Ladies and gentlemen, thank you for standing by, and welcome to the ADTRAN Holdings, Inc. Second Quarter 2024 Earnings Release Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. As a reminder, today's call is being recorded. During the course of the conference call, ADTRAN representatives expect to make forward-looking statements that reflect management's best judgment based on factors currently known. However, these statements involve risks and uncertainties, including the risks detailed in our earnings release, our annual report on Form 10-K, and our filings with the SEC. These risks and uncertainties could cause actual results to differ materially from those in the forward-looking statements, which may be made during the call. We undertake no obligation to update any statement to reflect the events that appear after this call. During the course of today's call, we will refer to certain non-GAAP financial measures. Reconciliations of non-GAAP to GAAP measures and certain additional information are also included in our investor presentation and our earnings release. The investor presentation, found on ADTRAN Investor Relations website, has been updated and is available for download. It is now my pleasure to turn the call over to Tom Stanton, Chief Executive Officer of ADTRAN Holdings. Sir, please go ahead. Thank you, John. Good morning, everyone. We appreciate you joining us for our second quarter 2024 earnings conference call. With me today is ADTRAN Holdings CFO, Uli Dopfer. Following my opening remarks, Uli will review the quarterly financial performance in detail, and then we'll take any questions that you may have. Well, the quarter came in largely as expected. Financially, we realized a non-GAAP operating profit, driven by gross margin improvements and substantially lower operating expenses. Working capital was significantly reduced as we continued to decrease our inventory levels. Our non-GAAP free cash flow was positive for the second straight quarter, and we grew our customer base across the U.S. and Europe as customers continue to adopt our latest fiber networking solutions. We achieved all these despite the headwinds that we are all feeling. Taking a closer look at the results in the second quarter, we had a strong quarter in the U.S., with revenue up across all three categories in this region. On the product mix, we were well balanced in revenue across our three categories, with 36% of our revenues coming from subscriber solutions, 31% of revenues coming from access and aggregation solutions, and 33% of our revenues coming from optical networking solutions. Our subscriber solutions category was up 18% quarter-over-quarter, with a growth led by our residential solutions that were up 47% quarter-over-quarter. In our access and aggregation solutions category, growth in the U.S. broadband revenue was offset by declines in shipments to our large European customers, following a strong first quarter of shipments of these customers. Optical networking solutions was essentially flat relative to the prior quarter. Taking a closer look at the regional mix, we saw sequential growth in the U.S. across all major customer segments, with these customers purchasing a diverse set of in-home broadband access and optical networking solutions. From an investment perspective, we remained focused on our two key strategic initiatives: maximizing our opportunity in the U.S. broadband investment cycle and taking advantage of the shift away from high-risk vendors in Europe. In the U.S., our highest growth opportunities remain with small to mid-size operators. Our results this past quarter reflected our continued strength in these customers. In Europe, the biggest opportunity remains with large operators, where we are well positioned with our fiber networking infrastructure solutions. Diving deeper into these two markets, I'll start with the U.S. market, where we are seeing signs of stability after the past couple of years have been more volatile due to the supply chain crisis, followed by inventory corrections. As noted earlier, our biggest opportunity in the U.S. is with the small to mid-size operators in the U.S., that really see value in trusted partners that can meet their fiber networking needs from the optical core to the customer premise. This more comprehensive portfolio continues to pick up momentum. To give you a few highlights, we added 12 new fiber to the premises customers in Q2, most of this being U.S. regional service providers adopting our latest SDX fiber access platforms. We also had 16 new customers adopt our SDG In-Home platforms this past quarter, bringing the total number of customers adopting our latest Wi-Fi platforms to well over 200. This success in our SDG platforms helped drive revenue growth in our subscriber solutions category this past quarter and is closely aligned with our investment in our latest Wi-Fi 6 and Wi-Fi 7 platforms, along with our Intellifi cloud-managed Wi-Fi solutions. For both our new fiber to the premise wins, as well as the in-home platform wins this quarter, a material percentage of those were actually