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

Published: 2019-10-31 00:05:00 ET

HUNTSVILLE, Ala.--(BUSINESS WIRE)-- ADTRAN, Inc. (NASDAQ:ADTN) (“ADTRAN” or the “Company”) reported financial results for the third quarter 2019. For the quarter, revenue was $114.1 million compared to $140.3 million for the third quarter of 2018. Net income was a net loss of $46.1 million compared to net income of $7.6 million for the third quarter of 2018. Earnings per share was a loss of $0.96 per share compared to earnings per share, assuming dilution, of $0.16 for the third quarter of 2018. Non-GAAP net income was a net loss of $2.8 million compared to non-GAAP net income of $9.9 million for the third quarter of 2018. Non-GAAP earnings per share was a loss of $0.06 per share compared to non-GAAP income per share, assuming dilution, of $0.21 for the third quarter of 2018. Earnings per share was affected by a one-time, non-cash, valuation allowance of $37.1 million, that was recorded to income tax expense in the Company’s consolidated income statement to reduce the carrying value of the Company’s deferred tax assets. Non-GAAP earnings per share exclude stock-based compensation expense, acquisition related amortizations and other expenses, restructuring expenses, amortization of pension actuarial losses, valuation allowance related to our deferred tax assets, asset impairments, gain on bargain purchase of a business and other contingencies and the 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, “Our progress in the quarter was overshadowed by a pause in shipments to a Tier 1 customer in Latin America and a slowdown in spending by a Tier 1 customer in Europe. With the exception of these two international customers, our business grew 20% over the previous period which was largely driven by increased sales in our GPON fiber access business and strong results in ONT sales. Our GPON business grew 38% year-to-date as compared to the same period last year and we continue to gain strong traction globally with our 10G PON and fiber-extension solutions. During the quarter, ADTRAN introduced a range of new products, services and technology innovations that we believe will be instrumental in our success moving forward.”

The Company also announced that its Board of Directors declared a cash dividend for the third quarter of 2019. The quarterly cash dividend is $0.09 per common share to be paid to the Company’s stockholders of record as of the close of business on November 14, 2019. The payment date will be December 2, 2019.

The Company confirmed that it will hold a conference call to discuss its third quarter results Thursday, October 31, 2019, at 9:30 a.m. Central Time. ADTRAN will webcast this conference call. To listen, visit the Investor Relations site at www.investors.adtran.com approximately ten 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 conference call, 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 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.com, 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 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 and Form 10-K/A for the year ended December 31, 2018 and our quarterly reports on Form 10-Q for the quarters ended March 31, 2019 and June 30, 2019. 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 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 – basic and diluted 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 Sheets (Unaudited) (In thousands)

	September 30,		December 31,
	2019		2018
Assets
Cash and cash equivalents	$	96,407	$	105,504
Short-term investments		28,754		3,246
Accounts receivable, net		90,647		99,385
Other receivables		18,927		36,699
Inventory, net		104,941		99,848
Prepaid expenses and other current assets		10,327		10,744
Total Current Assets		350,003		355,426

Property, plant and equipment, net		73,384		80,635
Deferred tax assets, net		6,492		37,187
Goodwill		6,968		7,106
Intangibles, net		29,113		33,183
Other assets		23,283		5,668
Long-term investments		90,632		108,822
Total Assets	$	579,875	$	628,027

Liabilities and Stockholders' Equity
Accounts payable	$	52,842	$	60,054
Bonds payable		25,600		1,000
Unearned revenue		14,022		17,940
Accrued expenses		15,697		11,746
Accrued wages and benefits		16,569		14,752
Income tax payable, net		3,420		12,518
Total Current Liabilities		128,150		118,010

Non-current unearned revenue		4,581		5,296
Other non-current liabilities		52,189		33,842
Bonds payable		—		24,600
Total Liabilities		184,920		181,748

