Adtran Networks SE

XMUN:ADV

Earnings Call Transcript 2021-Q4

[Operator]

Ladies and gentlemen, welcome to the conference call of ADVA Optical Networking for the full year 2021 IFRS Financial Results. This call is being recorded. [Operator Instructions]I now hand over to Mr. Steven Williams, ADVA Optical Networking's Director of Finance and Investor Relations. Please go ahead, sir.

[Steven Williams, Director of Treasury & Investor Relations]

Thank you, Judith, and welcome to ADVA's Q4 and Full Year 2021 Financial Results Conference Call. In addition to this call and the press release, we have posted a presentation, which is available for download from our homepage, adva.com, on the conference call page in the Financial Results section of the About Us/Investors section.Before turning the call over to Brian, please be reminded that this presentation contains forward-looking statements with words such as believes, anticipates and expects to describe expected revenues and earnings, anticipated demand for networking solutions, internal estimates and liquidity. These factors are discussed in greater detail in the Risk and Opportunity Report section of our annual report 2021.Please also be reminded that we provide consolidated pro forma financial results in this presentation solely as supplemental financial information to help the financial community make meaningful comparisons of our operating results from one financial period to another. This pro forma information is not prepared in accordance with IFRS and should not be considered a substitute for historical information presented in accordance with IFRS. Pro forma operating EBIT is calculated prior to noncash charges related to the stock compensation programs and amortization and impairment of goodwill and acquisition-related intangible assets. Additionally, expenses related to M&A and restructuring measures are not included. Unless stated otherwise, all numbers are presented in euro.We will target to limit this conference call to 60 minutes. As usual, Brian will start this call providing a business update, then Uli will guide us through our Q4 and full year 2021 financials and outlook. And finally, we will have sufficient time for your questions, which we'll be happy to answer.And with that, I'll turn the call over to Brian. Go ahead.

[Brian L. Protiva, CEO & Member of Management Board]

