NEEDHAM GROWTH INVESTOR CONFERENCE. Roger Shannon SVP of Finance & CFO January 18, 2018

Transcription

1 NEEDHAM GROWTH INVESTOR CONFERENCE Roger Shannon SVP of Finance & CFO January 18, 2018

2 Safe Harbor Statement During the course of this meeting, ADTRAN representatives expect to make forwardlooking 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, foreign exchange rate variations and other risks detailed in our Annual Report on Form 10-K for the year ended December 31, These risks and uncertainties could cause actual results to differ materially from those in the forward-looking statements, which may be made during this meeting. 2

3 STRATEGIC FOCUS FOR THE PAST THREE DECADES, ADTRAN HAS BEEN ENABLING A FULLY CONNECTED WORLD ADTRAN, Inc. All rights reserved.

4 Corporate Strategic Plan Focus Near Term Focus (0-3 yrs) Capitalize and expand our position in enabling Service Providers to: Increase competitiveness through advanced broadband speeds/capacity Provide ubiquitous broadband availability Expand adjacent markets into Cable/MSO broadband access Med/Long Term Focus (3+ yrs) Exploit two distinct and major shifts in the environment 1. Evolution of the Service Delivery Platform for scale and service agility 2. Expansion of wireless in the network 4

5 Market Dynamics Operator Perspective Competitive Positioning Gigabit speeds & expansion of wireless in the network Comcast 2Gbps AT&T Fiber - Gigabit 5G 1Gbps up to 500yds o 2018 commercial launch (Vz) Connect America Fund $9B to connect 3.6M homes 6yr build out 10Mbps/1Mbps Strategic Plan 0-3yrs Strategic Plan 3yrs+ European Commission Digital agenda Evolution of Service Scale Delivery Platform Broadband Open source / White box and Availability 70% of AT&T s network will Agility be software by

6 ADTRAN s Market Focus Domestic Tier 1 Operator Focus SDN Transformation Gigabit Competition Netflix/Amazon/Google competition ADTRAN Focus 10G PON, G.fast, Vectoring, SD-Access, Services Operator Focus SDN Transformation Regulatory Hurdles EU Gigabit Society ADTRAN Focus G.fast, Vectoring, 10G PON, Services Int l ADTRAN Domestic Tier 2 Operator Focus CAF2 Cable competition Rapid follower ADTRAN Focus FTTN / Vectoring, PON, Services Operator Focus Deep Fiber DOCSIS 3.1 Transition SDN Transformation Protect market share ADTRAN Focus 10G PON Cable / MSO Domestic Tier 3 Operator Focus RoR CAF Cable competition Slow SDN adopter ADTRAN Focus PON Subscriber Experience 6

7 ADTRAN History of Innovation Disrupted Western Electric Monopoly Redefined Economics for D4 channel cards Drove Innovation in DSL and Converged Services Redefined economics for SONET Fiber Access (OPTI-3, OPTI-6100) 1st All Ethernet MSAN Market Leader in DSL and Converged Services 1st demo of VDSL2 825Mbps w/ phantom, bonding, vectoring 350 Gig Breakthrough In Communities NGPON2 by 2016 Tunable Optics 1st Edged Optimized Packet- Optical Networking Platform 1st converged, multi-service Gigabit enterprise and MTU gateways 1st Cloudbased WLAN Leading SDN/NFV Access in Broadband Forum 1st Open Platform for G.fast DPU Mosaic Cloud Platform wins 13 Industry Awards 1 st system level CORD demo DIVESTITURE ERA INTERNET ERA IP TRANSITION ERA GIGABIT ERA SDN ERA Created T1 Access Market Broke $1000 Economic Barrier with HDSL, 95% market share Repeaterless breakthru Total Reach ISDN 1st Converged Voice & Data Business Gateways 1st VDSL Deployment Based on IP DSLAM Global Leader in OSP broadband solutions Frequency Division Vectoring (FDV) Market Leadership In G.fast innovation 1 st Deployment of System Level Vectoring (SLV) (US) ProCloud Wi-Fi services Mosaic Cloud Platform Launch Mosaic Activate SD- Automation for Service Activation 7

