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ADTRAN, Inc. Reports Earnings for the Second Quarter of 2020 and Declares Quarterly Cash Dividend

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HUNTSVILLE, Ala.–(BUSINESS WIRE)–ADTRAN, Inc. (NASDAQ:ADTN) (“ADTRAN” or the “Company”) today announced financial results for the second quarter of 2020. For the quarter, revenue was $128.7 million. Net income for the second quarter of 2020 was $0.8 million and earnings per share, assuming dilution, was $0.02 per share. Non-GAAP net income was $1.6 million and non-GAAP earnings per share, assuming dilution, was $0.04 per share. Non-GAAP net income and non-GAAP earnings per share exclude stock-based compensation expense, acquisition-related expenses, amortizations and adjustments, restructuring expenses, amortization of pension actuarial losses, valuation allowance related to our deferred tax assets, non-cash deferred compensation, and other one-time adjustments. The reconciliations between GAAP net income and earnings per share to non-GAAP net income and non-GAAP earnings per share are set forth in the table provided below.

ADTRAN Chairman and Chief Executive Officer Tom Stanton stated, “The world has changed dramatically since the start of 2020, altering the way that we live and work. As we adapt to this new environment, it has increased the importance of remote working, virtual classrooms and telemedicine. This has clearly defined the necessity for a robust, high-capacity fiber broadband network across all geographies and social demographics. During the quarter, these factors contributed to strong revenue growth from Tier 2 and Tier 3 service providers in the US. We also saw strength internationally from the Asia-Pacific region. We added 33 new customers and announced major awards with multiple Tier 1 operators for our next generation fiber access solutions and our Mosaic Cloud Platform. Our overall performance for the quarter was in line with our expectations and we are well-positioned to lead the paradigm shift to the software-defined next generation fiber access platform of the future.”

The Company also announced that its Board of Directors declared a cash dividend for the second quarter of 2020. 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 August 20, 2020. The payment date will be September 3, 2020.

The Company confirmed that it will hold a conference call to discuss its second quarter results on Thursday, August 6, 2020, at 9:30 a.m. Central Time. ADTRAN will webcast this conference call. To listen, simply visit ADTRAN’s Investor Relations site at www.adtran.com/investor approximately 10 minutes prior to the start of the call, click on the event “ADTRAN releases 2nd Quarter Financial Results and Conference Call”, and click on the Webcast link.

An online replay of the Company’s 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: (i) those risks and uncertainties related to the continued spread and extent of the impact of the COVID-19 global pandemic, including the speed, depth, geographic reach and duration of the spread, which could lead to a decrease in demand for the Company’s products and services, and which has disrupted, and could lead to further disruptions in, the Company’s supply chain, adversely impacting the operations and financial condition of the Company and its customers; actions that have been taken and that may be taken by the Company, its customers, suppliers and counterparties in response to the pandemic, including the implementation of alternative work arrangements for employees, which may delay the timing of some orders and expected deliveries and which may impact the Company’s ability to mitigate inefficiencies, delays and additional costs in the Company’s product development, sales, marketing and customer service efforts; the legal, regulatory and administrative developments that occur at the federal, state and local levels and in foreign jurisdictions in response to the pandemic, including travel bans and restrictions, quarantines, shelter-in-place orders, and business limitations and shutdowns; potential disruptions, breaches, or other incidents affecting the proper operation, availability or security of the Company’s or its partners’ information systems; declines in revenues due to declining customer demand and deteriorating macroeconomic conditions; potential increased expenses related to labor, raw materials, freight or other expenditures; the impact of the COVID-19 pandemic on the Company’s liquidity, as well as risks associated with disruptions in the financial markets and the business of financial institutions as a result of the COVID-19 pandemic which could impact the Company from a financial perspective; (ii) those risks and uncertainties related to evolving U.S. and foreign laws and regulations regarding privacy, data protection and other matters, including uncertainty and potential additional compliance obligations arising from the Court of Justice of the European Union’s recent issuance of a decision that invalidated the EU-U.S. Privacy Shield framework as a basis for transfers of personal data from the EU to the U.S.; and (iii) the other risks detailed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 and in the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020. 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 in the table below non-GAAP operating income, which has been reconciled to operating income (loss), and non-GAAP net income and non-GAAP earnings per share – basic and diluted, which have been reconciled to net income and earnings per share – basic and diluted, in each case as reported based on Generally Accepted Accounting Principles in the United States (“U.S. GAAP”). These non-GAAP financial 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, non-GAAP net income and non-GAAP earnings per share – basic and diluted, when combined with the U.S. GAAP presentation of operating income (loss), net income and earnings per share – basic and diluted, is beneficial to the overall understanding of ongoing operating performance of the Company.

