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    ADTN
    Earnings call· Jun 2026(Q2 FY26)

    ADTRAN Holdings Q2 FY26 earnings call ADTN

    Aug 4, 2026 Source

    Executive summary

    ADTRAN Holdings, Inc. Q2 FY26 — Project Delays & Supply Constraints Impact Results, but Optical Growth and Diversification Remain Strong

    ADTRAN's Q2 FY26 results were impacted by a single customer's project delay and broader supply chain constraints, leading to a revenue miss and lower margins. Despite these headwinds, underlying demand remains healthy, particularly in optical networking and hyperscaler segments, driven by diversification efforts and AI infrastructure investments. The company is implementing strategies to improve margins and maintain its long-term operating targets.

    Highlights

    5

    • Optical Networking revenue grew 22% year-over-year to $109.7 million, serving as a key growth engine.

    • Revenue from enterprise, government, and cloud customers increased a strong 47% year-over-year and 19% sequentially, accounting for 25% of total revenue.

    • Hyperscaler revenue within the enterprise, government, and cloud segment surged 97% year-over-year.

    • Operating cash flow was $25.9 million and free cash flow was $8.7 million for the quarter.

    • Refinancing of senior secured credit facility lowers borrowing costs by 200 basis points and extends maturity to 2031.

    Concerns

    5

    • Q2 FY26 revenue of $281.1 million fell short of original guidance due to a project delay from a single customer and unfavorable product/customer mix.

    • Non-GAAP operating margin was 3.8%, down from 6.9% sequentially, impacted by supply constraints limiting higher-margin product shipments.

    • Non-GAAP gross margin declined to 40.7% from 43% sequentially, primarily due to product mix, customer mix, and higher product costs.

    • Access & Aggregation Solutions revenue was down 5% year-over-year and 4% sequentially, directly impacted by customer timing dynamics.

    • Cash and cash equivalents decreased to $79.2 million at quarter-end from $88.3 million at March 31, 2026.

    Guidance & targets

    5
    CategoryTargetConfidence
    Q3 FY26 Revenue
    $275 million to $295 million
    high materiality
    High
    Q3 FY26 Non-GAAP operating margin
    1.5% to 5.5%
    high materiality
    High
    Long-term gross margin
    42% to 43%
    high materiality
    High
    Long-term non-GAAP operating margin
    10%
    high materiality
    High
    Revenue for 10% operating margin
    $310 million to $320 million
    medium materiality
    Medium

    Segment performance

    6
    SegmentRevenueYoYQoQMargin
    Total Revenue
    Consistent with preliminary results, but fell short of original guidance due to project delay and unfavorable mix.
    		$281.1M6.1%——
    U.S. Revenue
    Strong growth in the U.S. market.
    % of total revenue: 48%
    		$134.4M12%——
    Non-U.S. Revenue
    Lower growth compared to U.S., impacted by customer order timing.
    % of total revenue: 52%
    		$146.7M1%——
    Optical Networking Solutions
    Continued to serve as a key growth engine, broad-based demand across customer types.
    % of total revenue: 39%
    		$109.7M22%13%—
    Access & Aggregation Solutions
    Directly impacted by the single customer project timing dynamics, partially offset by healthy U.S. growth.
    % of total revenue: 31%U.S. Access & Aggregation revenue growth YoY: 13%
    		$86.9M-5%-4%—
    Subscriber Solutions
    Reflecting normal variability following a very strong first quarter.
    % of total revenue: 30%
    		$84.5M1%-14%—

    Operational metrics

    22
    Non-GAAP operating margin
    3.8%down from 6.9% QoQ
    Q2 FY26

    Compared to 3% in Q2 FY25 and 6.9% in Q1 FY26, impacted by product mix, customer mix, and higher product costs.

    Non-GAAP gross margin
    40.7%down from 43% QoQ
    Q2 FY26

    Compared to 41.4% in Q2 FY25 and 43% in Q1 FY26, reflecting product mix, customer mix, and higher product costs.

    Non-GAAP operating expenses
    $103.9Mup from $103.3M QoQ
    Q2 FY26

    Compared to $103.3 million in Q1 FY26 and $101.7 million in Q2 FY25, actively managed against inflationary pressures.

