What changed in this filing

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Item 1. Financial Statements

2024-05-10 compared with 2023-11-09 · 407 added, 850 removed, 496 unchanged (72% of the section changed)

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(In thousands, except per share amounts)

September 30,

Current Assets

Cash and cash equivalents

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

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

Accounts receivable, less allowance for credit losses of $ 367 and $ 400 as of March 31, 2024

and December 31, 2023, respectively

Other receivables

Income tax receivable

Inventory, net

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Other non-current assets

Long-term investments (includes $ 0 and $ 8,913 of available-for-sale securities as of

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

Long-term investments

LIABILITIES, REDEEMABLE NON-CONTROLLING INTEREST AND EQUITY

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Accounts payable

Revolving credit agreements outstanding

Notes payable

Unearned revenue

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Non-current unearned revenue

Pension liability

Non-current pension liability

Deferred compensation liability

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200,000 shares authorized;

78,688 shares issued and 78,391 outstanding as of September 30, 2023 and

78,088 shares issued and 77,889 shares outstanding as of December 31, 2022

79,116 shares issued and 78,850 outstanding as of March 31, 2024 and

78,970 shares issued and 78,674 outstanding as of December 31, 2023

Additional paid-in capital

Accumulated other comprehensive income

Retained (deficit) earnings

Retained deficit

Treasury stock at cost:

297 and 198 shares as of September 30, 2023

265 and 297 shares as of March 31, 2024

and December 31, 2023, respectively

Non-controlling interest

Total Liabilities, Redeemable Non-Controlling Interest and Equity

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Three Months Ended

Nine Months Ended

September 30,

Network Solutions

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Network Solutions

Network Solutions - Inventory Write Down

Network Solutions - inventory write-down and other charges

Services & Support

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Research and development expenses

Asset impairment

Goodwill impairment

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Interest expense

Net investment (loss) gain

Other income, net

Net investment gain

Other income (expense), net

Loss Before Income Taxes

Income tax benefit

Net Loss attributable to non-controlling interest (1)

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

Net Loss attributable to ADTRAN Holdings, Inc.

Weighted average shares outstanding –

Weighted average shares outstanding – basic

Weighted average shares outstanding – diluted

Loss per common share attributable to ADTRAN Holdings, Inc.

(1)For the three and nine months ended September 30, 2023, we have recog nized $ 2.9 million and $ 8.6 mi llion, respectively, representing the recurring cash compensation earned by non-controlling interest shareholders post-DPLTA and an incremen tal $ 3.2 millio n net loss attributable to non-controlling interests pre-DPLTA for the nine months ended September 30, 2023.

(1) For the three months ended March 31, 2024, we recognized $ 2.9 million of net gain attributable to non-controlling interest, representing the recurring cash compensation earned by non-controlling interest shareholders post-DPLTA.

For the three months ended March 31, 2023, we recognized $ 3.2 million of net loss attributable to non-controlling interest pre-DPLTA, partially offset by $ 2.8 million, representing the recurring cash compensation earned by non-controlling interest shareholders post-DPLTA.

See accompanying notes to condensed consolidated financial statements.

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Three Months Ended

Nine Months Ended

September 30,

Other Comprehensive Loss, net of tax

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

Other Comprehensive (Loss) Income, net of tax

Net unrealized gain on available-for-sale securities

Defined benefit plan adjustments

Foreign currency translation loss

Other Comprehensive Loss, net of tax

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

Foreign currency translation (loss) gain

Other Comprehensive (Loss) Income, net of tax

Comprehensive Loss, net of tax

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

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

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(In thousands, except per share amounts)

(Deficit) Earnings

Accumulated Other Comprehensive Income

Non-controlling interest

Balance as of December 31, 2023

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

Other comprehensive income, net of tax

Dividend payments to ADTRAN Holdings, Inc.

shareholders ($ 0.09 per share)

Deferred compensation adjustments, net of tax

ADTRAN RSUs and restricted stock vested

ADTRAN stock options exercised

ADTRAN stock-based compensation expense

Redemption of redeemable non-controlling interest

Foreign currency remeasurement of redeemable non-controlling interest

Annual recurring compensation earned

Adtran Networks stock-based compensation expense

Balance as of March 31, 2023

Other comprehensive income, net of tax

Dividend payments to ADTRAN Holdings, Inc.

shareholders ($ 0.09 per share)

Dividends accrued for RSUs

Deferred compensation adjustments, net of tax

ADTRAN RSUs and restricted stock vested

Adtran Networks stock options exercised

ADTRAN stock-based compensation expense

Redemption of redeemable non-controlling interest

Foreign currency remeasurement of redeemable non-controlling interest

Annual recurring compensation earned

Adtran Networks stock-based compensation expense

Balance as of June 30, 2023

Other comprehensive loss, net of tax

Dividend payments ($ 0.09 per share)

Dividends accrued for RSUs

Deferred compensation adjustments, net of tax

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ADTRAN stock options exercised

Adtran Networks stock options exercised

ADTRAN stock-based compensation expense

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Foreign currency remeasurement of redeemable non-controlling interest

Annual recurring compensation earned

Adtran Networks stock-based compensation expense

Balance as of September 30, 2023

ADVA stock-based compensation expense

Balance as of March 31, 2024

See accompanying notes to condensed consolidated financial statements.

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(In thousands, except per share amounts)

Accumulated Other Comprehensive Loss

Accumulated Other Comprehensive Income

Non-controlling interest

Balance as of December 31, 2022

Other comprehensive loss, net of tax

Dividend payments ($ 0.09 per share)

Dividends accrued on unvested RSUs

Deferred compensation adjustments, net of tax

PSUs, RSUs and restricted stock vested

Stock options exercised

Stock-based compensation expense

Balance as of March 31, 2022

Other comprehensive loss, net of tax

Dividend payments ($ 0.09 per share)

Dividends accrued on unvested RSUs

Deferred compensation adjustments, net of tax

PSUs, RSUs and restricted stock vested

Stock options exercised

Stock-based compensation expense

Balance as of June 30, 2022

Acquisition of Adtran Networks

Retirement of treasury stock

Other comprehensive loss, net of tax

Dividend payments ($ 0.09 per share)

Annual recurring compensation earned

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

Other comprehensive income, net of tax

Dividend payments to ADTRAN Holdings, Inc.

shareholders ($ 0.09 per share)

Deferred compensation adjustments, net of tax

2 unchanged sentences

ADTRAN stock-based compensation expense

Reclassification of Adtran Networks stock options

Adtran Networks stock options exercised

Adtran Networks stock-based compensation expense

Balance as of September 30, 2022

Redemption of redeemable non-controlling interest

Foreign currency remeasurement of redeemable non-controlling interest

ADVA stock-based compensation expense

Balance as of March 31, 2023

See accompanying notes to condensed consolidated financial statements.

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(In thousands)

Nine Months Ended

September 30,

Cash flows from operating activities:

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

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

Depreciation and amortization

Asset impairment

Goodwill Impairment

Amortization of debt issuance cost

(Gain) loss on investments, net

Gain on investments, net

Net loss on disposal of property, plant and equipment

Stock-based compensation expense

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Other receivables

Income taxes receivable, net

Prepaid expenses, other current assets and other assets

2 unchanged sentences

Income taxes payable, net

Net cash used in operating activities

Net cash provided by (used in) operating activities

Cash flows from investing activities:

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Purchases of available-for-sale investments

Proceeds from beneficial interests in securitized accounts receivable

Proceeds from disposals of property, plant and equipment

Acquisition of business, net of cash acquired

Net cash (used in) provided by investing activities

Payment for beneficial interests in securitized accounts receivable

Net cash used in investing activities

Cash flows from financing activities:

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Dividend payments

Proceeds from receivables purchase agreement

Repayments on receivables purchase agreement

Proceeds from draw on revolving credit agreements

Repayment of revolving credit agreements

Non-controlling interest put option buyback

Payment for redemption of redeemable non-controlling interest

Payment of debt issuance cost

Repayment of notes payable

Net cash provided by financing activities

Net cash (used in) provided by financing activities

Net increase in cash and cash equivalents

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Cash paid for interest

Cash paid for income taxes

Cash used in operating activities related to operating leases

2 unchanged sentences

Purchases of property, plant and equipment included in accounts payable

Adtran Networks common shares exchanged in acquisition

Adtran Networks options assumed in acquisition

Non-controlling interest related to Adtran Networks

See accompanying notes to condensed consolidated financial statements.

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ADTRAN Holdings, Inc.

(“ADTRAN”

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

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

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

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

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

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

ADTRAN Holdings, Inc.

solely owns ADTRAN, Inc.

The Company solely owns ADTRAN, Inc.

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

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

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

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

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

Domination and Profit and Loss Transfer Agreement

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

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

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

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

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 and in particular upon the convergence of solutions at the network edge.

Liquidity, Domination and Profit and Loss Transfer Agreement and Credit Facility

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

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.

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

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

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

325.3 million or approximately $ 344.2 million, based on an exchange rate as of September 30, 2023 and reflecting interest accrued through September 30, 2023 during the pendency of the appraisal proceedings discussed below.

