ADTRAN, Inc. Reports Earnings for the Third Quarter 2019 and Declares Quarterly Cash Dividend

ADTRAN, Inc. Reports Earnings for the Third Quarter 2019 and Declares Quarterly Cash Dividend

HUNTSVILLE, Ala.–(BUSINESS WIRE)–ADTRAN, Inc. (NASDAQ:ADTN) (“ADTRAN” or the “Company”) reported financial results for the third quarter 2019. For the quarter, revenue was $114.1 million compared to $140.3 million for the third quarter of 2018. Net income was a net loss of $46.1 million compared to net income of $7.6 million for the third quarter of 2018. Earnings per share was a loss of $0.96 per share compared to earnings per share, assuming dilution, of $0.16 for the third quarter of 2018. Non-GAAP net income was a net loss of $2.8 million compared to non-GAAP net income of $9.9 million for the third quarter of 2018. Non-GAAP earnings per share was a loss of $0.06 per share compared to non-GAAP income per share, assuming dilution, of $0.21 for the third quarter of 2018. Earnings per share was affected by a one-time, non-cash, valuation allowance of $37.1 million, that was recorded to income tax expense in the Company’s consolidated income statement to reduce the carrying value of the Company’s deferred tax assets. Non-GAAP earnings per share exclude stock-based compensation expense, acquisition related amortizations and other expenses, restructuring expenses, amortization of pension actuarial losses, valuation allowance related to our deferred tax assets, asset impairments, gain on bargain purchase of a business and other contingencies and the reimbursement from a claim settlement. The reconciliation between GAAP net income (loss) and earnings (loss) per share to non-GAAP net income (loss) and non-GAAP earnings (loss) per share is in the table provided.

ADTRAN Chairman and Chief Executive Officer Tom Stanton stated, “Our progress in the quarter was overshadowed by a pause in shipments to a Tier 1 customer in Latin America and a slowdown in spending by a Tier 1 customer in Europe. With the exception of these two international customers, our business grew 20% over the previous period which was largely driven by increased sales in our GPON fiber access business and strong results in ONT sales. Our GPON business grew 38% year-to-date as compared to the same period last year and we continue to gain strong traction globally with our 10G PON and fiber-extension solutions. During the quarter, ADTRAN introduced a range of new products, services and technology innovations that we believe will be instrumental in our success moving forward.”

The Company also announced that its Board of Directors declared a cash dividend for the third quarter of 2019. The quarterly cash dividend is $0.09 per common share to be paid to the Company’s stockholders of record as of the close of business on November 14, 2019. The payment date will be December 2, 2019.

The Company confirmed that it will hold a conference call to discuss its third quarter results Thursday, October 31, 2019, at 9:30 a.m. Central Time. ADTRAN will webcast this conference call. To listen, visit the Investor Relations site at www.investors.adtran.com approximately ten minutes prior to the start of the call and click on the conference call link provided.

An online replay of the conference call, as well as the text of the Company’s conference call, will be available on the Investor Relations site approximately 24 hours following the call and will remain available for at least 12 months. For more information, visit www.investors.adtran.com or email at [email protected]

At ADTRAN, we believe amazing things happen when people connect. From the cloud edge to the subscriber edge, we help communications service providers around the world manage and scale services that connect people, places and things to advance human progress. Whether rural or urban, domestic or international, telco or cable, enterprise or residential—ADTRAN solutions optimize existing technology infrastructures and create new, multi-gigabit platforms that leverage cloud economics, data analytics, machine learning and open ecosystems—the future of global networking. Find more at ADTRAN.com, LinkedIn and Twitter.

This press release contains forward-looking statements, generally identified by the use of words such as “believe,” “expect,” “intend,” “estimate,” “anticipate,” “will,” “may,” “could” and similar expressions, which forward-looking statements 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 new products, the degree of competition in the market for such products, the product and channel mix, component costs, manufacturing efficiencies, and other risks detailed in our annual report on Form 10-K and Form 10-K/A for the year ended December 31, 2018 and our quarterly reports on Form 10-Q for the quarters ended March 31, 2019 and June 30, 2019. These risks and uncertainties could cause actual results to differ materially from those in the forward-looking statements included in this press release.

