Press release

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

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ADTRAN, Inc. (NASDAQ:ADTN) reported results for the first quarter 2019.
For the quarter, sales were $143.8 million compared to $120.8 million
for the first quarter of 2018. Net income was $0.8 million compared to a
net loss of $10.8 million for the first quarter of 2018. Earnings per
share, assuming dilution, were $0.02 compared to a loss per share of
$0.22 for the first quarter of 2018. Non-GAAP net income was $4.9
million compared to a net loss of $15.8 million for the first quarter of
2018. Non-GAAP earnings per share, assuming dilution, were $0.10
compared to a loss per share of $0.33 for the first quarter of 2018.
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 amortization of
pension actuarial losses. 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, “We are
pleased with our progress in the first quarter of 2019. Our revenue was
diverse and well balanced with material contributions across the LATAM,
EMEA, North America, and Pacific Rim regions. Furthermore, our broad
portfolio of next-generation solutions continues to gain market traction
with a growing number of customers in an expanding range of market
segments. This progress underscores the company’s global strategy of
diversification across geographies and markets.”

The Company also announced that its Board of Directors declared a cash
dividend for the first quarter of 2019. The quarterly cash dividend is
$0.09 per common share to be paid to holders of record at the close of
business on May 2, 2019. The ex-dividend date is May 1, 2019, and the
payment date is May 16, 2019.

The Company confirmed that it will hold a conference call to discuss its
first quarter results Thursday, April 18, 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, 2018. 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 adjusted 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 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 Sheet
(Unaudited)

(In thousands)

         
March 31, December 31,
2019 2018
Assets
Cash and cash equivalents $ 109,119 $ 105,504
Short-term investments 31,290 3,246
Accounts receivable, net 99,032 99,385
Other receivables 34,583 36,699
Inventory, net 93,609 99,848
Prepaid expenses and other current assets   9,683   10,744
Total Current Assets 377,316 355,426
 
Property, plant and equipment, net 79,505 80,635
Deferred tax assets, net 36,891 37,187
Goodwill 6,982 7,106
Intangibles, net 31,817 33,183
Other assets 14,885 5,668
Long-term investments   85,227   108,822
Total Assets $ 632,623 $ 628,027
 
Liabilities and Stockholders’ Equity
Accounts payable $ 60,116 $ 60,054
Bonds payable 25,600 1,000
Unearned revenue 15,230 17,940
Accrued expenses 14,039 11,746
Accrued wages and benefits 15,105 14,752
Income tax payable, net   11,785   12,518
Total Current Liabilities 141,875 118,010
 
Non-current unearned revenue 4,514 5,296
Other non-current liabilities 42,687 33,842
Bonds payable     24,600
Total Liabilities 189,076 181,748
 
Stockholders’ Equity   443,547   446,279
 
Total Liabilities and Stockholders’ Equity $ 632,623 $ 628,027
 
 
Consolidated Statements of Income
(Unaudited)
(In thousands, except per share data)
 
      Three Months Ended
March 31,
2019     2018
Sales
Products $ 125,822 $ 105,253
Services   17,969     15,553  
Total Sales 143,791 120,806
Cost of Sales
Products 70,734 68,612
Services   12,445     12,461  
Total Cost of Sales 83,179 81,073
Gross Profit 60,612 39,733
Selling, general and administrative expenses 35,132 33,531
Research and development expenses   31,647     32,849  
Operating Loss (6,167 ) (26,647 )
Interest and dividend income 591 866
Interest expense (127 ) (132 )
Net investment gain (loss) 5,926 (97 )
Other income (expense), net 855 (57 )
Gain on bargain purchase of a business       11,322  
Income (Loss) Before Provision for Income Taxes 1,078 (14,745 )
(Provision) benefit for income taxes   (308 )   3,931  
Net Income (Loss) $ 770   $ (10,814 )
 
Weighted average shares outstanding – basic 47,782 48,232
Weighted average shares outstanding – diluted(1) 47,853 48,292
 
Earnings (loss) per common share – basic $ 0.02 $ (0.22 )
Earnings (loss) per common share – diluted(1) $ 0.02 $ (0.22 )
 

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

 

Consolidated Statements of Comprehensive Income

(Unaudited)
(In thousands)
 