competitive takeaways. In our optical transport and packet networking solutions this past quarter, we had 11 existing customers in the US expand their purchases to include this equipment that were previously broadband-only customers with ADTRAN. This highlights our continued success in cross-selling our optical solutions into our existing broadband access customer base and the advancements we have made in this portfolio. In addition to cross-selling success with our optical solutions into the service provider market, we continue to grow our enterprise and ICP customers this past quarter. With the recent launch of our 800G transport platforms, 100ZR pluggables, and several key enhancements to our optical network automation capabilities, we are well positioned to continue this momentum going forward. And finally, our long-term differentiation and portfolio synergies are driven by our software platforms. Mosaic One, our flagship software platform, provides a suite of SaaS applications to provide actionable insights and proactive optimization tools to reduce network operational costs while improving the subscriber experience. We now have more than 400 customers, with the majority of those in the U.S. that have adopted our Mosaic One platform, including more than 200 customers that have adopted multiple applications within this platform. Moving forward, we expect to continue to grow the basic Mosaic, of Mosaic One customers, while also significantly increasing the adoption of additional applications by existing operators using the platform. Moving on to Europe, as mentioned earlier, we remain well-positioned in fiber access and optical transport infrastructure to take advantage of the ongoing build-out of fiber networks in the region, as well as the shift away from high-risk vendors. We continue to make progress towards volume deployments late this year and early next year with multiple large European operators for both our fiber access and optical transport portfolios. In the fiber access space, the global market has been rapidly shifting to 10G PON platforms. In this technology segment, which is a key indicator for new platform deployments, ADTRAN is already a top two supplier in Europe in terms of port shipments. We have more than doubled our market share in this segment over the last year, and given our funneled activity and existing awards, we are strategically positioned to grow to continue to grow in this market as we move forward. In the optical transport space in Europe, we have maintained solid market share positioning, while the overall service provider spending on optical transport has been down for the past year as operators deplete inventory. With further consolidation in this market segment, particularly in Europe, the ongoing shift away from high-risk vendors, a significantly enhanced portfolio, and our strong regional presence, we feel confident in our ability to become a top two supplier in optical transport equipment to service providers across Europe in the years ahead. In shifting to our operational performance, as you all know, we announced a program last year focused on improving our profitability and cash flow. The result of this past quarter highlights the success that we are having with this program. Moving forward, we will continue to execute against this program, and we look forward to additional improvements in the quarters ahead. In summary, we continue to make great progress on our operational efficiency, and our competitive positioning has put us in a great situation to take advantage of the market opportunities we see in the U.S. and Europe. While we have streamlined our operations, we continue to invest in our strategic platforms, and these investments are paying off as we see strong adoption of these platforms across the growing customer base. Having a more competitive portfolio, a growing customer base, key market tailwinds still ahead of us, and non-GAAP operational profitability, despite the near-term market headwinds, has us well positioned for success moving forward. While we remain confident in our long-term outlook and we continue to expect growth in the quarters ahead, we still see cautious spending from some of our service provider customers, driving us to continue to be cautious in our approach to forecasting and our operating model. As a result, we will continue to focus on becoming a leaner, more efficient, and more profitable company with a best-in-class fiber networking portfolio. With that, I will now turn things over to Uli to go over our financial results, and then we will open up to any questions you may have. Thank you, Tom, and hello, everybody. I will walk you through our financials of our last quarter and provide our expectations for the third quarter of 2024. I will be referencing non-GAAP information with reconciliations to the most directly comparable GAAP financial measures presented in our press release. Additionally, I will discuss certain revenue information by segment and category, which is available on our investor relations webpage at investors.adtran.com. We have also updated