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Item 1. Business

2024-03-15 compared with 2023-03-01 · 558 added, 507 removed, 635 unchanged (63% of the section changed)

Company Overview

We are a leading global provider of open 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 traditional communication services 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 of people worldwide.

We are a leading global provider of networking and communications platforms, software, systems and services focused on the broadband access and optical networking market.

We are 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;

distributed enterprises, including Fortune 500 companies with sophisticated business continuity applications;

and federal, state and local government agencies.

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 also 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, research and development, and production facilities in strategic global locations.

In 2022, following the business combination (the “Business Combination”) with ADVA Optical Networking SE (“ADVA”), which included the Merger, we became the sole owner of and successor to ADTRAN, Inc.

and the majority shareholder of ADVA.

is a leading global provider of open, disaggregated networking and communications solutions that enable voice, data, video, and internet communications across any network infrastructure.

Its award-winning end-to-end fiber broadband solutions portfolio spans from OLTs to in-home services and intelligent SaaS solutions.

ADVA is a global provider of open networking solutions with over 25 years of experience in optical networking, carrier Ethernet access and network synchronization.

ADVA has led the industry for over two decades with open and secure networking solutions that carefully balance space, power and cost.

Together, we serve customers in a broad range of industries in over 100 countries.

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

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

We offer a broad portfolio of flexible software and hardware network solutions and services that enable network operators to meet today’s service demands while also 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, administrative, services and support and research and development facilities in strategic global locations.

The Company solely owns ADTRAN, Inc.

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

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.

We believe that the combined technology portfolio can best address current and future customer needs for high-speed connectivity from the network core to the end consumer, especially upon the convergence of solutions at the network edge.

We operate under two reportable segments:

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See below for a detailed discussion of these reportable segments and revenue categories.

We are focused on being a top global supplier of fiber-based communications infrastructure and SaaS applications spanning from the cloud edge (data center) to the subscriber edge (customer premise) serving both the residential and enterprise connectivity markets.

We are focused on being a top global supplier of fiber-based communications infrastructure and SaaS applications spanning from the network core to the cloud edge (data center) to the subscriber edge (customer premise) serving both the residential and enterprise connectivity markets including fiber-based infrastructure for mobile networks.

We offer a broad portfolio of flexible network infrastructure solutions, customer premises equipment, software applications, and global services and support that enable Service Providers to meet their service demands now and in the future.

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Our website is www.adtran.com.

No information contained on our website is intended to be included as part of, or incorporated by reference into, this report.

The information found on our website is not incorporated by reference in this report or any other report that we file or furnish to the SEC.

Domination and Profit and Loss Transfer Agreement

The DPLTA between the Company, as the controlling company, and ADVA Optical Networking SE, 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 ADVA (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 ADVA, (ii) ADVA 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 ADVA.

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

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

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

The Annual Recurring Compensation is due on the third banking day following the ordinary general shareholders’

meeting of ADVA 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 ADVA in 2024.

The adequacy of both forms of compensation have been challenged by minority shareholders of ADVA 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.

The opportunity for outside ADVA shareholders to tender ADVA 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 currently hold 33,961,170 no-par value bearer shares of ADVA, representing 65.30% of ADVA’s outstanding shares as of February 14, 2023.

The foregoing description of the DPLTA does not purport to be complete and is qualified in its entirety by reference to the DPLTA, a non-binding English translation of which incorporated by reference to Exhibit 10.5 of this Annual Report on Form 10-K.

During the year ended December 31, 2022, we recognized $14.2 million of transaction costs.

We expect to incur integration costs and costs associated with our performance under the DPLTA during 2023 and such costs are expected to be material.

The DPLTA between the Company, as the controlling company, and Adtran Networks, as the controlled company, was executed on December 1, 2022 in connection with the Company’s business combination with Adtran Networks, and became effective on January 16, 2023.

Pursuant to the DPLTA, the Company has effective control over Adtran Networks subject to the terms of DPLTA.

For more information on the DPLTA, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Adtran Networks Domination and Profit and Loss Transfer Agreement” in Part II, Item 7 of this report.

Reportable Segments

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Network Solutions Segment

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

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

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

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").

Our portfolio includes products for multi-gigabit service delivery over fiber or alternative media to homes and businesses.

We support traditional chassis-based network solutions, such as the Total Access 5000 and hiX 5600.

We also accelerate the industry’s transition to open, disaggregated fiber access solutions with our SDX Series.

Data streams are aggregated via our XG400 product family and synchronized by our Oscilloquartz offerings (“Access and Aggregation Solutions”).

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

Our customers can use our Mosaic and Ensemble software suites to manage and orchestrate our complete portfolio of subscriber solutions, access and aggregation solutions and optical networking solutions.

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

Services & Support Segment

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

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

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

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

By pairing our network solutions with our global services and support organization, customers can turn to us 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.

Revenue Categories

In addition to classifying our operations into two reportable segments, we report revenue across three categories of products and services:

(1) Subscriber Solutions, (2) Access & Aggregation Solutions and (3) Optical Networking Solutions.

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

In addition to operating under two reportable segments, we also report revenue across three categories – Subscriber Solutions, Access & Aggregation Solutions and Optical Networking Solutions.

Prior to the Business Combination with Adtran Networks on July 15, 2022, ADTRAN, Inc.

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 our former Access & Aggregation revenue is combined with a portion of the applicable ADVA solutions to create Access & Aggregation Solutions, our 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.

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.

Following the Business Combination with Adtran Networks, we recast these revenues such that ADTRAN, Inc.'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 was added as a revenue category 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 customers' premises while providing an immersive and interactive experience for residential, business and wholesale subscribers.

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

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• FSP 150-XG400-NIDs

AOE and ACI-E

Ensemble Controller

• Mosaic One SaaS applications

• Professional Services

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• Managed Services

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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The Access & Aggregation category includes the following products, software and services:

Optical Access:

Broadband products:

Optical Line Terminals ("OLTs"):

• Pluggable Optics

Optical Networking Terminals ("ONTs"):

• GPON-XGS-PON ONTs

Packet Aggregation:

• FSF 150-XG400 Aggregators

• SDX Aggregation

Copper Access

• Total Access FTTN

• Traditional Broadband

Aggregation products:

SDX Aggregation

FSP 150 XG400

Oscilloquartz:

• OSA AccessSync

• OSA Edge Sync

• AOE and ACI-E

• OSA CoreSync

• Mosaic One SaaS Applications

• Ensemble Controller

Ensemble Activator (Disaggregated NOS)

Synchronizations and Timing:

OSA CoreSync Cesium

OSA CoreSync GM/SSU

OSA EdgeSync+

OSA AccessSync

• Professional Services

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

Our solutions within this category includes open optical terminals, open line systems, optical subsystems and modules, network infrastructure assurance systems, and automation platforms that are used to build high-scale, secure and assured optical networks.

Our solutions within this category include open optical terminals, open line systems, optical subsystems and modules, network infrastructure assurance systems, and automation platforms that are used to build high-scale, secure and assured optical networks.

The Optical Networking Solutions category includes the following products, software and services:

Optical Transport:

Pluggable Optics

• FSP 3000 CC

• FSP 3000 R7

Optical Engines:

• AOE Coherent Pluggables

• AOE MicroMax

• AOE AccessWave

Infrastructure Monitoring:

• ALM Fiber Monitoring

• Ensemble Controller

• Professional Services

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• Managed Services

Active Line Moduling:

AOE and ACI-E

Ensemble Controller

Industry Overview

The global growth of cloud and mobility, home office and mobile working, industrial applications and 5G are accelerating the demand for more bandwidth, requiring more flexible provisioning of telecommunications services and more precise network synchronization.

Unprecedented levels of investment by communications service providers in their networks is being driven by the pursuit of growth in subscriber acquisition, retention, and average revenue per user, alongside the streamlining of operations to reduce operational costs and complexity, while lowering energy consumption and improving their overall ESG position.

Drivers facilitating this network investment cycle include the evolution of government funding programs, private equity infrastructure investment appetite, regulatory broadband policies, competition, merger obligations and ever-increasing subscriber demand for higher speed broadband.

Subscriber demand for greater bandwidth continues to increase as connectivity is being woven ever more tightly into the fabric of everyone’s day-to-day lives.

Increasing numbers of connected devices, shifting working arrangements, the transition of entertainment over to OTT video, along with the evolution of gaming towards subscription models where new hybrids of download and streaming are emerging globally.

This is further compounded with the prevalence of IoT and the increasing transition of applications over to cloud-based services and internet applications where recurring revenues replace one-time sales.

The global growth of the cloud and mobility, home office and mobile working, industrial applications and 5G are accelerating the demand for more bandwidth, requiring more flexible provisioning of telecommunications services and more precise network synchronization.

Communications Service Providers' investment in their networks is being driven by the pursuit of growth in subscriber acquisition, retention, and average revenue per user, as well as by the aims of streamlining operations, lowering energy consumption and improving their overall ESG position.

Drivers facilitating this network investment cycle include the evolution of government funding programs, private equity infrastructure investment appetite, regulatory broadband policies, competition and ever-increasing subscriber demand for higher-speed broadband.

Subscriber demand for greater bandwidth continues to increase as connectivity is being woven ever more tightly into the fabric of everyone’s day-to-day lives.

Specifically, subscriber demand for greater bandwidth is being driven by increasing numbers of connected devices, shifting working arrangements, the transition of entertainment over to OTT video, and the evolution of gaming platforms towards subscription models where new hybrids of download and streaming are emerging globally.

This is further compounded by the rapid adoption of AI, the prevalence of IoT and the increasing transition of applications over to cloud-based services and internet applications where recurring revenues replace one-time sales.

Performance and user satisfaction are directly related to bandwidth availability and service robustness.

As the demand for high-definition video and game streaming services, symmetric bandwidth for online collaboration, ever lower latency for interactive cloud applications and smart home video surveillance applications continue to increase, so too does the need for fiber-based broadband to every home, business and location of socioeconomic activity.

As the demand for high-definition video and game streaming services, symmetric bandwidth for online collaboration, lower latency for interactive AI and cloud applications and smart home video surveillance applications continue to increase, so too does the need increase for fiber-based broadband to be in every home and business.

In order to satisfy these complex requirements and deliver on the efficiency improvements demanded by operators, communications Service Providers are transitioning to full fiber access networks.

This transition has created an unprecedented market opportunity where the comprehensive replacement of copper and coaxial networks along with the equipment that enables broadband over them, opens what has historically been a stagnant market to an entirely new wave of fresh competition.

This new market entrance opportunity is further enhanced by shifts in the geopolitical landscape alongside architectural evolutions.

Several vendors that once dominated the European and other markets have found themselves classified on the high-risk vendor register where resistance is increasingly emerging about their use in national network infrastructures.

This further levels the playing field for the remaining vendor community.

In their pursuit of efficiency, operators are embracing new architectures, reflecting those used throughout the web scale industry by the hyper-scalers.

This is resulting in an additional inflection point where traditional access network equipment architectures are coming under increasing scrutiny about their longevity, efficiency and scalability.

We aim to serve as a trusted partner to our customers.

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Our solutions focus on technology transformations that are happening in broadband network infrastructure, home and business CPE and software platforms, and services needed to help our customers address increasing complexity while scaling to meet increasing consumer demands.

ADVA’s technology complements ADTRAN’s portfolio and significantly expands the solutions set we can offer to our customers, helping them in their quest to enable the rapidly advancing digitalization of ecosystems around the world.

Optical networking technology provides the scalable transmission capacity needed to handle bandwidth growth.

Cloud access solutions allow the flexible and fast deployment of new communication services including state-of-the-art edge computing solutions, and the synchronization technology ensures maximum performance in the network.

We aspire to be one of the top communication technology players in the world and the innovation leader around the converged edge, enabling the intelligent, self-optimizing, fiber-everywhere future.

We aspire to be one of the top communication technology players in the world and an innovation leader around the converged edge, enabling the intelligent, self-optimizing, fiber-everywhere future.

We plan to achieve this goal through innovation in network, home and business technology paired with a customer-focused organizational structure that tailors solutions to meet the needs of our target customers.