The guaranteed interest rate is 5.0 % plus a variable component (according to the German Civil Code) that was 3.62 % as of March 31, 2024.

Assuming all the minority holders of currently outstanding Adtran Networks shares were to elect the second option, we would be obligated to make aggregate Exit Compensation payments, including guaranteed interest, of approximately € 338.9 million or approximately $ 365.7 million, based on an exchange rate as of March 31, 2024 and reflecting interest accrued through March 31, 2024 during the pendency of the appraisal proceedings discussed below.

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

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

Additionally, our obligation to pay Annual Recurring Compensation under the DPLTA is a continuing payment obligation, which will amount to approximately €

10.6 million or $ 11.2 million (based on the current exchange rate) per year assuming none of the minority Adtran Networks shareholders were to elect Exit Compensation.

Additionally, our obligation to pay Annual Recurring Compensation under the DPLTA is a continuing payment obligation, which will amount to approximately € 10.6 million or $ 11.5 million (based on the current exchange rate) per year assuming none of the minority Adtran Networks shareholders were to elect Exit Compensation.

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

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

During the three months ended March 31, 2024 and 2023, we accrued $ 2.9 million and $ 2.8 million, respectively, in Annual Recurring Compensation, which was reflected as an increase to retained deficit.

With respect to the year ended December 31, 2023, we are obligated to pay $ 11.5 million in Annual Recurring Compensation on the third banking day following the 2024 ordinary general shareholders’ meeting of Adtran Networks, which is expected to occur on June 28, 2024 (but in any event within eight months following December 31, 2023).

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

For the three and nine months ended September 30, 2023, less than 1 thousand shares and 64 thousand shares, respectively, of Adtran Networks stock was tendered to the Company and Exit Compensation payments of approximately €

8 thousand and €

1.1 million, respectively, or approximately $ 9 thousand and $ 1.2 million, respectively, based on an exchange rate as of September 30, 2023, were paid to Adtran Networks shareholders.

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

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

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

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

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

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

On July 18, 2022, ADTRAN Holdings, Inc.

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

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

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

and, together with the Credit Agreement, the “Credit Facility”).

The Credit Facility matures in July 2027;

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

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

For the three months ended March 31, 2024 and 2023, less than one thousand and 62 thousand shares, respectively, of Adtran Networks stock was tendered to the Company and Exit Compensation payments of approximately € 4 thousand and € 1.1 million, respectively, or approximately $ 5 thousand and $ 1.2 million based on an exchange rate as of March 31, 2024 and 2023, respectively, were paid to Adtran Networks shareholders.

On July 18, 2022, ADTRAN, Inc., as the borrower, and ADTRAN Holdings, Inc.

entered into a credit agreement with a syndicate of banks, including Wells Fargo Bank, National Association, as administrative agent (“Administrative Agent”), and the other lenders named therein (the “Credit Agreement”), which has since been amended three times.

Pursuant to the terms of the Credit Agreement, as amended, the Company, ADTRAN, Inc., and the subsidiary guarantors (together, the “Credit Parties”) are subject to a liquidity covenant, which provides that, during the fourth quarter of 2023 through and including the third quarter of 2024 (the “Covenant Relief Period”) or a Springing Covenant Period (i.e., the period beginning upon the purchase by the Company of at least 60% of the outstanding shares of Adtran Networks not owned by the Company as of August 9, 2023 and the three consecutive quarterly test periods after such date ), as of the last day of any fiscal quarter, the cash and cash equivalents of the Credit Parties must be at least $ 50.0 million and the cash and cash equivalents of the Company and its subsidiaries must be at least $ 75.0 million, limiting our ability to pay the obligations under the DPLTA.

The Company had access to $ 203.0 million on its Credit Facility for future borrowings;

however, as of March 31, 2024, the Company was limited to additional borrowings of $ 22.7 million based on debt covenant compliance metrics.

See Note 11, Revolving Credit Agreements for additional information regarding the terms of the Wells Fargo Credit Agreement and its amendments.

As of March 31, 2024, and as of the date of issuance of these financial statements, the Company does not have sufficient liquidity to meet payment obligations under the DPLTA pertaining to Exit Compensation.

We believe the probability that more than a small minority of Adtran Networks shareholders elect to receive Exit Compensation in the next twelve months is remote based on the diverse base of shareholders that must make this election on an individual shareholder basis, the current ongoing appraisal proceedings involving a dispute on the value of the Exit Compensation which is expected to take 24-32 months to resolve, the current guaranteed Annual Recurring Compensation payment plus the interest earned on such shares during the ongoing appraisal proceedings, and the current trading value of Adtran Networks shares.

The Company experienced revenue declines in the year ended December 31, 2023 and during the three months ended March 31, 2024.

To the extent that the Company is further impacted by the uncertain macroeconomic environment related to continued elevated interest rates and ongoing inflationary pressures, the Company has established plans to preserve cash liquidity and maintain compliance with the Company’s covenants.

The Company has suspended dividend payments and is continuing to implement a business efficiency program, which includes, but is not limited to planned reductions in operating expenses and a site consolidation plan.

In connection with

the site consolidation plan, the Company is also exploring a potential sale of portions of our headquarters in Huntsville.

There can be no assurance that the Company will be successful in effecting this action on commercially reasonable terms or at all.

We may need to further reduce capital expenditures and/or take other steps to preserve working capital in order to ensure that we can meet our needs and obligations and maintain compliance with our debt covenants.

In summary, the Company believes that its cash and cash equivalents, investments, working capital management initiatives and availability to access cash under the Wells Fargo credit facility, including (i) the additional funding provided for under the First Amendment to the Wells Fargo Credit Facility that was signed on August 9, 2023, (ii) the additional covenant headroom during the Covenant Relief Period provided for under the Second Amendment to Wells Fargo Credit Facility, and (iii) the exclusion of the Factoring Agreement as debt for purposes of the Credit Facility’s financial covenants as provided for under the Third Amendment to the Wells Fargo Credit Facility will be adequate to meet our business operating requirements, our capital expenditures and our expected obligations under the DPLTA, including anticipated levels of Exit Compensation and ability to continue to comply with our debt covenants under the Credit Facility, for at least the next twelve months, from the issuance of these financial statements.

See Note 11, Revolving Credit Agreements, for additional information regarding the terms of the First, Second and Third Amendments of the Wells Fargo Credit agreement.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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and its subsidiaries have been prepared pursuant to the rules and regulations of the SEC applicable to interim financial information presented in Quarterly Reports on Form 10-Q.

Accordingly, certain information and notes required by generally accepted accounting principles in the United States of America (“U.S.

GAAP”) for complete financial statements are not included herein.

Accordingly, certain information and notes required by generally accepted accounting principles in the United States of America (“U.S.

GAAP”) for complete financial statements are not included herein.

The December 31, 2023 Condensed Consolidated Balance Sheet is derived from audited financial statements but does not include all disclosures required by U.S.

GAAP for annual financial statements.

In the opinion of management, all adjustments necessary to fairly state these interim statements have been recorded and are of a normal and recurring nature.

The results of operations for an interim period are not necessarily indicative of the results for the full year.

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

1 to the ADTRAN Holdings, Inc.

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

The interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in ADTRAN Holdings, Inc.

Annual Report on Form 10-K for the year ended December 31, 2023 , filed with the SEC on March 15, 2024.

Use of Estimates

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Actual amounts could differ significantly from these estimates.

We assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to us and the unknown future impacts of supply chain constraints, inflationary pressures, the energy crisis, currency fluctuations and political tensions as of September 30, 2023, and through the date of this report.

We assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to us and the unknown future impacts of ongoing inflationary pressures, the energy crisis, currency fluctuations and political tensions as of March 31, 2024, and through the date of this report.

The accounting matters assessed included, but were not limited to, the allowance for credit losses, stock-based compensation, carrying value of goodwill, intangibles and other long-lived assets, financial assets, valuation allowances for tax as sets, revenue recognition and costs of revenue.

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

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

Accounts Receivable Factoring

New Accounts Receivable Factoring Agreement

On December 19, 2023, the Company entered into a new factoring agreement with a third-party financial institution to replace the Company’s prior accounts receivable purchase agreement, to sell on a revolving basis, undivided interests in the Company’s accounts receivable.

The new factoring agreement qualifies for treatment as a secured borrowing with a pledge of collateral under Accounting Standards Codification ("ASC") Topic 810, Consolidations, as the Company is considered the primary beneficiary in a variable interest entity created to hold the factored receivables and the Company retains a residual claim on reserves related to the factored receivables .

Within the Condensed Consolidated Balance Sheets, the receivables factored continue to be carried in accounts receivable, less allowance for credit losses, and the secured borrowings are carried as a current liability within accounts payable.

The proceeds and repayments of secured borrowings are reflected as cash flows provided by (used in) financing activities within the Condensed Consolidated Statements of Cash Flows, and program fees are recorded as interest expense in the Consolidated Statements of Loss.

The short-term liability classification of the secured borrowings is based on the estimated timing of the collection of the accounts receivable which are expected to be received within 12 months.

See Note 2 for additional information.

Previous Accounts Receivable Factoring Agreement

The Company had previously entered into a factoring agreement to sell certain receivables to an unrelated third-party financial institution on a non-recourse basis.

