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ADTRAN Inc. (NASDAQ:ADTN) reported its financial results for Q4 2024, revealing a revenue of $242.9 million, surpassing the forecast of $238.87 million. The company reported an earnings per share (EPS) of 0, missing the expected 0.02. Despite the EPS miss, ADTRAN’s stock rose by 3.16% in after-hours trading, reflecting investor optimism driven by strong revenue performance and strategic advancements. According to InvestingPro data, the company maintains strong liquidity with a current ratio of 2.1, indicating solid short-term financial health despite profitability challenges.
Key Takeaways
- Revenue exceeded forecasts, reaching $242.9 million, an 8% year-over-year increase.
- Stock price increased by 3.16% after earnings announcement.
- Positive operating profit achieved for the first time, with improved cash flow.
- Strong growth in optical networking solutions and strategic customer acquisitions.
Company Performance
ADTRAN demonstrated robust performance in Q4 2024, with revenue growing 8% year-over-year and 7% sequentially. The company achieved a positive non-GAAP operating profit for the first time, highlighting effective cost management and operational efficiencies. The telecom infrastructure market’s recovery and increased investments in fiber network expansion have positively impacted ADTRAN’s performance.
Financial Highlights
- Revenue: $242.9 million, 8% increase YoY
- Non-GAAP Gross Margin: 42%, slight decline of 11 basis points sequentially
- Non-GAAP Operating Profit: $7.9 million, 3.3% of revenue
- Operating Cash Flow: Improved to $104.3 million from -$45.6 million in 2023
Earnings vs. Forecast
ADTRAN’s revenue of $242.9 million exceeded the forecast of $238.87 million, resulting in a positive surprise. However, the EPS of 0 fell short of the 0.02 forecast. The revenue beat suggests strong sales performance, while the EPS miss, though minor, indicates potential cost pressures.
Market Reaction
Following the earnings report, ADTRAN’s stock rose by 3.16%, closing at $10.61. This positive movement reflects investor confidence in the company’s revenue growth and strategic initiatives, despite the minor EPS miss. InvestingPro data shows the stock has delivered an impressive 98.32% return over the past six months, though it has experienced a 7.98% decline in the past week. The stock trades between its 52-week range of $4.34 to $12.16, with analysts setting price targets between $9 and $15. For deeper insights into ADTRAN’s valuation and growth potential, investors can access comprehensive analysis through InvestingPro’s detailed research reports, available for over 1,400 US stocks.
Outlook & Guidance
ADTRAN provided Q1 2025 revenue guidance between $237.5 million and $252.5 million, with a non-GAAP operating margin forecast of 0-4%. The company anticipates moderate revenue growth, driven by stronger access and aggregation growth, and expects European customers to engage earlier in the year. InvestingPro analysis indicates the stock is currently trading above its Fair Value, with analysts anticipating a sales decline in the current year. Subscribers can access 8 additional ProTips and comprehensive financial metrics to make more informed investment decisions.
Executive Commentary
CEO Tom Stanton expressed optimism, stating, "The environment has definitely picked up without a doubt." CFO Uli Dopfer emphasized inventory management, saying, "We anticipate inventory will continue to come down throughout this year." These comments underscore the company’s strategic focus on operational improvements and market recovery.
Risks and Challenges
- Inventory management remains a priority, with a target to improve inventory turns.
- Slight decline in non-GAAP gross margin could indicate cost pressures.
- Market competition and macroeconomic factors could impact future performance.
Q&A
During the earnings call, analysts inquired about inventory reduction strategies and asset sales. Executives highlighted efforts to strengthen the balance sheet and noted positive market sentiment in the telecom infrastructure sector. The impact of AI on network upgrades was also a key discussion point, reflecting industry trends.
Full transcript - ADTRAN Inc (ADTN) Q4 2024:
Rob, Conference Operator: Good morning. My name is Rob, and I will be your conference operator. At this time, I would like to welcome everyone to the ADTRAN Holdings Fourth Quarter twenty twenty four Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer session.
