ADTRAN Holdings, Inc. Reports Earnings for the Third Quarter of 2022 and Declares Quarterly Cash Dividend

November 08, 2022 at 00:55 AM EST

ADTRAN Holdings, Inc., (NASDAQ: ADTN and FSE: QH9) (“ADTRAN Holdings” or the “Company”), today announced financial results for the third quarter of 2022. For the quarter, revenue was $340.7 million. Net loss inclusive of the non-controlling interest for the third quarter of 2022 was $44.9 million. Net loss attributable to the Company for the third quarter of 2022 was $41.9 million and loss per share attributable to the Company was $0.57. Net loss and loss per share are inclusive of consolidated financial results, significant purchase accounting adjustments, and certain one-time transaction expenses related to the business combination of the Company, ADTRAN, Inc. (“ADTRAN”), and ADVA Optical Networking SE (“ADVA”). Inclusive of non-controlling interests, non-GAAP net income was $12.2 million. Non-GAAP net income attributable to the Company was $7.7 million and non-GAAP diluted earnings per share attributable to the Company was $0.11. Non-GAAP net income and non-GAAP earnings per share exclude acquisition related expenses, amortizations, and adjustments (consisting of intangible amortization of backlog, developed technology, customer relationships, and trade names acquired in connection with business combinations and amortization of inventory fair value adjustments), stock-based compensation expense, amortization of pension actuarial losses, deferred compensation adjustments, certain asset impairments, changes in valuation allowance related to our deferred tax assets, and the tax effect of these adjustments to net income. The reconciliations between the non-GAAP net income measures presented herein and the respective equivalent GAAP financial measures are set forth in the tables provided below.

ADTRAN Holdings Chairman and Chief Executive Officer Tom Stanton stated, “Our third quarter marked a new era in our history as we closed the business combination agreement with ADVA Optical Networking SE. The combined company’s broader portfolio, paired with a larger, more diversified, and regionally balanced customer base, positions us to capitalize on the global fiber conversion. The Q3 results highlight our increased market presence in optical networking and subscriber solutions, two portfolio categories that complement our continued success in fiber access. This success reinforces the positive outlook we have in our ability to maximize our growth potential in the ongoing global investment cycle in fiber networks.”

The Company also announced that its Board of Directors declared a cash dividend for the third quarter of 2022. The quarterly cash dividend of $0.09 per common share is to be paid to the Company’s stockholders of record as of the close of business on November 22, 2022. The ex-dividend date is November 21, 2022, and the payment date will be December 6, 2022.

The Company confirmed that it will hold a conference call to discuss its third quarter results on Tuesday, November 8, 2022, at 9:30 a.m. Central Time or 4:30 p.m. Central European Time. ADTRAN Holdings will webcast this conference call. To listen, simply visit our Investor Relations site at adtran.com/investor approximately 10 minutes prior to the start of the call, click on the event “ADTRAN Holdings Releases 3rd Quarter 2022 Financial Results and Earnings Call”, and click on the Webcast link.

An online replay of the Company’s conference call, as well as the text of the Company's conference call, will be available on the Investor Relations site approximately 24 hours following the call and will remain available for at least 12 months. For more information, visit www.investors.adtran.com or email at investor.relations@adtran.com.

About ADTRAN Holdings, Inc.

ADTRAN Holdings, Inc. is the parent company of ADTRAN, Inc., a wholly owned subsidiary and a leading global provider of open, disaggregated networking and communications solutions. ADTRAN Holdings is also the largest shareholder of ADVA, a European telecommunications vendor that provides network equipment for data, storage, voice, and video services.

