ADTRAN, Inc. Reports Earnings for the Third Quarter 2018 and Declares Quarterly Cash Dividend

HUNTSVILLE, Ala.–(BUSINESS WIRE)–ADTRAN, Inc. (NASDAQ: ADTN) reported results for the third quarter 2018.
For the quarter, sales were $140.3 million compared to $185.1 million
for the third quarter of 2017. Net income was $7.6 million compared to
$15.9 million for the third quarter of 2017. Earnings per share,
assuming dilution, were $0.16 compared to $0.33 for the third quarter of
2017. Non-GAAP earnings per share were $0.21 compared to $0.37 for the
third quarter of 2017. GAAP earnings per share include the expense of
stock-based compensation, acquisition related amortizations and other
expenses, and restructuring expenses. The reconciliation between GAAP
earnings per share, diluted, and non-GAAP earnings per share, diluted,
is in the table provided.

ADTRAN Chairman and Chief Executive Officer Tom Stanton stated, “Total
revenue for the quarter grew 10% sequentially, including the effect of a
late start to our G.fast shipments to the Asia-Pacific region.
Notwithstanding the G.fast shipment impact, our third quarter results
showed strong improvements in gross margins and operating expenses. On a
regional basis, sales contributions followed typical seasonal patterns
with growth in the Americas, expected seasonal declines in Europe and
growth in Asia-Pacific, driven by new customer activity. Looking
forward, we are very encouraged by the continued momentum in
ultra-broadband shipments to both carriers and MSOs globally as service
providers continue to evolve their networks to meet changing customer
expectations.”

The Company also announced that its Board of Directors declared a cash
dividend for the third quarter of 2018. The quarterly cash dividend is
$0.09 per common share to be paid to holders of record at the close of
business on October 31, 2018. The ex-dividend date is October 30, 2018,
and the payment date is November 14, 2018.

The Company confirmed that it will hold its third quarter conference
call Wednesday, October 17, 2018, at 9:30 a.m. Central Time. ADTRAN will
webcast this conference. To listen, simply visit the Investor Relations
site at www.investors.adtran.com
approximately 10 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 earnings release, 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 via email at investor.relations@adtran.com.

ADTRAN, Inc. is the leading global provider of networking and
communications equipment. ADTRAN’s products enable voice, data, video
and Internet communications across a variety of network infrastructures.
ADTRAN solutions are currently in use by service providers, private
enterprises, government organizations, and millions of individual users
worldwide. Please visit us at www.adtran.com,
LinkedIn,
Facebook
and Twitter.

This press release contains 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 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 for the year ended December
31, 2017. These risks and uncertainties could cause actual results to
differ materially from those in the forward-looking statements included
in this press release.

 
 
 
 
 

Condensed Consolidated Balance Sheet
(Unaudited)
(In
thousands)

 
      September 30,     December 31,
2018   2017
Assets
Cash and cash equivalents $ 94,173 $ 86,433
Short-term investments 5,912 16,129
Accounts receivable, net 101,865 144,150
Other receivables 30,084 26,578
Inventory, net 106,060 122,542
Prepaid expenses and other current assets   10,428   17,282
Total Current Assets 348,522 413,114
 
Property, plant and equipment, net 81,457 85,079
Deferred tax assets, net 39,595 23,428
Goodwill 3,492 3,492
Other assets 31,523 13,725
Long-term investments   144,241   130,256
Total Assets $ 648,830 $ 669,094
 
Liabilities and Stockholders’ Equity
Accounts payable $ 65,032 $ 60,632
Unearned revenue 17,004 13,070
Accrued expenses 14,548 13,232
Accrued wages and benefits 12,604 15,948
Income tax payable   14,340   3,936
Total Current Liabilities 123,528 106,818
 
Non-current unearned revenue 3,846 4,556
Other non-current liabilities 32,255 34,209
Bonds payable   25,600   25,600
Total Liabilities 185,229 171,183
 
Stockholders’ Equity   463,601   497,911
 
Total Liabilities and Stockholders’ Equity $ 648,830 $ 669,094
 
 
 
 
 
 

Consolidated Statements of Income
(Unaudited)
(In
thousands, except per share data)

