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

HUNTSVILLE, Ala.--(BUSINESS WIRE)--ADTRAN, Inc. (NASDAQ: ADTN) reported results for the second quarter 2018. For the quarter, sales were $128.0 million compared to $184.7 million for the second quarter of 2017. Net loss was $7.7 million compared to net income of $12.4 million for the second quarter of 2017. Earnings per share, assuming dilution, were a loss of $0.16 compared to income of $0.26 for the second quarter of 2017. Non-GAAP earnings per share were a loss of $0.10 compared to income of $0.30 for the second quarter of 2017. GAAP earnings per share include the expense of stock-based compensation, acquisition related amortizations and other expenses, and a restructuring program. 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, “Our second quarter results showed steady improvement from the previous quarter. We are pleased with our quarter-over-quarter growth in revenue and gross margins. Looking ahead, we expect our international business to remain strong through the second half of the year. We are also encouraged by what we are seeing in our North American carrier and cable/MSO business – all of which indicate further momentum as we head into 2019.”

The Company also announced that its Board of Directors declared a cash dividend for the second 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 August 1, 2018. The ex-dividend date is July 31, 2018, and the payment date is August 15, 2018.

The Company confirmed that it will hold its second quarter conference call Wednesday, July 18, 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 [e-mail].

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 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)
	June 30,		December 31,
	2018		2017
Assets
Cash and cash equivalents	$	100,319	$	86,433
Short-term investments		6,069		16,129
Accounts receivable, net		76,135		144,150
Other receivables		28,163		26,578
Inventory, net		120,537		122,542
Prepaid expenses and other current assets		9,464		17,282
Total Current Assets		340,687		413,114
Property, plant and equipment, net		82,910		85,079
Deferred tax assets, net		35,615		23,428
Goodwill		3,492		3,492
Other assets		32,429		13,725
Long-term investments		144,437		130,256
Total Assets	$	639,570	$	669,094
Liabilities and Stockholders' Equity
Accounts payable	$	60,150	$	60,632
Unearned revenue		14,307		13,070
Accrued expenses		14,785		13,232
Accrued wages and benefits		14,913		15,948
Income tax payable		11,948		3,936
Total Current Liabilities		116,103		106,818
Non-current unearned revenue		3,639		4,556
Other non-current liabilities		34,601		34,209
Bonds payable		25,600		25,600
Total Liabilities		179,943		171,183
Stockholders' Equity		459,627		497,911
Total Liabilities and Stockholders' Equity	$	639,570	$	669,094

Consolidated Statements of Income (Unaudited) (In thousands, except per share data)
	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2018			2017			2018			2017
Sales
Products	$	115,063		$	155,543		$	220,316		$	299,140
Services		12,985			29,130			28,538			55,812
Total Sales		128,048			184,673			248,854			354,952
Cost of Sales
Products		69,629			79,663			138,241			156,327
Services		8,423			20,384			20,884			40,290
Total Cost of Sales		78,052			100,047			159,125			196,617
Gross Profit		49,996			84,626			89,729			158,335
Selling, general and administrative expenses		32,080			34,706			65,611			69,495
Research and development expenses		30,729			33,557			63,578			65,528
Operating Income (Loss)		(12,813	)		16,363			(39,460	)		23,312
Interest and dividend income		913			972			1,779			1,905
Interest expense		(132	)		(137	)		(264	)		(278	)
Net realized investment gain		990			1,390			893			1,860
Other expense, net		(217	)		(719	)		(274	)		(585	)
Gain on bargain purchase of a business		—			—			11,322			—
Income (loss) before provision for income taxes		(11,259	)		17,869			(26,004	)		26,214
(Provision) benefit for income taxes		3,589			(5,468	)		7,520			(7,162	)
Net Income (Loss)	$	(7,670	)	$	12,401		$	(18,484	)	$	19,052
Weighted average shares outstanding – basic		47,856			48,036			48,043			48,232
Weighted average shares outstanding – diluted		47,902			48,413			48,091			48,675
Earnings (loss) per common share – basic	$	(0.16	)	$	0.26		$	(0.38	)	$	0.40
Earnings (loss) per common share – diluted	$	(0.16	)	$	0.26		$	(0.38	)	$	0.39
^(1) Assumes exercise of dilutive stock options calculated under the treasury stock method.

Consolidated Statements of Comprehensive Income (Unaudited) (In thousands)
	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2018			2017			2018			2017
Net Income (Loss)	$	(7,670	)	$	12,401		$	(18,484	)	$	19,052
Other Comprehensive Income (Loss), net of tax
Net unrealized gains (losses) on available-for-sale securities		104			373			(3,308	)		1,708
Net unrealized losses on cash flow hedges		—			(417	)		—			(338	)
Defined benefit plan adjustments		5			86			67			141
Foreign currency translation		(3,424	)		2,619			(2,582	)		3,861
Other Comprehensive Income (Loss), net of tax		(3,315	)		2,661			(5,823	)		5,372
Comprehensive Income (Loss), net of tax	$	(10,985	)	$	15,062		$	(24,307	)	$	24,424

