What changed in this filing

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Item 1. Financial Statements

2024-08-09 compared with 2024-05-10 · 370 added, 220 removed, 683 unchanged (46% of the section changed)

5 unchanged sentences

Cash and cash equivalents

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

Accounts receivable, less allowance for credit losses of $ 191 and $ 400 as of June 30, 2024

and December 31, 2023, respectively

29 unchanged sentences

200,000 shares authorized;

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

79,121 shares issued and 78,855 outstanding as of June 30, 2024 and

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

3 unchanged sentences

Treasury stock at cost:

265 and 297 shares as of March 31, 2024

266 and 297 shares as of June 30, 2024

and December 31, 2023, respectively

5 unchanged sentences

Three Months Ended

Six Months Ended

Network Solutions

13 unchanged sentences

Net investment gain

Other income (expense), net

Other (expense) income, net

Loss Before Income Taxes

Income tax benefit

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

Income tax (expense) benefit

Net Income attributable to non-controlling interest (1)

Net Loss attributable to ADTRAN Holdings, Inc.

3 unchanged sentences

Loss per common share attributable to ADTRAN Holdings, Inc.

(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.

(1) For the three and six months ended June 30, 2024, we recognized $ 2.9 million and $ 5.7 million, respectively, net income attributable to non-controlling interest, representing the recurring cash compensation earned by non-controlling interest shareholders post-DPLTA.

For the three and six months ended June 30, 2023, we recognized $ 2.9 million and $ 5.7 million, respectively, representing the recurring cash compensation earned by non-controlling interest shareholders post-DPLTA, partially offset by a $ 3.2 million net loss attributable to non-controlling interests pre-DPLTA for the six months ended June 30, 2023.

See accompanying notes to condensed consolidated financial statements.

3 unchanged sentences

Three Months Ended

Six Months Ended

Other Comprehensive (Loss) Income, net of tax

Net unrealized gain on available-for-sale securities

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

Defined benefit plan adjustments

18 unchanged sentences

Foreign currency remeasurement of redeemable non-controlling interest

ADVA stock-based compensation expense

Adtran Networks stock-based compensation expense

Balance as of March 31, 2024

Annual recurring compensation earned

Other comprehensive loss, net of tax

Deferred compensation adjustments, net of tax

ADTRAN RSUs and restricted stock vested

ADTRAN stock-based compensation expense

Redemption of redeemable non-controlling interest

Foreign currency remeasurement of redeemable non-controlling interest

Adtran Networks stock-based compensation expense

Balance as of June 30, 2024

See accompanying notes to condensed consolidated financial statements.

6 unchanged sentences

Annual recurring compensation earned

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

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

Other comprehensive income, net of tax

7 unchanged sentences

Foreign currency remeasurement of redeemable non-controlling interest

ADVA stock-based compensation expense

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

See accompanying notes to condensed consolidated financial statements.

2 unchanged sentences

(In thousands)

Six Months Ended

Cash flows from operating activities:

7 unchanged sentences

Deferred income taxes

Inventory write down

Inventory write down - business efficiency program

Inventory reserves

12 unchanged sentences

Purchases of available-for-sale investments

Payment for beneficial interests in securitized accounts receivable

Proceeds from beneficial interests in securitized accounts receivable

Net cash used in investing activities

34 unchanged sentences

The Company solely owns ADTRAN, Inc.

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

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

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

8 unchanged sentences

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 3.62 % 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.

The guaranteed interest rate is 5.0 % plus a variable component (according to the German Civil Code) that was 3.62 % as of June 30, 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 € 345.6 million or approximately $ 371.3 million, based on an exchange rate as of June 30, 2024, and reflecting interest accrued through June 30, 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.

4 unchanged sentences

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 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).

The Annual Recurring Compensation is due on the third banking day following the ordinary general shareholders’ meeting of Adtran Networks for the respective preceding fiscal year (but in any event within eight months following expiration of the fiscal year).

With respect to the 2023 fiscal year, Adtran Networks’ ordinary general shareholders’ meeting occurred on June 28, 2024 and, therefore, the Annual Recurring Compensation was paid on July 3, 2024.

During the three and six months ended June 30, 2024, and 2023, we accrued $ 2.9 million and $ 5.7 million, respectively, in Annual Recurring Compensation, which was reflected as an increase to retained deficit.

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 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.

For the three and six months ended June 30, 2024, approximately one thousand shares of Adtran Networks stock were tendered to the Company.

