NEEDHAM NETWORKING,
COMMUNICATIONS &
SECURITY CONFERENCE
Roger Shannon – SVP of Finance & CFO
November 13, 2018
2018 © ADTRAN, Inc.General Business
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 market acceptance of core products, the degree of competition in the market for such products, the product and channel mix, component cost, manufacturing efficiencies, foreign exchange rate variations and other risks detailed in our Annual Report on Form 10-K for the year ended December 31, 2016. These risks and uncertainties could cause actual results to differ materially from those in the forward-looking statements, which may be made during this meeting.
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© 2015 ADTRAN, Inc. All rights reserved.
ADTRAN At A Glance
FOR THE PAST THREE DECADES,ADTRAN HAS BEEN BRINGING THE WORLD TOGETHER.
Top 3 Global Provider of Broadband Access Infrastructure Solutionso $667M Revenue1
o 2000 employeeso 68 countries
- 45% international revenue (2018 ytd)
o 500+ service providers (Telco/MSO)- Tier 1s in NA, EMEA, APAC
o 1000+ Gigabit communities
1 2017
1.1% increase in GDP
Enabling Communities Connecting LivesEconomic Development
Advancing the Gigabit Society
Enabling Communities Connecting LivesReal Estate
3.1% increase in home values
Advancing the Gigabit Society
Flexible Learning Environment
Enabling Communities Connecting LivesEducation
Advancing the Gigabit Society
Telemedicine
Enabling Communities Connecting LivesRural Healthcare
Advancing the Gigabit Society
Our Focus
ENABLING COMMUNITIES, CONNECTING LIVESo Advancing the Gigabit Societyo Amplifying the Subscriber Experience
DEFINING THE FUTURE NETWORKo Accelerating the Path to SD-Accesso Building Networks for Today and Tomorrow
How We Do It
EXPEDITING BROADBAND EXPANSION
EXPANDING INTO ADJACENT MARKETS
EVOLVING THE SERVICE DELIVERY PLATFORM
2018 © ADTRAN, Inc.General Business
2018 © ADTRAN, Inc.
Broadband Access
2018 © ADTRAN, Inc.General Business
2018 © ADTRAN, Inc. 11
Top 3 Global ProviderBroadband Access Solutions
▪ Vectoring / SuperVectoring
▪ 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 deployments on 4 continents
▪ Tier 1 Operators
▪ Largest shipment of Gen2 in world to date
▪ 10G Fiber Access
▪ NG-PON2 – US Tier 1
▪ XGS-PON – US, EMEA, Australia
▪ Electric Coop, Muni, Over-builders
▪ 10G-EPON – Cable/MSO
▪ CAF Projects (CAF2, A-CAM)
▪ Full turnkey services
10G PON Vendor Familiarity Survey (Broandband Trends 10/30/18)
2018 © ADTRAN, Inc.General Business
PON Evolution
GPON (2.5G Down x 1.25G Up)
EPON (GEPON/1G-EPON) (1G Symmetric)
XGPON1 (10G Down x 2.5G Up)
XGS-PON (10G Symmetric)Fixed 10G optics NGPON2
(40G Symmetric)TWDM tunable 10G optics
Designed for
Residential
Expands Both
Residential and
Business Capacity• Hardware Based
• Legacy Service Models
• Closed Architecture
• Software Based
• Modern Service Models
• Open Architecture
Increased
Residential
Capacity
Designed for
Premium Optical
Services
ITU-T (telecom) technologies IEEE (cable) technologies
10G-EPON(10G Down x 1G Up)
Increased
Residential
Capacity
10/10G-EPON (10G Symmetric)Fixed 10G optics
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2018 © ADTRAN, Inc.General Business
▪ 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
10 Gigabit Broadband
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2018 © ADTRAN, Inc.General Business
2018 © ADTRAN, Inc.
Fiber
Network Build
COMPARING 1G and 10G PONMarginal Cost Delta → Material Revenue Add
1G PON 10G PON
Fiber
Network Build
Gig Residential Gig Residential
Cost per
Home
Connected Business Services
Future Applications
5G Anyhaul
Broadband Expansion
Future Residential
Network
ROI
Marginal Cost Delta
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2018 © ADTRAN, Inc.General Business
2018 © ADTRAN, Inc.
