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spk02: Ladies and gentlemen, thank you for standing by and welcome to ADTRAN's fourth quarter 2020 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. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. During the course of the conference call, 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 continued spread and extent of the impact of the COVID-19 global pandemic, the ability of component supplies to align with customer demand, the successful development and market acceptance of our products, competition in the market for such products, the product and channel mix, component costs, manufacturing efficiencies, and other risks detailed in our annual report on Form 10-K for the year ended December 31, 2019, and our quarterly report on Form 10-Q for the quarter ended September 30, 2020. 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.
spk08: Thank you, Chris. Good morning, everyone. We appreciate you joining us for our fourth quarter 2020 conference call. With me today is AdTrans CFO Mike Foliano. Following my opening remarks, Mike will review the quarterly financial performance in detail, and then we will take any questions that you may have. COVID-19 continues to impact our day-to-day lives and the way that we do business. It has highlighted the importance of the work we do, enabling operators to provide high-speed broadband connectivity for consumers and businesses. I am proud of our employees' perseverance throughout these difficult times and want to start by saying thank you to all of our team. Moving to the quarterly performance. The results for the fourth quarter demonstrated solid execution against our plan. This included broad-based demand across our customer segments, with a strong contribution from regional and emerging service providers. We continue to make great progress with the Tier 1 fiber access projects that we announced earlier last year, while still growing and diversifying our customer base across a variety of market segments. From a top-line perspective, revenue for the quarter was $130.1 million with 41.1% gross margin. Network Solutions accounted for 88% of that total revenue at $114.1, while global services contributed 16 million. During the quarter, we had four 10% customers, one of the highest numbers we have ever reported. Each of these customers' percentage of total revenue was in the low double digits, pointing to the success of our diversification efforts. Of these, there was one service provider customer and three distribution partners. These distribution partners serve hundreds of regional service providers in the U.S. market with a mix of broadband access and connected home and enterprise solutions, further reinforcing our success that we are having with both customer and portfolio diversification. New customer acquisition remains strong. We added 35 new service provider customers during the quarter, bringing the total to 134 for the year. Our fiber access portfolio has led the way in terms of both new customer acquisition and revenue growth. We expect this to continue as our fiber access solutions and software platforms are adopted by customers around the world who are upgrading their networks due to favorable government, regulatory, technology, and competitive factors. Similar to Q3, the growth that we saw during the quarter was led by our continued success in the Tier 2 and regional broadband operator market in the U.S., which was up 85% year over year. We are seeing increasing demand for our fiber access, connected home, and cloud services offerings. Our fiber access and aggregation business grew 98% year over year. In-home service delivery platforms were up 68% year over year. And cloud services increased 46% year over year. We are seeing similar trends in Europe, where favorable regulatory and funding environments are driving the build of fiber access networks. We posted revenue growth of 54% year-over-year in the EMEA market segment. This increase was driven by investment in 10-gig fiber access networks with European AltNet providers. In the Tier 1 customer segment, as mentioned earlier, we are making great progress with all three announced wins, including two European and one U.S.-based customer. Two of the three have already achieved a significant milestone of first customer connections. and we expect lab exit for all three around the middle of the year. In addition, we are actively involved in several other Tier 1 decision processes around the world, some of which we expect to reach decision points around the middle of this year. COVID-19-related logistics issues and global chip shortages continue to impact lead times and inventory levels, and our operations team continues to take proactive steps to mitigate logistics and component availability challenges to meet our customer needs. However, lead times do remain extended on some key components, and as a result of our efforts to address these needs, we have maintained elevated inventory levels and incurred increased freight costs due to decreased capacity associated with higher transportation rates and expedite fees. From an organizational perspective, we continue to maintain