stifel technology conference

STIFEL TECHNOLOGY CONFERENCE Roger Shannon – SVP of Finance &

CFO

Jay Wilson – SVP of Technology & Strategy

2016 © ADTRAN, Inc.

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, 2015. 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.

COMPANY HISTORY

FOR THE PAST THREE DECADES, ADTRAN HAS BEEN ENABLING A FULLY CONNECTED WORLD.


TOP 3 GLOBAL SUPPLIER

BROADBAND ACCESS

68 COUNTRIES Approx 30% OF SALES INTERNATIONAL in

FY2015

2000 EMPLOYEES Huntsville HQ, Munich, Berlin, Greifswald, Sydney, Melbourne,

London, Hyderabad

$600M 2015 REVENUE

250 GIGABIT COMMUNITIES ENABLED BY YE2015

AND GROWING

SDN/NFV NETWORK AUTOMATION

USER-ENABLED SERVICES

R&D – 21% OF REVENUE

60% MORE PATENTS PER $ THAN

INDUSTRY AVERAGE

$317M CASH & INVESTMENTS

INDUSTY’S 1ST CLOUD WI-FI

SOLUTION

#1 IP BUSINESS GATEWAYS

NORTH AMERICA

TOP 2 BRANCH OFFICE

ROUTERS NORTH AMERICA

#1 SIP TRUNKING & VOIP

ACCESS NORTH AMERICA

AT A GLANCE

© 2015 ADTRAN, Inc. All rights reserved. © 2016 ADTRAN, Inc. All rights reserved.

FROM THE WORLDS LARGEST SERVICE PROVIDERS TO THE SMALL BUSINESS DOWN THE STREET.

WHO WE SERVE


All names and logos on this slide are properties of the respective owners

Enterprise Distribution BROAD CUSTOMER BASE

Communications Service Providers


Top 4 Top 2

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* Fixed Broadband includes GPON, Ethernet FTTH & DSL Aggregation ** All markets (EMEA, North America and CALA regions, excluding APAC)

Source: IHS

BROADBAND MARKET LEADERSHIP

Source: IHS

Nokia52%

Huawei15%

ZTE11%

Calix3%

ADTRAN19%

DSLAgg

Nokia49%

Huawei22%

ZTE11%

Calix7%

ADTRAN11%

FixedBB


PRODUCT PORTFOLIO STRATEGY

Fiber Access & Aggregation First vOLT with open/DC arch 10G optics innovation

Integrated optical transport

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FTTN & DPUs Super-vectoring G.Fast portfolio breadth

SDN control, multi-PHY arch

Residential & Business CPE Universal ONTs & vRG options Leading VNFs & SD-WAN

Modern API’s for SDN control

WiFi APs & Infrastructure Lead with Wave 2 APs WLAN continuous improvement

10G aggregation switch

Value-added software & services across all product segments


INNOVATION TIMELINE

DIVESTITURE ERA

INTERNET ERA

IP TRANSITION ERA

GIGABIT ERA

SDN ERA

Created T1 Access Market

Broke $1000 Economic Barrier with HDSL, 95%

market share

Disrupted Western Electric Monopoly Redefined Economics for D4 channel cards

Drove Innovation in DSL and Converged Services

Repeaterless breakthru

Total Reach ISDN

Redefined economics for SONET Fiber Access (OPTI-3, OPTI-6100)

1st Converged Voice & Data

Business Gateways

1st All Ethernet MSAN

1st VDSL Deployment Based on IP DSLAM

1st demo of VDSL2 825Mbps

w/ phantom, bonding, vectoring

Global Leader in OSP

broadband solutions

Market Leader in DSL and

Converged Services

200 Gig Communities by YE2015

Frequency Division

Vectoring (FDV)

1st Edged Optimized Packet-Optical

Networking Platform

Market Leadership

In G.fast innovation

Breakthrough In NGPON2 Tunable Optics

1st Deployment of System Level Vectoring (SLV) (US)

1st converged, multi-service

Gigabit enterprise and MTU gateways

1st Cloud-based WLAN

ProCloud Wi-Fi services

Leading SDN/NFV Access in

Broadband Forum

CPE Automation for Service Activation

1st Open Platform for G.fast DPU

1st system level CORD

demo

NIA Industry

SDN/NFV Interop


SDN Access §  Complete cloud-edge to subscriber-edge solution set §  1st to integrate and deploy complete FTTx portfolio with

an open source SDN controller §  Only vendor with a complete Software Defined Access

solution set built around a CORD architecture §  1st (and only) 10G PON vOLT CORD demo in a Tier 1 §  1st industry interop - vCPE portfolio

