ADTRAN INC - FORM 8-K - EX-99.1

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EX-99.2 - EX-99.2 - ADTRAN INC	adtn-ex992_6.htm

EXHIBIT 99.1

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

HUNTSVILLE, Ala. -- (BUSINESS WIRE) -- January 23, 2019 -- ADTRAN, Inc. (NASDAQ:ADTN) reported results for the fourth quarter 2018. For the quarter, sales were $140.1 million compared to $126.8 million for the fourth quarter of 2017. Net loss was $8.4 million compared to a net loss of $11.1 million for the fourth quarter of 2017. Earnings per share were a loss of $0.18 compared to a loss of $0.23 for the fourth quarter of 2017. Non-GAAP earnings per share were a loss of $0.12 compared to earnings of $0.05 for the fourth quarter of 2017. Net loss and GAAP and non-GAAP earnings per share for the fourth quarter 2018 reflect the effect of a loss in other income of $6.8 million, which resulted primarily from the impact of unrealized losses in our equity investment portfolio arising from U.S. equity market volatility during the quarter. 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 the impact of the Tax Cuts and Jobs Act in 2017. The reconciliation between GAAP earnings per share and non-GAAP earnings per share is in the table provided.

ADTRAN Chairman and Chief Executive Officer Tom Stanton stated, “Operating results for the final quarter of 2018 came in largely as expected with strong international revenue growth and an increase in U.S. tier 1 sales allowing the company to offset its normal sequential seasonal trend. International revenue contributed 46.6% of the total with strong contributions from the Asia-Pacific and LATAM regions. Our customer engagements increased, centering around our comprehensive portfolio of software-defined access, 10G solutions and G.fast products. During the quarter, we also acquired SmartRG, a leading provider of open-source connected home platforms and cloud services, whose software approach to delivering both hardware-based and virtualized solutions will enable us to extend the value of our open, programmable and web scalable Mosaic Cloud platform. Looking forward, we believe that ADTRAN is well positioned to leverage our customer, geographic and product diversity momentum as service providers look to accelerate service velocity and scale networks in size, scope and service capabilities.”

The Company also announced that its Board of Directors declared a cash dividend for the fourth 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 February 7, 2019. The ex-dividend date is February 6, 2019, and the payment date is February 21, 2019.

The Company confirmed that it will hold a conference call to discuss its fourth quarter results Thursday, January 24, 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, 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)

	December 31,		December 31,
	2018		2017
Assets
Cash and cash equivalents	$	105,504	$	86,433
Short-term investments		3,246		16,129
Accounts receivable, net		99,385		144,150
Other receivables		36,699		26,578
Inventory, net		99,848		122,542
Prepaid expenses and other current assets		10,744		17,282
Total Current Assets		355,426		413,114

Property, plant and equipment, net		80,635		85,079
Other non-current assets ⁽¹⁾		83,144		40,645
Long-term investments		108,822		130,256
Total Assets	$	628,027	$	669,094

Liabilities and Stockholders' Equity
Accounts payable	$	61,054	$	60,632
Unearned revenue		17,940		13,070
Accrued expenses		11,746		13,232
Accrued wages and benefits		14,752		15,948
Income tax payable, net		12,518		3,936
Total Current Liabilities		118,010		106,818

Non-current unearned revenue		5,296		4,556
Other non-current liabilities		33,842		34,209
Bonds payable		24,600		25,600
Total Liabilities		181,748		171,183

Stockholders' Equity		446,279		497,911

Total Liabilities and Stockholders' Equity	$	628,027	$	669,094

⁽¹⁾ Other non-current assets includes certain identifiable intangible assets as a result of the preliminary purchase accounting for the acquisition of SmartRG Inc, net deferred tax assets, goodwill and other non-current assets. The purchase accounting is still considered preliminary pending management’s final assessment of fair values and therefore is subject to further adjustments. The final valuation is expected to result in goodwill equal to the excess of the purchase price over the identifiable intangible assets.

Consolidated Statements of Income

(Unaudited)

(In thousands, except per share data)

