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Item 4. Controls and Procedures

2024-03-15 compared with 2023-08-14 · 490 added, 18 removed, 7 unchanged (99% of the section changed)

1 unchanged sentence

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that the information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized, and reported within the time periods specified in the rules and forms promulgated by the SEC, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

We maintain disclosure controls and procedures that are designed to ensure that the information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the rules and forms promulgated by the SEC, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As of the end of the period covered by this report, an evaluation was carried out by management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) under the Exchange Act.

At the time of the Original Filing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2022.

Subsequent to that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, due to the material weakness in our internal control over financial reporting described below, our disclosure controls and procedures were not effective as of September 30, 2022.

Material Weakness in Internal Control over Financial Reporting

At the time of the filing of the Original Filing, our Chief Executive Officer and Chief Financial Officer concluded that, due to the material weakness in our internal control over financial reporting relating to the presentation and disclosure of debt agreements described below, our disclosure controls and procedures were not effective as of September 30, 2023.

Subsequent to that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, due to the material weaknesses in our internal control over financial reporting described below, our disclosure controls and procedures were not effective as of September 30, 2023.

Material Weaknesses in Internal Control over Financial Reporting

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

We identified that we did not design and maintain effective controls over the presentation and disclosure of debt agreements, specifically to ensure the presentation and disclosure reflect the terms of the agreements.

This material weakness resulted in the restatement of our consolidated financial statements for the year ended December 31, 2022, as well as the condensed consolidated financial statements for the three and nine months ended September 30, 2022 and for the three months ended March 31, 2023.

Additionally, this material weakness could result in misstatements of the accounts or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected, including the misstatements that required the filing of this Amendment No.

Management’s Remediation Efforts

To remediate the material weakness in the Company’s internal control over financial reporting, the Company plans to initiate a remediation plan that includes implementing a new control over the review of new or amendments to our agreements for terms and conditions that impact the presentation or disclosure of debt.

We believe that the foregoing actions will support the improvement of the Company’s internal control over financial reporting, and, through our efforts to identify, design, and implement the necessary control activities, will be effective in remediating the material weakness described above.

In the Part I, Item 4, "Controls and Procedures - Material Weakness in Internal Control over Financial Reporting" of the Original Filing of the Form 10-Q for the three-month period ended September 30, 2023, we identified that we did not design and maintain effective controls over the presentation and disclosure of debt agreements, specifically to ensure the presentation and disclosure reflect the terms of the agreements.

In the Part I, Item 4, "Controls and Procedures - Material Weaknesses in Internal Control over Financial Reporting" of this Amendment No.

1, we have subsequently identified the following additional material weaknesses:

• The Company did not design and maintain effective controls in response to the risks of material misstatement.

Specifically, changes to existing controls or the implementation of new controls have not been sufficient to respond to changes to the risks of material misstatement to financial reporting.

This material weakness contributed to the following additional material weaknesses:

• The Company did not design and maintain effective controls over financial statement preparation, presentation and disclosure commensurate with its financial reporting requirements.

Specifically, the Company did not design and maintain effective controls over the presentation and disclosure of transactions, including (i) non-controlling interest and (ii) debt agreements to ensure the presentation and disclosure reflect the terms of the agreements.

• The Company did not design and maintain effective controls to address the initial application of complex accounting standards and accounting of non-routine, unusual or complex events and transactions.

Specifically, the Company did not design and maintain effective controls to timely analyze and account for non-controlling interest.

The material weaknesses resulted in the restatements and revisions of and immaterial adjustments to our consolidated financial statements for the year ended December 31, 2022, as well as the condensed consolidated financial statements for the quarterly and year-to-date periods ended September 30, 2022, March 31, 2023, June 30, 2023 and September 30, 2023.

Additionally, these material weaknesses could result in misstatements of the Company's accounts or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected, including the misstatements that required the filing of this Amendment No.

Management’s Remediation Efforts

To remediate the material weakness in our internal control over financial reporting with respect to the presentation and disclosure of debt agreements, during the three months ended September 30, 2023, our management implemented a new control over the review of new or amendments to our agreements for terms and conditions that impact the presentation or disclosure of debt.

We believe that the foregoing actions will support the improvement of the Company's internal control over financial reporting and, through our efforts to identify, design and implement the necessary control activities, will be effective in remediating certain of the material weaknesses described above.

To remediate the material weaknesses in the Company’s internal control over financial reporting related to the risks of material misstatement, including financial statement preparation, presentation and disclosure of transactions, and the non-controlling interest, the Company plans to initiate a remediation plan that includes designing and implementing new or enhanced controls over the review of our consolidated financial statements and identification and assessment of risks of material misstatement.

We believe that the foregoing

actions will support the improvement of the Company’s internal control over financial reporting, and, through our efforts to identify, design, and implement the necessary control activities, will be effective in remediating such material weaknesses.

To remediate the material weakness in the Company’s internal control over financial reporting related to the accounting of non-routine, unusual or complex events and transactions for non-controlling interest, the Company plans to initiate a remediation plan that includes designing and implementing new controls over the identification and review of contracts, transactions or arrangements that may result in a financial obligation including the use of an accounting specialist as needed to ensure proper presentation of these items within our financial statements.

We will continue to devote significant time and attention to these remediation efforts.

As we continue to evaluate and work to improve our internal control over financial reporting, management may determine to take additional measures to address the material weakness or determine to modify the remediation plan described above.

Until the remediation steps set forth above, including the efforts to implement the necessary control activities that we identify, are fully completed, and there has been time for us to conclude through testing that the control activities are operating effectively, the material weakness described above will not be considered remediated.

As we continue to evaluate and work to improve our internal control over financial reporting, management may determine to take additional measures to address the material weaknesses or determine to modify the remediation plans described above.

Until the remediation steps set forth above, including the efforts to implement the necessary control activities that we identify, are fully completed, and there has been time for us to conclude through testing that the control activities are operating effectively, the material weaknesses described above will not be considered remediated.

Changes in Internal Control over Financial Reporting.

On July 15, 2022, the Company acquired 33,957,538 bearer shares of ADVA, or 65.43% of ADVA’s outstanding bearer shares as of such date, as further described in Note 2 of the Notes to the Condensed Consolidated Financial Statements.

At September 30, 2022, ADVA’s assets represented approximately 46.9% of our consolidated assets.

For the three and nine months ended September 30, 2022, ADVA’s revenues represented approximately 48.1% and 24.6% of our consolidated revenues, respectively, and loss before income taxes represented approximately 39.5% and 39.9% of our consolidated loss before income taxes, respectively.

As permitted by SEC guidance, we currently exclude ADVA in our evaluation of internal control over financial reporting and related disclosure controls and procedures for the first year after the Business Combination.

However, we are in the process of extending our oversight and monitoring processes that support our internal control over financial reporting and disclosure controls and procedures to include ADVA’s operations.

There were no changes in the Company’s internal control over financial reporting that occurred during the quarter ended September 30, 2022 that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

We have extended our oversight and monitoring processes that support our internal control over financial reporting and disclosure controls and procedures to include Adtran Networks operations.

