What changed in this filing

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Item 1. Financial Statements

2024-03-15 compared with 2023-08-14 · 657 added, 547 removed, 709 unchanged (63% of the section changed)

3 unchanged sentences

(In thousands, except per share amounts)

(As Restated)

September 30,

(As Restated)

Current Assets

Cash and cash equivalents

Restricted cash

Short-term investments (includes $ 803 and $ 350 of available-for-sale securities as of

September 30, 2022 and December 31, 2021, respectively, reported at fair value)

Short-term investments (includes $ 0 and $ 340 of available-for-sale securities as of September 30, 2023 and December 31, 2022, respectively, reported at fair value)

Accounts receivable, less allowance for credit losses of $ 15 and $ 49 as of September 30, 2023

10 unchanged sentences

September 30, 2023 and December 31, 2022, respectively, reported at fair value)

LIABILITIES AND EQUITY

LIABILITIES, REDEEMABLE NON-CONTROLLING INTEREST AND EQUITY

Current Liabilities

16 unchanged sentences

Commitments and contingencies (see Note 20)

Redeemable Non-Controlling Interest

Common stock, par value $ 0.01 per share;

3 unchanged sentences

Additional paid-in capital

Accumulated other comprehensive loss

Retained earnings

Accumulated other comprehensive income

Retained (deficit) earnings

Treasury stock at cost:

2 unchanged sentences

Non-controlling interest

Total Liabilities and Equity

Total Liabilities, Redeemable Non-Controlling Interest and Equity

See accompanying notes to condensed consolidated financial statements.

6 unchanged sentences

September 30,

(As Restated)

Network Solutions

3 unchanged sentences

Network Solutions

Network Solutions - Inventory Write Down

Services & Support

3 unchanged sentences

Asset impairment

Goodwill impairment

Operating Loss

4 unchanged sentences

Loss Before Income Taxes

Income tax benefit (expense)

Net Loss attributable to non-controlling interest

Income tax benefit

Net Income (Loss) attributable to non-controlling interest (1)

Net Loss attributable to ADTRAN Holdings, Inc.

Weighted average shares outstanding –

Weighted average shares outstanding – basic

Weighted average shares outstanding – diluted

Loss per common share attributable to ADTRAN Holdings, Inc.

(1) For the three and nine months ended September 30, 2023, we have recognized $ 2.9 million and $ 8.6 million, respectively, representing the recurring cash compensation earned by non-controlling interest shareholders post-DPLTA, partially offset by a $ 3.2 million net loss attributable to non-controlling interests pre-DPLTA for the nine months ended September 30, 2023.

See accompanying notes to condensed consolidated financial statements.

6 unchanged sentences

September 30,

2023 (As Restated)

Other Comprehensive Loss, net of tax

Net unrealized loss on available-for-sale securities

Net unrealized gain (loss) on available-for-sale securities

Defined benefit plan adjustments

1 unchanged sentence

Other Comprehensive Loss, net of tax

Comprehensive Loss attributable to non-controlling interest, net of tax

Comprehensive Loss, net of tax

Comprehensive Income (Loss) attributable to non-controlling interest

Comprehensive Loss attributable to ADTRAN Holdings, Inc., net of tax

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(In thousands, except per share amounts)

Accumulated Other Comprehensive Loss

(As Restated)

(Deficit) Earnings

Accumulated Other Comprehensive Income

Non-controlling interest

Balance as of December 31, 2022

Other comprehensive loss, net of tax

Dividend payments ($ 0.09 per share)

Dividends accrued on unvested RSUs

Annual recurring compensation earned

Reclassification and remeasurement from equity to mezzanine equity for non-controlling interests in Adtran Networks

Other comprehensive income, net of tax

Dividend payments to ADTRAN Holdings, Inc.

shareholders ($ 0.09 per share)

Deferred compensation adjustments, net of tax

PSUs, RSUs and restricted stock vested

Stock options exercised

Stock-based compensation expense

ADTRAN RSUs and restricted stock vested

ADTRAN stock options exercised

ADTRAN stock-based compensation expense

Redemption of redeemable non-controlling interest

Foreign currency remeasurement of redeemable non-controlling interest

Adtran Networks stock-based compensation expense

Balance as of March 31, 2023

Other comprehensive loss, net of tax

Dividend payments ($ 0.09 per share)

Dividends accrued on unvested RSUs

Annual recurring compensation earned

Other comprehensive income, net of tax

Dividend payments to ADTRAN Holdings, Inc.

shareholders ($ 0.09 per share)

Dividends accrued for RSUs

Deferred compensation adjustments, net of tax

PSUs, RSUs and restricted stock vested

Stock options exercised

Stock-based compensation expense

ADTRAN RSUs and restricted stock vested

Adtran Networks stock options exercised

ADTRAN stock-based compensation expense

Redemption of redeemable non-controlling interest

Foreign currency remeasurement of redeemable non-controlling interest

Adtran Networks stock-based compensation expense

Balance as of June 30, 2023

Acquisition of ADVA

Retirement of treasury stock

Annual recurring compensation earned

Other comprehensive loss, net of tax

Dividend payments ($ 0.09 per share)

Dividends accrued for RSUs

Deferred compensation adjustments, net of tax

1 unchanged sentence

ADTRAN stock options exercised

Adtran Networks stock options exercised

ADTRAN stock-based compensation expense

Reclassification of ADVA stock options

ADVA stock options exercised

ADVA stock-based compensation expense

Redemption of redeemable non-controlling interest

Foreign currency remeasurement of redeemable non-controlling interest

Adtran Networks stock-based compensation expense

Balance as of September 30, 2023

4 unchanged sentences

Accumulated Other Comprehensive Loss

Non-controlling interest

Balance as of December 31, 2021

7 unchanged sentences

Balance as of March 31, 2022

Other comprehensive income, net of tax

Other comprehensive loss, net of tax

Dividend payments ($ 0.09 per share)

5 unchanged sentences

Balance as of June 30, 2022

Acquisition of Adtran Networks

Retirement of treasury stock

Other comprehensive loss, net of tax

Dividend payments ($ 0.09 per share)

Dividends accrued on unvested RSUs

Deferred compensation adjustments, net of tax

PSUs, RSUs and restricted stock vested

Stock options exercised

Stock-based compensation expense

ADTRAN RSUs and restricted stock vested

ADTRAN stock options exercised

ADTRAN stock-based compensation expense

Reclassification of Adtran Networks stock options

Adtran Networks stock options exercised

Adtran Networks stock-based compensation expense

Balance as of September 30, 2022

6 unchanged sentences

Cash flows from operating activities:

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

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization

Asset impairment

Goodwill impairment

Amortization of debt issuance cost

Loss (gain) on investments, net

(Gain) loss on investments, net

Stock-based compensation expense

Deferred income taxes

Inventory write down

Inventory reserves

6 unchanged sentences

Income taxes payable, net

Net cash (used in) provided by operating activities

Net cash used in operating activities

Cash flows from investing activities:

4 unchanged sentences

Proceeds from disposals of property, plant and equipment

Insurance proceeds received

Acquisition of business, net of cash acquired

Net cash provided by (used in) investing activities

Net cash (used in) provided by investing activities

Cash flows from financing activities:

4 unchanged sentences

Repayment of revolving credit agreements

Non-controlling interest put option buyback

Payment of debt issuance cost

Repayment of notes payable

Net cash provided by (used in) financing activities

Net increase in cash, cash equivalents and restricted cash

Net cash provided by financing activities

Net increase in cash and cash equivalents

Effect of exchange rate changes

Cash, cash equivalents and restricted cash, beginning of period

Cash, cash equivalents and restricted cash, end of period

Cash and cash equivalents, beginning of period

Cash and cash equivalents, end of period

Supplemental disclosure of cash financing activities:

Cash paid for interest

Cash used in operating activities related to operating leases

Supplemental disclosure of non-cash investing activities:

1 unchanged sentence

Purchases of property, plant and equipment included in accounts payable

ADVA common shares exchanged in acquisition

ADVA options assumed in acquisition

Non-controlling interest related to ADVA

Adtran Networks common shares exchanged in acquisition

Adtran Networks options assumed in acquisition

Non-controlling interest related to Adtran Networks

See accompanying notes to condensed consolidated financial statements.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

On July 8, 2022, Acorn MergeCo, Inc.

(“Merger Sub”), a Delaware corporation and wholly-owned direct subsidiary of ADTRAN Holdings, Inc.

(f/k/a Acorn HoldCo, Inc.), merged with and into ADTRAN, Inc., with ADTRAN, Inc.

surviving the merger as a wholly-owned direct subsidiary of ADTRAN Holdings, Inc.

(the “Merger”).

The Merger was consummated pursuant to the Business Combination Agreement, dated as of August 30, 2021 (the “Business Combination Agreement”), by and among ADTRAN Holdings, Inc., ADTRAN, Inc., ADVA Optical Networking SE, a company organized and existing under the laws of Germany (“ADVA”), and Merger Sub.

In accordance with the Business Combination Agreement, ADTRAN Holdings, Inc.

made a public offer to exchange each issued and outstanding no-par value bearer share of ADVA for 0.8244 shares of common stock, par value $ 0.01 per share (the “Company Common Stock”), of ADTRAN Holdings, Inc.

(the “Exchange Offer”

and, together with the Merger, the “Business Combination”).

On July 15, 2022 (the “Exchange Offer Settlement Date”), ADTRAN Holdings, Inc.

completed the Exchange Offer, in which ADTRAN Holdings, Inc.

acquired 34.0 million bearer shares of ADVA, or 65.43 % of ADVA’s outstanding bearer shares as of the Exchange Offer Settlement Date, in exchange for the issuance of an aggregate of 28.0 million shares of Company Common Stock.

See Note 2 for additional information.

On October 18, 2022, the Board of Directors of the Company and the management board of ADVA agreed on a final draft of a domination and profit and loss transfer agreement (the “DPLTA”) between the Company, as the controlling company, and ADVA, as the controlled company.

The parties’

execution of the DPLTA remains subject to approval of the DPLTA by shareholders of ADVA with 75 % of the votes cast in an extraordinary general meeting, which is scheduled to be held on November 30, 2022.

If and when signed, effectiveness of the DPLTA is subject to the subsequent registration of the DPLTA with the commercial register (Handelsregister) of the local court (Amtsgericht) at the registered offices of ADVA, with such effectiveness to occur no earlier than January 1, 2023.

The Company currently holds 33,957,538 shares of ADVA, representing 65.35 % of ADVA’s outstanding shares on September 30, 2022.

Unless the context otherwise indicates or requires, references in this Amendment No.

1 to “ADTRAN,”

the “Company,”

“we,”

“us”

and “our”

refer to ADTRAN, Inc.

and its consolidated subsidiaries prior to the Merger on July 8, 2022, and to ADTRAN Holdings, Inc.

and its consolidated subsidiaries following the Merger.

ADTRAN Holdings, Inc.

(“ADTRAN” or the “Company”) is a leading global provider of networking and communications platforms, software, systems and services focused on the broadband access market, serving a diverse domestic and international customer base in multiple countries that includes large, medium and small Service Providers, alternative Service Providers, such as utilities, municipalities and fiber overbuilders, cable/MSOs, SMBs and distributed enterprises.

Our innovative solutions and services enable voice, data, video and internet-communications across a variety of network infrastructures and are currently in use by millions worldwide.

We support our customers through our direct global sales organization and our distribution networks.

Our success depends upon our ability to increase unit volume and market share through the introduction of new products and succeeding generations of products having optimal selling prices and increased functionality as compared to both the prior generation of a product and to the products of competitors in order to gain market share.

To service our customers and grow revenue, we are continually conducting research and developing new products addressing customer needs and testing those products for the specific requirements of the particular customers.

We offer a broad portfolio of flexible software and hardware network solutions and services that enable Service Providers to meet today’s service demands, while enabling them to transition to the fully converged, scalable, highly-automated, cloud-controlled voice, data, internet and video network of the future.

In addition to our global headquarters in Huntsville, Alabama, and our European headquarters in Munich, Germany, we have sales and research and development facilities in strategic global locations.

ADTRAN Holdings, Inc.

solely owns ADTRAN, Inc.

and is the majority shareholder of Adtran Networks (formerly ADVA Optical Networking SE).

ADTRAN is a leading global provider of open, disaggregated networking and communications solutions.

Adtran Networks is a global provider of network solutions for data, storage, voice and video services.

The combined technology portfolio can best address current and future requirements, especially regarding the convergence of solutions at the network edge.

Domination and Profit and Loss Transfer Agreement

The DPLTA between the Company, as the controlling company, and Adtran Networks SE, as the controlled company, as executed on December 1, 2022, became effective on January 16, 2023, as a result of its registration with the commercial register ( Handelsregister ) of the local court ( Amtsgericht ) at the registered seat of Adtran Networks (Jena).

Under the DPLTA, subject to certain limitations pursuant to applicable law and the specific terms of the DPLTA, (i) the Company is entitled to issue binding instructions to the management board of Adtran Networks, (ii) Adtran Networks will transfer its annual profit to the Company, subject to, among other things, the creation or dissolution of certain reserves, and (iii) the Company will generally absorb the annual net loss incurred by Adtran Networks.

The obligation of Adtran Networks to transfer its annual profit to the Company applies for the first time to the profit, if any, generated in the Adtran Networks fiscal year 2023.

The obligation of the Company to absorb Adtran Networks annual net loss applies for the first time to the loss, if any, generated in the Adtran Networks fiscal year 2023.

Pursuant to the terms of the DPLTA, each Adtran Networks shareholder (other than the Company) has received an offer to elect either (1) to remain an Adtran Networks shareholder and receive from us an Annual Recurring Compensation payment, or (2) to receive Exit Compensation plus guaranteed interest.

The guaranteed interest under the Exit Compensation is calculated from the effective date of the DPLTA to the date the shares are tendered, less any Annual Recurring Compensation paid.

The guaranteed interest rate is 5.0 % plus a variable component (according to the German Civil Code) that was 3.12 % as of September 30, 2023.

Assuming all the minority holders of currently outstanding Adtran Networks shares were to elect the second option, we would be obligated to make aggregate Exit Compensation payments, including guaranteed interest, of approximately € 325.3 million or approximately $ 344.2 million, based on an exchange rate as of September 30, 2023 and reflecting interest accrued through September 30, 2023 during the pendency of the appraisal proceedings discussed below.

Shareholders electing the first option of Annual Recurring Compensation may later elect the second option.

The opportunity for outside Adtran Networks shareholders to tender Adtran Networks shares in exchange for Exit Compensation had been scheduled to expire on March 16, 2023 .

However, due to the appraisal proceedings that have been initiated in accordance with applicable German law, this time period for tendering shares has been extended pursuant to the German Stock Corporation Act ( Aktiengesetz ) and will end two months after the date on which a final decision in such appraisal proceedings has been published in the Federal Gazette ( Bundesanzeiger ).

We are also obligated to absorb any annual net loss of Adtran Networks under the DPLTA.

Additionally, our obligation to pay Annual Recurring Compensation under the DPLTA is a continuing payment obligation, which will amount to approximately € 10.6 million or $ 11.2 million (based on the current exchange rate) per year assuming none of the minority Adtran Networks shareholders were to elect Exit Compensation.

The foregoing amounts do not reflect any potential increase in payment obligations that we may have depending on the outcome of ongoing appraisal proceedings in Germany.

During the three and nine months ended September 30, 2023, we accrued $ 2.9 million and $ 8.6 million in Annual Recurring Compensation, which was reflected as a reduction to retained (deficit) earnings, respectively.

On October 18, 2022, the Company's Board of Directors authorized the Company to purchase additional shares of Adtran Networks through open market purchases not to exceed 15,346,544 shares.

For the three and nine months ended September 30, 2023, less than 1 thousand shares and 64 thousand shares, respectively, of Adtran Networks stock was tendered to the Company and Exit Compensation payments of approximately € 8 thousand and € 1.1 million, respectively, or approximately $ 9 thousand and $ 1.2 million, respectively, based on an exchange rate as of September 30, 2023, were paid to Adtran Networks shareholders.

As of September 30, 2023, and as of the date of issuance of these financial statements, the Company does not have sufficient liquidity to meet payment obligations under the DPLTA pertaining to Exit Compensation assuming a substantial majority of Adtran Networks shareholders elect such option in the current period.

