Q1 2025 ADTRAN Holdings Inc Earnings Call
Good morning, My name is Sarah and I will be your conference operator at this time I would like to welcome everyone to add train holdings first quarter 2025 financial results Conference call.
After the Speakers' remarks, there will be with us.
<unk> and answer session. If you would like to ask a question. Please press star one on your telephone keypad. Thank you Mr.
Speaker Change: Mr. Peter Schuman, Vice President Investor Relations you May begin your conference.
Thank you Sarah welcome and thank you for joining us today for <unk> Holding's first quarter 2025 financial results conference call and welcome to all those joining by webcast.
Speaker Change: During the conference call <unk> Representatives will make forward looking statements that reflect management's best judgment based on factors. Currently known however, these statements involve risks and uncertainties, including those 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.
Speaker Change: To differ materially from those in our forward looking statements, which may be made during the conference call. We undertake no obligation to update any statements to reflect events that occur. After this call. During today's call we refer to certain non-GAAP financial measures reconciliations of non-GAAP to GAAP measures and certain additional information.
Speaker Change: Are included in our Investor presentation and earnings release, we have not provided reconciliations at our second quarter 2025 outlook with regard to non-GAAP operating margin, because we cannot predict and quantify without unreasonable effort all of the adjustments that may occur during the period.
Speaker Change: The Investor presentation has been updated and it is available for download on the Airtran Investor Relations website.
Speaker Change: In addition, the financial measures discussed during the conference call our preliminary estimates.
10th Canto: Turning to the agenda, Tom Stanton Airtran, holding CEO and chairman of the board will provide key investment highlights for the first quarter 2025, 10th Canto, Our senior Vice President and CFO will review the quarterly financial performance in detail and our second quarter 2025 outlook and then we will take question any questions you may have.
Speaker Change: I'd now like to turn the call over to Tom Stanton.
Speaker Change: Thanks.
Tom Stanton: Thank you Peter and good morning, everyone.
Tom Stanton: Before we discuss the quarterly results I would like to introduce Tim <unk>, our new CFO, who joined <unk> in early March.
Tom Stanton: Tim was brought onboard because of his extensive experience in finance and operation operational leadership, including more than a decade in leadership roles at general electric.
Tom Stanton: He has over 25 years of international experience in finance accounting and operations across multiple industries.
Tom Stanton: I would also like to take this opportunity to thank really doffer for his significant contributions and leadership.
Tom Stanton: And transfers quarter performance highlighted our improved operating efficiency and our strength in our business model.
Tom Stanton: We delivered solid results with improvements across several key operating metrics.
Tom Stanton: Revenue exceeded typical first quarter patterns showing growth both sequentially and year over year.
Tom Stanton: This increase reflects heightened customer activity and strong execution by our team.
Tom Stanton: Our non-GAAP gross margin remained strong and non-GAAP operating profit was at the high end of our guidance range.
Tom Stanton: We also generated a robust $41 6 million in cash from operations and $22 9 million in free cash flow.
Tom Stanton: We continue to believe that 2025 will be a year of accelerating performance and this should translate to meaningful cash generation, which is a significant which is a key strategic priority for us.
Tom Stanton: Let me talk a little bit about tariffs in the near term the impact of tariffs is expected to be minimal.
Tom Stanton: Post 90 days, we are one of the few manufacturers that own and operate our own facilities, which puts us in a stronger position to respond effectively to policy changes.
Tom Stanton: Although the environment is continuously evolving in the mid to long term effects from tariffs remain uncertain AD trend is well positioned to adapt thanks to our global customer base and diverse supply chain.
Tom Stanton: Over the years, we have built a durable global network with manufacturing capabilities across the U S and Europe, we are actively managing production transfers and enhancing logistics to optimize our supply chain and navigate the evolving trade policies.
Tom Stanton: Our manufacturing strategy is focused on diversifying geographies and operational flexibility.
Tom Stanton: I am incredibly proud of our manufacturing and logistics teams for their swift decisive actions in handling these challenges.
Tom Stanton: Their efforts have been instrumental in minimizing disruption in controlling costs diminish demonstrating the strength and flexibility of our operations.
Tom Stanton: Now turning to the quarterly results that trans revenue of $2247 7 million was above the midpoint of our previous guidance with all three of our product categories achieving year over year growth.
Tom Stanton: This brought this progress reinforces the strength across our networking portfolio that spans from the optical core to the customer premise.
Tom Stanton: We delivered particularly strong growth in our access and aggregation solutions segment, with 23% sequential and 10% year over year growth.
Tom Stanton: This performance was driven by fiber footprint expansion initiatives and 10 gig network upgrade cycle, especially with our large European and tier two years tier two U S service providers.
