Key Highlights

  • ADTN shares were trading down 14.26% at $5.38 from a prior close of $6.28.
  • Fourth-quarter Revenue is guided to $272 million to $292 million.
  • Third-quarter adjusted EPS was $0.09 against $0.04 expected.

ADTRAN Holdings (NASDAQ:ADTN) was trading down 14.26% at $5.38 in today's regular session, a decline of $0.90 from the prior close of $6.28, and near its 52-week low of $5.03. The company reported third-quarter adjusted EPS of $0.09 against $0.04 expected, and revenue of $281.2 million, up about 1% and flat sequentially, against an estimate of $285.7 million. Fourth-quarter revenue guidance of $272 million to $292 million is centered below a consensus near $292.9 million, with non-GAAP Operating Margin guided to 1% to 5%.

ADTRAN, based in Huntsville, Alabama and founded in 1985, provides open, disaggregated networking and communications platforms, software and services across broadband access, metro optical transport and Data Center interconnect. It combined with ADVA Optical Networking, now Adtran Networks SE, in 2022, has about 3,300 employees and reports Network Solutions and Services and Support segments.

Third-Quarter Margins, Supply and Cash

Optical networking grew 11% to $114.5 million. Non-GAAP gross margin was 42.1%, including about 200 basis points from one-time IEEPA Tariff refunds, and non-GAAP operating margin was 5%. Management said supply constraints on optics, lasers, semiconductors, memory and PC boards cost the company tens of millions of dollars in shipments, that 80% to 90% of margin pressure comes from supply costs and that supply will be the biggest headwind in 2027.

Operating cash flow was negative $24.5 million and free cash flow was negative $39.4 million, with inventory of $227.4 million, receivable days of 77 and cash of $71.7 million. Management expects Working Capital to normalize in the fourth quarter and maintains a long-term non-GAAP operating margin target of 10%.

Hyperscaler Growth and the European Vendor Replacement Opportunity

Hyperscaler revenue grew more than 200% year over year and about 20% sequentially, a bit over 10% of revenue. Lightwave 800 trials are expected to begin in the first half of 2027 with production scaling in the second half, and the microMUX Quattro is set for release in the first half of 2027. A price increase covering about 70% of customers takes effect next year.

In Europe, the EU Cybersecurity Act 2 is expected to be finalized in early 2027, with roughly $850 million of annual addressable equipment revenue and about $10 billion of equipment to be replaced. A large customer's access orders are expected to normalize in the first quarter of 2027. The stock has a forward price-to-earnings ratio of 10.82, trailing Earnings of $0.39 per share and a 52-week range of $5.03 to $19.98.

Supply Constraints and the First-Quarter Order Normalization Are the Next Markers

ADTRAN is trading lower on a fourth-quarter outlook centered below consensus. The next items to follow are fourth-quarter results against the $272 million to $292 million guide, supply conditions for optics and memory, and the Lightwave 800 trials in the first half of 2027.