ADTRAN INC, 10-Q filed on 5/6/2021
Quarterly Report
v3.21.1
Document and Entity Information - shares
3 Months Ended
Mar. 31, 2021
May 05, 2021
Cover [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Mar. 31, 2021  
Document Fiscal Year Focus 2021  
Document Fiscal Period Focus Q1  
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   48,395,709
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 $0.01 per share  
Security Exchange Name NASDAQ  
v3.21.1
Condensed Consolidated Balance Sheets (Unaudited) - USD ($)
$ in Thousands
Mar. 31, 2021
Dec. 31, 2020
Current Assets    
Cash and cash equivalents $ 63,777 $ 60,161
Restricted cash 119 18
Short-term investments (includes $2,692 and $1,731 of available-for-sale securities as of March 31, 2021 and December 31, 2020, respectively, reported at fair value) 4,092 3,131
Accounts receivable, less allowance for doubtful accounts of $38 as of March 31, 2021 and December 31, 2020 103,201 98,827
Other receivables 22,669 21,531
Inventory, net 122,862 125,457
Prepaid expenses and other current assets 7,625 8,293
Total Current Assets 324,345 317,418
Property, plant and equipment, net 60,157 62,399
Deferred tax assets, net 9,448 9,869
Goodwill 6,968 6,968
Intangibles, net 22,384 23,470
Other non-current assets 26,195 25,425
Long-term investments (includes $43,455 and $43,385 of available-for-sale securities as of March 31, 2021 and December 31, 2020, respectively, reported at fair value) 81,266 80,130
Total Assets 530,763 525,679
Current Liabilities    
Accounts payable 55,476 49,929
Unearned revenue 14,457 14,092
Accrued expenses and other liabilities 14,601 13,609
Accrued wages and benefits 15,856 15,262
Income tax payable, net 1,765 1,301
Total Current Liabilities 102,155 94,193
Non-current unearned revenue 7,040 6,888
Pension liability 17,579 18,664
Deferred compensation liability 26,658 25,866
Other non-current liabilities 6,956 7,124
Total Liabilities 160,388 152,735
Commitments and contingencies (see Note 19)
Stockholders’ Equity    
Common stock, par value $0.01 per share; 200,000 shares authorized; 79,652 shares issued and 48,388 shares outstanding as of March 31, 2021 and 79,652 shares issued and 48,241 shares outstanding as of December 31, 2020 797 797
Additional paid-in capital 283,273 281,466
Accumulated other comprehensive loss (13,595) (11,639)
Retained earnings 776,121 781,813
Treasury stock at cost: 31,128 and 31,280 shares at March 31, 2021 and December 31, 2020, respectively (676,221) (679,493)
Total Stockholders’ Equity 370,375 372,944
Total Liabilities and Stockholders’ Equity $ 530,763 $ 525,679
v3.21.1
Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - USD ($)
$ in Thousands
Mar. 31, 2021
Dec. 31, 2020
Statement Of Financial Position [Abstract]    
Short term investments, available-for-sale securities at fair value $ 2,692 $ 1,731
Allowance for doubtful accounts 38 38
Long Term Investments, available-for-sale securities Fair Value $ 43,455 $ 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 48,388,000 48,241,000
Treasury stock, shares 31,128,000 31,280,000
v3.21.1
Condensed Consolidated Statements of Income (Loss) (Unaudited) - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended
Mar. 31, 2021
Mar. 31, 2020
Revenue    
Total Revenue $ 127,533 $ 114,523
Cost of Revenue    
Total Cost of Revenue 73,932 62,923
Gross Profit 53,601 51,600
Selling, general and administrative expenses 27,435 26,620
Research and development expenses 27,501 29,859
Asset impairments   65
Operating Loss (1,335) (4,944)
Interest and dividend income 290 356
Interest expense (6) (1)
Net investment gain (loss) 996 (10,877)
Other income, net 1,999 1,129
Income (Loss) Before Income Taxes 1,944 (14,337)
Income tax (expense) benefit (1,048) 4,368
Net Income (Loss) $ 896 $ (9,969)
Weighted average shares outstanding – basic 48,336 47,957
Weighted average shares outstanding – diluted 49,004 47,957
Earnings (loss) per common share – basic $ 0.02 $ (0.21)
Earnings (loss) per common share – diluted $ 0.02 $ (0.21)
Network Solutions [Member]    
Revenue    
Total Revenue $ 113,809 $ 97,372
Cost of Revenue    
Total Cost of Revenue 65,001 51,626