a disciplined approach to operational expenses. The structural changes that we have implemented over the last year continue to improve our operational efficiency. In the past 18 months, we have reduced our non-GAAP quarterly operating expenses by almost 12 million, or 19%, through disciplined expense management. These changes have allowed us to reach investment levels that aligns with our target operating model moving forward. On the product side, we continue to invest in end-to-end broadband solutions that make it easy for broadband operators to deploy and operate fiber-based broadband access networks. In the customer connectivity segment, we expanded our in-home service delivery platforms with our new SDG series of cloud-managed mesh Wi-Fi 6 gateways. These platforms deliver gigabit speeds wirelessly throughout the home or business. They are complemented by an intuitive mobile app and cloud-based software suite that simplifies deployment and management of Wi-Fi mesh IoT advanced security and parental control services. These platforms will enhance our ability to capitalize on the increased investment we are seeing in the connect-and-home segment. In fiber access, we have established ourselves as one of the fastest-growing vendors through the widespread adoption of our 10-gig fiber access platforms. Whether you're a regional operator looking for an easy-to-deploy system with integrated access and transport, or a large Tier 1 broadband operator seeking the leading open disaggregated fiber access platform available, AdTrend has solutions that are an ideal match for these customers' needs. On the software side, we enhanced our cloud software suite with the launch of Mosaic One, a SaaS offering that combines network and subscriber analytics with AI-driven algorithms to optimize end-to-end network performance while providing actionable insight for operations and marketing teams. Highlighting our growth in cloud service, we secured our largest SaaS contract to date with an award that covers hundreds of thousands of customers over a multi-year period. The consumer demand and government support for fiber-based broadband services are at an all-time high. One notable program, of course, is the FCC's Rural Digital Opportunity Fund, or RDOF, and in December, the FCC announced 180 winning bids in the RDOF Phase I auction. These winning bidders are expected to receive a total of $9.2 billion in funding over a 10-year period to build out broadband services to over 5 million homes. Over 85% of these homes will be served with gigabit broadband speeds. AdTrans Portfolio is a great match to these service tier and customer segments. In Europe and around the globe, many global operators are significantly increasing their fiber investment while also looking to diversify the vendors in their supply chains. As an established global vendor with a leading fiber access portfolio and global R&D presence, including Europe, ADTRAN continues to stand out as a reliable option for future broadband deployments. The shift to gigabit-enabled fiber access networks will also drive further demand for gigabit-capable cloud-managed wireless mesh connectivity in the home or business, providing material additional growth opportunities for ADTRAN as end-to-end broadband solution provider. I mentioned earlier in 2020 that Abtrans fiber business had eclipsed our copper business for the first time in our history. In Q4 of 2020, fiber-related solutions represented over 70% of our business. Overall, we achieved some key milestones in 2020, and we have a lot of positive momentum in the growth segments of our portfolio, driving a diversified customer base in our target markets. The progress that we had in 2020 has us well-positioned for additional success in 2021. Mike will now provide a review of our financials. Following those remarks, I will be happy to answer any questions you may have. Mike?
spk07: Thanks, Tom, and good morning to all. I will review our fourth quarter 2020 results and also provide our view on the first quarter of 2021. During my report, I will be referencing both GAAP and non-GAAP results with reconciliations presented in our press release and supplemental financial schedules on our investor relations webpage at www.adtran.com slash investor. The supplemental financial schedules on our webpage also present certain revenue information by segment and category, which I will be discussing today. As Tom stated, our fourth quarter revenue came in at $130.1 million dollars. compared to $133.1 million in the prior quarter and $115.8 million for the fourth quarter of 2019. Breaking this down across our operating segments, our network solutions revenue for the fourth quarter was $114.1 million versus $115.2 million reported for Q3 of 2020 and $96.2 million in Q4 of 2019. Our services and support revenue in Q4 was $16 million compared to $17.9 million reported for the third quarter of 2020 and $19.6 million for the fourth quarter of 2019. Across our revenue categories, access and aggregation revenue for the fourth quarter of 2020 was $79 million compared to $85.4 million in the prior quarter and $74.6 million in quarter four of 2019. Revenue for our subscriber solutions