ADTRAN INC, 10-Q filed on 11/5/2021
Quarterly Report
v3.21.2
Document and Entity Information - shares
9 Months Ended
Sep. 30, 2021
Nov. 01, 2021
Cover [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Sep. 30, 2021  
Document Fiscal Year Focus 2021  
Document Fiscal Period Focus Q3  
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   48,679,989
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
Sep. 30, 2021
Dec. 31, 2020
Current Assets    
Cash and cash equivalents $ 75,503 $ 60,161
Restricted cash 102 18
Short-term investments (includes $1,210 and $1,731 of available-for-sale securities as of September 30, 2021 and December 31, 2020, respectively, reported at fair value) 2,610 3,131
Accounts receivable, less allowance for expected credit losses of $0 as of September 30, 2021 and $38 as of December 31, 2020 124,146 98,827
Other receivables 9,867 21,531
Inventory, net 127,241 125,457
Prepaid expenses and other current assets 10,061 8,293
Total Current Assets 349,530 317,418
Property, plant and equipment, net 56,556 62,399
Deferred tax assets, net 8,957 9,869
Goodwill 6,968 6,968
Intangibles, net 20,291 23,470
Other assets 31,675 25,425
Long-term investments (includes $44,305 and $43,385 of available-for-sale securities as of September 30, 2021 and December 31, 2020, respectively, reported at fair value) 83,935 80,130
Total Assets 557,912 525,679
Current Liabilities    
Accounts payable 79,074 49,929
Unearned revenue 16,394 14,092
Accrued expenses and other liabilities 15,392 13,609
Accrued wages and benefits 17,270 15,262
Income tax payable, net 5,914 1,301
Total Current Liabilities 134,044 94,193
Non-current unearned revenue 7,426 6,888
Pension liability 16,988 18,664
Deferred compensation liability 28,336 25,866
Other non-current liabilities 7,365 7,124
Total Liabilities 194,159 152,735
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 48,680 shares outstanding as of September 30, 2021 and 79,652 shares issued and 48,241 shares outstanding as of December 31, 2020 797 797
Additional paid-in capital 286,923 281,466
Accumulated other comprehensive loss (14,466) (11,639)
Retained earnings 760,398 781,813
Treasury stock at cost: 30,973 and 31,280 shares at September 30, 2021 and December 31, 2020, respectively (669,899) (679,493)
Total Stockholders’ Equity 363,753 372,944
Total Liabilities and Stockholders’ Equity $ 557,912 $ 525,679
v3.21.2
Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - USD ($)
$ in Thousands
Sep. 30, 2021
Dec. 31, 2020
Statement Of Financial Position [Abstract]    
Short term investments, available-for-sale securities at fair value $ 1,210 $ 1,731
Accounts receivable, allowance for expected credit losses 0 38
Long Term Investments, available-for-sale securities Fair Value $ 44,305 $ 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 48,680,000 48,241,000
Treasury stock, shares 30,973,000 31,280,000
v3.21.2
Condensed Consolidated Statements of Income (Loss) (Unaudited) - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2021
Sep. 30, 2020
Sep. 30, 2021
Sep. 30, 2020
Revenue        
Total Revenue $ 138,081 $ 133,143 $ 408,846 $ 376,381
Cost of Revenue        
Total Cost of Revenue 90,408 74,181 244,904 212,347
Gross Profit 47,673 58,962 163,942 164,034
Selling, general and administrative expenses 30,972 27,205 89,273 84,624
Research and development expenses 26,759 27,223 82,131 85,794
Asset impairments       65
Operating Income (Loss) (10,058) 4,534 (7,462) (6,449)
Interest and dividend income 344 344 887 1,031
Interest expense (6)   (18) (1)
Net investment gain (loss) (63) 2,844 2,942 1,819
Other income (expense), net 648 (1,679) 2,673 (2,307)
Income (Loss) Before Income Taxes (9,135) 6,043 (978) (5,907)
Income tax (expense) benefit (1,292) (562) (3,467) 2,171
Net Income (Loss) $ (10,427) $ 5,481 $ (4,445) $ (3,736)
Weighted average shares outstanding – basic 48,609 47,957 48,470 47,957
Weighted average shares outstanding – diluted 48,609 48,424 48,470 47,957
Earnings (loss) per common share – basic $ (0.21) $ 0.11 $ (0.09) $ (0.08)
Earnings (loss) per common share – diluted $ (0.21) $ 0.11 $ (0.09) $ (0.08)
Network Solutions [Member]        
Revenue        
Total Revenue $ 120,767 $ 115,229 $ 360,025 $ 323,924
Cost of Revenue        
Total Cost of Revenue 81,029 62,795 216,044 178,492
Gross Profit 39,738 52,434 143,981 145,432
Services & Support [Member]        
Revenue        
Total Revenue 17,314 17,914 48,821 52,457
Cost of Revenue        
Total Cost of Revenue 9,379 11,386 28,860 33,855
Gross Profit $ 7,935 $ 6,528 $ 19,961 $ 18,602
v3.21.2
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2021
Sep. 30, 2020
Sep. 30, 2021
Sep. 30, 2020
Statement Of Income And Comprehensive Income [Abstract]        
Net Income (Loss) $ (10,427) $ 5,481 $ (4,445) $ (3,736)
Other Comprehensive Income (Loss), net of tax        
Net unrealized gain (loss) on available-for-sale securities (61) (45) (348) 445
