ADTRAN Holdings, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the ADTRAN Holdings, Inc. First Quarter 2026 Earnings Release Conference Call. All lines been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you'd like to withdraw your question, again, press the star and one. 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 successful development and market acceptance of our products, the ability of our third-party suppliers to supply components and products, our ability to convert our backlog into revenue, our ability to maintain current expected delivery schedules, competitive pricing and acceptance of our products, intellectual property matters, the effect of economic conditions, the impact of tariffs and trade policy, and other risk factors described in our most recent annual report on Form 10-K and in our quarterly filings with the Securities and Exchange Commission. AdTran Holdings assumes no obligation to update any such forward-looking statements. During today's call, management will refer to certain non-GAAP financial measures. Reconciliations of GAAP to non-GAAP measures and certain additional information are also included in our investor presentation and our earnings release. AdTran Holdings has not provided reconciliations of its second quarter 2026 outlook with regard to non-GAAP operating margins because it cannot predict and quantify without unreasonable effort of all the adjustments that may occur during the period. The investor presentation has been updated and is available for download on the ADTRAN Investor Relations website. Hosting today's call is Tom Stanton, ADTRAN Holdings Chief Executive Officer and Chairman of the Board, and Timothy Santo, Senior Vice President and Chief Financial Officer. It is now my pleasure to turn the call over to Tom Stanton, Chief Executive Officer of ADTRAN Holdings. Sir, please go ahead. And Tom Stanton, I turn it over to you.

Thank you, Kayla. Good morning, everyone. AdTrend delivered solid first quarter results with revenue of $286.1 million, up 15.5% year-over-year, and non-GAAP operating margin of 6.9%, up 3% year-over-year. These results reflect the continued strength of our core markets and the operating leverage we have now firmly established across the business. The demand drivers underpinning our business continue to strengthen. In the U.S., broadband expansion is gaining traction, and DB deployment funds are beginning to reach operators in a growing number of states. In Europe, high-risk vendor displacement continues to progress, with momentum reinforced by legislation such as the proposed Cybersecurity Act 2.0, which would mandate the removal of high-risk vendors from critical network infrastructure. This quarter also marked a meaningful step in our growth strategy as we showcased our expanding portfolio addressing cloud and AI infrastructure connectivity. This included the introduction of the LightWave 800, a solution purpose-built for high-performance, low-power intradata center connectivity. Optical networking solutions revenue was $97.3 million in the first quarter, up 24% year-over-year. On a sequential basis, strength from our larger customers and hyperscalers was offset by seasonal declines with smaller customers and government sales. Across our service provider base, demand remains healthy. Operators across all geographies are expanding wholesale optical capacity to support growing demand for cloud connectivity and higher bandwidth services, reflecting a broad-based trend. In Europe, high-risk vendor replacement initiatives continue to add to that demand, with growing strength among our cloud and hyperscaler customers and a positive outlook across our service provider base. We expect our optical networking revenue to build throughout the year. Access and aggregation solutions revenue was $90.5 million in the first quarter, up 2% year-over-year and 14% sequentially, driven by broad-based strength across the U.S. and Europe. We expect steady progress across our European business through the remainder of the year. In the U.S., B deployment funding is beginning to reach operators in select states, And while we are seeing early orders from several customers, we expect the impact to become more meaningful as we move towards the back half of the year. Subscriber Solutions revenue was $98.2 million in the first quarter, up 22% year-over-year. Demand remains healthy, supported by continued investment in fiber to the home, multi-gig Wi-Fi 7, and carrier Ethernet applications. In recent weeks, our award-winning SDG Wi-Fi 7 portfolio received conditional FCC approval exempting our platforms from covered list restrictions. We are among the first vendors to achieve this designation, and while the broader industry works through the approval process, we are already seeing service providers engage with us on competitive opportunities that this creates. Stepping back from the details for the quarter, I want to take a moment to talk about our business and the market dynamics that continue to drive demand for our solutions. Service providers are investing across transport, access, and subscriber platforms to scale their networks for long-term demand and improved reliability. These investments are being reinforced by several important tailwinds, including high-risk vendor replacement initiatives in Europe, the expansion of managed optical fiber networks, or MOFIN, to address surging demand for wholesale services from cloud providers, and continued upgrades across access and subscriber networks to support multi-gig service delivery. In addition to these network upgrade catalysts, operators are in the early stages of transforming how they operate their networks and engage subscribers through agentic AI. With the launch of Mosaic One Clarity, which recently received the FTTH Europe Award for AI innovation, we are addressing the shift towards proactive and increasingly autonomous network operations. Early deployments have provided strong validation of these capabilities across both small and large operators, particularly in the areas of predictive maintenance and improving the in-home subscriber experience. Beyond our core service provider business, we continue to see meaningful opportunities to further accelerate growth by expanding our presence in both cloud providers and enterprise customers. These segments benefit from many of the same underlying trends shaping service provider networks, but they are growing at a faster pace and are driving new network architectures and requirements. In the enterprise space, we have a long history of providing secure optical and ethernet connectivity to some of the world's largest enterprise and government customers. Demand in this customer segment is increasingly shaped by two important tailwinds. First, the