- ADTRAN Holdings, Inc. Q1 2026 Earnings Call Summary
May 5, 2026
ADTRAN Holdings, Inc. Q1 2026 Earnings Call Summary - Moby
Strategic Performance Drivers
Revenue growth of 15.5% year-over-year reflects a return to normalized seasonal patterns and established operating leverage across the core business. Optical networking strength is driven by hyperscalers and service providers expanding capacity for cloud connectivity and wholesale fiber services. European momentum is being reinforced by high-risk vendor displacement legislation, such as the proposed Cybersecurity Act 2.0, which mandates removal of certain vendors from critical infrastructure. The company is pivoting toward AI infrastructure with the introduction of LiteWave800, designed to reduce power consumption by over 90% in high-density compute environments. Operating margin expansion was achieved through disciplined cost management, pricing adjustments across the portfolio, and a revenue mix shift away from lower-margin consumer CPE. U.S. broadband expansion is gaining traction as BEAD deployment funds begin to reach operators in an increasing number of states.
Outlook and Strategic Assumptions
Management expects optical networking revenue to build throughout the year, supported by a growing backlog with hyperscaler customers. BEAD funding impact is expected to become more meaningful in the back half of the year, with 2027 projected as a more material year for revenue contribution. Gross margins are expected to remain broadly consistent in the near term, despite elevated memory pricing and freight cost pressures. The company anticipates reaching a 10% operating income target before considering significant increases to current R&D and go-to-market budgets. Q2 2026 guidance assumes a continuation of the current messy freight environment and persistent memory cost headwinds.
Risk Factors and Operational Context
Elevated memory pricing remains an industry-wide headwind, particularly impacting lower-end residential CPE products where memory is a larger percentage of the bill of materials. Middle East conflict has negatively impacted the freight line due to capacity disruptions and has caused a less than 5% impact on regional revenues. The company achieved its highest operating margin since 2020 by implementing pricing adjustments to counter rising component costs. Conditional FCC approval for the SDG Wi-Fi 7 portfolio exempts ADTRAN from covered list restrictions, providing a competitive advantage as other vendors navigate the process.
Q&A Session Summary
LiteWave800 strategy, timing, and margin expectations for data center entry
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Management expects the product to reach production-level numbers in approximately one year, following current prototype and operating model phases. The product is expected to be accretive or at least non-dilutive to company gross margins due to high IP content and industry-leading power efficiency of 1 picojoule per bit.
R&D and go-to-market investments required for AI infrastructure segment
Management stated that necessary shifting of resources will occur within the current operating budget, with no significant increase in spending planned until operating income exceeds 10%.
Milestones for BEAD funding to reflect in material revenue
While some purchase orders are appearing as a 'trickle,' the long lead time for fiber deployment means material impact is expected toward the end of 2026 and into 2027. Management estimates the total industry opportunity for this program is approximately $1 billion over a multi-year period.
Impact of Middle East conflict on operations and financials
The conflict has increased freight expenses due to capacity constraints and disrupted regional revenue, though the overall company impact was characterized as not meaningful compared to the freight cost pressure.
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- ADTRAN Q1 Earnings Beat Estimates on Strong Revenue Growth
May 5, 2026
ADTRAN Holdings, Inc. ADTN reported strong first-quarter 2026 results, with earnings and revenues surpassing the Zacks Consensus Estimate. Non-GAAP earnings came in at 14 cents per share, beating the consensus estimate of 9 cents.
Revenues of $286.1 million edged past the consensus estimate of $285 million by 0.4% and increased 15.5% year over year, driven by solid demand across core markets and improved operating leverage.
ADTRAN Holdings, Inc. Price, Consensus and EPS Surprise
ADTRAN Holdings, Inc. price-consensus-eps-surprise-chart | ADTRAN Holdings, Inc. Quote
ADTN Delivers Solid Top-Line Growth
ADTRAN generated total revenues of $286.1 million in the first quarter, reflecting a 15.5% year-over-year increase from $247.7 million. Growth was broad-based, supported by strength across its Network Solutions and Services & Support segments.
Network Solutions revenues rose to $237.9 million from $202.2 million in the prior-year quarter, while Services & Support contributed $48.1 million compared with $45.5 million a year ago. The expansion highlights improving demand trends across fiber, cloud and edge networking infrastructure.
ADTRAN Expands Margins on Operating Leverage
Profitability improved meaningfully during the quarter. GAAP gross margin expanded to 39.5% from 38.4% in the year-ago period, while non-GAAP gross margin rose to 43.0%, reflecting operational efficiencies and better cost control.
Operating performance also strengthened. GAAP operating margin turned positive at 2.2% compared with a negative 1.6% last year. Non-GAAP operating margin improved to 6.9% from 3.9%, indicating enhanced scalability of the company’s business model.
ADTN Earnings Performance Reflects Cost Discipline
On a GAAP basis, ADTRAN reported a net loss attributable to shareholders of $1.3 million or 1 cent per share, narrower than a loss of $11.3 million or 14 cents per share in the prior-year quarter.
Adjusted earnings were significantly stronger at 14 cents per share, reflecting the exclusion of acquisition-related costs, stock-based compensation and other one-time items. The earnings beat was driven by higher revenues and improved cost structure, which helped offset ongoing expenses related to growth initiatives.
ADTRAN Cash Flow and Balance Sheet Position
ADTRAN generated $12.7 million in cash from operating activities during the quarter, though lower than the prior-year period due to working capital changes. Free cash flow was negative $3.3 million, reflecting continued investments in property, equipment and technology development.
The company ended the quarter with cash and cash equivalents of $88.3 million, compared with $95.7 million at the end of 2025. Total assets stood at $1.19 billion, indicating a stable balance sheet despite ongoing investment activity.
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ADTN Sees Strong Demand Drivers Ahead
Management highlighted continued momentum in key markets. In the United States, broadband expansion remains a key growth driver, supported by government funding initiatives such as BEAD. In Europe, vendor replacement trends and regulatory developments are creating additional opportunities.
The company also introduced its LiteWave800 solution, targeting AI-driven data center infrastructure. This product innovation underscores ADTRAN’s focus on next-generation networking technologies and positions it to benefit from rising AI-related demand.
ADTRAN Outlook Signals Continued Momentum
For the second quarter of 2026, ADTRAN expects revenues in the range of $283 million to $303 million. Non-GAAP operating margin is projected between 5.0% and 9.0%, indicating sustained profitability improvement.
The outlook reflects confidence in underlying demand trends and continued execution of operational strategies. Management expects ongoing benefits from operating leverage as revenue growth aligns with disciplined cost management.
Zacks Rank
ADTN currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Upcoming Releases
Akamai Technologies, Inc. AKAM is slated to release first-quarter 2026 earnings on May 7. The Zacks Consensus Estimate for earnings is pegged at $1.61 per share, indicating a 5.3% decline from the year-ago reported figure.
Akamai has a long-term earnings growth expectation of 7%. Akamai delivered an average earnings surprise of 9.4% in the last four reported quarters.
CDW Corporation CDW is set to release first-quarter 2026 earnings on May 6. The Zacks Consensus Estimate for earnings is pegged at $2.28 per share, implying growth of 6.05% from the year-ago reported figure.
CDW has a long-term earnings growth expectation of 7.25%. The company delivered an average earnings surprise of 5.72% in the last four reported quarters.
Motorola Solutions, Inc. MSI is set to release first-quarter 2026 earnings on May 7. The Zacks Consensus Estimate for earnings is pegged at $3.25 per share, implying growth of 2.2% from the year-ago reported figure.
Motorola has a long-term earnings growth expectation of 9.4%. The company delivered an average earnings surprise of 5.66% in the last four reported quarters.
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- ADTRAN Holdings, Inc. (ADTN) Q1 2026 Earnings Call Transcript
May 5, 2026 · seekingalpha.com
ADTRAN Holdings, Inc. (ADTN) Q1 2026 Earnings Call Transcript
- ADTRAN Q1 Earnings Beat Estimates on Strong Revenue Growth
May 5, 2026 · zacks.com
ADTN tops Q1 estimates with strong revenue growth, margin expansion and rising demand across fiber, cloud and AI-driven networking markets.
- ADTRAN Holdings, Inc. reports first quarter 2026 financial results
May 4, 2026 · businesswire.com
HUNTSVILLE, Ala.--(BUSINESS WIRE)--ADTRAN Holdings, Inc. (NASDAQ: ADTN and FSE: QH9) (“ADTRAN Holdings” “ADTRAN” or the “Company”) today announced its unaudited financial results for the first quarter ended March 31, 2026. Revenue: $286.1 million, up 15.5% year-over-year. GAAP gross margin of 39.5%; Non-GAAP gross margin of 43.0%; up 108 and 55 basis points year-over-year, respectively. Operating margin: GAAP operating margin of 2.2 %; non-GAAP operating margin of 6.9%. Net cash provided by ope.
- ADTRAN HOLDINGS, INC. REPORTS FIRST QUARTER 2026 FINANCIAL RESULTS
May 4, 2026
HUNTSVILLE, ALA.--(BUSINESS WIRE)--ADTRAN HOLDINGS, INC. (NASDAQ: ADTN AND FSE: QH9) (“ADTRAN HOLDINGS” “ADTRAN” OR THE “COMPANY”) TODAY ANNOUNCED ITS UNAUDITED FINANCIAL RESULTS FOR THE FIRST QUARTER ENDED MARCH 31, 2026. REVENUE: $286.1 MILLION, UP 15.5% YEAR-OVER-YEAR. GAAP GROSS MARGIN OF 39.5%; NON-GAAP GROSS MARGIN OF 43.0%; UP 108 AND 55 BASIS POINTS YEAR-OVER-YEAR, RESPECTIVELY. OPERATING MARGIN: GAAP OPERATING MARGIN OF 2.2 %; NON-GAAP OPERATING MARGIN OF 6.9%. NET CASH PROVIDED BY OPE.
- Adtran (ADTN) Q1 2025 Earnings Transcript
May 4, 2026
Image source: The Motley Fool.