Thank you, Steven. Starting with our standard procedure, we move to Page #4, Q4 and full year 2021 highlights. It is with pride that we look back on a successful Q4 and fiscal 2021. Despite ongoing challenges due to the COVID pandemic, the semiconductor crisis and supply chain bottlenecks, we delivered excellent results. We met all our targets and even exceeded them in many areas. Thanks to the continued strong customer demand and great efforts in purchasing, manufacturing and logistics, we were able to further increase our revenues and achieve the most profitable fiscal year in our 27-year history.Q4 revenues were up 12.2% compared to the year ago quarter and reached EUR 157.7 million. Annual revenues were up 6.8% year-over-year, reaching an all-time high of EUR 603.3 million. Our pro forma operating income reached 9.1% of revenues in Q4 2021 and was up 61.5% for the full year 2021. Our Net Promoter Score, the performance indicator, which we use to measure customer satisfaction, was at a very positive 48%. Net cash increased by EUR 61.7 million year-over-year. Thus, we've further expanded our liquidity cushion. And excitingly, we are starting the 2022 fiscal year with a record order backlog.Page #5, Business transformation update. For several quarters, the macroeconomic environment has brought us encouraging growth in customer demand, while at the same time, presenting us with major supply chain challenges. This tension will continue in 2022. Against this backdrop, we've continued to work diligently to execute our business transformation strategy, and things are going well. At the beginning of the fiscal year 2021, we presented our strategy for sustainability -- sustainably increasing the margins of our business model to the financial community at our digital Capital Markets Day. The plan is essentially based on 3 pillars.First, disproportionate growth in private and security-relevant networks outside the traditional network operator infrastructure. We have been winning new customers outside the telco community in verticals such as transportation, medical and research and education. The slide shows several of the wins we announced since our last earnings call in October 2021.Second, we focus on increasing revenue contributions from software and services. In 2020, we went from 20% to 23%. Last year, we increased the contribution further to 25%. We keep expanding our capabilities in this space and recently launched a new software product. Our Ensemble simulator enables customers to perform full end-to-end network testing in a virtual environment, saving time and money for CapEx-intense hardware test beds.And third, we are driving the development of new markets while simultaneously achieving cost optimization through verticalization activities. Our MicroMux family of pluggable transceivers is selling well, and we will announce new members of this product family later this quarter and, in fact, within the next few weeks at the OFC. Overall, the results we've achieved in the past year clearly demonstrates the strength of these strategic cornerstones and show the success we had in implementing them.Page #6, unprecedented market opportunity at the edge. While we were -- or while we all are executing very well on our vision and strategy, we also see an unprecedented set of positive macro trends that are supporting our business. Digitization continues to move center stage in politics and business. High-performance network infrastructure is now regarded as the backbone of an increasingly digitized society and has greatly increased in importance and value over the last few years. The resulting high demand for communication technology is currently being further reinforced by numerous government stimulus and funding programs in many countries around the world.In the U.S.A., many billions of U.S. dollars will be made available over the next few years for network expansion, especially underserved and rural areas as part of the Infrastructure Bill, Rural Digital Opportunity Fund and American Rescue Plan Act programs.The U.K. has announced more than GBP 25 billion of private and government funding for accelerated network expansion. And across the EU, government support programs totaling EUR 30 million have been launched. Many programs in western countries will predominantly benefit western suppliers, and the focus of investment will be in the network access sector through to metro networks due to the universal Right for Information access within every home.Technology capabilities stemming from 5G, packet optical integration, miniaturization and next-gen PON fiber access creates an opportunity where ADVA is extremely well positioned within the network edge. We will further strengthen our market position through the merger with ADTRAN. With almost $250 million of combined R&D spending focused on the converged edge, you will see market impacting innovation driving our growth.Page 7, more specifically, our vision for the converged edge. In order to break down our mutual vision a bit more, we grouped a number of the areas accordingly. We will empower service providers to benefit from seamless service creation regardless of customer type and application. This includes residential, work from home and business services as well as assured wholesale, X-haul for mobile operators and edge cloud services.Former homogeneous, single-purpose parallel network architectures will evolve into a more unified access infrastructure, including various first-mile technologies and on-premise solutions, such as multi-generation PON with mesh WiFi fixed capabilities combined with second-mile technologies, including packet, OTN and edge compute solutions with outdoor hardened optical products covering industrial temperature ranges.Our programmable open optical line systems in combination with packet optical terminals and pluggable optics provide a wonderful set of building blocks to create a lean and cost-efficient edge transport solution that provides operators with the scale they need to handle the soaring bandwidth demand. All this is wrapped in an end-to-end security envelope with low latency, multilayer networking encryption solutions.And last but not least, we all know that the world needs better timing. With our [ Siloport's ] technology, we provide assured precision timing for communication networks and critical infrastructure enabling 5G, open and disaggregated networks, assured PNT and many critical technologies, which are changing our world.When you take all these modules and modular building blocks built on a philosophy that embraces open, disaggregated and cloud-native concepts and put them under an end-to-end orchestration umbrella with Software as a Service, you have the most comprehensive solution set for the industry's most interesting market space. We are convinced that this strategic business combination will permanently change the competitive landscape in our industry.Now moving to my last slide, Page #8. The combined ADTRAN-ADVA is strongly positioned to capitalize on momentum in the converged edge. Per my comments on the previous slide, ADTRAN and ADVA share a common vision about what it takes to win at the edge. Jointly, we can further accelerate our momentum and capitalize on the following 3 aspects.First of all, we expect significant cross-selling opportunities. Complementary geographic focus with ADVA's strong EMEA presence and ADTRAN's strong U.S. presence will help. We will also gain strategic vendor status with certain carrier relationships due to our size and strength of our balance sheet, which will create new opportunities. And our comprehensive solution portfolio will increase win rates. The potential annual revenue synergies are in the range of USD 60 million to USD 120 million.Secondly, we will have increased scale to accelerate R&D innovation. The merger enhances scale and improves ability to compete against other fiber networking vendors. We will also be able to achieve real optimization, which is to be expected with the combination of R&D processes. And we'll have a greater ability to focus on software, virtualization and monetization. Not to be repetitive, but a combined R&D spend of nearly USD 0.25 billion for the converged edge gives us a significant innovation power even when compared with some of the other larger players like Nokia.Thirdly, there will be some operational efficiencies from well-defined cost synergies. These include significant supply chain efficiencies and optimization of our new operating model with improved profitability. We have quantified approximately USD 52 million of annual cost synergies, which should be reached within 2 years after the closing.And finally, almost 2/3 of the existing voting shares for ADVA have agreed to the exchange offer, and we look forward to a common future with much optimism and enthusiasm. Currently, we are still working with the government authorities on open questions regarding the foreign direct investment approvals and are confident of receiving the necessary support.With that, I hand it over to Uli.

