ADTRAN, Inc. (ADTN)
Q3 2009 Earnings Call
October 14, 2009 10:30 am ET
Thomas R. Stanton – Chairman and Chief Executive Officer
James E. Matthews – Senior Vice President and Chief Financial Officer
George Notter - Jefferies & Co.
Michael Genovese - Soleil Securities
Jim Suva - Citigroup
Paul Silverstein - Credit Suisse
[Steve Salkoff] for Kenneth Muth - Robert W. Baird & Co., Inc.
Sanjiv Wadhwani - Stifel Nicolaus & Company, Inc.
Nikos Theodosopoulos - UBS
Vivek Arya - BAS-ML
Greg Mesniaeff - Needham & Company
Chandan Sarkar - Auriga USA
[Ari Benzinker] – Standard and Poor
Lawrence Harris - C. L. King & Associates, Inc.
[Paul Valentine] for Simon Leopold - Morgan, Keegan & Company, Inc.
Ehud Gelblum - Morgan Stanley
Bill Dezellem - Tieton Capital Management
Andrew Schopick - Nutmeg Securities
Brian Coyne - Wedge Partners
Previous Statements by ADTN
» Adtran, Inc. Q2 2009 Earnings Call Transcript
» ADTRAN, Inc. Q1 2009 Earnings Call Transcript
» ADTRAN, Inc. Q4 2008 Earnings Call Transcript
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 new products, the degree of competition in the market for such products, the product and channel mix, component costs, manufacturing efficiencies and other risks detailed in our annual report on Form 10-K for the year ended December 31, 2008, and Form 10-Q for the quarter ended June 30, 2009. 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.
At this time I would like to turn the call over to Mr. Tom Stanton, CEO. Mr. Stanton, you may begin your conference.
Thomas R. Stanton
Thank you Vanessa and good morning everyone. Thank you for joining us for our third quarter 2009 conference call. With me this morning is Jim Matthews, Senior Vice President and Chief Financial Officer.
During the quarter we benefited from increasing customer investment in Carrier Ethernet and Broadband service deployments and their migration towards packet based technologies. We also benefited from carriers’ increasing focus on wireless infrastructure upgrades as a result of growing mobile bandwidth demand. Although spending delays with our IOC customers persisted, we saw continual activity around stimulus planning. Also during the quarter the SMB environment remained relatively stable. However, we continued to see the positive effects of share gains.
From a product perspective, our growth areas delivered a solid revenue performance for the quarter. Combined these areas grew an impressive 20% year-over-year. Specifically, Broadband access revenue grew 29% over the prior year as a result of continuing deployments of Fiber-to- the-X products and the record revenue achieved by our Total Access 5000 service platforms. Revenues for these areas grew across all customer categories.
Optical access revenue was up, coming in at a record $20 million, and growing at a rate of 49% sequentially and 20% year-over-year. This strength was due to continued market share gains and increasing shipments to all major market segments as carrier’s invested to increase bandwidth for wireless infrastructure.
Internetworking revenue was up both sequentially and year-over-year, setting another record at $21.3 million. We continued to see growth in both our carrier distribution channels and our broad dealer base. HDSL revenues increased sequentially in the quarter. However, it followed an exceptionally weak second quarter. We believe HDSL revenues will continue to see fluctuations quarter-to-quarter as a result of the sluggish economic environment, the sporadic nature of wireless infrastructure upgrades and the longer term migration to Ethernet based technologies.
Moving on to items that will affect our future, activity for our Fiber-to-the-X and Total Access 5000 products remain very strong, driven by GPON, Carrier Ethernet and high speed DSL. We expect our Fiber-to-the-Node and GPON products will benefit from a reemerging interest in bandwidth expansion to deliver new services, as well as a reemerging interest in footprint expansion resulting from the broadband stimulus package and service provider consolidation. Our Carrier Ethernet products should continue to benefit from expanding Ethernet conversion initiatives spanning across all carrier customer segments. We anticipate these expanding deployments and the addition of new applications will contribute meaningfully to the growth of these platforms well into the future.
For Optical Access, we believe that we are in the early phases of conversion to fiber access technologies and that the increasing demand for bandwidth, both wireline and wireless, will provide meaningful growth opportunities. As mentioned before, previous market share gains in Optical Access have translated to revenue growth as carriers have increased their focus on adding bandwidth to urban cell sites. It is our belief this type of incremental bandwidth expansion will continue for some time, although we expect quarter-to-quarter revenue fluctuations and typical seasonal variations will occur.
We expect Internetworking revenues will continue to grow over the long term as we benefit from continuing market share gains and focus on new product offerings to expand our product portfolio. Looking forward, although we continue to participate in a large number of opportunities related to the broadband stimulus plan, we do not anticipate revenue contributions from these opportunities in the fourth quarter.
Also, our plans do not anticipate a change in the fourth quarter spending environment due to our customers’ management of year end capital expense budgets. Therefore, we expect to see a seasonal revenue decline in our Fiber-to-the-Node, enterprise and traditional product categories.