We believe the probability that a substantial majority of Adtran Networks shareholders elect to receive Exit Compensation in the next twelve months is remote based on the diverse base of shareholders that must make this election on an individual shareholder basis, the current ongoing appraisal proceedings involving a dispute on the value of the Exit Compensation which is expected to take 24-36 months to resolve, the current guaranteed Annual Recurring Compensation payment plus the interest earned on such shares during the ongoing appraisal proceedings, and the current trading value of Adtran Networks SE shares.

Therefore, we believe that our cash and cash equivalents, investments, working capital management initiatives and access to funds under the Wells Fargo credit facility, including additional funding provided for under the First Amendment to the Wells Fargo credit facility that was signed on August 9, 2023, (described below) will be adequate to meet our operating and capital needs and our obligations under the DPLTA, including potential Exit Compensation, for at least the next 12 months, from the issuance of these financial statements, although we have suspended dividend payments and are implementing a business efficiency program, which includes, but is not limited to, planned reductions in our operating expenses and a site consolidation plan.

In connection with the site consolidation plan, we are also exploring a potential sale of our headquarters in Huntsville.

We may also need to further reduce capital expenditures and/or take other steps to preserve working capital in order to ensure that we can meet such needs and obligations.

See Note 22, Subsequent Events, for additional information regarding the suspension of the quarterly dividend.

On July 18, 2022, ADTRAN Holdings, Inc.

and ADTRAN, Inc., as the borrower, entered into a credit agreement with a syndicate of banks, including Wells Fargo Bank, National Association, as administrative agent (“Administrative Agent”), and the other lenders named therein (the “Credit Agreement”).

The Credit Agreement allowed for borrowings of up to $ 100.0 million in aggregate principal amount, but the borrowings increased to up to $ 400.0 million in aggregate principal amount upon the DPLTA becoming effective on January 16, 2023.

On August 9, 2023, the Company, its wholly-owned direct subsidiary, ADTRAN, Inc., the lenders party thereto and the Administrative Agent entered into a First Amendment to the Credit Agreement (the “First Amendment” and, together with the Credit Agreement, the “Credit Facility”).

The Credit Facility matures in July 2027;

however, the Company has an option to request extensions subject to customary conditions.

See Note 12, Revolving Credit Agreements, for additional information regarding the terms of the Credit Facility.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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and its subsidiaries have been prepared pursuant to the rules and regulations of 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.

Certain prior year amounts have been reclassified to conform to the current period presentation.

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, 2022 Condensed Consolidated Balance Sheet is derived from audited financial statements but does not include all disclosures required by U.S.

1 unchanged sentence

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, Inc.

Annual Report on Form 10-K for the year ended December 31, 2021 , filed with the SEC on February 25, 2022.

The interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in Amendment No.

1 to the ADTRAN Holdings, Inc.

Annual Report on Form 10-K for the year ended December 31, 2022 , filed with the SEC on August 14, 2023.

Use of Estimates

1 unchanged sentence

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.

Significant estimates include allowance for credit losses on accounts receivable and contract assets, excess and obsolete inventory reserves, warranty reserves, customer rebates, determination and accrual of the deferred revenue related to performance obligations under contracts with customers, 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), supply chain constraints, inflationary pressures, the energy crisis, currency fluctuations and political tensions as of September 30, 2022 and through the date of this report.

The accounting matters assessed included, but were not limited to, the allowance for 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 and inflationary pressures could result in further impacts to the Company's consolidated financial statements in future reporting periods.

Restatement of Previously Issued Financial Statements

During the second quarter of 2023, the Company determined that it overstated total current liabilities and understated non-current liabilities as of September 30, 2022, due to a revolving credit agreement being classified as a current liability instead of a non-current liability.

The total amount of liabilities remains unchanged.

The Company restated the September 30, 2022 Condensed Consolidated Balance Sheet presented in this report by decreasing current revolving credit agreements outstanding by $ 60.0 million and increasing non-current revolving credit agreement outstanding by $ 60.0 million.

The following table reflects the impact of the restatement to the specific line items presented in the Company’s previously reported condensed consolidated financial statements as of September 30, 2022:

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 supply chain constraints, inflationary pressures, the energy crisis, currency fluctuations and political tensions as of September 30, 2023, and through the date of this report.

Future conditions related to supply chain constraints, inflationary pressures, the energy crisis, rising interest rates, instability in the financial services industry, currency fluctuations and political tensions could result in further impacts to the Company's consolidated financial statements in future reporting periods .

Revision of Previously Issued Financial Statements

During the fourth quarter of 2023, management identified an immaterial error relating to the understatement of non-controlling interest and the overstatement of accumulated other comprehensive income in the Condensed Consolidated Balance Sheet as of December 31, 2022 and the understatement of comprehensive loss attributable to non-controlling interest and overstated the comprehensive loss attributable to ADTRAN Holdings, Inc., net of tax in the Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2022.

The immaterial misstatements occurred following the Business Combination between the Company and the Company’s majority-owned subsidiary, Adtran Networks SE (“Adtran Networks”) on July 15, 2022.

The Company incorrectly presented the allocation of foreign currency translation loss attributable to the non-controlling interest for the year ended December 31, 2022.

Management evaluated the impact of this error on the Company’s full year 2022 consolidated financial statements and determined that the consolidated financial statements were not materially misstated.

However, in order to correctly state non-controlling interest and accumulated other comprehensive income in connection with the filing of this Amendment No.

1, the December 31, 2022 balance sheet items and comprehensive loss for the three and nine months ended September 30, 2022 have been corrected to reflect the impact of this immaterial error.

The Company will revise its consolidated financial statements as of and for the year ended December 31, 2022 when it files its Form 10-K for the period ended December 31, 2023.

The following table reflects the impact of the revision to the specific line items presented in the Company’s previously reported Condensed Consolidated Balance Sheet and the Condensed Consolidated Statement of Changes in Equity as of December 31, 2022:

December 31, 2022

(In thousands)

Revolving credit agreements outstanding

Total current liabilities

Non-current revolving credit agreement outstanding

During the first quarter of 2023, the Company determined that it understated total assets and total liabilities as of September 30, 2022, due to netting of deferred tax assets and deferred tax liabilities as of September 30, 2022.

While the net amount of deferred tax assets and liabilities remains unchanged, the Company reported the deferred tax assets and liabilities balances without properly applying jurisdictional net reporting disclosure rules.

The jurisdictional netting error was a result of the consolidation of financial statements with ADVA following the business combination, which closed on July 15, 2022.

Management has determined that this misstatement was not material to any of its previously issued financial statements.

However, in connection with the restatement described above, the Company restated the September 30, 2022 Condensed Consolidated Balance Sheet presented in this report by increasing deferred tax assets and total assets by $ 13.0 million and increasing deferred tax liability, total liabilities, and total liabilities, redeemable non-controlling interest and equity by $ 13.0 million.

Accumulated Other Comprehensive Income

Non-Controlling Interest

The following table reflects the impact of the revision to the specific line items presented in the Company’s previously reported Condensed Consolidated Statement of Changes in Equity as of September 30, 2022:

September 30, 2022

(In thousands)

Deferred tax assets

Deferred tax liabilities

Total liabilities

Accumulated Other Comprehensive Income

Non-Controlling Interest

The following table reflects the impact of the revision to the specific line items presented in the Company’s previously reported Condensed Consolidated Statements of Comprehensive Loss as of September 30, 2022:

For the Three Months Ended September 30, 2022

For the Nine Months Ended September 30, 2022

(In thousands)

Comprehensive Loss attributable to non-controlling interest

Comprehensive Loss attributable to ADTRAN Holdings, Inc., net of tax

The accompanying applicable Notes have been updated to reflect the effects of the revision.

Restatement of Previously Issued Financial Statements

During the fourth quarter of 2023, the Company determined that it understated income attributable to the non-controlling interest, loss attributable to the Company, loss per common share attributable to ADTRAN Holdings, Inc.

– basic and diluted, understated comprehensive income attributable to non-controlling interest and understated comprehensive loss attributable to ADTRAN Holdings, Inc., net of tax for the three and nine months ended September 30, 2023.

The misstatements occurred following the effectiveness of the Domination Profit and Loss Transfer Agreement (“DPLTA”) between the Company and the Company’s majority-owned subsidiary, Adtran Networks SE (“Adtran Networks”) upon the registration of the DPLTA with the commercial register on January 16, 2023.

Pursuant to the DPLTA, the minority shareholders of Adtran Networks are guaranteed recurring cash compensation commencing with respect to the 2023 fiscal year.

The Company incorrectly presented the guaranteed cash compensation attributable to the non-controlling interest as a loss rather than income attributable to the non-controlling interest during the three and nine months ended September 30, 2023.

This error resulted in an understatement of net income attributable to the non-controlling interest, an understatement of net loss attributable to the Company and loss per common share attributable to ADTRAN Holdings, Inc.

- basic and diluted, an understatement of comprehensive income attributable to non-controlling interest and an understatement of comprehensive loss attributable to ADTRAN Holdings, Inc., net of tax.

Additionally, this error resulted in an understatement of additional paid-in capital and an overstatement of accumulated other comprehensive income.

The Company restated the Condensed Consolidated Statements of Loss for the three and nine months ended September 30, 2023 presented in this report by increasing net loss attributable to the Company by $ 5.8 million and $ 17.2 million, respectively.

The Company restated the Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2023 presented in this report by increasing comprehensive loss attributable to the Company by $ 2.9 million and $ 5.6 million, respectively.

The following tables reflects the impact of the restatement to the specific line items presented in the Company’s previously reported Condensed Consolidated Statements of Loss and the previously reported Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2023:

For the Three Months Ended September 30, 2023

For the Nine Months Ended September 30, 2023

(In thousands)

Income (Loss) attributable to non-controlling interest

Net Loss attributable to ADTRAN Holdings, Inc.

Loss per common share attributable to ADTRAN Holdings, Inc.

Comprehensive Income attributable to non-controlling interest

Comprehensive Loss attributable to ADTRAN Holdings, Inc., net of tax

The accompanying applicable Notes have been updated to reflect the effects of the restatement as of September 30, 2023.

The following table reflects the impact of the restatement, in addition to the revision of the December 31, 2022 balances referenced above, to the specific line items presented in the Company’s previously reported Condensed Consolidated Balance Sheets as of September 30, 2023 and the Condensed Consolidated Statement of Changes in Equity for the period ended September 30, 2023:

September 30, 2023

(In thousands)

Additional Paid-in Capital

Accumulated Other Comprehensive Income

Redeemable Non-Controlling Interest

As of September 30, 2023 and December 31, 2022, the non-controlling Adtran Networks stockholders’ equity ownership percentage in Adtran Networks was approximately 34.6 % and 34.7 %, respectively.

As a result of the effectiveness of the DPLTA on January 16, 2023, the Adtran Networks shares, representing the equity interest in Adtran Networks held by holders other than the Company, can be tendered at any time and are, therefore, redeemable and must be classified outside stockholders’ equity.

Therefore, the permanent equity noncontrolling interest balance was reclassified to redeemable non-controlling interest on January 16, 2023 and was remeasured to fair value based on the trading market price of the Adtran Networks shares.

Subsequently, the carrying value of the RNCI is adjusted to its maximum redemption value at each reporting date when the maximum redemption value is greater than the initial carrying amount of the RNCI.

However, the RNCI will be remeasured using the current exchange rate at each reporting date as long as the RNCI is currently redeemable.

For the period of time that the DPLTA is in effect, the RNCI will continue to be presented as RNCI outside of stockholders’ equity in the Condensed Consolidated Balance Sheets.

See Note 16 for additional information on RNCI .

Recently Adopted Accounting Pronouncements

In October 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") 2021-08, Business Combinations (Topic 805) Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which would require an acquirer to recognize and measure acquired contract assets and contract liabilities in a manner consistent with how the acquiree recognized and measured them in its pre-acquisition financial statements in accordance with Topic 606, Revenue Recognition.

The Company early adopted ASU 2021-08 on July 1, 2022 and the standard was applied retrospectively beginning with January 1, 2022.

The effect of the adoption of this standard on the Company's Condensed Consolidated Financial Statements as of the date of this report is included in Note 2 of the Notes to Condensed Consolidated Financial Statements .

Recent Accounting Pronouncements Not Yet Adopted

There are currently no accounting pronouncements not yet adopted that had a material effect on the Condensed Consolidated Financial Statements.

There are currently no accounting pronouncements not yet adopted that are expected to have a material effect on the Condensed Consolidated Financial Statements.

BUSINESS COMBINATION

ADVA Optical Networking SE

On August 30, 2021 , ADTRAN and ADVA, entered into a Business Combination Agreement, pursuant to which both companies agreed to combine their respective businesses and each become subsidiaries of a new holding company, ADTRAN Holdings, Inc.

(formerly known as Acorn HoldCo, Inc.) which was formed as a wholly-owned subsidiary of ADTRAN in order to consummate the transactions under the Business Combination Agreement.

Under the terms of the Business Combination Agreement, on July 8, 2022, Acorn MergeCo, Inc, a Delaware corporation and wholly-owned direct subsidiary of the Company, merged with and into ADTRAN, Inc.

with ADTRAN, Inc.

surviving the merger as a wholly-owned direct subsidiary of the Company.

Additionally, pursuant to the Business Combination Agreement, the Company made a public offer to exchange each issued and outstanding no-par value bearer share of ADVA for 0.8244 shares of Company Common Stock, par value $ 0.01 per share of the Company.

The Exchange Offer was settled on Exchange Offer Settlement Date, on which date the Company acquired 33,957,538 bearer shares of ADVA, or 65.43 % of ADVA’s outstanding bearer shares as of the Exchange Offer Settlement Date, in exchange for the issuance of an aggregate of 27,994,595 shares of Company Common Stock.

Additionally, pursuant to the Business Combination Agreement, ADVA stock option holders were entitled to have their ADVA stock options assumed by ADTRAN Holdings, Inc.

(applying the exchange ratio in the Business Combination Agreement), thereafter representing options to acquire stock of ADTRAN, Inc.

The fair value of the ADVA stock options assumed by ADTRAN, Inc.

Adtran Networks SE (formerly ADVA Optical Networking SE)

On August 30, 2021 , ADTRAN, Inc.

and Adtran Networks (then known as ADVA Optical Networking SE) entered into a Business Combination Agreement, pursuant to which both companies agreed to combine their respective businesses and each become subsidiaries of a new holding company, ADTRAN Holdings, Inc.

(formerly known as Acorn HoldCo, Inc.), which was formed as a wholly-owned subsidiary of ADTRAN, Inc.

in order to consummate the transactions under the Business Combination Agreement.

Under the terms of the Business Combination Agreement, on July 8, 2022, Acorn MergeCo, Inc, a Delaware corporation and wholly-owned direct subsidiary of the Company, merged with and into ADTRAN, Inc., with ADTRAN, Inc.

surviving the Business Combination as a wholly-owned direct subsidiary of the Company.

Additionally, pursuant to the Business Combination Agreement, on July 15, 2022, the Compa ny made a public offer to exchange each issued and outstanding no-par value bearer share of Adtran Networks for 0.8244 shares of Company Common Stock, par value $ 0.01 per share of the Company.

The Exchange Offer was settled on July 15, 2022 (the "Exchange Offer Settlement Date"), on which date the Company acquired 33,957,538 bearer shares of Adtran Networks, or 65.43 % of Adtran Networks’ outstanding bearer shares as of the Exchange Offer Settlement Date, in exchange for the issuance of an aggregate of 27,994,595 shares of Company Common Stock.

Additionally, pursuant to the Business Combination Agreement, Adtran Networks stock option holders were entitled to have their Adtran Networks stock options assumed by ADTRAN Holdings, Inc.

(applying the exchange ratio in the Business Combination Agreement), thereafter representing options to acquire stock of ADTRAN, Holdings, Inc.

The fair value of the Adtran Networks stock options assumed by ADTRAN Holdings, Inc.

was $ 12.8 million, estimated using the Monte Carlo method.

and ADVA became subsidiaries of ADTRAN Holdings, Inc.

and Adtran Networks became subsidiaries of ADTRAN Holdings, Inc.

as a result of the Business Combination.

