ADTN ADTRAN Holdings Inc

ADTRAN, Inc. (NASDAQ:ADTN) reported results for the fourth quarter 2018. For the quarter, sales were $140.1 million compared to $126.8 million for the fourth quarter of 2017. Net loss was $8.4 million compared to a net loss of $11.1 million for the fourth quarter of 2017. Earnings per share were a loss of $0.18 compared to a loss of $0.23 for the fourth quarter of 2017. Non-GAAP earnings per share were a loss of $0.12 compared to earnings of $0.05 for the fourth quarter of 2017. Net loss and GAAP and non-GAAP earnings per share for the fourth quarter 2018 reflect the effect of a loss in other income of $6.8 million, which resulted primarily from the impact of unrealized losses in our equity investment portfolio arising from U.S. equity market volatility during the quarter. 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 and the impact of the Tax Cuts and Jobs Act in 2017. The reconciliation between GAAP earnings per share and non-GAAP earnings per share is in the table provided.

ADTRAN Chairman and Chief Executive Officer Tom Stanton stated, “Operating results for the final quarter of 2018 came in largely as expected with strong international revenue growth and an increase in U.S. tier 1 sales allowing the company to offset its normal sequential seasonal trend. International revenue contributed 46.6% of the total with strong contributions from the Asia-Pacific and LATAM regions. Our customer engagements increased, centering around our comprehensive portfolio of software-defined access, 10G solutions and G.fast products. During the quarter, we also acquired SmartRG, a leading provider of open-source connected home platforms and cloud services, whose software approach to delivering both hardware-based and virtualized solutions will enable us to extend the value of our open, programmable and web scalable Mosaic Cloud platform. Looking forward, we believe that ADTRAN is well positioned to leverage our customer, geographic and product diversity momentum as service providers look to accelerate service velocity and scale networks in size, scope and service capabilities.”

The Company also announced that its Board of Directors declared a cash dividend for the fourth 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 February 7, 2019. The ex-dividend date is February 6, 2019, and the payment date is February 21, 2019.

The Company confirmed that it will hold a conference call to discuss its fourth quarter results Thursday, January 24, 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 investor.relations@adtran.com.

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 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)

    December 31, December 31, 2018 2017 Assets Cash and cash equivalents $ 105,504 $ 86,433 Short-term investments 3,246 16,129 Accounts receivable, net 99,385 144,150 Other receivables 36,699 26,578 Inventory, net 99,848 122,542 Prepaid expenses and other current assets   10,744   17,282 Total Current Assets 355,426 413,114   Property, plant and equipment, net 80,635 85,079 Other non-current assets (1) 83,144 40,645 Long-term investments   108,822   130,256 Total Assets $ 628,027 $ 669,094   Liabilities and Stockholders' Equity Accounts payable $ 61,054 $ 60,632 Unearned revenue 17,940 13,070 Accrued expenses 11,746 13,232 Accrued wages and benefits 14,752 15,948 Income tax payable, net   12,518   3,936 Total Current Liabilities 118,010 106,818   Non-current unearned revenue 5,296 4,556 Other non-current liabilities 33,842 34,209 Bonds payable   24,600   25,600 Total Liabilities 181,748 171,183   Stockholders' Equity   446,279   497,911   Total Liabilities and Stockholders' Equity $ 628,027 $ 669,094   (1) Other non-current assets includes certain identifiable intangible assets as a result of the preliminary purchase accounting for the acquisition of SmartRG Inc, net deferred tax assets, goodwill and other non-current assets. The purchase accounting is still considered preliminary pending management’s final assessment of fair values and therefore is subject to further adjustments. The final valuation is expected to result in goodwill equal to the excess of the purchase price over the identifiable intangible assets.            

Consolidated Statements of Income

(Unaudited)

(In thousands, except per share data)

