ADTRAN Holdings, Inc. (ADTN) Earnings Call Transcript & Summary

Welcome to the 2020 Annual Meeting for ADTRAN, Inc. Our host for today's call is Tom Stanton, Chairman of the Board. [Operator Instructions] I will now turn the call over to your host, Mr. Stanton. You may begin, sir.

Thank you. Good morning and welcome to the 2020 Annual Meeting of the Stockholders of ADTRAN, Inc. I am Tom Stanton, Chairman of the Board and Chief Executive Officer of the company. It is my pleasure to welcome you, and thank you for attending today's meeting. Before we begin the formal portion of the meeting, I'd like to introduce you to the other directors and executive officers of the company participating in the meeting today and provide a brief update on the business of the company. With us today, we have Fenwick Huss, who is Lead Director of ADTRAN, is the Dean of the Zicklin School of Business, at Baruch College and The City University of the New York system. Greg McCray is the Director of ADTRAN and is the CEO of FDH, an engineering and science company. He formerly was the CEO of Google Fiber and also served as CEO of Aero Communications, Inc. and Antonova. Jacqueline Rice is Director of ADTRAN and General Counsel for Herman Miller, Inc. She formally served as Executive Vice President and Chief Risk and Compliance Officer at Target Corporation. Kathryne Walker is a Director of ADTRAN and a Managing Director of OPENAIR Equity Partners. Prior to joining OPENAIR, Kathy served as the Chief Information and Chief Network Officer at Sprint Nextel Corporation. Mike Foliano, Senior Vice President, Finance and Chief Financial Officer and Secretary for the company; Ron Centis, Senior Vice President, Global Operations; Ray Harris, Chief Information Officer; Dan Whalen, Chief Product Officer; and Jay Wilson, Chief Revenue Officer. I would like to share some insight with you on the performance of 2019 and our outlook for 2020. But before I do so, I call your attention to the disclosure on the screen. We encourage you to read these materials. I want to start by taking a moment to address the COVID-19 pandemic, and I want to start by acknowledging all the families that have lost loved ones due to the pandemic. Our hearts truly go out to you in your time of need. As all of you know, this is a time like no other that any of us have ever experienced. And to our ADTRAN employees, I want to say thank you. Your professionalism that you have shown, the quality of work that you were producing has been exceptional. I want to say a special thanks to our mission-critical employees, the way that you have performed has made me proud to be a fellow employee. During the past few months, we have learned a lot. We began monitoring the situation and taking action to prevent business interruption in January. We activated our business continuity plan and established a cross-functional COVID-19 response team to drive our efforts in February. These actions have enabled us to move quickly to protect our employees and respond to our customer needs. Today, the majority of our global workforce is working from home. This has enabled us to provide added protection to our employees on the front lines who are keeping product moving. One thing that has been clear throughout this crisis is the fact that all of our employees are working with one mission in mind, meeting the needs of our customers. Communities around the world have never depended on broadband infrastructure more than they have today, and our employees are committed to getting the products needed to our customers so they can keep this infrastructure viable during this critical time. Taking a look back, as you're aware, we had a great first half and then a slower second half of the year as project deployments, specific project deployments in Europe and Latin America slowed down. This instant highlights one of our largest issues, and that being, we need more revenue diversity. Along those lines, I am very pleased with the year-over-year increase of nearly 20% in the RSP and emerging market segments as it continued to ramp strongly through the year. Additionally, although Tier 1 customers can be problematic in their cyclicality, they are a necessary component in allowing the R&D expenditures that are required to develop leading-edge products. With that in mind, I'm very pleased to inform you that we have recently won 3 of these major long-term rewards with Tier 1 operators. All of them have selected our new architecture, the SDX portfolio and Mosaic Cloud Platform. The first one, Deutsche Telekom selected the SDX OLT solutions for deployment as part of their access 4.0 network. Additionally, these solutions will be deployed in DT's existing fiber-to-the-home architectures, along with the Mosaic Cloud Platform. We received an additional SDX OLT and Mosaic Cloud Platform award by a Tier 1 operator in the U.S. that is on a very aggressive lab pace and is currently expected to start the deployment early in the second half -- early in next year. We recently signed a contract with another large Tier 1 European operator for the SDX portfolio and Mosaic Cloud Platform. This is a new customer for ADTRAN, and we expect shipments to begin in the first half of next year. Additionally, we also recently announced a strategic joint development agreement with Orange, one of the world's leading operators, as part of its access renewal and evolution strategy program. For the last 4 years, we have been focused on developing the access network platform of the future, an open disaggregated software-defined network architecture. Winning these transformative long-term Tier 1 awards solidifies our market position and validates our vision of virtual and open network architectures for the future and will have a significant impact on the company in the future. Moving into 2020, we believe we are at the beginning of a new service provider investment cycle for fiber deployment, driven by technology advancements, regulatory and government influence and vendor disruptions. And we have spent the past few years strengthening our product portfolios to support these efforts and believe that we are well positioned to take advantage of these opportunities. Of course, the current situation has highlighted the critical need for broadband as a core capabilities all countries must deliver on. An example of this type of government influence is the FCC Rural Development Opportunity Fund (sic) [ Rural Digital Opportunity Fund ]. This order will provide $20.4 billion of federal subsidies for broadband deployment to 4 million homes in rural America over the next decade. The U.S. also recently implemented the $2 trillion CARES Act, which includes incremental funding for the USDA reconnect program. And this is not just in the U.S. In Europe, Latin America and Australia, all around the world, there is a resurgence and acceleration of activities