This resulted in Exit Compensation payments of approximately € 19 thousand and € 23 thousand, respectively, or approximately $ 20 thousand and $ 25 thousand, respectively, based on an exchange rate as of June 30, 2024, were paid to Adtran Networks shareholders.

For the three and six months ended June 30, 2023, approximately 46 thousand shares and 63 thousand shares, respectively, of Adtran Networks stock were tendered to the Company.

This resulted in Exit Compensation payments of approximately € 0.8 thousand and € 1.1 million, respectively, or approximately $ 0.9 million and $ 1.2 million, respectively, based on an exchange rate as of June 30, 2023, 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.

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 (“Credit Agreement”), which has since been amended four 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 (“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 $ 70.0 million, limiting our ability to pay the obligations under the DPLTA.

The Company had access to $ 206.0 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.

however, as of June 30, 2024, the Company was limited to additional borrowings of $ 16.4 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.

As of June 30, 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 t ake 24-32 mon ths 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 and six months ended June 30, 2024.

To the extent that the Company is further impacted by customers' inventory reduction initiatives, the Company is implementing 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 ongoing 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.

We may need to further reduce capital expenditure 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 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 to support our 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 Amendments of the Wells Fargo Credit agreement.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

15 unchanged sentences

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 ongoing inflationary pressures, the energy crisis, currency fluctuations and political tensions as of March 31, 2024, 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, continued elevated interest rates, instability in the financial services industry, currency fluctuations and political tensions as of June 30, 2024, and through the date of this report.

These conditions could result in further impacts to the Company's consolidated financial statements in future reporting periods.

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 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

3 unchanged sentences

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 proceeds and repayments of secured borrowings are reflected as cash flows (used in) provided by 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.

9 unchanged sentences

Redeemable Non-Controlling Interest

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.

As of June 30, 2024 and December 31, 2023, the non-controlling Adtran Networks stockholders’ equity ownership percentage in Adtran Networks was approximatel y 34.6 % for each period.

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

16 unchanged sentences

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 expects 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.

26 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 table disaggregates revenue by reportable segment and revenue category:

The following tables disaggregate revenue by reportable segment and revenue category:

Three Months Ended

March 31, 2024

March 31, 2023

June 30, 2024

June 30, 2023

(In thousands)

3 unchanged sentences

Services & Support

Subscriber Solutions

Optical Networking Solutions

Access & Aggregation Solutions

Subscriber Solutions

Six Months Ended

June 30, 2024

June 30, 2023

(In thousands)

Network Solutions

Services & Support

Network Solutions

Services & Support

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.

Access & Aggregation Solutions

Subscriber Solutions

The aggregate amount of transaction price allocated to remaining performance obligations that have not been satisfied as of June 30, 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 $ 276.9 million and $ 314.8 million, respectively.

As of June 30, 2024 , approximately 57 % 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 June 30, 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.

1 unchanged sentence

(In thousands)

March 31, 2024

June 30, 2024

December 31, 2023

5 unchanged sentences

Accounts Receivable

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

The allowance for credit losses was $ 0.2 million and $ 0.4 million as of June 30, 2024, and December 31, 2023, respectively, related to accounts receivable.

Contract Assets

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

No allowance for credit losses was recorded for the three and six months ended June 30, 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 .

The Company was party to a receivable purchase agreement with a third-party financial institution (“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 cost of receivables purchase agreement is included in interest expense in the Condensed Consolidated Statements of Loss and totaled $ 0.3 million and $ 0.6 million for the three and six months ended June 30, 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 (“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.

Total secured borrowings under the agreement were $ 17.3 million and $ 14.3 million as of June 30, 2024 and December 31, 2023 , respectively, leaving $ 22.4 million and $ 25.4 million available for future borrowings as of June 30, 2024 and December 31, 2023 , respectively.

Accounts receivable pledged as collateral related to the secured borrowings were $ 21.2 million and $ 16.8 million as of June 30, 2024 and December 31, 2023, respectively.

For the three and six months ended June 30, 2024 , the Company incurred program fee expenses of $ 0.3 million and $ 0.6 million, respec tively.

As of June 30, 2024, the program fee rate was 6.88 % percent.

Of the outstanding unearned revenue balances as of December 31, 2023, $ 13.7 million and $ 33.1 million were recognized as revenue during the three and six months ended June 30, 2024, respectively .