DATE
Thursday, May 8, 2025 at 10:30 a.m. ET
CALL PARTICIPANTS
Chief Executive Officer and Chairman — Tom Stanton Senior Vice President and Chief Financial Officer — Tim Santo
Need a quote from a Motley Fool analyst? Email pr@fool.com
Full Conference Call Transcript
Turning to the agenda. Tom Stanton, ADTRAN Holdings' CEO and Chairman of the Board, will provide key investment highlights for the first quarter 2025; Tim Santo, our Senior Vice President and CFO, will review the quarterly financial performance in detail and our second quarter 2025 outlook, and then we will take any questions you may have. I would now like to turn the call over to Tom Stanton.
Tom Stanton: Thank you, Peter. Good morning, everyone. Before we discuss the quarterly results, I'd like to introduce Tim Santo, our new CFO, who joined ADTRAN in early March. Tim was brought on Board because of his extensive experience in finance and operational leadership, including more than a decade in leadership roles at General Electric. He has over 25 years of international experience in finance, accounting, and operations across multiple industries. I would also like to take this opportunity to thank Ulrich Dopfer for his significant contributions and leadership. ADTRAN's first quarter performance highlighted our improved operating efficiency and our strength in our business model. We delivered solid results with improvements across several key operating metrics.
Revenue exceeded typical first quarter patterns showing growth both sequentially and year-over-year. This increase reflects heightened customer activity and strong execution by our team. Our non-GAAP gross margin remained strong and non-GAAP operating profit was at the high-end of our guidance range. We also generated a robust $41.6 million in cash from operations and $22.9 million in free cash flow. We continue to believe that 2025 will be a year of accelerating performance and this should translate to meaningful cash generation, which a significant -- which is a key strategic priority for us. Let me talk a little bit about tariffs. In the near-term, the impact of tariffs is expected to be minimal.
Post 90 days, we are one of the few manufacturers that own and operate our own facilities, which puts us in a stronger position to respond effectively to policy changes. Although the environment is continuously evolving and the mid to long-term effects from tariffs remain uncertain, ADTRAN is well-positioned to adapt, thanks to our global customer base and diverse supply chain. Over the years, we have built a durable global network with manufacturing capabilities across the U.S and Europe. We are actively managing production transfers and enhancing logistics to optimize our supply chain and navigate the evolving trade policies. Our manufacturing strategy is focused on diversifying geographies and operational flexibility.
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I am incredibly proud of our manufacturing and logistics teams for their swift decisive actions in handling these challenges. Their efforts have been instrumental in minimizing disruption and controlling costs, demonstrating the strength and flexibility of our operations. Now turning to the quarterly results. ADTRAN's revenue of $247.7 million was above the midpoint of our previous guidance with all three of our product categories achieving year-over-year growth. This progress reinforces the strength across our networking portfolio that spans from the optical core to the customer premise. We delivered particularly strong growth in our Access and Aggregation Solutions segment with 23% sequential and 10% year-over-year growth.
This performance was driven by fiber footprint expansion initiatives and 10 gig network upgrade cycles, especially with our large European and Tier 2 U.S service providers. Despite broader global economic uncertainties, the demand for high speed fiber based broadband services remains strong. Thanks to our differentiated portfolio and strong regional presence in the U.S and Europe, ADTRAN continues to be a preferred partner. Our optical networking solutions category grew 4% year-over-year with a 21% year-over-year increase in the U.S market. Although we maintain a positive outlook for all of our optical customers, the highest year-over-year growth in optical has been with our enterprise, government and Internet content provider customers.
With ongoing vendor consolidation in the optical market and industry wide shift away from high risk vendors and all customers essentially having completed their inventory reductions, we are well-positioned for further growth in the optical networking solutions category. Our subscriber solutions category grew 15% year-over-year. This growth was driven by increased sales of residential gateways and ONTs as our service providers continue to have success in connecting more homes and businesses with fiber. The outlook for subscriber solutions is closely correlated to our success in passing more homes and businesses with our fiber access platforms.
With high demand for Wi-Fi 7 platforms, continued customer adoption of fiber based broadband and wholesale services and continued innovation in our complementary software platforms, we are confident that we can drive further growth in this category. The year-over-year growth across each of these three major categories is a direct reflection of both the strength of our portfolio and the ability of our sales teams to better position our complete offerings. We are encouraged by the traction we are seeing as more customers recognize the value of our integrated solutions and the depth of our innovation across access, optical and subscriber platforms.
Underscoring that progress, during the quarter, we added another large service provider to our European customer base as we are awarded a share of both the fiber access and optical transport businesses. This large national service provider located in Southern Europe is a new customer to ADTRAN, and they specifically selected us for our strong regional presence paired with our complete portfolio offering spanning the optical core to the customer premise. Continuing with the theme of growing our business in Europe, we had another large service provider in the region select us for two key optical projects, one for mobile backhaul and another one for mobile fronthaul.
This is an operator where we are already an incumbent transport access vendor and they see the value in expanding their business with a more scaled solutions partner. Moving to the U.S., our cross-selling strategy continues to pay off. We recently had a couple of our high growth U.S national service providers, both of whom were incumbent access. We are both an incumbent access vendor for both of those, expand their business with us. One customer selected us for new optical transport deployments moving forward, and the other one selected us for carrier Ethernet business moving forward.
These examples are representative of the encouraging trends we are increasingly having success leveraging our relationships and synergies in one portion of our portfolio to have success in other areas. These portfolio synergies start with our Mosaic software suite, which automates and simplifies the provisioning and monitoring of our solutions that span from the optical core to the customer premise. One example of this software is with our optical monitoring solutions that only provide real time in-service monitoring of transport networks, but can now extend that visibility all the way to the customer premises and point to multipoint networks.
This solution was selected for an innovation award by the Fiber to the Home Council Europe in March alongside a separate award for a 50 gig PON solution. Our portfolio innovation and customer momentum remains strong. More customers continue to turn to ADTRAN to provide turnkey fiber networking solutions that scale from the optical core to the customer premise, while delivering best-in-class subscriber experiences through improved insight and automation. In summary, our quarter end performance was at the higher end of guidance giving us confidence that improving market conditions combined with continued solid execution will drive increased cash generation. We delivered above seasonal revenue and improved profitability with strong booking trends that give us optimism for continued positive momentum.
Our customer base continues to expand and we are developing strategic platforms with significant opportunities still ahead of us both in the U.S and Europe. Importantly, our product portfolio has never been stronger. Fiber infrastructure growth remains strong fueled by our customer expansion initiatives, vendor consolidation, a broad shift away from high risk Chinese vendors and new investments focused on AI driven networking. Given our strong performance this past quarter and an improving outlook, we remain confident in our long-term operating targets, including gross margins in the low to mid 40% range and operating profit margins in the low double digits.
While the frequent shifts in proposed government policies create potential for uncertainty, ADTRAN is uniquely well-positioned to navigate market changes. Thanks to our globally diverse supply chain, operational flexibility, and strong customer relationships, we believe we are better insulated than most of our competitors. We are actively managing the evolving tariff landscape and are focused on minimizing the impact to our business and to our customers. With that, I will turn the call over to Tim, our CFO, to walk you through the financial results for the first quarter. And then following Tim's remarks, we will open up to any questions you may have. Tim?
Tim Santo: Thank you, Tom, and thank you, everyone, for joining us on the call this morning. Before I walk through our preliminary financial results for Q1 2025 and discuss our expectations for Q2 2025, I'd like to take a moment to introduce myself and offer a little perspective on why I chose ADTRAN. So I've been with the company for just 2 months, I have had an opportunity to engage with many of our investors, analysts and team members. These early conversations have been incredibly valuable as I continue to listen, learn, and build a deeper understanding of the business.
What drew me to ADTRAN was the strong alignment between my background, the company's strategic priorities, and the opportunity to join a growing technology company with strong potential in an attractive market. Over the past 25 years, I have led corporate finance, accounting and treasury functions across both global enterprises and transformation focused organizations. My work is consistently centered on financial discipline, simplifying capital structures and enabling strategic execution. Looking ahead, my priorities are clear, strengthening our capital structure, continuing to enhance the finance organization and deepening engagement with our external stakeholders. These are essential elements in positioning ADTRAN to drive long-term sustainable value for our stockholders.
With that, let's dive into the financial results for the first quarter of 2025. We began the year with a stronger than typical first quarter performance, exceeding seasonal trends amid a gradually improving industry environment. As market conditions continue to improve combined with recent customer wins, we are beginning to recognize the benefits of scale in our business. ADTRAN delivered revenue of $247.7 million for the first quarter, representing a year-over-year revenue increase of $21.6 million or approximately 10%. This is up $4.9 million or 2% sequentially demonstrating our outsized seasonal trends while underscoring ongoing strength across several key areas of the business and exceeding the midpoint of our guidance.
Our Network Solutions segment contributed revenue of $202.2 million accounting for approximately 82% of total revenue in Q1 compared to 80% in the prior year. Our Services and Support segment generated $45.5 million of revenue representing 18% of revenue in Q1 2025 compared to 20% in Q1 2024. Moving on to product categories. Access and Aggregation delivered revenue of $89.1 million or approximately 36% of total revenue and increased 10% year-over-year. Our optical networking solutions category was $78.2 million or 32% of total revenue. This was higher by 4% year-over-year. Subscriber solutions was $80.4 million or 32% of total revenue increasing 15% year-over-year. Geographically, non U.S revenue accounted for 58% of the total, while U.S revenue comprised 42%.
Additionally, one customer represented more than 10% of our Q1 revenue. Non-GAAP gross margin during the quarter was 42.6%, an increase of 146 basis points sequentially and 193 basis points year-over-year resulting from favorable product and customer mix. Non-GAAP operating expenses in Q1 were $95.5 million compared to $94 million Q4 2024 and $102.7 million in Q1 2024. This year-over-year reduction of $7.2 million reflects the positive impact of our business efficiency program. For Q1, our non-GAAP operating profit was $10.1 million or 4.1% of revenue, slightly above the high-end of our guidance range.
This compares to a non-GAAP operating profit of $6 million or 2.5% of revenue in Q4 2024 and an operating loss of $10.7 million in the first quarter of 2024. The year-over-year improvement in operating margin and profitability was driven by higher revenue and gross profit dollars coupled with lower operating expenses and strong discipline in managing our fixed costs due to our increased productivity from last year's business efficiency efforts. On a sequential basis, the increase in operating margin and profitability reflects higher revenue and gross margin translating into greater gross profit dollars. Non-GAAP tax expense in Q1 2025 was $1.7 million or an effective non-GAAP tax rate of 26.3%.