and experience category was $45.4 million for the quarter versus $43.1 million for quarter three of 2020 and $33.2 million for quarter four of 2019. Traditional and other products revenue for the quarter was $5.8 million compared to $4.6 million in Q3 of 2020 and $8 million for quarter four of 2019. Looking at our revenue geographically, Domestic U.S. revenue for Q4 2020 was $95.8 million versus $92.8 million reported in quarter three of 2020 and $69.9 million in quarter four of 2019. Our international revenue for the quarter was $34.3 million compared to $40.3 million for quarter three of 2020 and $45.9 million in quarter four of 2019. In the fourth quarter, we had four 10% of revenue customers. Our gap gross margin for the fourth quarter was 41.1% as compared to 44.3% in the prior quarter and 40.8% in the fourth quarter of 2019. Non-GAAP gross margin for the quarter was 41.3% as compared to 44.5% in the prior quarter and 41.2% in the fourth quarter of 2019. The quarter-over-quarter decrease in both GAAP and non-GAAP gross margins were driven by product, services, and customer mix and lower volume and lower manufacturing absorption. The increases in both GAAP and non-GAAP gross margin on a year-over-year basis were driven by increases in volume as well as product, services, customer, and geographical mix changes. During the quarter, we did experience extended component lead times, which we expect to continue into 2021, potentially affecting component availability and component and logistics costs. Total operating expenses on a GAAP basis were $56.8 million for quarter four of 2020 compared to $54.4 million reported in the prior quarter and $61.3 million for Q4 of 2019. The quarter-over-quarter increase was primarily related to market-driven increases in our deferred compensation expense, restructuring related costs in both R&D and SG&A, and contract services partially offset by a decrease in labor expense as a result of our restructuring program, which was initiated in 2019. The year-over-year decreases in operating expenses were a result of lower labor expenses in both R&D and SG&A as a result of our restructuring program, and lower travel-related expenses partially offset by increases in contract services costs, restructuring expenses, and market-driven increases in our deferred comp expense. On a non-GAAP basis, our fourth quarter operating expenses were $49.5 million compared to $49.4 million in the prior quarter and $56.8 million in the fourth quarter of 2019. The slight increase quarter-over-quarter in non-GAAP operating expenses was primarily due to increases in contract services offset by a decrease in labor expenses. The non-GAAP year-over-year decrease in operating expenses was primarily the result of our expense reduction efforts and lower travel expenses year-over-year partially offset by an increase in contract services. Operating loss on a GAAP basis for the fourth quarter of 2020 was $3.3 million compared to an operating income of $4.5 million in the prior quarter and an operating loss of $14.1 million reported in Q4 of 2019. Non-GAAP operating income for quarter four of 2020 was $4.3 million. compared to $9.9 million in the prior quarter and an operating loss of $9 million in quarter four of 2019. The quarter-over-quarter gap decrease in profitability was attributable to lower sales volume, less favorable gross margin mix, and higher operating expenses driven by restructuring and market-driven deferred compensation expenses. The year-over-year decrease in GAAP operating loss was driven by higher sales with favorable gross margin mix and reduced operating expenses. The non-GAAP quarter over quarter decrease in profitability was mainly driven by lower sales volume and less favorable gross margin mix. The non-GAAP year-over-year operating income improvement was related to higher sales volume, higher gross margin mix, and reduced operating expenses. Other income on a GAAP basis for the fourth quarter of 2020 was $3 million compared to other income of $1.5 million in the prior quarter and other income of $3.2 million for quarter four of 2019. Our non-GAAP other income for the quarter was $1.7 million compared to a non-GAAP other income of $876,000 in Q3 of 2020 and $2.9 million for quarter four of 2019. The increases in both the GAAP and non-GAAP other income as compared to the prior quarter were primarily market driven, caused by increases in the fair value of our investment portfolio and lower realized foreign currency exchange losses. The decrease in GAAP and non-GAAP other income on a year-over-year basis was primarily driven by higher realized foreign currency exchange losses and lower gains in our investment portfolio. The company's tax provision for the fourth quarter of 2020 was a benefit of $6.5 million as compared to a $562,000 expense in the prior quarter and a $768,000 expense in the fourth quarter of 2019. The current quarter benefit was primarily the result of finalizing our 2019 net operating loss carryback claims related to the 2020 CARES Act and a shift in profitability across tax jurisdictions. The tax expense for the fourth quarter of 2019 was a result of our international operations as the deferred