Ladies and gentlemen, thank you for standing by and welcome to ADTRAN's Fourth Quarter 2019 Earnings Release Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer period.

[Operator Instructions] During the course of the conference call, ADTRAN representatives expect to make forward-looking statements, which 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 core products, the degree of competition in the market for such products, the product and channel mix component costs and manufacturing efficiencies, and other risks detailed in our Annual Report on Form 10-K for the year ended December 31, 2018.

These risks and uncertainties could cause actual results to differ materially from those in the forward-looking statements, which may be made during the call. It is now my pleasure to turn the call over to Tom Stanton, Chief Executive Officer of ADTRAN. Sir, please go ahead..

Thank you, Chris. Good morning, everyone. We appreciate you joining us for our fourth quarter 2019 conference call. With me today is ADTRAN's, CFO, Mike Foliano. Following my opening remarks, Mike will review the quarterly financial performance in detail and then we'll take your questions.

The fourth quarter came in largely as anticipated and slightly ahead of expectations as seasonal slowness in the U.S. was offset by a pickup in Europe and in Latin America as shipments there resumed from their Q3 delay.

We finished the year with some key awards, including our first European Tier 1 SDX award and an SDX award with a national service provider in Ireland. These along with other – the other progress we made during the quarter will help strengthen our future in 10 gig fiber access and our open disaggregated solutions.

We believe we are at the beginning of a significant investment cycle for fiber deployment driven by technology advancements, regulatory influences, and vendor disruption. From a top-line perspective, revenue for the quarter was $115.8 million, up 1.5% on a quarter-over-quarter basis, overcoming our normal seasonal decline.

Network solutions accounted for 83% of the revenue at $96.2 million, a 2% increase over the prior period. Global Services revenue contributed $19.6 million, a 3% decrease quarter-over-quarter. PON fiber and fiber CPE solutions continue to be our top sales growth categories.

We continue to be actively engaged in a large number of fiber broadband and fiber extension opportunities in all of the regions we serve across the globe.

Most notably, with the emerging service providers, such as the outlets in Europe, the electric co-ops and municipalities here in the U.S., new network builds in EMEA, national providers in Ireland and in Australia, and some new opportunities in emerging markets.

Further, our investment in innovative and disruptive industry-changing open disaggregated virtual-access solutions are gaining market traction at several Tier 1 and national operators have ongoing RFPs and trials.

From an organizational perspective, we continue to implement changes to improve our operational cost basis, improved gross margins and provide more flexibility to focus on our key growth areas, Broadband Access, subscriber solutions and global services. The following are the key updates for each of these areas for the quarter.

In Broadband – Broadband Access remains the key driver for our business. Our success in delivering these solutions is what enables customers from Australia's national broadband network to emerging 10 gig fiber network operators, such as Zoom in the U.K.

to deliver the services needed so that their customers can fully participate in the gigabit economy. Our fiber solutions are helping outlets in Europe and community utility providers in the U.S. address underserved markets in which they live and is supporting the rising capacity demands from the customers of Tier 1 providers around the world.

Some of the key highlights for Q4 2019 for our Broadband Access business included the addition of 15 new Fiber-to-the-Home service provider customers in addition to the previously mentioned SDX wins at our large European Tier 1 and the national carrier in Ireland and our announcement with Zzoomm a full fiber broadband provider in the U.K.

delivering gigabit speeds to more than 100,000 premises by the end of 2021.

Key broadband access product advancements included delivering our multi-tenant scale with the SM200, adding a 100 gig transport – excuse me, multi-terabit scale with the SM200 adding 100 gig transport capabilities with our total access 5,000 platform to support the market ramp of 10 gig services.

We will be showcasing our leadership in open networking at Mobile World Congress next month in Barcelona with Deutsche Telekom, demonstrating our next-generation open source SD access solution.

Capping off our Broadband Access achievements for the quarter, we added Lightwave Innovation award to the industry accolades for our 10-gig fiber access portfolio.

Subscriber Solutions is a significant contributor to us and how we enable our customers to better monetize the investments they are making in the access network to deliver seamless, integrated business, and residential services.

Our focused investments in CPE for residential and businesses support gigabit services delivery, improved Wi-Fi experience, and better subscriber insight and management capability to lower operational cost and improve the customers' experience.