To provide additional transparency, we have disclosed non-GAAP operating income (loss) which has been reconciled to operating income (loss) and non-GAAP net income (loss) and non-GAAP earnings (loss) per share – basic and diluted which have been reconciled to net income (loss) and earnings (loss) per share – basic and diluted as reported based on Generally Accepted Accounting Principles in the United States (U.S. GAAP). These measures exclude certain items which management believes are not reflective of the ongoing operating performance of the business. We believe this information is useful in providing period-to-period comparisons of the results of our ongoing operations. Additionally, these measures are used by management in our ongoing planning and annual budgeting processes. The presentation of non-GAAP operating income (loss), non-GAAP net income (loss) and non-GAAP earnings (loss) per share- basic and diluted, when combined with the U.S. GAAP presentation of operating income (loss), net income (loss), and net income (loss) per share – basic and diluted is beneficial to the overall understanding of ongoing operating performance of the Company.

These measures are not in accordance with, or an alternative for, U.S. GAAP and therefore should not be considered in isolation or as a substitution for analysis of our results as reported under U.S. GAAP. Our calculation of non-GAAP operating income (loss), non-GAAP net income (loss) and non-GAAP earnings (loss) per share – basic and diluted may not be comparable to similar measures calculated by other companies.

 

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands)

 

  

September 30,

 

 

December 31,

 

 

2019

 

 

2018

 

Assets

 

 

 

 

 

 

 

Cash and cash equivalents

$

96,407

 

 

$

105,504

 

Short-term investments

 

28,754

 

 

 

3,246

 

Accounts receivable, net

 

90,647

 

 

 

99,385

 

Other receivables

 

18,927

 

 

 

36,699

 

Inventory, net

 

104,941

 

 

 

99,848

 

Prepaid expenses and other current assets

 

10,327

 

 

 

10,744

 

Total Current Assets

 

350,003

 

 

 

355,426

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

73,384

 

 

 

80,635

 

Deferred tax assets, net

 

6,492

 

 

 

37,187

 

Goodwill

 

6,968

 

 

 

7,106

 

Intangibles, net

 

29,113

 

 

 

33,183

 

Other assets

 

23,283

 

 

 

5,668

 

Long-term investments

 

90,632

 

 

 

108,822

 

Total Assets

$

579,875

 

 

$

628,027

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

Accounts payable

$

52,842

 

 

$

60,054

 

Bonds payable

 

25,600

 

 

 

1,000

 

Unearned revenue

 

14,022

 

 

 

17,940

 

Accrued expenses

 

15,697

 

 

 

11,746

 

Accrued wages and benefits

 

16,569

 

 

 

14,752

 

Income tax payable, net

 

3,420

 

 

 

12,518

 

Total Current Liabilities

 

128,150

 

 

 

118,010

 

 

 

 

 

 

 

 

 

Non-current unearned revenue

 

4,581

 

 

 

5,296

 

Other non-current liabilities

 

52,189

 

 

 

33,842

 

Bonds payable

 

 

 

 

24,600

 

Total Liabilities

 

184,920

 

 

 

181,748

 

 

 

 

 

 

 

 

 

Stockholders’ Equity

 

394,955

 

 

 

446,279

 

 

 

 

 

 

 

 

 

Total Liabilities and Stockholders’ Equity

$

579,875

 

 

$

628,027

 

 

Condensed Consolidated Statements of Income (Loss)

(Unaudited)

(In thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Sales

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Network Solutions

 

$

94,018

 

 

$

121,043

 

 

$

359,007

 

 

$

341,359

 

Services & Support

 

 

20,074

 

 

 

19,292

 

 

 

55,267

 

 

 

47,830

 

Total Sales

 

 

114,092

 

 

 

140,335

 

 

 

414,274

 

 

 

389,189

 

Cost of Sales

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Network Solutions

 

 

56,444

 

 

 

69,943

 

 

 

207,353

 

 

 

208,184

 

Services & Support

 

 

11,317

 

 

 

11,944

 

 

 

34,963

 

 

 

32,828

 

Total Cost of Sales

 

 

67,761

 

 

 

81,887

 

 

 

242,316

 

 

 

241,012

 

Gross Profit

 

 

46,331

 

 

 

58,448

 

 

 

171,958

 

 

 

148,177

 

Selling, general and administrative expenses

 

 

30,912

 

 

 

30,750

 

 

 

99,663

 

 

 

96,361

 

Research and development expenses

 

 

31,835

 

 

 

29,877

 

 

 

95,546

 

 