ADTRAN was determined to be the accounting acquirer of ADVA based on ADTRAN shareholders’

majority equity stake in the combined company, the composition of the board of directors and senior management of the combined company, among other factors.

The Business Combination of ADVA has been accounted for using the acquisition method of accounting as per the provisions of Accounting Standards Codification 805, “Business Combinations”

(“ASC 805”).

The Business Combination Agreement used a fixed exchange ratio of Company Common Stock for ADVA shares of common stock, which resulted in a 36 % equity stake for ADVA stockholders and 64 % equity stake for ADTRAN stockholders in the post-closing combined company (calculated on a fully diluted basis and utilizing the tender of 65.43 % of ADVA’s current issued and outstanding share capital).

Therefore, ADTRAN shareholders continue to hold a majority interest in the combined company after the Business Combination was completed.

Additionally, the Board of Directors is comprised of six members from ADTRAN and three members from ADVA;

the current ADTRAN chief executive officer acts as the chairman of the Board of Directors and the former ADVA chief executive officer as the vice chairman of the Board of Directors.

Additionally, the current ADTRAN chief executive officer and ADTRAN chief financial officer hold these positions within the combined company.

After these and other considerations as outlined in ASC 805, ADTRAN represents the accounting acquirer.

The following table summarizes the purchase price for the ADVA business combination:

was determined to be the accounting acquirer of Adtran Networks based on ADTRAN, Inc.

shareholders’ majority equity stake in the combined company, the composition of the board of directors and senior management of the combined company, among other factors.

The Business Combination with Adtran Networks has been accounted for using the acquisition method of accounting as per the provisions of Accounting Standards Codification 805, “Business Combinations” (“ASC 805”).

The Business Combination Agreement used a fixed exchange ratio of Company Common Stock for Adtran Networks shares of common stock, which resulted in a 36.0 % equity stake for Adtran Networks stockholders and a 64.0 % equity stake for ADTRAN, Inc.

stockholders in the post-closing combined company (calculated on a fully diluted basis and utilizing the tender of 65.43 % of Adtran Networks’ current issued and outstanding share capital) as of July 15, 2022.

Therefore, ADTRAN, Inc.

shareholders continued to hold a majority interest in the combined company following the completion of the Business Combination.

Additionally, following the transaction, the Board of Directors was comprised of six members from ADTRAN, Inc.

and three members from Adtran Networks;

the ADTRAN, Inc.

chief executive officer became and continues to act as the chairman of the Board of Directors and the former Adtran Networks chief executive officer became the vice chairman of the Board of Directors.

Additionally, the ADTRAN, Inc.

chief executive officer and ADTRAN, Inc.

chief financial officer held these positions within the combined company immediately following the completion of the Business Combination.

Based upon these and other considerations as outlined in ASC 805, ADTRAN, Inc.

represented the accounting acquirer.

The following table summarizes the purchase price for the Adtran Networks business combination:

(In thousands, except shares, share price and exchange ratio)

Purchase Price

ADVA shares exchanged

Adtran Networks shares exchanged

Exchange ratio

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share price on July 15, 2022

Purchase price paid for ADVA shares

Purchase price paid for Adtran Networks shares

Equity compensation (1)

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Assets acquired and liabilities assumed were recognized at their respective fair values as of July 15, 2022.

The following table summarizes the preliminary purchase price allocation for each major class of assets acquired and liabilities assumed in the acquisition of ADVA (in thousands):

In determining the fair value, the Company utilized various methods of the income, cost and market approaches depending on the asset or liability being fair valued.

The estimation of fair value required significant judgment related to future net cash flows reflecting the risk inherent in each cash flow stream, competitive trends, market comparables and other factors.

Inputs were generally determined by taking into account historical data, current and anticipated market conditions, and growth rates.

Developed technology and customer relationships were valued using the multi-period excess earnings method.

Backlog was valued using the distributor method.

Significant assumptions used in the discounted cash flow analysis for (i) developed technology were the revenue growth rates, long-term revenue growth rate, discount rate, and earnings before interest, taxes, depreciation and amortization (“EBITDA”) margins, obsolescence factors, income tax rate, tax depreciation, and economic depreciation;

(ii) customer relationships were earnings before interest and taxes (“EBIT”) margins, contributory asset charges, and customer attrition rate;

and (iii) backlog were EBIT margins, adjusted EBIT margins, and contributory asset charges.

The allocation of the purchase price to the assets acquired and liabilities assumed was subject to adjustment within the measurement period (up to one year from the acquisition date).

The measurement period adjustments since initial preliminary estimates resulted from changes to the fair value estimates of the acquired assets and assumed liabilities based on finalizing the valuations of inventory, prepaid expenses and other current assets, property plant and equipment, intangible assets, other non-current assets and deferred tax assets and liabilities.

The cumulative effect of all measurement period adjustments resulted in a decrease to recognized goodwill of $ 8.7 million.

The following table summarizes the final purchase price allocation for each major class of assets acquired and liabilities assumed in the Business Combination (in thousands):

(In thousands)

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Current portion of notes payable

Income tax payable

Income tax payable, net

Tax liabilities

Non-current unearned revenue

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Total net assets acquired

The allocation of the purchase price and fair value assessment of goodwill, property, plant and equipment, intangible assets, inventory, deferred tax assets, and deferred tax liabilities is preliminary as a result of ongoing valuation procedures on the assets acquired and liabilities assumed.

The acquisition accounting is subject to revision once the Company receives final information.

It is possible that the final assessment of fair value may differ materially from the preliminary assessment.

If the final assessment differs from this preliminary assessment, the measurement period adjustments will be recorded in the period in which they are determined as if they had been completed at the acquisition date.

The preliminary fair value of the assets acquired include accounts receivable of $ 114.7 million and other receivables of $ 1.5 million.

The unpaid principal balance under these receivables is $ 118.5 million and $ 1.5 million, respectively.

The difference between the fair value and the unpaid principal balance primarily represents amounts expected to be uncollectible.

The fair value of the intangible assets acquired as of the acquisition date:

The fair value of the assets acquired included accounts receivable of $ 114.7 million and other receivables of $ 1.5 million.

The unpaid principal balance under these receivables was $ 118.5 million and $ 1.5 million, respectively.

The difference between the fair value and the unpaid principal balance primarily represents amounts determined to be uncollectible.

The fair value of the identifiable intangible assets acquired as of the acquisition date:

(In thousands)

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Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired.

Based on preliminary estimates, the ADVA acquisition resulted in the recognition of goodwill of $ 359.2 million, which the Company believes is attributable to the value driven by the Company’s expected growth of the business, synergies, and expanded market and product opportunities.

Goodwill created as a result of the ADVA acquisition is not deductible for tax purposes.

After the Business Combination, the chief operating decision maker assessed and will continue to assess the Company’s performance and allocate resources to its two segments (1) Network Solutions and (2) Services & Support.

Based on preliminary estimates, the goodwill resulting from the Business Combination of $ 270.6 million was allocated to the Network Solutions segment, and $ 88.6 million was allocated to the Services & Support segment.

See Note 18 of the Notes to Condensed Consolidated Financial Statements, included in Part I, Item 1 of this Amendment No.

1 for more information about the Company’s segments.

The Business Combination resulted in the recognition of goodwill of $ 350.5 million, which the Company believes is attributable to the value driven by the Company’s expected growth of the business, synergies, and expanded market and product opportunities.

Goodwill created as a result of the Business Combination is not deductible for tax purposes.

The goodwill resulting from the Business Combination of $ 272.8 million was allocated to the Network Solutions segment, and $ 77.7 million was allocated to the Services & Support segment.

See Note 18 of the Notes to Consolidated Financial Statements, included in this Amendment No.

1 for more information about the Company’s segments.

As of the acquisition date, the fair value of the non-controlling interest was approximately $ 316.4 million and determined using a market approach.

As a portion of ADVA shares will remain trading after the Business Combination, the non-controlling interest was calculated using 17,941,496 ADVA shares held by non-controlling interest multiplied by the ADVA closing share price of €

17.58 ($ 17.64 using the July 15, 2022 EUR to USD conversion rate of $ 1.00318 ) on July 15, 2022.

The Company included the financial results of ADVA in its consolidated financial statements since July 15, 2022, the acquisition date.

The net revenue and net loss from the ADVA business since July 15, 2022, were $ 163.8 million and $ 8.4 million, respectively, which are included in the Company’s Condensed Consolidated Statement of Loss.

The net loss attributable to non-controlling interest from the ADVA business for the three and nine months ended September 30, 2022 was $ 2.9 million.

As of September 30, 2022, the Company has incurred $ 25.2 million of transaction costs related to the Business Combination, of which $ 10.6 million and $ 5.1 million were incurred during the three months ended September 30, 2022 and 2021, respectively and $ 13.3 million and $ 6.4 million were incurred during the nine months ended September, 30 2022 and 2021, respectively.

The Company expects to incur an estimated $ 1.1 million of additional transaction costs related to the Business Combination.

These transaction costs are recorded in selling, general and administrative expense in the Condensed Consolidated Statements of Loss.

As a portion of Adtran Networks' shares remains trading after the Business Combination, the non-controlling interest was calculated using 17,941,496 Adtran Networks shares held by non-controlling interest multiplied by the Adtran Networks closing share price of € 17.58 ($ 17.64 using the July 15, 2022 EUR to USD conversion rate of $ 1.00318 ) on July 15, 2022.

The Company has included the financial results of Adtran Networks in its consolidated financial statements since July 15, 2022, the acquisition date.

The net revenue from the Adtran Networks business for the three and nine months ended September 30, 2023, was $ 158.4 million and $ 537.5 million, respectively, and the net loss from the Adtran Networks business for the three and nine months ended September 30, 2023, was $ 38.8 million and $ 79.4 million, respectively, which are included in the Company’s Consolidated Statement of Loss.

There was no net loss attributable to non-controlling interest from the Adtran Networks business for the three months ended September 30, 2023.

The net loss attributable to non-controlling interest from the Adtran Networks business for the nine months ended September 30, 2023 was $ 3.2 million.

For the three and nine months ended September 30, 2023 , we recognized $ 2.9 million and $ 8.6 million, respectively, representing the portion of the annual recurring cash compensation to the non-controlling shareholders accrued during such periods, which will be paid after the ordinary general shareholders' meeting of Adtran Networks beginning in 2024.

See Note 1 and Note 20 for additional information on RNCI and the annual dividend .

As of September 30, 2023, the Company has incurred $ 26.2 million of transaction costs related to the Business Combination.

During the three and nine months ended September 30, 2023, $ 8 thousand and $ 0.1 million of transaction costs were incurred, respectively.

During the three and nine months ended September 30, 2022, $ 10.6 million and $ 13.3 million of transaction costs were incurred, respectively.

These transaction costs are recorded in selling, general and administrative expenses in the Consolidated Statements of Loss.

Supplemental Pro Forma Information (Unaudited)

The unaudited pro forma financial information in the table below summarizes the combined results of operations for ADTRAN and ADVA as though the Business Combination had occurred on January 1, 2021.

The unaudited pro forma financial information in the table below summarizes the combined results of operations for ADTRAN, Inc.

and Adtran Networks as though the Business Combination had occurred on January 1, 2022.

The pro forma amounts have been adjusted for differences in basis of accounting which are determined before taking into effect the impacts of purchase accounting and Business Combination accounting impacts.

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The unaudited pro forma information does not give effect to the potential impact of current financial conditions, regulatory matters or any anticipated synergies, operating efficiencies or cost savings that may be associated with the acquisition.

The unaudited pro forma information also does not include any integration costs or remaining future transaction costs that the Company may incur related to the acquisition as part of combining the operations of the companies.

The unaudited pro forma information also does not include any integration costs that the Company has incurred and may continue to incur related to the Business Combination as part of combining the operations of the companies.

Three Months Ended

Nine Months Ended

September 30,

(In thousands)

Net income (loss)

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)

September 30, 2022

December 31, 2021

Cash and cash equivalents

Restricted cash

Cash, cash equivalents and restricted cash

September 30, 2022

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

Network Solutions Segment - Includes hardware and software products that enable a digital future.

Services & Support Segment - Includes network design, implementation, maintenance and cloud-hosted services supporting the Company's Subscriber, Access and Aggregation, and Optical Networking Solutions.

Network Solutions Segment - Includes hardware and software products that enable a digital future which support the Company's Subscriber, Access & Aggregation, and Optical Networking Solutions.

Services & Support Segment - Includes network design, implementation, maintenance and cloud-hosted services supporting the Company's Subscriber, Access & Aggregation, and Optical Networking Solutions.

Revenue by Category

In addition to the Company's reportable segments, revenue is also reported for the following three categories –

Subscriber Solutions, Access & Aggregation Solutions and Optical Networking Solutions.

Prior to the Business Combination with ADVA on July 15, 2022, ADTRAN reported revenue across the following three categories:

In addition to the Company's reportable segments, revenue is also reported for the following three categories – Subscriber Solutions, Access & Aggregation Solutions and Optical Networking Solutions.

Prior to the Business Combination with Adtran Networks on July 15, 2022, ADTRAN reported revenue across the following three categories:

(1) Access & Aggregation, (2) Subscriber Solutions & Experience and (3) Traditional & Other Products.

Following the Business Combination with ADVA, we have recast these revenues such that ADTRAN’s former Access & Aggregation revenue is combined with a portion of the applicable ADVA solutions to create Access & Aggregation Solutions, ADTRAN’s former Subscriber Solutions & Experience revenue is combined with a portion of the applicable ADVA solutions to create Subscriber Solutions, and the revenue from Traditional & Other products is now included in the applicable Access & Aggregation Solutions or Subscriber Solutions category.

Optical Networking Solutions is a new revenue category added to represent a meaningful portion of ADVA’s portfolio.

Following the Business Combination with Adtran Networks, we have recast these revenues such that ADTRAN’s former Access & Aggregation revenue is combined with a portion of the applicable Adtran Networks SE solutions to create Access & Aggregation Solutions;

ADTRAN’s former Subscriber Solutions & Experience revenue is combined with a portion of the applicable Adtran Networks solutions to create Subscriber Solutions;

and the revenue from Traditional & Other products is now included in the applicable Access & Aggregation Solutions or Subscriber Solutions category.

Optical Networking Solutions is a new revenue category added to represent a meaningful portion of Adtran Networks' portfolio.

Our Subscriber Solutions portfolio is used by Service Providers to terminate their access services infrastructure at the customer premises while providing an immersive and interactive experience for residential, business and wholesale subscribers.

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These solutions include fiber termination solutions for residential, business and wholesale subscribers, Wi-Fi access solutions for residential and business subscribers, Ethernet switching and network edge virtualization solutions for business subscribers, and cloud software solutions covering a mix of subscriber types.

Our Access & Aggregation Solutions are solutions that are used by communications service providers to connect residential subscribers, business subscribers and mobile radio networks to the service providers’

metro network, primarily through fiber-based connectivity.

Our Access & Aggregation Solutions are solutions that are used by communications Service Providers to connect residential subscribers, business subscribers and mobile radio networks to the Service Providers’ metro network, primarily through fiber-based connectivity.

This revenue category includes hardware- and software-based products and services.

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Services & Support

Subscriber Solutions

Access & Aggregation Solutions

Optical Networking Solutions

Access & Aggregation Solutions

Subscriber Solutions

Nine Months Ended

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Services & Support

Subscriber Solutions

Access & Aggregation Solutions

Optical Networking Solutions

Access & Aggregation Solutions

Subscriber Solutions

The aggregate amount of transaction price allocated to remaining performance obligations that have not been satisfied as of September 30, 2023 and December 31, 2022 related to contractual maintenance agreements, contractual SaaS and subscription services, and hardware contracts that exceed one year in duration amounted to $ 314.0 milli on and $ 277.2 million, respectively.

As of September 30, 2023, approximately 68.6 % is expected to be recognized over the next 12 months and the remainder recognized thereafter.

The majority of the Company's remaining performance obligations at September 30, 2022 are related to contracts or orders that have an original expected duration of one year or less, for which the Company is electing to utilize the practical expedient available within the guidance, and are excluded from the transaction price related to these future obligations.

The majority of the Company's remaining performance obligations as of September 30, 2023 are related to contracts or orders that have an original expected duration of one year or less, for which the Company is electing to utilize the practical expedient available within the guidance, and are excluded from the transaction price related to these future obligations.