[Ulrich Dopfer, CFO & Member of Management Board]

Thank you, Brian. Welcome, everybody, and thank you for joining us on our Q4 and full year 2021 conference call. I will start reviewing our results for Q4 and the financial year 2021 followed by our outlook for 2022. Then I will provide a brief update on the ongoing merger process with ADTRAN. As always, all numbers are presented in euros.Now let's move to my first slide, financial year 2021 at a glance. 2021 was a record year for revenues, profitability and cash generation. Despite the ongoing challenges caused by the pandemic as well as global supply bottlenecks and semiconductor shortages, we managed to grow our top line in the mid-single-digit percentage range.We closed the year with revenues of EUR 603.3 million, up 6.8% from EUR 565 million a year ago. Revenues were at the upper end of our guidance corridor of between EUR 580 million and EUR 610 million. Demand continued to be strong throughout 2021 and resulted in a record level order backlog at the end of the year. Our pro forma EBIT was 9.1% of revenues of EUR 54.6 million and increased by 3.1 percentage points compared to 6% or EUR 33.8 million we have seen in 2020. This result was at the upper end of our guidance corridor of between 7% and 10% of revenues.Despite increased purchasing costs that started to impact our gross margins, particularly in the second half of the year, we achieved the highest full year profitability in our history. These results were strongly supported by the continued execution of our business transformation strategy and strict cost control.New applications outside the CSP segment set the stage for a more favorable customer and product mix, and we were also able to increase our software and service revenue contribution from 23% to 25%. Cash generation in 2021 was very strong. We were able to turn a net debt position of EUR 25.5 million into a net cash position of EUR 36.2 million. We prepaid EUR 15 million of our outstanding debt, while we were still able to increase our gross cash position from EUR 65 million in 2020 to EUR 109 million in 2021.Now let's take a deeper look into Q4, Slide 11. Revenues in Q4 2021 reached EUR 157.7 million, up by 12.2% from EUR 140.6 million in the year ago quarter. Similar to Q2 and Q3, our Q4 revenues were heavily impacted by supply challenges. Once again, we had to defer shipments with a volume of more than EUR 20 million into a following quarter. However, we still managed to grow both quarter-over-quarter and year-over-year.Growth in Q4 was predominantly driven by an uptick in demand from CSPs, particularly in the cloud access solution area. Higher purchasing costs due to the silicon shortage had a significant impact on our gross margins and increased our COGS by a substantial amount in Q4 2021. Consequently, gross margins were down by 3.3 percentage points. However, we were still able to increase gross profit slightly by 2.6% compared to the year ago quarter.We also continued our strict OpEx discipline and were able to achieve a pro forma EBIT of 9.1% of revenues. This is a decrease of 1.1 percentage points when compared to the record Q4 we have seen in 2020. However, an impressive result considering all of the macroeconomic circumstances we are currently facing.Net income reached EUR 17.5 million, significantly up from EUR 13.2 million in the year ago quarter. Apart from the strong EBIT contribution, this is mainly attributable to a tax benefit of EUR 5 million to EUR 2 million. The stand-alone profitability of ADVA SE enables us to use past losses for activation of a deferred tax asset under IFRS. We saw a similar effect already in Q3 2021.Diluted earnings per share increased from EUR 0.26 in Q4 2020 to EUR 0.34 in Q4 2021. As mentioned earlier, cash generation and deleveraging was once again outstanding, and we improved our net debt by over EUR 60 million compared to Q4 2020 and now report a net cash position of EUR 36.2 million.Next slide, please, Slide 12. As explained in the past, we added this slide for the purpose of transparency and to provide our analysts and investors an enhanced comparison since most of our peers report their numbers in U.S. GAAP. Please note the U.S. GAAP numbers here have not been audited. The main differences between the 2 standards are due to the capitalization and amortization of R&D under IFRS. The R&D amortization leads to higher COGS. And for Q4, the resulting difference in gross margin is 7.1 percentage points. The R&D capitalization, on the other hand, leads to lower R&D OpEx. Positive impact from R&D capitalization was 0.2 percentage points. And thus, pro forma EBIT margin under IFRS was 9.1% compared to 8.9% under U.S. GAAP.Slide 13, regional revenue development Q4 and 2021. EMEA Q4 revenues increased by 15.8% year-over-year, now representing 63.8% of revenues and 63.2%, respectively, for the full year. 2021 growth of 23.5% was mainly driven by CSP and enterprise customers. In the Americas, Q4 revenues increased slightly by 1.2% year-over-year, now representing 25% of revenues. However, full year revenues were down by 17.6% compared to 2020, mainly due to delays of shipments based on the difficult supply situation. Compared to the year ago quarter, Asia Pacific increased significantly by 20.1% and now represents 11.2% of Q4 revenues or 9.3% of the full year 2021 revenues. Growth in Q4 was predominantly driven by strong demand from customers in Japan and Australia.Moving to the next slide, Slide 14, cash flow and balance sheet. Cash flow generation was outstanding. Operating cash flow for the full year increased by EUR 26 million, and free cash flow improved by EUR 20.1 million. This is mainly explained by higher profitability when compared to the previous year. Our strong cash flow generation resulted in record cash levels of EUR 109 million, up by around EUR 44 million year-over-year. With a debt leverage ratio of 0.4x EBITDA and an equity ratio of 56.5%, we have a very solid capital structure and further improved our investment-grade credit metrics. 2021 ROCE was 11.7% and reflects our commitment to deliver shareholder value.Slide 15, outlook. Our business transformation strategy will remain one of our key focus areas also in 2022. From a demand perspective, the macro environment is expected to stay very positive for ADVA. Communications infrastructure is a valuable asset with a growing focus on security aspects. In many industrialized nations of the western world, the dependence on large Chinese network equipment suppliers is perceived as a serious threat. After the U.S., the affected network operators in Europe are now also working on concept for reducing this dependency, which leads to significant opportunities for us. Our technological setup is well prepared for the transformation of networks with respect to cloud, mobility, 5G, automation and security.In addition to the high-quality performance features of optical data transmission, precise network synchronization technology and programmable cloud access solutions and our broad service portfolio also provides increasing value for our customers. The global semiconductor crisis, however, continue to keep us extremely busy also in 2022, and supply and financial risks will remain. And with respect to the COVID-19 pandemic, it remains to be seen whether the impact of the crisis will lessen over the course of the year.In our 20-year history, we have never seen stronger demand for all of our products and services, and the before-mentioned macroeconomic environment creates unprecedented opportunities for us. Despite this positive outlook but in light of the ongoing supply challenges, we remain cautious and guide for 2022 annual revenues of between EUR 650 million and EUR 700 million and a pro forma EBIT margin of between 6% and 10%.Now to my last slide, road to business combination with ADTRAN. Last but not least, I want to provide a brief update on the ongoing merger process with ADTRAN. At the end of the additional acceptance period, which expired on February 14, we ended up with a total acceptance rate of 66%. The last outstanding closing condition is the FDI approval from the German government. We are confident of receiving the necessary support and anticipate a closing within Q2 or Q3 of 2022.And with that, I would like to open the Q&A.

