ADTRAN INC, 10-Q filed on 8/6/2021
Quarterly Report
v3.21.2
Document and Entity Information - shares
6 Months Ended
Jun. 30, 2021
Aug. 04, 2021
Cover [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Jun. 30, 2021  
Document Fiscal Year Focus 2021  
Document Fiscal Period Focus Q2  
Entity Registrant Name ADTRAN, Inc.  
Trading Symbol ADTN  
Entity Central Index Key 0000926282  
Current Fiscal Year End Date --12-31  
Entity Filer Category Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Common Stock, Shares Outstanding   48,561,812
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Shell Company false  
Entity File Number 000-24612  
Entity Tax Identification Number 63-0918200  
Entity Address, Address Line One 901 Explorer Boulevard  
Entity Address, City or Town Huntsville  
Entity Address, State or Province AL  
Entity Address, Postal Zip Code 35806-2807  
City Area Code 256  
Local Phone Number 963-8000  
Entity Incorporation, State or Country Code DE  
Document Quarterly Report true  
Document Transition Report false  
Title of 12(b) Security Common Stock, Par Value $0.01 per share  
Security Exchange Name NASDAQ  
v3.21.2
Condensed Consolidated Balance Sheets (Unaudited) - USD ($)
$ in Thousands
Jun. 30, 2021
Dec. 31, 2020
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
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
v3.21.2
Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - USD ($)
$ in Thousands
Jun. 30, 2021
Dec. 31, 2020
Statement Of Financial Position [Abstract]    
Short term investments, available-for-sale securities at fair value $ 1,418 $ 1,731
Accounts receivable, allowance for expected credit losses 0 38
Long Term Investments, available-for-sale securities Fair Value $ 43,062 $ 43,385
Common stock, par value $ 0.01 $ 0.01
Common stock, shares authorized 200,000,000 200,000,000
Common stock, shares issued 79,652,000 79,652,000
Common stock, shares outstanding 48,524,000 48,241,000
Treasury stock, shares 31,128,000 31,280,000
v3.21.2
Condensed Consolidated Statements of Income (Loss) (Unaudited) - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2021
Jun. 30, 2020
Jun. 30, 2021
Jun. 30, 2020
Revenue        
Total Revenue $ 143,232 $ 128,715 $ 270,765 $ 243,238
Cost of Revenue        
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)
Network Solutions [Member]        
Revenue        
Total Revenue $ 125,449 $ 111,323 $ 239,258 $ 208,695
Cost of Revenue        
Total Cost of Revenue 70,014 64,071 135,015 115,697
Gross Profit 55,435 47,252 104,243 92,998
Services & Support [Member]        
Revenue        
Total Revenue 17,783 17,392 31,507 34,543
Cost of Revenue        
Total Cost of Revenue 10,550 11,172 19,481 22,469
Gross Profit $ 7,233 $ 6,220 $ 12,026 $ 12,074
v3.21.2
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2021
Jun. 30, 2020
Jun. 30, 2021
Jun. 30, 2020
Statement Of Income And Comprehensive Income [Abstract]        
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)
v3.21.2
Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited) - USD ($)
shares in Thousands, $ in Thousands
Total
Common Stock [Member]
Additional Paid-In Capital [Member]
Retained Earnings [Member]
Treasury Stock [Member]
Accumulated Other Comprehensive Loss [Member]
Beginning Balance at Dec. 31, 2019 $ 380,426 $ 797 $ 274,632 $ 806,702 $ (685,288) $ (16,417)
Beginning Balance, Shares at Dec. 31, 2019   79,652        
Net Income (Loss) (9,969)     (9,969)    
Other comprehensive income (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 (23)     (1,524) 1,501  
Stock-based compensation expense 1,791   1,791      
Ending Balance at Mar. 31, 2020 363,715 $ 797 276,423 790,849 (686,545) (17,809)
Ending Balance, Shares at Mar. 31, 2020   79,652        
Beginning Balance at Dec. 31, 2019 380,426 $ 797 274,632 806,702 (685,288) (16,417)
Beginning Balance, Shares at Dec. 31, 2019   79,652        
Net Income (Loss) (9,217)          
Other comprehensive income (loss), net of tax 1,071          
Ending Balance at Jun. 30, 2020 364,194 $ 797 278,078 787,220 (686,555) (15,346)
Ending Balance, Shares at Jun. 30, 2020   79,652        
Beginning Balance at Mar. 31, 2020 363,715 $ 797 276,423 790,849 (686,545) (17,809)
Beginning Balance, Shares at Mar. 31, 2020   79,652        
Net Income (Loss) 752     752    
Other comprehensive income (loss), 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 (2)     (16) 14  
Stock-based compensation expense 1,655   1,655      
Ending Balance at Jun. 30, 2020 364,194 $ 797 278,078 787,220 (686,555) (15,346)
Ending Balance, Shares at Jun. 30, 2020   79,652        
Beginning Balance at Dec. 31, 2020 $ 372,944 $ 797 281,466 781,813 (679,493) (11,639)
Beginning Balance, Shares at Dec. 31, 2020 79,652 79,652        
Net Income (Loss) $ 896     896    