The Company will generally satisfy the remaining performance obligations as we transfer control of the products ordered or services to our customers, excluding maintenance services, which are satisfied over time.

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

The Company is party to a receivables purchase agreement with a financial institution (the “Factor”).

Pursuant to the terms of the arrangement, the Company, on a revolving basis, sells to the Factor certain of its accounts receivable balances without recourse.

On each sale date, the Factor retains from the sale price a default reserve, up to a required balance, which are held by the Factor in a reserve account and pledged to the Company.

The Factor is entitled to withdraw from the reserve account the sale price of a defaulted receivable.

As of September 30, 2022, accounts receivable totaling $ 16.1 million were sold, of which $ 1.3 million was retained by the Factor in the reserve account.

The Company is party to a receivables purchase agreement with a third-party financial institution (the “Factor”), which accelerates receivable collection and helps to better manage cash flow.

Total accounts receivables sold for the nine months ended September 30, 2023 and the twelve months ended December 31, 2022, totaled $ 17.8 million and $ 14.9 million, respectively, of which $ 1.4 million was retained by the Factor in the reserve account.

The balance in the reserve account is included in other assets on the Condensed Consolidated Balance Sheets.

As of September 30, 2022, the Company has an allowance for doubtful accounts related to factored accounts receivable totaling $ 0.1 million.

As of September 30, 2022, accounts receivables include $ 31.1 million related to the existing sale of receivables for which the transfer of the receivable has not taken place.

The cost of receivables purchase agreement is included in interest expense in the Condensed Consolidated Statements of Loss and totaled $ 0.3 million for the three and nine months ended September 30, 2022.

Of the outstanding unearned revenue balances as of December 31, 2021, $ 2.8 million and $ 12.3 m illion was recognized as revenue during the three and nine months ended September 30, 2022, respective ly.

Of the $ 14.1 million of outstanding unearned revenue balances as of December 31, 2020, $ 2.0 million and $ 9.8 million was recognized as revenue during the three and nine months ended September 30, 2021, respectively.

As of September 30, 2023 and December 31, 2022, the Company had an allowance for credit losses related to factored accounts receivable totaling less than $ 0.1 million.

The cost of the receivables purchase agreement is included in interest expense in the Condensed Consolidated Statements of Loss and totaled $ 0.3 million and $ 0.9 million for the three and nine months ended September 30, 2023, respectively.

Of the outstanding unearned revenue balances as of December 31, 2022, $ 6.1 million and $ 31.3 milli on were recognized as revenue during the three and nine months ended September 30, 2023, respectively .

Of the $ 17.7 million of outstanding unearned revenue balances as of December 31, 2021, $ 2.8 million and $ 12.3 million were recognized as revenue during the three and nine months ended September 30, 2022, respectively.

Accounts Receivable

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Accounts receivable balances are considered past due when payment has not been received by the date indicated on the relevant invoice or based on agreed upon terms between the customer and the Company.

As of September 30, 2022 and December 31, 2021, the Company’s outstanding accounts receivable balance was $ 302.4 million, and $ 158.7 million, respectively.

As of September 30, 2023 and December 31, 2022 , the Company’s outstanding accounts receivable balance was $ 229.3 million and $ 279.4 million, respectively.

The Company assessed the need for an allowance for credit losses related to its outstanding accounts receivable using the historical loss-rate method, as well as assessing asset-specific risks.

The assessment of asset-specific risks included the evaluation of relevant available information, from internal and external sources, relating to current conditions that may affect a customer’s ability to pay, such as the customer’s current financial condition, credit rating by geographic location, as provided by a third party and/or by customer, if needed, and the overall macro-economic conditions in which the customer operates.

The Company pooled assets by geographic location to determine if an allowance should be applied to its accounts receivable balance, assessing the specific country risk rating and overall economics of that particular country.

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Additionally, the Company determined that significant changes to customer country risk rating from period-to-period and from the end of the prior year to the end of the current quarter would require further review and analysis by the Company.

The allowance for credit losses was $ 0.2 million as of September 30, 2022 related to accounts receivable.

No allowance for credit losses was recorded as of December 31, 2021 related to accounts receivable.

The allowance for credit losses was $ 15 thousand and $ 49 thousand as of September 30, 2023 and December 31, 2022, respectively, related to accounts receivable.

Contract Assets

The Company records contract assets when it has recognized revenue but has not yet billed the customer.

As of September 30, 2022 and December 31, 2021, the Company’s outstanding contract asset balance was $ 1.8 million and $ 0.5 million, respectively, which is included in other receivables on the Consolidated Balance Sheets.

As of September 30, 2023 and December 31, 2022 , the Company’s outstanding contract asset balance was $ 0.9 million and $ 1.9 million, respectively, which is included in other receivables on the Consolidated Balance Sheets.

The Company assessed the need for an allowance for credit losses related to its outstanding contract assets using the historical loss-rate method, as well as asset-specific risks.

The Company’s historical losses related to contract assets receivable have been immaterial as evidenced by historical write-offs due to collectability.

Asset-specific risk included the evaluation of relevant available information, from internal and external sources, relating to current conditions that may affect a customer’s ability to pay once invoiced, such as the customer’s financial condition, credit rating by geographic location as provided by a third party and/or by customer, if needed, and the overall macro-economic conditions in which the customer operates.

The Company’s historical losses related to contract assets receivable have been immaterial as evidenced by historical write-offs due to collectability.

The Company pooled assets by geographic location to determine if an allowance should be applied to its contract asset balance, assessing the specific country risk rating and the overall economics of that particular country.

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Additionally, the Company determined that significant changes to customer country risk rating from period-to-period and from the end of the prior year to the end of the current quarter would be subject to further review and analysis by the Company.

No allowance for credit losses was recorded for the year ended September 30, 2022 and December 31, 2021 related to contract assets.

The Company's effective tax rate changed from an expense of 14.1 % of pre-tax income for the three months ended September 30, 2021, to a benefit of 8.8 % of pre-tax income for the three months ended September 30, 2022 and changed from an expense of 354.5 % of pre-tax income for the nine months ended September 30, 2021, to a benefit of 9.4 % of pre-tax income for the nine months ended September 30, 2022.

The change in the effective tax rate for the three and nine months ended September 30, 2022, was driven primarily by a change in our estimated tax rate as a result of the closing of the Business Combination with ADVA during the third quarter of 2022, the requirement to begin capitalizing Research and Development expenses for U.S.

tax purposes beginning in 2022 as previously passed as part of the Tax Cuts and Jobs Act in December 2017 and the associated impact of those changes on our previously established valuation allowance.

No allowance for credit losses was recorded for the three months ended September 30, 2023 and 2022 related to contract assets.

The Company’s effective tax rate changed from a benefit of 8.8 % of pre-tax loss for the three months ended September 30, 2022 , to a benefit of 18.0 % of pre-tax loss for the three months ended September 30, 2023 and changed from a benefit of 9.4 % of pre-tax loss for the nine months ended September 30, 2022 , to a benefit of 19.2 % of pre-tax loss for the nine months ended September 30, 2023.

The change in the effective tax rate for the three and nine months ended September 30, 2023, was driven primarily by a change in our estimated tax rate as a result of the closing of the Business Combination with Adtran Networks during the third quarter of 2022, as well as the release of our domestic valuation allowance during the fourth quarter of 2022, with exception for certain research and development credits in a particular state in which we do not have sufficient activity to utilize them prior to expiration.

During the second quarter of 2023, the Company concluded a review with the Internal Revenue Services of its amended tax returns previously filed related to refund claims arising from the Company’s request to revoke an IRC Section 59(e) election made on the Company’s originally filed 2018 U.S.

federal tax return.

The Company had previously received an unfavorable response to its Private Letter Ruling request, in which it requested the Commissioner's approval for revoking the election.

As a result of that review, and after taking into consideration other factors, including weighing the potential benefits with projected costs to litigate and the hazards of litigation, management has concluded that it will not pursue the claims any further.

As a result, the Company has removed the previously recorded receivable of $ 15.2 million and related research and development credit carryforward of $ 1.8 million, as well as the offsetting uncertain tax position reserves against them of $ 17.0 million during the second quarter of 2023.

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, 2022, the Company had deferred tax assets totaling $13.0 million, deferred tax liabilities totaling $49.9 million, and a valuation allowance totaling $ 66.1 million against those deferred tax assets and deferred tax liabilities.

The remaining $ 36.9 million in deferred tax liabilities, net are primarily related to purchase price intangibles from the Business Combination closed with ADVA during the third quarter of 2022.

During the nine months ended September 30, 2022, the total change in the valuation allowance against our domestic and international deferred tax assets was recorded in the amount of $ 15.8 million and $ 0.2 million, respectively.

As of September 30, 2023 , the Company had net deferred tax assets totaling $ 57.3 million, and a valuation allowance totaling $ 5.0 million against those deferred tax assets.

The remaining $ 52.3 million in deferred tax assets are primarily related to capitalized R&D expenses in the U.S., partially offset by net purchase price intangibles from the Business Combination closed with Adtran Networks during the third quarter of 2022.

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 judgment, 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 (liabilities) is as follows:

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Valuation Allowance

Deferred Tax Liabilities, net

Deferred Tax Assets (Liabilities), net

International

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(In thousands)

Deferred Tax Assets

Deferred Tax Assets (Liabilities)

Valuation Allowance

Deferred Tax Assets, net

Deferred Tax Assets (Liabilities), net

International

STOCK-BASED COMPENSATION

For the three months ended September 30, 2022 and 2021, stock-based compensation expense was $ 12.1 million and $ 1.8 million, respectively.

For the nine months ended September 30, 2022 and 2021, stock-based compensation expense was $ 15.9 million and $ 5.5 million, respectively.

For the three months ended September 30, 2023 and 2022 , stock-based compensation expense was $ 4.2 million and $ 12.1 million, respectively, and for the nine months ended September 30, 2023 and 2022 , stock-based compensation expense was $ 12.2 million and $ 15.9 million, respectively.

PSUs, RSUs and Restricted Stock - ADTRAN Holdings, Inc.

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Unvested RSUs and restricted stock outstanding, September 30, 2023

During each of the nine months ended September 30, 2022 and 2021, 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 one-year , 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.

Pursuant to the Business Combination, the unearned performance-based PSUs converted to time-based RSUs which was treated as an award modification during the third quarter of 2022.

This resulted in incremental compensation and unrecognized compensation expense totaling $ 17.8 million of which $ 8.9 million was recognized during the three months ended September 30, 2022 and the remainder will be recognized over the remaining service period of 0.3 years.

Unrecognized compensation expense will be adjusted for actual forfeitures.

Pursuant to the Business Combination, 0.3 million shares of market-based PSU awards converted to time-based RSU's awards which was treated as an award modification during the third quarter of 2022.

Given that the fair value of these awards after the modification was less than the fair value of the awards immediately before the modification, no incremental compensation expense was recognized.

The Company continued to recognize compensation expense based on the award's original grant date fair value.

As of September 30, 2022, there was $ 2.1 million of unrecognized compensation expense related to these awards which will be recognized over the weighted average remaining service period of 1.1 years.

During the nine months ended September 30, 2023, the Company granted 0.9 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 either a two or three-year period, subject to the gra ntee’s continued employment, with the ability to earn shares in a range of 0 % to either 100 % or 150 % of the awarded number of PSUs based on the achievement of defined performance targets.

Equity-based compensation expense and liabilities 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 its stock on the date of grant.

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As of September 30, 2023 , total unrecognized compensation expense related to non-vested market-based RSUs and restricted stock was approximately $ 19.1 million, which will be recognized over the remaining weighted-average period of 2.2 years.

There was $ 11.3 million of unrecognized compensation expense related to unvested 2023 performance-based PSUs, which will be recognized over the remaining requisite service period of 2.3 years if achievement of the performance obligation becomes probable.

Unrecognized compensation expense will be adjusted for actual forfeitures.

As of September 30, 2023, 2.0 million shares were available for issuance under stockholder-approved equity plans.

Stock Options - ADTRAN Holdings, Inc.

The following table summarizes ADTRAN Holdings, Inc.

The following table summarizes the ADTRAN Holdings, Inc.

stock options outstanding as of December 31, 2022 and September 30, 2023 and the changes that occurred during the nine months ended September 30, 2023:

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Stock options outstanding, December 31, 2022

ADVA stock options replaced by ADTRAN Holdings stock options (1)

Stock options granted

Stock options exercised

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Stock options exercisable, September 30, 2023

(1) Each ADVA stock option surrendered was exchanged for 0.8244 ADTRAN Holdings stock options.

As of September 30, 2023 , there was $ 5.2 million of unrecognized compensation expense related to stock options which will be recognized over the remaining weighted-average period of 1.9 years.

Pursuant to the Business Combination, which closed on July 15, 2022, ADVA stock option holders were entitled to have their ADVA stock options assumed by ADTRAN Holdings (applying the exchange ratio in the Business Combination Agreement), thereafter representing options to acquire stock of ADTRAN Holdings.

The maximum number of shares of ADTRAN Holdings stock potentially issuable upon such assumption was 2.1 million shares.

The period in which such options could be assumed ended July 22, 2022.

A total of 2.0 million shares of ADTRAN Holdings stock are subject to assumed ADVA options.

The determination of the fair value of stock options assumed by ADTRAN Holdings was estimated using the Monte Carlo method and is affected by its stock price, as well as assumptions regarding a number of complex and subjective variables that may have a significant impact on the fair value estimate.

Pursuant to the Business Combination, which closed on July 15, 2022, Adtran Networks stock option holders were entitled to have their Adtran Networks stock options assumed by ADTRAN Holdings, Inc.

(applying the exchange ratio in the Business Combination Agreement), thereafter representing options to acquire stock of ADTRAN Holdings, Inc.

The maximum number of shares of ADTRAN Holdings, Inc.

stock potentially issuable upon such assumption was 2.3 million shares.

The period in which such options could be assumed ended on July 22, 2022.

A total of 2.1 million shares of ADTRAN Holdings, Inc.

stock could be issued pursuant to the exercise of the assumed Adtran Networks options.

The determination of the fair value of stock options assumed by ADTRAN Holdings, Inc.

was estimated using the Monte Carlo method and is affected by its stock price, as well as assumptions regarding a number of complex and subjective variables that may have a significant impact on the fair value estimate.

The stock option pricing model requires the use of several assumptions that impact the fair value estimate.

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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, 2022 .

The amount of aggregate intrinsic value was $ 17.8 million as of September 30, 2022 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, 2022 was $ 3.4 million.

Stock Options - ADVA Optical Networking SE

The following table summarizes ADVA Optical Networking SE stock options outstanding as of July 15, 2022 (the Business Combination closing date) and September 30, 2022 and the changes that occurred between July 15, 2022 and September 30, 2022:

Stock Options

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 September 30, 2023 .

The amount of aggregate intrinsic value was $ 0.7 million as of September 30, 2023, which will change based on the fair market value of the Company's stock.

The total pre-tax intrinsic value of options exercised during the nine months ended September 30, 2023 was $ 50 thousand.

Stock Options - Adtran Networks

The following table summarizes the Adtran Networks stock options outstanding as of December 31, 2022 and September 30, 2023 and the changes that occurred during the nine months ended September 30, 2023:

(In thousands)

Weighted Avg.

Exercise Price

Weighted Avg.

Contractual Life

Intrinsic Value

(In thousands)

Stock options outstanding, July 15, 2022

Stock options outstanding, December 31, 2022

Stock options exercised

ADVA stock options replaced by ADTRAN Holdings stock options (1)

Stock options forfeited

Stock options expired

Stock options outstanding, September 30, 2023

Stock options exercisable, September 30, 2023

(1) Each ADVA stock option surrendered was exchanged for 0.8244 ADTRAN Holdings stock options.

As of September 30, 2022 , there was $ 0.3 million of unrecognized compensation expense related to stock options which will be recognized over the remaining weighted-average period of 1.1 years.

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 ADVA'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, 2022 .

The amount of aggregate intrinsic value was $ 3.0 million as of September 30, 2022 and will change based on the fair market value of ADVA's stock.

The total pre-tax intrinsic value of options exercised during the period July 15, 2022 through September 30, 2022 was $ 0.7 million.

