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

HUNTSVILLE, Ala.–(BUSINESS WIRE)–ADTRAN, Inc. (NASDAQ:ADTN) reported preliminary financial results for the second quarter 2019.

Preliminary Financial Results

The Company’s reported results for the quarter and year to date ended June 30, 2019 are preliminary due to the Company’s ongoing assessment of the reasonableness of its current and previously reported excess and obsolete inventory reserves (“E&O reserves”). The Company is working diligently to finalize its assessment and evaluate the materiality of adjustments to the reserve, if any, and determine the appropriate method of correction to its current and previously reported financial results, as necessary. In addition to assessing the reasonableness of its E&O reserves, the Company is also assessing inventory related internal control deficiencies which may result in the identification of material weaknesses. If material changes to our preliminary results do occur, an updated press release will be issued.

Quarterly Results

For the quarter, revenue was $156.4 million compared to $128.0 million for the second quarter of 2018. Net income is estimated to be $5.1 million compared to a net loss of $7.7 million for the second quarter of 2018. Earnings per share, assuming dilution, is estimated to be $0.11 compared to a loss per share of $0.16 for the second quarter of 2018. Non-GAAP net income is estimated to be $6.9 million compared to a net loss of $4.6 million for the second quarter of 2018. Non-GAAP earnings per share, assuming dilution, is estimated to be $0.14 compared to a loss per share of $0.10 for the second quarter of 2018. Non-GAAP earnings per share exclude stock-based compensation expense, acquisition related amortizations and other expenses, restructuring expenses, gain on bargain purchase of a business or other contingencies, amortization of pension actuarial losses, and a 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, “We are pleased with our continued progress and solid performance for the second quarter of 2019. Revenue for the quarter grew 22% year-over-year and 9% over the previous quarter. Our execution continues to be strong across North America, LATAM, EMEA, and the Pacific Rim with diverse and well-balanced material revenue contributions from each of these regions. This sustained progress underscores the Company’s global impact as we help our customers build their best networks.”

The Company also announced that its Board of Directors declared a cash dividend for the second quarter of 2019. The quarterly cash dividend is $0.09 per common share to be paid to holders of record at the close of business on August 1, 2019. The ex-dividend date is July 31, 2019, and the payment date is August 15, 2019.

The Company confirmed that it will hold a conference call to discuss its second quarter preliminary results Thursday, July 18, 2019, at 9:30 a.m. Central Time. ADTRAN will webcast this conference call. 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 [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, 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 impact of the Company’s assessment of its excess and obsolete inventory reserve on its current and previously reported financial results and internal control over financial reporting, 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, 2018. 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 adjusted 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 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 Sheet

(Unaudited)

(In thousands)

 

 

June 30,

 

 

December 31,

 

 

2019

 

 

2018

 

Assets

 

 

 

 

 

 

 

Cash and cash equivalents

$

106,817

 

 

$

105,504

 

Short-term investments

 

30,888

 

 

 

3,246

 

Accounts receivable, net

 

116,661

 

 

 

99,385

 

Other receivables

 

24,984

 

 

 

36,699

 

Inventory, net(1)

 

96,379

 

 

 

99,848

 

Prepaid expenses and other current assets

 

8,909

 

 

 

10,744

 

Total Current Assets(1)

 

384,638

 

 

 

355,426

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

78,813

 

 

 

80,635

 

Deferred tax assets, net(1)

 

38,998

 

 

 

37,187

 

Goodwill

 

6,968

 

 

 

7,106

 

Intangibles, net

 

30,503

 

 

 

33,183

 

Other assets

 

13,820

 

 

 

5,668

 

Long-term investments

 

87,280

 

 

 

108,822

 

Total Assets(1)

$

641,020

 

 

$

628,027

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

Accounts payable

$

63,827

 

 

$

60,054

 

Bonds payable

 

25,600

 

 

 

1,000

 

Unearned revenue

 

12,910

 

 

 

17,940

 

Accrued expenses

 

14,331

 

 

 

11,746

 

Accrued wages and benefits

 

19,126

 

 

 

14,752

 

Income tax payable, net(1)

 

9,741

 

 

 

12,518

 

Total Current Liabilities

 

145,535

 

 

 

118,010

 

 

 

 

 

 

 

 

 

Non-current unearned revenue

 

4,265

 

 

 

5,296

 

Other non-current liabilities

 

44,181

 

 

 

33,842

 

Bonds payable

 

 

 

 

24,600

 

Total Liabilities

 

193,981

 

 

 

181,748

 

 

 

 

 

 

 

 

 

Stockholders’ Equity(1)

 

447,039

 

 

 

446,279

 

 

 

 

 

 

 

 

 

Total Liabilities and Stockholders’ Equity(1)

$

641,020

 

 

$

628,027

 

(1) Results are subject to change based on the Company’s ongoing assessment of the reasonableness of its excess and obsolete inventory reserve.

