ADTRAN, Inc. Reports Earnings for the Second Quarter of 2021 and Declares Quarterly Cash Dividend

August 04, 2021 at 20:05 PM EDT

ADTRAN, Inc., (NASDAQ:ADTN) (“ADTRAN” or the “Company”), today announced financial results for the second quarter of 2021. For the quarter, revenue was $143.2 million. Net income for the second quarter of 2021 was $5.1 million and earnings per share, assuming dilution, was $0.10 per share. Non-GAAP net income was $8.1 million and non-GAAP earnings per share, assuming dilution, was $0.16 per share. Non-GAAP net income and non-GAAP earnings per share exclude acquisition-related expenses, amortizations and adjustments, stock-based compensation expense, restructuring expenses, amortization of pension actuarial losses, non-cash deferred compensation, change in valuation allowance related to our deferred tax assets, asset impairments and the tax effect of these adjustments to net income. The reconciliations between GAAP net income (loss) and earnings (loss) per share to non-GAAP net income (loss) and non-GAAP earnings (loss) per share are set forth in the table provided below.

ADTRAN Chairman and Chief Executive Officer Tom Stanton stated, “Strong demand for fiber access continued to drive multiple segments of our business including infrastructure, in-home premises equipment and our SaaS platforms. Tier 3 regional operators, both in the U.S and Europe, showed exceptional strength with growth over 50% on a year-over-year basis. Demand continues to be strong and we believe we are in the early phases of this growth cycle.”

The Company also announced that its Board of Directors declared a cash dividend for the second quarter of 2021. The quarterly cash dividend of $0.09 per common share is to be paid to the Company’s stockholders of record as of the close of business on August 19, 2021. The payment date will be September 2, 2021.

The Company confirmed that it will hold a conference call to discuss its second quarter results on Thursday, August 5, 2021, 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 ten minutes prior to the start of the call, click on the event “ADTRAN to Release 2nd Quarter 2021 Financial Results and Earnings 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.

About ADTRAN

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) risks and uncertainties related to the continued impact of the SARS-CoV-2 coronavirus/COVID-19 global pandemic (or variants of the SARS-CoV-2 coronavirus, including the Delta variant), including the severity and duration of the pandemic and the delivery, acceptance and effectiveness of vaccines, 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 have occurred and may continue to 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; potential declines in revenues due to declining customer demand and deteriorating macroeconomic conditions; 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; the pace of recovery in our markets when the COVID-19 pandemic subsides, which could affect demand for our products; and (ii) the other risks detailed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 and the Company’s quarterly report on Form 10-Q for the quarter ended March 31, 2021. 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 (loss), which has been reconciled to operating income (loss), and non-GAAP net income (loss) and non-GAAP earnings (loss) per share - basic and diluted, which have been reconciled to net income (loss) and earnings (loss) 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 (loss), non-GAAP net income (loss) and non-GAAP earnings (loss) per share - basic and diluted, when combined with the U.S. GAAP presentation of operating income (loss), net income (loss) and earnings (loss) 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 (loss), non-GAAP net income (loss) and non-GAAP earnings (loss) 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,
	2021		2020
Assets
Current Assets
Cash and cash equivalents	$	69,927	$	60,161
Restricted cash		54		18
Short-term investments		2,818		3,131
Accounts receivable, net		122,669		98,827
Other receivables		20,187		21,531
Inventory, net		119,012		125,457
Prepaid expenses and other current assets		9,830		8,293
Total Current Assets		344,497		317,418
Property, plant and equipment, net		58,270		62,399
Deferred tax assets, net		9,165		9,869
Goodwill		6,968		6,968
Intangibles, net		21,354		23,470
Other assets		28,394		25,425
Long-term investments		82,778		80,130
Total Assets	$	551,426	$	525,679

Liabilities and Stockholders' Equity
Accounts payable	$	66,499	$	49,929
Unearned revenue		15,889		14,092
Accrued expenses and other liabilities		15,655		13,609
Accrued wages and benefits		15,681		15,262
Income tax payable, net		2,345		1,301
Total Current Liabilities		116,069		94,193
Non-current unearned revenue		7,030		6,888
Pension liability		17,566		18,664
Deferred compensation liability		28,769		25,866
Other non-current liabilities		6,477		7,124
Total Liabilities		175,911		152,735
Stockholders' Equity		375,515		372,944
Total Liabilities and Stockholders' Equity	$	551,426	$	525,679