As of September 30, 2023 , there was $ 0.1 million of unrecognized compensation expense related to Adtran Networks stock options which will be recognized over the remaining weighted-average period of 3.4 years.

All of the Adtran Networks options were previously issued at exercise prices that approximated fair market value at the date of grant.

The aggregate intrinsic value of Adtran Networks stock options represents the total pre-tax intrinsic value (the difference between Adtran Networks 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, 2023 .

The amount of aggregate intrinsic value was $ 0.7 million as of September 30, 2023 and will change based on the fair market value of Adtran Networks stock.

The total pre-tax intrinsic value of Adtran Networks options exercised during the nine months ended September 30, 2023 was $ 0.2 million.

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 September 30, 2022

Gross Unrealized

(In thousands)

Corporate bonds

Municipal fixed-rate bonds

Asset-backed bonds

Mortgage/Agency-backed bonds

government bonds

Foreign government bonds

Available-for-sale debt securities held at fair value

The following debt securities and other investments were included on the Condensed Consolidated Balance Sheets and recorded at fair value as of December 31, 2022:

As of December 31, 2022

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Available-for-sale debt securities held at fair value

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

As of September 30, 2022

(In thousands)

Foreign government bonds

Less than one year

One to two years

Two to three years

Three to five years

Five to ten years

More than ten years

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 Company did no t have any debt securities and other investments as of September 30, 2023.

Re alized gains and losses on sales of debt securities are computed under the specific identification method.

The following table presents the gross realized gains and losses related to its debt securities:

6 unchanged sentences

Gross realized loss on debt securities

Total (loss) gain recognized, net

Total loss recognized, net

Income generated from available-for-sale debt securities was recorded as interest and dividend income in the Condensed Consolidated Statements of Loss.

No allowance for credit losses was recorded for the nine months ended September 30, 2023 and 2022 related to available-for-sale debt securities.

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 its total investment portfolio.

The Company’s investment policy provides limitations for issuer concentration, which limits, at the time of purchase, the concentration in any one issuer to 5.0 % of the market value of its total investment portfolio.

The Company did no t purchase any available-for-sale debt security with credit deterioration during the nine months ended September 30, 2023.

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(In thousands)

Realized (loss) gain on equity securities sold

Unrealized (loss) gain on equity securities held

Total (loss) gain recognized, net

Unrealized gain (loss) on equity securities held

Realized gain (loss) on equity securities sold

Total gain (loss) recognized, net

Income generated from marketable equity securities was recorded as interest and dividend income in the Condensed Consolidated Statements of Loss.

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

Level 1 –

Observable outputs;

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;

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;

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.

These 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 September 30, 2023 Using

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Cash equivalents

government securities

Money market funds

Available-for-sale debt securities

Corporate bonds

Municipal fixed-rate bonds

Asset-backed bonds

Mortgage/Agency-backed bonds

government bonds

Foreign government securities

Commercial paper

Total cash equivalents

Marketable equity securities

Marketable equity securities –

various industries

Marketable equity securities – various industries

Deferred compensation plan assets

Total long-term investments

Fair Value Measurements as of December 31, 2022 Using

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Money market funds

Total cash equivalents

Available-for-sale debt securities

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Marketable equity securities

Marketable equity securities –

various industries

Marketable equity securities – various industries

Deferred compensation plan assets

Total short-term and long-term investments

The fair value of its Level 2 securities is calculated using a weighted average market price for each security.

11 unchanged sentences

As of September 30, 2023 and December 31, 2022, inventory reserves were $ 86.3 million and $ 57.0 million, respectively.

In connection with the Company’s restructuring efforts, during the quarter ended September 30, 2023, management determined that there would be a discontinuation of product lines in the Network solutions segment and, as a result, wrote-down related inventories of $ 21.0 million and is included in cost of revenue in the Condensed Consolidated Statements of Loss.

There was no write-down of inventory during the three and nine months ended September 30, 2022.

PROPERTY, PLANT AND EQUIPMENT

10 unchanged sentences

Total property, plant and equipment, net

Long-lived assets used in operations are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable and the undiscounted cash flows estimated to be generated by the asset are less than the asset’s carrying value.

In connection with the planned integration of information technology following the Business Combination, we determined that certain projects no longer fit our needs.

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The impairment charges were determined based on actual costs incurred.

During the three and nine months ended September 30, 2023, no impairment charges were recognized.

Depreciation expense was $ 7.4 million and $ 7.1 million for the three months ended September 30, 2023 and 2022 , respectively, and $ 22.6 million and $ 12.6 million for the nine months ended September 30, 2023 and 2022 , respectively, which is recorded in cost of revenue, selling, general and administrative expenses and research and development expenses in the Condensed Consolidated Statements of Loss.

4 unchanged sentences

As of December 31, 2022

Goodwill from Business Combination with ADVA

Goodwill impairment

Foreign currency translation adjustments

As of September 30, 2023

Related to the Business Combination with Adtran Networks, the Company recognized $ 350.5 million of goodwill upon the closing of the Business Combination on July 15, 2022.

Goodwill represents the excess purchase price over the fair value of net assets acquired.

We qualitatively assess the carrying value of goodwill each reporting period for events or circumstance changes that would more likely than not reduce the fair value of the reporting unit below its carrying amount.

Based on its assessment of certain qualitative factors such as macro-economic conditions, industry and market considerations, costs factors and overall financial performance, management concluded that no such events or circumstance changes were identified that would suggest that the fair value of the goodwill was more likely than not greater than its carrying amount as of September 30, 2022.

No impairment of goodwill was recorded during the three and nine months ended September 30, 2022 and 2021.

The Company performed an impairment assessment as of September 30, 2023, prior to our October 1, 2023 annual measurement date.

The Company’s policy is to assess the realizability of its goodwill, and to evaluate such assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets (or group of assets) may not be recoverable.

During the third quarter of 2023, qualitative factors such as a decrease in the Company's market capitalization and long-term projections, triggered a quantitative impairment assessment for our reporting units.

The Company determined the fair value of each reporting unit using a combination of an income approach and a market based peer group analysis.

It was determined that the decreases in projected future cash flows, discount rates, overall macroeconomic conditions, as well as the decrease in our market capitalization applied in the valuation, were required to align with market-based assumptions and company-specific risk, which resulted in lower fair values of the Services & Support reporting unit.

The Company determined upon its quantitative impairment assessment to recognize a $ 37.9 million non-cash goodwill impairment charge for the Services & Support reporting unit.

The Company does not expect the impairment charge for the Services & Support Unit to result in any future cash expenditures.

The Company did not recognize any impairment charges for the Network Solutions reporting unit as of September 30, 2023.

Subsequent to September 30, 2023, the Company has experienced volatility in its stock price which reduced the market value of the Company’s common stock as of this filing.

The Company will continue to monitor its stock price, operating results and other macroeconomic factors to determine if there is further indication of a sustained decline in fair value requiring an event driven assessment of the recoverability of its goodwill within the fourth quarter of 2023.

INTANGIBLE ASSETS

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Licensing agreements

The Company evaluates the carrying value of intangible assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable and the undiscounted cash flows estimated to be generated by the asset are less than the asset’s carrying value.

Due to the current economic environment, particularly related to COVID-19, the Company assessed impairment triggers related to intangible assets during each financial period in 2022 and 2021.

As a result, no quantitative impairment test of long-lived assets was performed as of September 30, 2022 and 2021 , and no impairment losses of intangible assets were recorded during the three and nine months ended September 30, 2022 and 2021.

Intangible assets are reviewed for impairment whenever events and circumstances indicate impairment may have occurred.

The Company assessed impairment triggers related to intangible assets during each financial period in 2023 and 2022.

During the third quarter of 2023, the Company's market capitalization and long-term projections decreased which triggered a reassessment of our estimated future undiscounted cash flows.

The Company determined that our estimated future undiscounted cash flows exceeded the carrying amount of intangible assets as of September 30, 2023.

No quantitative impairment test of long-lived assets was performed as of September 30, 2022.

No impairment losses of intangible assets were recorded during the three and nine months ended September 30, 2023 and 2022.

Amortization expense was $ 16.5 million and $ 20.4 million in the three months ended September 30, 2023 and 2022 , respectively, and $ 68.8 million and $ 22.2 million in the nine months ended September 30, 2023 and 2022, respectively and was included in cost of revenue, selling, general and administrative expenses and research and development expenses in the Condensed Consolidated Statements of Loss.

Estimated future amortization expense of intangible assets was as follows:

Estimated future amortization expense of intangible assets is as follows:

(In thousands)

September 30, 2023

We have operating leases for office space, automobiles and various other equipment in the U.S.

and in certain international locations.

Other contracts, such as manufacturing agreements and service agreements, are reviewed to determine if they contain potential embedded leases.

These other contracts are specifically reviewed to determine whether we have the right to substantially all of the economic benefit from the use of any specified assets or the right to direct the use of any specified assets, either of which would indicate the existence of a lease.

As of September 30, 2022, our operating leases had remaining lease terms ranging from one month to seventy-eight months , some of which included options to extend the leases for up to five years , and some of which included options to terminate the leases within three months .

For those leases that are reasonably assured to be renewed, we have included the option to extend as part of our right of use asset and lease liability.

Supplemental balance sheet information related to operating leases is as follows:

The Company has certain forward rate agreements to hedge foreign currency exposure of expected future cash flows in foreign currency.

The Company does not hold or issue derivative instruments for trading or other speculative purposes.

Derivatives are initially recognized at fair value on the date a derivative contract is entered into and are subsequently re-measured to their fair value at the end of each reporting period.

All changes in the fair value of derivative instruments are recognized as other income (expense) in the Consolidated Statements of Loss and are classified as Level II under the fair value hierarchy.

The derivative instruments are not subject to master netting agreements and are not offset in the Consolidated Balance Sheets.

We are exposed to risk from credit-related losses resulting from nonperformance by counterparties to our financial instruments.

We perform credit evaluations of our counterparties under forward exchange contracts and expect all counter parties to meet their obligations.

We have not experienced credit losses from our counterparties.

As of September 30, 2023, the Company had 49 fo rward rate contracts outstanding.

Foreign Currency Hedging Arrangements

On November 3, 2022, the Company entered into a Euro/U.S.

forward contract arrangement (the “Initial Forward”) with Wells Fargo Bank, N.A.

(the “Hedge Counterparty”).

The Initial Forward, which is governed by the provisions of an ISDA Master Agreement (including schedules thereto and transaction confirmations that supplement such agreement) entered into between the Company and the Hedge Counterparty, enables the Company to conv ert a portion of its Euro denominated payment obligations under the DPLTA into U.S.

Under the Initial Forward, the Company agreed to exchange an aggregate notional amount of € 160.0 million for U.S.

dollars at a daily fixed forward rate ranging from $ 0.98286 to $ 1.03290 .

The aggregate amount of € 160.0 million is divided into eight quarterly tranches of € 20.0 million, which commenced in the fourth quarter of 2022.

During the nine months ended September 30, 2023, the Company se ttled three € 20.0 million forward contract tranches a nd the remaining amount will be divided into five quarterly tranches of € 20.0 million.

The Company, at its sole discretion, may exchange all or part of each tranche on any given day within the applicable quarter;

provided, however, that it must exchange the full tranche by the end of such quarter.

The Initial Forward may be accelerated or terminated early for a number of reasons, including but not limited to (i) non-payment by the Company or the Hedge Counterparty, (ii) breach of representation or warranty or covenant by either party or (iii) insolvency or bankruptcy of either party.

On March 21, 2023, the Company entered into a Euro/U.S.

dollar forward contract arrangement (the “Forward”) with the Hedge Counterparty.

Under the Forward, which is governed by the provisions of an ISDA Master Agreement (including schedules thereto and transaction confirmations that supplemen t such agreement) entered into between the Company and the Hedge Counterparty, the Company will exchange an aggregate notional amount of € 160.0 million for U.S.

dollars at a daily fixed forward rate of $ 1.085 per € 1.00 in average.

During the nine months ended September 30, 2023, the Company se ttled three € 20.0 million forward contract tranches, a nd the remaining amount will be divided into five quarterly tranches of € 20.0 million.

These forward contracts were executed on March 21, 2023 (to sell EUR/buy USD) and were entered into for the purpose of unwinding the Initial Forward (to buy EUR/sell USD).

The drawdown dates of the Initial Forward are set to the same date as the maturity of the new offsetting Forward.

The fair values of the Company's derivative instruments recorded in the Condensed Consolidated Balance Sheet as of September 30, 2023 and December 31, 2022 were as follows:

(In thousands)

Classification

Balance Sheet Location

September 30, 2023

December 31, 2022

Operating lease asset

Total lease asset

Current operating lease liability

Accrued expenses

Non-current operating lease liability

Non-current lease obligations

Total lease liability

Leases with an initial term of 12 months or less are not recorded on the balance sheet and the lease expense for these leases is recognized on a straight-line basis over the lease term.

Lease expense rel ated to these short-term leases was less than $ 0.1 million for the three and nine months ended September 30, 2022 and 2021, and is included in cost of revenue, selling, general and administrative expenses and research and development expenses in the Condensed Consolidated Statements of Loss.

Lease expense related to variable lease payments that do not depend on an index or rate, such as real estate taxes and insurance reimbursements, was $ 0.2 million and $ 0.1 million for the three months ended September 30, 2022 and 2021, respectively, and $ 0.5 million and $ 0.4 million for the nine months ended September 30, 2022 and 2021, respectively.

For lease agreements entered into or reassessed after the adoption of Topic 842, we elected to not separa te lease and non-lease components.

Our lease agreements do not contain any material residual value guarantees.

The components of lease expense included in the Condensed Consolidated Statements of Loss were as follows:

Derivatives Not Designated as Hedging Instruments (Level 2):

Foreign exchange contracts – derivative assets

Other receivables

Foreign exchange contracts – derivative liabilities

Accounts payable

Total derivatives

The change in the fair values of the Company's derivative instruments recorded in the Condensed Consolidated Statements of Loss during the three and nine months ended September 30, 2023 and 2022 were as follows:

Three Months Ended

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(In thousands)

Selling, general and administrative expenses

Research and development expenses

Cost of sales

Total operating lease expense

As of September 30, 2022 and December 31, 2021, operating lease liabilities included on the Condensed Consolidated Balance Sheets by future maturity were as follows:

(In thousands)

September 30, 2022

December 31, 2021

Total lease payments

Present value of lease liabilities

Future operating lease payments include $ 4.5 million related to options to extend lease terms that are reasonably certain of being exercised.

There are material legally binding leases that have not yet commenced.

An incremental borrowing rate is used based on information available at the commencement date in determining the present value of lease payments.

The incremental borrowing rate is determined on a portfolio basis by grouping leases with similar terms, as well as grouping leases based on a U.S.

dollar or Euro functional currency.

The following table provides information about our weighted average lease terms and weighted average discount rates:

As of September 30, 2022

Weighted average remaining lease term (in years)

Operating leases with USD functional currency

Operating leases with Euro functional currency

Weighted average discount rate

Operating leases with USD functional currency

Operating leases with Euro functional currency

For the nine months ended September 30, 2022 and 2021, the Company used $ 2.3 million and $ 1.4 million of cash in operating activities related to operating leases, respectively.

Net Investment in Sales-Type Leases

We are the lessor in sales-type lease arrangements for network equipment, which consisted of the following:

(In thousands)

September 30, 2022

December 31, 2021

Current minimum lease payments receivable (1)

Non-current minimum lease payments receivable (2)

Total minimum lease payments receivable

Current unearned revenue (1)

Non-current unearned revenue (2)

Net investment in sales-type leases

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

(2) Included in other assets on the Condensed Consolidated Balance Sheets.

Income Statement

Derivatives Not Designated as Hedging Instruments:

Foreign exchange contracts

Other income, net

REVOLVING CREDIT AGREEMENTS

The carrying amounts of the Company's current and non-current revolving credit agreements in its Condensed Consolidated Balance Sheets were as follows:

(As Restated)

(In thousands)

1 unchanged sentence

December 31, 2022

New Nord/LB revolving line of credit

Nord/LB revolving line of credit

Syndicated credit agreement working capital line of credit

Wells Fargo revolving credit agreement

Cadence revolving credit agreement

DZ bank revolving line of credit

Total current revolving credit agreements

(As Restated)

(In thousands)

6 unchanged sentences

On July 18, 2022, ADTRAN Holdings, Inc.