Gross Profit 48,808 45,746
Services & Support [Member]    
Revenue    
Total Revenue 13,724 17,151
Cost of Revenue    
Total Cost of Revenue 8,931 11,297
Gross Profit $ 4,793 $ 5,854
v3.21.1
Condensed Consolidated Statements of Comprehensive Loss (Unaudited) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2021
Mar. 31, 2020
Statement Of Income And Comprehensive Income [Abstract]    
Net Income (Loss) $ 896 $ (9,969)
Other Comprehensive Loss, net of tax    
Net unrealized gains (losses) on available-for-sale securities (192) 117
Defined benefit plan adjustments 99 141
Foreign currency translation (1,863) (1,650)
Other Comprehensive Loss, net of tax (1,956) (1,392)
Comprehensive Loss, net of tax $ (1,060) $ (11,361)
v3.21.1
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 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, 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 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 79,652        
v3.21.1
Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited) (Parenthetical) - $ / shares
3 Months Ended
Mar. 31, 2021
Mar. 31, 2020
Statement Of Stockholders Equity [Abstract]    
Dividend payments $ 0.09 $ 0.09
v3.21.1
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2021
Mar. 31, 2020
Cash flows from operating activities:    
Net income (loss) $ 896 $ (9,969)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:    
Depreciation and amortization 4,122 4,365
(Gain) loss on investments (1,161) 10,877
Stock-based compensation expense 1,807 1,791
Other 84 115
Changes in operating assets and liabilities:    
Accounts receivable, net (4,762) 3,052
Other receivables (1,220) (6,707)
Inventory, net 1,893 (1,598)
Prepaid expenses and other assets (417) 2,206
Accounts payable, net 5,629 2,712
Accrued expenses and other liabilities 3,317 (6,680)
Income taxes payable 497 (188)
Net cash provided by (used in) operating activities 10,685 (24)
Cash flows from investing activities:    
Purchases of property, plant and equipment (741) (1,406)
Proceeds from sales and maturities of available-for-sale investments 10,087 46,440
Purchases of available-for-sale investments (11,350) (16,879)
Acquisition of note receivable   (523)
Net cash provided by (used in) investing activities (2,004) 27,632
Cash flows from financing activities:    
Dividend payments (4,361) (4,328)
Proceeds from stock option exercises 1,244  
Tax withholdings related to stock-based compensation settlements (113)  
Repayment of bonds payable   (24,600)
Net cash used in financing activities (3,230) (28,928)
Net increase (decrease) in cash, cash equivalents and restricted cash 5,451 (1,320)
Effect of exchange rate changes (1,734) (1,168)
Cash, cash equivalents and restricted cash, beginning of period 60,179 73,773
Cash, cash equivalents and restricted cash, end of period 63,896 71,285
Supplemental Cash Flow Information:    
Right-of-use assets obtained in exchange for lease obligations 248 85
Non-cash Investing Activities:    
Purchases of property, plant and equipment included in accounts payable $ 199 $ 302
v3.21.1
Summary of Significant Accounting Policies
3 Months Ended
Mar. 31, 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 multiple 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, and liability and fair value of investments, evaluation of other-than-temporary declines in the value of investments and the allowance for current expected credit losses. 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 novel coronavirus (“COVID-19”) as of March 31, 2021 and through the date of this report. The accounting matters assessed included, but were not limited to, the allowance for doubtful accounts, 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 quarter ended March 31, 2021 resulting from these assessments, future assessments related to 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 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 consolidation 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 Balance Sheets, Condensed Consolidated Statements of Income (Loss) or Condensed Consolidated Statements of Cash Flows.

