Q4 2023 ADTRAN Holdings Inc Earnings Call
Operator: www.adtran.com Ladies and gentlemen, thank you for standing by, and welcome to ADTRAN Holdings Inc.'s fourth quarter 2023 earnings release conference call. All lines have been placed on mute to prevent any background noise.
Ladies and gentlemen, thank you for standing by and welcome to add trend Holdings incorporated fourth quarter 2023 earnings release Conference call. All lines have been placed on mute to prevent any background noise and after the Speakers' remarks, there will be a question and answer period, if you would like to ask.
Operator: And after the speaker's remarks, there will be a question and answer period. If you would like to ask a question during that time, simply press the star followed by the number one on your telephone keypad. And if you would like to withdraw that question, again, press star one. During the course of the conference call, ADTRAN representatives expect to make forward-looking statements that reflect management's best judgment based on factors currently known. However, these statements involve risks and uncertainties, including the risks detailed in our earnings release, our annual report on Form 10-K, and our filings with the SEC. 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. We undertake no obligation to update any statements to reflect events that occur after this call.
Good question during that time simply press star followed by the number one on your telephone keypad and if you would like to withdraw that question again press star one.
During the course of the conference call I try and Representatives expect to make forward looking statements that reflect management's best judgment based on factors. Currently known however, these statements involve risks and uncertainties, including the risks detailed in our earnings release, our annual report on Form 10-K.
Our filings with the SEC.
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. We undertake no obligation to update any statements to reflect the events that occur after this call.
Operator: During the course of today's call, we will refer to certain non-GAAP financial measures; reconciliations of non-GAAP to GAAP measures, and certain additional information are also included in our investment presentation and our earnings release. The investor presentation found on the ADTRAN Investor Relations website has been updated and is available for download. It is now my pleasure to turn the call over to Tom Stanton, Chief Executive Officer of ADTRAN Holdings. Mr.
During the course of today's call, we will refer to certain non-GAAP financial measures reconciliations of non-GAAP to GAAP measures and certain additional information are also included in our investment presentation and our earnings release.
The investor presentation. It felt found on <unk> Investor Relations website has been available it's been updated and it is available for download. It is now my pleasure to turn the call over to Tom Stanton Chief Executive Officer of AD trends holding Sir. Please go ahead.
Thomas R. Stanton: Thank you, Krista. Good morning, everyone. We appreciate you joining us for our fourth quarter 2023 earnings conference call. With me today is ADTRAN Holdings CFO, Uli Daugherty. Following my opening remarks, Uli will review the quarterly financial performance in detail, and then we'll take any questions you may have. Our fourth-quarter revenue came in as expected, with operating profitability on the upper end of our guidance range, helped by lower operating expenses and improving gross margins. Revenue, of course, continued to be impacted by macroeconomic factors and elevated inventory levels.
Thomas R. Stanton: Thank you Crystal good morning, everyone.
Thomas R. Stanton: We appreciate you joining us for our fourth quarter 2023 earnings Conference call with me today is that trend Holdings' CFO lead offer for.
Thomas R. Stanton: Following my opening remarks Ali will review the quarterly financial performance in detail and then we'll take any questions you may have.
Ali: Our fourth quarter revenue came in as expected with operating profitability on the upper end of our guidance range helped by lower operating expenses and improving gross margins.
Ali: Revenue of course continue to be impacted by macroeconomic factors and elevated inventory levels given the environment. We continue to focus on managing our operational expenses and reducing our inventory levels.
Thomas R. Stanton: Given the environment, we continue to focus on managing our operational expenses and reducing our inventory levels. Taking a closer look at the results in the fourth quarter, 62% of our revenues came from outside of the U.S., which is similar to the geographical revenue mix in the first three quarters of the year. On product mix, subscriber solutions were up quarter over quarter due to an improving inventory situation with both RGs, residential gateways, and ONTs. The access and aggregation solution category was down quarter over quarter due to timing of orders with a couple of our larger customers.
Ali: Taking a closer look at the results in the fourth quarter, 62% of our revenues came from outside of the U S, which is similar to the geographical revenue mix in the first three quarters of the year.
Ali: On product mix subscriber solutions was up quarter over quarter due to an improving inventory situation with both our <unk> residential gateways and O N E.
Ali: Access and aggregation solution category was down quarter over quarter due to timing of orders with a couple of our larger customers.
Thomas R. Stanton: Optical networking solutions continue to be impacted by inventory reduction initiatives with large customers. Coming into 2024, we remain focused on two strategic initiatives, the investment in fiber-based broadband networks in the U.S. and high-risk vendor replacements centered in Europe. These two initiatives have driven us to broaden our presence and strategic relevance in Europe and substantially increase our product portfolio breadth for customers here in the U.S. And while 2023 presented headwinds to equipment suppliers, operators continue to invest in the deployment of fiber networks across most regions of the world. According to the Fiber Broadband Association, fiber broadband deployments in the U.S. set a record in 2023, passing 9 million homes, up 13 percent year-over- These results brought the total number of homes passed to 77.9 million.
Ali: Optical networking solutions continued to be impacted by inventory reduction initiatives with large customers.
Ali: Coming into 2024, we remain focused on two strategic initiatives the investment in fiber based broadband networks in the U S and the high risk vendor replacement centered in Europe. These.
Ali: These two initiatives have driven us to broaden our presence and strategic relevance in Europe and substantially increase our product portfolio breadth for customers here in the U S and.
Ali: And while 2023 presented headwinds to equipment suppliers operators continue to invest in deployment of fiber networks across Morris most regions of the world.
Ali: According to the fiber broadband association fiber broadband deployments in the US set a record in 2023, passing 9 million homes up 13% year over year from the previous year's record of $8 3 million homes passed.
Ali: These results brought the total homes passed to $77 9 million, even with this impressive growth number though nearly half of U S homes are still not passed with fiber.
Thomas R. Stanton: Even with this impressive growth number, though, nearly half of the U.S. homes are still not passed with five. Similar trends are happening in Europe. In the U.K., full fiber coverage increased by 4.6 million premises in 2023, according to Ofcom, now covering 17.1 million premises. As more homes are connected with fiber-based broadband, enabling multi-gigabit speeds per household, upgrades to in-home connectivity solutions in middle-mile transport are following. These investments underscore the importance of fiber as a critical infrastructure in the modern digital economy and reinforce the continued push by service providers to connect more customers with fiber and upgrade the capacity of their networks, with several large broadband stimulus programs still ahead of us in the U.S. and Europe, including the $42.5 billion in funding from BEAD in the U.S. that is still on track to begin allocations later this year.
Ali: Similar trends are happening in Europe, and the U K for fiber coverage increased by $4 6 million premises in 2023. According to Ofcom now covering $17 1 million preferences as more homes are connected with fiber based broadband enabling multi.
Ali: Gigabit speeds <unk> household upgrades to in home connectivity solutions and middle mile Transport are following.