We generated non-GAAP net earnings of $2.4 million during Q1 or $0.03 on an earnings per share basis. This compares to non-GAAP net loss of $1.7 million or a loss of $0.02 per share in Q4 2024 and a net loss of 16.1 million or a loss of $0.20 per share in Q1 2024. Turning to the balance sheet and cash flow statement. In the first quarter, we continued to make meaningful progress in strengthening our financial position. Net working capital improved by $19.1 million quarter-over-quarter to $250.1 million. This improvement was supported by stronger collections and improved inventory management.
Trade accounts receivable were $166.5 million at quarter end resulting in DSO of 60 days, a notable improvement from 67 days in the prior quarter. Inventory levels declined to $254.1 million at the end of the quarter, a decrease of $7.6 million sequentially. Correspondingly, days inventory outstanding decreased by 9 days to 152 days in Q1. Accounts payable stood at $170.5 million with DPOs increasing by 2 days sequentially to 74 days. These working capital improvements contributed to an increase in operating cash flow which came in at $41.6 million, up from $4.6 million in Q4 2024. This increase was driven by lower GAAP net losses, improved collections and reduced inventory levels.
Working capital improved significantly year-over-year, lower by $95.9 million as a result of the benefits of lower inventories, improved collections and higher payables. We had free cash flow of $22.9 million for Q1 2025, a strong turnaround from negative $10.4 million in Q4 2024. The improvement reflects the strength in operating cash flow and tighter working capital management. At the end of Q1, cash and cash equivalents were $101.3 million, a sequential increase of 23.8 million, representing a significant improvement in our liquidity position. Strengthening our balance sheet remains a key strategic priority in 2025. As previously communicated, we're working to monetize certain noncore assets including corporate real estate.
While the sale of our Huntsville campus has taken longer than initially anticipated, discussions with potential buyers have advanced. To be clear, we have firm offers in hand for each of the towers. However, we'll only sign when we believe that shareholder value has been maximized. We will provide a more substantive update once we reach an agreement. And in the meantime, we continue to explore and evaluate alternative options to further reinforce our capital position. We remain firmly committed to materially strengthening our financial position over the course of 2025, aiming towards our ultimate goal of achieving a net positive cash position.
We are pleased with our strong performance in the first quarter with momentum exceeding historical seasonal trends and have confidence that the industry environment continues to improve. As market conditions stabilize, we are beginning to regain scale in our business, which positions us well for the remainder of the year. Looking ahead, we anticipate additional scale as revenue growth continues. At the same time, we are seeing elevated operating expenses primarily driven by foreign exchange headwinds stemming from a weaker U.S dollar relative to the euro and British pound. On a constant currency basis, we expect operating expenses to remain relatively consistent with prior quarter levels, reflecting our continued focus on disciplined cost management.
Regarding capital allocation, we continue to focus on strengthening our balance sheet. This includes continuing to reduce debt through cash generation and taking decisive steps to streamline our portfolio, notably through the divestiture of noncore assets. These actions align with our long-term strategy to enhance financial flexibility and sharpen our focus on core growth opportunities. Turning now to our outlook for the second quarter. We continue to experience increasing global demand for broadband connectivity and remain encouraged by the underlying industry fundamentals. Regarding tariffs and as Tom mentioned earlier, while the situation remains fluid, we believe our supply chain strategy places us in a favorable position relative to peers.
We are actively evaluating options to minimize the impact of any potential changes on our customers. Our outlook excludes the potential impact of additional future tariffs given the inherent uncertainty surrounding global trade policies, possible disruptions to the U.S and international economies and the potential for retaliatory governmental actions. Based on the information we have today, we expect revenue to range between $247.5 million to $262.5 million and a non-GAAP operating margin between 0% and 4%. Once again, additional financial information related to today's call is available on ADTRAN's Investor Relations website at investors.adtran.com. This concludes the prepared remarks portion of the call, and I will now turn the call back over to the operator to begin the Q&A session.
Operator:[Operator Instructions] Your first question comes from Michael Genovese with Rosenblatt Securities. Your line is open.
Michael Genovese: Great. Thanks. So Tom, it looks like in the quarter, right, all the growth came from access and aggregation. So I just want to ask, across the three revenue segments, sort of what the outlook is going forward? What will access and aggregation keep up this toward growth? And what should we expect from subscribers and from optical, specifically this quarter, but over the next couple of quarters? Thank you.
Tom Stanton: Yes. Some of that, as you may know, Michael, was supply-related because we had gotten a little bit slow in our most specifically on subscriber. So without that, we less than demand sitting on the dock. That has gotten -- notwithstanding tariffs and everything, that has gotten better. We did, but to be frank, we had a strong access quarter. We expected a strong access quarter. As you know, some of our customers tend to buy a little early. Our access customers, especially in Europe, tend to buy a little early in the year, then they go down a little bit and then they pick up a little bit towards the end of the year.
So that's kind of a new seasonal pattern that we've seen over the last couple of years. Optical, I would say that what we saw in optical was just a seasonal thing. And there's optical is growing. I mean, we -- I would expect without getting into too much detail, but I would expect better performance this quarter, and we expect growth from those segments moving forward. It was actually across the board from a pure order and environmental perspective, it was actually a good quarter.
Michael Genovese: Okay. And then just a follow-up for me on margins. So I guess when we look at the revenue guidance compared to the first quarter and the operating margin guidance compared to the first quarter, it looks like there's some margin pressure in the second quarter. And it sounds like you're saying that's on the OpEx side because of the exchange rate and not because of gross margin. I just want to verify that's a correct read. And then I guess it's hard to predict ForEx beyond the quarter, but how do you think OpEx should trend beyond the second quarter?
Tom Stanton: That's just it. I think you're going to have to project exchange rates. As you know, our core operating on a constant currency basis, our operating expenses, would expect to be basically flat through the year, And that hasn't changed a bit. I mean, the movement we saw right around the turn of the quarter here was pretty substantial, not typical. But on a -- from a pure how we're running the business, we would expect OpEx to be effectively flat.
Michael Genovese: Okay. I appreciate it. And I'll pass it on. Thank you.
Operator: The next question comes from Brian Kuntz with Needham & Company. Your line is open.
Ryan Koontz: Thanks. Tom, any evidence or inquiries around pull ins from customers ahead of tariffs that you're hearing about from customers?
Tom Stanton: Maybe a little bit, really not a lot. I think most people are kind of in the same boat that everybody else is, which is it's kind of hard to figure out what's going to happen.
Ryan Koontz: Yes.
Tom Stanton: And we're really not -- look, we're not entertaining a whole lot of pull ins. In fact, we're not -- we're trying not to have pull ins because we just kind of went through an inventory situation …
Ryan Koontz: Yes.
Tom Stanton: … and try not to recreate that. There has been no strong pressure for [indiscernible], so it just hasn't materialized.
Ryan Koontz: Got it. And then maybe stepping back a little, you've got great exposure in Europe, now. Can you maybe just top down, help us see what's going on in the macro there as it relates to kind of top five carriers, the BT and DT types? What's going on with those large customers? And then broadly, what's happening in Europe with respect to high risk Chinese displacements and any other wins you're anticipating ramping up over the balance of the year? Thanks.
Tom Stanton: Yes. Sure. So the environment hasn't changed and that it has been really positive now for a solid year. We had inventory issues as you know. We went through those inventory issues, but the underlying demand hasn't changed. The success rate is probably pick -- it has picked up in some areas. In some of our biggest customers, their conversion rate has gone up, which has driven, stronger subscriber, backlog. And -- but their overall plans for deployment stay in place. In fact, one of them has recently expanded theirs. I think last quarter expanded the number of homes they were trying to get to by a couple of million. So all of that's in place.
The wins that we've had, I just talked about one in my notes, which is a brand new customer …
Ryan Koontz: Yes.
Tom Stanton: … that is a large Tier 1. Yes. But the other ones that we've talked about before are still on track. We will start shipping some of them right around, hopefully, a little bit before the half. Some of them have already started shipping, and there is a big replacement opportunity where they're actually going to decommission some Huawei equipment. That is probably about to start. It should it's right around the time for that to kick off. Yes, so we haven't lost anything. All those are still on track, although they're being operationalized and those take a long time.
Ryan Koontz: Great. And that replacement opportunity, Tom, is in fiber, not optical?
Tom Stanton: It's in fiber.
Ryan Koontz: Yes. Maybe one more if I could squeeze it in, please. Any changes in your attach rate of selling ONTs versus OLTs and with regards to XGS and kind of modern products, you still have a high attach rate there, and how would you characterize kind of thoughts about that going forward?
Tom Stanton: I would say with the -- I would say with XGS, the attach rate is probably higher than what it was with PON. I think that's just because it was a newer technology and interoperability and things. I don't think -- I mean, surprisingly, if you follow the industry much, it has remained strong. I mean, we pick -- we've gotten some Tier 1s that have selected our subscriber equipment where traditionally Tier 1s shop more. Smaller carriers typically end-to-end and they buy everything. Larger carriers tend to go shopping. It's going to be interesting to see how that environment changes. I think it is changing.
I think more and more looking at trying to buy a more end-to-end solution and maybe not go direct to some of the Asian vendors. So it will be interesting to see how that, but it's the attach rate is fairly strong.
Ryan Koontz: Great. That's all I've got. Thank you.
Tom Stanton: Okay.
Operator: The next question comes from Christian Schwab with Craig-Hallum. Your line is open.
Christian Schwab: Great. Thanks for taking my question. I know you guys historically have not put in any hedge instruments regarding currency swings, given the big roughly 9% move in a short period of time. Is that something you guys are considering? Or are you going to evaluate?
Tom Stanton: The short answer is yes. With -- we've realized the benefit of the downside, and now we're moving the other direction, and it's something that we are exploring.
Christian Schwab: Great. And then from a business momentum perspective, I know we're excluding new design wins, is there any commentary you can give on further confidence and conviction and strength in Europe versus North America, or are they both hitting on all cylinders?
