fiber access routers.
And this class Ethernet switches business Wi Fi all to support the next generation of industrial automation applications.
Continued investment and our portfolio coupled with the success, we are having and our growth products.
As is well positioned for additional success throughout the year.
This will also enable us to continue to meet our customer and portfolio diversification objectives.
On the Q1 call last year, we first spoke of COVID-19, and its impact on our company.
Want to say Im extremely proud of how our employees continue to weather the storm.
They have remained flexible and resilient throughout this difficult time and I want to thank them.
With that background and Mike will now provide a review of our financials. Following his remarks I will be happy to answer any questions that you may have.
Mike.
Thank you Tom and good morning to all I will review, our first quarter 2021 results and provide our expectations for the second quarter.
During my report I'll be referencing both GAAP and non-GAAP results with a reconciliation as presented in our press release and supplemental financial schedules on our Investor Relations webpage at Www Dot <unk> Dot com slashing pester.
The supplemental financial schedules on our webpage also presents certain revenue information by segment and category, which I will be discussing today.
<unk> first quarter 2021 revenue came in at $127 $5 million compared to 131 in the prior quarter and $114 five and the first quarter of 2020.
Subdividing list across our operating segments, our network solutions revenue for the first quarter was $113 $8 million.
Versus $114 1 million reported for Q4 of 2020, and 97 4 million and Q1 2020 our.
Our services and support revenue and Q1 of this year was $13 7 million.
Compared to $16 million reported and the fourth quarter of 2020, and $17 2 million and first quarter of 2020.
Across our revenue categories access and aggregation revenue for the first quarter of 2021 was $69 1 million compared to $79 million and the prior quarter and 66 million in Q1 of 2020 Rev.
Revenue for our subscriber solutions and experience category was $54 6 million for the quarter versus $45 4 million for quarter four of 2020, and $42 2 million for quarter, one of 2020 traditional and other products revenue for the quarter was $3 9 million.
Compared to $5 eight for quarter four of 2020, and six 4 million for quarter one from 2020.
And looking at our revenues geographically domestic revenue for Q1, 2021 was $86 $5 million versus $95 8 million reported in quarter, four of 2020 and $79 million and quarter one 2020.
Our international revenue per quarter, one of 2021 was $41 million compared to $34 3 million and Q4 of 2020 and $35 5 million and the first quarter of 2020.
As Tom stated and the first quarter, we had key 10% of revenue customers. Both of these were domestic.
Our GAAP gross margin for the first quarter of this year was at 42% as compared to 41, 1% in the prior quarter and 45, 1% in the first quarter of 2020.
Non-GAAP gross margin for the quarter was 42, 1% as compared to 41, 3% and the prior quarter and 45, 4% and the first quarter of 2022.
The quarter over quarter improvement and both GAAP and non-GAAP gross margins were driven by product and customer mix and both of our products and services segments.
The year over year decreases and both GAAP and non-GAAP gross margins per attributable to both domestic and international product mix, partially offset by higher volume manufacturing efficiency.
During the quarter, we experienced extended component lead times, which we expect to continue potentially affecting component availability and also component and logistics costs.
Total operating expenses on a GAAP basis were $54 $9 million for the quarter.
Compared to $56 $8 million reported and the prior quarter and $56 5 million for quarter one of 2020.
The quarter over quarter decrease was driven by reduced restructuring expenses.
Market, driven decreases and our deferred compensation expense and logar lower legal expenses, partially offset by increases and employee benefit expenses, and both R&D and SG&A and higher R&D project related expenses.
The year over year decrease and operating expenses was a result of lower labor expenses in both R&D and SG&A and lower travel and marketing related expenses, partially offset by market driven increases and our deferred compensation expense and contract services costs.
On a non-GAAP basis, our first quarter operating expense was.
It was $51 4 million compared to $49 5 million and the prior quarter and $56 7 million and quarter one of 2020.
The increase and quarter over quarter non-GAAP operating expenses, primarily due to increases and employee benefit expenses and both R&D and SG&A and higher R&D project related expenses, partially offset by decreases in legal expense and other planned SG&A expense.
Actions.
The year over year decrease and non-GAAP operating expenses was the result of lower labor expenses in both R&D, and SG&A and lower travel and marketing related expenses.
Partially offset by increases and contract services costs.
Operating loss on a GAAP basis for the first quarter of 2021 was $1 3 million compared to an operating loss of $3 3 million and the prior quarter and an operating loss of $4 9 million reported and Q1 and 2020 non.
