Q1 2022 ADTRAN Inc Earnings Call
And gentlemen, thank you for standing by and welcome to odd transfer first quarter 2022 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. If you would like to ask a question. Please press star one on your telephone keypad.
During the course of the conference call I'd trend Representatives expect to make forward looking statements, which reflect managements best judgment based on factors currently unknown.
However, these statements involve risks and uncertainties, including the continued spread and extent of the impact of the COVID-19 global pandemic the ability of component suppliers to align with customer demand the successful development and market acceptance of our product competition in the markets, where such products the products and channel mix.
And it costs freight and logistic costs manufacturing efficiencies and other risks detailed in our annual report on Form 10-K for the year ended December 31st 2021, and our quarterly report on Form 10-Q for the quarter ended March 31st 2020 to these risks and uncertainties could cause.
Sure.
Really 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 Adrienne Sir. Please go ahead.
Thank you Hannah.
Good morning, everyone. We appreciate you joining us for our first quarter 2022 earnings conference call.
With me today is that trend CFO , Mike fully auto.
Following my opening remarks, Mike will review the quarterly financial performance in detail and then we will take any questions that you may have.
Q1 continued our trend of record demand for our fiber broadband solutions with a diverse mix of service providers across our key growth markets in the U S and Europe .
This demand continues to be driven by the massive build up of fiber broadband networks paired with the deployment of mesh Wi Fi solutions in the home and the adoption of cloud based network automation tools.
Some of the key highlights for the quarter included the following.
Overall revenue was up 21% year over year.
Fiber access platforms revenue was up 61% year over year led by a diverse mix of regional service providers in the U S and Europe and included the expected ramp in shipments to tier one customers.
Our residential Wi Fi platforms were up 64% year over year led by volume shipments of our latest mesh Wi Fi six systems.
Continued rapid growth in our SaaS customer base up 31% year over year with a growing backlog of customers. Following the launch of our mosaic one platform.
And the latest market share reports from del Oro and old media art for Q4 of 2021 AD trend ship more 10 gig <unk> ports in both North America and EMEA and then the next two closest U S faced vendors combined.
This highlights our continued success in fiber footprint capture with our 10 gig fiber access platforms.
We secured an additional tier one European service provider award with our SPX fiber access platform, bringing the total to six tier one fiber customers in the EMEA region.
Lastly, we had 10, we had 310% customers for the quarter. Our U S distribution partner that serves hundreds of regional broadband service providers across the U S. Each.
A tier one European service provider and a tier one U S service provider, highlighting our continued success and geographic and customer diversification.
The success in the quarter was driven by the continually increasing demand for our fiber access solutions across a broad base of regional service providers in the U S and Europe , along with a ramping business with our tier one customers.
Service providers are increasingly selecting add trend due to our full range of fiber access platforms mesh Wifi platforms and <unk> applications. In turn this is driving sustained revenue growth in the strategic segment as we continued our rapid pace of fiber footprint capture.
From a portfolio perspective, our investments in fiber access connected home and software solutions continued to pay off.
Our fiber access platform revenue has grown over 140% in the past two years and that dominates our business.
This success has been driven by our investment in 10 gig access technology and our market leadership in open disaggregated fiber access platforms.
Our success in fiber access has driven a sharp increase in pull through revenue for fiber CPE and mesh Wifi platforms up 31% year over year, and SaaS applications up 32% year over year.
We expect to see even higher growth rates in these areas in the quarters ahead as more service providers adopt our 10 gig fiber CPE mesh Wi Fi six platforms at our mosaic one SaaS platform.
We successfully grew our business niche strategic market segments. Despite the supply chain constraints that continue to limit our revenue growth potential and negatively impacted our profitability during the quarter.
We expect these constraints to continue to reduce the impact of the supply chain issues on our profitability in the future quarters, we continue to drive cost estimate optimizations portfolio.
Portfolio consolidation and material purchases.
Despite industry wide supply chain challenges our outlook remains positive we.
We continue to have broad based success in fiber footprint capture with a broad mix of customers across the U S and EMEA, our tier one fiber customer business continues to ramp and existing customers.
With existing customers contract for large scale deployment at another tier one European Operator award during the quarter. We also have a strong funnel of additional high scale opportunity.
Tier two and regional service providers continued their strong performance. These customers have high adoption rates of our complete portfolio of fiber access <unk>.
<unk> at home and cloud software solutions, driving synergistic growth across these product segments.