Cautionary Note Regarding Forward-Looking Statements

This press release contains forward-looking statements, generally identified by the use of words such as “believe,” “expect,” “intend,” “estimate,” “anticipate,” “will,” “may,” “could” and similar expressions, which forward-looking statements reflect management’s best judgment based on factors currently known. However, these statements involve risks and uncertainties, including: (i) risks and uncertainties related to the continued impact of the SARS-CoV-2 coronavirus/COVID-19 global pandemic (including variants of the SARS-CoV-2 coronavirus), including with respect to continued manufacturing and supply chain constraints; (ii) risks and uncertainties related to the completed business combination between the Company, ADTRAN and ADVA, including risks related to regulatory or other limitations imposed following the closing of the business combination on July 15, 2022 and the proposed domination and profit and loss transfer agreement between the Company as the controlling entity, and ADVA as the controlled entity; the ability to successfully integrate the ADTRAN and ADVA businesses; risks related to disruption of management time from ongoing business operations due to integration efforts following the business combination; the risk that the business combination could have adverse effects on the market price of ADTRAN Holdings’ common stock or ADVA’s common shares or the ability of the Company, ADTRAN, and ADVA to retain customers, retain or hire key personnel, maintain relationships with their respective suppliers and customers, and on their operating results and businesses generally; the risk that ADTRAN Holdings may be unable to achieve expected synergies or that it may take longer or be more costly than expected to achieve those synergies; the risk of fluctuations in revenue due to lengthy sales and approval processes required by major and other service providers for new products; the risk posed by potential breaches of information systems and cyber-attacks; the risks that ADTRAN, ADVA or ADTRAN Holdings may not be able to effectively compete, including through product improvements and development; and (iii) other risks set forth in ADVA’s annual and interim financial reports made publicly available and ADTRAN’s and ADTRAN Holdings’ public filings made with the Securities and Exchange Commission, including ADTRAN’s Annual Report on Form 10-K for the year ended December 31, 2021 and ADTRAN Holdings’ Form 10-Q for the quarterly period ended June 30, 2022. These risks and uncertainties could cause actual results to differ materially from those in the forward-looking statements included in this press release.

Explanation of Use of Non-GAAP Financial Measures

Set forth in the tables below are reconciliations of operating loss, net loss inclusive of the non-controlling interest, net loss attributable to the Company, and loss per share attributable to the Company, in each case as reported based on generally accepted accounting principles in the United States (“GAAP”), to non-GAAP operating income, non-GAAP net income inclusive of the non-controlling interest, non-GAAP net income attributable to the Company, and non-GAAP diluted earnings per share attributable to the Company, respectively. Such non-GAAP measures exclude acquisition related expenses, amortizations and adjustments (consisting of intangible amortization of backlog, developed technology, customer relationships, and trade names acquired in connection with business combinations and amortization of inventory fair value adjustments), stock-based compensation expense, amortization of pension actuarial losses, deferred compensation adjustments, certain asset impairments, changes in valuation allowance related to our deferred tax assets, and the tax effect of these adjustments to net income. These measures are used by management in our ongoing planning and annual budgeting processes. Additionally, we believe the presentation of non-GAAP operating income, non-GAAP net income inclusive of the non-controlling interest, non-GAAP net income attributable to the Company, and non-GAAP diluted earnings per share attributable to the Company, when combined with the presentation of the most directly comparable GAAP financial measure, is beneficial to the overall understanding of ongoing operating performance of the Company.

These non-GAAP financial measures are not prepared in accordance with, or an alternative for, GAAP and therefore should not be considered in isolation or as a substitution for analysis of our results as reported under GAAP. Additionally, our calculation of non-GAAP operating income, non-GAAP net income and non-GAAP earnings per share - basic and diluted, may not be comparable to similar measures calculated by other companies.

Condensed Consolidated Balance Sheets (Unaudited) (In thousands)

	September 30,			December 31,
	2022			2021
Assets
Current Assets
Cash and cash equivalents	$	111,099		$	56,603
Restricted cash		—			215
Short-term investments		803			350
Accounts receivable, net		302,401			158,742
Other receivables		14,350			11,228
Inventory, net		416,163			139,891
Prepaid expenses and other current assets		30,739			9,296
Total Current Assets		875,555			376,325
Property, plant and equipment, net		104,577			55,766
Deferred tax assets, net		—			9,079
Goodwill		357,869			6,968
Intangibles, net		393,575			19,293
Other non-current assets		56,347			30,971
Long-term investments		50,131			70,615
Total Assets	$	1,838,054		$	569,017