Some of the key highlights for Q4 2019 in our Subscriber Solutions & Experience business included the initial shipments of ADTRAN's first Integrated RG ONTs utilizing SmartRG technology.

We expanded our devices under software subscription management services which include Mosaic Subscriber Insight, smart home analytics, and device manager and we now have over 2 million devices under management across a vast array of networks including fiber, copper, cable and wireless.

ADTRAN launched our Smart OS 11 furthering ADTRAN's leadership in open solutions by delivering the industry's first Purple Foundation compliant operating system.

The quarter also marked the initial introduction of ADTRAN's first SD-WAN solution targeting distributed enterprise and SMB market allowing customers to migrate existing hardware to realize the benefits of fault tolerance and secure SD-WANs in their solution.

Our Global Services business has proven to enable ADTRAN to be a trusted partner with expanded services capability for our service provider customers.

As operators move to deploy network capability of delivering the capacity and customer experience they need to stay competitive, ADTRAN's unmatched domain access network experience has proven to be a critical asset. It is helping our customers in Europe, Latin America, and the U.S. plan, provision, support, and build their best networks.

We're helping customers better understand how to maximize opportunities, find new paths to revenue, reduce operational expenses, and realize faster time to market with their new services. In 2019, as a whole as most of you know, we had a strong first half growing 20% over the previous year.

But we saw weakness in the second half due to a lower capital spending at two carriers. Notwithstanding those spending delays we did see double-digit year-over-year revenue growth in the U.K., LatAm, Canada, and the RSP market here in the U.S.

Going forward we expect continued growth in our Broadband Access portfolio in the years to come from net new awards building upon the progress we have already made. We are well-positioned and expecting continued sustained momentum we achieved over the last decade with CAF funding.

On Thursday January 30 the FCC adopted the Rural Digital Opportunity Fund order which will provide $20.4 billion of federal subsidies for broadband deployment for four million homes in rural America over the next 10 years and it fits perfectly into our solution portfolio and services.

We are excited about the future for ADTRAN our customers and the markets we serve driven by technology evolution positive governmental influences and vendor disruption. Our focus remains on delivering an outstanding level of quality and commitment. Our commitment to our customers is to deliver network solutions that deliver results.

And with that Mike, I'll turn it over to you to go over the financial results for the quarter..

Thank you, Tom and good morning to all. I will review our fourth quarter results and also provide our view for the first quarter of 2020. During my report, I will be referencing both GAAP and non-GAAP results.

With respect to non-GAAP financial measures, that are discussed on this call but are not presented in our earnings release, reconciliations to their comparable GAAP measures are published in a supplemental financial schedule that appears on our Investor Relations webpage at www.adtran.com.

For non-GAAP measures discussed on this call that are presented in the earnings release reconciliations are contained in the release. The supplemental financial schedule on our web page also presents certain revenue information by segment and category which I will be covering today.

As Tom stated, ADTRAN's fourth quarter revenue came in at $115.8 million compared to $114.1 million in the prior quarter and $140.1 million for the fourth quarter of 2018.

Breaking this down across our operating segments our network solutions revenue for the fourth quarter was $96.2 million versus $94 million reported for Q3 of 2019 and $116.9 million in Q4 of 2018.

Our Services & Support revenue in Q4 was $19.6 million compared to $20.1 million reported for the third quarter of 2019 and $23.2 million in the fourth quarter of 2018.

Across our revenue categories Access & Aggregation revenues for quarter four of 2019 was $74.6 million compared to $65.1 million in the prior quarter and $100.5 million in quarter four of 2018.

Revenue for our Subscriber Solutions and Experience category was $33.2 million for the quarter versus $42.5 million for quarter three of 2019 and $31.2 million for quarter four of 2018. Traditional & Other Products' revenue for the quarter was $8 million compared to $6.5 million for quarter three of 2019 and $8.3 million for quarter four of 2018.

Looking at our revenues geographically. Domestic revenue for Q4 2019 was $69.9 million versus $83.1 million reported in quarter three of 2019 and $74.8 million in quarter four of 2018. Our international revenues for quarter four of 2019 was $45.9 million compared to $30.9 million for quarter three of 2019 and $65.3 million in quarter four of 2018.