Tom Stanton: Good question. Without a doubt, Europe is just really hot right now. It is -- booking rates coming out of Europe are very strong. That area is definitely hot. In the U.S., it is more in Europe, I guess what I'm saying is you can say that pretty much across the board. In the U.S., it's a little more hit and miss. The Tier 2s have been strong. They continue to be strong, and I mentioned in my notes that we want incremental business with a couple of the larger Tier 2s. The Tier 3s have been kind of in a low. May call it a bead low or whatever. They seem to be waking up, and we'll see.
We haven't seen that yet, but they seem to be getting better. There's a lot of talk about them getting better. Numbers have been just incrementally moving up. No big change over the last 6 to 9 months. But Tier 2s have definitely been strong.
Christian Schwab: Great. No other questions. Thank you.
Tom Stanton: Okay.
Operator: The next question comes from Amira Manai with ODDO BHF. Your line is open.
Amira Manai: Yes. Hello, can you hear me?
Tom Stanton: Yes.
Amira Manai: Thank you for the presentation. I have actually a few questions. Regarding the increase, could you provide more details of the Group supply chain and whether you have suppliers in China or Asia for certain components?
Tom Stanton: Sure. We do have -- well, let me start back. So we have moved and have been moving the majority of our supply chain contingencies outside of China for some time. If you go far enough back, pre-merger of the two companies, the ADTRAN portion had moved out a long time ago. And then on the ad beside, they were moving out and we accelerated that. So that's been going on for a couple of years now. So we're in a pretty good position to where on a finished good basis, there's very little that's done there.
And I think the majority of any finished goods, I shouldn't say any, but by and large any finished goods will be out of there sometime around the middle of this year. So we don't expect a whole lot of impact from tariffs. Now on a raw material perspective, you everybody buys capacitors, everybody buys resistors, everybody buys PC boards. And then the real thing there is where does the product actually get finished. We're going to have tariffs on some of those materials. But in the overall scheme of things, I think that it's -- we're not in a bad place as of today.
Amira Manai: Okay.
Tom Stanton: I don't know what they're going to be tomorrow. I don't know what the tariffs are going to be tomorrow. But as of today, yes, we're not in a bad place.
Amira Manai: Okay. And the Group's performance quarter-over-quarter was mainly driven by Europe, while the U.S remained relatively stable. What explains the dynamic? And do you foresee continued decline in the U.S share versus non U.S in the coming quarters?
Tom Stanton: I would say U.S was actually -- I wouldn't call it not strong, it was actually not bad. It was just that Europe was stronger. And Europe is just a hot area right now. It is pretty much from any metric we see. It's actually -- it's just -- it's they're just buying at a stronger rate. I wouldn't say the U.S is bad, it's not. But I would say that the Europe is just and we have a couple of customers that really can materially drive those numbers upwards, and they're kind of hitting on all cylinders right now.
Amira Manai: Okay. And how would you compare a transposition to its main competitors today? I mean, from financial perspective, do you see stronger growth trends in the market? And from technological side, how does ADTRAN's offer [indiscernible] against its peers, particularly in emerging areas like fiber broadband, AI, data centers, et cetera? And there are any specific areas where do you believe ADTRAN is technological -- has a technological advantage for today?
Tom Stanton: Yes. I think that the -- I think the key to what we do is maybe the focus on where we put our resources. So on the optical side, we very much focus on that mid network transport kind of a regional size network, and we're very, very good at that. And as that market we do believe that's a growth market, both from just a carrier perspective as they reach more homes with fiber. And from a enterprise perspective, as people try to find on ramps into the ICP cloud or that becomes more distributed. And we've seen some signs of that. On the fiber access side, we just fundamentally across the board.
Now I'm biased, but we have a better product. We have a kind of a next generation product, which is very, very scalable. We did a press release maybe last quarter that said we had passed over 8 million homes with British Telecom in an incredibly short period of time. It is very flexible because it is software based and disaggregated, so you can use it in small locations as well as large locations. And it's just a better product. Subscriber, it's a little more difficult to differentiate yourself. With subscriber, it's all about the software. And you have to keep up with the generational changes in the hardware, but it's really about the software.
We launched our Mosaic One product about 2 years ago, and the big piece that we're missing was Intellifi, which is in home Wi-Fi management, which is a real cornerstone for a lot of our customers. We launched that, I think, earlier last year. Phenomenal success so far. It's still relatively new into the market. I think that piece has yet to shake out. I think competitively, we have a very good product. But we just need some more time in that market. Hopefully, that answers your question.
Amira Manai: Okay. Thank you so much. That's all for me.
Tom Stanton: Okay. All right.
Operator: The next question comes from Tim Savageaux with Northland Capital Markets. Your line is open.
Tim Savageaux: Hi, good morning. A couple of questions. But first, I wanted to start with, it really seems like you're starting to see a greater amount of synergy across your product portfolio, right, particularly between access and optical transport. You've talked about that a couple of times here. Are we right to observe some kind of breakout here or inflection point with regards given the companies have been together for a while now in cross-selling that portfolios? Then I have a follow-up.
Tom Stanton: Yes. The only problem I have with Tim is, how do you define breakout? So without a doubt, I mentioned it in my notes. And the reason that I mentioned them is we have seen good reception in the Tier 3 space. If we sell them an access product, there's a good chance that we're going to be able to get the transport needs and meet the transport needs, and that they'll be open to that because they don't want to do business with a whole lot of vendors. In the larger, kind of more sophisticated, it's a real fight.
And what we started to see, it may be earlier than this, but I'll tell you last quarter was a good quarter for that. We won the European carrier, which is a very large carrier, and we had not done business. And they flat out told us that it had to do with the breadth of our product line and the synergies that we're able to bring in the management and operations. And they liked the scale of the company. Same thing happened in the U.S. So we had two large Tier 2s that now are broadening, one specifically in our optical space that we had been locked out of for a period of time, forever, really.
And they move forward. So there's these anecdotal pieces with the larger customers, but you they had not been in existence before. We had I mean, it's really starting -- it feels like it's really getting much more reception now. Maybe some of that may have to do with inventory, by the way. They had a lot of optical inventory, not just ours, but everybody's. And until they were getting out of that inventory, they weren't in a position to make a decision on a new vendor. So I think some of that may just be the fact that they're now in a position to actually start making some moves.
Tim Savageaux: Great. Appreciate that. And as I ponder [ph] large Southern European carriers that you're not already engaged with in some way, which I will continue to do, I'd ask about the at this point, how you're seeing the size of that opportunity relative to some of your current big European customers and what sort of timing we should expect in terms of a ramp there?
Tom Stanton: They're in a hurry, and they're in a hurry on the optical side first. It's hard to predict what you ultimately end up with, but if you think about them in the tens of millions a quarter, that's probably the way to think about them. Once with -- once they get rolling with the full portfolio.
Tim Savageaux: That's across optical and access?
Tom Stanton: Yes. Yes. When I say 10 …
Tim Savageaux: Great. [Indiscernible].
Tom Stanton: … that's a broad range. So, yes, we definitely got
Tim Savageaux: I know. I get it. All right. Appreciate it.
Tom Stanton: Okay.
Operator: And ladies and gentlemen …
Tom Stanton: At this point, that's the end of our question queue. So I appreciate everybody for joining us today, and we look forward to talking to you next quarter.
Operator: Ladies and gentlemen, that concludes today's call. Thank you for your participation. You may now disconnect.
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- Adtran (ADTN) Q4 2025 Earnings Transcript
May 4, 2026
Image source: The Motley Fool.
Date
Thursday, Feb. 26, 2026 at 8:30 a.m. ET
Call participants
Chief Executive Officer and Chairman — Thomas Stanton Chief Financial Officer and Senior Vice President — Timothy Santo Director, Investor Relations — Peter Schuman
Full Conference Call Transcript
Tom Stanton, ADTRAN Holdings' CEO and Chairman of the Board, will provide key highlights for the fourth quarter and full year 2025. Tim Santo, our Senior Vice President and CFO, will review the quarterly and full year financial performance in detail and provide our first quarter 2026 outlook, and then we will take questions that you may have. I would now like to turn the call over to Tom Stanton.
Timothy Santo: Operator, we are receiving notification that the line is bad and that recipients are not hearing us correctly. Is there a way to improve the line before we proceed?
Peter Schuman: Thank you very much.
Thomas Stanton: Thank you Peter, and good morning, everyone. ADTRAN delivered a strong fourth quarter and finished 2025 with solid momentum. Our quarterly results reflected higher demand and strong execution with revenue above the high end of our original outlook, overcoming typical year-end seasonality. Operating leverage continued to improve and earnings came in above expectations, with all 3 business categories achieving sequential and year-over-year growth. In the fourth quarter, ADTRAN generated revenue of $291.6 million, reflecting a strong year-over-year growth of 20% and sequential growth of over 4%. This marks the sixth consecutive quarter of sequential growth and the fifth consecutive quarter of year-over-year improvement, reinforcing the strength of our company and our key markets.
Our U.S. business led the quarterly growth, with revenue up 31% year-over-year and 14% sequentially. Non-U.S. revenue grew 12% year-over-year and declined 3% sequentially as expected and consistent with recent ordering patterns among some of our larger European customers. Optical Networking Solutions grew 33% year-over-year, driven by strong sales to cloud providers and enterprise customers. This increase also drove the contribution of enterprise and cloud providers to 25% of our revenue in Q4 and 21% for the full year of 2025. These results reinforce a trend we are seeing: cloud providers expanding data center capacity and large enterprises upgrading their optical networks. During the quarter, we continued to broaden our optical customer base.
We saw solid activity across service providers, cloud providers, enterprises and public networks, reflecting the flexibility of our optical platforms across different use cases. Access & Aggregation revenue grew 9% year-over-year and 6% sequentially, supported by continued fiber access investment across U.S. and European operators. During the quarter, customer activity reflected a mix of expansion projects and network upgrades as operators advanced deployments. In Subscriber Solutions, revenue grew 17% year-over-year and 3% sequentially, driven by demand for our residential fiber CPE as customers continue to connect more subscribers. The revenue in this category continues to be generated by a diverse mix of residential, enterprise and wholesale service offerings.
Story Continues
Today, our software solutions serve over 1,000 carrier customers across 3 of our product categories, automating everything from optical networks to in-home subscribers' experiences. These customers include nearly 500 service providers adopting our Mosaic One platform and more than 100 service providers deploying our recently introduced Intellifi cloud-managed Wi-Fi solutions. We are also advancing our Agentic AI platform with numerous Mosaic One Clarity customer trials underway before an official launch later this year. As demand for AI-driven automation grows, we see this application suite as an important addition to our software capabilities.