With a very strong outlook for our multi gig mesh Wi Fi six platforms, a robust funnel of fiber access opportunities and a healthy backlog of SaaS customers. We expect these customer segments to remain high to remain in high growth mode for the quarters ahead.
Our portfolio enhancements and customer diversification success comes at a time when we continue to see a strong environment for funding the deployment of fiber broadband networks.
In the U S of $42 5 billion in broadband infrastructure spending that is part of the infrastructure investment and jobs Act will lead to significant future opportunities.
Meanwhile, tens of billions and funds have begun to be released for art off and ARPA. This funding is helping to drive generationally significant investment cycle that we're seeing in broadband spending here in the U S.
In Europe similar increases in spending are occurring as high growth countries like the UK and Germany increased their funding to drive the deployment of more efficient sustainable and scalable all fiber networks.
While these operators shift to next generation fiber networks, they continue to shift away from high <unk> high risk vendors.
AD trend is very well positioned to benefit from these transitions given our market, leading fiber access portfolio and a strong and growing presence in Europe .
Speaking of that presence I want to update you on the business combination with Advair. We remain on track we are working diligently with German officials to obtain FDA approval foreign direct investment approval, which is the last milestone we must reach before closing the.
The process is progressing as expected with close expected in Q3.
Our optimism continues to grow around the portfolio synergies offered by this strategic combination of two leaders in fiber networking.
Both companies are seeing record demand for their complementary portfolios and we expect this to further accelerate through our proposed combination.
Okay.
In summary, despite continuing supply chain constraints, we are making great progress.
With increased customer funding record demand, a diversified customer base and a differentiated product portfolio. We are on track for added growth this year.
With that background, Mike will provide you with some details and a review of our financials. Following Mike's remarks, I will be happy to open up to any questions you may have Mike.
Thank you Tom and good morning to all.
I'll cover our first quarter of 2020 twos results and provide our expectations for the second quarter.
I'll be referencing both GAAP and non-GAAP results with reconciliations presented in our press release and the supplemental financial schedules on our Investor Relations page at investors Dot AD trend Dot com.
The supplemental financial schedules on our webpage also presents certain revenue information by segment and category, which I will be discussing today.
AD Trans first quarter 2022 revenue came in at $154 $5 million slightly up from the prior quarter driven by higher sales in both our access and aggregation and subscriber solutions and experience portfolio categories.
First quarter revenue increased 21% year over year with increases in all segments and categories on a regional basis domestic revenues grew by 15%.
And international revenue grew by 35% year over year for.
For the first quarter of 2022 as reflected in the supplemental schedules, we had a slight quarter over quarter decrease in both our GAAP and non-GAAP gross margin, which is the result of customer and product mix as we continue to experience abnormally high supply chain and logistics.
Costs.
The year over year gross margin decreases in both GAAP and non-GAAP gross margin were primarily attributable to increased supply chain expenses, partially offset by higher sales volume and increased manufacturing absorption.
While we remain focused on gross margin improvement and are actively managing higher component costs freight expenses and expedite fees related to the supply chain constraints, we do anticipate continued challenges.
To provide context on our first quarter's operating expenses, we decreased spending in our GAAP and non-GAAP quarter over quarter.
And GAAP year over year expenses, while the non-GAAP year over year increased.
The GAAP quarter over quarter decrease was the result of lower market driven deferred compensation expense.
Acquisition acquisition related expenses, and engineering project expenses, partially offset by higher labor fringe benefits and legal expenses.
The decrease quarter over quarter in non-GAAP operating expenses was primarily due to market driven lower deferred compensation and lower engineering project expenses, partially offset by increases in labor fringe benefits legal and marketing expense.
The year over year decrease in operating expenses was a result of lower market driven deferred compensation expenses, partially offset by higher acquisition related expenses variable labor compensation marketing and travel expenses the.
The year over year increase in non-GAAP operating expenses was driven by higher labor marketing travel and insurance expenses shifting to operating profitability.
The quarter over quarter and year over year improvements in GAAP operating profitability were mainly attributable to lower operating expenses with higher sales volume also contributing to the year over year improvement.
The non-GAAP quarter over quarter improvement in operating profitability was driven by slightly higher sales volume and lower operating expenses.
The non-GAAP year over year decrease in operating profitability was the result of higher cost of goods sold due to the supply chain constraints.
Other income decreased on a GAAP and non-GAAP basis, both quarter over quarter and year over year.