Thank you. Mr. Peter Schuman, Vice President, Investor Relations, you may begin your conference call.
Peter Schuman, Vice President, Investor Relations, ADTRAN Holdings: Thank you, Rob. Welcome and thank you for joining us today for Adrien Holdings’ fourth quarter twenty twenty four financial results conference call and welcome to all those joining by webcast. During the course of this conference call, Adtran representatives expect to make forward looking statements that reflects management’s best judgment based on factors currently known. However, these statements involve risks and uncertainties, including the risks 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 to differ materially from those in our forward looking statements, which may be made during the course of this call.
We undertake no obligation to update any statements to reflect events that occur after this call. During the course of the call, we refer to certain non GAAP financial measures. Reconciliations of non GAAP to GAAP measures and certain additional information are also included in our investor presentation and in our earnings release. We have not provided reconciliations of our first quarter twenty twenty five guidance with regards to non GAAP operating margin because we cannot predict and quantify without unreasonable effort all of the adjustments that may occur during the period. The investor presentation has been updated and is available for download on the ADTRAN Investor Relations website.
In addition, financial measures during the course of this conference call are preliminary estimates. They consequently remain subject to the company’s internal controls and procedures and are subject to risks and uncertainties, including among others, changes in connection with the quarter end or year end adjustments. Turning to the agenda, Tom Stanton, Adtran Holdings’ CEO and Chairman of the Board, will provide the key investment highlights for the fourth quarter twenty twenty four and Uli Dopfer, our Senior Vice President and CFO, will review the quarterly financial performance in detail and then will take any questions that you may have. I’d now like to turn the call over to Tom Stanton.
Tom Stanton, CEO and Chairman of the Board, ADTRAN Holdings: Thank you, Peter. Good morning, everyone. ADTRAN executed well during Q4 with improvements across several key operating metrics. Revenue increased sequentially, our non GAAP gross margins remained strong and our non GAAP operating profits continued to expand. Revenue was up across all regions with non U.
S. Revenue up 10% quarter over quarter. Driving deeper into the details, optical networking revenue showed meaningful growth in Q4 with a 16% sequential increase, supporting our belief that revenue bottomed in Q3. Our optical networking solutions growth was up across all regions, led by an uptick in business from a mix of service providers, Internet content providers and enterprise customers. Optical Networking Solutions added 18 new customers during the fourth quarter.
These new customers included a broad mix of fiber broadband customers, government agencies, utilities and large scale enterprises. The growth in our customers matches the diversity and network upgrade catalysts with our optical customer base. In some use cases, it is broadband operators upgrading their backhaul networks to 100 gig or regional transport networks to 400 or 800 gig. Another scenario is it is Internet content providers upgrading capacity between large scale compute sites or large enterprises or government institutions upgrading and securing their private networks. Under any of these scenarios, these customers need scalable, secure and automated optical networks from a vendor that they can trust.
We address all of these needs. With continued advancements in our portfolio, improving customer inventory levels and growing opportunities across multiple verticals in the optical segment, we are optimistic about the growth opportunities moving forward. Our access and aggregation solutions grew 8% sequentially, driven by fiber footprint expansion and network upgrades. The quarter’s growth was led by The U. S.
Customers deploying multi gig fiber services. Investment remains strong among service providers in The U. S. And Europe, and we are upgrading and expanding their fiber who are upgrading and expanding their fiber footprint. We remain the leading vendor option given our portfolio and presence in our target markets.
During the quarter, we began shipping infrastructure to 12 new fiber to premise service providers, continuing our trend of new customer acquisition in this segment. With a strong pipeline of expansion opportunities and network upgrades, we expect meaningful revenue growth in this area. Our subscriber solutions category had another strong quarter. Although slightly down sequentially, that’s following two strong quarter over quarter increases. The strength in CPE is directly attributable to fiber access footprint expansion that we have experienced.
