ADTRAN NASDAQ: ADTN reported higher revenue and improved profitability in its first quarter of 2026, pointing to strengthening demand drivers in broadband and optical networking while outlining a developing push into AI and data center connectivity.
First-quarter results show revenue growth and margin expansion
Chief Executive Officer and Chairman Tom Stanton said the company delivered “solid first quarter results” with revenue of $286.1 million, up 15.5% year-over-year. Stanton also highlighted a 6.9% non-GAAP operating margin, which he said was up 3% year-over-year, attributing the performance to “the continued strength of our core markets and the operating leverage we have now firmly established across the business.”
Chief Financial Officer Timothy Santo said revenue returned “to a more normalized seasonal pattern” and ended above the midpoint of prior guidance despite a seasonal reduction. Non-GAAP operating income rose to $19.9 million, or 6.9% of revenue, compared with $18.8 million, or 6.4%, in the prior quarter. Santo noted the operating margin expanded 300 basis points from 3.9% in the year-ago quarter, continuing a multi-quarter progression.
On a geographic basis, Santo said U.S. revenue totaled $146.2 million (about 51% of total revenue), up 42% year-over-year and 7% sequentially. Non-U.S. revenue was $139.9 million, or 49% of total revenue.
Segment performance led by optical and subscriber solutions
ADTRAN’s revenue mix was relatively balanced across its three reporting segments in the quarter, according to Santo:
- Access and Aggregation Solutions: $90.5 million (about 32% of revenue), up 2% year-over-year and 14% sequentially.
- Subscriber Solutions: $98.2 million (about 34% of revenue), up 22% year-over-year.
- Optical Networking Solutions: $97.3 million (about 34% of revenue), up 24% year-over-year.
Stanton said Optical Networking Solutions benefited from healthy demand across service providers, including efforts to expand wholesale optical capacity for cloud connectivity and higher-bandwidth services. In Europe, he said “high-risk vendor replacement initiatives continue to add to that demand,” with momentum supported by legislation such as the proposed Cybersecurity Act 2.0. He added the company expects optical revenue “to build throughout the year.”
In Subscriber Solutions, Stanton cited investment in fiber-to-the-home, multi-gig Wi-Fi 7, and Carrier Ethernet applications. He also said the company’s SDG Wi-Fi 7 portfolio recently received conditional FCC approval that exempts the platforms from covered list restrictions, adding that ADTRAN is “among the first vendors to achieve this designation.”
Access and Aggregation Solutions growth was driven by strength across the U.S. and Europe, Stanton said, with BEAD-related impacts expected to become “more meaningful as we move towards the back half of the year.”
Gross margin rises despite memory and freight pressures
Santo reported non-GAAP gross margin of 43%, up from 42.5% in the year-ago quarter and also up sequentially, driven by “favorable product mix and continued progress on cost efficiency.”
Stanton said memory pricing has remained elevated across the industry and that freight costs have added pressure. However, he pointed to pricing adjustments and a mix shift that reduced reliance on lower-margin consumer CPE as supporting margins. During the Q&A, Stanton said consumer residential CPE is “north of 50%” of the Subscriber segment, while emphasizing its impact is smaller in the context of companywide results.
When asked about the Middle East conflict, Stanton said ADTRAN saw impacts on both freight and revenue. He said freight expense was higher than he would like and expected conditions to remain “messy” into the second quarter. On revenue, Stanton said the impact was “less than 5%,” adding the effect was more notable within EMEA than for the overall company.
ADTRAN also raised prices to address memory component costs, Stanton said, while noting the company is not pushing as much on freight-related pricing because management remains “hopeful that that’s transitory.”
AI, software momentum, and data center connectivity roadmap
Stanton discussed product and market initiatives aimed at cloud, hyperscaler, and enterprise opportunities, describing AI infrastructure networking as “the fastest-growing segment in our industry.” He highlighted the introduction of LiteWave800, positioned as a low-power intra-data center connectivity solution. Stanton said the product has prototypes today and was demonstrated at OFC, but he expects it will be “sometime about 1 year from now” before it reaches production-level volumes. He described the LiteWave800 as “ridiculously low power,” citing “1 picojoule per bit” as a key driver of market excitement, and told analysts it “will not be dilutive to company gross margins.”
Stanton also referenced a related product called Quattro, expected “the end of this year,” describing it as a “4 by 100 product” that is also designed for power savings.
In response to questions about AI-related investments, Stanton said the company will shift some R&D and sales resources during the year, but that these moves are expected to be “within the current operating budget,” without a significant increase.
On software, Stanton said Mosaic One had a “very good launch” and that the company has “close to 500 customers right now on Mosaic One,” with varying subscription levels. He added that Intellifi uptake “has been fantastic,” and referenced previously reporting “over 100 customers,” while noting the company does not break out attach rates.
Cash flow, working capital, and second-quarter outlook
On the balance sheet, Santo said networking capital was $253.9 million at quarter end. Inventory was $209.0 million with days inventory outstanding of 110 days, down four days sequentially. Operating cash flow was $12.7 million, while free cash flow was negative $3.3 million, reflecting timing of receipts and higher inventory purchases. Cash and equivalents ended the quarter at $88.3 million, down from $95.7 million at year-end.
For the second quarter of 2026, Santo guided revenue to $283 million to $303 million and non-GAAP operating margin to 5% to 9%. In the Q&A, Stanton said the outlook assumes “a similar freight environment” and “a similar memory impact” compared with the first quarter.
On BEAD funding, Stanton said funding is beginning to flow to operators in select states and that the company is seeing early purchase orders, though he described it as “a trickle.” He reiterated that the long-lead factor is deploying fiber, and said ADTRAN expects more meaningful contribution toward the end of 2026, adding that “27 starts to feel like a more material number for you from BEAD.” CFO Tim Santo noted the BEAD program is a five-year initiative and said that historically “the middle of the window” tends to see the majority of spend, with additional activity toward the end as recipients finalize work to utilize funding.
About ADTRAN NASDAQ: ADTN
ADTRAN, Inc is a global provider of networking and communications equipment, specializing in broadband access solutions for service providers, enterprises and government organizations. Founded in 1985 and headquartered in Huntsville, Alabama, the company develops and delivers hardware and software platforms that enable high-speed Internet access over fiber, copper and wireless networks. Its core offerings include fiber access and aggregation equipment, Ethernet switches, customer premises equipment (CPE) and network management systems designed to support both legacy and next-generation broadband deployments.
The company's product portfolio encompasses a broad range of optical line terminals (OLTs), optical network terminals (ONTs), multiservice access gateways and virtualized access solutions.
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