Other comprehensive income (loss), net of tax (1,956)         (1,956)
Dividend payments ($0.09 per share) (4,361)     (4,361)    
Dividends accrued on unvested RSUs (68)     (68)    
Deferred compensation adjustments, net of tax (50)       (50)  
PSUs, RSUs and restricted stock vested (81)     (1,683) 1,602  
Stock options exercised 1,244     (476) 1,720  
Stock-based compensation expense 1,807   1,807      
Ending Balance at Mar. 31, 2021 370,375 $ 797 283,273 776,121 (676,221) (13,595)
Ending Balance, Shares at Mar. 31, 2021   79,652        
Beginning Balance at Dec. 31, 2020 $ 372,944 $ 797 281,466 781,813 (679,493) (11,639)
Beginning Balance, Shares at Dec. 31, 2020 79,652 79,652        
Net Income (Loss) $ 5,982          
Other comprehensive income (loss), net of tax (1,501)          
Ending Balance at Jun. 30, 2021 $ 375,515 $ 797 285,081 776,054 (673,277) (13,140)
Ending Balance, Shares at Jun. 30, 2021 79,652 79,652        
Beginning Balance at Mar. 31, 2021 $ 370,375 $ 797 283,273 776,121 (676,221) (13,595)
Beginning Balance, Shares at Mar. 31, 2021   79,652        
Net Income (Loss) 5,086     5,086    
Other comprehensive income (loss), net of tax 455         455
Dividend payments ($0.09 per share) (4,374)     (4,374)    
Dividends accrued on unvested RSUs (128)     (128)    
Deferred compensation adjustments, net of tax (12)       (12)  
PSUs, RSUs and restricted stock vested (3)     (32) 29  
Stock options exercised 2,308     (619) 2,927  
Stock-based compensation expense 1,808   1,808      
Ending Balance at Jun. 30, 2021 $ 375,515 $ 797 $ 285,081 $ 776,054 $ (673,277) $ (13,140)
Ending Balance, Shares at Jun. 30, 2021 79,652 79,652        
v3.21.2
Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited) (Parenthetical) - $ / shares
3 Months Ended
Jun. 30, 2021
Mar. 31, 2021
Jun. 30, 2020
Mar. 31, 2020
Statement Of Stockholders Equity [Abstract]        
Dividend payments $ 0.09 $ 0.09 $ 0.09 $ 0.09
v3.21.2
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)
$ in Thousands
6 Months Ended 12 Months Ended
Jun. 30, 2021
Jun. 30, 2020
Dec. 31, 2020
Cash flows from operating activities:      
Net income (loss) $ 5,982 $ (9,217)  
Adjustments to reconcile net income (loss) to net cash provided by operating activities:      
Depreciation and amortization 8,232 8,404  
(Gain) loss on investments (3,255) 1,025  
Stock-based compensation expense 3,615 3,446  
Deferred income taxes 441 (5)  
Other 53 138  
Asset impairments   65  
Changes in operating assets and liabilities:      
Accounts receivable, net (24,322) (4,727)  
Other receivables 1,412 (9,468)  
Inventory, net 5,940 (7,878)  
Prepaid expenses, other current assets and other assets (4,767) 1,444  
Accounts payable 16,814 17,389  
Accrued expenses and other liabilities 6,999 2,097  
Income taxes payable, net 1,069 (1,032)  
Net cash provided by operating activities 18,213 1,681  
Cash flows from investing activities:      
Purchases of property, plant and equipment (2,210) (3,148)  
Proceeds from sales and maturities of available-for-sale investments 20,597 63,318  
Purchases of available-for-sale investments (20,121) (31,897)  
Acquisition of note receivable   (523)  
Net cash provided by (used in) investing activities (1,734) 27,750  
Cash flows from financing activities:      
Proceeds from stock option exercises 3,552    
Tax withholdings related to stock-based compensation settlements (113)    
Dividend payments (8,735) (8,665)  
Repayment of bonds payable   (24,600)  
Net cash used in financing activities (5,296) (33,265)  
Net increase (decrease) in cash, cash equivalents and restricted cash 11,183 (3,834)  
Effect of exchange rate changes (1,381) 306  
Cash, cash equivalents and restricted cash, beginning of period 60,179 73,773 $ 73,773
Cash, cash equivalents and restricted cash, end of period 69,981 70,245 $ 60,179
Supplemental disclosure of non-cash investing activities:      
Right-of-use assets obtained in exchange for lease obligations 275 93  
Purchases of property, plant and equipment included in accounts payable $ 144 $ 198  
v3.21.2
Summary of Significant Accounting Policies
6 Months Ended
Jun. 30, 2021
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of ADTRAN®, Inc. and its subsidiaries (“ADTRAN”, the “Company”, “we”, “our” or “us”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) applicable to interim financial information presented in Quarterly Reports on Form 10-Q. Accordingly, certain information and notes required by generally accepted accounting principles in the United States of America (“U.S. GAAP”) for complete financial statements are not included herein. The December 31, 2020 Condensed Consolidated Balance Sheet is derived from audited financial statements but does not include all disclosures required by U.S. GAAP.