 

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 Balance Sheets, Condensed Consolidated Statements of Income (Loss) or Condensed Consolidated Statements of Cash Flows.

v3.21.1
Cash, Cash Equivalents and Restricted Cash
3 Months Ended
Mar. 31, 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:

 

(In thousands)

 

As of March 31, 2021

 

 

As of December 31, 2020

 

Cash and cash equivalents

 

$

63,777

 

 

$

60,161

 

Restricted cash

 

 

119

 

 

 

18

 

Cash, cash equivalents and restricted cash

 

$

63,896

 

 

$

60,179

 

See Note 19 for additional information regarding restricted cash.

v3.21.1
Revenue
3 Months Ended
Mar. 31, 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.    

See Note 17 for additional information on reportable segments.

Revenue by Category

 

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

 

The following table disaggregates revenue by reportable segment and revenue category:

 

 

 

For the Three Months Ended

 

 

 

March 31, 2021

 

 

March 31, 2020

 

(In thousands)

 

Network Solutions

 

 

Services & Support

 

 

Total

 

 

Network Solutions

 

 

Services & Support

 

 

Total

 

Access & Aggregation

 

$

60,053

 

 

$

9,021

 

 

$

69,074

 

 

$

53,055

 

 

$

12,911

 

 

$

65,966

 

Subscriber Solutions & Experience

 

 

52,269

 

 

 

2,300

 

 

 

54,569

 

 

 

39,983

 

 

 

2,196

 

 

 

42,179

 

Traditional & Other Products

 

 

1,487

 

 

 

2,403

 

 

 

3,890

 

 

 

4,334

 

 

 

2,044

 

 

 

6,378

 

Total

 

$

113,809

 

 

$

13,724

 

 

$

127,533

 

 

$

97,372

 

 

$

17,151

 

 

$

114,523

 

 

Revenue allocated to remaining performance obligations represents contract revenue that have not yet been recognized for contracts with a duration greater than one year. As of March 31, 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 we are entitled to invoice which correspond to the value of completed performance obligations to date. The amount related to these performance obligations was $19.0 million and $17.7 million as of March 31, 2021 and December 31, 2020, respectively. The Company expects to recognize 63% of the $19.0 million as of March 31, 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:

 

(In thousands)

 

As of March 31, 2021

 

 

As of December 31, 2020

 

Accounts receivable, net

 

$

103,201

 

 

$

98,827

 

Contract assets(1)

 

$

906

 

 

$

63

 

Unearned revenue

 

$

14,457

 

 

$

14,092

 

Non-current unearned revenue

 

$

7,040

 

 

$

6,888

 

 

 

(1)

Included in other receivables on the Condensed Consolidated Balance Sheets.

 

Of the outstanding unearned revenue balances as of December 31, 2020, $5.0 million was recognized as revenue during the three months ended March 31, 2021.

v3.21.1
Income Taxes
3 Months Ended
Mar. 31, 2021
Income Tax Disclosure [Abstract]  
Income Taxes

4. INCOME TAXES

Our effective tax rate increased from a benefit of 30.5% for the three months ended March 31, 2020, to an expense of 53.9% for the three months ended March 31, 2021. The increase in the effective tax rate between the two periods was primarily driven by a tax benefit of $7.4 million recognized during the three months ended March 31, 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 $2.7 million during the three months ended March 31, 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 March 31, 2021, the Company had deferred tax assets totaling $58.0 million, and a valuation allowance totaling $48.5 million had been established against those deferred tax assets. The remaining $9.4 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 March 31,2021

 

(In thousands)

 

Deferred Tax Assets

 

 

Valuation Allowance

 

 

Deferred Tax Assets, net

 

Domestic

 

$

46,479

 

 

$

(46,479

)

 

$

 

International

 

 

11,473

 

 

 

(2,025

)

 

 

9,448

 

Total

 

$

57,952

 

 

$

(48,504

)

 

$

9,448

 

 

 

 

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

 

 

v3.21.1
Pension Benefit Plan
3 Months Ended
Mar. 31, 2021
Compensation And Retirement Disclosure [Abstract]  
Pension Benefit Plan

5. PENSION BENEFIT PLAN

The following table summarizes the components of net periodic pension cost related to a defined benefit pension plan covering employees in certain foreign countries:

 

 

 

For the Three Months Ended

 

 

 

March 31,

 

(In thousands)

 

2021

 

 

2020

 

Service cost

 

$

314

 

 

$

310

 

Interest cost

 

 

87

 

 

 

108

 

Expected return on plan assets

 

 

(471

)

 

 

(410

)

Amortization of actuarial losses

 

 

278

 

 

 

237

 

Net periodic pension cost

 

$

208

 

 

$

245

 

 