The Credit Agreement allows for borrowings of up to $ 100 million in aggregate principal amount, subject to being increased to up to $ 400 million in aggregate principal amount upon the Company or Borrower’s execution of a DPLTA with ADVA or a parent of ADVA, among other conditions (the “Senior Credit Facilities Increase”).

On October 18, 2022,

the Board of Directors of the Company.

and the management board of ADVA, agreed on a final draft of a DPLTA between the Company, as the controlling company, and ADVA, as the controlled company.

See Note 21 of the Notes to Condensed Consolidated Financial Statements for further information.

The Credit Agreement replaced the Cadence Revolving Credit Agreement and the Wells Fargo Revolving Credit Agreement.

In connection with the entry into the Credit Agreement, all outstanding borrowings under such credit agreements have been repaid and the agreements terminated.

As of September 30, 2022, ADTRAN, Inc.’s borrowings under the revolving line of credit were $ 60.0 million.

In addition, we may issue up to $ 25 million in letters of credit against our $ 100 million dollar total facility.

As of September 30, 2022, we had a total of $ 16.0 million in letters of credit with ADTRAN, Inc.

The Credit Agreement initially allowed for borrowings of up to $ 100.0 million in aggregate principal amount, but the permitted borrowings increased to up to $ 400.0 million in aggregate principal amount upon the DPLTA becoming effective on January 16, 2023.

On August 9, 2023, (the "First Amendment Effective Date") the Company, its wholly-owned direct subsidiary, ADTRAN, Inc., the lenders party thereto and the Administrative Agent entered into a First Amendment to the Credit Agreement (the “First Amendment” and together with the Credit Agreement, the "Credit Facility").

The First Amendment, provides for, among other things, a new $ 50.0 million delayed draw term loan (“DDTL”), which is available for borrowing in the event of the purchase by the Company of at least sixty percent ( 60.0 %) of the outstanding shares of Adtran Networks that were not owned by the Company as of the First Amendment Effective Date (such event, a “Springing Covenant Event”).

Proceeds of the DDTL may only be used to repurchase minority shares of Adtran Networks.

The DDTL remains available for borrowing from the occurrence of a Springing Covenant Event through the period that is three consecutive fiscal quarters thereafter.

The First Amendment further added additional financial flexibility by amending the $ 30.0 million external debt capped basket to be an unlimited amount and permitting, subject to certain requirements, the incurrence of convertible indebtedness by the Company in an aggregate principal amount of up to $ 172.5 million.

Any such convertible indebtedness must be incurred in pro forma compliance with the financial covenants in the Credit Agreement, unsecured and otherwise rank junior to borrowings under the Credit Agreement, and have a stated maturity date of at least 91 days after the latest scheduled maturity date of loans and commitments under the Credit Agreement.

Net cash proceeds from any incurrence of convertible indebtedness must be used to repurchase minority shares of Adtran Networks or repay revolver borrowings under the Credit Agreement.

As of September 30, 2023 , ADTRAN, Inc.’s borrowings under the revolving line of credit were $ 200.0 million.

As of September 30, 2023, there were no borrowings under the DDTL.

The Credit Facility matures in July 2027;

however, the Company has an option to request extensions subject to customary conditions.

In addition, we may issue up to $ 25.0 million in letters of credit against our $ 400.0 million total facility.

As of September 30, 2023 , we had a total of $ 2.2 million in letters of credit under ADTRAN, Inc.

outstanding against our eligible borrowings, leaving a net amount of $ 197.8 million available for future borrowings.

Any future credit extensions under the Credit Agreement are subject to customary conditions precedent.

Any future credit extensions

under the Credit Agreement are subject to customary conditions precedent.

The proceeds of any loans are expected to be used for general corporate purposes and to pay a portion of the Exchange Offer consideration.

The Credit Agreement matures in July 2027 but provides the Company with an option to request extensions subject to customary conditions.

borrowings under the Credit Agreement (other than swingline loans, which will bear interest at the Base Rate (as defined below)) will bear interest, at the Company’s option, at a rate per annum equal to (A)(i) the highest of (a) the federal funds rate (i.e., for any day, the rate per annum equal to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System, as published by the Fe deral Reserve Bank of New York on the business day next succeeding such day) plus ½

of 1 %, (b) the prime commercial lending rate of the Administrative Agent, as established from time to time at its principal U.S.

office (which such rate is an index or base rate and will not necessarily be its lowest or best rate charged to its customers or other banks), and (c) the daily Adjusted Term SOFR (as defined in the Credit Agreement) for a one-month tenor plus 1 %, plus (ii) the applicable rate, ranging from 0.5 % to 1.25 % (the “Base Rate”), or (B) the sum of the Adjusted Term SOFR (as defined in the Credit Agreement) plus the applicable rate, ranging from 1.4 % to 2.15 %, provided that such sum is subject to a 0.0 % floor (such loans utilizing this interest rate, “SOFR Loans”).

borrowings under the Credit Agreement (other than swingline loans) will bear interest at a rate per annum equal to the sum of the Euro Interbank Offered Rate as administered by the European Money Markets Institute (or a comparable or successor administrator approved by the Administrative Agent) plus the applicable rate, ranging from 1.5 % to 2.25 %, provided that such sum is subject to a 0.0 % floor (such loans utilizing this interest rate, “EURIBOR Loans”).

Revolving Line of Credit Interest Rate

borrowings under the revolving line of credit (other than swingline loans, which bear interest at the Base Rate (as defined below)) bear interest, at the Company’s option, at a rate per annum equal to (A)(i) the highest of (a) the federal funds rate (i.e., for any day, the rate per annum equal to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System, as published by the Federal Reserve Bank of New York on the business day next succeeding such day) plus ½ of 1.0 %, (b) the prime commercial lending rate of the Administrative Agent, as established from time to time at its principal U.S.

office (which such rate is an index or base rate and will not necessarily be its lowest or best rate charged to its customers or other banks), and (c) the daily Adjusted Term SOFR (as defined in the Credit Agreement) for a one-month tenor plus 1.0 %, plus (ii) the applicable rate, ranging from 0.65 % to 1.65 % (the “Base Rate”), or (B) the sum of the Adjusted Term SOFR (as defined in the Credit Agreement) plus the applicable rate, ranging from 1.65 % to 2.65 %, provided that such sum is subject to a 0.0 % floor (such loans utilizing this interest rate, “SOFR Loans”).

borrowings under the Credit Agreement (other than swingline loans) bear interest at a rate per annum equal to the sum of the Euro Interbank Offered Rate as administered by the European Money Markets Institute (or a comparable or successor administrator approved by the Administrative Agent) plus the applicable rate, ranging from 1.75 % to 2.75 %, provided that such sum is subject to a 0.0 % floor (such loans utilizing this interest rate, “EURIBOR Loans”).

The applicable rate is based on the consolidated net leverage ratio of the Company and its subsidiaries as determined pursuant to the terms of the Credit Agreement.

Default interest is 2.0 % per annum in excess of the rate otherwise applicable in the case of any overdue principal or any other overdue amount.

In addition to paying interest on outstanding principal under the Credit Agreement, the Company is required to pay a commitment fee to the lenders under the Credit Agreement in respect of unutilized revolving loan commitments and an additional commitment ticking fee at a rate of 0.25 % on the commitment amounts of each lender until the earliest of (i) the date of the Senior Credit Facilities Increase, (ii) the Company’s voluntary termination of the credit facility commitment, and (iii) December 31, 2023.

The Company is also required to pay a participation fee to the Administrative Agent for the account of each lender with respect to the Company’s participations in letters of credit at the then applicable rate for SOFR Loans.

The Credit Agreement permits the Company to prepay any or all of the outstanding loans or to reduce the commitments under the Credit Agreement without incurring premiums or penalties (except breakage costs with respect to SOFR Loans and EURIBOR Loans).

The Credit Agreement contains customary affirmative and negative covenants, including incurrence covenants and certain other limitations on the ability of the Company and the Company’s subsidiaries to incur additional debt, guarantee other obligations, grant liens on assets, make investments, dispose of assets, pay dividends or other payments on capital stock, make restricted payments, engage in mergers or consolidations, engage in transactions with affiliates, modify its organizational documents, and enter into certain restrictive agreements.

In addition to paying interest on outstanding principal under the Credit Agreement, the Company is required to pay a commitment fee to the lenders under the Credit Agreement in respect of unutilized revolving loan commitments and an additional commitment ticking fee at a rate ranging from 0.20 % to 0.25 % per annum on the average daily unused portion of the revolving credit commitment of each lender until the earliest of (i) the date of the Senior Credit Facilities Increase, (ii) the Company’s voluntary termination of the credit facility commitment, and (iii) December 31, 2023.

The Company is also required to pay a participation fee to the Administrative Agent for the account of each lender with respect to the Company’s participation in letters of credit at the then applicable rate for SOFR Loans.

DDTL Interest Rate

borrowings under the DDTL bear interest, at the Company’s option, at a rate per annum equal to (A)(i) the highest of (a) the federal funds rate (i.e., for any day, the rate per annum equal to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System, as published by the Federal Reserve Bank of New York on the business day next succeeding such day) plus ½ of 1.0 %, (b) the prime commercial lending rate of the Administrative Agent, as established from time to time at its principal U.S.

office (which such rate is an index or base rate and will not necessarily be its lowest or best rate charged to its customers or other banks), and (c) the sum of the Adjusted Term SOFR (as defined in the Credit Agreement) plus the applicable rate, ranging from 1.9 % to 2.9 %, provided that such sum is subject to a 0.0 % floor (such loans utilizing this interest rate, “SOFR Loans”) or (B) the sum of the daily Adjusted Term SOFR (as defined in the Credit Agreement) for a one-month tenor plus 1.0 %, plus (ii) the applicable rate, ranging from 0.9 % to 1.9 %.

The applicable rate is based on the consolidated net leverage ratio of the Company and its subsidiaries as determined pursuant to the terms of the Credit Agreement.

Default interest is 2.0 % per annum in excess of the rate otherwise applicable in the case of any overdue principal or any other overdue amount.

In addition to paying interest on outstanding principal under the DDTL loan, the Company is required to pay a commitment fee to the lenders under the Credit Agreement in respect of unutilized DDTL commitments at a rate of 0.25 % per annum on the daily unused portion of the aggregate DDTL commitment until the earliest of (i) the delayed draw funding date, (ii) the delayed draw funding deadline and (iii) the termination in full of the DDTL commitments.

Covenants Under the Credit Agreement

The First Amendment permits the Company to prepay any or all of the outstanding loans or to reduce the commitments under the First Amendment without incurring premiums or penalties (except breakage costs with respect to SOFR Loans and EURIBOR Loans).

The First Amendment contains customary affirmative and negative covenants, including incurrence covenants and certain other limitations on the ability of the Company and the Company’s subsidiaries to incur additional debt, guarantee other obligations, grant liens on assets, make investments, dispose of assets, pay dividends or other payments on capital stock, make restricted payments, engage in mergers or consolidations, engage in transactions with affiliates, modify its organizational documents, and enter into certain restrictive agreements.

It also contains customary events of default (subject to customary cure periods and materiality thresholds).

Furthermore, the Credit Agreement requires that the consolidated total net leverage ratio (as defined in the Credit Agreement) of the Company and its subsidiaries tested on the last day of each fiscal quarter not exceed 3.25 to 1.0 through September 30, 2024 and 2.75 to 1.00 from December 31, 2024 and thereafter, subject to certain exceptions.

The Credit Agreement also requires that the consolidated interest coverage ratio (as defined in the Credit Agreement) of the Company and its subsidiaries tested on the last day of each fiscal quarter not fall below 3.00 to 1.00.

The First Amendment further included the following revised financial covenants;

(i) the addition of an automatic step up in the consolidated total net leverage ratio to 5.00 :1.00 from 3.25 :1.00 upon the occurrence of a Springing Covenant Event and continuing for the fiscal quarter in which the Springing Covenant Event occurs and the next three consecutive fiscal quarters thereafter (such period, a “Springing Covenant Period”) and (ii) the addition of a consolidated senior secured net leverage ratio covenant to be tested quarterly during a Springing Covenant Period and sized at 4.00 :1.00 during the first quarter ending after a Springing Covenant Event, 3.75 :1.00 during the second quarter ending after a Springing Covenant Event and 3.50 :1.00 during the third and fourth quarters ending after a Springing Covenant Event.

Further, if the Company or any of its subsidiaries incurs unsecured indebtedness under the uncapped general indebtedness basket or permitted convertible indebtedness basket of the Credit Agreement in excess of $ 50.0 million in connection with a transaction that is a Springing Covenant Event or during a Springing Covenant Period, then the maximum consolidated senior secured net leverage ratio shall be, or shall automatically step down to, 3.50 :1.00 at the time of such incurrence.

The First Amendment also requires that the consolidated interest coverage ratio (as defined in the First Amendment) of the Company and its subsidiaries tested on the last day of each fiscal quarter not fall below 3.00 to 1.00.

As of September 30, 2023, the Company was in compliance with all material covenants.

Finally, pursuant to a Collateral Agreement, dated as of July 18, 2022, among the Company, ADTRAN, Inc.

and the Administrative Agent, ADTRAN, Inc.’s obligations under the Credit Agreement are secured by substantially all of the assets of ADTRAN, Inc.

and the Administrative Agent, ADTRAN, Inc.’s obligations under the First Amendment are secured by substantially all of the assets of ADTRAN, Inc.

and the Company.

In addition, the Company has guaranteed ADTRAN, Inc.’s obligations under the Credit Agreement pursuant to a Guaranty Agreement, dated as of July 18, 2022, by ADTRAN, Inc.

In addition, the Company has guaranteed ADTRAN, Inc.’s obligations under the First Amendment pursuant to a Guaranty Agreement, dated as of July 18, 2022, by ADTRAN, Inc.

and the Company in favor of the Administrative Agent.

Nord/LB Revolving Line of Credit

August 8, 2022, ADVA entered into a $ 14.7 million revolving line of credit with Norddeutsche Landesbark - Girozentrale (Nord/LB) that bears interest of Euro Short Term Rate + 1.4 % and which matures in August 2023 .

During the term of the loan, ADVA is obligated

to maintain an adjusted net debt to cover ratio that is equal to or less than 2.75 .

As of September 30, 2022, The Company was in compliance with the adjusted net debt to cover ratio.

The revolving line of credit grants Nord/LB a lien on assets of any kind which come into the possession of ADVA.

Assets of any kind includes goods, foreign exchange, securities including interest, annuity and profit notes, collective securities deposits, subscription rights, checks, bills of exchange, bills of lading, storage and loading slips.

As of September 30, 2022, ADVA’s borrowings under the revolving line of credit were $ 14.7 million, with no amounts available for future borrowings.

On March 29, 2023, Adtran Networks entered into a $ 16.1 million unsecured revolving line of credit with Norddeutsche Landesbark - Girozentrale (Nord/LB) that bears interest of Euro Short Term Rate plus 1.94 %.

The line of credit has a perpetual term that can be terminated by the Company or Nord/LB at any time.

As of September 30, 2023 , Adtran Networks borrowed $ 10.6 million under this facility.

Prior Nord/LB Revolving Line of Credit

On August 8, 2022, Adtran Networks entered into a $ 16.1 million revolving line of credit with Norddeutsche Landesbark - Girozentrale (Nord/LB) that bears interest of Euro Short Term Rate plus 1.4 % and matured in August 2023 .

On January 31, 2023, the Company repaid the outstanding borrowings under the Nord/LB revolving line of credit.

No amounts are available for future borrowings.

Syndicated Credit Agreement Working Capital Line of Credit

In September 2018, ADVA entered into a syndicated credit agreement with Bayerische Landesbank and Deutsche Bank AG Branch German Business to borrow up to $ 9.8 million as part of a working capital line of credit.

The interest rate for the working capital line of credit is adjusted periodically based on a defined leverage ratio and is currently EURIBOR plus 1.35 % as of September 30, 2022.

The working capital line of credit matures in September 2023.

As of September 30, 2022, borrowings under the working capital line of credit totaled $ 9.8 million, with no amounts available for future borrowings.