We expect meaningful growth in CPA as our customers work to connect more homes, businesses and critical infrastructure sites with fiber. Within the category, we added 23 new service provider customers during the fourth quarter. Within our product pipeline, we will be introducing several new multi gig Wi Fi seven products over the next six months to help continue to drive new demand for a growing base of large and regional service providers. The direction in our industry is clear. Our customers need fiber networks that scale from optical cord to the customer premise, while delivering best in class subscriber experiences through better insights and automation.
We have made major upgrades across all aspects of our portfolio, from our recently introduced industry leading 800 gig transport solution, the mFlex, to the industry’s highest density, most power efficient 10 gig fiber access platform in our SDX family. We have the leading fiber infrastructure platforms that customers need to build their networks of the future. On the customer premise side, we have the connectivity solutions for nearly any need. Whether it’s 10 gig Wi Fi platforms for residential services or 100 gig business services, we have high performance and cost effective solutions that offer world class user experiences. These networking platforms are complemented by our Mosaic software suite that automates and simplifies all aspects of our portfolio, from automating the provisioning and monitoring of complex optical networks to automating and optimizing the performance of multi gig Wi Fi networks.
The breadth and capabilities of these software applications paired with our networking platforms differentiates us from our competition and positions us for additional success moving forward. Turning to our operational performance for the year, we made substantial progress during 2024. Although revenue for the year decreased due to softer end markets, including customers focusing on reducing inventory and higher interest rates, the non GAAP gross margin for the year expanded to 41.9 on a non GAAP basis from 39.3% the prior year, reflecting higher efficiency and value realization directly related to our operational efficiencies and lower overhead costs that were driven by both site and product consolidation. Non GAAP operating profit also meaningfully improved, turning positive for the full year 2024 compared to the negative figures earlier in the year. This growth underscores our ability to adapt to evolving market conditions and drive profitability.
Additionally, we achieved success in optimizing our cash flow. Net cash provided by operating activities improved to 104,300,000 during 2024, a significant improvement compared to net cash used in operating activities of $45,600,000 during 2023. Our free cash flow of $39,900,000 during calendar 2024 improved by $128,700,000 from the prior year, same for a substantial future growth. This past quarter’s strong performance combined with our improved outlook reinforces our confidence in the long term target operating model of gross margin percentages in the low to mid 40s and an operating profit margin percentage in the double digits. In summary, we had a yes.
With that, I will turn things over to Uli to provide a few of our financial results. Following Uli’s remarks, we will open it up to any questions you may have. Uli?
Uli Dopfer, Senior Vice President and CFO, ADTRAN Holdings: Thank you, Tom, and thank you, everyone, for joining us on the call this morning. To begin, I will first walk through our preliminary Q4 twenty twenty four financial performance, and then I will discuss our expectations for 2025 Q1 ’20 ’20 ’5. Q4 revenue was $242,900,000 a sequential increase of $15,100,000 or 7% and above the midpoint of our guidance. Revenue increased $17,400,000 year over year or 8%. Our Network Solutions segment delivered $197,000,000 accounting for approximately 81% of total revenue in Q4 compared to 80% in the prior quarter.
Our Services and Support segment delivered $45,800,000 or 19% of total revenue in Q4 compared to 20% in the preceding quarter. FX and aggregation delivered 72,700,000 or approximately 30% of total revenue and increased 8% sequentially. Our optical networking solution category was $81,600,000 or 34% of total revenue. This was up 16% sequentially. Subscriber solutions was $88,500,000 or 36% of total revenue.
This was down 2% sequentially. Non U. S. And U. S.
Revenues were 57% or 43% of total revenue, respectively. We had one customer who represented more than 10% of our Q4 revenue. Non GAAP gross margin during the quarter was 42%, a sequential decline of 11 basis points. Non GAAP operating expenses in Q4 were $94,000,000 reflecting a quarter over quarter increase due to higher deferred compensation and increased sales commissions. For Q4, our non GAAP operating profit was $7,900,000 or 3.3% of revenue and above the midpoint of our guidance range.