Defined benefit plan adjustments 124 244 435 576
Foreign currency translation (1,389) 2,469 (2,914) 2,718
Other Comprehensive Income (Loss), net of tax (1,326) 2,668 (2,827) 3,739
Comprehensive Income (Loss), net of tax $ (11,753) $ 8,149 $ (7,272) $ 3
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) (3,736)          
Other comprehensive income (loss), net of tax 3,739          
Ending Balance at Sep. 30, 2020 369,593 $ 797 279,688 788,294 (686,508) (12,678)
Ending Balance, Shares at Sep. 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        
Net Income (Loss) 5,481     5,481    
Other comprehensive income (loss), net of tax 2,668         2,668
Dividend payments ($0.09 per share) (4,328)     (4,328)    
Dividends accrued on unvested RSUs (12)     (12)    
Deferred compensation adjustments, net of tax (12)       (12)  
PSUs, RSUs and restricted stock vested (8)     (67) 59  
Stock-based compensation expense 1,610   1,610      
Ending Balance at Sep. 30, 2020 369,593 $ 797 279,688 788,294 (686,508) (12,678)
Ending Balance, Shares at Sep. 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) $ (4,445)          
Other comprehensive income (loss), net of tax (2,827)          
Ending Balance at Sep. 30, 2021 $ 363,753 $ 797 286,923 760,398 (669,899) (14,466)
Ending Balance, Shares at Sep. 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        
Net Income (Loss) (10,427)     (10,427)    
Other comprehensive income (loss), net of tax (1,326)         (1,326)
Dividend payments ($0.09 per share) (4,389)     (4,389)    
Dividends accrued on unvested RSUs 2     2    
Deferred compensation adjustments, net of tax (12)       (12)  
PSUs, RSUs and restricted stock vested (11)     (185) 174  
Stock options exercised 2,559     (657) 3,216  
Stock-based compensation expense 1,842   1,842      
Ending Balance at Sep. 30, 2021 $ 363,753 $ 797 $ 286,923 $ 760,398 $ (669,899) $ (14,466)
Ending Balance, Shares at Sep. 30, 2021 79,652 79,652        
v3.21.2
Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited) (Parenthetical) - $ / shares
3 Months Ended
Sep. 30, 2021
Jun. 30, 2021
Mar. 31, 2021
Sep. 30, 2020
Jun. 30, 2020
Mar. 31, 2020
Statement Of Stockholders Equity [Abstract]            
Dividend payments $ 0.09 $ 0.09 $ 0.09 $ 0.09 $ 0.09 $ 0.09
v3.21.2
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)
$ in Thousands
9 Months Ended 12 Months Ended
Sep. 30, 2021
Sep. 30, 2020
Dec. 31, 2020
Cash flows from operating activities:      
Net loss $ (4,445) $ (3,736)  
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:      
Depreciation and amortization 12,246 12,525  
Gain on investments (3,320) (1,819)  
Stock-based compensation expense 5,457 5,056  
Deferred income taxes 437 (1)  
Other 89 195  
Asset impairments   65  
Changes in operating assets and liabilities:      
Accounts receivable, net (26,346) (9,131)  
Other receivables 11,152 (6,224)  
Inventory, net (2,669) (21,170)  
Prepaid expenses, other current assets and other assets (8,514) (672)  
Accounts payable 29,614 14,204  
Accrued expenses and other liabilities 10,392 5,618  
Income taxes payable, net 4,798 (227)  
Net cash provided by (used in) operating activities 28,891 (5,317)  
Cash flows from investing activities:      
Purchases of property, plant and equipment (3,572) (5,082)  
Proceeds from sales and maturities of available-for-sale investments 28,305 86,145  
Purchases of available-for-sale investments (28,853) (42,641)  
Acquisition of note receivable   (523)  
Insurance proceeds received 500    
Net cash (used in) provided by investing activities (3,620) 37,899  
Cash flows from financing activities:      
Proceeds from stock option exercises 6,111    
Tax withholdings related to stock-based compensation settlements (113)    
Dividend payments (13,124) (12,993)  
Repayment of bonds payable   (24,600)  
Net cash used in financing activities (7,126) (37,593)  
Net increase (decrease) in cash, cash equivalents and restricted cash 18,145 (5,011)  
Effect of exchange rate changes (2,719) 2,641  
Cash, cash equivalents and restricted cash, beginning of period 60,179 73,773 $ 73,773
Cash, cash equivalents and restricted cash, end of period 75,605 71,403 $ 60,179
Supplemental disclosure of non-cash investing activities:      
Right-of-use assets obtained in exchange for lease obligations 1,833 231  
Purchases of property, plant and equipment included in accounts payable $ 100 $ 442  
v3.21.2
Summary of Significant Accounting Policies
9 Months Ended
Sep. 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 well as supply chain constraints as of September 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, revenue recognition and costs of revenue. Future conditions related to the magnitude and duration of the COVID-19 pandemic, as well as other factors, including supply chain constraints, could result in further 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 