Other than the extension of our oversight and monitoring processes to include Adtran Networks operations and the ongoing remediation efforts related to the material weaknesses described above, there were no other changes in the Company’s internal control over financial reporting that occurred during the most recent fiscal quarter covered by this report that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

OTHER INFORMATION

RI SK FACTORS

A list of factors that could materially affect our business, financial condition or operating results is described in Part I, Item 1A, “Risk Factors” in the 2022 Form 10-K/A.

There have been no material changes to our risk factors from those disclosed in Part I, Item 1A, “Risk Factors” in the 2022 Form 10-K/A other than as described in the risk factors below.

Risks related to the Business Combination and DPLTA

We may fail to realize the anticipated strategic and financial benefits sought from the Business Combination.

We may not realize all of the anticipated benefits of the Business Combination.

The success of the Business Combination will depend on, among other things, our ability to combine our business with Adtran Networks business in a manner that facilitates growth as a provider of fiber networking solutions and realizes anticipated cost savings.

We believe that the Business Combination provides an opportunity for revenue growth in optical transport solutions, fiber access solutions and subscriber solutions.

Additionally, our ability to realize anticipated benefits of the Business Combination has been and may continue to be affected by a number of factors, including:

the need for greater than expected cash or other financial resources or management time in order to integrate Adtran Networks;

and increases in other expenses related to the Business Combination, including restructuring and other exit costs.

In addition, our ability to realize anticipated benefits of the Business Combination may be affected by the following other factors in the future, including:

the impact of appraisal proceedings in connection with the DPLTA, unanticipated liabilities associated with the Business Combination, difficulties in employee or management integration, the timing and impact of purchase accounting adjustments;

and accounting for conversion of IFRS results to U.S.

GAAP results.

Any potential cost-saving opportunities may take several years following the Business Combination to implement, and any results of these actions may not be realized for several years thereafter, if at all.

However, we are working to combine the business in a manner that permits these anticipated benefits to be realized.

In response to a decrease in our revenue and operating margins during 2023 as a result of customers’ focus on reducing inventory levels and managing capital expense, we are realizing planned reductions in our operating expenses through the implementation of a business efficiency program;

however, we may not be successful in fully realizing these reductions.

If we are not able to effectively provide different solutions and successfully achieve the growth and cost savings objectives, the anticipated benefits of the Business Combination may not be realized fully, or at all, or may take longer to realize than expected.

We have incurred and expect to continue to incur significant costs in connection with the Business Combination and post-closing integration and restructuring efforts.

We have incurred and expect to continue to incur a number of significant non-recurring implementation and restructuring costs associated with combining the operations of ADTRAN and Adtran Networks.

In addition, we have incurred significant banking, legal, accounting and other transaction fees and costs related to the Business Combination.

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

We expect to incur additional restructuring costs and such costs are expected to be material.

During the three and nine months ended September 30, 2023, we recognized $24.9 million and $33.2 million of restructuring costs relating to the Business Combination.

We expect to incur additional integration costs, as well costs associated with the implementation of the DPLTA and such costs are expected to be material.

During the three and nine months ended September 30, 2023, we recognized $1.7 million and $3.1 million of integration costs related to the Business Combination, respectively.

To date cost savings and other efficiencies related to the integration of the businesses have not offset these transaction- and combination-related costs, and we may not be able to offset such costs in the near term, or at all.

In addition, the timeline in which cost savings are expected to be realized is lengthy and may not be achieved.

Failure to realize these synergies and cost reductions and other efficiencies in a timely manner or at all could have a material adverse effect on our business and cash flows, financial condition and results of operations.

We incurred a substantial amount of indebtedness in connection with the Business Combination and the DPLTA.

Our failure to meet our debt service obligations could have a material adverse effect on our business, financial condition and results of operations.

Upon the DPLTA becoming effective on January 16, 2023, the available total borrowings under the Wells Fargo Credit Agreement increased from $100.0 million to $400.0 million.

We further expanded our available borrowings under the credit facility to $450.0 million effective August 9, 2023.

On March 29, 2023, Adtran Networks entered into a $16.1 million unsecured revolving line of credit with Norddeutsche Landesbark - Girozentrale (Nord/LB) and retired the outstanding borrowings under their revolving line of credit with DZ bank.

As of September 30, 2023, the Company had incurred $200.0 million of indebtedness under the Wells Fargo Credit Agreement and Adtran Networks had borrowings of $10.6 million under the Nord/LB revolving line of credit.

S ee “Cash Requirements” in Item 2 of this report for additional information.

Our increased indebtedness has and may continue to adversely affect our operations and liquidity.

Our level of indebtedness:

• could make it more difficult for us to pay or refinance our debts as they become due during adverse economic and industry conditions because we may not have sufficient cash flows to make its scheduled debt payments;

• has caused us and may continue to cause us to use a larger portion of our cash flow to fund interest and principal payments, reducing the availability of cash to fund working capital, capital expenditures, research and development and other business activities;

• has contributed to our decision to suspend quarterly dividend payments to the Company's stockholders;

• could limit our ability to take advantage of significant business opportunities, such as acquisition opportunities, and to react to changes in market or industry conditions;

• could cause us to be more vulnerable to general adverse economic and industry conditions;

• could cause us to be disadvantaged compared to competitors with less leverage;

• could limit our ability to borrow additional money in the future to fund working capital, capital expenditures, research and development and other general corporate purposes.

Our ability to satisfy our debt obligations and renew the credit facility is dependent upon our future performance and other risk factors discussed in this section.

We cannot assure you that we will maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness.

If we fail to pay interest on, or repay, our borrowings under the Wells Fargo credit facility and Nord/LB revolving line of credit when required, we will be in default under the applicable loans, and may also suffer an event of default under the terms of other borrowing arrangements that we may enter into from time to time.

We are implementing planned reductions in our operating expenses in order to fund our obligations, and we may be forced to further reduce or delay capital expenditures, sell assets or operations, seek additional capital or restructure or refinance our indebtedness.

We cannot assure you that we would be able to take any of these actions, that these actions would be successful and permit us to meet our scheduled obligations or that these actions would be permitted under the terms of our future debt agreements.

If we fail to implement these reductions or are unable to achieve sufficient operating results and resources, we could face substantial liquidity challenges and might be required to dispose of material assets or operations to meet our debt service and other obligations.

We may not be able to consummate those dispositions or obtain sufficient proceeds from those dispositions to meet our debt service and other obligations when due.

Any of these events could have a material adverse effect on our business, results of operations and financial condition.

In addition, the credit agreement governing our indebtedness contains restrictive covenants that limit our ability to engage in activities that may be in our long-term best interest.

Our failure to comply with those covenants could result in an event of default that, if not cured or waived, could result in the acceleration of all its debt.

We may also incur additional long-term debt and working capital lines of credit to meet future financing needs, which would increase our total indebtedness.