These transactions were accounted for in accordance with ASC Topic 860 and resulted in a reduction in accounts receivable because the agreement transferred effective control over and risk related to the receivables to the buyers.

Trade accounts receivables balances sold were removed from the Condensed Consolidated Balance Sheets and cash received was reflected as cash flows provided by (used in) operating activities in the Condensed Consolidated Statements of Cash Flow.

Factoring related interest expense was recorded to interest expense on the Condensed Consolidated Statements of Loss.

On each sale date, the financial institution retained from the sale price a default reserve, up to a required balance, which was held by the financial institution in a reserve account and pledged to the Company.

The financial institution was entitled to withdraw from the reserve account the sale price of a defaulted receivable.

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

Redeemable Non-Controlling Interest

As of September 30, 2023 and December 31, 2022, the non-controlling Adtran Networks stockholders’

equity ownership percentage in Adtran Networks was approximately 34.6 % and 34.7 %, respectively.

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

As of March 31, 2024 and December 31, 2023, the non-controlling Adtran Networks stockholders’ equity ownership percentage in Adtran Networks was approximately 34.7 % for each period.

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

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

For the period of time that the DPLTA is in effect, the RNCI will continue to be presented as RNCI outside of stockholders’

equity in the Condensed Consolidated Balance Sheets.

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

See Note 14 for additional information on RNCI .

Recently Adopted Accounting Pronouncements

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

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

Recent Accounting Pronouncements Not Yet Adopted

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

BUSINESS COMBINATION

Adtran Networks SE (formerly ADVA Optical Networking SE)

On August 30, 2021 , ADTRAN, Inc.

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

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

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

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

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

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

The Exchange Offer was settled on July 15, 2022 (the "Exchange Offer Settlement Date"), on which date the Company acquired 33,957,538 bearer shares of Adtran Networks, or 65.43 % of Adtran Networks’

outstanding bearer shares as of the Exchange Offer Settlement Date, in exchange for the issuance of an aggregate of 27,994,595 shares of Company Common Stock.

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

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

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

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

and Adtran Networks became subsidiaries of ADTRAN Holdings, Inc.

as a result of the Business Combination.

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

shareholders’

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

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

(“ASC 805”).

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

stockholders in the post-closing combined company (calculated on a fully diluted basis and utilizing the tender of 65.43 % of Adtran Networks’

current issued and outstanding share capital) as of July 15, 2022.

Therefore, ADTRAN, Inc.

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

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

and three members from Adtran Networks;

the ADTRAN, Inc.

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

Additionally, the ADTRAN, Inc.

chief executive officer and ADTRAN, Inc.

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

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

represented the accounting acquirer.

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

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

Purchase Price

Adtran Networks shares exchanged

Exchange ratio

ADTRAN Holdings, Inc.

shares issued

ADTRAN Holdings, Inc.

share price on July 15, 2022

Purchase price paid for Adtran Networks shares

Equity compensation (1)

Total purchase price

(1) Represents the portion of replacement share-based payment awards that relates to pre-combination vesting.

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

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

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

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

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

Backlog was valued using the distributor method.

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

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

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

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

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

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

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

(In thousands)

Total purchase price

Non-controlling interest

Cash and cash equivalents

Accounts receivable

Other receivables

Prepaid expenses and other current assets

Property plant and equipment

Deferred tax assets

Other non-current assets

Accounts payable

Current unearned revenue

Accrued expenses and other liabilities

Current portion of notes payable

Income tax payable, net

Tax liabilities

Non-current unearned revenue

Pension liability

Other non-current liabilities

Non-current portion of revolving credit agreements and notes payable

Non-current lease obligations

Deferred tax liabilities

Total net assets acquired

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

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

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

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

(In thousands)

Estimated-average useful life (in years) (1)

Income Statement Amortization Classification

Developed technology

Cost of revenue - Network Solutions

Cost of revenue - Network Solutions and Services & Support

Customer relationships

Selling, general and administrative expenses

(1) Determination of the weighted average period of the individual categories of intangible assets was based on the nature of the applicable intangible asset and the expected future cash flows to be derived from the intangible asset.

Amortization of intangible assets with definite lives is recognized over the period of time the assets are expected to contribute to future cash flows.

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

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

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

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

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

See Note 18 of the Notes to Consolidated Financial Statements, included in this report for more information about the Company’s segments.

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

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

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

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

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

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

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

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

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

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

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

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

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

Supplemental Pro Forma Information (Unaudited)

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

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

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

The following unaudited pro forma information is presented for illustrative purposes only.

It is not necessarily indicative of the results of operations of future periods, the results of operations that actually would have been realized had the entities been a single company as of January 1, 2022, or the future operating results of the combined entities.

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

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

Three Months Ended

Nine Months Ended

(In thousands)

September 30, 2022

In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") 2023-09, "Income Taxes (Topic 740):

Improvements to Income Tax Disclosures", which is intended to enhance the transparency, decision usefulness and effectiveness of income tax disclosures.

The amendments in this ASU require a public entity to disclose a tabular tax rate reconciliation, using both percentages and currency, with specific categories.

A public entity is also required to provide a qualitative description of the states and local jurisdictions that make up the majority of the effect of the state and local income tax category and the net amount of income taxes paid, disaggregated by federal, state and foreign taxes and also disaggregated by individual jurisdictions.

The amendments also remove certain disclosures that are no longer considered cost beneficial.

The amendments are effective prospectively for annual periods beginning after December 15, 2024, and early adoption and retrospective application are permitted.

The Company is currently evaluating the effect that adoption of ASU 2023-09 will have on our disclosures.

In November 2023, the FASB issued ASU 2023-7, "Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures", which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses, allowing financial statement users to better understand the components of a segment's profit or loss to assess potential future cash flows for each reportable segment and the entity as a whole.

The amendments expand a public entity's segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker ("CODM"), clarifying when an entity may report one or more additional measures to assess segment performance, requiring enhanced interim disclosures, providing new disclosure requirements for entities with a single reportable segment, and requiring other new disclosures.

The amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and early adoption is permitted.

The Company expect to adopt the new disclosures as required for the year ended December 31, 2024.

The Company is currently evaluating the impact on the related disclosures.

Recent Final Rules Not Yet Adopted

In March 2024, the SEC adopted final rules under SEC Release No.

33-11275, The Enhancement and Standardization of Climate-Related Disclosures for Investors , which requires registrants to provide certain climate-related information in their registration statements and annual reports.

The rules require information about a registrant's climate-related risks that are reasonably likely to have a material impact on its business, results of operations, or financial condition.

The required information about climate-related risks will also include disclosure of a registrant's greenhouse gas emissions.

In addition, the rules will require registrants to present certain climate-related financial metrics in their audited financial statements.

These requirements are effective for the Company in various fiscal years, starting with its fiscal year beginning January 1, 2025.

Disclosures will be required prospectively, with information for prior periods required only to the extent it was previously disclosed in an SEC filing.

The Company is currently evaluating the impact of these final rules on its consolidated financial statements and disclosures.

On April 12, 2024, the final rules were indefinitely delayed pending the completion of judicial review in consolidated proceedings in the U.S.

Court of Appeals, Eighth Circuit.

Recently Adopted Accounting Pronouncements

There are currently no recently adopted accounting pronouncements that are expected to have a material effect on the Condensed Consolidated Financial Statements.

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

2 unchanged sentences

Revenue by Category

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

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

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

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

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

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

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

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

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

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.

1 unchanged sentence

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

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

metro network, primarily through fiber-based connectivity.

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

3 unchanged sentences

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 following tables disaggregate revenue by reportable segment and revenue category.

Prior year amounts presented below have been reclassified to conform to the current period revenue category presentation:

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

Three Months Ended

September 30, 2023

September 30, 2022

March 31, 2024

March 31, 2023

(In thousands)

3 unchanged sentences

Services & Support

Optical Networking Solutions

Access & Aggregation Solutions

Subscriber Solutions

Nine Months Ended

September 30, 2023

September 30, 2022

(In thousands)

Network Solutions

Services & Support

Network Solutions

Services & Support

Optical Networking Solutions

Access & Aggregation Solutions

Subscriber Solutions

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

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

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

Optical Networking Solutions

The aggregate amount of transaction price allocated to remaining performance obligations that have not been satisfied as of March 31, 2024 and December 31, 2023 related to contractual maintenance agreements, contractual SaaS and subscription services, and hardware contracts that exceed one year in duration amounted to $ 346.9 million and $ 314.8 million, respectively.

As of March 31, 2024, approximately 61.0 % is expected to be recognized over the next 12 months and the remainder recognized thereafter.

The majority of the Company's remaining performance obligations as of March 31, 2024 are related to contracts or orders that have an original expected duration of one year or less, for which the Company is electing to utilize the practical expedient available within the guidance, and are excluded from the transaction price related to these future obligations.

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

The following table provides information about receivables, contract assets and unearned revenue from contracts with customers:

The following table provides information about accounts receivable, contract assets and unearned revenue from contracts with customers:

(In thousands)

September 30, 2023

March 31, 2024

December 31, 2023

4 unchanged sentences

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

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

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

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

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

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

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

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

Accounts Receivable

The Company records accounts receivable in the normal course of business as products are shipped or services are performed and invoiced, but payment has not yet been remitted by the customer.