to improve the lives and wellbeing of citizens through connectivity. While the current situation presents some near-term uncertainties, we remain confident in the long-term impact in highlighting the need for investment. And that ADTRAN is in a good position to endure the current changing environment. ADTRAN has a strong balance sheet and available liquidity to withstand even extreme stress tests. Our service provider customers are among the most resilient in this pandemic with their focus on building and supporting critical infrastructure. The COVID-19 pandemic has eliminated the positive difference between fixed broadband access and wireless networks. I am encouraged by our recent wins and how they position us within the market. I am also encouraged by the growing number of municipalities, electric co-ops, alternative carriers and others around the world that are selecting ADTRAN to help them transform their communities with the power of broadband. With that, I'd like to now begin the formal portion of the meeting. I would now like to appoint Michael Foliano, who, as I mentioned, is the secretary of the company, to act as secretary of the meeting to record the proceedings. The Board has appointed Beth VanDerbeck of Carideo Group inspection election services as the Inspector of Election for this group to resolve issues relating to the shares to be voted or the proxy cards to count the votes and to certify the vote on each of the proposals. Broadridge financial services is the distributor of meeting materials and tabular of the votes. The rules of contact are available on the meeting website. You may submit any questions electronically by following the instructions provided on the meeting website, and the company will respond to you directly following the meeting. The meeting time -- excuse me, the meeting is now formally called to order, and I note the current time is 10:39 a.m. Central on May 13, 2020. The first order of business is to introduce, into the minutes, the fact that a quorum is present in person or by proxy at this meeting, and their proper notice has been given. All stockholders of record at the close of the business on March 16, 2020, were entitled to vote -- were entitled to notice of and to vote at this Annual Meeting. I have in possession an affidavit of distribution executed by Broadridge financial services, establishing that notice of this meeting was duly given and certifying that the notice and access form or the notice of meeting, proxy statement and annual report, as applicable, were properly mailed to the stockholders entitled to notice. A copy of the notice of meeting and the affidavit of distribution will be incorporated into the minutes of this meeting and such documents are available for inspection, along with a list of stockholders. I have the following information from Ms. VanDerbeck regarding the presence of a quorum. Represented at the meeting in person or by proxy, or at least 43,748,276 shares, which is 90% -- 91% of the total number of shares outstanding and entitled to vote. Therefore, a quorum is present and we can proceed with the business of the meeting as set forth in the notice of the meeting and the proxy statement. We will not proceed to the matters being submitted to a vote. Any stockholder who hasn't yet voted or wishes to change their vote may do so by following the instructions on the meeting website. Stockholders who have already sent in proxies or voted via telephone or Internet do not -- and do not want to change their vote, do not need to take any further action. The notice of this meeting and the proxy statement note 5 items of business to be voted on by the stockholders. These are: the election of 6 directors, the approval of ADTRAN employee stock option incentive plan, the approval of the ADTRAN directors' stock option plan, the advisory Say on Pay proposal with regard to the officer compensation, and the ratification of PricewaterhouseCoopers LLP as our independent registered public accounting firm. I will now formally declare the polls open for the vote on the 5 proposals described in the proxy statement. In the interest of time, we will announce the vote totals of each of the proposals after the voting on all proposals is completed. The first proposal is the election of the 6 directors, each of whom is currently a director of the company. Directors elected at this meeting will serve a 1-year term expiring at the 2021 Annual Meeting of Stockholders. You can find more information about the 6 nominees in the proxy statement. The Board recommends that you elect each of these directors nominated to serve as a director of the company. The second proposal is the proposal of the adoption of the ADTRAN, Inc. 2020 employee stock option incentive plan. This full plan is provided in the proxy statement. The Board recommends that you approve the adoption of the 2020 employee stock option incentive plan. The third proposal on the agenda is the approval of the adoption of the ADTRAN, Inc. 2020 Directors Stock Plan. The full plan is provided in the proxy statement, and the Board recommends that to approve the adoption of the stock option plan. The fourth proposal is the consideration by the stockholders of the advisory proposal with respect to the compensation of the company's named executive officers. This proposal is being presented in accordance with the provisions of the Dodd-Frank financial reform legislation of 2020 to provide stockholders the opportunity to endorse or not endorse our executive pay program and policies and the compensation of our named executive officers. Because this vote is advisory, it will not be binding upon the Board or the compensation committee. However, if there is a significant vote against our named executive officer compensation, the compensation committee will evaluate whether any actions are necessary to address the concern of our stockholders. The Board recommends that you approve the advisory Say on Pay resolution. The fifth proposal is the ratification by the stockholders of the appointment by the Audit Committee of our Board of Directors of an independent registered public accounting firm for the company for fiscal 2020. As set forth in the proxy statement, the Audit Committee, in accordance with its charter and authority, delegated to it by the Board has appointed the firm of PricewaterhouseCoopers LLP as the company's independent registered public accounting firm for the year ending December 31, 2020. The Board recommends that you ratify the appointment of PricewaterhouseCoopers LLP. Stephanie Marella, partner with the firm of PricewaterhouseCoopers, is with us here today. PWC acknowledges its ability to make a statement that has chosen not to do so. That concludes the statements of the proposals, and now I declare the polls closed. Mr. Foliano, do you have the preliminary vote totals on the 5 proposals?