These non-GAAP financial measures are not prepared 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. Additionally, our calculation of non-GAAP operating income, non-GAAP net income and non-GAAP earnings per share – basic and diluted, may not be comparable to similar measures calculated by other companies. 

 

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands)

 

 

June 30,

 

 

December 31,

 

 

2020

 

 

2019

 

Assets

 

 

 

 

 

 

 

Cash and cash equivalents

$

69,059

 

 

$

73,773

 

Restricted cash

 

1,186

 

 

 

 

Short-term investments

 

9,033

 

 

 

33,243

 

Accounts receivable, net

 

95,335

 

 

 

90,531

 

Other receivables

 

26,026

 

 

 

16,566

 

Inventory

 

106,131

 

 

 

98,305

 

Prepaid expenses and other current assets

 

8,104

 

 

 

7,892

 

Total Current Assets

 

314,874

 

 

 

320,310

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

65,194

 

 

 

68,086

 

Deferred tax assets, net

 

7,573

 

 

 

7,561

 

Goodwill

 

6,968

 

 

 

6,968

 

Intangibles, net

 

25,455

 

 

 

27,821

 

Other assets

 

18,225

 

 

 

19,883

 

Long-term investments

 

84,383

 

 

 

94,489

 

Total Assets

$

522,672

 

 

$

545,118

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

Accounts payable

$

62,465

 

 

$

44,870

 

Bonds payable

 

 

 

 

24,600

 

Unearned revenue

 

12,090

 

 

 

11,963

 

Accrued expenses and other liabilities

 

12,466

 

 

 

13,876

 

Accrued wages and benefits

 

17,683

 

 

 

13,890

 

Income tax payable, net

 

2,450

 

 

 

3,512

 

Total Current Liabilities

 

107,154

 

 

 

112,711

 

 

 

 

 

 

 

 

 

Non-current unearned revenue

 

6,166

 

 

 

6,012

 

Pension liability

 

15,649

 

 

 

15,886

 

Deferred compensation liability

 

21,908

 

 

 

21,698

 

Other non-current liabilities

 

7,601

 

 

 

8,385

 

Total Liabilities

 

158,478

 

 

 

164,692

 

 

 

 

 

 

 

 

 

Stockholders’ Equity

 

364,194

 

 

 

380,426

 

 

 

 

 

 

 

 

 

Total Liabilities and Stockholders’ Equity

$

522,672

 

 

$

545,118

 

 

Condensed Consolidated Statements of Income (Loss)

(Unaudited)

(In thousands, except per share data)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Sales

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Network Solutions

 

$

111,323

 

 

$

139,167

 

 

$

208,695

 

 

$

264,989

 

Services & Support

 

 

17,392

 

 

 

17,224

 

 

 

34,543

 

 

 

35,193

 

Total Sales

 

 

128,715

 

 

 

156,391

 

 

 

243,238

 

 

 

300,182

 

Cost of Sales

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Network Solutions

 

 

64,071

 

 

 

80,175

 

 

 

115,697

 

 

 

150,909

 

Services & Support

 