tax benefits generated in that quarter by our domestic operations were offset by additional changes in the valuation allowance that was previously established in the third quarter of 2019. GAAP net income for quarter four of 2020 was $6.1 million compared to $5.5 million in the prior quarter and a net loss of $11.6 million in the fourth quarter of 2019. Non-GAAP net income for the fourth quarter of 2020 was $5.2 million as compared to $7.9 million in the prior quarter and a net loss of $2.5 million in quarter four of 2019. Earnings per share assuming dilution on a GAAP basis was 13 cents as compared to 11 cents per share in the prior quarter and a loss of 24 cents per share in the fourth quarter of 2019. Non-GAAP earnings per share, assuming dilution for the fourth quarter of 2020, was 11 cents per share compared to 16 cents per share in the prior quarter and a loss of 5 cents per share in the fourth quarter of 2019. Turning to the balance sheet, unrestricted cash and marketable securities totaled $118 million at quarter end after paying $4.3 million in dividends during the quarter. For the quarter, we used $11.2 million of cash from operations. Net trade accounts receivable was $98.8 million at the end of the quarter, resulting in a DSO of 70 days compared to 69 days in the prior quarter and 72 days at the end of the fourth quarter of 2019. The variability in DSOs quarter over quarter and year over year is mainly attributable to the timing of shipments. Net inventories were 118.7 million at the end of the fourth quarter compared to 120.3 million in Q3 of 2020 and 98.3 million at the end of Q4 of 2019. While our inventories were down slightly quarter over quarter, we continued to carry higher inventory levels in preparation for new product ramp-ups and strategic inventory buffer purchases, which have been made to ensure supply continuity throughout the pandemic. We believe that we are positioned to maintain adequate liquidity in the current environment. Looking ahead to the next quarter, the possible effects of the ongoing pandemic the availability of component supplies to align with our customer demand, the book and ship nature of our business, potential supply chain expediting costs, and other component and logistics cost variations, the timing of revenue associated with large products, the variability of order patterns into the customer base in which we sell, as well as fluctuations in currency exchange rates, in our international markets may cause material differences between our expectations and actual results. Having said all that, we expect that our first quarter 2021 revenue will be in the range of $122 to $130 million. After considering the projected sales mix, we expect that our first quarter gross margin on a non-GAAP basis will be in the range of 40% to 42%. We also expect that non-GAAP operating expenses for the first quarter of 2021 will be about $50 million. And finally, we anticipate the consolidated tax rate for the first quarter on a non-GAAP basis will be in the low 20s percentage rate. We believe that the significant factors impacting revenue and earnings realized in 2021 will be component availability and costs, macro spending environment for carriers and enterprises, the ongoing effects of the COVID-19 pandemic, the variability of mix and revenue associated with our project rollouts, the proportion of international revenue relative to our total, professional services activity levels, both domestic and internationally, the adoption rate of our broadband access platforms, potential changes in corporate tax laws, currency exchange rate movements, and inventory fluctuations in our distribution channels. Once again, the financial information is available at ADTRAN's Investor Relations webpage, at www.adtran.com slash investor. Now I'll turn the call back over to Tom for questions.
spk08: Okay, thanks, Mike. Chris, at this point, we're ready to open up to any questions people may have.
spk02: Thank you. At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. The first question comes from Rod Hall of Goldman Sachs. Your line is open.
spk01: Can you repeat that? You were cutting out a little bit there. I was talking about, could you talk about the supply constraint situation that you're passing in the guidance?
spk08: The supply chain situation? Yeah. So, I mean, we've seen tightness throughout the year, but it's definitely, at least on the silicon side, continued to increase. I think everybody or a lot of people are aware of the lead time extensions by some of the silicon vendors. And There have been, you know, when you're having to go and buy chips from pretty much any outlets you can get, and you sometimes see expedite charges on those. We have factored that into our guidance for the next quarter. The reality is that we don't know exactly what that will be until we actually get those chips, you know, whatever chip it may be in-house, but we have tried to factor that into our guidance. Does that answer your question?
spk01: Could you help us maybe quantify it a little bit? If it does bite us, could you help us quantify it, like how much we're putting on the table, off the table for now because of supply situation?
