COWEN TECHNOLOGY CONFERENCEs22.q4cdn.com/718573125/files/doc_presentations/Investor...MSAN 1st VDSL Deployment Based on IP DSLAM 1st demo of w/ phantom, bonding, vectoring Global Leader

COWEN TECHNOLOGY CONFERENCE Roger Shannon

Senior Vice President and CFO

2015 © ADTRAN, Inc.

Safe Harbor Statement During the course of this meeting, 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 cost, manufacturing efficiencies, foreign exchange rate variations and other risks detailed in our Annual Report on Form 10-K for the year ended December 31, 2015. These risks and uncertainties could cause actual results to differ materially from those in the forward-looking statements, which may be made during this meeting.

2

© 2015 ADTRAN, Inc. All rights reserved.

COMPANY HISTORY

FOR THE PAST THREE DECADES, ADTRAN HAS BEEN ENABLING A FULLY CONNECTED WORLD.


INNOVATION TIMELINE

DIVESTITURE ERA

INTERNET ERA

IP TRANSITION ERA

GIGABIT ERA

SDN ERA

Created T1 Access Market

Broke $1000 Economic Barrier with HDSL, 95%

market share

Disrupted Western Electric Monopoly Redefined Economics for D4 channel cards

Drove Innovation in DSL and Converged Services

Repeater-less break-thru

Total Reach ISDN

Redefined economics for SONET Fiber Access (OPTI-3, OPTI-6100)

1st Converged Voice & Data

Business Gateways

1st All Ethernet MSAN

1st VDSL Deployment Based on IP DSLAM

1st demo of VDSL2 825Mbps

w/ phantom, bonding, vectoring

Global Leader in OSP

broadband solutions

Market Leader in DSL and

Converged Services

200 Gig Communities by YE2015

Frequency Division

Vectoring (FDV)

1st Edged Optimized Packet-Optical

Networking Platform

Market Leadership

In G.fast innovation

Breakthrough In 10G PON (XGS)

Economics

1st Deployment of System Level Vectoring (SLV) (US)

1st converged,

Multi-service Gigabit

enterprise and MTU gateways

1st Cloud-based WLAN

ProCloud Wi-Fi services

Leading SDN/NFV Access in

Broadband Forum

CPE Automation for Service Activation

1st Open Platform for G.fast DPU


INTERNET ERA

IP TRANSITION ERA

GIGABIT ERA

SDN ERA

DIVESTITURE ERA

Created T1 Access Market

Broke $1000 Economic Barrier with HDSL, 95% market share

Disrupted Western Electric Monopoly Redefined Economics for D4 channel cards

INNOVATION TIMELINE


DIVESTITURE ERA

IP TRANSITION ERA

GIGABIT ERA

SDN ERA

INTERNET ERA

Drove Innovation in DSL and Converged Services

Redefined economics for SONET Fiber Access (OPTI-3, OPTI-6100)

Repeaterless breakthru Total Reach ISDN

1st Converged Voice & Data Business Gateways

INNOVATION TIMELINE


DIVESTITURE ERA

INTERNET ERA

GIGABIT ERA

SDN ERA

IP TRANSITION ERA

1st All Ethernet MSAN

1st VDSL Deployment Based on IP DSLAM

Global Leader in OSP broadband solutions

1st demo of VDSL2 825Mbps

w/ phantom, bonding, vectoring

Market Leader in DSL and Converged

Services

INNOVATION TIMELINE


DIVESTITURE ERA

INTERNET ERA

IP TRANSITION ERA

SDN ERA

GIGABIT ERA

250 Gig Communities by YE2015

Frequency Division

Vectoring (FDV)

1st Edged Optimized Packet-Optical Networking Platform

Market Leadership In G.fast

innovation

Breakthrough In 10G PON (XGS)

Economics

1st Deployment of System Level

Vectoring (SLV) (US)

1st converged, Multi-service

Gigabit enterprise and MTU gateways

INNOVATION TIMELINE Breakthrough In Tunable Optics


DIVESTITURE ERA

INTERNET ERA

IP TRANSITION ERA

GIGABIT ERA

SDN ERA

1st Cloud-based WLAN

ProCloud Wi-Fi

services

Leading SDN/NFV Access in Broadband Forum

CPE Automation

for Service Activation

1st Open Platform for G.fast DPU

INNOVATION TIMELINE


TOP 3 GLOBAL SUPPLIER

BROADBAND ACCESS

68 COUNTRIES Approx 30% OF SALES INTERNATIONAL in

FY2015

2000 EMPLOYEES Huntsville HQ, Munich, Berlin, Greifswald, Sydney, Melbourne,

London, Hyderabad

$600M 2015 REVENUE

250 GIGABIT COMMUNITIES ENABLED BY YE2015

AND GROWING

SDN/NFV NETWORK AUTOMATION

USER-ENABLED SERVICES

R&D – 21% OF REVENUE

60% MORE PATENTS PER $ THAN

INDUSTRY AVERAGE

$272M UNRESTRICTED CASH

AND MARKETABLE SECURITIES

INDUSTY’S 1ST CLOUD WI-FI

SOLUTION

#1 IP BUSINESS GATEWAYS

NORTH AMERICA

TOP 2 BRANCH OFFICE

ROUTERS NORTH AMERICA

#1 SIP TRUNKING & VOIP

ACCESS NORTH AMERICA

AT A GLANCE

© 2015 ADTRAN, Inc. All rights reserved. © 2015 ADTRAN, Inc. All rights reserved.