Tom Stanton: Despite broader global economic uncertainties, the demand for our high speed fiber based broadband services remained strong.
Tom Stanton: Thanks to our differentiated portfolio and strong regional presence in the U S and Europe <unk> continues to be a preferred partner.
Tom Stanton: Our optical networking solutions category grew 4% year over year with a 21% year over year increase in the U S market.
Tom Stanton: Although we maintain a positive outlook for all of our optical cost our customers the highest year over year growth in optical has been with our enterprise government and internet content provider customers.
Tom Stanton: With ongoing vendor consolidation in the optical market and industry wide shift away from high risk vendors and all customers essentially having completed their inventory reductions we are well positioned for further growth in the optical networking solutions category.
Tom Stanton: Our subscriber solutions category grew 15% year over year. This growth was driven by increased sales of residential gateways and <unk> as our service providers continue to have success in connecting more homes and businesses with fiber.
Tom Stanton: The outlook for subscriber solutions is closely correlated to our success in passing more homes and businesses with our fiber access platforms.
Tom Stanton: With high demand for Wi Fi seven platforms continued customer adoption of fiber based broadband and wholesale services and continued innovation in our complementary software platforms. We are confident that we can drive further growth in this category.
Tom Stanton: The year over year growth across each of these three major categories is a direct reflection of both the strength of our portfolio.
Tom Stanton: And the ability of our sales teams to better position.
Tom Stanton: Our complete offerings, we encouraged by the traction we are seeing as more customers recognize the value of our integrated solutions and the depth of our integrate our innovation across access optical and subscriber platforms.
Tom Stanton: Underscoring that progress during the quarter, we added another large service provider to our European customer base. As we are awarded a share of both the fiber access and optical transport businesses.
Tom Stanton: This large national service provider located in southern Europe, as a new customer to add train and they specifically selected us for our strong regional presence paired with our complete portfolio offering offering spanning the optical core to the customer premise.
Tom Stanton: Continuing with the theme of growing our business in Europe, we had another large service provider in the region select us for two key optical projects one for mobile backhaul and another one for mobile front haul. This as an operator, while we are already an incumbent transport access vendor and they see the value in expanding their business with a more scaled solutions partners.
Tom Stanton: Moving to the U S. Our cross selling strategy continues to pay off.
Tom Stanton: We recently had a couple of our high growth U S National service providers.
Tom Stanton: We're both of whom were incumbent access where both income and access vendor for both of those expand their business with us.
Tom Stanton: One customer selected us for new optical transport deployments moving forward and the other one selected us for carrier Ethernet business moving forward.
Tom Stanton: These examples are representative of the encouraging trends, we are increasingly having success leveraging our relationships and synergies in one portion of our portfolio to have success in other areas.
Tom Stanton: These portfolio synergies start with our mosaic software suite, which automates and simplifies the provisioning and monitoring of our solutions that span from the optical core to the customer premise.
Tom Stanton: One example of this software is with our optical monitoring solutions that not only provide real time and service monitoring of transport networks.
Tom Stanton: But can now extend that visibility all the way to the customer premises and point to Multipoint networks.
Tom Stanton: This solution was selected for an innovation award by the fiber to the home Council Europe in March along side, a separate award for our 50 gig PON solution.
Tom Stanton: Our portfolio innovation and customer momentum remains strong.
Tom Stanton: More customers continue to turn to add trend to provide turnkey fiber networking solutions that scale from the optical core to the customer premise, while delivering best in class subscriber experiences through improved insight and automation.
Tom Stanton: In summary, our quarter end performance was at the higher end of guidance, giving us confidence that improving market conditions combined with continued solid execution will drive some key increased cash generation.
Tom Stanton: We delivered above seasonal revenue and improved profitability with strong booking trends that give us optimism for continued positive momentum.
Tom Stanton: Our customer base continues to expand it.
Tom Stanton: Developing strategic platforms with significant opportunities still ahead of us both in the U S and Europe importantly, our product portfolio has never been stronger.
Tom Stanton: Fiber infrastructure growth remain strong fueled by our customer expansion initiatives vendor consolidation.
Tom Stanton: Broad shift away from high risk Chinese vendors and new investments focused on AI driven networking.
Tom Stanton: Given our strong performance this past quarter and an improving outlook, we remain confident in our long term operating targets, including gross margins in the low to mid 40% range and operating profit margins in the low double digits.
Tom Stanton: Double digits.
Tom Stanton: While the frequent shifts and proposed government policies create potential for uncertainty AD trend is uniquely well positioned to navigate market changes thanks to our globally diverse supply chain operational flexibility and strong customer relationships. We believe we are better insulated than most of our competitors.