Looking at the broader environment, we continue to see sustained fiber investment across our core markets, and the U.S. broadband programs and ongoing investments in data centers are supporting ongoing network expansion. In Europe, increased focus on network security and vendor diversification away from higher-risk suppliers is reinforcing upgrade activity across the region. These trends are supporting continued demand for upgrades across all 3 product categories. At the same time, network requirements continue to evolve. Across data centers, between the data center and out to the customer edge, capacity demands are increasing. Service providers, cloud providers and enterprises are pairing high-capacity fiber networks with automation and software to streamline operations.
While this is still an emergency contributor to our revenue, it reinforces the market's longer-term direction towards more intelligence and more automation. With our broadband fiber network portfolio, software assets and regional strength, we are well positioned to support both the current infrastructure cycle and the longer-term evolution towards these more intelligent fiber networks. We delivered a strong Q4 with solid financial results and execution and healthy core -- and healthy cash flows. For the full year 2025, we delivered double-digit revenue growth, with each of our 3 revenue categories also growing at double-digit rates. We achieved this while expanding gross margins and returning to positive non-GAAP operating margin and EPS.
Also during the year, we strengthened our balance sheet by issuing approximately $200 million of convertible notes at an interest rate meaningfully lower than our revolving credit facility. We were able to purchase $27.2 million of ADTRAN Networks shares during Q4 and $46.6 million worth of shares during the calendar 2025, reducing the minority interest to less than 30% as we closed the year. As we move into 2026, our priorities remain continued improvement in our leverage model, expanding operating margin, cash generation and converting the customer momentum that we have been seeing. We continue to operate in a dynamic cost environment, including variability in components such as memory.
We are managing that variability through disciplined procurement and price mechanisms that are already embedded in our model. At this time, we are not seeing conditions that change our demand outlook or execution priorities. In summary, we entered 2026 with a positive outlook. Customer trends are favorable in the U.S. and Europe, customer acceptance of products has been strong, and our product offerings and competitive position has never been better. We have several multiyear tailwinds in our key market segments. With that, I'll turn the call over for Tim to review the financial results in more detail. Tim?
Timothy Santo: Thank you, Tom, and thank you all for joining us this morning. We delivered strong results for the fourth quarter and full year 2025, driven by solid execution and healthy revenue growth. As scale improved, we delivered higher margins, and operating efficiency increased across the business. We remain focused on disciplined cost management as we continue to grow. Over the quarter, we continued to operate with tight financial processes and consistent execution. These remain embedded in how we run the business, improving visibility and planning rigors and supporting structured capital allocation. While the mix between gross margin and operating expenses can shift from quarter-to-quarter as revenue moves, our objective remains focused on steady margin expansion as the business scales.
As we noted on our previous earnings call, the capital actions we took last year improved our financial flexibility and added optionality. Broadly, our focus remains on simplifying the capital structure and maintaining flexibility to support the business and create value. We will continue to deploy cash thoughtfully to reduce the minority interest over time while maintaining balance sheet strength and evaluating noncore asset monetization opportunities as appropriate. Turning to the financial results for the fourth quarter of 2025. Revenue was $291.6 million, up 20% year-over-year and 4% sequentially, above the high end of our original guidance.
Year-over-year growth was driven by all 3 product categories with Optical Networking the largest and fastest contributor, with revenue increasing by $26.9 million or 33% from the prior year. Geographically, non-U.S. revenue accounted for 53% of total revenue, while U.S. revenue accounted for 47%. Non-GAAP gross margin increased to 42.5%, up 44 basis points sequentially and 122 basis points year-over-year, driven by scale efficiencies, product mix and cost discipline. We remain focused on sustaining gross margin in the 42% to 43% range over the long term. Non-GAAP operating profits rose to $18.8 million or 6.4% of revenue, exceeding the midpoint of our original outlook, and up 103 basis points sequentially and 406 basis points year-over-year.
Non-GAAP tax expense in Q4 2025 was $3.8 million or an effective rate of 22.6%. Non-GAAP EPS was $0.16 compared to $0.05 in Q3 2025 and a loss of $0.02 a year ago. EPS benefited by $0.03 from the acquisition of shares from minority holders in the fourth quarter. We continued to strengthen our financial position during the year. Year-over-year, net working capital improved by $8.7 million due to meaningful inventory reductions, largely offset by increases in accounts receivable due to increased sales. During the year, inventory declined by almost $50 million, including $8 million during the fourth quarter. Days inventory outstanding improved by 47 days year-over-year and 10 days in the fourth quarter to 114.
DSO increased to 66 days, down by 1 day year-over-year and up 7 days sequentially due to increased sales and the timing of Q4 invoicing. As revenue scales, our focus remains on improving working capital efficiency. Operating cash flow was $42.2 million for the quarter, and free cash flow was $22.5 million. For the full year, we generated $129.8 million in operating cash flow and $60.5 million in free cash flow, representing healthy increases of 25% and 58%, respectively, compared to 2024. We ended Q4 with $95.7 million in cash and cash equivalents after purchasing $27.2 million or 1.2 million shares of ADTRAN Networks stock.
For calendar year 2025, we purchased $46.6 million or 2 million shares of ADTRAN Networks stock and now own just over 70% and meaningfully reduced the interest rate on our outstanding debt as a result of the convertible note offering. Turning to our operational performance for the year. We made meaningful progress across key financial metrics during 2025. Revenue increased 17.5% year-over-year, totaling $1.084 billion. We expanded full year non-GAAP gross margin by approximately 90 basis points to 42.1%, reflecting increased scale, higher efficiency and favorable product mix. Non-GAAP operating margin increased to 4.8% in 2025 from negative 0.3% in 2024. And non-GAAP diluted EPS returned to a positive $0.23 per share.
We delivered a strong year of cash flow generation, with net cash provided by operating activities increasing by $26.2 million to $129.8 million. We remain disciplined on cost structure while positioning the company to convert revenue into sustained earnings growth. Looking ahead at our outlook for the first quarter of '26, we expect revenue to be between $275 million and $295 million and non-GAAP operating margin of 4% to 8%, reflecting traditional seasonality and current supply chain dynamics. I will now turn the call back over to Tom.
Thomas Stanton: All right. Thanks very much, Tim. Julianne, I think at this point, we're ready to open it up for any questions people may have.
Operator:[Operator Instructions] Our first question comes from Michael Genovese from Rosenblatt Securities.
Michael Genovese: Great conference call, clearly upbeat messaging. Tom, can you just talk a little bit more, I guess, specifically about the demand picture in U.S. and Europe and sort of what you're seeing from your clients on the optical side and on the fiber-to-the-home side? And just talk a little bit more about the drivers of the revenue growth. And I guess related to that, like do you think -- obviously, you're not giving full year revenue guidance, but coming off a year where you grew 20%, do you think double-digit growth is -- top line growth is in the cards for '26?
Thomas Stanton: Yes. So let me start on a little down, which is we don't give full year guidance for a reason, and that's because our outlook is -- typically are still our book-to-ship period is relatively small. So it's a little difficult. Let me speak a little bit more about the kind of the environment that we're in right now. I would say it's kind of the same tone and kind of building momentum that we saw throughout last year. And we expected that to continue on, and that's exactly what's happening. So we -- on the fiber-to-the-prem side, nothing has slowed down. Programs are still going well.
We're still adding new customers to those product areas, and we're continuing to operationalize carriers in Europe. So all of that is just a continuation of the same type of activity we saw last year. On the fiber front, the dynamic is a little bit different because we were still at the very beginning of the year, kind of crawling out of the revenue inventory uptick that we had seen in our customer base. That cleared itself up last year. We started seeing that real progress in the second half of the year.
We also -- as you may be aware that we had won some additional customers, both here in the U.S. with wider scale kind of Tier 2 deployments as well as in Europe, where we won some Tier 1s, and that momentum is just continuing on. I would say that is driven not just by the Huawei replacement which is going on in Europe, but just in general, I just think activity, we just saw customers starting to unleash capital, and they're trying to increase their bandwidth for obvious reasons. I mean, I think all of them are trying to figure out how they're going to play in a new AI-driven world. I think MoFi is a driver.
We definitely -- I mentioned it on the call, we saw some real positive momentum on the enterprise side, which includes ICP carriers, right? So yes, it's just generally a good environment.
Michael Genovese: Great. And then my second and last question will just be on pretty wide operating margin outlook of 4% to 8% for the quarter. So is that because of things like memory prices, that the range is that wide? Or is that kind of maybe more of a normal range and I'm just reading it as being wide?
Thomas Stanton: To us, I don't think there's any difference in the range that we get than what we typically do. There is tightening supply, as everybody is aware of, on memory. There's some tightening supply in optics. But I would say that's not overly impacting the guidance range. Our kind of operating model is still what we fully expect it to be, what we've communicated, which is operating expenses in the low 100 range and gross margins in the 42%, 43% range. I don't see we see a deviation from that. Tim, any comments?
Timothy Santo: No, I would reiterate, as Tom said, the guidance range is about 4 points, which if you look historically is where we've been. And it's actually up a little bit from last quarter. But the leverage model would remain up from what we guided last quarter.
Thomas Stanton: You mean midpoint, yes.
Operator: Our next question comes from Ryan Koontz from Needham & Company.
Ryan Koontz: I want to ask about optical, maybe if you can unpack a little bit. You talked about enterprise ICPs, I assume that's a big driver of optical. Do you have any ideas, like how much of that is really hyperscale and AI data center cloud-related versus what I would call like traditional SP and enterprise networking? Can you maybe help us understand some of those dynamics there within the optical strength?
Thomas Stanton: Sure. So there was actually a good contribution on both of those fronts in the quarter. And I'm trying to think if it was -- I would say -- and this is not having the note in front of me -- that the mix on traditional enterprise, including the banking sector and all of the larger enterprise that we play into is a portion of that. And then ICP did come in stronger in the quarter than what we had historically seen, and we expect that momentum to continue on through this year.
Ryan Koontz: Great. And I recall a conversation from OFC last year about this opportunity in MOFN where the hyperscalers are contracting with traditional SPs or maybe some of the Tier 2s like Colt, et cetera, to build for them. Are you seeing some benefit there as well? And would that show up in your SP business as opposed to your enterprise business if it was a MOFN-type deal?