ADTRAN has one of the most comprehensive solutions portfolios that empowers operators to build a converged infrastructure from the metro core to the customer premise, serving all networking applications for residential, business, wholesale and mobile users.

We have one of the most comprehensive solutions portfolios that empowers operators to build a converged infrastructure from the metro core to the customer premise, serving all networking applications for residential, business, wholesale and mobile users.

We take an approach to our portfolio in which we are focused in specific markets where we can offer competitive differentiation and scale while also having enough diversity and breadth in the portfolio to provide end-to-end connectivity solutions that offer value to our customers.

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Science-based emissions targets, process-based product eco-design, optimization of operations, logistics and all packaging, circular-economy processes.

We have a diverse global customer base that includes Tier-1, -2 and -3 service providers, alternative service providers, such as utilities, municipalities and fiber overbuilders, cable/MSOs, SMBs and distributed enterprises.

Many network operators require product approval before the purchase or installation of a product.

The nature of our business involves a dynamic process of submitting new and succeeding generations of products for approval prior to orders being placed.

One service provider customer individually comprised more than 10% of our revenue in 2022.

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 decided to implement a business efficiency program (the “Business Efficiency Program”) targeting the reduction of ongoing operating expenses and focusing on capital efficiency inclusive of certain salary reductions, an early retirement program, a site consolidation plan to include lease impairments and the partial sale of owned real estate (including the potential sale of portions of our headquarters), inventory write downs from product discontinuances, and the suspension of the quarterly dividend.

The Business Efficiency Program expands upon other recently implemented restructuring efforts and synergy costs following the Business Combination.

For instance, on August 17, 2023, the Company’s management determined to discontinue its copper-based Digital Subscriber Line broadband access technology products and its fixed wireless access products in its Network Solutions segment.

Furthermore, on September 29, 2023, the Company’s management decided to exit the "IoT" gateway market (indoor and outdoor), a subset of the broader IoT market (together with the other product discontinuations, the “Discontinuations”).

Additionally, on October 25, 2023, all employees were informed of certain personnel measures, which included the reduction of salary for select management, a reduction of approximately 5% of the workforce, an early retirement program and a hiring freeze.

For additional information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Business Efficiency Program” in Part II, Item 7 of this report.

We have a diverse global customer base that includes large, medium and small Service Providers, alternative Service Providers, such as utilities, municipalities and fiber overbuilders;

SMBs and distributed enterprises.

During 2023, we had one customer who comprised greater than 10.0% of our revenue, which was an international Service Provider and our five largest customers comprised 37.0% of our revenue.

Additionally, our revenue in the U.S., U.K.

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The revenue from this Service Provider and these countries is reported in both our Network Solutions and Services & Support segments.

For a discussion of risks associated with customers, service providers and approval processes, see “Risk Factors –

The lengthy sales and approval process required by service providers for new products could result in fluctuations in our revenue,”

“Risk Factors –

We depend heavily on sales to certain customers;

the loss of any of these customers would significantly reduce our revenue and net income,”

in Part I, Item 1A of this report.

For a discussion of risks associated with customers, Service Providers and approval processes, see “Risk Factors – The lengthy sales and approval process required by Service Providers for new products could result in fluctuations in our revenue,” “Risk Factors – We depend heavily on sales to certain customers;

the loss of any of these customers would significantly reduce our revenue and net income,” in Part I, Item 1A of this report.

Distribution, Sales and Marketing

We sell our products through our direct sales organization and our distribution network.

Our direct sales organization supports major accounts and has offices in domestic and international locations.

Our direct sales organization supports major accounts and has offices in global locations.

Sales to most smaller and independent telephone companies are fulfilled through a combination of direct sales and distributors.

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Service Providers generally prefer having two or more suppliers for most products.

Therefore, individual orders are usually subject to competition based on some combination of total value, service, price, delivery and other terms.

Therefore, individual orders are usually subject to competitive combinations of total value, service, price, delivery and other terms.

Orders for end-user products are fulfilled through a combination of direct sales and distributors.

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During the years ended December 31, 2023, 2022 and 2021, research and development expenditures totaled $258.3 million, $173.8 million and $108.7 million, respectively.

We develop the majority of our products internally, and we also leverage partners for some solutions.

While we develop the majority of our products internally, we also leverage partners for some solutions.

Additionally, we license intellectual property or acquire technologies.

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This balanced approach ensures we provide best-in-class solutions for our customers.

As we continue to create more software-based intellectual property, such as our SDN/NFV portfolio, our use of lean agile practices in research and development ensures we remain responsive and customer-focused.

As we continue to create more software-based intellectual property, such as our SDN/Edge Cloud portfolio, our use of lean agile practices in research and development ensures we remain responsive and customer-focused.

This enables us to deliver products faster, at higher quality and more economically to our customers and the market on a continuous basis.

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Our product development efforts are often centered on entering a market with improved technology, enabling us to offer products at competitive prices and compete for market share.

In 2022, we again encountered supply chain disruptions and component shortages, which resulted in us re-engineering many of our products to work around component availability and end of life issues.

See Inventory included in Part I, Item 1 of this report for additional information regarding our supply chain disruptions.

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In addition, we focus on vertical optical technologies like Silicon Photonics, as well as microelectronics in order to differentiate and fully control the vertical value stack of our solutions.

In 2022, we released many market-leading products like additions to our SDX OLT range, new residential gateway and ONT families, outdoor packet demarcation devices, 100G packet demarcation, encryption/security products, 800G transport solutions and the unique Optical Cesium based atomic clocks.

Furthermore, we enhanced our SaaS delivery abilities and Mosaic One software.

In 2023, we released many market-leading products like additions to our SDX OLT range, new residential gateway and ONT families, outdoor packet demarcation devices, packet demarcation, encryption/security products, edge and core transport solutions.

We enhanced our market leading synchronization & timing portfolio, as well as our SaaS delivery abilities and Mosaic One software.

Our research function and advanced technology team is driving many specific research projects in the fields of sustainable optical transmission, security, quantum communications, SDN and access technologies.

It fosters differentiated product concepts and guides our various product design and engineering teams in IPR creation, industry and network standards and technological forecasting.

This research fosters differentiated product concepts and guides our various product design and engineering teams in IPR creation, industry and network standards and technological forecasting.

We are an active participant in several SDOs and have assisted with the development of worldwide standards in many technologies.

Our SDO activities are primarily in the area of broadband access, optical networking and synchronization.

Our SDO activities are primarily in the areas of broadband access, optical networking and synchronization.

This includes involvement with the ITU-T, ATIS, ETSI, ONF and the BBF.

We are involved in the evolution of optical access technologies on next-generation PON.

We also continue to be involved in driving optical networking, synchronization and SDN standardization and participate in industry-wide interoperability, performance-testing and system-level projects related to those standards in e.g.

We are also members of MEF, TIA, CableLabs and TIP.

For a discussion of risks associated with our research and development activities, see “Risk Factors –

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

and “Risk Factors –

We engage in research and development activities to develop new, innovative solutions and to improve the application of developed technologies, and as a consequence may miss certain market opportunities enjoyed by larger companies with substantially greater research and development effort and which may focus on more leading edge development,”

in Part I, Item 1A of this report.

For a discussion of risks associated with our research and development activities, see “Risk Factors – We must continue to update and improve our products and develop new products to compete and to keep pace with improvements in communications technology” and “Risk Factors – We engage in research and development activities to develop new, innovative solutions and to improve the application of developed technologies, and as a consequence may miss certain market opportunities enjoyed by larger companies with substantially greater research and development effort and which may focus on more leading edge development,” in Part I, Item 1A of this report.

Manufacturing and Operations

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We attempt to manage these risks through developing alternative sources, by staging inventories at strategic locations, through engineering efforts designed to prevent the necessity of certain components and by maintaining close contact and building long-term relationships with our suppliers.

With the current global supply chain and transportation constraints, and limited availability of semiconductor chips and other components of our products, we have experienced and may continue to experience extended lead times, increased logistics intervals and costs, and lower volume of products deliveries, which have and may continue to have a material adverse effect on our operating results and could have a material adverse effect on customer relations and our financial condition.

We believe these supply chain challenges and their adverse impact on our industry will continue to ease during 2023.

See Inventory included in Part I, Item 1 of this report for additional information.

We rely on subcontractors for assembly and testing of certain printed circuit board assemblies, sub-assemblies, chassis, enclosures and equipment shelves, and to purchase some of the raw materials used in such assemblies.

We rely on subcontractors for the assembly and testing of certain printed circuit board assemblies, sub-assemblies, chassis, enclosures and equipment shelves, and to purchase some of the raw materials used in such assemblies.

We typically manufacture our lower-volume, higher-mix products and build and test product prototypes and many of our initial production units at our manufacturing site in Huntsville, Alabama.

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We ship the majority of products to our U.S.

customers from our facilities in Huntsville, Alabama and Norcross, Georgia.

customers from our facilities in Huntsville, Alabama.

The majority of international customers are being served from our logistics hubs in Meiningen, Germany and York, United Kingdom.

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Our Huntsville, Alabama facilities and many of our key suppliers are C-TPAT certified.

Our products are also certified to certain other customer, industry and privacy standards, including those relating to emission of electromagnetic energy and safety specifications.

Our dependence on a limited number of suppliers for certain raw materials, key components and ODM products, combined with supply shortages, have prevented and may continue to prevent us from delivering our products on a timely basis, which has had and may continue to have a material adverse effect on operating results and could have a material adverse effect on customer relations.

For a discussion of risks associated with manufacturing activities, see “Risk Factors –

Our strategy of outsourcing a portion of our manufacturing requirements to subcontractors located in various international regions may result in us not meeting our cost, quality or performance standards”

and “Risk Factors –

in Part I, Item 1A of this report.

Our products are also certified to certain other customers' industry and privacy standards, including those relating to the emission of electromagnetic energy and safety specifications.

Our dependence on a limited number of suppliers for certain raw materials, key components and ODM products, has prevented and may in the future prevent us from delivering our products on a timely basis, which has had and may continue to have a material adverse effect on operating results and could have a material adverse effect on customer relations.

For a discussion of risks associated with manufacturing activities, see “Risk Factors – Our strategy of outsourcing a portion of our manufacturing requirements to subcontractors located in various international regions may result in us not meeting our cost, quality or performance standards” and “Risk Factors – Our dependence on a limited number of suppliers for certain raw materials, key components and ODM products, combined with supply shortages, have prevented and may continue to prevent us from delivering our products on a timely basis, which has had and may continue to have a material adverse effect on operating results and could have a material adverse effect on customer relations,” in Part I, Item 1A of this report.

We compete in markets for networking and communications services and solutions for Service Providers, businesses, government agencies and other organizations worldwide.

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We compete with a number of companies in the markets we serve.

In the Subscriber Solutions & Experience category, our primary competitors include Calix, Cisco, CommScope, Juniper Networks, Ribbon Communications.

In the Subscriber Solutions & Experience category, our primary competitors include Calix, Cisco, CommScope, and Ribbon Communications.

In our Access & Aggregation solutions category, key competitors include Calix, Casa Systems, Ciena, CommScope, DZS, Harmonic, Huawei, Nokia, Reliance/Radisys, Vecima Networks and ZTE.

Main competitors of our Optical Networking solutions portfolio are Ciena, Cisco, Ekinops, Huawei, Infinera, Nokia, Ribbon and ZTE.

Main competitors of our Optical Networking solutions portfolio are Ciena, Cisco, Ekinops, Huawei, Infinera, Nokia, Ribbon Communications and ZTE Corporation.

Across our markets and segments, the principal competitive factors can include, among others:

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• ability to innovate and provide customers with differentiated solutions, advantageous to their business model;

compelling technology roadmap and R&D power;

• compelling technology roadmap and research and development power;

• industry thought leadership and time to market with innovative solutions;

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• broad range of services and support capabilities.

For further discussion of risks associated with our competition, see “Risk Factors –

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

and “Risk Factors –

We compete in markets that have become increasingly competitive, which may result in reduced gross profit margins and market share,”

in Part I, Item 1A of this report.