Prior Wells Fargo Revolving Credit Agreement

On April 1, 2022, ADTRAN, Inc.

entered into a Credit Agreement and related Revolving Line of Credit Note (together, the “Prior Wells Revolving Credit Agreement”) in favor of Wells Fargo Bank, National Association, as lender (the “Wells Lender”).

The Wells Revolving Credit Agreement provided the Company with a $ 25.0 million secured revolving credit facility.

During the first nine months of 2022, the Company made draws totaling $ 10.0 million under the Prior Wells Revolving Credit Agreement all of which had been repaid as of September 30, 2022.

The Wells Fargo Credit Agreement replaced the Prior Wells Fargo Revolving Credit Agreement and all outstanding borrowings have been repaid and the prior agreement was terminated.

Prior Cadence Revolving Credit Agreement

On May 19, 2022, ADTRAN, Inc., as borrower, modified its Revolving Credit and Security Agreement and related Promissory Note (together, the “Cadence Revolving Credit Agreement”) with Cadence Bank, N.A., as lender (the “Cadence Lender”).

The modified Prior Cadence Revolving Credit Agreement provided the Company with a $ 25.0 million secured revolving credit facility.

During the first nine months of 2022, the Company made draws totaling $ 18.0 million under the Prior Cadence Revolving Credit Agreement all of which had been repaid as of September 30, 2022.

The Wells Fargo Credit Agreement replaced the Prior Cadence Revolving Credit Agreement and all outstanding borrowings have been repaid and the prior agreement was terminated.

In September 2018, Adtran Networks entered into a syndicated credit agreement with Bayerische Landesbank and Deutsche Bank AG Branch German Business to borrow up to $ 10.7 million as part of a working capital line of credit.

On January 31, 2023, the Company repaid the outstanding borrowings under the syndicated credit agreement working capital line of credit.

No amounts are available for future borrowings.

DZ Bank Revolving Line of Credit

In the fourth quarter of 2022, Adtran Networks entered into a revolving line of credit with DZ Bank to borrow up to $ 9.1 million.

Interest on the line of credit reset monthly based on renewal of the loan and was 2.8 % at the time the loan was repaid.

On March 12, 2023, the Company repaid the outstanding borrowings under the DZ Bank revolving line of credit.

No amounts are available for future borrowings.

NOTES PAYABLE

7 unchanged sentences

December 31, 2022

Syndicated credit agreement note payable

Deutsche Bank term loan

Syndicated credit agreement notes payable

Total Notes Payable

Syndicated Credit Agreement Note Payable

In September 2018, ADVA entered into a syndicated credit agreement with Bayerische Landesbank and Deutsche Bank AG Branch German Business to borrow $ 63.7 million.

The interest rate for the note payable is adjusted periodically based on a defined leverage ratio and is currently EURIBOR plus 1.35 % as of September 30, 2022.

The note payable matures in September 2023.

Deutsche Bank Term Loan

In October 2019, ADVA entered into a $ 9.8 million revolving line of credit with Deutsche Bank that bears interest of EURIBOR plus 1.1 %.

The line of credit matured in September 2022 and was repaid as of September 30, 2022.

In September 2018, Adtran Networks entered into a syndicated credit agreement with Bayerische Landesbank and Deutsche Bank AG Branch German Business to borrow $ 63.7 million.

On January 31, 2023, the Company repaid the outstanding borrowings under the syndicated credit agreement note payable.

No amounts are available for future borrowings.

EMPLOYEE BENEFIT PLANS

We maintain defined benefit pension plans covering employees in certain foreign countries.

Pension benefit plan obligations are based on various assumptions used by its actuaries in calculating these amounts.

These assumptions include discount rates, compensation rate increases, expected return on plan assets, retirement rates and mortality rates.

Actual results that differ from the assumptions and changes in assumptions could affect future expenses and obligations.

The Company's net pension liability totaled $ 16.2 million and $ 11.4 million as of September 30, 2022 and December 31, 2021, respectively.

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

The Company maintains defined benefit pension plans covering employees in certain foreign countries.

In connection with the Business Combination, we acquired $ 29.6 million of additional obligations and $ 22.3 million of assets related to post-employment benefit plans for certain groups of employees at our new operations outside of the U.S.

Plans vary depending on the legal, economic, and tax environments of the respective country.

For defined benefit plans, accruals for pensions and similar commitments have been included in the results for this year.

The new defined benefit plans are for employees in Switzerland, Italy, Israel and India:

• In Switzerland, there are two defined benefit pension plans.

Both plans provide benefits in the event of retirement, death or disability.

The plan's benefits are based on age, years of service, salary and on a participants old age account.

The plans are financed by contributions paid by the participants and by the Company.

• In Italy, the post-employment benefit plan is required due to statutory provisions.

The plan is financed directly by the Company on a pay as you go basis.

Employees receive their pension payments as a function of salary, inflation and a notional account.

• In Israel, there is a defined benefit pension plan that provides benefits in the event of a participant being dismissed involuntarily, retirement or death.

The plan's benefits are based on the higher of the severance benefit required by law or the cash surrender value of the severance benefit component of any qualifying insurance policy or long-term employee benefit fund that is registered in the participants' name.

The plan is financed by contributions paid by the Company.

• In India, the post-employment benefit plan is required due to statutory provisions.

The plan is financed directly by the Company on a pay as you go basis.

The Company's net pension liability for all defined benefit pension plans totaled $ 10.7 million and $ 10.6 million as of September 30, 2023 and December 31, 2022, respectively.

The following table summarizes the components of net periodic pension cost related to the Company's defined benefit pension plans:

Three Months Ended

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Service cost is included in cost of revenue, selling, general and administrative expenses and research and development expenses in the Condensed Consolidated Statements of Loss.

The Company made contributions to the defined benefit pension plans totaling $ 1.2 million during the nine months ending September 30, 2022.

The Company made contributions to the defined benefit pension plans totaling $ 2.8 million and $ 1.2 million during the nine months ended September 30, 2023 and 2022, respectively.

Contributions to the defined benefit pension plans for the remainder of 2023 will be limited to benefit payments to retirees which are paid out of the operating cash flows of the Company and are expected to be approximately $ 0.9 million.

Non-Controlling Interest

Non-controlling interest represents the equity interest in ADVA held by holders other than the Company.

On July 15, 2022, upon the closing of the Business Combination, the ADVA stockholders ’

equity ownership percentage in ADVA was 34.57 %.

The Company has consolidated the financial position and results of operations of ADVA and reflected the proportionate interest held by the ADVA stockholders as non-controlling interest in the accompanying Condensed Consolidated Balance Sheet.

As of September 30, 2022, the ADVA stockholders ’

equity ownership percentage in ADVA was 34.65 %.

Stock Repurchase Program

During the nine months ended September 30, 2022 , the Company did no t repurchase any shares of Company Common Stock and there is no current authorization to repurchase Company Common Stock.

Accumulated Other Comprehensive Loss

The following tables present the changes in accumulated other comprehensive loss, net of tax, by component:

Accumulated Other Comprehensive (Loss) Income

The following tables present the changes in accumulated other comprehensive (loss) income, net of tax, by component:

Three Months Ended September 30, 2023

(As Restated)

(In thousands)

2 unchanged sentences

Balance as of June 30, 2023

Other comprehensive loss before

Other comprehensive income (loss) before

reclassifications

Amounts reclassified from accumulated other

comprehensive (loss) income

Net current period other comprehensive (loss) income

Comprehensive Loss attributable to non-controlling interest, net of tax

comprehensive loss

Net current period other comprehensive income (loss)

Balance as of September 30, 2023

1 unchanged sentence

(In thousands)

(Losses) Gains

ASU 2018-02 Adoption

3 unchanged sentences

Amounts reclassified from accumulated other

comprehensive (loss) income

Net current period other comprehensive (loss) income

comprehensive loss

Net current period other comprehensive loss

Comprehensive loss attributable to non-controlling interest, net of tax

Balance as of September 30, 2022

Nine Months Ended September 30, 2023

(As Restated)

(In thousands)

(Losses) Gains

ASU 2018-02 Adoption

As of December 31, 2021

Other comprehensive loss before

Balance as of December 31, 2022

Other comprehensive income (loss) before

reclassifications

Amounts reclassified from accumulated other

comprehensive income (loss)

Net current period other comprehensive loss

Comprehensive Loss attributable to non-controlling interest, net of tax

As of September 30, 2022

comprehensive loss

Net current period other comprehensive income (loss)

Comprehensive income attributable to non-controlling interest, net of tax

Balance as of September 30, 2023

Nine Months Ended September 30, 2022

(In thousands)

(Losses) Gains

ASU 2018-02 Adoption

As of December 31, 2020

Balance as of December 31, 2021

Other comprehensive loss before

1 unchanged sentence

Amounts reclassified from accumulated other

comprehensive income

Net current period other comprehensive (loss) income

As of September 30, 2021

comprehensive income (loss)

Net current period other comprehensive loss

Comprehensive loss attributable to non-controlling interest, net of tax

Balance as of September 30, 2022

The following tables present the details of reclassifications out of accumulated other comprehensive loss:

2 unchanged sentences

Comprehensive

(Loss) Income

Affected Line Item in the

Statement Where Net

(Loss) Income Is Presented

Loss Is Presented

Unrealized gain (loss) on available-for-sale securities:

1 unchanged sentence

Net investment (loss) gain

Defined benefit plan adjustments –

actuarial loss

Defined benefit plan adjustments – actuarial loss

Total reclassifications for the period, before tax

4 unchanged sentences

Comprehensive

(Loss) Income

Affected Line Item in the

Statement Where Net

(Loss) Income Is Presented

Loss Is Presented

Unrealized gain (loss) on available-for-sale securities:

1 unchanged sentence

Net investment (loss) gain

Defined benefit plan adjustments –

actuarial gain

Defined benefit plan adjustments – actuarial loss

Total reclassifications for the period, before tax

4 unchanged sentences

Comprehensive

(Loss) Income

Affected Line Item in the

Statement Where Net (Loss)

Income Is Presented

Statement Where Net

Loss Is Presented

Unrealized gain (loss) on available-for-sale securities:

Net realized gain on sales of securities

Net realized loss on sales of securities

Net investment (loss) gain

Defined benefit plan adjustments –

actuarial loss

Defined benefit plan adjustments – actuarial loss

Total reclassifications for the period, before tax

5 unchanged sentences

Affected Line Item in the

Statement Where Net (Loss)

Income Is Presented

Statement Where Net

Loss Is Presented

Unrealized gain (loss) on available-for-sale securities:

1 unchanged sentence

Net investment (loss) gain

Defined benefit plan adjustments –

actuarial gain

Defined benefit plan adjustments – actuarial loss

Total reclassifications for the period, before tax

1 unchanged sentence

(1) A part of the computation of net periodic pension cost, which is included in other income, net in the Condensed Consolidated Statements of Loss.

The following tables present the tax effects related to the change in each component of other comprehensive loss:

The following table presents the tax effects related to the change in each component of other comprehensive (loss) income:

Three Months Ended

3 unchanged sentences

(In thousands)

Unrealized loss on available-for-sale

Unrealized gain (loss) on available-for-sale

Reclassification adjustment for amounts related to

available-for-sale investments included in net

available-for-sale investments included in net (loss) gain

Reclassification adjustment for amounts related to

defined benefit plan adjustments included in net

defined benefit plan adjustments included in net loss

Foreign currency translation adjustments

5 unchanged sentences

(In thousands)

Unrealized loss on available-for-sale

Unrealized gain (loss) on available-for-sale

Reclassification adjustment for amounts related to

available-for-sale investments included in net

available-for-sale investments included in net (loss) gain

Reclassification adjustment for amounts related to

defined benefit plan adjustments included in net

defined benefit plan adjustments included in net loss

Foreign currency translation adjustments

Total Other Comprehensive Loss

REDEEMABLE NON-CONTROLLING INTEREST

The following table summarizes the redeemable non-controlling interest activity for the nine months ended September 30, 2023:

Nine Months Ended

(In thousands)

September 30, 2023

Balance at beginning of period

Reclassification of non-controlling interests

Redemption of redeemable non-controlling interest

Net income attributable to redeemable non-controlling interests

Annual recurring compensation earned

Translation adjustment

Adtran Networks stock option exercises

Balance as of September 30, 2023

Annual recurring compensation payable on untendered outstanding shares under the DPLTA must be recognized as it is accrued.

For the three and nine months ended September 30, 2023 , we have recognized $ 2.9 million and $ 8.6 million, respectively, representing the portion of the annual recurring cash compensation to the non-controlling shareholders accrued during such periods, which will be paid after the ordinary general shareholders' meeting of Adtran Networks beginning in 2024.

See Note 1 and Note 20 for additional information on RNCI and the annual dividend .

LOSS PER SHARE

5 unchanged sentences

(In thousands, except per share amounts)

(As Restated)

Net loss attributable to ADTRAN Holdings, Inc.

Weighted average number of shares –

Weighted average number of shares – basic

Effect of dilutive securities

1 unchanged sentence

PSUs, RSUs and restricted stock

Weighted average number of shares –

Weighted average number of shares – diluted

Loss per share attributable to ADTRAN Holdings, Inc.

For the three months ended September 30, 2022 and 2021, four thousand and less than one thousand shares, respectively, and for the nine months ended September 30, 2022 and 2021, four thousand shares of unvested PSUs, RSUs and restricted stock were excluded from the calculation of diluted earnings per share due to their anti-dilutive effect.

For the three months ended September 30, 2023 and 2022 , 0.5 million and 4 thousand shares, respectively, and for the nine months ended September 30, 2023 and 2022 , 0.4 million and 4 thousand shares, respectively, of unvested PSUs, RSUs and restricted stock were excluded from the calculation of diluted earnings per share due to their anti-dilutive effect.

For the three months ended September 30, 2023 and 2022 , 2.6 million and 0.1 million stock options, respectively, and for the nine months ended September 30, 2023 and 2022 , 1.4 million and 0.2 million stock options, respectively, were outstanding but were not included in the computation of diluted earnings per share.

1 unchanged sentence

SEGMENT INFORMATION

The chief operating decision maker regularly reviews the Company’s financial performance based on two reportable segments:

(1) Network Solutions and (2) Services & Support.

The Network Solutions segment includes hardware and software products that enable a digital future.

The Network Solutions segment includes hardware and software products that enable a digital future which support the Company's Subscriber, Access & Aggregation, and Optical Networking Solutions.

The Company's cloud-managed Wi-Fi gateways, virtualization software, and switches provide a mix of wired and wireless connectivity at the customer premises.

In addition, its Carrier Ethernet products support a variety of applications at the network edge ranging from mobile backhaul to connecting enterprise customers (“Subscriber Solutions").

The Company's portfolio includes products for multi-gigabit service delivery over fiber or alternative media to homes and businesses.

The Company supports traditional chassis-based network solutions, such as the Total Access 5000 and hiX 5600.

The Company accelerates the industry’s transition to open, disaggregated fiber access solutions with our SDX Series.

Data is aggregated via its XG400 product family and synchronized by its Oscilloquartz offerings (“Access and Aggregation Solutions”).

All resulting traffic requires transport through fiber-based networks as supported by its FSP 3000 and MicroMux product families while the underlying infrastructure is monitored by its ALM product offering (“Optical Networking Solutions”).

The Company's customers can use its Mosaic and Ensemble software suites to manage and orchestrate its complete portfolio of subscriber solutions, access and aggregation solutions and optical networking solutions.

The Mosaic and Ensemble software suites includes a mix of orchestration and management solutions that simplify the deployment and virtualization of next generation fiber networks.

The Services & Support segment offers a comprehensive portfolio of network design, implementation, maintenance and cloud-hosted services supporting its Subscriber, Access and Aggregation, and Optical Networking Solutions.

These services assist operators in the deployment of multi-vendor networks while reducing their cost to maintain these networks.

The cloud-hosted services include a suite of SaaS applications under its Mosaic One platform that manages end-to-end network and service optimization for both fiber access infrastructure and mesh Wi-Fi connectivity.

We back these services with a global support organization that offers on-site and off-site support services with varying SLAs.

By pairing the Company's network solutions with its global services and support organization, customers can turn to the Company as their single turnkey partner to assist with the deployment and maintenance of modern fiber-based networks to connect homes, businesses and datacenters with the metro or network core.