The quarter over quarter decreases were a result of lower dividend income market driven losses in our investments and realized foreign currency exchange fluctuations.
The decreases in GAAP and non-GAAP other expenses on a year over year basis were mainly related to market driven losses in our investment portfolio as compared to gains in the prior year and realized foreign currency exchange fluctuations.
The company's tax provision for the first quarter of 2022 was a benefit of $2 4 million, primarily driven by the change in our annual estimated rate due to the requirement to capitalized R&D expense in the U S. Beginning in 2022 and its effect on our valuation allowance.
Closing out our income statement results. The first quarter of 2020 two's GAAP net loss was $1 $1 million.
With a loss of <unk> <unk> per share assuming dilution.
non-GAAP net income was $9 $9 million with 20.
non-GAAP earnings per share assuming dilution.
On the balance sheet unrestricted cash and marketable securities totaled $96 million at quarter end after paying $4 4 million in dividends during the quarter.
For the quarter, we generated $4 $9 million in cash from operations.
Net trade accounts receivable was $150 1 million at quarter end, resulting in Dsos of 87 days compared to 95 days in the prior quarter and 73 days at the end of the first quarter of 2021.
Net inventories were 171 $1 million at the end of the first quarter compared to $139 9 million in the fourth quarter of 2021, and $122 9 million at the end of Q1 2021.
We continue to carry a higher level of inventory and raw materials.
As we work to minimize supply disruptions given the extremely challenging electronic component market and the associated extended lead times.
Looking ahead to 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.
<unk> and currency exchange rates in international markets may cause material differences between our expectations and the actual results.
Keeping that in mind, we expect that our second quarter 2022 revenue will be between 165 and $175 million.
After considering the projected sales mix and component availability, we expect that our second quarter gross margin on a non-GAAP basis will be in the range of 35% to 37%.
Still lower than normal due to higher expediting and freight costs.
We also expect non-GAAP operating expenses for the second quarter of 2022 will be between 55 and $56 million.
And finally, we anticipate the consolidated tax rate for 2022 on a non-GAAP basis will be in the high teens to low twenties percentage rate.
We believe the significant factors impacting revenue and earnings realized in 2022 will be component availability and costs of macro spending environment for carriers and enterprises ongoing effects of the COVID-19 pandemic the variability of mix in revenue associated with project roll.
Routes that 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. Once again, the additional financial information is available on AD trends Investor Relations webpage at investors Dot AD trend Dot com.
Now I'll turn it back over to Tom and we'll take your questions.
Alright.
Thanks, Mike Pan at this point, we're ready to open it up for any questions people may have.
Certainly if you would like to ask a question. Please press star followed by one on your telephone keypad.
Any reason you would like to remove that question. Please press star followed by <unk>.
A question press Star one.
A reminder, if you are using a speaker phone. Please remember that pick up your handset before asking your question. We will pause here briefly as questions are registered.
The first question is from the line of Rod Hall with Goldman Sachs. Please proceed.
Hi, Thanks for taking my question. This is Bob let Eddie answer Roger.
Congrats on a good quarter and guidance here, especially in this environment.
Okay.
Tom.
Maybe you could talk about.
Guidance for the June quarter.
Yeah.
It's better than walk you, though expecting and then.
But largely it gives you confidence that you would say this cuatro a quarter.
The increase in revenues.
In this environment is this daily.
Inventory build.
You know about any of that payback.
Maybe provide more color on.
Yes sure.
Well as you know inventories are up and we've been trying to increase our inventories both in raw material and finished goods or finished goods are turning fairly quickly. So it's really more of a raw material piece to be able to get us in a better position going forward. We feel we are in a better position.
We will definitely we don't have any.
We're definitely going to ship more next quarter than this quarter.
And.
As you know, we really havent been demand constrained, it's been all supply constraint and I think some of the purchase orders that we placed at.
At the beginning of last year are starting to firm up we are seeing.
Less of an impact of Decommit is really in general.
Hum.
The more complicated silicon that we have had problems with earlier in this in this cycle.
Somewhat gotten ameliorated and we've brought on second suppliers, we have big teams working on Redesigns on a constant basis, they've been doing a fantastic job and I want to say, thank you to them.
On giving us alternatives, so I just think.
We're kind of settling into this environment and being able to execute in the environment that we're dealt with.
Got it so lower becoming not that interesting because.
Many companies reporting back in and they've seen a sharp increase in becoming an amount that much but it looks like youre not really seeing that that's good.
As a follow up.
Gotcha.