Non-GAAP operating income for quarter, one of 2021 was $2 4 million compared to $4 3 million and the prior quarter and an operating loss of $4 6 million and quarter one of 2020.
The quarter over quarter, GAAP improvement and profitability was attributable to a more favorable gross margin mix and reduced operating expenses.
The year over year decrease and GAAP operating expenses was driven by higher sales and reduced operating expenses the.
The non-GAAP quarter over quarter decrease and profitability was driven by higher operating expenses and reduced sales volume.
<unk>, partially offset by improving gross margin.
The non-GAAP year over year operating income improvement was related to higher sales volume and reduced operating expenses.
Other income on a GAAP basis for the first quarter of 2021 was $3 3 million compared to other income of $3 million and the prior quarter and a loss of $9 $4 million per quarter, one of 2020 on.
Our non-GAAP other income for the quarter was $3 3 million compared to non-GAAP other income of $1 $7 million and Q4 of 2020, and a non-GAAP loss of seven $5 million and quarter one of 2020.
The quarter over quarter increases and both the GAAP and non-GAAP. Other income were related to higher realized foreign currency exchange gains, partially offset by reduced returns and our investment portfolio.
The increases in both the GAAP and non-GAAP other income on a year over year basis were related to increases and the market driven fair value of our investment portfolio and to a lesser extent higher realized foreign currency exchange gains.
The company's tax provision for the first quarter of 2021 was an expense of $1 million as compared to a $6 $5 million tax benefit and the prior quarter and a $4 $4 million benefit and the first quarter of 2020.
The current quarters expense was primarily driven by tax expense from our international operations as the deferred tax benefits generated by our domestic operations.
Continue to be offset by additional changes and the valuation allowance.
The tax benefits and the first and fourth quarter of 2020 were primarily due to the passage of the cares Act and the first quarter and Finalization of those calculations as part of finalizing our filing.
And related 2019, net operating loss carry back claims as well as and a shift across our profitability jurisdictions.
GAAP net income for quarter, one of 2020 was $900000.
Compared to $6 1 million and the prior quarter and a net loss of $10 million per the first quarter of 2020 non-GAAP net income for the first quarter of 2021 was $6 3 million as compared to $5 2 million and the prior quarter and a net loss of $2 2 million in quarter, one and 2020.
Earnings per share assuming dilution on a GAAP basis were <unk> <unk> per share as compared to 13 per share and the prior quarter and a loss of 21 per share and the first quarter of 2020 non.
Non-GAAP EPS, assuming dilution for the first quarter of 2021 was 13.
Compared to <unk> 11 per share and the prior quarter and a loss of <unk> <unk> per share and quarter. One of 2020 on the balance sheet unrestricted cash and marketable securities totaled $123 $2 million, a quarter and after paying $4 4 million and dividends for the quarter.
During the quarter, we generated $10 7 million and cash from operations.
Net trade accounts receivable was $103 2 million at quarter, and resulting in Dsos of 73 days compared to 70 days and the prior quarter and 69 days at the and the first quarter of 2020.
The variability and dsos quarter over quarter and year over year is mainly attributable to the timing of shipments during the quarter customer mix and sales volume net inventories were $122 9 million at the end of the first quarter as compared to $125 5 million at year end 2012.
<unk> and $99 5 million at the end of Q1 and 2020.
While inventories were down slightly quarter over quarter, we continue to carry higher inventory levels and preparation for new product ramp ups and strategic inventory buffer purchases designed to aid and supply continuity.
Looking ahead to the next quarter, the continuing effects of the COVID-19 pandemic the ability of component suppliers to align with customer demand the book and ship nature of our business the timing of revenue associated with large projects the variability of ordering patterns from the customer base and.
And to which we sell as well as fluctuations in currency exchange rates and our international markets may cause material differences between our expectations and the actual results.
And keeping that in mind, we expect that our second quarter 2021 revenue will be and the range of $136 million to $146 million.
After considering the projected sales mix, we expect that our second quarter gross margin on.
On a non-GAAP basis will be and the range of 41% to 43%.
We also expect non-GAAP operating expenses for the second quarter of 2021 will be about $52 million to $53 million.
And finally, we anticipate the consolidated tax rate for the second quarter of 2021 on a non-GAAP basis will be and the low to mid <unk> percentage rate.
We believe the significant factors impacting revenue and earnings realized in 2021 will be component availability, the macro spending environment for carriers and enterprises. The ongoing effects of the COVID-19 pandemic the variability of mix and revenue associated with project Rollouts.