The components of net periodic pension cost, other than the service cost component, are included in other income (expense), net in the Condensed Consolidated Statements of Income (Loss). Service cost is included in cost of revenue, selling, general and administrative expenses and research and development expenses in the Condensed Consolidated Statements of Income (Loss).

v3.21.1
Stock-Based Compensation
3 Months Ended
Mar. 31, 2021
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]  
Stock-Based Compensation

6. 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:

 

 

 

For the Three Months Ended

 

 

 

March 31,

 

(In thousands)

 

2021

 

 

2020

 

Stock-based compensation expense included in cost of revenue

 

$

131

 

 

$

115

 

Selling, general and administrative expense

 

 

1,098

 

 

 

1,075

 

Research and development expense

 

 

578

 

 

 

601

 

Stock-based compensation expense included in operating expenses

 

 

1,676

 

 

 

1,676

 

Total stock-based compensation expense

 

 

1,807

 

 

 

1,791

 

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

 

 

(431

)

 

 

(427

)

Total stock-based compensation expense, net of tax

 

$

1,376

 

 

$

1,364

 

 

 

 

PSUs, RSUs and Restricted Stock

 

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

 

 

354

 

 

$

16.72

 

PSUs, RSUs and restricted stock vested

 

 

(11

)

 

$

11.88

 

PSUs, RSUs and restricted stock forfeited

 

 

(34

)

 

$

11.48

 

Unvested PSUs, RSUs and restricted stock outstanding, March 31, 2021

 

 

2,155

 

 

$

12.40

 

 

During the three months ended March 31, 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 a two-year and three-year period, 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 will 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 grant date. The fair value of PSUs with market conditions is calculated using a Monte Carlo simulation valuation method.

As of March 31, 2021, total unrecognized compensation expense related to non-vested market-based PSUs, RSUs and restricted stock was approximately $15.2 million, which will be recognized over the remaining weighted-average period of 2.6 years. In addition, there was $5.3 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 1.7 years if achievement of the performance obligation becomes probable. Unrecognized compensation expense will be adjusted for actual forfeitures.


As of March 31, 2021, 3.4 million shares were available for issuance under shareholder-approved equity plans.

Stock Options

The following table summarizes stock options outstanding as of December 31, 2020 and March 31, 2021 and the changes that occurred during the three months ended March 31, 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

 

 

(80

)

 

$

15.64

 

 

 

 

 

 

$

167

 

Stock options forfeited / expired

 

 

(92

)

 

$

21.55

 

 

 

 

 

 

$

 

Stock options outstanding, March 31, 2021

 

 

2,546

 

 

$

21.32

 

 

 

2.6

 

 

$

779

 

Stock options exercisable, March 31, 2021

 

 

2,546

 

 

$

21.32

 

 

 

2.6

 

 

$

779

 

 

As of March 31, 2021, there was no unrecognized compensation expense related to non-vested stock options.

There were no stock options granted during the three months ended March 31, 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 the Company’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 March 31, 2021. The amount of aggregate intrinsic value will change based on the fair market value of the Company’s stock and was $0.8 million as of March 31, 2021. The total pre-tax intrinsic value of options exercised during the three months ended March 31, 2021 was $0.2 million.

v3.21.1
Investments
3 Months Ended
Mar. 31, 2021
Investments Debt And Equity Securities [Abstract]  
Investments

7. INVESTMENTS

Debt Securities and Other Investments

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

 

 

 

As of  March 31,2021

 

 

 

Amortized

 

 

Gross Unrealized

 

 

Fair

 

(In thousands)

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

Corporate bonds

 

$

14,176

 

 

$

68

 

 

$

(13

)

 

$

14,231

 

Municipal fixed-rate bonds

 

 

2,600

 

 

 

25

 

 

 

 

 

 

2,625

 

Asset-backed bonds

 

 

5,772

 

 

 

42

 

 

 

(2

)

 

 

5,812

 

Mortgage/Agency-backed bonds

 

 

11,775

 

 

 

92

 

 

 

(22

)

 

 

11,845

 

U.S. government bonds

 

 

9,704

 

 

 

66

 

 

 

(1

)

 

 

9,769

 

Foreign government bonds

 

 

1,331

 

 

 

3

 

 

 

(2

)

 

 

1,332

 

Other

 

 

533

 

 

 

 

 

 

 

 

 

533

 

Available-for-sale debt securities held at fair value

 

$

45,891

 

 

$

296

 

 

$

(40

)