the investor presentation to this site, which is available for download. Unless stated otherwise, all financials are presented in U.S. dollars. With that, let's dive into our financial performance for Q2 2024. Q2 2024 revenues of $226 million were similar to Q1 2024 revenues and slightly above midpoint of our guidance, but were down 31% year-over-year. Our Network Solutions segment accounted for 79.3% of revenues in Q2 2024, compared to 86.4% in Q2 2023, and 80.1% in Q1 2024. Our Services and Support segment contributed 20.7% of revenues in Q2 2024, compared to 13.6% in the year ago quarter and 19.9% in the previous quarter. Access and Aggregation contributed 30.9% of revenues and was down 31.9% compared to the year ago quarter, also down 14% sequentially. Our Optical Networking Solutions category contributed 32.6% of revenues and was down 48.5% year-over-year and down slightly by 1.9% quarter-over-quarter. Subscriber Solutions contributed 36.5% and was up 0.9% year-over-year and up 18.1% quarter-over-quarter. International revenues made up 52.4% of total revenues, and domestic revenues contributed 47.6%. Domestic revenues were sequentially up in all three product categories. Q2 non-GAAP gross margin was 41.9% and increased by 334 basis points year-over-year and 37 basis points sequentially. The improved gross margin is reflective of our ongoing efforts to optimize our supply chain and supply-related processes. Q2 non-GAAP operating expenses were $93.2 million, down 24% year-over-year, and down 9.3% quarter-over-quarter. The decline in operating expenses is attributable to the impact from our business efficiency program. Year-over-year, we reduced, we reduced non-GAAP R&D spend by 26% and SG&A expenses by 22%. For the second quarter of 2024, our non-GAAP operating profit was $1.5 million, or 0.7% of revenues. This compares to a non-GAAP operating profit of $3.6 million, or 1.1% of revenues in the year ago quarter, and an operating loss of $8.8 million, or -3.9% of revenues in the prior quarter. Our Q2 2024 operating margin was at the upper end of our guidance range of between -3% and +2% of revenues. The increase in operating margin and return to profitability was attributable to improved gross margins and lower OpEx. The company's non-GAAP tax expense for the second quarter of 2024 was $10 million. Total non-GAAP net loss was $18.8 million after adjusting for minority shareholder interest in ADTRAN Networks SE. This resulted in non-GAAP diluted loss per share attributable to the company of $0.24 per share, compared to a loss of $0.022 per share in Q1 2024, and a loss of zero, of zero point zero dollars per share in Q2 2023. Turning to the balance sheet and the cash flow statement. In Q2 2024, we continued to improve our working capital. Trade accounts receivable were $186.2 million at quarter end, resulting in DSO of 75 days, same as in the previous quarter. We reduced our inventories by $34.2 million compared to Q1 2024. The improved working capital resulted in an operating cash flow of almost $20 million, compared to $36 million in Q1 2024. Consequently, we generated $3.9 million of free cash flow. At the end of the quarter, cash and cash equivalents were $111.2 million, a quarter-over-quarter increase of $4.4 million, or 4%. In summary, we made significant strides in operational efficiency, positioning ourselves well to capitalize on market opportunities in the U.S. and Europe. Despite near-term market challenges, our competitive portfolio and growing customer base positions us well for future success. While we remain confident in our long-term outlook, we remain cautious due to spending trends from service providers. Our focus remains on becoming a leaner, more efficient, and more profitable company with a top-tier fiber networking portfolio. For the third quarter of 2024, we expect revenues to range between $215 million and $235 million, and a further improved non-GAAP operating margin range between -1% and +3%. Once again, additional information is available at ADTRAN's Investor Relations webpage at investors.adtran.com. We appreciate your time and attention, and we are now ready to address any questions you may have. I will turn now the call back over to the operator to begin the Q&A session. Hi, John. At this point, we'd like to open it up for any questions people may have. Thank you. We will now begin our question-and-answer session. If you have dialed in and would like to ask a question, please press star, followed by the number one on your touchtone phone. If you would like to withdraw your question, simply press star one again. If you are called upon to ask a question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Thank you. Your first question comes from the line of Ryan Koontz from Needham & Company. Please go ahead. Hi, good morning, thanks for the question. On the access weakness here, sounds like a lot of that's coming from Europe, but maybe you can unpack a little bit what's going on there in terms of the domestic transition to the SDX, kind of where we are in that transition. And then in Europe, you talked about a