Maybe could you talk about your tier one customer of in Canada that had strong momentum, especially in Europe of the past.
18 months to have a bunch of events.
I would think about the next steps from here onwards.
Is it more you're focusing on really ramping those projects and then capturing the revenue scale that you would expecting too.
Also thinking maybe more rfps or more.
Roger.
We're waiting for any color on there.
Yes, sure. So yes, the ones that we have previously announced all all which is not typically the case, but I think that this environment is different are all pretty much in line with where we were hoping that were going to end up and are starting to.
We're starting to drive shipments for multiple of those ones now.
All of them have I shouldn't say all of them, but.
Large number of them had started placing purchase orders last year just to make sure that there werent any they were in line for the supply constraint issues that we had.
And they are pretty much coming online so.
No real hiccups at this point on the existing ones that are kind of in the launch phase.
There are definitely several.
Large opportunities are still out there a couple of them have been stalled.
For this or that reason, but.
I would expect that those would still be theyre going to come to they need to make decisions there is not.
Any major carrier.
In Europe that isn't having to make a decision either.
Because of technology or because of vendor positioning or just trying to make sure that they have the right vendor lineup in there in their portfolio. So.
Nothing is slowing down there on the the other thing that I don't want to make sure that you have misses with Thats not really just our only focus we continue to drive into the tier two and tier three space as space has been growing in the.
Roughly 30% plus range forever.
Sure.
And there is no slowdown in that space. So we're feeling good about that.
And then we still have the funding yet to come right. All this stimulus funding so.
Okay makes sense.
Last question from me.
Gross margin for them.
Nearly flat package.
Quarter over quarter, or maybe slightly down from a product and customer mix.
It doesn't sound like you're seeing lessening depreciation at least on top of that chain comes.
In that context, how should we think about <unk>.
Gross margins in second half of the Uh Huh.
Obviously revenue scale is improving any color there would be helpful. Thanks.
Yes, there's probably some factory efficiencies that will come in at some point in.
In the second half.
But really trying to nail those down is kind of difficult in this environment. So the best way to think about it is we're managing in the environment, we have by paying what we're paying.
And expedite fees and whatever enable to keep customers happy and continue to grow.
And I don't see a deviation from that I mean, you may see a tick up as revenue continues to grow through this year, which we fully expect.
But.
That's something that we're not going to be two pro two ahead of our headlights on.
I'm trying to forecast.
Fair enough. Thanks, so much.
Okay.
Thank you Mr Hall.
The next question is from the line of Michael Genovesi.
With Rosenblatt Securities. Please proceed.
Great. Thank.
Thank you very much just a couple of questions I guess first.
We have been talking a lot about the gross margins and I know, it's dangerous to make guesses like this but I mean I think in the past you've talked about.
When you might get back to the 40% range or what your current thoughts on that are so could I ask for an update there.
Let me get Mike to stepping on there, yes, I think in the past we've said as we get through these supply issues, we should be able to return to that more normalized rate. The hard part is really just figuring out when that is going to happen I know that a lot of folks had been mark.
Rolling it as a as a minor improvement quarter over quarter as we go through the year and then.
I'm hearing some say that these issues last through the end of the year through the middle of next year. It is just really hard to tell so I'm in agreement that we should see minor improvement each quarter as we just get better in navigating this environment, assuming there are no other big.
<unk> that happen, but.
When we actually get back to that low <unk> is really a little bit hard to tell at this point.
I agree with I think it I think.
If the environment. The problem is the volatility in the environment, It's not something I think we're managing well now I think that our management of the situation is actually going to get better, but COVID-19 engines and can throw a wrench in the works. So those are the things that are probably more worrisome.
Alright.
Okay and then so for.
I'm a customer perspective.
It looks like your.
You know longtime copper customer has transitioned to a fiber customer in the U S and as it was at 10% or is what I'm seeing I think and then a new European fairly new customer in Europe .
10% or.
So is that is that a correct understanding and then and then.
With any of these new wins are your recent wins in fiber.
Is there an opportunity.
Shall we think of this as being the 10% customer list.
Or you know who else could possibly be a 10% customer this year and next.
I think there are several European customers that could be on the 10% list I also think we have distribution partners.
The growth rate here in the U S. In the tier two and tier three has been phenomenal I think.
There is always a couple that are right there near that 10% watermark. So.
I think youll see some.
Variability.
<unk>.
We're hoping not to get to where we have like a 40% customer because that hurts and we've had that in the past.
