ADTRAN's (ADTN) Q3 Earnings Miss Estimates on Lower Revenues
ADTRAN Holdings Inc. ADTN reported soft third-quarter 2023 results, wherein both the top line and bottom line fell short of the respective Zacks Consensus Estimate. The company recorded a top-line contraction year over year due to lackluster demand trends in the Network Solutions business. Macroeconomic challenges and inventory corrections continued to impact customer spending during the quarter. However, management is focusing on cost optimization and enhancing its operating model to ensure higher long-term shareholder returns.
Net Income
On a GAAP basis, the company incurred a net loss of $72.7 million or a loss of 93 cents per share compared with a net loss of $41.9 million or 57 cents per share in the year-ago quarter. A sharp decline in net sales impacted the bottom line during the quarter.
Non-GAAP net loss was $10.8 million or a loss of 14 cents per share against an income of $7.7 million or 11 cents per share in the year-ago quarter. The loss was wider than the Zacks Consensus Estimate of 11 cents.
ADTRAN Holdings, Inc. Price, Consensus and EPS Surprise
ADTRAN Holdings, Inc. price-consensus-eps-surprise-chart | ADTRAN Holdings, Inc. Quote
Revenues
Net sales during the quarter declined to $272.3 million from $340.7 million in the prior-year quarter, owing to weak demand trends. Revenues came below the lower end of the company’s guidance range. The top line missed the consensus estimate of $285 million.
Network Solutions contributed $228.6 million in revenues compared with $304.9 million in the prior-year quarter. The persistence of an unfavorable macroeconomic environment and inventory adjustments constrained the capex spending from customers. Forex volatility also impacted net sales derived from outside of the United States. Nevertheless, the company witnessed healthy traction and expanded market share in some of its product categories. Services and Support revenues stood at $43.8 million, up from $35.8 million.
Other Details
Gross margin on a GAAP basis was 27.3%, down from 33.8% in the year-ago quarter. A downturn in net sales, combined with an inventory write-off of approximately $21 million, affected the gross margin. Operating loss was reported at $89.3 million compared with the previous-year quarter’s tally of $48 million.
Cash Flow & Liquidity
In the first nine months of 2023, ADTRAN utilized $29.3 million of cash for operating activities compared with a cash utilization of $42.7 million in the prior-year period. As of Sep 30, 2023, the company had $116.1 million in cash and cash equivalents with $26.8 million of deferred compensation liability.
Outlook
For the fourth quarter of 2023, ADTRAN anticipates net sales in the range of $210-$240 million, with non-GAAP operating margin trending between negative 7% to a flat trajectory. Management expects that the ongoing macro uncertainty will likely impact customer spending well into 2024. To mitigate the effects on shareholders, the company is undertaking a business efficiency program to reduce expenses by $90 million by the end of 2024.
Zacks Rank & Stocks to Consider
ADTRAN currently has a Zacks Rank #3 (Hold).
Model N Inc MODN, sporting a Zacks Rank #1 (Strong Buy) at present, delivered an earnings surprise of 21.26%, on average, in the trailing four quarters. In the last reported quarter, it pulled off an earnings surprise of 45.83%.
You can see the complete list of today’s Zacks #1 Rank stocks here.
MODN provides revenue management solutions for life sciences and technology companies, including applications for configuration, price, quote, rebate management and regulatory compliance.
NVIDIA Corporation NVDA, currently sporting a Zacks Rank #1, delivered an earnings surprise of 9.79%, on average, in the trailing four quarters. In the last reported quarter, it pulled off an earnings surprise of 29.19%.
NVIDIA is the worldwide leader in visual computing technologies and the inventor of the graphic processing unit. Over the years, the company’s focus has evolved from PC graphics to artificial intelligence-based solutions that support high-performance computing, gaming and virtual reality platforms.
Arista Networks, Inc. ANET, presently carrying a Zacks Rank #2 (Buy), is likely to benefit from strong momentum and diversification across its top verticals and product lines. The company has a software-driven, data-centric approach to help customers build their cloud architecture and enhance their cloud experience. Arista has delivered an earnings surprise of 12%, on average, in the trailing four quarters.
ANET holds a leadership position in 100-gigabit Ethernet switching share in port for the high-speed data center segment. Arista is increasingly gaining market traction in 200 and 400-gigabit high-performance switching products and is well-positioned for healthy growth in the data-driven cloud networking business with proactive platforms and predictive operations.
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