[Operator]

[Operator Instructions] And the first question is from Robert-Jan van der Horst, Warburg Research.

[Robert-Jan van der Horst]

I have a couple of those actually. So first of all, congratulations on, especially, the strong cash flow and the margin you achieved. Considering that you will probably continue to succeed with your transformation strategy, I must ask why the target range for the adjusted EBIT or the pro forma EBIT margin is so low at the lower end. You expect a significant worsening of the procurement costs over the year. And also maybe a little bit more information on why that is, that would be very helpful.The second question is actually an update also on the transformation strategy. You already mentioned that software and service revenues increased to, I think, 24.9%. Could you give us maybe a little bit of an update how the revenue shares of the CSPs versus verticals developed, that would also be very helpful.And the last question is on your U.S., on the Americas business, which saw a decline, you mentioned, because of some softness with major customers. Do you have any indications how that will develop this year? That should be all for now.

[Ulrich Dopfer, CFO & Member of Management Board]

I think I'll start, Brian, unless you want to start, I mean...

[Brian L. Protiva, CEO & Member of Management Board]

No, go ahead.

[Ulrich Dopfer, CFO & Member of Management Board]

So regarding the outlook for next year, if you look into -- if you look at Slide 12, the U.S. GAAP versus IFRS comparison, you see the massive drop in gross margin that started hitting us start in Q3, and then you can see it also in Q4.The supply shortage costs us millions, right? And we -- our teams are scrambling day and night to secure components, expedite shipments and it's just we don't see that this is getting any better as of now. So that's why we have to anticipate we will continue to have delayed shipments. We need to anticipate with a higher volume that maybe risk suppliers even increase. There are many critical components. We have to work in alternative components into our products and so on and so forth. So it's simply a huge, I would say, burden for all of our teams and that's why we are very cautious with this one. We don't want to promise anything. But it's still early days, and we see a huge pile of open issues and open items, critical items that need to be resolved and that's why we remain cautious.On the positive side, as you see also on the huge bandwidth that we provided for our top line guidance, I think you can imagine the opportunities that we have. And if things turn to the better, I guess, you can quickly see better results or maybe the range narrowing, but I think it's just too early right now to be more aggressive when it comes to our guidance. There's too many moving parts.

