**ADTRAN Holdings, Inc. (NASDAQ: ADTN) Q3 2025 Earnings Call Transcript**
**November 4, 2025**
—
**Operator:**
Good morning. My name is Carly, and I will be your conference operator today. At this time, I would like to welcome everyone to the ADTRAN Holdings Third Quarter 2025 Financial Results Conference Call.
[Operator Instructions]
I would now like to turn the call over to Mr. Peter Schuman, Vice President, Investor Relations. Please go ahead.
—
### Opening Remarks
**Peter Schuman (VP of Investor Relations):**
Thank you, Carly. Welcome, and thank you to everyone joining us today, both by phone and webcast.
During today’s conference call, ADTRAN representatives will make forward-looking statements that reflect management’s best judgment based on factors currently known. These statements involve risks and uncertainties, including those detailed in our earnings release, our annual report on Form 10-K as amended, and other SEC filings. Actual results could differ materially from those discussed in these forward-looking statements. We undertake no obligation to update any statements to reflect events after this call.
We will refer to certain non-GAAP financial measures during this call. Reconciliations of GAAP to non-GAAP measures and additional information are included in our investor presentation and earnings release, available on the ADTRAN Investor Relations website.
Turning to today’s agenda:
– Tom Stanton, CEO and Chairman, will provide key highlights of our third quarter.
– Tim Santo, Senior Vice President and CFO, will review the financial performance in detail and provide our Q4 2025 outlook.
– We will then open the floor for your questions.
With that, I’ll turn the call over to Tom Stanton.
—
### CEO Report
**Thomas Stanton (CEO & Chairman):**
Thank you, Peter, and good morning, everyone.
ADTRAN delivered solid third-quarter results, with revenue near the upper end of our guidance and higher operating margins. All three business categories achieved double-digit year-over-year growth, reflecting disciplined execution, new customer wins, and healthy demand for fiber networking solutions. Operating profit exceeded the midpoint of our outlook, underscoring solid execution and our focus on leveraging financial performance for long-term value creation.
The quarter was led by strong results in Optical Networking and Subscriber Solutions. Access & Aggregation reflected the anticipated buying patterns of two large European customers, and we expect those customers to return either late in Q4 or early next year. Nevertheless, we remain confident in the overall market for the remainder of the year.
During the quarter, we closed a $201 million financing transaction, lowering our borrowing costs and increasing financial flexibility—key steps that strengthen our capital structure and position us for longer-term strategic objectives.
**Quarterly Results:**
– **Revenue:** $279.4 million, reflecting strong year-over-year growth across all three revenue categories.
– This marks our fifth consecutive quarter of sequential growth and fourth consecutive quarter of year-over-year improvement, showing our portfolio strategy and market positioning are driving sustainable momentum.
**Customer Perspective & Portfolio Highlights:**
Customer engagement across our portfolio continues to strengthen as we broaden our technology reach. We make it easier to choose ADTRAN due to seamless integration of our solutions. Our integrated portfolio means fewer handoffs, faster time-to-value, and one accountable partner across optical, access, subscriber, and software. The outcome is simpler operations, greater efficiency, and trusted relationships, opening new collaboration opportunities.
**Segment Updates:**
– **Optical Networking:**
Grew 47% year-over-year and 15% sequentially, driven by strong momentum in Europe, including deployments with a new large service provider. We added 15 new optical customers, reflecting continued share gains.
– **Access & Aggregation:**
Revenue grew 12% year-over-year, supported by ongoing fiber access investments among regional operators in the U.S. and Europe. We added 14 new customers for our fiber access and Ethernet aggregation platforms.
– **Subscriber Solutions:**
Revenue grew 12% year-over-year and 21% sequentially, driven by demand for residential and wholesale applications. We added 18 new customers.
This quarter, we introduced Mosaic One Clarity, built on our carrier-grade Agentic AI platform. It enables predictive maintenance, guided issue resolution, and proactive network optimization. Early customer pilots demonstrate up to a 75% reduction in network-related trouble tickets, validating our AI-driven approach.