Ali: These investments underscore the importance of fiber as a critical infrastructure in the modern digital economy and reinforce the continued push by service providers to connect more customers with fiber and upgrade the capacity of their networks.
Ali: With several large broadband stimulus programs still ahead of us in the U S and Europe, including the $42 5 billion in funding from bead in the U S that is still on track to begin allocations. Later this year, we still have an optimistic outlook on a growth for fiber networks over the next few years.
Thomas R. Stanton: We still have an optimistic outlook on the growth of fiber networks over the next few years. For the U.S. market opportunity, we see real differentiation in being able to provide a complete fiber networking portfolio that spans from the optical core to the customer premise and is paired with software applications that simplify and lower the cost to deploy and operate. The value of our offering was reinforced by...
Ali: For the U S market opportunity, we see real differentiation and being able to provide a complete fiber networking portfolio that spans from optical core to the customer premise and is paired with software applications that simplify and lower the cost to deploy and operate it.
Ali: Value of our offering was reinforced by.
Thomas R. Stanton: The 15 additional fiber-to-the-home operators we added during the quarter, increasing the total for the year to 66 fiber-to-the-home operators. These operators are primarily from the U.S. The Regional Service Providers Sector. In addition to providing fiber access platforms to these customers, we are having increasing success in bundling software and in-home platforms for this customer segment. We added 50 new Mosaic One customers this past quarter and more than 225 in the past year. Our current total is approximately 380 independent operators.
Ali: The 15 additional fiber to the home operators, we added during the quarter increasing the total.
Ali: Total for the year to 66 fiber to the home operators. These.
Ali: These operators are primarily from the U S Regional service provider segment.
Ali: In addition to providing fiber access platforms to these customers we are having increasing success in bundling software and in home platforms for this customer segment. We added 50, new mosaic one customers this past quarter and more than 225 in the past year. Our current total is approximately 380 independent operators.
Thomas R. Stanton: A lot of the interest in our SaaS applications is driven by Intellify, our latest cloud-managed Wi-Fi offering that is supported by our latest generation of Wi-Fi 6, Wi-Fi 6e, and Wi-Fi 7 platforms in our SDG series. The enhancements that we have made to our SDG series, along with the launch of Intelify, helped to drive strong growth with our residential gateways in this past quarter. To complete our fiber networking offering in the U.S., we have our Packet Optical portfolio. As we have educated our customers on our full portfolio of solutions, including our latest FSP3000 solutions, tailored towards the needs of regional service providers, we have been able to secure dozens of new packet optical WINS over the past six months that were from customers that had traditionally been broadband-only customers for ADTRAN.
Ali: A lot of the interest in our SaaS applications is driven by <unk>. Our latest cloud managed Wi Fi offering that is supported by our latest generation of Wifi six Wi Fi six Wi Fi seven platforms in our STG series.
Ali: Enhancements that we've made to our STG series, along with a lots of Intel if I helped to drive strong growth with our residential gateways in this past quarter.
Ali: To compete our fiber networking to complete our fiber networking offering in the U S. We have our pocket packet optical portfolio.
Ali: As we have educated our customers on our <unk> full portfolio of solutions, including our latest FSP 3000 solutions tailored towards the need of regional service providers, we have been able to secure dozens of new packet optical wins over the past six months that were from customers that had traditionally been broadband only customers for ad trends.
Thomas R. Stanton: We see this packet optical segment as offering meaningful upside for the U.S. market, and as I mentioned, it is a key component of our strategy to offer a broader fiber networking portfolio solutions to our customers. In addition to our portfolio offering, I want to highlight the value that our U.S. customers see in a U.S.-based vendor that not only has R&D support and services teams in-country but also has a long history of manufacturing solutions at volume in-country. When looking at the Build America, Buy America requirements that are part of the BEAD program, we are already well positioned to address these needs with minimal changes to our supply chain.
Ali: We see this packet optical segment as offering meaningful upside for the U S market and as I mentioned it is a key component of our strategy to offer broader fiber networking portfolio solutions to our customers.
Ali: In addition to our portfolio offering I want to highlight the value that our U S customers seen a U S based vendor that not only has R&D support and services teams in country, but also has a long history of manufacturing solutions as volume in country.
When looking at the build America buy America requirements that are part of the beat program we have.
Ali: Already well positioned to address these needs with minimal changes to our supply chain.
Thomas R. Stanton: Considering the breadth of our fiber networking portfolio and the full suite of onshore capabilities, you can see why the value proposition is unique in the industry and why we are excited about the ongoing investment cycle in fiber networks for the U.S. market. I mentioned there was a second key initiative for us, and that is a high-risk vendor replacement opportunity that is centered in Europe. Given the current geopolitical environment, we see the high-risk vendor replacement as gaining momentum, and it's really a question of timing for the phase-out in Europe rather than a question of whether it will happen or won't happen. Similar to our situation in the US, we now have a very strong regional presence in Europe, including a broad support staff and regional R&D resources. We have also greatly enhanced our local supply chain capabilities with the recent opening of our tariff factory in Germany, which was supported by significant backing from the state government in the region.
Ali: Considering the breadth of our fiber network and portfolio and the full suite of onshore capabilities. You can see why the value proposition is unique in the industry and while we are excited about the ongoing investment cycle and fiber networks for the U S market.
Ali: I mentioned there was a second key initiative for us and that is a high risk vendor replacement opportunity that is centered out of Europe.
Ali: Given the current geopolitical environment, we see the high risk when the replacement is gaining momentum and there is really a question of timing of the phase out in Europe, rather than a question of whether it will happen or won't happen.
Ali: Similar to our USA our situation in the U S. We now have a very strong regional presence in Europe, including a broad support staff and regional R&D resources.
Ali: We have also greatly enhanced our local supply chain capabilities with the recent opening of our tariff factory in Germany, which was supported by significant backing from the state government in the region.
Thomas R. Stanton: The power of our new combined portfolio is most notably highlighted by our recent win in Europe of a Tier 1 carrier who selected ADTRAN specifically for its combined portfolio for meeting the challenges of a new service rollout they are planning later this year. We continue to make progress with multiple Tier 1s in Europe that have previously selected ADTRAN. Q4 marked the beginning of volume shipments to our largest customer in Germany of the 6330, our flagship product, and our largest customer in the UK continues to pass millions of homes per year with fiber utilizing our platform. And with another carrier in Northern Europe, we have begun fiber access deployments in three countries while being qualified for four.
Ali: The power of our new combined portfolio as most notably highlighted by our recent win in Europe of a tier one carrier who selected AD trends specifically for its combined portfolio for meeting the challenges of a new service rollout. They are planning later this year.
Ali: We continue to make progress with multiple tier ones in Europe that have previously selected ad trend.
Ali: Q4 marked the beginning of volume shipments to our largest customer in Germany of the $63 30, our flagship product and our largest customer in the UK continues to past millions of homes per year with fiber utilizing our platform.
