ADTRAN Holdings, Inc. Q3 FY2025 earnings call

• ADTRAN delivered solid third quarter results with revenue near the upper end of guidance and higher operating margins. All 3 business categories achieved double-digit year-over-year growth.
• Optical Networking grew 47% YOY and 15% sequentially, led by strong momentum in Europe with deployments for a new large service provider and 15 new optical customers added.
• Access & Aggregation revenue grew 12% YOY, supported by fiber access investments but offset by seasonal buying of two major European customers, while adding 14 new customers for fiber access and Ethernet aggregation platforms.
• Subscriber Solutions revenue grew 12% YOY and 21% sequentially, driven by demand for residential and wholesale applications, and introduced Mosaic One Clarity with promising early results.
• Completed a $201 million financing transaction to lower borrowing costs and increase financial flexibility, strengthening the capital structure.
• Emphasized the integrated portfolio's benefits of fewer handoffs, faster time to value, and one accountable partner across optical, access, subscriber, and software.

Optical Networking: grew 47% year-over-year and 15% sequentially, contributing significantly to revenue growth. Access & Aggregation: grew 12% year-over-year, affected by seasonal buying patterns of two major European customers. Subscriber Solutions: grew 12% year-over-year and 21% sequentially, driven by demand for residential and wholesale applications. Optical Networking accounted for a substantial portion of the growth, with Access & Aggregation and Subscriber Solutions also showing healthy growth figures.

• Fourth quarter revenue expected to be between $275 million and $285 million.
• Anticipated non-GAAP operating margin of 3.5% to 7.5%.
• OpEx expected to remain relatively flat compared to the third quarter.

• Risks detailed in earnings release and SEC filings, including factors affecting forward-looking statements such as market uncertainties, currency volatility, and seasonal factors that could impact actual results differing from forward-looking statements.

Q: Looking at Access & Aggregation and the timing change of European customers, was there a pushout?

A: There has been changing in some of the timing, with 2 big customers having different financial calendars.

Q: Talk about the real estate sale process for the Huntsville campus?

A: The Huntsville campus buildings were put back on the market, receiving multiple offers, and are actively being marketed with regular conversations with interested parties.

Q: What are the drivers of ADTRAN's growth higher than the telecom average?

A: Market share disruption in Europe where ADTRAN is the #1 winner, and trends in data center and AI affecting the market.

Q: Can you provide color on the product mix and geo mix within the Optical domain?

A: Strong momentum in the US and Europe, with a larger Tier 1 win in Europe and initial shipments into that carrier.

Q: What about Huawei displacement opportunities?

A: Significant positive influence, momentum building, and the impact is expected to grow over the next 2 to 3 years.

Q: What is the outlook for margins?

A: Long-term goal is 43% non-GAAP gross margin, within line of sight, expecting expansion in 2026.

Q: How will BEAD spending impact?

A: Anticipate an improved BEAD spending environment, with orders expected in the first half of 2026.

Q: Any update on the minority interest with old ADVA shareholders?

A: There was one redemption in the quarter, with nominal activity expected, and selling the Huntsville building helps.

Q: Details on the non-core asset ADVA business?

A: It's in the Access & Agg category, has a different selling rhythm, and is currently being readjusted.

Q: Impact of memory prices on the subscriber side?

A: Gross margin in that business has been kept constant, with new generations of subscriber product.

Q: Update on Tier 1 ramps in Optical?

A: One Tier 1 win in Europe will take longer, with the access portion expected to move next year, and positive tailwinds in Europe.