 
      Three Months Ended     Nine Months Ended
September 30, September 30,
2018     2017 2018     2017
Sales
Products $ 121,043 $ 145,467 $ 341,359 $ 444,607
Services   19,292     39,645     47,830     95,457  
Total Sales 140,335 185,112 389,189 540,064
Cost of Sales
Products 69,943 73,534 208,184 229,861
Services   11,944     25,087     32,828     65,377  
Total Cost of Sales 81,887 98,621 241,012 295,238
Gross Profit 58,448 86,491 148,177 244,826
Selling, general and administrative expenses 30,750 34,676 96,361 104,171
Research and development expenses   29,877     33,588     93,455     99,116  
Operating Income (Loss) (2,179 ) 18,227 (41,639 ) 41,539
Interest and dividend income 825 952 2,604 2,857
Interest expense (134 ) (139 ) (398 ) (417 )
Net realized investment gain 4,507 1,009 5,400 2,869
Other income (expense), net 201 (842 ) (73 ) (1,427 )
Gain on bargain purchase of a business           11,322      
Income (Loss) Before Provision for Income Taxes 3,220 19,207 (22,784 ) 45,421
(Provision) benefit for income taxes   4,369     (3,309 )   11,889     (10,471 )
Net Income (Loss) $ 7,589   $ 15,898   $ (10,895 ) $ 34,950  
 
Weighted average shares outstanding – basic 47,710 47,870 47,927 48,110
Weighted average shares outstanding – diluted(1) 47,834 48,531 47,994 48,618
 
Earnings (loss) per common share – basic $ 0.16 $ 0.33 $ (0.23 ) $ 0.73
Earnings (loss) per common share – diluted(1) $ 0.16 $ 0.33 $ (0.23 ) $ 0.72
 

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

 
 
 
 
 
 

Consolidated Statements of Comprehensive Income
(Unaudited)
(In
thousands)

 
      Three Months Ended     Nine Months Ended
September 30, September 30,
2018     2017 2018     2017
 
Net Income (Loss) $ 7,589   $ 15,898 $ (10,895 ) $ 34,950  
Other Comprehensive Income (Loss), net of tax
Net unrealized gains (losses) on available-for-sale securities (32 ) 804 (3,340 ) 2,512
Net unrealized gains (losses) on cash flow hedges 142 (196 )
Defined benefit plan adjustments 37 73 104 214
Foreign currency translation   (451 )   1,541   (3,033 )   5,402  
Other Comprehensive Income (Loss), net of tax   (446 )   2,560   (6,269 )   7,932  
Comprehensive Income (Loss), net of tax $ 7,143   $ 18,458 $ (17,164 ) $ 42,882  
 
 
 
 
 
 

Consolidated Statements of Cash Flows
(Unaudited)
(In
thousands)

 
      Nine Months Ended
September 30,
2018     2017
Cash flows from operating activities:
Net income (loss) $ (10,895 ) $ 34,950
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 11,952 12,034
Amortization of net premium on available-for-sale investments (14 ) 352
Net realized gain on long-term investments (5,400 ) (2,869 )
Net (gain) loss on disposal of property, plant and equipment 68 (10 )
Gain on bargain purchase of a business (11,322 )
Stock-based compensation expense 5,243 5,573
Deferred income taxes (20,368 )
Changes in operating assets and liabilities:
Accounts receivable, net 41,166 (6,975 )
Other receivables (1,842 ) (2,924 )
Inventory 16,543 (9,483 )
Prepaid expenses and other assets 8,722 (9,647 )
Accounts payable 5,223 (4,727 )
Accrued expenses and other liabilities 156 (2,820 )
Income tax payable   9,461     8,571  
Net cash provided by operating activities   48,693     22,025  
 
Cash flows from investing activities:
Purchases of property, plant and equipment (5,695 ) (12,304 )
Proceeds from disposals of property, plant and equipment 16
Proceeds from sales and maturities of available-for-sale investments 116,757 137,272
Purchases of available-for-sale investments (115,271 ) (79,713 )
Acquisition of business   (7,806 )    
Net cash provided by (used in) investing activities   (12,015 )   45,271  
 
Cash flows from financing activities:
Proceeds from stock option exercises 1,321 6,606
Purchases of treasury stock (14,185 ) (17,348 )
Dividend payments   (12,976 )   (13,031 )
Net cash (used in) financing activities   (25,840 )   (23,773 )
 
Net increase in cash and cash equivalents 10,838 43,523
Effect of exchange rate changes (3,098 ) 4,835
Cash and cash equivalents, beginning of period   86,433     79,895  
 
Cash and cash equivalents, end of period $ 94,173   $ 128,253  
 
Supplemental disclosure of non-cash investing activities:
Purchases of property, plant and equipment included in accounts
payable
$ 355 $ 272
 
 
 
 
 
 

Supplemental Information
Restructuring Expenses
(Unaudited)
(In
thousands)

 

Restructuring expense was recorded in the following Consolidated
Statements of Income categories for the three and nine months
ended September 30, 2018 and 2017:

 
      Three Months Ended   Nine Months Ended
September 30, September 30,
2018   2017 2018   2017

 

Restructuring expense included in cost of sales $   $   $ 2,761   $  
 
Selling, general and administrative expense 261 93 2,661 93
Research and development expense       122     1,814     122  
Restructuring expense included in operating expenses   261     215     4,475     215  
 
Total restructuring expense 261 215 7,236 215
Provision for income taxes   (68 )   (84 )   (1,882 )   (84 )
 