	Three Months Ended						Twelve Months Ended
	December 31,						December 31,
	2018			2017			2018			2017
Sales
Products	$	116,873		$	95,789		$	458,232		$	540,396
Services		23,215			31,047			71,045			126,504
Total Sales		140,088			126,836			529,277			666,900
Cost of sales
Products		70,745			49,702			278,929			279,563
Services		13,955			18,325			46,783			83,702
Total Cost of Sales		84,700			68,027			325,712			363,265
Gross Profit		55,388			58,809			203,565			303,635
Selling, general and administrative expenses		28,079			31,412			124,440			135,583
Research and development expenses		31,092			31,550			124,547			130,666
Operating Income (Loss)		(3,783	)		(4,153	)		(45,422	)		37,386
Interest and dividend income		1,422			1,523			4,026			4,380
Interest expense		(135	)		(139	)		(533	)		(556	)
Net investment gain (loss)		(9,450	)		1,816			(4,050	)		4,685
Other income (expense), net		1,359			219			1,286			(1,208	)
Gain on bargain purchase of a business		—			—			11,322			—
Income (Loss) before provision for income taxes		(10,587	)		(734	)		(33,371	)		44,687
(Provision) benefit for income taxes		2,140			(10,376	)		14,029			(20,847	)
Net Income (Loss)	$	(8,447	)	$	(11,110	)	$	(19,342	)	$	23,840

Weighted average shares outstanding – basic		47,730			48,280			47,880			48,153
Weighted average shares outstanding – diluted		47,730			48,280			47,880			48,699		⁽¹⁾

Earnings (loss) per common share – basic	$	(0.18	)	$	(0.23	)	$	(0.40	)	$	0.50
Earnings (loss) per common share – diluted	$	(0.18	)	$	(0.23	)	$	(0.40	)	$	0.49		⁽¹⁾

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

Consolidated Statements of Comprehensive Income

(Unaudited)

(In thousands)

	Three Months Ended						Twelve Months Ended
	December 31,						December 31,
	2018			2017			2018			2017

Net Income (Loss)	$	(8,447	)	$	(11,110	)	$	(19,342	)	$	23,840
Other Comprehensive Income (Loss), net of tax
Net unrealized gains (losses) on available-for-sale securities		210			(349	)		(3,130	)		2,163
Net unrealized gains on cash flow hedges		—			196			—			—
Defined benefit plan adjustments		(3,859	)		517			(3,755	)		731
Foreign currency translation		(1,203	)		597			(4,236	)		5,999
Other Comprehensive Income (Loss), net of tax		(4,852	)		961			(11,121	)		8,893
Comprehensive Income (Loss), net of tax	$	(13,299	)	$	(10,149	)	$	(30,463	)	$	32,733

Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

	Twelve Months Ended
	December 31,
	2018			2017
Cash flows from operating activities
Net income (loss)	$	(19,342	)	$	23,840
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		15,891			15,692
Amortization of net premium (discount) on available-for-sale investments		(50	)		425
Net unrealized (gain) loss on long-term investments		4,050			(4,685	)
Net (gain) loss on disposal of property, plant and equipment		67			(145	)
Gain on bargain purchase of a business		(11,322	)		—
Stock-based compensation expense		7,155			7,433
Deferred income taxes		(17,257	)		14,073
Change in operating assets and liabilities:
Accounts receivable, net		49,200			(49,103	)
Other receivables		(8,522	)		(10,222	)
Inventory		24,192			(15,518	)
Prepaid expenses and other assets		10,727			(4,830	)
Accounts payable		(2,669	)		(17,742	)
Accrued expenses and other liabilities		(3,226	)		(5,455	)
Income taxes payable		7,690			3,858
Net cash provided by (used in) operating activities		56,584			(42,379	)

Cash flows from investing activities
Purchases of property, plant and equipment		(8,110	)		(14,720	)
Proceeds from disposals of property, plant and equipment		—			151
Proceeds from sales and maturities of available-for-sale investments		153,649			173,752
Purchases of available-for-sale investments		(123,209	)		(93,141	)
Acquisition of business		(23,275	)		—
Net cash provided by (used in) investing activities		(945	)		66,042

Cash flows from financing activities
Proceeds from stock option exercises		1,483			13,412
Purchases of treasury stock		(15,532	)		(17,348	)
Dividend payments		(17,267	)		(17,368	)
Payments on long-term debt		(1,000	)		(1,100	)
Net cash used in financing activities		(32,316	)		(22,404	)

Net increase in cash and cash equivalents		23,323			1,259
Effect of exchange rate changes		(4,252	)		5,279
Cash and cash equivalents, beginning of year		86,433			79,895

Cash and cash equivalents, end of year	$	105,504		$	86,433

Supplemental disclosure of non-cash investing activities
Purchases of property, plant and equipment included in accounts payable	$	62		$	408

Supplemental Information

Restructuring Expenses

(Unaudited)

(In thousands)

Restructuring expense was recorded in the following Consolidated Statements of Income categories for three and twelve months ended December 31, 2018 and 2017:

	Three Months Ended						Twelve Months Ended
	December 31,						December 31,
	2018			2017			2018			2017

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

Selling, general and administrative expense		25			59			2,686			152
Research and development expense		—			—			1,814			122
Restructuring expense included in operating expenses		25			59			4,500			274

