ADTRAN INC - FORM 8-K - EX-99.1

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EX-99.2 - EX-99.2 - ADTRAN INC	adtn-ex992_7.htm
8-K - 8-K - ADTRAN INC	adtn-8k_20181016.htm

EXHIBIT 99.1

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

HUNTSVILLE, Ala.--(BUSINESS WIRE)—October 16, 2018-- 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.

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.

ADTRAN, Inc. is the leading global provider of networking and communications equipment. ADTRAN’s 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 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)

	September 30,		December 31,
	2018		2017
Assets
Cash and cash equivalents	$	94,173	$	86,433
Short-term investments		5,912		16,129
Accounts receivable, net		101,865		144,150
Other receivables		30,084		26,578
Inventory, net		106,060		122,542
Prepaid expenses and other current assets		10,428		17,282
Total Current Assets		348,522		413,114

Property, plant and equipment, net		81,457		85,079
Deferred tax assets, net		39,595		23,428
Goodwill		3,492		3,492
Other assets		31,523		13,725
Long-term investments		144,241		130,256
Total Assets	$	648,830	$	669,094

Liabilities and Stockholders' Equity
Accounts payable	$	65,032	$	60,632
Unearned revenue		17,004		13,070
Accrued expenses		14,548		13,232
Accrued wages and benefits		12,604		15,948
Income tax payable		14,340		3,936
Total Current Liabilities		123,528		106,818

Non-current unearned revenue		3,846		4,556
Other non-current liabilities		32,255		34,209
Bonds payable		25,600		25,600
Total Liabilities		185,229		171,183

Stockholders' Equity		463,601		497,911

Total Liabilities and Stockholders' Equity	$	648,830	$	669,094

Consolidated Statements of Income

(Unaudited)

(In thousands, except per share data)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2018			2017			2018			2017
Sales
Products	$	121,043		$	145,467		$	341,359		$	444,607
Services		19,292			39,645			47,830			95,457
Total Sales		140,335			185,112			389,189			540,064
Cost of Sales
Products		69,943			73,534			208,184			229,861
Services		11,944			25,087			32,828			65,377
Total Cost of Sales		81,887			98,621			241,012			295,238
Gross Profit		58,448			86,491			148,177			244,826
Selling, general and administrative expenses		30,750			34,676			96,361			104,171
Research and development expenses		29,877			33,588			93,455			99,116
Operating Income (Loss)		(2,179	)		18,227			(41,639	)		41,539
Interest and dividend income		825			952			2,604			2,857
Interest expense		(134	)		(139	)		(398	)		(417	)
Net realized investment gain		4,507			1,009			5,400			2,869
Other income (expense), net		201			(842	)		(73	)		(1,427	)
Gain on bargain purchase of a business		—			—			11,322			—
Income (Loss) Before Provision for Income Taxes		3,220			19,207			(22,784	)		45,421
(Provision) benefit for income taxes		4,369			(3,309	)		11,889			(10,471	)
Net Income (Loss)	$	7,589		$	15,898		$	(10,895	)	$	34,950

Weighted average shares outstanding – basic		47,710			47,870			47,927			48,110
Weighted average shares outstanding – diluted⁽¹⁾		47,834			48,531			47,994			48,618

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 Ended					Nine Months Ended
	September 30,					September 30,
	2018			2017		2018			2017

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 hedges		—			142		—			(196	)
Defined benefit plan adjustments		37			73		104			214
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,
	2018			2017
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 amortization		11,952			12,034
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 equipment		68			(10	)
Gain on bargain purchase of a business		(11,322	)		—
Stock-based compensation expense		5,243			5,573
Deferred income taxes		(20,368	)		—
Changes in operating assets and liabilities:
Accounts receivable, net		41,166			(6,975	)
Other receivables		(1,842	)		(2,924	)
Inventory		16,543			(9,483	)
Prepaid expenses and other assets		8,722			(9,647	)
Accounts payable		5,223			(4,727	)
Accrued expenses and other liabilities		156			(2,820	)
Income tax payable		9,461			8,571
Net cash provided by operating activities		48,693			22,025

Cash flows from investing activities:
Purchases of property, plant and equipment		(5,695	)		(12,304	)
Proceeds from disposals of property, plant and equipment		—			16
Proceeds from sales and maturities of available-for-sale investments		116,757			137,272
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 exercises		1,321			6,606
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 equivalents		10,838			43,523
Effect of exchange rate changes		(3,098	)		4,835
Cash and cash equivalents, beginning of period		86,433			79,895

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 three and nine months ended September 30, 2018 and 2017:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2018			2017			2018			2017

Restructuring expense included in cost of sales	$	—		$	—		$	2,761		$	—

Selling, general and administrative expense		261			93			2,661			93
Research and development expense		—			122			1,814			122
Restructuring expense included in operating expenses		261			215			4,475			215

Total restructuring expense		261			215			7,236			215
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 CommScope’s 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 Ended						Nine Months Ended
	September 30,						September 30,
	2018			2017			2018			2017
Bluesocket, Inc. acquisition
Amortization of acquired intangible assets	$	53		$	158		$	369		$	474

NSN BBA acquisition
Amortization of acquired intangible assets		88			95			270			432
Amortization of other purchase accounting adjustments		—			1			1			39
Subtotal - NSN BBA acquisition		88			96			271			471

CommScope acquisition
Amortization of acquired intangible assets		123			219			373			1,513
Amortization of other purchase accounting adjustments		—			4			1			85
Acquisition related professional fees, travel and other expenses		—			—			—			8
Subtotal - CommScope acquisition		123			223			374			1,606

Sumitomo acquisition
Amortization of acquired intangible assets		662			—			1,434			—
Amotization of other purchase accounting adjustments		—			—			79			—
Acquisition related professional fees, travel and other expenses		—			—			124			—
Subtotal - Sumitomo acquisition		662			—			1,637			—

Total acquisition related expenses, amortizations and adjustments		926			477			2,651			2,551
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 Ended						Nine Months Ended
	September 30,						September 30,
	2018			2017			2018			2017
Cost of goods sold	$	350		$	5		$	839		$	86

Selling, general and administrative expenses		289			50			874			164
Research and development expenses		287			422			938			2,301
Total acquisition related expenses, amortizations and adjustments included in operating expenses		576			472			1,812			2,465

Total acquisition related expenses, amortizations and adjustments		926			477			2,651			2,551
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 Ended					Nine Months Ended
	September 30,					September 30,
	2018		2017			2018		2017

Stock-based compensation expense included in cost of sales	$	101	$	97		$	298	$	281

Selling, general and administrative expense		894		994			2,924		3,018
Research and development expense		645		743			2,021		2,274
Stock-based compensation expense included in operating expenses		1,539		1,737			4,945		5,292

Total stock-based compensation expense		1,640		1,834			5,243		5,573
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 Ended			Nine Months Ended
	September 30,			September 30,
	2018		2017	2018			2017

GAAP earnings (loss) per common share - diluted	$	0.16	0.33	$	(0.23	)	$	0.72

Restructuring expense		—	—		0.11			—
Acquisition related expenses, amortizations and adjustments		0.01	0.01		0.04			0.03
Stock-based compensation expense		0.03	0.03		0.09			0.09
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

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