 

11,172

 

 

 

11,201

 

 

 

22,469

 

 

 

23,646

 

Total Cost of Sales

 

 

75,243

 

 

 

91,376

 

 

 

138,166

 

 

 

174,555

 

Gross Profit

 

 

53,472

 

 

 

65,015

 

 

 

105,072

 

 

 

125,627

 

Selling, general and administrative expenses

 

 

30,799

 

 

 

33,619

 

 

 

57,419

 

 

 

68,751

 

Research and development expenses

 

 

28,712

 

 

 

32,064

 

 

 

58,571

 

 

 

63,711

 

Gain on contingency

 

 

 

 

 

(1,230

)

 

 

 

 

 

(1,230

)

Asset impairments

 

 

 

 

 

 

 

 

65

 

 

 

 

Operating Income (Loss)

 

 

(6,039

)

 

 

562

 

 

 

(10,983

)

 

 

(5,605

)

Interest and dividend income

 

 

331

 

 

 

692

 

 

 

687

 

 

 

1,283

 

Interest expense

 

 

 

 

 

(127

)

 

 

(1

)

 

 

(254

)

Net investment gain (loss)

 

 

9,852

 

 

 

2,485

 

 

 

(1,025

)

 

 

8,411

 

Other income (expense), net

 

 

(1,757

)

 

 

(205

)

 

 

(628

)

 

 

650

 

Income (Loss) Before Income Taxes

 

 

2,387

 

 

 

3,407

 

 

 

(11,950

)

 

 

4,485

 

Income tax (expense) benefit

 

 

(1,635

)

 

 

588

 

 

 

2,733

 

 

 

280

 

Net Income (Loss)

 

$

752

 

 

$

3,995

 

 

$

(9,217

)

 

$

4,765

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding – basic

 

 

47,958

 

 

 

47,802

 

 

 

47,957

 

 

 

47,792

 

Weighted average shares outstanding – diluted

 

 

48,254

 

(1)

 

48,036

 

(1)

 

47,957

 

 

 

47,939

(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per common share – basic

 

$

0.02

 

 

$

0.08

 

 

$

(0.19

)

 

$

0.10

 

Earnings (loss) per common share – diluted

 

$

0.02

 

(1)

$

0.08

 

(1)

$

(0.19

)

 

$

0.10

(1)

(1)

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

 

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(9,217

)

 

$

4,765

 

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

8,404

 

 

 

8,913

 

Asset impairments

 

 

65

 

 

 

 

Amortization of net premium on available-for-sale investments

 

 

86

 

 

 

(57

)

Net (gain) loss on long-term investments

 

 

1,025

 

 

 

(8,411

)

Net loss on disposal of property, plant and equipment

 

 

52

 

 

 

58

 

Gain on contingency

 

 

 

 

 

(1,230

)

Gain on life insurance proceeds

 

 

 

 

 

(1,000

)

Stock-based compensation expense

 

 

3,446

 

 

 

3,313

 

Deferred income taxes

 

 

(5

)

 

 

(1,880

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

(4,727

)

 

 

(17,288

)

Other receivables

 

 

(9,468

)

 

 

11,678

 

Inventory

 

 

(7,878

)

 

 

4,612

 

Prepaid expenses and other assets

 

 

1,444

 

 

 

4,715

 

Accounts payable, net

 

 

17,389

 

 

 

5,009

 

Accrued expenses and other liabilities

 

 

2,097

 

 

 

640

 

Income taxes payable

 

 

(1,032

)

 

 

(2,830

)

Net cash provided by operating activities

 

 

1,681

 

 

 

11,007

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property, plant and equipment

 

 

(3,148

)

 

 

(4,307

)

Proceeds from sales and maturities of available-for-sale investments

 

 

63,318

 

 

 

24,306

 

Purchases of available-for-sale investments

 

 

(31,897

)

 

 

(21,544

)

Acquisition of note receivable

 