And the key to that is not to turn down orders is just to make sure. The rest of your business has got the right focus so.
The answer to your question is yes, I think youll see that continue to kind of change from quarter to quarter.
Great and then last one for me.
I guess.
One of your competitors.
Recently made a I guess I'd think of it as a Wi.
Wi Fi in home SaaS software acquisition.
And I guess.
My question is is that <unk>.
A direction you would go into or do you think that you do it organically or could you grow through M&A, there or are there other companies out there like that that are.
Got it.
We have we have right now.
I mean it.
It'd be nice to be able to show you. The products, we have right now the best in home Wifi solution that's out there.
So we are already we've already crossed that bridge.
We continue to do development to continue to work on that but.
Yes.
That's not our current hole in our portfolio.
If I could ask a follow up there then is that is that.
Is that a is that it.
And trend solution or is that an AD trend plus plume solution. When you say you have the best.
We have multiple solutions, but.
So I'll just say, let's just say our portfolio is the strongest thats out there.
Okay fair enough.
I appreciate the questions and I look forward to talking about the call backs.
Thank you.
The next question is from the line of Bill the Xylem with Teton capital. Please proceed.
Thank you a couple of questions first of all relative to the supply chain you did reference a couple a couple of factors and I am wondering which from your perspective is is the bigger one relative to the second quarter revenues ramping up from the first quarter is it.
Supply like the <unk> are improving or is it is it more a result of.
The ordering that you did months ago. So the planning is now finally had enough months two to have an impact.
They both they both have an impact so the ordering is definitely seems to have shored up kind of the major silicon pieces and then as you know there are these ancillary pieces of silicon that are smaller that have been very difficult to get.
We have.
It was a lot like I had mentioned.
In an earlier question.
We're doing a lot of redesigns. So we're finding if we don't if we can't get the chip that we've been using for five years.
I'm, just going to get a new chip.
We're putting the effort into doing that.
When I say, we have a serious I mean, we have a very large effort on redesign right now and that's just the ongoing thing that we're doing to make sure that we get it ourselves in the right position that doesn't mean that a decommit can't happen and they still happened they definitely still happened last quarter.
It feels it but theres two things you. This one is.
There has been a.
Ongoing problem of giving a commitment in general.
So you just never got the commitment so youre just hoping.
And that has gotten better so we more of our pipeline now has committed dates to it significantly more than let's say two or three quarters ago. We've got commitment dates from our vendors and then we still run into problems and we're basically just throwing people at redesigning as quickly as possible. The customer base is very attuned to this they are allowing these.
Redesigns through an expedited process.
Get into their network so.
Like I said I think we've gotten better at it but that's probably being a little myopic I think.
<unk>.
US and our customers have gotten better the situation.
<unk>.
So it's kind of both of those.
That's helpful. Tom and then secondly.
Secondarily would you.
Either highlight the large projects that are going to be ramping meaningfully.
Over the remainder of this year.
Or kind of in aggregate the are the.
Projects that are going to be ramping that are meaningful what the what the differential in revenue or incremental revenue on a quarterly basis is that you would expect from them.
Oh.
Such a difficult question because.
And I know.
But.
So there is there is kind of.
Let's think about maybe three different ramps.
Yes.
There's the ramp that's been going on.
There's really four different ramps.
Okay.
So let me give you the first one the first ramp which is.
Incredibly material, but not much movement as supply chain ease I've got tons of backlog right any movement in our supply chain.
He's in this current constraints will substantially affect our results.
Then the second one is okay.
Got it.
Tier two and tier three booking growth that continues to pile on so it takes some supply chain needs, but it continues to grow at a phenomenal rate.
So thats one ramp that's on a year over year basis right. So it's not like it's flat on a year over year basis, it's still growing in the thirties.
Just a very strong business.
Then I have got.
Tier ones that have recently come online.
Those are just now launched so they will continue to ramp.
And then I have the new tier ones that come online those near term tier ones kind of get data throughout the year and theres actually probably some that are I'm sure there'll be some I know theres. Some there early into next year those are the most difficult to forecast because.
Did you have to get through lab cycles and stuff.
So those are the less least deterministic but.
To be honest with you the other ones are dwarfed that anyways.
Because it takes time for them to get to a material ramp a.
Material revenue level.
So we have a lot of potential there is a potential is really what youre seeing us forecast.
And what Youre going to see is forecast throughout this year is not about the ramps. It's all about the supply chain availability.
So taking that that last comment.
