ADTRAN, Inc. (NASDAQ:ADTN) Q1 2018 Earnings Conference Call - Preliminary Transcript

Apr 18, 2018 • 10:30 am ET

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ADTRAN, Inc. (NASDAQ:ADTN) Q1 2018 Earnings Conference Call - Preliminary Transcript

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Presentation
Operator
Operator

Ladies and gentlemen, thank you for standing by, and welcome to ADTRAN's First Quarter 2018 Earnings Release 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. (Operator Instructions) During the course of the conference call, ADTRAN representatives expect to make forward-looking statements, which reflect management's best judgment based on factors currently known. However, these statements involve risks and uncertainties, including the successful development and market acceptance of core products, the degree of competition in the market for such products, the product and channel mix, component cost, manufacturing efficiencies and other risks detailed in the Annual Report on Form 10-K for the year ended December 31st of 2017.

These risks and uncertainties could cause actual results to differ materially from those in the forward-looking statements, which may be made during the call.

It is now my pleasure to turn the call over to Mr. Tom Stanton, Chief Executive Officer of ADTRAN. Sir, please go ahead.

Executive
Unidentified Speaker

Thank you, Lynn. Good morning, everyone. Thank you for joining us for our first quarter 2018 conference call. With me this morning is Roger Shannon, Senior Vice President and Chief Financial Officer.

I'd like to begin this morning by discussing the details behind our first quarter results, and I will end with some comments on what we anticipate going forward. Roger will then discuss our quarter one performance in more detail, and we'll then open the call up for any questions that you may have.

Revenues for the quarter were $120.8 million and our Network Solutions revenue, including both international and domestic markets came in at $105.3 million. Total Services and Support revenues for the quarter were $15.6 million with revenue in our domestic markets total coming in at $62.1 million or 51% of the total, and our international revenues coming in at $58.7 million or 49% of the total.

On a year-over-year basis, our domestic revenues decreased 48% due to merger-related spending pause at a Tier 1 operator, and our international business increased 15% year-over-year with a seasonally stronger European Tier 1 spending. As expected, our performance this quarter continued to be impacted by a merger-related review and slowdown in the spending at a domestic Tier 1 customer.

While our international revenue exceeded expectations, lower overall product volumes resulting from the domestic slowdown and lower international gross margins associated with footprint expansion for super vectoring negatively affected our profit margins for the quarter and further hampered our results.

However, looking ahead, we expect to see continued strength in our European business in the second quarter and growth in our North American business in the second-half of this year. During the second quarter, we expect to gain further clarity around the domestic Tier 1 account, post-merger business outlook, and we expect to see strengthening of the domestic regional service provider market, particularly in fiber optic access.

To that end, in the first quarter, we were awarded a major broadband RFP from a