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Edited Transcript of ADTN earnings conference call or presentation 17-Oct-18 2:30pm GMT

Q3 2018 ADTRAN Inc Earnings Call

HUNTSVILLE Oct 17, 2018 (Thomson StreetEvents) -- Edited Transcript of ADTRAN Inc earnings conference call or presentation Wednesday, October 17, 2018 at 2:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Roger D. Shannon

ADTRAN, Inc. - CFO, Senior VP of Finance, Corporate Secretary & Treasurer

* Thomas R. Stanton

ADTRAN, Inc. - Chairman & CEO

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Conference Call Participants

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* Ashwin Kesireddy

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Michael Edward Genovese

MKM Partners LLC, Research Division - MD and Senior Analyst

* Paul Jonas Silverstein

Cowen and Company, LLC, Research Division - MD and Senior Research Analyst

* Richard Frank Valera

Needham & Company, LLC, Research Division - Senior Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to ADTRAN's Third Quarter 2018 Earnings Release Conference Call. (Operator Instructions) Please note, today's call may be recorded.

In addition, ADTRAN will webcast this conference call live through the Q4 Inc. webcasting service. During the course of this conference call, ADTRAN's representatives expect to make forward-looking statements, which reflect management's best judgment based on the 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 costs, manufacturing efficiencies and other risks that are detailed in our annual report on Form 10-K for the year ended December 31, 2017. 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.

It is now my pleasure to turn the call over to Tom Stanton, Chief Executive Officer of ADTRAN. Sir, please go ahead.

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Thomas R. Stanton, ADTRAN, Inc. - Chairman & CEO [2]

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Thank you, Savanna. Good morning. Thank you for joining us on our third quarter 2018 conference call. With me this morning is Roger Shannon, Senior Vice President and Chief Financial Officer. As usual, I'd like to begin this morning by discussing the details behind our third quarter results, and then we'll end with some comments on what we see for the future. Then we'll open up the call for any questions that you may have.

As we stated in our earning press release, revenues for the quarter were up 10% sequentially at $140 million. Network Solutions accounted for the bulk at $121 million or 86% of the total revenue, while global Services and Support contributed $19.3 million or 14% of the total company quarterly revenues. The $19.3 million represents a significant 49% increase over the previous quarter.

Looking at the mix of domestic and international revenue. Domestic market came in at $83.7 million or 60% of the total, and international revenues were $56.6 million or 40% of the total. Domestic revenue was up 23% from the previous quarter and international revenue was up 52% on a year-over-year basis.

Moving down a little deeper, our Access & Aggregation business was up 8% and $91.9 million for the previous quarter. And in Customer Devices, we're at $38.6 million, 12% over the same period and -- or over the quarter last quarter.

Overall, we are seeing good level of engagement across domestic and international operations, strategic areas of software-defined access, next-generation 10-gig PON solutions, like EPON NG-PON 2 and XGS-PON and, of course, G.fast.

As I mentioned on previous calls, we are also continuing to see growth in the cable MSO Broadband Access market as we continue to grow shipments of 10-gig EPON solutions to multiple cable MSOs. Also, notably this quarter, a major North American Tier 1 cable operator has selected ADTRAN to provide our next-generation SDN-capable 10-gig remote EPON solution for a large deployment beginning next year.

In the near term, we continue to expand our EPON market leadership with solid growth, seeing a 40% increase in the cable MSO market sequentially. This progress is important and a direct result of our acquisitions and organic development throughout the year to extend our leadership as the top fiber access provider in the cable market.

Within the larger telecommunication service provider market, our next-gen PONs activity remains very high with continued progression and the addition of new customers in Europe, Australia and the U.S.

Also notable this quarter is the beginning of super-vectoring shipments to a new Tier 2 company here in the U.S.

With the latest round of federal Connect America Funds announced, we are pleased with activity that we're seeing in the build-out of Broadband Access infrastructure in the U.S.' rural markets, with our CAF business up nicely both on a quarter-over-quarter and year-over-year basis.

As expected, in the G.fast area, we saw a pickup in Q3 for G.fast shipments, with total shipments now averaging -- or excuse me, Q3 shipments actually reaching nearly 70,000 ports worldwide just for the quarter.

Finally, although we expect Q4 to be affected by typical seasonality, we remain encouraged by the progress that we saw during the quarter and look forward to 2019.

