On the heels of its merger with ADVA, and in the midst of a fiber broadband boom in the US and Europe, Adtran executives projected a "very bright future" for the company during their second quarter earnings call. That's despite continued supply chain constraints that are preventing the company from fulfilling orders, which execs expect to continue throughout the year.
During a call with investors Thursday morning, Adtran CEO Tom Stanton said the second quarter of 2022 "continued the trend of strong demand for our fiber broadband solutions with a diverse mix of service providers across our key growth markets in the US and Europe."
However, Stanton noted that growth is being dictated in part by component availability, and said supply chain constraints "have limited our ability to achieve our full growth potential and have negatively impacted our profitability."
Indeed, he told investors, the company has three tier-one customers that "could have easily been 10% customers" if they were able to acquire or swap out the materials they needed.
In terms of how Adtran is making decisions on which orders to fulfill, Stanton suggested it's a matter of doing the least harm.
"A lot of our decisions right now are based off of very hard commitments that we're giving to different carriers to make sure that we don't hurt anybody," he said. "I hate to say it, but we're not looking at what makes the quarter look better, geographically, or whatever. We're really going by, how do we make sure we don't lose any customers?"
While executives said they expect continued component constraints throughout the rest of the year, Stanton also assured investors that the recently closed merger with optical networking vendor ADVA would put the company in a better position going forward "to make sure that we get the right supply at the right prices."
Adtran's revenue for Q2 came in at $172 million, a 20.1% annual increase, driven by 24% year-over-year growth in network solutions revenue, which hit $156 million. The company reported earnings per share of $0.19, beating analysts' estimates by $0.06, and the board declared a Q2 cash dividend of $0.09 per common share.
During the earnings call, CFO Michael Foliano said that the company's gross margins decreased 7.4% from the year-ago quarter due to component constraints and supply chain expenses. That was still an improvement of 1.2% from last quarter, owing to "the higher volume manufacturing efficiencies and some improvements in select component prices, as well as fewer expedite fees."
In a research note on Adtran's results, Rosenblatt Securities reiterated its "buy" rating on the company's stock, saying that Adtran and ADVA are both performing well, "and there are meaningful revenue and expense synergies to be realized."
But the firm also named potential risks, including the impact a macroeconomic slowdown could have on consumer broadband spending, the availability of parts and components and competition from fixed wireless and satellite providers. While Rosenblatt expects Adtran to be a "major beneficiary" of federal and state broadband funds, it also said the company could be negatively impacted if "one or more of these programs were amended to be smaller or canceled altogether."
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