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		—		—		—		—		—