For the fourth quarter, we had two 10% of revenue customers one domestic and one international. Our GAAP gross margin for the fourth quarter was 40.6%, which was the same as in the prior quarter and was 39.5% in the fourth quarter of 2018.

Non-GAAP gross margin for quarter four was 41.1% compared to 41.1% in the prior quarter and 40% in the fourth quarter of 2018. The year-over-year increase in both GAAP and non-GAAP gross margins was driven by improvements in product mix and supply chain efficiencies partially offset by a decrease in services GAAP and non-GAAP gross margins.

Total operating expenses were $62.2 million for quarter four of 2019 and compared to $62.7 million reported in the prior quarter and $59.2 million for quarter four of 2018.

The quarter-over-quarter decrease in operating expenses was driven by lower personnel-related expenses in both SG&A and R&D reduced legal and contract expenses and partially offset by increases in our equity and variable compensation expense.

The year-over-year increase in operating expenses was primarily driven by market changes in our equity compensation and incremental expenses related to the SmartRG acquisition and restructuring expenses partially offset by reduced personnel-related expenses and contract services.

On a non-GAAP basis our fourth quarter operating expenses were $57.6 million compared to $59.4 million last quarter and $60.2 million in quarter four of 2018.

The non-GAAP quarter-over-quarter decrease in operating expense was primarily the result of decreased personnel-related expenses and reductions in contract services costs in both SG&A and R&D and reductions in legal expenses partially offset by increases in our variable and equity-related compensation expense.

The non-GAAP year-over-year expense decrease was primarily attributable to reductions in personnel-related expenses, project-specific R&D spend, R&D contract services and travel expenses partially offset by increases in incremental expenses related to the SmartRG acquisition and increased legal expenses.

Our operating loss on a GAAP basis for the fourth quarter was $15.1 million compared to an operating loss of $20.3 million in the prior quarter and an operating loss of $3.8 million reported in quarter four of 2018. The quarter-over-quarter improvement was attributable to higher sales volume and reduced operating expenses.

The increase in our year-over-year operating loss was primarily driven by lower sales volume partially offset by improved gross margin, increased market-driven equity expenses in our deferred comp plans higher restructuring expenses and incremental expenses related to the SmartRG acquisition.

Non-GAAP operating loss for quarter four of 2019 was $10.1 million compared to a loss of $12.6 million in Q3 of 2019 and a loss of $4.2 million in quarter four of 2018. The quarter-over-quarter improvement in our non-GAAP operating loss was mainly driven by higher revenues and decreases in our operating expenses.

The increase this quarter in our non-GAAP operating loss as compared to quarter four of 2018 was attributable to lower sales volume partially offset by improved gross margin and operating expense reductions.

Other income for the fourth quarter of 2019 was $3.2 million compared to $1.9 million in the prior quarter and a loss of $6.8 million in quarter four of 2018. Our non-GAAP other income for the quarter, which just ended was $2.9 million compared to $2.7 million in Q3 and a loss of $3 million for quarter four of 2018.

The favorable increases this quarter in both GAAP and non-GAAP other income were primarily driven by gains in our investment portfolio. The company's tax provision for quarter four 2019 was $768,000 as compared to $27.7 million last quarter and a benefit of $2.1 million in the fourth quarter of 2018.

The Q4 tax expense was primarily a result of our international operations as the deferred tax benefits generated in the current quarter by our domestic operations were offset by additional changes in the valuation allowance that was previously established during the third quarter of 2019.

GAAP earnings for quarter four of 2019 was a loss of $12.7 million, compared to a loss of $46.1 million in the prior quarter and a loss of $8.4 million in the fourth quarter of 2018.

Non-GAAP earnings for the fourth quarter of 2019 was a loss of $3.2 million as compared to a loss of $2.8 million in the prior quarter and a loss of $5.8 million in quarter four of 2018.

Earnings per share on a GAAP basis was a loss of $0.26 per share, compared to a loss of $0.96 per share last quarter and a loss of $0.18 per share in the fourth quarter of 2018.

Non-GAAP loss per share for the fourth quarter of 2019 was $0.07 as compared to a loss of $0.06 per share in the prior quarter and a loss of $0.12 per share in quarter four of 2018. Turning to the balance sheet. Unrestricted cash and marketable securities net of debt totaled $153.6 million at quarter end after paying $4.3 million in dividends.