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

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

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

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

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

If elevated risk existed, or customer specific risk indicated the accounts receivable balance was at risk, the Company further analyzed the need for an allowance related to specific accounts receivable balances.

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

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

The allowance for credit losses was $ 0.4 million as of March 31, 2024 and December 31, 2023, related to accounts receivable.

Contract Assets

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

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

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

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

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

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

If elevated risk existed, or customer specific risk indicated the contract balance was at risk, the Company further analyzed the need for an allowance related to specific customer balances.

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

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

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

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

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

federal tax return.

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

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

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

No allowance for credit losses was recorded for the three months ended March 31, 2024 and 2023 related to contract assets.

Receivables Purchase Agreement

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

As of December 31, 2023 no accounts receivable were factored under the agreement or held in the reserve account.

The cost of receivables purchase agreement is included in interest expense in the Condensed Consolidated Statements of Loss and totaled $ 0.3 million for the three months ended March 31, 2023.

On December 19, 2023, the agreement with the Factor was terminated and the Company, entered into a receivables purchase agreement with a third-party financial institution (the “New Factor”) to replace the Company’s prior accounts receivable purchase agreement and to sell, on a revolving basis, undivided interests in the Company’s accounts receivable.

The New Factor provides for up to $ 40.0 million in borrowing capacity, subject to eligible receivables and reserve requirements, secured by the receivables.

The New Factor qualifies for treatment as a secured borrowing with a pledge of collateral under Accounting Standards Codification ("ASC") Topic 810, Consolidations .

Total secured borrowings under the agreement were $ 12.6 million and $ 14.3 million as of March 31, 2024 and December 31, 2023, respectively, leaving $ 27.2 million and $ 25.4 million available for future borrowings as of March 31, 2024 and December 31, 2023, respectively.

Accounts receivable pledged as collateral related to the secured borrowings were $ 16.4 million and $ 16.8 million as of March 31, 2024 and December 31, 2023, respectively.

For the three months ended March 31, 2024, the Company incurred program fee expenses of $ 0.3 million.

As of March 31, 2024, the program fee rate was 6.88 % percent.

Of the outstanding unearned revenue balances as of December 31, 2023, $ 19.7 million were recognized as revenue during the three months ended March 31, 2024 .

Of the $ 60.4 million of outstanding unearned revenue balances as of December 31, 2022, $ 25.6 million were recognized as revenue during the three months ended March 31, 2023 .

The Company’s effective tax rate changed from a benefit of 21.9 % of pre-tax loss for the three months ended March 31, 2023 , to a benefit of 5.5 % of pre-tax loss for the three months ended March 31, 2024.

The change in the effective tax rate for the three months ended March 31, 2024, was driven primarily by a loss jurisdiction for which no tax benefits were recognized on its pre-tax losses during the first quarter of 2024.

The Company continually reviews the adequacy of its valuation allowance and recognizes the benefits of deferred tax assets only as the assessment indicates that it is more likely than not that the deferred tax assets will be recognized in accordance with ASC 740, Income Taxes.

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

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

As of March 31, 2024, the Company had net deferred tax assets totaling $ 96.5 million, and a valuation allowance totaling $ 86.5 million against those deferred tax assets.

Our assessment of the realizability of our deferred tax assets includes the evaluation of historical operating results, as well as the evaluation of evidence which requires significant judgment, including the evaluation of our three-year cumulative income position, future taxable income projections and tax planning strategies.

Should management’s conclusion change in the future and an additional valuation allowance, or a partial or full release of the valuation allowance becomes necessary, it may have a material effect on our consolidated financial statements.

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

As of September 30, 2023

(In thousands)

Deferred Tax Assets (Liabilities)

Valuation Allowance

Deferred Tax Assets (Liabilities), net

International

As of December 31, 2022

(In thousands)

Deferred Tax Assets (Liabilities)

Valuation Allowance

Deferred Tax Assets (Liabilities), net

International

STOCK-BASED COMPENSATION

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

For the three months ended March 31, 2024 and 2023 , stock-based compensation expense was $ 4.0 million and $ 2.6 million, respectively.

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

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

The following table summarizes the PSUs, RSUs and restricted stock outstanding as of December 31, 2023 and March 31, 2024 and the changes that occurred during the three months ended March 31, 2024:

(in thousands)

1 unchanged sentence

Grant Date Fair Value

Unvested RSUs and restricted stock outstanding, December 31, 2022

RSUs and restricted stock granted

RSUs and restricted stock vested

RSUs and restricted stock forfeited

Unvested RSUs and restricted stock outstanding, September 30, 2023

During the nine months ended September 30, 2023, the Company granted 0.9 million performance-based PSUs to its executive officers and certain employees.

The grant-date fair value of these performance-based awards was based on the closing price of the Company’s stock on the date of grant.

These awards vest over either a two or three-year period, subject to the gra ntee’s continued employment, with the ability to earn shares in a range of 0 % to either 100 % or 150 % of the awarded number of PSUs based on the achievement of defined performance targets.

Equity-based compensation expense and liabilities with respect to these awards may be adjusted over the vesting period to reflect the probability of achievement of performance targets defined in the award agreements.

The fair value of RSUs and restricted stock is equal to the closing price of its stock on the date of grant.

Unvested PSUs, RSUs and restricted stock outstanding, December 31, 2023

PSUs, RSUs and restricted stock granted

PSUs, RSUs and restricted stock vested

PSUs, RSUs and restricted stock forfeited

Unvested PSUs RSUs and restricted stock outstanding, March 31, 2024

The fair value of PSUs with performance conditions, RSUs and restricted stock is equal to the closing price of the Company's stock on the date of grant.

The fair value of PSUs with market conditions is calculated using a Monte Carlo simulation valuation method.

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

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

As of March 31, 2024 , total unrecognized compensation expense related to non-vested portion of performance-based PSUs (considered probable), market-based PSUs, RSUs and restricted stock was approximately $ 19.4 million, which will be recognized over the remaining weighted-average period of 1.8 years.

As of March 31, 2024, there was $ 10.2 million of unrecognized compensation expense related to unvested performance-based PSUs (not-considered probable), which will be recognized over the remaining requisite service period of 1.8 years if achievement of the performance obligation becomes probable.

Unrecognized compensation expense will be adjusted for actual forfeitures.

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

As of March 31, 2024, 0.5 million shares were available for issuance under stockholder-approved equity plans.

Stock Options - ADTRAN Holdings, Inc.

The following table summarizes the ADTRAN Holdings, Inc.

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

stock options outstanding as of December 31, 2023 and March 31, 2024 and the changes that occurred during the three months ended March 31, 2024:

Stock Options

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Stock options outstanding, December 31, 2023

Stock options granted

Stock options exercised

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Stock options expired

Stock options outstanding, September 30, 2023

Stock options exercisable, September 30, 2023

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

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

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

The maximum number of shares of ADTRAN Holdings, Inc.

stock potentially issuable upon such assumption was 2.3 million shares.

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

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

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

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

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

Stock options outstanding, March 31, 2024

Stock options exercisable, March 31, 2024

As of March 31, 2024 , there was $ 6.6 million of unrecognized compensation expense related to stock options which will be recognized over the remaining weighted-average period of 1.6 years.

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

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

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

The aggregate intrinsic value of stock options represents the total pre-tax intrinsic value (the difference between the Company's closing stock price on the last trading day of the quarter and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on September 30, 2023 .

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

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

Stock Options - Adtran Networks

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

(In thousands)

Exercise Price

Weighted Avg.

Contractual Life

Intrinsic Value

(In thousands)

Stock options outstanding, December 31, 2022

Stock options exercised

Stock options forfeited

Stock options expired

Stock options outstanding, September 30, 2023

Stock options exercisable, September 30, 2023

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

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

The aggregate intrinsic value of Adtran Networks stock options represents the total pre-tax intrinsic value (the difference between Adtran Networks closing stock price on the last trading day of the quarter and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on September 30, 2023 .

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

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

The amount of aggregate intrinsic value was $ 0.3 million as of March 31, 2024, which will change based on the fair market value of the Company's stock.

The total pre-tax intrinsic value of options exercised during the three months ended March 31, 2024 and 2023 was $ 34 thousand and $ 43 thousand, respectively.

No stock options vested during the three months ended March 31, 2024 and 2023.

Debt Securities and Other Investments

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

As of December 31, 2022

Gross Unrealized

(In thousands)

Corporate bonds

Municipal fixed-rate bonds

Asset-backed bonds

Mortgage/Agency-backed bonds

government bonds

Foreign government bonds

Available-for-sale debt securities held at fair value

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

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

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

The Company did no t have any debt securities and other investments as of March 31, 2024.