With that, I'll turn the call over to Roger and be happy to answer any questions people may have.

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Roger D. Shannon, ADTRAN, Inc. - CFO, Senior VP of Finance, Corporate Secretary & Treasurer [3]

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Thank you, Tom, and good morning. I'll speak about our third quarter results and discuss what we see for the next quarter. During my report, I'll be referencing both GAAP and non-GAAP results.

As Tom stated, ADTRAN's third quarter revenue came in at $140.3 million compared to $185.1 million for quarter 3 of last year and $128 million last quarter. As we've discussed, the year-over-year decrease is due to a decrease in vectoring shipments to a domestic Tier 1 customer.

Our Network Solutions revenues for the third quarter were $121 million versus $115.1 million reported for Q2 of 2018. Our global Services & Support revenues in Q3 of this year were $19.3 million compared to $13 million reported for the second quarter.

Across our revenue categories, Access & Aggregation revenues for quarter 3 2018 were $91.9 million compared to $84.7 million last quarter. Customer Devices revenues for the quarter were $38.6 million versus $34.6 million for quarter 2 2018.

Traditional & Other Products revenues for the quarter were $9.9 million compared to $8.7 million for quarter 2 2018.

Looking at the revenues geographically. Domestic revenues for quarter 3 2018 were $83.7 million versus $68.2 million reported in quarter 2 of 2018. Our international revenues for quarter 3 2018 were $56.6 million compared to $59.8 million for quarter 2. We've published a reporting of each of these categories on our Investor Relations web page at adtran.com.

For the quarter, we had 3 10%-of-revenue customers.

Our GAAP gross margins for the third quarter of this year were 41.6% compared to the 46.7% reported for third quarter of 2017 and 39% last quarter. Non-GAAP gross margins for quarter 3 were 42% versus 46.8% in quarter 3 of last year and 39.8% in the previous quarter. The year-over-year decrease in our gross margins was driven primarily by the decreased volume of our domestic business and higher weighting of international business. Our quarter-over-quarter gross margin improvements were driven by customer mix, product mix and cost reductions domestically both in our product and services segments.

Total operating expenses on a GAAP basis were $60.6 million for quarter 3 of 2018, a decrease of $7.6 million compared to $68.3 million for quarter 3 of last year and $2.2 million lower than the $62.8 million reported last quarter.

On a non-GAAP basis, our Q3 operating expenses were $58.3 million compared to $65.8 million in quarter 3 of last year and $59.8 million last quarter. The year-over-year decrease in operating expenses is primarily attributable to lower compensation and labor expense, third-party contract services and project-related engineering materials in the quarter. The quarter-over-quarter decrease in operating expenses was primarily the result of lower contractor services, restructuring expenses and compensation and labor expense.

The difference between GAAP and non-GAAP operating expenses in Q3 is due to stock-based compensation, amortization expenses related to our acquisitions and restructuring expenses.

Operating income on a GAAP basis for the quarter just ended was a loss of $2.2 million compared to operating income of $18.2 million reported in Q3 of last year and an operating loss of $12.8 million reported in the previous quarter. The decrease in Q3 GAAP operating income as compared to Q3 2017 is attributable to both lower revenues and gross margins due to lower domestic sales volumes, specifically the large Tier 1 vectoring program, partially offset by lower operating expenses. The quarter-over-quarter increase in operating income is primarily driven by higher revenues with favorable gross profit mix and lower operating expenses.

Non-GAAP operating income or adjusted EBIT for Q3 2018 was $647,000 compared to $20.8 million for quarter 3 of last year and a loss of $8.9 million reported in quarter 2 2018. As described in the supplemental information provided in our operating results disclosure, stock-based compensation expense net of tax was $1.3 million for quarter 3 2018 compared to $1.4 million reported in quarter 3 of last year as well as last quarter.

Expenses related to the amortization of acquired intangibles for the quarter were $681,000 net of tax compared to $299,000 in quarter 3 of last year and $841,000 last quarter. Restructuring expense net of tax was $193,000 for the quarter just ended compared to $131,000 reported in quarter 3 of last year and $758,000 last quarter.

All other income net of interest expense for quarter 3 of 2018 was $5.4 million compared to $1 million for quarter 3 2017 and $1.6 million last quarter. The increase in other income this quarter was driven by gains on investments.