Ali: And with another carrier in northern Europe, we have begun fiber access deployments in three countries, while being qualified for four.
Thomas R. Stanton: We are in the lab for certification with another large multinational Tier 1 operator that we did a large-scale deployment a couple of quarters ago. On the optical transport side, we continue to progress our Tier 1 opportunities in Europe with one of our recent new customers, WINS, set to begin deployment late this year. We are also investing in significant upgrades to our line systems, pluggable transceivers, MUX ponders, and software platforms to stay on the leading edge of innovation in the metro optical and enterprise optical segment. One example of our opticalization is our pioneering effort to introduce coherent transceiver technology at the edge of the network with our 100GR pluggable transceiver.
Ali: We are in the lab for certification with yet another large multinational tier one operator.
Ali: That we were selected for four.
Ali: Large scale deployment.
Ali: A couple of quarters ago.
Ali: The optical transport side, we continue to progress our tier one opportunities in Europe with one of our recent new customer wins set to begin deployment late this year.
Ali: We are also investing in significant upgrades to our line systems flexible Transceivers <unk> ponders and software platforms to stay on the leading edge of innovation in the Metro optical and enterprise optical segments. One example of our optical innovation as a pioneering effort to introduce coherent transceiver technology at the edge of the network with our 100 <unk> are flexible.
Thomas R. Stanton: We have successfully completed customer trials with our 100ZR coherent optical plug-able optic, and we will ramp production of these modules this year. The 100ZR lowers the cost by up to 50% or more to provide 100-gigabit backhaul over DWDM to Fiber Access Nodes. A key need as service providers continue to deploy higher volumes of multi-gigabit residential access services while also delivering higher speed services for enterprise and 5G site connectivity. These edge-optimized optical solutions reinforce the portfolio synergies between our packet optical and fiber-access solution sets, and they drive more value to our customers adopting these combined solutions under a common suite of software tools. In summary, we continue to focus on expanding our fiber footprint with our upgraded fiber access and optical transport platforms while driving the adoption of our latest subscriber platforms, software solutions, and high-value services.
Ali: We have successfully completed customer trials with our one <unk> coherent optical plausible optic and we will ramp production in these modules this year.
Ali: The 100 G R lowers the cost by up to 50% or.
Ali: Or more to provide 100 gigabit backhaul over DW DM to fiber access nodes.
Ali: A key need that service providers continue to deploy higher volumes multi gigabit residential access services, while also delivering higher speed services for enterprise and <unk> side connectivity.
Ali: These edge optimized optical solutions reinforced the portfolio synergies between our packet optical and fiber access solution sets and they drive more value to our customers adopting these combined solutions under a common suite of software tools.
Ali: In summary, we continue to focus on capturing fiber footprint with our upgraded fiber access and optical transport platforms, while driving the adoption of our latest subscriber platforms software solutions and high value services.
Thomas R. Stanton: While we remain confident in our long-term outlook, we continue to see cautious spending from our service provider customers, driving us to take a more cautious approach with our forecast and operating model. As a result, we will continue our focus on becoming a leader, more efficient, and more profitable company with our best-in-class fiber networking portfolio. With that, I will turn things over to Uli to provide a review of our financial results, and following Uli's remarks, we'll open it up for questions. Thank you, Tom. And Hello everybody.
Ali: While we remain confident in our long term outlook we continue.
To see cautious spending from our service provider customers driving us to take more cautious approach with our forecasted operating model.
Ali: As a result, we will continue our focus on becoming a leaner more efficient and more profitable company with our best in class fiber networking portfolio with that I will turn things over to early to provide a review of our financial results and following <unk> remarks, we'll open it up for questions.
Early: Thank you Tom.
Early: Hello, everybody.
I'll cover our Q4 2023 preliminary results and provide our expectations for the first quarter of 2024.
Uli Daugherty: I will cover our Q4 2023 preliminary results and provide our expectations for the first quarter of 2024. I will be referencing non-GAAP information with reconciliations to the most directly comparable GAAP financial measures presented in our press release, and also certain revenue information by segment and category, which is available on our Investor Relations webpage at investors.adtran.com. In addition, we have updated the investor presentation on this site, which is available for download. Unless stated otherwise, all financials are presented in U.S. dollars.
Early: I will be referencing non-GAAP information with reconciliations to the most directly comparable GAAP financial measures presented in our press release and also certain revenue information by segment and category, which is available on our Investor Relations Web page at investors <unk> com.
Early: In addition, we have updated the investor presentation to the site, which is available for download.
Early: Unless stated otherwise all financials are presented in U S dollars.
Early: Q4, 2023 revenue came in at the midpoint of our guidance at $225, five, Michigan was down 37% year over year and down 17% quarter over quarter.
Uli Daugherty: Q4 2023 revenue came in at the midpoint of our guidance at $225.5 million, was down 37% year-over-year and down 17% quarter-over-quarter. Our network solutions segment accounted for 80% of revenues in Q4 2023 compared to 88.6% in Q4 2022 and 83.9% in Q3 2023. Our services and support segment contributed 20% of revenues in Q4 2023 compared to 11.4 in the year-ago quarter and 16.1% in the previous quarter. Access and aggregation contributed 28.5% of revenue and was down 32.9% compared to the year-ago quarter and down 32.1% compared to the previous quarter. Our optical networking solution category contributed 38.2% of revenues and was down 39.5% year-over-year and 26% quarter-over-quarter. Subscription Solutions was down 37.5% year-over-year, but it grew 22.3% quarter-over-quarter and contributed 33.4%. I offer evidence.
Early: Our network solutions segment accounted for 80% of revenues in Q4 2023 <unk>.
Early: Compared to 88, 6% in Q4, 2022, and 83, 9% in Q3 2023.
Our services and support segment contributed 20% of revenues in Q4 2023 compared to 11, four in the year ago quarter, and 16, 1% in the previous quarter.
Early: Yeah.
Early: Access and aggregation contributed 80 at 28, 5% of revenue and was down 32, 9% compared to the year ago quarter, and down 32, 1% compared to the previous quarter.
Early: Our optical networking solution category contributed 38, 2% of revenues and was down 39, 5% year over year and 26% quarter over quarter.
Early: Subscriber solutions was down 37, 5% year over year, but grew 22, 3% quarter over quarter and contributed 33, 4%.
Early: Both revenues.
Early: As Tom mentioned earlier, we continued to face a decline in service provider spending driven by macroeconomic challenges and ongoing inventory adjustments.
International revenue made up 62% and domestic revenue contributed 38% of total Q4 revenue.
Early: We had 110% or more of revenue customer in Q4.
Early: Q4, non-GAAP gross margin was 41, 9% and increased by 277 basis points year over year, and 155 basis points sequentially.