Of the $ 60.4 million of outstanding unearned revenue balances as of December 31, 2022, $ 24.8 million and $ 50.5 million were recognized as revenue during the three and six months ended June 30, 2023 , respectively.

The Company’s effective tax rate changed from a benefit of 18.8 % of pre-tax loss for the three months ended June 30, 2023 , to an expense of 4.8 % of pre-tax loss for the three months ended June 30, 2024 , and changed from a benefit of 20.4 % of pre-tax income for the six months ended June 30, 2023 , to a benefit of 4.3 % of pre-tax loss for the six months ended June 30, 2024.

The change in the effective tax rate for the three and six months ended June 30, 2024, was driven primarily by non-deductible impairment charges and a loss jurisdiction for which no tax benefits were recognized on its pre-tax losses incurred during the six months ended June 30, 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 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.

As of June 30, 2024 , the Company had net deferred tax assets totaling $ 91.1 million, and a valuation allowance totaling $ 87.2 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.

1 unchanged sentence

STOCK-BASED COMPENSATION

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

2024 Stock Incentive Plans

At the annual meeting of stockholders held on May 8, 2024, the Company’s stockholders approved, upon recommendation of the Board of Directors, the adoption of the ADTRAN Holdings, Inc.

2024 Employee Stock Incentive Plan (“2024 Employee Plan”) and the ADTRAN Holdings, Inc.

2024 Directors Stock Plan (“2024 Directors Plan”).

No additional awards will be granted under the Company’s previous stock incentive plans, including the 2020 Employee Stock Incentive Plan, the 2020 Directors Stock Plan, or the 2015 Employee Stock Incentive Plan.

Outstanding awards granted under the Company's prior equity incentive plans will remain subject to the terms of such applicable plans, and shares under such plans that are cancelled or forfeited will be available for issuance under the 2024 Employee Plan or the 2024 Directors Plan, as applicable.

Under the 2024 Employee Plan, the Company is authorized to issue 4.0 million shares of common stock to certain employees, key service providers and advisors through incentive stock options and non-qualified stock options, stock appreciation rights, RSUs and restricted stock, any of which may be subject to performance-based conditions.

RSUs and restricted stock granted under the 2024 Employee Plan will typically vest pursuant to a four-year vesting schedule beginning on the first anniversary of the grant date.

Stock options granted under the 2024 Employee Plan will typically become exercisable beginning after one year of continued employment, normally pursuant to a four-year vesting schedule beginning on the first anniversary of the grant date and have a ten-year contractual term.

Stock options, RSUs and restricted stock granted under the 2024 Employee Plan reduce the shares authorized for issuance under the 2024 Employee Plan by one share of common stock for each share underlying the award.

Forfeitures, cancellations and expirations of awards granted under the prior employee stock incentive plans increase the shares authorized for issuance under the 2024 Employee Plan by one share of common stock for each share underlying the award.

Under the 2024 Directors Plan, the Company is authorized to issue 0.7 million shares of common stock through stock options, restricted stock and RSUs to non-employee directors.

Stock awards issued under the 2024 Directors Plan typically will become vested in full on the first anniversary of the grant date.

Stock options issued under the 2024 Directors Plan will have a ten-year contractual term.

Stock options, restricted stock and RSUs granted under the 2024 Directors Plan reduce the shares authorized for issuance under the 2024 Directors Plan by one share of common stock for each share underlying the award.

Forfeitures, cancellations and expirations of awards granted under the prior directors stock plan increase the shares authorized for issuance under the 2024 Directors Plan by one share of common stock for each share underlying the award.

As of June 30, 2024, 4.7 million shares were available for issuance pursuant to awards that may be made in the future under shareholder-approved equity plans.

For the three months ended June 30, 2024 and 2023 , stock-based compensation expense was $ 3.8 million and $ 4.3 million, respectively, and for the six months ended June 30, 2024 and 2023 , stock-based compensation expense was $ 7.8 million and $ 8.0 million, respectively.

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

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:

The following table summarizes the PSUs, RSUs and restricted stock outstanding as of December 31, 2023, and June 30, 2024 and the changes that occurred during the six months ended June 30, 2024:

(in thousands)

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PSUs, RSUs and restricted stock forfeited

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

Unvested PSUs, RSUs and restricted stock outstanding, June 30, 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 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.

As of June 30, 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 $ 16.2 million, which will be recognized over the remaining weighted-average period of 2.3 years.