The cloud-hosted services include a suite of SaaS applications under the Company's Mosaic One platform that manages end-to-end network and service optimization for both fiber access infrastructure and mesh Wi-Fi connectivity.

The Company backs these services with a global support organization that offers on-site and off-site support services with varying SLAs.

The performance of these segments is evaluated based on revenue, gross profit and gross margin;

therefore, selling, general and administrative expenses, research and development expenses, interest and dividend income, interest expense, net investment (loss) gain, other income, net and income tax benefit (expense) are reported on a Company-wide basis only.

There is no inter-segment revenue.

Asset information by reportable segment is not produced and, therefore, is not reported.

The following tables present information about the revenue and gross profit of its reportable segments:

The following tables present information about the revenue and gross profit of the Company's reportable segments:

Three Months Ended

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Services & Support

For the three months ended September 30, 2023 and 2022 , $ 1.5 million and $ 1.1 million, respectively, of depreciation expense was included in gross profit for our Network Solutions segment.

For the nine months ended September 30, 2023 and 2022 , $ 4.5 million and $ 1.6 million, respectively, of depreciation expense was included in gross profit for our Network Solutions segment.

For the three months ended September 30, 2023 and 2022 , $ 2.4 thousand of depreciation expense was included in gross profit for our Services & Support segment.

For the nine months ended September 30, 2023 and 2022 , $ 7.3 thousand and $ 8.0 thousand, respectively, of depreciation expense was included in gross profit for our Services & Support segment.

Revenue by Category

In addition to its reportable segments, revenue is also reported for the following three categories –

Subscriber Solutions, Access & Aggregation Solutions, and Optical Networking Solutions.

Prior to the Business Combination with ADVA on July 15, 2022, ADTRAN reported revenue across the following three categories:

In addition to its reportable segments, revenue is also reported for the following three categories – Subscriber Solutions, Access & Aggregation Solutions and Optical Networking Solutions.

Prior to the Business Combination with Adtran Networks on July 15, 2022, ADTRAN reported revenue across the following three categories:

(1) Access & Aggregation, (2) Subscriber Solutions & Experience and (3) Traditional & Other Products.

Optical Networking Solutions is a new revenue category added to represent a meaningful portion of ADVA’s portfolio.

Following the Business Combination with Adtran Networks, the Company has recast these revenues such that ADTRAN’s former Access & Aggregation revenue is combined with a portion of the applicable Adtran Networks solutions to create Access & Aggregation Solutions, ADTRAN’s former Subscriber Solutions & Experience revenue is combined with a portion of the applicable Adtran Networks solutions to create Subscriber Solutions, and the revenue from Traditional & Other products is now included in the applicable Access & Aggregation Solutions or Subscriber Solutions category.

Optical Networking Solutions is a new revenue category added to represent a meaningful portion of Adtran Networks' portfolio.

1 unchanged sentence

metro network, primarily through fiber-based connectivity.

This revenue category includes hardware- and software-based products and services.

10 unchanged sentences

(In thousands)

Subscriber Solutions

Access & Aggregation Solutions

Optical Networking Solutions

Access & Aggregation Solutions

Subscriber Solutions

Revenue by Geographic Area

17 unchanged sentences

The liability for warranty obligations totaled $ 6.6 million and $ 7.2 million as of September 30, 2023 and December 31, 2022 , respectively, and is included in accrued expenses and other liabilities in the Condensed Consolidated Balance Sheets.

During the three months ended September 30, 2021, the Company had a net reversal of prior provisions related to warranty expirations the impact of which is reflected in the table below.

The warranty expense and write-off activity for the three and nine months ended September 30, 2023 and 2022 are summarized as follows:

5 unchanged sentences

Balance at beginning of period

ADVA acquisition

Adtran Networks acquisition

Amounts charged to cost and expenses

Foreign currency translation adjustments

Balance at end of period

COMMITMENTS AND CONTINGENCIES

From time to time we are subject to or otherwise involved in various lawsuits, claims, investigations and legal proceedings that arise out of or are incidental to the conduct of our business (collectively, “Legal Matters”), including those relating to employment matters, patent rights, regulatory compliance matters, stockholder claims, and contractual and other commercial disputes.

Legal Matters

From time to time, the Company is subject to or otherwise involved in various lawsuits, claims, investigations and legal proceedings that arise out of or are incidental to the conduct of our business (collectively, “Legal Matters”), including those relating to employment matters, patent rights, regulatory compliance matters, stockholder claims, and contractual and other commercial disputes.

Such Legal Matters, even if not meritorious, could result in the expenditure of significant financial and managerial resources.

Additionally, an unfavorable outcome in a legal matter, including in a patent dispute, could require the Company to pay damages, entitle claimants to other relief, such as royalties, or could prevent the Company from selling some of its products in certain jurisdictions.

At this time, we are unable to predict the outcome of or estimate the possible loss or range of loss, if any, associated with such legal matters.

At this time, the Company is unable to predict the outcome of or estimate the possible loss or range of loss, if any, associated with such legal matters.

Adtran Networks Legal Matter

On May 8, 2023, Adtran Networks SE and its subsidiary, ADVA Optical Networking North America, Inc.

(together, “Adtran Networks”), filed a lawsuit in the U.S District Court for the Eastern District of Texas (“EDTX”) against Huawei Technologies Co.

Ltd (“Huawei”) seeking a declaration from the court that Huawei violated its commitments to negotiate in good faith and to license standard essential patents (“SEPs”), to the extent any SEPs are practiced by Adtran Networks, on Fair, Reasonable and Non-Discriminatory (“FRAND”) terms and conditions.

The case also sought to obtain a ruling by the EDTX that Adtran Networks has complied with its own commitments and requested that the Court establish FRAND terms and conditions for obtaining a FRAND license on any SEPs to the extent they are practiced by Adtran Networks.

The lawsuit further sought to enjoin Huawei from enforcing certain Huawei patents that Adtran Networks considers invalid and/or not practiced, and Adtran Networks alleged that Huawei had infringed upon an Adtran Networks patent.

On July 20, 2023, Adtran Networks SE was served with a complaint filed by Huawei against Adtran Networks SE in the District Court München I, Germany, alleging that certain of its products infringe upon one of Huawei’s patents.

On August 22, 2023, Adtran Networks entered into a settlement agreement with Huawei pursuant to which the parties agreed to, among other things, dismiss the lawsuits described above.

DPLTA Exit and Recurring Compensation Costs

The guaranteed interest under the Exit Compensation is calculated from the effective date of the DPLTA to the date the shares are tendered, less any Annual Recurring Compensation paid.

The guaranteed interest rate is 5.0 % plus a variable component (according to the German Civil Code) that was 3.12 % as of September 30, 2023.

Shareholders electing the first option of Annual Recurring Compensation may later elect the second option.

The opportunity for outside Adtran Networks shareholders to tender Adtran Networks shares in exchange for Exit Compensation had been scheduled to expire on March 16, 2023 .

Our obligation to pay Annual Recurring Compensation under the DPLTA is a continuing payment obligation, which will amount to approximately € 10.6 million or $ 11.2 million (based on the current exchange rate) per year assuming none of the minority Adtran Networks shareholders were to elect Exit Compensation.

The foregoing amounts do not reflect any potential increase in payment obligations that we may have depending on the outcome of ongoing appraisal proceedings in Germany.

For the three and nine months ended September 30, 2023 , less than 1 thousand shares and 64 thousand shares, respectively, of Adtran Networks stock was tendered to the Company and Exit Compensation payments of approximately € 8 thousand and € 1.1 million, respectively, or appro ximately $ 9 thousand and $ 1.2 million, respectively, based on an exchange rate as of September 30, 2023, were paid to Adtran Networks shareholders.

Performance Bonds

C ertain contracts, customers and jurisdictions in which we do business require us to provide various guarantees of performance such as bid bonds, performance bonds and customs bonds.

Certain contracts, customers and jurisdictions in which we do business require us to provide various guarantees of performance such as bid bonds, performance bonds and customs bonds.

As of September 30, 2023 and December 31, 2022, we had commitments related to these bonds totaling $ 11.8 million and $ 22.0 million, respectively, which expire at various dates through April 2031 .

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Purchase Commitments

We purchase components from a variety of suppliers and use contract manufacturers to provide manufacturing services for our products.

The Company purchases components from a variety of suppliers and use contract manufacturers to provide manufacturing services for our products.

Our inventory purchase commitments are for short-term product manufacturing requirements, as well as for commitments to suppliers to secure manufacturing capacity.

1 unchanged sentence

As of September 30, 2023, purchase commitments totaled $ 308.4 million.

Investment Commitment

We have committed to invest up to an aggregate of $ 5.0 million in a private equity fund, of which $ 4.9 million has been invested as of September 30, 2022 .

RESTRUCTURING

During the fourth quarter of 2022, the Company initiated a restructuring program designed to optimize the assets and business processes, and information technology systems of the Company in relation to the Business Combination with Adtran Networks.

The restructuring program is expected to maximize cost synergies by realizing operation scale, combining sales channels, streamlining corporate and general and administrative functions, including human capital resources and combining sourcing and production costs.

This restructuring program is expected to be completed in late 2024.

In February 2019, the Company announced the restructuring of a certain portion of its workforce predominantly in Germany, which included the closure of a subsidiary's office location in Munich, Germany accompanied by relocation or severance benefits for the affected employees.

Voluntary early retirement was offered to certain other employees and was announced in March 2019 and again in August 2020.

This plan was completed in 2021 and all amounts were paid in 2022.

During the three and nine months ended September 30, 2023, we recognized a certain write down of inventory of $ 21.0 million due to a restructuring discontinuation of certain product lines within our Network Solutions segment.

There was no write down of inventory during the three and nine months ended September 30, 2022.

See Note 7, Inventory, for additional information regarding the write down of inventory.

A reconciliation of the beginning and ending restructuring liabilities, which is included in accrued wages and benefits in the Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022, is as follows:

Three Months Ended

Nine Months Ended

(In thousands)

September 30, 2023

Balance at beginning of period

Amounts charged to cost and expense

Balance as of September 30, 2023

For the Year Ended

(In thousands)

December 31, 2022

Balance as of December 31, 2021

Amounts charged to cost and expense

Balance as of December 31, 2022

Restructuring expenses included in the Condensed Consolidated Statements of Loss are for the three and nine months ended September 30, 2023 and 2022:

Three Months Ended

Nine Months Ended

September 30,

(In thousands)

Network Solutions - Cost of revenue

Network Solutions - Inventory write down

Services & Support - Cost of revenue

Cost of revenue

Selling, general and administrative expenses

Research and development expenses

Total restructuring expenses

The following table represents the components of restructuring expenses by geographic area for the three and nine months ended September 30, 2023 and 2022:

Three Months Ended

Nine Months Ended

September 30,

(In thousands)

United States

International

Total restructuring expenses

SUBSEQUENT EVENTS

Dividend Approval

On November 7, 2022, the Company announced that its Board of Directors declared a quarterly cash dividend of $ 0.09 per common share to be paid to the Company’s stockholders of record as of the close of business on November 22, 2022.

The payment date will be December 6, 2022 in the aggregate amount of approximately $ 7.0 million.

Assumed ADVA Options

Pursuant to the Business Combination which closed on July 15, 2022 , ADVA stock option holders were entitled to have their ADVA stock options assumed by ADTRAN Holdings, Inc.

(applying the exchange ratio in the Business Combination Agreement), thereafter representing options to acquire stock of ADTRAN Holdings, Inc.

The period in which such options could be assumed ended July 22, 2022.

However, that period was subsequently extended and a total of 0.1 million shares of ADTRAN Holdings, Inc.

stock are subject to additional assumed ADVA options.

The fair value of the stock options assumed by ADTRAN Holdings, Inc.

will be estimated using a Black-Scholes model.

The valuation of this component of consideration is not yet complete.

Approval of Proposed Domination and Profit and Loss Transfer Agreement

On October 18, 2022, the Board of Directors of the Company and the management board of ADVA, agreed on a final draft of a domination and profit and loss transfer agreement (the “DPLTA”) between the Company, as the controlling company, and ADVA, as the controlled company.

The parties’

execution of the DPLTA remains subject to the approval of the DPLTA by shareholders of ADVA with 75 % of the votes cast in an extraordinary general meeting, which is scheduled to be held on November 30, 2022.

The Company currently holds 33,957,538 shares of ADVA, representing 65.35 % of ADVA’s outstanding shares as of September 30, 2022.

Subject to the approval of the DPLTA shareholders and the subsequent registration of the DPLTA with the commercial register of the local court at ADVA’s registered offices, the Company will offer, at the election of each shareholder of ADVA (other than the Company), (i) to acquire the shares of such shareholder for a compensation ( Abfindung ) of EUR 17.21 per share pursuant to Sec.

305 German Stock Corporation Akt ( Aktiengesetz, “AktG”), or (ii) to pay such shareholder a fixed annual recurring compensation payment ( Ausgleichszahlung ) pursuant to Sec.

304 AktG in an amount of EUR 0.59 (EUR 0.52 net under the current taxation regime), subject to adjustment prior to execution of the DPLTA due to changes in interest rates and borrowing costs prior to November 30, 2022, which is the reference date for the valuation of ADVA shares ("Annual Recurring Compensation").

The amount of the Annual Recurring Compensation payment of EUR 0.59 (EUR 0.52 net) is determined on the basis of a rounded annuity interest rate ( Verrentungszinssatz ) of 3.00 % and still subject to an adjustment in case of a change of interest rates and borrowing costs prior to November 30, 2022 which is the reference date for the valuation.

An increase of borrowing costs could lead to an increase of the Annual Recurring Compensation payment.

The potential increase ranges from EUR 0.62 (EUR 0.54 net), if the annuity interest rate is increased by 25 basis points to 3.25 %, up to an Annual Recurring Compensation payment at the amount of EUR 1.00 (EUR 0.87 net), if the annuity interest rate is increased by 250 basis points to 5.50 %.

Board Approval Purchase of ADVA Common Stock

On October 18, 2022, the Company's Board of Directors authorized the Company to purchase additional shares of ADVA through open market purchases not to exceed 15,346,544 shares.

Foreign Currency Hedging Agreement

On November 3, 2022, the Company entered into a Euro/U.S.

dollar cross-currency swap arrangement (the “Swap”) with Wells Fargo Bank, N.A.

(the “Hedge Counterparty”).

The Swap, which is governed by the provisions of an ISDA Master Agreement (including schedules thereto and transaction confirmations that supplement such agreement) entered into between the Company and the Hedge Counterparty, enable the Company to convert a portion of its Euro denominated payment obligations under the proposed DPLTA into U.S.

Under the Swap, the Company will exchange an aggregate notional amount of $ 160.0 million U.S.

dollars for Euros at a daily fixed forward rate ranging from $ 0.98286 to $ 1.03290 .

The aggregate amount of $ 160.0 million will be divided into eight quarterly tranches of $ 20.0 million.

The Company, at its sole discretion, may exchange all or part of each tranche on any given day within the applicable quarter;

provided, however, that it must exchange the full tranche by the end of such quarter.

The Swap may be accelerated or terminated early for a number of reasons, including but not limited to (i) non-payment by the Company or the Hedge Counterparty, (ii) breach of representation or warranty or covenant by either party or (iii) insolvency or bankruptcy of either party.

Dividend Suspension

On November 6, 2023, the Board of Directors suspended the Company’s quarterly cash dividend which will be redirected to reduce debt and interest expense and support the Company's capital efficiency program.

The payment of any future dividends will be at the discretion of the Board of Directors and will depend on the Company’s financial condition, results of operations, capital requirements, and any other factors deemed relevant by the Board of Directors.

Business Efficiency Program

On November 6, 2023, due to the uncertainty around the current macroeconomic environment and its impact on customer spending levels, the Company’s management determined to implement a comprehensive business efficiency program, which includes (i) a cost efficiency program targeting the reduction of ongoing operating expenses, and (ii) a capital efficiency program, which includes a site consolidation plan exploring the partial sale of owned real estate and the suspension of the quarterly dividend.

See Part II, Item 5 (a) of this report for additional information regarding the business efficiency program.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q/A

Item 1. Financial Statements