 

(523

)

 

 

 

Life insurance proceeds received

 

 

 

 

 

1,000

 

Acquisition of business

 

 

 

 

 

13

 

Net cash provided by (used in) investing activities

 

 

27,750

 

 

 

(532

)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from stock option exercises

 

 

 

 

 

526

 

Purchases of treasury stock

 

 

 

 

 

(184

)

Dividend payments

 

 

(8,665

)

 

 

(8,604

)

Repayment of bonds payable

 

 

(24,600

)

 

 

 

Net cash used in financing activities

 

 

(33,265

)

 

 

(8,262

)

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash, cash equivalents and restricted cash

 

 

(3,834

)

 

 

2,213

 

Effect of exchange rate changes

 

 

306

 

 

 

(900

)

Cash, cash equivalents and restricted cash, beginning of period

 

 

73,773

 

 

 

105,504

 

 

 

 

 

 

 

 

 

 

Cash, cash equivalents and restricted cash, end of period

 

$

70,245

 

 

$

106,817

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of non-cash investing activities:

 

 

 

 

 

 

 

 

Purchases of property, plant and equipment included in accounts payable

 

$

198

 

 

$

205

 

 

 

 

 

 

 

 

 

 

Supplemental Information

Reconciliation of Operating Income (Loss) to Non-GAAP Operating Income (Loss)

(Unaudited)

 

 

Three Months Ended

June 30,

 

 

 

Six Months ended

June 30,

 

 

 

2020

 

 

 

 

2019

 

 

 

2020

 

 

2019

 

 

Operating Income (Loss)

$

(6,039

)

 

 

 

$

562

 

 

 

$

(10,983

)

 

$

(5,605

)

 

Acquisition related expenses, amortizations and adjustments

 

1,100

 

 

(1)

 

 

1,506

 

(5)

 

 

2,457

 

(10)

 

3,003

 

(14)

Stock-based compensation expense

 

1,655

 

 

(2)

 

 

1,454

 

(6)

 

 

3,446

 

(11)

 

3,313

 

(15)

Restructuring expenses

 

1,192

 

 

(3)

 

 

1,400

 

(7)

 

 

1,745

 

(12)

 

3,463

 

(16)

Deferred compensation adjustments

 

3,433

 

 

(4)

 

 

683

 

(4)

 

 

(26

)

(4)

 

2,807

 

(4)

Asset impairments

 

 

 

 

 

 

 

 

 

 

65

 

(13)

 

 

 

Gain on contingency

 

 

 

 

 

 

(1,230

)

(8)

 

 

 

 

 

(1,230

)

(8)

Settlement income

 

 

 

 

 

 

(746

)

(9)

 

 

 

 

 

(746

)

(9)

Non-GAAP Operating Income (Loss)

$

1,341

 

 

 

 

$

3,629

 

 

 

$

(3,296

)

 

$

5,005

 

 

(1) $0.6 million is included in selling, general and administrative expenses and $0.5 million is included in research and development expenses on the condensed consolidated statements of income.

(2) $0.1 million is included in total cost of sales, $1.0 million is included in selling, general and administrative expenses and $0.6 million is included in research and development expenses on the condensed consolidated statements of income.

(3) $0.5 million is included in selling, general and administrative expenses and $0.7 million is included in research and development expenses on the condensed 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 per ASU 2016-01, all of which is included in selling, general and administrative expenses on the condensed consolidated statement of income.

(5) $0.4 million is included in total cost of sales, $0.6 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.

(6) $0.1 million is included in total cost of sales, $0.7 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) $0.1 million is included in total cost of sales, $0.7 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.

(8) Includes gain related to unearned contingent liabilities recognized upon the acquisition of a business in November 2018.

(9) Includes income related to certain freight forwarder claim settlements which were received during the three months ended June 30, 2019, all of which is included in total cost of sales on the consolidated statements of income.

