Adtran Holdings, Inc. · NASDAQ:ADTN
Adtran — Needham Networking, Communications & Security Conference 2018
39 slides from Adtran's conference presentation, Nov 13, 2018
Slide 1: Needham Networking, Communications & Security Conference
NEEDHAM NETWORKING, COMMUNICATIONS & SECURITY CONFERENCE Roger Shannon – SVP of Finance & CFO November 13, 2018
Slide 2: Safe Harbor Statement
Safe Harbor Statement During the course of this meeting, 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
Slide 3: ADTRAN At A Glance
ADTRAN At A Glance Top 3 Global Provider of Broadband FOR THE PAST THREE DECADES, Access Infrastructure Solutions ADTRAN HAS BEEN BRINGING o $667M Revenue1 THE WORLD TOGETHER. o 2000 employees o 68 countries - 45% international revenue (2018 ytd) o 500+ service providers (Telco/MSO) - Tier 1s in NA,
Slide 4: Enabling Communities Connecting Lives: Economic Development
Enabling Communities Connecting Lives Economic Development 1.1% increase in GDP Advancing the Gigabit Society
Slide 5: Enabling Communities Connecting Lives: Real Estate
Enabling Communities Connecting Lives Real Estate 3.1% increase in home values Advancing the Gigabit Society
Slide 6: Enabling Communities Connecting Lives: Education
Enabling Communities Connecting Lives Education Flexible Learning Environment Advancing the Gigabit Society
Slide 7: Enabling Communities Connecting Lives: Rural Healthcare
Enabling Communities Connecting Lives Rural Healthcare Telemedicine Advancing the Gigabit Society
Slide 8: Our Focus
Our Focus ENABLING COMMUNITIES, CONNECTING LIVES o Advancing the Gigabit Society o Amplifying the Subscriber Experience DEFINING THE FUTURE NETWORK o Accelerating the Path to SD-Access o Building Networks for Today and Tomorrow
Slide 9: How We Do It
How We Do It EXPEDITING BROADBAND EXPANSION EXPANDING INTO ADJACENT MARKETS EVOLVING THE SERVICE DELIVERY PLATFORM
Slide 10: Broadband Access
Broadband Access 2018 © ADTRAN, Inc. General Business
Slide 11: Top Global Provider Broadband Access Solutions
Top 3 Global Provider Broadband Access Solutions 10G PON Vendor Familiarity Survey ▪ Vectoring / SuperVectoring (Broandband Trends 10/30/18) ▪ 18.6M Vectoring ports shipped (as of 3Q) ▪ 1.5M SuperVectoring ports shipped (as of 3Q) ▪ Tier 1 Operators in EMEA and North America ▪ Gfast ▪ Nationwide dep
Slide 12: PON Evolution
PON Evolution Designed for Premium Optical Expands Both Services Residential and • Hardware Based Business Capacity • Legacy Service Models • Closed Architecture Increased Residential XGS-PON Capacity (10G Symmetric) 10/10G-EPON Fixed 10G optics NGPON2 Increased (10G Symmetric) (40G Symmetric) Resid
Slide 13: 10 Gigabit Broadband
10 Gigabit Broadband ▪ Drive operational profitability converging residential, business, and mobile services ▪ Deliver economically Multi-Gigabit services ▪ Extend the life and profitability of the PON network infrastructure ▪ Expand network capacity to support business and 5G anyhaul services 2018
Slide 14: Comparing 1G and 10G PON
COMPARING 1G and 10G PON MarginalCost Marginal Delta → Material Revenue Add CostDelta Future Applications Fiber 5GFiber Anyhaul Cost per Network Build Broadband NetworkExpansion Build Network Home ROI Connected Business Services Future Residential Gig Residential Gig Residential 1G PON 10G PON 2018
