Q4 2021 ADTRAN Inc Earnings Call

Ladies and gentlemen, thank you for standing by and welcome to <unk> fourth 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 during.

Speaker 1: Ladies and gentlemen, thank you for standing by and welcome to Adtran's fourth quarter 2021 earnings release conference call. All loans have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question and answer period.

During the course of the conference call I'm trying to representatives expect to make forward looking statements, which reflect managements best judgment based on factors currently known.

Speaker 2: During the course of the conference call, Adtrans representatives expect to make forward-looking statements which reflect management's best judgment based on factors currently known. However, these statements involve risks and uncertainties, including the continued spread and extent of the impact of COVID-19 global pandemic, the ability of components supplies to align with customer demand, the successful development and market acceptance of our products, competition in the market. For more information, visit adtrans.com.

These statements involve risks and uncertainties, including the continued spread and extent of the impact on COVID-19, global pandemic, the ability of component supplies to align with customer demand.

<unk> development and market acceptance of our products competition in the market for such products.

Speaker 3: product and channel mix, component costs, freight and logistics costs.

I'm trying to mix component costs freight and logistics costs manufacturing efficiencies and other risks detailed in our annual report on Form 10-K for the year ended December 31, 2020, and our quarterly reports on Form 10-Q for the quarter ended October 31st 2021.

Speaker 4: Manufacturing efficiencies and other risks detailed in our annual report on Form 10-K for the year ended December 31st 2020, and our quarterly report on Form 10-Q for the quarter ended October 31st 2021.

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.

Speaker 5: 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 ADTRAN. Sir, please go ahead.

Now my pleasure to turn the call over to Tom Stanton Chief Executive Officer, Sir. Please go ahead.

Thank you Elliot and good morning, we appreciate you joining us for our fourth quarter 2021 earnings Conference call.

Speaker 6: Thank you, Elliot. Good morning. We appreciate you joining us for our fourth quarter 2021 earnings conference call. With me today is...

With me today is <unk> CFO , Mike <unk>.

Speaker 7: Following my opening remarks, Mike will review the quarterly financial performance in detail, and then we will take any questions that you may have.

Following my opening remarks, Mike will review the quarterly financial performance in detail and then we will take any questions that you may have.

Q4 was highlighted by record demand for our fiber broadband solutions with a diverse mix of large and small service providers across our key growth markets in the U S and Europe .

Speaker 8: Q4 was highlighted by record demand for our fiber broadband solutions with a diverse mix of large and small service providers across our key growth markets in the US and Europe .

This demand was driven by the accelerated expansion of fiber to the home networks upgrades to in home Wi Fi connectivity and the adoption of cloud based automation tools.

Speaker 9: This demand was driven by the accelerated expansion of fiber to the home networks, upgrades to in-home Wi-Fi connectivity, and the adoption of cloud-based automation to the home networks.

Speaker 10: Some of these key highlights for the quarter included the overall revenue up 18% year over year.

Some of these key highlights for the quarter included the overall revenue up 18% year over year.

Speaker 11: Record product revenues for our fiber access platforms were up 48% year over year, led by a diverse mix of regional service providers in the US and Europe , along with a significant ramp in shipments to our tier 1 access customers.

Record product revenues for our fiber access platforms were up 48% year over year led by a diverse mix of retail service providers in the U S and Europe , along with a significant ramp in shipments to our tier one access customers.

Record product revenue for our residential Wi Fi platforms were up 72% year over year led by volume shipments of our latest mesh Wi Fi six systems.

Speaker 12: Record product revenue for our residential Wi-Fi platforms were up 72% year over year, led by volume shipments of our latest mesh Wi-Fi 6 system.

We also saw continued addition to our SaaS customer base, which was up 48% year over year.

Speaker 13: We also saw continued addition to our SAS customer base, which was up 48% year over year.

Speaker 14: We had another record quarter in bookings, up more than 20% quarter over quarter and more than 50% year over year.

We had another record quarter and bookings up more than 20% quarter over quarter and more than 50% year over year.

These bookings were across a broad base of customers and product segments.

Speaker 15: These bookings were across a broad base of customers and products.

And the latest market share report from del del Oro and on our.

Our Q3 2021 for Q3, 2021 AD trends ship more than twice the volume of 10 gig <unk> ports in both North America and EMEA and then the next two closest UA spend U S. U S based vendors combined.

Speaker 16: This highlights our success in fiber footprint capture with next generation fiber access platforms.

This highlights our success in fiber footprint capture with next generation fiber access platforms.

The success, we had in the quarter was a direct result of our improved customer diversification and our approach to providing end to end fiber broadband solutions.

Speaker 17: The success we had in the quarter was a direct result of our improved customer diversification and our approach to providing end to end fiber broadband solutions.

On the customer side demand by regional service providers across the U S and Europe remains higher than ever. However, Q4 saw a sharp increase in revenue growth from international tier one operators up 76% year over year.

Speaker 18: On the customer side, demand by regional service providers across the US and Europe remains higher than ever. However, Q4 saw a sharp increase in revenue growth from international tier 1 operators, up 76% year over year.

The international tier one fiber operators, increasing volume deployments included two European operators and initial <unk> shipments to one tier one operator with properties throughout Latin America.

Speaker 19: The international Tier 1 fiber operators increasing volume deployments included two European operators and initial XGS shipments to one Tier 1 operator with properties throughout Latin America.

On the portfolio side, we continue to have success in bundling, our fiber access platforms and Ho from service delivery platforms inside applications.

Speaker 20: On the portfolio side, we continue to have success in bundling our fiber access platforms, in-hope service delivery platforms, and SaaS applications.

Speaker 21: Our growth in residential mesh, Wi-Fi systems and SAS customers during the quarter directly correlated to our success in fiber access.

Our growth in residential mesh Wi Fi systems, and SaaS customers during the quarter directly correlated to our success in fiber access platforms.

Speaker 22: and we continue to outperform the market in fiber footprint capture, and we expect to see corresponding rapid increases in the deployment of our multi-gig mesh Wi-Fi systems, ONTs, and SaaS applications.

And we continue to outperform the market and fiber footprint capture and we expect to see corresponding rapid increases in the deployment of our multi gig mesh Wifi six systems <unk> inside of applications.

While we had success in growing our business supply chain constraints continue to limit our revenue growth potential and negatively impacted our profitability.

Speaker 23: While we had success in growing our business, supply chain constraints continued to limit our revenue growth potential and negatively impacted our profitability.

We expect these industry wide supply constraints to continue throughout the remainder of the year, Although we expect some improvement in the second half.

Speaker 24: We expect these industry wide supply constraints to continue throughout the remaining of the year, although we expect some improvement in the 2nd, half.

Speaker 25: Despite the supply chain challenges facing our industry and many others, our long-term outlook remains very positive.

Despite the supply chain challenges facing our industry and many others our long term outlook remains very positive.

Speaker 26: The tier 1 fiber operators in both the US and EMEA remain on track for larger scale deployments with several of them receiving volume shipments in Q4 and further growth expected in the quarters ahead. In addition, we continue with lab approval cycles of recently awarded tier 1 fiber businesses, and we maintain a healthy funnel of incremental tier 1 opportunities where we are well positioned for success.

The tier one fiber operators in both the U S and EMEA remained on track for larger scale deployments with several of them receiving volume shipments in Q4.

And further growth expected in the quarters ahead.

In addition, we continue with lab approval cycles of recently awarded tier one fiber businesses and we maintain a healthy funnel of incremental tier one opportunities, where we are well positioned for success.

Within the software segment of our business, we launched mosaic won last year and mosaic one mosaiq. One is SaaS platform with promote care and operate applications tailored towards the needs of marketing customer support and operations personnel respectively.

Speaker 27: Within the software segment of our business, we launched Mosaic 1 last year in Mosaic 1. Mosaic 1 is a SaaS platform with promote, care, and operate applications tailored towards the need of marketing, customer support, and operations personnel respectively.

Speaker 28: These SaaS applications utilize AI-powered intelligence to optimize service performance across both fiber access and in-home environments, reducing operational expenses, improving network quality, and increasing customer satisfaction.

These SaaS applications utilize AI powered intelligence to optimize service performance across both fiber access and in home environments, reducing operational expenses, improving network quality and increasing customer satisfaction.

Speaker 29: As we have migrated more customers to these latest SADS offerings, we have received tremendous positive feedback and expect this to further accelerate our growth, not only in SADS applications, but the associated fiber access and in-home connectivity platforms as well.

As we have migrated more customers to these latest as offerings. We have received tremendous positive feedback and expect this to further accelerate our growth not only in <unk> applications, but the associated fiber access and in home connectivity platforms as well.