As of June 30, 2024 , there was $ 11.1 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 1.5 years if achievement of the performance obligation becomes probable.

Unrecognized compensation expense will be adjusted for actual forfeitures.

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, 2023 and March 31, 2024 and the changes that occurred during the three months ended March 31, 2024:

stock options outstanding as of December 31, 2023, and June 30, 2024, and the changes that occurred during the six months ended June 30, 2024:

Stock Options

9 unchanged sentences

Stock options expired

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.

Stock options outstanding, June 30, 2024

Stock options exercisable, June 30, 2024

As of June 30, 2024 , there was $ 5.3 million of unrecognized compensation expense related to stock options which will be recognized over the remaining weighted-average period of 1.4 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.

2 unchanged sentences

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

The aggregate intrinsic value of stock options represents the total pre-tax intrinsic value (the difference between the Company's closing stock price on the last trading day of the quarter and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on March 31, 2024 .

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.

The amount of aggregate intrinsic value was $ 36 thousand as of June 30, 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 six months ended June 30, 2024 , and 2023 were $ 34 thousand and $ 43 thousand , respectively.

During the three and six months ended June 30, 2024, 0.1 million stock options vest ed.

No stock options vested during the three and six months ended June 30, 2023.

Debt Securities and Other Investments

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

The Company did no t have any debt securities and other investments as of June 30, 2024.

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

1 unchanged sentence

Three Months Ended

Six Months Ended

(In thousands)

4 unchanged sentences

Three Months Ended

Six Months Ended

(In thousands)

Realized gain on equity securities sold

Unrealized gain on equity securities held

Realized gain on equity securities sold

Total gain recognized, net

4 unchanged sentences

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;

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

Level 3 – Significant unobservable inputs;

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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

Fair Value Measurements as of June 30, 2024 Using

(In thousands)

19 unchanged sentences

(In thousands)

March 31, 2024

June 30, 2024

December 31, 2023

4 unchanged sentences

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.

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.

During the three and six months ended June 30, 2024 , we incurred total charges of $ 0.1 million and $ 8.9 million, respectively, as a result of a strategy shift which included discontinuance of certain product lines in connection with the Business Efficiency Program of which, $ 0.1 million and $ 4.1 million, respectively, relates to inventory write-downs and zero and $ 4.8 million, respectively, relates to other charges all of which are included in cost of revenue in the Condensed Consolidated Statements of Loss.

PROPERTY, PLANT AND EQUIPMENT

1 unchanged sentence

(In thousands)

March 31, 2024

June 30, 2024

December 31, 2023

7 unchanged sentences

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.

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:

Depreciation expense was $ 8.1 million and $ 6.2 million for the three months ended June 30, 2024 and 2023 , respectively, and $ 15.8 million and $ 13.8 million for the six months ended June 30, 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 six months ended June 30, 2024, are as follows:

(In thousands)

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Foreign currency translation adjustments

As of March 31, 2024

As of June 30, 2024

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

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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.

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 remaining goodwill prior to the annual assessment.

The quantitative impairment analysis indicated there was no impairment of the Services & Support goodwill during the first quarter of 2024.

No impairment of goodwill was recognized during the three months ended June 30, 2024.

Goodwill impairment recognized during the six months ended June 30, 2024, was $ 292.6 million.

No impairment of goodwill was recognized during the three and six months ended June 30, 2023.

As of June 30, 2024 , accumulated goodwill impairment losses totaled $ 330.5 million.

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

INTANGIBLE ASSETS

Intangible assets consisted of the following:

As of March 31, 2024

As of June 30, 2024

As of December 31, 2023

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Net Book Value

Customer relationships

Developed technology

Customer relationships

Licensed technology

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

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

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.

In connection with the preparation of the financial statements for each period in 2024 and 2023, the Company assessed impairment triggers related to intangible assets.

No impairment losses related to intangible assets were recorded during the three and six months ended June 30, 2024 and 2023.

Amortization expense was $ 14.4 million and $ 26.5 million in the three months ended June 30, 2024 and 2023 , respectively, and $ 29.0 million and $ 52.3 million in the six months ended June 30, 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)

March 31, 2024

June 30, 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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Derivatives are initially recognized at fair value on the date a derivative contract is entered into and are subsequently re-measured to their fair value at the end of each reporting period.

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

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

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

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

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

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

We have not experienced credit losses from our counterparties.

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

As of June 30, 2024 , the Company had 43 forward rate contracts outstanding.

