ADTRAN, Inc. Reports Earnings for the Third Quarter 2018 and Declares Quarterly Cash Dividend

ADTRAN, Inc. (NASDAQ: ADTN) reported results for the third quarter 2018. For the quarter, sales were $140.3 million compared to $185.1 million for the third quarter of 2017. Net income was $7.6 million compared to $15.9 million for the third quarter of 2017. Earnings per share, assuming dilution, were $0.16 compared to $0.33 for the third quarter of 2017. Non-GAAP earnings per share were $0.21 compared to $0.37 for the third quarter of 2017. GAAP earnings per share include the expense of stock-based compensation, acquisition related amortizations and other expenses, and restructuring expenses. 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, Total revenue for the quarter grew 10% sequentially, including the effect of a late start to our G.fast shipments to the Asia-Pacific region. Notwithstanding the G.fast shipment impact, our third quarter results showed strong improvements in gross margins and operating expenses. On a regional basis, sales contributions followed typical seasonal patterns with growth in the Americas, expected seasonal declines in Europe and growth in Asia-Pacific, driven by new customer activity. Looking forward, we are very encouraged by the continued momentum in ultra-broadband shipments to both carriers and MSOs globally as service providers continue to evolve their networks to meet changing customer expectations.

The Company also announced that its Board of Directors declared a cash dividend for the third 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 October 31, 2018. The ex-dividend date is October 30, 2018, and the payment date is November 14, 2018.

The Company confirmed that it will hold its third quarter conference call Wednesday, October 17, 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.

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An online replay of the conference call, as well as the text of the Companys 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 [email protected].

ADTRAN, Inc. is the leading global provider of networking and communications equipment. ADTRANs 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, Facebook and Twitter.

This press release contains forward-looking statements which reflect managements 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)

September 30,December 31,
20182017
Assets
Cash and cash equivalents$94,173$86,433
Short-term investments5,91216,129
Accounts receivable, net101,865144,150
Other receivables30,08426,578
Inventory, net106,060122,542
Prepaid expenses and other current assets10,42817,282
Total Current Assets348,522413,114
Property, plant and equipment, net81,45785,079
Deferred tax assets, net39,59523,428
Goodwill3,4923,492
Other assets31,52313,725
Long-term investments144,241130,256
Total Assets$648,830$669,094
Liabilities and Stockholders’ Equity
Accounts payable$65,032$60,632
Unearned revenue17,00413,070
Accrued expenses14,54813,232
Accrued wages and benefits12,60415,948
Income tax payable14,3403,936
Total Current Liabilities123,528106,818
Non-current unearned revenue3,8464,556
Other non-current liabilities32,25534,209
Bonds payable25,60025,600
Total Liabilities185,229171,183
Stockholders’ Equity463,601497,911
Total Liabilities and Stockholders’ Equity$648,830$669,094

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

Three Months EndedNine Months Ended
September 30,September 30,
2018201720182017
Sales
Products$121,043$145,467$341,359$444,607
Services19,29239,64547,83095,457
Total Sales140,335185,112389,189540,064
Cost of Sales
Products69,94373,534208,184229,861
Services11,94425,08732,82865,377
Total Cost of Sales81,88798,621241,012295,238
Gross Profit58,44886,491148,177244,826
Selling, general and administrative expenses30,75034,67696,361104,171
Research and development expenses29,87733,58893,45599,116
Operating Income (Loss)(2,179)18,227(41,639)41,539
Interest and dividend income8259522,6042,857
Interest expense(134)(139)(398)(417)
Net realized investment gain4,5071,0095,4002,869
Other income (expense), net201(842)(73)(1,427)
Gain on bargain purchase of a business11,322
Income (Loss) Before Provision for Income Taxes3,22019,207(22,784)45,421
(Provision) benefit for income taxes4,369(3,309)11,889(10,471)
Net Income (Loss)$7,589$15,898$(10,895)$34,950
Weighted average shares outstanding “ basic47,71047,87047,92748,110
Weighted average shares outstanding “ diluted(1)47,83448,53147,99448,618
Earnings (loss) per common share “ basic$0.16$0.33$(0.23)$0.73
Earnings (loss) per common share “ diluted(1)$0.16$0.33$(0.23)$0.72

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

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

Three Months EndedNine Months Ended
September 30,September 30,
2018201720182017
Net Income (Loss)$7,589$15,898$(10,895)$34,950
Other Comprehensive Income (Loss), net of tax
Net unrealized gains (losses) on available-for-sale securities(32)804(3,340)2,512
Net unrealized gains (losses) on cash flow hedges142(196)
Defined benefit plan adjustments3773104214
Foreign currency translation(451)1,541(3,033)5,402
Other Comprehensive Income (Loss), net of tax(446)2,560(6,269)7,932
Comprehensive Income (Loss), net of tax$7,143$18,458$(17,164)$42,882