 

$

46,147

 

 

 

 

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  March 31,2021

 

(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

 

$

1,323

 

 

$

357

 

 

$

16

 

 

$

296

 

 

$

1,282

 

$

75

 

 

$

533

 

One to two years

 

 

3,758

 

 

 

1,130

 

 

 

13

 

 

 

2,090

 

 

 

6,831

 

 

460

 

 

 

 

Two to three years

 

 

7,509

 

 

 

1,138

 

 

 

272

 

 

 

1,740

 

 

 

1,656

 

 

497

 

 

 

 

Three to five years

 

 

1,641

 

 

 

 

 

 

3,445

 

 

 

175

 

 

 

 

 

300

 

 

 

 

Five to ten years

 

 

 

 

 

 

 

 

1,143

 

 

 

2,457

 

 

 

 

 

 

 

 

 

More than ten years

 

 

 

 

 

 

 

 

923

 

 

 

5,087

 

 

 

 

 

 

 

 

 

Total

 

$

14,231

 

 

$

2,625

 

 

$

5,812

 

 

$

11,845

 

 

$

9,769

 

$

1,332

 

 

$

533

 

 

Actual maturities may differ from contractual maturities as some borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

Realized gains and losses on sales of debt securities are computed under the specific identification method. The following table presents gross realized gains and losses related to debt securities:

 

 

 

Three Months Ended

 

 

 

March 31,

 

(In thousands)

 

2021

 

 

2020

 

Gross realized gains on debt securities

 

$

87

 

 

$

43

 

Gross realized losses on debt securities

 

 

(16

)

 

 

(20

)

Total gain recognized, net

 

$

71

 

 

$

23

 

 

The Company’s investment policy provides limitations for issuer concentration, which limits, at the time of purchase, the concentration in any one issuer to 5% of the market value of the total investment portfolio. The Company did not purchase any available-for-sale debt security with credit deterioration during the three months ended March 31, 2021.

 

Marketable Equity Securities

 

Our marketable equity securities consist of publicly traded stock, funds and certain other investments measured at fair value or cost (where appropriate).

 

In March 2019, an outstanding note receivable of $4.3 million was repaid and reissued to the Company in the form of debt and equity. Of the outstanding $4.3 million, $3.4 million was issued as an equity investment. The Company elected to record this equity investment that does not have a readily determinable fair value using the measurement alternative. Under the measurement alternative, equity investments that do not have a readily determinable fair value can be recorded at cost less impairment, if any, adjusted for observable price changes for an identical or similar investment. During the year ended December 31, 2020, impairment charges totaling $2.6 million were recorded related to this equity investment, which was included in net investment gain (loss) on the Condensed Consolidated Statement of Income (Loss). As a result, the carrying value of this investment was $0.8 million as of March 31, 2021 and December 31, 2020. The remaining amount, $0.9 million of the original $4.3 million note receivable, was reissued as a new note receivable, which is included in long-term investments on the Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020. No impairment charge was recognized related to the note receivable, as it is a secured loan. 

Realized and unrealized gains and losses related to marketable equity securities were as follows:

 

 

 

Three Months Ended

 

 

 

March 31,

 

(In thousands)

 

2021

 

 

2020

 

Realized gains (losses) on equity securities sold

 

$

24

 

 

$

(2,436

)

Unrealized gains (losses) on equity securities held

 

 

901

 

 

 

(8,464

)

Total gain (loss) recognized, net

 

$

925

 

 

$

(10,900

)

 

U.S. GAAP establishes a three-level valuation hierarchy based upon observable and unobservable inputs for fair value measurement of financial instruments:


• Level 1 – Observable outputs; values based on unadjusted quoted prices for identical assets or liabilities in an active market;

• Level 2 – Significant inputs that are observable; values based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly;

• Level 3 – Significant unobservable inputs; values based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement; inputs could include information supplied by investees.

 

 

The Company’s cash equivalents and investments held at fair value are categorized into this hierarchy as follows:

 

 

 

 

 

 

 

Fair Value Measurements as of March 31, 2021 Using

 

(In thousands)

 

Fair Value

 

 

Quoted Prices

in Active

Market for

Identical

Assets

(Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant Unobservable Inputs

(Level 3)

 

Cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

889

 

 

$

889

 

 

$

 

 

$

 

Available-for-sale debt securities