For further discussion of risks associated with our competition, see “Risk Factors – We must continue to update and improve our products and develop new products to compete and to keep pace with improvements in communications technology” and “Risk Factors – We compete in markets that have become increasingly competitive, which may result in reduced gross profit margins and market share,” in Part I, Item 1A of this report.

We experience quarterly fluctuations in our revenue that occur due to many factors, including the varying budget cycles and seasonal buying patterns of our customers.

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Additionally, the effects of the dynamic supply and demand environment we have experienced in recent periods may impact the traditional seasonality in our business.

Due to the improved supply situation and the associated reduction in lead times, our customers began to optimize their inventories in the past fiscal year.

This has led to a slowdown in ordering behavior.

In addition, the current macroeconomic environment, related to continued elevated interest rates and ongoing inflationary pressures, has negatively impacted customer behavior in the Large and Medium/Small Service Provider segment.

We expect these trends to continue in 2024.

Foreign Currency

Transactions with customers that are denominated in foreign currencies are recorded using the appropriate exchange rates from throughout the year.

Assets and liabilities denominated in foreign currencies are remeasured at the balance sheet dates using the closing rates of exchange between those foreign currencies and the functional currency with any transaction gains or losses reported in other income (expense).

Our primary exposures to foreign currency exchange rate movements are with the euro and the British pound sterling.

Adjustments resulting from translating financial statements of international subsidiaries are recorded as a component of accumulated other comprehensive (loss) income.

A substantial portion of our shipments in any fiscal period relates to orders received and shipped within that fiscal period for customers under agreements containing non-binding purchase commitments.

Adjustments resulting from translating financial statements of international subsidiaries are recorded as a component of accumulated other comprehensive income.

A substantial portion of our shipments in any fiscal period relate to orders received and shipped within that fiscal period for customers under agreements containing non-binding purchase commitments.

Further, a significant percentage of orders require delivery within a few days.

However, with the current global supply chain and transportation constraints, and limited availability of semiconductor chips and other components of our products, we have experienced and may continue to experience extended lead times, increased logistics intervals and costs, and lower volume of products deliveries, which have had and may continue to have a material adverse effect on our operating results and could have a material adverse effect on our customer relations and our financial condition.

We have seen increased demand for our products due to the Business Combination with ADVA, increased volume of sales activity to service provider customers and as a result of customer strategies designed to mitigate supply constraints and assure access to needed products.

To meet this demand, we have enhanced and implemented supply chain management systems and processes to manage the materials planning and production processes.

We maintain substantial inventories of raw materials for long lead time components to support this demand and avoid expedite fees.

In the current environment, our raw material inventory has grown due to increased purchases in preparation for strategic inventory buffer purchases as well as new product ramp ups to ensure supply continuity during the COVID-19 pandemic.

We expect inventory levels to fluctuate as we attempt to maintain sufficient inventory in response to COVID-19 uncertainties related to supply chain and supply, seasonal cycles of our business and ensuring competitive lead times while managing the risk of inventory.

We also maintain substantial finished goods inventories.

Our practice of maintaining sufficient inventory levels to

assure prompt delivery of our products and services increases the amount of inventory that may be considered excess and/or obsolete.

This excess and obsolete inventory may require us to write down the value of the inventory, which may have an adverse effect on our operating results.

For further discussion of risks associated with managing our inventory, see “Risk Factors –

Managing our inventory is complex and may include write-downs of excess or obsolete inventory,”

in Part I, Item 1A of this report.

In recent years, inflationary pressures on input costs, such as raw materials and labor, and distribution costs negatively impacted our operating results.

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

We continue to support our customer demand for our products by working with our suppliers, contract manufacturers, distributors, and customers to address and to limit the disruption to our operations and order fulfillment.

Additionally, maintaining sufficient inventory levels to assure prompt delivery of our products increases the amount of inventory that may become obsolete and increases the risk that the obsolescence of this inventory may have an adverse effect on our business and operating results.

Also, not maintaining sufficient inventory levels to ensure prompt delivery of our products may cause us to incur expediting costs to meet customer delivery requirements, which may negatively impact our operating results.

For further discussion of risks associated with managing our inventory, see “Risk Factors – Managing our inventory is complex and may include write-downs of excess or obsolete inventory,” in Part I, Item 1A of this report.

Government Regulation

Telecommunications Matters

Our products that are incorporated into wireless communications systems must comply with various government regulations, including those of the FCC.

We strive to deliver innovative network access solutions that lower the total cost and reduce the time of deploying services, increase the level of performance achievable with established infrastructures, reduce operating and capital expenses for our customers, increase network bandwidth and functionality, and extend network reach.

Our development process is conducted in accordance with ISO 9001, TL 9000, ISO 14001, and ISO 27001, all of which are international standards for quality and environmental management systems.

Environmental Matters

Our products must comply with various regulations and standards established by communications authorities in various countries, as well as those of certain international bodies.

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For example, the EU issued the RoHS directive, the WEEE directive and the REACH regulation.

We are also subject to disclosure and related requirements that apply to the presence of conflict minerals in our products or supply chain.

We continue to implement measures to comply with these and other similar directives and regulations from additional countries.

Our development process is conducted in accordance with ISO 9001, TL 9000, ISO 14001, and ISO 27001, all of which are international standards for quality and environmental management systems.

We strive to ensure that our corporate practices also conform to GDPR requirements, which protect digital data for all EU residents, and to other applicable data protection laws, including the California Consumer Privacy Act.

Other Regulations

As a company with global operations, we are subject to complex foreign and U.S.

laws and regulations, including trade regulations;

import and export regulations;

anti-bribery and corruption laws;

antitrust or competition laws;

data privacy laws and regulations, such as the GDPR and the California Consumer Privacy Act;

and cybersecurity laws and regulations, among others.

We have policies and procedures in place to promote compliance with these laws and regulations.

To date, our compliance actions and costs relating to these laws, rules and regulations have not resulted in a material cost or effect on our capital expenditures, earnings or competitive position.

For further discussion of risks associated with government regulation, see “Risk Factors –

We are subject to complex and evolving U.S.

Government regulations are subject to change and, accordingly, we are unable to assess the possible effect of compliance with future requirements or whether our compliance with such regulations will materially impact our business in the future.

For further discussion of risks associated with government regulation, see “Risk Factors – We are subject to complex and evolving U.S.

and foreign laws, regulations and standards governing the conduct of our business.

Violations of these laws and regulations may harm our business, subject us to penalties and to other adverse consequences.”

Violations of these laws and regulations may harm our business, subject us to penalties and to other adverse consequences,” in Part 1, Item 1A of this report.

Environmental, Social, and Governance

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As more people are connected, work and life can be accomplished using fewer resources.

We have established ESG and Sustainability programs and policies that encompass the elements of Environmental, Health & Safety, Ethics, Labor, and Management Systems in alignment with the ISO 26000 Guidelines.

We have established ESG and sustainability programs and policies that encompass the elements of Environmental, Health & Safety, Ethics, Labor, and the related management systems in alignment with the ISO 26000 Guidelines.

We are committed to operating in full compliance with the laws, rules and regulations of all the countries in which we operate.

The major aims of our program are eliminating waste and emissions, maximizing energy efficiency and productivity and minimizing practices that can adversely affect utilization of natural resources by coming generations.

Our ESG programs are important to us.

ESG is a dedicated focus throughout the company.

The major aims of our program are reducing waste and emissions, maximizing energy efficiency and productivity and minimizing practices that can adversely affect utilization of natural resources by coming generations.

Our ESG programs are important to us, consequently, ESG is a dedicated focus throughout the company.

We have Board oversight including an ESG Committee, strong management support and engagement from our employees.

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• maintained our mature environmental management system certified to ISO 14001 from 2015;

advanced our Energy Management program where we have continually set targets for reduced energy and water consumption since 2005;

continued investment in Wind Renewable Energy Credits;

• advanced our Energy Management program with ISO 50001 readiness for the Huntsville site for 2024;

• submitted our detailed Net Zero targets to SBTi in 2023;

• continued purchase of Renewable Energy Credits, equaling ~20% of total Adtran energy consumption;

• purchased certified carbon offsets to achieve Net Zero for our Scope 1 emissions;

continued to monitor and report our carbon emissions to CDP;

adopted a platform to engage top suppliers to obtain an ESG assessment aligned with international standards, allowing us to monitor ESG risks in our supply chain;

the Technology organization established Eco-Design guidelines;

completed an initial Life Cycle Assessment pilot;

initiated innovative packaging solutions to reduce materials and waste;

committed to SBTi for Net Zero targets within the next two years;

• continued using IntegrityNext, a platform to engage suppliers to obtain an ESG assessment aligned with international standards, allowing us to monitor ESG risks in our supply chain;

• established Eco-Design guidelines in the Technology organization;

• continued with Life Cycle Assessments across the portfolio;

• continued with packaging optimization to reduce related materials and waste;

• increased visibility of our program internally and externally through customer engagement, joining peer sustainability groups, offering training to team members and web site enhancements;

implemented GRI standards;

• switched from the GRI reporting standard to the newer and more comprehensive ESRS standard;

• actively engaged our stakeholders with investor and supply chain assessments.

For further discussion of risks associated with government regulation, see “Risk Factors –

Expectations relating to environmental, social and governance considerations expose the Company to potential liabilities, increased costs, reputational harm, and other adverse effects on the Company’s business.”

Due to certain regulations, proceedings of the merger and the operations of ADTRAN and ADVA during 2022 there will be separate reports published for the two organizations.

These ESG reports provide additional information regarding ADTRAN Holding’s ESG program.

Within the report is information on our environmental programs, initiatives related to our people and our community.

This information can be found on our website at:

We will issue an ESG report for 2023 in order to fulfill the reporting obligations set forth in the German commercial code applicable to Adtran Networks.

Within the report is information on our environmental, social and governance programs, including quantitative and qualitative data for both Adtran Networks and the Company.

This information can also be found on our website at:

www.adtran.com/en/about-us/esg/environmental.

No information contained on our website is intended to be included as part of, or incorporated by reference into, this report.

The information found on our website is not incorporated by reference in this report or any other report that we file or furnish to the SEC.

For further discussion of risks associated with government regulation, see “Risk Factors – Expectations relating to environmental, social and governance considerations expose the Company to potential liabilities, increased costs, reputational harm, and other adverse effects on the Company’s business,” in Part 1, Item 1A of this report.

Human Capital

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This is supported by competitive compensation and benefits, along with strong community service and other programs that enable employees to build connections within the community.

As part of our Business Efficiency Program, on October 25, 2023, all employees were informed of certain personnel measures, which included the reduction of salary for select management, a reduction of approximately 5% of the workforce, an early retirement program and a hiring freeze.

The Company provided the employees subject to the salary reductions with stock option awards for retention purposes.

Our Chief Executive Officer voluntarily reduced his salary by 50% and did not receive any stock option awards under the Business Efficiency Program.

For additional information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Business Efficiency Program” in Part II, Item 7 of this report.

As of December 31, 2023, we had 3,227 full-time employees, with 1,249 in the U.S.

and 1,978 in our international subsidiaries located in North America, Latin America, EMEA and APAC regions.

1,948 of these full-time employees are employees of ADVA and its subsidiaries.

We also utilized 177 contractors and numerous temporary employees domestically and internationally in various manufacturing, engineering, sales and general and administrative capacities.

2,027 of these full-time employees are employees of Adtran Networks and its subsidiaries.

We also utilized 192 contractors and 160 temporary employees domestically and internationally in various manufacturing, engineering, sales and general and administrative capacities.

We believe that our relationship with our employees is good.

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Although these collective bargaining agreements will expire on September 30, 2024, negotiations with the employees of ADTRAN GmbH for a new collective bargaining agreement are ongoing and we have not experienced any work stoppage.

As of December 31, 2022, ADVA had 85 employees in Switzerland, France, Italy, Finland and Spain that were subject to collective bargaining agreements of different associations.

As of December 31, 2023, Adtran Networks had 91 employees in Switzerland, France, Italy, Finland and Spain that were subject to collective bargaining agreements of different associations.

None of our other employees are subject to collective bargaining agreements.

Additionally, we continually work to recruit technical talent in diverse communities through our cooperative education program.

