ADTRAN CEO Discusses Q4 2010 Earnings Call Transcript

ADTRAN (ADTN)

Q4 2010 Earnings Call

January 19, 2011 10:30 am ET

Executives

Thomas Stanton - Chairman of the Board and Chief Executive Officer

James Matthews - Chief Financial Officer, Principal Accounting Officer, Senior Vice President of Finance & Administration, Treasurer, Secretary and Executive Director

Analysts

Nikos Theodosopoulos - UBS Investment Bank

Sanjiv Wadhwani - Stifel, Nicolaus & Co., Inc.

Ari Bensinger - S&P Equity Research

Tal Liani - BofA Merrill Lynch

Andrew Schopick - Nutmeg Securities

Todd Koffman - Raymond James & Associates

Blair King - Avondale Partners, LLC

Jim Suva - Citigroup Inc

Amir Rozwadowski - Barclays Capital

Ehud Gelblum - Morgan Stanley

Richard Valera - Needham & Company, LLC

Simon Leopold - Morgan Keegan & Company, Inc.

Paul Silverstein - Crédit Suisse AG

Michael Genovese - Citigroup

Simona Jankowski - Goldman Sachs Group Inc.

Presentation

Operator

During the course of the conference call, ADTRAN representatives expect to make forward-looking statements, which reflect management's best judgment based on factors currently known. However, these statements involve risks and uncertainties, including the successful development and market acceptance of new products, the degree of competition in the market for such products, the product and channel mix, component costs, manufacturing efficiencies and other risks detailed in our annual report on Form 10-K for the year ended December 31, 2009, and form 10-Q for the quarter ended June 31, 2010. These risks and uncertainties could cause actual results to differ materially from those in forward-looking statements, which may be made during the call. Thank you. It is now my pleasure to turn the call over to Mr. Tom Stanton, CEO. Mr. Stanton, you may begin your conference.

Thomas Stanton

Thank you, Nicole. Good morning, everyone. Thank you for joining us for our fourth quarter 2010 conference call. With me this morning is Jim Matthews, the Senior Vice President and Chief Financial Officer.

I'd like to begin this morning by discussing our Q4 performance, before we move on to a review of 2010, and I'll end with some comments on what we expect in 2011. As stated in our press release, ADTRAN achieved all-time record revenues of $165.3 million in the quarter. The outperformance was driven by revenue acceleration in our growth areas, which grew 50% over the same period last year, offsetting a normal seasonal decline in our traditional product areas.

Our growth areas benefited from increasing demand for higher speed services from residential and business customers in both fixed and mobile applications and the continued migration towards IP services. Both carrier and enterprise divisions benefited from these trends. Combined, our growth areas achieved a record $101.4 million in revenue representing 61% of our company total. The Carrier Networks Division reported an impressive 39% increase in revenue over the same period last, and our Enterprise Networks Division benefited from another strong performance in our Internetworking category, which grew to another record revenue level.

Getting into a little more detail. Our Broadband Access category set a new record achieving 75% growth over the same period last year. As expected, the Total Access 5000 platform led this growth. But this area also benefited from a meaningful contribution from our professional services group as carriers took advantage of the expanded solutions we offer.

As previously mentioned, our Internetworking category achieved another record revenue level as a result of our expanding VAR dealer base and market share gains in Tier 1, Tier 2 and competitive service providers. Our mobility products continue to perform well with Optical Access growing 20% over the prior year achieving a new record level as carriers continue to increase investment in network upgrades. HDSL also showed another strong performance as expected.

Looking back on 2010, we clearly saw the effectiveness of our strategies, as we experienced strong outperformance across most categories. Revenues from our combined growth areas expanded 40% for the year, leading this outperformance, as we gained market share and our customers increased investment in the strategic areas our solutions addressed. Additionally through the year, we saw renewed strength in HDSL as carriers increased deployments to cost effectively and quickly add capacity to their mobile networks.

For the total year, our Broadband Access category grew an impressive 58% leading our overall revenue growth. The customer base for the Total Access 5000 platform continued to increase in 2010, and we began to see meaningful shipments from prior awards. Our fiber-to-the-node products benefited from an expanding product set, which was embraced by both domestic and international carriers. Carriers around the world are seeing their requirement to increase their service offerings and many are realizing the benefits of a complete network solution, encompassing the diversity of deployment strategies that our total access product line now offers. From fiber-to-the-curve to fiber-to-the-node to fiber-to-the-premise to our newest Ultra Broadband Ethernet products, ADTRAN now delivers the most complete set of solutions to meet the complex needs of individual carriers.

For the total year, Internetworking revenue grew 39%. Growth occurred across all product areas, including routers, Ethernet switches, IP gateways, access termination products and of course our IP PBX segment. In our enterprise group, we are pleased to see both quarterly and full year growth across all of our distribution channels. Our focus on recruiting the industry's most capable value-added resellers while continuing to extend our presence within our carrier channels, positions us well for the future.

For the total year, our optical access category achieved another record revenue level as mobility upgrades drove demand in our carrier customer base. We expect the recently introduced optical products will provide new opportunities for this category as carriers upgrade bandwidth capabilities in both fixed and mobile networks.

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