Q2 2024 ADTRAN Holdings Inc Earnings Call

Operator: Ladies and gentlemen, thank you for standing by, and welcome to the ADTRAN Holdings, Inc. second quarter 2024 earnings release conference call. All lines have been placed on mute to prevent any background noise.

Operator: Ladies and gentlemen, thank you for standing by and welcome to the AdTRAN Holdings Inc. Second quarter, 2020, for earnings release conference call. All lives of the place and needs to prevent any background noise.

Ladies and gentlemen, thank you for standing by and welcome to the <unk> Holdings, Inc. Second quarter 2024 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. During this fine seems depressed bar fault, but.

Operator: After the speaker's remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press the star followed by the number one on your telephone keypad. As a reminder, today's call is being recorded. 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 forward-looking statements involve risks and uncertainties, including risks detailed in our earnings release, our annual report on Form 10-K, and our filings with the SEC.

Operator: After this speaker's remarks, there will be a question-and-answer period. If you would like to ask a question during this time, seems to press far fold by the number one on your telephone keypad. As a reminder to the call, it's being recorded.

Speaker Change: Number one on your telephone keypad.

Today's call is being recorded.

Operator: 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, this statement in full risks and uncertainties, including the risk we build in our earnings release, our annual report on Form 10-K, and our findings with the SEC. This risk and uncertainties could cause actual results to differ materially from those in the forward-looking statements which need to be made during the call. We undertake no obligation to update any statement first by the event that appear after this call.

Operator: 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 statement to reflect events that occur after this call. 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 investor presentation and our earnings release.

Speaker Change: During the course of the conference call and trying to 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 other filings with the U S E C.

Speaker Change: Risks and uncertainties could cause actual results to differ materially.

Speaker Change: From those in the forward looking statements, which may be made during the call.

Speaker Change: Undertakes no obligation to update any statement first like the events that appear after this call during.

Operator: During the course of the day's call, the order for the third and nine-gap financial measures for consultations of non-gap-to-gap measures and third and additional information are also included in our investor presentation and our earnings release. The investor presentation sounds an at-trend investor relations website has been updated in this available for download.

Speaker Change: During the course of today's call the Waterford to certain non-GAAP financial measures reconciliations of non-GAAP to GAAP measures and certain additional information are also included in our investor presentation and our earnings release.

Operator: 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.

Speaker Change: The Investor presentation that was done at friend Investor Relations Web site, that's been updated and is available for download. It is now my pleasure to turn the call over the Tom Stanton Chief Executive Officer of Akron Holdings. Sir. Please go ahead.

Operator: It is now my pleasure to turn the call over to SPOM Stanton, QFIC's Executive Officer of AdTRAN Holdings.

Operator: Sir, please go ahead. Thank you, John.

Thomas Stanton: Thank you, John. Good morning, everyone. We appreciate you joining us for our second quarter 2024 earnings conference call. With me today is ADTRAN Holdings CFO Uli Dopfer. Following my opening remarks, Uli will review the quarterly financial performance in detail, and then we'll take any questions that you may have about the quarter. Financially, we realized a non-GAAP operating profit driven by gross margin improvements and substantially lower operating expenses. Working capital was significantly reduced as we continue to decrease our inventory level.

Tom Stanton: Thank you John good morning, everyone.

Thomas Stanton: Good morning, everyone. We appreciate you joining us for our second court of 2024 earnings conference call. With me today is AdTRAN Holdings CFO, Uli Doffer. Following my opening remarks, Uli will review the quarterly financial performance in detail, and then we'll take any questions that you may have. The quarter came in largely as expected. Financially, we realized an on-gap operating profit driven by gross margin improvements and substantially lower operating expenses. Working capital was significant when reduced, as we continued to decrease our inventory levels. Our non-GAAP free cash flow was positive for the second straight quarter, and we grew our customer base across the U.S.

Speaker Change: We appreciate you joining us for our second quarter 2024 earnings Conference call.

Speaker Change: With me today is <unk> holdings, CFO, who lead offer.

Speaker Change: Following my opening remarks early will review the quarterly financial performance in detail and then we'll take any questions that you may have.

Speaker Change: The quarter came in largely as expected financially we realized non-GAAP operating profit driven by gross margin improvements and substantially lower operating expenses.

Speaker Change: Working capital was significantly reduced as we continued to decrease our inventory levels.

Thomas Stanton: Our non-gap pre-cash flow was positive for the second straight quarter, and we grew our customer base across the U.S. and Europe as customers continue to adopt our latest solutions, such as the Fiber Networking Solution. We achieved all this despite the headwinds that we were all feeling.

Speaker Change: Our non-GAAP free cash flow was positive for a second for the second straight quarter, and we grew our customer base across the U S and Europe as customers continue to adopt our latest.

Thomas Stanton: and Europe as customers continue to adopt our latest fiber networking solutions. We achieved all these despite the headwinds that we are all feeling. Taking a closer look at the results in the second quarter, we had a strong quarter in the U.S. who has revenue up across all three categories in this region. On the product mix, we were well balanced in revenue across our three categories, with 36% of our revenues coming from subscriber solutions. 31% of revenues coming from access and aggregation solutions and 33% of our revenues coming from optical networking solutions. Our subscriber solutions category was up 18% quarter of a quarter, with a growth lead by our residential solutions that were up 47% quarter over quarter.

Speaker Change: Fiber networking solutions.

Speaker Change: We achieved all of these despite the headwinds that we're all feeling.

Thomas Stanton: Taking a closer look at the results in the second quarter, we had a strong quarter in the U.S., with revenue up across all three categories in this region. On the product mix, we were well-balanced in revenue across our three categories, with 36% of our revenues coming from subscriber solutions, 31% of revenues coming from access and aggregation solutions, and 33% of our revenues coming from optical networking solutions. Our subscriber solutions category was up 18% quarter over quarter, with growth led by our residential solutions, which were up 47% quarter over quarter.

Speaker Change: Taking a closer look at the results in the second quarter, we had a strong quarter in the U S with revenue up across all three categories in this region.

Speaker Change: On the product mix, we were well balanced and revenue across our three categories with 36% of our revenues coming from subscriber solutions <unk>.

Speaker Change: 31% of revenues coming from access and aggregation solutions and 33% of our revenues coming from optical networking solutions.

Speaker Change: Our subscriber solutions category was up 18% quarter over quarter with a growth led by our residential solutions that were up 47% quarter over quarter.

Thomas Stanton: In our access and aggregation solutions category, growth in U.S. broadband revenue was offset by declines in shipments to our large European customers following a strong first quarter of shipments to these customers. Optical networking solutions was essentially flat relative to the prior quarter.

Thomas Stanton: In our access and aggregation solutions category, growth in the U.S. Broadband revenue was offset by decline to shipments to our larger opinion customers following a strong first quarter of shipment to these customers. Optical networking solutions was essentially flat relative to the prior quarter. Taking a closer look at the regional mix, we saw the cleanse of growth in the U.S. across all major customer segments with these customers purchasing a diverse set of in-bent, in-home broadband access and optical network solutions. From an investment perspective, we remain focused on our two key strategic initiatives: maximizing our opportunity in the U.S.

Speaker Change: And our access and aggregation solutions category growth in the U S. Broadband revenue was offset by declines in shipments to our large European customers. Following a strong first quarter of shipments of these customers.

Speaker Change: Optical networking solutions was essentially flat relative to the prior quarter.

Thomas Stanton: Taking a closer look at the regional mix, we saw sequential growth in the U.S. across all major customer segments, with these customers purchasing a diverse set of in-home broadband access and optical networking solutions. From an investment perspective, we remain focused on our two key strategic initiatives, maximizing our opportunity in the U.S. broadband investment cycle and taking advantage of the shift away from high-risk vendors in Europe. In the U.S., our highest growth opportunities remain with small to midsize operators.

Speaker Change: Taking a closer look at the regional mix, we saw sequential growth in the U S across all major customer segments, where these customers purchasing our diverse set of inbound and home broadband access and optical networking solutions.

Speaker Change: From an investment perspective, we remained focused on our two key strategic initiatives maximizing our opportunity in the U S broadband investment cycle and taking advantage of the shift away from high risk vendors in Europe.

Thomas Stanton: broadband investment cycle and taking advantage of the shift away from high-risk vendors in Europe. In the U.S., our highest growth opportunities remain with small to mid-size operators. Our results this past quarter reflected our continued strength in these customers. In Europe, the biggest opportunity remains with large operators where we are well-positioned with our fiber networking infrastructure solutions.

Speaker Change: In the U S. Our highest growth opportunities remain with small to mid size operators.

Thomas Stanton: Our results this past quarter reflected our continued strength in these customers. In Europe, the biggest opportunity remains with large operators, where we are well positioned with our fiber networking infrastructure solutions. Diving deeper into these two markets, I'll start with the U.S. market, where we are seeing signs of stability after the past couple of years have been more volatile. The past couple of years have been more volatile due to the supply chain crisis, followed by inventory correction.