For the quarter, we used $10.1 million in cash for operations. Net trade accounts receivable was $90.5 million at quarter end, resulting in a DSO of 72 days compared to 73 days in the prior quarter and 65 days at the end of the fourth quarter of 2018.

The variability in DSOs quarter-over-quarter and year-over-year is mainly attributable to the timing of shipments during the quarter and customer mix. Net inventories were $98 million at the end of the fourth quarter compared to $104.9 million in Q3 of 2019 and $99.8 million at the end of Q4 2018.

Looking ahead to the next quarter, the book and ship nature of our business, the timing of revenue associated with large projects, the variability of order patterns and the customer base into which we sell, as well as the fluctuation in currency exchange rates in our international markets may cause material differences between our expectations and the actual results.

We expect that our first quarter 2020 revenue will be in the range of $112 million to $118 million. After considering the projected sales mix, we expect that our first quarter gross margin on a non-GAAP basis will be consistent with the fourth quarter.

We also expect non-GAAP operating expenses for the first quarter of 2020 will be approximately $55 million. And finally, we anticipate the consolidated tax rate for the first quarter of 2020 on a non-GAAP basis will be in the mid-20s percentage rate.

We believe the significant factors impacting revenue and earnings realized in 2020 will be the following; the macro spending environment for carriers and enterprises, currency exchange rate movements, the variability of mix and revenue associated with project rollouts, the proportion of international relative -- revenue relative to our total revenue, professional services activity levels both domestic and international, the timing of revenue related to Connect America Fund projects, the adoption rate of our Broadband Access platforms and inventory fluctuations in our distribution channels.

Again additional financial information is available at ADTRAN's Investor Relations web page at www.adtran.com. With that, now I'll turn the call back over to Tom..

Thanks very much Mike. Chris at this point we're ready to open up for any questions people may have..

Thank you. [Operator Instructions] The first question comes from Rich Valera of Needham & Company. Your line is open..

Thank you. Good morning, gentlemen. Just wanted to follow up on your comments about your two large international customers appearing to have come back to some degree in the fourth quarter.

Can you just characterize what went on there and where you think the run rate of those customers is relative to where it could get in the balance of this year and beyond? And kind of what are you expecting in the first quarter from those two large customers?.

So, we do expect Europe to be stronger in Q1 than Q4. The customer in Latin America tends to be as you're aware very bumpy. So we try to deleverage that as much as we can. So we try to be as conservative as possible there. So we have shipments to them as well in the quarter, but I think the shipments that we have in there are relatively safe so.

But you never know they tend to place orders and then drive you for quick delivery. So we typically won't know that until the orders happen. So pick up in Europe and then we actually have less in Latin America than we did in the Q4..

Got it. And would you characterize this -- yes. I think so. I'm just trying to understand sort of the state of play for your European customer. I think it was well-documented that they put I think sort of a CapEx pause after spending, quite a bit for some spectrum.

Is it sort of business as usual as we head into 2020 from what you can tell? Or do you have any sense of how it compares relative to 3Q last year?.

Definitely stronger than 3Q last year. So -- which was down. So that's an easy one. As far as for the total year, the only thing that adds ambiguity to the numbers here is there are several projects that are -- that aren't nailed down. I mean they have target dates for them, but I don't know when they'll fall in.

That could change the number materially this year. Right now we're fairly conservative. I would say, it's probably flat to slightly down with the core business probably right around flat. There are three projects that I'm aware of right now that could drive that higher than that. So I would consider it flat.

But the three projects are fiber penetration, I mentioned that -- and I don't want to get into specific carrier names, but that we have an award with a large European Tier 1 for our SDX system which will be integrated into their network. We also have strong Gfast potential there that we're trying to move forward into earlier in the year.

And then we also have CPE business which has really ramped up. So I think all of those are kind of in play..

Got it. And then just wanted to focus on the U.S. a bit, so quarter-over-quarter clearly it looks like the U.S. softened a bit 3Q to 4Q. If you could just provide a little bit of color on what that was? And then just your thoughts on sort of the U.S.

outlook for this year, you clearly you talked about the CAF which seems like should be a tailwind at some point.