$0.0
$0.4
$0.8
$1.2
$1.6
$2.0
$2.4
$2.8
$3.2
$3.6
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Bill
ion
s
PON OLT+ONT NAM+EMEA
10G PON (XGS & NG-PON2)
NG-PON1
10G EPON
1.25G/2.5G EPON
2.5G GPON
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Total Addressable Market
IHS 2Q18
10G PON is the
growth opportunity
CAGR
2018-2022
Total 13%
10G PON 95%
2018 © ADTRAN, Inc.General Business
2018 © ADTRAN, Inc. 16
ADTRAN Top Ranked 10G PON
Service Provider Survey (n=36)
Broadband Trends (10/30/18)
Broadband Trends 10/30/18
2018 © ADTRAN, Inc.General Business
2018 © ADTRAN, Inc.
Full Market ApplicabilityADTRAN 10Gig Fiber Portfolio
2018 © ADTRAN, Inc.General Business
2018 © ADTRAN, Inc. 18
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 (over 300 units shipped)
▪ Strong MSO revenue growth
2018 © ADTRAN, Inc.General Business
THE WORLD LIVES IN MDUs
33.7%
25.8%
39.7% Fully detached
Semi-Detached(terrace, row)
MDU (flat, apartment)
MDUs (EU-28)~40%
Up to 2/3rds
19Advancing the Gigabit Society
2018 © ADTRAN, Inc.General Business
Most Market Momentum
Most Technical Innovation
Most Comprehensive Portfolio
Most Industry Recognition
GFAST
LEADERSHIP
2018 © ADTRAN, Inc.General Business
2018 © ADTRAN, Inc.
SD-ACCESSOpen Networks, Endless Possibilities
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2018 © ADTRAN, Inc.General Business
Period of
Discontinuity
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Catching The Next WaveRequires Embracing Disruptive Innovation
2018 © ADTRAN, Inc.General Business
2018 © ADTRAN, Inc.
SD-Access
EVOLVING THE SERVICE DELIVERY PLATFORM
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2018 © ADTRAN, Inc.General Business
2018 © ADTRAN, Inc.
SOFTWARE-DEFINED
ACCESS
User-Driven
Service ModelsAutomated
Operations
Lower
Costs
Speed
Time-to-Market
Service
Orchestration
2018 © ADTRAN, Inc.General Business
2015 © ADTRAN, Inc.
Multi-Vendor Solution Integration
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▪ ADTRAN drives the ecosystem, from all angles, to accelerate the evolution of technology
▪ Embracing and leading the Open Communities
▪ Creating Innovative solutions guiding paths to
standardization
▪ Augmenting solutions with customers specific adaptations, maintaining alignment for future technology cycles
Standards &
Open Communities
Co-developments
Exemplar &
Contributions
2018 © ADTRAN, Inc.General Business
SI Ecosystem
Trusted Advisor &
Solutions Integrator
Control and Management
Solutions
Hardware / Software /
Network Equipment
Wide range of Flexible Hardware and/or
Software Products
Open Reference
Designed Solutions
Integrated and optimized
deployment into customer’s
environment+ =
2018 © ADTRAN, Inc.General Business
2016 © ADTRAN, Inc.
▪ 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
The Value of Open Networks
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2018 © ADTRAN, Inc.General Business
2018 © ADTRAN, Inc.
MosaicMost Awarded SD-Access Solution
in the Industry
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Orchestrate Personalize Streamline Extend
Monetizing the Subscriber Edge
MOSAIC SUBSCRIBER
EXPERIENCE SUITE
$1M SavingsPer 10K subs
$10Incremental
ARPU 20% IncreaseCustomer Loyalty
Wall-to-Wall Gigabit coverage
Mosaic
Activate
Mosaic
Subscriber InsightMosaic
Device Mgr
Whole Home
Mesh Wi-Fi
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2018 © ADTRAN, Inc.General Business
2016 © ADTRAN, Inc.