Tom Stanton: We are actively managing the evolving tariff landscape and are focused on minimizing the impact to our business and to our customers.
Tom Stanton: With that I will turn the call over to Tim our CFO to walk you through the financial results for the first quarter and then following Tim's remarks, we will open up to any questions you may have Tim.
Tim: Thank you Tom and thank you everyone for joining us on the call. This morning before I walk through our preliminary financial results for Q1, 2025 and discuss our expectations for Q2 2025.
Tom Stanton: Like to take a moment to introduce myself and offer a little perspective on why I chose <unk>.
Tom Stanton: So I've been with the company for just two months I have had an opportunity to engage with many of our investors analysts and team members. These early conversations have been incredibly valuable as I continue to listen learn and build a deeper understanding of the business. What drew me to add trend was the strong alignment between my background.
Tom Stanton: Round, the company's strategic priorities and the opportunity to join a growing technology company with strong potential in an attractive market.
Over the past 25 years, I've led corporate finance accounting and treasury functions across both global enterprises and transformation focused organizations. My work has consistently centered on financial discipline, simplifying capital structures and enabling strategic execution.
Tom Stanton: Looking ahead my priorities are clear.
Tom Stanton: Strengthening our capital structure, continuing to enhance the finance organization and deepening engagement with our external stakeholders.
Tom Stanton: These are essential elements in positioning AD trends to drive long term sustainable value for our stockholders.
Tom Stanton: With that let's dive into the financial results for the first quarter of 2025.
Tom Stanton: We began the year with a stronger than typical first quarter performance exceeding seasonal trends amid a gradually improving industry environment.
Tom Stanton: As market conditions continue to improve combined with recent customer wins, we are beginning to recognize the benefits of scale in our business.
Tom Stanton: AD trends delivered revenue of $247 $7 million for the first quarter, representing a year over year revenue increase of $21 6 million or approximately 10%.
Tom Stanton: This is up $4 9 million or 2% sequentially, demonstrating our outsized seasonal trends, while underscoring ongoing strength across several key areas of the business and exceeding the midpoint of our guidance.
Tom Stanton: Our network solutions segment contributed revenue of $202 2 million accounting for approximately 82% of total revenue in Q1 compared to 80% in the prior year.
Tom Stanton: Our services and support segment generated $45 $5 million of revenue, representing 18% of revenue in Q1, 2025% compared to 20% in Q1 2024.
Tom Stanton: Moving onto product categories access and aggregation delivered revenue of $89 $1 million or approximately 36% of total revenue and increased 10% year over year.
Tom Stanton: Our optical networking solutions category was $78 2 million or 32% of total revenue.
Tom Stanton: This was higher by 4% year over year.
Tom Stanton: Subscriber solutions was $80 4 million or 32% of total revenue, increasing 15% year over year.
Geographically non U S revenue accounted for 58% of the total while U S revenue comprised 42%.
Tom Stanton: Additionally, one customer represented more than 10% of our Q1 revenue.
Tom Stanton: non-GAAP gross margin during the quarter was 42, 6% an increase of 146 basis points sequentially, and 193 basis points year over year, resulting from favorable product and customer mix.
Tom Stanton: non-GAAP operating expenses in Q1 were $95 5 million compared to $94 million in Q4 2024.
Tom Stanton: And $102 $7 million in Q1 2024 this.
Tom Stanton: This year over year reduction of $7 $2 million reflects the positive impact of our business efficiency program.
Tom Stanton: For Q1, our non-GAAP operating profit was $10 1 million or four 1% of revenue slightly above the high end of our guidance range.
Tom Stanton: This compares to a non-GAAP operating profit of $6 million or two 5% of revenue in Q4 2024.
Tom Stanton: And an operating loss of $10 7 million in the first quarter of 2024.
Tom Stanton: The year over year improvement in operating margin and profitability was driven by higher revenue and gross profit dollars, coupled with lower operating expenses and strong discipline in managing our fixed costs due to our increased productivity from last year's business efficiency efforts.
Tom Stanton: On a sequential basis, the increase in operating margin and profitability reflects higher revenue and gross margin translating into greater gross profit dollars.
Tom Stanton: non-GAAP tax expense in Q1, 2025 was $1 7 million or an effective non-GAAP tax rate of 26, 3%.
Tom Stanton: We generated non-GAAP net earnings of $2 $4 million during Q1 or <unk> on an earnings per share basis.
Tom Stanton: This compares to non-GAAP net loss of $1 $7 million or a loss of $2 <unk>.
Tom Stanton: <unk> per share in Q4, 2024, and a net loss of $16 1 million or a loss of <unk> 20 per share in Q1 2024.