These portfolio enhancements are enhancements are timely with the high growth opportunities for fiber broadband solutions in our core markets.

Speaker 30: These portfolio enhancements are timely with the high growth opportunities for fiber broadband solutions in our core market.

Speaker 31: In the US, ARDA funds continue to get released. ARPA funding at the state and local level is beginning to impact network planning and infrastructure. Still funding is still yet on the horizon.

In the U S. <unk> funds continued to get released ARPA funding at the state and local level is beginning to impact network planning and infrastructure Bill funding is still yet on the horizon.

These key programs represent tens of billions of dollars in funding towards fiber based broadband infrastructure and a rapid acceleration in subsidies versus previous years.

Speaker 32: These key programs represent tens of billions of dollars in funding towards fiber-based broadband infrastructure and a rapid acceleration in subsidies versus previous years.

In Europe , both incumbent operators and a wide range of alt-net operators backed by a mix of private investment and government stimulus race to upgrade their networks to an all fiber future while continuing their shift away from high risk vendors.

In Europe , both incumbent operators and a wide range of all net operators backed by a mix of private investment and government stimulus race to upgrade their networks to an all fiber future, while continuing to shift away from high risk vendors.

ADTRAN remains well positioned to benefit from this unprecedented investment cycle in fiber access.

<unk> remains well positioned to benefit from this unprecedented investment cycle and fiber access.

To position <unk> for further success in fiber networking solutions across the U S. In Europe , we made a voluntary public takeover offer for Abbott optical networking in August 2021.

To position Adterne for further success in fiber networking solutions across the US and Europe , we made a voluntary public takeover offer for Adva Optical Networking in August 2021.

<unk> is a global leader in optical transport carrier Ethernet and network synchronization solutions that are ideal complement to AD trans portfolio.

AVA is a global leader in optical transport, carrier ethernet, and network synchronization solutions that are an ideal complement to ad transport folio.

I am pleased to inform you that this offer was overwhelmingly approved by <unk> stockholders at a special meeting of stockholders on January 6th.

I am pleased to inform you that this offer was overwhelmingly approved by ad trend stockholders at a special meeting of stockholders on January 6.

On January 26th, at the close of the adverse shareholder tender acceptance period, we received more than the required 60% of outstanding adverse shares of Adva stock as of the record date, enabling this transaction to move forward.

On January 26 at the close of the adverse shareholder tender acceptance period, we received more than the required 60% of outstanding adverse shares of <unk> stock as of the record date, enabling this transaction to move forward.

We are waiting final FDA approvals from the UK and Germany. Once these are received we will set a closing date and begin the integration process.

We are awaiting final FEI approvals from the UK and Germany. Once these are received, we will set a closing date and begin the integration process.

In summary, we continue to experience record demand for our solutions, especially in our high growth segments of fiber access cloud softer software and residential Wifi solutions.

In summary, we continue to experience record demand for our solutions, especially in our high growth segments of fiber access, cloud software and residential Wi-Fi solutions.

Our fiber access platforms are starting to realize the benefits of our success with tier one operators.

Our five-axis platforms are starting to realize the benefits of our success with Tier 1 operators and complement our rapid growing base of regional operators.

Complement our rapidly growing base of regional operators.

Our SaaS applications are being adopted across a wide range of operators following the launch of our Mosaic One platform.

Our SaaS applications are being adopted across a wide range of operators following the launch of our mosaic platform.

And finally, our residential Wifi platforms are experiencing unprecedented growth given the demand for multi gig mesh Wifi six and the home to match the speeds enabled by 10 gig fiber access networks.

And finally, our residential Wi-Fi platforms are experiencing unprecedented growth given that man for multi-gig mesh Wi-Fi 6 in the home to match the speeds enabled by 10 gig fiber-access network.

With increased customer funding record demand a diversified customer base, a differentiated product portfolio offering we are on track to continue growth this year.

With increased customer funding, record demand, a diversified customer base, a differentiated product portfolio offering, we are on track to continue growth this year.

The proposed combination with ABBA will further improve our competitive position and growth opportunity.

The proposed combination with Abbott will further improve our competitive position and growth opportunities.

With that background, Mike, will you provide some details and a review of our financials? Following Mike's remarks, we'll be happy to open it up for any questions you may have. Mike. Thanks, Tom and good morning to all. I'll review our fourth quarter results and provide our expectations for the first quarter of 2022.

With that background, Mike will you provide some details.

And a review of our financials. Following Mike's remarks, we'll be happy to open it up for any questions you may have Mike. Thanks.

Thanks, Tom and good morning to all.

I'll review, our fourth quarter results and provide our expectations for the first quarter of 2022.

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 investors Dot AD trend Dot com.

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 investors.atran.com. The supplemental financial schedules on our webpage also present certain revenue information by segment and by category, which I will also be discussing.

The supplemental financial schedules on our webpage also presents certain revenue information by segment and by category, which I will also be discussing.

At transport quarter 2021 revenue came in at 154.2M dollars compared to 138.1M in the prior quarter and 130.1M in the 4th quarter 2020. Subdividing across our...

AD Trans fourth quarter 2021 revenue came in at $154 $2 million compared to $138 1 million in the prior quarter and $130 1 million in the fourth quarter 2020.

Subdividing across our operating segments, our network solutions revenue for the fourth quarter was $138 8 million versus $120 8 million reported for Q3 of 2021 and $114 1 million in Q4 of 2012.

Our network solutions revenue for the fourth quarter was $138.8 million versus $120.8 million reported for Q3 of 2021 and $114.1 million in Q4 of 2020.

Our services and support revenue in Q4 of 2021 was $15.3 million compared to 17.3 million reported for the third quarter of 2021 and $16 million for the fourth quarter of 2020.

Our services and support revenue in Q4 of 2021 was $15 3 million compared to $17 3 million reported for the third quarter of 2021 and $16 million for the fourth quarter of 2020.

Across our revenue categories access and aggregation revenue for the fourth quarter of 2021 was $95 million compared to $89 2 million in the prior quarter and $79 million in quarter four of 2020.

Across our revenue categories, access and aggregation revenue for the 4th quarter of 2021 was 95M dollars. Compared to 89.2M in the prior quarter and 79M in quarter 4 of 2020.

Revenue for our subscriber and solutions and experience category was $52.3 million for the quarter versus $44.9 million for quarter three of 2021 and $45.4 million for quarter four of 2020.

Revenue for our subscriber solutions and experience category was $52 $3 million for the quarter versus $44 9 million for quarter three of 2021, and $45 4 million for quarter four of 2020.

Traditional and other products revenue for the quarter was $6.8 million compared to $4 million for quarter three of 2021 and $5.8 million for quarter four of 2020. Looking at our revenues on a geographic basis. US revenue for Q4 2021 was $101.6 million. Versus 91.9Million reported in quarter three of 2021.

<unk> other products revenue for the quarter was $6 8 million compared to $4 million per quarter, three of 2021, and $5 8 million per quarter four of 2020.

Looking at our revenues on a geographic basis U S. Revenue for Q4, 2021 was $101 $6 million versus $91 9 million reported in quarter three of 2021 and.

And $95 8 million in quarter four of 2020.

and 95.8 million in quarter four of 2020.

Our international revenue for the quarter was $52 $6 million compared to $46 2 million for quarter three of 2021, and $34 3 million in quarter four of 2020.

Our international revenue for the quarter was 52.6M dollars compared to 46.2M for quarter 3 of 2021 and 34.3M in quarter 4 of 2020.

In the fourth quarter, we had two 10% of revenue customers.

In the fourth quarter, we had 210% of revenue customers.

Both domestic distribution partners serving a large number of regional service providers with a mix of broadband access and connected home and enterprise solution.

Both domestic distribution partners, serving a large number of regional service providers with a mix of broadband access and connected home and enterprise solutions, thus reinforcing our success in both customer and portfolio diversification.

That's reinforcing our success in both customer and portfolio diversification.

Our GAAP gross margin for the fourth quarter was at 35, 3% as compared to 34, 5% in the prior quarter and 41, 1% in the fourth quarter of 2020.

Our gap gross margin for the 4th quarter was at 35.3% as compared to 34.5% in the prior quarter and 41.1% in the 4th quarter of 2020.

non-GAAP gross margin for the quarter was 35, 4% as compared to 34, 6% in the prior quarter and 41, 3% in the fourth quarter of 2020.

Non gap gross margin for the quarter was 35.4% as compared to 34.6% in the prior quarter. And 41.3% in the fourth quarter of 2020.

The quarter of recorder improvements in both GAP and non-GAP gross margin were attributable to higher sales volume and manufacturing efficiencies and a favorable mix of our network solutions and services and support segments, which were partially offset by increased supply chain expenses, including higher component and transportation costs.