§  Modular software architecture with Agile/DevOps model §  Leadership in Broadband Forum, ITU, ETSI, Celtic-Plus,

and UK NICC standards activities

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INNOVATION LEADERSHIP


Broadband Access §  Market leader in 10 Gigabit optical access innovation

§  XGS PON – commercial deployments §  NGPON2 – industry breakthrough in tunable optics

§  Over 60 G.fast trials announced on 6 continents §  Europe’s (and World’s) largest deployment of

Vectoring and SuperVectoring §  Over 300 Gigabit Communities §  Leader in CAF2 solutions

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INNOVATION LEADERSHIP


NEED FOR SPEED

GLOBAL COMPETITIVENESS

SOFTWARE DEFINED

NETWORK TRENDS DRIVING GROWTH


INTERNET TRAFFIC – N. AMERICA

Global Internet traffic is projected to grow

82 times from 2005 to 2019

Cisco VNI 2015

Source: Sandvine

0

10000

20000

30000

40000

50000

60000

70000

2008 2009 2010 2011 2012 2013 2014 2015

Exab

ytes

per

Yea

r Other

Gaming

Market Places

Communications

Tunneling

Filesharing

Web browsing

Real-Time Entertainment

Video 70.4%

Video 14%


TRANSFORMATIVE EFFECTS OF GIGABIT

ADTRAN has enabled over 300 Gigabit

Communities


ACCELERATING PACE OF FTTH & 1 GIG ANNOUNCEMENTS (2010–2015)


NEED FOR SPEED


SOFTWARE DEFINED



SHIFT TO DATA CENTER ARCHITECTURES

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FUTURE NETWORK STATE

§ Fiber connectivity everywhere

§ Multi-service points

§ Open and Cloud controlled

§ Virtualized network functions

§ Highly automated, programmable

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Applying Data Center Architectures to Access §  Utilize SDN to create

highly automated and programmable networks

§  Apply NFV to create agile, software-centric networks

§  Disaggregate monolithic, proprietary systems

§  Implemement open networking architectures


ADTRAN IS A SOFTWARE COMPANY

§  82% of R&D are working software-based designs §  R&D presence across each major global region §  24 hour development & testing

§  Agile Development Process §  Pilots in 2011 §  Implemented companywide in January 2012

§  Modular Software Architecture §  Shortens integration §  Minimizes disruption §  Packaging & unit level testing for 5+ years


NEED FOR SPEED


SOFTWARE DEFINED


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Connecting Rural America §  34M Americans do not have access to

fixed broadband (25/3 Mbps) §  19.9M don’t have 10/1 Mbps §  16.1M don’t have 4/1 Mbps

§  ADTRAN is the top turnkey access supplier for CAF projects §  Sole or primary supplier for the majority of

Price Cap Carriers with CAF projects §  Complete turnkey services and solutions

designed for Rate-of-Return Carrier CAF projects

Source: FCC


$9B - 3.6M homes - 6 Years

$3B

$2.6B

$1B

$224M

$2B

CAF2 Construction Schedule •  Funds accepted 8/27/15, retroactive to 1/1/15 •  40% complete by 2017 •  60% complete by 2018 •  80% complete by 2019 •  100% complete by 2020

Other Price Cap Carriers (annual funding) •  Consolidated - $13,9M (24,698) •  Hawaiian Tel - $4.4M (11,181 homes) •  Micronesian Tel - $2.6M (11,143 homes) •  Cincinnati Bell - $2.2M (7084 homes)

CONNECT AMERICA FUND – PRICE CAP


CONNECT AMERICA FUND – RATE-OF-RETURN

$2B per year for 10 years •  Two Path Approach •  Existing Mechanisms

-  Legacy Investments – 11.25% Return (capped at defined date) -  New Investments – 9.75% Return

•  Model Based Alternative -  Similar to Price Cap CAF2 model -  10 year support cycle

•  Elections – RoR or Model

$20B over 10 years CONNECT AMERICA FUND – RATE-OF-RETURN


Digital Agenda for Europe §  Pillar IV: Fast and ultra-fast Internet access §  By 2013: basic broadband (2 Mbps) to all ü (claimed) §  By 2020:

•  All Europeans (100%) have access to > 30 Mbps (Next Generation Access) •  50% or more European have access to > 100 Mbps (ultra-fast)

Target 2: 50% subs with 100 Mbps Target 1: 100% with 30 Mpbs

Source: HIS and VVA in EC connectivity report 2015

60 Bn€ to achieve

100% 270 Bn€

to achieve 50%

EUROPEAN BROADBAND INITIATIVES

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Financial Stability §  Nearly 3 Decades of

Continuous Profitability §  Ongoing Strong Balance

Sheet and Cash Flow §  Publicly Traded for 21 Years

with Full Transparency (NASDAQ-ADTN)


FY 2015 FY 2016 FY 2017 Q116 Q216Consensus Consensus Consensus

mn Actual Estimates* Estimates* Actual Estimates*

Revenues $600 $624 $656 $142 $162

Gross margin (%) 44.5% 46.4% 46.4% 46.3% 46.3%

Operating Income $13.5 $40.6 $50.8 $5.5 $14.4

% of Revenues 2.2% 6.5% 7.7% 3.9% 8.9%

EPS $0.36 $0.65 $0.78 $0.10 $0.20

ADTRAN - Financial Summary

*Source: First Call, Thomson, Company Reports

Based on US GAAP Financial Statements


Strong domestic revenues and services growth…

$130$144 $138

$116 $124

$13$16 $20

$23 $18

$143$160 $158

$139 $142

$162

-10%

8%

21% 20%

39%

-20%

-10%

0%

10%

20%

30%

40%

50%

$0

$20

$40

$60

$80

$100

$120

$140

$160

1Q15 2Q15 3Q15 4Q15 1Q16 2Q16E*

Network SolutionsServices & SupportDomestic Revenues YoY growth (%)

*Consensus Estimate for 2Q16 Source: Company Reports (numbers in $mn)


Strong Cash Position ($mn)…

Cash Returned to Shareholders – 2012-2015 ($mn)

Source: Company Reports

$393

$83

$310

$0

$50

$100

$150

$200

$250

$300

$350

$400

2012-2015

Repurchases Dividends Total Cash Returned to Shareholders $317

$621

$0

$100

$200

$300

$400

$500

$600

$700

Cash & Investments as of 3/31/16 Total Assets as of 3/31/2016


Current Ratio – ADTRAN: highly liquid balance sheet Total Liabilities to Net Worth - ADTRAN: limited amount of debt on BS

Gross Margin – ADTRAN enjoys higher than peer group average gross margins

3.04

2.67 2.81

3.57 3.62

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

1Q15 2Q15 3Q15 4Q15 1Q16

ADTRAN IndustryAverage

37.1% 43.1% 40.7% 31.8% 31.6%

242.2%

423.3%

353.8%

246.5%

180.1%

0.0%

50.0%

100.0%

150.0%

200.0%

250.0%

300.0%

350.0%

400.0%

450.0%

1Q15 2Q15 3Q15 4Q15 1Q16


45.9%42.6%

44.7% 44.9% 46.3%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

50.0%

1Q15 2Q15 3Q15 4Q15 1Q16


Source: Companies’ Reports

Industry Average: ADVA, ALU (now Nokia), Calix, Ciena, Zhone, ZTE


CHANGES TO FINANCIAL REPORTING

Operating Segments: §  Network Solutions §  Services & Support Revenue Categories: §  Access & Aggregation §  Customer Devices §  Traditional & Other Products

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Network Solutions

Services & Support

Acc

ess

& A

ggre

gatio

n

Cus

tom

er D

evic

es

The two Segments have the three Categories within.

Categories

Segm

ents

Trad

ition

al &

Oth

er


2nd Quarter 2016 Guidance

Corporate Financial Performance

•  REVENUE: up on a percentage basis in the low-to-mid teens

•  GROSS MARGIN: flattish with our Quarter 1 results (46.3%)

•  OpEx: consistent with Q1 adjusted for sales commissions based on increases in revenue

•  TAX RATE: mid to high 30% range

SUMMARY •  Strong history and well positioned

•  Leader in SDN Access ü  Open, scalable and standards-based

•  Ramping broadband investment cycle ü  Emerging technologies in fiber & copper

ü  Imperative for service agility & automation

ü  Global operator proof points

•  Leader in fixed broadband access


ADTRAN IS BRINGING THE WORLD TOGETHER

Thank you

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