The proportion of international relative revenue relative to our total revenue professional services activity levels, the adoption rate of our broadband access platforms potential changes and corporate tax laws.
Currency exchange rate movements, and inventory fluctuations and our distribution channels. Once again additional financial information is available at AD trends Investor Relations webpage at <unk> Dot Com Slash Investor now I'll turn it back over to Tom Greco.
Alright, Thank you, Mike Kristina and at this point, we are ready to open up for any questions people might have.
Thank you as a reminder to ask a question and you will need to press star one on your telephone to withdraw your question press the pound on Ashkey, Please standby and we compile the Q&A roster.
Your first question comes from the line of Rod Hall from Goldman Sachs. Your line is open.
Yeah, Hey, guys. Thanks for the question and.
I just wanted to dig into the tier ones and the U S. A little bit on visibility we're hearing from some other suppliers.
Visibility and starting to improve a little bit as people get worried about supply chain disruptions or supply chain shortages and I'm. Just curious whether you guys are seeing that and how you feel about tier one visibility as you look into and in second half of the year and then I've got a follow up to that.
I think we're feeling pretty good about it I do think that.
And some of the carriers understand the supply constraints constraints better than others and.
And typically the larger ones are really coming on board and trying to.
And at least if not placed purchase orders at least place.
Serious forecasts that are things that have been maybe a little more share than they had been in the past so I would say visibility.
Really across the board is better.
And that's not just with tier ones and that's pretty much across the board.
Okay, Thanks, Joe and Tom and then the other thing that is coming up more and more as inflation on.
And.
All sorts of there and and not just semiconductors, but female.
And on.
Steel and free and so on and I'm. Just curious if you guys could comment on what Youre seeing in that respect do you see for upward pressure on underlying cost.
Do you think you could pass that through to customers for the most part deal pressure margin and just kind of what's your take on inflation here.
Well, if I take a look at the let's take semiconductors out I mean, we're still having a.
And the ability to drive overall purchasing costs and down so.
But I would say not on an aggressive rate and spend.
Maybe we're able to do that consistently and I would say right now, it's probably maybe a little bit less and historical but we haven't seen any material price increases other than with semiconductors themselves.
We haven't really tried to exercise the right to raise those prices into the customer base. We have done that for instance, with the tariffs and we're able to do that.
And in some respects I consider this to be a semiconductor tariff.
My guess would be to the things that to the extent that these things continue on and are actually accelerate but we would be passing some of those costs off on to the customer base.
Okay, alright, thanks, a lot.
Okay.
Your next question comes from the line of George Notter from Jefferies. Your line is open.
Hi, guys, thanks very much.
And I guess maybe to start.
Tom You mentioned record bookings are to start on the call is there a could you give us a book to bill number or from a backlog number or give us some sense for.
And where bookings are right now and then and then also and I guess.
And kind of extending on a question earlier.
Is it simply customer, it's just giving you more visibility longer dated <unk> and do you think the rate of consumption and the end market is going up.
Yes.
Yes.
And we ask everyone from the book here anyways, but we typically don't give that I would I would we're going to give you some something done.
We can manage off of them, which is.
I don't know how to say Mike.
Without giving a book to Bill number let me just savings if there was a strong bookings quarter. So.
And this is including we had kind of this inventories looking uptick at the first part of last year. When COVID-19 was coming in line and it was actually strong stronger than that so.
And bookings wise, we're feeling good and as far as how much is and this quarter versus people buying out on.
I'll tell you we've tried to do that analysis and if we take out the things that are scheduled far into the future which is really.
And there is trying to buy.
And typically.
Commit.
And our shipments to them farther into the year.
Move that it was still a very strong booking quarter.
Now the only thing that I can't explicitly tell you as well or they are trying to put the inventory on their shelves versus keeping it and our shelf effectively and I cant theres really no way to gauge that although I didn't if we look at the demand increase that we've been seeing over the last let's say three quarters.
It's not a typical is really a lot of that growth is coming from tier threes, and what we're seeing and order demand out of those as very typical to what we have been seeing and we are just that segment is growing very strong.
Got it and then I think last quarter, you guys gave us.
A percentage of sales coming from that tier three customer said is there a percentage of sales number you could give us here for Q1.
And I don't know if we gave a percentage of sales I think we gave us and with over 50 or $60 million per minute.
