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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2021

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _______ to _______

 

Commission File Number: 000-24612

 

ADTRAN, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

63-0918200

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

901 Explorer Boulevard

Huntsville, Alabama

35806-2807

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (256) 963-8000

 

                                              Securities registered pursuant to Section 12(b) of the Act:

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, Par Value $0.01 per share

 

ADTN

 

The NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

☐  

  

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of August 4, 2021, the registrant had 48,561,812 shares of common stock, $0.01 par value per share, outstanding.

 

 

 


 

ADTRAN, Inc.

Quarterly Report on Form 10-Q

For the Three and Six Months Ended June 30, 2021

Table of Contents

 

Item

Number

 

 

 

Page

Number

 

 

 

Cautionary Note Regarding Forward-Looking Statements

 

3

 

 

Glossary of Selected Terms

 

5

 

 

PART I. FINANCIAL INFORMATION

 

 

 

 

 

 

 

1

 

Financial Statements:

 

 

 

 

Condensed Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020 – (Unaudited)

 

6

 

 

Condensed Consolidated Statements of Income (Loss) for the three and six months ended June 30, 2021 and 2020 – (Unaudited)

 

7

 

 

Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2021 and 2020 – (Unaudited)

 

8

 

 

Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three and six months ended June 30, 2021 and 2020 (Unaudited) 

 

9

 

 

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2021 and 2020 – (Unaudited)

 

10

 

 

Notes to Condensed Consolidated Financial Statements – (Unaudited)

 

11

2

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

29

3

 

Quantitative and Qualitative Disclosures About Market Risk

 

39

4

 

Controls and Procedures

 

40

 

 

 

 

 

 

 

PART II. OTHER INFORMATION

 

 

1

 

Legal Proceedings

 

41

1A

 

Risk Factors

 

41

2

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

43

6

 

Exhibits

 

44

 

 

 

 

 

 

 

SIGNATURE

 

45

 

 

 

 

 

 

 

 

 

 

 


2


 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by or on behalf of ADTRAN, Inc. (“ADTRAN”, the “Company”, “we”, “our” or “us”). ADTRAN and its representatives may from time to time make written or oral forward-looking statements, including statements contained in this report, our other filings with the Securities and Exchange Commission (the “SEC”) and other communications with our stockholders. Any statement that does not directly relate to a historical or current fact is a forward-looking statement. Generally, the words, “believe”, “expect”, “intend”, “estimate”, “anticipate”, “will”, “may”, “could” and similar expressions identify forward-looking statements. We caution you that any forward-looking statements made by us or on our behalf are subject to uncertainties and other factors that could affect the accuracy of such statements. The following are some of the risks that could affect our financial performance or could cause actual results to differ materially from those expressed or implied in our forward-looking statements:

 

 

Our revenues for a particular period can be difficult to predict, and a shortfall in revenue may harm our operating results.

 

The lengthy sales and approval process required by service providers for new products could result in fluctuations in our revenue.

 

We depend heavily on sales to certain customers; the loss of any of these customers would significantly reduce our revenues and net income.

 

Our exposure to the credit risks of our customers and distributors may make it difficult to collect accounts receivable and could adversely affect our operating results, financial condition and cash flows.

 

We expect gross margins to vary over time, and our levels of product and services gross margins may not be sustainable.

 

Our dependence on a limited number of suppliers for certain raw materials and key components may prevent us from delivering our products on a timely basis, which could have a material adverse effect on customer relations and operating results.

 

General economic conditions may reduce our revenues and harm our operating results, financial condition and cash flows.

 

The ongoing COVID-19 pandemic has impacted and may continue to impact our business, results of operations and financial condition, particularly our supply chain and workforce.

 

We compete in markets that have become increasingly competitive, which may result in reduced gross profit margins and market share.

 

Our estimates regarding future warranty obligations may change due to product failure rates, installation and shipment volumes, field service repair obligations and other rework costs incurred in correcting product failures. If our estimates change, the liability for warranty obligations may be increased or decreased, impacting future cost of goods sold.

 

Managing our inventory is complex and may include write-downs of excess or obsolete inventory.

 

The continuing growth of our international operations could expose us to additional risks, increase our costs and adversely affect our operating results, financial condition and cash flow.

 

If we are unable to integrate acquisitions successfully, it could adversely affect our operating results, financial condition and cash flow.

 

Our success depends on our ability to optimize the selling prices of succeeding generations of our products in order to gain market share.

 

If we fail to manage our exposure to worldwide financial and securities markets successfully, our operating results and financial statements could be materially impacted.

 

We are currently in the process of implementing a new enterprise resource planning software (“ERP”) solution. If we do not effectively implement this project, or any future associated updates, our operations could be significantly disrupted.

 

Breaches of our information systems and cyber-attacks could compromise our intellectual property and cause significant damage to our business and reputation.