 

93,455

 

Asset impairments

 

 

3,872

 

 

 

 

 

 

3,872

 

 

 

 

Gain on contingency

 

 

 

 

 

 

 

 

(1,230

)

 

 

 

Operating Loss

 

 

(20,288

)

 

 

(2,179

)

 

 

(25,893

)

 

 

(41,639

)

Interest and dividend income

 

 

610

 

 

 

825

 

 

 

1,893

 

 

 

2,604

 

Interest expense

 

 

(128

)

 

 

(134

)

 

 

(382

)

 

 

(398

)

Net investment gain (loss)

 

 

(216

)

 

 

4,507

 

 

 

8,195

 

 

 

5,400

 

Other income (expense), net

 

 

1,616

 

 

 

201

 

 

 

2,266

 

 

 

(73

)

Gain on bargain purchase of a business, net

 

 

 

 

 

 

 

 

 

 

 

11,322

 

Income (Loss) Before Income Taxes

 

 

(18,406

)

 

 

3,220

 

 

 

(13,921

)

 

 

(22,784

)

Income tax (expense) benefit

 

 

(27,717

)

 

 

4,369

 

 

 

(27,437

)

 

 

11,889

 

Net Income (Loss)

 

$

(46,123

)

 

$

7,589

 

 

$

(41,358

)

 

$

(10,895

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding – basic

 

 

47,824

 

 

 

47,710

 

 

 

47,803

 

 

 

47,927

 

Weighted average shares outstanding – diluted

 

 

47,824

 

 

 

47,834

 

 (1)

 

47,803

 

 

 

47,927

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per common share – basic

 

$

(0.96

)

 

$

0.16

 

 

$

(0.87

)

 

$

(0.23

)

Earnings (loss) per common share – diluted

 

$

(0.96

)

 

$

0.16

 

 (1)

$

(0.87

)

 

$

(0.23

)

(1) Assumes exercise of dilutive stock options calculated under the treasury stock method.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

(In thousands)

 

 

 

 

 

 

 

 

 

  

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income (Loss)

 

$

(46,123

)

 

$

7,589

 

 

$

(41,358

)

 

$

(10,895

)

Other Comprehensive Loss, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized gains (losses) on available-for-sale securities

 

 

(15

)

 

 

(32

)

 

 

277

 

 

 

(3,340

)

Defined benefit plan adjustments

 

 

90

 

 

 

37

 

 

 

361

 

 

 

104

 

Foreign currency translation

 

 

(2,486

)

 

 

(451

)

 

 

(3,113

)

 

 

(3,033

)

Other Comprehensive Loss, net of tax

 

 

(2,411

)

 

 

(446

)

 

 

(2,475

)

 

 

(6,269

)

Comprehensive Income (Loss), net of tax

 

$

(48,534

)

 

$

7,143

 

 

$

(43,833

)

 

$

(17,164

)

 

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(41,358

)

 

$

(10,895

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

13,315

 

 

 

11,952

 

Asset impairments

 

 

3,872

 

 

 

 

Amortization of net premium (discount) on available-for-sale investments

 

 

(86

)

 

 

(14

)

Net gain on long-term investments

 

 

(8,195

)

 

 

(5,400

)

Net loss on disposal of property, plant and equipment

 

 

58

 

 

 

68

 

Gain on contingency

 

 

(1,230

)

 

 

 

Gain on life insurance proceeds

 

 

(1,000

)

 

 

 

Gain on bargain purchase of a business

 

 

 

 

 

(11,322

)

Stock-based compensation expense

 

 

5,184

 

 

 

5,243

 

Deferred income taxes

 

 

30,421

 

 

 

(20,368

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

7,603

 

 

 

41,166

 

Other receivables

 

 

17,645

 

 

 

(1,842

)

Inventory, net

 

 

(5,998

)

 

 

16,543

 

Prepaid expenses and other assets

 

 

(10,071

)

 

 

8,722

 

Accounts payable, net

 

 

(5,569

)

 

 

5,223

 

Accrued expenses and other liabilities

 

 

10,564

 

 

 

156

 

Income tax payable

 

 

(5,073

)

 

 

9,461

 

Net cash provided by operating activities

 

 

10,082

 

 

 

48,693

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property, plant and equipment

 

 

(6,008

)

 

 

(5,695

)

Proceeds from sales and maturities of debt and equity investments

 