Uli Daugherty: As Tom mentioned earlier, we continue to face a decline in service provider spending driven by macroeconomic challenges and ongoing inventory adjustments. International revenue made up 62%, and domestic revenue contributed 38% of total Q4 revenue. We had one 10% or more revenue customer in Q4. Q4 non-gap gross margin was 41.9% and increased by 277 basis points year-over-year and 155 basis points sequentially. The year-over-year and quarter-over-quarter increase is due to reductions in manufacturing and transportation costs and a more favorable customer and product. In the fourth quarter of 2023, we successfully achieved our target with a 15% sequential reduction in non-GAF operating expenses. Spence
Early: The year over year and quarter over quarter increase is due to reductions in manufacturing and transportation cost and a more favorable customer and product mix.
Early: In the fourth quarter of 2023, we successfully achieved our target with a 15% sequential reduction in non-GAAP operating expenses.
Early: Expenses Q.
Early: Q4, non-GAAP operating expenses were $97 6 million decreasing by 15% quarter over quarter and 18% year over year.
Early: A reduced non-GAAP R&D spend by 18% and SG&A expenses by 11% quarter over quarter.
Early: non-GAAP operating loss was $3 2 million, which translates into a non-GAAP operating margin of negative $1 four compared to negative one 9% in Q3 2023.
Uli Daugherty: Q4 non-GAAP operating expenses were $97.6 million, decreasing by 15% quarter over quarter and 18% year over year. We reduced non-GAAP R&D spend by 18% and SG&A expenses by 11% quarter over quarter. The non-GAAP operating loss was 3.2 million, which translates into a non-GAAP operating margin of negative 1.4 compared to negative 1.9 percent in Q3 2023. Our operating margin was at the upper end of our guidance range of between minus 7 and 0% of revenue. The sequential improvement in operating margin was attributable to higher gross margins and the successful implementation of our cost initiative. The year-over-year decrease in operating profitability was due to lower sales volume, partially offset by improved gross margins and operating expense reduction.
Early: Our operating margin was at the upper end of our guidance range of between minus 7% of revenues.
Early: The sequential improvement in operating margin was attributable to higher gross margins.
Early: The successful implementation of our cost initiatives.
Early: The year over year decrease in operating profitability was due to the lower sales volume, partially offset by improved gross margins and operating expense reductions.
The company's GAAP and non-GAAP <unk> expenses for the fourth quarter of 2023 was $64 4 million and $73 1 million respectively.
Early: Given the current environment the company decided to establish a valuation allowance related to our domestic deferred tax assets during the quarter.
Uli Daugherty: The company's GAAP and non-GAAP tax expenses for the fourth quarter of 2023 were $64.4 million and $73.1 million, respectively. Given the current environment, the company decided to establish a valuation allowance related to our domestic deferred tax assets during the quarter. Of course, the company will be able to release this valuation allowance as we return to profitability. Including the $81.6 million tax valuation adjustment, the total non-GAAP loss was $82.9 million and a net loss of $85.9 million after adjusting for minority shareholder interest in ADTRAN Networks SEO. This resulted in a non-gap diluted loss per share attributable to the company of $1.09 per share.
Early: Of course, the company will be able to release this valuation allowance as we return to profitability.
Early: Including the $81 6 million tax valuation adjustment total net GAAP non-GAAP loss was $82 9 million and a net loss of $85 9 million after adjusting for minority minority shareholder interest in etch and networks SCE.
Early: This resulted in non-GAAP diluted loss per share attributable to the company of $1 $9 per share.
Early: Turning to the balance sheet and cash flow statement.
Early: Cash and cash equivalents totaled $87 2 million at quarter end cash flow used for operations was $23 6 million compared to $6 8 million of operating cash flow generated in the previous quarter.
Uli Daugherty: Turning to the balance sheet and cash flow state, cash-in-cash equivalents totaled $87.2 million at quarter end. Cash flow used for operations was $23.6 million compared to $6.8 million of operating cash flow generated in the previous quarter.
Early: The increased usage in cash flow from operations quarter over quarter was primarily driven by lower revenue inflows, partially offset by reduced expenses.
Early: Trade accounts receivable was $216 4 million at quarter end, resulting in Dsos of 88 days compared to 77 days in the prior quarter.
Uli Daugherty: The increased usage of cash flow from operations quarter over quarter was primarily driven by lower revenue inflows, partially offset by reduced expenses. Trade accounts receivable were $216.4 million at quarter end, resulting in DSO of 88 days compared to 77 days in the prior quarter. Inventories were $362.3 million at the end of the fourth quarter, down $11.7 million compared to Q3 2023 and down $65.2 million compared to Q4 2022. Q4 inventory included a 3.3 million write-off as we accelerated the end-of-life of certain products to streamline our product offerings. As Tom mentioned earlier, we remain focused on reducing our inventory levels moving forward. Accounts payable were $163 million, resulting in a DPO of 67 days compared to 60 in the previous quarter.
Early: Inventories were $362 3 million at the end of the fourth quarter down $11 7 million compared to Q3, 2023, and down $65 2 million compared to Q4 2022.
Early: Q4 inventory included a $3 3 million write off as we accelerated the end of life of certain products to streamline.
Early: Our product offerings as Tom mentioned earlier, we remain focused on reducing our inventory levels moving forward.
Early: Accounts payable were.
Early: 163 million reciting in <unk> at 67 days compared to 60 in the previous quarter.
Early: In summary.
Early: We are still experiencing cautious service provider spending due to economic uncertainty and continued customer inventory adjustments.
Early: Given these uncertainties, we continue to focus on aspects of our business that we can influence such as managing our operational expenses and reducing our own inventory levels.
Uli Daugherty: In summary, we are still experiencing cautious service provider spending due to economic uncertainty and continued customer inventory adjustment. Given these uncertainties, we will continue to focus on aspects of our business that we can influence, such as managing our operational expenses and reducing our own inventory levels. We are convinced that the long-term growth drivers for our business are fully intact.
Early: We are convinced that the long term growth drivers for our business are fully intact.
Early: We expect that the investment in data driven infrastructure and a fiber everywhere future. We continue supported by stimulus funding and the desire to reduce exposure to high risk vendors.
Early: We continue to focus on capturing fiber footprints with our upgraded fiber access and optical transport platforms.
Operator: We expect that the investment in data-driven infrastructure and a fiber-everywhere future will continue, supported by stimulus funding and a desire to reduce exposure to high-risk vendors. We continue to focus on capturing fiber footprints with our upgraded Fiber Access and Optical Transport Platform while driving the adoption of our latest subscriber platforms, software solutions, and high-value services. Consequently, for the first quarter of 2024, we expect revenue to range between $210 and $240 million, and we expect a non-GAAP operating margin between negative 7 and 0 percent of revenue. Once again, additional information is available on ADTRAN's Investor Relations webpage at investors.adtran.com. Thank you for joining us on our call. I will now turn back over to the operator, and we will take your questions. Thank you. And as a reminder, if you would like to ask a question, please press star followed by the number one on your telephone keypad.