Tom Stanton: Turning to the balance sheet and cash flow statement in the first quarter, we continued to make meaningful progress in strengthening our financial position.
Tom Stanton: Net working capital improved by $19 $1 million quarter over quarter to $250 1 million.
This improvement was supported by stronger collections and improved inventory management trade.
Tom Stanton: Trade accounts receivable were $166 5 million at quarter end, resulting in DSO of 60 days a notable improvement from 67 days in the prior quarter.
Tom Stanton: Inventory levels declined to $254 1 million at the end of the quarter, a decrease of $7 $6 million sequentially.
Tom Stanton: Correspondingly days inventory outstanding decreased by nine days to 152 days in Q1.
Tom Stanton: Accounts payable stood at $175 million with <unk>, increasing by two days sequentially to 74 days.
Tom Stanton: These working capital improvements contributed to an increase in operating cash flow, which came in at $41 6 million up from $4 $6 million in Q4 24.
Tom Stanton: This increase was driven by lower GAAP net losses improved collections and reduced inventory levels.
Tom Stanton: Working capital improved significantly year over year, lower by $95 9 million as a result of the benefits of lower inventories improved collections and higher payables.
Tom Stanton: We had free cash flow of $22 9 million for Q1, 2025, a strong turnaround from negative $10 4 million in Q4 2024.
Tom Stanton: The improvement reflects the strengths in operating cash flow and tighter working capital management.
Tom Stanton: At the end of Q1 cash and cash equivalents were $101 3 million a sequential increase of $23 8 million, representing a significant improvement in our liquidity position.
Tom Stanton: Strengthening our balance sheet remains a key strategic priority in 2025.
Tom Stanton: As previously communicated we are working to monetize certain non core assets, including corporate real estate.
Tom Stanton: While the sale of our Huntsville campus has taken longer than initially anticipated discussions with potential buyers have advanced to be clear. We have firm offers in hand for each of the towers. However will only sign when we believe that shareholder value has been maximized.
Tom Stanton: We will provide a more substantive update once we reach an agreement.
Tom Stanton: And in the meantime, we continue to explore and evaluate alternative options to further reinforce our capital position.
Tom Stanton: We remain firmly committed to materially strengthening our financial position over the course of 'twenty five.
Tom Stanton: Aiming towards our ultimate goal of achieving a net positive cash position.
Tom Stanton: We are pleased with our strong performance in the first quarter.
Tom Stanton: With momentum exceeding historical seasonal trends and have confidence that the industry environment continues to improve.
Tom Stanton: As market conditions stabilize we are beginning to regain scale in our business, which positions us well for the remainder of the year.
Tom Stanton: Looking ahead, we anticipate additional scale as revenue growth continues at the same time, we're seeing elevated operating expenses, primarily driven by foreign exchange headwinds.
Tom Stanton: Coming from a weaker U S dollar relative to the euro and British pound.
Tom Stanton: On a constant currency basis, we expect operating expenses to remain remained relatively consistent with prior quarter levels, reflecting our continued focus on disciplined cost management.
Tom Stanton: Regarding capital allocation, we continue to focus on strengthening our balance sheet.
Tom Stanton: This includes continuing to reduce debt through cash generation and taking decisive steps to streamline our portfolio, notably through the divestiture of noncore assets.
Tom Stanton: These actions align with our long term strategy to enhance financial flexibility and sharpen our focus on core growth opportunities.
Tom Stanton: Turning now to our outlook for the second quarter.
Tom Stanton: We continue to experience increasing global demand for broadband connectivity and remain encouraged by the underlying industry fundamentals regarding tariffs and as Tom mentioned earlier, while the situation remains fluid we believe our supply chain strategy places us in a favorable position relative to peers.
Tom Stanton: <unk>.
Tom Stanton: We are actively evaluating options to minimize the impact of any potential changes on our customers.
Tom Stanton: Our outlook excludes the potential impact of additional future tariffs given the inherent uncertainty surrounding global trade policies possible disruptions to the U S and international economies and the potential for retaliatory governmental actions.
Tom Stanton: Based on the information we have today, we expect revenue to range between 247, 5% to $262 $5 million and a non-GAAP operating margin between zero and 4%.
Tom Stanton: Once again additional financial information related to today's call is available on AD trends Investor Relations website at investors <unk> at <unk> Dot com.
Tom Stanton: This concludes the prepared remarks portion of the call and I'll turn the call back over to the operator to begin the Q&A session.
Speaker Change: Thank you if you would like to ask a question. Please press star one on your telephone keypad. If you would like to withdraw your question simply press Star. One again. Please ensure you are not on speaker phone and that your phone is not on mute when called upon thank you.