This program seeks to identify college students that major in relevant technological areas and expose them to our work environment on an alternating semester basis.

Our goal is to retain as many of these students as possible for full-time employment after graduation building our organization's future.

This program seeks to identify college students that major in relevant technological areas and expose them to our work environment on an

alternating semester basis.

Our goal is to retain as many of these students as possible for full-time employment after graduation to build our organization's future.

Diversity, Equity and Inclusion

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In addition to diversity in our workforce, we seek to ensure diversity in our Board of Directors with respect to skills, experience, gender, race and ethnicity.

Our Board of Directors is comprised of nine members, three of which are females and three of which are ethnically diverse.

Our Board of Directors is comprised of nine members, two of which are females and three of which are ethnically diverse.

Additionally, the Board of Directors has a diversity of skills and experience with respect to accounting and finance, management and leadership, vision and strategy, business operations, business judgment, crisis management, risk assessment, industry knowledge, corporate governance and global markets.

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Additionally, we offer access to many programs that provide additional monetary support in the event of a qualifying incident, including accident insurance, life insurance and hospital indemnity insurance, among others.

We understand that mental health is an essential aspect of our employees’

As a result, we offer an employee assistance program at no charge to employees and their family members.

We understand that mental health is an essential aspect of our employees’ wellbeing and we offer an employee assistance program at no charge to employees and their family members.

This program provides access to qualified personnel to address various issues such as grief, financial stress, family and emotional issues.

In response to the COVID-19 pandemic, we implemented significant changes that were determined to be in the best interest of our employees and the communities in which we operate.

We introduced enhanced health and safety standards that are in compliance with, or exceed, local, state and federal recommendations and regulations in the U.S.

and at our international locations.

This includes having our global employees work from home, hybrid or on-site.

In areas where it is necessary to have critical, on-site personnel, such as at our manufacturing facilities, additional health and safety measures have been implemented to provide the safest environment possible for these workers.

Compensation and Benefits

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As employees increase their competencies in these areas and master skills within their individual roles, this program offers a variety of career advancement paths.

Employees also have access to the ADTRAN Learning Network.

Employees also have access to the Learning module available in Workday.

This platform houses all required training, as well as optional training in a variety of areas.

Intellectual Property

ADTRAN develops and owns a significant amount of intellectual property.

We develop and own a significant amount of intellectual property.

We hold over 1,000 patents worldwide related to our products and over 50 additional pending patent applications.

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We do not derive any material amount of revenue from the licensing of our patents.

The ADTRAN corporate logo is a registered trademark of ours, as is the name “ADTRAN”, “SmartRG”

and a number of our product identifiers and names.

The name "ADTRAN" is a registered trademark of ours, as is the name “SmartRG” and a number of our product identifiers and names.

We also claim rights to a number of unregistered trademarks.

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It is possible that such litigation may result in significant legal costs and judgments and that intellectual property infringement claims, or related litigation against or by us could have a material adverse effect on our business and operating results.

For a discussion of risks associated with our intellectual property and proprietary rights, see “Risk Factors –

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

in Part I, Item 1A of this report.

For a discussion of risks associated with our intellectual property and proprietary rights, see “Risk Factors – Our failure to maintain rights to intellectual property used in our business could adversely affect the development, functionality, and commercial value of our products” in Part I, Item 1A of this report.

Information about our Executive Officers

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Chief Executive Officer and Chairman of the Board

Chief Executive Officer and Management Board member of Adtran Networks

Ulrich Dopfer

2023 to present

Senior Vice President of Finance and Chief Financial Officer

Senior Vice President of Operations

Senior Vice President, Chief Financial Officer, Secretary and Treasurer

Chief Financial Officer and Management Board member of Adtran Networks

Chief Financial Officer (Adtran Networks)

Christoph Glingener

2023 to present

Chief Executive Officer (ADVA Optical Networking SE)

Chief Technology Officer of ADVA Optical Networking SE

Chief Technology Officer

Chief Technology Officer and Management Board member of Adtran Networks

Chief Executive Officer (Adtran Networks)

Chief Technology Officer of Adtran Networks

2019 to present

Chief Revenue Officer

2015 –

Senior Vice President of Technology and Strategy

2006 –

Senior Vice President and General Manager of Carrier Networks

Senior Vice President and General Manager (Carrier Networks)

There are no family relationships among our directors or executive officers.

Adtran Networks is a majority-owned subsidiary of the Company.

Availability of Information

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Additional risks and uncertainties not presently known to us or that we currently deem to be immaterial may also adversely affect us.

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 ADVA’s 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 could be affected by a number of other factors, including:

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

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

the timing and impact of purchase accounting adjustments;

accounting for IFRS to U.S.

GAAP adjustments;

difficulties in employee or management integration;

the impact of appraisal proceedings in connection with the DPLTA;

and unanticipated liabilities associated with the Business Combination.

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 must successfully combine the business in a manner that permits these anticipated benefits to be realized.

In addition, we must achieve the anticipated growth and cost savings without adversely affecting current revenues and investments in future growth.

Further, providing integrated fiber networking solutions can be highly complex and can involve the design, development, implementation and operation of new solutions and the transitioning of clients from traditional platforms to new platforms.

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 experienced operational challenges and may also experience negative synergies and loss of customers.

Integrating the operations and personnel of the ADTRAN and ADVA businesses involves complex operational, technological and personnel-related challenges.

This process has been and will continue to be time-consuming and expensive, and it has and may continue to disrupt our business.

Difficulties in the integration of the business, which may result in significant costs and delays, include:

managing a significantly larger company;

integrating and unifying the offerings and services available to customers and coordinating distribution and marketing efforts;

coordinating corporate and administrative infrastructures and harmonizing insurance coverage;

unanticipated issues in coordinating accounting, information technology, communications, administration and other systems;

difficulty addressing possible differences in corporate cultures and management philosophies;

challenges associated with converting ADVA's financial reporting from international financial reporting standards (IFRS) to accounting principles generally accepted in the U.S.

(U.S GAAP) and compliance with the Sarbanes-Oxley Act of 2002, as amended, and the rules promulgated thereunder by the SEC;

legal and regulatory compliance;

dual market filing and publications obligations;

creating and implementing uniform standards, controls, procedures and policies;

litigation relating to the transactions contemplated by a reorganization, including shareholder litigation;

diversion of management’s attention from other operations;

maintaining existing agreements and relationships with customers, distributors, providers and vendors and avoiding delays in entering into new agreements with prospective customers, distributors, providers and vendors;

realizing the benefits from our restructuring programs;

unforeseen and unexpected liabilities related to the Business Combination, including the risk that certain executive officers may be subject to additional fiduciary duties and liability;

identifying and eliminating redundant and underperforming functions and assets;

effecting actions that may be required in connection with obtaining regulatory approvals;

a deterioration of credit ratings.

We have and may continue to lose customers or our share of customers’

business as entities that were customers of both ADTRAN and AVDA seek to diversify their suppliers of services and products.

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

On January 16, 2023, the DPLTA with ADVA became effective.

The DPLTA allows us to issue binding instructions to the management board of ADVA, which could be disadvantageous to ADVA and result in a decline in the business and earnings power of ADVA.

This could have a material adverse effect on the assets, financial position and income of ADVA, which in turn could have a material adverse effect on our financial condition.

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.

Assuming all of the minority holders of currently outstanding ADVA shares were to elect the second option, we would be obligated to make aggregate Exit Compensation payments of approximately EUR 310.6 million or approximately $333.2 million.

based on an exchange rate as of December 31, 2022.

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

The opportunity for outside ADVA shareholders to tender ADVA shares in exchange for Exit Compensation expires on March 16, 2023 (subject to appraisal proceedings).

Our obligation to pay Annual Recurring Compensation under the DPLTA would lead to a continuing payment obligation, which would amount to approximately EUR $10.6 million, or $11.4 million based on the current exchange rate, per year assuming none of the minority ADVA 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.

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 ADVA to minority shareholders and would even have to be paid if ADVA incurs losses, which could have a material adverse impact on our financial results and financial condition.

We are exposed to additional litigation risk and uncertainty with respect to the remaining minority shareholders of ADVA, which litigation may require us to pay a higher purchase price for additional ADVA shares than the amount provided for under the DPLTA.

As a result of the Business Combination, we continue to be exposed to litigation risk and uncertainty associated with the remaining minority shareholders of ADVA.

The terms of the DPLTA, including the adequacy of compensation payments to minority ADVA shareholders under the terms of the DPLTA, have been challenged by minority shareholders of ADVA by initiating court-led appraisal proceedings under German law.

We cannot rule out that the competent court in these appraisal proceedings may adjudicate higher Exit Compensation or Annual Recurring Compensation payment obligations (in each case, including interest thereon) than agreed upon in the DPLTA, the financial impact and timing of which is uncertain.

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

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

As of December 31, 2022, we have incurred $26.1 million of transaction costs related 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.

Any cost savings or other efficiencies related to the integration of the businesses that could offset these transaction- and combination-related costs over time may not be achieved 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.

Subsequent to the closing of the Business Combination, we entered into a new credit facility providing for borrowings of up to $400 million and under which we have incurred $60.0 million of indebtedness as of December 31, 2022.

Subsequent to the closing of the Business Combination, ADVA entered into a new revolving line of credit with Norddeutsche Landesbank - Girozentrale which it subsequently repaid and terminated, and a revolving line of credit with DZ Bank.

As of December 31, 2022, ADVA had borrowings of $16.1 million and $9.1 million of borrowings under the two revolving lines of credit, respectively.

Additionally, subsequent to December 31, 2022, the Company borrowed an additional $127.5 million under the new credit facility, a portion of which was used to pay down and retire ADVA's notes payable and credit facility agreements except for ADVA's new revolving line of credit with DZ Bank, which remains outstanding.

S ee “Cash Requirements”

in Part I, Item 7 of this report for additional information.

Our increased indebtedness could adversely affect our operations and liquidity.

Our level of indebtedness could, among other things:

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;

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;

make it more difficult for us to continue to pay the current dividend or cause us to reduce the dividend paid to the Company's stockholders;

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

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

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

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.

However, there can be no assurance that we will be able to manage any of these risks successfully.

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.

We may be unable to successfully retain and motivate our personnel, including personnel at ADVA.

The success of the Business Combination and our post-closing integration efforts depends, in part, on our ability to retain the talents and dedication of key employees, including key decision-makers, currently employed by ADTRAN, Inc.

Some of our employees have decided and others may decide not to remain with us as a result of the Business Combination.

If key employees terminate their employment, or if an insufficient number of employees are retained to maintain effective operations, our business activities may be adversely affected and management’s attention may be diverted from successfully integrating ADTRAN and ADVA to hiring suitable replacements, all of which may cause our business to deteriorate.

We may not be able to locate suitable replacements for any key employees who leave or offer employment to potential replacements on reasonable terms.

In addition, we may not be able to motivate certain key employees due to organizational changes, reassignments of responsibilities, the perceived lack of appropriate opportunities for advancement or other reasons.

If we fail to successfully retain and motivate our employees, relevant capabilities and expertise may be lost which may have an adverse effect on our cash flows, financial condition, results of operations and the business operations in general.

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

Our Credit Agreement and ADVA's revolving line of credit with DZ Bank contain a number of restrictive covenants that impose significant operating and financial restrictions on us and/or our subsidiaries and may limit our ability to engage in acts that may be in our long-term best interest, including restrictions 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;

Risks related to our financial results and Company success

We are obligated to comply with covenants related to our Wells Fargo Credit Agreement that could restrict our operating activities, and the failure to comply with such covenants could result in defaults that accelerates our debt.

The Wells Fargo 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.

We are also obligated to add certain additional subsidiaries as guarantors of our debt obligations under the credit facility.

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

Our Wells Fargo Credit Agreement along with the amendments thereto, contain various restrictive covenants which include, among others, provisions restricting our ability to:

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

• incur or guarantee additional debt;

• make certain distributions, investments and other restricted payments;

• engage in transactions with affiliates;

• engage in mergers or consolidations;

• grant or incur liens on assets;

• dispose of assets;

• make loans and investments;

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 noteholders 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:

• modify our organization documents;

• enter into certain restrictive agreements.