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

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

Three Months Ended

Nine Months Ended

September 30,

(In thousands)

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Total loss recognized, net

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

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

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

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

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

Three Months Ended

Nine Months Ended

September 30,

(In thousands)

Unrealized gain (loss) on equity securities held

Realized gain (loss) on equity securities sold

Total gain (loss) recognized, net

Realized gain on equity securities sold

Unrealized gain on equity securities held

Total gain recognized, net

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

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

Level 1 –

Observable outputs;

Level 1 – Observable outputs;

values based on unadjusted quoted prices for identical assets or liabilities in an active market;

Level 2 –

Significant inputs that are observable;

Level 2 – Significant inputs that are observable;

values based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly;

Level 3 –

Significant unobservable inputs;

Level 3 – Significant unobservable inputs;

values based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement.

These inputs could include information supplied by investees.

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

Fair Value Measurements as of September 30, 2023 Using

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

Fair Value Measurements as of March 31, 2024 Using

(In thousands)

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Cash equivalents

government securities

Money market funds

Commercial paper

Total cash equivalents

Marketable equity securities

Marketable equity securities –

various industries

Marketable equity securities – various industries

Deferred compensation plan assets

Total long-term investments

Fair Value Measurements as of December 31, 2023 Using

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Money market funds

Total cash equivalents

Available-for-sale debt securities

Corporate bonds

Municipal fixed-rate bonds

Asset-backed bonds

Mortgage/Agency-backed bonds

government bonds

Foreign government bonds

Marketable equity securities

Marketable equity securities –

various industries

Marketable equity securities – various industries

Deferred compensation plan assets

Total short-term and long-term investments

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

Market prices are obtained from a variety of industry standard data providers, large financial institutions and other third-party sources.

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(In thousands)

September 30, 2023

March 31, 2024

December 31, 2023

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Inventory reserves are established for estimated excess and obsolete inventory equal to the difference between the cost of the inventory and the estimated net realizable value of the inventory based on estimated reserve percentages, which considers historical usage, known trends, inventory age and market conditions.

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

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

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

During the three months ended March 31, 2024, we incurred total charges of $ 8.8 million as a result of a strategy shift which included discontinuance of certain product lines in connection with the Business Efficiency Program, of which, $ 4.0 million relates to inventory write-downs and $ 4.8 million relates to other charges, and are included in cost of revenue in the Condensed Consolidated Statements of Loss.

There were no write-downs of inventory during the three months ended March 31, 2023.

PROPERTY, PLANT AND EQUIPMENT

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(In thousands)

September 30, 2023

March 31, 2024

December 31, 2023

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Total property, plant and equipment, net

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

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

As a result, the Company recognized impairment charges of $ 17.0 million during the three and nine months ended September 30, 2022 related to capitalized implementation costs for a cloud computing arrangement.

The impairment charges were determined based on actual costs incurred.

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

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

The changes in the carrying amount of goodwill for the nine months ended September 30, 2023 are as follows:

Depreciation expense was $ 7.2 million and $ 7.6 million for the three months ended March 31, 2024 and 2023 , respectively, which is recorded in cost of revenue, selling, general and administrative expenses and research and development expenses in the Condensed Consolidated Statements of Loss.

The changes in the carrying amount of goodwill for the three months ended March 31, 2024 are as follows:

(In thousands)

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Foreign currency translation adjustments

As of September 30, 2023

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

As of March 31, 2024

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

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

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

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

The Company performs its annual goodwill impairment assessment on the first day of the fourth quarter.

In addition, the Company performs an interim impairment assessment prior to our October 1st annual measurement date whenever events or changes in circumstances indicate that the carrying amount of such assets (or group of assets) may not be recoverable.

During the third quarter of 2023, the Company identified a triggering event due to a decrease in the Company’s market capitalization and changes in projections (decrease in estimated cash flows).

While the quantitative impairment analysis indicated that there was no impairment of Network Solutions goodwill, the Company determined that a $ 37.9 million non-cash impairment charge for goodwill was warranted for the Services & Support reporting unit.

During the fourth quarter of 2023, the Company completed its annual

impairment test.

There were no significant market changes or changes to cash flow projections, as such no triggering event was identified during the fourth quarter of 2023.

During the first quarter of 2024, qualitative factors such as a decrease in the Company’s market capitalization, lower service provider spending and delayed holding patterns of inventory with respect to customers caused us to reduce our forecasts, triggering a quantitative impairment assessment for our reporting units.

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

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

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

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

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

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

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

The significant inputs and assumptions used in the determination of the fair value of our reporting units based on future cash flows for the reporting units, requires significant judgment and the use of estimates and assumptions related to cash flow projections, discount rate, peer group determination and market multiple selection.

The Company determined upon its quantitative impairment assessment to recognize a $ 292.6 million non-cash goodwill impairment charge for the Network Solutions reporting unit.

The quantitative impairment analysis indicated there was no impairment of the Services & Support goodwill.

No impairment of goodwill was recorded during the three months ended March 31, 2023.

As of March 31, 2024, accumulated goodwill impairment losses totaled $ 330.5 million.

Subsequent to March 31, 2024, the Company has experienced volatility in its stock price which reduced the market value of the Company’s common stock as of this filing.

INTANGIBLE ASSETS

Intangible assets consisted of the following:

As of September 30, 2023

As of March 31, 2024

As of December 31, 2023

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The Company assessed impairment triggers related to intangible assets during each financial period in 2024 and 2023.

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

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

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

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

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

During the first quarter of 2024, qualitative factors such as a decrease in the Company’s market capitalization, cautious service provider spending due to economic uncertainty and continued customer inventory adjustments triggered a quantitative reassessment of our estimated future undiscounted cash flows for our Network Solutions reporting unit.

The Company determined that our estimated future undiscounted cash flows exceeded the carrying value of our Network Solutions reporting unit as of March 31, 2024.

Our Services & Support asset group is a stable business with gross margins of 58 %, the Company has sufficient cash flows that exceed the carrying value as of March 31, 2024.

No impairment losses related to intangible assets were recorded during the three months ended March 31, 2024 and 2023.

Amortization expense was $ 14.6 million and $ 25.8 million in the three months ended March 31, 2024 and 2023, respectively, and was included in cost of revenue, selling, general and administrative expenses and research and development expenses in the Condensed Consolidated Statements of Loss.

Estimated future amortization expense of intangible assets is as follows:

(In thousands)

September 30, 2023

March 31, 2024

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

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We have not experienced credit losses from our counterparties.

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

As of March 31, 2024, the Company had 45 fo rward rate contracts outstanding.

Foreign Currency Hedging Arrangements

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

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

(the “Hedge Counterparty”).

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

Under the Initial Forward, the Company agreed to exchange an aggregate notional amount of €

160.0 million for U.S.

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

(the “Hedge Counterparty”).

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

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

dollars at a daily fixed forward rate ranging from $ 1.01 to $ 1.03 .

The aggregate amount of €

160.0 million is divided into eight quarterly tranches of €

20.0 million, which commenced in the fourth quarter of 2022.

During the nine months ended September 30, 2023, the Company se ttled three €

20.0 million forward contract tranches a nd the remaining amount will be divided into five quarterly tranches of €

20.0 million.

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

During the three months ended March 31, 2024, the Company settled one € 20.0 million forward contract tranches and the remaining amount will be divided into three quarterly tranches of € 20.0 million over the remainder of 2024.

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

2 unchanged sentences

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

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

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

160.0 million for U.S.

dollars at a daily fixed forward rate of $ 1.085 per €

1.00 in average.

During the nine months ended September 30, 2023, the Company se ttled three €

20.0 million forward contract tranches, a nd the remaining amount will be divided into five quarterly tranches of €

20.0 million.

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

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

dollars for euros at a daily fixed forward rate ranging from $ 1.09 to $ 1.10 per € 1.00 .

During the three months ended March 31, 2024, the Company settled one $ 20.0 million forward contract tranches and the remaining amount will be divided into three quarterly tranches of $ 20.0 million.

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

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

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

The fair values of the Company's derivative instruments recorded in the Condensed Consolidated Balance Sheet as of March 31, 2024 and December 31, 2023 were as follows:

(In thousands)

Balance Sheet Location

September 30, 2023

March 31, 2024

December 31, 2023

Derivatives Not Designated as Hedging Instruments (Level 2):

Foreign exchange contracts –

derivative assets

Foreign exchange contracts – derivative assets

Other receivables

Foreign exchange contracts –

derivative liabilities

Foreign exchange contracts – derivative liabilities

Accounts payable

Total derivatives

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

The change in the fair values of the Company's derivative instruments recorded in the Condensed Consolidated Statements of Loss during the three months ended March 31, 2024 and 2023 were as follows:

Three Months Ended

Nine Months Ended

September 30,

(In thousands)

2 unchanged sentences

Foreign exchange contracts

Other income, net

Other income (expense), net

REVOLVING CREDIT AGREEMENTS

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

(In thousands)

September 30, 2023

December 31, 2022

New Nord/LB revolving line of credit

Nord/LB revolving line of credit

Syndicated credit agreement working capital line of credit

DZ bank revolving line of credit

Total current revolving credit agreements

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

(In thousands)

September 30, 2023

March 31, 2024

December 31, 2023

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Total non-current revolving credit agreement

As of September 30, 2023 , the weighted average interest rate on our revolving credit agreements was 7.11 %.

As of March 31, 2024 , the weighted average interest rate on our revolving credit agreements was 8.46 %.