Although the terms of its existing and future credit agreements and of the indentures governing its debt contain restrictions on the incurrence of additional debt, including secured debt, these restrictions are subject to a number of important exceptions and debt incurred in compliance with these restrictions could be substantial.

If we or our restricted subsidiaries incur significant additional debt, the related risks that we face could intensify.

The terms of the DPLTA may have a material adverse effect on our financial results and condition.

The DPLTA between the Company, as the controlling company, and Adtran Networks, as the controlled company, which was 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.

Additionally, and subject to certain limitations pursuant to applicable law and the specific terms of the DPLTA, the DPLTA provides that Adtran Networks shareholders (other than the Company) be offered, at their election, (i) to put their Adtran Networks shares to the Company in exchange for compensation in cash of €17.21 per share, plus guaranteed interest (the “Exit Compensation”), or (ii) to remain Adtran Networks shareholders and receive a recurring compensation in cash of €0.59 (€0.52 net under the current tax regime) per share for each full fiscal year of Adtran Networks (the “Annual Recurring Compensation”).

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, that is based on the interest rate according to the German Civil Code, which was 3.12% as of September 30, 2023.

The Annual Recurring Compensation is due on the third banking day following the ordinary general shareholders’ meeting of Adtran Networks for the respective preceding fiscal year (but in any event within eight months following expiration of the fiscal year) and is first granted for the 2023 fiscal year, payable for the first time after

the ordinary general shareholders’ meeting of Adtran Networks in 2024.

The adequacy of both forms of compensation has been challenged by minority shareholders of Adtran Networks via court-led appraisal proceedings under German law and it is possible that the courts in such appraisal proceedings may adjudicate a higher Exit Compensation or Annual Recurring Compensation (in each case, including interest thereon) than agreed upon in the DPLTA.

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, a total of 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.

Assuming all the minority holders of currently outstanding Adtran Networks shares were to elect the first 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.

In addition to our cash and cash equivalents and the credit facility, we may fund a portion or all of the Annual Recurring Compensation and Exit Compensation through the sale of securities or additional alternative funding sources, if available.

There can be no assurances that we would be successful in effecting these actions on commercially reasonable terms or at all.

If we cannot raise additional funds as needed, it could have a material adverse impact on our financial results and financial condition.

Additionally, the payment of the Annual Recurring Compensation and Exit Compensation could have a material adverse impact on our financial results and financial condition.

S ee “Liquidity and Capital Resources” in Item 2 of this report for additional information.

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 ).

The amount of this Annual Recurring Compensation payment obligation pursuant to the DPLTA could exceed the amount of dividends that otherwise might be distributed by Adtran Networks to minority shareholders and would even have to be paid if Adtran Networks' incurs losses, which could have a material adverse impact on our financial results and financial condition.

Risks related to our financial results and Company success

We have experienced significant fluctuations in revenue and such fluctuations may continue.

Fluctuations in revenue can cause our operating results in a given reporting period to be higher or lower than expected.

As a result of the many factors discussed in this report, our revenue for a particular quarter is difficult to predict and will fluctuate from quarter to quarter.

Typically, our customers request product delivery within a short period following our receipt of an order.

Consequently, we do not typically carry a significant order backlog and are dependent upon obtaining orders and completing delivery in accordance with shipping terms that are predominantly within each quarter to achieve our targeted revenue.

In recent years, the supply of semiconductor chips and other components of our products became constrained resulting in extended lead times and increased costs.

Transportation constraints, including shortages for both air and surface freight, as well as labor shortages in the transportation industry, have also affected the timing and the cost of obtaining raw materials and production supplies.

However, supply chain constraints have eased somewhat, which has led to reductions in cost premiums on raw material costs and surface freight.

If supply chain constraints and transportation constraints return, it could cause our net revenue and gross profit to decline or to grow at a slower rate.

Our deployment/installation cycle can also vary depending on the customer’s schedule, site readiness, network size and complexity and other factors, which can cause our revenue to fluctuate from period to period.

Our ability to meet financial expectations could also be affected if the variable revenue patterns seen in prior quarters recur in future quarters.

We have experienced periods of time during which manufacturing issues have delayed shipments, leading to variable shipping patterns.

In addition, to the extent that manufacturing issues and any related component shortages continue to result in delayed shipments in the future, and particularly in quarters in which we and our subcontractors are operating at higher levels of capacity, it is possible that revenue for a quarter could be adversely affected, and we may not be able to remediate the conditions within the same quarter.

In the past, under certain market conditions, long manufacturing lead times have caused our customers to place the same order multiple times.

When multiple ordering occurs, along with other factors, it may cause difficulty in predicting our revenue and, as a result, could impair our ability to manage inventory effectively.

We plan our operating expense levels based primarily on forecasted revenue levels.

On November 6, 2023, we implemented a comprehensive business efficiency program, which includes a significant cost efficiency program targeting a reduction of ongoing operating expenses, a capital efficiency program that includes a site consolidation plan that management expects to generate proceeds through the partial sale of owned real estate (including the potential sale of our headquarters), and the suspension of the quarterly dividend.

Our ability to successfully implement the business efficiency program and the time it takes to do so may be affected by factors such as the need to ensure continuity in our operations, contracts, regulations and/or statutes governing employee/employer relationships, and other factors.

We may not be able to successfully effectuate our business efficiency program or contain our expenses.

Our estimates of the expenses necessary to achieve the cost savings we have identified may not prove accurate, and any increase in such expenses may

affect our ability to achieve our anticipated cost savings within the period we have projected, or at all.

In addition, our efforts to reduce our operating expenses may impact our ability to generate sufficient revenue.

Furthermore, our expenses and the impact of long-term commitments are relatively fixed in the short term.

A shortfall in revenue has led and could again in the future lead to operating results being below expectations, partially due to an inability to quickly reduce these fixed expenses in response to short-term business changes.

Our customers in the subscriber solutions & experience technology category are increasingly focusing on working capital optimization and depletion of overstocked inventories, which has impacted and may continue to materially impact demand in that category.

The lengthy sales and approval process required by service providers for new products has resulted in fluctuations in our revenue and may result in future revenue fluctuations.

In the industry in which we compete, sales and approval cycles are often lengthy.

Selling efforts often involve a significant commitment of time and resources by us and our customers that may include extensive product testing, laboratory or network certification, or region-specific product certification and homologation requirements for deployment in networks.

Additionally, a supplier must first obtain product approval from a major or other service provider to sell its products to these service providers.

This process can last from six to eighteen months, or longer, depending on the technology, the service provider and the demand for the product from the service provider’s subscribers.

Consequently, we are involved in a constant process of submitting for approval succeeding generations of products, as well as products that deploy new technology or respond to new technology demands from a major or other service provider.

We have been successful in the past in obtaining these approvals;

however, we cannot be certain that we will obtain these approvals in the future or that sales of these products will continue to occur.

Any attempt by a major or other service provider to seek out additional or alternative suppliers, or to undertake, as permitted under applicable regulations, the production of these products internally, could have a material adverse effect on our operating results.