Speaker Change: Our results this past quarter reflected our continued strength in these customers in Europe. The biggest opportunity remains with large operators, where we are well positioned with our fiber networking infrastructure solutions.

Thomas Stanton: Diving deeper into these two markets, I'll start with the U.S. market, where we are seeing scientists' stability after past couple of years had been more volatile as the past couple of years had been more volatile due to the supply chain crisis followed by inventory corrections. As noted earlier, our biggest opportunity in the U.S. is with the small to mid-size operators in the U.S. that really see value and trusted partners that can meet their fiber networking needs from the optical core to the customer premise. This more comprehensive portfolio continues to pick up momentum. To give you a few highlights, we added 12 new fiber to the prime customers in Q2, most of this being U.S.

Speaker Change: Diving deeper into these two markets I'll start with the U S market where.

Speaker Change: Where we are seeing signs of stability after past couple of years.

Speaker Change: Okay.

Speaker Change: And then more volatile as the past couple of years have been more volatile due to the supply chain crisis.

Speaker Change: Followed by inventory corrections.

Thomas Stanton: As noted earlier, our biggest opportunity in the U.S. is with the small to mid-sized operators in the U.S. that really see value in trusted partners that can meet their fiber networking needs, from the optical core to the customer premise. This more comprehensive portfolio continues to pick up momentum. To give you a few highlights, we added 12 new Fiber-to-the-Prem customers in Q2, most of these being U.S. regional service providers adopting our latest SDX fiber access platform.

Speaker Change: As noted earlier, our biggest opportunity in the US is with the small to mid size operators in the U S that really see value and trusted partners that can meet their fiber networking needs.

Speaker Change: From the optical core to the customer premise.

Speaker Change: This more comprehensive portfolio continues to pick up momentum to give you a few highlights we added 12, new fiber to the Prem customers in Q2, most of this being U S regional service providers adopting our latest SPX fiber access platforms.

Thomas Stanton: We also had 16 new customers adopt our SDG in-home platforms this past quarter, bringing the total number of customers adopting our latest Wi-Fi platforms to well over 200. The success of our SDG platforms helped drive revenue growth in our subscriber solutions category this past quarter, and it's closely aligned with our investment in our latest Wi-Fi 6 and Wi-Fi 7 platforms, along with our IntelliFi cloud-managed Wi-Fi solution. For both our new fiber-to-the-prem wins, as well as the in-home platform wins this quarter, a material percentage of those were actually competitive takeaways.

Thomas Stanton: regional service providers adopting our latest SDX fiber access platforms. We also had 16 new customers who adopted our SDG in-home platforms as past quarter, bringing the total number of customers adopting our latest Wi-Fi platforms to well over 200. The success in our SDG platforms helped drive revenue growth in our subscriber solutions category as past quarter, and is closely aligned with our investment in our latest Wi-Fi 6 and Wi-Fi 7 platforms, along with our until-ify cloud managed Wi-Fi solutions. For both our new fiber to the prime wins, as well as the in-home platform wins this quarter, a material percentage of those were actually competitive takeaways.

Speaker Change: We also had 16, new customers or adopt our STG in home platforms. This past quarter, bringing the total number of customers adopting our latest Wi Fi platforms to well over 200.

Speaker Change: The success in our STG platforms helped drive revenue growth in our subscriber solutions category. This past quarter and is closely aligned with our investment of our latest Wi Fi six and Wi Fi seven platforms, along with our <unk> cloud managed Wi Fi solutions.

Speaker Change: For both our new fiber to the Prem wins as well as the in home platform wins this quarter a material percentage of those were actually competitive takeaways.

Thomas Stanton: In our optical transport and networking solutions, this past quarter, we had 11 existing customers in the U.S. expand their purchases to include this equipment that will previously broadband only customers with that trend. This highlights our continued success in cross-selling our optical solutions into our existing broadband access customer base, and the advancements we have made in this portfolio. In addition to cross-selling success with our optical solutions into the service provider market, we continue to grow our enterprise and ICP customers this past quarter. With a recent launch of our 800-gig transport platforms, 100 ZR pluggables, and several key enhancements to our optical network automation capabilities, we are well positioned to continue this momentum going forward.

Thomas Stanton: In our optical transport and packet networking solutions this past quarter, we had 11 existing customers in the U.S. expand their purchases to include this equipment that were previously broadband-only customers with ADTRAN. This highlights our continued success in cross-selling our optical solutions into our existing broadband access customer base and the advancements we have made in this portfolio. In addition to cross-selling success with our optical solutions into the service provider market, we continued to grow our enterprise and ICP customers this past quarter.

Speaker Change: And our optical transport and packet networking solutions. This past quarter, we had 11 existing customers in the U S. Expand their purchases to include this equipment that were previously broadband only customers with that trial.

Speaker Change: This highlights our continued success in cross selling our optical solutions into our existing broadband access customer base.

Speaker Change: And the advancements we have made in this portfolio.

Speaker Change: In addition to cross selling success with our optical solutions into the service provider market. We continue to grow our enterprise at ICP customers this past quarter.

Thomas Stanton: With the recent launch of our 800 gigabit transport platforms, 100 ZR pluggables, and several key enhancements to our optical network automation capabilities, we are well positioned to continue this momentum going forward. And finally, our long-term differentiation and portfolio synergies are driven by our software platform. Mosaic One, our flagship software platform, provides a suite of SaaS applications to provide actionable insights and proactive optimization tools to reduce network operational costs while improving the subscriber experience. We now have more than 400 customers, with the majority of those in the U.S., that have adopted our Mosaic One platform, including more than 200 customers that have adopted multiple applications within this platform.

Speaker Change: With the recent launch of our 800 gig transport platforms 100, ZR <unk> and several new key enhancements to our optical network automation capabilities, we are well positioned to continue this momentum going forward.

Thomas Stanton: And finally, our long-term differentiation and portfolio synergies are driven by our software platforms. Mosaic 1, our flagship software platform, provides a suite of SaaS applications to provide actionable insights and proactive optimization tools to reduce network operational costs while improving the subscriber experience. We now have more than 400 customers, with the majority of those in the U.S. that have adopted our Mosaic 1 platform, including more than 200 customers that have adopted multiple applications within this platform. Moving forward, we expect to continue to grow the basic Mosaic 1 customers while also significantly increasing the adoption of additional applications by existing operators using the platform.

Speaker Change: And finally, our long term differentiation and portfolio synergies are driven by our software platforms.

Speaker Change: MosaiQ1 our flagship software platform provides a suite of SaaS applications to provide actionable insights and proactive optimization tools to reduce network operational costs, while improving the subscriber experience.

Speaker Change: We now have more than 400 customers with a majority of those in the U S that have adopted our mosaic platform, including more than 200 customers that adopt and multiple applications within this platform.

Thomas Stanton: Moving forward, we expect to continue to grow the basic mosaic of Mosaic One customers while also significantly increasing the adoption of additional applications by existing operators using the platform. Moving on to Europe, as mentioned earlier, we remain well-positioned in fiber access and optical transport infrastructure to take advantage of the ongoing build-out of fiber networks in the region, as well as the shift away from high-risk vendors. We continue to make progress towards volume deployments late this year and early next year with multiple large European operators for both our fiber access and optical transport portfolio. In the fiber access space, the global market has been rapidly shifting to 10-gigabit PON platforms.

Speaker Change: Moving forward, we expect to continue to grow the basic mosaic of Mosaiq when customers, while also significantly increasing the adoption of additional applications by existing operators using the platform.

Thomas Stanton: Moving on to Europe, as mentioned earlier, we remain well positioned in fiber access and optical transport infrastructure to take advantage of the ongoing build-out of fiber networks in the region, as well as the shift away from high-risk vendors. We continue to make progress towards volume deployments like this year and early next year with multiple large European operators for both fiber access and optical transport portfolios. In the fiber access space, the global market has been rapidly shifting to 10 gig pond platforms. In this technology segment, which is a key indicator for new platform development deployments, ADTRAN is already a top two supplier in Europe in terms of port shipments.

Speaker Change: Moving onto Europe as mentioned earlier, we remained well positioned in fiber access and optical transport infrastructure to take advent vantage of the ongoing build out of fiber networks in the region as well as the shift away from high risk vendors.

Speaker Change: We continue to make progress towards volume deployments late this year and early next year with multiple large European operators for both our fiber and optical transport portfolios.

Speaker Change: And the fiber access space the global market has been rapidly shifting to 10 gig PON platforms.

Thomas Stanton: In this technology segment, which is a key indicator for new platform deployments, ADTRAN is already a top two supplier in Europe in terms of port shipments. We have more than doubled our market share in this segment over the last year, and given our funneled activity and existing awards, we are strategically positioned to grow and continue to grow in this market as we move forward. In the optical transport space in Europe, we have maintained solid market share positioning while overall service provider spending on optical transport has been down for the past year as operators deplete their inventory.

