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ADTRAN, Inc. Reports 28% Increase in Earnings for the Third Quarter 2017 and Declares Quarterly Cash Dividend

HUNTSVILLE, Ala.--(BUSINESS WIRE)--

ADTRAN, Inc. (ADTN) reported results for the third quarter 2017. For the quarter, sales were $185.1 million compared to $168.9 million for the third quarter of 2016. Net income was $15.9 million compared to $12.4 million for the third quarter of 2016. Earnings per share, assuming dilution, were $0.33 compared to $0.26 for the third quarter of 2016. Non-GAAP earnings per share were $0.37 compared to $0.26 for the third quarter of 2016, an increase of 42%. 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, “We are very pleased with the company’s performance in the third quarter as we continued to see strong sales in our domestic ultra-broadband solutions and services, which have more than doubled from the same period last year. Total company revenues grew by 10% compared to the same period last year as a result of strength in both our Network Solutions segment and a record performance in our services revenues, which again grew at a double-digit pace. We were also pleased to see growth in our Customer Devices category in the quarter. Our customers are increasingly relying on ADTRAN to help them plan, provision and deploy network assets to the best effect, ensuring the network is prepared for the emergence of exciting applications and mission critical services.”

The Company also announced that its Board of Directors declared a cash dividend for the third quarter of 2017. The quarterly cash dividend is $0.09 per common share to be paid to holders of record at the close of business on November 1, 2017. The ex-dividend date is October 31, 2017, and the payment date is November 15, 2017.

The Company confirmed that its third quarter conference call will be held Wednesday, October 18, 2017, 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.

ADTRAN, Inc. is a 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. For more information, please visit www.adtran.com.

For more information, contact the company at 800 9ADTRAN (800 923-8726) or via email at investor.relations@adtran.com. On the Web, visit www.adtran.com.

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, 2016. 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,
2017   2016
Assets
Cash and cash equivalents $ 128,253 $ 79,895
Short-term investments 31,385 43,188
Accounts receivable, net 101,613 92,346
Other receivables 18,541 15,137
Income tax receivable, net 760
Inventory, net 116,230 105,117
Prepaid expenses and other current assets   23,127   16,459
Total Current Assets 419,149 352,902
 
Property, plant and equipment, net 85,665 84,469
Deferred tax assets, net 37,130 38,036
Goodwill 3,492 3,492
Other assets 13,135 12,234
Long-term investments   136,987   176,102
Total Assets $ 695,558 $ 667,235
 
Liabilities and Stockholders' Equity
Accounts payable $ 73,127 $ 77,342
Unearned revenue 13,651 16,326
Accrued expenses 15,099 12,434
Accrued wages and benefits 15,345 20,433
Income tax payable, net   7,696  
Total Current Liabilities 124,918 126,535
 
Non-current unearned revenue 4,918 6,333
Other non-current liabilities 34,756 28,050
Bonds payable   26,800   26,800
Total Liabilities 191,392 187,718
 
Stockholders' Equity   504,166   479,517
 
Total Liabilities and Stockholders' Equity $ 695,558 $ 667,235
   

Consolidated Statements of Income

(Unaudited)

(In thousands, except per share data)

 
Three Months Ended Nine Months Ended
September 30, September 30,
2017   2016   2017   2016
Sales  
Products $ 145,467 $ 136,277 $ 444,607 $ 398,709
Services   39,645   32,613   95,457   75,086
Total Sales 185,112 168,890 540,064 473,795
Cost of sales
Products 73,528 70,988 229,845 202,905
Services   25,086   22,094   65,374   50,333
Total Cost of Sales 98,614 93,082 295,219 253,238
Gross Profit 86,498 75,808 244,845 220,557
Selling, general and administrative expenses 34,652 33,716 104,102 97,367
Research and development expenses   33,528   31,962   98,945   92,727
Operating Income 18,318 10,130 41,798 30,463
Interest and dividend income 952 910 2,857 2,692
Interest expense (139 ) (143 ) (417 ) (430 )
Net realized investment gain 1,009 1,316 2,869 4,154
Other expense, net (933 ) (246 ) (1,686 ) (378 )
Gain on bargain purchase of a business     3,550     3,550
Income before provision for income taxes 19,207 15,517 45,421 40,051
Provision for income taxes   (3,309 )   (3,102 )   (10,471 )   (12,394 )
Net Income $ 15,898 $ 12,415 $ 34,950 $ 27,657
 
Weighted average shares outstanding – basic 47,870 48,470 48,110 48,839
Weighted average shares outstanding – diluted 48,531 48,678 48,618 49,036
 
Earnings per common share – basic $ 0.33 $ 0.26 $ 0.73 $ 0.57
Earnings per common share – diluted $ 0.33 $ 0.26 $ 0.72 $ 0.56
 

(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,
2017     2016 2017   2016
 
Net Income $ 15,898 $ 12,415 $ 34,950 $ 27,657
Other Comprehensive Income, net of tax
Net unrealized gains (losses) on available-for-sale securities 804 258 2,512 (162 )
Net unrealized gains (losses) on cash flow hedges 142 (196 )
Defined benefit plan adjustments 73 36 214 103
Foreign currency translation   1,541   575   5,402   1,202
Other Comprehensive Income, net of tax   2,560   869   7,932   1,143
Comprehensive Income, net of tax $ 18,458 $ 13,284 $ 42,882 $ 28,800
 

Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 
Nine Months Ended
September 30,
2017   2016
Cash flows from operating activities:
Net income $ 34,950 $ 27,657
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 12,034 10,260
Amortization of net premium on available-for-sale investments 352 489
Net realized gain on long-term investments (2,869 ) (4,154 )
Net (gain) loss on disposal of property, plant and equipment (10 ) 21
Gain on bargain purchase of a business (3,550 )
Stock-based compensation expense 5,573 4,601
Deferred income taxes (463 )
Changes in operating assets and liabilities:
Accounts receivable, net (6,975 ) (29,370 )
Other receivables (2,924 ) 7,475
Inventory (9,483 ) (683 )
Prepaid expenses and other assets (9,647 ) (5,180 )
Accounts payable (4,727 ) 16,363
Accrued expenses and other liabilities (2,820 ) 7,307
Income tax payable/receivable, net   8,571   (2,941 )
Net cash provided by operating activities   22,025   27,832
 
Cash flows from investing activities:
Purchases of property, plant and equipment (12,304 ) (12,684 )
Proceeds from disposals of property, plant and equipment 16
Proceeds from sales and maturities of available-for-sale investments 137,272 141,103
Purchases of available-for-sale investments (79,713 ) (139,181 )
Acquisition of business     (943 )
Net cash provided by (used in) investing activities   45,271   (11,705 )
 
Cash flows from financing activities:
Proceeds from stock option exercises 6,606 1,076
Purchases of treasury stock (17,348 ) (22,917 )
Dividend payments   (13,031 )   (13,230 )
Net cash used in financing activities   (23,773 )   (35,071 )
 
Net increase (decrease) in cash and cash equivalents 43,523 (18,944 )
Effect of exchange rate changes 4,835 686
Cash and cash equivalents, beginning of period   79,895   84,550
 
Cash and cash equivalents, end of period $ 128,253 $ 66,292
 
Supplemental disclosure of non-cash investing activities:
Purchases of property, plant and equipment included in accounts payable $ 272 $ 1,174
 

Supplemental Information

Restructuring Expenses

(Unaudited)

(In thousands)

 

Restructuring expense was recorded in the following Consolidated Statements of Income categories for the three and nine months ended September 30, 2017 and 2016:

   
Three Months Ended Nine Months Ended
September 30, September 30,
2017   2016 2017   2016
 
Restructuring expense included in cost of sales $ $ 1,307 $ $ 1,307
 
Selling, general and administrative expense 93 637 93 637
Research and development expense   122     122  
Restructuring expense included in operating expenses   215   637   215   637
 
Total restructuring expense 215 1,944 215 1,944
Provision for income taxes   (84 )   (603 )   (84 )   (603 )
 
Total restructuring expense, net of tax $ 131 $ 1,341 $ 131 $ 1,341
   

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), and on September 13, 2016, we closed on the acquisition of CommScope’s active fiber business (CommScope). Acquisition related expenses, amortizations and adjustments for the three and nine months ended September 30, 2017 and 2016 for all three transactions are as follows:

 
Three Months Ended Nine Months Ended
September 30, September 30,
2017   2016 2017   2016
Bluesocket, Inc. acquisition
Amortization of acquired intangible assets $ 158 $ 158 $ 474 $ 504
 
NSN BBA acquisition
Amortization of acquired intangible assets 95 225 432 680
Amortization of other purchase accounting adjustments   1   114   39   194
Subtotal - NSN BBA acquisition 96 339 471 874
 
CommScope acquisition
Amortization of acquired intangible assets 219 112 1,513 112
Amortization of other purchase accounting adjustments 4 84 85 84
Acquisition related professional fees, travel and other expenses     45   8   45
Subtotal - CommScope acquisition   223   241   1,606   241
 

Total acquisition related expenses, amortizations and adjustments

477 738 2,551 1,619
Provision for income taxes   (178 )   (261 )   (957 )   (562 )

Total acquisition related expenses, amortizations and adjustments, net of tax

$ 299 $ 477 $ 1,594 $ 1,057
   

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, 2017 and 2016:

 
Three Months Ended Nine Months Ended
September 30, September 30,
2017   2016 2017   2016
 
Cost of goods sold $ 5 $ 169 $ 86 $ 189
 
Selling, general and administrative expenses 50 54 164 61
Research and development expenses   422   515   2,301   1,369

Total acquisition related expenses, amortizations and adjustments included in operating expenses

472 569 2,465 1,430
 

Total acquisition related expenses, amortizations and adjustments

477 738 2,551 1,619

Provision for income taxes

  (178 )   (261 )   (957 )   (562 )

Total acquisition related expenses, amortizations and adjustments, net of tax

$ 299 $ 477 $ 1,594 $ 1,057
   

Supplemental Information

Stock-based Compensation Expense

(Unaudited)

(In thousands)

 
Three Months Ended Nine Months Ended
September 30, September 30,
2017   2016 2017   2016
 

Stock-based compensation expense included in cost of sales

$ 97 $ 88 $ 281 $ 282
 
Selling, general and administrative expense 994 765 3,018 2,322
Research and development expense   743   639   2,274   1,997
Stock-based compensation expense included in operating expenses   1,737   1,404   5,292   4,319
 
Total stock-based compensation expense 1,834 1,492 5,573 4,601

Tax benefit for expense associated with non-qualified options, PSUs, RSUs and restricted stock

 

(402

)

 

(218

)

 

(1,215

)

 

(643

)

 
Total stock-based compensation expense, net of tax $ 1,432 $ 1,274 $ 4,358 $ 3,958
   

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,
2017     2016 2017     2016
   
GAAP earnings per common share - diluted $ 0.33 $ 0.26 $ 0.72 $ 0.56
 
Restructuring expense 0.03 0.03

Acquisition related expenses, amortizations and adjustments

0.01 0.01 0.03 0.02
Stock-based compensation expense 0.03 0.03 0.09 0.08
Gain on bargain purchase of a business     (0.07 )     (0.07 )
 
Non-GAAP earnings per common share - diluted $ 0.37 $ 0.26 $ 0.84 $ 0.62

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