In the opinion of management, all adjustments necessary to fairly state these interim statements have been recorded and are of a normal and recurring nature. The results of operations for an interim period are not necessarily indicative of the results for the full year. The interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in ADTRAN’s Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on February 26, 2021.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expense during the reporting period. The more significant estimates include excess and obsolete inventory reserves, warranty reserves, customer rebates, determination and accrual of deferred revenue components of multi-element sales agreements, estimated costs to complete obligations associated with deferred and accrued revenues and network installations, estimated income tax provision and income tax contingencies, fair value of stock-based compensation, assessment of goodwill and other intangibles for impairment, estimated lives of intangible assets, estimated pension liability and fair value of investments. Actual amounts could differ significantly from these estimates.

We assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to us and the unknown future impacts of the SARS-CoV-2 coronavirus/COVID-19 global pandemic (or variants of the SARS-CoV-2 coronavirus, including the Delta variant) as of June 30, 2021 and through the date of this report. The accounting matters assessed included, but were not limited to, the allowance for expected credit losses, stock-based compensation, carrying value of goodwill, intangibles and other long-lived assets, financial assets, valuation allowances for tax assets and revenue recognition. While there was not a material impact to our consolidated financial statements as of and for the six months ended June 30, 2021 resulting from these assessments, future conditions related to the magnitude and duration of the COVID-19 pandemic, as well as other factors, could result in material impacts to our consolidated financial statements in future reporting periods.