[Brian L. Protiva, CEO & Member of Management Board]

So adding to that comment, Uli, can I also add the comment that it's fully -- I mean, as each quarter goes through, it becomes more fully loaded, the costs, the semiconductor piece. It takes some time to average in costs, et cetera.So all to what Uli said, plus the fact that probably Q1 or Q2, we see the peak of all those -- that impact and, therefore, we're cautious. We have, through our transformation strategy, as you pointed out, been able to help counteract that some. We do plan on increasing again in 2022 software and services. That's mostly in the software side, but adding a couple of percentage points. So that helps to offset some of those pieces.But the cost base is it's really aggressive. And some of even the latest semiconductor cost increase have come end of the year, beginning of this year. So they're just -- they've continued hitting not just us, but the industry as a whole. And I think people have to understand that probably the highest cost impact is still yet to come. And then hopefully, it will, like a cliff, come back. And in the second half, we'll start to recover a lot of those extra costs that we have and that we're managing very well with those costs. But clearly, they're going to have impact on us in the first half of this year.So further to the transformation strategy, the enterprise business did increase by, I think, 4 percentage points almost. Around 4 percentage points of our revenue came more from the enterprise space that also clearly helps our average margins. So that's a nice supportive step for us as well. And we do believe that our verticalization will yield more revenues this year than last year. We have very good products, very good quality feedback. We're just not able to produce enough yet. We've said that a couple of times over the last quarters, it's getting better, but it's getting better linearly. And we would like a hockey stick effect here over the next few quarters. We hope that we can achieve that. And then we have some nice offsets to some of the supply chain risks that we've had. So we're working feverishly to get to the higher end of our guidance. But step by step, we need to still do some homework to make that happen.And then finally, the U.S. business. I think you mentioned the U.S. business. We didn't -- haven't lost customers. In fact, we've done well to win some new footprint recently with some of our products. We do see a lot of upside once the deal is complete with ADTRAN just because of their strength there. So if you look at it as a whole, I think the U.S. is steady as it goes from a customer game. And if you look at it, it's more product mix, customer mix of ordering that has led to some weakness there. And I do believe, though, that combined with ADTRAN, we're going to get a lot more, let's say, political heft and breadth to be able to win more new footprint going forward.

[Ulrich Dopfer, CFO & Member of Management Board]

I guess, Brian, I guess it's fair to say that also some of our larger U.S. customers were overproportionately impacted by the supply shortage. So from a demand perspective, a huge portion of the record level of order backlog we have is actually from North America. So without a supply shortage, we would have seen stronger numbers for the region of North America.

[Operator]

The next question is from Simon Scholes, First Berlin Equity Research.

[Simon Scholes]

I've got some 3. Just back on the subject of the pro forma gross margin. I mean, you have a slight pickup in Q4, but it sounds from what you're saying that the situation is still pretty tight. So should we interpret the pickup in Q4 as just being down to more favorable customer mix? Or I mean, do you have any additional comments there?And then second question is I was wondering if you could give us some idea of how much higher the backlog is at the end of -- or was at the end of December last year compared with December '20.And then just a last question on sales and marketing. I mean the last couple of years, because of the pandemic, sales and marketing has been between 10% and 11% of sales. Would you expect it to go back over 11% this year as the pandemic possibly eases? I mean what are you seeing there? That's it for me.

[Brian L. Protiva, CEO & Member of Management Board]

Uli?

[Ulrich Dopfer, CFO & Member of Management Board]

You start. Go ahead, Brian. Go ahead.

[Brian L. Protiva, CEO & Member of Management Board]

I was just going to add to the pro forma gross margin and say, yes, Q4, good customer and product mix helped us clearly and adds referencing some of the costs. They continue to hit us with cost increases. The semiconductor players have not come back once, but 2, sometimes even 3x with cost increases.So there's a bunch of moving pieces in that question mark. It's not easy to answer. But in general, I do feel, yes, the cost side of thing is -- continues to be very challenging. And we're trying to offset those with our business transformation strategy, and some of that helped in Q4. But it is product mix and customer mix, and it's not something we can guarantee as a smooth transformational change in ADVA quarter-for-quarter. It's a long term, as we pointed out, with our business transformation strategy. That's a 3-year, actually even 5-year strategy shift as an organization. So lots of moving parts there.Uli, I don't know if you want to add there or if you want to address the higher backlog or the sales and marketing question.