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 architectures
▪ ADTRAN is the only access vendor selected by the world’s leading Operators
(Telco & MSO) to design the SDN-Access reference designs (ONF SEBA)
▪ Market leadership in CAF, Vectoring, Gfast provide runway as ADTRAN
leads industry transformation to SD-Access
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2018 © ADTRAN, Inc.General Business
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Company Financial Performance
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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
2018 © ADTRAN, Inc.General Business
Historically Strong Cash Flow and Solid Balance Sheet
Last 5-year Sept. 30, 2018
Capital Returned to Shareholders Cash & Investments Debt Total Assets
Dividends
$244M $26M $649M $92M
Share Repurchases
$224M
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2018 © ADTRAN, Inc.General Business
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 $ 0.80 $ 0.36 $ 0.72 $ 0.74*
Non-GAAP EPS** (diluted) $0.95 $ 0.94 $ 0.54 $ 0.84 $ 0.90*
*FY 2017 GAAP and Non-GAAP EPS do not include the one-time tax impact of $12 million relating to the Tax Cuts and Jobs Act of 2017.
**Non-GAAP EPS excludes the expense of stock-based compensation, acquisition related amortizations and other expenses, and restructuring
expenses. Please refer to the ADTRAN’s Investor Relations website for details of non-GAAP adjustments
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2018 © ADTRAN, Inc.General Business
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…
…partially offset by an increase in EMEA sales, a network expansion program and a services award by a large European Tier-1
customer, and APAC sales, a network expansion program in Australia.
$121 $128
$140
$0
$20
$40
$60
$80
$100
$120
$140
$160
$180
$200
Q1 Q2 Q3 Q4
2015 2016 2017 2018
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2018 © ADTRAN, Inc.General Business
A prudent financial management limited the impact of domestic revenue slowdown in 9-mth 2018…
Gross Margin (%) OPEX (M)
Operating Profit (M) EPS*
46.7% 46.4%
32.9%
39.0%
41.6%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018
R&D S,G&A Restructuring expense Stock-based compensation expense Acquisition-related expense
$18.2
-$4.2
-$26.6
-$12.8
-$2.2
-$30.0
-$25.0
-$20.0
-$15.0
-$10.0
-$5.0
$0.0
$5.0
$10.0
$15.0
$20.0
$25.0
Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018
$0.33
$0.02
$(0.22)
$(0.16)
$0.08
$(0.30)
$(0.20)
$(0.10)
$-
$0.10
$0.20
$0.30
$0.40
Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018
* Q4 2017 and Q3 2018 GAAP EPS do not include the one-time tax law change impacts of $12mn
expense and $4mn benefit, respectively.
2018 © ADTRAN, Inc.General Business
Revenue by Operating Segment
Sales by Segment (M) Sales by Category (M)
$185
$127 $121
$128
$140
$145
$96 $105
$115 $121
$40
$31 $16 $13
$19
$0
$20
$40
$60
$80
$100
$120
$140
$160
$180
$200
Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018
Network Solutions Services & Support
$136
$79 $82 $85 $92
$36
$33 $30$35
$39
$14
$15 $9$9
$10
$185
$127$121
$128
$140
$0
$20
$40
$60
$80
$100
$120
$140
$160
$180
$200
Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018
Access and Aggregation Customer Devices Traditional Products Total
$185
$127 $121
$128
$140
$37
$33
$59 $60
$57
$148
$94
$62 $68 $84
$0
$20
$40
$60
$80
$100
$120
$140
$160
$180
$200
Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018
Domestic International
Domestic & International Sales (M)
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2018 © ADTRAN, Inc.General Business
Gross Margin (GM) by Segment
49.4%48.1%
34.8%
39.5%42.2%
36.7%
41.0%
19.9%
35.1%38.1%
46.7% 46.4%
32.9%
39.0%41.6%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018
Network Solutions Services & Support Total
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2018 © ADTRAN, Inc.General Business
Business Outlook*
Q4 18
Revenue In the range of $135M+/-$5M
Gross Margin ~ 40%
OpEx ~ $62M
Tax Benefit of ~ 20%
*Guidance or Outlook with respect to Q4 18 is as of October 17, 2018, the date presented on the 3Q18 earnings call. Actual results may differ materially from
these forward looking statements.
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 upgrade by a Tier 1 European
customer, as well as continued expansion and opportunities for our EPON products to two of the top North
American cable MSO operators.
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