ADTRAN, Inc. Reports Results for the Third Quarter 2014 and Declares Quarterly Cash Dividend

HUNTSVILLE, Ala.–(BUSINESS WIRE)–Oct. 14, 2014– ADTRAN, Inc. (NASDAQ:ADTN, news, filings) reported results for the third quarter 2014. For the quarter, sales were$162,892,000 compared to$177,404,000 for the third quarter of 2013. Net income was$11,326,000 compared to$16,205,000 for the third quarter of 2013. Earnings per share, assuming dilution, were$0.21 compared to$0.28 for the third quarter of 2013. Non-GAAP earnings per share were$0.25 compared to$0.32 for the third quarter of 2013. The reconciliation between GAAP earnings per share, diluted, and non-GAAP earnings per share, diluted, is in the table provided.

ADTRAN Chief Executive Officer Tom Stanton stated, “Revenue came in as we anticipated in our press release of October 2, 2014 with a sequential decrease in our European business and a soft enterprise spending environment. Our domestic carrier business saw a sequential revenue increase. We believe our company is well positioned to take advantage of a re-acceleration of carrier spending in both Europe and the US we expect to begin in 2015.”

The Company also announced that its Board of Directors declared a cash dividend for the third quarter of 2014. The quarterly cash dividend is $0.09 per common share to be paid to holders of record at the close of business on October 30, 2014. The ex-dividend date is October 28, 2014 and the payment date is November 13, 2014.

The Company confirmed that its third quarter conference call will be held Wednesday, October 15, 2014 at 9:30 a.m. Central Time. This conference call will be web cast live through StreetEvents.com. To listen, simply visit the Investor Relations site at www.adtran.com or www.streetevents.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 will be available for seven days at www.streetevents.com. In addition, 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 at www.adtran.com for at least 12 months following the call.

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 info@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, 2013 and on Form 10-Q for the quarter ended June 30, 2014. 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, 2014					December 31, 2013
Assets
Cash and cash equivalents			$	58,415				$	58,298
Short-term investments				55,587					105,760
Accounts receivable, net				99,341					85,814
Other receivables				27,262					18,249
Inventory				86,879					90,111
Prepaid expenses				5,579					4,325
Deferred tax assets, net				15,697					17,083
Total Current Assets				348,760					379,640
Property, plant and equipment, net				75,201					76,739
Deferred tax assets, net				12,991					9,622
Goodwill				3,492					3,492
Other assets				11,748					11,180
Long-term investments				298,542					309,225
Total Assets			$	750,734				$	789,898
Liabilities and Stockholders’ Equity
Accounts payable			$	49,972				$	48,282
Unearned revenue				23,418					22,205
Accrued expenses				12,356					12,776
Accrued wages and benefits				17,591					14,040
Income tax payable, net				13,650					5,002
Total Current Liabilities				116,987					102,305
Non-current unearned revenue				13,822					14,643
Other non-current liabilities				23,548					22,144
Bonds payable				30,000					46,200
Total Liabilities				184,357					185,292
Stockholders’ Equity				566,377					604,606
Total Liabilities and Stockholders’ Equity			$	750,734				$	789,898

Consolidated Statements of Income (Unaudited) (In thousands, except per share data)
		Three Months Ended September 30,										Nine Months Ended September 30,
		2014					2013					2014					2013
Sales		$	162,892				$	177,404				$	486,025				$	482,650
Cost of sales			84,635					94,857					243,181					250,628
Gross Profit			78,257					82,547					242,844					232,022
Selling, general and administrative expenses			32,438					32,794					100,165					96,082
Research and development expenses			33,324					32,543					99,547					98,114
Operating Income			12,495					17,210					43,132					37,826
Interest and dividend income			992					1,579					3,340					5,021
Interest expense			(150	)				(581	)				(525	)				(1,737	)
Net realized investment gain			2,687					1,751					7,219					6,949
Other income (expense), net			(963	)				22					(1,615	)				(1,521	)
Income before provision for income taxes			15,061					19,981					51,551					46,538
Provision for income taxes			(3,735	)				(3,776	)				(16,223	)				(12,584	)
Net Income		$	11,326				$	16,205				$	35,328				$	33,954
Weighted average shares outstanding – basic			54,521					57,947					55,552					59,561
Weighted average shares outstanding – diluted (1)			54,824					58,617					55,976					59,929
Earnings per common share – basic		$	0.21				$	0.28				$	0.64				$	0.57
Earnings per common share – diluted (1)		$	0.21				$	0.28				$	0.63				$	0.57
(1) Assumes exercise of dilutive stock options calculated under the treasury stock method.

Consolidated Statements of Comprehensive Income (Unaudited) (In thousands)
		Three Months Ended September 30,										Nine Months Ended September 30,
		2014					2013					2014					2013
Net Income		$	11,326				$	16,205				$	35,328				$	33,954
Other Comprehensive Income (Loss), net of tax:
Unrealized gains (losses) on available-for-sale securities			(3,148	)				2,562					(2,850	)				(780	)
Foreign currency translation			(2,568	)				(108	)				(2,182	)				(1,498	)
Other Comprehensive Income (Loss), net of tax			(5,716	)				2,454					(5,032	)				(2,278	)
Comprehensive Income, net of tax		$	5,610				$	18,659				$	30,296				$	31,676

