ADTRAN, Inc. Reports Earnings for the Fourth Quarter 2017 and Declares Quarterly Cash Dividend

HUNTSVILLE, Ala.–(BUSINESS WIRE)–ADTRAN, Inc. (NASDAQ:ADTN) reported results for the fourth quarter 2017.
For the quarter, sales were $126.5 million compared to $163.0 million
for the fourth quarter of 2016. Net income was a loss of $11.1 million
compared to income of $7.6 million for the fourth quarter of 2016.
Earnings per share, assuming dilution, were a loss of $0.23 compared to
income of $0.16 for the fourth quarter of 2016. Non-GAAP earnings per
share were $0.05 compared to $0.21 for the fourth quarter of 2016. GAAP
results for the fourth quarter 2017 reflect the impact of the Tax Cuts
and Jobs Act that resulted in a charge to tax expense of $11.9 million,
which has been excluded from non-GAAP earnings. 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, “As we
previously disclosed, our results for the quarter were negatively
affected by a merger-related review and spending slowdown by a domestic
Tier 1 customer. While this disruption continues to impact our business,
our overall expectations regarding our domestic and international
programs and opportunities remain positive. The company’s engagement
with leading service providers across the globe is extremely strong,
with high interest and acceptance of our next-generation Software
Defined Access solutions. ADTRAN is well positioned to help our carrier
and MSO customers successfully manage the transition to a fully realized
Gigabit and beyond marketplace by providing the industry’s most
innovative and complete portfolio of transformative SD-Access solutions
so that any subscriber, in any market, can realize the full potential of
the network.”

The Company also announced that its Board of Directors declared a cash
dividend for the fourth 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 January 31, 2018. The ex-dividend date is January 30, 2018,
and the payment date is February 14, 2018.

The Company confirmed that its fourth quarter conference call will be
held Wednesday, January 17, 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.

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)
 
December 31, December 31,
2017   2016
Assets
Cash and cash equivalents $ 86,433 $ 79,895
Short-term investments 16,129 43,188
Accounts receivable, net 143,835 92,346
Other receivables 22,746 15,137
Income tax receivable, net 760
Inventory, net 122,542 105,117
Prepaid expenses and other current assets   17,455   16,459
Total Current Assets 409,140 352,902
 
Property, plant and equipment, net 85,079 84,469
Deferred tax assets, net 23,318 38,036
Goodwill 3,492 3,492
Other assets 13,725 12,234
Long-term investments   130,256   176,102
Total Assets $ 665,010 $ 667,235
 
Liabilities and Stockholders’ Equity
Accounts payable $ 60,495 $ 77,342
Unearned revenue 13,070 16,326
Accrued expenses 13,232 12,434
Accrued wages and benefits 15,948 20,433
Income tax payable, net   104  
Total Current Liabilities 102,849 126,535
 
Non-current unearned revenue 4,556 6,333
Other non-current liabilities 33,854 28,050
Bonds payable   25,600   26,800
Total Liabilities 166,859 187,718
 
Stockholders’ Equity   498,151   479,517
 
Total Liabilities and Stockholders’ Equity $ 665,010 $ 667,235
 
       
Consolidated Statements of Income
(Unaudited)
(In thousands, except per share data)
 
Three Months Ended Twelve Months Ended
December 31, December 31,
2017   2016   2017   2016
Sales  

 

 
Products $ 96,058 $ 126,793 $ 540,665 $ 525,502
Services   30,461   36,193   125,918   111,279
Total Sales 126,519 162,986 666,583 636,781
Cost of sales
Products 49,696 67,790 279,541 270,695
Services   18,015   24,409   83,389   74,742
Total Cost of Sales 67,711 92,199 362,930 345,437
Gross Profit 58,808 70,787 303,653 291,344
Selling, general and administrative expenses 31,387 34,438 135,489 131,805
Research and development expenses   31,489   32,077   130,434   124,804
Operating Income (Loss) (4,068 ) 4,272 37,730 34,735
Interest and dividend income 1,523 1,226 4,380 3,918
Interest expense (139 ) (142 ) (556 ) (572 )
Net realized investment gain 1,816 1,769 4,685 5,923
Other income (expense), net 127 (273

)