And it grew sequentially and year over year. So it's over that number now of course.
Great. Okay. Thank you very much okay alright.
And then one other thing just and I know you are not on.
Volume on one other thing we did we did talk about the growth in that segment too. So you can you may be able to come.
Come on.
And from that perspective.
Thank you.
Okay.
Next question comes from the line of Michael Genovese from Westcott flow path you're on.
Line is open.
Great. Thanks, Hi, Tom Tom Hi, Mike its West Park capital.
And so.
My question My first question just on.
The nature of the business has completely changed and it used to always talk about the book and ship business, but.
Is there no room now for book.
And ship orders to come in and is that and our plan a year and had business completely.
So that's my first question.
No no and in some ways it would be nice if it was but no. So we still have.
A large amount I mean, the majority of our orders come in and they want us to ship them within a two week period of time.
From.
On the highest runner pieces and.
Selected parts are things, where if you are not placing orders right now for six months from now or even a year from now you are liable to run into a real supply constraints. So I would say it's more of the Inc.
Definitely shifted more towards longer term perspective, but we but it is still the majority of our orders still come in and they want us to ship from.
Within the quarter definitely and typically within the month.
Brian when you look at your tier one business for the second half of the year or do you feel like.
And we're managing to supply and demand for those projects billion balance or is there a supply shortage or is there demand potential demand shortage.
How are you thinking about that.
The tier ones I think were by and large we are that if you look at it from an infrastructure perspective, and you almost have to go by.
Product type.
If you look at the tier one business thats coming on in Europe.
And thats been forecast for some time, so we've already got the supply chain lined up for that increase that we're expecting and the second half.
And the U S. I would say the same is predominantly true where we run into issues is where there is variability and the forecast from the customer and Thats typically with things like <unk> and <unk>. So on and user devices. We can we can we can run into problems because the demand for those products is through the roof.
Combined and was up like 94% year over year, it's just going through the roof.
And we did not forecast that because our customers were and forecasting that we've been able to keep up but.
Yes.
And thats the type of product that is more problematic.
Does that include a Wi Fi six devices is that a meaningful piece on your business like how many per what percent of your customers.
Hi, Wi Fi from here.
On a large percentage of our customers are on LIFO FIFO, it's not Wi Fi six itself is relatively new for us and it's just now starting up.
<unk> and drive demand, we think we've got a handle on the forecast for the.
For the chips required for that.
But here again, so far everything that we forecast and we've been on stripping on the <unk> and R&D side.
On the real thing that hurts us and we do have.
Some of our vendors decommissioning.
So when you got orders in place and all of a sudden and you can't count on any more and that causes material repercussions. So.
We're continuing to fight that challenge.
Is there a Wi Fi and stuff growing at a similar faster rate on the R&D.
And stuff.
I would say, it's I don't have the actual breakout of those skus, but I would say it's.
Probably leading the charge.
Okay and then my final question.
Create all this color. My final question is just a point on gross margin outperformance and the quarter, you guided and line, but the quarter you beat so where do you attribute the.
Better performance from <unk> to <unk>.
Mix sort of the mix.
Net domestic nexstar mix.
And that would be domestic routes no no.
While it could be or there was definitely.
The real answer your question is yes, because if you think of.
The growth that we saw I mean tier threes are going through the roof and a lot of that infrastructure business.
And so.
And I was just a good mix.
Okay.
Thank you.
Okay.
Your next question comes from the line of Tom Savage from Northland Capital. Your line is open.
Yes.
Okay.
Hi, good morning, and congrats especially on the bookings.
One question and on a follow up.
I think it's been a while maybe a very long while since you've had a quarter without any 10% service provider customers.
And I think last year, you had two or three.
And I'm wondering if you could characterize your U S business in terms of the growth assuming your historic.
Tier one was over 10% last year and was under this year.
And I Wonder if you have any comments on U S growth.
Excluding that customer.
And then more broadly speaking do you expect some of your historic tier ones.
On to retain 10% customer status as we move on and the year.
And so.
Good question so.
Let's talk about tier ones and the U S. So and <unk>.
Tier one and the U S and.
And I can I could actually just to kind of North America and what's included and.
And what has happened and Mexico.
And we're seeing two things happen. One is we are we are growing.
The PON.
Market share and those tier ones and.
And on real estate, PON shipments and those tier ones, but we are also seeing a decline and our copper business and that takes a lot of people and lease side of that so we have you could call. It today definitely on legacy business of copper that if we did not have that legacy business, our number our growth numbers would be through the.
