ADTRAN's 2018 Earnings Set Up Strong Year

While ADTRAN executives discussed the financial results of the past 12 months (especially the last quarter of 2018) in a call with analysts today, their minds were more squarely fixed on future sales, opportunities and technologies that leverage work done in the past.

For the fourth quarter, ADTRAN reported sales of $140.1 million compared with $126.8 million for the year-ago period. Net loss was $8.4 million versus $11.1 million in the last quarter 2017, and earnings per share were a loss of $0.18 in the most recent quarter, whereas ADTRAN had a loss of $0.23 in the 12-month-prior period. Non-GAAP earnings per share were a loss of $0.12; in Q4 2017, non-GAAP earnings hit $0.05.

Four-quarter net loss, GAAP and non-GAAP earnings per share resulted from unrealized losses in its equity investment portfolio, due to the US equity market's volatility, said Robert Shannon, senior vice president of finance, chief financial officer, secretary and treasurer, during the call today.

For the year, ADTRAN reported total sales of $529.3 million in 2018 compared with 2017 annual sales of $666.9 million. Products accounted for $458.2 million last year (versus $540.4 million), whereas services generated $71 million in 2018 (compared with $126.5 million in 2017). (See ADTRAN Reports 4Q 2018 Earnings, Announces Dividend.)

However, both research and development expenses plus the overall cost of sales dropped and newly acquired business SmartRG generated $3 million in sales in December alone. SmartRG -- a developer of open-source connected home platforms and cloud services for broadband service providers which ADTRAN acquired in early December -- was and remains profitable, said ADTRAN CEO Tom Stanton, who predicts the IoT vendor will annualize at approximately $35 million this year -- and that's before it's integrated into ADTRAN Mosaic Cloud, he noted. (See Pattern Emerges for ADTRAN's Mosaic.)

"We expect it to be profitable this year and it was profitable when we bought it," Stanton said. "It's actually a good fit with our existing portfolio. The piece we're most excited about is the potential for the virtualization of the software itself, which we've been working on here. They're a big add to that. They have the whole suite of residential required services, including LAN management, LAN and WAN management inside the home, customer portal access, additional service application ability being on there as a widget."

SmartRG customers include tier one operators in the United States and beyond, he said. There is some crossover with existing ADTRAN customers, but lots of room for introductions and cross-selling.

"It's a suite of services we have been working on to add to our Mosaic Cloud for some time. This not only accelerates that, but in areas where someone does not want to buy Mosaic Cloud allows us to have a standalone, virtualized, cloud-based offering that we just don't have today," he said. "And the demand is there, not just in tier ones, but in tier threes as well -- who want to compete, in services, with the tier one carriers and it materially helps with their maintenance, troubleshooting and everything else when somebody says their WiFi doesn't work."

Lands of opportunity
Huawei's woes have generated additional opportunities for ADTRAN (as other vendors, too, have noted), especially in the US and Europe where many governments have banned or are investigating the Chinese vendor. (See Huawei's Woes Equal Competitors' Boon.)

ADTRAN currently has multiple RFPs in play, all seeking 10-gig service, Stanton said.

"We have pretty good project flow outside of the US. There are quite a few RFPs out there right now with tier one carriers, each one of them looking for 10-gig service," he said. "The carriers in Europe are generally larger carriers, the tier one carriers, which are looking at how they're going to deploy 10-gig and that's going to be on a year-by-year (in some instances a quarter-by-quarter) basis, as the revenue flows and the projects flow in."

ADTRAN had nothing new to report on its work with Verizon on NG-PON2, noting only that it was focused on a specific use case, in the lab and continuing to work with the wireless giant.

But a Latin American tier one customer is, apparently, returning with more business after a quiet time. Now needing to update its infrastructure, the service provider is in the middle of negotiations with ADTRAN for new solutions across the vendor's portfolio, said Stanton.

"We expect LatAm to be really strong. We expect Europe to be pretty strong. You'll probably see the US to be a little bit slower coming out," he said. "What I'm excited about is the number of customers that are actively pursuing upgrading their network. It has never been bigger than what we have seen. There are some in the US. They're working off their capital budgets… it's less deterministic about when those budgets will break free.

Related posts:

• ADTRAN Debuts Affordable CAF II Solutions for Rural Subs
• ADTRAN CTO Discusses Network Disaggregation Without Sacrificing Integrity
• ADTRAN's 'Single Biggest EPON Award' Sets Stage for Growth

— Alison Diana, Editor, Broadband World News. Follow us on Twitter or @alisoncdiana.