In addition, the Wells Fargo Credit Agreement contains customary events of default, such as misrepresentation and a default in the performance or observance of any covenant (subject to customary cure periods and materiality thresholds).

In addition, certain covenants in the Wells Fargo Credit Agreement, including covenants set forth in the amendments thereto, require us, among other things, to:

• maintain certain leverage ratios;

• maintain certain fixed charge coverage ratios;

• maintain minimum amounts of cash and cash equivalents.

As a result of these restrictions, we have and may be:

• limited in how we conduct our business;

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• 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 could be required to recognize impairment charges related to goodwill and other intangible assets.

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 underperformance 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.

Any charges relating to such impairments could materially adversely affect our business, financial condition and results of operations in the periods recognized.

Negative publicity related to integration measures may adversely affect us.

Political and public sentiment in connection with post-closing integration measures following the Business Combination may result in a significant amount of adverse press coverage and other adverse public statements.

Adverse press coverage and public statements, whether or not driven by political or popular sentiment, may also result in legal claims or in investigations by regulators, legislators and law enforcement officials.

Responding to these investigations and lawsuits, regardless of the ultimate outcome of the proceedings, can divert the time and effort of senior management from operating the business.

Addressing any adverse publicity, governmental scrutiny or enforcement or other legal proceedings could be time-consuming and expensive and, regardless of the factual basis for the assertions being made, could have a negative impact on our reputation, on the morale and performance of our employees and on our relationships with regulators, suppliers and customers.

It may also have a negative impact on our ability to take timely advantage of various business and market opportunities.

The direct and indirect effects of negative publicity, and the demands of responding to and addressing it, may have a material adverse effect on our business, cash flows, financial condition and results of operations.

Risks related to our financial results and Company success

Our revenue for a particular period can be difficult to predict, and a shortfall in revenue may harm our operating results.

Our failure to comply with the restrictive covenants set forth in the Credit Agreement could result in defaults that accelerate the payment under such debt which would likely have a material adverse impact on our financial condition and results of operations.

In addition, an event of default under the Credit Agreement 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 the Credit Agreement, the lenders could proceed against the collateral granted them to secure that indebtedness.

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

In addition, these defaults could impair our ability to access debt and equity markets.

For additional information on our debt covenants, see "Liquidity & Capital Resources" in Part II, Item 7 of this report.

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.

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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.

Supply of semiconductor chips and other components of our products has become 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.

As a result, our gross margin percentage declined in the second half of 2021 and throughout 2022.

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

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.

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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.

Currently, our revenue growth and profitability in the near-term are being impacted by supply chain constraint issues.

While we are working closely with our suppliers and customers to address the near-term supply chain challenges facing the industry and believe these challenges will continue to lessen and will begin to normalize during 2023, there can be no assurance this will be the case.

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

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

These expenses and the impact of long-term commitments are relatively fixed in the short term.

A shortfall in revenue could lead to operating results being below expectations because we may not be able to quickly reduce these fixed expenses in response to short-term business changes.

The lengthy sales and approval process required by service providers for new products could result in fluctuations in our revenue.

On November 6, 2023, we determined to implement a business efficiency program, which includes a significant cost efficiency program targeting a reduction of ongoing operating expenses and a capital efficiency program inclusive of certain salary reductions, an early retirement program, a site consolidation plan to include lease impairments and the partial sale of owned real estate (including the potential sale of portions of our headquarters), inventory write downs from product discontinuances, and the suspension of the quarterly dividend.

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.

We face risks arising from the ongoing restructuring of our operations under our business efficiency program and uncertainty with respect to our ability to achieve any anticipated cost savings associated with that program.

We are continuing to implement a business efficiency program to improve productivity and drive cost efficiencies and fuel long-term profitable growth.

Future charges related to such actions may harm our profitability in the periods incurred.

Business efficiency program actions have presented and may in the future present a number of significant risks that could have a material adverse effect on our operations, financial condition, results of operations, cash flow, or business reputation, including:

• incurrence of additional costs in the short-term, including workforce reduction costs, training of employees or third-party resources, accounting charges for inventory and technology-related write-offs and charges relating to consolidation of excess facilities;

• failure to accurately assess market opportunities and the technology required to address such opportunities;

• actual or perceived disruption of service or reduction in service levels to customers and consumers;

• potential adverse effects on our internal control environment and inability to preserve adequate internal controls relating to our general and administrative functions;

• actual or perceived disruption to customers, suppliers, distribution networks and other important operational relationships and the inability to resolve potential conflicts in a timely manner;

• difficulty in obtaining timely delivery of products of acceptable quality from our contract manufacturers;

• diversion of management attention from ongoing business activities and strategic objectives;

• failure to maintain employee morale and retain key employees, damage to company culture and an increase in employment claims;

• damage to our reputation as an employer, which could make it more difficult for us to hire new employees in the future.

Because of these and other factors, some of which may not be entirely within our control, we may not fully realize the purpose and anticipated operational benefits, efficiencies or cost savings of any productivity actions in the expected timelines, or at all, and, if we do not, our business and results of operations may be adversely affected.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Business Efficiency Program” in Part II, Item 7 of this report .

The lengthy sales and approval process required by Service Providers for new products has resulted in fluctuations in our revenue and may result in fluctuations of future revenue and financial results.

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

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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.

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;

We have generally 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, could result in fluctuations of revenue and uneven operating results from quarter to quarter or year to year.

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 are dependent on individual purchase orders as discussed elsewhere in this report.

We depend heavily on sales to certain customers;

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• the impact of work stoppages at these customers.

In the past, revenue to our large customers have fluctuated, and may fluctuate in the future, significantly from quarter to quarter and year to year.

In the past, revenue generated by our large customers has fluctuated significantly from quarter to quarter and year to year, and it may continue to fluctuate in the future.

The loss of, or a significant reduction or delay in, revenue to any such customer or the occurrence of revenue fluctuations could have a material adverse effect on our business and results of operations.

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In the course of our sales to customers and distributors, we may encounter difficulty collecting accounts receivable and could be exposed to risks associated with uncollectible accounts receivable due to various reasons, including potential declining operating cash flows or bankruptcy filings.

While we attempt to monitor these situations carefully and attempt to take appropriate measures to collect accounts receivable balances, there are no assurances we can avoid write-downs and/or write-offs of accounts receivable as a result of declining financial conditions for our customers, including bankruptcy.

While we attempt to monitor these situations carefully and attempt to take appropriate measures to collect accounts receivable balances, including through the recent $20.0 million expansion of a Receivables Purchase and Servicing Agreement with True Value S.A.R.L., there are no assurances we can avoid write-downs and/or write-offs of accounts receivable as a result of declining financial conditions for our customers, including bankruptcy.

Such write-downs or write-offs could negatively affect our operating results for the period in which they occur and could potentially have a material adverse effect on our results of operations, financial condition and cash flows.

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

slowdowns, recessions, economic instability, political unrest, armed conflicts (such as the ongoing military conflict in Ukraine), or outbreaks of disease, such as the COVID-19 pandemic, around the world;

Business Combination purchase price allocations.

For example, since the third quarter of 2021 and continuing throughout 2022, we have incurred and may continue to incur supply chain constraint expenses, including price inflation for certain electronic components, semiconductor chips and transportation related costs, which have lowered our gross margins and decreased our profitability.

• 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 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.

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The financial problems of our suppliers and industry consolidation occurring within one or more component supplier markets, such as the semiconductor market, in each case, could either limit supply or increase costs.

A reduction or interruption in supply, including disruptions on our global supply chain, caused in part by public health emergencies (including the COVID-19 pandemic), geopolitical tensions (including as a result of the ongoing conflict in Ukraine and China-Taiwan relations) or a significant natural disaster (including as a result of climate change);

A reduction or interruption in supply, including disruptions on our global supply chain, caused in part by public health emergencies, geopolitical tensions (including as a result of the ongoing conflict in Ukraine and in Israel and surrounding regions, as well as China-Taiwan relations) or a significant natural disaster (including as a result of climate change);

a significant increase in the price of one or more components (including as a result of inflation);

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Furthermore, as a result of binding price or purchase commitments with suppliers, we may be obligated to purchase raw materials or components at prices that are higher than those available in the current market.

In the event that we become committed to

purchasing raw materials or components at prices in excess of the current market price when the raw materials or components are actually used, our gross margins could decrease.

In the event that we become committed to purchasing raw materials or components at prices in excess of the current market price when the raw materials or components are actually used, our gross margins could decrease.

In addition, certain raw materials and key components used in our products are currently available from only one source, and others are available from only a limited number of sources.

The availability of these raw materials and supplies may be subject to market forces beyond our control, such as inflation, merger and acquisition activity of our suppliers and consolidation in some segments of our supplier base.

We have experienced and expect to continue to experience increased inflationary pressures on input costs, such as, raw materials, supplies, labor and distribution costs to increase.

We have experienced and expect to continue to experience increased inflationary pressures on input costs, such as, raw materials, supplies, labor and distribution costs.

Our attempts to offset these cost pressures, through increases in the selling prices of some of our products, may not be successful and could negatively affect our operating results.

In addition, from time to time, there may not be sufficient quantities of raw materials and supplies in the marketplace to meet customer demand.

For example, wafer foundries that support chipmakers have not invested enough in recent years to increase capacities to the levels need to support demand from all of their customers and wafers have a long lead time for production, in some cases in excess of 30 weeks, which has led to a recent shortage in chip supplies.

Many companies utilize the same raw materials and supplies that we do in the production of their products.

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however, we cannot assure that delays in or failures of deliveries of key components, either to us or to our contract manufacturers, and consequent delays in product deliveries, will not continue to occur in the future.

In addition, our supply chain challenges are forcing us to devote a substantial portion of our research and development expenses to redesign existing products, reducing our capacity to develop new products.

For a discussion of the impact of the COVID-19 pandemic on our supply chain, see “- The ongoing COVID-19 pandemic has impacted and may continue to impact our business, results of operations and financial condition, particularly our supply chain and workforce.”

We believe that we may be faced with the following challenges in the future:

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• high service and warranty expenses;

costs associated with recalling and replacing products with software or hardware defects, including costs from writing-off defective products recalled;

• costs associated with recalling and replacing products with software or hardware defects, including costs from writing-off defective products recalled or recovering expenses from our suppliers;

• high inventory obsolescence expense;

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• extended performance bond expenses;

a decline in revenue to existing customers.

Managing our inventory is complex and may include write-downs of excess or obsolete inventory.

• a decline in revenue from existing customers.

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 may 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.

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.

The continuing growth of our international operations could 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 49.5%, 33.5% and 30.5% of our net revenue for the years ended December 31, 2022, 2021 and 2020, respectively, and as a result, we anticipate increased revenue and operating costs in these markets.

During the year ended December 31, 2023, we recognized a write down of inventory of $24.3 million due to a discontinuation of certain product lines within our Network Solutions segment in connection with our business efficiency program.

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.

For additional details regarding the business efficiency program, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Business Efficiency Program” in Part II, Item 7 of this report.

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 59.8% and 49.5% of our net revenue for the years ended December 31, 2023 and 2022, 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:

• foreign currency exchange rate volatility has had and may continue to have an unfavorable impact on our cash flows, financial condition and results of operations;

• exposure to unfavorable commercial terms in certain countries;

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• 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 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.

Other potential consequences 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 region, increased political discontent, especially in the regions most affected by the conflict 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.

In February 2022, armed conflict escalated between Russia and Ukraine.

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

We are complying with a broad range of U.S.

and international sanctions and export control requirements imposed on Russia.

If we are unable to successfully address the potential risks associated with our overall international expansion, our operating results, financial condition and cash flows may be negatively impacted.

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

Our success depends on attracting and retaining key personnel.

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Stanton, our Chief Executive Officer, and other key management personnel.

The unplanned departure of one or more of these individuals could adversely affect our business.

There have been, and may continue to be, changes in our management team resulting from the hiring or departure of key personnel, and we have recently made, and may continue to make, changes in compensation that may be viewed as disruptive by our key personnel.