This compares to a non GAAP operating profit of $2,500,000 or 1.1% of revenue in Q3 twenty twenty four and a loss of $3,200,000 in the year ago quarter. The improvement in operating margin and profitability was driven by higher revenue, a healthy gross margin and effective management of our fixed costs. Non GAAP tax expense in Q4 was $3,100,000 We generated a small amount of non GAAP net income during Q4 and were breakeven on an earnings per share basis. This compares to a loss of $0.05 per share in Q3 twenty twenty four. Turning to the balance sheet and cash flow statement.
First, I’d like to highlight for the full year 2024, operating cash flow was over $100,000,000 a nearly $115,000,000 swing from the prior year. During Q4, net working capital decreased by $4,700,000 quarter over quarter to $276,900,000 Trade accounts receivables were $178,000,000 at quarter end, resulting in DSO of sixty seven days. This compares to seventy days in the prior quarter. Our inventories were down to $269,300,000 at the end of the quarter. Accounts payable were $170,500,000 DPOs were seventy two days versus sixty seven days the prior quarter.
Operating cash flow was $5,800,000 compared to $42,000,000 in Q3 twenty twenty four, mainly due to the timing of receivables at year end. As I shared, cash flow for the year was $103,100,000 compared to negative $45,600,000 for the full year of 2023. We had free cash flow of negative 10,400,000 in Q4 compared to positive $23,200,000 of free cash flow in Q3 twenty twenty four. The lower free cash flow number for the fourth quarter was the result of the lower operating cash flow. For the year, we generated positive free cash flow of $39,900,000 an increase of $128,700,000 from the full year 2023.
At the end of Q4, cash and cash equivalents were $77,600,000 a quarter over quarter decrease of $10,900,000 In 2025, strengthening our balance sheet is a key strategic priority. We have taken several significant actions in this direction. As previously communicated, we are in the process of selling our unused corporate real estate, which is now listed on our balance sheet as assets held for sale. We are also working to monetize other non core assets. Due diligence by interested parties continues, although we are limited based on NDAs on what we can share.
Our intent is to substantially strengthen our financial position during 2025, aiming to exit the year with a positive net cash position. In summary, although 2024 was challenging, we delivered solid operational execution. As we regain scale in our business, we anticipate an expanded operating margin. We do expect moderately higher operating expenses for 2025 in line with normalized payrolls and benefit increases. Turning now to our outlook for the first quarter.
We expect revenue to range between $237,500,000 to $252,500,000 and a non GAAP operating margin between 04%. Once again, additional financial information is available on Atren’s newly updated Investor Relations website at investors.atren.com. This concludes the prepared remarks portion of the call. And I will now turn the call back over to Rob to begin the Q and A session.
Rob, Conference Operator: Thank you. We will now begin the question and answer session. Your first question comes from the line of Michael Genovese from Rosenblatt Securities. Your line is open.
Michael Genovese, Analyst, Rosenblatt Securities: Great. Thanks so much. Congratulations on the nice results. I guess I want to follow-up on the balance sheet point. To begin, $112,000,000 of net debt, if I got that right, exiting the quarter.
So you want to be in a net cash position by the end of the year. That seems
Peter Schuman, Vice President, Investor Relations, ADTRAN Holdings: am I right that
Michael Genovese, Analyst, Rosenblatt Securities: that seems fairly trivial with that a real estate sale and sort of just cash generated from operations should be able to get us there easily? And I guess my question is really,
Peter Schuman, Vice President, Investor Relations, ADTRAN Holdings: are there other assets like anything in
Michael Genovese, Analyst, Rosenblatt Securities: the business that could be sold and kind of inventory? How much of this is going to be inventory and working capital as we so I guess just more detail on how we get to net cash and can we get much better than net cash breakeven by the end of the year?