Slide 15: Total Addressable Market
Total Addressable Market $3.6 PON OLT+ONT NAM+EMEA CAGR Billions 2018-2022 $3.2 Total 13% 10G PON is the 10G PON 95% $2.8 growth opportunity $2.4 10G PON (XGS & NG-PON2) $2.0 NG-PON1 $1.6 10G EPON 1.25G/2.5G EPON $1.2 2.5G GPON $0.8 $0.4 $0.0 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 IH
Slide 16: ADTRAN Top Ranked 10G PON
ADTRAN Top Ranked 10G PON Broadband Trends 10/30/18 Service Provider Survey (n=36) 2018 © ADTRAN, Inc. Broadband Trends (10/30/18) 16 General Business
Slide 17: Full Market Applicability
Full Market Applicability ADTRAN 10Gig Fiber Portfolio 2018 © ADTRAN, Inc. General Business
Slide 18: Pursuing Adjacent Markets
Pursuing Adjacent Markets Entry into Cable/MSO broadband fiber access market ▪ Acquisition of EPON and Fiber Access portfolios ▪ Commscope ▪ Sumitomo ▪ Organic development of R-OLT ▪ Selected as 1 of 2 suppliers for R-OLT business for Tier 1 MSO ▪ Major R-OLT deployments with different Tier 1 MSO (o
Slide 19: The World Lives in MDUs
MDUs (EU-28) 39.7% 33.7% Fully detached ~40% Up to 2/3rds Semi-Detached (terrace, row) MDU (flat, apartment) 25.8% THE WORLD LIVES IN MDUs 2018 © ADTRAN, Inc. Advancing the Gigabit Society General Business 19
Slide 20: Gfast Leadership
GFAST LEADERSHIP Most Market Momentum Most Technical Innovation Most Comprehensive Portfolio 2018 © ADTRAN, Inc. Most Industry Recognition General Business
Slide 21: SD-Access
SD-ACCESS Open Networks, Endless Possibilities 2018 © ADTRAN, Inc. 21 General Business
Slide 22: Catching The Next Wave
Period of Discontinuity Catching The Next Wave Requires Embracing Disruptive Innovation 2018 © ADTRAN, Inc. 22 General Business
Slide 23: Evolving the Service Delivery Platform: SD-Access
EVOLVING THE SERVICE DELIVERY PLATFORM SD-Access 2018 © ADTRAN, Inc. 23 General Business
Slide 24: Software-Defined Access
SOFTWARE-DEFINED ACCESS User-Driven Automated Service Speed Lower Service Models Operations Orchestration Time-to-Market Costs 2018 © ADTRAN, Inc. General Business
Slide 25: Multi-Vendor Solution Integration
Multi-Vendor Solution Integration ▪ ADTRAN drives the ecosystem, from all angles, to accelerate the evolution of technology ▪ Embracing and leading the Open Communities Standards & Exemplar & ▪ Creating Innovative solutions guiding paths to Contributions Open Communities standardization ▪ Augmenting
Slide 26: SI Ecosystem
SI Ecosystem Trusted Advisor & Solutions Integrator Control and Management Solutions Hardware / Software / Network Equipment = Integrated and optimized + Wide range of Flexible Open Reference Hardware and/or deployment into customer’s Software Products Designed Solutions environment 2018 © ADTRAN, I
Slide 27: The Value of Open Networks
The Value of Open Networks ▪ Eliminating the High Cost of Network Overhead ▪ Addressing Limitations of Monolithic Systems and Vendor Lock-in ▪ Creating Open, Programmable and Scalable Next-Gen Access Networks for Converged Service Delivery 2018 © ADTRAN, Inc. 2016 27 General Business
Slide 28: Mosaic
Mosaic Most Awarded SD-Access Solution in the Industry 2018 © ADTRAN, Inc. 28 General Business
Slide 29: Mosaic Subscriber Experience Suite
Mosaic Mosaic Mosaic Whole Home Activate Subscriber Insight Device Mgr Mesh Wi-Fi Orchestrate Personalize Streamline Extend $1M ARPU 20% Wall-to-Wall Gigabit coverage Savings Per 10K subs $10 Incremental Increase Customer Loyalty MOSAIC SUBSCRIBER EXPERIENCE SUITE Monetizing the Subscriber Edge 29