The quarter over quarter improvements in both GAAP and non-GAAP gross margin were attributable to higher sales volume and manufacturing efficiencies and a favorable mix of our network solutions and services and support segments, which were partially offset by increased supply chain expenses, including high.

Component and transportation costs.

The year-over-year gross margin decreases in both gap and non-gap gross margins were attributable to increased supply chain expense.

Year over year gross margin decreases in both GAAP and non-GAAP gross margins were attributable to increased supply chain expenses, including higher component in transportation costs and product mix, partially offset by the higher sales volumes.

including higher component and transportation costs and product mix, partially offset by the higher...

As previously mentioned, we continue to experienced extreme constraints in the electronic component markets impacting our gross profit during the quarter.

As previously mentioned, we continue to experience extreme constraints in the electronic component markets impacting our gross profit during the quarter. And this is expected to remain challenging, affecting product availability in our component and logistics costs.

And this is expected to remain challenging affecting product availability in our components and logistics costs.

Total operating expenses on a gap basis for 61.7M for quarter 4 of 2021. Compared to 57.7M reported in the prior quarter and 56.8M for quarter 4 of 2020. The quarter over quarter increase was a result of market driven higher deferred compensation expense.

Total operating expenses on a GAAP basis were $61 7 million for quarter four of 2021 compared to $57 7 million reported in the prior quarter and $56 8 million for quarter four of 2020 the quarter over quarter increase was a result of market driven higher.

Third compensation expense variable compensation plans and acquisition related expenses, partially offset by lower nonrecurring and legal expenses.

variable compensation plans and acquisition related expenses, partially offset by lower non-recurring and legal expenses.

The year-over-year increase in operating expenses was a result of higher acquisition related expenses in labor and variable compensation, partially offset by lower restructuring costs and market-driven deferred comp expense.

Year over year increase in operating expenses was the result of higher acquisition related expenses.

And labor and variable compensation, partially offset by lower restructuring costs and market driven deferred comp expense.

On a non-GAAP basis, our 4th quarter operating expenses were $53.2 million dollars, compared to $50.4 million in the prior quarter and $49.5 million in quarter 4 of 2020.

On a non-GAAP basis, our fourth quarter operating expenses were $53 2 million compared to $50 4 million in the prior quarter and $49 5 million in quarter four of 2020.

The increase quarter over quarter in non-GAAP operating expenses were primarily due to higher market driven deferred compensation expense and variable compensation, partially offset by decreases in legal and nonrecurring expenses.

The increased quarter of a quarter in non-gap operating expenses were primarily due to higher market driven, deferred compensation expense, and variable compensation, partially offset by decreases in legal and non-returning expenses.

The increase year over year and non-GAAP operating expenses was a result of market driven deferred comp expense variable and labor comp.

The increase year over year in non gap operating expenses was a result of market driven deferred comp expense. Variable and labor comp engineering projects. And travel increases partially offset by lower non recurring and legal expense.

Engineering projects and travel increases, partially offset by lower nonrecurring and legal expenses.

Operating loss on a GAAP basis for the fourth quarter of 2021 was $7 2 million compared to an operating loss of $10 1 million in the prior quarter and an operating loss of $3 3 million reported in Q4 2020.

Operating loss on a gap basis for the 4th quarter 2021 was 7.2 million dollars compared to an operating loss of 10.1 million in the prior quarter. And an operating loss of 3.3M reported in Q4 2020.

non-GAAP operating income for quarter four of 2021 was $1 4 million compared to a non-GAAP operating loss of $2 6 million in the prior quarter and.

Non-GAP operating income per quarter four of 2021 was $1.4 million compared to a non-GAP operating loss of 2.6 million in the prior quarter.

And $4 3 million non-GAAP operating income in quarter four of 2020, the quarter over quarter improvements in GAAP and non-GAAP operating profitability were attributable to higher sales, partially offset by incremental supply chain constraint expenses and higher operating expense.

and 4.3 million non-GAP operating income in quarter four of 2020. The quarter of a quarter of improvements in GAP and non-GAP operating profitability were attributable to higher sales partially offset by incremental supply chain, constraint expenses, and higher operating expenses.

The GAAP and non-GAAP year over year decreases in operating profitability were the result of higher supply chain constraint related expenses and higher operating expenses, partially offset by the increased sales volume.

The gap and non-gap year over year decreases in operating profitability where the result of higher supply chain can strengthen related expenses and higher operating expenses, partially offset by the increased sales volume.

Other income on a gap basis for the fourth quarter of 2021 was 1.9 million dollars compared to other income of 923,000 in the prior quarter and 3 million for quarter four of 2020.

Other income on a GAAP basis for the fourth quarter of 2021 was $1 9 million compared to other income of 923000 in the prior quarter and $3 million per quarter four of 2020 or.

Our non-GAAP other income for the quarter was 2.8 million dollars compared to non-GAAP other income of 1.4 million in Q3 of 21 and 1.7 million for quarter 4 of 2020.

Our non-GAAP other income for the quarter was $2 $8 million compared to non-GAAP . Other income of $1 4 million in Q3 of 'twenty, one and $1 7 million for quarter four of 2020.

Court over quarter increases in both gap and non-gap other income were a result of higher dividend income and realized foreign currency exchange gains.

The quarter over quarter increases in both GAAP and non-GAAP other income.

Were a result of higher dividend income and realized foreign currency exchange gains the decrease in GAAP. Other income on a year over year basis was related to market driven losses in our investment portfolio as compared to gains in the prior year, partially offset by higher dividend income.

The decrease in GAAP other income on a year-over-year basis was related to market-driven losses in our investment portfolio as compared to gains in the prior year, partially offset by higher dividend income and realized foreign currency exchange gains.

And realized foreign currency exchange gains the.

Increase in non-GAP other income on a year of a year basis resulted from realized foreign currency exchange gains and higher dividend income. The company's tax provision for the fourth quarter of 2021 was a benefit of $1.1 million.

The increase in non-GAAP other income on a year over year basis resulted from realized foreign currency exchange gains and higher dividend income.

The company's tax provision for the fourth quarter of 2021 was a benefit of $1 $1 million.

has compared to 1.3 million of expense in the prior quarter and a 6.5 million benefit in the fourth quarter of 2020. The current quarters tax benefit was primarily driven by international losses and changes in our uncertain tax position reserves during the quarter as a result of the expiration of certain statutes of limitation.

As compared to $1 3 million of expense in the prior quarter and a $6 5 million benefit in the fourth quarter of 2020.

The current quarter's tax benefit was primarily driven by international losses and changes in our uncertain tax position reserves during the quarter as a result of the expiration of certain statutes of limitation.

GAAP net loss for quarter four of 2021 was $4 2 million compared to $10 4 million net loss in the prior quarter and $6 1 million of net income in the fourth quarter of 2020 non.

Gap net loss for quarter four of 2021 was $4.2 million compared to 10.4 million net loss in the prior quarter and 6.1 million of net income in the fourth quarter of 2020.

Non-gap net income for the fourth quarter of 2021 was 4.7 million as compared to it 815,000 net loss in the prior quarter and a 5.2 million net income in quarter 4 of 2020.

non-GAAP net income for the fourth quarter of 2021 was $4 7 million as compared to $815000 net loss in the prior quarter and a $5 $2 million net income in quarter four of 2020.

For the fourth quarter, earnings per share assuming dilution on a gap basis was a loss of 9 cents per share as compared to 21 cents loss per share in the prior quarter and 13 cents per share earnings in the fourth quarter of 2020.

For the fourth quarter earnings per share assuming dilution on a GAAP basis was a loss of <unk> <unk> per share as compared to 21.

Loss per share in the prior quarter and <unk> 13 per share earnings in the fourth quarter of 2020 <unk>.

Non-Gap earnings per share, assuming delusion for the fourth quarter of 2021 was 10 cents per share, compared to a two cent per share loss in the prior quarter and an 11 cent per share earnings Q4 of 2020.

non-GAAP earnings per share assuming dilution for the fourth quarter of 2021 was <unk> 10 per share compared to a <unk> <unk> per share loss in the prior quarter and an 11% per share earnings in Q4 of 2020.

On the balance sheet, unrestricted cash and marketable securities totaled $100.6 million at quarter-end after paying $4.4 million in dividends during the quarter.

On the balance sheet unrestricted cash and marketable securities totaled $106 million at quarter end after paying $4 4 million in dividends during the quarter for.

For the quarter, we used 25.9 million of cash from operations driven by higher inventories and increased DSO levels.

For the quarter, we used $25 $9 million of cash from operations, driven by higher inventories and increased DSO levels.