Stockholders' Equity		394,955		446,279

Total Liabilities and Stockholders' Equity	$	579,875	$	628,027

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

	Three Months Ended							Nine Months Ended
	September 30,							September 30,
	2019			2018				2019			2018
Sales
Network Solutions	$	94,018		$	121,043			$	359,007		$	341,359
Services & Support		20,074			19,292				55,267			47,830
Total Sales		114,092			140,335				414,274			389,189
Cost of Sales
Network Solutions		56,444			69,943				207,353			208,184
Services & Support		11,317			11,944				34,963			32,828
Total Cost of Sales		67,761			81,887				242,316			241,012
Gross Profit		46,331			58,448				171,958			148,177
Selling, general and administrative expenses		30,912			30,750				99,663			96,361
Research and development expenses		31,835			29,877				95,546			93,455
Asset impairments		3,872			—				3,872			—
Gain on contingency		—			—				(1,230	)		—
Operating Loss		(20,288	)		(2,179	)			(25,893	)		(41,639	)
Interest and dividend income		610			825				1,893			2,604
Interest expense		(128	)		(134	)			(382	)		(398	)
Net investment gain (loss)		(216	)		4,507				8,195			5,400
Other income (expense), net		1,616			201				2,266			(73	)
Gain on bargain purchase of a business, net		—			—				—			11,322
Income (Loss) Before Income Taxes		(18,406	)		3,220				(13,921	)		(22,784	)
Income tax (expense) benefit		(27,717	)		4,369				(27,437	)		11,889
Net Income (Loss)	$	(46,123	)	$	7,589			$	(41,358	)	$	(10,895	)

Weighted average shares outstanding – basic		47,824			47,710				47,803			47,927
Weighted average shares outstanding – diluted		47,824			47,834		(1)		47,803			47,927

Earnings (loss) per common share – basic	$	(0.96	)	$	0.16			$	(0.87	)	$	(0.23	)
Earnings (loss) per common share – diluted	$	(0.96	)	$	0.16		(1)	$	(0.87	)	$	(0.23	)

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

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

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018

Net Income (Loss)	$	(46,123	)	$	7,589		$	(41,358	)	$	(10,895	)
Other Comprehensive Loss, net of tax
Net unrealized gains (losses) on available-for-sale securities		(15	)		(32	)		277			(3,340	)
Defined benefit plan adjustments		90			37			361			104
Foreign currency translation		(2,486	)		(451	)		(3,113	)		(3,033	)
Other Comprehensive Loss, net of tax		(2,411	)		(446	)		(2,475	)		(6,269	)
Comprehensive Income (Loss), net of tax	$	(48,534	)	$	7,143		$	(43,833	)	$	(17,164	)

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

	Nine Months Ended
	September 30,
	2019			2018
Cash flows from operating activities:
Net loss	$	(41,358	)	$	(10,895	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		13,315			11,952
Asset impairments		3,872			—
Amortization of net premium (discount) on available-for-sale investments		(86	)		(14	)
Net gain on long-term investments		(8,195	)		(5,400	)
Net loss on disposal of property, plant and equipment		58			68
Gain on contingency		(1,230	)		—
Gain on life insurance proceeds		(1,000	)		—
Gain on bargain purchase of a business		—			(11,322	)
Stock-based compensation expense		5,184			5,243
Deferred income taxes		30,421			(20,368	)
Changes in operating assets and liabilities:
Accounts receivable, net		7,603			41,166
Other receivables		17,645			(1,842	)
Inventory, net		(5,998	)		16,543
Prepaid expenses and other assets		(10,071	)		8,722
Accounts payable, net		(5,569	)		5,223
Accrued expenses and other liabilities		10,564			156
Income tax payable		(5,073	)		9,461
Net cash provided by operating activities		10,082			48,693

Cash flows from investing activities:
Purchases of property, plant and equipment		(6,008	)		(5,695	)
Proceeds from sales and maturities of debt and equity investments		38,561			116,757
Purchases of debt and equity investments		(37,223	)		(115,271	)
Life insurance proceeds received		1,000			—
Acquisition of business		13			(7,806	)
Net cash used in investing activities		(3,657	)		(12,015	)

Cash flows from financing activities:
Proceeds from stock option exercises		526			1,321
Purchases of treasury stock		(184	)		(14,185	)
Dividend payments		(12,908	)		(12,976	)
Net cash used in financing activities		(12,566	)		(25,840	)

Net increase (decrease) in cash and cash equivalents		(6,141	)		10,838
Effect of exchange rate changes		(2,956	)		(3,098	)
Cash and cash equivalents, beginning of period		105,504			86,433

Cash and cash equivalents, end of period	$	96,407		$	94,173

Supplemental disclosure of non-cash investing activities:
Purchases of property, plant and equipment included in accounts payable	$	135		$	355