Correction of an Immaterial Misstatement

During the three months ended March 31, 2020, it was determined that certain investments held in the Company’s stock for a deferred compensation plan accounted for as a Rabbi trust were incorrectly classified as long-term investments with the fair value of such investments incorrectly marked to market at each period end rather than classified as Treasury stock held at historical cost. This plan has been in existence since 2011. The Company corrected this misstatement as an out-of-period adjustment in the three months ended March 31, 2020 by remeasuring the investment assets to their historical cost basis through the recording of a net investment gain of $1.5 million in the unaudited Condensed Consolidated Statement of Income (Loss) and then correcting the classification by decreasing the long-term investment balance at its remeasured cost basis of $2.8 million to Treasury stock in the unaudited Condensed Consolidated Balance Sheet as of March 31, 2020. Management has determined that this misstatement was not material to any of its previously issued financial statements and that the correction of the misstatement was not material to the Company’s 2020 annual financial results on either a quantitative or qualitative basis.

Recently Adopted Accounting Pronouncements

We recently adopted the following accounting standards, which had the following impacts on our condensed consolidated financial statements:

 

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-14, Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20): Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans, which makes changes to and clarifies the disclosure requirements related to defined benefit pension and other postretirement plans. ASU 2018-14 requires additional disclosures related to the reasons for significant gains and losses affecting the benefit obligation and an explanation of any other significant changes in the benefit obligation or plan assets that are not otherwise apparent in other disclosures required by Accounting Standards Codification (“ASC”) 715. ASU 2018-14 also clarifies the guidance in ASC 715 to require disclosure of the projected benefit obligation (“PBO”) and fair value of plan assets for pension plans with PBOs in excess of plan assets and the accumulated benefit obligation (“ABO”) and fair value of plan assets for pension plans with ABOs in excess of plan assets. ASU 2018-14 became effective for public business entities for fiscal years ending after December 15, 2020. The adoption of this standard did not have a material effect on the disclosures in the condensed consolidated financial statements.

 

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing various exceptions, such as the exception to the incremental approach for intra-period tax allocation when there is a loss from continuing operations and income or a gain from other items. The amendments in this update also simplify the accounting for income taxes related to income-based franchise taxes and require that an entity reflect enacted tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. The Company early adopted ASU 2019-12 on April 1, 2020, which was applied on a prospective basis as if the Company adopted the standard on January 1, 2020. The Company early adopted the standard to take advantage of the simplification of rules for income taxes on intra-period tax allocations. Specifically, the adoption of this standard resulted in the recognition of approximately $0.1 million of tax benefit in other comprehensive income (loss) for the three months ended March 31, 2020, that otherwise would have been recognized in continuing operations had the intra-period tax allocation been completed. There were no other impacts from this standard on the condensed consolidated financial statements.

 

Recent Accounting Pronouncements Not Yet Adopted

There are currently no recent accounting pronouncements that have not yet been adopted and that would have a material effect, once adopted, on the condensed consolidated financial statements.

v3.21.2
Cash, Cash Equivalents and Restricted Cash
6 Months Ended
Jun. 30, 2021
Cash And Cash Equivalents [Abstract]  
Cash, Cash Equivalents and Restricted Cash

2. CASH, CASH EQUIVALENTS AND RESTRICTED CASH

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Condensed Consolidated Balance Sheets that sum to the total of the same such amounts shown in the Condensed Consolidated Statements of Cash Flows:

 

 

 

As of

 

 

As of

 

(In thousands)

 

June 30, 2021

 

 

December 31, 2020

 

Cash and cash equivalents

 

$

69,927

 

 

$

60,161

 

Restricted cash

 

 

54

 

 

 

18

 

Cash, cash equivalents and restricted cash

 

$

69,981

 

 

$

60,179

 

 

See Note 18 for additional information regarding restricted cash.

v3.21.2
Revenue
6 Months Ended
Jun. 30, 2021
Revenue From Contract With Customer [Abstract]  
Revenue

3. REVENUE

The following is a description of the principal activities from which revenue is generated by reportable segment:

Network Solutions Segment - Includes hardware products and software-defined next-generation virtualized solutions used in service provider or business networks, as well as prior generation products.