Slide 30: Key Takeaways
Key Takeaways ▪ 10G PON is the growth opportunity ▪ ADTRAN is well positioned ▪ Leading in innovation ▪ Strong customer traction globally ▪ Excellent 10G synergy in adjacent markets ▪ ADTRAN is establishing a leadership position in MSO Fiber Access ▪ The world is going to software and open architect
Slide 31: Company Financial Performance
Company Financial Performance 2018 © ADTRAN, Inc. 31 General Business
Slide 32: Financial Stability
Financial Stability ▪ Publicly Traded for 23 Years with Full Transparency (NASDAQ-ADTN) ▪ Ongoing Strong Balance Sheet and Cash Flow ▪ Historically, significant amount of capital returned to Shareholders through Share Repurchases and Dividends 32
Slide 33: Historically Strong Cash Flow and Solid Balance Sheet
Historically Strong Cash Flow and Solid Balance Sheet Last 5-year Sept. 30, 2018 Capital Returned to Shareholders Cash & Investments Debt Total Assets Dividends $92M $244M $26M $649M Share Repurchases $224M 2018 © ADTRAN, Inc. 33 General Business
Slide 34: ADTRAN - Historical 5-year Annual Financial Highlights
ADTRAN - Historical 5-year Annual Financial Highlights 2013 2014 2015 2016 2017 Revenue $642M $630M $600M $637M $667M Gross Margin (GAAP) 48.1% 49.4% 44.5% 45.8% 45.6% Operating Expense (GAAP) $260M $264M $253M $257M $266M Operating Margin (GAAP) 7.6% 7.5% 2.2% 5.5% 5.7% GAAP EPS (diluted) $ 0.77 $
Slide 35: Quarterly Financial Highlights
Quarterly Financial Highlights Merger-related review (mid-fourth quarter 2017) and slowdown in spending at a domestic Tier 1 customer reflected negatively on YoY revenue growth in 9-mth 2018, coupled with slower-than-expected orders of an ultra-broadband product by a large domestic customer… …partia
Slide 36: Prudent financial management limited impact of domestic revenue slowdown
A prudent financial management limited the impact of domestic revenue slowdown in 9-mth 2018… OPEX (M) Gross Margin (%) 50.0% $70,000 46.7% 46.4% 41.6% $60,000 39.0% 40.0% $50,000 32.9% 30.0% $40,000 $30,000 20.0% $20,000 $10,000 10.0% $0 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 0.0% R&D S,G&A Restru
Slide 37: Revenue by Operating Segment
Revenue by Operating Segment Sales by Segment (M) Sales by Category (M) $200 $185 $200 $185 $180 $180 $14 $40 $160 $160 $140 $36 $140 $140 $127 $128 $140 $127 $128 $121 $19 $121 $10 $120 $13 $120 $15 $9 $31 $16 $9 $39 $100 $100 $35 $33 $30 $80 $80 $145 $136 $60 $115 $121 $60 $96 $105 $40 $85 $92 $40
Slide 38: Gross Margin (GM) by Segment
Gross Margin (GM) by Segment 60.0% 49.4% 50.0% 46.7% 48.1% 46.4% 42.2% 41.6% 41.0% 39.5% 39.0% 40.0% 36.7% 38.1% 34.8% 35.1% 32.9% 30.0% 19.9% 20.0% 10.0% 0.0% Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Network Solutions Services & Support Total 2018 © ADTRAN, Inc. 38 General Business
Slide 39: Business Outlook
Business Outlook* Looking forward, significant revenue opportunities from a number of large customer projects including, next generation PON projects with large carriers, both domestically and internationally, the beginnings of deployment for a large project in the APAC region, a significant network
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