Tom Stanton, CEO and Chairman of the Board, ADTRAN Holdings: The answer to your question is yes. So just directly yes. We do expect inventory to come down through the year. We do expect to be generating free cash flow through the year. And you’re right with the asset sales that we’re talking about, that should be really easy.
As you know, the biggest issue is timing asset sales, especially when you’re talking about property and the market. And we have some properties that are relatively unique, so you have to find the right buyer and it’s got to match up. Having said that, we have found some customers that are we have seen that alignment, but getting them to closures is the biggest thing. As far as the other asset sales, we’ve talked about anything that’s really that’s non strategic and our strategic areas are fairly easy to define. They’re subscriber, private to prem and optical.
And those are the businesses we’re in. So things that don’t fall in line that we would take a look at and we yes, there’s definitely there’s a potential for us to move forward on some of those assets as we find the right buyers. Yes.
Michael Genovese, Analyst, Rosenblatt Securities: Okay, great. Yes, absolutely. I guess my other one would be just kind of on the sustainability of the telecom recovery.
Rob, Conference Operator: So I don’t want
Michael Genovese, Analyst, Rosenblatt Securities: to ask too many multi part questions, but if I had the time, I would sort of kind of Europe and The U. S. Visibility to as we move beyond the first quarter to the rest of the quarters of the year, how would you kind of describe visibility and the sources of visibility that make you feel better that we can have a sustained recovery throughout the year?
Tom Stanton, CEO and Chairman of the Board, ADTRAN Holdings: Well, the best visibility is the purchase order. And unfortunately, our business is typically more book and ship than maybe some longer term businesses. But the so the confidence that we have is typically, number one, based off of what we have in backlog and is tangible. And then the other is just kind of planning from the different customer bases that we deal with. The environment has definitely picked up without a doubt.
I mean, in the last six months, it has substantially different than the six months prior to that. Bookings have picked up. In general, things, yes, I mean, just things just look more positive. But we really don’t have a crystal ball. I can’t tell you explicitly what I’m going to do in Q4 of this year because I don’t know.
Q3 is still murky as well, right? But as that window comes in, we get stronger and stronger confidence. And I can just say trending wise, things are looking very positive.
Michael Genovese, Analyst, Rosenblatt Securities: Perfect. Thanks so much.
Rob, Conference Operator: Okay. Your next question comes from the line of Christian Schwab from Craig Hallum Capital Group. Your line is open.
Christian Schwab, Analyst, Craig Hallum Capital Group: Great. Thanks for taking my questions. Good quarter.
Rob, Conference Operator: Back to the inventory, you’ve
Christian Schwab, Analyst, Craig Hallum Capital Group: done a significant job of reducing your inventory on your balance sheet over the last two quarters.
Rob, Conference Operator: Do you
Christian Schwab, Analyst, Craig Hallum Capital Group: have a stated goal for inventory? And what level do you think that could potentially be reduced to before you would need to maintain it for future growth objectives?
Tom Stanton, CEO and Chairman of the Board, ADTRAN Holdings: Yes. You want to talk about our turn, those turns? Go ahead.
Uli Dopfer, Senior Vice President and CFO, ADTRAN Holdings: Yes. So, currently, our inventory turns are 2.2, two point one, not where we want to be, not where we have been in the past. And our goal is to increase our inventory turns back up to in that four times range for the year. Obviously, this is a process and takes some time for this year. Like Tom said during his part of the call earlier, we anticipate that inventory will continue to come down throughout this year and how much just depends on the demand profile from customers and how much additional material we need to buy from the outside in order to satisfy this demand.
So but overall, I would anticipate inventory will come down some. Maybe not quite as significant as we have seen first quarter of last year, where we had a significant drop in inventory, but we are working through the process and anticipate a gradually decline in inventory. Yes.
Tom Stanton, CEO and Chairman of the Board, ADTRAN Holdings: I think the key is the way to think about it is four times inventory turns. That’s really where we’re comfortable there. We’ve done there before. We get much above that and we start having customer issues. So kind of low fours is a comfortable place for the company.