Speaker Change: Your first question comes from Michael Genovese with Rosenblatt Securities. Your line is open.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Great. Thanks.
Speaker Change: So Tom it looks like.
Speaker Change: In the quarter right all the growth came from.
Access and aggregation. So I just wanted to ask a cost of three Reg revenue segments.
Speaker Change: What the what the.
Speaker Change: The outlook is going forward, what we will access an obligation keep up this toward growth and what should we expect from subscribers and from optical.
Speaker Change: Specifically this quarter, but over the next next couple of quarters. Thank you.
Speaker Change: Yes, some of that as you know.
Speaker Change: You May know Michael was supply related because we had gotten a little bit slow in our most specifically on subscriber.
Speaker Change: So without that we lessen demand sitting on them on the dog.
Speaker Change: Scott.
Speaker Change: Notwithstanding tariffs and everything that has gotten better we did but to be Frank we had a we had a strong access quarter, we expected a strong excess quarter as you know some of our customers tend to buy a little early access customers, especially in Europe tend to buy a little early in the year then they go down a little bit and then they pick up a little bit towards the end of the year. So.
Speaker Change: That's kind of a new seasonal pattern that we've seen over the last couple of years optical I would say that what we saw in optical with just a seasonal thing.
Speaker Change: <unk>.
Speaker Change: There's optical is growing.
Speaker Change: I would expect.
Speaker Change: Without getting into too much detail, but I would expect a better performance.
Speaker Change: This quarter and we expect growth.
Speaker Change: Those segments moving forward.
Speaker Change: It was actually across the board from a pure.
Speaker Change: Pure order in <unk>.
Speaker Change: Environmental perspective, it was actually a good quarter.
Speaker Change: Okay.
Speaker Change: And then just a follow up for me on.
Speaker Change: On margins.
Speaker Change: So I.
Speaker Change: I guess, when we look at the revenue guidance compared to the first quarter and the operating margin guidance compared to the first quarter.
Speaker Change: It looks like theirs.
Speaker Change: Some margin pressure in the second quarter and it sounds like Youre, saying that thats on the <unk>.
Speaker Change: Opex side, because of the exchange rate and not because of gross margin.
Speaker Change: I just wanted to verify that that's a correct read and then.
Speaker Change: I guess, it's hard to predict.
Speaker Change: Forex beyond.
Speaker Change: Beyond the quarter, but.
Speaker Change: How do you think opex should trend.
Speaker Change: Beyond the second quarter.
Speaker Change: If thats you said I think youre going to have to project.
Speaker Change: Change rates.
Speaker Change: Our core operating on a constant currency basis, our operating expenses, we would expect to be basically flat through the year.
Speaker Change: It hasnt changed a bit.
Speaker Change: The movement we saw.
Speaker Change: Right around the turn of the quarter here was.
Speaker Change: Pretty substantial not typical.
Speaker Change: But from a pure how we're running the business, we would expect opex to be effectively flat.
Speaker Change: Okay I appreciate it.
Speaker Change: I'll pass it on thank you.
Speaker Change: Okay.
Speaker Change: The next question comes from Brian <unk> with Needham <unk> Company. Your line is open.
Speaker Change: Thanks.
Tom Stanton: Tom any.
Tom Stanton: Evidence of inquiries around pull ins from customers ahead of tariffs that you're hearing about.
Tom Stanton: Okay.
Tom Stanton: Maybe a little bit really not a lot I think most people are kind of in the same.
Tom Stanton: Both everybody elses, which is kind of hard to figure out what's going to happen and.
Tom Stanton: And we're really not.
Tom Stanton: We're not entertaining a whole lot of Poland's in fact, we're not we're trying not to have Poland's because.
Tom Stanton: We just kind of went through.
Tom Stanton: And inventory situations.
Tom Stanton: Try not to recreate that there has been no strong pressure football and so.
Tom Stanton: It just hasnt materialized.
Tom Stanton: And then maybe stepping back a little you know you've got great exposure in Europe now can you maybe just top down.
Tom Stanton: Help us to see what's going on in the macro there as it relates to kind of top five carriers, the BT and DT types, what's what.
Tom Stanton: What's going on with those large customers and then broadly what's happening in Europe with respect to high risk Chinese displacements and any other wins here.
Tom Stanton: Anticipating ramping up over the balance of the year.
Tom Stanton: Yes sure so.
Tom Stanton: The environment Hasnt.
Tom Stanton: Changed and that has been.
Tom Stanton: Really positive now for a solid year.
Tom Stanton: We had inventory issues as you know we went through those inventory issues, but the underlying demand hasn't changed.