Consolidated Statements of Cash Flows (Unaudited) (In thousands)
			Nine Months Ended September 30,
			2014						2013
Cash flows from operating activities:
Net income			$	35,328					$	33,954
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization				11,127						11,021
Amortization of net premium on available-for-sale investments				3,363						4,688
Net realized gain on long-term investments				(7,219	)					(6,949	)
Net loss on disposal of property, plant and equipment				109						6
Stock-based compensation expense				6,296						6,516
Deferred income taxes				(122	)					(1,296	)
Tax benefit from stock option exercises				71						113
Excess tax benefits from stock-based compensation arrangements				(53	)					(106	)
Change in operating assets and liabilities:
Accounts receivable, net				(15,957	)					(25,844	)
Other receivables				(10,576	)					(3,724	)
Inventory				2,413						8,584
Prepaid expenses and other assets				(4,095	)					(417	)
Accounts payable				3,563						30,073
Accrued expenses and other liabilities				7,507						(4,339	)
Income tax payable, net				9,265						(678	)
Net cash provided by operating activities				41,020						51,602
Cash flows from investing activities:
Purchases of property, plant and equipment				(8,162	)					(6,123	)
Proceeds from disposals of property, plant and equipment				1						–
Proceeds from sales and maturities of available-for-sale investments				187,013						275,581
Purchases of available-for-sale investments				(127,074	)					(216,129	)
Net cash provided by investing activities				51,778						53,329
Cash flows from financing activities:
Proceeds from stock option exercises				2,311						2,332
Purchases of treasury stock				(62,144	)					(104,147	)
Dividend payments				(15,060	)					(16,220	)
Payments on long-term debt				(16,500	)					–
Excess tax benefits from stock-based compensation arrangements				53						106
Net cash used in financing activities				(91,340	)					(117,929	)
Net increase (decrease) in cash and cash equivalents				1,458						(12,998	)
Effect of exchange rate changes				(1,341	)					(1,148	)
Cash and cash equivalents, beginning of period				58,298						68,457
Cash and cash equivalents, end of period			$	58,415					$	54,311
Supplemental disclosure of non-cash investing activities:
Purchases of property, plant and equipment included in accounts payable			$	598					$	494

Supplemental Information Acquisition Related Expenses, Amortizations and Adjustments (Unaudited) (In thousands)
On August 4, 2011, we closed on the acquisition of Bluesocket, Inc. and on May 4, 2012, we closed on the acquisition of the Nokia Siemens Networks Broadband Access business (NSN BBA). Acquisition related expenses, amortizations and adjustments for the three and nine months ended September 30, 2014 and 2013 for both transactions are as follows:
			Three Months Ended September 30,										Nine Months Ended September 30,
			2014					2013					2014					2013
Bluesocket, Inc. acquisition
Amortization of acquired intangible assets and other purchase accounting adjustments			$	227				$	283				$	699				$	863
NSN BBA acquisition
Amortization of acquired intangible assets				287					291					884					873
Amortization of other purchase accounting adjustments				240					235					895					987
Acquisition related professional fees, travel and other expenses				24					93					89					329
Subtotal				551					619					1,868					2,189
Total acquisition related expenses, amortizations and adjustments				778					902					2,567					3,052
Provision for income taxes				(259	)				(302	)				(851	)				(1,015	)
Total acquisition related expenses, amortizations and adjustments, net of tax			$	519				$	600				$	1,716				$	2,037

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, 2014 and 2013:
		Three Months Ended September 30,										Nine Months Ended September 30,
		2014					2013					2014					2013
Revenue (adjustments to deferred revenue recognized in the period)		$	105				$	221				$	528				$	718
Cost of goods sold			47					(57	)				104					94
Subtotal			152					164					632					812
Selling, general and administrative expenses			31					101					110					375
Research and development expenses			595					637					1,825					1,865
Subtotal			626					738					1,935					2,240
Total acquisition related expenses, amortizations and adjustments			778					902					2,567					3,052
Provision for income taxes			(259	)				(302	)				(851	)				(1,015	)
Total acquisition related expenses, amortizations and adjustments, net of tax		$	519				$	600				$	1,716				$	2,037

Supplemental Information Stock-based Compensation Expense (Unaudited) (In thousands)
		Three Months Ended September 30,										Nine Months Ended September 30,
		2014					2013					2014					2013
Stock-based compensation expense included in cost of sales		$	124				$	118				$	359				$	334
Selling, general and administrative expense			1,048					1,024					3,089					3,129
Research and development expense			975					1,034					2,848					3,053
Stock-based compensation expense included in operating expenses			2,023					2,058					5,937					6,182
Total stock-based compensation expense			2,147					2,176					6,296					6,516
Tax benefit for expense associated with non-qualified options			(298	)				(307	)				(878	)				(924	)
Total stock-based compensation expense, net of tax		$	1,849				$	1,869				$	5,418				$	5,592

Reconciliation of GAAP net income per share, diluted, to Non-GAAP net income per share, diluted (Unaudited)
		Three Months Ended September 30,								Nine Months Ended September 30,
		2014				2013				2014				2013
GAAP earnings per common share – diluted		$	0.21			$	0.28			$	0.63			$	0.57
Acquisition related expenses, amortizations and adjustments			0.01				0.01				0.03				0.03
Stock-based compensation expense			0.03				0.03				0.10				0.09
Non-GAAP earnings per common share – diluted		$	0.25			$	0.32			$	0.76			$	0.69

Source: ADTRAN, Inc.

ADTRAN, Inc.
Jim Matthews, 256-963-8775
Senior Vice President/CFO
or
Investor Services/Assistance:
Gayle Ellis, 256-963-8220

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