    Non-GAAP tax expense
    $2.6M
    Q2 FY26

    Reflecting an effective non-GAAP tax rate of 33.7%.

    Effective non-GAAP tax rate
    33.7%
    Q2 FY26

    Applied to non-GAAP tax expense.

    Non-GAAP net income attributable to ADTRAN Holdings
    $3.4Mdown from $11M QoQ
    Q2 FY26

    Compared to breakeven results in Q2 FY25 and $11 million in Q1 FY26.

    Non-GAAP diluted EPS
    $0.04down from $0.14 QoQ
    Q2 FY26

    Compared to $0.14 in Q1 FY26.

    Net working capital
    $245.2M
    Q2 FY26

    At quarter end, reflecting progress in improving working capital metrics.

    Inventory
    $208.8M
    Q2 FY26

    At quarter end.

    Days inventory outstanding (DIO)
    107 daysdown 3 days QoQ
    Q2 FY26

    Improved sequentially.

    Trade accounts receivable
    $205.8M
    Q2 FY26

    At quarter end.

    Days sales outstanding (DSO)
    67 daysdown 1 day QoQ
    Q2 FY26

    Improved sequentially.

    Accounts payable
    $169.3M
    Q2 FY26

    At quarter end.

    Days payable outstanding (DPO)
    65 daysdown 1 day QoQ
    Q2 FY26

    Improved sequentially.

    Cash and cash equivalents
    $79.2Mdown from $88.3M QoQ
    Q2 FY26

    At quarter end, compared to $88.3 million at March 31, 2026.

    ADTRAN Networks SE shares repurchases and dividend payments
    $22.6M
    Q2 FY26

    Made during the quarter.

    Enterprise, government and cloud customers revenue growth
    47%YoY
    Q2 FY26

    Strong growth, contributing to diversification strategy.

    Enterprise, government and cloud customers revenue as % of total
    25%
    Q2 FY26

    Reflecting increasing contribution from diversification.

    Hyperscaler revenue growth
    97%YoY
    Q2 FY26

    Underscoring the strength of the diversification strategy, driven primarily by data center interconnect business.

    Hyperscaler revenue as % of enterprise, government and cloud segment
    30%-50%
    Q2 FY26

    Management's estimate of the proportion of hyperscaler revenue within the broader enterprise, government, and cloud segment.

    10% customers
    0
    Q2 FY26

    No single customer accounted for 10% or more of revenue this quarter.

    100ZR quarter
    strongest ever
    Q2 FY26

    Indicates strong performance in 100ZR pluggables.

    Industry KPIs

    7
    MetricValueDetails
    Capital return$22.6MUSD
    Book to bill ratioat or above 1
    Orders backlog qualityat or above 1
    Segment growth margin targets42%-43% gross margin; 10% non-GAAP operating margin%
    Ai cloud infrastructure orders97%%
    Revenue mix by product customer typeU.S.: $134.4M; Non-U.S.: $146.7MUSD
    Design wins product cycle transitionsStrongest 100ZR quarter ever

    Product announcements

    2
    ProductTypeDetails
    MicroMux Quattroroadmap
    LiteWave 800roadmap

    Deals & partnerships

    2
    JPMorganRefinancing of senior secured credit facilityextends maturity to 2031

    New facility replaces prior credit agreement, maintaining total revolver capacity, reducing borrower costs by 200 basis points, and extending maturity to 2031.

    euNetworksCollaboration on quantum-safe networking solutions

    Collaboration highlights growing demand for quantum-safe networking solutions and validates ADTRAN's multilayer encryption portfolio and integrated cryptographic management capabilities.

    Risks & headwinds

    3
    Project delay from a single customerQ2 FY26, expected to be worked out before year-end.

    Caused Q2 FY26 revenue to fall short of guidance.

    Mitigation: Customer has recommitted to their deployment plan and timing; viewed as a timing adjustment, not demand destruction.

    Unfavorable product and customer mix due to supply constraintsQ2 FY26, expected to continue into Q3 FY26.

    Lowered gross margins to 40.7% (from 43% QoQ) and impacted ability to ship higher-margin products.