    Three Months Ended Twelve Months Ended December 31, December 31, 2018     2017 2018     2017 Sales Products $ 116,873 $ 95,789 $ 458,232 $ 540,396 Services   23,215     31,047     71,045     126,504   Total Sales 140,088 126,836 529,277 666,900 Cost of sales Products 70,745 49,702 278,929 279,563 Services   13,955     18,325     46,783     83,702   Total Cost of Sales 84,700 68,027 325,712 363,265 Gross Profit 55,388 58,809 203,565 303,635 Selling, general and administrative expenses 28,079 31,412 124,440 135,583 Research and development expenses   31,092     31,550     124,547     130,666   Operating Income (Loss) (3,783 ) (4,153 ) (45,422 ) 37,386 Interest and dividend income 1,422 1,523 4,026 4,380 Interest expense (135 ) (139 ) (533 ) (556 ) Net investment gain (loss) (9,450 ) 1,816 (4,050 ) 4,685 Other income (expense), net 1,359 219 1,286 (1,208 ) Gain on bargain purchase of a business   —     —     11,322     —   Income (Loss) before provision for income taxes (10,587 ) (734 ) (33,371 ) 44,687 (Provision) benefit for income taxes   2,140     (10,376 )   14,029     (20,847 ) Net Income (Loss) $ (8,447 ) $ (11,110 ) $ (19,342 ) $ 23,840     Weighted average shares outstanding – basic 47,730 48,280 47,880 48,153 Weighted average shares outstanding – diluted 47,730 48,280 47,880 48,699

(1)

  Earnings (loss) per common share – basic $ (0.18 ) $ (0.23 ) $ (0.40 ) $ 0.50 Earnings (loss) per common share – diluted $ (0.18 ) $ (0.23 ) $ (0.40 ) $ 0.49

(1)

 

(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, 2018     2017 2018     2017   Net Income (Loss) $ (8,447 ) $ (11,110 ) $ (19,342 ) $ 23,840 Other Comprehensive Income (Loss), net of tax Net unrealized gains (losses) on available-for-sale securities 210 (349 ) (3,130 ) 2,163 Net unrealized gains on cash flow hedges — 196 — — Defined benefit plan adjustments (3,859 ) 517 (3,755 ) 731 Foreign currency translation   (1,203 )   597     (4,236 )   5,999 Other Comprehensive Income (Loss), net of tax   (4,852 )   961     (11,121 )   8,893 Comprehensive Income (Loss), net of tax $ (13,299 ) $ (10,149 ) $ (30,463 ) $ 32,733        

Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

    Twelve Months Ended December 31, 2018     2017 Cash flows from operating activities Net income (loss) $ (19,342 ) $ 23,840

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 15,891 15,692 Amortization of net premium (discount) on available-for-sale investments (50 ) 425 Net unrealized (gain) loss on long-term investments 4,050 (4,685 ) Net (gain) loss on disposal of property, plant and equipment 67 (145 ) Gain on bargain purchase of a business (11,322 ) — Stock-based compensation expense 7,155 7,433 Deferred income taxes (17,257 ) 14,073 Change in operating assets and liabilities: Accounts receivable, net 49,200 (49,103 ) Other receivables (8,522 ) (10,222 ) Inventory 24,192 (15,518 ) Prepaid expenses and other assets 10,727 (4,830 ) Accounts payable (2,669 ) (17,742 ) Accrued expenses and other liabilities (3,226 ) (5,455 ) Income taxes payable   7,690     3,858   Net cash provided by (used in) operating activities   56,584     (42,379 )   Cash flows from investing activities Purchases of property, plant and equipment (8,110 ) (14,720 ) Proceeds from disposals of property, plant and equipment — 151 Proceeds from sales and maturities of available-for-sale investments 153,649 173,752 Purchases of available-for-sale investments (123,209 ) (93,141 ) Acquisition of business   (23,275 )   —   Net cash provided by (used in) investing activities   (945 )   66,042     Cash flows from financing activities Proceeds from stock option exercises 1,483 13,412 Purchases of treasury stock (15,532 ) (17,348 ) Dividend payments (17,267 ) (17,368 ) Payments on long-term debt   (1,000 )   (1,100 ) Net cash used in financing activities   (32,316 )   (22,404 )   Net increase in cash and cash equivalents 23,323 1,259 Effect of exchange rate changes (4,252 ) 5,279 Cash and cash equivalents, beginning of year   86,433     79,895     Cash and cash equivalents, end of year $ 105,504   $ 86,433     Supplemental disclosure of non-cash investing activities Purchases of property, plant and equipment included in accounts payable $ 62 $ 408          

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, 2018 and 2017:

    Three Months Ended Twelve Months Ended December 31, December 31, 2018     2017 2018     2017

 

Restructuring expense included in cost of sales $ —   $ —   $ 2,761   $ —     Selling, general and administrative expense 25 59 2,686 152 Research and development expense   —     —     1,814     122   Restructuring expense included in operating expenses   25     59     4,500     274     Total restructuring expense 25 59 7,261 274 Provision for income taxes   (6 )   (23 )   (1,888 )   (107 )   Total restructuring expense, net of tax $ 19   $ 36   $ 5,373   $ 167              