Christian Schwab, Analyst, Craig Hallum Capital Group: Fantastic. And then given the improved business environment that you’re seeing, I know you have limited visibility, but we are coming off a pretty challenged industry environment in calendar twenty twenty four. Would you expect revenues this year, although quarter to quarter volatility, but would you expect 10% plus type of top line growth this year? Does that seem fair?
Tom Stanton, CEO and Chairman of the Board, ADTRAN Holdings: Fair. Let me just explicitly say, we really don’t give full year guidance. We know that there are numbers that are out there. We’re aware of that. But we’ve had in the past struggled to get core guidance.
So we’re comfortable with the guidance range that we’ve given for the next quarter. And I think I would go back to the first round of questions, which was the environment is definitely improving. So I don’t want to mislead anybody there. The trend is definitely positive, but we start to see how the year plays out.
Christian Schwab, Analyst, Craig Hallum Capital Group: Great. No other questions. Thank you.
Tom Stanton, CEO and Chairman of the Board, ADTRAN Holdings: Okay.
Rob, Conference Operator: Your next question comes from the line of Brian Kuntz from Needham and Company. Your line is open.
Brian Kuntz, Analyst, Needham and Company: Great. Thanks guys. Nice job here. Uli, around the inventory, do you have much risk there around excess and obsolete? We’re going to have to take any write downs there on what you have today?
Is that beyond normal?
Uli Dopfer, Senior Vice President and CFO, ADTRAN Holdings: Well, we have a fairly large reserve build that we built over the last few years when our inventory was so high. So I think we are in a safe spot here. Obviously, it always depends on demand and what customers are asking for. But so far, I mean, our inventory service is fairly significant. So I don’t have steepest nights over it.
Tom Stanton, CEO and Chairman of the Board, ADTRAN Holdings: Yes. It’s been fairly consistent over the last few quarters and don’t see a big change in that.
Brian Kuntz, Analyst, Needham and Company: Great. And you mentioned non core assets. Any ballpark you can share on what percent of revenue we’re talking about here? You’re looking like 5%?
Tom Stanton, CEO and Chairman of the Board, ADTRAN Holdings: Yes. It’s not a big part of our revenue, anything that we would if it was a big part of our revenue, we really have to talk about whether or not it’s strategic or not. So it’s not a big piece.
Brian Kuntz, Analyst, Needham and Company: Got it. Great. And a couple of housekeeping pieces here. On your 10% customer in the quarter, I assume that was an international customer?
Tom Stanton, CEO and Chairman of the Board, ADTRAN Holdings: That’s correct.
Brian Kuntz, Analyst, Needham and Company: And did you have any in 24%, any 10% customers for the year?
Tom Stanton, CEO and Chairman of the Board, ADTRAN Holdings: Good question.
Uli Dopfer, Senior Vice President and CFO, ADTRAN Holdings: For the year? No. We had for individual quarters, we always had a one actually, last quarter, we didn’t have one, but we did not have a 10% revenue customer for the entire year last year.
Brian Kuntz, Analyst, Needham and Company: Great. And on the optical outlook, do you feel like demand and deployments are kind of finally back in balance here with regards to inventories? Are we still a little headwind in optical relative to the market?
Tom Stanton, CEO and Chairman of the Board, ADTRAN Holdings: We know we still have I think we’ve been fairly vocal that we expect one inventory situation to clear itself up in Q1. That’s still the case. Inventory, it was getting better and better through the year. We kind of have one outlier that we think will clear up in Q1. So exiting Q1, we expect to be in a good place.
Brian Kuntz, Analyst, Needham and Company: Great. And then you mentioned kind of cloud operators. Any details you can share there in terms of how meaningful that is to the optical business today?