Total restructuring expense		25			59			7,261			274
Provision for income taxes		(6	)		(23	)		(1,888	)		(107	)

Total restructuring expense, net of tax	$	19		$	36		$	5,373		$	167

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), on March 19, 2018, we closed on the acquisition of Sumitomo Electric Lightwave Corp.’s North American EPON business (Sumitomo), and on November 30, 2018, we closed on the acquisition of SmartRG Inc. (SmartRG). Acquisition related expenses, amortizations and adjustments for the three and twelve months ended December 31, 2018 and 2017 for all five transactions are as follows:

	Three Months Ended						Twelve Months Ended
	December 31,						December 31,
	2018			2017			2018			2017
Bluesocket, Inc. acquisition
Amortization of acquired intangible assets	$	—		$	158		$	369		$	632

NSN BBA acquisition
Amortization of acquired intangible assets		85			95			355			527
Amortization of other purchase accounting adjustments		2			—			3			39
Subtotal - NSN BBA acquisition		87			95			358			566

CommScope acquisition
Amortization of acquired intangible assets		110			219			483			1,732
Amortization of other purchase accounting adjustments		3			3			4			88
Acquisition related professional fees, travel and other expenses		—			—			—			8
Subtotal - CommScope acquisition		113			222			487			1,828

Sumitomo acquisition
Amortization of acquired intangible assets		663			—			2,097			—
Amortization of other purchase accounting adjustments		7			—			86			—
Acquisition related professional fees, travel and other expenses		(1	)		—			123			—
Subtotal - Sumitomo acquisition		669			—			2,306			—

SmartRG acquisition
Amortization of acquired intangible assets		150			—			150			—
Amortization of other purchase accounting adjustments		181			—			181			—
Acquisition related professional fees, travel and other expenses		233			—			233			—
Subtotal - SmartRG acquisition		564			—			564			—

Total acquisition related expenses, amortizations and adjustments		1,433			475			4,084			3,026
Provision for income taxes		(378	)		(178	)		(1,080	)		(1,135	)
Total acquisition related expenses, amortizations and adjustments, net of tax	$	1,055		$	297		$	3,004		$	1,891

The acquisition related expenses, amortizations and adjustments above were recorded in the following Consolidated Statements of Income categories for the three and twelve months ended December 31, 2018 and 2017:

	Three Months Ended						Twelve Months Ended
	December 31,						December 31,
	2018			2017			2018			2017

Cost of goods sold	$	542		$	2		$	1,381		$	88

Selling, general and administrative expenses		583			51			1,457			215
Research and development expenses		308			422			1,246			2,723
Total acquisition related expenses, amortizations and adjustments included in operating expenses		891			473			2,703			2,938

Total acquisition related expenses, amortizations and adjustments		1,433			475			4,084			3,026
Provision for income taxes		(378	)		(178	)		(1,080	)		(1,135	)
Total acquisition related expenses, amortizations and adjustments, net of tax	$	1,055		$	297		$	3,004		$	1,891

Supplemental Information

Stock-based Compensation Expense

(Unaudited)

(In thousands)

	Three Months Ended						Twelve Months Ended
	December 31,						December 31,
	2018			2017			2018			2017

Stock-based compensation expense included in cost of sales	$	120		$	98		$	418		$	379

Selling, general and administrative expense		1,065			1,045			3,989			4,063
Research and development expense		727			717			2,748			2,991
Stock-based compensation expense included in operating expenses		1,792			1,762			6,737			7,054

Total stock-based compensation expense		1,912			1,860			7,155			7,433
Tax benefit for expense associated with non-qualified options, PSUs, RSUs and restricted stock		(416	)		(484	)		(1,432	)		(1,699	)

Total stock-based compensation expense, net of tax	$	1,496		$	1,376		$	5,723		$	5,734

Reconciliation of GAAP earnings (loss) per share, diluted, to

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

(Unaudited)

	Three Months Ended						Twelve Months Ended
	December 31,						December 31,
	2018			2017			2018			2017

GAAP earnings (loss) per common share - diluted	$	(0.18	)	$	(0.23	)	$	(0.40	)	$	0.49

Restructuring expense		—			—			0.11			—
Acquisition related expenses, amortizations and adjustments		0.02			0.01			0.06			0.04
Stock-based compensation expense		0.03			0.03			0.12			0.12
Impact of the Tax Cuts and Jobs Act		—			0.24			—			0.24
Gain on bargain purchase of a business		—			—			(0.24	)		—

Non-GAAP earnings (loss) per common share - diluted ⁽¹⁾	$	(0.12	)	$	0.05		$	(0.35	)	$	0.89

⁽¹⁾Table may not foot due to rounding

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