Furthermore, the delay in sales until the completion of the approval process, the length of which is difficult to predict, has and may continue to result in fluctuations of revenue and uneven operating results from quarter to quarter or year to year.

For example, we have seen a decrease in volume of sales activity due to customers’ focus on reducing inventory levels in our domestic ADTRAN, Inc.

operations, which has impacted and may continue to materially impact demand in that category.

Further, once customer approval or certifications are met, our supply chain customers typically do not guarantee us a minimum, or any, volume of sales.

We expect gross margins to continue to vary over time, and our levels of product and services gross margins may not be sustainable.

Our level of gross margins may not be sustainable and has been and may continue to be adversely affected by numerous factors, including:

• changes in customer, geographic or product or services mix, including software and the mix of configurations and professional services revenue within each product segment;

• mix of domestic versus international revenue;

• introduction of new products by competitors, including products with price-performance advantages;

• our ability to reduce product cost;

• increases in labor or material cost, including increases in material costs resulting from inflation or tariffs;

• foreign currency exchange rate movements;

• expediting costs incurred to meet customer delivery requirements;

• excess inventory and inventory holding charges;

• excess and obsolescence charges;

• changes in shipment volume;

• our ability to absorb fixed manufacturing costs during short-term fluctuations in customer demand;

• loss of cost savings due to changes in component pricing or charges incurred due to inventory holding periods if parts ordering does not correctly anticipate product demand;

• lower than expected benefits from value engineering;

• increased price competition, including competitors from Asia, specifically China;

• changes in distribution channels;

• increased warranty cost or quality issues;

• liquidated damages costs relating to customer contractual terms;

• our ability to manage the impact of foreign currency exchange rate fluctuations relating to our revenue or cost of revenue;

• slowdowns, recessions, economic instability (such as the instability in the financial services sector), political unrest, armed conflicts (such as the ongoing military conflict in Ukraine and in Israel and surrounding regions), or outbreaks of disease, such as the COVID-19 pandemic, around the world;

• an extended government shutdown resulting from budgetary decisions or other potential delays or changes in the government appropriations or other funding authorization processes;

• Business Combination purchase price allocations.

For example, throughout 2022, we incurred increased expenses resulting from supply chain disruptions, including delays in supply chain deliveries and the related global semi-conductor chip shortage, which lowered our gross margins and decreased our profitability.

These supply chain challenges and their adverse impact on our industry began to ease during the first nine months of 2023.

However, there can be no assurance that the ongoing disruptions due to the semiconductor chip shortage or other supply chain constraints or price increases will be fully resolved in the near term, which could continue to adversely affect our business, financial condition, and results of operations.

Managing our inventory is complex and has included and may continue to include write downs of excess or obsolete inventory.

Managing our inventory of components and finished products is complicated by a number of factors, including the need to maintain a significant inventory of certain components that are in short supply, that have been discontinued by the component manufacturer, that must be purchased in bulk to obtain favorable pricing or that require long lead times.

These issues have and may continue to result in our purchasing and maintaining significant amounts of inventory, which if not used or expected to be used based on anticipated production requirements, may become excess or obsolete.

Any excess or obsolete inventory could also result in sales price reductions and/or inventory write- downs, which could adversely affect our business and results of operations.

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

Significant and unanticipated changes in our business could require additional charges for inventory write downs in a future period.

Any future charges relating to such inventory write-downs could materially adversely affect our business, financial condition and results of operations in the periods recognized.

The continuing growth of our international operations has and may continue to expose us to additional risks, increase our costs and adversely affect our operating results, financial condition and cash flows.

We are expanding our presence in international markets, which represented 58.7% and 50.2% of our net revenue for the three months ended September 30, 2023 and 2022 and represented 59.3% and 43.9% of our net revenue for the nine months ended September 30, 2023 and 2022, respectively, and as a result, we have experienced increased revenue and operating costs in these markets.

This international expansion has increased and may continue to increase our operational risks and impact our results of operations, including:

• exposure to unfavorable foreign currency exchange rate volatility;

• exposure to unfavorable commercial terms in certain countries;

• the time and cost to staff and manage foreign operations, including the time and cost to maintain good relationships with employee associations and work councils;

• the time and cost to ensure adequate business interruption controls, processes and facilities;

• the time and cost to manage and evolve financial reporting systems, maintain effective financial disclosure controls and procedures, and comply with corporate governance requirements in multiple jurisdictions;

• the cost to collect accounts receivable and extension of collection periods;

• the cost and potential disruption of facilities transitions required in some business acquisitions;

• risks as a result of less regulation of patents or other safeguards of intellectual property in certain countries;

• the potential impact of adverse tax, customs regulations and transfer-pricing issues;

• exposure to increased price competition from additional competitors in some countries;

• exposure to global social, political and economic instability, changes in economic conditions and foreign currency exchange rate movements;

• potential exposure to liability or damage of reputation resulting from a higher incidence of corruption or unethical business practices in some countries;

• potential regulations on data protection, regarding the collection, use, disclosure and security of data;

• potential trade protection measures, export compliance issues, domestic preference procurement requirements, qualification to transact business and additional regulatory requirements;

• potential exposure to natural disasters, epidemics and pandemics (and government regulations in response thereto) and acts of war or terrorism;

• potential exposure to ongoing military conflicts, including the conflict in Ukraine and the conflict in Israel and its surrounding regions.

and certain other countries-imposed sanctions on Russia in connection with the conflict in Ukraine and could impose further sanctions against it, which could damage or disrupt international commerce and the global economy.

Other potential consequences of such military conflicts include, but are not limited to, a heightened risk of cyber-warfare, biological warfare or nuclear warfare, growth in the number of popular uprisings in the affected regions, increased political discontent, especially in the regions most affected by the conflicts or economic sanctions, continued displacement of persons to regions close to the areas of conflict and an increase in the number of refugees, among other unforeseen social and humanitarian effects which could impact our business, customers, and suppliers.

The terms of our and Adtran Networks credit agreements restrict our current and future operations, particularly our ability to respond to changes or to take certain actions.

Our Credit Agreement and Adtran Networks revolving line of credit with Nord/LB contain a number of restrictive covenants that impose significant operating and financial restrictions on us and/or our subsidiaries and they have and may continue to limit our ability to engage in acts that may be in our long-term best interest.

These restrictions include limitations on our and/or our subsidiaries' ability to:

• incur additional indebtedness and guarantee indebtedness;

• pay dividends or make other distributions or repurchase or redeem capital stock;

• prepay, redeem or repurchase certain debt;

• issue certain preferred stock or similar equity securities;

• make loans and investments;

• sell assets;

• incur liens;

• enter into transactions with affiliates;

• alter the businesses we conduct;

• consolidate, merge or sell all or substantially all of our assets.

In addition, the restrictive covenants in such credit facilities require us and/or our subsidiaries to maintain specified financial ratios and satisfy other financial condition tests.

Our ability to meet those financial ratios and tests can be affected by events beyond our control, and we may be unable to meet them.