Net trade accounts receivable was 158.7 million at the end of the quarter, resulting in a DSO of 95 days compared to 83 days for the prior quarter and 70 days at the end of the fourth quarter of 2020.

Net trade accounts receivable was $158 7 million at the end of the quarter, resulting in a DSO of 95 days compared to 83 days for the prior quarter and 70 days at the end of the fourth quarter of 2022.

The increase in dsos quarter over quarter and year over year is mainly attributable to increased sales and the timing of shipments late in the quarter tied to supply chain constraints.

The increase in DSO's quarter of a quarter in year over year is mainly attributable to increased sales and the timing of shipments late in the quarter tied to supply chain constraints.

Net inventories were 139.9 million at the end of the fourth quarter compared to 127.2 million in the third quarter of 21 and 125.5 million at the end of Q4 of 2020. We continue to carry a higher level of inventory in raw materials as we build up supply to minimize further disruptions given the extremely challenging electronic component market and the associated extended lead time.

Net inventories were $139 9 million at the end of the fourth quarter compared to $127 2 million in the third quarter of 'twenty, one and $125 5 million at the end of Q4 2020, we continue to carry a higher level of inventory in raw materials as we buildup.

Applied to minimize further disruptions given the extremely challenging electronic component market and the associated extended lead times.

Looking ahead to the next quarter, the continuing effects of the COVID-19 pandemic, the ability of components supplies 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 our customer base, as well as the fluctuation and currency exchange rates in our international markets may cause material differences between our expectations and the actual results.

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 our customer base as well as the fluctuation in.

Currency exchange rates in our international markets may cause material differences between our expectations and the actual results with that in mind, we expect that our first quarter 2022 revenue will be between 101 hundred $58 million.

With that in mind, we expect that our first quarter 2022 revenue will be between 100 and 158 million dollars.

After considering the projected sales mix component availability, we expect that our first quarter gross margin on a non-GAAP basis will be in the range of 35% to 37%.

After considering the projected sales mix, component availability, we expect that our first quarter gross margin on a non-gap basis will be in the range of 35 percent to 37 percent. Hey, Mike, can I interrupt you? I think you said 100 and 158 is the range. It's really... I said 150 to 158. If I said 100, I was wrong. 150 to $158 million is the range. Sorry about that.

I interrupted I think you said 100 and 158.

The range really.

150 to 150, <unk> I said 100.

It was around $150 million to $158 million is the range sorry about that.

On a non-GAAP basis gross margins would be in the range of 35% to 37%. This is lower than normal due to our higher expediting and freight costs. We also expect non-GAAP operating expenses for the first quarter will be between 53 and $54 million.

On a non-gap basis, gross margins would be in the range of 35% to 37%. This is lower than normal due to our higher expediting and freight costs.

We also expect non-gap operating expenses for the first quarter will be between $53 and $54 million.

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And finally, we anticipate that the consolidated tax rate for the first quarter of 2022 on a non-gap basis will be in the low to mid-20s percentage rate.

And finally, we anticipate that the consolidated tax rate for the first quarter of 2022 on a non-GAAP basis will be in the low to mid twenties percentage rate.

We believe that the significant factors impacting revenue and earnings realized in 2022 will be component availability and costs, the macro spending environment for carriers and enterprises, ongoing effects of the COVID-19 pandemic.

We believe that the significant factors impacting revenue and earnings realized in 2022 will be component availability and costs, the macro spending environment for carriers and enterprises. The ongoing effects of the COVID-19 pandemic, the variability of mix and revenue associated with <unk>.

The variability of mix and revenue associated with project rollout.

<unk> rollouts the proportion of international revenue relative to our total revenue the adoption rate of our broadband access platforms potential changes in corporate tax laws.

The proportion of international revenue relative to our total revenue, 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.

Currency exchange rate movements and inventory fluctuations in our distribution channels. Once again additional financial information is available on AD trends Investor Relations webpage at investors Dot AD trend Dot com.

Once again, additional financial information is available at AdTrends Investor Relations webpage at investors.adTrend.com. With that, I'll turn it back over to Tom and we'll take your questions. All right, great. Thanks Mike. Elliot, we're ready to open up for any questions people may have.

With that I'll turn it back over to Tom and we'll take your questions Alright, great. Thanks, Mike.

We're ready to open up for any questions people may have.

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Yes.

Our first question comes from Rod Hall from Goldman Sachs. Please go ahead.

Our first question comes from Rod Hall from Goldman Sachs. Rod, please go ahead.

Hi, Thanks for taking my question. This is Bala contractually.

Hi, thanks for taking my question. This is Bala on the road. Congrats on a good set of results, guys. Q1, their new guidance.

Congrats on a good pick up shelf space.

Q1 revenue guidance.

154 million at midpoint. So it's flat quarter quarter, which which is good. I suppose.

$54 million at midpoint, so it's flat quarter on quarter.

Which is good I suppose.

So, SAP like comes in situation, it looks like it went better than what you had shared in Q4. It looks like maybe you did not really see too many decommensments, et cetera, but I just wondering, maybe you could help us pass the SAP like situation through the quarter, whether it is enterprises or was it what went better, et cetera, and I got a follow.

So let's talk about it constantly chasing it.

Looks like it prevent becker.

<unk> CFO and COO.

It looks like maybe you did not really see too many D coming from.

But just one thing.

If you could help us parse the license to sell through the quarter, but bidding are tough places logic Laughlin.

Sean and Dave one follow up.

Yeah, thanks for the question. We did see some decommits through the quarter. I mean, if I look at Q4 versus Q3, it was, you know, it's kind of hard because, you know, you don't know what's going to be the problem.

Yes.

Thanks for the question.

We did see some decommit through the quarter I mean, if I look at Q4 versus Q3.

Was.

It's kind of hard because you don't know what's going to be the problem.

you know from a month to month, sometimes even from a week to week basis, so it's different problems. But in general, it's still semiconductor problems. And now we did have decommittment. I think, you know, as we went into the quarter on the call, we tried to, you know, we tried to be as conservative as possible and trying to make sure that we were factoring in those decommits. You know, we're doing the same thing this quarter as well because the environment is so, you know, just kind of, feel like it's a really, really.

From a month to month, sometimes even from a week to week basis, so its different problems.

But in general, it's still semiconductor problems and now.

Now we did have Decommit I think.

We went into the quarter.

On the call. We we try to we tried to be as conservative as possible and trying to make sure that we're factoring in those decommit.

We're doing the same thing this quarter as well because the environment is so.

Just kind of a fluid so.

So to direct answer your questions, we did, but we were able to mitigate the impact of those decommits with additional shipments somewhere else.

So the direct answer your questions, we did but we were able to mitigate the impact of those new commits with additional shipments somewhere else.

Got it.

on gross margins. Now clearly they are being impacted by higher cost and it's not just for you for most companies too. I'm wondering with pricing results and gradually kicking in, I believe you said, the first half of this year, the pricing figure food kick-in, how do you feel about the gross margin, strategy actually? Do you expect it to jump back up to maybe about?

On gross margin.

Now clearly that being impacted by higher Cogs.

Just how do you hope most companies.

And Glenn Jane.

Pricing.

Chile kicking in I believe you said, albeit husky.

Of this year the price increase that would kick in how do you feel about the gross margin project.

Do you expect it to jump back up to maybe about <unk>.

40% change in the second half of this year, if any color there would be helpful.

Hockey Pucks on change in the second half of this year any color that would be helpful.

Let me take a stab and then I'll turn it over to Mike, but I don't know how you can project that at this point because you really only get them.

Let me take a stab and then I'll turn it over to Mike.

I don't know how you can project that at this point, because you really only get them.

You can't continue to go and increment pricing to customers as you see pricing. It's untenable for them as well. So knowing what's going to be.

You can't continue to go an increment pricing to customers as you see price, it's untenable for them as well, so knowing what's going to be.

you know, difficult to purchase and the amount of that difficulty in the second half is is I just don't know how you can forecast that. We do in general expect the environment to improve. We do think that, you know, the fact that we are kind of long into this and the lead times that we have been

Difficult to purchase.

And the amount of that difficulty in the second half is just.

Don't know how you can forecast that we do in general expect the Empire environment to improve we do think that the fact that we are.

Long into this and the lead times that we have been.

Lead time Windows are typically Clinton, let's say lead times are necessarily closing, but were farther into those lead times.

Lead time windows are typically close. Let's say lead times are necessary closing, but we're farther into those lead times So we expect things to get generally better in the second half, but I really can't tell you on a percentage basis You know exactly how that's going to Come to fruition. Of course freight is a big piece of this as well You know freight is a large percentage. We're you know because

So we expect things to get generally better in the second half, but I really can't tell you on a percentage basis exactly how thats going to ramp.

