ADTRAN's CEO Discusses Q4 2011 Results - Earnings Call Transcript

ADTRAN (ADTN)

Q4 2011 Earnings Call

January 18, 2012 10:30 am ET

Executives

Thomas R. Stanton - Chairman of the Board and Chief Executive Officer

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

Analysts

Jonathan Kees - Capstone Investments, Research Division

Greg Mesniaeff - Kaufman Bros., L.P., Research Division

Nikos Theodosopoulos - UBS Investment Bank, Research Division

Simon M. Leopold - Morgan Keegan & Company, Inc., Research Division

Ehud Gelblum - Morgan Stanley, Research Division

Richard Valera - Needham & Company, LLC, Research Division

Jim Suva - Citigroup Inc, Research Division

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

Lawrence M. Harris - CL King & Associates, Inc.

Michael Genovese - MKM Partners LLC, Research Division

Jeffrey T. Kvaal - Barclays Capital, Research Division

Todd K. Koffman - Raymond James & Associates, Inc., Research Division

Barry McCarver - Stephens Inc., Research Division

Mark McKechnie - ThinkEquity LLC, Research Division

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. Forward-looking statements include, without limitation, statements as to the plans and terms of the transaction between Nokia Siemens Networks and ADTRAN, and ADTRAN's growth opportunities and the potential benefits of the transaction. However, these statements involve risks and uncertainties, including the successful development and market acceptance of core products, the degree of competition in the market for such products, the product and channel mix, component costs, manufacturing efficiencies, the risks that Nokia Siemens Networks and ADTRAN will not proceed with the transaction for any reasons, and other risks detailed in our annual report on Form 10-K for the year ended December 31, 2010, and Form 10-Q for the quarter ended September 30, 2011. 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.

Thomas R. Stanton

Phillis, do you have our first caller?

Operator

Your first call comes from the line of Paul Silverstein with Crédit Suisse.

Thomas R. Stanton

Phillis, let me -- we have comments, of course, that we want to make at the beginning of the call. So if we're still on, then let me start. First of all, good morning. Sorry about the confusion there, everyone. I'm Tom Stanton, and thank you for joining us for our fourth quarter 2010 (sic) [2011] conference call. With me this morning, of course, is Jim Matthews, our Senior Vice President and Chief Financial Officer.

I'd like to begin this morning by discussing our Q4 performance before we move on to our review of 2011. And I'll end with some comments on what we expect this year. As stated in our press release, ADTRAN achieved revenues of $175.3 million in the quarter, which brings the year to a record $717.2 million, an increase of 18% over 2010's total year revenues.

During the fourth quarter, as in the rest of the year, our growth was driven by our core product areas, which grew 32% over the fourth quarter last year, more than offsetting a decline in our legacy product areas. Both Carrier and Enterprise divisions benefited from these trends. Combined, our core product areas achieved $134.4 million in revenues, representing 77% of our company total.

Getting into a little more detail, our Broadband Access category achieved 49% growth over the same period last year. The Total Access 5000 platform and our Fiber-to-the-Node products both performed as expected providing strong contributions.

This area benefited from meaningful growth with both domestic and international carriers. Our Internetworking category achieved its seventh consecutive record with sales growing 37% over the prior year as we continue to refine our expanding domestic dealer base. This category also benefited from an increase associated with earlier service provider awards. From a product perspective, similar to recent quarters, this growth was broad-based and was positively impacted by growth in nearly all Internetworking product segments.

Optical access had a mixed performance with solid results in the Tier 2 and Tier 3 space, but this category was negatively affected by a slowdown with 2 Tier 1 wireless customers. Our 8000 Series of cell site gateways and our Optical Networking Edge products continue to move through the approval process at several Tier 2 carriers, and our Tier 1 approval with our OPTI line continued its progression as well.

HDSL revenues came in as expected, essentially flat with the third quarter of 2011. 2011 marked an excellent year for ADTRAN. Over the last 2 years, our core product areas have more than doubled, with these new areas now representing nearly 3/4 of our total company revenue, allowing ADTRAN to transition from its legacy product areas.

This growth has come from solid execution on multiple fronts. Our Carrier business was highlighted by solid progress in Tier 2 carriers, Tier 3 carriers, as we continue to introduce ADTRAN to this new market segment. Exiting 2011, this progress accelerated, and we left the year in a solid position for Broadband Stimulus projects and the potential for long-term build-out associated with the USF transition to Connect America.

Our Carrier segment also benefited from a substantial increase in revenues outside of the U.S. I know you are all familiar with our success in Mexico, but I'm proud of the fact that in 2011, we saw over 20% growth in every geographic region around the world.

Of course, from a product perspective, Broadband Access led our company's growth with an impressive 65% total year growth. This segment was followed by Internetworking, which grew 36% for the year, a number consistent with the solid performance we have seen from this area over the last several years.

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