Foreign Currency Hedging Arrangements

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

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

(the “Hedge Counterparty”).

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

(“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 .

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

dollars at a daily fixed forward rate averaging EUR/USD 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 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.

During the six months ended June 30, 2024 , the Company settled two € 20.0 million forward contract tranches and the remaining amount will be divided into two 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 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.

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

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

During the six months ended June 30, 2024 , the Company settled two $ 20.0 million forward contract tranches and the remaining amount will be divided into two 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 March 31, 2024 and December 31, 2023 were as follows:

The fair values of the Company's derivative instruments recorded in the Condensed Consolidated Balance Sheet as of June 30, 2024 and December 31, 2023 were as follows:

(In thousands)

Balance Sheet Location

March 31, 2024

June 30, 2024

December 31, 2023

5 unchanged sentences

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 months ended March 31, 2024 and 2023 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 and six months ended June 30, 2024 and 2023 were as follows:

Three Months Ended

Six Months Ended

(In thousands)

2 unchanged sentences

Foreign exchange contracts

Other income (expense), net

REVOLVING CREDIT AGREEMENTS

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

Other (expense) income, net

CREDIT AGREEMENTS

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

(In thousands)

March 31, 2024

June 30, 2024

December 31, 2023

Wells Fargo credit agreement

Total non-current revolving credit agreement

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

Total non-current revolving credit facility

As of June 30, 2024 , the weighted average interest rate on our revolving credit agreements was 8.51 %.

Wells Fargo 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.

On July 18, 2022, ADTRAN, Inc., as the borrower ("US Borrower"), and the Company 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 (as amended from time to time, the “Credit Agreement”).

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 ($ 100.0 million of which is available to Adtran Networks as borrower pursuant to the Subline (as defined and further described below), as well as the $ 50.0 million delayed draw term loan facility described below.

The term of the delayed draw term loan facility expires on August 9, 2024.

On August 9, 2023, ("First Amendment Effective Date") the Company and ADTRAN, Inc.

entered into a First Amendment to Credit Agreement (“First Amendment”).

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

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

The DDTL is 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.

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;

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

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

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.

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

On January 16, 2024 ("Second Amendment Effective Date"), the Company and ADTRAN, Inc.

entered into a Second Amendment to Credit Agreement and First Amendment to Collateral Agreement ("Second Amendment").

The Second Amendment, among other things, provided the Company and its subsidiaries with additional covenant headroom for the fourth quarter of 2023 through and including the third quarter of 2024 ("Covenant Relief Period") and revised and/or added certain other financial covenants which (as later modified by the Fourth Amendment) are described below.

On March 12, 2024, the Company and ADTRAN, Inc.

entered into a Third Amendment to Credit Agreement ("Third Amendment").

The Third Amendment, among other things, amended 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.

On June 4, 2024, the Company, ADTRAN, Inc., and Adtran Networks entered into a Fourth Amendment to Credit Agreement ("Fourth Amendment").

The Fourth Amendment, among other things, created a new sublimit under the existing $ 400.0 million revolving commitments, in an aggregate amount of $ 100.0 million (“Subline”), which Subline is available for borrowings by Adtran Networks.

Prepayments of outstanding loans under the Subline that result in the remaining outstanding loans under the Subline being less than the German Commitment Reduction Threshold will result in a permanent partial reduction of the commitments in respect of the Subline.

The German Commitment Reduction Threshold is initially $ 75 million and may be lowered from time to time pursuant to the terms of the Fourth Amendment.

The existing swing line sublimit and letter of credit sublimit under the Credit Agreement remained available to the US Borrower (and not to Adtran Networks) after giving effect to the Fourth Amendment.

Otherwise, the loans under the Subline are subject to substantially the same terms and conditions under the Credit Agreement (including with respect to the interest rate and maturity date) as the other existing revolving commitments.

As of June 30, 2024 , ADTRAN, Inc.’s borrowings under the revolving line of credit were $ 190.3 million, of which $ 115.0 million were borrowed by ADTRAN, Inc.

and $ 75.3 million were borrowed under the Subline by Adtran Networks.

As of June 30, 2024 , there were no borrowings under the DDTL.

The credit facilities provided under the Credit Agreement mature in July 2027, but the US Borrower has an option to request extensions subject to customary conditions.

In addition, the US Borrower may utilize up to $ 50.0 million of the $ 400.0 million total revolving facility for the issuance of letters of credit.