v3.21.2
Cash, Cash Equivalents and Restricted Cash
9 Months Ended
Sep. 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)

 

September 30, 2021

 

 

December 31, 2020

 

Cash and cash equivalents

 

$

75,503

 

 

$

60,161

 

Restricted cash

 

 

102

 

 

 

18

 

Cash, cash equivalents and restricted cash

 

$

75,605

 

 

$

60,179

 

 

See Note 18 for additional information regarding restricted cash.

v3.21.2
Revenue
9 Months Ended
Sep. 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

 

 

 

September 30, 2021

 

 

September 30, 2020

 

(In thousands)

 

Network Solutions

 

 

Services & Support

 

 

Total

 

 

Network Solutions

 

 

Services & Support

 

 

Total

 

Access & Aggregation

 

$

77,104

 

 

$

12,069

 

 

$

89,173

 

 

$

71,919

 

 

$

13,504

 

 

$

85,423

 

Subscriber Solutions & Experience

 

 

42,093

 

 

 

2,819

 

 

 

44,912

 

 

 

40,843

 

 

 

2,282

 

 

 

43,125

 

Traditional & Other Products

 

 

1,570

 

 

 

2,426

 

 

 

3,996

 

 

 

2,467

 

 

 

2,128

 

 

 

4,595

 

Total

 

$

120,767

 

 

$

17,314

 

 

$

138,081

 

 

$

115,229

 

 

$

17,914

 

 

$

133,143

 

 

 

 

Nine Months Ended

 

 

 

September 30, 2021

 

 

September 30, 2020

 

(In thousands)

 

Network Solutions

 

 

Services & Support

 

 

Total

 

 

Network Solutions

 

 

Services & Support

 

 

Total

 

Access & Aggregation

 

$

215,464

 

 

$

33,747

 

 

$

249,211

 

 

$

194,695

 

 

$

39,470

 

 

$

234,165

 

Subscriber Solutions & Experience

 

 

139,459

 

 

 

7,832

 

 

 

147,291

 

 

 

118,907

 

 

 

6,790

 

 

 

125,697

 

Traditional & Other Products

 

 

5,102

 

 

 

7,242

 

 

 

12,344

 

 

 

10,322

 

 

 

6,197

 

 

 

16,519

 

Total

 

$

360,025

 

 

$

48,821

 

 

$

408,846

 

 

$

323,924

 

 

$

52,457

 

 

$

376,381

 

 

Revenue allocated to remaining performance obligations represents contract revenue that has not yet been recognized for contracts with a duration of greater than one year. As of September 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 $20.7 million and $17.7 million as of September 30, 2021 and December 31, 2020, respectively. The Company expects to recognize 64% of the $20.7 million as of September 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)

 

September 30, 2021

 

 

December 31, 2020

 

Accounts receivable, net

 

$

124,146

 

 

$

98,827

 

Contract assets(1)

 

$

999

 

 

$

63

 

Unearned revenue

 

$

16,394

 

 

$

14,092

 

Non-current unearned revenue

 

$

7,426

 

 

$

6,888

 

 

(1) Included in other receivables on the Condensed Consolidated Balance Sheets.