Early: By driving the adoption of our latest subscriber platforms software solutions and high value services.
Early: Consequently.
Early: Currently for the first quarter of 2024, we expect revenue to range between $210 and $240 million and we expect our non-GAAP operating margin between negative seven and <unk> percent of revenues.
Early: Once again additional information is available at <unk> Investor Relations webpage at investors at <unk> Dot com.
Speaker Change: Thank you for attending our call I will now turn it back over to the operator, and we will take your questions.
Speaker Change: Thank you and as a reminder, if you would like to ask a question. Please press star followed by the number one on your telephone keypad and if you'd like to withdraw that question again press Star one. Thank you George Notter from Jefferies. Please go ahead.
Speaker Change: Okay.
George Charles Notter: Hi, guys. Thanks, very much I wanted to just ask some more questions about.
George Charles Notter: What youre seeing in the marketplace, you referenced inventory digestion and you referenced the macro economy, but.
George Charles Notter: And if you'd like to withdraw that question, again, press star one. Thank you. George Notter from Jeffries, please go ahead.
George Charles Notter: I know one of your competitors was also talking about be acting as an overhang on current demand, but could you tell us more about what youre seeing is there a beat effect in your business or.
Thomas R. Stanton: Hi guys, thanks very much. I want to just ask some more questions about what you're seeing in the marketplace. You referenced inventory digestion, you referenced the macro economy, but I know one of your competitors was also talking about the bead, you know, acting as an overhang on current demand. But could you tell us more about what you're seeing? Is there a bead effect in your business? Or, you know, what can you tell us that gives us more detail on demand trends? ......
George Charles Notter: What can you tell us that.
George Charles Notter: It gives us more detail on demand trends.
Speaker Change: Yes, Thanks, George So I think when you were talking about bead, we're typically talking about the tier three the smaller carrier space if I look at.
Speaker Change: Oh LTE shipments.
Speaker Change: Specifically into that space in the quarter, they were actually pretty flattish maybe slightly down.
Thomas R. Stanton: So I think when you were talking about Bede, we're typically talking about the tier three, OLT shipments, www.adtran.com. Specifically into that space in the quarter, they were actually pretty flattish, maybe slightly down. I would expect them actually to pick up a little bit this quarter. So I don't know, I guess you could say, yes, there's an impact because that's a segment that has been growing, you know, 30%, you know, year over year for some period of time. But as to how much of that, I don't understand it since there's a lot of inventory in that Tier 3 space.
Speaker Change: I would expect it actually probably a little bit to pick up this quarter. So I don't know.
Speaker Change: Yes, you could say, yes, there is an impact because thats a segment that had been growing.
Speaker Change: 30%.
Speaker Change: Year over year for some period of time.
Speaker Change: But as to how much of that I don't get a sense. There is a lot of inventory in that tier three space I think I think what we're seeing is real demand. So I would say it's for US anyway, it's flattish at this point in time.
Speaker Change: There are without a doubt some customers that are waiting for bead.
Speaker Change: And then there are some customers that are moving forward. So I would say, yes, I see the impact but.
Thomas R. Stanton: I think what we're seeing is real demand, so I would say it's, for us anyways, it's flattish at this point in time. There are, without a doubt, some customers that are waiting for Bede, and then there are some customers that are moving forward, so I would say, yeah, I would, I see the impact, but... For us, that kind of points back to a flattish number. Did that answer your question? Got it.
Speaker Change: For us that kind of points.
Speaker Change: Points back to a flattish number.
Speaker Change: Does that answer your question.
Speaker Change: Got it yes, that's helpful.
Speaker Change: Sure.
Speaker Change: And then.
Speaker Change: I know there was an effort to look at the real estate portfolio in Huntsville.
Speaker Change: And maybe elsewhere any update on where you guys are in rationalizing real estate.
Thomas R. Stanton: Yep, that's helpful. And then I know there was an effort to look at the real estate portfolio in Huntsville and maybe elsewhere. Any update on where you guys are in rationalizing real estate? Sure, we've got, if you've ever been here, we've got three separate buildings here. We have consolidated everybody, and there's just way too much space, kind of post-pandemic and even maybe a little bit pre-pandemic as we, you know, we had hiring going on and post-acquisition. We had a lot of resources in Europe, you know, specifically in Poland as well as India.
Speaker Change: Sure we've got.
Speaker Change: If you've ever been here, we've got three separate buildings here.
Speaker Change: We have consolidated everybody and there was just way too much space kind of post pandemic and even maybe a little bit pre pandemic as we we had hiring.
Speaker Change: Higher and going on post acquisition.
Speaker Change: We had a lot of resources in Europe.
Speaker Change: Specifically in Poland, as well as India, So we had too much space.
Speaker Change: So we were clearing out the two of the towers.
Speaker Change: That should be done right at the end of this quarter.
Speaker Change: We have started showing those properties and thats moving forward, we'd still expect second half of this year for the impact on that.
Thomas R. Stanton: So we have too much space. So we're clearing out the two of the towers. That should be done right at the end of this quarter. We have started showing those properties, and that's moving forward. We'd still expect the impact on that in the second half of this year. Got it. Any update on what kind of proceeds you might be able to get from that process?
Speaker Change: Got it any update on what kind of proceeds you might be able to get from from that process.
Speaker Change: Yes. So there are two I don't know if we've given specific ranges. So there are two different paths that we can go down and we talked about one of those.
Speaker Change: Being one that is fairly straightforward to execute on but we haven't made a firm decision to execute on that.
Thomas R. Stanton: Yeah, so there are two. I don't know if we've given specific ranges. So there are two different paths that we can go down. And we talked about one of those, being one that is fairly straightforward to execute on, but we haven't made a firm decision to execute on that. And that's, you know, the tower. I guess what we call the East Tower, which we could sell and lease back on. On the north-south axis, which is the one we're just talking about, I think it's in the range of 40 to 60 million or something like that.
Speaker Change: And Thats the tower.
Speaker Change: I guess, what we call the east tower, which we could do a sale and leaseback on.
Speaker Change: On the North South which is the one we're just talking about I am thinking its in the range of $40 million to $60 million or something like that.
Speaker Change: Yes.
Speaker Change: Got it okay. Thank you very much.
Speaker Change: Okay.
Speaker Change: Your next question comes from the line of Michael Genovesi from Rosenblatt Securities. Please go ahead.
Michael Genovese: Okay, thank you very much. Okay. Your next question comes from the line of Michael Genovese from Rosenblatt Securities. Please go ahead.
Michael Genovese: Great. Thanks very much.
Michael Genovese: So is the is.
Michael Genovese: Is the CPE subscriber installations.
Michael Genovese: Great, thanks very much. So, is the CPE Subscriber and Solutions Inventory Correction over? Is that the right way to think about it?
Michael Genovese: Inventory correction over is that the right way to think about it.
