Adtran hurt badly by loss at AT&T, slowdown at DT

NFV, SDN starting to inspire white box fears. (Update 4/31 Adtran's stock climbed and Calix plummeted, leaving them both about the same % lost.) Adtran's stock fell 10% Wednesday, about $100M, to the lowest level in five years. Tom Stanton's company was hit hard by disappointing sales to two major customers. Quarterly sales were slightly down, partly explained by the euro falling against the dollar. Interim CFO Interim CFO Mike Foliano didn't warn the street of the sales decline. The analysts expect a wink and nod in advance with inside information.

Adtran remains a capable and profitable company but the market has been treating it as a growth stock. Telecom is not a growing business. Nearly no company except Huawei has seen sales increase. 

AT&T canceled a project to upgrade some of the old BellSouth territory. That's not much of a surprise; AT&T's $4B capex cut this year is the largest of any telco over the last decade, anywhere in the world. Craig Moffett for several years has been pointing to how hard Randall has to work to cover the dividend. Over the last four years, dividends have actually exceeded earnings per share. 

Deutsche Telekom is trying to weasel out of their repeated commitment to meet the EU 100 megabit speed with vectoring to 24 million homes in 2016.

Adtran winning a share of the huge DT contract was a huge coup for the team Adtran had acquired from Siemens. Adtran sales to DT continue limited as DT's actual build is much too slow to meet the target.

DT is trying to avoid upgrading 12 million of those lines which currently have "up to 50 megabit" VDSL. They have changed their rhetoric from "100 megabit vectored" service to "high speed" (undefined) and 50 megabits. Telecom Italia is playing the same game, trying not to install the vectored DSLAMs they committed to two years ago. 

Several analysts were concerned that AT&T intends to replace expensive DSLAMs from Adtran and Alcatel with cheap "white boxes." John Stankey and John Donovan of AT&T have made clear NFV/SDN is their plan although I haven't seen evidence they are ready to do that in DSL. The Johns don't want to put expensive control logic throughout the network. AT&T decided five years ago that putting the logic in the center is cheaper and simplifies operations. They were among the first to speak of "separating the control plane and the data plane." 

The analysts should look in the mirror and wonder why they set expectations so high.

Here's the release. Consider also checking the transcript, Seeking Alpha http://bit.ly/1JwCsre)

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ADTRAN, Inc. Reports Results for the First Quarter 2015 and Declares Quarterly Cash Dividend

HUNTSVILLE, Ala.--(BUSINESS WIRE)--Apr. 21, 2015-- ADTRAN, Inc. (NASDAQ:ADTN) reported results for the first quarter 2015. For the quarter, sales were $142,835,000 compared to $147,004,000 for the first quarter of 2014. Net income was $3,317,000 compared to $9,607,000 for the first quarter of 2014. Earnings per share, assuming dilution, were $0.06compared to $0.17 for the first quarter of 2014. Non-GAAP earnings per share were $0.10 compared to $0.21 for the first quarter of 2014. 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 for the quarter came in lower than expected, driven by currency fluctuations in our European business, and the cancellation of a planned domestic Tier 1 program that was expected to commence late in the quarter. We did continue to see positive momentum in our European business, as well as the expected improvement in our Tier 2 carriers in the U.S. as CAF funding started to take hold.”

The Company also announced that its Board of Directors declared a cash dividend for the first quarter of 2015. The quarterly cash dividend is $0.09 per common share to be paid to holders of record at the close of business on May 7, 2015. The ex-dividend date is May 5, 2015 and the payment date is May 21, 2015.

