ADTRAN closed 2025 with fourth-quarter revenue of $291.6 million, up 20% year-over-year and above the high end of guidance, capping full-year revenue of $1.084 billion (up 17.5%) with all three categories growing double digits. Non-GAAP operating margin expanded to 6.4% in the quarter (4.8% for the full year, up from -0.3% in 2024) and EPS returned firmly positive at $0.16. The company reduced its Adtran Networks minority interest to under 30% and strengthened its balance sheet with roughly $200 million of convertible notes, though European customer ordering caused non-U.S. revenue to dip sequentially.
Thank you, Julianne. Welcome, and thank you for joining us today, and welcome to all those joining by webcast. During the conference call, Adtran representatives will make forward-looking statements that reflect management's best judgment based on factors currently known. However, these statements involve risks and uncertainties, including those detailed in our earnings release, our annual report on Form 10-K, as amended, and our other filings with the SEC. These risks and uncertainties could cause actual results to differ materially from those in our forward-looking statements, which may be made during the call. We undertake no obligation to update any statements to reflect events that occur after this call. During today's call, we will refer to certain non-GAAP financial measures. Reconciliations of GAAP to non-GAAP measures and certain additional information are also included in our investor presentation and our earnings release.
We have not provided reconciliations of our first quarter 2026 outlook with regard to non-GAAP operating margins because we cannot predict and quantify without unreasonable effort all of the adjustments that may be occur during the period. The investor presentation has been updated and is available for download on the Adtran Investor Relations website. Turning to the agenda, Tom Stanton, Adtran Holdings' CEO and Chairman of the Board, will provide key highlights for the fourth quarter and full year 2025. Tim Santo, our Senior Vice President and CFO, will review the quarterly and full year financial performance in detail and provide our first quarter 2026 outlook, and then we will take questions that you may have. I would now like to turn the call over to Tom Stanton.
Operator, we are receiving notification that the line is bad and that recipients are not hearing us correctly.
Is there a way to improve the line before we proceed?
Thank you very much. Thanks, Peter. Good morning, everyone. Adtran delivered a strong fourth quarter in 2025. Earnings came in above expectations, with all three business categories achieving sequential and year-over-year growth. In the fourth quarter, Adtran generated revenue of $291.6 million, reflecting a strong year-over-year growth of 20% and sequential growth of over 4%. This marks the sixth consecutive quarter of sequential growth and the fifth consecutive quarter of year-over-year improvement, reinforcing the strength of our company and our key markets. Our U.S. business led to quarterly growth, with revenue up 31% year-over-year and 14% sequentially. Non-U.S. revenue grew 12% year-over-year and declined 3% sequentially, as expected, and consistent with recent ordering patterns among some of our larger European customers.
Optical networking solutions grew 33% year-over-year, driven by strong sales to cloud providers and enterprise customers. This increase also drove the contribution of enterprise and cloud providers to 25% of our revenue in Q4 and 21% for the full year of 2025. These results reinforce a trend we are seeing: cloud providers expanding data center capacity and large enterprises upgrading their optical networks. During the quarter, we continued to broaden our optical customer base. We saw solid activity across service providers, cloud providers, enterprises, and public sector networks, reflecting the flexibility of our optical platforms across different use cases. Access and aggregation revenue grew 9% year-over-year and 6% sequentially, supported by continued fiber access investment across the U.S. and European operators. During the quarter, customer activity reflected a mix of expansion projects and network upgrades as operators advanced deployments.
Subscriber Solutions revenue grew 17% year-over-year and 3% sequentially, driven by demand for our residential fiber CPE as customers continue to connect more subscribers. The revenue in this category continues to be generated by a diverse mix of residential, enterprise, and wholesale service offerings. Today, our software solutions serve over 1,000 carrier customers across three of our product categories, automating everything from optical networks to in-home subscribers' experiences. These customers include nearly 500 service providers adopting our Mosaic One platform and more than 100 service providers deploying our recently introduced Intellifi cloud-managed Wi-Fi solutions. We are also advancing our agentic AI platform with numerous Mosaic One Clarity customer trials underway before an official launch later this year. As demand for AI-driven automation grows, we see this application suite as an important addition to our software capabilities.
Looking at the broader environment, we continue to see sustained fiber investment across our core markets. In the U.S., broadband programs and ongoing investments in data centers are supporting ongoing network expansion. In Europe, increased focus on network security and vendor diversification away from higher-risk suppliers is reinforcing upgrade activity across the region. These trends are supporting continued demand for upgrades across all three product categories. At the same time, network requirements continue to evolve. Across data centers, between the data center, and out to the customer edge, capacity demands are increasing. Service providers, cloud providers, and enterprises are pairing high-capacity environment networks with automation and software to streamline operations. While this is still an emergency contributor to our revenue, it reinforces the market's longer-term direction towards more intelligence and more automation.
With our broadband fiber network portfolio, software assets, and regional strength, we are well-positioned to support both the current infrastructure cycle and the longer-term evolution towards these more intelligent fiber networks. We delivered a strong Q4 with solid financial results and execution and healthy core and healthy cash flows. For the full year 2025, we delivered double-digit revenue growth, with each of our three revenue categories also growing at double-digit rates. We achieved this while expanding gross margins and returning to positive non-GAAP operating margin and EPS. Also, during the year, we strengthened our balance sheet by issuing approximately $200 million of convertible notes at an interest rate meaningfully lower than our revolving credit facility.
