ADTN ADTRAN Holdings Inc

ADTRAN, Inc. (NASDAQ: ADTN) reported results for the second quarter 2018. For the quarter, sales were $128.0 million compared to $184.7 million for the second quarter of 2017. Net loss was $7.7 million compared to net income of $12.4 million for the second quarter of 2017. Earnings per share, assuming dilution, were a loss of $0.16 compared to income of $0.26 for the second quarter of 2017. Non-GAAP earnings per share were a loss of $0.10 compared to income of $0.30 for the second quarter of 2017. GAAP earnings per share include the expense of stock-based compensation, acquisition related amortizations and other expenses, and a restructuring program. 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, “Our second quarter results showed steady improvement from the previous quarter. We are pleased with our quarter-over-quarter growth in revenue and gross margins. Looking ahead, we expect our international business to remain strong through the second half of the year. We are also encouraged by what we are seeing in our North American carrier and cable/MSO business – all of which indicate further momentum as we head into 2019.”

The Company also announced that its Board of Directors declared a cash dividend for the second 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 August 1, 2018. The ex-dividend date is July 31, 2018, and the payment date is August 15, 2018.

The Company confirmed that it will hold its second quarter conference call Wednesday, July 18, 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 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)

          June 30,     December 31, 2018 2017 Assets Cash and cash equivalents $ 100,319 $ 86,433 Short-term investments 6,069 16,129 Accounts receivable, net 76,135 144,150 Other receivables 28,163 26,578 Inventory, net 120,537 122,542 Prepaid expenses and other current assets   9,464   17,282 Total Current Assets 340,687 413,114   Property, plant and equipment, net 82,910 85,079 Deferred tax assets, net 35,615 23,428 Goodwill 3,492 3,492 Other assets 32,429 13,725 Long-term investments   144,437   130,256 Total Assets $ 639,570 $ 669,094   Liabilities and Stockholders' Equity Accounts payable $ 60,150 $ 60,632 Unearned revenue 14,307 13,070 Accrued expenses 14,785 13,232 Accrued wages and benefits 14,913 15,948 Income tax payable   11,948   3,936 Total Current Liabilities 116,103 106,818   Non-current unearned revenue 3,639 4,556 Other non-current liabilities 34,601 34,209 Bonds payable   25,600   25,600 Total Liabilities 179,943 171,183   Stockholders' Equity   459,627   497,911   Total Liabilities and Stockholders' Equity $ 639,570 $ 669,094            

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

          Three Months Ended     Six Months Ended June 30, June 30, 2018     2017 2018     2017 Sales Products $ 115,063 $ 155,543 $ 220,316 $ 299,140 Services   12,985     29,130     28,538     55,812   Total Sales 128,048 184,673 248,854 354,952 Cost of Sales Products 69,629 79,663 138,241 156,327 Services   8,423     20,384     20,884     40,290   Total Cost of Sales 78,052 100,047 159,125 196,617 Gross Profit 49,996 84,626 89,729 158,335 Selling, general and administrative expenses 32,080 34,706 65,611 69,495 Research and development expenses   30,729     33,557     63,578     65,528   Operating Income (Loss) (12,813 ) 16,363 (39,460 ) 23,312 Interest and dividend income 913 972 1,779 1,905 Interest expense (132 ) (137 ) (264 ) (278 ) Net realized investment gain 990 1,390 893 1,860 Other expense, net (217 ) (719 ) (274 ) (585 ) Gain on bargain purchase of a business   —     —     11,322     —   Income (loss) before provision for income taxes (11,259 ) 17,869 (26,004 ) 26,214 (Provision) benefit for income taxes   3,589     (5,468 )   7,520     (7,162 ) Net Income (Loss) $ (7,670 ) $ 12,401   $ (18,484 ) $ 19,052     Weighted average shares outstanding – basic 47,856 48,036 48,043 48,232 Weighted average shares outstanding – diluted 47,902 48,413 48,091 48,675   Earnings (loss) per common share – basic $ (0.16 ) $ 0.26 $ (0.38 ) $ 0.40 Earnings (loss) per common share – diluted $ (0.16 ) $ 0.26 $ (0.38 ) $ 0.39  

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

           

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

          Three Months Ended     Six Months Ended June 30, June 30, 2018     2017 2018     2017   Net Income (Loss) $ (7,670 ) $ 12,401   $ (18,484 ) $ 19,052   Other Comprehensive Income (Loss), net of tax Net unrealized gains (losses) on available-for-sale securities 104 373 (3,308 ) 1,708 Net unrealized losses on cash flow hedges — (417 ) — (338 ) Defined benefit plan adjustments 5 86 67 141 Foreign currency translation   (3,424 )   2,619     (2,582 )   3,861   Other Comprehensive Income (Loss), net of tax   (3,315 )   2,661     (5,823 )   5,372   Comprehensive Income (Loss), net of tax $ (10,985 ) $ 15,062   $ (24,307 ) $ 24,424              