Supplemental Information Reconciliation of Operating Loss to Non-GAAP Operating Income (Loss) (Unaudited)

	Three Months ended September 30,									Nine Months ended September 30,
	2019				2018					2019					2018
Operating Loss	$	(20,288	)		$	(2,179	)			$	(25,893	)			$	(41,639	)
Acquisition related expenses, amortizations and adjustments		1,343		(1)		926		(6	)		4,346		(9)			2,651		(14	)
Stock-based compensation expense		1,871		(2)		1,640		(7	)		5,184		(10	)		5,243		(15	)
Restructuring expenses		1,195		(3)		261		(8	)		4,658		(11	)		7,236		(16	)
Deferred compensation income (expense)		(576	)	(4)		874		(4	)		2,231		(4)			620		(4)
Asset impairments		3,872		(5)		—					3,872		(5)			—
Gain on contingency		—				—					(1,230	)	(12	)		—
Settlement income		—				—					(746	)	(13	)		—
Non-GAAP Operating Income (Loss)	$	(12,583	)		$	1,522				$	(7,578	)			$	(25,889	)

(1)		$0.3 million is included in total cost of sales, $0.5 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.
(2)		$0.1 million is included in total cost of sales, $1.1 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.
(3)		$0.1 million is included in total cost of sales, $0.5 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.
(4)		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.
(5)		Includes abandonment of certain information technology projects.
(6)		$0.3 million is included in total cost of sales, $0.3 million is included in selling, general and administrative expenses and $0.3 million is included in research and development expenses on the consolidated statements of income.
(7)		$0.9 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.
(8)		$0.3 million is included in selling, general and administrative expenses on the consolidated statements of income.
(9)		$1.3 million is included in total cost of sales, $1.6 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.
(10)		$0.3 million is included in total cost of sales, $2.9 million is included in selling, general and administrative expenses and $2.0 million is included in research and development expenses on the consolidated statements of income.
(11)		$0.8 million is included in total cost of sales, $2.1 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.
(12)		Includes gain related to unearned contingent liabilities recognized upon the acquisition of a business in November 2018.
(13)		Includes income related to certain freight forwarder claim settlements which were received during the nine months ended September 30, 2019, all of which is included in total cost of sales on the consolidated statements of income.
(14)		$0.8 million is included in total cost of sales, $0.9 million is included in selling, general and administrative expenses and $0.9 million is included in research and development expenses on the consolidated statements of income.
(15)		$0.3 million is included in total cost of sales, $2.9 million is included in selling, general and administrative expenses and $2.0 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, $2.6 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 September 30,						Nine Months ended September 30,
	2019			2018			2019			2018
Net Income (Loss)	$	(46,123	)	$	7,589		$	(41,358	)	$	(10,895	)
Acquisition related expenses, amortizations and adjustments		1,343			926			4,346			2,651
Stock-based compensation expense		1,871			1,640			5,184			5,243
Restructuring expenses		1,195			261			4,658			7,236
Pension expense(1)		198			61			600			188
Asset impairments		3,872			—			3,872			—
Valuation allowance		37,055			—			37,055			—
Gain on contingency		—			—			(1,230	)		—
Settlement income		—			—			(746	)		—
Gain on bargain purchase of a business		—			—			—			(11,322	)
Tax effect of adjustments to net income (loss)		(2,186	)		(624	)		(4,424	)		(3,658	)
Non-GAAP Net Income (Loss)	$	(2,775	)	$	9,853		$	7,957		$	(10,557	)

Weighted average shares outstanding – basic		47,824			47,710			47,803			47,927
Weighted average shares outstanding – diluted		47,824			47,834			47,803			47,927

Earnings (loss) per common share - basic	$	(0.96	)	$	0.16		$	(0.87	)	$	(0.23	)
Earnings (loss) per common share - diluted	$	(0.96	)	$	0.16		$	(0.87	)	$	(0.23	)

Non-GAAP earnings (loss) per common share - basic	$	(0.06	)	$	0.21		$	0.17		$	(0.22	)
Non-GAAP earnings (loss) per common share - diluted	$	(0.06	)	$	0.21		$	0.17		$	(0.22	)

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

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ADTRAN, Inc.Rhonda Lambert 256-963-7450 Investor Relations

Source: ADTRAN, Inc.