**Industry Trends:**
Structural shifts in our industry—from core to edge computing and the advent of intelligent networks—are reshaping connectivity worldwide. The rise of distributed computing and edge processing is driving new requirements for bandwidth, latency, and reliability. This is fueling demand for high-capacity optical solutions, next-generation access platforms, and intelligent software to automate operations. ADTRAN is uniquely positioned at this intersection, with our differentiated portfolio and Mosaic One operating platform.
**Summary:**
Q3 was another quarter of solid execution and strategic progress, delivering top-line momentum and profitability improvements while enhancing our ability to invest and operate with greater financial flexibility. We are setting a foundation for sustained value creation, with efficiency enhancements, a strengthened balance sheet, and continued focus.
With that, I’ll turn it over to Tim for the financial review.
—
### CFO Report
**Timothy Santo (SVP & CFO):**
Thank you, Tom, and thanks to everyone joining us this morning.
We delivered solid Q3 results through discipline and consistent execution. Demand was strong in Optical Networking and Subscriber Solutions, supported by healthy customer activity and continued broadband investments globally. We’ve reinforced the operational fundamentals and enhanced our financial controls to support growth.
**Balance Sheet and Capital Actions:**
Q3 marked a significant step in strengthening our capital structure. The $201 million transaction lowered borrowing costs, improved liquidity, and reduced risk. We’ve also relaunched a targeted marketing process for our Huntsville campus, actively speaking with interested parties.
**Financial Highlights for Q3 2025:**
– **Revenue:** $279.4 million, up 23% year-over-year and 5% sequentially, at the high end of guidance.
– Non-U.S. revenue: 57% of total; U.S. revenue: 43%.
– One customer contributed >10% of total revenue.
– **Non-GAAP Gross Margin:** 42.1%, up both sequentially and year-over-year, driven by scale efficiencies, product mix, and component cost reductions.
– **Non-GAAP Operating Profit:** $15.1 million or 5.4% of revenue, exceeding our outlook midpoint.
– Sequential operating profit increased by $7.1 million (89%).
– Operating income increased to 5.4% in Q3 2025 from 3% in Q2 and 0.2% in Q3 2024.
– **Currency Impact:** Minimal this quarter—natural hedging framework helps mitigate volatility.
– **Non-GAAP Tax Expense:** $3.5 million; effective rate 38.3%.
– **Non-GAAP EPS:** $0.05 (vs. $0.00 in Q2, and a loss of $0.07 one year ago).
– **Working Capital:** Improved by $13.2 million.
– Accounts receivable increased $13.9 million, with DSO flat at 59 days.
– Inventory declined $16.3 million; DIO reduced by 11 days to 124.
– Accounts payable: $188.9 million; DPO flat at 70 days.
– **Operating Cash Flow:** $12.2 million for Q3; $38 million in free cash flow year-to-date.
– **Cash Position:** Closed Q3 with $101.2 million in cash, cash equivalents, and restricted cash.
**Outlook:**
We’re entering Q4 with confidence, despite typical seasonality, fewer shipping days, and budget timing factors. We expect:
– **Revenue:** $275–$285 million
– **Non-GAAP Operating Margin:** 3.5% to 7.5%
– **OpEx:** Relatively flat compared to Q3
We look forward to a strong finish to the year and remain focused on sustainable growth and maximizing long-term shareholder value.
I’ll now turn it back to Tom for concluding remarks.
—
### Q&A Session
**Operator:**
We will now begin the question-and-answer session.
—
#### Michael Genovese (Rosenblatt Securities):
**Q:** Regarding Access & Aggregation and European customers—was there a timing pushout in shipments?
**Tom Stanton:**
There has been a change in timing, but we don’t see this as a risk; just shifts in buying patterns. We have two big customers in Europe, and their financial calendars or budget cycles can differ, so there are always some puts and takes. To answer, yes—timing shifted slightly.