A breach of the covenants or restrictions under such credit facilities could result in an event of default.

Such a default may allow the creditors to accelerate the related debt and may result in the acceleration of any other debt to which a cross-acceleration or cross-default provision applies.

In addition, an event of default under such credit facilities would permit the lenders to terminate all commitments to extend further credit under the applicable facility.

Furthermore, if we were unable to repay the amounts due and payable under such credit facilities, those lenders could proceed against the collateral granted them to secure that indebtedness.

In the event our lenders or note holders accelerate the repayment of our borrowings, we and our subsidiaries may not have sufficient assets to repay that indebtedness.

As a result of these restrictions, we may be:

• limited in how we conduct our business;

• unable to raise additional debt or equity financing to operate during general economic or business downturns;

• unable to compete effectively or to take advantage of new business opportunities.

These restrictions may affect our ability to grow in accordance with our strategy.

In addition, our financial results, our substantial indebtedness and our credit ratings could adversely affect the availability and terms of our financing.

We have recognized impairment charges related to goodwill and other intangible assets in the past and may be required to do so in the future.

The Business Combination added a significant amount of goodwill and other intangible assets to our consolidated balance sheets.

In accordance with U.S.

GAAP, management periodically assesses these assets to determine if they are impaired.

Significant negative industry or economic trends, disruptions to our business, the inability to effectively integrate acquired businesses, the under performance of our business as compared to management’s initial expectations, unexpected significant changes or planned changes in use of the assets, divestitures, and market capitalization declines may impair goodwill and other intangible assets.

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.

Any future charges relating to such impairments could have a material adverse effect our business, financial condition and results of operations in the periods recognized.

We require a significant amount of cash to service our indebtedness, our potential payment obligations to ADVA shareholders under the DPLTA, and other obligations.

Our ability to generate cash depends on many factors beyond our control and any failure to service our outstanding indebtedness could harm our business, financial condition and results of operations.

Furthermore, we have entered into a DPLTA with ADVA.

Additionally, pursuant to the terms of the DPLTA, each ADVA shareholder (other than the Company) has received an offer to elect either (1) to remain an ADVA shareholder and receive from us an Annual Recurring Compensation payment, or (2) to receive Exit Compensation.

Any failure to satisfy our payment obligations under the DPLTA could harm our business, financial condition and results of operations.

See “Risk Factors - The terms of the DPLTA may have a material adverse effect on our financial results and condition" in Part I, Item 1A of this report for additional information.

Our ability to make payments on and to refinance our indebtedness, to cover our payment obligations under the DPLTA, and to fund working capital needs and planned capital expenditures depends on our ability to generate cash in the future.

This, to a certain extent, is subject to general economic, financial, competitive, business, legislative, regulatory and other factors that are beyond our control.

We refinanced a portion of our indebtedness during the third quarter of 2023 in order to ensure our ability to cover our potential payment obligations under the DPLTA, suspended our dividend during the fourth quarter of 2023, and we are currently implementing planned reductions in our operating expenses.

Nevertheless, if our business does not generate sufficient cash flow from operations, we do not sufficiently reduce costs in a timely manner, or our future borrowings are not available to us in an amount sufficient to enable us and our subsidiaries to pay our indebtedness or to fund our other liquidity needs, we may need to raise additional debt or equity capital, refinance all or a portion of our indebtedness, sell assets, reduce or delay capital investments, any of which could have a material adverse effect on us.

In addition, we may not be able to effect any of these actions, if necessary, on commercially reasonable terms or at all.

Our ability to raise additional debt capital or to restructure or refinance our indebtedness will depend on the condition of the capital markets and our financial condition at such time.

Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations.

The terms of existing or future debt instruments or preferred stock may limit or prevent us from taking any of these actions.

In addition, any failure to make scheduled payments of interest and principal on our outstanding indebtedness or dividend payments on any future outstanding shares of preferred stock would likely result in a reduction of our credit rating, which could harm our ability to incur additional indebtedness or otherwise raise capital on commercially reasonable terms or at all.

Our inability to generate sufficient cash flow to satisfy our debt service, payment obligations to ADVA shareholders under the DPLTA, and other obligations, or to refinance or restructure our obligations on commercially reasonable terms or at all, would have an adverse effect, which could be material, on our business, financial condition and results of operations.

Furthermore, if we raise additional funds through the issuance of equity or securities convertible into equity, or undertake certain transactions intended to address our existing indebtedness, our existing stockholders could suffer dilution in their percentage ownership of the Company, or our leverage and outstanding indebtedness could increase.

Current capital market conditions, including the impact of inflation, have increased borrowing rates and can be expected to significantly increase our cost of capital as compared to prior periods should we seek additional funding.

We may be unable to successfully and effectively manage and integrate acquisitions, divestitures and other significant transactions, which could harm our operating results, business and prospects.

As part of our business strategy, we frequently engage in discussions with third parties regarding possible investments, acquisitions, strategic alliances, joint ventures, divestitures and outsourcing arrangements, and we enter into agreements relating to such transactions

in order to further our business objectives.

In order to pursue this strategy successfully, we must identify suitable candidates, successfully complete transactions, some of which may be large and complex, and manage post-closing issues such as the integration of acquired companies or employees and the divestiture of combined businesses, operations and employees.

Integration, divestiture and other risks of these transactions can be more pronounced in larger and more complicated transactions, or if multiple transactions are pursued simultaneously.

If we fail to identify and successfully complete transactions that further our strategic objectives, we may be required to expend resources to develop products and technology internally.

This may put us at a competitive disadvantage and we may be adversely affected by negative market perceptions, any of which may have a material adverse effect on our revenue, gross margin and profitability.

Integration and divestiture issues are complex, time-consuming and expensive and, without proper planning and implementation, could significantly disrupt our business.

The challenges involved in integrating and divesting include:

• combining service and product offerings and entering into new markets in which we are not experienced;

• convincing customers and distributors that any such transaction will not diminish client service standards or business focus, preventing customers and distributors from deferring purchasing decisions or switching to other suppliers or service providers (which could result in additional obligations to address customer uncertainty), and coordinating service, sales, marketing and distribution efforts;

• consolidating and rationalizing corporate information technology infrastructure, which may include multiple legacy systems from various acquisitions and integrating software code;

• minimizing the diversion of management attention from ongoing business concerns;

• persuading employees that business cultures are compatible, maintaining employee morale and retaining key employees, integrating employees into our company, correctly estimating employee benefit costs and implementing restructuring programs;

• coordinating and combining administrative, service, manufacturing, research and development and other operations, subsidiaries, facilities and relationships with third parties in accordance with local laws and other obligations while maintaining adequate standards, controls and procedures;

• our responsibility for the liabilities of the businesses we acquire, some of which we may not anticipate, including costs of third-party advisors to resolve disputes;

• achieving savings from supply chain and administration integration;

• efficiently divesting combined business operations which may cause increased costs as divested businesses are de-integrated from embedded systems and operations.

We evaluate and enter into these types of transactions on an ongoing basis.