Speaker Change: And this technology segment, which is a key indicator for new platform development deployments at trend is already a top two supplier in Europe in terms of port shipments, we have more than doubled our market share in this segment over the last year and given our funnel of activity in existing awards, we are strategically positioned to grow to.

Thomas Stanton: We have more than doubled our market share in this segment over the last year, and given our funneled activity and existing awards, we are strategically positioned to grow, to continue to grow in this market as we move forward. In the optical transport space in Europe, we have maintained solid market share positioning while the overall service provider spending on optical transport has been down for the past year as operators deplete inventory. With further consolidation in this market segment, particularly in Europe, the ongoing shift away from high risk vendors, a significantly enhanced portfolio, and our strong regional presence, we feel confident in our ability to become a top two supplier in optical transport equipment to service providers across Europe in the years ahead.

To continue to grow in this market as we move forward.

Speaker Change: And the optical transport space in Europe, we have maintained solid market share positioning while the overall service provider spending on optical transport has been down for the for the past year as operators deplete inventory.

Thomas Stanton: With further consolidation in this market segment, particularly in Europe, the ongoing shift away from high-risk vendors, a significantly enhanced portfolio, and our strong regional presence, we feel confident in our ability to become a top two supplier of optical transport equipment to service providers across Europe in the years ahead. In shifting to our operational performance, as you all know, we announced a program last year focused on improving our profitability and cash flow.

Speaker Change: With further consolidation in this market segment, and particularly in Europe, the ongoing shift away from high risk vendors.

Speaker Change: A significantly enhanced portfolio and our strong regional presence, we feel confident in our ability to become a top two supplier in optical transport equipment to service providers across Europe in the years ahead.

Speaker Change: Okay.

Thomas Stanton: In shifting to our operational performance, as you all know, we announced a program last year focused on improving our profitability and cash flow. The result of this past quarter highlights the success that we are having with this program. Moving forward, we will continue to execute against this program, and we look forward to additional improvements in the quarters ahead. In summary, we continue to make great progress on our operational efficiency, and our competitive positioning has put us in a great situation to take advantage of the market opportunities we see in the US and Europe. While we have streamlined our operations, we continue to invest in our strategic platforms, and these investments are paying off as we see strong adoption of these platforms across the growing customer base.

And shifting to our operational performance as you all know we announced a program last year focused on improving our profitability and cash flow.

Thomas Stanton: The result of this past quarter highlights the success that we are having with this program. Moving forward, we will continue to execute on this program, and we look forward to additional improvements in the quarters ahead. In summary, we continue to make great progress on operational efficiency, and our competitive positioning has put us in a great situation to take advantage of the market opportunities we see in the U.S. and Europe. While we have streamlined our operations, we continue to invest in our strategic platforms, and these investments are paying off as we see strong adoption of these platforms across our growing customer base.

Speaker Change: The result of this past quarter highlights the success that we're having with this program moving forward. We will continue to execute against this program and we look forward to additional improvements in the quarters ahead.

Speaker Change: In summary, we continue to make great progress on our operational efficiency and our competitive positioning.

Speaker Change: Has put us in a great situation to take advantage of the market opportunities, we see in the U S and Europe.

Speaker Change: While we have streamlined our operations, we continue to invest in our strategic platforms and these investments are paying off as we see strong adoption of these platforms across a growing growing customer base.

Thomas Stanton: Having a more competitive portfolio, a growing customer base, key market tailwinds still ahead of us, and non-GAAP operational profitability despite the near-term market headwinds, has this well-positioned for success moving forward. While we remain confident in our long-term outlook, and we continue to expect growth in the quarters ahead, we still see cautious spending from some of our service provider customers, driving us to continue to be cautious in our approach to forecasting and our operating model. As a result, we will continue to focus on becoming a leaner, more efficient, and more profitable company with a best-in-class fiber-networking portfolio.

Thomas Stanton: Having a more competitive portfolio, a growing customer base, key market tailwinds still ahead of us, and non-gap operational profitability despite the near-term market headwinds has us well positioned for success moving forward. While we remain confident in our long-term outlook and we continue to expect growth in the quarters ahead, we still see cautious spending from some of our service provider customers driving us to continue to be cautious in our approach to forecasting and our operating model.

Speaker Change: Having a more competitive portfolio of a growing customer base key market tailwind still ahead of us and non-GAAP operational profitability. Despite the near term market headwinds has us well positioned for success moving forward.

Speaker Change: While we marine confident in our long term outlook and we continue to expect growth in the quarters ahead.

Speaker Change: We still see cautious spending from some of our service provider customers driving us to continue to be cautious in our approach to forecasting and our operating model.

Thomas Stanton: As a result, we will continue to focus on becoming a leaner, more efficient, and more profitable company with a best-in-class fiber networking portfolio. With that, I will now turn things over to Uli to go over our financial results, and then we will open up to any questions you may have.

Speaker Change: As a result, we will continue to focus on becoming a leaner more efficient and more profitable company with a best in class fiber networking portfolio.

Ulrich Dopfer: With that, I will not turn things over to Italy to go over our financial results, and then we will look up to any questions you may have.

Italy: With that I will now turn things over to Italy to go over our financial results and then we will open up to any questions you may have.

Ulrich Dopfer: Thank you, Tom.

Italy: Thank you Tom.

Ulrich Dopfer: And hello, everybody. I will walk you through our financials of our last quarter, and provide our expectations for the third quarter of 2024. I will be referencing non-GAAP information with reconciliation to the most directly compared to the GAAP financial measures presented in our press release. Additionally, I will discuss certain revenue information by segment and category, which is available on our Investor Relations webpage at investors.adtrend.com. We have also updated the investor presentation to this site, which is available for download. Unless stated otherwise, all financials are presented in US dollars.

Italy: Hello, everybody.

Ulrich Dopfer: I will walk you through our financials for the last quarter and provide our expectations for the third 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. We have also updated the investor presentation on this site, which is available for download. Unless stated otherwise, all financials are presented in U.S. dollars.

Italy: I will walk you through our financials of our last quarter and provide our expectations for the third quarter of 2024.

Italy: I will be referencing non-GAAP information with reconciliations to the most directly comparable GAAP financial measures presented in our press release.

Italy: Additionally, I will discuss certain revenue information by segment and category, which is available on our Investor Relations Web page at investors <unk> com.

Italy: We've also updated the investor presentation, our presentation to the site, which is available for download.

Italy: Unless stated otherwise slow financials are presented in U S dollars.

Ulrich Dopfer: With that, let's dive into our financial performance for Q2 2024. Q2 2024 revenues of 226 million were similar to Q1 2024 revenues and slightly above midpoint of our guidance, but were down 31% year over year. Our network solution segment accounted for 79.3% of revenues in Q2 2024 compared to 86.4% in Q2 2023 and 18.1% in Q1 2024. Our services and support segment contributed 20.7% of revenues in Q2 2024 compared to 13.6% in the year-ago quarter and 19.9% in the previous quarter. Access and aggregation contributed 30.9% of revenues in the down 31.9% compared to the year ago quarter, was down 14% sequentially.

Ulrich Dopfer: With that, let's dive into our financial performance for Q2 2024. Q2 2024 revenues of $226 million were similar to Q1 2024 revenues and slightly above the midpoint of our guidance, but were down 31% year over year. Our network solutions segment accounted for 79.3% of revenues in Q2 2024 compared to 86.4% in Q2 2023 and 80.1% in Q1 2024. Our services and support segment contributed 20.7% of revenues in Q2 2024 compared to 13.6% in the year-ago quarter and 19.9% in the previous quarter.

Italy: With that let's dive into our financial performance for Q2 2024.

Italy: Q2, 2024 revenues of $226 million was similar to Q1 2020 for revenues and slightly above the midpoint of our guidance, but were down 31% year over year.

Italy: Our network solutions segment accounted for 79, 3% of revenues in Q2 2024 compared to 86, 4% in Q2, 2023, and <unk>, 81% in Q1 2024.

Italy: Our services and support segment contributed 27% of revenues in Q2, 2024, compared to 13, 6% in the year ago quarter, and 19, 9% in the previous quarter.

Ulrich Dopfer: Access and aggregation contributed 30.9% of revenues and was down 31.9% compared to the year-ago quarter, also down 14% sequentially. Our optical networking solutions category contributed 32.6 percent of revenues and was down 48.5 percent year-over-year and down slightly by 1.9 percent quarter-over-quarter. Subscriber solutions contributed 36.5% and were up 0.9% year-over-year and up 18.1% quarter-over-quarter. International revenues made up 52.4% of total revenues, and domestic revenues contributed 47.6%. Domestic revenues were sequentially higher in all three product categories.

Italy: Access and aggregation contributed 39% of revenues and was down 31, 9% compared to the year ago quarter voice was down 14% sequentially.