The Company confirmed that its first quarter conference call will be held Wednesday, April 22, 2015 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 This email address is being protected from spambots. You need JavaScript enabled to view it.. 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, 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)
         
   

March 31,
2015

   December 31,
2014
Assets        
Cash and cash equivalents   $ 87,009   $ 73,439
Short-term investments     78,760     46,919
Accounts receivable, net     90,869     88,502
Other receivables     29,962     33,295
Inventory     93,123     86,710
Prepaid expenses     5,092     5,129
Deferred tax assets, net     16,297     17,095
Total Current Assets     401,112     351,089
         
Property, plant and equipment, net     73,987     74,828
Deferred tax assets, net     18,831     17,694
Goodwill     3,492     3,492
Other assets     10,080     10,942
Long-term investments     236,678     280,649
         
Total Assets   $ 744,180   $ 738,694
         
Liabilities and Stockholders' Equity        
Accounts payable   $ 73,696   $ 56,414
Unearned revenue     16,815     22,762
Accrued expenses     12,773     11,077
Accrued wages and benefits     15,605     13,855
Income tax payable, net     13,088     14,901
Total Current Liabilities     131,977     119,009
         
Non-current unearned revenue     10,088     10,948
Other non-current liabilities     30,646     30,924
Bonds payable     28,800     28,800
Total Liabilities     201,511     189,681
         
Stockholders' Equity     542,669     549,013
         
Total Liabilities and Stockholders' Equity   $ 744,180   $ 738,694
       

Consolidated Statements of Income

(Unaudited)

(In thousands, except per share data)
       
      Three Months Ended
      March 31,
        2015       2014  
           
Sales   $ 142,835     $ 147,004  
Cost of sales     77,272       69,214  
           
Gross Profit     65,563       77,790  
           
Selling, general and administrative expenses     31,064       33,939  
Research and development expenses     32,536       32,553  
           
Operating Income     1,963       11,298  
           
Interest and dividend income     933       1,294  
Interest expense     (148 )     (227 )
Net realized investment gain     3,115       2,192  
Other income (expense), net     (353 )     122  
           
Income before provision for income taxes     5,510       14,679  
           
Provision for income taxes     (2,193 )     (5,072 )
           
Net Income   $ 3,317     $ 9,607  
           
Weighted average shares outstanding - basic     53,399       56,751  
Weighted average shares outstanding - diluted (1)     53,634       57,368  
           
Earnings per common share - basic   $ 0.06     $ 0.17  
Earnings per common share - diluted (1)   $ 0.06     $ 0.17  
           
(1) Assumes exercise of dilutive stock options calculated under the treasury stock method.
     

Consolidated Statements of Comprehensive Income

(Unaudited)

(In thousands)
     
    Three Months Ended
    March 31,
      2015       2014  
         
Net Income   $ 3,317     $ 9,607  
         
Other Comprehensive Loss, net of tax:        
         
Unrealized losses on available-for-sale securities     (503 )     (921 )
Defined benefit plan adjustments     68       -  
Foreign currency translation     (3,318 )     252  
         
Other Comprehensive Loss, net of tax     (3,753 )     (669 )
         
Comprehensive Income (Loss), net of tax   $ (436 )   $ 8,938  
     

Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)
     
    Three Months Ended
    March 31,
      2015       2014  
Cash flows from operating activities:        
Net income   $ 3,317     $ 9,607  
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation and amortization     3,728       3,580  
Amortization of net premium on available-for-sale investments     910       1,135  
Net realized gain on long-term investments     (3,115 )     (2,192 )
Net (gain)/loss on disposal of property, plant and equipment     8       (3 )
Stock-based compensation expense     1,639       2,057  
Deferred income taxes     (692 )     627  
Tax benefit from stock option exercises     8       57  
Excess tax benefits from stock-based compensation arrangements     (9 )     (55 )
Change in operating assets and liabilities:        
Accounts receivable, net     (4,571 )     (15,971 )
Other receivables     511       (9,407 )
Inventory     (7,784 )     2,739  
Prepaid expenses and other assets     (213 )     (2,024 )
Accounts payable     20,084       11,043  
Accrued expenses and other liabilities     (282 )     8,431  
Income tax payable, net     (524 )     275  
Net cash provided by operating activities     13,015       9,899  
         