(10) $0.3 million is included in total cost of sales, $1.2 million is included in selling, general and administrative expenses and $1.0 million is included in research and development expenses on the consolidated statements of income.

(11) $0.2 million is included in total cost of sales, $2.0 million is included in selling, general and administrative expenses and $1.2 million is included in research and development expenses on the consolidated statements of income.

(12) $0.1 million is included in total cost of sales, $0.5 million is included in selling, general and administrative expenses and $1.1 million is included in research and development expenses on the consolidated statements of income.

(13) Includes abandonment of certain information technology projects.

(14) $0.9 million is included in total cost of sales, $1.1 million is included in selling, general and administrative expenses and $1.0 is included in research and development expenses on the consolidated statements of income.

(15) $0.2 million is included in total cost of sales, $1.7 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.

(16) $0.7 million is included in total cost of sales, $1.5 million is included in selling, general and administrative expenses and $1.2 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

June 30,

 

 

 

Six Months ended

June 30,

 

 

 

2020

 

 

2019

 

 

 

2020

 

 

 

 

2019

 

Net Income (Loss)

 

$

752

 

 

$

3,995

 

 

 

$

(9,217

)

 

 

 

$

4,765

 

Acquisition related expenses, amortizations and adjustments

 

 

1,100

 

 

 

1,506

 

 

 

 

2,457

 

 

 

 

 

3,003

 

Stock-based compensation expense

 

 

1,655

 

 

 

1,454

 

 

 

 

3,446

 

 

 

 

 

3,313

 

Restructuring expenses

 

 

1,192

 

 

 

1,400

 

 

 

 

1,745

 

 

 

 

 

3,463

 

Pension expense(1)

 

 

235

 

 

 

199

 

 

 

 

472

 

 

 

 

 

402

 

Deferred compensation adjustments

 

 

445

 

 

 

 

 

 

 

(1,342

)

 

(2)

 

 

 

Valuation allowance

 

 

(2,512

)

 

 

 

 

 

 

3,578

 

 

 

 

 

 

Asset impairments

 

 

 

 

 

 

 

 

 

65

 

 

 

 

 

 

Gain on contingency

 

 

 

 

 

(1,230

)

 

 

 

 

 

 

 

 

(1,230

)

Settlement income

 

 

 

 

 

(746

)

 

 

 

 

 

 

 

 

(746

)

Tax effect of adjustments to net income (loss)

 

 

(1,233

)

 

 

(714

)

 

 

 

(1,810

)

 

 

 

 

(2,238

)

Non-GAAP Net Income (Loss)

 

$

1,634

 

 

$

5,864

 

 

 

$

(606

)

 

 

 

$

10,732

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding – basic

 

 

47,958

 

 

 

47,802

 

 

 

 

47,957

 

 

 

 

 

47,792

 

Weighted average shares outstanding – diluted

 

 

48,254

 

 

 

48,036

 

 

 

 

47,957

 

 

 

 

 

47,939

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per common share – basic

 

$

0.02

 

 

$

0.08

 

 

 

$

(0.19

)

 

 

 

$

0.10

 

Earnings (loss) per common share – diluted

 

$

0.02

 

 

$

0.08

 

 

 

$

(0.19

)

 

 

 

$

0.10

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP earnings (loss) per common share – basic

 

$

0.04

 

 

$

0.12

 

 

 

$

(0.01

)

 

 

 

$

0.22

 

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

 

$

0.04

 

 

$

0.12

 

 

 

$

(0.01

)

 

 

 

$

0.22

 

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

(2) Includes a non-cash change in fair value of equity investments held in deferred compensation plans offered to certain employees and a net investment gain of $1.5 million related to the out of period remeasurement to historical cost basis of certain long-term investments held in the Company’s stock as part of one of these deferred compensation plans.

 

Contacts

ADTRAN, Inc.

Rhonda Lambert, 256-963-7450

Investor Relations