As of June 30, 2024 , we had a total of $ 3.7 million in letters of credit under ADTRAN, Inc.

outstanding under the Credit Agreement, leaving a net amount (after giving effect to the $ 190.3 million of outstanding borrowings described above) of $ 206.0 million available for future borrowings;

however, as of June 30, 2024, the Company was limited to additional borrowings of $ 16.4 million based on debt covenant compliance metrics.

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.

As of June 30, 2024, the Company was in compliance with all covenants.

Revolving Line of Credit Interest Rate

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).

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), 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 Applicable Margin Increase Period (as defined below), 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 Applicable Margin Increase 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.

3 unchanged sentences

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).

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 Applicable Margin Increase 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).

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 Applicable Margin Increase 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.

The “Applicable Margin Interest Period” means the period commencing on the Second Amendment Effective Date and ending on the first date when each of the following conditions have been met:

(a) the Covenant Relief Period has ended, (b) since the Second Amendment Effective Date, the borrowers have repaid the revolving credit outstanding borrowings by a principal amount of at least $ 75.0 million, (c) the borrowers have reduced the aggregate revolving credit commitment to an amount no greater than $ 300.0 million, and (d) the borrowers are 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

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).

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 Applicable Margin Increase 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 Applicable Margin Increase Period, an applicable margin of 3.40 % 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 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.

3 unchanged sentences

• 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:

• In the fiscal quarter in which a Springing Covenant Event occurs and the three consecutive quarterly test periods thereafter, (“Springing Covenant Period”), the following covenant levels:

• First fiscal quarter ending after a Springing Covenant Event:

1 unchanged sentence

• 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:

• If the Company or any of its subsidiaries incurs certain unsecured indebtedness in excess of $ 50.0 million 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 Consolidated Senior Secured Net Leverage Ratio may not exceed:

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

1 unchanged sentence

• 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.

• 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 be less than 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 $ 70.0 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.

All obligations under the Credit Agreement (including under the Subline) are guaranteed by ADTRAN, Inc., the Company and certain subsidiaries of ADTRAN, Inc.

(“Full Facility Guarantors”).

To secure such guarantees, ADTRAN, Inc.

and the Full Facility Guarantors have granted security interests in favor of the Administrative Agent over substantially all of their tangible and intangible assets, and ADTRAN, Inc.

has granted mortgages in favor of the Administrative Agent over certain owned real estate assets.

Certain of Adtran Networks' subsidiaries ("Subline Guarantors") have provided a guarantee solely of the obligations in respect of the Subline.

Furthermore, to secure such guarantees, the Subline Guarantors have granted security interests in favor of the Administrative Agent over substantially all of their tangible and intangible assets.

Adtran Networks has also granted security interests in favor of the Administrative Agent over substantially all of its tangible and intangible assets, to secure solely its obligations under the Subline.

Upon repayment in full and termination of the Subline, the guarantees by the Subline Guarantors and the liens granted by Adtran Networks and the Subline Guarantors to secure obligations under the Subline will be released.

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.

8 unchanged sentences

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 net non-current pension liability for all defined benefit pension plans totaled $ 11.5 million and $ 12.5 million as of June 30, 2024, and December 31, 2023 , respectively, and the net current pension liability for all defined benefit pension plans totaled $ 0.1 million as of June 30, 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.

1 unchanged sentence

Three Months Ended

Six Months Ended

(In thousands)

3 unchanged sentences

Net periodic pension cost

The components of net periodic pension cost, other than the service cost component, are included in other income, net in the Condensed Consolidated Statements of Loss.

The components of net periodic pension cost, other than the service cost component, are included in other (expense) income, net in the Condensed Consolidated Statements of Loss.

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

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.

The Company made contributions to the defined benefit pension plans totaling $ 2.2 million and $ 1.8 million during the six months ended June 30, 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 $ 2.2 million.