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

	Three Months Ended								Six Months Ended
	June 30,								June 30,
	2021				2020				2021				2020
Revenue
Network Solutions	$	125,449			$	111,323			$	239,258			$	208,695
Services & Support		17,783				17,392				31,507				34,543
Total Revenue		143,232				128,715				270,765				243,238
Cost of Revenue
Network Solutions		70,014				64,071				135,015				115,697
Services & Support		10,550				11,172				19,481				22,469
Total Cost of Revenue		80,564				75,243				154,496				138,166
Gross Profit		62,668				53,472				116,269				105,072
Selling, general and administrative expenses		30,866				30,799				58,301				57,419
Research and development expenses		27,871				28,712				55,372				58,571
Asset impairments		—				—				—				65
Operating Income (Loss)		3,931				(6,039	)			2,596				(10,983	)
Interest and dividend income		253				331				543				687
Interest expense		(6	)			—				(12	)			(1	)
Net investment gain (loss)		2,009				9,852				3,005				(1,025	)
Other income (expense), net		26				(1,757	)			2,025				(628	)
Income (Loss) Before Income Taxes		6,213				2,387				8,157				(11,950	)
Income tax (expense) benefit		(1,127	)			(1,635	)			(2,175	)			2,733
Net Income (Loss)	$	5,086			$	752			$	5,982			$	(9,217	)

Weighted average shares outstanding – basic		48,449				47,958				48,393				47,957
Weighted average shares outstanding – diluted		49,426		⁽¹⁾		48,254		⁽¹⁾		49,225		⁽¹⁾		47,957

Earnings (loss) per common share – basic	$	0.10			$	0.02			$	0.12			$	(0.19	)
Earnings (loss) per common share – diluted	$	0.10		⁽¹⁾	$	0.02		⁽¹⁾	$	0.12		⁽¹⁾	$	(0.19	)

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

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

	Six Months Ended
	June 30,
	2021			2020
Cash flows from operating activities:
Net income (loss)	$	5,982		$	(9,217	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		8,232			8,404
(Gain) loss on investments		(3,255	)		1,025
Stock-based compensation expense		3,615			3,446
Deferred income taxes		441			(5	)
Other		53			138
Asset impairments		—			65
Changes in operating assets and liabilities:
Accounts receivable, net		(24,322	)		(4,727	)
Other receivables		1,412			(9,468	)
Inventory, net		5,940			(7,878	)
Prepaid expenses, other current assets and other assets		(4,767	)		1,444
Accounts payable		16,814			17,389
Accrued expenses and other liabilities		6,999			2,097
Income taxes payable, net		1,069			(1,032	)
Net cash provided by operating activities		18,213			1,681

Cash flows from investing activities:
Purchases of property, plant and equipment		(2,210	)		(3,148	)
Proceeds from sales and maturities of available-for-sale investments		20,597			63,318
Purchases of available-for-sale investments		(20,121	)		(31,897	)
Acquisition of note receivable		—			(523	)
Net cash provided by (used in) investing activities		(1,734	)		27,750

Cash flows from financing activities:
Proceeds from stock option exercises		3,552			—
Tax withholdings related to stock-based compensation settlements		(113	)		—
Dividend payments		(8,735	)		(8,665	)
Repayment of bonds payable		—			(24,600	)
Net cash used in financing activities		(5,296	)		(33,265	)

Net increase (decrease) in cash, cash equivalents and restricted cash		11,183			(3,834	)
Effect of exchange rate changes		(1,381	)		306
Cash, cash equivalents and restricted cash, beginning of period		60,179			73,773
Cash, cash equivalents and restricted cash, end of period	$	69,981		$	70,245

Supplemental disclosure of non-cash investing activities:
Right-of-use assets obtained in exchange for lease obligations	$	275		$	93
Purchases of property, plant and equipment included in accounts payable	$	144		$	198

Supplemental Information

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

(Unaudited)

Three Months Ended

June 30,

Six Months ended

June 30,

2021

2020

2021

2020

Operating Income (Loss)

3,931

(6,039

)

2,596

(10,983

)

Acquisition-related expenses, amortizations and adjustments

2,384

⁽¹⁾

1,100

⁽⁵⁾

3,429

⁽⁸⁾

2,457

⁽¹¹⁾

Stock-based compensation expense

1,808

⁽²⁾

1,655

⁽⁶⁾

3,615

⁽⁹⁾

3,446

⁽¹²⁾

Restructuring expenses

⁽³⁾

1,192

⁽⁷⁾

309

⁽¹⁰⁾

1,745

⁽¹³⁾

Deferred compensation adjustments

1,994

⁽⁴⁾

3,433

⁽⁴⁾

2,550

⁽⁴⁾

(26)

⁽⁴⁾

Asset impairments

—

⁽¹⁴⁾

Non-GAAP Operating Income (Loss)

10,125

1,341

12,499

(3,296)

⁽¹⁾ $1.9 million is included in selling, general and administrative expenses and $0.5 million is included in research and development expenses on the condensed consolidated statements of income (loss).

