ADTN ADTRAN Holdings Inc

ADTRAN, Inc. (NASDAQ:ADTN) reported results for the fourth quarter 2017. For the quarter, sales were $126.5 million compared to $163.0 million for the fourth quarter of 2016. Net income was a loss of $11.1 million compared to income of $7.6 million for the fourth quarter of 2016. Earnings per share, assuming dilution, were a loss of $0.23 compared to income of $0.16 for the fourth quarter of 2016. Non-GAAP earnings per share were $0.05 compared to $0.21 for the fourth quarter of 2016. GAAP results for the fourth quarter 2017 reflect the impact of the Tax Cuts and Jobs Act that resulted in a charge to tax expense of $11.9 million, which has been excluded from non-GAAP earnings. 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, “As we previously disclosed, our results for the quarter were negatively affected by a merger-related review and spending slowdown by a domestic Tier 1 customer. While this disruption continues to impact our business, our overall expectations regarding our domestic and international programs and opportunities remain positive. The company’s engagement with leading service providers across the globe is extremely strong, with high interest and acceptance of our next-generation Software Defined Access solutions. ADTRAN is well positioned to help our carrier and MSO customers successfully manage the transition to a fully realized Gigabit and beyond marketplace by providing the industry’s most innovative and complete portfolio of transformative SD-Access solutions so that any subscriber, in any market, can realize the full potential of the network.”

The Company also announced that its Board of Directors declared a cash dividend for the fourth 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 January 31, 2018. The ex-dividend date is January 30, 2018, and the payment date is February 14, 2018.

The Company confirmed that its fourth quarter conference call will be held Wednesday, January 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.

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)   December 31, December 31, 2017   2016 Assets Cash and cash equivalents $ 86,433 $ 79,895 Short-term investments 16,129 43,188 Accounts receivable, net 143,835 92,346 Other receivables 22,746 15,137 Income tax receivable, net — 760 Inventory, net 122,542 105,117 Prepaid expenses and other current assets   17,455   16,459 Total Current Assets 409,140 352,902   Property, plant and equipment, net 85,079 84,469 Deferred tax assets, net 23,318 38,036 Goodwill 3,492 3,492 Other assets 13,725 12,234 Long-term investments   130,256   176,102 Total Assets $ 665,010 $ 667,235   Liabilities and Stockholders' Equity Accounts payable $ 60,495 $ 77,342 Unearned revenue 13,070 16,326 Accrued expenses 13,232 12,434 Accrued wages and benefits 15,948 20,433 Income tax payable, net   104   — Total Current Liabilities 102,849 126,535   Non-current unearned revenue 4,556 6,333 Other non-current liabilities 33,854 28,050 Bonds payable   25,600   26,800 Total Liabilities 166,859 187,718   Stockholders' Equity   498,151   479,517   Total Liabilities and Stockholders' Equity $ 665,010 $ 667,235           Consolidated Statements of Income (Unaudited) (In thousands, except per share data)   Three Months Ended Twelve Months Ended December 31, December 31, 2017   2016   2017   2016 Sales  

 

  Products $ 96,058 $ 126,793 $ 540,665 $ 525,502 Services   30,461   36,193   125,918   111,279 Total Sales 126,519 162,986 666,583 636,781 Cost of sales Products 49,696 67,790 279,541 270,695 Services   18,015   24,409   83,389   74,742 Total Cost of Sales 67,711 92,199 362,930 345,437 Gross Profit 58,808 70,787 303,653 291,344 Selling, general and administrative expenses 31,387 34,438 135,489 131,805 Research and development expenses   31,489   32,077   130,434   124,804 Operating Income (Loss) (4,068 ) 4,272 37,730 34,735 Interest and dividend income 1,523 1,226 4,380 3,918 Interest expense (139 ) (142 ) (556 ) (572 ) Net realized investment gain 1,816 1,769 4,685 5,923 Other income (expense), net 127 (273

)

(1,559 ) (651 ) Gain on bargain purchase of a business   —   (8 )