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

Nine Months Ended
September 30,
20182017
Cash flows from operating activities:
Net income (loss)$(10,895)$34,950
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization11,95212,034
Amortization of net premium on available-for-sale investments(14)352
Net realized gain on long-term investments(5,400)(2,869)
Net (gain) loss on disposal of property, plant and equipment68(10)
Gain on bargain purchase of a business(11,322)
Stock-based compensation expense5,2435,573
Deferred income taxes(20,368)
Changes in operating assets and liabilities:
Accounts receivable, net41,166(6,975)
Other receivables(1,842)(2,924)
Inventory16,543(9,483)
Prepaid expenses and other assets8,722(9,647)
Accounts payable5,223(4,727)
Accrued expenses and other liabilities156(2,820)
Income tax payable9,4618,571
Net cash provided by operating activities48,69322,025
Cash flows from investing activities:
Purchases of property, plant and equipment(5,695)(12,304)
Proceeds from disposals of property, plant and equipment16
Proceeds from sales and maturities of available-for-sale investments116,757137,272
Purchases of available-for-sale investments(115,271)(79,713)
Acquisition of business(7,806)
Net cash provided by (used in) investing activities(12,015)45,271
Cash flows from financing activities:
Proceeds from stock option exercises1,3216,606
Purchases of treasury stock(14,185)(17,348)
Dividend payments(12,976)(13,031)
Net cash (used in) financing activities(25,840)(23,773)
Net increase in cash and cash equivalents10,83843,523
Effect of exchange rate changes(3,098)4,835
Cash and cash equivalents, beginning of period86,43379,895
Cash and cash equivalents, end of period$94,173$128,253
Supplemental disclosure of non-cash investing activities:
Purchases of property, plant and equipment included in accounts payable$355$272

Supplemental Information Restructuring Expenses (Unaudited) (In thousands)

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

Three Months EndedNine Months Ended
September 30,September 30,
2018201720182017

Restructuring expense included in cost of sales$$$2,761$
Selling, general and administrative expense261932,66193
Research and development expense1221,814122
Restructuring expense included in operating expenses2612154,475215
Total restructuring expense2612157,236215
Provision for income taxes(68)(84)(1,882)(84)
Total restructuring expense, net of tax$193$131$5,354$131

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 CommScopes 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 nine months ended September 30, 2018 and 2017 for all four transactions are as follows:

Three Months EndedNine Months Ended
September 30,September 30,
2018201720182017
Bluesocket, Inc. acquisition
Amortization of acquired intangible assets$53$158$369$474
NSN BBA acquisition
Amortization of acquired intangible assets8895270432
Amortization of other purchase accounting adjustments1139
Subtotal – NSN BBA acquisition8896271471
CommScope acquisition
Amortization of acquired intangible assets1232193731,513
Amortization of other purchase accounting adjustments4185
Acquisition related professional fees, travel and other expenses8
Subtotal – CommScope acquisition1232233741,606
Sumitomo acquisition
Amortization of acquired intangible assets6621,434

Amortization of other purchase accounting adjustments

79
Acquisition related professional fees, travel and other expenses124
Subtotal – Sumitomo acquisition6621,637
Total acquisition related expenses, amortizations and adjustments9264772,6512,551
Provision for income taxes(245)(178)(702)(957)
Total acquisition related expenses, amortizations and adjustments, net of tax$681$299$1,949$1,594

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

Three Months EndedNine Months Ended
September 30,September 30,
2018201720182017
Cost of goods sold$350$5$839$86
Selling, general and administrative expenses28950874164
Research and development expenses2874229382,301

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

5764721,8122,465

Total acquisition related expenses, amortizations and adjustments

9264772,6512,551
Provision for income taxes(245)(178)(702)(957)
Total acquisition related expenses, amortizations and adjustments, net of tax$681$299$1,949$1,594

Supplemental Information Stock-based Compensation Expense (Unaudited) (In thousands)

Three Months EndedNine Months Ended
September 30,September 30,
2018201720182017
Stock-based compensation expense included in cost of sales$101$97$298$281
Selling, general and administrative expense8949942,9243,018
Research and development expense6457432,0212,274
Stock-based compensation expense included in operating expenses1,5391,7374,9455,292
Total stock-based compensation expense1,6401,8345,2435,573

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

(292)(402)(1,016)(1,215)
Total stock-based compensation expense, net of tax$1,348$1,432$4,227$4,358

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

Three Months EndedNine Months Ended
September 30,September 30,
2018201720182017
GAAP earnings (loss) per common share – diluted$0.16$0.33$(0.23)$0.72
Restructuring expense0.11
Acquisition related expenses, amortizations and adjustments0.010.010.040.03
Stock-based compensation expense0.030.030.090.09
Gain on bargain purchase of a business(0.24)
Non-GAAP earnings (loss) per common share – diluted(1)$0.21$0.37$(0.22)$0.84

(1) Table may not foot due to rounding

ADTRAN, Inc.
Investor Services/Assistance:
Cathy
Hoffman-Young, 256-963-8220
[email protected]

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