Michael Genovese: Blacks the way I'd like to think about it and the real answer is.
Thomas R. Stanton: Well, that's the way I'd like to think about it, and the real answer is I can't say, I don't want to say yes because I think, you know, that we sell it to a lot of different people. We happen to have an uptick. We're expecting it to be kind of in a similar range during this quarter, so... I would say in the... for our specific inventory. I think we're through the deep part of that.
Michael Genovese: <unk>.
Michael Genovese: I can't say I don't want to say, yes, because I think that we sell it to a lot of different people. We happened to have an uptick we're expecting it to be kind of in a similar range.
Michael Genovese: During this quarter.
Michael Genovese: So.
Michael Genovese: <unk>.
Speaker Change: I would say.
Speaker Change: The.
Speaker Change: For our specific inventory.
Speaker Change: I think we're through the deep part of that so let me let me just leave it at that.
Thomas R. Stanton: So let me just leave it at that. Okay. And can you talk about access and aggregation?
Speaker Change: Okay.
Speaker Change: And can you talk about the.
Speaker Change: <unk> access and aggregation just.
Thomas R. Stanton: some of the timing issues some more. And, you know, I mean, we've got your first quarter guide, sequentially flat. What should we be looking at as we move through further quarters, given the timing on access and aggregation? Yeah, so we had a couple of customers. It really was two, one in Europe, you probably can guess who that one is, and then an MSO here in the U.S. that had bought them before that.
Speaker Change: A couple of timing issues some more.
Speaker Change: <unk>.
Speaker Change: I mean, we've got here.
Speaker Change: Your first quarter guide sequentially flat.
Speaker Change: What should we be looking at as we move through further quarters.
Speaker Change: Given the timing and access and aggregation.
Speaker Change: Yes, so yes.
Speaker Change: We had a couple of customers.
Speaker Change: It really was two one in Europe, probably can get to that one is and then in NSO here in the U S that had bots previous to that I would expect the MSL probably to come back to this quarter. The other the other customers are going to have a decent quarter this quarter it'll be stronger than last quarter.
Thomas R. Stanton: I would expect the MSO probably to come back this quarter. The other customers are going to have a decent quarter this quarter. It'll be stronger than last quarter.
Thomas R. Stanton: Um, and then tier threes, I already talked about, you know, they're kind of flat. Okay, and then finally, for me, I mean, just when we look at the overall guide, the midpoint of the guide, you know, at 225, flat sequentially, I mean, you've already mentioned subscriber solutions being about flat sequentially. I mean, should we look at the other two, you know, optical and axis aggregation roughly flat, as well?
Speaker Change: And then tier threes I already talked about there kind of flattish.
Speaker Change: Yes.
Speaker Change: Okay and then finally for me I mean, just when we look at the overall guide the midpoint of the guide.
Speaker Change: <unk> hundred 25.
Speaker Change: Flat sequentially I mean, you've already mentioned.
Speaker Change: This is fiber solutions being about flat sequentially I mean should we look at the other two.
Speaker Change: Optical Nashville, disaggregation, roughly flat as well.
Thomas R. Stanton: Oh, yeah, let me just try to add some clarity there: subscriber solutions. Flattish is probably a good guess.
Speaker Change: Let me just try to add some clarity there subscriber solutions.
Speaker Change: Flattish is probably a good guess, it's probably a little conservative, but it's a good gas you would expect access to be up just based off of the.
Thomas R. Stanton: It's probably a little conservative, but it's a good guess. You would expect access to be up just based on the very specific customer thing I talked about. Optical is what we would expect to be down, as I specifically mentioned. So I talked about inventory in the optical business. I really didn't talk about inventory corrections impacting subscriber and our fiber-to-the-prem business that much, and that was on purpose. So we still think there's inventory in the optical space. We think the other two are easing up, too.
Speaker Change: The very specific customer thing I talked about.
Speaker Change: Optical is what we would expect to be down as I, specifically mentioned, so I talked about inventory and optical I really didnt talk about inventory.
Speaker Change: Corrections impacting subscriber and our fiber to prem business that much and that was on purpose. So we still think there is inventory in the optical space. We think the other two are easing up.
Thomas R. Stanton: And if I had to look at the mix between optical and the other two, I would expect the other two to be up on a sequential basis and optical to be down. And just for gross margins, does that make a difference for gross margins? I mean, I have a hard time thinking that gross margins would be quite as high in 1Q as in 4Q. Could you just help out with that?
Speaker Change: And if I had to look at the mix between optical and the other two I would expect the other two to be up on a sequential basis and optical to be down.
Speaker Change: Okay.
Speaker Change: And just for gross margins as that mix make it there.
Speaker Change: For gross margins I mean, I have a hard time thinking that gross margins would be quite as high in <unk> as in <unk>.
Speaker Change: Could you just help out with that.
Thomas R. Stanton: Um, you know, the real shift there would be between, um, you know, the infrastructure piece of Fiber-to-the-Prim, which actually has pretty good gross margins versus the subscriber piece of OptinPrim. So, yeah, I mean, that's just some variability we have to get through. I really don't know where that will end up until we get to the end of the quarter. We also have some easement coming in on our inventory costs.
Speaker Change: The real shift there would be between.
Speaker Change: Is really what is the infrastructure piece of the fiber to the Prem, which is actually pretty good gross margins versus the subscriber piece and opt in opt in prim.
Speaker Change: So yes, I mean, that's just some variability we have to get through I really don't know where that will end up until we get to the ended the quarter. We also have some easement coming in our inventory cost trends.
Thomas R. Stanton: You know, we're continuing to do better than we expect to do on gross margins. The trend itself kind of helps us along in that regard. Great. Thanks a lot.
Speaker Change: We're continuing to do better than we expect to do in on gross margin. So.
Speaker Change: The trend itself kind of helps us along in that in that math.
Speaker Change: Alright, Thanks, a lot.
Speaker Change: Thanks for taking my questions Alright.
Operator: Thanks for taking the question. All right. Your next question comes from the line of Ryan Koontz from Needham & Company. Please go ahead. Ryan, you... Ryan, are you on mute?
Speaker Change: Alright.
Speaker Change: Your next question comes from the line of Ryan Krueger from Needham and company. Please go ahead.
Speaker Change: Ryan.
Speaker Change: Okay.
Ryan Krueger: Ryan are you on mute.
Ryan Koontz: I was on mute, sorry about that. Yes, I wanted to unpack gross margins in the fourth quarter a little bit there, really nice improvements along with a higher mix of CPE, which usually is a headwind on that line. So can you maybe unpack the kind of puts and takes there? You talked about transportation costs being down, and I haven't heard that elsewhere too much. So any car there would be helpful.
Ryan Krueger: I was on mute sorry about that.
Ryan Krueger: Yes, I wonder if you unpack gross margins in the fourth quarter, a little bit there really nice improvement.
Ryan Krueger: Along with.