Wells Fargo Credit Agreement

On July 18, 2022, ADTRAN Holdings, Inc.

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

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

and together with the Credit Agreement, the "Credit Facility").

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

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

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

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

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

On July 18, 2022, ADTRAN, Inc., as the borrower, and ADTRAN Holdings, Inc.

As of the date of this filing, the Credit Agreement allows for revolving credit borrowings of up to $ 400.0 million in aggregate principal amount, as well as the $ 50.0 million delayed draw term loan facility described below.

On August 9, 2023, (the "First Amendment Effective Date") the Company, its wholly-owned direct subsidiary, ADTRAN, Inc.

and the Administrative Agent entered into a First Amendment to the Credit Agreement (the “First Amendment” and together with the Credit Agreement, the "Credit Facility").

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

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

The DDTL remains available for borrowing from the occurrence of a Springing Covenant Event through August 9, 2024.

The First Amendment further added additional financial flexibility by permitting, subject to certain requirements, the incurrence of convertible indebtedness by the Company in an aggregate principal amount of up to $ 172.5 million.

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

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

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

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

On January 16, 2024, the Company entered into a Second Amendment to the Credit Agreement and First Amendment to the Collateral Agreement.

The Second Amendment, among other things, provides the Company and its subsidiaries with additional covenant headroom for the fourth quarter of 2023 through the third quarter of 2024 (the "Covenant Relief Period") and adds certain other financial covenants which are described below.

On March 12, 2024, the Company entered into a Third Amendment to the Credit Agreement.

The Third Amendment, among other things, amends the definition of “Consolidated Funded Indebtedness” (which is used in the calculation of the Consolidated Total Net Leverage Ratio and the Consolidated Senior Secured Net Leverage Ratio) to exclude obligations of the Company and its subsidiaries under certain factoring arrangements when calculated for the fiscal quarters ending March 31, 2024 and June 30, 2024.

As of March 31, 2024, ADTRAN, Inc.’s borrowings under the revolving line of credit were $ 195.0 million.

As of March 31, 2024, there were no borrowings under the DDTL.

The Credit Facility matures in July 2027;

1 unchanged sentence

In addition, we may issue up to $ 50.0 million in letters of credit against our $ 400.0 million total facility.

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

As of March 31, 2024, we had a total of $ 2.0 million in letters of credit under ADTRAN, Inc.

outstanding against our eligible borrowings, leaving a net amount of $ 203.0 million available for future borrowings.

Any future credit extensions

under the Credit Agreement are subject to customary conditions precedent.

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

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

As of March 31, 2024, the Company was in compliance with all covenants.

Revolving Line of Credit Interest Rate

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

of 1.0 %, (b) the prime commercial lending rate of the Administrative Agent, as established from time to time at its principal U.S.

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

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

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

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

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

dollar borrowings under the revolving line of credit (other than swingline loans, which bear interest at the Base Rate (as defined below plus the applicable margin) bear interest, at the Company’s option, at a rate per annum equal to either (A) the Base Rate plus an applicable margin ranging from 0.65 % to 1.65 % per annum based on the Company’s Consolidated Total Net Leverage Ratio (or, during the Covenant Relief Period, an applicable margin of 2.15 % per annum), or (B) Adjusted Term SOFR (as defined below) plus an applicable margin ranging from 1.65 % to 2.65 % per annum based on the Company’s Consolidated Total Net Leverage Ratio (or, during the Covenant Relief Period, an applicable margin of 3.15 % per annum).

“Base Rate” means the highest of (a) the federal funds rate (i.e., for any day, the rate per annum equal to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System, as published by the Federal Reserve Bank of New York on the business day next succeeding such day) plus ½ of 1.0 %, (b) the prime commercial lending rate of the Administrative Agent, as established from time to time at its principal U.S.

The Base Rate is subject to a floor of 1.00 % per annum.

“Adjusted Term SOFR” means Term SOFR for the applicable interest period plus 0.10 % per annum.

Adjusted Term SOFR is subject to a floor of 0.00 % per annum.

All Euro borrowings under the revolving line of credit bear interest at a rate per annum equal to EURIBOR (as defined in the Credit Agreement and subject to a 0.00 % per annum floor) plus an applicable margin ranging from 1.75 % to 2.75 % per annum based on the Company’s Consolidated Total Net Leverage Ratio (or, during the Covenant Relief Period, an applicable margin of 3.25 % per annum).

In addition, (x) if on or prior to December 31, 2024 we have not reduced the aggregate revolving credit commitment to $ 340.0 million or less, the applicable margin for all loans shall be increased by 1.00 % per annum, and (y) if on or prior to June 30, 2025 we have not reduced the aggregate revolving credit commitment to $ 300.0 million or less, the applicable margin for all loans shall be increased by 1.00 % per annum.

In addition to paying interest on outstanding principal under the Credit Agreement, the Company is required to pay a quarterly commitment fee to the lenders under the Credit Agreement in respect of unutilized revolving loan commitments on the average daily unused portion of the revolving credit commitment of each lender, which commitment fee ranges from 0.20 % to 0.25 % per annum based on the Company’s Consolidated Total Net Leverage Ratio (or, during the Covenant Relief Period, is equal to 0.25 % per annum).

The Company is also required to pay a participation fee to the Administrative Agent for the account of each lender with respect to the Company’s participation in letters of credit at the then applicable rate for Adjusted Term SOFR Loans or EURIBOR Loans, and other customary fronting, issuance and administration fees with respect to letters of credit.

The increases in the commitment fee and margin rates during the Covenant Relief Period (referenced above) continue until the first date when each of the following conditions have been met (the period during which such increases are in place is hereinafter referred to as the “Applicable Margin Interest Period”):

(a) the Covenant Relief Period has ended, (b) since the Second Amendment effective date, the Company has repaid the revolving credit outstanding borrowings by a principal amount of at least $ 75.0 million, (c) the Company has reduced the aggregate revolving credit commitment to an amount no greater than $ 300.0 million and (d) the Company is in compliance with all financial covenants based on the financial statements for the most recently completed reference period.

Default interest is 2.0 % per annum in excess of the rate otherwise applicable.

DDTL Interest Rate

borrowings under the DDTL bear interest, at the Company’s option, at a rate per annum equal to (A)(i) the highest of (a) the federal funds rate (i.e., for any day, the rate per annum equal to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System, as published by the Federal Reserve Bank of New York on the business day next succeeding such day) plus ½

of 1.0 %, (b) the prime commercial lending rate of the Administrative Agent, as established from time to time at its principal U.S.

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

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

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

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

dollar borrowings under the DDTL bear interest, at the Company’s option, at a rate per annum equal to either (A) the Base Rate plus an applicable margin ranging from 0.90 % to 1.90 % per annum based on the Company’s Consolidated Total Net Leverage Ratio (or, during the Covenant Relief Period, an applicable margin of 2.40 % per annum), or (B) Adjusted Term SOFR plus an applicable margin ranging from 1.90 % to 2.90 % per annum based on the Company’s Consolidated Total Net Leverage Ratio (or, during the Covenant Relief Period, an applicable margin of 3.40 % per annum).

In addition to paying interest on outstanding principal under the DDTL loan, the Company is required to pay a quarterly commitment fee to the lenders under the Credit Agreement in respect of unutilized DDTL commitments at a rate of 0.25 % per annum on the daily unused portion of the aggregate DDTL commitment.

Default interest is 2.0 % per annum in excess of the rate otherwise applicable.

Covenants Under the Credit Agreement

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

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

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

The First Amendment further included the following revised financial covenants;

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

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

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

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

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

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

and the Company.

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

and the Company in favor of the Administrative Agent.

Nord/LB Revolving Line of Credit

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

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

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

Prior Nord/LB Revolving Line of Credit

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

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

No amounts are available for future borrowings.

Syndicated Credit Agreement Working Capital Line of Credit

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

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

No amounts are available for future borrowings.

DZ Bank Revolving Line of Credit

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

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

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

No amounts are available for future borrowings.

NOTES PAYABLE

The carrying amounts of the Company's notes payable in its Condensed Consolidated Balance Sheets were as follows:

Fair Value as of

Carrying Value as of

(In thousands)

September 30, 2023

December 31, 2022

Syndicated credit agreement notes payable

Total Notes Payable

Syndicated Credit Agreement Note Payable

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

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

No amounts are available for future borrowings.

The financial covenants under the Credit Agreement, as amended, include the following (capitalized terms used in this subsection and not otherwise defined herein have the meanings assigned to them in the Credit Agreement or its amendments, as applicable)::

• As of the last day of any fiscal quarter, commencing with the fiscal quarter ended December 31, 2023, the Consolidated Total Net Leverage Ratio may not exceed 5.00 x.