Come to fruition of course freight is a big piece of this as well.

Freight is a large percentage because.

Supplies are late.

supplies are late then builds are late and you're flying everything um... so you know we need to say we have a big push on trying to get things back onto the ocean but um... that's an impact and you know you would think that that would get better in the second half of this year you know the real unknown is you know does

Then builds are late and you're flying everything.

So.

So we have a big push on trying to get things back onto the ocean, but.

That has an impact and you would think that that would get better.

In the second half of this year the real unknown is does.

you know, is there some COVID impact that may or may not hit us in the tail end of this year? And it's just really difficult to forecast that. I'm following that. I guess Mike.

Is there some COVID-19 impact that may or may not hit us until end of this year and it's just really difficult to forecast that.

Although a new I guess Mike.

Go ahead.

I was just going to say when you look at it.

Thanks.

I expedited sites, assuming that they would be passed through like immediately. Maybe I'm wrong, but I'm just hoping that with them,

Excellent data insights that assuming that they would be.

Immediately maybe I'm wrong, but.

Just hoping back with them.

Could you passing on those customers and then also increasing prices.

know, which you're passing on those to customers and then also increasing prices for the standard components, you know, etc. Like maybe that would help the national trajectory. I guess that was the genesis of the question. Well, yeah, I mean, we, our current expectation, all right, and that's all I can say it is because

Standard components.

Hey, Tom maybe that could help the.

And that shows that actually I guess backlog at the Genesis of the question.

Yes, I mean, we current expectation alright, and Thats all I can say it is because just because theres. So many variables current expectation is for second half gross margins to be higher in the first half gross margins. So we do expect it to be trending but I can't really at this point in time really lay out a percentage on that.

because there's so many variables. Current expectation is for second half gross margins to be higher than first half gross margins. So we do expect it to be trending, but I can't really, at this point in time, really lay a percentage on that.

It would be just a guess.

Does that answer your question got it.

It helps. One more follow up, if I may. And the. So you've had a bunch of large, K01 customer events, especially in Europe , with the past year, and it looks like you are seeing all the started to see some good. I'm.

All right.

<unk>.

One last follow up if I may.

On the <unk>.

It had a bunch of large.

<unk> customer wins, especially in Europe over the past year and it looks like you are saying you are less likely to see some good.

Yes.

traction or momentum with some of them, but could you maybe help remind us the timelines on when you expect these deployments to RAM? I believe some of them you said, like, maybe in first half, the other in second half, but in general, like, any details that would be helpful?

Shacks in a moment on the <unk>.

Could you maybe help.

And does the timelines on when you expect these declines to decline thanks to them.

Some of them you said, maybe in first half the.

Second half, but in general.

Okay.

The details that would be helpful. Tom.

Yeah. So.

Okay.

Basically, we have tranches, so we have two that are basically shipping now in Europe .

Let me.

Basically we have tranches. So we are we have two that are basically shipping now in Europe .

started shipments in Europe . I wouldn't say they're at their full ramp by any stretch, but they're starting to ship and really started shipping the fourth quarter, which is kind of where that bump was.

Started shipments in Europe , I wouldn't say, they're at their full ramp by any stretch, but theyre starting to ship.

And then really started to ship in the fourth quarter, which is kind of where that bump was.

We have one MSO.

We have one <unk>.

That has received orders I don't know, if we shifting and thats here in the U S.

That has received orders. I don't know if we shipped any of this here in the US But that will be ramped

But that will be ramping.

<unk>.

Really it's going to be that's just material constraints will be ramping as fast as we can ramp them really.

Really it's going to be, it's just material constraints. So it'll be wrapping as fast as we can wrap them really. Starting now, it's really already started. We have a, let's see.

Starting now to really already started.

We have a.

Three other.

I'm trying to get the numbers straight here. Three other tier ones in Europe .

To get the numbers straight here three other tier ones in the in Europe .

That.

A couple of them my guess would be second half one of those towards the tail end of the second half one of those probably right around the half so right around the end of the second quarter.

A couple of them, my guess would be second half, one of those towards the tail end of the second half, one of those probably right around the half, so right around the end of the second quarter.

I think that's kind of where we are right now. And then of course here in the US, we're still seeing incredible demand pretty much across the board, including, you know, we have a large tier one in the US that has selected STX and Mosaic. And that one has started kind of ordering and at this point. So it would be a matter here against the supply chain thing of us being able to beat the defense.

I think thats kind of where we are in now and then of course here in the U S. We're still seeing.

Incredible demand pretty much across the board, including we have a large tier one in the U S that has selected <unk> and mosaic and.

That one has started kind of ordering in bulk at this point, so it'll be a matter here against the supply chain thing of us being able to meet the demand.

Does that answer your question, if I could try to help us it.

Is that answer your question, Dr. It's very helpful. It does. Thanks so much. From Mike. OK.

It does thanks, so much Mike.

Mike Okay.

Sure.

Our next question comes from Paul Silverstein from Cowen <unk> Co. Please go ahead.

Our next question comes from Paul Silverstein from Cowan. Paul, please go ahead.

Paul Your line is now open.

So our new Bud I recognize you kind of addressed this in the previous response, but I'm, hoping you could update us on Huawei displacement opportunities in terms of how many.

Sorry, mute button. I recognize you kind of addressed this in the previous response, but I'm hoping you could update us on Huawei displacement opportunities in terms of how many...

RFPs, RFIsers, QS, whatever are outstanding. How many have now been awarded? How many more to go?

Rfps or a pfizer accuse whatever our outstanding how many you have now been awarded how many more to go.

So we've had a couple that have this is a fluid list. So we have a couple that are just kind of opening up again are opening now.

So we've had a couple that have, you know, this is a fluid list, so we have a couple that are just kind of opening up again or opening now. We've got a...

We've got a.

<unk>.

I'm looking at a list here, which is broader than that because it includes EMEA.

I'm looking at a list here which is broader than that because it includes EMEA.

We will.

As of this current snapshot right now, we're looking at, let's say, 3 or 4 that are in the pipeline.

As of this current snapshot right now we're looking at let's say.

Three or four that are in the pipeline.

In some stage.

Maybe a little bit more than that but it depends on what you call a tier one versus the tier two but.

Maybe a little bit more than that, but it depends on what you count a tier one versus a tier two, but three or four, you know, seriously tier ones. And then, you know, a few others that are, you would, or you could argue if they're tier one to tier two.

Three or four seriously tier ones and then a few others that are you would you could argue if they're tier ones or tier twos.

Yeah.

And how many awards remind me? How many, why would you split some awards if you already want?

How many awards remind me how many what was the split rewards have you already won.

I hate to call them wildly displacement awards, because it depends on the carrier.

I hate to call them wally displacement awards because it depends on the carrier.

But.

So if you look at tier ones that were now shipping let me do it this way because it may be easier.

So, if you look at tier ones that we're now shipping, let me do it this way because it may be easier to tier ones that we're now shipping.

Tier ones that we are now shipping.

<expletive> two or let's.

or let's say 10 gig PON2 even, then it would be...

It's a 10 gig PON to even.

Then it would be.

Yes.

Eight.

Pete.

eight. Are they really to say that we've either one or our shipping? Let me be accurate on that, we've either one or shipping, yes.

Are there any.

Say that that we've either won or are shipping maybe.

Accurate on that we'd be either one of our shipping yes.

The difference being there's some you've won that haven't yet shipped.

That's correct.

Alright, so eight that you've won some of which you've shipped two eight that you wanted total got it.

All right, so eight that you won, some of which you shifted, but eight that you won in total. Got it. Are there any, are there any such awards in which Huawei was incumbent in the carried questions moving away from Huawei that you're aware of that you haven't won? Um.

Eddie.

Are there any such awards and where it's Huawei was an incumbent in there.

And the carrier questions move away from Huawei that Youre aware of that you haven't won.

There are if I look at over the last few months, let's say six months or so there are two that have delayed.

for a few months, let's say six months or so, there are two that have delayed.

their decisions right now so they're continuing on as they kind of go through their process.

Their decisions right now so they are continuing on as they kind of go through their process.

Well theres been no carries today to get at what's your where would your bid that is awarded away from you.

But there've been no carries today to get a wish you're aware of what you've been that have been warded away from it. That's correct.

That's correct.

Alright, and one last question on this line.

Sorry, I recognize their wins and their wins, but are you getting a material?

Sorry.

Recognize their wounds and our wins, but are you getting your material.

your knowledge or you're getting a material position in these eight wins that you've already secured.

To your knowledge are you getting a material position in these eight wins that you've already secured.

Does that none of the portion of the opportunity.