 

38,561

 

 

 

116,757

 

Purchases of debt and equity investments

 

 

(37,223

)

 

 

(115,271

)

Life insurance proceeds received

 

 

1,000

 

 

 

 

Acquisition of business

 

 

13

 

 

 

(7,806

)

Net cash used in investing activities

 

 

(3,657

)

 

 

(12,015

)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from stock option exercises

 

 

526

 

 

 

1,321

 

Purchases of treasury stock

 

 

(184

)

 

 

(14,185

)

Dividend payments

 

 

(12,908

)

 

 

(12,976

)

Net cash used in financing activities

 

 

(12,566

)

 

 

(25,840

)

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

 

(6,141

)

 

 

10,838

 

Effect of exchange rate changes

 

 

(2,956

)

 

 

(3,098

)

Cash and cash equivalents, beginning of period

 

 

105,504

 

 

 

86,433

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

 

$

96,407

 

 

$

94,173

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of non-cash investing activities:

 

 

 

 

 

 

 

 

Purchases of property, plant and equipment included in accounts payable

 

$

135

 

 

$

355

 

 

 

 

 

 

 

 

 

 

Supplemental Information

Reconciliation of Operating Loss to Non-GAAP Operating Income (Loss)

 (Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months ended

September 30,

 

 

 

 

 

Nine Months ended

September 30,

 

 

 

 

 

2019

 

 

 

 

2018

 

 

 

 

 

2019

 

 

 

 

2018

 

 

 

 

Operating Loss

$

(20,288

)

 

 

 

$

(2,179

)

 

 

 

 

$

(25,893

)

 

 

 

$

(41,639

)

 

 

 

Acquisition related expenses, amortizations and adjustments

 

1,343

 

 

(1)

 

 

926

 

 

(6

)

 

 

4,346

 

 

(9)

 

 

2,651

 

 

(14

)

Stock-based compensation expense

 

1,871

 

 

(2)

 

 

1,640

 

 

(7

)

 

 

5,184

 

 

(10

)

 

5,243

 

 

(15

)

Restructuring expenses

 

1,195

 

 

(3)

 

 

261

 

 

(8

)

 

 

4,658

 

 

(11

)

 

7,236

 

 

(16

)

Deferred compensation income (expense)

 

(576

)

 

(4)

 

 

874

 

 

(4

)

 

 

2,231

 

 

(4)

 

 

620

 

 

(4)

 

Asset impairments

 

3,872

 

 

(5)

 

 

 

 

 

 

 

 

3,872

 

 

(5)

 

 

 

 

 

 

Gain on contingency

 

 

 

 

 

 

 

 

 

 

 

 

(1,230

)

 

(12

)

 

 

 

 

 

Settlement income

 

 

 

 

 

 

 

 

 

 

 

 

(746

)

 

(13

)

 

 

 

 

 

Non-GAAP Operating Income (Loss)

$

(12,583

)

 

 

 

$

1,522

 

 

 

 

 

$

(7,578

)

 

 

 

$

(25,889

)

 

 

 

  

(1)

 

$0.3 million is included in total cost of sales, $0.5 million is included in selling, general and administrative expenses and $0.5 million is included in research and development expenses on the consolidated statements of income.                                           

(2)

 

$0.1 million is included in total cost of sales, $1.1 million is included in selling, general and administrative expenses and $0.7 million is included in research and development expenses on the consolidated statements of income.                                           

(3)

 

$0.1 million is included in total cost of sales, $0.5 million is included in selling, general and administrative expenses and $0.6 million is included in research and development expenses on the consolidated statements of income.                                           

(4)

 

Includes non-cash change in fair value of equity investments held in the ADTRAN, Inc. Deferred Compensation Program for Employees (as amended and restated as of June 1, 2010) per ASU 2016-01, all of which is included in selling, general and administrative expenses on the consolidated statement of income.                                                                                                                  

(5)

 

Includes abandonment of certain information technology projects.                                                                                                                         

(6)

 

$0.3 million is included in total cost of sales, $0.3 million is included in selling, general and administrative expenses and $0.3 million is included in research and development expenses on the consolidated statements of income.                                           

(7)

 

$0.9 million is included in selling, general and administrative expenses and $0.7 million is included in research and development expenses on the consolidated statements of income.                                           

(8)

 

$0.3 million is included in selling, general and administrative expenses on the consolidated statements of income.                            