Services & Support Segment - Includes maintenance, network implementation, solutions integration and managed services, which include hosted cloud services and subscription services.    

Revenue by Category

 

In addition to our reportable segments, revenue is also reported for the following three categories – Access & Aggregation, Subscriber Solutions & Experience and Traditional & Other Products.  

 

 

The following tables disaggregate revenue by reportable segment and revenue category:

 

 

 

Three Months Ended

 

 

 

June 30, 2021

 

 

June 30, 2020

 

(In thousands)

 

Network Solutions

 

 

Services & Support

 

 

Total

 

 

Network Solutions

 

 

Services & Support

 

 

Total

 

Access & Aggregation

 

$

78,307

 

 

$

12,657

 

 

$

90,964

 

 

$

69,721

 

 

$

13,055

 

 

$

82,776

 

Subscriber Solutions & Experience

 

 

45,097

 

 

 

2,713

 

 

 

47,810

 

 

 

38,081

 

 

 

2,312

 

 

 

40,393

 

Traditional & Other Products

 

 

2,045

 

 

 

2,413

 

 

 

4,458

 

 

 

3,521

 

 

 

2,025

 

 

 

5,546

 

Total

 

$

125,449

 

 

$

17,783

 

 

$

143,232

 

 

$

111,323

 

 

$

17,392

 

 

$

128,715

 

 

 

 

Six Months Ended

 

 

 

June 30, 2021

 

 

June 30, 2020

 

(In thousands)

 

Network Solutions

 

 

Services & Support

 

 

Total

 

 

Network Solutions

 

 

Services & Support

 

 

Total

 

Access & Aggregation

 

$

138,360

 

 

$

21,678

 

 

$

160,038

 

 

$

122,776

 

 

$

25,966

 

 

$

148,742

 

Subscriber Solutions & Experience

 

 

97,366

 

 

 

5,013

 

 

 

102,379

 

 

 

78,064

 

 

 

4,508

 

 

 

82,572

 

Traditional & Other Products

 

 

3,532

 

 

 

4,816

 

 

 

8,348

 

 

 

7,855

 

 

 

4,069

 

 

 

11,924

 

Total

 

$

239,258

 

 

$

31,507

 

 

$

270,765

 

 

$

208,695

 

 

$

34,543

 

 

$

243,238

 

 

Revenue allocated to remaining performance obligations represents contract revenues that have not yet been recognized for contracts with a duration of greater than one year. As of June 30, 2021, we did not have any significant performance obligations related to customer contracts that had an original expected duration of one year or more, other than maintenance services, which are satisfied over time. As a practical expedient, for certain contracts we recognize revenue equal to the amounts that we are entitled to invoice, which correspond to the value of completed performance obligations to date. The amount related to these performance obligations was $19.7 million and $17.7 million as of June 30, 2021 and December 31, 2020, respectively. The Company expects to recognize 64% of the $19.7 million as of June 30, 2021 over the next 12 months, with the remainder to be recognized thereafter.

The following table provides information about receivables, contract assets and unearned revenue from contracts with customers:

 

 

 

As of

 

 

As of

 

(In thousands)

 

June 30, 2021

 

 

December 31, 2020

 

Accounts receivable, net

 

$

122,669

 

 

$

98,827

 

Contract assets(1)

 

$

1,036

 

 

$

63

 

Unearned revenue

 

$

15,889

 

 

$

14,092

 

Non-current unearned revenue

 

$

7,030

 

 

$

6,888

 

 

 

(1)

Included in other receivables on the Condensed Consolidated Balance Sheets.