So essentially my question is misplaced trying to identify.
And let's just say the tier one ramps that you would anticipate over the remainder of the year and whether that's adding $5 million or $50 million of incremental revenue.
Say the.
The coming quarters.
You are saying that's really the wrong question. The question is what's going to happen with the supply chain because that's the that's the limiting factor.
Yes, absolutely.
And it will be for some time and so if you are.
That's a great question to ask if you are asking me tell me what the middle of next year or end of next year is going to be right.
Which I can't tell you, but but if youre talking about this year, it's all about supply chain Division.
Okay. Thank you I appreciate that and you'd negated then my follow on question. Since you told me you wouldn't answer it. So thank you very much sir for the time, Okay alright.
Alright. Thanks.
Thank you Mr. Devlin.
The next question is from the line of Paul <unk> with William K what drives. Please proceed.
Thank you very much for taking my question I.
I wanted to follow up on the pay as you go the residential SaaS.
Six months ago, you told US you had about 1 million end users not service surprise, but end users and.
And based on your growth rate.
These platforms. It would seem to me you would be about $1 3 million end users at this point is that a fair number.
Okay.
That's probably a fair number but I'll be really honest with you I don't have that number right in front of me.
But that sounds okay that sounds in the bulk that sounds in the ballpark there yet.
Okay.
Then given the supply chain situation.
Where do you think you could could have been at this point in time.
Pushing 2 million can you give us some sense of that how much that slowed you down.
The $1 three isn't as directly HAMP hampered right. So people that are signing up for our SaaS services.
It is and it is it isn't as directly correlated because they are signing up for SaaS services their supply can change everywhere constraints everywhere.
And they're really signing up for the kind of capabilities that you have knowing that getting material is going to be low. So when you just talk about subscribers, you're not necessarily talking about volume of what you are actually shipping right at any point in time.
So.
I do but the net answers I don't know I really don't know I've never done that analysis.
I know that the backlog ADP, that's associated with our SaaS services huge.
Okay.
You would expect.
What type of penetration rate on that debt backlog going forward for the SaaS.
That's all about here again product.
Penetration rate of the SaaS piece.
I know you are let's just say both of them are very large.
So it's okay.
I mean, we have there are some customer.
Let me just give you a little bit of color on that for instance.
Our newest European customer very large customer buys a significant amount of CPE and has an order a significant amount of CPE, which dilutes that number because they won't they won't do that so when you're really talking about SaaS services, you've really got to bring it down to the tier two and tier three space and most part.
And really the tier three space.
And that has got a very high attachment rate.
But I just don't have that number improvement.
Okay, that's fair.
And did I hear you say, you're expecting that to accelerate.
Is that due to the tier ones or is that just the tier threes robo predominantly predominantly tier threes theres, some tier one in that as well, but predominantly tier threes.
Okay. So we could see it as 30% or 60% growth rate accelerate going forward.
Yes, I think I said 30 right.
But yes, the answer is yes.
Okay and last.
Last question on this subject.
When do you guys still youll be comfortable enough to disclose more information on this stage Hugo says.
It'll be when we have some.
Two things, it's got to be material and it's got to be predictable.
And supply chain is hurting us a little bit on that predictability to your point before on on what you could sell versus what you what you are selling.
Sure.
So I don't have a direct timeframe on that but I would hope it would be fairly soon.
Okay. Thank you.
Question have you run into Kalana.
Our line of sight wireless.
Solutions.
Richard.
I don't know if we really run into them much I mean, I know they've been around for a long time.
They are.
Doing some.
But I don't think we really run into them now.
Okay. Thank.
Thank you very much okay alright.
That's all I have.
Alright. Thank.
Thank you Mr assay.
The next question is from the line of Tim Savage out with Northland Capital. Please proceed.
Good morning, and I've got some background noise here forgive me.
A quick question about the new European Tier one win that you talked about and I think you said that brings it to six.
In the aggregate I guess kind of leveraging off that your recent answer there of those six I guess, how many would you put in.
Bucket number three.
Versus number four.
If you will in terms of the pacing of those rollouts and can.
Can you give us any color on this recent win relative to the others that you've you've already brought in there.
Any maybe aggregate metrics about homes passed spend either from this deal or the half dozen in the aggregate.
Yes.
Okay. So.
First of all to answer your first question without literally not trying to be cute here, but they're all in bucket for right.
Bucket. One however, you define it I guess I'm defining it backwards, but because they all are supply limited.