• As of the last day of any fiscal quarter, commencing with the fiscal quarter ended December 31, 2023, the Consolidated Senior Secured Net Leverage Ratio may not exceed:

• In the event of the purchase by the Company of at least sixty percent ( 60 %) of the outstanding shares of Adtran Networks SE not owned by the Company as of August 9, 2023 that have been tendered (such event, a “Springing Covenant Event” and the fiscal quarter in which the Springing Covenant Event Occurs and the three consecutive quarterly test periods thereafter, the “Springing Covenant Period”), the following covenant levels:

• First fiscal quarter ending after a Springing Covenant Event:

• Second fiscal quarter ending after a Springing Covenant Event:

• Third and fourth fiscal quarters ending after a Springing Covenant Event:

• If the Company or any of its subsidiaries incurs certain unsecured indebtedness in excess of $ 50,000,000 in connection with a transaction that is a Springing Covenant Event or during a Springing Covenant Period, the Consolidated Senor Secured Net Leverage Ratio covenant will step down to 3.50 x at the time of such incurrence.

• If a Springing Covenant Period is not in effect, the following covenant levels:

• From December 31, 2023 through and including March 31, 2024:

• From April 1, 2024 through and including June 30, 2024:

• From July 1, 2024 and thereafter:

• As of the last day of any fiscal quarter, commencing with the fiscal quarter ended December 31, 2023, the Consolidated Fixed Charge Coverage Ratio may not exceed 1.25 x.

• During the Covenant Relief Period or a Springing Covenant Period, as of the last day of any fiscal quarter (i) cash and cash equivalents of the Credit Parties must be at least $ 50.0 million and (ii) cash and cash equivalents of the Company and its subsidiaries must be at least $ 75.0 million.

The Credit Agreement is guaranteed by certain domestic subsidiaries of the Company, and the Company is also required to add certain additional domestic and international subsidiaries as guarantors under the Credit Agreement (such existing and new guarantors, collectively, the “Guarantors”).

In addition to the guarantees provided by the Guarantors, the Guarantors have granted (or will grant) security interests in favor of the Administrative Agent over substantially all tangible and intangible assets, and the Borrower will grant mortgages in favor of the Administrative Agent over certain owned real estate assets.

The Company is currently in negotiations with the Administrative Agent regarding a potential further amendment to the Credit Agreement to address the addition of certain foreign subsidiary guarantors.

The Credit Agreement provides for revolving borrowings of up to $ 400.0 million in aggregate principal amount, as well as an additional $ 50.0 million delayed draw term loan tranche that would be available upon a Springing Covenant Event.

It also continues to permit the Company to prepay any or all of the outstanding loans or to reduce the commitments under the Credit Agreement subject to certain limitations and minimum payment thresholds.

During the Covenant Relief Period, the Company is not permitted to make certain dividend payments to the Company's Stockholders or certain other Restricted Payments.

However, the Company is permitted to make the Recurring Compensation Payment to each Adtran Networks shareholder (other than the Company), pursuant to the terms of the DPLTA.

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

The negative covenants are subject to various exceptions and carveouts;

however, certain of the exceptions and carveouts are not permitted to be used during the Covenant Relief Period.

It also 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).

Upon the occurrence and during the continuance of an event of default, the Administrative Agent is entitled to take various actions, including the acceleration of all amounts due under the Credit Agreement.

EMPLOYEE BENEFIT PLANS

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

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

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

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

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

In Switzerland, there are two defined benefit pension plans.

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

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

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

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

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

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

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

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

The plan is financed by contributions paid by the Company.

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

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

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

Pension Benefit Plan

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

The Company's net non-current pension liability for all defined benefit pension plans totaled $ 11.7 million and $ 12.5 million as of March 31, 2024 and December 31, 2023 , respectively and the net current pension liability for all defined benefit pension plans totaled $ 0.1 million as of March 31, 2024 and December 31, 2023, which is included in accounts payable on the Condensed Consolidated Balance Sheets.

The Company's defined benefit pension liability represents the projected benefit obligation, which is the actuarial present value of the vested benefits to which the employee is currently entitled based on the employee's expected date of retirement.

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

Three Months Ended

Nine Months Ended

September 30,

(In thousands)

5 unchanged sentences

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

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

The Company made contributions to the defined benefit pension plans totaling $ 1.2 million and $ 1.0 million during the three months ended March 31, 2024 and 2023, respectively.

Contributions to the defined benefit pension plans for the remainder of 2024 will be limited to benefit payments to retirees which are paid out of the operating cash flows of the Company and are expected to be approximately $ 3.5 million.

Accumulated Other Comprehensive (Loss) Income

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

Three Months Ended September 30, 2023

(In thousands)

(Losses) Gains

ASU 2018-02 Adoption

Balance as of June 30, 2023

Other comprehensive income (loss) before

reclassifications

Amounts reclassified from accumulated other

comprehensive loss

Net current period other comprehensive income (loss)

Balance as of September 30, 2023

Three Months Ended September 30, 2022

Accumulated Other Comprehensive Income

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

Three Months Ended March 31, 2024

(In thousands)

1 unchanged sentence

ASU 2018-02 Adoption

Balance as of June 30, 2022

Balance as of December 31, 2023

Other comprehensive loss before

1 unchanged sentence

Amounts reclassified from accumulated other

comprehensive loss

comprehensive income (loss)

Net current period other comprehensive loss

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

Balance as of September 30, 2022

Nine Months Ended September 30, 2023

Balance as of March 31, 2024

Three Months Ended March 31, 2023

(In thousands)

(Losses) Gains

ASU 2018-02 Adoption

Balance as of December 31, 2022

Other comprehensive income (loss) before

Other comprehensive income before

reclassifications

Amounts reclassified from accumulated other

comprehensive loss

Net current period other comprehensive income (loss)

comprehensive (loss) income

Net current period other comprehensive income

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

Balance as of September 30, 2023

Nine Months Ended September 30, 2022

(In thousands)

(Losses) Gains

ASU 2018-02 Adoption

Balance as of December 31, 2021

Other comprehensive loss before

reclassifications

Amounts reclassified from accumulated other

comprehensive income (loss)

Net current period other comprehensive loss

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

Balance as of September 30, 2022

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

Three Months Ended September 30, 2023

(In thousands)

Comprehensive

Affected Line Item in the

Statement Where Net

Loss Is Presented

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

Net realized loss on sales of securities

Net investment (loss) gain

Defined benefit plan adjustments –

actuarial loss

Total reclassifications for the period, before tax

Total reclassifications for the period, net of tax

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

Three Months Ended September 30, 2022

Balance as of March 31, 2023

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

Three Months Ended March 31, 2024

(In thousands)

2 unchanged sentences

Statement Where Net

Loss Is Presented

(Loss) Income Is Presented

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

Net realized loss on sales of securities

Net investment (loss) gain

Defined benefit plan adjustments –

actuarial loss

Net investment gain

Defined benefit plan adjustments – actuarial gain

Total reclassifications for the period, before tax

1 unchanged sentence

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

Nine Months Ended September 30, 2023

Three Months Ended March 31, 2023

(In thousands)

2 unchanged sentences

Statement Where Net

Loss Is Presented

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

Net realized loss on sales of securities

Net investment (loss) gain

Defined benefit plan adjustments –

actuarial loss

Total reclassifications for the period, before tax

Total reclassifications for the period, net of tax

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

Nine Months Ended September 30, 2022

(In thousands)

Comprehensive Loss

Affected Line Item in the

Statement Where Net

Loss Is Presented

(Loss) Income Is Presented

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

Net realized gain on sales of securities

Net investment (loss) gain

Defined benefit plan adjustments –

actuarial loss

Net investment gain

Defined benefit plan adjustments – actuarial loss

Total reclassifications for the period, before tax

4 unchanged sentences

Three Months Ended

September 30, 2023

September 30, 2022

(In thousands)

Unrealized gain (loss) on available-for-sale

Reclassification adjustment for amounts related to

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

Reclassification adjustment for amounts related to

defined benefit plan adjustments included in net loss

Foreign currency translation adjustments

Total Other Comprehensive Loss

Nine Months Ended

September 30, 2023

September 30, 2022

March 31, 2024

March 31, 2023

(In thousands)

Unrealized gain (loss) on available-for-sale

Reclassification adjustment for amounts related to

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

Reclassification adjustment for amounts related to

defined benefit plan adjustments included in net loss

Unrealized (loss) gain on available-for-sale

Reclassification adjustment for amounts related to available-for-sale investments included in net gain (loss)

Reclassification adjustment for amounts related to defined benefit plan adjustments included in net (loss) gain

Foreign currency translation adjustments

Total Other Comprehensive Loss

Total Other Comprehensive (Loss) Income

REDEEMABLE NON-CONTROLLING INTEREST

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

Nine Months Ended

As of March 31, 2024, the non-controlling Adtran Networks stockholders’ equity ownership percentage in Adtran Networks was approximately 35 %.

The following table summarizes the redeemable non-controlling interest activity for the three months ended March 31, 2024 and for the year ended December 31, 2023:

Three Months Ended

For the Year Ended

(In thousands)

September 30, 2023

March 31, 2024

December 31, 2023

Balance at beginning of period

Reclassification of non-controlling interests

Redemption of redeemable non-controlling interest

Fair value on redemption of redeemable non-controlling interest

Net income attributable to redeemable non-controlling interests

Annual recurring compensation earned

Translation adjustment

Adtran Networks stock option exercises

Balance as of September 30, 2023

Translation adjustment

Balance at end of period

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

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

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

For the three months ended March 31, 2024 , we have recognized $ 2.9 million, representing the portion of the annual recurring cash compensation to the non-controlling shareholders accrued during such periods, which will be paid after the ordinary general shareholders' meeting of Adtran Networks beginning in 2025.