8 The Access Mosaic 8

9 Innovation Leadership Broadband Access Market leader in 10 Gigabit optical access innovation XGS PON commercial deployments, standards leadership NGPON-2 customer trials underway with US Tier 1 Over 100 G.fast trials/deployments announced on six (6) continents 5 Nationwide commercial deployments on 4 continents US Tier 1s, DT (Croatia), Bezeq (Israel), nbn (Australia) Europe s (and World s) and NA s largest deployment of Vectoring and SuperVectoring Over 400 Gigabit Communities Leader in CAF2 solutions 9

10 ADTRAN Gfast/FTTdp Leadership World s 1 st FTTdp (UBE) Architecture Fully sealed Symmetric service Reverse power Best Fixed Access Product (UBE) UBE wins World Vendor Award World s 1 st Fully Sealed G.fast Demo BT GOLD Project World s Only Chipset Agnostic G.fast Architecture World s 1 st SD-Access G.fast Solution Global Leader for Sealed FTTx Solutions 100,000 sealed units deployed Most G.fast Trials and Demos Over 100 across six continents World s 1 st G.fast over Coax With DTA Demo Top 2 Global G.fast Vendors Broadband Trends Customer Survey Broadband Forum Circle of Excellence Award Development of SD-Access Yang Models World s 1 st Public Demo of G.fast 212 MHz ITU-T meeting in Huntsville, AL Most Innovative and Broadest G.fast Portfolio Power, port and placement variants Five Nationwide G.fast Deployments on Four Continents Primary Vendor to Tier I operators

11 Innovation Leadership SDN Access Complete cloud-edge to subscriber-edge solution set 1 st to integrate and deploy complete FTTx portfolio with an open source SDN controller Only vendor with a complete Software Defined Access solution set built around a CORD architecture 1 st (and only) 10G PON volt CORD demo in a Tier 1 1 st industry interop - vcpe portfolio Modular software architecture with Agile/DevOps model Leadership in Broadband Forum, ITU, ETSI, Celtic-Plus, and UK NICC standards activities Industry s Most Awarded (13) ADTRAN Mosaic Cloud Platform 11

12 Mosaic Most Awarded SD-Access Solution in the Industry ADTRAN, Inc.

13 Company Financial Performance 13

14 Financial Stability Nearly 3 Decades of Continuous Profitability Ongoing Strong Balance Sheet and Cash Flow Publicly Traded for 23 Years with Full Transparency (NASDAQ-ADTN) 14

15 Historically Strong Cash Flow and Solid Balance Sheet Dec. 31, 2017 Cash Returned to Shareholders Cash & Investments Debt Total Assets Dividends $118M Share Buybacks $233M $27M $665M $354M

16 ADTRAN - FY 2017 Financial Highlights FY 2017 FY 2016 Revenue $667M $637M Gross Margin 45.6% 45.8% Operating Expense (GAAP) $266M $257M Operating Margin (%) (GAAP) 5.7% 5.5% GAAPEPS (diluted) $0.49* $0.72 Non-GAAP EPS (diluted) $0.89 $0.84 * FY 2017 GAAP EPS includes the one-time tax impact of11.9 million relating to the Tax Cuts and Jobs Act of 2017.