expansion of AI workloads across secure enterprise environments is driving demand for higher capacity interconnects between private enterprise data centers, and second, growing awareness of the limitations of traditional security mechanisms is accelerating interest in quantum safe, optical, and Ethernet communications. Building on our longstanding presence in these markets, we have developed a comprehensive portfolio of quantum safe communication solutions. While still early, we are seeing increasing engagement across a broadening base of enterprise, government, and utility customers positioning us well for longer-term growth as these initiatives mature. In our cloud provider customer segment, the rapid expansion of AI compute infrastructure and the networking required to connect large-scale cluster GPU deployments is driving a surge in networking investment, making this the fastest growing segment in our industry. Data center operators are scaling capacity to support AI workloads where power efficiency, thermal constraints, and network density have become defining design considerations. We have long-served data center customers through our interconnect solutions, and as evidenced by last quarter's results, that business continues to benefit from growing demand for data center connectivity. Our strategy is to build on that foundation and extend our portfolio to address surging bandwidth demands from inside the data center as well. LightWave 800 is the first clear example of this strategy in action. It is purpose-built for intra-data center connectivity and high-density AI compute environments and is designed to reduce power consumption by over 90% compared to existing alternatives. We are still in the early stages of this product family, but initial market engagement and feedback have been very encouraging. Shifting from our market opportunities to operations, memory pricing has remained elevated industry-wide and freight costs are adding an additional layer of pressure. headwinds that are affecting the entire sector. Despite these pressures, our non-GAAP operating margin of 43% reached its highest level since the beginning of the supply chain disruption in 2020. This was achieved through a combination of disciplined cost management, pricing adjustments across the portfolio, and a revenue mix that has less reliance on lower margin CPE where memory cost pressure is the most acute. Consumer CPE represents a relatively small portion of our overall revenue. Although memory costs remain elevated and could deteriorate further, our current visibility supports gross margins in the near term, remaining broadly consistent with what we have delivered over the past several quarters. We entered the second quarter with a positive demand outlook. Fiber infrastructure investment remains active across our core business, and we continue to advance our initiatives in AI infrastructure and enterprise networks, expanding our business opportunities. Our priorities remain consistent, expanding operating margin, generating cash, and converting the strong customer pipeline into revenue. With that, I'll turn the call over to Tim to review our financial results in more detail. Tim?

Thank you, Tom, and thank you all for joining us today. We delivered solid results for Q1 2026 led by continued and consistent execution. We had operating margin expansion to a new level despite a seasonal reduction in revenues that remained above the midpoint of our previously issued guidance driven by continued cost discipline and scale in the business. Our first quarter revenue was $286.1 million, up 15.5% year over year, and returning to a more normalized seasonal pattern. Geographically, U.S. revenue was $146.2 million, representing 51% of total revenue, up 42% year over year, and 7% sequentially. Non-US revenue was $139.9 million, or 49% of total revenue. Access and aggregation solutions revenue was $90.5 million, or approximately 32% of total revenue, up 2% year-over-year and 14% sequentially. Subscriber solutions revenue was $98.2 million, or 34% of total revenue, up 22% year-over-year. Optical networking solutions revenue was $97.3 million, or 34% of total revenue, up 24% year-over-year. Turning to gross margin, non-GAAP gross margin was 43%, up 55 basis points year-over-year from 42.5% in Q1 2025, and up 54 basis points sequentially from 42.5 in Q4 2025, driven by favorable product mix and continued progress on cost efficiency. Non-GAAP operating expenses for the first quarter were $103.3 million compared to $95.5 million in Q1 2025 and $105.1 million in Q4 2025. The year-over-year increase largely resulted from the impact of foreign currency fluctuations on our European cost base which has had minimal impact on operating leverage due to natural hedging and continued investment in R&D and go-to-market activities. Non-GAAP operating income was $19.9 million or 6.9% of revenue. On a sequential basis, operating income increased from 18.8 million or 6.4% in Q4 2025. Year over year, non-GAAP operating margin expanded 300 basis points from 3.9% in Q1 2025, continuing the progression from 5.4% in Q3 2025 and 6.4% in Q4 2025. Non-GAAP tax expense in the first quarter was $4.4 million, reflecting an effective non-GAAP tax rate of 25.5%. Non-GAAP net income attributable to AdTran Holdings was $11 million, or 14 cents per diluted share, compared to 3 cents in Q1 2025. Turning to the balance sheet and cash flow, net working capital was $253.9 million at quarter end, compared to $259 million at December 31st, 2025. During the quarter, inventory was $209 million with days inventory outstanding of 110 days down four days sequentially. Trade accounts receivable were 215.5 million with DSO of 68 days up two days sequentially due to the timing of quarter end invoicing. Accounts payable was 170.6 million with days payable outstanding of 66 days which is flat sequentially. As revenue scales, our focus remains on improving working capital efficiency. Operating cash flow was $12.7 million for the quarter, and free cash flow was a negative $3.3 million, reflecting timing of cash receipts and higher purchases of inventory. We ended the quarter with $88.3 million in cash and cash equivalents, compared to $95.7 million at December 31, 2025. Turning to our outlook for the second quarter of 2026, we expect revenue to be between $283 and $303 million and non-GAAP operating margin within a range of 5% to 9%. This concludes our prepared remarks. Before turning the call over to Tom, I'd like to highlight that we will be participating at the B. Reilly Conference on May 20th. in Marina Del Rey and the Evercore Technology Media and Telecom Conference on June 2nd and 3rd in San Francisco. We look forward to seeing many of you there. And now I will turn the call back to Tom. Great.