Liabilities and Equity
Current Liabilities
Accounts payable	$	276,026		$	102,489
Revolving credit agreements outstanding		84,503			—
Notes payable		29,782			—
Unearned revenue		40,993			17,737
Accrued expenses and other liabilities		25,554			13,673
Accrued wages and benefits		41,595			14,900
Income tax payable, net		26,838			6,560
Total Current Liabilities		525,291			155,359
Deferred tax liabilities, net		36,884			—
Non-current unearned revenue		18,269			9,271
Pension liability		16,220			11,402
Deferred compensation liability		25,376			31,383
Non-current lease obligations		21,490			3,269
Other non-current liabilities		9,697			1,231
Total Liabilities		653,227			211,915
Common stock		776			797
Additional paid-in capital		883,210			288,946
Accumulated other comprehensive loss		(40,288	)		(11,914	)
Retained earnings		31,535			740,820
Treasury stock		(4,083	)		(661,547	)
Non-controlling interest		313,677			—
Total Equity		1,184,827			357,102
Total Liabilities and Equity	$	1,838,054		$	569,017

Condensed Consolidated Statements of Loss (Unaudited) (In thousands, except per share data)


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2022			2021			2022			2021
Revenue
Network Solutions	$	304,940		$	120,767		$	599,306		$	360,025
Services & Support		35,769			17,314			67,959			48,821
Total Revenue		340,709			138,081			667,265			408,846
Cost of Revenue
Network Solutions		226,635			81,029			417,209			216,044
Services & Support		11,047			9,379			30,207			28,860
Total Cost of Revenue		237,682			90,408			447,416			244,904
Gross Profit		103,027			47,673			219,849			163,942
Selling, general and administrative expenses		74,880			30,972			130,646			89,273
Research and development expenses		59,196			26,759			112,187			82,131
Asset impairment		16,969			—			16,969			—
Operating Loss		(48,018	)		(10,058	)		(39,953	)		(7,462	)
Interest and dividend income		347			344			768			887
Interest expense		(1,303	)		(6	)		(1,427	)		(18	)
Net investment (loss) gain		(2,691	)		(63	)		(10,752	)		2,942
Other income, net		2,494			648			2,949			2,673
Loss Before Income Taxes		(49,171	)		(9,135	)		(48,415	)		(978	)
Income tax benefit (expense)		4,312			(1,292	)		4,572			(3,467	)
Net Loss	$	(44,859	)	$	(10,427	)	$	(43,843	)	$	(4,445	)
Less: Net Loss attributable to non-controlling interest		(2,925	)		—			(2,925	)		—
Net Loss attributable to ADTRAN Holdings, Inc.	$	(41,934	)	$	(10,427	)	$	(40,918	)	$	(4,445	)

Weighted average shares outstanding – basic		73,036			48,609			57,175			48,470
Weighted average shares outstanding – diluted		73,036			48,609			57,175			48,470

Loss per common share attributable to ADTRAN Holdings, Inc. – basic	$	(0.57	)	$	(0.21	)	$	(0.72	)	$	(0.09	)
Loss per common share attributable to ADTRAN Holdings, Inc. – diluted	$	(0.57	)	$	(0.21	)	$	(0.72	)	$	(0.09	)

Condensed Consolidated Statements of Cash Flows (Unaudited) (In thousands)

	Nine Months Ended
	September 30,
	2022			2021
Cash flows from operating activities:
Net loss	$	(43,843	)	$	(4,445	)
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization		34,783			12,246
Asset impairment		16,969			—
Amortization of debt issuance cost		200			—
Loss (gain) on investments		10,395			(3,320	)
Stock-based compensation expense		15,912			5,457
Deferred income taxes		(26,366	)		437
Other, net		32			89
Inventory reserves		(6,681	)		(4,789	)
Changes in operating assets and liabilities:
Accounts receivable, net		(34,535	)		(26,346	)
Other receivables		(2,154	)		11,152
Inventory		(76,293	)		2,120
Prepaid expenses, other current assets and other assets		610			(8,514	)
Accounts payable		70,381			29,614
Accrued expenses and other liabilities		(23,005	)		10,392
Income taxes payable, net		20,862			4,798
Net cash (used in) provided by operating activities		(42,733	)		28,891

Cash flows from investing activities:
Purchases of property, plant and equipment		(10,141	)		(3,572	)
Proceeds from sales and maturities of available-for-sale investments		30,474			28,305
Purchases of available-for-sale investments		(22,215	)		(28,853	)
Proceeds from beneficial interests in securitized accounts receivable		1,294			—
Proceeds from disposals of property, plant and equipment		12			—
Insurance proceeds received		—			500
Acquisition of business, net of cash acquired		43,957			—
Net cash provided by (used in) investing activities		43,381			(3,620	)