**Q:** Can you clarify what’s happening with your real estate assets?
**Tom Stanton / Tim Santo:**
Both buildings are now actively back on the market, with interest from multiple parties. We’re seeing regular conversations and multiple offers. We’re focused and disciplined regarding terms and timing.
**Q:** Looking at 2026 and ADTRAN’s growth—what are the drivers? Is it market share gains, higher-growth repositioning, or general fiber/access acceleration?
**Tom Stanton:**
Telecom is typically a mid-to-high single-digit growth market. Some acceleration may come from data center demand, but it’s not fully reflected in the numbers yet. The key driver for our current growth is significant market share disruption in Europe, where we are the leading beneficiary as the largest player is being displaced.
**Q:** Is there incremental opportunity in Germany regarding Huawei “rip and replace”?
**Tom Stanton:**
Yes, rip and replace could become an incremental driver. There’s been discussion about accelerating the process in Germany, but so far it’s capped rather than replaced. Over time, rip and replace is likely everywhere due to the need to maintain and upgrade networks.
—
#### Ryan Koontz (Needham & Company):
**Q:** Optical Networking had a strong quarter. Any color on product and geo mix?
**Tom Stanton:**
Momentum is strong in both the U.S. and Europe, helped by picking up a larger Tier 1 carrier in Europe. The broader market, especially in Europe, is thawing and we expect a good year ahead.
**Q:** On Huawei displacement, how is it impacting current and future revenues?
**Tom Stanton:**
It has been positive and is now impacting results. Momentum is building, particularly in Europe, and the effect will grow over the next 2–3 years. Optical shifts tend to move faster project-by-project than access (which involves millions of end users).
**Q:** Margins are at 42% non-GAAP. Is there further upside?
**Tom Stanton:**
Our long-term goal remains 43%, and we are close to that target. We expect to approach that level next year.
—
#### Christian Schwab (Craig-Hallum):
**Q:** Do you anticipate BEAD spending picking up for ADTRAN in calendar ’26?
**Tom Stanton:**
Yes, there’s increased activity and we expect to see orders in the first half of 2026.
**Q:** On operating margin expansion in 2026—is it likely? What should we expect?
**Tom Stanton:**
We expect expansion in 2026, mainly dependent on holding operating expenses steady while revenue grows. We have enough R&D and the right product set and don’t see major increases in structural expenses. Around $300–$315 million in quarterly revenue gets us to double-digit operating margins.
**Tim Santo:**
On a constant currency basis, $315 million in revenue should bring us to double-digit operating margins.
—
#### George Notter (Wolfe Research):
**Q:** Update on minority interest—old ADVA shareholders?
**Tom Stanton / Tim Santo:**
Redemptions are minimal but ongoing. We welcome further redemptions, and selling the Huntsville building would give us more headroom to address this. We may get more proactive toward the end of next year.
—
#### Timothy Savageaux (Northland Capital Markets):
**Q:** On the old ADVA sync and timing business: where does it fall, and what’s its outlook?
**Tom Stanton:**
It resides in Access & Aggregation, is growing, and we’re working on segmenting and refocusing the business. It’s a different sales rhythm and requires different customer contacts.
**Q:** Any impact from memory prices on the subscriber side?
**Tom Stanton:**
We’ve managed to keep gross margins steady through product churn and new designs, despite some past impacts from memory pricing.
**Q:** Tier 1 European win—will the Access piece ramp soon? Any other notable Tier 1 ramps?
**Tom Stanton:**
The optical deployment was quick, but Access will take longer—likely seeing movement next year. In general, Tier 1 activities in Europe remain positive and present a tailwind going forward.
—
**Operator:**
There are no further questions at this time.
—
### Closing Remarks
**Thomas Stanton:**
Thank you for joining our conference call. I’d like to extend my appreciation to our teams around the world for their dedication, and to our stockholders, customers, and partners for their ongoing confidence and collaboration.
Thank you, everyone.
—
*End of Call Transcript*
https://www.insidermonkey.com/blog/adtran-holdings-inc-nasdaqadtn-q3-2025-earnings-call-transcript-1640333/
