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A month has gone by since the last earnings report for Adtran (ADTN). Shares have added about 0.8% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Adtran due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
ADTRAN Q4 Earnings Beat Estimates on Higher Revenues
ADTRAN reported impressive fourth-quarter 2020 results, with the bottom and the top line increasing on a year-over-year basis. Despite COVID-19 woes, accretive customer base and higher revenues from the Network Solutions segment on the back of software innovations boosted the performance.
On a GAAP basis, net income for the December quarter was $6.1 million or 13 cents per share against a net loss of $11.6 million or loss of 24 cents per share in the year-ago quarter. The significant improvement was primarily driven by top-line growth and income tax benefit.
Non-GAAP net income came in at $5.2 million or 11 cents per share against a net loss of $2.5 million or loss of 5 cents per share in the prior-year quarter. The bottom line beat the Zacks Consensus Estimate by 5 cents.
In 2020, GAAP net income was $2.4 million or 5 cents per share against net loss of $53 million or loss of $1.11 per share in 2019. Non-GAAP net income in 2020 improved to $12.6 million or 26 cents per share from $5.5 million or 11 cents per share in 2019.
Quarterly revenues aggregated $130.1 million compared with $115.8 million in the year-earlier quarter. The 12.3% year-over-year jump was primarily driven by higher revenues from the Network Solutions segment. Solid customer traction with broad-based growth across market segments despite the COVID-19 mayhem also played a vital role. The top line beat the consensus estimate of $128 million. In 2020, total revenues declined to $506.5 million from $530.1 million in 2019.
Sales from the Network Solutions segment came in at $114.1 million compared with $96.2 million in the prior-year quarter. The 18.6% year-over-year increase was mainly bolstered by latest fiber access advancements on the back of favorable technology and competitive factors. However, sales from the Services & Support segment were $16 million, down 18.4% from $19.6 million in the year-ago quarter.
Total cost of sales increased from $68.6 million to $76.6 million. Gross profit came in at $53.5 million compared with $47.2 million in the prior-year quarter. Operating loss for the quarter was $3.3 million compared with an operating loss of $14.1 million in the year-ago quarter.
The company announced that its board of directors approved a quarterly cash dividend of 9 cents per share to shareholders on record as of Feb 18, 2021, payable on Mar 4, 2021.
Cash Flow & Liquidity
In 2020, ADTRAN utilized $16.5 million of net cash in operating activities compared with $2.5 million of net cash utilization in 2019. As of Dec 31, 2020, the networking equipment maker had $60.2 million in cash and cash equivalents with $87.5 million of total current liabilities compared with respective tallies of $73.8 million and $112.7 million in the prior-year period.
Despite challenging macroeconomic conditions triggered by the COVID-19 pandemic, ADTRAN emerged as a strong player and witnessed robust demand in service provider markets. The company continues to optimize its customer, geographic and product diversity momentum as communications service providers scale up their network capabilities.
The company added 35 new service provider customers during the quarter and has been selected by numerous Tier 1 operators for its diversified portfolio of software-defined access, fiber extension and 10G PON solutions. Moreover, its strategy of diversification across the globe along with technological advancements instills confidence. First-quarter 2021 revenues are likely to be in the range of $122-$130 million with non-GAAP gross margin of 40-42%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -780% due to these changes.
Currently, Adtran has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. It's no surprise Adtran has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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