Total restructuring expense, net of tax $ 193   $ 131   $ 5,354   $ 131  
 
 
 
 
 
 

Supplemental Information
Acquisition Related
Expenses, Amortizations and Adjustments

(Unaudited)
(In
thousands)

 

On August 4, 2011, we closed on the acquisition of Bluesocket,
Inc., on May 4, 2012, we closed on the acquisition of the Nokia
Siemens Networks Broadband Access business (NSN BBA), on September
13, 2016, we closed on the acquisition of CommScope’s active fiber
business (CommScope), and on March 19, 2018, we closed on the
acquisition of Sumitomo Electric Lightwave Corp.’s North American
EPON business (Sumitomo). Acquisition related expenses,
amortizations and adjustments for the three and nine months ended
September 30, 2018 and 2017 for all four transactions are as
follows:

 
    Three Months Ended   Nine Months Ended
September 30, September 30,
2018   2017 2018   2017
Bluesocket, Inc. acquisition
Amortization of acquired intangible assets $ 53   $ 158   $ 369   $ 474  
 
NSN BBA acquisition
Amortization of acquired intangible assets 88 95 270 432
Amortization of other purchase accounting adjustments       1     1     39  
Subtotal – NSN BBA acquisition 88 96 271 471
 
CommScope acquisition
Amortization of acquired intangible assets 123 219 373 1,513
Amortization of other purchase accounting adjustments 4 1 85
Acquisition related professional fees, travel and other expenses               8  
Subtotal – CommScope acquisition   123     223     374     1,606  
 
Sumitomo acquisition
Amortization of acquired intangible assets 662 1,434

Amortization of other purchase accounting adjustments

79
Acquisition related professional fees, travel and other expenses           124      
Subtotal – Sumitomo acquisition   662         1,637      
 
Total acquisition related expenses, amortizations and adjustments 926 477 2,651 2,551
Provision for income taxes   (245 )   (178 )   (702 )   (957 )
Total acquisition related expenses, amortizations and
adjustments, net of tax
$ 681   $ 299   $ 1,949   $ 1,594  
 
 

The acquisition related expenses, amortizations and adjustments
above were recorded in the following Consolidated Statements of
Income categories for the three and nine months ended
September 30, 2018 and 2017:

 
    Three Months Ended     Nine Months Ended
September 30, September 30,
2018     2017 2018     2017
 
Cost of goods sold $ 350   $ 5   $ 839   $ 86  
 
Selling, general and administrative expenses 289 50 874 164
Research and development expenses   287     422     938     2,301  

Total acquisition related expenses, amortizations and
adjustments included in operating expenses

576 472 1,812 2,465
 

Total acquisition related expenses, amortizations and
adjustments

926 477 2,651 2,551
Provision for income taxes   (245 )   (178 )   (702 )   (957 )
Total acquisition related expenses, amortizations and
adjustments, net of tax
$ 681   $ 299   $ 1,949   $ 1,594  
 
 
 
 
 
 

Supplemental Information
Stock-based Compensation
Expense

(Unaudited)
(In thousands)

 
      Three Months Ended     Nine Months Ended
September 30, September 30,
2018     2017 2018     2017
 
Stock-based compensation expense included in cost of sales $ 101   $ 97   $ 298   $ 281  
 
Selling, general and administrative expense 894 994 2,924 3,018
Research and development expense   645     743     2,021     2,274  
Stock-based compensation expense included in operating expenses   1,539     1,737     4,945     5,292  
 
Total stock-based compensation expense 1,640 1,834 5,243 5,573

Tax benefit for expense associated with non-qualified options,
PSUs, RSUs and restricted stock

  (292 )   (402 )   (1,016 )   (1,215 )
 
Total stock-based compensation expense, net of tax $ 1,348   $ 1,432   $ 4,227   $ 4,358  
 
 
 
 
 
 

Reconciliation of GAAP net income per share, diluted, to
Non-GAAP
net income per share, diluted

(Unaudited)

 
      Three Months Ended     Nine Months Ended
September 30, September 30,
2018     2017 2018     2017
 
GAAP earnings (loss) per common share – diluted $ 0.16 $ 0.33 $ (0.23 ) $ 0.72
 
Restructuring expense 0.11
Acquisition related expenses, amortizations and adjustments 0.01 0.01 0.04 0.03
Stock-based compensation expense 0.03 0.03 0.09 0.09
Gain on bargain purchase of a business       (0.24 )  
 
Non-GAAP earnings (loss) per common share – diluted(1) $ 0.21 $ 0.37 $ (0.22 ) $ 0.84
 

(1) Table may not foot due to rounding

 
 
 
 

Contacts

ADTRAN, Inc.
Investor Services/Assistance:
Cathy
Hoffman-Young, 256-963-8220
investor@adtran.com

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