We may not fully realize all of the anticipated benefits of any transaction and the time frame for achieving benefits of a transaction may depend partially upon the actions of employees, suppliers or other third parties.

In addition, the pricing and other terms of our contracts for these transactions require us to make estimates and assumptions at the time we enter into these contracts, and, during the course of our due diligence, we may not identify all of the factors necessary to estimate costs accurately.

Any increased or unexpected costs, unanticipated delays or failure to achieve contractual obligations could make these agreements less profitable or unprofitable.

Managing these types of transactions requires varying levels of management resources, which may divert our attention from other business operations.

These transactions could result in significant costs and expenses and charges to earnings, including those related to severance pay, early retirement costs, employee benefit costs, asset impairment charges, charges from the elimination of duplicative facilities and contracts, in-process research and development charges, inventory adjustments, assumed litigation, regulatory compliance and other liabilities, legal, accounting and financial advisory fees and required payments to executive officers and key employees under retention plans.

In the Business Combination with Adtran Networks, we have has incurred significant restructuring and integration costs and we expect to incur additional restructuring and integration costs and such costs are expected to be material.

Moreover, we could incur additional depreciation and amortization expense over the useful lives of certain assets acquired in connection with these transactions, and, to the extent that the value of goodwill or intangible assets with indefinite lives acquired in connection with a transaction becomes impaired, we may be required to incur additional material charges relating to the impairment of those assets.

For example, during the third quarter of 2023, we recognized a $37.9 million non-cash goodwill impairment charge related to the Business Combination with Adtran Networks.

In order to complete an acquisition, we may issue common shares, potentially creating dilution for existing shareholders, or borrow funds, which could affect our financial condition, results of operations and potentially our credit ratings.

Any prior or future downgrades in our credit rating associated with a transaction could adversely affect our ability to borrow and our borrowing cost, and result in more restrictive borrowing terms.

In addition, our effective tax rate on an ongoing basis is uncertain, and such transactions could impact our effective tax rate.

We also may experience risks relating to the challenges and costs of closing a transaction and the risk that an announced transaction may not close.

As a result, any completed, pending or future transactions may contribute to financial results that differ materially from the investment community’s expectations.

Risks related to our control environment

Breaches of our information systems and cyberattacks could compromise our intellectual property and cause significant damage to our business and reputation.

We maintain sensitive data on our information systems and the networks of third-party providers, including intellectual property, financial data and proprietary or confidential business information relating to our business, customers, suppliers, and business partners.

We also produce networking equipment solutions and software used by network operators to ensure security and reliability in their management and transmission of data.

Our customers, particularly those in regulated industries, are increasingly focused on the security features of our technology solutions.

Maintaining the security of information sensitive to us and our business partners is critical to our business and reputation.

We rely upon several internal business processes and information systems to support key operations and financial functions, and the efficient operation of these processes and systems is critical.

Companies are increasingly subjected to cyberattacks and other attempts to gain unauthorized access.

We have a comprehensive approach to cybersecurity, which includes prevention, detection, containment, and response.

Our layered defense approach encompasses proactive security monitoring of our global infrastructure by both internal solutions and multiple third-party Security Operation Centers.

Additionally, we routinely perform patch management, vulnerability scans, penetration tests and continuous monitoring across our entire enterprise.

Our security policy framework includes meaningful and enforceable Information Security policies and procedures.

The cybersecurity program is aligned with our mission and business objectives, reviewed periodically for improvements, and is supported by experienced and certified security professionals.

This is supplemented by an information security awareness program that spans our global workforce.

Despite this, our network and storage applications and those systems and applications maintained by our third-party providers may be targeted by cyberattacks or potentially breached due to operator error, fraudulent activity, or other system disruptions.

For example, a vulnerability named “Log4Shell” was reported for the widely used Java logging library, Apache Log4j 2 (“Log4j”), in December of 2021.

Although we did not identify indicators of compromise in response to the Log4j vulnerability, we cannot assure that future vulnerabilities or malware attacks will not be successful in breaching our system and in turn, have a material impact our business.

Furthermore, we, our employees and some of our third-party service providers have been, and anticipate continuing to be, the targets of various cyberthreats.

These include hacking attacks, social engineering schemes such as "phishing," and Business Email Compromise (BEC) attacks, wherein attackers impersonate company executives or colleagues in emails to trick employees into transferring funds or revealing sensitive information.

These events have not had a significant effect on our financial condition or operational results to date;

however, we cannot ensure that future cyberthreats will not have a material impact on our business.

Unauthorized access or disclosure of our information could compromise our intellectual property and expose sensitive business information.

Our information systems are designed to appropriate industry standards and resiliently engineered to reduce downtime in the event of power outages, weather or climate events and cybersecurity issues.

These risks, as well as the number and frequency of cybersecurity events globally, may also be heightened during times of geopolitical tension or instability between countries, including, for example, the ongoing military conflict in Ukraine and in Israel and its surrounding regions, from which a number of recent cybersecurity events have been alleged to have originated.

We carry cybersecurity insurance policies meant to limit our risk and exposure should one of these cybersecurity issues occur.

However, a significant failure of our systems due to these issues could result in significant remediation costs, disrupt business operations, and divert management attention, which could result in harm to our business reputation, operating results, financial condition, and cash flows.

As part of our due diligence and integration planning process, the Company’s cybersecurity team has conducted a review of Adtran Networks’ cybersecurity program.

Additionally, prior to integration of facilities, networks, or systems, the Company also engaged CrowdStrike, a global cybersecurity leader to conduct an enterprise-wide compromise assessment to determine if there were any targeted compromises by nation-state actors of the Adtran Networks information technology landscape.

The results from the CrowdStrike Compromise assessment indicated that there was no indication of compromise of the Adtran Networks information technology environment.

As part of the integration plan, the Company intends to expand its current cybersecurity program to cover all Adtran Networks’ global infrastructure and adopt any mature cybersecurity practices already in place.

A significant failure of our review and integration of Adtran Networks’ cybersecurity program could expose us to penalties for failing to comply with the EU's GDPR requirements, as well as result in significant remediation costs and a disruption to our operations.

We have had to restate our previously issued consolidated financial statements and, as part of that process, we identified material weaknesses in our internal control over financial reporting.

If we are unable to develop and maintain effective internal control over financial reporting, we may not be able to accurately report our financial results in a timely manner, which may adversely affect investor confidence in us and may adversely affect our business, financial condition and results of operations.

Effective internal control over financial reporting is necessary for us to provide reliable financial reporting and prevent fraud.

We have had to restate our previously issued consolidated financial statements and, as part of that process, have identified material weaknesses in our internal control over financial reporting.

We have implemented new controls with respect to one material weakness, and we continue to evaluate steps to remediate the other material weaknesses.

These remediation measures may be time consuming and costly, and there is no assurance that these initiatives will ultimately have the intended effects.

Any failure to maintain effective internal control over financial reporting could adversely impact our ability to report our financial position and results from operations on a timely and accurate basis.

