Discuss margin mitigation strategies and the path to achieving the long-term 10% operating margin target from current low-to-mid single digits.

The primary driver is revenue, with 10% operating margin historically achieved at $310M-$320M revenue with 42-43% gross margin. Current low margins are due to mix issues and supply constraints. Mitigation includes price increases, product redesigns for supplier flexibility, and OpEx reduction in COGS-related areas. The flexibility problem is not a quick fix. “But the environment is tougher. And really what that -- the way that it impacted us this last quarter was it got rid of some of our flexibility.”

Unpack the supply impacts on higher gross margin products, specifically beyond memory, and the customer prem side gross margin trend.

Supply tightness extends beyond memory to optical amplifiers, certain silicon, and even PC boards. The ability to flex up for incremental demand has diminished. While memory is still expensive, its supply is less problematic than 3-6 months ago, with other components now presenting bigger issues. The company's ability to book and ship within the quarter is constrained. “It is more than memory... Optical amplifiers are definitely tight. There are kind of certain pieces of silicon that are fairly nebulous that are getting very tight. So it is a broader base set of problems.”

Inquire about the specific use cases driving optical strength in enterprise and cloud, particularly regarding line systems and pluggables.

Strength is seen in both Optical Line Systems (OLSs) and standard pluggables. OLSs were harder to ship due to constraints. Pluggables are primarily used for upgrading bandwidth, with significant uptick in hyperscaler activity to upgrade networks. The focus is on bandwidth increases rather than footprint expansion. “Pluggables is, generally speaking, upgrading of bandwidth. And as you know, we have some hyperscaler content there, and we're seeing kind of a significant uptick in that activity as people are trying to upgrade their networks.”

ADTN

ADTRAN Holdings (ADTN) Q2 FY26 earnings call: guidance and Q&A

Earnings call· Jun 2026 (Q2 FY26)· Information Technology· Aug 4, 2026

Source: earnings call transcript

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

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

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

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

Segment performance

Segment	Revenue	YoY	QoQ	Margin
Total Revenue Consistent with preliminary results, but fell short of original guidance due to project delay and unfavorable mix.	$281.1M	6.1%	—	—
U.S. Revenue Strong growth in the U.S. market. % of total revenue: 48%	$134.4M	12%	—	—
Non-U.S. Revenue Lower growth compared to U.S., impacted by customer order timing. % of total revenue: 52%	$146.7M	1%	—	—
Optical Networking Solutions Continued to serve as a key growth engine, broad-based demand across customer types. % of total revenue: 39%	$109.7M	22%	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%	$84.5M	1%	-14%	—

Product announcements

Product	Type	Timeline	Details
MicroMux Quattro	roadmap	trial units end of 2026 or early 2027
LiteWave 800	roadmap	trial units mid-2027, production end of 2027 or early 2028

Deals & partnerships

JPMorgan Refinancing of senior secured credit facility extends 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.

euNetworks Collaboration 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

Project delay from a single customer Q2 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 constraints Q2 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 environment Q2 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

Single customer project resolution

before end of 2026

Current Project delay impacted Q2 FY26 revenue.

Target Project 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.

Find out whether ADTN delivers this. Inve re-checks your case every morning.

Q&A highlights

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 read 6 chapters

Detailed narrative

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.

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.

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.

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.

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.

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.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.