17 Revenue by Segment and Categories $700 $600 $500 $600 $73 $637 $111 $667 $126 $400 $300 $200 $100 $0 $527 $526 $ Products Services $700 $600 $500 $400 $600 $69 $126 $637 $63 $138 $667 $55 $138 $300 $200 $100 $406 $436 $474 $ Access and Aggregation Customer Devices Traditional Products

18 Gross Margin by Segments 60.0% 50.0% 44.3% 45.9% 48.5% 48.3% 44.5% 45.8% 45.6% 40.0% 32.8% 33.8% 30.0% 20.0% 10.0% 0.0% Products Services Total ü ü 2017 GM% flat with 2016 despite 17% increase in International Revenue Services GM% up 1% point on 13% increase in Services Revenue

19 Revenue U.S. vs. International $700 $600 $500 $600 $181 $637 $135 $667 $159 $400 $300 $200 $419 $501 $508 $100 $ Domestic International

20 2017 Summary 2017 ended with 2 nd best revenue performance in company history Record 1H Revenue Ties Record revenue through 3Q17 (2011); Full year up 5% Record Services Revenue in Q3 Disappointing 4Q revenue due to unforseen event 10% customer temporarily paused spending in 4Q due to a mergerrelated review Prudent management of Q4 margins and OPEX All other accounts and market segments remain on track Gross Margin Improvements in 2017 Total Gross Margin % flat to 2016 despite 17% Int l Revenue growth Services gross margins up 1% point over 2016 on 13% Revenue growth Outstanding engagement by Tier 1s globally High interest / acceptance of next gen SD-Access solutions (Mosaic, G.fast, NGPON2) Historic breadth of opportunities, both domestically and internationally 20

21 Quarterly Financial Highlights After strong three quarters in line with ongoing major investment cycle in wireline networks 4Q17 performance impacted by a merger-related review & slowdown in the spending at a domestic Tier 1 customer. $200 $180 $160 $140 $120 $100 $80 $60 $40 $20 $0 Revenue (M) $185 $185 $170 Q1 Q2 Q3 Q $127

22 A prudent financial management limited the impact of slowdown in domestic tier one at the bottom-line in Q Gross Margin (%) 60.0% 50.0% 46.7% 45.8% 46.5% 43.3% 40.0% 30.0% 20.0% 10.0% 0.0% Q1 Q2 Q3 Q Operating Profit (M) $20 $18 $16 $15 $10 7 $5 $0 Q1 Q2 Q3 Q4 ($5) ($4) ($10) OPEX (M) 60% $70 $68.2 $68.2 $66.5 $66.7 $68 50% $ % $ % $64.1 $62.9 $64 40% $60.3 $62 30% $60 $58 20% $56 10% $54 $52 0% $50 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 OPEX OPEX / Revenues EPS* $0.35 $0.33 $0.30 $0.26 $0.25 $0.20 $0.15 $0.14 $0.10 $0.05 $0.02 $- Q1 Q2 Q3 Q * Q4 GAAP EPS does not include the one-time tax impact relating to the Tax Cuts and Jobs Act of 2017.

23 Revenue & Gross Margin (GM) by Operating Segment Q4 FY 2017 Q3 FY 2017 Q4 FY 2016 Amount ($M) GM (%) Amount ($M) GM (%) Amount ($M) GM (%) Network Solutions Services & Support Total Revenue by Categories Q4 FY 2017 Q3 FY 2017 Q4 FY 2016 Access and Aggregation Customer Devices Traditional Products Total U.S. and International Revenue Q4 FY 2017 Q3 FY 2017 Q4 FY 2016 United States International Total

24 Business Outlook* Going forward, all of our programs and opportunities remain unchanged and on track as we had previously communicated, with the exception of the slowdown in the domestic tier one. Q1 18 Revenue Gross Margin OpEx Tax Flattish (QoQ) 40% range $64-$65M range Low-20% range Guidance or Outlook with respect to Q118 is as of January 17, 2018, the date presented on the 4Q17 earnings call. Actual results may differ materially from these forward looking statements.

25 Summary Proven history and well positioned Leader in fixed broadband access Leader in SDN-Access ü Open, scalable and standards-based ü Leading transition to software/service model Ramping broadband investment cycle ü Emerging technologies in fiber & copper ü Imperative for service agility & automation 25

26 ADTRAN IS BRINGING THE WORLD TOGETHER