A higher mix of CPE, which usually is a headwind on that line. So can you maybe.
Speaker Change: Intact kind of puts and takes there you talked about transportation costs being down and I haven't heard that elsewhere too much. So any color there would be helpful. Thanks guys.
Uli Daugherty: Thanks. The transportation cost comment was mainly related to the comparison for Q4 2022, where transportation costs were still extremely high. Yeah, but I talked about reducing transportation costs, specifically, just kind of the positive of the yeah. Yeah. So any other color you want to give on?
Speaker Change: Go ahead.
Speaker Change: The transportation cost comment was mainly related to the comparison.
Speaker Change: For Q4 2022.
Speaker Change: Where transportation costs were still extremely high.
Speaker Change: Yes, but I talked about transportation costs, specifically, just kind of a positive yes, yes. So.
Speaker Change: Any other color you want to give on.
Uli Daugherty: I'm picking on the sequential improvement, Uli. The sequential improvement is mainly driven by customer and product. Yeah, and that includes a higher mix of CPE. So I guess that implies, you know, stronger shipments to smaller customers that maybe have better margins. Well, the CP is made up of several different things.
Speaker Change: Q4 on a sequential im thinking on the sequential improvement.
Speaker Change: The sequential improvement is mainly driven by type of customer and product mix.
Speaker Change: Yes.
Speaker Change: That includes a higher mix of CPE, So I guess that implies.
Speaker Change: Stronger shipments to smaller customers that maybe have better margins that we should think about that.
While the CP is made up of several different things.
Thomas R. Stanton: And some of it depends on the actual customer itself; 10 gigabit CPE versus one gigabit CPE, for instance, makes a difference. Yeah, and I will tell you this: the infrastructure business, in general, has been trending upwards, I think just because of the nature of the competitive environment right now.
Speaker Change: Some of it depends on the actual customer itself 10 gig CPE versus one gig CPE for instance makes a difference.
Speaker Change: Yes, and I would tell you this the infrastructure business in general has been pending.
Speaker Change: Upwards.
Speaker Change: I think just because of the nature of the competitive environment right. Now. So I think that is actually benefited and then we continue to work down kind of higher price bill of material parts and to lower priced below material parts without expedite fees and those are all just been positive.
Thomas R. Stanton: So I think that has actually benefited us. And then we continue to work down kind of higher price bills of material parts into lower price bills of material parts without expedite fees. And those have all just been positive.
Thomas R. Stanton: Attributes coming into, really over the last couple of quarters. Got it. That's helpful, guys. And one kind of broader question, maybe stepping back from the European opportunity with Huawei's dislocation. You know, how would you characterize Huawei's position on the European continent today, outside of your specific projects, you've talked about winning, like, where, where are they still competing? And how would you kind of characterize the competition? Relative to the Chinese suppliers, honestly, they're just, they're, they're almost. You just don't see them that often.
Speaker Change: Attributes coming into.
Speaker Change: When you really over the last couple of quarters.
Speaker Change: Got it that's helpful guys and one kind.
Speaker Change: Kind of broader question, maybe stepping back from the European opportunity with Huawei displacements how.
Speaker Change: Or would you characterize huawei position in the European continent today outside of your specific projects, you've talked about winning like where where are they still competing and how would you kind of characterize the competitive environment relative to the Chinese suppliers honestly. They are just they're almost.
Speaker Change: You just don't see.
Speaker Change: Don't see them.
Speaker Change: That often and when you do see them it tends to be a pricing exercise versus a real award exercise.
Thomas R. Stanton: And when you do see them, it tends to be a pricing exercise versus a real award exercise. And I would say, you know, if you look at it on a year-over-year basis. The number of carriers that are saying, you know, this is not just a near-term problem, but this is a longer-term problem to the extent that they award business to, you know, kind of a high-risk vendor, then they have to worry about, well, when does that equipment need to come out? and when can I quit taking software drops from this company? And I would say that the momentum is doing nothing but getting stronger. I got it.
Speaker Change: And I would say if you look at it on a year over year basis.
Speaker Change: The number of carriers that are saying this is not just a near term problem, but this is a longer term problem to the extent that they award business.
Speaker Change: To kind of a high risk vendor and they have to worry about when does that equipment need to come out.
Speaker Change: And when can I quit taking software drops from this company.
Speaker Change: Does that momentum is doing nothing but getting stronger.
Thomas R. Stanton: And so in terms of new bids, they're not competitive, but in the kind of run rate business, they're still seeing a fair amount, I would think of sales into the legacy. What you're seeing happen is that in the legacy footprint, if somebody has Open Slots and Shells, then they're liable to fill those open slots right now until they get through an award process or get through, you know, until they have an alternative. But open slots are still being filled in a large part of Europe, but new shelves are coming in; you just don't see an awful lot of them.
Speaker Change: Got it.
Speaker Change: So in terms of new bids, they're not competitive but.
Speaker Change: The kind of run rate business. There is still seeing a fair amount I would think of sales into the legacy footprint.
Speaker Change: What you're seeing happen is in the legacy footprint if somebody has.
Open slots in shells, then they're liable to fill those open slots right now.
Speaker Change: Until they get through and award process or get too.
Speaker Change: Until they have an alternative.
Speaker Change: But open slots are still being filled in a large part of Europe, but new shelves coming in you just don't see an awful lot of that.
Thomas R. Stanton: And you're like, yeah, we have some very specific opportunities where they're literally talking about taking, you know, taking equipment out. Wow. That's great. Great to hear.
Speaker Change: We have some very specific opportunities for their literally talking about taking taking equipment out.
Speaker Change: Wow, that's great great to hear thanks, guys Thats all Ive got.
Ryan Koontz: Thanks, guys. That's all I've got. That concludes our question and answer session. I will now turn the call back over to you. Oh, I'm sorry. Your next question is Tim Savageaux from Northland Capital Markets. Please go ahead.
Speaker Change: Alright.
Speaker Change: That concludes our question and answer session I will now turn the call back over to Yeah, Oh I'm sorry.
Speaker Change: Your next question is Tim Savino from Northland Capital markets. Please go ahead.
Operator: Okay, glad I was able to sneak in there. A question, I guess about, well, the access and aggregation market in Q4, or segment was down pretty good sequentially, and you talked about tier threes being flat. It sounds like that's a reference.
Tim Savageaux: Okay glad I was able to sneak in there.
Tim Savageaux: My question I guess about.
Tim Savageaux: Well, the access and aggregation market in Q4.
Tim Savageaux: Segment was down pretty good sequentially.
Tim Savageaux: And you talked about tier three as being flat it sounds like that's a reference.
Tim Savageaux: More to Q1, or could I get some clarification on that? And I know that tier three also includes subscribers. So, as you look at that decline in Q4, um, what would you attribute that more to, a couple of large customers, and does that flattish comment also hold in Q4 versus Q1? Yeah, there's a nuance there that you've got to understand for it to, you know, kind of click in there. So, without a doubt, the biggest issue was two specific customers that we had previously shipped a significant amount to. I don't consider that an inventory problem.