The company's tax provision for quarter 3 of 2018 was a tax benefit of $4.4 million as compared to a tax expense of $3.3 million or 17.2% in quarter 3 of 2017 and a $3.6 million tax benefit in the second quarter of 2018. The shift in tax from an expense in Q3 of last year to a benefit of $4.4 million in quarter 3 of this year was primarily driven by a completed analysis of the impact of the Tax Cut and Jobs Act, the completion of other tax projects and current year net losses in our domestic business.

GAAP net income for quarter 3 of 2018 was $7.6 million compared to $15.9 million for the third quarter of last year and a loss of $7.7 million last quarter. Non-GAAP net income for the third quarter of 2018 was $9.8 million compared to $17.8 million in quarter 3 of 2017 and a loss of $4.6 million last quarter.

Earnings per share on a GAAP basis, assuming dilution, was $0.16 compared to 33% -- $0.33 for third quarter of last year and a loss of $0.16 per share for quarter 2 2018.

Non-GAAP earnings per share for the third quarter of this year were $0.21 compared to $0.37 per share for quarter 3 of last year and a loss of $0.10 per share last quarter.

Non-GAAP earnings per share exclude the effects of stock compensation expense, amortization of acquired intangibles and restructuring expense. We've provided a reconciliation between diluted GAAP earnings per share and diluted non-GAAP earnings per share in our operating results disclosure.

Now turning to the balance sheet. Unrestricted cash and marketable securities net of debt totaled $195.9 million at quarter-end after paying $4.3 million in dividends and repurchasing 88,000 shares of common stock for $1.4 million during the quarter. For the quarter, ADTRAN used $4.2 million of cash in operations.

Net trade accounts receivable were $101.9 million at quarter-end, resulting in a DSO of 67 days compared to 51 days at the end of the third quarter of 2017 and 54 days last quarter. The increase in DSO versus the same period last year and last quarter is mainly attributable to customer mix and the timing of shipments within the quarter.

Inventories were $106.1 million at the end of the third quarter compared to $120.5 million last quarter.

Looking ahead to the next quarter, the book-and-ship nature of our business, timing of revenues associated with large projects, the variability of order patterns in the customer base into which we sell and the fluctuation in currency exchange rates in our international markets we sell into, may cause material differences between our expectations and actual results. However, our current expectations are our fourth quarter 2018 revenues will be in the range of $135 million, plus or minus $5 million. Also taking into account the potential impact of currency exchange rates and anticipated mix, we expect that our fourth quarter gross margins on a GAAP basis will be around 40% due to the higher -- continued higher mix of international business. We expect that GAAP operating expenses for quarter 4 of 2018 will be approximately $62 million.

Finally, we expect volatility in the quarterly tax rate for the rest of the year due to the anticipated mix of U.S. versus international income and the impact the new tax law is having on those earnings. That said, we anticipate the consolidated tax rate for the fourth quarter to be a benefit of approximately 20%.

We believe the significant factors impacting revenue and earnings realized in 2018 will be the following: macro spending environment for the carriers and enterprises; currency exchange rate movements; the variability of mix and revenue associated with project rollouts; professional services activity level, both domestic and international; the timing of revenue related to the Connect America Fund projects; the adoption rate of our Broadband Access platforms; and inventory fluctuations in our distribution channels. You can see this information at ADTRAN's Investor Relations website by going to www.adtran.com and following the Investor Relations link.

With that I'll now turn the call back over to Tom.

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Thomas R. Stanton, ADTRAN, Inc. - Chairman & CEO [4]

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Great. Thank you, Roger. Savanna, at this point, we're ready to open it up for any questions people may have.

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Questions and Answers

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Operator [1]

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(Operator Instructions)

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Thomas R. Stanton, ADTRAN, Inc. - Chairman & CEO [2]

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Go ahead.

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Ashwin Kesireddy, Goldman Sachs Group Inc., Research Division - Equity Analyst [3]

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This is Ashwin on behalf of Rod. My first question is on components really. Just wondering if you guys are seeing any impact from emergency component shortages. And sort of related to that, I also wanted to check if you are seeing any higher component costs into equipment because of tariffs. And then I have a follow-up.

