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

HUNTSVILLE, Ala., November 08, 2022--(BUSINESS WIRE)--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.

View source version on businesswire.com: https://www.businesswire.com/news/home/20221107006217/en/

Contacts

Investor Services/Assistance:
Rhonda Lambert/256-963-7450
Investor.relations@adtran.com