Tom Stanton: The success rate is probably pick it has picked up in some areas.
Tom Stanton: And some of our biggest customers their conversion rate has gone up which has driven.
Tom Stanton: Stronger subscriber backup.
Tom Stanton: Backlog.
Tom Stanton: And but they're there they're.
Tom Stanton: Overall plans for deployment.
Tom Stanton: Stay in place since April one of them has recently expanded there is I think last quarter expanded the number of homes that we're trying to get to.
Tom Stanton: By a couple of million dollars. So.
Tom Stanton: All of that is in place the wins that we've had I just talked about one in my notes, which is a brand new customer.
Tom Stanton: That is a large tier one.
Tom Stanton: Yes.
Tom Stanton: But the other ones that we've talked about before are.
Tom Stanton: Still on track, we will start shipping some of them right around hopefully a little bit before the half some of them have already started shipping there is a big.
Tom Stanton: Replacement opportunity, where they're actually going to decommission some huawei equipment.
Tom Stanton: That is probably about to start it should it's right around the time for that to kick off.
Tom Stanton: Yes, so the we haven't lost anything all of those are still on track although the other.
Tom Stanton: Being operationalized and those take a long time.
Tom Stanton: And that replacement opportunity Tomlinson is in fiber optics.
Tom Stanton: It's in.
Tom Stanton: And it's in fiber yes.
Tom Stanton: Yes.
Tom Stanton: Yes.
Tom Stanton: Maybe one more if I could squeeze it in please.
Speaker Change: Changes in your attach rate.
Tom Stanton: Selling in <unk> versus <unk>.
Speaker Change: With regards to.
Speaker Change: Thanks, Yes kind of.
Speaker Change: Modern products you still the alright.
Speaker Change: Alright attach rate there and how would you characterize kind of thoughts about that going forward.
Speaker Change: I would say with I.
Speaker Change: I would say with the <unk> attach rate is probably higher than what it was with PON I think.
Speaker Change: I think that Thats.
Speaker Change: Just because it was a newer technology and interoperability and things.
Speaker Change: I don't think.
Speaker Change: Surprisingly I mean.
Speaker Change: If you followed the industry much. It has remained strong I mean, we we've gotten some tier ones that have selected.
Speaker Change: Subscriber equipment, where traditionally tier ones shop more smaller carriers typically end to end in a buy everything larger carriers tend to go shopping.
Speaker Change: It's going to be interesting to see how that environment changes I think it is changing I think more and more looking at trying to buy.
Speaker Change: Bye.
Speaker Change: More end to end solution and maybe not go direct to some of the Asian vendors, so interesting to see how that but it's the attach rate is fairly strong.
Speaker Change: Great.
Speaker Change: Got it thank you okay.
Speaker Change: Okay.
Speaker Change: The next question comes from Christian Schwab with Craig Hallum. Your line is open.
Christian Schwab: Great. Thanks for taking my question I know you guys historically have not.
Speaker Change: But in any hedge instruments regarding currency swings.
Christian Schwab: Sure Kevin.
Christian Schwab: Thanks.
Christian Schwab: Russ.
Christian Schwab: 9%.
Christian Schwab: In a short period of time is that something you guys are considering.
Christian Schwab: Alright.
Christian Schwab: Evaluate.
Christian Schwab: The short answer is yes.
Christian Schwab: We've realized the benefit of the downside and now we're moving the other direction and it's something that we're exploring.
Christian Schwab: Great and then from a from a.
Christian Schwab: Business momentum perspective.
Christian Schwab: The new design wins.
Christian Schwab: Is there any commentary you can give.
Christian Schwab: Further confidence and conviction and strengths.
Christian Schwab: Yes.
Christian Schwab: Europe versus North America or are they both.
Christian Schwab: Hitting on all cylinders.
Christian Schwab: Good question without a doubt Europe is just really hot right now it is looking rates coming out of Europe very strong.
Christian Schwab: That area is definitely hot.
Christian Schwab: In the U S. It as it is for.
Christian Schwab: In Europe, I guess, what I'm, saying is you can say that pretty much across the board.
Christian Schwab: In the U S. It's a little more hit and Miss the tier twos have been strong.
Christian Schwab: If they continue to be strong and I mentioned in my notes that we've won.
Christian Schwab: Incremental business with a couple of the larger tier twos.
Christian Schwab: Tier threes have been kind of in a lull.
Christian Schwab: You may call it a bead lola or whatever they seem to be waking up.
Christian Schwab: <unk>.
Christian Schwab: And.
We will see we haven't seen that yet, but they seem to be getting better than a lot of talk about them getting better numbers numbers had been just incrementally moving up no no big change.