<unk>.
I would say.
Of the six.
Two are kind of in that.
We're often running and ramping and just trying to get as much material as we can get.
And then.
Then the others will be coming on some this year and then.
Some some next year.
And.
And as the color on the newest one.
I can tell you, it's eastern Europe tier one carrier nation National carrier.
Can't really say names until we get approvals.
And I can't remember user.
Well neither can I. So that's all good.
Well I'll see if I can first I know I think I think we got that.
Looking at the Q2 guide.
Which is pretty strong.
As you consider that whats what are the factors driving that sequential growth in particular, you've talked about.
World Tier three tier two three you've talked about tier ones is there any bias.
As to what's driving that sequential growth outlook.
Between those two categories or any other.
We've got it.
We've got.
Effectively unlimited orders in all of those segments, it's all about material availability. So so.
We will end up at the end of the quarter, saying. This is what we shipped to tier ones tier twos, and tier threes, and whatever and European versus U S. But.
That won't be because of the orders it will be because of this is where we allocated our supply based off of where we thought the strongest demand requirements, where within the customer base.
Great Thanks, and congrats on the outlook.
Okay. Thank you.
Thank you Mr Savage out.
The next question is from the line.
Uh-huh meson with loop capital. Please proceed.
Yes.
Yes.
Thank you for taking my question.
If I look at your over the last 10 years peak revenue quarterly revenue has probably been around $185 million.
Do you think that going forward, even if assuming supply chain improves the new thing you get you could possibly top that and the reason I ask is because we all know how the story goes right component shortages today Libre.
Labor shortages tomorrow, so you'll never see that kind of an inflection point, but I'm just trying to figure it out.
What's the peak revenue you could see what you are thinking about anything you can share with us.
Yes sure the answer to your question is yes.
I think we will surpass that 183.
And is that a function because the higher pricing or is that because you're saying that the fundamental more capacity to ship more volumes through the system.
I mean, we have been continuing to eke out growth.
It may be even a little bit of a soft term, but we've been continuing to grow through there and I think we're continuing to get better at it.
Our current thought processes as they will be able to surpass that number.
I appreciate it.
And then I have a follow up on in terms of the guide.
Definitely very impressive.
Relative to your peers.
Anything you can share with us in terms of the component shortages that has materially improved over the last 90 days.
Anything you can share with us in terms of.
Good dynamics.
Proving and what's not improving but what has gotten worse.
Yes.
I kind of covered a little bit of that right. So the more complicated silicon that was the headline last year has just continued to get more stable.
With fewer pull outs, we had some of that in.
In Q1, and some of that in Q4, but it just feels more predictable.
Then so the problem the real problem has been more around.
I use the term glu logic, but it's these relatively inexpensive parts that do things like power supplies and things.
Those continue to be problematic, but really what's changed is.
Signet.
I've stated this a couple of times on this call, but just significant effort and Redesigns where.
There are times, where you don't have to have a chip. There time, you can use a resistor capacitor and get rid of chips and where we can do that that's what we're doing.
So it's just trying to really design out products that are just.
Not available.
And that that that coupled with that first thing of kind of hitting that 52 weeks.
Lead time on.
That's a semiconductor industry had effectively put in place I think it's just made it.
Little better.
Got it and then I have one follow up.
To the extent that the.
Important shortages that you're seeing are more.
Basic passive.
Passive components that are probably universal across all your product portfolio.
You, maybe allocating more of your supply towards your higher margin higher revenue.
<unk> products are you shifting more of your supply doors that anything you can share with us in terms of optimization.
No.
We're really not I think in a position that we're in a mode to optimize margins.
Because we're really.
We don't want to lose customers through this process.
So it's really we're shipping we're shipping a mix that's reflective of where we think the strongest requirements are.
So we're.
We're really not about how do you expect gross margins up in the system.
Really trying to meet customer demand.
I appreciate the answers thank you.
Okay.
Thank you Mr. Zhang.
The next question is from the line of Orin Hirschman with <unk>. Please proceed.
Hi, how are you.
In terms of in terms of getting gross margins back into the forties.
Couple of questions, let's assume component availability eases, let's say it eases dramatically.
Why is that going to help push your margins higher understand how kind of push your revenue kind of a Y will help on the gross margin.
And part of part D and C. That question is when did the price increases that you put in begin to start to really show through.
Your book to increase your gross margins just from the price increases themselves and then.
Less part three of that question part C is when does the software begin to really become more.