Tom Stanton, CEO and Chairman of the Board, ADTRAN Holdings: It’s lumpy. So it can be good and then some other quarters it can be less good. So I wouldn’t overweight on that. I mean, you know kind of our sense on that. And it’s I will say it’s good to have and we’re continuing to make inroads, but I would say there’s no big inflection point there.
Brian Kuntz, Analyst, Needham and Company: Great. And then last one on the broadband front, Access and Ag. What’s your thinking around The U. S. Market?
Obviously, BEED is not a sure thing this year, but maybe some of these other government state programs and even a couple of other federal programs are still driving some strength there. Any anecdotes you can share around broadband and fiber run from The U. S. Market?
Tom Stanton, CEO and Chairman of the Board, ADTRAN Holdings: Yes, I would say there are tails from previous stimulus programs that are still doing things, but they’re not the meaningful driver to our business. We’ve had close to 200 customers come in a couple of weeks ago and there was beat or no beat. There was a lot of positive energy about what their plans were and that’s kind of what’s driving the business right now. I think in the Tier three space, I think there are a lot of people that are gearing up. I think the bead question itself is still out there, but it’s becoming less and less a part of people’s near term plans.
For us, it’s never been a big driver for this year. We were kind of more excited about what was going on. Tier 3s in general, we think that they have been kind of slower and we think that they’re going to have to start investing again. We also think that the Tier two space with some of the new equity that’s been coming into there has been very exciting and that continues to be the case. So these larger customers are just, at least for us anyways, are doing better.
And it would be nice to have a decision so that the clarity to the customer base would be there, but like
Rob, Conference Operator: I said, it’s not a
Tom Stanton, CEO and Chairman of the Board, ADTRAN Holdings: big driver for this year’s revenue.
Brian Kuntz, Analyst, Needham and Company: Got it. Thanks, Tom. And then just to clarify what you just said about the Tier 2s, you’re seeing more positive momentum, better financial footing for them to continue to ramp up in the second part?
Tom Stanton, CEO and Chairman of the Board, ADTRAN Holdings: Yes. And Tier 2s would be some of these kind of newer footprint expansion people that have private equity and others have invested in. And then if you’re an incumbent, even the incumbent Tier II carriers, they’re worried about being overbuilt, right. So, yes, I mean, there’s a good kind of competitive dynamic going on there.
Brian Kuntz, Analyst, Needham and Company: That’s great. That’s all I got guys. Thank you.
Michael Genovese, Analyst, Rosenblatt Securities: Okay. Thanks.
Rob, Conference Operator: Your next question comes from the line of Tim Savageaux from Northland Capital Markets.
Tom Stanton, CEO and Chairman of the Board, ADTRAN Holdings: Congrats on seeing the top line reflect higher here. And you’re talking about or guiding to a modest increase in Q1 revenue. Sequentially, that is. I wonder if we can get any more color on what’s happening there from either a product or geographic standpoint, what you expect to drive that uptick or what some of the moving parts might be? Yes.
I mean, I agree with your term modest, but modest is in the eye of the beholder. For us, we’re pretty happy with it, because typically we’re seasonally down. So, yes, so we’re kind of, like I said, we think it’s a positive thing. In general, I think we’ll see a stronger access in ag growth. We tend to see our European buyers tend to buy a little earlier in the year.
We saw that last year where they bought kind of earlier in the year and then less in the second half of the year. And then the kind of more traditional customers have the typical seasonality where the first quarter is down and it starts picking up in the second and third and then fourth is is a little bit of an unknown thing. I’m kind of expecting that same trend where we’ll see a strong European content and then we’ll see The U. S. Starting to pick up after that.
Uli Dopfer, Senior Vice President and CFO, ADTRAN Holdings: That answer your question?
Tom Stanton, CEO and Chairman of the Board, ADTRAN Holdings: Sure, Doug. Sorry about that. Okay. And back on the optical front, and this kind of combined with this overall kind of carrier behavior that you’re seeing. But I too was interested in the cloud commentary to the extent you have some direct exposure there.