 

A material weakness in our internal control over financial reporting could result in a loss of investor confidence in the reliability of our financial statements, which in turn could negatively affect the price of our common stock.

 

We must continue to update and improve our products and develop new products to compete and to keep pace with improvements in communications technology.

 

Our failure or the failure of our contract manufacturers to comply with applicable environmental regulations could adversely impact our results of operations.

 

If our products do not interoperate with our customers’ networks, installations may be delayed or canceled, which could harm our business.

 

We engage in research and development activities to develop new, innovative solutions and to improve the application of developed technologies, and as a consequence we may miss certain market opportunities enjoyed by larger companies with substantially greater research and development efforts and which may focus on more leading edge development.

 

Our strategy of outsourcing a portion of our manufacturing requirements to subcontractors located in various international regions may result in us not meeting our cost, quality or performance standards.

 

Our failure to maintain rights to intellectual property used in our business could adversely affect the development, functionality and commercial value of our products.

 

Software under license from third parties for use in certain of our products may not continue to be available to us on commercially reasonable terms.

3


 

Our use of open source software could impose limitations on our ability to commercialize our products.

 

We may incur liabilities or become subject to litigation that may have a material effect on our business.

 

If we are unable to successfully develop and maintain relationships with system integrators, service providers and enterprise value-added resellers, our revenue may be negatively affected.

 

Our operating results may fluctuate in future periods, which may adversely affect our stock price.

 

The price of our common stock has been volatile and may continue to fluctuate significantly.

 

We are subject to complex and evolving U.S. and foreign laws, regulations and standards governing the conduct of our business. Violations of these laws and regulations may harm our business, subject us to penalties and to other adverse consequences.

 

Changes in trade policy in the U.S. and other countries, specifically the U.K. and China, including the imposition of additional tariffs and the resulting consequences, may adversely impact our gross profits, gross margins, results of operations and financial condition.

 

New or revised tax regulations, changes in our effective tax rate, recognition of a valuation allowance or assessments arising from tax audits may have an adverse impact on our results.

The foregoing list of risks is not exclusive. For a more detailed description of the risk factors associated with our business, see Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on February 26, 2021 (the “2020 Form 10-K”), as well as the risk factors set forth in Part II, Item 1A of this Quarterly Report on Form 10-Q. We caution investors that other factors may prove to be important in the future in affecting our operating results. New factors emerge from time to time, and it is not possible for us to predict all of these factors, nor can we assess the impact each factor, or a combination of factors, may have on our business.

You are further cautioned not to place undue reliance on these forward-looking statements because they speak only of our views as of the date that the statements were made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.


4


 

GLOSSARY OF SELECTED TERMS

 

Below are certain acronyms, concepts and defined terms commonly used in our industry and in this Quarterly Report on Form 10-Q, along with their meanings:

 

Acronym/Concept/

Defined Term

 

Meaning

carrier

Entity that provides voice, data or video services to consumers and businesses

CPE

Customer-Premises Equipment

CSP

Communication Service Provider

DSO

Days Sales Outstanding

ERP

Enterprise Resource Planning Software

FCC

Federal Communications Commission

LAN

Local Area Network

RDOF

Rural Digital Opportunity Fund

Service Provider

Entity that provides voice, data or video services to consumers and businesses

System Integrator

Person or company that specializes in bringing together component subsystems into a whole and ensuring that those subsystems function together

WAN

Wide Area Network

 

 

 

 

 

5


 

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ADTRAN, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except per share amounts)

 

 

 

June 30,

 

 

December 31,

 

 

 

2021

 

 

2020

 

ASSETS

 

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

69,927

 

 

$

60,161

 

Restricted cash

 

 

54

 

 

 

18

 

Short-term investments (includes $1,418 and $1,731 of available-for-sale securities as of June 30, 2021 and December 31, 2020, respectively, reported at fair value)

 

 

2,818

 

 

 

3,131

 

Accounts receivable, less allowance for expected credit losses of $0 as of June 30, 2021 and $38 as of December 31, 2020

 

 

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 (includes $43,062 and $43,385 of available-for-sale securities as of June 30, 2021 and December 31, 2020, respectively, reported at fair value)

 

 

82,778

 

 

 

80,130

 

Total Assets

 

$

551,426

 

 

$

525,679

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

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

 

Commitments and contingencies (see Note 18)

 

 

 

 

 

 

 

 

Stockholders’ Equity

 

 

 

 

 

 

 

 

Common stock, par value $0.01 per share; 200,000 shares authorized;

      79,652 shares issued and 48,524 shares outstanding as of June 30, 2021 and

      79,652 shares issued and 48,241 shares outstanding as of December 31, 2020

 

 

797

 

 

 

797

 

Additional paid-in capital

 

 

285,081

 

 

 

281,466

 

Accumulated other comprehensive loss

 

 

(13,140

)

 

 

(11,639

)

Retained earnings

 

 

776,054

 

 

 

781,813

 

Treasury stock at cost: 31,128 and 31,280 shares at June 30, 2021 and

   December 31, 2020, respectively

 

 

(673,277

)

 

 

(679,493

)

Total Stockholders’ Equity

 

 

375,515

 

 

 

372,944

 

Total Liabilities and Stockholders’ Equity

 

$

551,426

 

 

$

525,679

 

 

See accompanying notes to condensed consolidated financial statements.