 

Of the outstanding unearned revenue balances as of December 31, 2020 $2.9 million and $7.9 million were recognized as revenue during the three and six months ended June 30, 2021, respectively.

v3.21.2
Income Taxes
6 Months Ended
Jun. 30, 2021
Income Tax Disclosure [Abstract]  
Income Taxes

4. INCOME TAXES

Our effective tax rate decreased from an expense of 68.5% for the three months ended June 30, 2020, to an expense of 18.1% for the three months ended June 30, 2021 and increased from a benefit of 22.9% for the six months ended June 30, 2020 to an expense of 26.7% for the six months ended June 30, 2021. The change in the effective tax rate for the three months ended June 30, 2021 was driven by tax expense in our international operations and additional changes in the valuation allowance related to our domestic operations. The change in the effective tax rate for the six months ended June 30, 2021 was primarily driven by a tax benefit of $7.4 million recognized during the six months ended June 30, 2020 as a result of the passing of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) on March 27, 2020, which allowed for the carryback of federal net operating losses, partially offset with tax expense in our international operations in the current quarter. Additionally, on February 12, 2021, the Alabama Business Tax Competitiveness Act was signed into law. As a result of the Act, we recognized an expense of $1.6 million related to the revaluation of our deferred tax assets, which was offset by changes in our valuation allowance previously recorded against our domestic deferred tax assets. The total increase in the valuation allowance against our domestic deferred tax assets was recorded in the amount of $1.6 million during the six months ended June 30, 2021.

The Company continually reviews the adequacy of its valuation allowance and recognizes the benefits of deferred tax assets only as the reassessment indicates that it is more likely than not that the deferred tax assets will be recognized in accordance with ASC 740,

Income Taxes. As of June 30, 2021, the Company had deferred tax assets totaling $56.9 million, and a valuation allowance totaling $47.8 million against those deferred tax assets. The remaining $9.2 million in deferred tax assets not offset by a valuation allowance are located in various foreign jurisdictions where the Company believes it is more likely than not we will realize these deferred tax assets. Our assessment of the realizability of our deferred tax assets includes the evaluation of historical operating results as well as the evaluation of evidence which requires significant judgement, including the evaluation of our three-year cumulative income position, future taxable income projections and tax planning strategies. Should management’s conclusion change in the future and an additional valuation allowance or a partial or full release of the valuation allowance becomes necessary, it could have a material effect on our consolidated financial statements.

Supplemental balance sheet information related to deferred tax assets is as follows:

 

 

 

As of  June 30, 2021

 

(In thousands)

 

Deferred Tax Assets

 

 

Valuation Allowance

 

 

Deferred Tax Assets, net

 

Domestic

 

$

45,383

 

 

$

(45,383

)

 

$

 

International

 

 

11,558

 

 

 

(2,393

)

 

 

9,165

 

Total

 

$

56,941

 

 

$

(47,776

)

 

$

9,165

 

 

 

 

As of December 31, 2020

 

(In thousands)

 

Deferred Tax Assets

 

 

Valuation Allowance

 

 

Deferred Tax Assets, net

 

Domestic

 

$

43,791

 

 

$

(43,791

)

 

$

 

International

 

 

11,896

 

 

 

(2,027

)

 

 

9,869

 

Total

 

$

55,687

 

 

$

(45,818

)

 

$

9,869

 

 

v3.21.2
Stock-Based Compensation
6 Months Ended
Jun. 30, 2021
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]  
Stock-Based Compensation

5. STOCK-BASED COMPENSATION

The following table summarizes stock-based compensation expense related to stock options, performance stock units (“PSUs”), restricted stock units (“RSUs”) and restricted stock:

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

(In thousands)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Stock-based compensation expense included in cost of revenue

 

$

125

 

 

$

87

 

 

$

256

 

 

$

202

 

Selling, general and administrative expense

 

 

1,098

 

 

 

971

 

 

 

2,196

 

 

 

2,046

 

Research and development expense

 

 

585

 

 

 

597

 

 

 

1,163

 

 

 

1,198

 

Stock-based compensation expense included in operating expenses

 

 

1,683

 

 

 

1,568

 

 

 

3,359

 

 

 

3,244

 

Total stock-based compensation expense

 

 

1,808

 

 

 

1,655

 

 

 

3,615

 

 

 

3,446

 

Tax benefit for expense associated with stock options, PSUs, RSUs and restricted stock