Cash flows from financing activities:
Tax withholdings related to stock-based compensation settlements		(515	)		(113	)
Proceeds from stock option exercises		5,434			6,111
Dividend payments		(15,859	)		(13,124	)
Proceeds from draw on revolving credit agreement		133,141			—
Repayment of revolving credit agreement		(48,000	)		—
Payment of debt issuance cost		(3,015	)		—
Repayment of notes payable		(10,057	)		—
Net cash provided by (used in) financing activities		61,129			(7,126	)

Net increase in cash, cash equivalents and restricted cash		61,777			18,145
Effect of exchange rate changes		(7,496	)		(2,719	)
Cash, cash equivalents and restricted cash, beginning of period		56,818			60,179

Cash, cash equivalents and restricted cash, end of period	$	111,099		$	75,605

Supplemental disclosure of cash financing activities:
Cash paid for interest	$	633		$	—
Supplemental disclosure of non-cash investing activities
Right-of-use assets obtained in exchange for lease obligations	$	904		$	1,833
Purchases of property, plant and equipment included in accounts payable	$	1,037		$	100
ADVA common shares exchanged in acquisition	$	565,491		$	—
ADVA options assumed in acquisition	$	12,769		$	—
Non-controlling interest related to ADVA	$	316,415		$	—

Supplemental Information Reconciliation of Operating Loss to Non-GAAP Operating Income (Loss) (Unaudited) (In thousands)

	Three Months Ended September 30,								Nine Months ended September 30,
	2022				2021				2022				2021
Operating Loss	$	(48,018	)		$	(10,058	)		$	(39,953	)		$	(7,462	)
Acquisition related expenses, amortizations and adjustments		40,310		⁽¹⁾		6,041		⁽⁶⁾		44,763		⁽⁸⁾		9,470		⁽¹¹⁾
Asset impairments		16,969		⁽²⁾		—				16,969		⁽²⁾		—
Stock-based compensation expense		12,131		⁽³⁾		1,842		⁽⁷⁾		15,912		⁽⁹⁾		5,457		⁽¹²⁾
Pension adjustments		244		⁽⁴⁾		—				244		⁽⁴⁾		—
Restructuring expenses		—				—				2		⁽¹⁰⁾		309		⁽¹³⁾
Deferred compensation adjustments		(740	)	⁽⁵⁾		(459	)	⁽⁵⁾		(7,173	)	⁽⁵⁾		2,091		⁽⁵⁾
Non-GAAP Operating Income (Loss)	$	20,896			$	(2,634	)		$	30,764			$	9,865

_{(1) Includes intangible amortization of backlog, inventory fair value adjustments, developed technology, customer relationships, and trade names acquired in connection with business combinations, and certain one-time transaction expenses of which $25.5 million is included in total cost of revenue, $14.3 million is included in selling, general and administrative expenses and $0.5 million is included in research and development expenses on the condensed consolidated statements of income (loss).} _{(2) Includes impairment charges related to the abandonment of certain information technology projects due to the business combination.} _{(3) $1.3 million is included in total cost of revenue, $9.1 million is included in selling, general and administrative expenses and $1.7 million is included in research and development expenses on the condensed consolidated statements of income (loss). Includes $8.9 million of incremental stock-based award modification expense related to the business combination.} _{(4) Less than $0.1 million is included in total cost of revenue, $0.1 million is included in selling, general and administrative expenses and $0.1 million is included in research and development expenses on the condensed consolidated statements of income (loss).} _{(5) Includes non-cash change in fair value of equity investments held in the ADTRAN Holdings, Inc. Deferred Compensation Program for Employees, all of which is included in selling, general and administrative expenses on the condensed consolidated statement of income (loss).} _{(6) $5.5 million is included in selling, general and administrative expenses and $0.5 million is included in research and development expenses on the condensed consolidated statements of income (loss).} _{(7) $0.1 million is included in total cost of revenue, $1.1 million is included in selling, general and administrative expenses and $0.6 million is included in research and development expenses on the consolidated statements of income (loss).} _{(8) Includes intangible amortization of backlog, inventory fair value adjustments, developed technology, customer relationships, and trade names acquired in connection with business combinations, and certain one-time transaction expenses of which $25.5 million is included in total cost of revenue, $17.8 million is included in selling, general and administrative expenses and $1.5 million is included in research and development expenses on the condensed consolidated statements of income (loss).} _{(9) $1.6 million is included in total cost of revenue, $11.4 million is included in selling, general and administrative expenses and $2.9 million is included in research and development expenses on the condensed consolidated statements of income (loss). Includes $8.9 million of incremental stock-based award modification expense related to the business combination.} _{(10) Less than $0.1 million is included in selling, general and administrative expenses condensed consolidated statements of income (loss).} _{(11) $8.0 million is included in selling, general and administrative expenses and $1.5 million is included in research and development expenses on the condensed consolidated statements of income (loss).} _{(12) $0.4 million is included in total cost of revenue, $3.3 million is included in selling, general and administrative expenses and $1.8 million is included in research and development expenses on the condensed consolidated statements of income (loss).} _{(13) $0.1 million is included in selling, general and administrative expenses and $0.2 million is included in research and development expenses on the condensed consolidated statements of income (loss).}