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), on March 19, 2018, we closed on the acquisition of Sumitomo Electric Lightwave Corp.’s North American EPON business (Sumitomo), and on November 30, 2018, we closed on the acquisition of SmartRG Inc. (SmartRG). Acquisition related expenses, amortizations and adjustments for the three and twelve months ended December 31, 2018 and 2017 for all five transactions are as follows:

    Three Months Ended Twelve Months Ended December 31, December 31, 2018     2017 2018     2017 Bluesocket, Inc. acquisition Amortization of acquired intangible assets $ —   $ 158   $ 369   $ 632     NSN BBA acquisition Amortization of acquired intangible assets 85 95 355 527 Amortization of other purchase accounting adjustments   2     —     3     39   Subtotal - NSN BBA acquisition   87     95     358     566     CommScope acquisition Amortization of acquired intangible assets 110 219 483 1,732 Amortization of other purchase accounting adjustments 3 3 4 88 Acquisition related professional fees, travel and other expenses   —     —     —     8   Subtotal - CommScope acquisition   113     222     487     1,828     Sumitomo acquisition Amortization of acquired intangible assets 663 — 2,097 — Amortization of other purchase accounting adjustments 7 — 86 — Acquisition related professional fees, travel and other expenses   (1 )   —     123     —   Subtotal - Sumitomo acquisition   669     —     2,306     —     SmartRG acquisition Amortization of acquired intangible assets 150 — 150 — Amortization of other purchase accounting adjustments 181 — 181 — Acquisition related professional fees, travel and other expenses   233     —     233     —   Subtotal - SmartRG acquisition   564     —     564     —     Total acquisition related expenses, amortizations and

adjustments

1,433 475 4,084 3,026 Provision for income taxes   (378 )   (178 )   (1,080 )   (1,135 ) Total acquisition related expenses, amortizations and

adjustments, net of tax

$ 1,055   $ 297   $ 3,004   $ 1,891              

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, 2018 and 2017:

    Three Months Ended Twelve Months Ended December 31, December 31, 2018     2017 2018     2017   Cost of goods sold $ 542   $ 2   $ 1,381   $ 88     Selling, general and administrative expenses 583 51 1,457 215 Research and development expenses   308     422     1,246     2,723   Total acquisition related expenses, amortizations and

adjustments included in operating expenses

891 473 2,703 2,938   Total acquisition related expenses, amortizations and

adjustments

1,433 475 4,084 3,026 Provision for income taxes   (378 )   (178 )   (1,080 )   (1,135 ) Total acquisition related expenses, amortizations and

adjustments, net of tax

$ 1,055   $ 297   $ 3,004   $ 1,891              

Supplemental Information

Stock-based Compensation Expense

(Unaudited)

(In thousands)

    Three Months Ended Twelve Months Ended December 31, December 31, 2018     2017 2018     2017   Stock-based compensation expense included in cost of sales $ 120   $ 98   $ 418   $ 379     Selling, general and administrative expense 1,065 1,045 3,989 4,063 Research and development expense   727     717     2,748     2,991   Stock-based compensation expense included in operating expenses   1,792     1,762     6,737     7,054     Total stock-based compensation expense 1,912 1,860 7,155 7,433 Tax benefit for expense associated with non-qualified options, PSUs,

RSUs and restricted stock

  (416 )   (484 )   (1,432 )   (1,699 )   Total stock-based compensation expense, net of tax $ 1,496   $ 1,376   $ 5,723   $ 5,734              

Reconciliation of GAAP earnings (loss) per share, diluted, to

Non-GAAP earnings (loss) per common share, diluted

(Unaudited)

    Three Months Ended Twelve Months Ended December 31, December 31, 2018     2017 2018     2017   GAAP earnings (loss) per common share - diluted $ (0.18 ) $ (0.23 ) $ (0.40 ) $ 0.49   Restructuring expense — — 0.11 — Acquisition related expenses, amortizations and adjustments 0.02 0.01 0.06 0.04 Stock-based compensation expense 0.03 0.03 0.12 0.12 Impact of the Tax Cuts and Jobs Act — 0.24 — 0.24 Gain on bargain purchase of a business   —     —     (0.24 )   —   Non-GAAP earnings (loss) per common share - diluted (1) $ (0.12 ) $ 0.05   $ (0.35 ) $ 0.89  

(1) Table may not foot due to rounding

 

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ADTRAN, Inc.Investor Services/Assistance:Cathy Hoffman-Young, 256-963-7054investor@adtran.com