[Ulrich Dopfer, CFO & Member of Management Board]

I can -- I'll let you address the backlog. I will just talk real quick about the sales and marketing. Yes, we had about 10% in last year sales and marketing costs in terms of -- relative to revenues. I think with the growing revenues or expected growing revenues in 2022, we should see a similar percentage of revenues, but -- so the absolute number will go up, Simon, but I think the relative number will pretty much be the 10% or just short of 10% of revenues.

[Simon Scholes]

Okay. Any comment on the backlog?

[Brian L. Protiva, CEO & Member of Management Board]

Yes, on the high backlog, I noticed that Uli didn't want to answer that one. So he's pushed it to me. My view is we haven't given backlogs, but it's a massive increase. I mean we're not talking here a few percentage points. We're talking massive double-digit percentage points increase in the backlog. But since we haven't gone out there and labeled that exactly, we haven't -- I don't think we plan to start that this time around. And that actually, that would be something that we have to take to our Board and have a discussion on. So I'm sorry that I can't answer more than that, but it is a huge shift.

[Operator]

The next question from [ William K. Winthrop ].

[Unknown Analyst]

I had a question on the cross-selling in North America after the merger, where -- ADTRAN and some of their competitors are saying that the market there, the stimulus of $100 billion is less than half of the future, less than half of the demand going forward. And if you were to assume that, that's basically half of the demand, you're looking at a $200 billion number there if you divide that by 5 because a lot of the stimulus has to be spent over that 5-year period, you're looking at a $40 billion market. Roughly 10% of that would be for access, and I think your ratio you gave me was 1 to 4 for the middle mile.So if you were to take that, you got a $1 billion annual market, roughly, give or take, and you're looking at $120 million in cross-selling opportunities. If -- to me, it looks as though you don't have a lot of direct competition there. And a company like Ciena would -- they're not as nimble as you. So how much -- I guess, the question would be, how much of that market do you expect to be able to take? Because it looks like it's going to be more than $120 million. How quickly can you gear up for that as well? Especially with the relationships that ADTRAN has, you ought to be able to make a big dent in that market.

[Brian L. Protiva, CEO & Member of Management Board]

I must dance a little here now. So clearly, I'm at a little bigger picture. I mean ADTRAN has given you guys models of what the combined organization looks like. And then on some slides, it's a $5 billion increase in total available market, but yet very conservative on revenue planning.So if you were to answer that question from a revenue planning view, then that -- remember that $60 million to $120 million is not even in our numbers, and the numbers look outstanding as a combined organization. So now comes, well, okay, also a conservative view on the amount of cross-selling opportunities and that's a $60 million to $120 million. As you pointed out, there's a $1 billion upside in our -- just our technologies and a much bigger upside in ADTRAN's technologies. Why can't we get a much bigger part of that equation because we're one of the few companies that actually have both technologies? It's us and Nokia really.Calix doesn't have the optical piece, and Ciena doesn't have the access piece. And so the combination makes us really strong with a spend $250 million of R&D. The only one that can match us from an innovation firepower is Nokia and, of course, Huawei, but they're not a competitor in any of this opportunity.So I look at it similarly and to say why not a much bigger piece? Well, I guess it's always you have to understand how the market is going to decide, how many of them already buying products from a Ciena or a Cisco or an Infinera or somebody else already? How quickly can the combined organization go after that market opportunity and share? So there's a lot of question marks around there.But bottom line is, is that ADTRAN is a well-liked supplier by many of the companies that are going to benefit strongly from the funding. And they want -- most of these small carriers want fewer suppliers. And why do they want fewer suppliers? Because they don't have big teams. So they want one management platform with fewer suppliers, end-to-end architecture, and we're one of the very few that can do that. And as you point out, we are also nimble. Also the combined organization, ADTRAN and ADVA, are very nimble organization compared to most others.And therefore, I personally feel really, really good about that opportunity and leveraging that ADTRAN infrastructure to do a lot more sales. But I really -- it's not my place to say, hey, we're going to go drive this and this amount of percentage of that spend that you indicated. So thank you for pointing it out with a very pointed question. Again, I try to dance around that a little bit and give you a full perspective, and fingers crossed that the combined organization does a hell of a lot better than what is being anticipated by any of the numbers at this point.

[Unknown Analyst]

Okay. And one follow-up to that. How quickly do you think you can gear up? Because I'm hearing that people are already going to ADTRAN asking how to get connected with you guys.