 

 

(452

)

 

 

(394

)

 

 

(883

)

 

 

(821

)

Total stock-based compensation expense, net of tax

 

$

1,356

 

 

$

1,261

 

 

$

2,732

 

 

$

2,625

 

 

PSUs, RSUs and Restricted Stock

 

The following table summarizes PSUs, RSUs and restricted stock outstanding as of December 31, 2020 and June 30, 2021 and the changes that occurred during the six months ended June 30, 2021:

 

 

 

Number of

Shares

(in thousands)

 

 

Weighted Avg. Grant Date Fair Value

(per share)

 

Unvested PSUs, RSUs and restricted stock outstanding, December 31, 2020

 

 

1,846

 

 

$

11.49

 

PSUs, RSUs and restricted stock granted

 

 

357

 

 

$

16.73

 

PSUs, RSUs and restricted stock vested

 

 

(12

)

 

$

11.76

 

PSUs, RSUs and restricted stock forfeited

 

 

(47

)

 

$

11.58

 

Unvested PSUs, RSUs and restricted stock outstanding, June 30, 2021

 

 

2,144

 

 

$

12.41

 

 

During each of the six month periods ended June 30, 2021 and 2020, the Company granted 0.3 million performance-based PSUs to its executive officers and certain employees. The grant-date fair value of these performance-based awards was based on the closing price of the Company’s stock on the date of grant. These awards vest over two-year and three-year periods, respectively, subject to the grantee’s continued employment, with the ability to earn shares in a range of 0% to 142.8% of the awarded number of PSUs based on

the achievement of defined performance targets. Equity-based compensation expense with respect to these awards may be adjusted over the vesting period to reflect the probability of achievement of performance targets defined in the award agreements.

 

The fair value of RSUs and restricted stock is equal to the closing price of our stock on the date of grant. The fair value of PSUs with market conditions is calculated using a Monte Carlo simulation valuation method.

As of June 30, 2021, total unrecognized compensation expense related to non-vested market-based PSUs, RSUs and restricted stock was approximately $13.2 million, which will be recognized over the remaining weighted-average period of 2.5 years. In addition, there was $7.5 million of unrecognized compensation expense related to unvested 2020 and 2021 performance-based PSUs, which will be recognized over the remaining requisite service period of 1.5 years if achievement of the performance obligation becomes probable. Unrecognized compensation expense will be adjusted for actual forfeitures.

 

As of June 30, 2021, 3.5 million shares were available for issuance under stockholder-approved equity plans.

Stock Options

The following table summarizes stock options outstanding as of December 31, 2020 and June 30, 2021 and the changes that occurred during the six months ended June 30, 2021:

 

 

 

Number of

Stock Options

(in thousands)

 

 

Weighted Avg.

Exercise Price

(per share)

 

 

Weighted Avg.

Remaining

Contractual

Life

(in years)

 

 

Aggregate

Intrinsic Value

(in thousands)

 

Stock options outstanding, December 31, 2020

 

 

2,718

 

 

$

21.17

 

 

 

2.9

 

 

$

 

Stock options exercised

 

 

(215

)

 

$

16.53

 

 

 

 

 

 

 

588

 

Stock options expired

 

 

(117

)

 

$

23.37

 

 

 

 

 

 

 

17

 

Stock options outstanding, June 30, 2021

 

 

2,386

 

 

$

21.47

 

 

 

2.4

 

 

$

4,721

 

Stock options exercisable, June 30, 2021

 

 

2,386

 

 

$

21.47

 

 

 

2.4

 

 

$

4,721

 

As of June 30, 2021, there was no unrecognized compensation expense related to stock options as all awards vested in prior periods.

There were no stock options granted during the six months ended June 30, 2021 or 2020. All of the options were previously issued at exercise prices that approximated fair market value at the date of grant. 

