ADTRAN Inc. (ADTN)
Q2 2010 Earnings Call
July 14, 2010 10:30 am ET
Thomas Stanton - CEO and Chairman of the Board
Jim Matthews - SVP of Finance and CFO, Treasurer, Secretary and Director
Todd Koffman - Raymond James
Jim Suva - Citi
Nikos Theodosopoulos - UBS
Steve Ferranti - Stevens Inc.
Sanjiv Wadhwani - Stifel Nicolaus
Amir Rozwadowski - Barclays Capital
Rich Valera - Needham & Company
Erin Riley - Goldman Sachs
Ari Bensinger - Standard & Poor’s
Ehud Gelblum - Morgan Stanley
Simon Leopold - Morgan Keegan
Cobb Sadler - Catamount Advisors
Michael Genovese - Soleil Securities
Paul Silverstein - Credit Suisse
Good morning, my name is Bonnie and I will be your conference operator today. At this time, I would like to welcome everyone to the ADTRAN second quarter earnings release conference call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. (Operator Instructions).
During the course of the conference call, ADTRAN representatives expect to make forward-looking statements which reflect management’s best judgment based on factors currently known. However, these statements involve risks and uncertainties including the successful development and market acceptance of new products, the degree of competition in the market for such products, the product and channel mix, component cost, manufacturing efficiencies and other risks detailed in our Annual Report on Form 10-K for the year ended December 31, 2009; and Form 10-Q for the quarter ended March 31, 2010.
These risks and uncertainties could cause actual results to differ materially from those in the forward-looking statements which may be made during the call. Thank you. Mr. Stanton, you may begin your conference.
Thank you, Bonnie. Welcome to ADTRAN second quarter 2010 conference call. Joining me on the call is Senior Vice President and Chief Financial Officer, Jim Matthews. I’d like to begin by providing some insight into the company’s performance for the quarter and comment on our outlook for the third quarter.
Jim will then provide the financial results for the second quarter. We will then open the floor to answer questions. As stated in our press release, ADTRAN had record revenues of $150.4 million for the quarter, driven by accelerating demand for higher speed services from residential and business customers in both fixed and wireless applications.
As you can see from our disclosure, both Carrier and Enterprise Divisions benefited from these trends. The Carrier Networks Division reported a strong 28% increase in revenue over the same period last year due to a number of factors including increased deployments of infrastructure for higher speed broadband connectivity, increasing demand for wireless backhaul as carriers continue to deploy infrastructure to alleviate network congestion, increased deployments for business Ethernet connectivity driven by network convergence, the need for higher speeds and the growing demand for native Ethernet services, and increased need for network aggregation as carriers strengthen their infrastructure investment in a cost effective and scalable manner, and a generally improved telecom spending environment.
Likewise, our Enterprise Division benefited from another strong performance in its internetworking category which grew 37% over the same period last year. This category’s performance was driven by continued growth in our expanding dealer base, market share gains and market growth from competitive carriers and market share gains at Tier 1 and Tier 2 carriers.
During the quarter, our combined growth areas broadband access, internetworking and optical access delivered yet again growing an impressive 36% year-over-year. For the first half of 2010, these areas achieved revenues of a $159 million, an increase of $45 million over the same period last year.
Taking a closer look at these areas, broadband access led the revenue increase for the quarter and was driven by the continued acceptance of our Total Access 5000 platform. This platform benefited from an increase in shipments to all of our Tier 1 and Tier 2 carrier accounts and our Tier 3 carrier segment.
Moving on to internetworking which during the second quarter reached a record revenue level, growth in this product segment occurred across all our component product areas, including IP business gateways, routers, switches and IP PBX products. This growth also occurred across all of our distribution channels, including Tier 1 and Tier 2 carriers, competitive carriers and our growing broad dealer channel.
Finally, as expected, optical access benefited from an increase in wireless backhaul spending and as a result reported a 19% increase over the same period last year. HDSL also benefited from this increased demand growing 23% over the same period of the prior year.
Moving on to a discussion about the third quarter, we expect the momentum from our growth categories to continue. In broadband access, we anticipate our Total Access 5000 platform will see increasing revenues resulting from recent market share wins in Tier 2 and Tier 3 accounts and accelerating deployments within our Tier 1 customers. We expect to see positive effects of continuing market share gains with our 1100 and 1200 Series products as we begin introductions of new product offerings which will significantly increase service capabilities for carriers in both urban and rural environments.
In internetworking, we expect growth will be driven by continued expansion of our VAR dealer channel, new application awards, continued market share gains in our Tier 1, Tier 2 and competitive service provider base, and a growing demand for IP convergence products by all of our carrier segments. We expect the third quarter will be a solid quarter for wireless backhaul, related products, including optical access and HDSL. For the year, we now expect HDSL revenues to be flat to slightly down versus our previous estimate of down high single to low teens percentage points.