⁽²⁾ $0.1 million is included in total cost of revenue, $1.1 million is included in selling, general and administrative expenses and $0.6 million is included in research and development expenses on the condensed consolidated statements of income (loss).

⁽³⁾ Less than $0.1 million is included in each of selling, general and administrative expenses and research and development expenses on the condensed consolidated statements of income (loss).

⁽⁴⁾ Includes non-cash change in fair value of equity investments held in the ADTRAN, Inc. Deferred Compensation Program for Employees, all of which is included in selling, general and administrative expenses on the condensed consolidated statement of income (loss).

⁽⁵⁾ $0.6 million is included in selling, general and administrative expenses and $0.5 million is included in research and development expenses on the condensed consolidated statements of income (loss).

⁽⁶⁾$0.1 million is included in total cost of revenue, $1.0 million is included in selling, general and administrative expenses and $0.6 million is included in research and development expenses on the condensed consolidated statements of income (loss).

⁽⁷⁾ $0.5 million is included in selling, general and administrative expenses and $0.7 million is included in research and development expenses on the condensed consolidated statements of income (loss).

⁽⁸⁾ $2.4 million is included in selling, general and administrative expenses and $1.0 million is included in research and development expenses on the condensed consolidated statements of income (loss).

⁽⁹⁾ $0.2 million is included in total cost of revenue, $2.2 million is included in selling, general and administrative expenses and $1.2 million is included in research and development expenses on the condensed consolidated statements of income (loss).

⁽¹⁰⁾ $0.1 million is included in selling, general and administrative expenses and $0.2 million is included in research and development expenses on the condensed consolidated statements of income (loss).

⁽¹¹⁾ $0.3 million is included in total cost of revenue, $1.2 million is included in selling, general and administrative expenses and $1.0 million is included in research and development expenses on the consolidated statements of income (loss).

⁽¹²⁾ $0.2 million is included in total cost of revenue, $2.0 million is included in selling, general and administrative expenses and $1.2 million is included in research and development expenses on the consolidated statements of income (loss).

⁽¹³⁾ $0.1 million is included in total cost of revenue, $0.5 million is included in selling, general and administrative expenses and $1.1 million is included in research and development expenses on the consolidated statements of income (loss).

⁽¹⁴⁾ Includes abandonment of certain information technology projects.

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 and Diluted
(Unaudited)

	Three Months Ended June 30,						Six Months ended June 30,
	2021			2020			2021			2020
Net Income (Loss)	$	5,086		$	752		$	5,982		$	(9,217	)
Acquisition-related expenses, amortizations and adjustments		2,384			1,100			3,429			2,457
Stock-based compensation expense		1,808			1,655			3,615			3,446
Restructuring expenses		8			1,192			309			1,745
Pension expense⁽¹⁾		275			235			553			472
Deferred compensation adjustments⁽²⁾		546			445			814			(1,342)	⁽³⁾
Valuation allowance related to deferred tax assets		(727	)		(2,512	)		1,958			3,578
Asset impairments		—			—			—			65
Tax effect of adjustments to net income (loss)		(1,243	)		(1,233	)		(2,195	)		(1,810)
Non-GAAP Net Income (Loss)	$	8,137		$	1,634		$	14,465		$	(606)

Weighted average shares outstanding – basic		48,449			47,958			48,393			47,957
Weighted average shares outstanding – diluted		49,426			48,254			49,225			47,957

Earnings (loss) per common share - basic	$	0.10		$	0.02		$	0.12		$	(0.19	)
Earnings (loss) per common share - diluted	$	0.10		$	0.02		$	0.12		$	(0.19	)

Non-GAAP earnings (loss) per common share - basic	$	0.17		$	0.04		$	0.30		$	(0.01	)
Non-GAAP earnings (loss) per common share - diluted	$	0.16		$	0.04		$	0.29		$	(0.01	)

⁽¹⁾ Includes amortization of actuarial losses related to the Company's pension plan for employees in certain foreign countries.
⁽²⁾Includes a non-cash change in fair value of equity investments held in deferred compensation plans offered to certain employees.
⁽³⁾ Includes a net investment gain of $1.5 million related to the out of period remeasurement to historical cost basis of certain long-term investments held in the Company's stock as part of one of the Company’s deferred compensation plans.

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