spk08: That level of detail, to be honest with you, is not at hand right here, but it's not everything. It is predominantly on the chip side by far. And certain, you know, certain chips are worse than others. So, you know, I don't have an exact number. I can just tell you that when we rolled up our margin forecast that we did try to take into account, and we can look at that. We look at that, and Mike had mentioned gross margin forecast is fairly detailed in that we look at it on a skew level. So certain skews are impacted by it and certain ones aren't, but I don't think we have a total number on that.
spk01: Okay, fair enough. I have one more question. Could you expand on this RDOF opportunity? I believe last quarter you talked about how some of the providers were still figuring out what the plans were going to be. Maybe you had a few more conversations with them and then could you expand on the opportunity? I believe you mentioned second half, but it's going to be gradual.
spk08: I do think it will, you know, some carriers will kick off, as quickly as possible. Others will wait because there is some time period that you don't have to build everything right off of the bat. The quiet period is now over, and so we're able to have dialogue with a lot of the customers. I think we are happy as of now with kind of how things turned out. A lot of those customers are longstanding customers with AdTrend, and some of the bigger ones are definitely longstanding customers with AdTrend. We also, although there are WISPs involved that have won a significant amount of that award, some of those WISPs, if you actually get into the details, are actually going to be building out fiber, which is good for us. And then even where they are doing something different, let's say like fixed wireless, which is typically at lower rates, right? So there's still connectivity opportunities for us with those WISPs. I would say we're feeling pretty good about how the auction itself turned out at this point. Okay. All right. Thank you very much.
spk02: Your next question comes from George Notter of Jefferies. Your line is open.
spk04: Hi, guys. Thanks very much. I guess as I look into the quarter, my impression is that your largest North American customer was slow again, as they have been, I think, in prior Q4s. And it sounded like you were really able to backfill for that softness with Tier 2 and Tier 3 operators in the U.S. Is that the right picture that we should be thinking about here? And then I'd also like to know what the mix of your Tier 2 and Tier 3 operators is at this point. I think in the past you said it was about a third of the business, but it seems like that must be quite a bit bigger now. Any sense of that would be great. Thanks.
spk08: Yeah, I think we said last time. Mike, what did we say last time on the call? Well, first of all, it's the fastest growing segment we have. I think it was, do you remember what percentage we got?
spk07: I think we have said in the past that in general it's been roughly a third of each, but we've had so much growth in the Tier 3 segment that it is, it's at least twice the thirds, right? So it's growing fast.
spk08: So it's over 50%. And like Mike said, it may actually, from quarter to, well, it's been growing fast. So at this point in time, it's, closer to 60 than 50. And as far as the tier one customer in the U.S., you're exactly right. That customer did fall off in the Q4. The U.S. business was still up, which tells you that even we typically see a seasonal decline in Q4, so the rest of the U.S. business was pretty strong. There's also another piece that's kind of hidden a little bit. I shouldn't say hidden, but but not readily apparent, which is we do have another large customer in Australia that was down. And for the most part, the Altnet carriers in Europe were able to make up for that. So we had two areas of strength that we were glad to see happen.
spk04: Got it. And then, you know, CenturyLink, I think, has been the biggest, you know, customer historically. Any sense for what CenturyLink accounted for in the year as a percentage of sales, or should we just wait for the 10K filing?
spk08: Yeah, I literally don't have that in front of me. But, you know, they were stronger in the first half and kind of, you know, dwindled down a little in the second half, and then fourth quarter was not a great quarter, so. I really don't know. I don't know that, George. I guess you'll have to wait.
spk04: Great. Okay. Super. Hey, thanks very much, guys.
spk08: Okay.
spk02: Your next question comes from Richard Valera of Needham & Company. Your line is open.
spk05: Thank you. I wanted to follow up on the component tightness you're seeing here. At this point, do you think that would impede your ability to ramp in the second half? I mean, you noted making good progress with the number of Tier 1s, so presumably some ramp there. What's your confidence you'll be able to get the components to enact that ramp?