Does that have to be done? None of those points for the other opportunity. Yeah, they typically don't give you percentage awards, of course. But the ones that I've talked about, none of those are we expecting to be immaterial. All of those we are expecting. You know?

Yes, they typically don't give you a percentage awards of course, but of the ones that I've talked about none of those are we expecting it to be immaterial to all of those we were expecting.

materially greater than 20% I mean it's not an imid-design material award

Materially greater than 20%, let's say.

And but these aren't material awards.

Alright, I recognize there is the timing factor, but we took the wounds today collectively.

Alright, I recognize there's a timing factor, but if we took the eight wins today collectively...

any expectation you could share with us in terms of the annual revenue impact.

Any expectations you could share with us in terms of the annual revenue impact.

Ladies whatever.

I mean.

I mean, we've given a range before. We have the largest ones, Michael is the ranks 80 millionish. And then there aren't many of those, of course. And then in general, you can think of them as somewhere between 10 and 20 million a year.

We've given a range before though we have the largest the largest ones are.

Michael was the range of $80 million ish, or so and then and there aren't many of those of course and then they're in general you can think of them as.

Somewhere between 10 and $20 million a year.

Sure.

Okay. One final question for me.

Okay, more fun questions for me. I recognize there's no other word just about our doff in terms of various government funding programs and not just in the US for that matter. But.

I recognize.

Just about all of it off in terms of.

Various government funding programs and not just in the U S for that matter.

Can you give us a sense for what the flows from <unk> as well as from the other U S programs, what type of impact Youre seeing now and what you expect for 'twenty two OLED.

Can you give us a sense for what the flow is from ARDOF, as well as from the other US programs, what type of impact you're seeing now, what you expect for 22 all in?

Yeah, for us, ARPA, I mean, we've seen some awards directly that we attribute to ARPA and, you know, like some municipals and.

Yes for Us ARPA I mean, we've seen some awards directly that we attribute to ARPA and let some municipals.

But.

Yeah.

It's a little.

It's a little, I don't consider that money really flowing in mass yet.

I Wouldnt I don't consider that money really flowing in mass yet.

For art off.

I know that we have orders in house that are directly related to art off in the releasing of funding for art off. So that has started. Yeah.

I know that we have orders in house that are directly related to art off and the releasing of funding for our it off so that has started.

And.

We're you know that will progress and you know just from our Conversations with customers in the US that are art off recipients You know for there's kind of two different types of art off customers. There are customers that are existing carriers that are

We are.

That will progress and just from.

Our conversations with customers in the U S that are art off recipients.

There's kind of two different types of RF customers there are customers that are.

Existing carriers that are.

Growing their footprint in order to meet the art off properties.

Those ones typically are farther along and expect material contributions this year. Then there are new ones that are really kind of standing up their operations for the first time. Need to say those aren't as far along. And I could easily see some of those delay into next year.

Those ones typically are farther along and expect material contributions this year than there are new ones that.

A really kind of standing up their operations for the first time needless to say those arent as far along.

I could easily see some of those July into next year.

Got it I'll pass it along appreciate the responses.

Alright, thank you.

Our next question comes from Tim <unk> from Northland Capital markets. Tim. Please go ahead.

Our next question comes from Tim Savagow, from Northland's capital markets. Tim, please go ahead.

Okay.

Thanks and a good morning and that congrats on the yacht

Thanks, and good morning, and congrats on the.

the results for Q4. And I hopped on a bit late, and I don't know if you commented on this, since we're at year end. I don't know if you guys talk explicitly.

The results for Q4.

I hopped on a bit late and I don't know if you commented on this and since we are at year end.

His talk explicitly.

about backlog or whether you could share some color on.

About backlog.

Or whether you could share some color on these.

extent to which that backlog increased in the quarter or any color on bookings levels.

The extent to which that backlog increased.

Or any color on bookings levels.

And given that you did appear to be able to address some of the supply challenges in the corner in the quarter, yeah.

And given that you did appear to be able to address some of the supply challenges in the corner in the quarter.

I wonder what.

Challenges remained and with no supply issues. Kind of what could you have shipped?

Challenges remain with no supply issues kind of what could you have shipped.

either for Q4 or for Q1 guide. Thanks. That last part of that question is...

Either for Q4 or for Q1 guide.

<unk>.

That last part of that question is.

Interesting way to look at it.

Yes, so bookings were.

Yeah, so bookings were, I mentioned in my comments that bookings were another record in the paper.

I mentioned in my comments as bookings were another record.

Over 20% quarter over quarter, which itself was a record.

over 20% quarter over quarter, which itself was a record and over 50% year over year. And we were materially over those amounts. So I mean, it was a really strong quarter for bookings.

And over 50% year over year and.

And we were materially over those amounts so.

It was a really strong quarter for bookings.

And.

And we weren't able to meet the demand that's out there today. Hopefully, we're looking forward to being able to get to that point in relation to

We werent able to meet the demand that that's optics and I hopefully, we're looking forward to being able to get to that point in relation to.

your backlog or if we could have shipped.

Your backlog or if we could have shipped.

Yes.

literally hundreds of millions of dollars that we have a backlog that people would take today and would have taken in the fourth quarter So it's really us getting through that backlog that that's that's important

Literally one hundreds of millions of dollars that we havent backlog of people would take today and would have taken in the fourth quarter. So it's really us getting through that backlog that's important.

Great Thanks and.

just in terms of the customer base, she mentioned very strong demand.

Just in terms of.

The customer base, you mentioned very strong demand.

In the U S looks to be mostly rural driven I'm wondering if you could address what you might be seeing out of your traditional <unk>.

in the US, you know, looking to be, you know, mostly world driven. I wonder if you could address what you might be seeing out of your traditional tier two customer.

Tier two customers.

There are several big fiber ramps there. I think you've also got some competitive activity. It looks like Nokia's made some inroads frontier, for example.

Several big fiber ramps there I think you've also got some competitive competitive activity looks like Nokia has made some inroads frontier for example, but.

It seems like there's been a notable uptick there I wonder what would I would train as seen from our U S.

It seems like there's been a notable uptick there. I wonder what Adtran has seen from a U.S. tier two. Well, traditionally what we call the U.S. tier twos. Yeah, yeah.

Well traditionally what we call the U S tier twos.

Yes.

So, that up sick with a scene. Now, you know, people have different definitions of what a tear to and we probably need to start getting more explicit, but let's say large tear threes or tear twos out where you categorize it. That space is up significantly.

So.

That uptick with Athene.

Tier two people have different definitions of what a tier two and we probably need to start getting more explicit but let's.

Let's say large tier threes are tier twos out where you categorize it.

That space is up.

Significantly.

and the forecast that we have in some cases orders that we have placed to this year

And the forecast that we have and in some cases orders that we have placed two this year.

We would expect that to grow continue to grow actually pretty strongly this year. So that has gone. Well, we've also seen movement and we have 1 large. 1 large carrier tier 1 as well as we also sell to. But that 1 is actually coming to life as well. I mentioned that we have gotten some orders in place.

We would expect that to grow continue to grow actually pretty strongly this year. So that has gone well. We've also seen movement and we have one large well.

One large carrier tier one as well as we also sell to Msos.

But that one is actually coming to life as well.

I mentioned that we have gotten some orders in place for shipments through this year from that carrier and if you talk if you.

for shipments through this year from that carrier and if you talk, you know, if you read what they're saying, they're going to do it.

What theyre, saying theyre going to do.

you know, they're getting very serious about fiber as well. So I think in general, I don't think there's any...

We're getting very serious about fiber as well so I think in general I don't think theres any.

any space in the U.S. that isn't seeing accelerated movement. I mean, it's just a really good environment.

Any space in the U S that isn't seeing accelerated movement.

Movement I mean, it's just a really good environment.

Okay and last one for me here.

With that.

revenue forecast, you know, flat here in Q1, though at a much higher level than expected, you're looking for some modest gross margin improvement, similar, you know, kind of to what you saw here in Q4. But Mike, I wonder if you could remind me of the question that you asked about the revenue

Revenue forecast flat here in Q1 zero with him at a much higher level than expected.

Youre looking for some modest gross margin improvement similar.

Kind of what you saw.

Sure in Q4, but.

Mike I Wonder if you could remind us.

Yeah.

What the impact overall supply impact is on those margins I mean would.

What the overall supply impact is on those margins, I mean, would you be in the low 40s, X-those cost issues or maybe an update there in terms of what you're seeing for the guidance?

Would you be in the low 40% ex those cost issues or maybe an update there in terms of what youre seeing in for the guidance.

So look at looking back at Q4, the impact that we saw was between 7 and 8 percentage points. And it's roughly evenly split between additional component and expedite fees on the components. And then the other side of the split is freight and logistics costs.