very strong Q1, probably some inventory remaining to be deployed there. But any other color you can give on the European side of things and what might be behind the macro caution in Europe? Thank you. Sure. Yeah, sure. So I would say that's exactly it. So in the U.S., we access actually grew in the U.S. Also, all three product segments grew, which is the first time we've seen that in a while. So, that was good to see. In Europe, it's specifically two customers. We had two customers that bought, and they tend to buy in chunks. So it's not uncommon for them to come in in a quarter and then come in either the next... You know, not buy the next quarter and then buy the quarter after or the quarter after that. That's just, that's typical. And it was specifically. We actually had two, actually, that hit in the, in Q1, and that would. So those were sequentially down, but that's not indicative of anything other than the fact that, you know, that's just the way that they buy. And no, all the other business and all of that was very solid in Europe for the access and aggregation. You said the two that hit in Q1, those were not your big ones. These are newer customers that maybe placed first orders, or? No, those were- Oh, okay ... those were existing customers. Okay. Existing 2 wins. All right. Too large. Yeah, okay, makes sense. And on the in terms of your outlook there, in terms of kind of getting, you know, Europe back on track and, you've had a number of contract wins we've talked about for a long time. How are those new wins kind of progressing through, you know, lab approvals and moving forward with deployments? Yeah kind of broadly? So let me talk just a little about Europe. Europe, on fiber to the premise and subscriber, you know, the RGs, ONTs, is actually fairly solid. We did have the shift, but that's not indicative of anything other than, you know, they bought and then they don't buy, and then they buy. So I would say that that market is actually doing fairly well, and on subscribers, it was actually up. I mean, it's so if they didn't buy infrastructure, then they bought something to connect up customers, right? So that was actually very good to see. Optical is where the biggest concern is in Europe, and we really didn't see a whole lot of change there. You know, I fully expect subscribers and access to have a good quarter in Q3. I think the question mark that we have is, you know, optical, and right now expectations are for it to be kind of flattish, but you know, that's where the biggest concern is. And then, all right, so you also asked about SDX, and- .. SDX is relatively new. We just kind of launched that. We launched a big suite of software for both optical and for the SDX a little earlier this year. That's just now getting out there. I think I wouldn't call it conversions. For some customers, if you're a greenfield customer, you typically go with SDX, or if you're, you know, you hurt certain metrics. So people still buy the 5,000, and they buy the SDX. So I wouldn't call it a conversion. I would say it's either/or. It's just this quarter, we just seemed like everybody that bought the system this quarter, was, that was new, was an SDX customer. Got it. And just a quick housekeeping question for Uli on the tax swing. Any color you can share there in terms of how we should think about that going forward? Seemed like it had a pretty big effect on your non-GAAP income. Yeah, that's the usual. You know, you see these swings throughout the quarter. I would, on a non-GAAP basis, expect a tax rate of about 15%-20%. If you do your modeling on a GAAP basis, then I would expect a tax rate of about 3%-5%. Got it. All right, that's all I've got. Thank you. For the year. For the year, right? Okay, for the year. Got it. Your next question comes from the line of George Notter from Jefferies. Please go ahead. Hey, guys. Thanks very much. I guess I just wanted to kind of get level set on the inventory. Can you just kind of go through the different pieces of the business and kind of give us a sense for, you know, where there's still excess inventory, how long you think it'll take to kind of work that off? And then conversely, you know, where are we done with the inventory? Yeah, let me do it from a broad segment, then any specific questions, I'll let you come back and ask. So on subscriber, it feels like there is very little inventory out there at this point. The, you know, we saw a sequential 47% increase in shipments into, that customer base, and we expect, a strong Q3 as well. So it feels like that inventory piece has worked itself out. Now, maybe not coincidentally, that was the first piece to fall, right? That was the first, so it's not that crazy that it would be the first one to be coming out. On fiber to the premise, I would say it's similar. There are still pieces where there is some inventory, but there's not a lot. So the inventory situations that we'd see coming, going forward, I would think would be largely what we just saw, right? Where we have some customers that just buy six months at a time and then deploy it and then buy again, right? So