FROM THE WORLDS LARGEST SERVICE PROVIDERS TO THE SMALL BUSINESS DOWN THE STREET.

WHO WE SERVE


All names and logos on this slide are properties of the respective owners

Enterprise Distribution

BROAD CUSTOMER BASE Communications Service Providers


NEED FOR SPEED

GLOBAL COMPETITIVENESS

SOFTWARE DEFINED

NETWORK TRENDS DRIVING GROWTH


NEED FOR SPEED


SOFTWARE DEFINED



BROADBAND USE ACCELERATING

37% of d/s traffic (up 2 pts in 6 months)

Social Media reaches 30% of world’s online population (2.2 billion active users)

iPhone was first released on

June 29, 2007

Global Active Internet Users now totals 3.175 Billion

(Half of the world’s population)

Demand Drivers

iPad was first released on April 3, 2010

Facebook, Snapchat & Instagram account for 25%

internet traffic

85Mbps required for quality 8K experience

30%-35% increase in Netflix traffic on

Sunday nights


TRANSFORMATIVE EFFECTS OF GIGABIT


BROADBAND INVESTMENT CYCLE •  Traditional operators are facing increasing pressure…

•  Drivers: Pace of change, OTT threats, constant increase in demand for bandwidth •  Needs: Service agility, more revenue, less (fixed) expense, new business models

•  Forcing them to… •  Streamline their OSS/IT and deployment processes •  Scrutinize their network assets •  Out-source wherever possible •  Seek breakthrough technologies

•  Resulting in increased investments •  Government subsidies and commitments •  Fixed broadband cited as a strategic priority


ACCELERATING PACE OF FTTH & �1 GIG ANNOUNCEMENTS �(2010–2015)


NEED FOR SPEED


SOFTWARE DEFINED



Shift to Data Center Architectures

20


Future Network State

§ Fiber connectivity everywhere

§ Multi-service points

§ Open and Cloud controlled

§ Virtualized network functions

§ Highly automated, programmable

22

Applying Data Center Architectures to Access §  Utilize SDN to create

highly automated and programmable networks

§  Apply NFV to create agile, software-centric networks

§  Disaggregate monolithic, proprietary systems

§  Implemement open networking architectures

2015 © ADTRAN, Inc. 23

Open, Programmable, Scalable Networks § Assuring Consumer Quality of

Experience

§ Enabling the Rapid Creation of Differentiated Services

§ Eliminating the High Cost of Network Overhead

24

Enabling the Self-Directed Consumer § Moving at the speed of Service

Provider Dev-Ops Teams § Micro Software Release Schedules § Balancing Service Velocity with

Network Growth Rate


ADTRAN IS A SOFTWARE COMPANY §  82% of R&D are working software-based designs

§  Agile Development Process §  Pilots in 2011 §  Implemented companywide in January 2012

§  India – IT Epicenter §  ADTRAN started with contractors in 2009 §  ADTRAN India opened in 2013


Innovation & Leadership

26

Broadband Access Leadership §  Market leader in 10 Gigabit optical

access innovation §  XGS PON – commercial deployments §  NGPON2 – industry breakthrough in

tunable optics §  Europe’s (and World’s) largest

deployment of Vectoring and SuperVectoring

§  Over 300 Gigabit Communities §  Leader in CAF2 solutions

SDN Access Leadership §  1st CORD demonstration in a Tier 1

customer lab §  1st system level vOLT demonstration

in a Tier 1 customer lab §  Over 60 G.fast trials announced on

6 continents §  Industry’s only working SDN Access

solution in NIA interoperability test


0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

Nokia Huawei ZTE Calix ADTRAN

2015CYMarketShare(revenue)

DSLAgg FixedBB

* Fixed Broadband includes GPON, Ethernet FTTH & DSL Aggregation ** All markets (EMEA, North America and CALA regions, excluding APAC)

Source: IHS

#4

#2

BROADBAND MARKET LEADERSHIP


Product Portfolio Strategy

Fiber Access & Aggregation First vOLT with open/DC arch 10G optics innovation

Integrated optical transport

28

FTTN & DPUs Super-vectoring G.Fast portfolio breadth

SDN control, multi-PHY arch

Residential & Business CPE Universal ONTs & vRG options Leading VNFs & SD-WAN

Modern API’s for SDN control

WiFi APs & Infrastructure Lead with Wave 2 APs WLAN continuous improvement

10G aggregation switch

Value-added software & services across all product segments


NEED FOR SPEED


SOFTWARE DEFINED


30

Connecting Rural America §  34M Americans do not have access

to fixed broadband (25/3 Mbps) §  19.9M don’t have 10/1 Mbps §  16.1M don’t have 4/1 Mbps