(1,559 ) (651 )
Gain on bargain purchase of a business     (8 )

 

    3,542
Income (Loss) before provision for income taxes (741 ) 6,844 44,680 46,895
Provision for income taxes   (10,376 )   728   (20,847 )   (11,666 )
Net Income (Loss) $ (11,117 ) $ 7,572 $ 23,833 $ 35,229
 
Weighted average shares outstanding – basic 48,280 48,383 48,153 48,724
Weighted average shares outstanding – diluted 48,912 48,757 48,699 48,949
 
Earnings per common share – basic $ (0.23 ) $ 0.16 $ 0.49 $ 0.72
Earnings per common share – diluted $ (0.23 ) $ 0.16 $ 0.49 $ 0.72
 
(1)   Assumes exercise of dilutive stock options calculated under the
treasury stock method.
 
       
Consolidated Statements of Comprehensive Income
(Unaudited)
(In thousands)
 
Three Months Ended Twelve Months Ended
December 31, December 31,
2017   2016 2017     2016
 
Net Income (Loss) $ (11,117 ) $ 7,572 $ 23,833 $ 35,229
Other Comprehensive Income (Loss), net of tax
Net unrealized gains (losses) on available-for-sale securities (349 ) (1,366 ) 2,163 (1,528 )
Net unrealized gains on cash flow hedges 196
Defined benefit plan adjustments 762 (1,225 ) 976 (1,122 )
Foreign currency translation   599   (1,771 )   6,001   (569 )
Other Comprehensive Income (Loss), net of tax   1,208   (4,362 )   9,140   (3,219 )
Comprehensive Income (Loss), net of tax $ (9,909 ) $ 3,210 $ 32,973 $ 32,010
 
     
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
 
Twelve Months Ended
December 31,
2017   2016
Cash flows from operating activities
Net income $ 23,833 $ 35,229
Adjustments to reconcile net income to net cash provided by operating

activities:

Depreciation and amortization 15,690 14,407
Amortization of net premium on available-for-sale investments 425 643
Net realized gain on long-term investments (4,685 ) (5,923 )
Net (gain) loss on disposal of property, plant and equipment (145 ) 22
Gain on bargain purchase of a business (3,542 )
Stock-based compensation expense 7,433 6,695
Deferred income taxes 14,069 (2,685 )
Change in operating assets and liabilities:
Accounts receivable, net (48,773 ) (21,302 )
Other receivables (6,906 ) 4,101
Inventory (15,519 ) (10,887 )
Prepaid expenses and other assets (5,003 ) (7,108 )
Accounts payable (17,877 ) 26,722
Accrued expenses and other liabilities (5,448 ) 8,792
Income taxes payable/receivable, net   536   (3,162 )
Net cash provided by (used in) operating activities   (42,370 )   42,002
 
Cash flows from investing activities
Purchases of property, plant and equipment (14,719 ) (21,441 )
Proceeds from disposals of property, plant and equipment 151
Proceeds from sales and maturities of available-for-sale investments 173,752 225,075
Purchases of available-for-sale investments (93,141 ) (209,172 )
Acquisition of business     (943 )
Net cash provided by (used in) investing activities   66,043   (6,481 )
 
Cash flows from financing activities
Proceeds from stock option exercises 13,412 4,717
Purchases of treasury stock (17,348 ) (25,817 )
Dividend payments (17,368 ) (17,583 )
Payments on long-term debt   (1,100 )   (1,100 )
Net cash used in financing activities   (22,404 )   (39,783 )
 
Net increase (decrease) in cash and cash equivalents 1,269 (4,262 )
Effect of exchange rate changes 5,269 (393 )
Cash and cash equivalents, beginning of year   79,895   84,550
 
Cash and cash equivalents, end of year $ 86,433 $ 79,895
 
Supplemental disclosure of non-cash investing activities
Purchases of property, plant and equipment included in accounts
payable
$ 408 $ 2,103
 
 
Supplemental Information
Restructuring Expenses
(Unaudited)
(In thousands)
 
 

Restructuring expense was recorded in the following Consolidated
Statements of Income categories for the three and twelve months
ended December 31, 2017 and 2016:

       
 
Three Months Ended Twelve Months Ended
December 31, December 31,
2017   2016 2017   2016
 