Yes, I do. The preliminary report of the inspector is in, and I will announce the preliminary results in the order in which the resolutions were proposed. A majority of the shares of common stock outstanding as of the record date of this meeting have been voted in favor of each of the 6 nominees for Director accordingly: Thomas R. Stanton, H. Fenwick Huss, Gregory J. McCray, Balan Nair, Jacqueline H. Rice and Kathryn A. Walker have been elected as directors of the company to hold office until the 2021 Annual Meeting of Stockholders and until their successors are duly elected and qualified. A majority of the shares of common stock outstanding, as of the record date of this meeting, have been voted in favor of the approval of the adoption of the ADTRAN, Inc. 2020 employee stock incentive plan. A majority of the shares of common stock outstanding as of the record date of this meeting have also been voted in favor of the approval of the adoption of the ADTRAN, Inc. 2020 Directors Stock Plan. A majority of the shares of common stock outstanding as of the record date of this meeting have been voted in favor of the approval of the Say on Pay Resolution approving the compensation of our named executive officers. And finally, a majority of the shares of common stock outstanding as of the record date of this meeting have been voted in favor of the ratification of the Audit Committee's appointment of PricewaterhouseCoopers LLP as the company's independent registered public accounting firm for the year ending December 31, 2020. The final report of the inspector of election, which contains the vote totals, will be filed with the minutes of this meeting in the company's minute book.

This concludes the formal portion of the meeting. I will now entertain a motion that this meeting be adjourned.

I move that the meeting be adjourned.

I second the motion.

The meeting is hereby adjourned. Thank you all very much for listening today. And I hope all of you stay safe.

This now concludes the meeting. Thank you for joining and have a pleasant day.