Thomas Stanton: No, that would show up in our carrier. We would consider that to be a carrier customer. And we're definitely seeing that. We talked about that in the last maybe couple of conference calls, how we were starting to see some of the carriers position themselves to be able to do MOFN. That's just a continuing ongoing kind of upgrade cyclical thing that's adding positive momentum to that business. So -- but that is separate and apart from the enterprise piece that we're talking about.
Ryan Koontz: Great. And maybe just one last, if I could, on the fiber-to-the-home side. Relative to new footprint, it seems like the U.S. has been a little bit hit-and-miss where some segments do better than others. Any update there on how Q4 turned out in terms of new greenfield footprint and how you're thinking about '26 going forward for U.S. fiber-to-the-home greenfield builds?
Thomas Stanton: Yes. I think it was -- I'd call it a solid quarter, kind of consistent with what we had seen in the year. I mentioned that the -- in general, the U.S. business was definitely stronger on a sequential and year-over-year basis. I think we're expecting good things this year. We finally -- I probably shouldn't say the word, but BEAD dollars are actually starting to flow. We got a customer in Louisiana that is expecting BEAD dollars hopefully next week. So -- and I don't want to over-rotate on that guide because the build-out is going to consistently be driven for most carriers by kind of fiber deployment for this year and then equipment next year.
But the fact that, that's actually flowing is real positive. I think there's 6 other states that are -- expect money any day now. So the fact that those dollars are starting to flow, I think, is a positive thing. And it's just as positive, not just the BEAD dollars, but from a planning perspective and knowing that it's going to happen and giving carriers surety as to how they plan their capital budgets is very important.
Ryan Koontz: Right. So the planning, engineering and maybe the fiber optic cable spending this year from BEAD sees an earlier uptick, you're saying than your equipment would see this year that would follow within quarter 2 behind...
Thomas Stanton: Yes, you've got to be able to deploy that fiber. But I think the positive thing for us, which we don't know how that will impact, and it may just be just a kind of positive influence is the fact that you get surety in your budget planning cycle. But not just your BEAD funding, but your normal capital spend as well. And I think that, that's been missing for some time.
Operator: Our next question comes from Christian Schwab from Craig-Hallum.
Christian Schwab: Great execution in the quarter, guys. Tom, I know -- so we're sitting here at the end of February, noncore asset sales and potential building sales and leaseback activity. Would you be disappointed if we didn't have resolution on both by the end of calendar 2026?
Thomas Stanton: Well, leaseback activity, more than likely, that is not going to happen with the North Tower -- excuse me, the East Tower. So let me be clear on where we are with that. I think we've been trying to talk about this now for a couple of quarters. We did get several lease offers on the building. Financially, it didn't make sense for us because of where we are with our cash position right now and what we use for the cash and what that lease would ultimately cost us. So we have put that on hold. We can always revisit that if we want to.
Then on the North/South Tower, which is the thing that's up for sale, I'm going to let Tim jump in here and give you an update on that.
Timothy Santo: A lot of activity in the Huntsville market. We're not currently under contract, but we have activity. So we continue to work that, and when the right deal comes along, we will close that. As we had hoped it would happen in 2025, we are very optimistic it will happen in 2026, but the market will dictate.
Christian Schwab: Great. And then on the noncore asset side, Tom, do you think that can get resolved this year? Or is that a fluid situation?
Thomas Stanton: Yes. So we -- let me try and do this in a proper way. We have taken a look at the noncore assets. We've gotten values on what we think the noncore assets that we think are not strategic, right, to our business. We have -- we are doing things right now that we think will increase the value of those assets, and we'll reevaluate that in the second half of this year.
Christian Schwab: Perfect. And then my last question, as we go throughout calendar 2026, is there one area -- we spoke positively, obviously, about finally loosening up after many years of seeing some progress as speed is concerned. But as we look at equipment replacement in Europe, the strength in optical, geographical strength in Europe, et cetera, is there one thing more than another that you're most excited about as we go through 2026 that we can monitor?
Thomas Stanton: Yes. So I think -- let me just hit on a couple. One is I think enterprise is doing really well. And as I mentioned earlier on the Q&A, there are multiple drivers for that. We expect that to be strong this year. And so that strength is above whatever the company is doing on a corporate average perspective. So that's really good to see. The other is there is some legislation going on. I don't know how much success it's going to have. It's good that it's going on, but in the EU right now to accelerate the Huawei replacement piece. It's not so much whether or not that actually happens, which there is a high likelihood it happens.
But just the focus on that is positive for our business. And I'll remind people, we think that's a near $1 billion a year type opportunity that Huawei is selling into the European market that we think we have a very good chance of being able to capitalize on. So as that pressure continues on, and it is -- there was legislation that was sent out in the EU in early of last year that is positive, right? So that addresses this issue. So yes, so I think both of those things are real positive catalysts.
Operator: Our next question comes from George Notter from Wolfe Research.
George Notter: I guess I just want to keep going on the question of Huawei replacement in the EU. I think the regulatory stance currently basically has it not compulsory to replace Huawei, but I guess, suggested would be kind of the idea in terms of the current regulatory environment. And I know the stuff that's coming down the pike is going to mandate Huawei replacement, and it sounds like it could be a few years away until that legislation actually requires companies to -- or carriers to replace Huawei. But I guess I'm just curious, like what has the inflection happening right now? Is there something you're seeing with your customers that allows them to move more quickly? Is it funding?
Is it more pressure from a political perspective? I guess I'm just trying to understand what's driving this.
Thomas Stanton: Yes, sure. Yes, I agree. Well, let me just make one caveat to that. Although the EU's directive is more of a recommendation, the country-by-country and carrier-by-carrier requirements or legislative actions are different, right? So we do have some countries in the EU that have explicitly been stronger on that. And it's not so much that -- I think that legislation and the talk about legislation and the fact that we're even talking about it here is exactly the point, which is if you're a carrier and you're doing a new award, you're kind of crazy to be deploying Huawei at this point.
Or if there's a new region, a new footprint that has to be built out, even if they're an approved vendor, you know you're going to have a problem. So what that's doing is putting on -- increasing the braking pressure on continuing to deploy them on an ongoing basis. I would agree that pulling them out is a different thing, and that will take years. And we've characterized that north of -- and it's an easy math, George, for you to do, right? It's a north of $10 billion opportunity for the pull out.
But what we're talking about is just on the annual spend, where they're going in and filling in new [ cars ], building out new footprint. That kind of activity is going to continue to slow down.
George Notter: If I look at that $1 billion annual spend, how well positioned do you think you are on that? I mean, obviously, that's across a number of product categories. It's across a large number of specific operators, maybe some you're in, some you're not. I mean, is there a way to kind of pin down that $1 billion in annual spend in terms of what's like reasonable for you?
Thomas Stanton: Yes, please. Let me not be so sloppy on that number. The last time we looked at it -- and we do have another -- we have an outside firm trying to take a look at exactly what that number is at this point. But that number is derived from about an $800 million, I think it was $850 million or $860 million number for EMEA in our target product areas, and that was in '24. We think that, that number is going to continue to slow down. It was north of $1 billion not that long ago. So that number will continue to slow down as we actually pick up that market share.
Now that's for products that are specifically in our product sweet spot, which is kind of mid-mile, regional network optical, access and aggregation. It is those products that we're actually talking about. So it's really what we believe the TAM is for our products. But like I'm trying to say, it's a rough number right now, and it's just based off of the earnings results of Huawei.
Operator: Our last question comes from Dave Kang from B. Riley.
Dave Kang: First, regarding European telcos, you talked about them being front-loaded. Just wondering if you can kind of quantify whether it's 55:45 or is it more exaggerated?
Thomas Stanton: I'm sorry, your question broke up for me. Can you rephrase it or restate it?
Dave Kang: Yes. Regarding your European telcos, Tier 1s. In the previous calls, you said they tend to be front-loaded. Just wondering if they're like 55:45 or more like 60:40. Any color?
Thomas Stanton: As far as in the year, is that what you're talking about?
Dave Kang: Yes.
Thomas Stanton: I don't know if I've seen that actual breakout. I would say it's definitely -- last year, it was probably 60-ish, 40-ish, and this is just off the cuff. And this is predominantly in the access and agg product category. So you'll see that -- last year -- you could see that last year in our Access & Agg number. You actually saw that kind of big bump in the first half of the year, and then it kind of tailed down. It's not as prominent in the rest of the product areas. They kind of -- they're just not on the same cycle.
Dave Kang: And are you kind of expecting similar dynamics this year or any changes from last year?
Thomas Stanton: Really good question. I will tell you, we weren't happy with that bump because of what that does operationally. Bumpy is never as good as smooth. So we have been talking to them about that and trying to get that to be more even flowed this year. So I don't know how successful we've been with it at this point. So hopefully, you won't see that same type of kind of waterfall.
Dave Kang: And my second question is regarding the same European telcos. Just where are we in terms of their broadband deployment cycle? Are we still early stages or mid or getting towards the late innings?
Thomas Stanton: Good -- well, if you take Europe as a whole, there's no way to characterize it other than early. We've brought just recently, some new carriers on that haven't been deploying with us, and then they all kind of have this Huawei issue as well. If you take specific areas, there are countries that are farther along. The U.K. is, I would say, kind of more towards the middle. Germany is probably -- definitely within the first half. So it depends on the carrier. Some of them are -- haven't started yet.
Dave Kang: Got it. Thank you.
Thomas Stanton: Okay. At this point, I think we are -- no more questions in the queue. So I'd like to thank everybody for their participation today, and we look forward to talking to you next quarter.
Operator: Ladies and gentlemen, that concludes today's call. Thank you for your participation. You may now log off.
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Adtran (ADTN) Q4 2025 Earnings Transcript was originally published by The Motley Fool
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- Adtran (ADTN) Q3 2025 Earnings Transcript
May 4, 2026
Image source: The Motley Fool.