Sure. So looking back at Q4, the impact that we saw was between 7% and eight percentage points and it's roughly evenly split between additional component and expedite fees on the components and then the other side of the split as freight and logistics.

Costs.

So similar to the prior quarter, maybe a little bit worse of an impact during that quarter, but if you take that seven to eight percentage points on what we actually printed on a non-get basis or solidly in the 42 to 43, which is generally what our expectation is in the normal business environment.

<unk>.

Similar to the prior quarter, maybe a little bit worse of an impact during that quarter, but if you take that 7% to eight percentage points on what we actually printed on a non-GAAP basis.

We're solidly in the <unk> 42 to 43, which is which is generally what our expectation is in the normal business environment.

And you expect that to maintain the Q1 that seven to eight or does that get a little bit better.

And expect that to maintain the Q1, that 708ers, that get a little bit better.

And that's it for me. All right, thank you. If you look at our guidance and you take the midpoint of that guidance for projecting that it does get a little bit better, but there's still some significant...

And Thats it for me thank you.

If you look at our guidance and you take the midpoint of that guidance for projecting that it does get a little bit better.

But there is still some significant headwinds out there.

As a reminder to ask any further questions. Please press star followed by one Jonathan keep up now.

As a reminder to ask any further questions, please press staff all about one on your telephone keypad now.

Okay.

Our next question comes from Bill Desolam from Titan Capital Management. Bill, please go ahead. Thank you. I would like to thank you for your time.

Our next question comes from Bill <unk> from Titan Capital management.

Please go ahead.

Thank you I would like to follow up on the on the supply chain phenomenon.

on the supply chain phenomenon. Clearly in the fourth quarter, something went right late in the quarter as you commented with the accounts receivable that becomes somewhat apparent. Would you talk to us about kind of how the

Clearly in the fourth quarter something went right late in the quarter.

As you commented it with the accounts receivable that becomes.

Somewhat apparent.

Could you talk to us about kind of how how the.

the availability of inventory unfolded or part part of the raw materials unfolded throughout the quarter and

The availability of inventory unfolded or pardon me raw materials unfolded throughout the quarter and.

And how that might.

be relevant for us to view the potential upside to your guidance in the first quarter versus versus risk.

The relevant for us to view the potential upside to your guidance in the first quarter.

Versus versus risk.

Yeah, Let me touch on Michael do you have anything to add but it's we entered the quarter right now with <unk>.

Let me touch a mic you get in anything to add, but it's, we enter the quarter right now with a list of effectively backlogged.

A list of.

Effectively backlog.

And then new orders that we think will be coming in that have some priority to getting them shipped. And that can be whether or not it's a new customer that we're trying to make sure they get up and running or some supply constraint or real demand issues with a customer that we need to make sure we prioritize.

And then new orders that we think will be coming in that have some priority to getting them shipped and that can be.

It can be whether or not it's a new customer that we're trying to make sure they get up and running or some supply constraint.

A real demand issues with a customer that we need to make sure we prioritize.

Sure.

And then, and as you would expect, the number when you enter the quarter is...

And then and as you would expect the number when you enter the quarter.

Is.

Almost at all cases higher than when you exit the quarter. So it's a fairly large number coming into the quarter. And then we do a kind of Pareto of highest risk components, lowest risk components. And from that kind of come up with, OK, this is where we think we're going to end up. We were, let me just say, a little conservative coming into this last quarter.

Almost in all cases higher than what you.

When you exit the quarter right. So it's a fairly large number coming into the quarter and then we do a kind of paredo highest risk components lowest risk components.

And from that kind of come up with Okay. This is where we think we're going to end up we were needless to say a little conservative coming into this last quarter.

And then you basically have fallouts and bring ends throughout the quarter. The weird thing, the phenomena that you're talking about, which is definitely true, for whatever reason, the entire supply chain has gotten to this point of everything ships in the last month.

And then you basically have fallouts and bring ins throughout the quarter. The weird thing the phenomenon that you're talking about which is definitely true which is if for whatever reason the entire supply chain has gotten to this point of everything ships in Alaska last month.

So really our availability of components seems to be way more so than ever before.

So really our availability of components seems to be way more so than ever before.

um, kind of back into the quarter loaded. Oh, I got plenty of backlog that I could ship today, right? If I have the components to ship. So we're kind of hamstrung on where these shipments come. Um, and then you're figuring out what's going to drop out and what's not. And what we've done is been more conservative on the dropouts versus the pull-ins, which has led to the performance that you saw in Q4.

Kind of back into the quarter loaded.

I got plenty of backlog that could ship today, if I had the components of the ship so were kind of hamstrung on where these shipments come.

And then youre figuring out what's going to drop out and what's not and what we've done has been more conservative on the dropouts versus the pull ins, which has led to performance that you saw in Q4.

Okay.

Are you, so the fact that we've seen that loosening or availability of components in the third month of the Q4, that doesn't in your mind necessarily lead to, I guess you already know this for January , but more component availability in January , February and March. It's just the back end. Yeah, because it's been that way pretty much the entire year.

And are you.

The fact that we've seen that that loosening or availability of components.

In the third month of Q4.

That doesn't in your mind necessarily lead to.

You already know this for January but more component availability in January February and March just the back end.

Yes, because it's been that way pretty much the entire year.

And I will say that we have a concerted F.

I will say that we have a concerted effort.

Right to actually bring material in quicker and. And try to get more of it out of the way in those 1st, 2 months and we saw some benefit. You didn't see it in the. We saw some benefit of that last quarter. We'll see some more benefit this quarter, but it's still it's still. A lot of the material shipments will come in that last month.

Two actually.

Bring material and quicker in and try to get more of it out of the way in those first two months and we saw some benefit you didn't see it in the.

Dsos, where we saw some benefit of that last quarter, we will see some more benefit this quarter, but it's still it's still a lot of the material shipments will come in that last month.

Okay, one additional question on this front, if I may, and that's relative to the inventory on the balance sheet was up 13 million sequentially.

Okay. One additional question on on this front, if I may and that's relative to the inventory.

On the balance sheet was up $13 million sequentially.

in spite of the revenues being up 16 million sequentially. So that's a bit counter to what one would normally expect with a nice revenue increase. So, and I'm not trying to be argumentative here, but really trying to understand, why is it that that increase in inventory that you had in Q4 doesn't roll in to be a benefit in a Q1?

The revenues being up $16 million sequentially. So that's.

That's a big counter to what one would normally expect with a nice revenue increase.

And I'm not trying to be argumentative here, but really trying to understand why is it that that increase in inventory.

That you had in Q4 doesn't roll in to be a benefit in Q1.

We're buying raw material, right? So we're this is before it gets converted to finished goods. So if there's raw material out there and available, we want to nab that raw material. And it may not be used and we may not even have all of the parts necessary for a particular assembly, but if a part becomes available, we want to get that part. And then you don't have the assembly labor and you don't have really all the finished goods overheads that are applied to that. Until that part is converted. So.

We are buying raw material right. So this is before it gets converted to finished goods. So if theres raw material out there and available we wanted to have that raw material and it may not be used and we may not even have all of the parts necessary for a particular assembly, but if a part becomes available we want to get that part and then you don't have the.

Labor and you don't have really all the finished because overheads that are applied to that.

That part is converted.

So thats the only way it may it may.

Well the $16 million, you're also looking at cost right, so that $16 million itself.

Well, the 16 million, you're also looking at costs. Right, so that's 16 million itself may by the time it manifests itself into a finished assembly could easily be, you know, 20, 30, 40 million dollars worth of material, pieces that would go into that assembly. Right.

But by the time it manifest itself into a finished assembly could easily be 20 $30 million to $40 million worth of material pieces that would go into that assembly issue.

Do you understand what I'm, saying.

I think so. I'm going to kind of just summarize this in a slightly different way. That yes, inventory may be up, but all you need is one component not available for a particular product, and you're not able to ship it. And it may look externally like you have plenty of inventory, but you need the one part, so that's the problem.

I think so.

Kind of just summarize this slightly differently is that yes inventory may be up.

But all you need is one component not available.

For a particular product and youre not able to ship it and it may look externally like you have plenty of inventory.

You need the one part so that's the problem.

Well you also have you haven't converted it to a finished good which would raise the value of that component. It's mostly built just to the extreme tightness that's out there. When you see a component you need to be able to pick it up even if you're going to use it in future quarters.

What you also have you haven't converted it to a finished good which would raise the value of that that component Mike.

