TechDogs-"ADTRAN Holdings, Inc. Reports First Quarter 2024 Financial Results"

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ADTRAN Holdings, Inc. Reports First Quarter 2024 Financial Results

By Business Wire

Business Wire
Overall Rating
  • Q1 revenue above mid-point of guidance; non-GAAP profitability in line with guidance
  • $53 million sequential improvement in GAAP operating cash flow

HUNTSVILLE, Ala.--(BUSINESS WIRE)--#Adtran--ADTRAN Holdings, Inc. (NASDAQ: ADTN and FSE: QH9) (“ADTRAN Holdings” or the “Company”) today announced its unaudited financial results for the first quarter of 2024.

GAAP gross margin for the first quarter was 31.9%, compared to 34.8% in Q4 2023 and 27.1% in the year-ago quarter, representing an improvement of 484 basis points (“bps”) year-over-year but a decrease of 285 bps quarter-over-quarter. The year-over-year improvement primarily resulted from lower purchasing and transportation costs, as well as lower acquisition-related expenses, amortizations and adjustments. The sequential margin decline is primarily due to $8.8 million of inventory charges related to a strategy shift as part of our Business Efficiency Program.

Non-GAAP gross margin for the first quarter was 41.6% compared to 41.9% in Q4 2023 and 37.3% in the year-ago quarter representing a decline of 33 bps sequentially and an improvement of 429 bps year-over-year.

GAAP operating margin for the first quarter was negative 150.2%, primarily driven by a non-cash goodwill impairment charge.

Non-GAAP operating margin for the first quarter was negative 3.9%, which was within the guidance range of between -7% and 0% of revenues. Non-GAAP operating margin was negatively impacted by an unfavorable currency rate development and seasonal effects in the first quarter.

GAAP net loss attributable to the Company for the first quarter of 2024, including the above mentioned impairment charge, was $324.6 million. Diluted loss per share attributable to the Company for the first quarter was $4.12.

Non-GAAP net loss attributable to the Company for the first quarter of 2024 was $1.7 million. Non-GAAP diluted loss per share attributable to the Company for the first quarter was $0.02.

ADTRAN Holdings’ Chairman and Chief Executive Officer Tom Stanton stated, "First quarter revenue and profitability came in as expected, with the weakness still impacting our results. However, we were pleased with the continued momentum in our customer win rate which was bolstered by the ongoing expansion of our Mosaic One platform. As we continued to execute on our business efficiency program, we were able to reduce inventory and significantly improve our operating cashflow while maintaining our diligence in gaining market share during this pivotal time in our industry. We believe that as markets return to normal, our continued focus on these measures, will lead to sustainable margin expansions and shareholder value creation in the mid-term.”

The Company will hold a conference call to discuss its first quarter results on Tuesday, May 07, 2024, at 9:30 a.m. Central Time, or 4:30 p.m. Central European Summer Time. The Company will webcast this conference call. To listen, simply visit our Investor Relations site at investors.adtran.com approximately 10 minutes prior to the start of the call, click on the event “ADTRAN Holdings Releases 1st Quarter 2024 Financial Results and Earnings Call”, and click on the webcast link.

An online replay of the Company’s conference call, as well as the transcript 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 investors.adtran.com or email investor.relations@adtran.com.

Cautionary Note Regarding Forward-Looking Statements

Statements contained in this press release which are not historical facts, such as those relating to expectations regarding future revenues; ADTRAN Holdings’ expected future customer win rate and expansion of its Mosaic One platform; the ability of ADTRAN Holdings’ ability to continue to effectively implement the Business Efficiency Program; the impact of the foregoing measures on margin expansion and shareholder value creation; and ADTRAN Holdings’ strategy and outlook, outlook and financial guidance, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can also generally be identified by the use of words such as “believe,” “expect,” “intend,” “estimate,” “anticipate,” “will,” “may,” “could” and similar expressions. In addition, ADTRAN Holdings, through its senior management, may from time to time make forward-looking public statements concerning the matters described herein. All such projections and other forward-looking information speak only as of the date hereof, and ADTRAN Holdings undertakes no duty to publicly update or revise such forward-looking information, whether as a result of new information, future events, or otherwise, except to the extent as may be required by law. All such forward-looking statements are necessarily estimates and reflect management’s best judgment based upon current information. Actual events or results may differ materially from those anticipated in these forward-looking statements as a result of a variety of factors. While it is impossible to identify all such factors, factors which have caused and may in the future cause actual events or results to differ materially from those estimated by ADTRAN Holdings include, but are not limited to: (i) risks and uncertainties relating to ADTRAN Holdings’ ability to reduce expenditures and the impact of such reductions on its financial results and financial condition; (ii) the risk of fluctuations in revenue due to lengthy sales and approval processes required by major and other service providers for new products, as well as ongoing tighter inventory management of ADTRAN Holdings’ customers ; (iii) risks and uncertainties relating to the recent restatements of our previously issued consolidated financial statements and ongoing material weaknesses in our internal control over financial reporting; (iv) our ability to comply with the covenants set forth in our credit facility; (v) risks posed by potential breaches of information systems and cyber-attacks; (vi) the risk that ADTRAN Holdings may not be able to effectively compete, including through product improvements and development; and (vii) other risks set forth in ADTRAN Holdings’ public filings made with the Securities and Exchange Commission (“SEC”), including its Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 15, 2024, and risks to be disclosed in its Form 10-Q for the quarterly period ended March 31, 2024.