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Thomas R. Stanton, ADTRAN, Inc. - Chairman & CEO [4]

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Sure. So component shortages, there are -- we have seen some component shortages. But to be honest, we've seen those component shortages pretty much throughout the entire year and probably a little bit into last year. So it's been a tightening of the market really as we've seen economies recover. I would say there is -- the way that, that manifests itself to us is just longer lead times. So I would say there's nothing materially different now than, let's say, 6 months ago.

From a tariff perspective, one of the positive things that we have going for us, of course, is that we do not manufacture a material amount of goods in China. So the direct tariff to us for finished products is relatively small. We do -- there are some components that are affected depending on where we manufacture, but I would say that they're -- at this point in time, it's manageable. There is an impact and it's over a year's period of time, the way we're calculating it, and maybe a couple of million dollars or so. But at this point in time, it seems very manageable.

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Ashwin Kesireddy, Goldman Sachs Group Inc., Research Division - Equity Analyst [5]

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Got it. And I want to check on this large Tier 1 customer that slowed this year. Can you update us on your expectations there? And what are you thinking in terms of timing? And at what point do you think there is -- or if at all, do you think there is any share risk at this customer now?

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Thomas R. Stanton, ADTRAN, Inc. - Chairman & CEO [6]

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I think you're talking about the big year-over-year decline that we saw because of that customer, is that correct?

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Ashwin Kesireddy, Goldman Sachs Group Inc., Research Division - Equity Analyst [7]

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Yes.

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Thomas R. Stanton, ADTRAN, Inc. - Chairman & CEO [8]

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Yes, so as far as share risk, I don't believe so. So they -- the impact that we had was really the -- effectively, the cancellation for a period of time of a major project because of the vectoring project. We have seen that customer actually regain some interest in, let's say, activity in that area. I won't say that the project is as large, but we are working with them on some specific things that I think are very cost effective for them to do. Right now, our revenue is kind of at a steady state with that customer. And that's kind of the expectations we have -- that we had kind of set around Q2 of this year. So it's been fairly predictable, let's say. And of course, the business we have with them is not only -- we do some vectoring, we do some PON business and, of course, we do Connect America Fund Business as well.

As far as next year is concerned, we really haven't set that. It really depends on some of these kind of project trials that we have. We have projects -- or trials going on both on the vectoring side as well as on some meaningful services potential business for us that we'll just have to see as they evolve next year. Does that answer your question?

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Ashwin Kesireddy, Goldman Sachs Group Inc., Research Division - Equity Analyst [9]

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Okay. Yes, that's good.

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Operator [10]

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And we'll go next to Paul Silverstein with Cowen.

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Paul Jonas Silverstein, Cowen and Company, LLC, Research Division - MD and Senior Research Analyst [11]

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Tom and Roger, I was hoping you could walk us back through the steps. I know timing is always difficult to predict, and especially with these big projects, but I was hoping you could walk us back through the larger projects like NBN, the AT&T, G.fast. I know you mentioned the cable opportunity, but if you could revisit the cable opportunities and anything else I may be forgetting, that'd be greatly appreciated.

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Thomas R. Stanton, ADTRAN, Inc. - Chairman & CEO [12]

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Yes, sure. So first on the Australia G.fast shipments. We did actually start shipping in a material manner in Q3. We didn't ship everything that was scheduled for Q3. So there's a little bit of that, that got pushed into Q4. And it just so happens that math is fairly easy as to kind of where -- what our initial expectations in Q3 versus where they ended up. And that had to do with the fact that we ran into some kind of last-minute lab issues early into Q3, and we had to remedy those lab issues, which means we didn't really start shipping that customer till the second half of the quarter. I think, honestly, our operations team did a very good job of trying to recover, and they recovered materially, but we still left some product on the shelf that has probably since shipped in this quarter. So all of that is actually -- albeit we saw a delay, is understandable.

As far as the cable opportunities, I think probably the big news is you may be aware that there was effectively a process going on for selection of some new EPON equipment, 10-gig remote EPON equipment, with a very, very large MSO here in the U.S. And we were selected for that deployment actually during the quarter towards the tail end of Q3. And we still have lab activity and things to do there, but that is probably -- that is the biggest single EPON award that we've been given. Having said that, we still ship EPON, which is kind of more central. Let's call it central office, but it's more centralized solution EPON to a few customers here in the U.S., including some of the largest MSOs. Both of those, actually, did very well in the quarter. That kind of highlighted the growth that we saw in that business. We expect -- it's a fairly new base for us, but we expect more typical seasonal decline in Q4. Although it's -- like I said, that's a fairly new business for us.