Cash flows from investing activities:        
Purchases of property, plant and equipment     (2,442 )     (2,042 )
Proceeds from disposals of property, plant and equipment     -       1  
Proceeds from sales and maturities of available-for-sale investments     58,075       85,072  
Purchases of available-for-sale investments     (44,584 )     (69,182 )
Net cash provided by investing activities     11,049       13,849  
         
Cash flows from financing activities:        
Proceeds from stock option exercises     280       1,541  
Purchases of treasury stock     (3,035 )     (9,427 )
Dividend payments     (4,811 )     (5,102 )
Payments on long-term debt     -       (16,500 )
Excess tax benefits from stock-based compensation arrangements     9       55  
Net cash used in financing activities     (7,557 )     (29,433 )
         
Net increase (decrease) in cash and cash equivalents     16,507       (5,685 )
Effect of exchange rate changes     (2,937 )     202  
Cash and cash equivalents, beginning of period     73,439       58,298  
         
Cash and cash equivalents, end of period   $ 87,009     $ 52,815  
         
Supplemental disclosure of non-cash investing activities        
Purchases of property, plant and equipment included in accounts payable   $ 784     $ 85  

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 months ended March 31, 2015 and 2014 for both transactions are as follows:

     
    Three Months Ended
    March 31,
      2015       2014  
Bluesocket, Inc. acquisition        
Amortization of acquired intangible assets and other purchase accounting adjustments   $ 226     $ 246  
         
NSN BBA acquisition        
Amortization of acquired intangible assets     241       302  
Amortization of other purchase accounting adjustments     154       361  
Acquisition related professional fees, travel and other expenses     6       48  
         
Subtotal     401       711  
         
Total acquisition related expenses, amortizations and adjustments     627       957  
Provision for income taxes     (213 )     (316 )
         
Total acquisition related expenses, amortizations and adjustments, net of tax   $ 414     $ 641  

The acquisition related expenses, amortizations and adjustments above were recorded in the following Consolidated Statements of Income categories for the three months ended March 31, 2015 and 2014:

     
   

Three Months Ended
    March 31,
    2015   2014
         
Revenue (adjustments to deferred revenue recognized in the period)   $ 67   $ 243
Cost of goods sold   12   34
         
Subtotal   79   277
         
Selling, general and administrative expenses   12   55
Research and development expenses   536   625
         
Subtotal   548   680
         
Total acquisition related expenses, amortizations and adjustments   627   957
Provision for income taxes   (213)   (316)
         
Total acquisition related expenses, amortizations and adjustments, net of tax   $ 414   $ 641
         
     

Supplemental Information
Stock-based Compensation Expense
(Unaudited)
(In thousands)
     
    Three Months Ended
    March 31,
    2015   2014
         
Stock-based compensation expense included in cost of sales   $ 90   $ 116
         
Selling, general and administrative expense   691   1,026
Research and development expense   858   915
         
Stock-based compensation expense included in operating expenses   1,549   1,941
         
Total stock-based compensation expense   1,639   2,057
Tax benefit for expense associated with non-qualified options   (180)   (284)
         
Total stock-based compensation expense, net of tax   $ 1,459   $ 1,773
     

Reconciliation of GAAP net income per share, diluted, to

Non-GAAP net income per share, diluted

(Unaudited)
     
    Three Months Ended
    March 31,
      2015     2014
         
GAAP earnings per common share – diluted   $ 0.06   $ 0.17
         
Acquisition related expenses, amortizations and adjustments     0.01     0.01
Stock-based compensation expense     0.03     0.03
         
Non-GAAP earnings per common share – diluted   $ 0.10   $ 0.21

Source: ADTRAN, Inc.

ADTRAN, Inc.
Michael Foliano, 256-963-8885
Senior Vice President & Interim CFO
or
INVESTOR SERVICES/ASSISTANCE:
Gayle Ellis, 256-963-8220
Investor Services