And just how you think about CAF and when that could begin potentially contributing to your business?.

Yes. Sure. So CAF has been strong. We still expect a good CAF year. So let me talk a little bit about the environment today. RSPs are strong. So we're picking up customers in municipalities and the Tier 3s. And those are growing at double-digit rates. We expect that to continue on this year.

In the Tier 2 space, we did actually see a pickup -- really in the second half of this year starting to pick up, where you're starting to see PON deployments in one of the Tier 2s and we expect that to continue on this year. So far it looks pretty good.

The rest of the Tier 2 space is -- some are going through their transition right now and maybe not as focused on capital spend, but in general we expect the Tier 2 space to be up. Tier 1s in -- both in the MSO space and in the carrier space have just been tapped.

So a lot of -- just a lot of different things going on that seem to continue to delay things. So I would expect the Tier 1 space as of right now to be flattish to what we saw last year..

Got it. That's very helpful. And just one – yes, that was perfect. One more if I could just on the -- I know you don't give guidance beyond one quarter, but sometimes you'll give a little color in terms of seasonality, how you think it might shake out. Typically you have a pretty strong Q1 to Q2 seasonality.

I'm just wondering, if we should look sort of towards historical trends for that? If there's any other factors, we should consider when thinking about the contra of the year beyond Q1?.

Sure. So the -- I would say the only thing that would be different is the volatility around Latin America because that kind of goes up and goes down in big spikes. If you take that out -- and as I mentioned before we don't have a whole lot in Q1. But if you take that out I would expect typical seasonality..

That’s perfect. Okay. Thank you gentlemen..

Okay..

Your next question comes from Rod Hall of Goldman Sachs..

Hey, thank you for taking my question. This is Ashwin on behalf of Rod. Tom I wanted to ask about this vendor replacement opportunity that you are talking about. I think in the past, you've talked about carrier tension related to a certain vendor, but this quarter you appear to be a bit more explicit about that as you put that in your prepared remarks.

So just wondering what has changed? And can you give us more color on what's going on there?.

Yeah. But maybe two big things that have changed. One is we actually started receiving orders from one carrier for actually replacing gear. So that's kind of new in the quarter and started shipping that in Q4 and we expect that to kind of pick up through next year.

The other is the generation of additional RSPs that have come out over the last six months probably the biggest one -- there's a very large one going on in Europe right now. And there are other ones where I wouldn't call them necessarily vendor replacement, but I think people are just making sure that their supply chains are lined up.

So it's just that general push that we're seeing in certain parts of the world, where it's continuing to heat up and it's continuing to give us opportunities that probably would not have been open to us two years ago..

And could you give us a sense of how big does opportunity can be at least in 2020? You said you started receiving orders from one carrier.

Can you just qualify…?.

Yeah. So -- and that will be -- I'll be very frank. That is not a what we would consider to be a large Tier 1 carrier. So the 2020 impact, I would say it's probably not a lot in 2020 because – although, we do have a couple that have accelerated their plans, I think still getting things integrated and deployed I think will be tough.

I mentioned one carrier that is looking at trying to pull things into this year, but I think that will be very difficult. So I think really it's 2021 is when you start seeing the impact of the larger carriers really diversifying their supply chains..

Got it. Okay. Thank you, guys..

Okay..

Your next question comes from George Notter of Jefferies. Your line is open..

Hi guys. Thanks very much. I guess I wanted to expand on some of the things that you said earlier on the call, and then I think in addressing one of the other questions. It was really around the customers in the U.S. and I guess large, medium, small. Can you talk about the mixture of your U.S.

revenue by those different Tiers of customers Tier 1s Tier 2s Tier 3s? It seems like the picture is quite different depending on whether you're talking about smaller or larger carriers. One of your competitors obviously broke some of that data out recently. But yes, I'd just be curious what the mixture of that business looks like..

It's really quarter-dependent George, because sometimes as you know Tier 2s can come in really strong.

The way we typically think about it -- and Mike I'm going to look at you to tell me if I'm wrong is that a third, a third, a third?.

Yeah. Generally that is..

Yeah. Generally that's kind of where that mix is, it's probably a little bit more smaller-carrier weighted right now because of some of the issues with the Tier 3s. But one of those Tier 2s had a pretty good quarter with us this quarter.