I don't think that there's gonna be... I would say that's the majority of the fluctuations, but that's just normal business. That's just normal how, you know, people buy. And then on optical, there's still some inventory buildup here in the U.S., and there's still some inventory buildup in Europe. We expect all of those. Our expectation is for those to be depleted by the end of this year. Does that answer your question? Got it. That's great. I'm sorry, so you said by the end of this year? Right. That's correct. And then, just shifting gears a bit, anything on the real estate side of things? I know you guys were looking at, you know, rationalizing a portion of the headquarters. Can you give us an update there? Yeah. We still have interested buyers. I think there's three or four, depending on level of interest, and that's still moving forward, that process is. Some of them have hired architects to come in, so that's still on the plate. It's a difficult thing to forecast when something like that will close, but there's still a lot of interest. We, you know, we're moving forward in the process, the real estate selling process. There are some other assets that we've talked about in the past that are kind of non-strategic assets that we are also looking at selling, and those are moving forward as well. Great. Thank you. Your next question comes from the line of Bill Dezellem from Tieton Capital Management. Please go ahead. Thank you. I actually have a couple of questions. Relative to the inventory adjustments that are taking place, what do you believe that has hurt your revenue this quarter? So if you were to normalize end customer consumption to your reported revenue, what's the delta? That's a really hard thing to—I'll take a stab at it, but they'll probably kick me. So I think the best way to look at what you're looking at is what is normalized revenue, net any market share losses or gains, and normalized for customer changes over time, depending on their particular situation. I'm trying to figure out a way to get you a number. Let me just put it this way: It's tens of millions, and it's predominantly in optical, is the way to think about it. So that's the biggest impact. Subscriber, like I said, has pretty much worked its way through, and there's little on fiber to the premise. I don't know if that helped you at all, Bill, but- No, Tom, I think it does. So- Oh, I'm sorry, I interrupted. Please go ahead. No, that was it. That was it. I mean, just in the two customers, the two large customers that we have that still have inventories on opticals, they typically buy in the tens of millions of dollars a quarter, and those are substantially down right now because they're depleting inventory. Basically, $10s of millions, essentially x 2, because each of those customers would be buying $10s of millions more per quarter, would be the starting point to think about it. Let me be a little careful with that. Let me be a little careful with that, because it's not like they're not buying anything, but I think in combination, it would be $10s of millions, yes. And, you know, it depends quarter to quarter. Okay. But yes. All right. That is helpful. They're not the only inventory yet, and they're not the only inventory situation out there. They're just the most notable. Right. And then, do you see any correlation between what's happening in the U.S., where we now have all three segments showing growth as a leading indicator for Europe? Or is Europe really a dynamic of these two large customers and their very specific excess inventory in the optical arena? Well, so the optical space, and this is, you know, something that may be notable. The optical space, we have one large customer in Europe, and we have one large customer in the U.S. that are actually hurting our optical business. Having said that, optical was up sequentially, but it was, you know, not the best quarter in the world sequentially, too, on the optical space. But the U.S. optical business itself was able to overcome that customer not really buying. So, I think it is more... I wouldn't call it precursor. Well, maybe. I mean, if you look at the US from a fiber to the prem and subscriber perspective, the U.S. and Europe were very similar, except that we had, you know, two—we had two customers that happened to buy a lot in Q1, and then the rest of those customers picked up in Q2, but, you know, those two customers are depleting. So subscriber and fiber to the prem, I think, are—they're very similar in Europe and in the U.S. I hope I didn't confuse everybody with that answer, but- I found it helpful. Thank you. It did. Okay. I'm gonna switch to one additional question on the. This is really coming from a point of ignorance that your SaaS business is showing some signs of strength in the US. Right. Is that an opportunity that you have in Europe, or is this the SaaS business really more going to be centric on U.S.? It's predominantly our focus right now is U.S. and the reason for that is making sure that it is a strong, kind of strategic weapon that we have in winning market share for big customers. So