Ulrich Dopfer: Our off-tech and networking solutions category contributed 32.6% of revenues and was down 48.5% year over year and down slightly by 1.9% quarter over quarter. Subscribers' solutions contributed 36.5% and was up 0.9% year over year and up 18.1% quarter over quarter. International revenues made up 52.4% of total revenues, and domestic revenues contributed 47.6%. Domestic revenues were sequentially up in all three product categories. Q2 non-GAAP growth margin was 41.9% and increased by 334 basis points year over year and 37 basis points sequentially. The improved growth margin is reflective of our ongoing efforts to optimize our supply chain and supply-related processes.

Italy: Our uptick of networking solutions category contributed 32, 6% of revenues in both down 48, 5% year over year and down slightly by one 9% quarter over quarter.

Italy: Subscriber solutions contributed three points to 36, 5% and was up <unk>, 9% year over year, and up 18, 1% quarter over quarter.

Italy: International revenues made up 52, 4% of total revenues and domestic revenues contributed 47, 6%.

Italy: Domestic revenues were sequentially up in all three product categories.

Ulrich Dopfer: Q2 non-gap gross margin was 41.9% and increased by 334 basis points year-over-year and 37 basis points sequentially. The improved gross margin is reflective of our ongoing efforts to optimize our supply chain and supply-related processes. Q2 non-GAAP operating expenses were 93.2 million, down 24% year-over-year and down 9.3% quarter-over-quarter. The decline in operating expenses is attributable to the impact of our business efficiency program. Year-over-year, we reduced non-GAAP R&D spend by 26 percent and SG&A expenses by 22 percent.

Italy: Q2, non-GAAP gross margin was 41, 9% and increased by 334 basis points year over year, and 37 basis points sequentially.

Italy: The improved gross margin is reflective of our ongoing efforts to optimize our supply chain and supply related processes.

Ulrich Dopfer: Q2 non-GAAP operating expenses were 93.2 million, down 24% year over year and down 9.3% quarter over quarter. The decline in operating expenses is attributable to the impact from our business efficiency program. Year over year we reduced if we reduced non-gap R&D spent by 26% and SGNA expenses by 22%. For the second quarter of 2024, our non-GAAP operating profit was 1.5 million, was 0.7% of revenues. This compares to a non-GAAP operating profit of 3.6 million or 1.1% of revenues in the year-ago quarter and then an operating loss of 8.8 million or negative 3.9% of revenues in the prior quarter.

Italy: Q2, non-GAAP operating expenses were $93 2 million down 24% year over year and down nine 3% quarter over quarter.

Italy: The decline in operating expenses is attributable to the impact from our business efficiency program.

Italy: Year over year, we reduce if we reduced non-GAAP R&D spend by 26% and SG&A expenses by 22%.

Ulrich Dopfer: For the second quarter of 2024, our non-GAAP operating profit was $1.5 million, or 0.7% of revenues. This compares to a non-GAAP operating profit of $3.6 million, or 1.1% of revenues in the year-ago quarter, and an operating loss of $8.8 million, or a negative 3.9% of revenues in the prior quarter. Our Q2 2024 operating margin was at the upper end of our guidance range of between minus three and plus two percent of revenue.

Italy: For the second quarter of 2024, our non-GAAP operating profit was $1 5 million was <unk>, 7% of revenues. This compares to a non-GAAP operating profit of $3 6 million or one 1% of revenues in the year ago quarter, and an operating loss of $8 8 million or negative $3.

Italy: 9% of revenues.

Italy: In the prior quarter.

Ulrich Dopfer: Our Q2 2024 operating margin was at the upper end of our guidance range of between minus 3% and plus 2% of revenues. The increase in operating margin and return to profitability was attributable to improved growth margins and lower index. The company's non-GAAP tax expense for the second quarter of 2024 was 10 million. Total non-GAAP net loss was 18.8 million after adjusting for minority shareholder interest in ATRAN Networks SE. This resulted in non-GAAP diluted loss per share attributable to the company of 24 cents per share compared to a loss of two cents per share in key 122.24 and a loss of 0.0 dollars per share in key 223.

Italy: Our Q2 2024 operating margin was at the upper end of our guidance range of between <unk>.

Italy: <unk>, three and plus 2% of revenues.

Ulrich Dopfer: The increase in operating margin and return to profitability was attributable to improved gross margins and lower operating costs. The company's non-gap tax expense for the second quarter of 2024 was $10 million. Total non-GAAP net loss was $18.8 million after adjusting for minority shareholder interest in ADTRAN Networks SE. This resulted in a non-GAAP diluted loss per share attributable to the company of $0.24 per share compared to a loss of $0.02 per share in Q1 2024 and a loss of $0.00 per share in Q2 2023.

Italy: The increase in operating margin and return to profitability was attributable to improved gross margins and lower opex.

Italy: The Companys non-GAAP tax expense for the second quarter of 2024 was $10 million.

Italy: Total non-GAAP net loss was $18 8 million after adjusting for minority shareholder interest in <unk> networks. SCE. This resulted in non-GAAP diluted loss per share attributable to the company of 24 cents per share compared to a loss of <unk> <unk> per share in Q1, 2024, and the loss of zero.

Speaker Change: Cedar Point's heroes.

Speaker Change: $1 per share in Q2 2023.

Speaker Change: Okay.

Ulrich Dopfer: Turning to the banan sheet and the cash flow statement, in 222.24 we continued to improve our working capital. Trade accounts receivable were 186.2 million at quarter end, resulting in DSO of 75 days, same as in the previous quarter. We reduced our inventory by 34.2 million compared to key 122.24. The improved working capital resulted in an operating cash flow of almost 20 million compared to 36 million in key 122.24. Consequently, we generated 3.9 million of free cash flow. At the end of the quarter, cash and cash equivalence were 111.2 million, a quarter of a quarter increase of 4.4 million or 4%.

Ulrich Dopfer: Turning to the Bennings and the cash flow statement. In Q2 2024, we continued to improve our working capital. Trade accounts receivable were $186.2 million at quarter end, resulting in DSO of 75 days, same as in the previous quarter.

Speaker Change: Turning to the balance sheet.

Speaker Change: And the cash flow statement in Q2, 2024, we continued to improve our working capital.

Speaker Change: Accounts receivable were $186 2 million at quarter end, resulting in DSO of 75 days same as in the previous quarter.

Ulrich Dopfer: We reduced our inventories by $34.2 million compared to Q1 2024. The improved working capital resulted in an operating cash flow of almost $20 million compared to $36 million in Q1 2024. Consequently, we generated $3.9 million of free cash flow. At the end of the quarter, cash and cash equivalents were $111.2 million, a quarter-over-quarter increase of $4.4 million or 4%.

Speaker Change: We reduced our inventories by $34 2 million compared to Q1 2020 for.

Speaker Change: The improved working capital resulted in an operating cash flow of almost $20 million compared to $36 million in Q1 2024.

Speaker Change: Simply we generated $3 9 million of free cash flow at the end of the quarter cash and cash equivalents were $111 2 million a quarter over quarter increase of $4 4 million or 4%.

Ulrich Dopfer: In summary, we made significant strides in operational efficiency, positioning ourselves well to capitalize on market opportunities in the US and Europe. Despite near-term market challenges, our competitive portfolio and growing customer base positions us well for future success. While you remain confident in our long-term outlook, we remain cautious due to spending trends from service providers. Our focus remains on becoming a leaner, more efficient, and more profitable company with a top-tier fiber networking portfolio.

Ulrich Dopfer: In summary, we made significant strides in operational efficiency, positioning ourselves well to capitalize on market opportunities in the U.S. and Europe. Despite near-term market challenges, our competitive portfolio and growing customer base position us well for future success. In our long-term outlook, we remain cautious due to spending trends from service providers. Our focus remains on becoming a leaner, more efficient, and more profitable company with a top-tier fiber networking portfolio.

Speaker Change: In summary.

Speaker Change: We've made significant strides in operational efficiency positioning ourselves well to capitalize on market opportunities in the U S and Europe.

Despite near term market challenges, our competitive portfolio and growing customer base positions us well for future success.

Speaker Change: While we remain confident in our long term outlook, we remain cautious due to spending trends from service providers our.

Speaker Change: Our focus remains on becoming a leaner more efficient and more profitable company with a top tier fiber networking portfolio.

Ulrich Dopfer: For the third quarter of 2024, we expect revenues to range between $215 and $235 million and the further improved non-GAAP operating margin range between negative 1 and positive 3%. Once again, additional information is available at atrendsinvestorrelations.com.

Ulrich Dopfer: For the third quarter of 2024, we expect revenues to range between $215 and $235 million and a further improved non-gap operating margin of between negative minus 1 and positive 3%. Once again, additional information is available on ADTRAN's Investor Relations webpage at investors.adtran.com. We appreciate your time and attention, and we are now ready to address any questions you may have. I will now turn the call back over to the operator to begin the Q&A session.

Speaker Change: For the third quarter of 2024, we expect revenues to range between $250 and $235 million.

Speaker Change: And to further improve non-GAAP operating margin range between negative minus one and positive 3%.

Speaker Change: Once again additional information is available at <unk> Investor Relations webpage at investors <unk> com.

