ADTRAN (ADTN) - 2022 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - ADTRAN's Q4 2022 revenue was $358.3 million, up 132$355 to $375 million [18] - Non-GAAP gross margin for Q4 was 39.1$21.5 million, translating to a non-GAAP operating margin of 6%, compared to 1% in Q4 2021 and 6% in the previous quarter [22] Business Line Data and Key Metrics Changes - Optical Networking Solutions revenue was up 7% quarter-over-quarter, comprising 40% of total revenues, compared to 35% in the previous quarter [19][7] - Subscriber Solutions contributed 34% of revenues, down from 39% in the previous quarter, while Access & Aggregation revenue share was 27% [20] - Revenue from access and aggregation solutions was up 7% quarter-over-quarter, driven by growth in fiber access platforms [8] Market Data and Key Metrics Changes - Domestic revenue grew by 41% year-over-year, while international revenue increased by 310%, making up 60% of total revenue [20] - Non-US optical networking revenue was up 10% quarter-over-quarter, contributing to a 15% increase in overall non-US revenues [7] Company Strategy and Development Direction - The combination with ADVA is expected to enhance product and customer diversity, particularly in the US and Europe, capitalizing on fiber networking growth opportunities [6] - Continued investment in innovation across all segments is anticipated to drive demand for solutions [9] - The launch of the SDX 6330 fiber access platform is expected to significantly contribute to growth, with strong demand from national and regional service providers [11] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about growth potential, citing improvements in the semiconductor supply chain and a focus on cost management [15][27] - The company expects Q1 2023 revenues to be between $355 million and$375 million, with a non-GAAP operating margin between 5% and 6.5% [27] - Long-term public and private investments in fiber networks remain strong, with significant funding initiatives planned [15] Other Important Information - The company anticipates total synergy savings of $52 million from the merger, with 43$108.6 million at the end of Q4, with net inventories at 427.5 million [24][25] Q&A Session Summary Question: Can you break out the revenue contribution from ADVA versus ADTRAN organic? - ADVA contributed 202 million in revenue [29] Question: What is the current impact of supply chain issues on gross margin? - The impact on gross margin was approximately 260 basis points this quarter, down from 350 basis points previously [30] Question: What applications are driving success in Europe? - Success in Europe was broad across metro networks and private networks, driven by upgrades to handle new speeds [36] Question: Can you discuss the Huawei replacement cycle? - The UK is seeing the most activity, with carriers needing to remove non-trusted vendors, which has accelerated awards [41] Question: What is the update on residential SAS and Wi-Fi 6 chip availability? - Demand for residential solutions remains strong, with over 150 carrier customers onboarded [45] Question: What is the strategy for middle-mile in the US? - The introduction of combined company assets has positively impacted buying decisions among US carriers [50] Question: What is the outlook for the tax rate? - The non-GAAP tax rate for 2023 is expected to be in the low to mid-20s percentage range, with less volatility anticipated [58]