And then – yeah, and then that when I say a third to a third to a third that would include the MSO business, which sometimes which has kind of just been flattish over the last year..

Got it. And does that help your margin structure then? Is the business -- I guess, first does that business continue to shift then towards smaller carriers? It sounds like that's what you're suggesting going forward.

And then also would that help your margins?.

So for this year, I would think Tier 2s and Tier 3s are going to be -- are going to see more growth than Tier 1s without a doubt. We like to treat all customers the same. So I probably won't get into a margin discussion. But let me just leave it there..

Right. Thank you..

Yes..

Your next question comes from Paul Silverstein of Cowen. Your line is open..

Tom I appreciate the disclosure you just gave as a response to George's question. But I want to pick up on that. If we were to clock back to when DT and Telmax and other of your large carriers had been healthier in the revenue flow. And I know they wax and wane.

But when they aren't peak levels what did the concentration look like back then?.

Oh, yes. No. By the way I was only talking about the U.S. revenue. So if you....

Okay. So I appreciate that clarification..

Yeah. Yeah..

Can you talk -- can we talk about all-in right now? I mean, historically you have always had these projects that have offered great opportunity and the challenges being your customers being….

So, yes. It's still materially weighted towards Tier 1s on a global basis..

And I apologize. Is there….

Over 50%. Over 50%. If you look at it on a global basis right? Because our international business….

Well, no, I know it's over 50%. I was hoping to get you to go one level further, but….

But well, I mean I think it's -- if you take the a third to a third to a third which is the rule of thumb over -- it's kind of an average and then you figure that. And Mike I'll look at you again.

I'm thinking at this point in time 80%-ish of our international revenue is Tier 1 based if you include people like our Australian customer our Latin American customer our European customers..

Yes. That's right..

It's heavily Tier 1 based..

I appreciate that additional insight. All right. Given that exposure Tommy I know there are moving pieces, but correct me if I'm wrong. I think the Indian project in Australia is now at least in the current phase, they're getting to the very late innings in that they had a mid 2020 target I think the completion no doubt.

There'll be additional iterations in terms of improving the feeds and speeds as we go forward in time. But it also sounds like with the financial situation in Australia that's probably not imminent in terms of them cranking that back up. And if we take that into a – let me ask you I apologize. I'll step back and answer the broader question.

When you look at over this year putting aside any individual quarter.

When you look at the totality of the year, what are the biggest opportunities for upside? What are the biggest risks for downside?.

So let me say the biggest variable – and we're trying to mitigate downside. So when we say the biggest variable – and so I'll talk more about upside than downside but the biggest variable is Latin America. And that's just the nature of our customer there. Australia were – they have finished a major rollout and we're still getting orders.

In fact we will be shipping this quarter where they're going back and either fixing issues or in some cases where they have fiber to the node they may be looking at putting fiber to the curb.

And that will continue on and there are a couple of waves of deployment where they're trying to in effect reduce some of the areas where they have problems that will continue on. And then they – as you know they are talking about material refreshers in some of their network going forward.

The other thing that we have going on there is we did win some new business there. We would have not been – if you think about the DPU business or the G.fast fiber extension business that we have there. They've put in a lot of the infrastructure. Now they have to turn on those customers.

And we recently within the last two quarters won a large portion of that CPE business which has not started shipping yet and will ship this year. So there are incremental pieces that we're adding on the CPE side that will augment the additional DPU shipments that we have. And so it's probably – the picture that you have is probably a little off.

In Europe, for this year – of course, we have a large European carrier that's going to be driving the majority of that revenue this year. I would tell you the outlets there are really coming online. And we feel good about them contributing. It will be more second half than first half but then contributing in a material way towards the end of this year.

And in our other our large European carrier that drives the majority of the revenue typically out of there. It's all about getting these new projects on board and running..

All right. Tom give me commentary about Australia..

Does that answer your question [ph]?.

Yes. No. That was great.

On the NBN can they – given the new wins in the Others the refresh et cetera can that – can NBN this year for you relative to last year?.

I think Australia maybe but I don't know about the NBN – I hate to talk about specific customers. But I don't know if they will be I think Australia – we just recently won a national service provider there for their fiber roll which is OptiComm. We have a couple – we have a few more than a couple of customers there.