Date
Tuesday, Nov. 4, 2025 at 10:30 a.m. ET
Call participants
Chairman and Chief Executive Officer — Thomas Stanton Senior Vice President and Chief Financial Officer — Timothy Santo
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Full Conference Call Transcript
Tom Stanton, ADTRAN Holdings' CEO and Chairman of the Board, will provide key highlights of the third quarter of 2025. Tim Santo, our Senior Vice President and CFO, will review the quarterly financial performance in detail and provide our fourth quarter 2025 outlook, and then we will take any questions you may have. I'd like to now turn the call over to Tom Stanton.
Thomas Stanton: Thank you, Peter. Good morning, everyone. ADTRAN delivered solid third quarter results with revenue near the upper end of our guidance and higher operating margins. All 3 business categories achieved double-digit year-over-year growth, reflecting disciplined execution, new customer wins and healthy demand for fiber networking solutions. Operating profit exceeded the midpoint of our outlook, underscoring the solid execution and our focus on leveraging financial performance as a driver of longer-term value creation. The quarter was led by strong results in Optical Networking and Subscriber Solutions, while Access & Aggregation reflected anticipated buying patterns of 2 large European customers. We expect those customers to come back online either early -- late in the fourth quarter or early next year.
We remain confident on the overall market for the remainder of this year, however. During the quarter, we closed on a $201 million financing transaction that lowered our borrowing cost and increased financial flexibility, important steps that strengthen our capital structure and position us to execute confidently on longer-term strategic objectives. Turning to the quarterly results. ADTRAN reported $279.4 million, reflecting strong year-over-year growth across all 3 revenue categories. This marks the fifth consecutive quarter of sequential growth and fourth consecutive quarter of year-over-year improvement, proof points that our portfolio strategy and market positioning are driving sustainable momentum.
This consistency underscores the health of our business, continued improvement in market conditions and the progress we are making in strengthening our foundation for the longer-term growth. From our customers' perspective, engagement across our portfolio continues to strengthen as we broaden our technology reach. We're making it easier to choose ADTRAN, not just because of what we build, but because of how seamlessly our solutions work together. Our integrated portfolio means fewer handoffs, faster time to value and one accountable partner across optical, access, subscriber and software. Our technology is the enabler, but the outcome is what matters; simpler operations, greater efficiency and a trusted relationship that continues to open new opportunities for collaboration.
Story Continues
Our Optical Networking solutions grew 47% year-over-year and 15% sequentially, driven by strong momentum in Europe, including deployments with a new large service provider. We added 15 new optical customers in the quarter, reflecting continued share gains and the expanding reach of our portfolio. Demand remains robust and geographically diverse, supporting a wide range -- array of applications. These include national networks throughout Europe, secure connectivity for major enterprises and government clients worldwide with high-capacity interconnects for large-scale content providers. Access & Aggregation revenue grew 12% year-over-year, supported by ongoing fiber access investments among regional operators in the U.S. and Europe.
While revenues from our small and medium service providers in the U.S. were substantially up, this increase was offset by the seasonal buying pattern of 2 major European customers. We added 14 new customers for our fiber access and Ethernet aggregation platforms, demonstrating continued traction across both new and existing markets. In Subscriber Solutions, revenue grew 12% year-over-year and 21% sequentially, driven by demand for both residential and wholesale applications. We added 18 new customers during the quarter as service providers continued expanding fiber reach and upgrading Wi-Fi capabilities. This quarter, we introduced Mosaic One Clarity, a new application built on our carrier-grade Agentic AI platform that enables predictive maintenance, guided issue resolution and proactive network optimization.
Early results from customer pilots are promising, demonstrating a reduction of up to 75% in network-related trouble tickets. This is a strong validation of our AI-driven approach to network intelligence and a clear example of how innovation within Mosaic One is helping operators improve performance and efficiency. Structural shifts across our industry from core to edge computing and the advent of intelligent networks are reshaping connectivity worldwide. AI isn't just transforming data centers; it's redefining the entire network. The rise of distributed computing and edge processing is driving new requirements for bandwidth, latency and reliability, fueling demand for high-capacity optical solutions, next-generation access platforms and intelligent software to automate operations.
ADTRAN is uniquely positioned at the intersection with our differentiated portfolio and our Mosaic One operating platform. As investment accelerates in AI and cloud computing, upgrades will follow across the network through metro transport, access and aggregation, and ultimately, the subscriber edge. Our Optical Networking, Access & Aggregation, Subscriber Solutions and Mosaic One software are built for that cascade, delivering higher throughput, lower latency and smarter, more efficient operations at scale. In summary, Q3 was another quarter of solid execution and strategic progress, marking a clear step forward in both performance and positioning.
We delivered top line momentum and profitability improvements while enhancing our ability to invest and operate with greater financial flexibility, all of which reflects the disciplined way our teams are executing across the business. More importantly, we are setting the foundation for sustained value creation. The actions we've taken to enhance efficiency, strengthen our balance sheet and sharpen our focus are enabling us to operate from a position of greater agility and confidence. As Tim will discuss in more detail during the financial review, our scale efficiencies are creating meaningful operating leverage across the business.
With disciplined cost control and strengthened balance sheet, we see line of sight to continued margin expansion and earnings growth as we move through 2026, all while maintaining the same financial discipline that has guided our progress. With that, I will turn the call over to Tim to review the financial results in more detail. Tim?
Timothy Santo: Thank you, Tom, and thank you all for joining us this morning. We delivered solid results in the third quarter, reflecting strong discipline and consistent execution across the business. As Tom shared, we achieved broad-based revenue growth, higher margins and improved operational efficiency as benefits from increased scale began to take hold. Demand was strong in optical networking and subscriber solutions, supported by healthy customer activity and continued broadband investment globally. Over the past quarter, we've reinforced the operational fundamentals of the business and enhanced our financial controls and processes to support growth. These actions strengthen reliability and transparency of our published results and position us to deploy capital effectively, aligning operational execution with long-term value creation.
As Tom shared, the third quarter also marked a significant step in strengthening our capital structure. The $201 million transaction that we completed has lowered borrowing costs, improved liquidity and substantially reduced risk. While it also unlocks significant availability under our revolving credit facility, it does not change the strategic priorities we've outlined to monetize our non-core assets. As many of you know, we recently engaged new partners to represent the sale of our Huntsville campus. Together, we have relaunched a targeted marketing process and are actively speaking with interested parties. We will remain disciplined on terms and timing, and we'll provide updates as appropriate. Simply put, we are moving forward the process with focus and intent.
Maintaining a healthy balance sheet remains a top priority. We've made tangible progress this year, and our balance sheet today is more resilient, flexible and better aligned to support long-term growth. Turning to the financial results for the third quarter of 2025. Revenue was $279.4 million, up 23% year-over-year and 5% sequentially, finishing at the high end of our guidance. Growth was broad-based, led by Optical Networking, which increased 47% year-over-year. Geographically, non-U.S. revenue accounted for 57% of total revenue, while the U.S. represented 43%. One customer contributed more than 10% of total revenue during the third quarter. Non-GAAP gross margin improved to 42.1%, up both sequentially and year-over-year, driven by scale efficiencies, product mix and component cost reductions.
We remain focused on sustaining gross margin in the 42% to 43% range over the long term. Non-GAAP operating profit rose to $15.1 million or 5.4% of revenue, exceeding the midpoint of our outlook. On a sequential basis, operating profit increased by $7.1 million or 89% compared to $14.6 million from approximately 0 in the prior year. Operating income during the same period has increased to 5.4% in Q3 2025 from 3% in Q2 2025 and 0.2% in Q3 2024. Currency had a minimal impact on our earnings this quarter. While volatility persists across both revenue and expenses, our natural hedging framework continues to mitigate risk.
Building on the stronger forecasting, reporting and treasury processes established this year, we are now expanding our FX strategies to further protect our balance sheet and working capital. Non-GAAP tax expense in Q3 2025 was $3.5 million or an effective rate of 38.3%. Non-GAAP EPS was $0.05 compared to breakeven in Q2 2025 and compared to a loss of $0.07, 1 year ago. We continue to strengthen our financial position with working capital improving by $13.2 million. Accounts receivable increased by $13.9 million, resulting from increased sales with DSO remaining relatively flat at 59 days. Inventory declined by $16.3 million sequentially, reducing days inventory outstanding by 11 days to 124.
Accounts payable totaled $188.9 million with days payable outstanding remaining flat at 70 days. We remain focused on maintaining a healthy balance sheet with our objective of achieving a net positive cash position. Operating cash flow was $12.2 million, and year-to-date, we've generated $38 million in free cash flow. We ended Q3 2025 with $101.2 million in cash, cash equivalents and restricted cash and importantly, a stronger liquidity position. In summary, Q3 reflects disciplined execution, profitability improvement and continued financial progress. We entered the fourth quarter with confidence, despite typical seasonal factors, fewer shipping days, holiday-related customer acceptances and budget timing. While those dynamics remain, we expect solid demand and our execution to offset the usual headwinds.
We expect revenue between $275 million and $285 million and anticipate a non-GAAP operating margin of 3.5% to 7.5%. We expect OpEx to remain relatively flat compared to Q3. We look forward to a strong finish to the year and remain focused on driving sustainable growth and maximizing long-term stockholder value. I now turn the call back to Tom for some concluding remarks.
Thomas Stanton: Thanks, Tim. I think we'll open up to some questions first. Carly, at this point, we can open up the question queue for any questions people may have.
Operator:[Operator Instructions] Your first question comes from Michael Genovese with Rosenblatt Securities.
Michael Genovese: I guess my first question is, looking at the Access & Aggregation and the comments on the European customers there as well as the information put out by ADTRAN Networks in Europe talking about, I think, a little bit of a timing change. So my question is, is there -- was there like a pushout of some things? I mean I know the first half of the year tends to be seasonally stronger than the second half in that Access & Aggregation European business. But versus prior expectations, was there some kind of push out in the timing of some of those shipments?
Thomas Stanton: There has been -- there's been, let's say, I don't -- push out alludes to the fact that there may be some risk in that. I don't think there's any risk, but there has been some changing in some of the timing. We have 2 big customers that tend to be front-end loaded. In fact, they're 2 of our biggest customers in the year. And then one of the customers has a calendar that is offset from typical -- their financial calendar is different. So that means budget cycles are different. But yes, there's always some puts and takes. So the answer is yes.
Michael Genovese: Okay. And I'm sorry, I just -- in terms of what you said, I think you gave us an update on the real estate, but I was a little bit -- just I couldn't follow exactly what you said about. So could you talk about that again?