      Three Months Ended
March 31,
2019     2018
 
Net Income (Loss) $ 770   $ (10,814 )
Other Comprehensive Loss, net of tax
Net unrealized gains (losses) on available-for-sale securities 185 (3,412 )
Defined benefit plan adjustments 121 62
Foreign currency translation   (1,160 )   842  
Other Comprehensive Loss, net of tax   (854 )   (2,508 )
Comprehensive Loss, net of tax $ (84 ) $ (13,322 )
 
 
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
         
Three Months Ended
March 31,
2019 2018
Cash flows from operating activities:
Net income (loss) $ 770 $ (10,814 )
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 4,496 3,614
Amortization of net premium on available-for-sale investments 6 42
Net (gain) loss on long-term investments (5,926 ) 97
Net (gain) loss on disposal of property, plant and equipment (6 ) 67
Gain on bargain purchase of a business (11,322 )
Stock-based compensation expense 1,859 1,819
Deferred income taxes 235 (1,877 )
Changes in operating assets and liabilities:
Accounts receivable, net 170 63,904
Other receivables 1,185 (6,598 )
Inventory 5,974 3,368
Prepaid expenses and other assets (566 ) 10,583
Accounts payable 166 (10,233 )
Accrued expenses and other liabilities (2,355 ) 826
Income tax payable   (487 )   2,753  
Net cash provided by operating activities   5,521     46,229  
 
Cash flows from investing activities:
Purchases of property, plant and equipment (1,872 ) (1,950 )
Proceeds from sales and maturities of available-for-sale investments 17,039 49,074
Purchases of available-for-sale investments (11,127 ) (75,960 )
Acquisition of business       (7,806 )
Net cash provided by (used in) investing activities   4,040     (36,642 )
 
Cash flows from financing activities:
Proceeds from stock option exercises 369
Purchases of treasury stock (184 ) (10,171 )
Dividend payments   (4,301 )   (4,367 )
Net cash used in financing activities   (4,485 )   (14,169 )
 
Net increase (decrease) in cash and cash equivalents 5,076 (4,582 )
Effect of exchange rate changes (1,461 ) 772
Cash and cash equivalents, beginning of period   105,504     86,433  
 
Cash and cash equivalents, end of period $ 109,119   $ 82,623  
 
Supplemental disclosure of non-cash investing activities:
Purchases of property, plant and equipment included in accounts
payable
$ 273 $ 95
Right-of-use asset obtained in exchange for lease obligations $ 10,371 $
 
 
Supplemental Information
Reconciliation of Operating Loss to Non-GAAP Operating Income
(Loss)
(Unaudited)
 
     

Three Months Ended
March 31,

 
2019       2018
Operating Loss $ (6,167) $ (26,647)
Acquisition related expenses, amortizations and adjustments 1,497 (1) 583 (5)
Stock-based compensation expense 1,859 (2) 1,819 (6)
Restructuring expenses 2,063 (3) 5,950 (7)
Deferred compensation investment fluctuations   2,124 (4)   (386) (4)
Non-GAAP Operating Income (Loss) $ 1,376 $ (18,681)
 

(1) $0.5 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) $0.6 million is included in total cost of sales, $0.8 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 statements of income.
 
(5) $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.
 
(6) $0.1 million is included in total cost of sales, $1.0 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.
 
(7) $2.4 million is included in total cost of sales, $1.8 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 Share
– Basic and Diluted to Non-GAAP
Net Income (Loss) and Non-GAAP Earnings (Loss) per Share – Basic
and Diluted
(Unaudited)
 
     

Three Months Ended
March 31,

 
2019       2018
Net Income (Loss) $ 770 $ (10,814)
Restructuring expenses 2,063 5,950
Acquisition related expenses, amortizations and adjustments 1,497 583
Stock-based compensation expense 1,859 1,819
Pension expense 203 (1) 64 (1)
Gain on bargain purchase of a business (11,322)
Tax effect of adjustments to Net Income (Loss)   (1,524)   (2,107)
Non-GAAP Net Income (Loss) $ 4,868 $ (15,827)
 
Weighted average shares outstanding – basic 47,782 48,232
Weighted average shares outstanding – diluted 47,853 48,292
 
Earnings (loss) per common share – basic $ 0.02 $ (0.22)
Earnings (loss) per common share – diluted $ 0.02 $ (0.22)
 
Non-GAAP earnings (loss) per common share – basic $ 0.10 $ (0.33)
Non-GAAP earnings (loss) per common share – diluted $ 0.10 $ (0.33)
 

 

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