Consolidated Statements of Cash Flows (Unaudited) (In thousands)
	Six Months Ended
	June 30,
	2018			2017
Cash flows from operating activities:
Net income (loss)	$	(18,484	)	$	19,052
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		7,526			8,377
Amortization of net premium on available-for-sale investments		20			238
Net realized gain on long-term investments		(893	)		(1,860	)
Net (gain) loss on disposal of property, plant and equipment		68			(11	)
Gain on bargain purchase of a business		(11,322	)		—
Stock-based compensation expense		3,603			3,739
Deferred income taxes		(16,384	)		(2,772	)
Changes in operating assets and liabilities:
Accounts receivable, net		66,931			13,911
Other receivables		9			571
Inventory		2,063			(7,547	)
Prepaid expenses and other assets		10,157			(9,853	)
Accounts payable		683			(10,910	)
Accrued expenses and other liabilities		2,008			(2,629	)
Income tax payable		6,945			10,273
Net cash provided by operating activities		52,930			20,579
Cash flows from investing activities:
Purchases of property, plant and equipment		(4,183	)		(7,509	)
Proceeds from disposals of property, plant and equipment		—			16
Proceeds from sales and maturities of available-for-sale investments		86,436			81,891
Purchases of available-for-sale investments		(89,801	)		(65,140	)
Acquisition of business		(7,806	)		—
Net cash provided by (used in) investing activities		(15,354	)		9,258
Cash flows from financing activities:
Proceeds from stock option exercises		369			1,722
Purchases of treasury stock		(12,774	)		(17,311	)
Dividend payments		(8,679	)		(8,719	)
Net cash used in financing activities		(21,084	)		(24,308	)
Net increase in cash and cash equivalents		16,492			5,529
Effect of exchange rate changes		(2,606	)		3,374
Cash and cash equivalents, beginning of period		86,433			79,895
Cash and cash equivalents, end of period	$	100,319		$	88,798
Supplemental disclosure of non-cash investing activities:
Purchases of property, plant and equipment included in accounts payable	$	209		$	454

Supplemental Information Restructuring Expenses (Unaudited) (In thousands)
Restructuring expense was recorded in the following Consolidated Statements of Income categories for the three and six months ended June 30, 2018 and 2017:
	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2018			2017		2018			2017
Restructuring expense included in cost of sales	$	391		$	—	$	2,761		$	—
Selling, general and administrative expense		634			—		2,400			—
Research and development expense		—			—		1,814			—
Restructuring expense included in operating expenses		634			—		4,214			—
Total restructuring expense		1,025			—		6,975			—
Provision for income taxes		(267	)		—		(1,814	)		—
Total restructuring expense, net of tax	$	758		$	—	$	5,161		$	—

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 six months ended June 30, 2018 and 2017 for all four transactions are as follows:
	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2018			2017			2018			2017
Bluesocket, Inc. acquisition
Amortization of acquired intangible assets	$	158		$	158		$	316		$	316
NSN BBA acquisition
Amortization of acquired intangible assets		90			129			182			337
Amortization of other purchase accounting adjustments		1			10			1			38
Subtotal - NSN BBA acquisition		91			139			183			375
CommScope acquisition
Amortization of acquired intangible assets		125			608			250			1,294
Amortization of other purchase accounting adjustments		—			31			1			81
Acquisition related professional fees, travel and other expenses		—			—			—			8
Subtotal - CommScope acquisition		125			639			251			1,383
Sumitomo acquisition
Amortization of acquired intangible assets		662			—			772			—
Amortization of other purchase accounting adjustments		79			—			79			—
Acquisition related professional fees, travel and other expenses		27			—			124			—
Subtotal - Sumitomo acquisition		768			—			975			—
Total acquisition related expenses, amortizations and adjustments		1,142			936			1,725			2,074
Provision for income taxes		(301	)		(354	)		(457	)		(779	)
Total acquisition related expenses, amortizations and adjustments, net of tax	$	841		$	582		$	1,268		$	1,295
The acquisition related expenses, amortizations and adjustments above were recorded in the following Consolidated Statements of Income categories for the three and six months ended June 30, 2018 and 2017:
	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2018			2017			2018			2017
Cost of goods sold	$	430		$	31		$	489		$	81
Selling, general and administrative expenses		319			52			585			114
Research and development expenses		393			853			651			1,879
Total acquisition related expenses, amortizations and adjustments included in operating expenses		712			905			1,236			1,993
Total acquisition related expenses, amortizations and adjustments		1,142			936			1,725			2,074
Provision for income taxes		(301	)		(354	)		(457	)		(779	)
Total acquisition related expenses, amortizations and adjustments, net of tax	$	841		$	582		$	1,268		$	1,295

Supplemental Information Stock-based Compensation Expense (Unaudited) (In thousands)
	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2018			2017			2018			2017
Stock-based compensation expense included in cost of sales	$	102		$	93		$	197		$	184
Selling, general and administrative expense		995			1,008			2,030			2,024
Research and development expense		687			755			1,376			1,531
Stock-based compensation expense included in operating expenses		1,682			1,763			3,406			3,555
Total stock-based compensation expense		1,784			1,856			3,603			3,739
Tax benefit for expense associated with non-qualified options, PSUs, RSUs and restricted stock		(340	)		(433	)		(724	)		(813	)
Total stock-based compensation expense, net of tax	$	1,444		$	1,423		$	2,879		$	2,926

Reconciliation of GAAP net income per share, diluted, to Non-GAAP net income per share, diluted (Unaudited)
	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2018			2017		2018			2017
GAAP earnings per common share - diluted	$	(0.16	)	$	0.26	$	(0.38	)	$	0.39
Restructuring expense		0.02			—		0.11			—
Acquisition related expenses, amortizations and adjustments		0.02			0.01		0.03			0.03
Stock-based compensation expense		0.03			0.03		0.06			0.06
Gain on bargain purchase of a business		—			—		(0.24	)		—
Non-GAAP earnings per common share - diluted^(1)	$	(0.10	)	$	0.30	$	(0.43	)	$	0.48
^(1) Table may not foot due to rounding