 

Of the outstanding unearned revenue balances as of December 31, 2020, $2.0 million and $9.8 million were recognized as revenue during the three and nine months ended September 30, 2021, respectively.

v3.21.2
Income Taxes
9 Months Ended
Sep. 30, 2021
Income Tax Disclosure [Abstract]  
Income Taxes

4. INCOME TAXES

Our effective tax rate increased from an expense of 9.3% of pre-tax income for the three months ended September 30, 2020, to an expense of 14.1% of pre-tax loss for the three months ended September 30, 2021 and increased from a benefit of 36.8% of pre-tax loss for the nine months ended September 30, 2020 to an expense of 354.5% of pre-tax loss for the nine months ended September 30, 2021. The change in the effective tax rate for the three months ended September 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 nine months ended September 30, 2021 was primarily driven by a tax benefit of $7.8 million recognized during the nine months ended September 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.

On February 12, 2021, the Alabama Business Tax Competitiveness Act (the "Act") was signed into law. As a result of the Act, we recognized an expense of $1.6 million in the first quarter of 2021 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.

 

During the third quarter of 2021, management pursued a claim for refund related to the revocation of the IRC Section 59(e) election that was made on our originally filed 2018 U.S. federal tax return. The Company filed a related carryback claim of net operating losses generated in 2018 to prior years as allowed under the CARES Act that was passed in the first quarter of 2020. An IRS Section 59(e) election is generally non-revocable except in cases for which IRS Commissioner’s approval is given. Approval is granted only in rare and unusual circumstances. The Company filed a private letter ruling (the "PLR") request to revoke our election. To date, a response to the PLR has not been published. As a result of these filings, and management’s position to pursue them through appeals, if necessary, we have established a receivable in the amount of $15.2 million and a deferred tax asset related to our additional research and development credit carryforward in the amount of $1.8 million that would be available if our revocation request is successful, offset with an uncertain tax liability of $17.0 million within our financials as of September 30, 2021.

 

The Company continually reviews the adequacy of its valuation allowance and recognizes the benefits of deferred tax assets only as the assessment 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 September 30, 2021, the Company had deferred tax assets totaling $59.2 million, and a valuation allowance totaling $50.2 million against those deferred tax assets. The remaining $9.0 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. During the nine months ended September 30, 2021, the total increase in the valuation allowance against our domestic and international deferred tax assets was recorded in the amount of $4.0 million and $0.4 million, respectively. 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 may have a material effect on our consolidated financial statements.

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

 

 

 

As of September 30, 2021

 

(In thousands)

 

Deferred Tax Assets

 

 

Valuation Allowance

 

 

Deferred Tax Assets, net

 

Domestic

 

$

47,839

 

 

$

(47,839

)

 

$

 

International

 

 

11,350

 

 

 

(2,393

)

 

 

8,957

 

Total

 

$

59,189

 

 

$

(50,232

)

 

$

8,957

 

 

 

 

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

 

 

 

The change in the unrecognized income tax benefits for the nine months ended September 30, 2021 and year ended December 31, 2020, is reconciled below:

 

(In thousands)

 

For the Nine Months Ended
 September 30, 2021

 

 

For the Year Ended December 31, 2020

 

Balance at beginning of period

 

$

1,078

 

 

$

1,487

 

Increases for tax position related to:

 

 

 

 

 

 

Prior years

 

 

17,025

 

 

 

4

 

Current year

 

 

102

 

 

 

165

 

Decreases for tax positions related to:

 

 

 

 

 

 

Prior years

 

 

(27

)

 

 

 

Expiration of applicable statute of limitations

 

 

 

 

 

(578

)

Balance at end of period

 

$

18,178

 

 

$

1,078

 

 

As of September 30, 2021 and December 31, 2020, the liability for unrecognized tax benefit was $18.2 million and $1.1 million, respectively, of which $18.1 million and $1.0 million, respectively, would reduce the effective tax rate if we were successful in upholding all of the uncertain positions and recognized the amounts recorded. We classify interest and penalties recognized on the liability for unrecognized tax benefits as income tax expense. As of September 30, 2021 and December 31, 2020, the balances of accrued interest and penalties were $0.3 million and $0.3 million, respectively.