Alright, So you are seeing copper decline I think.
And I don't know about it.
And at this point and time.
Fiber is over 70% of our business and in effect a year ago. It was less than 50% of our business. So youre seeing that decline and copper why youre seeing.
Huge growth and the fibers business and.
Some of that is.
And of course affecting the tier ones.
And so I don't know if that answers your question.
Yes.
Yeah, that's great and just a follow up.
With regard to the bookings strength, but I don't know if theres any.
If we could just assume that's similar to what you saw on revenue wise rural broadband and <unk>.
And what's on.
Whether there is any sort of different character to what you saw from a booking standpoint.
And your comment on whether that booking strength has continued into Q2.
And whether perhaps adjusting for some caf II services, we might reasonably expect a record revenue quarter at some point.
Fairly soon after seeing a record bookings quarter.
Yes, so so.
And by the way I didn't finish the answer to the last question. So let me let me just kind of finished and so as you know we did want a tier one award which is a sole source award for ex GFS here and the U S.
It is one of those things that we expect to start shipping and the second half of the year. So I think youll see the tier one business trajectory change after that point.
On the bookings strength.
Yes.
Our biggest problem right now is supply.
Our problem is not bookings so I think it has to do where that record pauses.
Largely dependent upon when we.
Can actually I mean, we walked out of Q1 with a significant amount of orders that the customers wanted to take and Q1.
And the same thing is going to happen this quarter.
And the same thing will happen and the third quarter and I don't have line of sight to a real care for that.
As to when it actually gets better so I think it's highly dependent.
Volume on our ability to supply product.
Thanks very much.
Okay.
Your next question comes from the line of Paul Silverstein from Cowen Your line is open.
Thanks, Gus Tom first off and I apologize.
Did you address when you expect.
And the impact and to what extent.
Okay.
No we didn't.
I think theres a good chance, we'll start seeing some art.
And the second half of this year.
On.
I don't have good line of sight to the ramp of that but I would be surprised if we didnt start seeing I'm not by the way and not so sure we haven't seen and already and some of the.
Smaller customers, but.
The bigger customers and there is of course, a really large customer and the U S that were and incumbent to that.
Hopefully start seeing some shipments and the second half of this year.
Tom.
Is it two months.
And that'll have a meaningful impact next year.
Do you have any confidence level as to which all day and should have a meaningful impact. This should have a meaningful impact next year. They have a longer time to build of course as you know but it.
This should be a nice tailwind next year, yes.
And then Mike I think you're asking this question every quarter. So we do apologize on us due to June.
Which is longer churn from a from a margin standpoint on the gross margin on a very acute and historically consistently.
Org model and minimal forties, but as you look out to the prospective impacts from these large.
Objects that these moves through warrants assuming they come in as advertised in terms of volumes.
Okay, all things being equal will that.
And should that drug margin lower net.
We've been on <unk>, probably have lower margin structure as we've been historically.
Two long term model on sports.
No.
It's still the same as what I've said in the past its low to mid Forty's on can take the and middle of that range and if you start looking at those tier ones I think that the additional volume that it's driving through gives us a little bit of a tailwind as well. So I think theres really no change to our our plans go.
Going forward still and that same model.
Also I apologize and Theres two other things that affect this winter.
There was predatory and pending.
Lightly predatory pricing going on in the Europe and Europe that is.
<unk> been mitigated so and I think the types of margins that I think we have sustainable business type margins out of that.
Europe today, where that wasn't the case historically.
And then we have a <unk>.
Positive draws.
Draw on that.
Haven't yet tried to put numbers around but.
Our SaaS customer base, which is <unk>.
Predominantly on the tier threes here and the U S net customer base grew 60%, 66% year over year.
And that will.
At some point really start kicking up and being very positive gross margins, but we haven't really forecasted net impact at this point.
Got it and one last quick question on.
It's only 90 days further on book.
Tom is there any incremental insight with respect to these large projects in terms of.
And then panning out to these to the particular customers have projected to.
We had around in Europe, where 90 days go ahead, yes, yes, there is still no real changes there I mean everything is still.
And we're planning on getting getting to start shipping and the second half of this year.
And then seeing them ramp from there since there is no no material change.
I appreciate the interest.
Alright at.
At this point, we're going to end the call I appreciate everybody for joining us and.
And I look forward to talking to you on next quarter at this time.
This concludes today's conference call. Thank you for participating you may now disconnect.
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