And that one for instance is brand new that will be contributing this year. So I don't know about Australia. In general NBN I would probably agree. I think it would be tough to actually duplicate but it's probably not as far off as you're contemplating right now..

All right. And one last question for me. Going back to Latin America.

Correct me if I'm wrong but I think earlier last year you had pointed out that the nature of the relationship changed for the better and that is – that you had expanded the number of projects that you're being deployed in and that should translate relative to historical incredible volatility where you'd have a huge quarter it would go relatively soft for four or five quarters, huge quarter and rinse and repeat.

It sounded like there was more predictability visibility that it would just be better-for-you in general.

Has that changed again? Or is that still the case?.

I think Q3 kind of was kind of a point to where I would say that we started really having to second-guess ourselves on what the revenue would be there in any particular quarter. They are moving forward with us with other – so just this – the nature of this project was different than the nature of the previous projects. So I would agree with that.

I think we've seen that the volatility and we've learned that the volatility associated with this project can be still very detrimental. We are getting approved for other things.

For instance, they are looking for in our trial – excuse me, lab testing right now G.fast for fiber extension as well as looking at additional PON providers within their network. Which would help the – I shouldn't say it will help because that customer tends to be light-switch.

And you would think it would help because it's three technologies instead of one but I will tell you I will always have trepidation there..

All right. I appreciate that additional color. I’ll pass it on. Thank you..

Your final question comes from Fahad Najam of Cowen. Your line is open..

Thank you for taking my questions. Wasn't expecting to be call, but I wanted to ask you about your Lat Am opportunity. If Huawei is being pushed out of European markets, one would assume that they will become very aggressive in the Lat Am market.

And in terms of margin and ASP trends, are you cognizant of this risk? And is this something that you're worried about as well?.

So, we haven't seen that yet. And I agree with your premise that they could. But we have not seen that yet, but in the areas where we're competing. Literally as of right now, they're not really competitive. So, the majority of the business that we've had to date has been vectoring.

We're kind of unique in that we have kind of -- we had just have a much, much better platform. So I don't really view us as having a strong competitor, regardless of who the company is there. And the other piece which is, G.fast, we also have a very good lead in the technology space. So, they just don't have something to compete with.

If and when, we get into the OLT business, that's when we'll see..

Got it.

One last question, in terms of the coronavirus outbreak, disruptive or having the potential to disrupt the supply chain, are you planning any disruption? And if so, is it accounted into your outlook?.

It is something that we've been tracking now for over a month. And have been having weekly meetings on, just to make sure that we don't have disruptions and trying to find supply.

Mike, do you want to...?.

Sure. So, it doesn't impact us really at the top level production, because we don't have any factories in that region. But as you start to get down into some of our sub components especially in the optical space, I think you guys know that a lot of that actually comes out of that area, specifically in the Hubei province and Wuhan.

So, we have been spending a lot of time working with our suppliers. And the folks that build some of these sub-assemblies for us trying to make sure that they can turn up and move material as soon as they are cleared to go back.

I think you may know that the extension of the Chinese New Year holiday, in Wuhan goes all the way through the 17th of February, now at this point. We don't believe if that ends up being the date that they turn those factories back on. And that it's going to have any disruption to our supply chain.

We're working with secondary sources that we've had on our bill of material as well to be able, to pull in some of those suppliers that are outside of that region. But if it does get worse and it does extend farther beyond that point, there is the possibility that it could impact some of our optical products..

Would it have if you going to switch suppliers out of China, would it impact your margin outlook in anyways you perform?.

Most of the suppliers we've already had -- on our [indiscernible] and we have agreements with them. Potentially it could have some minor impact on that. But I wouldn't think it would have any type of a large swing there..

Yeah. I think it's all -- if everybody runs through the same door. That's going to be....

Yeah. It's going to be more of but availability than a cost problem..

Yeah. Well we just saw the same thing. We were in Vietnam. Early in some of our manufacturing and everybody ran to Vietnam, about 1.5 year ago. And we really didn't see big swings there. So hopefully this will turn out the same way. I hope that answers your question..

Yeah. Thank you very much..

Okay, all right. Thank you everybody for joining us on our call today. And we look forward to talking to you next quarter..

This concludes today's conference call. You may now disconnect..