Explanation of Use of Non-GAAP Financial Measures

Set forth in the tables below are reconciliations of gross profit, gross margin, operating expenses, operating loss, other expense, net loss inclusive of the non-controlling interest, net loss attributable to the Company, net income (loss) attributable to the non-controlling interest, and loss per share - basic and diluted, attributable to the Company, in each case as reported based on generally accepted accounting principles in the United States (“GAAP”), to non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating expenses, non-GAAP operating loss, non-GAAP other expense, non-GAAP net loss inclusive of the non-controlling interest, non-GAAP net loss attributable to the Company, non-GAAP net income attributable to the non-controlling interest, non-GAAP loss per share - basic and diluted, attributable to the Company, respectively, and non-GAAP free cash flow. Such non-GAAP measures exclude acquisition related expenses, amortization 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, integration expenses, restructuring expenses, goodwill impairments, 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 these non-GAAP measures 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 measures may not be comparable to similar measures calculated by other companies.

About Adtran

ADTRAN Holdings, Inc. (NASDAQ: ADTN and FSE: QH9) is the parent company of Adtran, Inc., a leading global provider of open, disaggregated networking and communications solutions that enable voice, data, video and internet communications across any network infrastructure. From the cloud edge to the subscriber edge, Adtran empowers communications service providers around the world to manage and scale services that connect people, places and things. Adtran solutions are used by service providers, private enterprises, government organizations and millions of individual users worldwide. ADTRAN Holdings, Inc. is also the largest shareholder of Adtran Networks SE, formerly ADVA Optical Networking SE. Find more at Adtran, LinkedIn and Twitter.

Published by
ADTRAN Holdings, Inc.
www.adtran.com

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands)

March 31,

December 31,

2024

2023

Assets

Current Assets

Cash and cash equivalents

$

106,757

$

87,167

Accounts receivable, net

187,554

216,445

Other receivables

12,116

17,450

Income tax receivable

8,717

7,933

Inventory, net

322,147

362,295

Prepaid expenses and other current assets

59,667

45,566

Total Current Assets

696,958

736,856

Property, plant and equipment, net

126,969

123,020

Deferred tax assets

25,421

25,787

Goodwill

55,129

353,415

Intangibles, net

306,448

327,985

Other non-current assets

87,729

87,706

Long-term investments

29,252

27,743

Total Assets

$

1,327,906

$

1,682,512

Liabilities, Redeemable Non-Controlling Interest and Equity

Current Liabilities

Accounts payable

$

159,083

$

162,922

Unearned revenue

55,124

46,731

Accrued expenses and other liabilities

36,404

37,607

Accrued wages and benefits

25,869

27,030

Income tax payable, net

6,266

5,221

Total Current Liabilities

282,746

279,511

Non-current revolving credit agreement outstanding

195,000

195,000

Deferred tax liabilities

15,414

35,655

Non-current unearned revenue

22,884

25,109

Non-current pension liability

11,692

12,543

Deferred compensation liability

29,709

29,039

Non-current lease obligations

27,668

31,420

Other non-current liabilities

35,375

28,657

Total Liabilities

620,488

636,934

Redeemable Non-Controlling Interest

441,635

451,756

Equity

Common stock

791

790

Additional paid-in capital

798,897

795,304

Accumulated other comprehensive income

29,656

47,461

Retained deficit

(558,363

)

(243,908

)

Treasury stock

(5,198

)

(5,825

)

Total Equity

265,783

593,822

Total Liabilities, Redeemable Non-Controlling Interest and Equity

$

1,327,906

$

1,682,512

Condensed Consolidated Statements of Loss

(Unaudited)

(In thousands, except per share amounts)

Three Months Ended

March 31,

2024

2023

Revenue

Network Solutions

$

181,273

$

282,418

Services & Support

44,900

41,494

Total Revenue

226,173

323,912

Cost of Revenue

Network Solutions

126,326

219,130

Network Solutions - inventory write-down

8,782

Services & Support

18,810

16,974

Total Cost of Revenue

153,918

236,104

Gross Profit

72,255

87,808

Selling, general and administrative expenses

59,100

67,397

Research and development expenses

60,251

70,143

Goodwill impairment

292,583

Operating Loss

(339,679

)

(49,732

)

Interest and dividend income

397

304

Interest expense

(4,598

)

(3,287

)

Net investment gain

2,253

1,252

Other income (expense), net

1,310

(303

)

Loss Before Income Taxes

(340,317

)

(51,766

)

Income tax benefit

18,647

11,313

Net Loss

$

(321,670

)

$

(40,453

)

Less: Net Income (Loss) attributable to non-controlling interest

2,880

(370

)

Net Loss attributable to ADTRAN Holdings, Inc.

