ADTRAN Holdings, Inc. Q2 FY2025 earnings call

Key Points

• ADTRAN delivered solid second quarter results with revenue exceeding previous guidance, sequential and year-over-year growth across all revenue categories.
• Cash from operations was $32.2 million and free cash flow was $18.3 million. Balance sheet had $106 million in cash.
• Optical Networking Solutions grew 22% year-over-year driven by multiple application demands. Access and Aggregation grew 30% year-over-year led by European and U.S. service providers. Subscriber Solutions grew with residential solutions performing well.
• Continued innovation with connections of first commercial 50 Gig PON customers in the U.K. using SDX 6400 series. Evaluating sale-leaseback and noncore asset sales for balance sheet improvement.

ADTRAN's second quarter revenue was $265.1 million. The Optical Networking Solutions segment had revenue of $90.1 million, accounting for 34% of total revenue, growing 22% year-over-year. The Access and Aggregation segment had revenue of $91.2 million, ~34% of total revenue, growing 30% year-over-year. The Subscriber Solutions segment had revenue of $83.8 million, 32% of total revenue, increasing 2% year-over-year. Geographically, non-U.S. revenue was 55% of total, and U.S. revenue was 45%.

Third Quarter Outlook

• Expect revenue between $270 million and $280 million.
• Anticipate non-GAAP operating margin of 3% to 7%. Excludes potential tariff impacts due to trade policy and macroeconomic conditions.

• Foreign exchange fluctuations impact operating expenses, though generally well-positioned on profitability; efforts to strengthen FX management ongoing.
• Deals for Huntsville campus and East Tower sale-leaseback not yet finalized; some transactions face delays or contingencies.

Q: Talked about market share gains, especially in Europe and U.S. Tier 2 space. Thoughts?

A: Market share gains in Europe with Italian win, and in U.S. Tier 2 space with new customers buying both optical and fiber access products.

Q: Data centers and MFA networks?

A: Active RFPs with service providers, some customer-driven, but still early with significant activity.

Q: Balance sheet, ADVA share redemptions?

A: Orderly transaction reducing shares outstanding, positive for long term.

Q: Operating leverage and FX hedging?

A: Moving towards operating leverage, naturally hedged on EPS, working on hedging strategy for transparency.

Q: Sale of East Tower?

A: Exclusivity period with contingencies, exploring other offers and sale-leaseback, working with new parties.

Q: Subscriber solutions growth in Q3 and second half?

A: Subscriber solutions backlog growing, optical and access segments also positive, strong momentum expected.

Q: U.S. revenue growth drivers and Tier 1 opportunities?

A: U.S. growth from Tier 2 and MSOs, working on large MSO business but no immediate change in Tier 1 trajectory.