 

  —   3,542 Income (Loss) before provision for income taxes (741 ) 6,844 44,680 46,895 Provision for income taxes   (10,376 )   728   (20,847 )   (11,666 ) Net Income (Loss) $ (11,117 ) $ 7,572 $ 23,833 $ 35,229   Weighted average shares outstanding – basic 48,280 48,383 48,153 48,724 Weighted average shares outstanding – diluted 48,912 48,757 48,699 48,949   Earnings per common share – basic $ (0.23 ) $ 0.16 $ 0.49 $ 0.72 Earnings per common share – diluted $ (0.23 ) $ 0.16 $ 0.49 $ 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 Twelve Months Ended December 31, December 31, 2017   2016 2017     2016   Net Income (Loss) $ (11,117 ) $ 7,572 $ 23,833 $ 35,229 Other Comprehensive Income (Loss), net of tax Net unrealized gains (losses) on available-for-sale securities (349 ) (1,366 ) 2,163 (1,528 ) Net unrealized gains on cash flow hedges 196 — — — Defined benefit plan adjustments 762 (1,225 ) 976 (1,122 ) Foreign currency translation   599   (1,771 )   6,001   (569 ) Other Comprehensive Income (Loss), net of tax   1,208   (4,362 )   9,140   (3,219 ) Comprehensive Income (Loss), net of tax $ (9,909 ) $ 3,210 $ 32,973 $ 32,010         Consolidated Statements of Cash Flows (Unaudited) (In thousands)   Twelve Months Ended December 31, 2017   2016 Cash flows from operating activities Net income $ 23,833 $ 35,229 Adjustments to reconcile net income to net cash provided by operating

activities:

Depreciation and amortization 15,690 14,407 Amortization of net premium on available-for-sale investments 425 643 Net realized gain on long-term investments (4,685 ) (5,923 ) Net (gain) loss on disposal of property, plant and equipment (145 ) 22 Gain on bargain purchase of a business — (3,542 ) Stock-based compensation expense 7,433 6,695 Deferred income taxes 14,069 (2,685 ) Change in operating assets and liabilities: Accounts receivable, net (48,773 ) (21,302 ) Other receivables (6,906 ) 4,101 Inventory (15,519 ) (10,887 ) Prepaid expenses and other assets (5,003 ) (7,108 ) Accounts payable (17,877 ) 26,722 Accrued expenses and other liabilities (5,448 ) 8,792 Income taxes payable/receivable, net   536   (3,162 ) Net cash provided by (used in) operating activities   (42,370 )   42,002   Cash flows from investing activities Purchases of property, plant and equipment (14,719 ) (21,441 ) Proceeds from disposals of property, plant and equipment 151 — Proceeds from sales and maturities of available-for-sale investments 173,752 225,075 Purchases of available-for-sale investments (93,141 ) (209,172 ) Acquisition of business   —   (943 ) Net cash provided by (used in) investing activities   66,043   (6,481 )   Cash flows from financing activities Proceeds from stock option exercises 13,412 4,717 Purchases of treasury stock (17,348 ) (25,817 ) Dividend payments (17,368 ) (17,583 ) Payments on long-term debt   (1,100 )   (1,100 ) Net cash used in financing activities   (22,404 )   (39,783 )   Net increase (decrease) in cash and cash equivalents 1,269 (4,262 ) Effect of exchange rate changes 5,269 (393 ) Cash and cash equivalents, beginning of year   79,895   84,550   Cash and cash equivalents, end of year $ 86,433 $ 79,895   Supplemental disclosure of non-cash investing activities Purchases of property, plant and equipment included in accounts payable $ 408 $ 2,103     Supplemental Information Restructuring Expenses (Unaudited) (In thousands)    

Restructuring expense was recorded in the following Consolidated Statements of Income categories for the three and twelve months ended December 31, 2017 and 2016:

          Three Months Ended Twelve Months Ended December 31, December 31, 2017   2016 2017   2016   Restructuring expense included in cost of sales $ —   $ 14 $ — $ 1,321   Selling, general and administrative expense 59 — 152 637 Research and development expense   —   —   122   — Restructuring expense included in operating expenses   59   —   274   637   Total restructuring expense 59 14 274 1,958 Provision for income taxes   (23 )   (4 )   (107 )   (607 )   Total restructuring expense, net of tax $ 36 $ 10 $ 167 $ 1,351           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 twelve months ended December 31, 2017 and 2016 for all three transactions are as follows:

    Three Months Ended Twelve Months Ended December 31, December 31, 2017   2016 2017   2016 Bluesocket, Inc. acquisition Amortization of acquired intangible assets $ 158 $ 158 $ 632 $ 662   NSN BBA acquisition Amortization of acquired intangible assets 95 221 527 901 Amortization of other purchase accounting adjustments   —   30   39   224 Subtotal - NSN BBA acquisition   95   251   566   1,125   CommScope acquisition Amortization of acquired intangible assets 219 673 1,732 785 Amortization of other purchase accounting adjustments 3 42 88 126 Acquisition related professional fees, travel and other expenses   —   29   8   74 Subtotal - CommScope acquisition   222   744   1,828   985   Total acquisition related expenses, amortizations and

adjustments

475 1,153 3,026 2,772 Provision for income taxes   (178 )   (429 )   (1,135 )   (991 ) Total acquisition related expenses, amortizations and

adjustments, net of tax

$ 297 $ 724 $ 1,891 $ 1,781          

The acquisition related expenses, amortizations and adjustments above were recorded in the following Consolidated Statements of Income categories for the three and twelve months ended December 31, 2017 and 2016:

  Three Months Ended Twelve Months Ended December 31, December 31, 2017   2016 2017   2016   Cost of goods sold $ 2 $ 43 $ 88 $ 232   Selling, general and administrative expenses 51 70 215 131 Research and development expenses   422   1,040   2,723   2,409 Total acquisition related expenses, amortizations and

adjustments included in operating expenses

  473   1,110   2,938   2,540   Total acquisition related expenses, amortizations and

adjustments

475 1,153 3,026 2,772 Provision for income taxes   (178 )   (429 )   (1,135 )   (991 ) Total acquisition related expenses, amortizations and

adjustments, net of tax

$ 297 $ 724 $ 1,891 $ 1,781           Supplemental Information Stock-based Compensation Expense (Unaudited) (In thousands)   Three Months Ended Twelve Months Ended December 31, December 31, 2017   2016 2017   2016   Stock-based compensation expense included in cost of sales $ 98   $ 107 $ 379 $ 389   Selling, general and administrative expense 1,045 1,019 4,063 3,341 Research and development expense   717   968   2,991   2,965 Stock-based compensation expense included in operating expenses   1,762   1,987   7,054   6,306   Total stock-based compensation expense 1,860 2,094 7,433 6,695 Tax benefit for expense associated with non-qualified options, PSUs,

RSUs and restricted stock

  (484 )   (320 )   (1,699 )   (963 )   Total stock-based compensation expense, net of tax $ 1,376 $ 1,774 $ 5,734 $ 5,732         Reconciliation of GAAP net income per share, diluted, to Non-GAAP net income per share, diluted (Unaudited)   Three Months Ended Twelve Months Ended December 31, December 31, 2017   2016 2017     2016     GAAP earnings per common share - diluted $ (0.23 )   $ 0.16 $ 0.49   $ 0.72   Restructuring expense — — — 0.03 Acquisition related expenses, amortizations and adjustments 0.01 0.01 0.04 0.04 Stock-based compensation expense 0.03 0.04 0.12 0.12 Impact of the Tax Cuts and Jobs Act 0.24 — 0.24 — Gain on bargain purchase of a business   —   —   —   (0.07 )   Non-GAAP earnings per common share - diluted $ 0.05 $ 0.21 $ 0.89 $ 0.84

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