Restructuring expense included in cost of sales $   $ 14 $ $ 1,321
 
Selling, general and administrative expense 59 152 637
Research and development expense       122  
Restructuring expense included in operating expenses   59     274   637
 
Total restructuring expense 59 14 274 1,958
Provision for income taxes   (23 )   (4 )   (107 )   (607 )
 
Total restructuring expense, net of tax $ 36 $ 10 $ 167 $ 1,351
 
       
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 twelve months
ended December 31, 2017 and 2016 for all three transactions are as
follows:

 
 
Three Months Ended Twelve Months Ended
December 31, December 31,
2017   2016 2017   2016
Bluesocket, Inc. acquisition
Amortization of acquired intangible assets $ 158 $ 158 $ 632 $ 662
 
NSN BBA acquisition
Amortization of acquired intangible assets 95 221 527 901
Amortization of other purchase accounting adjustments     30   39   224
Subtotal – NSN BBA acquisition   95   251   566   1,125
 
CommScope acquisition
Amortization of acquired intangible assets 219 673 1,732 785
Amortization of other purchase accounting adjustments 3 42 88 126
Acquisition related professional fees, travel and other expenses     29   8   74
Subtotal – CommScope acquisition   222   744   1,828   985
 
Total acquisition related expenses, amortizations and

adjustments

475 1,153 3,026 2,772
Provision for income taxes   (178 )   (429 )   (1,135 )   (991 )
Total acquisition related expenses, amortizations and

adjustments, net of tax

$ 297 $ 724 $ 1,891 $ 1,781
 
       

The acquisition related expenses, amortizations and adjustments
above were recorded in the following Consolidated Statements of
Income categories for the three and twelve months ended
December 31, 2017 and 2016:

 
Three Months Ended Twelve Months Ended
December 31, December 31,
2017   2016 2017   2016
 
Cost of goods sold $ 2 $ 43 $ 88 $ 232
 
Selling, general and administrative expenses 51 70 215 131
Research and development expenses   422   1,040   2,723   2,409
Total acquisition related expenses, amortizations and

adjustments included in operating expenses

  473   1,110   2,938   2,540
 
Total acquisition related expenses, amortizations and

adjustments

475 1,153 3,026 2,772
Provision for income taxes   (178 )   (429 )   (1,135 )   (991 )
Total acquisition related expenses, amortizations and

adjustments, net of tax

$ 297 $ 724 $ 1,891 $ 1,781
 
       
Supplemental Information
Stock-based Compensation Expense
(Unaudited)
(In thousands)
 
Three Months Ended Twelve Months Ended
December 31, December 31,
2017   2016 2017   2016
 
Stock-based compensation expense included in cost of sales $ 98   $ 107 $ 379 $ 389
 
Selling, general and administrative expense 1,045 1,019 4,063 3,341
Research and development expense   717   968   2,991   2,965
Stock-based compensation expense included in operating expenses   1,762   1,987   7,054   6,306
 
Total stock-based compensation expense 1,860 2,094 7,433 6,695
Tax benefit for expense associated with non-qualified options, PSUs,

RSUs and restricted stock

  (484 )   (320 )   (1,699 )   (963 )
 
Total stock-based compensation expense, net of tax $ 1,376 $ 1,774 $ 5,734 $ 5,732
 
     
Reconciliation of GAAP net income per share, diluted, to
Non-GAAP net income per share, diluted
(Unaudited)
 
Three Months Ended Twelve Months Ended
December 31, December 31,
2017   2016 2017     2016
   
GAAP earnings per common share – diluted $ (0.23 )   $ 0.16 $ 0.49   $ 0.72
 
Restructuring expense 0.03
Acquisition related expenses, amortizations and adjustments 0.01 0.01 0.04 0.04
Stock-based compensation expense 0.03 0.04 0.12 0.12
Impact of the Tax Cuts and Jobs Act 0.24 0.24
Gain on bargain purchase of a business         (0.07 )
 
Non-GAAP earnings per common share – diluted $ 0.05 $ 0.21 $ 0.89 $ 0.84

Contacts

ADTRAN, Inc.
Gloria Brown, 256-963-8020
investor.relations@adtran.com