Tim Savageaux: More to Q1 or could I get some clarification on that and I know that tier three also includes subscriber.
Tim Savageaux: So as you look at that.
Tim Savageaux: Decline in Q4.
Tim Savageaux: What would you attribute that more to a couple of large customers and does that flattish Scott also hold in Q4 versus Q1.
Speaker Change: Yes, there is.
There is a nuance that you got to understand.
Speaker Change: I'll kind of kick in there so yes without a doubt the biggest issue was.
Speaker Change: Two specific customers that we had previously shipped.
Speaker Change: A significant amount to I don't consider that inventory problem I consider that as they buy kind of in six month increments right. That's just the way that they buy.
Thomas R. Stanton: I consider that as they buy kind of in six-month increments, right? That's just the way that they buy, and so that impacted us. If you look at access and ag, access and ag was down, but it's made up of several different things. It's made of switching components that are sold into fiber-to-the-premises and sometimes outside of fiber-to-the-premises, and it's also made of optics, so pluggable optics that actually go along with the product.
Speaker Change: And so that impacted us if you look at access and AG access and AG was down but it's made up of.
Speaker Change: Several different things it's made it switching components that are sold into fiber to the prem and sometimes outside of fiber to the prim and its also made of optics, so plug able optics.
Speaker Change: That actually go along with the product if I look at <unk> tea shipments and this is.
Thomas R. Stanton: If I look at OLT shipments, and this is kind of getting down into the weeds here, but if I look at OLT shipments into the tier threes, they were flattish, and that was in Q4. So, in Q1, I'm expecting similar, maybe slightly higher, but I'm expecting something similar to that. If you look at optics, those vary pretty heavily from quarter to quarter. And the optics portion of that, you know, the actually pluggable piece, was down in Q4 and I would expect it to come back up a little in Q1. You can think about that as more inventory-specific things, by the way, right, where they may have some optics but don't have the actual... Hardware components, the active hardware components in the old.
Speaker Change: Kind of.
Speaker Change: We're getting down into the weeds here, but if I look at OLED shipments into the tier threes. They were flattish so and that was in Q4.
Speaker Change: So in Q1, I am expecting similar maybe slightly up.
Speaker Change: But I am expecting something similar to that.
Speaker Change: But.
Speaker Change: If you look at optics, those vary pretty heavily by quarter to quarter and the optics portion of that actually plug a hole piece.
Speaker Change: It was down in Q4, and I would expect it to come back up a little in Q1.
Speaker Change: You can think about that as more inventory specific things by the way right, where they may have some optics, but don't have the actual.
Speaker Change: Hardware components of the active hardware components and the loyalty.
Thomas R. Stanton: Did that clarify anything for you? Yeah, that's super helpful, thanks. And just continuing on that. You know, if you look at the competitive dynamics, and I know you discussed that with regard to some of the Huawei replacement, but again, specifically in that U.S. rural broadband market. You know, I guess what you are seeing there from a competitive standpoint? In terms of the potential for, you know, competition to intensify here and kind of a flattish. The Market Environment, or any other dynamics that you'd be willing to comment on. Thanks. It's pretty similar to what we saw most of last year. I mean, that market is predominantly us competing against Kalix and, then, in some cases, Nokia.
Speaker Change: To that clarifying got at least.
Speaker Change: That's super helpful. Thanks.
Speaker Change: And just continuing on that.
Speaker Change: If you look at the competitive dynamics and I know you discussed that with regard to some of the Huawei replacement, but again, specifically in that U S Rural broadband market.
Speaker Change: I guess, what are you seeing there from a competitive standpoint.
Speaker Change: In terms of the potential for competition to intensify here in kind of a flattish.
Speaker Change: Market environment.
Any other dynamics that you'd be willing to comment on it.
Speaker Change: It's pretty similar to what we saw most of last year.
Speaker Change: That market is.
Speaker Change: Predominantly us.
Speaker Change: Competing against Calix, and then in some cases Nokia.
Thomas R. Stanton: Don't see, we're kind of the three that are actively in that market with, you know, Kalix is who we run up against most. And the dynamics there really haven't changed. Software is a much bigger part of the story. That's why I mentioned Mosaic One and our take rate on Mosaic One has been fantastic. We also launched a very good offering in Intellify, which is our managed Wi-Fi specifically for that segment. But the dynamics really haven't changed. They're about the same.
Speaker Change: Don't see.
Speaker Change: We're kind of the three.
Speaker Change: That are actively in that market with.
Speaker Change: Calix is.
Speaker Change: As who we run up against the most.
Speaker Change: And the dynamics, they really haven't changed.
Speaker Change: <unk> is a much bigger part of the story, that's why I mentioned, the mosaic one and kind of our take rate on mosaiq when it's been fantastic.
Speaker Change: We also launched a <unk>.
Speaker Change: Very very good offering in our <unk>, which is our managed Wi Fi specifically for that segment.
Speaker Change: But the dynamics really haven't changed they are about the same.
Thomas R. Stanton: You know, everybody's kind of getting positioned. There really haven't been any awards yet through the states. I think Louisiana is the first one that actually has cleared all the paths to start to get funding, and then they have to go through an award process.
Speaker Change: Bodies kind of getting positioned there really havent been any awards yet through the states, where I think Louisiana is the first one that actually is cleared all the paths to start to get funding and then they have to go through and award process.
Thomas R. Stanton: So, you know, I think everybody is trying to touch every customer that's kind of potential in there, and then, And then, as the money starts flowing in, we'll start seeing who's actually winning these customers. That's it. Thank you. Okay. Yep. Appreciate it. Okay. Thanks very much.
Speaker Change: So I think everybody is trying to touch.
Speaker Change: Every customer that's kind of potential in there and then.
Speaker Change: And then as the money starts flowing through we will start seeing who is actually winning these customers.
Speaker Change: Great. Thanks for attending.
Speaker Change: Yes, I appreciate it okay. Thank you very much at this point I think we're out of questions. So I appreciate everybody joining us for the call and look forward to talking to you next quarter.
Operator: At this point, I think we're out of questions, so I appreciate everybody joining us for the call and look forward to talking to you next quarter. This concludes today's conference call. Thank you for your participation, and you may now disconnect.
Speaker Change: This concludes today's conference call. Thank you for your participation and you may now disconnect.
Speaker Change: Please wait the conference will begin shortly.
Speaker Change: Sure.
Speaker Change: [music].
Speaker Change: Sure.
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Yes.
Okay.
Operator: Please wait. The conference will begin shortly. Please wait. The conference will begin shortly. Please wait. The conference will begin shortly.
Speaker Change: Yes.
Speaker Change: Sure.
Speaker Change: [music].
Speaker Change: No.
Speaker Change: [music].