If our financial statements are not accurate, investors may not have a complete understanding of our operations.

Likewise, if our financial statements are not filed on a timely basis, we could be subject to sanctions or investigations by the stock

exchange on which our common stock is listed, the SEC or other regulatory authorities.

In either case, there could be an adverse effect on our business, financial condition and results of operations.

Ineffective internal control over financial reporting could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our stock.

We can provide no assurance that the measures that we have taken, are taking and plan to take in the future will remediate the material weaknesses identified or that any additional material weaknesses or restatements of financial results will not arise in the future due to a failure to implement and maintain adequate internal control over financial reporting or circumvention of these controls.

In addition, even if we are successful in strengthening our controls and procedures, in the future those controls and procedures may not be adequate to prevent or identify irregularities or errors or to facilitate the fair presentation of our consolidated financial statements.

Furthermore, as a public company, we are required to comply with U.S.

GAAP, the Sarbanes-Oxley Act of 2002 ("SOX"), the Dodd-Frank Act and the rules and regulations subsequently implemented by the SEC and the Public Company Accounting Oversight Board.

As such, Adtran Networks, as a subsidiary of a public company, has established and is required to maintain effective disclosure controls as well as internal control over financial reporting under U.S.

Current and ongoing compliance efforts have and may continue to be costly and require the attention of management.

There are a large number of processes, policies, procedures and functions that have been integrated, or enhanced at Adtran Networks, particularly those related to the implementation of internal controls for SOX compliance.

The maintenance of these plans may lead to additional unanticipated costs and time delays.

These incremental costs may exceed the savings we expect to achieve from the realization of efficiencies related to the combination of the businesses, particularly in the near term and in the event there are material unanticipated costs.

We may face litigation and other risks as a result of the restatements of our previously issued consolidated financial statements, including the restatements restatement of certain financial statements in August 2023 and the restatements described in the "Explanatory Note" within this Amendment No.

1, and the material weaknesses in our internal control over financial reporting.

We had to restate our previously issued consolidated financial statements in August 2023 and March 2024 and, in connection with those restatements, we identified material weaknesses in our internal control over financial reporting, certain of which have continued as of the date hereof.

As part of the subsequent restatement described in the “Explanatory Note” within this Amendment No.

1, we identified additional material weaknesses in our internal control over financial reporting.

As a result of such material weaknesses, the restatements and other matters raised or that may in the future be raised by the SEC, we face potential for litigation or other disputes which may include, among others, claims invoking the federal and state securities laws, contractual claims or other claims arising from the restatements and the material weaknesses in our internal control over financial reporting and the preparation of our financial statements.

As of the date of this report, we have no knowledge of any such litigation or dispute.

However, we can provide no assurance that such litigation or dispute will not arise in the future.

Any such litigation or dispute, whether successful or not, could adversely affect our business, financial condition and results of operations.

Risks related to the telecommunications industry

We must continue to update and improve our products and develop new products to compete and to keep pace with improvements in communications technology.

The markets for our products are characterized by rapidly changing technology, evolving industry standards and continuing improvements in the communications service offerings of service providers.

If technologies or standards applicable to our products, or service provider offerings based on our products, become obsolete or fail to gain widespread commercial acceptance, our existing products or products under development may become obsolete or unmarketable, which can result in the discontinuation of products and write off of related inventory.

For example, during the quarter ended September 30, 2023, management determined that there would be a discontinuation of product lines in the Network solutions segment.

See Item 5, “Other Information” in Part II of this report for additional information.

Moreover, the introduction of products embodying new technologies, the emergence of new industry standards, or changes in service provider offerings could adversely affect our ability to sell our products.

For instance, we offer a large number of products that apply primarily to the delivery of high-speed digital communications over the local loop utilizing copper wire.

We compete favorably with our competitors by developing a high-performance line of these products.

We market products that apply to fiber optic transport in the local loop.

We expect, however, that use of coaxial cable and fixed and mobile wireless access in place of local loop access will increase.

Also, MSOs are increasing their presence in the local loop.

To meet the requirements of these new delivery systems and to maintain our market position, we expect to continue to develop new products and/or modify existing products.

We expect that the addition of fiber-based products focused on the cable MSO operators, using EPON and fixed wireless access solutions will better position us to benefit from spending in these adjacent markets.

Our revenue and profitability in the past have, to a significant extent, resulted from our ability to anticipate changes in technology, industry standards and service provider offerings, and to develop and introduce new and enhanced products.

Our continued ability to adapt will be a significant factor in maintaining or improving our competitive position and our prospects for growth.

We cannot assure that we will be able to respond effectively to changes in technology, industry standards, service provider offerings or new product announcements by our competitors.

We also cannot assure that we will be able to successfully develop and market new products or product enhancements, or that these products or enhancements will achieve market acceptance.

Any failure by us to continue to anticipate or respond in a cost-effective and timely manner to changes in technology, industry standards, service provider offerings or new product

announcements by our competitors, or any significant delays in product development or introduction, could have a material adverse effect on our ability to competitively market our products and on our revenue, results of operations, financial condition and cash flows.

Our failure to maintain rights to intellectual property used in our business could adversely affect the development, functionality and commercial value of our products.

Our future success depends in part upon our proprietary technology.

Although we attempt to protect our proprietary technology by contract, trademark, copyright and patent registration and internal security, including trade secret protection, these protections may not be adequate.

Furthermore, our competitors can develop similar technology independently without violating our proprietary rights.

From time to time, we receive and may continue to receive notices of claims alleging that we are infringing upon patents or other intellectual property.

Any of these claims, whether with or without merit, could result in significant legal fees, divert our management’s time, attention and resources, delay our product shipments or require us to enter into royalty or licensing agreements.

We cannot predict whether we will prevail in any claims or litigation over alleged infringements, or whether we will be able to license any valid and infringed patents, or other intellectual property, on commercially reasonable terms.

For example, 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.

If further claims of intellectual property infringement against us are successful and we fail to obtain a license or develop or license non-infringing technology, our business, operating results, financial condition and cash flows could be materially adversely affected.

We may incur liabilities or become subject to litigation that would have a material effect on our business.

In the ordinary course of business, we accept purchase orders, and enter into sales and other related contracts, for the marketing, sale, manufacture, distribution or use of our products and services.

We may incur liabilities relating to our performance under such agreements, or which result from damage claims arising from certain events as outlined within the particular contract.

While we attempt to include reasonable limitations of liability and other protective measures to all agreements, such agreements may not always contain, or be subject to, maximum loss clauses and liabilities arising from them may result in significant adverse changes to our results of operations, financial condition and cash flows.

In the ordinary course of business, we are subject to various legal proceedings and claims, including employment disputes, patent claims, disputes over contract agreements and other commercial disputes.

In some cases, claimants seek monetary recovery, or other relief, including damages such as royalty payments related to patents, lost profits or injunctive relief, which, if granted, could require significant expenditures.

For example, 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.

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.