Thomas Stanton: Sure. Basically, what Tim mentioned was, we have put the both buildings back on to the market. We are actually receiving -- we've got multiple offers coming in, right, Tim? Let me let you cover that. Go ahead.
Timothy Santo: We've -- in this past quarter, where we left off, we are under an exclusivity agreement, and we pulled the buildings down while we were working through that. As we disclosed last quarter, they're back on the market and very actively being marketed. Both the parts of the campus, we have interests from multiple parties and are having regular conversations.
Michael Genovese: Okay. And then finally, I'm just going to -- kind of a bigger picture question, which is, traditionally, telecom has not been a super-fast growth market, right? It's the telecom in general is a single-digit growth market. So, if ADTRAN is going to grow higher than that on the top line and be more of like a high single or double-digit growth company, is it because there's fundamental acceleration in what you're doing in fiber and access or you're gaining share? Or is there some repositioning to higher growth markets like more data center exposure? Like what -- just how do we think about 2026 and sort of what the drivers of the business are from a high level?
Thomas Stanton: Yes. So I kind of agree with everything you're saying. I mean you typically see the telecom market in the single digits, kind of mid-to-high single digits and it kind of varies year-to-year from there. Our premise has been, there is that typical growth. We do believe markets in general are that -- effectively that the focus right now on data center -- speeds and data center capacity is starting to affect the overall market, although I don't think that's really in numbers today. But the premise is, there's a significant market share disruption that's happening in Europe right now, and we are the #1 winner in that market share grab that's going on in Europe.
I mean the largest player in Europe is being displaced.
Michael Genovese: Last follow-up on that. Is there anything incrementally in Germany happening where -- I believe that Germany had already decided to kind of cap Huawei, but I'm not sure if they ripped and replaced yet. Could that become something incremental actual rip and replacing of Huawei?
Thomas Stanton: Yes, they could. I think over time, rip and replace is going to have to happen everywhere just because you have to maintain the network and you can't be getting new drops of code all the time. There are -- as you know, there's been a lot of talk over the last few weeks about trying to accelerate that process in Germany. I don't think there's been any material rip and replace at this point in time. I think what they've been trying to do is effectively cap utilization on an ongoing basis.
Operator: Your next question comes from Ryan Koontz with Needham & Company.
Ryan Koontz: I want to ask about Optical. It looks like the best quarter you've had there in a couple of years. Tom, any color you can give us in terms of trends in terms of product mix, geo mix within the Optical domain would be helpful because Optical is obviously gaining a lot of momentum with regard to cloud and AI spend really starting to ramp up.
Thomas Stanton: Yes. I would agree with you on what the outcome of the quarter was, and I would tell you that the momentum there is strong. It's both in the U.S. and in Europe. The quarter was definitely helped though by us picking up a larger Tier 1 in Europe, and we started initial shipments into that carrier. But we've kind of seen a dethaw kind of across the market, most notably in Europe though. So, we're expecting a good year next year as well.
Ryan Koontz: Great. And as Mike mentioned about the Huawei displacement opportunities, I mean, how would you broadly characterize those today with regards to deals you've won as well as prospective deals you hope to like win in the next 12 months, relative to revenue opportunity?
Thomas Stanton: Yes. So, it has been a significant positive influence even going through the downturn with what we've won. But if you look at the number of carriers that have actually converted, like there's some discussion here on Germany, they've been slow. And that momentum continues to build quarter-over-quarter. It definitely is impacting our numbers now, and that impact will grow over the next 2 to 3 years. So, it's definitely a positive mover. I -- let me add a little because I think there are different dynamics in the access versus optical space. I think there's a good chance that optical will probably -- we will see an increase in momentum earlier on in the optical space.
Access has been a constant just move, but there's millions of customers that are involved versus -- and because of that widespread infrastructure versus kind of optical moves on a project-by-project basis.
Ryan Koontz: Got it. Great. And maybe one on margins, if I could sneak it in around -- are you guys happy with where you're at here at 42% non-GAAP? And do you think this is where you got it pegged or is there further upside we can aim for?
Thomas Stanton: No, our longer-term goal is 43%, and I think we're within line of sight to that. I think we'll be bumping up against that next year.
Operator: Your next question comes from Christian Schwab with Craig-Hallum.
Christian Schwab: Great. Some other players in the space have started mentioning that they've got their first BEAD orders. Would you anticipate an improved BEAD spending environment possibly impact you in calendar '26?
Thomas Stanton: Yes. That's an easy bar, but yes. I mean it's starting to -- it's been dead now for a while, but it's definitely going to -- there's a whole lot more activity going on there. So the answer is yes.
Christian Schwab: Is that something that you guys would anticipate seeing orders in the first half of calendar '26? Or is that yet to be determined?
Thomas Stanton: I think we'll see orders in the first half of '26.
Christian Schwab: Great. And then, you guys talked about operating margin expansion in 2026. I know you've outlined the goal of getting to double digits eventually. But what should we think about the potential for operating margin expansion in calendar '26?
Thomas Stanton: We expect to have expansion in '26. I mean, I think the key to us -- so gross margins have been fairly consistent and have been, I would say, over time, upwardly moving. The whole key to us is the operating expense line. That, of course, is impacted by FX, but the operating expense line on a kind of constant currency basis, were -- if you look at year-over-year, were at high 90s, which equates to kind of where we are right now. So we've been holding it firm. I think the real question is, how long can you hold it firm?
Our belief at this point in time is that we have enough R&D firepower and the right product set to not have to substantially increase the R&D spend. We will be -- we'll continue to -- we have sales expense that is variable depending on the revenue to some extent. But structurally-wise, we don't see big movements right now required to get us to that kind of $300-ish north of $300 million level, which kind of gets us to our target. So I would expect expansion through next year. But Tim, let me let you answer it. Any comments on that?
Timothy Santo: I think as we continue the expansion, you'll see $300 million in second half of next year or late -- or early 2027. And I think on a constant currency basis, you get to the double-digits once you get somewhere around $315 million in revenue.
Operator: Your next question comes from George Notter with Wolfe Research.
George Notter: I guess I'm just curious about the minority interest in the business with the old ADVA shareholders. Any new perspectives there? Would you -- did you redeem any shares in the quarter? Any new thoughts in terms of how you deal with that obligation going forward would be great.
Thomas Stanton: Well, we're happy if they redeem at this point. So, we would like to see some. I think there was one redemption in the quarter, will, Tim?
Timothy Santo: It's in the subsequent events. It happened early this quarter. But yes, we continue to see nominal activity and expect there to be some level of run rate.
Thomas Stanton: Yes. But nothing worth sharing. And like I said, it's -- well, that stock is trading up right now, if you take a look at over the last 6 months. But redemptions are a good thing at this point.
George Notter: Got it. Would you look to do anything proactive? I mean, obviously, you did the financing this quarter. Would you look to get more proactive with those shareholders? Is that something that's in the cards at this point or does it hinge on selling the buildings in Huntsville? Like how do you think about that?
Thomas Stanton: Without a doubt, selling that building does give us substantially more headroom. My sense is, we'd be getting more actively on that base towards the tail end of next year. We're probably still a little -- a few quarters away from that. Having said that, redemptions are a good thing.
Operator: Your next question comes from Tim Savageaux with Northland Capital Markets.
Timothy Savageaux: A non-core asset question to start with, and that centers on the old ADVA kind of sync and timing business. I assume you capture that in Optical, although I really don't know. That's one question. And I wonder if you can give us a sense of the dynamics around the business, kind of overall size, growth rate, profitability? Anything you can share along those lines? And I have a follow-up.
Thomas Stanton: Yes, it is in the Access & Agg business. We really don't break that out separately, but it's in the Access & Agg category. It is growing. As you know, we're doing kind of a relook at that business and segmenting that business to be able to -- that is a different business. It is a different selling rhythm, different sales type of, I'll say, people, but it's really different contacts within the different customer bases. So we are in the midst right now of, let's say, readjusting how that business operates.
Timothy Savageaux: Okay. And can you hear me?
Thomas Stanton: Yes. Yes, go ahead.
Timothy Savageaux: Okay. Sorry. The second question was going to be on any impact from memory prices, especially on the subscriber side of the business and what you're seeing there?
Thomas Stanton: There has been some -- well, that's been over some period of time, but nothing that's -- I would say the gross margin in that business, we've been able to keep -- let me think about the proper answer. The gross margin of that business, we've been able to keep at a fairly constant level over the last few quarters and think we'll be able to do that on a going-forward basis. A lot of that is just churn on different -- that business churns, we have new generations of subscriber product. We have more new generation of subscriber product than any other product in our portfolio.
Timothy Savageaux: Got it. Maybe one more for me. You mentioned starting to ramp with one of the Tier 1 European wins, I guess, on the Optical side. And I think that win included Access as well. So, do you expect that to start ramping soon? And anything else to call out in terms of upcoming Tier 1 ramps here in the next quarter or 2?
Thomas Stanton: Yes. I think that one will -- it will take longer. The optical thing was incredibly quick. And there was a lot of work that went in front of that in order to make that happen so quick. I think all the access portion will take longer, but we'd expect to see movement of that next year. And in general, everything is moving forward, not at the same -- at the pace that we would like, but everything in Europe is moving forward. We haven't lost any pieces. The other ones that we've talked about in the past with very specific -- there is some rip and replace going on in different parts of Europe. That is moving forward.
So I think all of that would just be kind of a positive tailwind next year.
Operator: There are no further questions at this time. I'll now turn the call back over to Tom Stanton for closing remarks.
Thomas Stanton: Okay. Thanks very much for joining us on our conference call. And I really would like to extend my appreciation to our teams around the world. Thank you for everything that you do. I also want to thank our stockholders and our customers and partners for the confidence and the collaboration that you've shown us over the last year. So thanks very much, everyone.
Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
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Adtran (ADTN) Q3 2025 Earnings Transcript was originally published by The Motley Fool
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- Adtran Holdings Inc (ADTN) Shares Fall 3.5% -- GF Value Says Still Overvalued
Apr 28, 2026 · gurufocus.com
On April 28, 2026, Adtran Holdings Inc (ADTN) shares fell 3.5% today, closing at $16.16. The stock has experienced considerable volatility, with a 52-week high
