During the Adtran Q1 earnings call, CEO Thomas Stanton reported that the company’s first-quarter revenues—$226.2 million—were just above the midpoint of the guidance range.
“Our focus on managing expenses and reducing inventory levels helped us achieve positive free cash flow during the quarter despite the near-term headwinds that continue to impact service provider spending,” he said.
Stanton said that Adtran sees signs the market will improve as the year goes on, and the company is positioned to benefit.
“On the product mix,” he said, “we were well balanced in revenue across the three categories, with 31% of our revenue coming from subscriber solutions, 36% of revenue from access and aggregation solutions, and 33% of our revenue coming from optical networking solutions.”
Of Adtran’s total first-quarter revenue, 63% came from outside the United States. Stanton reported two areas where the company saw sequential growth: small to midsized service provider customers purchasing fiber access platforms and residential fiber CPE and large customers in Europe purchasing fiber access platforms and Ethernet CPE.
“These two customer segments—the small to midsized providers in the U.S. and the larger providers in Europe—are the segments where we continue to see the highest growth potential moving forward, given their close alignment with our strategic initiatives and portfolio investments.”
Fiber opportunities ahead
Stanton also said there were two key factors generating excitement amongst Adtran customers.
“For one,” he said, “despite some recent challenges, it is still a good time to be in the market. Nearly half of the U.S. households still lack a fiber connection, and the government stimulus programs funding further investment in these networks are still in their early stages.”
According to Stanton, the other factor driving excitement is the broad set of needs in the stimulus program customer segment that Adtran is positioned to meet.
“We have been very intentional in creating a more comprehensive fiber networking portfolio that is optimized for the needs of these small and midsized U.S. service providers,” he said. “These customers ideally want to buy in-home networking solutions, business networking solutions, fiber access platforms, optical transport platforms, network automation software, and cloud-based monitoring tools from a single vendor that they can trust to deliver reliable solutions and support them throughout their deployments.”
Stanton also reported that Adtran added 36 Mosaic One customers in the quarter, as well as nine new fiber-to-the-home (FTTH) operators.
Sizing up financials
Uli Dopfer, CFO, provided more details on Adtran’s first-quarter results.
First quarter revenues were $226.2 million, down 30% year-over-year, and Dopfer reported that 33.2% of Q1 revenues came from Adtran’s optical networking solutions segment, down 49% year-over-year and 12.7% quarter-over-quarter.
First quarter non-GAAP gross margin was 41.6%, increasing by 429 basis points year-over-year, and was slightly below Q4 2023.
“The year-over-year improvement is mainly driven by lower manufacturing and transportation costs and a more favorable customer product mix,” he said.
Dopfer also reported significant improvements in Adtran’s working capital.
“Trade accounts receivables were $187.6 million at quarter end, resulting in DSO of 75 days compared to 88 days in the prior quarter,” he said. “We reduced our inventories by $40.1 million compared to Q4 2023. The improved working capital resulted in a positive operating cash flow of $36.6 million compared to a negative operating cash flow of $16.3 million, an increase of $52.9 million quarter-over-quarter. Consequently, we generated $23.2 million of free cash flow. This resulted in a noticeable increase in cash and cash equivalents, which came in at $106.8 million, a quarter-over-quarter increase of $19.6 million or 22%.”
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