Any such disputes may be resolved before trial, or if tried, may be resolved in our favor;

however, the cost of claims sustained in litigation, and costs associated with the litigation process, may not be covered by our insurance.

Such costs, and the demands on management time during such an event, could harm our business, reputation and have a material adverse effect on our liquidity, results of operations, financial condition and cash flows.

Risks related to the Company’s stock price

Our operating results historically have fluctuated and are likely to continue to fluctuate in future periods.

Such fluctuations can adversely affect our stock price.

Our operating results have been, and will continue to be, subject to quarterly and annual fluctuations as a result of numerous factors.

These factors include, but are not limited to:

• fluctuations in demand for our products and services, especially with respect to significant network expansion projects undertaken by service providers;

• continued growth of communications network traffic and the adoption of communication services and applications by enterprise and consumer end users;

• changes in sales and implementation cycles for our products and reduced visibility into our customers’ spending plans and associated revenue, especially should a slowdown in communications industry spending occur due to economic downturns, tight capital markets, or declining liquidity trends;

• reductions in demand for our traditional products as new technologies gain acceptance;

• our ability, and that of our distributors, to maintain appropriate inventory levels and related purchase commitments;

• price and product competition in the communications and networking industries, which can change rapidly due to technological innovation;

• the overall movement toward industry consolidation among both our competitors and our customers;

• our dependence on sales of our products by channel partners and the timing of their replenishment orders.

Specifically, our sales volume in 2023 has been negatively impacted due to our channel partners focus on reducing inventory levels;

• the potential for conflicts and competition involving our channel partners and large end-user customers and the potential for consolidation among our channel partners;

• variations in sales channels, product cost or mix of products and services sold;

• delays in receiving acceptance, as defined under contract, from certain customers for shipments or services performed near the end of a reporting period;

• our ability to maintain high levels of product support and professional services;

• manufacturing and customer order lead times, and potential restrictions in the supply of key components;

• fluctuations in our gross margin and the factors that contribute to this (as described above);

• our ability to achieve cost reductions;

• the ability of our customers, channel partners and suppliers to obtain financing or to fund capital expenditures;

• our ability to execute on our strategy and operating plans;

• benefits anticipated from our investments in engineering, sales and marketing activities;

• the effects of climate change and other natural events;

• the effect of political or economic conditions, including the effect of tariffs or so-called “trade wars” on us and our supply chain, acts of war, terrorist attacks or other unrest in certain international markets;

• the effect of escalating tensions between Israel and groups based in surrounding regions, as well as the military conflict in Ukraine.

and certain other countries imposed sanctions on Russia and could impose further sanctions against it, which could damage or disrupt international commerce and the global economy;

• changes in tax laws and regulations or accounting pronouncements.

Risks related to the regulatory environments in which we do business

Central Banks' monetary policy actions could increase our costs of borrowing money and negatively impact our financial condition and future operations.

Market interest rates are rising and are expected to continue to rise across the yield curve.

Depending on future inflation levels, the rise of nominal interest rates may produce a rise in real interest rates.

Higher interest rates resulting from tightening monetary policy are expected to increase credit costs and decrease credit availability.

Increases in interest rates could increase our costs of borrowing money under certain of our debt facilities with variable interest rates, which would negatively impact our financial condition and future operations.

We see an increased risk to our liquidity due to the current instability in the financial services industry which could negatively impact our financial condition and future operations.

This includes risk relating to our liquidity balances and investments, as well as risk relating to the financial stability of our customers and suppliers.

We seek to only enter into transactions with creditworthy banks and financial institutions.

To assess the creditworthiness of banks, we utilize current credit ratings from rating agencies, such as S&P, Moodyʼs and Fitch, as well as current default rates (credit default swaps).

We are also in frequent dialogue with customers and suppliers to assess counterparty risks.

Nevertheless, many of these transactions expose us to credit risk in the event of our counterparty’s default.

Any such losses could be material and could materially and adversely affect our business, financial condition and results of operations.

Further downgrades of the U.S.

credit rating, impending automatic spending cuts or a government shutdown could negatively impact our liquidity, financial condition and earnings.

debt ceiling and budget deficit concerns have increased the possibility of additional credit-rating downgrades and economic slowdowns, or a recession in the United States.

Although U.S.

lawmakers passed legislation to raise the federal debt ceiling on multiple occasions, including a suspension of the federal debt ceiling in June 2023, ratings agencies have lowered or threatened to lower the long-term sovereign credit rating on the United States.

The impact of this or any further downgrades to the U.S.

government’s sovereign credit rating or its perceived creditworthiness could adversely affect the U.S.

and global financial markets and economic conditions.

Absent further quantitative easing by the Federal Reserve, these developments could cause interest rates and borrowing costs to rise, which may negatively impact our ability to access the debt markets on favorable terms.

In addition, disagreement over the federal budget has caused the U.S.

federal government to shut down for periods of time.

Continued adverse political and economic conditions could have a material adverse effect on our business, financial condition and results of operations.

Effective June 8, 2023, ADVA Optical Networking SE, a subsidiary of the Company (“ADVA”), changed its name to Adtran Networks SE.

By operation of law, any reference to ADVA Optical Networking SE in these exhibits should be read as Adtran Networks SE as set forth in the Exhibit List below.

Amended and Restated Certificate of Incorporation of ADTRAN Holdings, Inc.

(incorporated by reference to Exhibit 3.1 to the Company's Form 8-K filed July 8, 2022)

Second Amended and Restated Bylaws of ADTRAN Holdings, Inc.

(incorporated by reference to Exhibit 3.1 to the Company's Form 8-K filed October 24, 2023)

Description of Securities (incorporated by reference to Exhibit 4.1 to the Company's Form 10-Q filed May 10, 2023)

First Amendment to Credit Agreement, dated August 9, 2023, by and between ADTRAN Holdings, Inc.

and Wells Fargo Bank, National Association (incorporated by reference to Exhibit 10.7 to the Company's Form 10-Q filed August 14, 2023).

ADTRAN Holdings, Inc.

Policy for the Recovery of Erroneously Awarded Incentive Based Compensation (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed October 24, 2023)

ADTRAN Holdings, Inc.

Amended and Restated Clawback Policy (incorporated by reference to Exhibit 10.2 to the Company's Form 8-K filed October 24, 2023)

Rule 13a-14(a)/15d-14(a) Certifications

Section 1350 Certifications

The following financial statements from the Company’s Quarterly Report on Form 10-Q/A for the quarter ended September 30, 2023, formatted in Inline XBRL:

(i) Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022;

(ii) Condensed Consolidated Statements of Loss for the three and nine months ended September 30, 2023 and 2022;

(iii) Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2023 and 2022;

(iv) Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended September 30, 2023 and 2022;

(v) Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022;

and (vi) Notes to Condensed Consolidated Financial Statements

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

* Filed herewith.

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

ADTRAN Holdings, Inc.

March 15, 2024

/s/ Ulrich Dopfer

Ulrich Dopfer

Chief Financial Officer

(Duly Authorized Officer and Principal Financial

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 4. Controls and Procedures