Christian Schwab: Over the last six to nine months.
Christian Schwab: But to tier twos have definitely been strong.
Christian Schwab: Great.
Christian Schwab: Other questions. Thank you.
Christian Schwab: Okay.
Christian Schwab: Yes.
Speaker Change: The next question comes from EMEA, where M&A with <unk> BHF. Your line is open.
Speaker Change: Yes, Hello can you hear me.
Christian Schwab: Yes.
Christian Schwab: Thank you.
Christian Schwab: The presentation two questions.
Speaker Change: Regarding the decrease please could you provide more detail on slide 10.
Speaker Change: Whether you have suppliers in China.
Speaker Change: Sachin components.
Speaker Change: Sure.
Speaker Change: Sure.
Speaker Change: We do have.
Speaker Change: Let me start back so we.
Speaker Change: We have moved and have been moving.
Speaker Change: The majority of our supply chain contingencies outside of China for some time, if you go far enough back pre merger of the two companies.
Speaker Change: The <unk> portion had moved out a long time ago, and then on the adverse side.
Speaker Change: They were moving out and we accelerated that so that's been going on for a couple of years now so we're in a pretty good position to where on a finished good basis.
Speaker Change: There's very little that's done there and I think the majority of any finished goods.
Speaker Change: I can say on EBIT.
Speaker Change: By and large any finished goods will be out of there sometime around the middle of this year. So we don't expect a whole lot of impact from tariffs now on a raw material perspective.
Speaker Change: Everybody buys capacitors, everybody buys resistors, everybody buys PC boards.
Speaker Change: And then the real.
Speaker Change: There is where does the product actually get finished we're going to have tariffs on some of those materials.
Speaker Change: But in the overall scheme of things I think that it's.
Speaker Change: We're not we're not in a bad place.
Speaker Change: Yes.
Speaker Change: As of today, what theyre going to be tomorrow, I don't know what the tariff should kind of be tomorrow, but as of today, we're not in a bad place.
Speaker Change: Okay.
Speaker Change: The group's performance quarter over quarter was mainly driven by Europe, while the U S remained relatively stable.
Speaker Change: What explains the dynamic.
Keith: Keith continued decline in the U S.
Speaker Change: Lonnie.
Speaker Change: In the coming quarters.
Speaker Change: Yes.
Speaker Change: I would say U S was actually I wouldn't call. It not strong it was actually not bad it was just that Europe was stronger.
Speaker Change: And.
Speaker Change: Europe is just a hot area right now it is.
Speaker Change: Pretty much from any metric we see it's actually it's just.
Speaker Change: They're just buying at a stronger rate I wouldn't.
Speaker Change: I wouldn't say the U S is bad it's not but I would say that Europe is just and we have a couple of customers.
Speaker Change: That really can materially drive those numbers upwards, and they're kind of hitting on all cylinders right now.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: How would.
Speaker Change: Would you compare it trough position.
Speaker Change: In particular today.
Speaker Change: The active duty strong gogo with clients either Margaret from technological side, how does exxon's effort.
Speaker Change: Guest experience.
Speaker Change: Question really emerging MBS like fiber broadband AI that Tony.
Speaker Change: Sure.
Speaker Change: There aren't any specific area, where do you believe icon is technological.
Speaker Change: Acknowledgeable advantage.
Speaker Change: Today.
Speaker Change: Yes, I think that the.
Speaker Change: I think the key to what.
Speaker Change: We do as maybe the focus on.
Speaker Change: Where we put our resources.
Speaker Change: So on the optical side, we very much focused on that.
Speaker Change: Mid network transport.
Speaker Change: Kind of a regional.
Speaker Change: Yes.
Speaker Change: <unk> network and were very very good at that.
Speaker Change: And as that market, we do believe that as a growth market.
Speaker Change: Both from just a carrier perspective is the <unk>.
Speaker Change: Reach more homes with fiber.
Speaker Change: Yes.
Speaker Change: Enterprise perspective.
Speaker Change: As people try to find on ramps into the ICP cloud.
Speaker Change: Or that becomes more distributed and we've seen we've seen some signs of that.
Speaker Change: On the fiber access side, we just fundamentally across the board now I'm biased, but we have a better product.
Speaker Change: Have a kind of a next generation product, which is very very scalable we did a press release.
Speaker Change: Last quarter that said, we had passed over 8 million homes with British Telecom and an incredibly short period of time.
Speaker Change: It is very flexible because it is software based and disaggregate. It. So you can use it.
Speaker Change: And small locations as well as large locations.
Speaker Change: And it's just a better product.