Operator: We appreciate your time and attention, and we are now ready to address any questions you may have.

Speaker Change: We appreciate your time and attention and we are now ready to address any questions you may have.

Operator: I will turn now the call back over to the operator to begin the Q&A session.

Speaker Change: I'll turn now the call back over to the operator to begin the Q&A session.

Operator: Hi John. At this point, we'd like to open it up to any questions people may have.

Operator: Hi, John. At this point, we'd like to open up any questions people may have. Thank you.

Speaker Change: Hi, John at this point, we'd like to open up for any questions people may have.

Operator: Thank you. We will now begin our question and answer session. If you have dialed in and would like to ask a question, please press star followed by the number one on your touchtone phone. If you would like to withdraw your question, simply press star one again. If you are called upon to ask your question and are listening via the loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Thank you. Your first question comes from the line of Brian Koontz from Needham and Company. Please go ahead.

Speaker Change: Thank you we will now begin our question and answer session. If you have dialed in and would like to ask a question. Please press star followed by the number one on your Touchtone phone. If you would like to be charge. Your question since the breast <unk> and again, if you are called upon to ask your question and our listening via loudspeakers <unk> device. Please pick up your handset and ensure that your phone is not on mute when asking.

Operator: We'll now begin our question and answer session. If you have dialed in and would like to ask a question, please press star followed by the number one on your touchstone tone. If you would like to be charged your question, simply press star one again. If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your questions. Thank you.

Brian <unk>: Your question. Thank you. Your first question comes from the line of Brian <unk>.

Brian Kuntz: Your first question comes from the Lion of Brian Kuntz from Meadham and Company.

Brian <unk>: From Needham <unk> Company. Please go ahead.

Brian Kuntz: Please go ahead. I go on, and thanks for the question.

Yeah.

Ryan Koontz: Thanks for the question. On the access weakness here, sounds like a lot of that's coming from Europe, but maybe you can... unpack a little bit what's going on there in terms of the domestic transition to the SDX, kind of where we are in that transition. And then in Europe, you talked about a very strong Q1, probably some inventory remaining to be deployed there. But any other color you can give on the European side of things, and what might be behind the macro caution in Europe? Thank you.

Speaker Change: Hey, good morning, Thanks for the question.

Thomas Stanton: On the access weakness here, it sounds like a lot of that's coming from Europe, but maybe you can unpack a little bit what's going on there in terms of the domestic transition to the SDX, kind of where we are in that transition, and then in Europe, you talked about a very strong Q1, probably some inventory remaining to be deployed there, but any other color you can give on the European side of things and what might be behind the macro caution. in Europe. Thank you. Sure. Yeah, sure. So I would say that's exactly it. So in the U.S., we have access actually grew in the U.S.

Speaker Change: Access weaken.

Speaker Change: And this here.

Speaker Change: It sounds like a lot of Thats coming from Europe, but maybe you can.

And talk a little bit what's going on there in terms of the domestic transition to the SD ex kind of where we are in that transition and then in Europe.

Speaker Change: You talked about.

Speaker Change: Strong Q1, probably some some inventory remaining to be deployed there, but any other color you can give on the European side of things and what might be behind the macro caution.

Speaker Change: In Europe. Thank you sure.

Thomas Stanton: Yes, sure. So I would say that's exactly it. So in the U.S., we have access to them in the U.S. Also, all three product segments grew, which is the first time we've seen that in a while. So that was good to see.

Speaker Change: Yes, sure. So I would say that's exactly it so in the U S.

Speaker Change: We have access actually grew in the U S. Also all three product segments grew which is the first time, we've seen that in a while so that was good to see in Europe is specifically to customers. We had two customers that bought and they tend to buy in.

Thomas Stanton: Also, all three product segments grew, which is the first time we've seen that, and while so, that was good to see. In Europe, it's specifically two customers. We had two customers that bought, and they tend to buy in chunks. So it's not uncommon for them to come in in a quarter and then come in either the next, you know, not buy the next quarter and then buy the quarter after or the quarter after that. That's just, that's typical. And it was specifically, we actually had two actually that hit in the Q1, and that was so those were sequentially down, but that's not indicative of anything other than the fact that, you know, that's just the way that they buy.

Thomas Stanton: In Europe, it's specifically two customers. We had two customers that bought, and they tend to buy in chunks. So it's not uncommon for them to come in during a quarter and then come in either the next, you know, not by the next quarter and then by the quarter after or the quarter after that. That's just, that's typical. And it was specifically, we actually had two customers that hit in Q1.

Speaker Change: Chunks.

Speaker Change: So it's not uncommon for them to come in and in a quarter and then come in either the next not by the next quarter and then by the quarter after the quarter after that Thats just thats typical.

Speaker Change: Specifically, we actually had to actually that hit in the in Q1.

Thomas Stanton: And that'll, so those were sequentially down, but that's not indicative of anything other than the fact that, you know, that's just the way that they bought. And you know what? All the other businesses, the alternative business, and all of that was very solid in Europe for access to that.

Speaker Change: And so those were sequentially down, but thats not indicative of anything other than the fact that that's just the way that they bought.

Thomas Stanton: You know what? All the other all the other businesses, the all the all business and all of that was a very solid and you're a pretty access and egg. You said the two that hit Q1; those were not your big ones. These are newer customers that may be placed first orders or no, those were those were reduced in customers. Okay. Two large. Yeah, okay. Makes sense.

Speaker Change: No other all the other all the other business the <unk> business and all of that was a very solid and in Europe for access and AG.

Thomas Stanton: You said the two that hit Q1, those were not your big ones; these are newer customers that maybe placed their first orders, or?

Speaker Change: You said that Q1 those were not your big ones. These are newer customers that may be placed first orders are.

Thomas Stanton: No, those were existing customers. Okay, all right. Sorry.

Speaker Change: No those were those are those are existing customers.

Speaker Change: Alright.

Speaker Change: Two large yeah, okay makes sense.

Thomas Stanton: And on the in terms of your outlook there, in terms of kind of getting, you know, Europe back on track, and you've had a number of contract wins have talked about for a long time. How are those new wins kind of progressing through, you know, lab approvals and moving forward with deployment? Yeah, kind of broadly. So let me, let me talk this a little bit about Europe. Europe on fiber to the pram and from and subscriber, you know, the RG's on T's is actually fairly solid. We did have the shift, but that's not indicative of anything other than, you know, they bought and then they don't buy, and then they buy.

Speaker Change: On the.

Speaker Change: In terms of your outlook there in terms of kind of getting Europe back on track.

Speaker Change: <unk> had a number of contract wins, we've talked about for a long time.

How are those new wins kind of progressing through.

Speaker Change: Lab approvals and moving forward with deployment kind of broadly.

Speaker Change: So let me let me talk just a little bit about Europe Europe on fiber to the Prem.

Speaker Change: And from subscriber.

Speaker Change: <unk> is actually fairly solid we did have the shift.

Speaker Change: But that's that's not indicative of anything other than that.

Speaker Change: They bought and then they don't buy and then they buy so I would say that that market is actually doing fairly.

Thomas Stanton: So I would say that that market is actually doing fairly well, and on subscribers it was actually up. I mean, it's, so if they didn't buy infrastructure, then they bought something to connect up customers, right? So that was actually very good to see.

Speaker Change: <unk> fairly well and on subscribers. It was actually up I mean, it's okay.

Speaker Change: Okay. So if they didn't buy infrastructure than they bought something to connect up customers right. So that was actually very good to see opt.

Thomas Stanton: Optical is where the biggest concern is in Europe, and we really didn't see a lot of change there. You know, I fully expect subscribers and access to have a good quarter in Q3. I think the question mark that we have is, you know, optical, and right now expectations are forward to be kind of flatish. But, you know, that's where the biggest concern is.

Speaker Change: Optical is where.

Speaker Change: The biggest concern is in Europe.

Speaker Change: And we really didn't see a whole lot of change.

Changed there.

Speaker Change: I fully expect subscribers in excess.

Mark: To have a good quarter in Q3 I think the question Mark that we have is optical and right now expectations are for it to be kind of flattish but.

Mark: But thats, where the biggest concern is.

Thomas Stanton: And then, all right, so you also asked about SDX, and SDX is relatively new. We just kind of launched that. We launched a big suite of software for both optical and for the SDX a little earlier this year. That's just now getting out there. I think, I wouldn't call it conversions for some customers. If you're a greenfield customer, you typically go with SDX, or if you're, you know, you hurt certain metrics. So people still buy the 5,000, and they buy the SDX. So I wouldn't call it a conversion. I would say TV or just this quarter, we just seemed like everybody that popped system in this quarter.

Speaker Change: And then alright. So you also asked about.

Speaker Change: SPX and SPX as relatively new with this kind of launch that we launched a big suite of software for both optical and for the SPX.

Speaker Change: Earlier this year that is just now getting out there I think.

Speaker Change: I wouldn't call it conversions for some customers if you're a greenfield customer you typically go with SPX.