spk08: Where we have some predictability and, you know, believe it or not, there's actually more predictability in infrastructure builds like that, I think we're good. We have been placing orders out. for a long period of time. This newest change in lead time is relatively new, but the orders that we'd already placed under the old lead time regimen is still in place. So I don't have a lot of worry about that. Where it kind of hurts you the most, honestly, is the more unpredictable pieces, like take rates on ONTs and RGs and things like that, where You know, that business has just been going fantastic for us, and we've been able to keep up. Being able to buy those pieces, you know, those parts, because the variability can be 30%, 40% quarter to quarter, and, you know, you have different SKUs and everything. So that's probably a little bit more problematic. So far we're doing okay, but it's just going to get tougher.
spk05: Yeah, I know. Understood. And relatedly, I know you guys don't give multi-quarter guidance, but with these ongoing component issues, should we think of gross margins as sort of being relatively flattish over the next few quarters at sort of the level you've guided for Q1? You know, just wondering if there's any kind of broad color you could give on your thoughts on gross margin.
spk08: Yeah, that's probably the safest bet right now. We were expecting gross margins actually to expand this year. And at this point, you know, because we just don't know how bad, you know, third quarter or fourth quarter will be as far as trying to find parts. So that's probably a safe way to look at it.
spk05: Got it. And then, Tom, could you expand on the RFP, the outstanding RFPs that you're bidding on? You mentioned that you might see some of them actually be awarded as early as mid-year. Can you give us a little color on what that pipeline looks like?
spk08: Yeah, the number of RFPs out there is probably of, you know, material RFPs is, I don't know, somewhere between six and eight. Two of them we expect to close, and I will tell you, you know, we don't control that. But current expectation is for two of them to close before the half. Both of those are European. Both of those are global carriers with, you know, headquarters based in Europe.
spk05: Got it. That's helpful. And then finally, just on international, I mean, you noted that Australia was weak, but overall that business international was down pretty meaningfully year over year and quarter over quarter. Anything else in international that was going on?
spk08: No. Well, you know, our German carriers typically are a little bit of a wild card. They came in about where we expected. I mean, the biggest decline, it was a material decline in Australia. Having said that, that is a lumpy customer. There are times where they come in and, you know, we sell a lot, and there are times where we don't. We have just started shipping, actually, this quarter, a new award for them, which will, you know, continue around through this year. But it will still be lumpy. It will still be lumpy. I mean, the cold key to us is to grow that business. Tier 3, Tier 2, alternate carrier segment, which is hundreds of customers, to a point to where any of those material, you know, those larger Tier 1s won't have such material impact.
spk05: Right. Understood. Okay. Thanks for taking my questions.
spk02: All right.
spk08: Thank you.
spk02: Again, if you would like to ask a question, press star, then the number 1 on your telephone keypad. The next question comes from Paul Silverstein of Cowan. Your line is open.
spk06: Thanks, guys. I appreciate you taking the questions. Tom, as the Tier 2s and 3s, assuming that their growth continues to outstrip the growth of your Tier 1s so that they become a larger percentage of revenue as they did this quarter, does that change all of things being equal? Does that have an impact on your margin structure one way or the other?
spk08: Yes, yes.
spk06: I assume for the best.
spk08: That's a good assumption, yes. That is a good market for us.
spk06: Based on your current visibility, looking at your order book, your pipeline, I assume you expect that class of customers to continue to outstrip in terms of growth relative to overall growth relative to your two ones?
spk08: I think this year in totality, yes. I think next year, because we'll be in full bore with, you know, three tier ones buying fiber access equipment, I think next year will be more difficult for it to keep up, but I don't know. You know, RDOF may have an impact on that as well.
spk06: That begs the question, given that that shift should have a positive impact, and you're pointing out this year, what's the offset that keeps you, I recognize you all have been very transparent and saying that gross margin for the foreseeable future, and I think you all have quantified over the next two years, feel free to correct me if I'm wrong, that we shouldn't expect a meaningful change from the low 40s where it's been for quite some time. But given that shift, that that should have a positive impact, and it sounds like you're not expecting any uplift or any meaningful uplift in gross margin this year, what's the offset that's counteracting the benefit you should get from that customer mix-up?