These changes may result in increased attrition or reduced productivity of our key personnel as new reporting relationships are established, and as other companies may increasingly target our executives and other key personnel, particularly during the current highly competitive market for qualified personnel.

Such changes have and may continue to result in a loss of institutional knowledge, and they may cause disruptions to our business, impede our ability to achieve our objectives, or distract or result in diminished morale in, or the loss of, key personnel.

In addition, for ADTRAN to continue as a successful entity we must also be able to attract and retain key engineers and software developers and architects whose expertise helps us maintain competitive advantages.

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Stock awards are designed to reward employees for their long-term contributions and to provide incentives for them to remain with us.

Changes to our overall compensation program, including our stock incentive program, may adversely affect our ability to retain key employees.

Properly managing our continued growth, avoiding the problems often resulting from such growth and expansion and continuing to operate in the manner which has proven successful to us to date will be critical to the future success of our business.

If we fail to manage our exposure to worldwide financial and securities markets successfully, our operating results and financial statements could be materially impacted.

We are exposed to financial market risks, including changes in interest rates and prices of marketable equity and fixed-income securities.

The global macroeconomic environment has been challenging and inconsistent due to uncertainty in the global central bank monetary policy and uncertainty in global credit markets and the geopolitical environment in many areas of the world.

The primary objective of the majority of our investment activities is to preserve principal while at the same time achieving appropriate yields without significantly increasing risk.

To achieve this objective, a majority of our marketable securities are investment grade corporate and municipal fixed-rate bonds, U.S.

government bonds and municipal money market instruments denominated in U.S.

While we do invest a portion of our investment portfolio in equities, which are subject to market risks, including the loss of principal, our equity investments are generally invested in professionally-managed portfolios with the objective of exceeding the performance of their underlying benchmarks.

We have significant investments in corporate bonds, municipal fixed-rate bonds, asset-backed bonds, mortgage/agency-backed bonds, U.S.

government bonds and foreign government bonds.

Through December 31, 2022, we have not been required to impair any of these investments;

however, we have and may continue to experience a reduction in value or loss of liquidity in these investments, which may have an adverse effect on our results of operations, liquidity and financial condition.

Fixed-rate interest securities may have their fair value adversely impacted due to a rise in interest rates, while variable-rate securities may produce less income than expected if interest rates fall.

Our investments are subject to general credit, liquidity, market and interest rate risks, which may increase because of conditions in the financial markets and related credit liquidity issues.

Consequently, our future investment income may fall short of expectations due to changes in interest rates, or we may suffer losses in principal if we are forced to sell securities that decline in fair value due to changes in interest rates.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations –

Liquidity and Capital Resources”

in Part II, Item 7 of this report, “Quantitative and Qualitative Disclosures about Market Risk”

in Part II, Item 7A of this report and Note 6 of Notes to the Consolidated Financial Statements in Part II, Item 8 of this report for more information about our investments.

Changes to our overall compensation program, including changes in salaries and our stock incentive program, may adversely affect our ability to retain key employees.

Properly managing our continued growth, avoiding the problems often resulting from such growth and expansion and continuing to operate in the manner which has proven successful to us to date remains critical to the future success of our business.

We are exposed to adverse currency exchange rate fluctuations in jurisdictions where we transact in local currency, which could harm our financial results and cash flows.

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dollars for financial reporting purposes.

This impact of foreign-exchange rate changes is calculated based on the difference between the current period’s currency exchange rates and that of the comparable prior period.

Our primary exposures to foreign currency exchange rate movements are the euro and the British pound sterling.

As a result of our global operations, our revenue, gross margins, operating expense and operating income in some international markets have been and may continue to be affected by foreign currency fluctuations.

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

We require a significant amount of cash to service our indebtedness, our potential payment obligations to Adtran Networks 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.

Furthermore, we have entered into a DPLTA with Adtran Networks.

Additionally, 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.

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

S ee “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 will depend 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.

If our business does not generate sufficient cash flow from operations or if 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 refinance all or a portion of our indebtedness on or before the maturity thereof, sell assets, reduce or delay capital investments or seek to raise additional capital, any of which could have a material adverse effect on us.

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 reducing 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.

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 restructure or refinance our indebtedness will depend on the condition of the capital markets and our financial condition at such time.

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 our 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.

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 Adtran Networks 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 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.

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 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.

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• 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;

• minimizing the diversion of the Board of Directors and management's 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;

• increasing 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;

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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.

Managing these types of transactions require 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.

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.

In the Business Combination with Adtran Networks, we have 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 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.

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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 COVID-19

The ongoing COVID-19 pandemic has impacted and may continue to impact our business, results of operations and financial condition, particularly our supply chain.

The global spread of COVID-19 created significant volatility, uncertainty and economic disruption.

Due to the pandemic and a global semiconductor chip shortage, we experienced disruption and delays in our supply chain and significant price increases with certain of our manufacturing partners, and those disruptions, delays and price increases may continue.

For example, in the second half of 2021 and throughout 2022, our results of operations were negatively impacted by increased expenses resulting from supply chain disruptions.

Current global supply chain and transportation constraints, including delays in supply chain deliveries and the related global semi-conductor chip shortage, may continue to have a material adverse effect on our operating results and could have a material adverse effect on customer relations and our financial condition.

We believe these supply chain challenges and their adverse impact on our industry will continue to ease during 2023.

However, there can be no assurance that the ongoing disruptions due to COVID-19, the related global semiconductor chip shortage or other supply chain constraints or price increases will be resolved in the near term, which could continue to adversely affect our business, financial condition, and results of operations.

We will continue to evaluate the nature and extent of the impact of COVID-19 and supply chain constraints on our business.

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

Ongoing inflationary pressures have negatively impacted our revenues and profitability.

Ongoing inflationary pressures have resulted and may continue to result in decreased demand for our products and services, increased manufacturing and operating costs (including our labor costs), reduced liquidity, and limitations on our ability to access credit or otherwise raise debt and equity capital.

In the current inflationary environment, because certain of our customer contracts provide for fixed pricing and/or due to our competitor’s pricing strategies, we are not always been able to raise the sales prices of our products and services at or above the rate at which our costs increase, which has reduced our profit and operating margins and has and could continue to have a material adverse effect on our financial results.

We also may experience lower than expected sales and potential adverse impacts on our competitive position if there is a decrease in customer spending or a negative reaction to any price increases we are able to implement.

A reduction in our revenue would be detrimental to our profitability and financial condition and could also have an adverse impact on our future growth.

Risks related to our control environment

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

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.

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.

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.

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, while we have strengthened 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 and 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 a result of such material weaknesses, the restatement 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.

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.

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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 cyber-attacks 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 cyber-attacks 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.

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 with Russia, from which a number of recent cybersecurity events have been alleged to have originated.

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

Specifically, 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.

Furthermore, we, our employees and some of our third-party Service Providers have been, and anticipate continuing to be, the targets of various cybersecurity threats.

These include hacking attacks, social engineering schemes such as "phishing," and business email compromise attacks, wherein attackers impersonate company executives or colleagues in emails to trick employees into transferring funds or revealing sensitive information.

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

To date, these threats have not had a significant effect on our financial condition or operational results;

however, we cannot ensure that future cybersecurity threats might not have a material impact on our business.

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

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.

For example, a number of recent cybersecurity events have been alleged to have originated from the ongoing military conflict in Ukraine and in the Israel/Hamas war.

Further, continued increases in legislation and regulation from a variety of international, federal and state authorities regarding cybersecurity incidents, including risk assessment, notification obligations, regulatory reporting and other requirements, could subject us to additional liability and reputational harm.

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 ADVA’s cybersecurity program.

Additionally, prior to integration of facilities, networks, or systems, the Company also engage 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 ADVA information technology landscape.

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

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

A significant failure of our review and integration of ADVA's 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.

If we fail to maintain proper and effective internal control over financial reporting we could have a material weakness in our internal controls, that if not remediated, could materially adversely affect us.

Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”) requires us to include in our Annual Reports on Form 10-K an assessment by the Company’s management of the effectiveness of our internal control over financial reporting, as well as a report from our independent registered public accounting firm on the effectiveness of our internal control over financial reporting.

We must perform system and process evaluation and testing of our internal control over financial reporting to allow management and our independent registered public accounting firm to report on the effectiveness of our internal control over financial reporting, as required by Section 404.

Our compliance with Section 404 may require that we incur substantial accounting expense and expend significant management efforts.

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.

If we are not able to maintain the adequacy of our internal control over financial reporting, including any failure to implement required new or improved controls, or if we experience difficulties in the implementation of or the implemented controls required in connection

with the Business Combination, our business, financial condition and operating results could be harmed.

In addition, if management or our independent registered public accounting firm is unable to conclude that our internal control over financial reporting is effective, we could lose investor confidence in the accuracy and completeness of our financial statements, which could have an adverse effect on our stock price or lead to litigation claims.

However, a significant failure or other compromise 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.

For information on our cybersecurity risk management, strategy and governance, see Part I, Item 1C of this report .

Risks related to the Business Combination and DPLTA

Our ability to realize anticipated strategic and financial benefits sought from the Business Combination has been and may continue to be affected by a number of factors.

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.

For example, 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 reductions in our operating expenses through the implementation of a business efficiency program;

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

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 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 December 31, 2023, we have incurred $26.2 million of transaction costs related to the Business Combination.

In addition, during the year ended December 31, 2023, we recognized $21.5 million of restructuring costs specific to the Business Combination synergies under our multi-year integration program.

Furthermore, we expect to incur costs associated with the implementation of the DPLTA and such costs are expected to be material.

During the year ended December 31, 2023, we recognized $4.9 million of integration costs related to the implementation of the DPLTA and the Business Combination.

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.

Failure to realize these synergies and cost reductions and other efficiencies in a timely manner or at all has impacted and may in the future 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.

As of December 31, 2023, the Company had incurred $195.0 million of indebtedness under the Wells Fargo Credit Agreement.

See "Cash Requirements" in Part II, Item 7 of this report for additional information.

In addition, our new factoring arrangement provides for borrowings of up to $40.0 million, secured by our accounts receivable.

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;

• limits our ability to assume debt in a future acquisitions.

Specifically, our Credit Agreement with Wells Fargo limits the amount of debt we can assume in an acquisition.

This 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;

• limits our ability to borrow additional money.

Specifically, our Credit Agreement with Wells Fargo limits our ability to borrow additional money, which could limit our ability to fund working capital, capital expenditures, research and development and other general corporate needs in the future.

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 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 reducing 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 current or 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.

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.

If we or our restricted subsidiaries incur significant additional debt, the relative risks may intensify.

We have experienced operational challenges and may also experience negative synergies and loss of customers.

Integrating the operations and personnel of the ADTRAN and Adtran Networks businesses involves complex operational, technological and personnel-related challenges.

This process has been and will continue to be time-consuming and expensive, and it has and may continue to disrupt our business.

Difficulties in the integration of the business, which have resulted and may in the future result in significant costs and delays, include:

• managing a significantly larger company;

• integrating and unifying the offerings and services available to customers and coordinating distribution and marketing efforts;

• coordinating corporate and administrative infrastructures and harmonizing insurance coverage;

• unanticipated issues in coordinating accounting, information technology, communications, administration and other systems;

• difficulty addressing possible differences in corporate cultures and management philosophies;

• challenges associated with converting Adtran Networks' financial reporting from international financial reporting standards (IFRS) to accounting principles generally accepted in the U.S.

GAAP) and compliance with the Sarbanes-Oxley Act of 2002, as amended, and the rules promulgated thereunder by the SEC;

• legal and regulatory compliance;

• dual market filing and publications obligations;

• creating and implementing uniform standards, controls, procedures and policies;

• litigation relating to the transactions contemplated by a reorganization, including shareholder litigation;

• diversion of management’s attention from other operations;

• maintaining existing agreements and relationships with customers, distributors, providers and vendors and avoiding delays in entering into new agreements with prospective customers, distributors, providers and vendors;

• realizing the benefits from our restructuring programs;

• unforeseen and unexpected liabilities related to the Business Combination, including the risk that certain executive officers may be subject to additional fiduciary duties and liability;

• identifying and eliminating redundant and underperforming functions and assets;

• effecting actions that may be required in connection with obtaining regulatory approvals;

• a deterioration of credit ratings.