    Mitigation: Implementing price increases, redesigning products for more supplier flexibility, reducing OpEx in COGS-related areas.

    Challenging supply environmentQ2 FY26, expected to remain tight in the near term, potentially getting tighter in certain areas.

    Limited ability to fulfill demand, constraining shipments, impacting higher-margin products. Tightness in optical amplifiers, certain silicon, and PC boards.

    Mitigation: Better forecasting, more order coverage from customers, securing supply, building inventory of key components to mitigate known problems. Actively fighting for more supply daily.

    What to watch in Q3 FY26

    5

    Single customer project resolution

    before end of 2026
    CurrentProject delay impacted Q2 FY26 revenue.
    TargetProject worked out and deployment resumed.

    Why it matters

    Resolution of this delay is crucial for Access & Aggregation segment recovery and overall revenue performance.

    So one is the root cause of the situation was really born from a dynamic within a particular customer, which we think will be worked out before the end of the year.

    Q&A highlights

    7

    Clarify the nature of the single customer's project delay and the assurance that demand is deferred, not destroyed.

    Management confirmed the customer has recommitted to their plan, viewing it as a timing adjustment due to repositioning priorities among multiple in-flight plans (footprint expansion, vendor replacement, upgrades, further expansion). The customer has sufficient inventory for committed deployment rates.

    “The biggest assurance that we have is they've come out and recommitted to their plan. So including the timing of their plan. And it's a very visible, very easy to check on number.”

    asked by Jyhhaw Liu · answered by Thomas Stanton

    2 min read6 chapters

    Detailed Narrative

    01

    Project Delay and Supply Chain Impact

    ADTRAN's Q2 FY26 results were negatively affected by a project delay from a single large customer, which management views as a timing adjustment rather than a change in demand, as the customer has recommitted to their deployment plan. Concurrently, a challenging supply environment limited the company's ability to fulfill demand, particularly for higher-margin products, leading to an unfavorable product mix and lower gross margins. Management stated that absent these supply constraints, they would have met their original revenue guidance.

    02

    Optical Business Strength and Diversification

    The optical business continued to be a key growth engine, with Optical Networking revenue increasing 22% year-over-year. The company is seeing broad-based demand across service provider, enterprise, government, and cloud customers, driven by needs for higher capacity optical infrastructure, AI-driven networking expansion, and secure connectivity. Revenue from enterprise, government, and cloud customers grew 47% year-over-year, now representing 25% of total company revenue, highlighting successful diversification.

    03

    Hyperscaler Engagement and AI Infrastructure

    Within the enterprise, government, and cloud segment, revenue from hyperscalers grew 97% year-over-year, primarily driven by the data center interconnect business. ADTRAN is expanding engagements with hyperscalers and large-scale content providers for upcoming solutions like MicroMux Quattro and LiteWave 800 pluggable optics, positioning the company to benefit from continued investment in cloud and AI infrastructure.

    04

    Secure Connectivity and Quantum-Safe Networking

    Secure connectivity is another area of increasing customer demand, exemplified by a collaboration with euNetworks for quantum-safe networking solutions. This validates ADTRAN's multilayer encryption portfolio and cryptographic management capabilities, addressing growing urgency among service providers and enterprises to tackle quantum-secure vulnerabilities.

    05

    Financial Foundation and Margin Improvement Strategies

    Subsequent to quarter-end, ADTRAN completed a refinancing of its senior secured credit facility, reducing borrowing costs by 200 basis points and extending maturity to 2031, enhancing financial flexibility. To address margin pressures from supply constraints and product mix, the company is implementing price increases, redesigning products for greater supplier flexibility, and reducing OpEx in COGS-related areas, aiming for long-term gross margins of 42-43% and a 10% non-GAAP operating margin.

    06

    New Product Development and Market Expansion

    ADTRAN is advancing new product developments, including the MicroMux Quattro (a 4x100 Mux for routers, expected to trial end of this year/early next year) and the LiteWave 800 (an intra-data center pluggable optic, expected to trial mid-next year with production towards end of next year/early following year). Both products are generating significant customer interest, with the LiteWave 800 representing an entry into a new, larger market segment for the company.

    AI-generated summary of the company’s earnings call. Not investment advice.