 

We do not anticipate a single tax position generating a significant increase or decrease in our liability for unrecognized tax benefits within 12 months of this reporting date, unless a resolution is reached regarding the item noted above. We file income tax returns in the U.S. for federal and various state jurisdictions and several foreign jurisdictions. We are not currently under audit by the Internal Revenue Service. Generally, we are not subject to changes in income taxes by any taxing jurisdiction for the years prior to 2017.

v3.21.2
Stock-Based Compensation
9 Months Ended
Sep. 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

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

(In thousands)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Stock-based compensation expense included in cost of revenue

 

$

133

 

 

$

101

 

 

$

389

 

 

$

303

 

Selling, general and administrative expense

 

 

1,116

 

 

 

953

 

 

 

3,312

 

 

 

2,999

 

Research and development expense

 

 

593

 

 

 

556

 

 

 

1,756

 

 

 

1,754

 

Stock-based compensation expense included in operating expenses

 

 

1,709

 

 

 

1,509

 

 

 

5,068

 

 

 

4,753

 

Total stock-based compensation expense

 

 

1,842

 

 

 

1,610

 

 

 

5,457

 

 

 

5,056

 

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

 

 

(460

)

 

 

(384

)

 

 

(1,343

)

 

 

(1,205

)

Total stock-based compensation expense, net of tax

 

$

1,382

 

 

$

1,226

 

 

$

4,114

 

 

$

3,851

 

 

PSUs, RSUs and Restricted Stock

 

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

 

 

359

 

 

$

16.75

 

PSUs, RSUs and restricted stock vested

 

 

(21

 )

 

$

13.00

 

PSUs, RSUs and restricted stock forfeited

 

 

(65

)

 

$

11.93

 

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

 

 

2,119

 

 

$

12.40

 

 

During each of the nine month periods ended September 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 September 30, 2021, total unrecognized compensation expense related to non-vested market-based PSUs, RSUs and restricted stock was approximately $11.3 million, which will be recognized over the remaining weighted-average period of 2.3 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 1.3 years if achievement of the performance obligation becomes probable. Unrecognized compensation expense will be adjusted for actual forfeitures.

 

As of September 30, 2021, 4.0 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 September 30, 2021 and the changes that occurred during the nine months ended September 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

 

 

(363

)

 

$

16.81

 

 

 

 

 

 

1,411

 

Stock options expired

 

 

(607

)

 

$

28.93

 

 

 

 

 

 

18

 

Stock options outstanding, September 30, 2021

 

 

1,748

 

 

$

19.37

 

 

 

2.7

 

 

$

2,060

 

Stock options exercisable, September 30, 2021

 

 

1,748

 

 

$

19.37

 

 

 

2.7

 

 

$

2,060

 

As of September 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 nine months ended September 30, 2021 and 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 September 30, 2021. The amount of aggregate intrinsic value was $2.1 million as of September 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 nine months ended September 30, 2021 was $1.4 million.

v3.21.2
Investments
9 Months Ended
Sep. 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 September 30, 2021

 

 

 

Amortized

 

 

Gross Unrealized

 

 

Fair

 

(In thousands)

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

Corporate bonds

 

$

13,381

 

 

$

39

 

 

$

(6

)

 

$

13,414

 

Municipal fixed-rate bonds

 

 

2,236

 

 

 

13

 

 

 

(1

)

 

 

2,248

 

Asset-backed bonds

 

 

3,497

 

 

 

17

 

 

 

(1

)

 

 

3,513

 

Mortgage/Agency-backed bonds

 

 

9,194

 

 

 

35

 

 

 

(17

)

 

 

9,212

 

U.S. government bonds

 

 

16,031

 

 

 

34

 

 

 

(13

)

 

 

16,052

 

Foreign government bonds

 

 

544

 

 

 

1

 

 

 

(2

)

 

 

543

 

Other

 

 

533

 

 

 

 

 

 

 

 

 

533

 

Available-for-sale debt securities held at fair value

 

$

45,416

 

 

$

139

 

 

$

(40

)

 

$

45,515

 

 

 

 

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