We have and may continue to lose customers or our share of customers’ business as entities that were customers of both ADTRAN and Adtran Networks seek to diversify their suppliers of services and products.

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 the Company to absorb Adtran Networks annual net loss applied for the first time to the loss generated in 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 December 31, 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) it will be payable for the first time after the ordinary general shareholders’ meeting of Adtran Networks in 2024 for the fiscal year ended December 31, 2023.

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 $11.7 million (based on the exchange rate as of December 31, 2023) 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 year ended December 31, 2023, a total of 67 thousand shares of Adtran Networks stock was tendered to the Company and Exit Compensation payments of approximately €1.2 million or approximately $1.3 million based on an exchange rate as of December 31, 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 €310.3 million or approximately $342.5 million, based on an exchange rate as of December 31, 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 at 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 Part II, Item 7 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.

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.

We are exposed to additional litigation risk and uncertainty with respect to the remaining minority shareholders of Adtran Networks, which litigation may require us to pay a higher purchase price for additional Adtran Networks shares than the amount provided for under the DPLTA.

As a result of the Business Combination, we continue to be exposed to litigation risk and uncertainty associated with the remaining minority shareholders of Adtran Networks.

The terms of the DPLTA, including the adequacy of compensation payments to minority Adtran Networks shareholders under the terms of the DPLTA, have been challenged by minority shareholders of Adtran Networks by initiating court-led appraisal proceedings under German law.

We may be unable to successfully retain and motivate our personnel.

and Adtran Networks.

Some of our employees have decided and others may decide not to remain with us as a result of the Business Combination or our post-closing integration and restructuring efforts.

If key employees terminate their employment, or if an insufficient number of employees are retained to maintain effective operations, our business activities may be adversely affected and management’s attention may be diverted from successfully integrating ADTRAN and Adtran Networks to hiring suitable replacements, all of which may cause our business to deteriorate.

We may not be able to locate suitable replacements for any key employees who leave or offer employment to potential replacements on reasonable terms.

Risks related to the telecommunications industry

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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.

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.

For more information, see Note 6 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this report.

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.

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Any of these consequences could adversely impact our results of operations by increasing our expenses and/or requiring us to alter our manufacturing processes.

If our products do not interoperate with our customers’

networks, installations may be delayed or canceled, which could harm our business.

If our products do not interoperate with our customers’ networks, installations may be delayed or canceled, which could harm our business.

Our products must interface with existing networks, each of which may have different specifications, utilize multiple protocol standards and incorporate products from other vendors.

Many of our customers’

networks contain multiple generations of products that have been added over time as these networks have grown and evolved.

Our products may be required to interoperate with many or all of the products within these networks, as well as future products to meet our customers’

requirements.

If we find errors in the existing software or defects in the hardware used in our customers’

networks, we may have to modify our software or hardware to fix or overcome these errors so that our products will interoperate with the existing software and hardware.

Many of our customers’ networks contain multiple generations of products that have been added over time as these networks have grown and evolved.

Our products may be required to interoperate with many or all of the products within these networks, as well as future products to meet our customers’ requirements.

If we find errors in the existing software or defects in the hardware used in our customers’ networks, we may have to modify our software or hardware to fix or overcome these errors so that our products will interoperate with the existing software and hardware.

Implementation of product corrections involving interoperability issues could increase our costs and adversely affect our results of operations.

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Changes in international tariff structures could adversely impact our product costs.

We also have experienced and expect to continue to experience increased inflationary pressures on input costs, such as, raw materials, labor and distribution costs.

We also have experienced and expect to continue to experience ongoing inflationary pressures on input costs, such as, raw materials, labor and distribution costs.

Our attempts to offset these cost pressures, such as through increases in the selling prices of some of our products and services, may not be successful and could negatively affect our operating results.

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however, we cannot be assured that delays in product deliveries will not occur in the future because of shortages resulting from this limited number of subcontractors or from the financial or other difficulties of these parties.

Our inability to develop alternative subcontractors if and as required in the future, or the need to undertake required retraining and other activities related to establishing and developing a new subcontractor relationship, could result in delays or reductions in product shipments which, in turn, could have a negative effect on our customer relationships and operating results.

Our inability to identify and engage alternative subcontractors if and as required in the future, or the need to undertake required retraining and other activities related to establishing and developing a

new subcontractor relationship, could result in delays or reductions in product shipments which, in turn, could have a negative effect on our customer relationships and operating results.

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

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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.

If a claim of intellectual property infringement against us is 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 affected adversely.

Software under license from third parties for use in certain of our products may not continue to be available to us on commercially reasonable terms.

For example, on August 22, 2023, Adtran Networks and its subsidiary Adtran Networks North America, Inc.

(formerly ADVA Optical Networking North America, Inc.) entered into a settlement agreement with Huawei Technologies Co.

pursuant to which the parties agreed to, among other things, dismiss certain lawsuits between the parties relating to, claims of patent infringement, failure to negotiate in good faith, and other related matters.

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.

Third party hardware or software that is used with our portfolios may not continue to be available or at commercially reasonable terms.

We integrate third-party software into certain of our products.

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Although we closely monitor our use of open source software, the terms of many open source software licenses have not been interpreted by the courts, and there is a risk that such licenses could be construed in a manner that could impose unanticipated conditions or restrictions on our ability to sell our products.

such event, we could be required to make our proprietary software generally available to third parties, including competitors, at no cost, to seek licenses from third parties in order to continue offering our products, to re-engineer our products or to discontinue the sale of our products in the event re-engineering cannot be accomplished on a timely basis or at all, any of which could adversely affect our revenue and operating expenses.

In such event, we could be required to make our proprietary software generally available to third parties, including competitors, at no cost, to seek licenses from third parties in order to continue offering our products, to re-engineer our products or to discontinue the sale of our products in the event re-engineering cannot be accomplished on a timely basis or at all, any of which could adversely affect our revenue and operating profitability.

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

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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 August 22, 2023, Adtran Networks and its subsidiary, Adtran Networks North America, Inc.

(formerly ADVA Optical Networking North America, Inc.) entered into a settlement agreement with Huawei Technologies Co.

Ltd pursuant to which the parties agreed to, among other things, dismiss certain lawsuits between the parties relating to, claims of patent infringement, failure to negotiate in good faith, and other related matters.

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

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If our sales, marketing or service capabilities are not sufficient to provide effective support to such SIs, Service Providers and VARs, our revenue may be negatively affected, and current SI, Service Provider and VAR partners may terminate their relationships with us, which would adversely impact our revenue and overall results of operations.

Risks related to the Company’s stock price

Our operating results may fluctuate in future periods, which may adversely affect our stock price .

We depend on a third-party cloud platform provider to host our Mosaic One SaaS network operating platform, and if we were to experience a disruption or interference in service, our business and reputation could suffer.

Our continued growth depends in part on the ability of our existing and potential customers to use and access our Mosaic One SaaS network operating platform.

We use third-party service providers that we do not control for key components of our infrastructure, particularly with respect to delivery of our SaaS products.

The use of these service providers gives us greater flexibility in efficiently delivering a more tailored, scalable customer experience, but also exposes us to additional risks and vulnerabilities.

Third-party service providers operate their own platforms that we access, and we are, therefore, vulnerable to their service interruptions.

We may experience interruptions, delays and outages in service and availability from time to time as a result of problems with our third-party service providers’ infrastructure.

Lack of availability of this infrastructure could be due to a number of potential causes including technical failures, natural disasters, fraud or security attacks that we cannot predict or prevent.

Such outages could adversely impact our business, reputation, financial condition and results of operations.

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.

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• 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;

• 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;

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

our dependence on sales of our products by channel partners, the timing of their replenishment orders, the potential for conflicts and competition involving our channel partners and large end-user customers and the potential for consolidation among our channel partners;

• 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;

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• 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 along the Russia-Ukraine border.

• 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 resulting from the conflict in Israel and its 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.

As a result, operating results for a particular future period are difficult to predict, and prior results are not necessarily indicative of results to be expected in future periods.

Any of the above-mentioned factors, or other factors discussed elsewhere in this report, could have a material adverse effect on our business, results of operations, financial condition and cash flows that could adversely affect our stock price.

The price of our common stock has been volatile and may continue to fluctuate significantly.

Our common stock is traded on the NASDAQ Global Select Market under the symbol ADTN.

Our common stock is traded on the NASDAQ Global Select Market under the symbol ADTN and on the Frankfurt Stock Exchange under the symbol QH9.

Since our initial public offering in August 1994, there has been, and may continue to be, significant volatility in the market for our common stock, based on a variety of factors, including factors listed in this section, some of which are beyond our control.

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These data protection and privacy-related laws and regulations are varied, evolving, can be subject to significant change, may be augmented or replaced by new or additional laws and regulations and may result in ever-increasing regulatory and public scrutiny and escalating levels of enforcement and sanctions.

For example, numerous states have adopted within the past three years or are in the process of adopting various privacy-related laws and regulations.

For example, within the past three years, numerous states have adopted or are in the process of adopting various privacy-related laws and regulations.

In addition, on July 16, 2020, the Court of Justice of the European Union issued a decision that invalidated the EU-U.S.

Privacy Shield framework as a basis for transfers of personal data from the EU to the U.S., resulting in uncertainty and potential additional compliance obligations to ensure that a valid basis under the GDPR exists for these data transfers.

The European Commission published revised standard contractual clauses for data transfers from the European Economic Area in 2021, which were required to go into effect by December 2022.

Since that time, the E.U.

have developed the successor E.U.-U.S.

Data Privacy Framework to address the 2020 decision, and on July 10, 2023, the European Commission issued an adequacy decision for the EU-US Data Privacy Framework, which entered in force on July 11, 2023;

however, there are indications there may be legal challenges to the decision.

Additionally, the European Commission published revised standard contractual clauses for data transfers from the European Economic Area in 2021,

which were required to go into effect by December 2022.

Finally, the U.K.

has enacted a version of the GDPR the implementation of which occurred by way of the Data Protection Act 2018, collectively referred to as the "U.K.

Uncertainty remains, however, regarding how aspects of data protection in the U.K.

GDPR." Uncertainty remains, however, regarding how aspects of data protection in the U.K.

will be handled in the medium to long term.

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ADTRAN senior management and employees whose responsibilities include international activities are required to complete an online training program and pass an exam every two years.

We have put processes in place to help detect non-compliance through providing our employees access to a worldwide reporting “hotline,”

available by phone and online, that is maintained by a third-party provider.

Finally, we perform annual reviews of our employees’

expense reports and corporate credit card activity to identify possible corruption concerns.

We have put processes in place to help detect non-compliance through providing our employees access to a worldwide reporting “hotline,” available by phone and online, that is maintained by a third-party provider.

Finally, we perform annual reviews of our employees’ expense reports and corporate credit card activity to identify possible corruption concerns.

We have also implemented controls to help ensure our third-party partners and customers observe FCPA requirements.

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We also require international distributors, resellers and agents to complete an Anti-Corruption Due Diligence Questionnaire, which is reviewed and assessed by a cross-functional compliance committee and our export-compliance function.

environmental, health and safety regulation governing the manufacture, assembly and testing of our products, including without limitation regulations governing the use of hazardous materials.

• environmental, health and safety regulations governing the manufacture, assembly and testing of our products, including without limitation regulations governing the use of hazardous materials.

Our failure or the failure of our contract manufacturers to properly manage the use, transportation, emission, discharge, storage, recycling or disposal of hazardous materials could subject us to increased costs or liabilities.

Existing and future environmental regulations may restrict our use of certain materials to manufacture, assemble and test products.

requirements by the SEC governing the disclosure regarding the use of conflict minerals mined from the Democratic Republic of the Congo and adjoining countries (the “DRC”) and disclosure with respect to procedures regarding a manufacturer’s efforts to prevent the sourcing of such minerals from the DRC.

• requirements by the SEC governing the disclosure regarding the use of conflict minerals mined from the Democratic Republic of the Congo and adjoining countries (the “DRC”) and disclosure with respect to procedures regarding a manufacturer’s efforts to prevent the sourcing of such minerals from the DRC.