Speaker Change: Or if you are.

Speaker Change: You heard certain metrics, so people still buy the 5000 and they buy the SPX. So I wouldn't call. It a conversion I would say TV awards just this this quarter.

Speaker Change: It seemed like everybody that BOP system. This quarter was that was new as in STS customer.

Thomas Stanton: That was new. It was an SDX.

Ulrich Dopfer: Just a quick housekeeping question for Uli on the tax swing. Any color you can share there in terms of how we should think about that going forward? It seemed like it had a pretty big effect on your non-GAAP income.

Ulrich Dopfer: Got it, and just a quick housekeeping question for Uli on the tax swing. Any color you can share there in terms of how we should think about that going forward seem like I had a pretty big effect on your non-GAAP income. Yeah, that's the usual; you know, you see this swing throughout the quarter. I would, on a non-GAAP basis, expect a tax rate of about 15 to 20%. If you do your modeling on a gap basis, then I would expect a tax rate of about 3 to 5%. Got it.

Speaker Change: Got it and just a quick housekeeping question for early on on the tax swing.

Speaker Change: Any color you can share there in terms of how we should think about that going forward.

Speaker Change: It seemed like you had a pretty big effect on.

Speaker Change: non-GAAP.

Speaker Change: Yes.

Yes, you should.

Speaker Change: These swings throughout the quarter I would on a non-GAAP basis expect a tax rate of about 15% to 20%. If you do your modeling on a GAAP.

Speaker Change: <unk>, then I would expect a tax rate of about 3% to 5%.

Speaker Change: Got it alright, that's all I got for the year for the year right. Okay.

Ulrich Dopfer: What a year.

Got it.

George Notter: You're next question comes from the line of George Notter from Jeffries; please go ahead.

Speaker Change: Your next.

Speaker Change: Question comes from the line of George Notter from Jefferies. Please go ahead.

George Notter: Hey guys, thanks very much. I guess I just wanted to kind of get level set on the inventory. I can just kind of go through the different pieces of the business and kind of give us a sense for where there's still access inventory.

George Notter: Hey, guys, thanks, very much I.

George Notter: I guess I just wanted to.

George Notter: Get level set on on the inventory.

George Notter: Can you just kind of go through the different pieces of the business and kind of give us a sense for where there's still excess inventory.

Thomas Stanton: How long do you think it'll take to kind of work that off, and then conversely, you know, where are we done with the inventory? Yeah, let me do it from a broad segment, and any specific questions, I'll let you come back and ask on subscriber. It feels like there is very little inventory out there at this point. You know, we saw a sequential 47% increase in shipments into that customer base, and we expect a strong Q3 as well, so it feels like that inventory pieces work itself out. Now, maybe not coincidentally, that was the first piece to fall, right?

George Notter: Long do you think it will take to kind of work that off and then and then Conversely, where are we done with the inventory.

Thomas Stanton: Okay, yeah, let me do it from a broad segment, and any specific questions, I'll let you come back and ask. I just saw that we have some customers that just buy six months at a time and then deploy them, and then buy again, right? So I don't think that there's going to be, I would say that's the majority of the fluctuations, but that's just normal business.

Speaker Change: Okay, Yeah, let me do it from a broad segment and any specific questions I'll, let you come back and ask.

Speaker Change: So on subscriber it feels like there is very little inventory out there at this point.

Speaker Change: We saw a sequential 47% increase in shipments into.

Speaker Change: That customer base and we expect.

Speaker Change: Our strong Q3 as well so it feels like that inventory pieces worked itself out now.

Speaker Change: Maybe not coincidentally that was the first piece to fall right that was the first so it's not that crazy that it would be the first one to be coming out.

Thomas Stanton: That was the first, so it's not that crazy that it would be the first one to be coming out. On fiber to the premise, it's similar. There are still pieces where there are some inventory, but there's not a lot. And so the inventory situations that we'd see coming going forward, I would think would be largely what we just saw, where we have some customers that just buy six months at a time and then deploy it and then buy again. Right, so I don't think that there's going to be, I would say, that's the majority of the fluctuations, but that's just normal business.

Speaker Change: On fiber to the Prem I would say it's similar there are still pieces, where there is some inventory, but there's not a lot and so the inventory situations that we'd see coming going forward I would think would be largely what we.

Speaker Change: Just saw right, where we have some customers that just by.

Speaker Change: Six months at a time and then deploy it and then by again right. So I don't think that theres going to be I would say that's the majority of the fluctuations, but thats just normal business Thats just normal Hal.

Thomas Stanton: That's just normal how, you know, people buy. And then on optical, there's still some inventory build-up here in the US, and there's still some inventory build-up in Europe. We expect all of those.

People buy and then on optical Theres still some inventory buildup here in the U S and there's still some inventory buildup.

Speaker Change: In Europe, we expect all of those.

Thomas Stanton: We are expectations for those to be depleted by the end of this year. Yeah, that's great. I'm sorry, so you said by the end of this year. Right, that's correct.

Speaker Change: Our expectations for those to be.

Speaker Change: Depleted by the end of this year.

Speaker Change: That answer you got it that's great.

Speaker Change: I'm sorry, So you said by the end of this year.

Speaker Change: Right that's correct.

Thomas Stanton: And then just shifting gears a bit, anything on the real estate side of things? I know you guys were looking at rationalizing the portion of the headquarters. Can you give us an update there? Yeah, we still have interested buyers. I think there's, there's three or four, depending on level of interest. And that's still moving forward. That process is some of the hired architects to come in. So that's still, that's still on the plate. It's a difficult thing to forecast when something like that will close, but there's still a lot of interest. Yeah. where we're moving forward in the process, the real-state selling process.

Speaker Change: And then just shifting gears a bit anything on the real estate side of things I know you guys were looking at.

Speaker Change: Rationalizing a portion of the headquarters could could you give us an update there.

Speaker Change: Yes, we still have interested buyers I think theirs.

Speaker Change: There's three or four depending on level of interest and Thats still moving forward that processes. Some of them have hired architects to come in so that's still.

Thomas Stanton: That's still on the plate. It's a difficult thing to forecast when something like that will close, but there's still a lot of interest.

Speaker Change: That's still on the plate, it's a difficult thing to forecast when something like that will close but.

Speaker Change: There's still a lot of interest.

Speaker Change: Great.

Speaker Change: We're moving forward in the process the real estate selling process there.

Thomas Stanton: There are some other assets that we've talked about in the past that are kind of non-strategic assets that we are also looking at selling, and those are moving forward as well. Great, thank you. Okay.

Speaker Change: There are some other assets that we've talked about in the past.

Speaker Change: The other kind of non strategic assets that.

Speaker Change: We are also looking at selling.

Speaker Change: And those are moving forward as well.

Great. Thank you.

Speaker Change: Okay.

Bill Dezellem: Your next question comes from the line of Bill Dezellem from Keaton Capital. Please go ahead.

Speaker Change: Your next question comes from the line of Bill <unk> from <unk> capital. Please go ahead.

Bill Dezellem: Thank you.

Bill <unk>: Alright. Thank you I have a couple of questions relative to the.

Bill Dezellem: I actually have a couple of questions relative to the inventory adjustments that are taking place. What do you believe that has hurt your revenue this quarter? So if you were to normalize any customer consumption to your reported revenue, what's the C at Delta? That's a really hard thing to... I'll take a stab at it, but it will probably kick me. So I think the best way to look at what you're looking at is what is normalized revenue that any market to share losses or gains, and normalized for customer changes over time depending on their particular situation.

Speaker Change: Inventory adjustments.

Speaker Change: They are taking place what do you believe that that is hurt your revenue this quarter. So if you were to normalize.

Speaker Change: In customer consumption.

Speaker Change: Our reported revenue.

Speaker Change: Delta.

Speaker Change: That's a really key.

Speaker Change: Hard thing.

Speaker Change: To.

Speaker Change: I'll take a stab at it but it will be probably kicked me.

Speaker Change: Yeah.

Speaker Change: So I think the best way to look at what you're looking at is what is normalized revenue.

Speaker Change: Net any market share losses or gains and <unk>.

Speaker Change: Normalized for a customer changes over time, depending on their particular.

Speaker Change: Situation.

Thomas Stanton: I'm trying to figure out a way to get your number. Let me just put it as weights. It's tens of millions of dollars, and it's predominantly an optical. There's a way to think about it. So that's the biggest impact. Subscriber, like I said, is pretty much worked its way through, and there's little loan fiber to the prep. I don't know if that helped you at all. Bill, but... No, I think it does. Oh, I'm straightener. Please go ahead. No, no, no, that was it. That was it. I mean, just in the two customers, the two large customers that we have that have inventories on opticals.

Speaker Change: I'm trying to figure out a way to.

Speaker Change: To get you a number let me just put it this way it's tens of millions of dollars and it's predominantly in optical.

Speaker Change: Is the way to think about it. So that's the biggest impact subscriber like I said is pretty much worked its way through and Theres little loan fiber to the Prem.