§  ADTRAN is the top turnkey access supplier for CAF projects §  Sole or primary supplier for the

majority of Price Cap Carriers with CAF projects

§  Complete turnkey services and solutions designed for Rate-of-Return Carrier CAF projects

Source: FCC


$9B - 3.6M homes - 6 Years

$3B

$2.6B

$1B

$224M

$2B

CAF2 Construction Schedule •  Funds accepted 8/27/15, retroactive to 1/1/15 •  40% complete by 2017 •  60% complete by 2018 •  80% complete by 2019 •  100% complete by 2020

Other Price Cap Carriers (annual funding) •  Consolidated - $13,9M (24,698) •  Hawaiian Tel - $4.4M (11,181 homes) •  Micronesian Tel - $2.6M (11,143 homes) •  Cincinnati Bell - $2.2M (7084 homes)

CONNECT AMERICA FUND – PRICE CAP


CONNECT AMERICA FUND – RATE-OF-RETURN

$2B per year for 10 years •  Two Path Approach •  Existing Mechanisms

-  Legacy Investments – 11.25% Return (capped at defined date) -  New Investments – 9.75% Return

•  Model Based Alternative -  Similar to Price Cap CAF2 model -  10 year support cycle

•  Elections – RoR or Model

$20B over 10 years CONNECT AMERICA FUND – RATE-OF-RETURN


Digital Agenda for Europe §  Pillar IV: Fast and ultra-fast Internet access §  By 2013: basic broadband (2 Mbps) to all ü (claimed) §  By 2020:

•  All Europeans (100%) have access to > 30 Mbps (Next Generation Access) •  50% or more European have access to > 100 Mbps (ultra-fast)

Target 2: 50% subs with 100 Mbps Target 1: 100% with 30 Mpbs

Source: HIS and VVA in EC connectivity report 2015

60 Bn€ to achieve

100% 270 Bn€

to achieve 50%

EUROPEAN BROADBAND INITIATIVES


Company Financial Performance

35

Financial Stability §  Over 25 Years of

Continuous Profitability §  Ongoing Strong Balance

Sheet and Cash Flow §  Publicly Traded for 21 Years

with Full Transparency (NASDAQ-ADTN)


Q1 – 2016 Results ADTRAN Chief Executive Officer Tom Stanton stated, “ADTRAN delivered a solid performance this quarter resulting in earnings coming in ahead of initial expectations.” §  Domestic revenue was up over 39% YoY §  Operating income was up 181% YoY

“Longer term, we expect further improvement in the carrier environment as customers accelerate investments in upgrading their network infrastructure to meet customer demand.”

36


1st Quarter 2016

Corporate Financial Performance

(US$M) 1Q16 Y/Y Q/Q

Revenue $ 142.20 0% 2%

Gross Profit $ 65.79 0% 5%

OpEx $ 136.68 -3% 0%

Op. Income $ 5.52 181% 97%


Changes to Financial Reporting Operating Segments: §  Network Solutions §  Services & Support Revenue Categories: §  Access & Aggregation §  Customer Devices §  Traditional & Other Products

38

Network Solutions

Services & Support

Acc

ess

& A

ggre

gatio

n

Cus

tom

er D

evic

es

The two Segments have the three Categories within.

Categories

Segm

ents

Trad

ition

al &

Oth

er


1st Quarter 2016 §  Total Sales were $142.2M

§  1Q16 Network Solutions = $123.9M §  Up $8.2M from 4Q15

§  1Q16 Services & Support = $18.3M §  Down $5M from 4Q15

§  1Q16 Access & Aggregation = $93.9M §  Down $3.8M from 4Q15

§  1Q16 Customer Devices = $32.4M §  Up $3.4M from 4Q15

§  1Q16 Traditional/Other = $16M §  Up $1.9M from 4Q15

§  GM = 46.3% [vs 44.9% in 4Q15] §  OpEx = $60.3M [Down $3.3M y/y]

REVENUE ANALYSIS

Segments

Revenue Categories


2nd Quarter 2016 Guidance

Corporate Financial Performance

•  REVENUE: up on a percentage basis in the low-to-mid teens

•  GROSS MARGIN: flattish with our Quarter 1 results (46.3%)

•  OpEx: consistent with Q1 adjusted for sales commissions based on increases in revenue

•  TAX RATE: mid to high 30% range

Summary •  Strong history and well positioned

•  Leader in SDN Accessü  Open, scalable and standards-based

•  Ramping broadband investment cycleü  Emerging technologies in fiber & copper

ü  Imperative for service agility & automation

ü  Global operator proof points

•  Leader in fixed broadband access


ADTRAN IS BRINGING THE WORLD TOGETHER

Thank you

43

Documents

COWEN TECHNOLOGY CONFERENCEs22.q4cdn.com/718573125/files/doc_presentations/Investor...MSAN 1st VDSL Deployment Based on IP DSLAM 1st demo of w/ phantom, bonding, vectoring Global Leader