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Paul Jonas Silverstein, Cowen and Company, LLC, Research Division - MD and Senior Research Analyst [13]

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And AT&T?

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Thomas R. Stanton, ADTRAN, Inc. - Chairman & CEO [14]

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AT&T did not -- I'm not going to talk about a specific customer. So in Tier 1 G.fast shipments here in the U.S., I would say that they were sluggish. So I think there were still -- the product itself is up and ready to go and it's fully integrated. And at this point, it's a matter of them going out and selling the product. And I would say that, that's -- it's not to a level that we had expected. And we're encouraged by the discussions we have, but we haven't seen it really happen yet.

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Paul Jonas Silverstein, Cowen and Company, LLC, Research Division - MD and Senior Research Analyst [15]

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And Tom, going back to NBN and the cable MSOs, you previously kind of sized those opportunities. Has there been any change in your thinking? Has there been any change in the timing? In NBN in particular, now that you've received and actually shipped on -- off the first orders, is that any sense for the rhythm of that business? Have you already gotten in more orders? And so there'll be a seasonal aspect, but now it's ongoing? Or is it going to be deploy, digest, deploy, digest?

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Thomas R. Stanton, ADTRAN, Inc. - Chairman & CEO [16]

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Yes, I would -- I don't -- the answer as far as future purchase orders, the answer to that is directly yes. We do have future purchase orders. As far as how quickly they consume the inventory that they have, it's -- there are a lot of variables in that today. I feel comfortable that they have a very solid operating plan. But we really just started shipping last quarter. So I would say it's a little early to -- I understand what the plan is, but it's a little early to understand what the reality is going to be.

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Paul Jonas Silverstein, Cowen and Company, LLC, Research Division - MD and Senior Research Analyst [17]

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One last question for me, just to clarify. You mentioned specifically G.fast for NBN. Is this specifically G.fast? Or are there also other technologies that they're using from you for their Broadband Access delivery?

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Thomas R. Stanton, ADTRAN, Inc. - Chairman & CEO [18]

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It is. This -- the product that we're shipping can actually operate in a VDSL mode or G.fast mode, so it covers those 2 spaces. It does not cover the fiber space, which may be what you're talking about.

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Operator [19]

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And our next question comes from Michael Genovese with MKM Partners.

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Michael Edward Genovese, MKM Partners LLC, Research Division - MD and Senior Analyst [20]

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So the fourth quarter guidance is better than normal seasonality in terms of the sequential change, but The Street was actually, I think, a little bit ahead in terms of sequential change than where you guided to. So my question is, just in terms of total second half '18 revenue, when we put 3Q and 4Q together, I'm hearing -- it sounds like maybe there was just a sort of slight downtick the timing of G.fast across 2 continents. Not just 1, but 2. And then I'm wondering, if that's right. And then secondly, what else sort of changed in your expectations for the second half. Which sort of customers, which vertical, which got better, which got worse, which are the same from the beginning of the third quarter to the end of the third quarter?

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Thomas R. Stanton, ADTRAN, Inc. - Chairman & CEO [21]

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Yes, sure. So let me see if I can capture that. And if I don't capture a piece of that, then just reiterate it to me. So in general, I think G.fast shipments -- let's say, G.fast purchase orders in the second half are effectively where we had expected them to be. We did see the -- what you're talking about from seasonal versus where we ended up, and it being up, is reflective of the fact that we did not ship some of the product in Q3. So the Q3 order flow, we're expecting to be more seasonal. But actual shipments will be up because of the shipments that we did not ship in Q3, and that was literally just us getting them out the door, right? So that kind of explains that number.