We were able to purchase $27.2 million of Adtran Networks shares during Q4 and $46.6 million worth of shares during the calendar 2025, reducing the minority interest to less than 30% as we closed the year. As we move into 2026, our priorities remain continued improvement in our leverage model, expanding operating margin, cash generation, and converting the customer momentum that we have been seeing. We continue to operate in a dynamic cost environment, including variability in components such as memory. We are managing that variability through disciplined procurement and price mechanisms that are already embedded in our model. At this time, we are not seeing conditions that change our demand outlook or execution priorities. We enter 2026 with a positive outlook. Customer trends are favorable in the U.S. and Europe.
Customer acceptance of products has been strong, and our product offerings and competitive position has never been better. We have several multi-year tailwinds in our key market segments. With that, I'll turn the call over for Tim to review the financial results in more detail. Tim?
Thank you, Tom, and thank you all for joining us this morning. We delivered strong results for the fourth quarter and full year 2025, driven by solid execution and healthy revenue growth. As scale improved, we delivered higher margins, and operating efficiency increased across the business. We remain focused on disciplined cost management as we continue to grow. Over the quarter, we continued to operate with tight financial processes and consistent execution. These remain embedded in how we run the business, improving visibility and planning rigors, and supporting structured capital allocation. While the mix between gross margin and operating expenses can shift from quarter to quarter as revenue moves, our objective remains focused on steady margin expansion as the business scales. As we noted on our previous earnings call, the capital actions we took last year improved our financial flexibility and added optionality.
Broadly, our focus remains on simplifying the capital structure and maintaining flexibility to support the business and create value. We will continue to deploy cash thoughtfully to reduce the minority interest over time, while maintaining balance sheet strength and evaluating non-core asset monetization opportunities as appropriate. Turning to the financial results for the fourth quarter of 2025. Revenue was $291.6 million, up 20% year-over-year and 4% sequentially, above the high end of our original guidance. Year-over-year growth was driven by all three product categories, with optical networking the largest and fastest contributor, with revenue increasing by $26.9 million, or 33% from the prior year. Geographically, non-U.S. revenue accounted for 53% of total revenue, while U.S. revenue accounted for 47%.
Non-GAAP gross margin increased to 42.5%, up 44 basis points sequentially and 122 basis points year-over-year, driven by scale efficiencies, product mix, and cost discipline. We remain focused on sustaining gross margin in the 42%-43% range over the long term. Non-GAAP operating profits rose to $18.8 million, or 6.4% of revenue, exceeding the midpoint of our original outlook and up 103 basis points sequentially and 406 basis points year-over-year. Non-GAAP tax expense in Q4 2025 was $3.8 million, or an effective rate of 22.6%. Non-GAAP EPS was $0.16, compared to $0.05 in Q3 2025, and a loss of $0.02 a year ago.
EPS benefited by $0.03 from the acquisition of shares from minority holders in the fourth quarter. We continued to strengthen our financial position during the year. Year-over-year, net working capital improved by $8.7 million due to meaningful inventory reductions, largely offset by increases in accounts receivable due to increased sales. During the year, inventory declined by almost $50 million, including $8 million during the fourth quarter. Days Inventory Outstanding improved by 47 days year-over-year and 10 days in the fourth quarter to 114. DSO increased to 66 days, down by one day year-over-year and up seven days sequentially due to increased sales and the timing of Q4 invoicing. As revenue scales, our focus remains on improving working capital efficiency. Operating cash flow was $42.2 million for the quarter, and free cash flow was $22.5 million.
For the full year, we generated $129.8 million in operating cash flow and $60.5 million in free cash flow, representing healthy increases of 25% and 58%, respectively, compared to 2024. We ended Q4 with $95.7 million in cash and cash equivalents after purchasing $27.2 million, or 1.2 million shares of Adtran Networks stock. For calendar year 2025, we purchased $46.6 million, or 2 million shares of Adtran Networks stock, and now own just over 70%, and meaningfully reduced the interest rate on our outstanding debt as a result of the convertible note offering. Turning to our operational performance for the year, we made meaningful progress across key financial metrics during 2025. Revenue increased 17.5% year-over-year, totaling $1.084 billion.
We expanded full-year non-GAAP gross margin by approximately 90 basis points to 42.1%, reflecting increased scale, higher efficiency, and favorable product mix. Non-GAAP operating margin increased to 4.8% in 2025 from -0.3% in 2024, and non-GAAP diluted EPS returned to a positive $0.23 per share. We delivered a strong year of cash flow generation, with net cash provided by operating activities increasing by $26.2 million to $129.8 million. We remain disciplined on cost structure while positioning the company to convert revenue into sustained earnings growth. Looking ahead at our outlook for the first quarter of 2026, we expect revenue to be between $275 million and $295 million, and non-GAAP operating margin of 4%-8%, reflecting traditional seasonality and current supply chain dynamics.
I will now turn the call back over to Tom.
All right. Thanks very much, Tim. Julianne, I think at this point, we're ready to open it up for any questions people may have.