Supplemental Information Reconciliation of Net Loss inclusive of Non-Controlling Interest to Non-GAAP Net Income (Loss) inclusive of Non-Controlling Interest (Unaudited) and Reconciliation of Net Loss attributable to ADTRAN Holdings, Inc. and Loss per Common Share attributable to ADTRAN Holdings, Inc. – Basic and Diluted to Non-GAAP Net Income (Loss) attributable to ADTRAN Holdings, Inc. and Non-GAAP Earnings (Loss) per Common Share attributable to ADTRAN Holdings, Inc. – Basic and Diluted (Unaudited) (In thousands, except per share amounts)

	Three Months Ended September 30,						Nine Months ended September 30,
	2022			2021			2022			2021
Net Loss attributable to ADTRAN Holdings, Inc.	$	(41,934	)	$	(10,427	)	$	(40,918	)	$	(4,445	)
Plus: Net Loss attributable to non-controlling interest		(2,925	)		—			(2,925	)		—
Net Loss inclusive of non-controlling interest	$	(44,859	)	$	(10,427	)	$	(43,843	)	$	(4,445	)
Acquisition related expenses, amortizations and adjustments		40,310			6,041			44,763			9,470
Asset impairments		16,969			—			16,969			—
Stock-based compensation expense		12,131			1,842			15,912			5,457
Valuation allowance		3,182			2,455			15,550			4,413
Deferred compensation adjustments (1)		383			(262	)		(612	)		552
Pension adjustments (2)		325			272			499			825
Restructuring expenses		—			—			2			309
Tax effect of adjustments to net income (loss)		(16,245	)		(736	)		(17,430	)		(2,931	)
Non-GAAP Net Income (Loss) inclusive of non-controlling interest	$	12,196		$	(815	)	$	31,810		$	13,650
Less: Non-GAAP Net Income attributable to non-controlling interest		4,486			—			4,486			—
Non-GAAP Net Income (Loss) attributable to ADTRAN Holdings, Inc.	$	7,710		$	(815	)	$	27,324		$	13,650

Weighted average shares outstanding – basic		73,036			48,609			57,175			48,470
Weighted average shares outstanding – diluted		73,036			48,609			57,175			48,470

Loss per common share attributable to ADTRAN Holdings, Inc. - basic	$	(0.57	)	$	(0.21	)	$	(0.72	)	$	(0.09	)
Loss per common share attributable to ADTRAN Holdings, Inc. - diluted	$	(0.57	)	$	(0.21	)	$	(0.72	)	$	(0.09	)

Non-GAAP earnings (loss) per common share attributable to ADTRAN Holdings, Inc. - basic	$	0.11		$	(0.02	)	$	0.48		$	0.28
Non-GAAP earnings (loss) per common share attributable to ADTRAN Holdings, Inc. - diluted	$	0.11		$	(0.02	)	$	0.48		$	0.28

_{(1) Includes non-cash change in fair value of equity investments held in deferred compensation plans offered to certain employees.} _{(2) Includes amortization of actuarial losses related to the Company's pension plan for employees in certain foreign countries.}

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Contacts

Investor Services/Assistance:

Rhonda Lambert/256-963-7450

Investor.relations@adtran.com