But I guess the question is more about indirect impacts of what’s happening with AI in the network. I heard Cisco (NASDAQ:CSCO) talk about that recently and saying carriers are maybe working on their networks or investing in anticipation of bandwidth coming into the network. I wonder if you’re seeing that in your customer base or any early indications whether that would be different kind of U. S. Versus Europe.
But I guess the overall question is, are there outside of direct exposure to client suppliers, are there indirect benefits in the carrier customer base that you’re starting to see? Yes. The direct answer to that is yes. And in both U. S.
And Europe with some very specific things that they’re trying to get done and going through. So it’s, I think it’s made everybody of any size kind of look at their networks and see how do they play on a going forward basis. And I think when they do that analysis, that ultimately is going to lead to upgrades in their network and some are farther along than others. But without a doubt, I would agree with the comment that was made. Great.
And then last question for me. I know you mentioned the early buying in Europe is a potential driver in Q1. I imagine that comment is around your sort of established customers in Germany and The UK, but I wonder if we can get an update on what’s happening with some of these newer ramps in Europe on the access side and whether that might be contributing as well? It definitely is contributing. We’re starting to see some of the I mentioned that we’d start shipping GPON to some of those customers at tail end of the year and we have some other ones that we’re starting to ship in Q1.
But the numbers are so much driven by the kind of established players that it’s a positive thing, but it’s I don’t want to mislead you here. We have a handful of customers that really drive the bigger numbers and it’s yet to see exactly how that’s going to play itself out. What I’m going by is kind of historically what they have done and what we expect for this year. And yes, I think those are the ones that are driving the bigger numbers. Although those other ones will continue to add on.
Some of them don’t come on though until the end of the year, right? We have some larger things. We have some of them that come on at the end of this year and then we have some come on early next year as well. But the ones that I had previously talked about coming online, I think all of those have or will start first half of the year. Got it.
Well, congrats once again. And then I too am pleased with the modest uptake in Q1. I’ll pass it along. Thank you. Thank you.
Rob, Conference Operator: Your next question comes from the line of Amira Menai from OTO. Your line is open.
Amira Menai, Analyst, OTO: Yes. Hi. Thank you for the presentation. I have actually two questions. The first one is regarding the guidance for Q1 twenty twenty five.
You anticipate a non GAAP operating margin between 05%. Now if you end up at the lower end of the range, the margin will decline compared to Q4. What factors could drive this decrease? And the second question is, what is the current stages of the BEAT program? And how much would its potential impact affect the group’s activity in the coming years?
Thank you.
Uli Dopfer, Senior Vice President and CFO, ADTRAN Holdings: So I will start, Amira. So what would I mean, obviously, if we would end up at the lower end of our revenue guidance, then we would move towards the lower half of our profitability guidance range. Obviously, there are some uncertainties that we have baked into our guidance projections, and they are related to items that are more sitting in other COGS or gross margin. And then I think we touched on during my presentation, we touched on the fact that we anticipate smaller increase in our operating expenses based on inflation or payroll adjustments and benefit adjustments for the year.
Tom Stanton, CEO and Chairman of the Board, ADTRAN Holdings: On the B thing, there’s really no impact to us on B2B kits delayed. We don’t have a whole lot in this year anyways. Definitely nothing in Q1.
Amira Menai, Analyst, OTO: Okay. Thank you so much.
Tom Stanton, CEO and Chairman of the Board, ADTRAN Holdings: Okay.
Rob, Conference Operator: And that concludes our question and answer session. I will now turn the call back over to Tom for closing remarks.
Tom Stanton, CEO and Chairman of the Board, ADTRAN Holdings: All right. Thanks, everybody. Thanks for joining us this quarter. We look forward to having a robust discussion at the end of Q1. Thanks very much, everybody.
Rob, Conference Operator: Ladies and gentlemen, that concludes today’s quarterly all hands meeting. Thank you for your participation. You may now log off.
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