 

Consolidated Statements of Income

(Unaudited)

(In thousands, except per share data)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30,

 

June 30,

 

 

2019

 

2018

 

2019

 

2018

Sales

 

 

 

 

 

 

 

 

 

 

 

 

Products

 

$

139,167

 

 

$

115,063

 

 

$

264,989

 

 

$

220,316

 

Services

 

 

17,224

 

 

 

12,985

 

 

 

35,193

 

 

 

28,538

 

Total Sales

 

 

156,391

 

 

 

128,048

 

 

 

300,182

 

 

 

248,854

 

Cost of Sales

 

 

 

 

 

 

 

 

 

 

 

 

Products(1)

 

 

78,916

 

 

 

69,629

 

 

 

149,650

 

 

 

138,241

 

Services

 

 

11,201

 

 

 

8,423

 

 

 

23,646

 

 

 

20,884

 

Total Cost of Sales(1)

 

 

90,117

 

 

 

78,052

 

 

 

173,296

 

 

 

159,125

 

Gross Profit(1)

 

 

66,274

 

 

 

49,996

 

 

 

126,886

 

 

 

89,729

 

Selling, general and administrative expenses

 

 

33,619

 

 

 

32,080

 

 

 

68,751

 

 

 

65,611

 

Research and development expenses

 

 

32,064

 

 

 

30,729

 

 

 

63,711

 

 

 

63,578

 

Gain on contingency

 

 

(1,230

)

 

 

 

 

(1,230

)

 

 

Operating Income (Loss)(1)

 

 

1,821

 

 

 

(12,813

)

 

 

(4,346

)

 

 

(39,460

)

Interest and dividend income

 

 

692

 

 

 

913

 

 

 

1,283

 

 

 

1,779

 

Interest expense

 

 

(127

)

 

 

(132

)

 

 

(254

)

 

 

(264

)

Net investment gain

 

 

2,485

 

 

 

990

 

 

 

8,411

 

 

 

893

 

Other income (expense), net

 

 

(205

)

 

 

(217

)

 

 

650

 

 

 

(274

)

Gain on bargain purchase of a business, net

 

 

 

 

 

 

 

 

11,322

 

Income (Loss) Before Provision for Income Taxes(1)

 

 

4,666

 

 

 

(11,259

)

 

 

5,744

 

 

 

(26,004

)

Benefit for income taxes(1)

 

 

385

 

 

 

3,589

 

 

 

77

 

 

 

7,520

 

Net Income (Loss)(1)

 

$

5,051

 

 

$

(7,670

)

 

$

5,821

 

 

$

(18,484

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding – basic

 

 

47,802

 

 

 

47,856

 

 

 

47,792

 

 

 

48,043

 

Weighted average shares outstanding – diluted

 

 

48,036

 

(2

)

 

47,856

 

 

 

47,939

 

(2

)

 

48,043

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per common share – basic(1)

 

$

0.11

 

 

$

(0.16

)

 

$

0.12

 

 

$

(0.38

)

Earnings (loss) per common share – diluted(1)

 

$

0.11

 

(2

)

$

(0.16

)

 

$

0.12

 

(2

)

$

(0.38

)

(1) Results are subject to change based on the Company’s ongoing assessment of the reasonableness of its excess and obsolete inventory reserve.

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

 

Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

(In thousands)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30,

 

June 30,

 

 

2019

 

2018

 

2019

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income (Loss)(1)

 

$

5,051

 

 

$

(7,670

)

 

$

5,821

 

 

$

(18,484

)

Other Comprehensive Income (Loss), net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

107

 

 

 

104

 

 

 

292

 

 

 

(3,308

)

Defined benefit plan adjustments

 

 

150

 

 

 

5

 

 

 

271

 

 

 

67

 

Foreign currency translation

 

 

540

 

 

 

(3,424

)

 

 

(620

)

 

 

(2,582

)

Other Comprehensive Income (Loss), net of tax

 

 

797

 

 

 

(3,315

)

 

 

(57

)

 

 

(5,823

)

Comprehensive Income (Loss), net of tax(1)

 

$

5,848

 

 

$

(10,985

)

 

$

5,764

 

 

$

(24,307

)

(1) Results are subject to change based on the Company’s ongoing assessment of the reasonableness of its excess and obsolete inventory reserve.
 

Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 

 

 

Six Months Ended

 

 

June 30,

 

 

2019

 

2018

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income (loss)(1)

 

$

5,821

 

 

$

(18,484

)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

8,912

 

 

 

7,526

 

Amortization of net premium on available-for-sale investments

 

 

(57

)

 

 

20

 

Net gain on long-term investments

 

 

(8,411

)

 

 

(893

)

Net loss on disposal of property, plant and equipment

 

 

58

 

 

 

68

 

Gain on contingency

 

 

(1,230

)

 

 

 

Gain on bargain purchase of a business

 

 

 

 

 

(11,322

)

Stock-based compensation expense

 

 

3,313

 

 

 

3,603

 

Deferred income taxes(1)

 

 

(1,844

)

 

 

(16,384

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

(17,282

)

 

 

66,931

 

Other receivables

 

 

11,679

 

 

 

9

 

Inventory, net(1)

 

 

3,346

 

 

 

2,063

 

Prepaid expenses and other assets

 

 

4,714

 

 

 

10,157

 

Accounts payable, net

 

 

5,017

 

 

 

683

 

Accrued expenses and other liabilities

 

 

637

 

 

 

2,008

 

Income tax payable(1)

 

 

(2,658

)

 

 

6,945

 

Net cash provided by operating activities(1)

 

 

12,015

 

 

 

52,930

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property, plant and equipment

 

 

(4,306

)

 

 

(4,183

)

Proceeds from sales and maturities of debt and equity investments

 

 

24,306

 

 

 

86,436

 

Purchases of debt and equity investments

 

 

(21,544

)

 

 

(89,801

)

Acquisition of business

 

 

13

 

 

 

(7,806

)

Net cash used in investing activities

 

 

(1,531

)

 

 

(15,354

)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from stock option exercises

 

 

526

 

 

 

369

 

Purchases of treasury stock

 

 

(184

)

 

 

(12,774

)

Dividend payments

 

 

(8,604

)

 

 

(8,679

)

Net cash used in financing activities

 

 

(8,262

)

 

 

(21,084

)

 

 

 

 

 

 

 

 

 

Net increase in cash and cash equivalents

 

 

2,222

 

 

 

16,492

 

Effect of exchange rate changes

 

 

(909

)

 

 

(2,606

)

Cash and cash equivalents, beginning of period

 

 

105,504

 

 

 

86,433

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

 

$

106,817

 

 

$

100,319

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of non-cash investing activities:

 

 

 

 

 

 

 

 

Purchases of property, plant and equipment included in accounts payable

 

$

205

 

 

$

209

 

 

 

 

 

 

 

 

 

 

(1) Results are subject to change based on the Company’s ongoing assessment of the reasonableness of its excess and obsolete inventory reserve.

 

Supplemental Information

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

(Unaudited)

 

 

Three Months ended

June 30,

 

 

 

 

Six Months ended

June 30,

 

 

 

 

2019

 

 

 

2018

 

 

 

 

2019

 

 

 

2018

 

 

 

Operating Income (Loss)(1)

$

1,821

 

 

 

 

$

(12,813

)

 

 

 

 

$

(4,346

)

 

 

 

$

(39,460

)

 

 

 

Acquisition related expenses, amortizations and adjustments

 

1,506

 

 

(2)

 

 

1,142

 

 

(8)

 

 

 

3,003

 

 

(11)

 

 

1,725

 

 

(14)

 

Stock-based compensation expense

 

1,454

 

 

(3)

 

 

1,784

 

 

(9)

 

 

 

3,313

 

 

(12)

 

 

3,603

 

 

(15)

 

Restructuring expenses

 

1,400

 

 

(4)

 

 

1,025

 

 

(10)

 

 

 

3,463

 

 

(13)

 

 

6,975

 

 

(16)

 

Deferred compensation income (expense)

 

683

 

 

(5)

 

 

132

 

 

(5)

 

 

 

2,807

 

 

(5)

 

 

(254

)

 

(5)

 

Gain on contingency

 

(1,230

)

 

(6)

 

 

 

 

 

 

 

 

(1,230

)

 

(6)

 

 

 

 

 

 

Settlement income

 

(746

)

 

(7)

 

 

 

 

 

 

 

 

(746

)

 

(7)

 

 

 

 

 

 

Non-GAAP Operating Income (Loss)(1)

$

4,888

 

 

 

 

$

(8,730

)

 

 

 

 

$

6,264

 

 

 

 

$

(27,411

)

 

 

 

(1) Results are subject to change based on the Company’s ongoing assessment of the reasonableness of its excess and obsolete inventory reserve.