the majority of the development right now is very much centered on US customers. So it could be, yes, and we do have some interest in Europe, but, you know, our feature set development, everything is very much focused on the US right now. Are there development challenges besides language to taking that offering to- Yeah to the European continent? No, it has more to do with interfaces to back office, existing back office systems.. Right? So, you know, there's and some of those actually are kind of cross-border, but, we're very much taking the priorities based off of what the majority of U.S., you know, tier twos and tier threes need. Right. Thank you. Appreciate the, the time. Okay. All right. Your next question comes from the line of Tim Savageaux from Northland Capital Markets. Please go ahead. Hey, good morning. Couple of questions- Good morning. Here. First, you'd mentioned kind of the buying patterns among your big European guys. You know, one big quarter and then maybe one or two off. But as you look into your Q3 guide, you know, what are your expectations there? What are you modeling with regard to what you're going to see out of your big European guys? We're not expecting a huge uptick. I think we'll see that later in the year. Now, there's two different ones, and they don't necessarily buy at the same cycle, so it's, it wouldn't be that surprising to see one of them come in stronger in Q3, but at this point in time, that's not in our expectation. Needless to say, based off of the environment, we're trying to continue to make our guidance numbers, so we're, there's a little bit of conservatism in that. Well, got it, and that's kind of where I was heading next, which is, you know, you're looking for three flat quarters here around the $225 million level, composed quite differently, I guess, from a geographic and product standpoint. My question was going to be: is there any reason to think there could be an uplift here into year-end as you stand here now? And you kind of spoke to that there, and I think may have said maybe, but please go ahead and expand upon that if you could. Well, I think, you know, what we're trying to do, and maybe it's a nuance that's too nuanced. You see us continuing to try to tighten the range of the numbers. We had a very broad range coming into the year because it was so difficult to see how the customers were reacting on kind of a monthly basis, right? That has gotten better. Visibility has gotten better. The surety within our forecast has gotten better. The biggest unknown for us right now is really kind of the optical space and, you know, has that bottomed out or, you know, where's the bottom of that, and when does that actually start adding? On the subscriber and fiber to the premise space, we feel very good right now. The direct answer to your question is, you know, we're hopeful that we'll see an uptick this quarter, and we're, we're probably even more confident about fourth quarter than third quarter. That's where we sit today. Got it. And, you keep setting me up here with your answers. So on the optical side, I was very intrigued by your commentary and, you know, your aspiration for top two in Europe, and I had a couple of questions around that, which and also the cross-selling that you mentioned in the U.S. Obviously, a lot going on with Lumen these days. Historically, a big customer of yours on the access side. And this kind of segues into another one of your comments around strategic changes in the landscape. You know, the broader question there is, you know, what kind of opportunities are you seeing anything anecdotally in real time coming out of the planned merger of Nokia and Infinera? Obviously, big Lumen shop there at Infinera, so I wonder if you might see any opportunities there as they go about building this giant data center network. But more broadly, you know, is it really the merger that drives you to target that top two position in Europe, which would be pretty meaningful, I would think. So kind of all over the map there, question-wise, but I think you know where I'm going. Well, I think the way we look when we've been bidding in Europe right now for optical gear, there were really, you know, there was always Nokia, there was always Ciena, there was always, and there was us. And, there'll be one less, and I think, you know, our technology is very competitive in the metro and regional space that we play in. I think we win our fair share. I think our fair share, just on a percentage basis, goes up, and I think we have very deep relationships with a lot of those large customers in Europe. So, yeah, I feel good about Europe. US, I don't know if that's going to be any new inroads or not necessarily. You know, anytime that you have a merger like that, you know, there's potential disruption. So we'll have to see how that plays out. Okay. Thanks very much. Okay. At this time, it looks like I think we're out of questions, so I appreciate everybody joining for our conference call, and we look forward to talking to you next quarter at this time. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.