It's mostly bill just due to the extreme tightness thats out there when you see a component you need to be able to pick it up even if youre going to use it in future quarters, because if you don't it's not going to be there and the lead times have extended so far so those are mostly buys from brokers and others.

because if you don't, it's not going to be there. And the lead times have extended so far. So those are mostly buys from brokers and others where there's an extreme tightness for those components. So that increase in inventory is predominantly on the raw material side, where we're trying to build some buffers to avoid being missing that one component and not being able to ship.

Where there is an extreme tightness for those components. So that increase in inventory is predominantly on the raw materials side, what we're trying to build some buffers to avoid being missing that one component and not being able to ship.

Alright, great. Thank you both for the time with my questions.

Thank you both for the time with my questions.

Alright.

Thanks.

We have a follow up question from Paul Silverstein. Paul, please go ahead.

We have a follow up question from Paul Silverstein Cowen. Please go ahead.

Hello, Mike.

I'm like, I hate to ask you another question about supply chain. I recognize you're talking about something that's not needed to add to it and that hopefully proves to be a little bit of a transitory. But I just want to make sure I understand your commentary. I think it's clear what Mike remind me. I think you had, I'm pretty sure you had indicated confidence that you'd be back to the low 40s.

You had another question about supply chain I recognize <unk> got something thats not need to add Sharon hopefully proves to be largely transitory.

Just want to make sure I understand your commentary I think it's clear.

Remind me.

You had I'm pretty sure you had indicated.

Confidence that you'd be back to the low 40 <unk>.

By the first second quarter timeframe previously that obviously isn't happening.

by the first second quarter timeframe previously. That obviously isn't happening, which in turn clearly indicates consistent with other companies that there's been no improvement or let alone meaningful improvement in that perhaps things have gotten worse.

We're seeing churn clearly indicates consistent with other companies.

Theres been no improvement.

Alone meaningful improvement and that perhaps things have gotten worse in terms of cost impacts as it translates into gross margin I just want to make sure that in fact is what's happening what youre seeing is that a function of increased increments, which many other companies were up for answers.

in terms of cost impacts as the trans ladies and deGroes margin, I just want to make sure that in fact is what's happening, what you're saying. Is that a function of increased decimates, which many other companies were referring to, or is it what exactly is going on?

What exactly is going on.

So let me start with Paul, I don't think we said in Q1 or Q2 this year we would get back to 40. I think we said late in the year, right? Our previous expectation was we would be extremely challenged through the first half.

So let me start with Paul I don't I don't think we said in Q1 or Q2. This year, we would get back to 40 I think we said late in the year. Our previous expectation was we would be extremely challenged through the first half and then it would start to improve in the back half.

and then it would start to improve in the back half. And I was thinking that we might be able to get back closer to 40 in the latter part of the year, but certainly not in Q1 and Q2.

I was thinking that we might be able to get back closer to <unk> 40 in the latter part of the year, but certainly not in Q1 and Q2 and as you know this thing just continues to play out and so far we haven't seen improvement out there and what's going on so I don't think we're ready to.

And as you know, this thing just continues to play out and so far we haven't seen improvement out there in what's going on. So I don't think we're ready to say we're getting hold of it. And as far as the environment, I mean, the environment feels so similar to what it was in Q3. It feels very similar right now to what it was in Q3 and Q4.

Sarah.

As far as the environment.

Does the environment feel service similar to what it was in Q3.

Very similar right now to what it was in Q3 and Q4.

Yeah, there's been some de-commits, but honestly, we've had de-commits.

Yes, there has been some day commence but honestly we've had the commence.

throughout that whole period. So I don't see an increase in decommence. I just see a continuation.

About that whole period, so I don't see an increase in decommit.

A continuation.

Well, Tom, I'm going to play Zabak here because I am pretty sure that I don't meet Zabak in a minute, but I'm pretty sure that you and Mike previously indicated that you expected improvement early this year. And I think you said meaningful improvement and it was a, I didn't quite understand it at the time, but referrals again, and I'm not trying to give you a hard time, but I just want to understand if there's been a handicap.

Well, let me play Devil's advocate here, because I am pretty sure.

Majority of minute, but I'm pretty sure.

Mike previously indicated that you expected improvement early this year and I think you said meaningful improvement and it was I didn't quite understand it at the time.

But regardless again I'm not sure I can give you a hard time, but I just want to understand if theres been ration.

over the last major. No, well, I don't know how far back you that comment was made. So if it was made in the beginning of the year, okay. But I think a little bit of that. I know, just for a last. Yeah, a lot.

Over the last 90 days well.

I don't know how I don't know how far back that comment was made so if it was made at the beginning of the year, okay, but.

I think so.

<unk> splits for Alaska.

Last quarter I was.

thinking that we would not see a change until the tail end of the second quarter.

Thinking that team that we would not see a change until the tail end of the second quarter.

that the environment I did and then I was hoping that the environment would improve there because we were some of the large ships versus smaller ships, which is still very, very fluid. But if we did say it was going to improve in the first quarter, then...

That's the environment and then I would I was hoping that the environment with pru improve there because we were.

Some of the large chips versus smaller chips, which is still very very fluid but.

If we did if we did say it was going to improve in the first quarter then.

We were definitely not correct we're expecting.

We were definitely not correct. We're expecting a constant environment for more we are today. Through the first half of this year, hopefully that'll get better, but right now that's what we're expecting, and expecting some improvement in the second half.

Constant environment from where we are today.

Through the first half of this year hopefully.

That will get better, but right now thats what were expecting.

And expecting some improvement in the second half.

It's measured by Joe. So just so the answer is that really I don't think it's any different I don't think it's any different than it was in third and fourth so.

So the answer is that really I don't think it's any different. I don't think it's any different than it was in third and fourth. So and I don't think our feeling about the quarters has really changed at least since the fourth and I don't know how far back I haven't looked at the notes there. Yes.

And.

I don't think our feeling about the quarters.

Is it really changed at least since the fourth.

Don't know how far back and looked at the notes there.

Yes, so look at our guidance.

We're expecting just minor minor incremental improvement similar to what you saw between Q3 and Q4 I think we're expecting to see minor incremental improvement as we go through the next few quarters, but.

We're expecting just minor incremental improvement. All right, similar to what you saw between Q3 and Q4, I think we're expecting to see minor incremental improvement as we go through the next few quarters, but nothing significant. And the bolster on that, the reason that we're saying that is, one, we are farther in the lead times, and two, we are farther in the lead times.

Nothing significant.

And the bolster on that the reason that we're saying that is when we do we are farther and our lead times and to.

So <unk> got to get better at some point and as Mike said almost half of our expenses of our overage is because of freight.

freight has got to get better at some point. And as Mike said, almost half of our expenses of our overage is because of freight.

By going direct.

Increases in freight costs over what our norm is. So.

Increases in freight costs over what are enormous so.

you know, the whole thing to that is, you know, when do people start traveling, when does air travel start picking back up again, you know, the congestion set the ports are getting a little better. So if there's not another COVID event, you would expect for it to get better. And that's a material piece of our, of our over.

The whole thing to that is when do people start traveling one as air travel start picking back up again.

The congestion at ports are getting a little better. So if there's not another COVID-19 event, you would expect for it to get better and that's a material piece of our of our overage.

Got it.

Got it in last question here. I trust by your commentary that in your case.

Last question here I Trust by your commentary that in your case contrary to most other companies that have reported you haven't seen a material increase in the number of documents.

Contrared to most other companies that have reported you haven't seen a material increased in the number of decommets or you have

Oh no.

No, I mean, there is one vendor that has been problematic, that continues to be problematic more so than the rest, but...

There is one vendor that has been problematic that continues to be problematic.

More so than the rest but.

No, I mean we had a couple that hit us early in the quarter, we were able to kind of bounce back from that and I would say it's very similar to Q3. So I haven't seen a change from Q3 to Q3.

No I mean, we had a couple that hit US early in the quarter, we were able to kind of bounce back from that and I would say, it's very similar to Q3, So I haven't seen a change from Q3 to Q4.

I appreciate it. But everybody's got their own situation. Everybody's got their own stock situation as well. So I'm not at all saying that that may not be happening to a group of companies. I can just tell you that ours was very similar. Got it.

I appreciate it but everybody has got their own everybody's got their own situation everybody's got their own stock situations as well so I'm not at all saying that that may not be happening to a group of companies and I can just tell you that ours was very similar.

Got it okay.

Okay.

Right.

I think at this point, I don't see any other questions. I appreciate everybody joining us for our conference call today, and I really look forward to talking to you next quarter. Thanks very much.

Okay.

At this point.

I don't see any other questions. So I appreciate everybody joining us for our conference call today, and I really look forward to talking to you next quarter. Thanks very much.

This concludes today's call. We thank you for joining you may now disconnect your lines.

This concludes today's call. We thank you for joining. You may now disconnect your line.

Okay.