 

The aggregate intrinsic value of stock options represents the total pre-tax intrinsic value (the difference between ADTRAN’s closing stock price on the last trading day of the quarter and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on June 30, 2021. The amount of aggregate intrinsic value was $4.7 million as of June 30, 2021 and will change based on the fair market value of ADTRAN’s stock. The total pre-tax intrinsic value of options exercised during the six months ended June 30, 2021 was $0.6 million.

v3.21.2
Investments
6 Months Ended
Jun. 30, 2021
Investments Debt And Equity Securities [Abstract]  
Investments

6. INVESTMENTS

Debt Securities and Other Investments

The following debt securities and other investments were included on the Condensed Consolidated Balance Sheet and recorded at fair value:

 

 

 

As of June 30, 2021

 

 

 

Amortized

 

 

Gross Unrealized

 

 

Fair

 

(In thousands)

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

Corporate bonds

 

$

14,954

 

 

$

53

 

 

$

(6

)

 

$

15,001

 

Municipal fixed-rate bonds

 

 

2,523

 

 

 

15

 

 

 

(1

)

 

 

2,537

 

Asset-backed bonds

 

 

3,983

 

 

 

20

 

 

 

(2

)

 

 

4,001

 

Mortgage/Agency-backed bonds

 

 

11,004

 

 

 

50

 

 

 

(15

)

 

 

11,039

 

U.S. government bonds

 

 

10,777

 

 

 

51

 

 

 

(5

)

 

 

10,823

 

Foreign government bonds

 

 

546

 

 

 

1

 

 

 

(1

)

 

 

546

 

Other

 

 

533

 

 

 

 

 

 

 

 

 

533

 

Available-for-sale debt securities held at fair value

 

$

44,320

 

 

$

190

 

 

$

(30

)

 

$

44,480

 

 

 

 

 

As of December 31, 2020

 

 

 

Amortized

 

 

Gross Unrealized

 

 

Fair

 

(In thousands)

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

Corporate bonds

 

$

11,762

 

 

$

123

 

 

$

 

 

$

11,885

 

Municipal fixed-rate bonds

 

 

2,854

 

 

 

30

 

 

 

 

 

 

2,884

 

Asset-backed bonds

 

 

6,634

 

 

 

74

 

 

 

 

 

 

6,708

 

Mortgage/Agency-backed bonds

 

 

11,536

 

 

 

114

 

 

 

(6

)

 

 

11,644

 

U.S. government bonds

 

 

9,763

 

 

 

112

 

 

 

 

 

 

9,875

 

Foreign government bonds

 

 

1,334

 

 

 

4

 

 

 

(1

)

 

 

1,337

 

Commercial Paper

 

 

250

 

 

 

 

 

 

 

 

 

250

 

Other

 

 

533

 

 

 

 

 

 

 

 

 

533

 

Available-for-sale debt securities held at fair value

 

$

44,666

 

 

$

457

 

 

$

(7

)

 

$

45,116

 

 

The contractual maturities related to debt securities and other investments were as follows:

 

 

 

As of  June 30, 2021

 

(In thousands)

 

Corporate

bonds

 

 

Municipal

fixed-rate

bonds

 

 

Asset-

backed

bonds

 

 

Mortgage/

Agency-

backed bonds

 

 

U.S. government

bonds

 

 

Foreign government bonds

 

 

Other

 

Less than one year

 

$

436

 

 

$

529

 

 

$

1

 

 

$

254

 

 

$

735

 

 

$

 

 

$

533

 

One to two years

 

 

4,575

 

 

 

496

 

 

 

 

 

 

1,865

 

 

 

7,240

 

 

 

 

 

 

 

Two to three years

 

 

7,518

 

 

 

1,103

 

 

 

50

 

 

 

1,199

 

 

 

1,188

 

 

 

546

 

 

 

 

Three to five years

 

 

2,472

 

 

 

409

 

 

 

1,749

 

 

 

165

 

 

 

1,660

 

 

 

 

 

 

 

Five to ten years

 

 

 

 

 

 

 

 

866

 

 

 

2,213

 

 

 

 

 

 

 

 

 

 

More than ten years