Thomas Stanton: I don't know if that helped you at all, Bill, but... No, Tom, I think it did.

Speaker Change: I don't know if that helps you at all.

Tommy: Tommy Thank you Josh.

Oh I'm sorry, Matthew Please go ahead.

Speaker Change: No no no that was it that was it I mean just into two customers. The two large customers that we have that still have inventories on optical as they typically buy.

Thomas Stanton: They typically buy in the tens of millions of dollars a quarter, and those are substantially down right now because they're depleting inventory. So basically tens of millions, essentially times two, because each of those customers would be buying tens of millions more per quarter would be starting to think that would be a little careful with that. Let me be a little careful with that because it's not like they're not buying anything, but I think in combination it would be tens of millions, yes. And it depends on quarter to quarter, but yes. All right, that is... They're not the only inventory yet.

Speaker Change: In the tens of million dollars a quarter and those are substantially down right now.

Speaker Change: Because they're depleting inventory.

Thomas Stanton: So basically, tens of millions. All right, that is, uh, they're not the only inventory. Yeah, and they're not the only inventory situation out there. They're just the most notable. Right, correlation between what's happening in the US, where we now have all three, all three segments, showing growth as a leading indicator for Europe, or is Europe really a dynamic of these two large customers and their very specific excess inventory in the optical arena?

Speaker Change: So basically tens.

Speaker Change: Tens of millions.

Speaker Change: Essentially times Q, because each of those customers would be buying tens of millions more per quarter.

Speaker Change: That would be necessary.

Speaker Change: I think that would be a little careful with that let me be a little careful with that because it's not like they're not buying anything but I think in combination that would be tens of millions yes.

Speaker Change: And then it depends quarter to quarter, but yes.

Speaker Change: Alright that is theyre not theyre, not the only inventory yet and they're not the only inventory situation out there. They are just the most notable.

Thomas Stanton: And they're not the only inventory situation out there. They're just the most notable. Right.

Speaker Change: Right.

Thomas Stanton: And then do you see any correlation between what's happening in the US, where we now have all three segments showing growth as a leading indicator for Europe? Or is Europe really a dynamic of these two large customers? And they're very specific access inventory in the optical array. Well, so the optical space, and this is something that may be notable, the optical space, we have one large customer in Europe; we have one large customer in the US that are actually hurting our optical business. Having said that, optical was up sequential, but it was not the best quarter in the world's quenchedly two on the optical space. But the US optical business itself was able to overcome that customer, not really buying.

Speaker Change: And then.

Speaker Change: Do you see any.

Speaker Change: Yes.

Speaker Change: Correlation between what's happening in the U S, where we now have all three.

All three segments.

Speaker Change: Showing growth as a leading indicator for Europe.

Speaker Change: Or is Europe really a dynamic of these two large customers and.

Speaker Change: And they're very specific excess inventory in the optical arena.

Speaker Change: Yeah.

Thomas Stanton: Well, so the optical space, and this is... We have one large customer in Europe, and we have one large customer in the U.S. that is actually hurting our optical business. Having said that, the optical business was up sequentially, but it was, you know, not the best quarter in the world sequentially too for the optical space, but the U.S. optical business itself was able to overcome that customer not really buying. So, Well, maybe I mean if you look at the US from a fiber to the home and subscriber perspective.

Speaker Change: So the optical space and this is.

Speaker Change: Something that May maybe notable the optical space.

Speaker Change: <unk>.

Speaker Change: We have one large customer in Europe, we have one large customer in the U S that are actually hurting our optical business, having said that optical was up sequentially, but it was.

Speaker Change: Not the best quarter in the world sequentially too on the optical space with the U S. Optical business itself was able to overcome that customer not really buying.

Speaker Change: Okay.

Thomas Stanton: So, I think it is more; I wouldn't call it precursor. Well, maybe, I mean, if you look at the US from a fiber to the prime and subscriber perspective, the US and Europe were very similar, except that we had two customers that happened to buy a lot in Q1, and the rest of those customers picked up in Q2. But those two customers are depleting. So, subscriber and fiber to prime, I think are very similar in Europe and in the US. I hope I didn't confuse everybody with that answer, but I found it helpful. Thank you.

Speaker Change: So.

Speaker Change: I think it's and I think it is more I wouldn't call it a precursor.

Speaker Change: Well, maybe I mean, if you look at the U S from a.

Speaker Change: Fiber to the Prem and subscriber perspective.

Thomas Stanton: The U.S. and Europe were very similar, except that we had two customers that happened to buy a lot in Q1, and the rest of those customers picked up in Q2, but those two customers are diminishing. So, Subscriber and Fiber to the Primer, I think, are...

Speaker Change: The U S and Europe were very similar except that we had to inventory we had two customers that happened to buy a lot in Q1 and in the rest of those customers picked up in Q2, but the.

Speaker Change: Two customers are depleting, so subscriber and fiber to Prem I think are.

Speaker Change: They are very similar in Europe and in the U S.

Speaker Change: I hope I didn't confuse everybody with that answer but.

That's helpful.

Speaker Change: Thank you.

Speaker Change: Okay.

Thomas Stanton: I'm going to switch to one additional question on the, and this is really coming from a point of ignorance, that your SaaS business is showing some signs of strength in the US. Is that an opportunity that you have in Europe, or is this, is the SaaS business really more going to be centric on the US? It's predominantly, our focus right now is US, and the reason for that is making sure that it is a strong kind of strategic weapon that we have in winning market share for big customers. So, the majority of the development right now is very much centered on US customers.

Speaker Change: I'm going to switch to one additional question on the <unk>.

Speaker Change: This is really coming from a point of ignorance.

Speaker Change: SaaS business is showing some signs of.

Speaker Change: Strength in the U S is that an opportunity that you have in Europe or is this is the SaaS business really more going to be centric on.

Speaker Change: On U S.

Thomas Stanton: It's predominantly, our focus right now is the U.S., and the reason for that is making sure that it is

Speaker Change: It's predominantly our focus right now is U S and the reason for that is making sure that it is a strong.

Speaker Change: Kind of a strategic weapon that we have in winning market share for <unk> customers. So the majority of the development right now is very much centered on.

Speaker Change: U S customers so.

Thomas Stanton: So, it could be yes, and we do have some interest in Europe, but our feature set of development everything is very much focused on the US right now. Are there development challenges besides language to taking that offering to the European continent? No, it has more to do with interfaces to back office existing back office systems right. So, you know, there's, and some of those actually are kind of cross-border, but we're very much taking the priorities based off of what the majority of US, you know, tier two's and tier three's made. Right. Thank you.

It could be yes, and we do have some interest in Europe, but.

Speaker Change: Our feature set development everything is very much focused on the U S right now.

And are there development challenges besides language to taking that offering to do.

Speaker Change: The European continent.

Speaker Change: Now it has more to do with interfaces to back office existing back office systems.

Speaker Change: Alright so.

Speaker Change: And some of those actually are kind of cross border but.

Speaker Change: We're very much taking the priorities based off of what the majority of U S.

Nate: Tier twos and tier threes Nate.

Nate: Great. Thank you appreciate the time okay.

Thomas Stanton: Appreciate the time.

Nate: Alright.

Timothy Savageaux: Your next question comes from the line of Team Savage O from Northland Capital Markets. Please go ahead. Good morning. A couple of questions here. First, you'd mention kind of the buying patterns among your big European guys. You know, one big quarter, and then maybe one or two off, but is you look into your Q3 guys? What are your expectations there? What are you modeling with regard to what you're going to see out of your big European guys? We're not expecting a huge uptick. I think we'll see that later in the year. Now there's two different ones, and they don't necessarily buy at the same cycle.

Savi, Joe: Your next question comes from the line of Savi, Joe from Northland Capital markets. Please go ahead.

Savi Joe: Hey, good morning.

Thomas Stanton: A couple of questions here. First, you mentioned the buying patterns among your big European guys.

Savi, Joe: Couple of questions here.

Savi, Joe: First you had mentioned kind of the buying patterns among your big European guys.

Speaker Change: One big quarter, and then maybe one or two off but as you look into your Q3 guide.

Thomas Stanton: You know, what are your expectations there? What are you modeling with regard to? What are you going to see out of your... Big European guys?

Speaker Change: What are your expectations. There what are you modeling with regard to.

Speaker Change: What youre going to see out of Europe.

Speaker Change: Big European guys.

Thomas Stanton: Um, we're not. We're

Speaker Change: Okay.

Speaker Change: We're not.

Speaker Change: <unk>.

Speaker Change: We're not expecting a huge.

Speaker Change: <unk>.

Speaker Change: Uptake.

Speaker Change: I think we will see that later in the year.

Speaker Change: Now theres two different ones and they don't necessarily buy at the same cycle.

Timothy Savageaux: It wouldn't be that surprising to see one of them come in stronger in Q3, but at this point in time, that's not in our expectation. We need to say, based off of the environment, we're trying to continue to make our guidance number, so there's a little bit of conservatism in that.