$

(324,550

)

$

(40,083

)

Weighted average shares outstanding – basic

78,814

78,358

Weighted average shares outstanding – diluted

78,814

78,358

Loss per common share attributable to ADTRAN Holdings, Inc. – basic

$

(4.12

)

$

(0.51

)

Loss per common share attributable to ADTRAN Holdings, Inc. – diluted

$

(4.12

)

$

(0.51

)

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

Three Months Ended

March 31,

2024

2023

Cash flows from operating activities:

Net loss

$

(321,670

)

$

(40,453

)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Depreciation and amortization

22,528

33,402

Goodwill impairment

292,583

Amortization of debt issuance cost

1,013

146

Gain on investments, net

(2,621

)

(3,154

)

Net loss on disposal of property, plant and equipment

150

Stock-based compensation expense

3,957

3,812

Deferred income taxes

(19,738

)

(24,019

)

Other, net

545

(1

)

Inventory write down

8,782

Inventory reserves

(17,247

)

16,051

Changes in operating assets and liabilities:

Accounts receivable, net

26,002

17,658

Other receivables

5,606

1,980

Income taxes receivable, net

(1,296

)

Inventory

49,514

(2,764

)

Prepaid expenses, other current assets and other assets

(15,888

)

1,118

Accounts payable

(4,236

)

(40,367

)

Accrued expenses and other liabilities

7,459

6,349

Income taxes payable, net

1,155

10,316

Net cash provided by (used in) operating activities

36,598

(19,926

)

Cash flows from investing activities:

Purchases of property, plant and equipment

(13,374

)

(8,439

)

Proceeds from sales and maturities of available-for-sale investments

873

930

Purchases of available-for-sale investments

(44

)

(516

)

Proceeds from beneficial interests in securitized accounts receivable

1,231

Net cash used in investing activities

(12,545

)

(6,794

)

Cash flows from financing activities:

Tax withholdings related to stock-based compensation settlements

(176

)

(6,258

)

Proceeds from stock option exercises

219

58

Dividend payments

(7,076

)

Proceeds from receivables purchase agreement

30,231

Repayments on receivables purchase agreement

(32,437

)

Proceeds from draw on revolving credit agreements

138,236

Repayment of revolving credit agreements

(43,464

)

Payment of redemption of redeemable non-controlling interest

(5

)

(1,176

)

Payment of debt issuance cost

(1,994

)

Repayment of notes payable

(24,692

)

Net cash (used in) provided by financing activities

(4,162

)

55,628

Net increase in cash and cash equivalents

19,891

28,908

Effect of exchange rate changes

(301

)

(1,095

)

Cash and cash equivalents, beginning of period

87,167

108,644

Cash and cash equivalents, end of period

$

106,757

$

136,457

Supplemental disclosure of cash financing activities:

Cash paid for interest

$

5,243

$

1,610

Cash paid for income taxes

$

2,315

$

1,251

Cash used in operating activities related to operating leases

$

2,384

$

4,057

Supplemental disclosure of non-cash investing activities:

Right-of-use assets obtained in exchange for lease obligations

$

842

$

486

Purchases of property, plant and equipment included in accounts payable

$

1,689

$

4,354

Supplemental Information

Reconciliation of Gross Profit and Gross Margin to

Non-GAAP Gross Profit and Non-GAAP Gross Margin

(Unaudited)

(In thousands)

Three Months Ended

March 31,
2024

December 31,
2023

March 31,
2023

Total Revenue

$

226,173

$

225,479

$

323,912

Cost of Revenue

$

153,918

$

147,014

$

236,104

Acquisition-related expenses, amortizations and adjustments(1)

(10,177

)

(10,048

)

(32,578

)

Stock-based compensation expense

(275

)

(440

)

(240

)

Restructuring expenses(2)

(11,247

)

(5,517

)

(76

)

Integration expenses(3)

(35

)

39

Non-GAAP Cost of Revenue

$

132,184

$

131,048

$

203,210

Gross Profit

$

72,255

$

78,465

$

87,808

Non-GAAP Gross Profit

$

93,989

$

94,431

$

120,702

Gross Margin

31.9

%

34.8

%

27.1

%

Non-GAAP Gross Margin

41.6

%

41.9

%

37.3

%

(1) Includes intangible amortization of backlog, inventory fair value adjustments, developed technology, customer relationships, and trade names acquired in connection with business combinations.

