needham networking, communications & security...

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


Flexible Learning Environment

Enabling Communities Connecting LivesEducation


Telemedicine

Enabling Communities Connecting LivesRural Healthcare


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.

Broadband Access


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)


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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▪ 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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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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$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

15

Total Addressable Market

IHS 2Q18

10G PON is the

growth opportunity

CAGR

2018-2022

Total 13%

10G PON 95%



ADTRAN Top Ranked 10G PON

Service Provider Survey (n=36)

Broadband Trends (10/30/18)

Broadband Trends 10/30/18



Full Market ApplicabilityADTRAN 10Gig Fiber Portfolio



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


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


Most Market Momentum

Most Technical Innovation

Most Comprehensive Portfolio

Most Industry Recognition

GFAST

LEADERSHIP



SD-ACCESSOpen Networks, Endless Possibilities

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Period of

Discontinuity

22

Catching The Next WaveRequires Embracing Disruptive Innovation



SD-Access

EVOLVING THE SERVICE DELIVERY PLATFORM

23



SOFTWARE-DEFINED

ACCESS

User-Driven

Service ModelsAutomated

Operations

Lower

Costs

Speed

Time-to-Market

Service

Orchestration



Multi-Vendor Solution Integration

25

▪ 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


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+ =



▪ 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

27



MosaicMost Awarded SD-Access Solution

in the Industry

28

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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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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31

Company Financial Performance

32

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


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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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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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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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.


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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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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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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