spk08: Well, there are two things. We don't expect the supply chain to get better. And I will tell you, we are paying expedite fees now. You know, we paid them in Q4. And we paid, you know, at least from a historic perspective, very high logistics charges versus our typical. We don't expect that to get materially better this year. So, in fact, we expect pressure to increase. So that's point number one. Point number two, what we have tried to forecast in is some additional wins. So although what you're talking about is gross margin better in the smaller carrier segment, yes. Do I expect that growth to eclipse the growth in the, let's say, larger carrier segment this year? Yes. But having said that, we also still have some tier one projects that are just gonna be getting kicked off that will have a margin impact as we get them up and running. So that will also be a negative.
spk06: God, I appreciate that. And, Tom, I trust you're indicating that the expedite fees, which have been around for a while for you and for others, for the better part of the past year, you're telling us that they're actually higher this past quarter and you expect it to stay at that elevated level relative to previous quarters, or is that not the case?
spk08: Yeah, let me be a little more granular on that. So if I look at expedite fees for last quarter versus previous quarters on logistics and chip supply, It was a little higher. I expect it to get tighter this year.
spk06: All right. So it sounds like perhaps the bigger issue is you're hoping, expecting rollouts from the new Tier 1 awards. And as you pointed out, in the initial stage of those rollouts, the margins are especially relative over time.
spk08: Right. Once you get up and running and you've got some scale and volume and things, yes.
spk06: All right. And I apologize because I'm asking you to repeat yourself. But relative to your previous comments, you said there's six to eight RFPs in terms of pipeline of additional opportunities. And did I hear you that two of those are tier ones that you expect to be awarded in the first half of this year?
spk08: No, no, no. So, yes. So. Two of those are tier ones, but if I look at the number of RFPs that are out there or opportunities, it's way bigger than six or eight. So if I look at material, like large customers, it's in the realm of six to eight that we're working on right now. But I will tell you there's probably 100 smaller carriers that we're working on. I mean, we captured, what, 34, I think, carriers just last quarter. So at any point in time, there are hundreds that we're working on.
spk06: Understood. I appreciate the clarification. The six-day-a-year reference, are all of those non-U.S.?
spk08: Most of them.
spk06: Do you think that's tied specifically to Huawei getting cut back, or is it more than that?
spk08: I think it's three things. Well, I think it's really four things. I think it's Huawei, I think it's 10 gig, I think it's disaggregation, and I think it's COVID.
spk06: I appreciate the response. I'll pass it on. Thanks, Tom.
spk02: Okay. All right. Your next question comes from Bill DeZellen of Titan Capital. Your line is open.
spk03: Thank you, Tom. I'd actually like to follow up on your last comment. Why do you believe that COVID is playing a role there?
spk08: I think broadband became more important and Some countries, in fact, I just had a conversation late last night with a customer. Some countries found themselves a little flat-footed. And for whatever reason, around the same time, you know, fiber was gaining in importance. And I think people that have kind of okay broadband plans have been having to re-look at those plans and refresh those plans and make sure that they're going to keep up in the future. pandemic or wherever the world may turn. So I think the highlight, the visibility that it put on carriers, but just, if not more importantly, on governments and re-looking at their infrastructure has absolutely added fuel to this.
spk03: Makes a lot of sense. Thank you for the clarification. And then You referenced this substantial growth in your Tier 2 and Tier 3, and yet you had four 10% customers. Can you tell us how that can happen? It almost seems like mathematically that's a really small needle to thread.
spk08: Yeah, I tried to highlight this in my notes, but I don't think it came out clear. So we have four 10% customers. We typically have two or three. Those are typically Tier 1 carriers. Very rarely are they not Tier 1 carriers. Sometimes a Tier 2 may come in, but they're typically direct sales to carriers. Three of our four this quarter were actually distribution partners that sold to Tier 3s. So those customers are actually, those three are actually selling to hundreds of carriers, and they're typically in this Tier 3 segment.
spk03: Does that make sense to you? It makes perfect sense. Thank you for the clarification, and I didn't even think of that as a possibility. Thank you. Okay.
spk08: All right. At this point, I see no more questions in the queue, so I appreciate you for joining us, and we look forward to talking to you this time next quarter.
spk02: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
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