Adtran continued to see the impact of slower decisions at one of its largest service provider customers around deploying its vectoring solutions, an issue reflected in its first-quarter results.
Previously, Adtran said in its fourth-quarter earnings call that it expected that when the telco completes this review in 60 to 90 days, capital plans will be finalized. However, the vendor said that no final decisions have been made yet.
Tom Stanton, CEO of Adtran, told investors during its quarterly earnings call that the service provider customer is still evaluating how it wants to proceed with its vectoring plans.
“It has taken longer than expected,” Stanton said. “We continue to have conversations and it was a slow roll out not only for vectoring, but also for projects in general with this particular customer.”
Stanton added that he could not provide any clear indication if this customer would move forward in a material way with vectoring in the second half of the year either.
“Our outlook in the second quarter really does not show a material change in that customer and I am not sure I can put a concrete timeframe around any change in behavior,” Stanton said. “My general sense is they are formulating strategies around potential markets and at some point, we’ll see a change in their behavior. At this point in time we’re waiting and seeing and helping them with formulating different architectures and different plans and the outcome would be in specific markets.”
CAF-II, Gfast show potential
Despite the slow decisions in its vectoring business, Adtran said it is expecting CAF-II rollout plans for 2018 as well as a large Gfast rollout to get going in the second half of this year.
One potential area of clarity Adtran is seeing from its large service provider customers are CAF-II projects to expand rural broadband.
CenturyLink, Frontier and Windstream have all continued to make progress with their respective CAF-II roll outs throughout 2017 and into this year.
“The CAF business, which we do have programs in place with the carriers, got started slow this year,” Stanton said. “We see these projects picking a little bit in the second quarter, but the way they are scheduling them we do have better visibility into those because they typically involve our services group.”
While Adtran would not reveal the identity of the Gfast customer, the vendor has been shipping its solutions to support the service provider’s out of territory deployment.
However, Adtran is still conducting lab trials for the in-region portion.
“In the U.S., we have begun to ship Gfast solutions but only out of region,” Stanton said. “Since the in-region segment is a bigger market because the sales force that that company has in place has targeted specific builds, we’re not completely out of the field trial yet which should be wrapped up in the next 30-45 days.”
Stanton added that “we should see a Gfast pick up coming in the second half of the year.”
Slow decisions impact revenues
Due to slower decision-making by its largest domestic service provider customers, Adtran saw first-quarter revenues across its product and services lines decline in the first quarter.
These delays and other factors contributed to a 29% decline in its first quarter revenues.
Here’s a breakdown of Adtran’s key metrics:
Segment revenues: Adtran reported declines in its two key revenue sources—network solutions and services and support. Network solutions revenues were $105.2 million, down from $144 million in the first quarter of 2017. Likewise, Services & Support revenues declined year-over-year to $15.5 million.
Category revenues: Within its key three categories—Access and Aggregation, Customer Devices, and Traditional and Other Products, Adtran also reported losses. Access and Aggregation and Customer Devices saw sharp declines with revenues dropping to $93.8 and $30.1 million. Meanwhile, Traditional & Other Products revenues were $9.03 million, down from $13.9 million in the first quarter of 2017.
Geographic region: Sales by geographic region were certainly a tale of two stories as U.S. revenues declined while international revenue rose slightly. In the U.S. market, sales were $62.1 million, down from $119 million. However, international revenue was $58.7 million, up from $51 million a year ago.
Financials: From an overall financial perspective, Adtran reported $120.8 million in revenues, down year-over-year from $170.3 million in the same period year ago.
Stanton attributed the lower results to the ongoing consolidation of the telecom market and delayed spending decisions at one of its largest U.S.-based customers.
“As we expected, our performance this quarter continued to be impacted by a merger-related review and slowdown in the spending at a domestic Tier 1 customer,” Stanton said.
Net loss was $9.1 million compared to net income of $6.7 million for the first quarter of 2017. Earnings per share, assuming dilution, were a loss of 19 cents compared to income of 14 cents for the first quarter of 2017.