If we look at the second half, let's say, earlier in the year versus now, probably the biggest -- maybe not the biggest but one of the pieces, and that probably is the biggest, is the fact that the G.fast shipments here in the U.S. still haven't materialized. So we have been going back and forth, and honestly, we've seen a lot of variations in forecasts. And we're still -- that product just has not yet -- that product is just not yet being opted by that customer, and that product is dependent upon that customer being successful with their sales initiatives. So that's probably the biggest thing. The variability that we expect, is we have a fairly wide range in Q4, although we expect it to be seasonal, plus the uptick, we still gave a fairly wide range. That range is -- there is a -- it's really going to be dependent upon our European customer and just what they end up doing with their inventory situation. We really don't know more than that, but that range is a little wider in Q3 than it -- excuse me, Q4, than it typically is.

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Michael Edward Genovese, MKM Partners LLC, Research Division - MD and Senior Analyst [22]

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Great, that's super helpful. And just very quickly, on the G.fast product, if you're selling in Asia-Pacific or you're selling in the U.S., are the gross margins very different on that product?

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Thomas R. Stanton, ADTRAN, Inc. - Chairman & CEO [23]

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No, not materially.

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Michael Edward Genovese, MKM Partners LLC, Research Division - MD and Senior Analyst [24]

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Okay. And then finally, inventory. Just it seems very low this quarter. If you're going to do $135 million in revenue but you're only going in with $100 million in inventory, can you just explain that to us?

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Thomas R. Stanton, ADTRAN, Inc. - Chairman & CEO [25]

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Yes, that's still too high. So our inventory situation was dramatically impacted. So we've seen an uptick, and some of that had to do with us prepositioning some of the material for the tariff to make sure that we weren't hurt. Not a lot of that was that, but there was some explicit buys. We also picked up some material because of the shortages that were previously mentioned. So there are certain areas where we did some spot buys, probably even like towards into the tail end of last year, that actually kind of increased our inventory. But then it was materially increased because of what happened with the vectoring customer here in the U.S. And we have been working on bringing those inventories down. I -- $100 million is not a low number. And that does not at all scare me for doing north of $150 million actually. So I understand there's a mix problem, but our inventory level even at $100 million is not what we're happy with. I was glad to see the decrease, actually, because we have been working on that now for -- since the beginning of the year once we have a good tick up.

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Operator [26]

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And our last question comes from Rich Valera with Needham & Company.

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Richard Frank Valera, Needham & Company, LLC, Research Division - Senior Analyst [27]

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Tom, I was hoping you could give a little more color on the new Tier 1 EPON win with that North American MSO. Do you expect that to generate revenue in the fourth quarter? Or is that just a 2019 revenue-generating event. And if there's any other color you can give in terms of the potential magnitude with that, that'd be helpful.

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Thomas R. Stanton, ADTRAN, Inc. - Chairman & CEO [28]

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Sure. So it is a project that we have been working on over a year from an R&D perspective, and from a sales perspective, of course, longer than that. So this customer does currently buy our EPON solution and uses it for deployment of the majority, if not all, of their EPON deployments today. But they are, relatively to the size of this customer, small. They actually still are material to us, but this is a very, very large customer.

The new product solution, the reason people have been anxious to get their different products approved into this space, us being one of them, is that it materially changes the method by which they deploy EPON and it materially lowers the cost. So the intention is for them to be able to start deploying this product and change the entire -- the market size that they're actually deploying into. From a timing -- and so it was a very significant win for us. The timing of that was, and I mentioned this in my notes, we're expecting it right now towards the tail end of next year because we have to give different lab cycles and things that it will not affect this year. The only positive to that being so long is they are right now effectively single sourcing their current EPON solution from us. To the extent that this extends, we are seeing revenue, and we would expect to see increased revenue next year as they continue to focus more on EPON.

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Richard Frank Valera, Needham & Company, LLC, Research Division - Senior Analyst [29]

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Got it. And then not sure if you gave an update on the Verizon GPON situation. If not, if you could give any additional color on that?

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Thomas R. Stanton, ADTRAN, Inc. - Chairman & CEO [30]

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Sure. We're continuing to progress with them. We did reach a couple of fairly big milestones in the quarter. I don't want to overstate where we are. I would say that our confidence continues to grow with that customer, and I probably don't want to say any more than that. But other than the fact that I think we're in a -- from a R&D perspective and kind of entire year perspective, we're feeling -- we continue to feel better.

All right. Well, I appreciate everybody joining us on our call today, and look forward to talking to you next quarter.

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Operator [31]

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And this does conclude today's call. Thank you, everyone, for your participation. You may disconnect at any time, and have a great day.