For the year ended December 31, 2023, we have recognized $ 11.5 million representing the portion of the annual recurring cash compensation to the non-controlling shareholders accrued during such periods, which will be paid after the ordinary general shareholders' meeting of Adtran Networks beginning in 2024.

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

LOSS PER SHARE

1 unchanged sentence

Three Months Ended

Nine Months Ended

September 30,

(In thousands, except per share amounts)

Net loss attributable to ADTRAN Holdings, Inc.

Weighted average number of shares –

Weighted average number of shares – basic

Effect of dilutive securities

1 unchanged sentence

PSUs, RSUs and restricted stock

Weighted average number of shares –

Weighted average number of shares – diluted

Loss per share attributable to ADTRAN Holdings, Inc.

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

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

For the three months ended March 31, 2024 and 2023 , 1.1 million and 0.1 million shares, respectively, of unvested PSUs, RSUs and restricted stock were excluded from the calculation of diluted earnings per share due to their anti-dilutive effect.

For the three months ended March 31, 2024 and 2023 , 3.5 million and 0.4 million stock options, respectively, were outstanding but were not included in the computation of diluted earnings per share.

These stock options were excluded because their exercise prices were greater than the average market price of the common shares during the applicable period, making them anti-dilutive under the treasury stock method.

SEGMENT INFORMATION

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

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

1 unchanged sentence

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

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

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

4 unchanged sentences

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

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

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

There is no inter-segment revenue.

2 unchanged sentences

Three Months Ended

September 30, 2023

September 30, 2022

(In thousands)

Network Solutions

Services & Support

Nine Months Ended

September 30, 2023

September 30, 2022

March 31, 2024

March 31, 2023

(In thousands)

1 unchanged sentence

Services & Support

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

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

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

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

Revenue by Category

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

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

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

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

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

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

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

metro network, primarily through fiber-based connectivity.

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

Our solutions within this category are a mix of fiber access and aggregation platforms, precision network synchronization and timing solutions, and access orchestration solutions that ensure highly reliable and efficient network performance.

Our Optical Networking Solutions are used by communications Service Providers, internet content providers and large-scale enterprises to securely interconnect metro and regional networks over fiber.

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

The table below presents revenue information by category.

Prior year amounts presented below have been reclassified to conform to the current period revenue category presentation:

Three Months Ended

Nine Months Ended

September 30,

(In thousands)

Optical Networking Solutions

Access & Aggregation Solutions

Subscriber Solutions

For the three months ended March 31, 2024 and 2023 , $ 1.6 million and $ 1.5 million, respectively, of depreciation expense was included in gross profit for our Network Solutions segment.

For the three months ended March 31, 2024 and 2023 , $ 8 and $ 2

thousand, respectively, of depreciation expense was included in gross profit for our Services & Support segment.

Revenue by Geographic Area

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Three Months Ended

Nine Months Ended

September 30,

(In thousands)

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Should the Company's actual experience relative to these factors be worse than its estimates, the Company will be required to record additional warranty expense.

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

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

The liability for warranty obligations totaled $ 6.2 million and $ 6.4 million as of March 31, 2024 and December 31, 2023 , respectively, and is included in accrued expenses and other liabilities in the Condensed Consolidated Balance Sheets.

The warranty expense and write-off activity for the three months ended March 31, 2024 and 2023 are summarized as follows:

Three Months Ended

Nine Months Ended

September 30,

(In thousands)

Balance at beginning of period

Adtran Networks acquisition

Amounts charged to cost and expenses

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Legal Matters

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

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

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

Adtran Networks Legal Matter

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

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

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

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

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

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

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

DPLTA Exit and Recurring Compensation Costs

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

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

The guaranteed interest rate is 5.0 % plus a variable component (according to the German Civil Code) that was 3.62 % as of March 31, 2024.

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

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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).

Our obligation to pay Annual Recurring Compensation under the DPLTA is a continuing payment obligation, which will amount to approximately €

10.6 million or $ 11.2 million (based on the current exchange rate) per year assuming none of the minority Adtran Networks shareholders were to elect Exit Compensation.

Our obligation to pay Annual Recurring Compensation under the DPLTA is a continuing payment obligation, which will amount to approximately € 10.6 million or $ 11.5 million (based on the current exchange rate) per year assuming none of the minority Adtran Networks shareholders were to elect Exit Compensation.

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

For the three and nine months ended September 30, 2023 , less than 1 thousand shares and 64 thousand shares, respectively, of Adtran Networks stock was tendered to the Company and Exit Compensation payments of approximately €

8 thousand and €

1.1 million, respectively, or appro ximately $ 9 thousand and $ 1.2 million, respectively, based on an exchange rate as of September 30, 2023, were paid to Adtran Networks shareholders.

approximately $ 5 thousand and $ 1.2 million based on an exchange rate as of March 31, 2024 and 2023, respectively, were paid to Adtran Networks shareholders.

Performance Bonds

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

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

As of March 31, 2024 and December 31, 2023, we had commitments related to these bonds totaling $ 10.6 million and $ 10.8 million, respectively, which expire at various dates through April 2031 .

In general, we would only be liable for the amount of these guarantees in the event of default under each contract, the probability of which we believe is remote.

Purchase Commitments

Purchase Obligations

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

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

Certain of our inventory purchase commitments with contract manufacturers and suppliers relate to arrangements to secure supply and pricing for certain product components for multi-year periods.

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

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

Certain of our inventory purchase obligations with contract manufacturers and suppliers relate to arrangements to secure supply and pricing for certain product components for multi-year periods.

As of March 31, 2024, purchase obligations totaled $ 238.0 million.

RESTRUCTURING

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

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

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

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

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

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

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

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

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

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

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

This restructuring program is expected to be completed in late 2024 and includes expenses specifically associated with achieving run-rate synergies as well as Business Efficiency Program expenses described below.

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”).

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.

Additionally, on April 11, 2024, management determined to close a facility in Greifswald, Germany.

The closure of the facility is expected to be substantially completed by June 30, 2024.

During the three months ended March 31, 2024, we recognized $ 17.1 million of costs related to the Business Efficiency Program.

The costs recognized during the three months ended March 31, 2024, included charges of $ 8.8 million as a result of a strategy shift which included discontinuance of certain items in connection with the Business Efficiency Program, of which, $ 4.0 million relates to inventory write-downs and $ 4.8 million relates to other charges, and are included in cost of revenue in the Condensed Consolidated Statements of Loss.

Since the inception of the Business Efficiency Program, we recognized $ 42.2 million of costs.

We expect costs in the second quarter 2024 and thereafter relating to the Business Efficiency Program to range between $ 20.6 million and $ 35.8 million.

Management expects these planned costs to include severance costs ranging from $ 17.3 million to $ 28.3 million in connection with an early retirement program and reductions in workforce and site consolidation transaction expenses (primarily brokers fees and Greifswald exit costs) ranging from $ 3.3 million to $ 7.5 million.

Future cash payments include:

severance costs and outplacement fees that are anticipated to be in the range of $ 18.1 million to $ 29.1 million and payments relating to the site consolidation transaction expenses that are anticipated to be in the range of $ 3.1 million to $ 7.3 million.

We may also incur other charges or cash expenditures not currently contemplated due to events that may occur as a result of, or associated with, the Business Efficiency Program, including potential impairment charges related to the discontinuance of additional product lines, regulatory requirements related to personnel measures, and site closures.

However, we are not able to estimate the amount or range of amounts of such potential incremental charges as of the date of this filing.

If required, we will amend this disclosure at such time as management is able in good faith to estimate the amount, or range of amounts, of these charges.

For the three months ended March 31, 2023, we recognized $ 2.4 million of restructuring costs relating to the Business Combination under the multi-year integration program and synergy realization that are included in cost of revenue, selling, general and administrative expenses and research and development expenses in the Condensed Consolidated Statement of Loss.

A reconciliation of the beginning and ending restructuring liabilities, which is included in accrued wages and benefits and accounts payable in the Condensed Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023, is as follows:

Three Months Ended

Nine Months Ended

(In thousands)

September 30, 2023

March 31, 2024

Balance at beginning of period

Amounts charged to cost and expense

Balance as of September 30, 2023

Balance as of March 31, 2024

For the Year Ended

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Balance as of December 31, 2023

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

Restructuring expenses included in the Condensed Consolidated Statements of Loss are for the three months ended March 31, 2024 and 2023:

Three Months Ended

Nine Months Ended

September 30,

(In thousands)

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Total restructuring expenses

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

The following table represents the components of restructuring expenses by geographic area for the three months ended March 31, 2024 and 2023:

Three Months Ended

Nine Months Ended

September 30,

(In thousands)

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SUBSEQUENT EVENTS

Dividend Suspension

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

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

Business Efficiency Program

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

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

Facility Closure

In connection with the Business Efficiency Program, management of the Company determined on April 11, 2024 to close the Company’s facility in Greifswald, Germany.

The closure of the facility is expected to be substantially completed by June 30, 2024.

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

What changed 10-Q

Item 1. Financial Statements