6


ADTRAN, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(Unaudited)

(In thousands, except per share amounts)

 

 

 

 

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

 

 

 

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

)

 

See accompanying notes to condensed consolidated financial statements.

 

 

7


 

ADTRAN, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(In thousands)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Net Income (Loss)

 

$

5,086

 

 

$

752

 

 

$

5,982

 

 

$

(9,217

)

Other Comprehensive Income (Loss), net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized gain (loss) on available-for-sale securities

 

 

(95

)

 

 

373

 

 

 

(287

)

 

 

490

 

Defined benefit plan adjustments

 

 

212

 

 

 

191

 

 

 

311

 

 

 

332

 

Foreign currency translation

 

 

338

 

 

 

1,899

 

 

 

(1,525

)

 

 

249

 

Other Comprehensive Income (Loss), net of tax

 

 

455

 

 

 

2,463

 

 

 

(1,501

)

 

 

1,071

 

Comprehensive Income (Loss), net of tax

 

$

5,541

 

 

$

3,215

 

 

$

4,481

 

 

$

(8,146

)

 

See accompanying notes to condensed consolidated financial statements.

 

 


8


 

ADTRAN, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

(In thousands, except per share amounts)

 

 

 

Common

Shares

 

 

Common

Stock

 

 

Additional

Paid-In

Capital

 

 

Retained

Earnings

 

 

Treasury

Stock

 

 

Accumulated Other Comprehensive Loss

 

 

Total

Stockholders'

Equity

 

Balance as of December 31, 2019

 

 

79,652

 

 

$

797

 

 

$

274,632

 

 

$

806,702

 

 

$

(685,288

)

 

$

(16,417

)

 

$

380,426

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(9,969

)

 

 

 

 

 

 

 

 

(9,969

)

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,392

)

 

 

(1,392

)

Dividend payments ($0.09 per share)

 

 

 

 

 

 

 

 

 

 

 

(4,328

)

 

 

 

 

 

 

 

 

(4,328

)

Dividends accrued on unvested RSUs

 

 

 

 

 

 

 

 

 

 

 

(32

)

 

 

 

 

 

 

 

 

(32

)

Deferred compensation adjustments, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,758

)

 

 

 

 

 

(2,758

)

PSUs, RSUs and restricted stock vested

 

 

 

 

 

 

 

 

 

 

 

(1,524

)

 

 

1,501

 

 

 

 

 

 

(23

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

1,791

 

 

 

 

 

 

 

 

 

 

 

 

1,791

 

Balance as of March 31, 2020

 

 

79,652

 

 

$

797

 

 

$

276,423

 

 

$

790,849

 

 

$

(686,545

)

 

$

(17,809

)

 

$

363,715

 

Net income

 

 

 

 

 

 

 

 

 

 

 

752

 

 

 

 

 

 

 

 

 

752

 

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,463

 

 

 

2,463

 

Dividend payments ($0.09 per share)

 

 

 

 

 

 

 

 

 

 

 

(4,337

)

 

 

 

 

 

 

 

 

(4,337

)

Dividends accrued on unvested RSUs

 

 

 

 

 

 

 

 

 

 

 

(28

)

 

 

 

 

 

 

 

 

(28

)

Deferred compensation adjustments, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(24

)

 

 

 

 

 

(24

)

PSUs, RSUs and restricted stock vested

 

 

 

 

 

 

 

 

 

 

 

(16

)

 

 

14

 

 

 

 

 

 

(2

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

1,655

 

 

 

 

 

 

 

 

 

 

 

 

1,655

 

Balance as of June 30, 2020

 

 

79,652

 

 

$

797

 

 

$

278,078

 

 

$

787,220

 

 

$

(686,555

)

 

$

(15,346

)

 

$

364,194

 

 

 

 

 

Common

Shares

 

 

Common

Stock

 

 

Additional

Paid-In

Capital

 

 

Retained

Earnings

 

 

Treasury

Stock

 

 

Accumulated Other Comprehensive Loss

 

 

Total

Stockholders'

Equity

 

Balance as of December 31, 2020

 

 

79,652

 

 

$

797

 

 

$

281,466

 

 

$

781,813

 

 

$

(679,493

)

 

$

(11,639

)

 

$

372,944

 

Net income

 

 

 

 

 

 

 

 

 

 

 

896

 

 

 

 

 

 

 

 

 

896

 

Other comprehensive loss, net of tax