Business Wire | Aug 5, 2020 08:05PM EDT

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

Aug. 06, 2020

HUNTSVILLE, Ala.--(BUSINESS WIRE)--Aug. 06, 2020--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 & 17,392 17,224 34,543 35,193 Support

Total Sales 128,715 156,391 243,238 300,182

Cost of Sales

Network Solutions 64,071 80,175 115,697 150,909

Services & 11,172 11,201 22,469 23,646 Support

Total Cost of 75,243 91,376 138,166 174,555 Sales

Gross Profit 53,472 65,015 105,072 125,627

Selling, generaland 30,799 33,619 57,419 68,751 administrativeexpenses

Research anddevelopment 28,712 32,064 58,571 63,711 expenses

Gain on - (1,230 ) - (1,230 )contingency

Asset impairments - - 65 -

Operating Income (6,039 ) 562 (10,983 ) (5,605 )(Loss)

Interest and 331 692 687 1,283 dividend income

Interest expense - (127 ) (1 ) (254 )

Net investment 9,852 2,485 (1,025 ) 8,411 gain (loss)

Other income (1,757 ) (205 ) (628 ) 650 (expense), net

Income (Loss)Before Income 2,387 3,407 (11,950 ) 4,485 Taxes

Income tax (1,635 ) 588 2,733 280 (expense) benefit

Net Income (Loss) $ 752 $ 3,995 $ (9,217 ) $ 4,765



Weighted averageshares 47,958 47,802 47,957 47,792 outstanding -basic

Weighted averageshares 48,254 ^ 48,036 ^ 47,957 47,939 ^outstanding - (1) (1) (1)diluted



Earnings (loss)per common share $ 0.02 $ 0.08 $ (0.19 ) $ 0.10 - basic

Earnings (loss) ^ ^ ^per common share $ 0.02 (1) $ 0.08 (1) $ (0.19 ) $ 0.10 (1)- diluted

^ Assumes exercise of dilutive stock options calculated under the treasury(1) 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 86 (57 )investments

Net (gain) loss on long-term investments 1,025 (8,411 )

Net loss on disposal of property, plant and 52 58 equipment

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 63,318 24,306 available-for-sale investments

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 (3,834 ) 2,213 and restricted cash

Effect of exchange rate changes 306 (900 )

Cash, cash equivalents and restricted cash, 73,773 105,504 beginning of period



Cash, cash equivalents and restricted cash, end of $ 70,245 $ 106,817 period



Supplemental disclosure of non-cash investing activities:

Purchases of property, plant and equipment included $ 198 $ 205 in accounts payable



Supplemental Information

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

(Unaudited)

Three Months Ended Six Months ended June 30, June 30,

2020 2019 2020 2019

Operating $ (6,039 ) $ 562 $ (10,983 ) $ (5,605 ) Income (Loss)

Acquisitionrelatedexpenses, 1,100 ^ 1,506 ^ 2,457 ^ 3,003 ^amortizations (1) (5) (10) (14)andadjustments

Stock-based ^ ^ ^ ^compensation 1,655 (2) 1,454 (6) 3,446 (11) 3,313 (15)expense

Restructuring 1,192 ^ 1,400 ^ 1,745 ^ 3,463 ^expenses (3) (7) (12) (16)

Deferred ^ ^compensation 3,433 (4) 683 (4) (26 ) ^(4) 2,807 ^(4)adjustments

Asset - - 65 ^ - impairments (13)

Gain on - (1,230 ) ^ - (1,230 ) ^(8)contingency (8)

Settlement - (746 ) ^ - (746 ) ^(9)income (9)

Non-GAAPOperating $ 1,341 $ 3,629 $ (3,296 ) $ 5,005 Income (Loss)

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

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

^(3) $0.5 million is included in selling, general and administrative expensesand $0.7 million is included in research and development expenses on thecondensed consolidated statements of income.

^(4) Includes non-cash change in fair value of equity investments held in theADTRAN, Inc. Deferred Compensation Program for Employees per ASU 2016-01, allof which is included in selling, general and administrative expenses on thecondensed consolidated statement of income.

^(5) $0.4 million is included in total cost of sales, $0.6 million is includedin selling, general and administrative expenses and $0.5 million is included inresearch and development expenses on the consolidated statements of income.

^(6) $0.1 million is included in total cost of sales, $0.7 million is includedin selling, general and administrative expenses and $0.7 million is included inresearch and development expenses on the consolidated statements of income.

^(7) $0.1 million is included in total cost of sales, $0.7 million is includedin selling, general and administrative expenses and $0.6 million is included inresearch and development expenses on the consolidated statements of income.

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

^(9) Includes income related to certain freight forwarder claim settlementswhich were received during the three months ended June 30, 2019, all of whichis 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 includedin selling, general and administrative expenses and $1.0 million is included inresearch and development expenses on the consolidated statements of income.

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

^(12) $0.1 million is included in total cost of sales, $0.5 million is includedin selling, general and administrative expenses and $1.1 million is included inresearch 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 includedin selling, general and administrative expenses and $1.0 is included inresearch and development expenses on the consolidated statements of income.

^(15) $0.2 million is included in total cost of sales, $1.7 million is includedin selling, general and administrative expenses and $1.4 million is included inresearch and development expenses on the consolidated statements of income.

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

(Unaudited)

Three Months Ended Six Months ended June 30, June 30,

2020 2019 2020 2019

Net Income (Loss) $ 752 $ 3,995 $ (9,217 ) $ 4,765

Acquisition relatedexpenses, 1,100 1,506 2,457 3,003 amortizations andadjustments

Stock-basedcompensation 1,655 1,454 3,446 3,313 expense

Restructuring 1,192 1,400 1,745 3,463 expenses

Pension expense^(1) 235 199 472 402

Deferred ^compensation 445 - (1,342 ) (2) - adjustments

Valuation allowance (2,512 ) - 3,578 -

Asset impairments - - 65 -

Gain on contingency - (1,230 ) - (1,230 )

Settlement income - (746 ) - (746 )

Tax effect ofadjustments to net (1,233 ) (714 ) (1,810 ) (2,238 )income (loss)

Non-GAAP Net Income $ 1,634 $ 5,864 $ (606 ) $ 10,732 (Loss)



Weighted averageshares outstanding 47,958 47,802 47,957 47,792 - basic

Weighted averageshares outstanding 48,254 48,036 47,957 47,939 - diluted



Earnings (loss) percommon share - $ 0.02 $ 0.08 $ (0.19 ) $ 0.10 basic

Earnings (loss) percommon share - $ 0.02 $ 0.08 $ (0.19 ) $ 0.10 diluted



Non-GAAP earnings(loss) per common $ 0.04 $ 0.12 $ (0.01 ) $ 0.22 share - basic

Non-GAAP earnings(loss) per common $ 0.04 $ 0.12 $ (0.01 ) $ 0.22 share - diluted

^(1) Includes amortization of actuarial losses related to the Company's pensionplan for employees in certain foreign countries.

^(2) Includes a non-cash change in fair value of equity investments held indeferred compensation plans offered to certain employees and a net investmentgain of $1.5 million related to the out of period remeasurement to historicalcost basis of certain long-term investments held in the Company's stock as partof one of these deferred compensation plans.

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CONTACT: ADTRAN, Inc. Rhonda Lambert, 256-963-7450 Investor Relations