Meaningful enough to start also making an impact on the gross margin wanted to 2%.
Let me just touch on your first of all a bit and then I'll turn it over to Mike. So the the reason we feel that it would be in the Forty's is because we can actually look at the expedite fees that we pay on a quarterly basis and the freight overages that we're paying on a quarterly basis and if we subtract those two elements from.
R. R. Let's say subtract those two impacts to our cost our gross margins today are above 40%.
So and this is not this is not saying, we know that theres been silicon price increases, but we're talking about extra fees that we have to pay to buy on the black on the gray market or extra fees as some people are charging just to meet their current require commitments to commitments. They had before if we subtract those costs and the freight overages were already.
About 40%.
Alright, so yes, we think we can get there and it's all about supply chain.
Mike any color on that.
I think I think it's roughly the same as what we presented last quarter. When we said around seven percentage points as what it's costing us to be able to.
<unk> materials to be able to keep our customers whole and then to be able to pay all of these extra fees that are being charged to be able to actually get these components. So we are expecting at some point that that normalizes trouble is when is that point, but we're monitoring that very closely and I think we are.
Also gaining a little bit better at managing that as we go.
Just finding better ways to manage it and then the redesign portion that Tom talked about really helps us get out of a lot of those extra costs as well.
And then is this.
As far as your peer price increase question, we have put some price increases out there they will start to kick in as we go through this year.
So some of that you'll see more on the back end of the year, but that should that should also help us to try to catch up with the more structural piece of this because a lot of the things I was talking about previously are more transitory issues to be able to get components now, but there are some structural price increases that have.
Come through from some of the larger silicon suppliers and I think passing on that piece will bring that back around too. So we do believe in the longer term that we're going to be back to the low to mid Forty's. I think is where we said our gross margin target is and if you get rid of these expedite fees, we're not materially off of that and if your way.
Through the price increases that are because of kind of core changes not not just near term events.
We're in the low to mid <unk> now.
Okay. That's really helpful and last question on the software.
In terms of gross margin, where I wish I could maybe yeah I.
Don't know the answer to that.
<unk>.
I'm happy with where we are today, but it's not enough to really materially offset that and that's just something I'm group, we'll just have to.
We have a relatively new launch with mosaic when the uptake has been good.
Honestly were going through the Onboarding phase right now with a boatload of customers and we'll just have to see as it works itself out.
Yes.
Okay, great. Thank you so much alright, great. Thanks.
Thank you Mr Hirschmann.
Next question is a follow up question from the line of Bill Xylem.
Well.
Alright Teton capital. Please proceed.
Alright still build this element Titan capital.
Or are they experiencing the same level of demand strength that you all.
Our.
Since the announcement and presumably theyre, having the same supply chain challenges.
Yes, I really don't want to speak for them, but I know I believe from what they've made public that they have but they are going through.
On a really nice phase of booking as well and shipments are strong.
For them and and as far as supply chain. The answer is yes, I think were everything everybody in this industry is seeing it they have a different.
They don't use all the same components that we use so their profile of their vendor base and which ones are problematic is different than ours. In some cases a lot of it is the same to you liked a lot of the power supply things and things that we're talking about but.
But I think the general answer is yes, but they just had a conference call here recently.
I'm sure as you can get public information on that.
And have you had any.
Your your wins or their wind that are.
That are really.
Benefited from the fact that the two companies are expected to expect it to be one in the future and if not are you hearing is that there will be wins.
That sort of in the future.
We're kind of limited in the way that we can sell together until we close.
So.
There is not there.
Not out joint selling.
I've mentioned before on previous calls that the customer response has been.
Very very pause overwhelmingly positive without a single.
Negative.
Feeling from our customer base and Thats jointly.
And that continues to be the case.
Sure.
I think there are customers that can't wait for us to get together. So that we can start doing joint presentations on what our roadmaps will be and how we can better tie.
The technologies of the two companies.
But.
But that's that's limited other than just kind of anecdotal.
Everybody seems to be very happy about.
The combination coming together as quickly as possible.
Great. Thank you.
Okay.
Thank you Mr <unk>.
There are no additional questions waiting at this time, so I'll turn the call over to the management team for any further remarks.
Okay. Thank you.
Thank you very much for joining us we look forward to a positive call next quarter.
Thank you. Thank you everyone.
That concludes today's call. Thank you for your participation you may now disconnect your lines.
Okay.
Okay.
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Yes.
Yes.
Yes.
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Yes.
Yes.