(2) $0.4 million is included in total cost of sales, $0.6 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.

(3) $0.1 million is included in total cost of sales, $0.7 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.

(4) $0.1 million is included in total cost of sales, $0.7 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.

(5) 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.

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

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

(8) $0.4 million is included in total cost of sales, $0.3 million is included in selling, general and administrative expenses and $0.4 million is included in research and development expenses on the consolidated statements of income.

(9) $0.1 million is included in total cost of sales, $1.0 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.

(10) $0.4 million is included in total cost of sales and $0.6 million is included in selling, general and administrative expenses on the consolidated statements of income.

(11) $0.9 million is included in total cost of sales, $1.1 million is included in selling, general and administrative expenses and $1.0 is included in research and development expenses on the consolidated statements of income.

(12) $0.2 million is included in total cost of sales, $1.7 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.

(13) $0.7 million is included in total cost of sales, $1.5 million is included in selling, general and administrative expenses and $1.2 million is included in research and development expenses on the consolidated statements of income.

(14) $0.5 million is included in total cost of sales, $0.6 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.

(15) $0.2 million is included in total cost of sales, $2.0 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.

(16) $2.8 million is included in total cost of sales, $2.4 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

June 30,

 

 

Six Months ended

June 30,

 

 

2019

 

2018

 

 

2019

 

2018

Net Income (Loss)(1)

 

$

5,051

 

 

$

(7,670

)

 

 

$

5,821

 

 

$

(18,484

)

Acquisition related expenses, amortizations and adjustments

 

 

1,506

 

 

 

1,142

 

 

 

 

3,003

 

 

 

1,725

 

Stock-based compensation expense

 

 

1,454

 

 

 

1,784

 

 

 

 

3,313

 

 

 

3,603

 

Restructuring expenses

 

 

1,400

 

 

 

1,025

 

 

 

 

3,463

 

 

 

6,975

 

Pension expense(2)

 

 

199

 

 

 

62

 

 

 

 

402

 

 

 

126

 

Gain on contingency

 

 

(1,230

)

 

 

 

 

 

 

(1,230

)

 

 

 

Settlement income

 

 

(746

)

 

 

 

 

 

 

(746

)

 

 

 

Gain on bargain purchase of a business

 

 

 

 

 

 

 

 

 

 

 

 

(11,322

)

Tax effect of adjustments to net income (loss)

 

 

(714

)

 

 

(927

)

 

 

 

(2,238

)

 

 

(3,033

)

Non-GAAP Net Income (Loss)(1)

 

$

6,920

 

 

$

(4,584

)

 

 

$

11,788

 

 

$

(20,410

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding – basic

 

 

47,782

 

 

 

48,232

 

 

 

 

47,792

 

 

 

48,043

 

Weighted average shares outstanding – diluted

 

 

47,853

 

 

 

48,292

 

 

 

 

47,939

 

 

 

48,043

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per common share – basic(1)

 

$

0.11

 

 

$

(0.16

)

 

 

$

0.12

 

 

$

(0.38

)

Earnings (loss) per common share – diluted(1)

 

$

0.11

 

 

$

(0.16

)

 

 

$

0.12

 

 

$

(0.38

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP earnings (loss) per common share – basic(1)

 

$

0.14

 

 

$

(0.10

)

 

 

$

0.25

 

 

$

(0.42

)

Non-GAAP earnings (loss) per common share – diluted(1)

 

$

0.14

 

 

$

(0.09

)

 

 

$

0.25

 

 

$

(0.42

)

(1) Results are preliminary and subject to change based on the Company’s final calculation of its excess and obsolete inventory reserve.

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

 

Contacts

Investor Relations

Rhonda Lambert

256-963-7054

leverton

I have been involved with publishing and marketing for the past 37 years. My passion is helping people share their voice. I am able to do this through two important venues: One, with Area-Info.net where people can share everything from opinions to events to news. It is your choice! What do you want to share? Two, through a new program called America's Real Deal I am involved with to help business owners get their voice heard. For people who love to save money and earn while saving, there is a new program called the r network. You are provided with a card that entitles the user to automatic savings on more than 300,000 products. Learn more about the revv card today. This is by invitation only to be some of the first people to get this card. I schedule speaking engagements with community groups and business groups to share my passion about the importance of "sharing your voice". Contact me directly at [email protected] for scheduling information.

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