[Brian L. Protiva, CEO & Member of Management Board]

I think that goes very quickly once the deal is consummated. And we've got, as Uli mentioned, 2/3 of the ADVA shareholders voted. So we're through all the hurdles except for one, and that's the FDI here in Germany. And that -- to me, that is something that we can't control, but that's anywhere from probably 2 to 4, 3 to 6 months, somewhere in that range. And that's something that we are pushing, and we had said we feel very positive. But there's a lot of work behind that, a lot of modeling, a lot of commitments, a lot of discussion.So once we get that, I believe the next day, we'll be able to leverage most of these opportunities. You -- what you have, the advantages, right, then we can kind of co-sell once that deal is -- and co-sell meaning we can be more transparent. What we still need to be one company, one management system, one offer is a D/TA and our domination profit and loss pooling. And that could take some period of time or maybe not even -- not at all for that matter, depending on the next steps.So the answer is I think the day that it closes, we can get a lot more transparent and faster at accessing those accounts. But full integration and reducing software architecture concepts, that takes some period of time still. So I think we're in -- the first step is even today, we can just give a, hey, a notice, there is a lead or interested in connect to people. But nothing can be shared, nothing can be done together, nothing, no feedback, nothing at all. After closing, a little bit more transparency. After the domination and pooling agreement, full combined approach into those companies. So my view would be, we won a few accounts now. We start winning handfuls of accounts once the deal is closed, and we're going after all the accounts when that domination agreement -- if and when the domination agreement is actually signed.

[Operator]

And the next question is from Tim Savageaux, Northland Capital Markets.

[Timothy Paul Savageaux, MD & Senior Research Analyst]

Congratulations on the results and especially the outlook, which is kind of what I wanted to ask a couple of questions about. So you're calling for a pretty significant acceleration in your growth rate at the high end, doubling or more of your growth rate in calendar '22, and I want to try to understand that along a couple of lines.First, is there an element of supply catch-up implied in there? And just as an aside, does that impact seasonality in Q1 given the pushouts? It sounds like you expect it to continue. But is there an element of supply catch-up there? Or are you seeing -- to what degree are you seeing acceleration in organic growth in the end market? That's one.And then two, from a geographic perspective, obviously, EMEA led the way in '21 with declines in Americas. I wonder how you expect that to sort out at this point given the backlog commentary. It sounds like you expect Americas to bounce back pretty strongly. And I'll follow up from there.

[Brian L. Protiva, CEO & Member of Management Board]

Okay. So first of all, I mean, I think in my presentation, I try to focus on separate issues. And there is more demand out there. There is more demand. But even if you have the existing same customer base, there's more demand out there, it looks like, and it's part of it is because funding is already starting to play a role. And the strategic nature of work from home, high-quality services needed in a distributed fashion, changing network needs are all things that are leading to, I think, a good environment for most players out there. So that's the one piece.The second piece is, yes, there will be some supply catch-up. I think at this point, we feel strong enough early in the year that we are going to grow and what that at least as fast as this year, even faster in the bottom part of our growth rate and much more clearly in the high end. So that's a pretty strong statement to the market that we feel good that demand is strong. Yes, we do have some supply catch-up out there because of our really high backlog. And that's inferred in having a really high backlog, I think, is that we have much more kind of a good, solid view to the year, meaning also that we feel good to start the year. So all good indications of where we're at as an organization.We have some areas for growth where we're taking some market share as well if we're able to drive our software and services growth. Some of our encryption and other markets, new market areas that we continue to be able to grow those spaces like we said, 4% growth in that -- in 2021. Those are all leading to also underlying themes that are helping us position ADVA as a company.And then finally, the U.S. Yes, I mean, we feel -- again, we haven't lost anything. We've won some things. We haven't won as much as we had wanted to. Good strong competition there as well, but we are doing well and we think it will recover. As Uli also said is that it was maybe a little artificially lower because just it happened that some of the logistics issues hit the customers there. That's just pure product mix issue, certain products where you had more leverage in a region that then hurt a little bit more. But we feel that United States will hold its own.But EMEA's growth rates could even continue. We continue to see very good opportunity across the board, and ADVA is really well positioned as a player that's been committed to this market for the last 27 years to not only win footprint, but to build out and get lion's share. And by the way, the ADTRAN deal helps us even further because we become strategically important to many Tier 1s in Europe because they need both product ranges from us going forward. So I hope that answers your question. Anything else?

[Timothy Paul Savageaux, MD & Senior Research Analyst]

It does. And certainly, if EMEA growth rates continue over 20% as they were in '21, your guidance looks fairly conservative. And just as an aside, and you'd mentioned record backlog in Q3 as well. The fact that, that's increased to a new record. I will assume that book-to-bill was pretty positive in Q4. But do you see customers ordering, I think we saw this with Ciena customers ordering, further out to get supply chain visibility as a driver of bookings? Or to what extent, was it just more indicative of the strong demand, the accelerating demand that you referenced?

