ADTN ADTRAN Holdings Inc

Earnings per share increases 27% versus Q3 2016, and the company reports record Services revenues

ADTRAN, Inc. (NASDAQ:ADTN) reported results for the third quarter 2017. For the quarter, sales were $185.1 million compared to $168.9 million for the third quarter of 2016. Net income was $15.9 million compared to $12.4 million for the third quarter of 2016. Earnings per share, assuming dilution, were $0.33 compared to $0.26 for the third quarter of 2016. Non-GAAP earnings per share were $0.37 compared to $0.26 for the third quarter of 2016, an increase of 42%. 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, “We are very pleased with the company’s performance in the third quarter as we continued to see strong sales in our domestic ultra-broadband solutions and services, which have more than doubled from the same period last year. Total company revenues grew by 10% compared to the same period last year as a result of strength in both our Network Solutions segment and a record performance in our services revenues, which again grew at a double-digit pace. We were also pleased to see growth in our Customer Devices category in the quarter. Our customers are increasingly relying on ADTRAN to help them plan, provision and deploy network assets to the best effect, ensuring the network is prepared for the emergence of exciting applications and mission critical services.”

The Company also announced that its Board of Directors declared a cash dividend for the third quarter of 2017. The quarterly cash dividend is $0.09 per common share to be paid to holders of record at the close of business on November 1, 2017. The ex-dividend date is October 31, 2017, and the payment date is November 15, 2017.

The Company confirmed that its third quarter conference call will be held Wednesday, October 18, 2017, 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.

ADTRAN, Inc. is a 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. For more information, please visit www.adtran.com.

For more information, contact the company at 800 9ADTRAN (800 923-8726) or via email at investor.relations@adtran.com. On the Web, visit www.adtran.com.

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, 2016. 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, 2017   2016 Assets Cash and cash equivalents $ 128,253 $ 79,895 Short-term investments 31,385 43,188 Accounts receivable, net 101,613 92,346 Other receivables 18,541 15,137 Income tax receivable, net — 760 Inventory, net 116,230 105,117 Prepaid expenses and other current assets   23,127   16,459 Total Current Assets 419,149 352,902   Property, plant and equipment, net 85,665 84,469 Deferred tax assets, net 37,130 38,036 Goodwill 3,492 3,492 Other assets 13,135 12,234 Long-term investments   136,987   176,102 Total Assets $ 695,558 $ 667,235   Liabilities and Stockholders' Equity Accounts payable $ 73,127 $ 77,342 Unearned revenue 13,651 16,326 Accrued expenses 15,099 12,434 Accrued wages and benefits 15,345 20,433 Income tax payable, net   7,696   — Total Current Liabilities 124,918 126,535   Non-current unearned revenue 4,918 6,333 Other non-current liabilities 34,756 28,050 Bonds payable   26,800   26,800 Total Liabilities 191,392 187,718   Stockholders' Equity   504,166   479,517   Total Liabilities and Stockholders' Equity $ 695,558 $ 667,235    

Consolidated Statements of Income

(Unaudited)

(In thousands, except per share data)

  Three Months Ended Nine Months Ended September 30, September 30, 2017   2016   2017   2016 Sales   Products $ 145,467 $ 136,277 $ 444,607 $ 398,709 Services   39,645   32,613   95,457   75,086 Total Sales 185,112 168,890 540,064 473,795 Cost of sales Products 73,528 70,988 229,845 202,905 Services   25,086   22,094   65,374   50,333 Total Cost of Sales 98,614 93,082 295,219 253,238 Gross Profit 86,498 75,808 244,845 220,557 Selling, general and administrative expenses 34,652 33,716 104,102 97,367 Research and development expenses   33,528   31,962   98,945   92,727 Operating Income 18,318 10,130 41,798 30,463 Interest and dividend income 952 910 2,857 2,692 Interest expense (139 ) (143 ) (417 ) (430 ) Net realized investment gain 1,009 1,316 2,869 4,154 Other expense, net (933 ) (246 ) (1,686 ) (378 ) Gain on bargain purchase of a business   —   3,550   —   3,550 Income before provision for income taxes 19,207 15,517 45,421 40,051 Provision for income taxes   (3,309 )   (3,102 )   (10,471 )   (12,394 ) Net Income $ 15,898 $ 12,415 $ 34,950 $ 27,657   Weighted average shares outstanding – basic 47,870 48,470 48,110 48,839 Weighted average shares outstanding – diluted 48,531 48,678 48,618 49,036   Earnings per common share – basic $ 0.33 $ 0.26 $ 0.73 $ 0.57 Earnings per common share – diluted $ 0.33 $ 0.26 $ 0.72 $ 0.56  

(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, 2017     2016 2017   2016   Net Income $ 15,898 $ 12,415 $ 34,950 $ 27,657 Other Comprehensive Income, net of tax Net unrealized gains (losses) on available-for-sale securities 804 258 2,512 (162 ) Net unrealized gains (losses) on cash flow hedges 142 — (196 ) — Defined benefit plan adjustments 73 36 214 103 Foreign currency translation   1,541   575   5,402   1,202 Other Comprehensive Income, net of tax   2,560   869   7,932   1,143 Comprehensive Income, net of tax $ 18,458 $ 13,284 $ 42,882 $ 28,800  

Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

  Nine Months Ended September 30, 2017   2016 Cash flows from operating activities: Net income $ 34,950 $ 27,657 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 12,034 10,260 Amortization of net premium on available-for-sale investments 352 489 Net realized gain on long-term investments (2,869 ) (4,154 ) Net (gain) loss on disposal of property, plant and equipment (10 ) 21 Gain on bargain purchase of a business — (3,550 ) Stock-based compensation expense 5,573 4,601 Deferred income taxes — (463 ) Changes in operating assets and liabilities: Accounts receivable, net (6,975 ) (29,370 ) Other receivables (2,924 ) 7,475 Inventory (9,483 ) (683 ) Prepaid expenses and other assets (9,647 ) (5,180 ) Accounts payable (4,727 ) 16,363 Accrued expenses and other liabilities (2,820 ) 7,307 Income tax payable/receivable, net   8,571   (2,941 ) Net cash provided by operating activities   22,025   27,832   Cash flows from investing activities: Purchases of property, plant and equipment (12,304 ) (12,684 ) Proceeds from disposals of property, plant and equipment 16 — Proceeds from sales and maturities of available-for-sale investments 137,272 141,103 Purchases of available-for-sale investments (79,713 ) (139,181 ) Acquisition of business   —   (943 ) Net cash provided by (used in) investing activities   45,271   (11,705 )   Cash flows from financing activities: Proceeds from stock option exercises 6,606 1,076 Purchases of treasury stock (17,348 ) (22,917 ) Dividend payments   (13,031 )   (13,230 ) Net cash used in financing activities   (23,773 )   (35,071 )   Net increase (decrease) in cash and cash equivalents 43,523 (18,944 ) Effect of exchange rate changes 4,835 686 Cash and cash equivalents, beginning of period   79,895   84,550   Cash and cash equivalents, end of period $ 128,253 $ 66,292   Supplemental disclosure of non-cash investing activities: Purchases of property, plant and equipment included in accounts payable $ 272 $ 1,174  

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, 2017 and 2016:

    Three Months Ended Nine Months Ended September 30, September 30, 2017   2016 2017   2016   Restructuring expense included in cost of sales $ — $ 1,307 $ — $ 1,307   Selling, general and administrative expense 93 637 93 637 Research and development expense   122   —   122   — Restructuring expense included in operating expenses   215   637   215   637   Total restructuring expense 215 1,944 215 1,944 Provision for income taxes   (84 )   (603 )   (84 )   (603 )   Total restructuring expense, net of tax $ 131 $ 1,341 $ 131 $ 1,341    

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), and on September 13, 2016, we closed on the acquisition of CommScope’s active fiber business (CommScope). Acquisition related expenses, amortizations and adjustments for the three and nine months ended September 30, 2017 and 2016 for all three transactions are as follows:

  Three Months Ended Nine Months Ended September 30, September 30, 2017   2016 2017   2016 Bluesocket, Inc. acquisition Amortization of acquired intangible assets $ 158 $ 158 $ 474 $ 504   NSN BBA acquisition Amortization of acquired intangible assets 95 225 432 680 Amortization of other purchase accounting adjustments   1   114   39   194 Subtotal - NSN BBA acquisition 96 339 471 874   CommScope acquisition Amortization of acquired intangible assets 219 112 1,513 112 Amortization of other purchase accounting adjustments 4 84 85 84 Acquisition related professional fees, travel and other expenses   —   45   8   45 Subtotal - CommScope acquisition   223   241   1,606   241  

Total acquisition related expenses, amortizations and adjustments

477 738 2,551 1,619 Provision for income taxes   (178 )   (261 )   (957 )   (562 )

Total acquisition related expenses, amortizations and adjustments, net of tax

$ 299 $ 477 $ 1,594 $ 1,057    

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, 2017 and 2016:

  Three Months Ended Nine Months Ended September 30, September 30, 2017   2016 2017   2016   Cost of goods sold $ 5 $ 169 $ 86 $ 189   Selling, general and administrative expenses 50 54 164 61 Research and development expenses   422   515   2,301   1,369

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

472 569 2,465 1,430  

Total acquisition related expenses, amortizations and adjustments

477 738 2,551 1,619

Provision for income taxes

  (178 )   (261 )   (957 )   (562 )

Total acquisition related expenses, amortizations and adjustments, net of tax

$ 299 $ 477 $ 1,594 $ 1,057    

Supplemental Information

Stock-based Compensation Expense

(Unaudited)

(In thousands)

  Three Months Ended Nine Months Ended September 30, September 30, 2017   2016 2017   2016  

Stock-based compensation expense included in cost of sales

$ 97 $ 88 $ 281 $ 282   Selling, general and administrative expense 994 765 3,018 2,322 Research and development expense   743   639   2,274   1,997 Stock-based compensation expense included in operating expenses   1,737   1,404   5,292   4,319   Total stock-based compensation expense 1,834 1,492 5,573 4,601

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

 

(402

)

 

(218

)

 

(1,215

)

 

(643

)

  Total stock-based compensation expense, net of tax $ 1,432 $ 1,274 $ 4,358 $ 3,958    

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, 2017     2016 2017     2016     GAAP earnings per common share - diluted $ 0.33 $ 0.26 $ 0.72 $ 0.56   Restructuring expense — 0.03 — 0.03

Acquisition related expenses, amortizations and adjustments

0.01 0.01 0.03 0.02 Stock-based compensation expense 0.03 0.03 0.09 0.08 Gain on bargain purchase of a business   —   (0.07 )   —   (0.07 )   Non-GAAP earnings per common share - diluted $ 0.37 $ 0.26 $ 0.84 $ 0.62

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ADTRAN, Inc.Gloria Brown, 256-963-8020investor.relations@adtran.com