Subscriber, it's little more difficult to differentiate yourself with subscribers all about software.
Speaker Change: And you have to keep up with the generational changes in the hardware, but it's really about the software.
Speaker Change: We launched our mosaic one product about two years ago and the big piece that we're missing was <unk>, which is in home Wifi management, which is a real cornerstone for a lot of our customers with.
Speaker Change: We launched that I think earlier last year phenomenal success, so far it's still relatively new into the market.
Speaker Change: I think that.
Speaker Change: That piece has yet to shake out I think competitively we have a very good product, but we just need some more time in that market.
Speaker Change: Yeah.
Speaker Change: Hopefully that answers.
Speaker Change: Okay. Thank you that's all from me Okay.
Speaker Change: Alright.
Speaker Change: The next question comes from Tim <unk> with Northland Capital markets. Your line is open.
Speaker Change: Hi, Good morning, a couple of questions, but first I wanted to start with.
Speaker Change: Yes.
Speaker Change: It really seems like you are.
Speaker Change: Starting to see.
Speaker Change: A greater amount of synergies.
Speaker Change: Cross your product portfolio.
Speaker Change: Particularly between.
Speaker Change: Access and optical transport just talked about that a couple of times here.
Speaker Change: Where are we right to observe.
Speaker Change: Some kind of.
Speaker Change: <unk>.
Speaker Change: Breakout here or inflection point with regards given the companies have been together for a while now.
Speaker Change: And cross selling that portfolio.
Speaker Change: I have a follow up.
Speaker Change: Yes.
Speaker Change: The only.
Speaker Change: From a heavier senses, how do you define breakout so without a doubt I mentioned in my notes.
Speaker Change: And the reason that I mentioned is we have seen good reception.
Speaker Change: And the tier three space.
Speaker Change: If.
Speaker Change: If we sell them and access product.
Speaker Change: There's a good chance that we're going to be able to get.
Speaker Change: Transport needs and meets a transport needs and that there'll be open to that because.
Speaker Change: They don't want to do business with a whole lot of vendors.
Speaker Change: In the larger kind of more sophisticated it's a real fight.
Speaker Change: <unk>.
Speaker Change: What we started to see it maybe earlier than this but I'll tell you the last quarter was a good quarter for that we won.
Speaker Change: The European carrier, which is a very large carrier and we had not done business and they flat out told us that it had to do with the breadth of our product line and the synergies that we're able to bring in the management and <unk>.
Speaker Change: Operations and they liked the scale of the company.
Speaker Change: Same thing happened in the U S. So we had two large tier twos that now are broadening one specifically in our optical space that we had been locked out of for a period of time forever really.
Speaker Change: And.
Speaker Change: They move forward. So theres these anecdotal pieces with the larger customers.
Speaker Change: But they had not been in existence before we had.
Speaker Change: I mean, it's really starting it feels like it's really gaining.
Speaker Change: Much more reception now maybe some of that may have to do with inventory by the way.
Speaker Change: They had a lot of optical inventory not just ours, but everybody's and until they were getting out of that inventory. They werent in a position to make a decision.
Speaker Change: On a new vendor. So I think some of that May just be the fact that they're now in a position to actually start making some moves.
Speaker Change: Great.
Speaker Change: I appreciate that and as I.
Speaker Change: Ponder large southern European carriers that Youre.
Speaker Change: Not already engaged with in some way try we'll continue to do.
Speaker Change: I'd ask about the.
Speaker Change: At this point.
Speaker Change: Seeing some.
Speaker Change: Size of that opportunity relative to some of your current big European customers and what's sort of.
Speaker Change: The timing, we should expect in terms of a ramp there.
Speaker Change: They're in a hurry.
Speaker Change: And they are in a hurry on the optical side first.
Speaker Change: It's hard to predict which you ultimately end up with it but if you think about them in the tens of millions.
Speaker Change: Quarter, Thats, probably the way to think about.
Speaker Change: Once once they get rolling with the full portfolio.
Speaker Change: Okay.
Speaker Change: That's across optical and access.
Speaker Change: Yes, yes.
Speaker Change: When I say 10 right now.
Speaker Change: That's a broad range.
Speaker Change: Definitely.
Speaker Change: Alright.
Speaker Change: Alright I appreciate it.
Speaker Change: Okay.
Speaker Change: Ladies and again at this point that's the <unk>.
Speaker Change: End of our question queue. So I appreciate everybody for joining us today.
Speaker Change: We look forward talking to you next quarter.
Speaker Change: Ladies and gentlemen that concludes today's call. Thank you for your participation you may now disconnect.
Speaker Change: Please wait the conference will begin shortly.
Speaker Change: Sure.
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