(2) Includes expenses for restructuring program designed to optimize the assets and business processes following the business combination with Adtran Networks SE. These expenses include inventory write down and other charges of $8.8M incurred as a result of a strategic shift in certain product lines in connection with the restructuring program. The restructuring program commenced upon the closing of the business combination with Adtran Networks SE and is expected to be substantially completed in late 2024.

(3) Includes expenses related to the Company's one-time integration bonus program in connection with synergy targets as a result of the business combination with Adtran Networks SE.

Supplemental Information

Reconciliation of Operating Expenses to Non-GAAP Operating Expenses

(Unaudited)

(In thousands)

Three Months Ended

March 31,

December 31,

March 31,

2024

2023

2023

Operating Expenses

$

411,934

$

116,080

$

137,540

Acquisition-related expenses, amortizations and adjustments

(4,881

)

(1)

(4,150

)

(7)

(4,584

)

(11)

Stock-based compensation expense

(3,447

)

(2)

(3,181

)

(8)

(3,458

)

(12)

Restructuring expenses

(5,862

)

(3)

(7,859

)

(9)

(2,361

)

(13)

Integration expenses

(480

)

(4)

(1,928

)

(10)

(849

)

(14)

Deferred compensation adjustments(5)

(1,940

)

(1,324

)

(394

)

Goodwill impairment

(292,583

)

(6)

Non-GAAP Operating Expenses

$

102,741

$

97,638

$

125,894

(1) Includes intangible amortization of developed technology, customer relationships, and trade names acquired in connection with business combinations, of which $4.4 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 loss.

(2) $2.5 million is included in selling, general and administrative expenses and $1.0 million is included in research and development expenses on the condensed consolidated statements of loss.

(3) $1.8 million is included in selling, general and administrative expenses and $4.1 million is included in research and development expenses on the condensed consolidated statements of loss.

(4) $0.5 million is included in selling, general and administrative expenses and $0.02 million is included in research and development expenses on the condensed consolidated statements of loss. Includes legal and advisory fees totaling $0.1 million related primarily to the DPLTA proceedings that are recorded in selling, general and administrative expenses. Includes expenses totaling $0.4 million related to the Company's one-time integration bonus program in connection with synergy targets as a result of the business combination with Adtran Networks SE of which $0.4 million are included in selling, general and administrative expenses and $0.02 million are included in research and development expenses. The transformation bonus expense of $0.4 million includes $0.2 million of stock compensation expense.

(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 loss.

(6) Non-cash impairment of goodwill in our Network Solutions reporting unit, necessitated by factors such as a decrease in the Company’s market capitalization, cautious service provider spending due to economic uncertainty and continued customer inventory adjustments.

(7) Includes intangible amortization of developed technology, customer relationships, and trade names acquired in connection with business combinations, of which $3.7 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 loss.

(8) $2.3 million is included in selling, general and administrative expenses and $0.9 million is included in research and development expenses on the condensed consolidated statements of loss.

(9) $4.6 million is included in selling, general and administrative expenses and $3.2 million is included in research and development expenses on the condensed consolidated statements of loss.

(10) $1.9 million is included in selling, general and administrative expenses and $0.02 million is included in research and development expenses on the condensed consolidated statements of loss. Includes legal and advisory fees totaling $1.2 million related to a contemplated capital raise transaction that are recorded in selling, general and administrative expenses. Includes expenses totaling $0.4 million related to the Company's one-time integration bonus program in connection with synergy targets as a result of the business combination with Adtran Networks SE of which $0.4 million are included in selling, general and administrative expenses and $0.02 million are included in research and development expenses. The integration bonus expense of $0.4 million includes $0.2 million of stock compensation expense. Additionally, includes fees relating to the expansion of internal controls at Adtran Networks SE and the implementation of the DPLTA.

(11) Includes intangible amortization of backlog, inventory fair value adjustments, developed technology, customer relationships, and trade names acquired in connection with business combinations, of which $4.1 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 loss.

(12) $2.5 million is included in selling, general and administrative expenses and $1.0 million is included in research and development expenses on the condensed consolidated statements of loss.

(13) $2.2 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 loss.

(14) $0.8 million is included in selling, general and administrative expenses on the condensed consolidated statements of loss. Includes fees relating to the expansion of internal controls at ADTRAN Networks SE and the implementation of the DPLTA.


Contacts

For media
Gareth Spence
+44 1904 699 358
public.relations@adtran.com

For investors
Steven Williams
+49 89 890 665 918
investor@adtran.com

Read full story here

First published on Tue, May 7, 2024

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