Speaker Change: So it wouldn't be that surprising to see one of them come in stronger than Q3, but at this point in time.

Speaker Change: And our expectation needs to say based off of the environment.

Speaker Change: We're trying to.

Speaker Change: We're trying to continue to make our guidance numbers, so, whereas there is a little bit of conservatism in that.

Timothy Savageaux: Well, got it, and that's kind of where I was heading next, which is, you're looking for three flat quarters here, around the 225 million on a level composed quite differently, I guess, from a geographic and product standpoint.

Speaker Change: Got it and that's kind of where I was heading next which is yes you are.

Speaker Change: We're looking for pretty flat quarters here around the $225 million on a level composed quite differently.

Thomas Stanton: from a geographic and product standpoint.

Speaker Change: Yes.

Speaker Change: From a geographic and product standpoint.

Timothy Savageaux: My question was going to be, is there any reason to think there could be an uplift here into your enders? You stand here now, and you kind of spoke to that there, and I think may have said maybe, but please go ahead and expand upon that if you could. Well, I think what we're trying to do, and maybe it's a nuance that's too nuanced: you see us continuing to try to tighten the range of the numbers. We had a very broad range coming into the year because it was so difficult to see how the customers were reacting on kind of a monthly basis, right.

Speaker Change: My question was going to be is there any reason.

Speaker Change: Do you think there could be an uplift here into year end as you stand here now.

Speaker Change: Kind of spoke to that there and I think may have said, maybe but please go ahead and expand upon that.

Speaker Change: Good.

Thomas Stanton: Well, I think, you know, what we're trying to do, and maybe it's a nuance that's too nuanced. You see us continuing to try to tighten the range, and it's difficult to see how the customers are reacting on kind of a monthly basis, right? That has gotten better. Visibility has gotten better. The surety within our forecast has gotten better. The biggest unknown for us right now is really kind of the optical space and, you know, has that bottomed out, or, you know, where's the bottom of that, and when does that actually start adding on the subscriber fiber, the prime space? We feel very confident. That's where we sit today. Got it.

Speaker Change: Well I think what we're trying to do.

Speaker Change: And maybe it's a nuance that's too nuanced.

Speaker Change: You see us continuing to try to tighten the range of the numbers, we had a very broad range coming into the year because it was so <unk>.

Speaker Change: Difficult to see how the customers were reacting on kind of a monthly basis right that has gotten better visibility has gotten better.

Timothy Savageaux: That has gotten better. Visibility has gotten better. The surety within our forecast has gotten better. The biggest unknown for us right now is really kind of the optical space, and you know, has that bottomed out of, you know, where's the bottom of that, and when does that actually start adding on the, on the subscriber. Probably the prem space, we feel very good right now. So the direct answer to this question is, you know, we're hopeful that we'll see an uptake this quarter, and we're probably even more confident about four quarter than third quarter. That's where we sit today.

Speaker Change: The surety within our forecast has gotten better.

Speaker Change: <unk>.

Speaker Change: The biggest.

Speaker Change: Unknown for US right now is really kind of the optical space in <unk>.

Has that bottomed out.

Speaker Change: Whereas the bottom of that and when does that actually start adding on the on the.

Speaker Change: Subscriber fiber to Prem space, we feel very good right now.

Speaker Change: Okay.

Speaker Change: So the direct answer to your question is we're hopeful that we'll see an uptick this quarter and were.

Speaker Change: Probably even more confident about fourth quarter than third quarter.

Speaker Change: That's where we sit today.

Timothy Savageaux: Got it. And you keep sending me up here with your answers. So on the optical side, you know, it's very intrigued by a commentary and, you know, your aspiration for top two in Europe. And I had a couple questions around that, which and also the cross selling that you mentioned in the US. Obviously, a lot going on with women these days, historically a big customer of yours on the access side. And this kind of segway is another one of your comments around strategic changes in the landscape. You know, the broader question there is, you know, what kind of opportunity is, are you seeing anything anecdotally in real time coming out of the plan merger of Nokia and Scenario, obviously big women shop.

Speaker Change: Okay.

Speaker Change: Got it.

Thomas Stanton: And you keep setting me up here with your answers. So on the optical side, I was very intrigued by your commentary and, you know, your aspiration for the top two in Europe. And I had a couple of questions around that, which and also the cross selling that you mentioned in the U.S. Obviously, there is a lot going on with Lumen these days, and historically, a big customer of yours on the access side. You know, what kind of opportunities? Are you seeing anything anecdotally in real time coming out of the planned merger of Nokia and Infinera? Obviously, there is a big Lumen shop there at Infinera.

Speaker Change: And I keep telling me up here with your answers so on the optical side.

Speaker Change: I was very intrigued by your commentary.

Speaker Change: Your aspiration for top two in Europe, and I had a couple of questions around that and also the cross selling that you mentioned in the U S.

Speaker Change: Obviously, a lot going on with Illumina. These days historically, a big customer of yours on the access side.

Speaker Change:

Speaker Change: And that's kind of segways into another one of your comments around <unk>.

Speaker Change: The strategic changes in the landscape.

Speaker Change: And I guess a broader question there is.

Speaker Change: What kind of opportunities are you seeing anything anecdotally in real time.

Speaker Change: Coming out of the planned merger of Nokia and Infinera, obviously big Lumens shop.

Timothy Savageaux: There at Infinera, so I wonder if you might see any opportunities there as they go about building this giant data center network.

Thomas Stanton: So I wonder if you might see any opportunities there as they go about building this giant data center network. Kind of all over the map there, question wise, but I think you know where I'm going. There'll be one less.

They're at Infinera, So I wonder if you might see any opportunities there as they go about.

Speaker Change: Building this giant data center network.

Thomas Stanton: But more broadly, is it really the merger that drives you to target that top two position in Europe, which is pretty meaningful, anything? So, kind of all over the map, they're question wise, but I think you know where I'm going.

Speaker Change: But more broadly.

Speaker Change: Is it really the merger.

Speaker Change: That drives either target that top two position in Europe, which is where it could be pretty meaningful.

Speaker Change: So.

Speaker Change: Kind of all over the map your question wise, but I think you know where I'm going.

Well, I think the way we look, when we were, when we've been bidding in Europe right now for optical gear, there were really, you know, there was always Nokia, there was always Sianna, there was always Sianna, there was always Sianna, there was always Sianna, and there was always Sianna, there was always Sianna, there was always Sianna, there was always Sianna, there was always Sianna, there was always Sianna, there was always Sianna, there was always Sianna, there was always Sianna, there was always Sianna, there was always Sianna, there was always Sianna, there was always Sianna, there was always Sianna, there was always Sianna, there was always Sianna, there was always Sianna, there was always Sianna, there was always Sianna, there was always Sianna, there was always Sianna, there was always Sianna, there there was always Sianna, there was always Sianna, there was always Sianna, there was always Sianna, there was always Sianna, there was always Sianna, there was always Sianna, there was always Sianna, there was always Sianna, there was always Sianna, there was always Sianna, there was always Sianna, there was always Sianna, there was always Sianna, there was always Sianna, there was always Sianna, there was always Sianna,

Speaker Change #100: Well I think.

Speaker Change #100: The way we look at when we were when we've been bidding in Europe right now.

Speaker Change #100: For optical gear.

There were really there was always Nokia there was.

Speaker Change #100: Are we seeing there was always in the results.

Speaker Change #100: And.

Speaker Change #100: There'll be one less and I think.

Thomas Stanton: I think our technology is very competitive in the metro and regional space that we play in. I think we win our fair share. I think our fair share, just on a percentage basis, goes up, and I think we have very deep relationships with a lot of those large customers in Europe. So yeah, I feel good about Europe. The U.S., I don't know if there's going to be any new inroads or not necessarily, but there there's any time that you have a merge like that, you know there's potential disruption.

Speaker Change #101: Our technology is very competitive in the metro and regional space that we play in.

Speaker Change #101: I think we win our fair share I think our fair share just on a percentage basis goes up.

Speaker Change #101: And I think we have very deep relationships with a lot of those large customers in Europe. So yes.

Speaker Change #101: I feel good about Europe U S. I don't know, if thats going to be any new inroads or not necessarily.

Speaker Change #101: Our.

Speaker Change #101: There is anytime that you didn't have a merger like that there's potential disruption.

Speaker Change #101: So we'll have to see how that plays out.

Thomas Stanton: So we'll have to see how that plays out. Yeah, thanks very much. At this time, I think we're out of questions, so I appreciate everybody joining us for our conference call, and we look forward to talking to you next quarter at this time.

Okay. Thanks very much.

Speaker Change #101: Okay.

Speaker Change #101: Okay.

Speaker Change #102: At this time it looks like I think we're out of questions. So I appreciate everybody joining our conference call and we look forward to talking to you next quarter at this time.

Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

Speaker Change #103: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.

Speaker Change #103: Okay.

Speaker Change #103:

Speaker Change #103: [music].