(9)

 

$1.3 million is included in total cost of sales, $1.6 million is included in selling, general and administrative expenses and $1.4 million is included in research and development expenses on the consolidated statements of income.                                           

(10)

 

$0.3 million is included in total cost of sales, $2.9 million is included in selling, general and administrative expenses and $2.0 million is included in research and development expenses on the consolidated statements of income.                                           

(11)

 

$0.8 million is included in total cost of sales, $2.1 million is included in selling, general and administrative expenses and $1.8 million is included in research and development expenses on the consolidated statements of income.

(12)

 

Includes gain related to unearned contingent liabilities recognized upon the acquisition of a business in November 2018.                       

(13)

 

Includes income related to certain freight forwarder claim settlements which were received during the nine months ended September 30, 2019, all of which is included in total cost of sales on the consolidated statements of income.                                               

(14)

 

$0.8 million is included in total cost of sales, $0.9 million is included in selling, general and administrative expenses and $0.9 million is included in research and development expenses on the consolidated statements of income.                                           

(15)

 

$0.3 million is included in total cost of sales, $2.9 million is included in selling, general and administrative expenses and $2.0 million is included in research and development expenses on the consolidated statements of income.                                           

(16)

 

$2.8 million is included in total cost of sales, $2.6 million is included in selling, general and administrative expenses and $1.8 million is included in research and development expenses on the consolidated statements of income.   

Supplemental Information

Reconciliation of Net Income (Loss) and Earnings (Loss) per Common Share – Basic and Diluted to Non-GAAP

Net Income (Loss) and Non-GAAP Earnings (Loss) per Common Share – Basic and Diluted

 (Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

September 30,

 

 

 

Nine Months ended

September 30,

 

 

 

2019

 

 

2018

 

 

 

2019

 

 

2018

 

Net Income (Loss)

 

$

(46,123

)

 

$

7,589

 

 

 

$

(41,358

)

 

$

(10,895

)

Acquisition related expenses, amortizations and adjustments

 

 

1,343

 

 

 

926

 

 

 

 

4,346

 

 

 

2,651

 

Stock-based compensation expense

 

 

1,871

 

 

 

1,640

 

 

 

 

5,184

 

 

 

5,243

 

Restructuring expenses

 

 

1,195

 

 

 

261

 

 

 

 

4,658

 

 

 

7,236

 

Pension expense(1)

 

 

198

 

 

 

61

 

 

 

 

600

 

 

 

188

 

Asset impairments

 

 

3,872

 

 

 

 

 

 

 

3,872

 

 

 

 

Valuation allowance

 

 

37,055

 

 

 

 

 

 

 

37,055

 

 

 

 

Gain on contingency

 

 

 

 

 

 

 

 

 

(1,230

)

 

 

 

Settlement income

 

 

 

 

 

 

 

 

 

(746

)

 

 

 

Gain on bargain purchase of a business

 

 

 

 

 

 

 

 

 

 

 

 

(11,322

)

Tax effect of adjustments to net income (loss)

 

 

(2,186

)

 

 

(624

)

 

 

 

(4,424

)

 

 

(3,658

)

Non-GAAP Net Income (Loss)

 

$

(2,775

)

 

$

9,853

 

 

 

$

7,957

 

 

$

(10,557

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding – basic

 

 

47,824

 

 

 

47,710

 

 

 

 

47,803

 

 

 

47,927

 

Weighted average shares outstanding – diluted

 

 

47,824

 

 

 

47,834

 

 

 

 

47,803

 

 

 

47,927

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per common share – basic

 

$

(0.96

)

 

$

0.16

 

 

 

$

(0.87

)

 

$

(0.23

)

Earnings (loss) per common share – diluted

 

$

(0.96

)

 

$

0.16

 

 

 

$

(0.87

)

 

$

(0.23

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP earnings (loss) per common share – basic

 

$

(0.06

)

 

$

0.21

 

 

 

$

0.17

 

 

$

(0.22

)

Non-GAAP earnings (loss) per common share – diluted

 

$

(0.06

)

 

$

0.21

 

 

 

$

0.17

 

 

$

(0.22

)

1) Includes amortization of actuarial losses related to the Company’s pension plan for employees in certain foreign countries.

 
Contacts
ADTRAN, Inc.
Rhonda Lambert 256-963-7450
Investor Relations

 

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