[Brian L. Protiva, CEO & Member of Management Board]

So I'd like to address 2 issues. First of all, your comment about Europe at 20%, I think that's a little bit -- I'm not -- my statement -- I wasn't trying to make that statement, Tim. So I want to make...

[Timothy Paul Savageaux, MD & Senior Research Analyst]

You said it, not me, Brian.

[Brian L. Protiva, CEO & Member of Management Board]

What I said is Europe is strong and moving forward remains strong. I don't say that it stays at the same growth rate necessarily. I think we spent a lot of time with our forecast. So let's stick with our EUR 650 million, EUR 700 million. I think that's showing almost 16% growth as a combined organization. So again -- and Europe is strong in that model. I don't want to boil down to that 20% and leave that hanging because it could be somewhere less than that, U.S. catch up a little bit. But as a company, we're well positioned for the growth.Record backlog, yes. Backlog, I think, in fact, ADVA was very conservative. We had big customers coming to us say, "Listen, I want to place big orders on you." We said, "What does it help us?" If those big orders are placed and they're standardized orders and you come back around then and start adjusting those orders as it gets closer to delivery, it doesn't even help us plan. We're working with you, we trust you. We have very, very close relationships with our customer base. We're helping forecasting and stuff like it. So we actually push back. I know people just took those orders. I've had a number of companies in the industry took those orders.So I think we were actually very smooth. Even though we're building these record backlogs, it wasn't all just based on these companies coming out there placing 12 months in advance. And we'll continue to be well positioned in, we believe, in orders and building backlog through the beginning of the year. And so my statement would be that, I guess, we are working closely with our customers. We are having to take some extra orders in there. We've tried to actually educate you guys on that in prior calls where we said some percentage of that, and we still were over -- well over a 1:1 book-to-bill, even when we ex that out.And so I guess the question really is about demand and ordering going through this year, and I'd say that we could have continued to have a good period of ordering and backlog building, in fact, as an organization because we've kind of pushed off and not asked for those big ones but have asked for better transparency, closer -- even closer relationships, forecasting together, et cetera.Now comes a caveat and that is prices in the industry are being adapted out there by players, suppliers, et cetera. And clearly, we're part of an industry that is getting extra costs. And if we go to a model where you start to have price increases to customers, clearly, they're going to be incentivized if you give them period of time, take even bigger orders upfront and longer term..So there's many complex issues right now in our industry, and we're trying to do that very, very best for our customers in that environment and manage order rates and consistency in building the model. And so I guess in a nutshell, we will continue to do well in the ordering at some point, yes. Could there be some kind of a turndown? Not sure because of demand. Demand is strong enough today, and the funding off into the future is so big that it could actually very well lead to a situation where we have a smooth transition as a company and hopefully even as an industry going forward.

[Ulrich Dopfer, CFO & Member of Management Board]

Let me add one more comment, Brian. Tim, about 75% of our order backlog -- of our record order backlog has a customer wish date of the first half of 2022. So it's not that customers are ordering far into the next year or so. So the majority really has a solid wish date of -- if you can deliver is a different question, but they want it as quickly as possible.

[Operator]

We have no further questions. I would like to hand back to you, Mr. Steven Williams, for some closing remarks.

[Brian L. Protiva, CEO & Member of Management Board]

So I'll jump in for Steven. You guys, thank you for the nice questions. As you saw by the presentation, clearly, ADVA as a company is doing quite well. We believe we'll continue to do well going forward. We do have a lot of challenges that we are addressing and I think we continue to address. It is costing us a lot of energy and money and, therefore, the model is consistency right now. It's not growth and take off, it's growth and consistency. I believe that, that's probably the case for most of the industry moving through the first half of this year.And I see that ADVA is well positioned to enter the marriage with ADTRAN. And together, we're going to get a lot stronger. Thank you for your support. Fingers crossed that we get the last approvals from the government going forward. And if we do, I believe, in a really strong, highly-innovative, well-differentiated company going forward.So thank you for your time and interest and questions. I'm sure we will have another chance next quarter. But in the future, we might not be able to spend this intimate time with each other step by step, but should be hearing from us next quarter. Thank you very much.

[Ulrich Dopfer, CFO & Member of Management Board]

Thank you.

[Operator]

Ladies and gentlemen, thank you for your attendance. This conference has been concluded. You may disconnect.