Certain of these minerals are present in our products.

SEC rules implementing these requirements may have the effect of reducing the pool of suppliers that can supply “conflict free”

components and parts, and we may not be able to obtain conflict free products or supplies in sufficient quantities for our operations.

Environmental or similar social initiatives may also make it difficult to obtain supply of compliant components or may require us to write off non-compliant inventory, which could have an adverse effect on our business and operating results.

the insider trading prohibitions and the respective directors' dealing rules under the German Securities Trading Act ( Wertpapierhandelsgesetz ) and Regulation (EU) No.

SEC rules implementing these requirements may have the effect of reducing the pool of suppliers that can supply “conflict free” components and parts, and we may not be able to obtain conflict free products or supplies in sufficient quantities for our operations.

Because our supply chain is complex, we may face reputational challenges with our customers, stockholders and other stakeholders if we are unable to verify sufficiently the origins for the conflict minerals used in our products and cannot assert that our products are “conflict free.” Environmental or similar social initiatives may also make it difficult to obtain supply of compliant components or may require us to write off non-compliant inventory, which could have an adverse effect on our business and operating results.

• the insider trading prohibitions and the respective directors' dealing rules, as well as disclosure and reporting obligations under the German Securities Trading Act ( Wertpapierhandelsgesetz ) and Regulation (EU) No.

596/2014 of the European Parliament and of the Council of April 16, 2014, and other applicable regulations.

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government has raised tariffs, and imposed new tariffs, on a wide range of imports of Chinese products, including component elements of our solutions and certain finished goods products that we sell.

tariff policy involving imports from China are slated for a broad review in 2023.

tariff policy involving imports from China remains under review by the Office of the United States Trade Representative.

government has also introduced broad new restrictions on imports from China allegedly manufactured with forced labor, and the EU has debated similar restrictions.

In addition, other countries are debating or have introduced similar restrictions on imports of goods produced in whole or in part with the use of forced labor.

China has retaliated by raising tariffs, and imposing new tariffs, on certain exports of U.S.

goods to China, as well as introducing blocking measures to restrict the ability of domestic companies to comply with U.S.

trade restrictions.

trade restrictions and could take further steps to retaliate against U.S.

industries or companies.

For instance, over the course of 2020, the U.S.

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More recently, in October 2022, the U.S.

Department of Commerce imposed additional export control restrictions targeting the provision of, inter alia, certain semiconductors and related technology to China that could further disrupt supply chains that could adversely impact our business.

Department of Commerce imposed additional export control restrictions targeting the provision of certain semiconductors and related technology to China that could further disrupt supply chains that could adversely impact our business.

In addition, the U.S.

Federal Communications Commission (the “FCC”) in November 2022 prohibited communications equipment deemed to pose an unacceptable risk to national security from obtaining the equipment authorization that allows the products to be imported, marketed, or sold in the U.S.

Federal Communications Commission in November 2022 prohibited communications equipment deemed to pose an unacceptable risk to national security from obtaining the equipment authorization that allows the products to be imported, marketed, or sold in the U.S.

This prohibition currently includes telecommunications equipment produced by Huawei and its affiliates and subsidiaries and four other Chinese companies, and additional entities may be subsequently added to this list.

The situation involving U.S.-China trade relations remains volatile and uncertain and there can be no assurance that further actions by either country will not have an adverse impact on our business, operations and access to technology, or components thereof, sourced from China.

The past few years have been challenging for the credit markets due to a shift from a time of quantitative easing to a time of quantitative tightening by central banks around the world.

If global economic and market conditions, or economic conditions in key markets, remain uncertain or further deteriorate, we may experience material impacts on our business and operating results.

Furthermore, if global economic and market conditions, or economic conditions in key markets, remain uncertain or further deteriorate, we may experience material impacts on our business and operating results.

We may also be adversely affected in ways that we do not currently anticipate.

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We are currently evaluating the impact of these provisions on our effective tax rate.

Further, the Tax Act amended the Internal Revenue Code to require that specific research and experimental (“R&E”) expenditures be capitalized and amortized over five years (U.S.

R&E) or fifteen years (non-U.S.

R&E) beginning in the Company’s fiscal 2023.

Although the U.S.

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If the requirement is not repealed or otherwise modified, it may increase our effective tax rate.

Additionally, the Organization for Economic Co-operation and Development (the “OECD”), an international association comprised of 38 countries, including the U.S., has issued proposals that change long-standing tax principles including on a global minimum tax initiative.

On December 12, 2022 the EU member states agreed to implement the OECD’s Pillar 2 global corporate minimum tax rate of 15% on companies with revenues of at least EUR 750 million, which would go into effect in 2024.

Other countries including the U.K., Switzerland, Canada, Australia and South Korea are also actively considering changes to their tax laws to adopt certain parts of the OECD’s proposals.

Additionally, the Organization for Economic Co-operation and Development (the “OECD”), the G20, and other invited countries developed a global tax framework

inclusive of a 15% global minimum tax under the Pillar Two Global Anti-Base Erosion Rules (“Pillar Two”).

On December 15, 2022, the Council of the European Union (“EU”) formally adopted the OECD’s framework to achieve a coordinated implementation amongst EU Member States consistent with EU law.

The EU’s Pillar Two Directive effective dates are January 1, 2024, and January 1, 2025, for different aspects of the directive.

In 2023, other jurisdictions including the United Kingdom also formally adopted legislation consistent with the OECD framework.

Additional jurisdictions are actively considering and implementing changes to their tax laws to adopt certain parts of the OECD’s proposals.

We have assessed the framework including OECD administrative guidance and expect, based upon available guidance, that these changes will not have a material impact to our results of operations;

however, any future changes in OECD guidance or interpretations, could impact our initial assessment.

Many aspects of the minimum tax directive will be effective beginning in fiscal 2025, with certain remaining impacts to be effective beginning in fiscal 2026.

While it is uncertain whether the U.S.

will enact legislation to adopt the minimum tax directive, certain countries in which we operate have adopted legislation, and other countries are in the process of introducing legislation to implement the minimum tax directive.

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.

Rising inflation could negatively impact our revenues and profitability if increases in the prices of our products and services or a decrease in customer spending result in lower sales.

Recent significant increases in inflation may result in decreased demand for our products and services, increased manufacturing and operating costs (including our labor costs), reduced liquidity, and limitations on our ability to access credit or otherwise raise debt and equity capital.

In an inflationary environment, because certain of our customer contracts provide for fixed pricing and/or due to our competitor’s pricing strategies, we may be unable to raise the sales prices of our products and services at or above the rate at which our costs increase, which would reduce our profit and operating margins and could have a material adverse effect on our financial results.

A reduction in our revenue would be detrimental to our profitability and financial condition and could also have an adverse impact on our future growth.

Monetary policy in response to ongoing inflationary pressures has led to continued elevated interest rates and an inversion of the yield curve, which has and may continue to result in increased credit costs and decreased credit availability.

Changes in interest rates have impacted and may in the future further impact our costs of borrowing money under certain of our debt facilities with variable interest rates, which could 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.

Many governments, regulators, investors, employees, customers and other stakeholders are increasingly focused on environmental, social and governance considerations relating to businesses, including climate change and greenhouse gas emissions, human and civil rights, and diversity, equity and inclusion.

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Any failure, or perceived failure, by us to achieve our targets, further our initiatives, adhere to our public statements, comply with federal, state or international environmental, social and governance laws and regulations, or meet evolving and varied stakeholder expectations and standards could result in legal and regulatory proceedings against us and materially adversely affect our business, reputation, results of operations, financial condition and stock price.

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, although a limited budget deal was signed into law in early March, the federal government continues to be at risk of a partial shutdown if legislation to provide funding for other areas of government is not passed by March 22, 2024 as a result of political divisions in Congress and an impasse on budgetary and spending matters .

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

UNRESOLV ED STAFF COMMENTS

CYBERSECURITY

We recognize the importance of establishing governance and oversight over cybersecurity risks, and we have implemented mechanisms, controls, technologies, and processes designed to help us assess, identify, and manage these risks.

The landscape of cyber threats is constantly evolving, making it increasingly challenging to effectively defend against them or implement sufficient preventative measures.

We have observed a rise in the volume, frequency, and sophistication of cyber-attacks.

To date, no risks from cybersecurity threats or previous cybersecurity incidents have materially affected our business strategy, results of operations, or financial condition.

However, there can be no assurance that our controls and procedures in place to monitor and mitigate the risks of cyber threats, including the remediation of critical information security and software vulnerabilities, will be sufficient and/or timely and that we will not suffer material losses or consequences in the future.

Additionally, while we have in place insurance coverage designed to address certain aspects of cyber risks, such insurance coverage may be insufficient to cover all insured losses or all types of claims that may arise.

For more information regarding the cybersecurity risks that we face, see “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” included as part of our risk factor disclosures in Part I, Item 1A of this report.

We have adopted and continue to maintain a cybersecurity risk management program that implements various controls, technology, and procedures for the evaluation, identification, and handling of significant cybersecurity risks that could impact the confidentiality, integrity, or availability of our information systems.

Our practices include, among others, providing ongoing security awareness training for our global workforce, conducting ransomware and phishing simulations, deploying tools for the detection and analysis of anomalous network activities, and implementing containment and incident response procedures.

We are committed to staying abreast of the latest industry standards, and we actively participate in industry forums to exchange insights and stay ahead of emerging cybersecurity threats.

A critical component of our cybersecurity strategy is the integration of a third-party Security Operations Center support, which monitors our global network environment on a 24/7/365 basis, and is designed to rapidly identify and respond to threats.

This program monitors both internally detected and externally reported vulnerabilities that could impact our products, which are then evaluated for their cybersecurity implications according to Company protocols.

We also utilize third-party service providers as part of our cybersecurity risk management program and maintain a framework for managing cybersecurity risks presented by our third-party Service Providers.

This framework governs the third party’s security management system and mandates that the program (i) adhere to certain information handling and asset management protocols and (ii) promptly notify us of any cybersecurity incidents that impact its systems.

Our enterprise risk management ("ERM") framework is designed to systematically integrate the assessment, identification, and handling of cybersecurity-related risks into our broader risk management strategy.

This process involves an annual evaluation of the spectrum of risks facing the enterprise, including those related to cybersecurity.

When elevated cybersecurity risks are detected, designated risk owners are tasked with formulating and overseeing the execution of targeted mitigation strategies.

This risk management approach informs decision-making processes related to the company's strategic priorities, the allocation of resources, and the establishment of oversight mechanisms.

The governance of this program resides with our Board of Directors, which bears the ultimate responsibility for the oversight of cybersecurity risks.

Supporting the Board, the Audit Committee plays a pivotal role by engaging in regular reviews of our cybersecurity efforts in collaboration with management and providing periodic updates to the Board.

These assessments are conducted at least quarterly, with additional sessions convened as needed to address emerging issues or refine strategies.

Our Chief Information Officer ("CIO")/Chief Information Security Officer ("CISO") leads our cybersecurity program and reports to our Chief Executive Officer.

The CIO/CISO stays informed of prevention, detection, mitigation, and remediation efforts through regular communication with professionals on our cybersecurity team, many of whom hold certifications such as Security+, Certified Information Systems Security Professional or Certified Information Security Manager.

The CIO/CISO also utilizes technological tools, software, and third-party audits to monitor our cybersecurity efforts.

Our CIO/CISO joined the Company in November 2018 and brings a wealth of experience from leading cybersecurity initiatives in previous roles.

Our Chief Technology Officer ("CTO") joined the company in January 2023 following the Business Combination and previously served as Adtran Networks' CTO, leading their product management and advanced technology teams.

Our CTO helps oversee our product security programs.

Both the CIO/CISO and CTO have extensive experience in assessing and managing cybersecurity programs and risks.

Our CIO/CISO reports to the Audit Committee and the Board of Directors on our cybersecurity program and efforts.

Additionally, we have an escalation process in place to inform senior management and the Board of Directors of any material issues.

Our global headquarters and certain administrative, engineering and manufacturing facilities are located on an 82-acre campus in Cummings Research Park in Huntsville, Alabama.

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What changed 10-K

Item 1. Business