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

          Six Months Ended June 30, 2018     2017 Cash flows from operating activities: Net income (loss) $ (18,484 ) $ 19,052 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 7,526 8,377 Amortization of net premium on available-for-sale investments 20 238 Net realized gain on long-term investments (893 ) (1,860 ) Net (gain) loss on disposal of property, plant and equipment 68 (11 ) Gain on bargain purchase of a business (11,322 ) — Stock-based compensation expense 3,603 3,739 Deferred income taxes (16,384 ) (2,772 ) Changes in operating assets and liabilities: Accounts receivable, net 66,931 13,911 Other receivables 9 571 Inventory 2,063 (7,547 ) Prepaid expenses and other assets 10,157 (9,853 ) Accounts payable 683 (10,910 ) Accrued expenses and other liabilities 2,008 (2,629 ) Income tax payable   6,945     10,273   Net cash provided by operating activities   52,930     20,579     Cash flows from investing activities: Purchases of property, plant and equipment (4,183 ) (7,509 ) Proceeds from disposals of property, plant and equipment — 16 Proceeds from sales and maturities of available-for-sale investments 86,436 81,891 Purchases of available-for-sale investments (89,801 ) (65,140 ) Acquisition of business   (7,806 )   —   Net cash provided by (used in) investing activities   (15,354 )   9,258     Cash flows from financing activities: Proceeds from stock option exercises 369 1,722 Purchases of treasury stock (12,774 ) (17,311 ) Dividend payments   (8,679 )   (8,719 ) Net cash used in financing activities   (21,084 )   (24,308 )   Net increase in cash and cash equivalents 16,492 5,529 Effect of exchange rate changes (2,606 ) 3,374 Cash and cash equivalents, beginning of period   86,433     79,895     Cash and cash equivalents, end of period $ 100,319   $ 88,798     Supplemental disclosure of non-cash investing activities: Purchases of property, plant and equipment included in accounts payable $ 209 $ 454            

Supplemental InformationRestructuring Expenses(Unaudited)(In thousands)

 

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

        Three Months Ended   Six Months Ended June 30, June 30, 2018   2017 2018   2017

 

        Restructuring expense included in cost of sales $ 391   $     — $ 2,761   $     —   Selling, general and administrative expense 634 — 2,400 — Research and development expense   —         —   1,814         — Restructuring expense included in operating expenses   634         —   4,214         —   Total restructuring expense 1,025 — 6,975 — Provision for income taxes   (267 )       —   (1,814 )       —   Total restructuring expense, net of tax $ 758   $     — $ 5,161   $     —            

Supplemental InformationAcquisition 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 six months ended June 30, 2018 and 2017 for all four transactions are as follows:

      Three Months Ended   Six Months Ended June 30, June 30, 2018   2017 2018   2017 Bluesocket, Inc. acquisition Amortization of acquired intangible assets $ 158   $ 158   $ 316   $ 316     NSN BBA acquisition Amortization of acquired intangible assets 90 129 182 337 Amortization of other purchase accounting adjustments   1     10     1     38   Subtotal - NSN BBA acquisition 91 139 183 375   CommScope acquisition Amortization of acquired intangible assets 125 608 250 1,294 Amortization of other purchase accounting adjustments — 31 1 81 Acquisition related professional fees, travel and other expenses   —     —     —     8   Subtotal - CommScope acquisition   125     639     251     1,383     Sumitomo acquisition Amortization of acquired intangible assets 662 — 772 —

Amortization of other purchase accounting adjustments

79 — 79 — Acquisition related professional fees, travel and other expenses   27     —     124     —   Subtotal - Sumitomo acquisition   768     —     975     —     Total acquisition related expenses, amortizations and adjustments 1,142 936 1,725 2,074 Provision for income taxes   (301 )  

(354

)

 

(457

)

  (779 ) Total acquisition related expenses, amortizations and adjustments, net of tax $ 841   $ 582   $ 1,268   $ 1,295      

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

  Three Months Ended Six Months Ended June 30, June 30,

2018

2017

2018

2017

  Cost of goods sold $ 430   $ 31  

$

489

 

$

81

    Selling, general and administrative expenses 319 52 585 114 Research and development expenses   393     853     651     1,879  

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

712 905 1,236 1,993   Total acquisition related expenses, amortizations and adjustments 1,142 936 1,725 2,074 Provision for income taxes   (301 )  

(354

)

 

(457

)

  (779 ) Total acquisition related expenses, amortizations and adjustments, net of tax $ 841   $ 582  

$

1,268

 

$

1,295

             

 

Supplemental InformationStock-based Compensation Expense(Unaudited)(In thousands)

          Three Months Ended     Six Months Ended June 30, June 30, 2018     2017 2018     2017   Stock-based compensation expense included in cost of sales $ 102   $ 93   $ 197   $ 184     Selling, general and administrative expense 995 1,008 2,030 2,024 Research and development expense   687     755     1,376     1,531   Stock-based compensation expense included in operating expenses   1,682     1,763     3,406     3,555     Total stock-based compensation expense 1,784 1,856 3,603 3,739

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

  (340 )   (433 )   (724 )   (813 )   Total stock-based compensation expense, net of tax $ 1,444   $ 1,423   $ 2,879   $ 2,926              

Reconciliation of GAAP net income per share, diluted, toNon-GAAP net income per share, diluted(Unaudited)

          Three Months Ended     Six Months Ended June 30, June 30, 2018     2017 2018     2017   GAAP earnings per common share - diluted $ (0.16 ) $ 0.26 $ (0.38 ) $ 0.39   Restructuring expense 0.02 — 0.11 — Acquisition related expenses, amortizations and adjustments 0.02 0.01 0.03 0.03 Stock-based compensation expense 0.03 0.03 0.06 0.06 Gain on bargain purchase of a business   —     —   (0.24 )   —   Non-GAAP earnings per common share - diluted(1) $ (0.10 ) $ 0.30 $ (0.43 ) $ 0.48  

(1) Table may not foot due to rounding

         

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