1 unchanged sentence

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

Three Months Ended March 31, 2024

Three Months Ended June 30, 2024

(In thousands)

1 unchanged sentence

ASU 2018-02 Adoption

Balance as of December 31, 2023

Balance as of March 31, 2024

Other comprehensive loss before

3 unchanged sentences

Net current period other comprehensive loss

Balance as of March 31, 2024

Three Months Ended March 31, 2023

Balance as of June 30, 2024

Three Months Ended June 30, 2023

(In thousands)

ASU 2018-02 Adoption

Balance as of December 31, 2022

Balance as of March 31, 2023

Other comprehensive income before

4 unchanged sentences

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

Balance as of March 31, 2023

Balance as of June 30, 2023

Six Months Ended June 30, 2024

(In thousands)

ASU 2018-02 Adoption

Balance as of December 31, 2023

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 June 30, 2024

Six Months Ended June 30, 2023

(In thousands)

ASU 2018-02 Adoption

Balance as of December 31, 2022

Other comprehensive loss before

reclassifications

Amounts reclassified from accumulated other

comprehensive income

Net current period other comprehensive (loss) income

Comprehensive income attributable to non-controlling

interest, net of tax

Balance as of June 30, 2023

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

Three Months Ended March 31, 2024

Three Months Ended June 30, 2024

(In thousands)

2 unchanged sentences

Statement Where Net

(Loss) Income Is Presented

Loss Is Presented

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

4 unchanged sentences

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 March 31, 2023

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

Three Months Ended June 30, 2023

(In thousands)

2 unchanged sentences

Statement Where Net

(Loss) Income Is Presented

Loss Is Presented

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

4 unchanged sentences

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.

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

Six Months Ended June 30, 2024

(In thousands)

Comprehensive

Affected Line Item in the

Statement Where Net Loss

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

Net realized loss on sales of securities

Net investment gain

Defined benefit plan adjustments – actuarial gain

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 (expense) income, net in the Condensed Consolidated Statements of Loss.

Six Months Ended June 30, 2023

(In thousands)

Comprehensive

Affected Line Item in the

Statement Where Net Loss

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

Net realized gain on sales of securities

Net investment 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 (expense) income, net in the Condensed Consolidated Statements of Loss.

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

1 unchanged sentence

Three Months Ended

March 31, 2024

March 31, 2023

June 30, 2024

June 30, 2023

(In thousands)

4 unchanged sentences

Total Other Comprehensive (Loss) Income

Six Months Ended

June 30, 2024

June 30, 2023

(In thousands)

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) Income

REDEEMABLE NON-CONTROLLING INTEREST

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

As of June 30, 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 six months ended June 30, 2024 and for the year ended December 31, 2023:

Six Months Ended

For the Year Ended

(In thousands)

March 31, 2024

June 30, 2024

December 31, 2023

8 unchanged sentences

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

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 three and six months ended June 30, 2024 , we have recognized $ 2.9 million and $ 5.7 million, respectively, representing the portion of the annual recurring cash compensation to the non-controlling shareholders accrued du ring such periods, which will be paid after the ordinary general shareholders' meeting of Adtran Networks 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, The Annual Recurring Compensation is due on the third banking day following the ordinary general shareholders’ meeting of Adtran Networks for the respective preceding fiscal year (but in any event within eight months following expiration of the fiscal year).

With respect to the 2023 fiscal year, Adtran Networks’ ordinary general shareholders’ meeting occurred on June 28, 2024 and, therefore, the Annual Recurring Compensation was paid on July 3, 2024.

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

2 unchanged sentences

Three Months Ended

Six Months Ended

(In thousands, except per share amounts)

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Loss per share attributable to ADTRAN Holdings, Inc.

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.

For the three months ended June 30, 2024 and 2023 , 1.4 million and 0.8 million shares, respectively, and for the six months ended June 30, 2024 and 2023 , 1.3 million and 0.3 million, 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 June 30, 2024 and 2023 , 5.0 million and 2.2 million stock options, respectively, and for the six months ended June 30, 2024 and 2023 , 4.2 million and 1.0 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.

11 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 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

March 31, 2024

March 31, 2023

June 30, 2024

June 30, 2023

(In thousands)

1 unchanged sentence

Services & Support

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.

Six Months Ended

June 30, 2024

June 30, 2023

(In thousands)

Network Solutions

Services & Support

For each of the three months ended June 30, 2024 and 2023 , $ 2.4 million and $ 1.5 million, respectively, of depreciation expense was included in gross profit for our Network Solutions segment.

For the six months ended June 30, 2024 and 2023 , $ 4.5 million and $ 2.9 million, respectively, of depreciation expense was included in gross profit for our Network Solutions segment.

For the three months ended June 30, 2024 and 2023 , $ 0.1 million and $ 2 thousand, respectively, of depreciation expense was included in gross profit for our Services & Support segment.

For the six months ended June 30, 2024 and 2023 , $ 0.1 million and $ 5 thousand, respectively, of depreciation expense was included in gross profit for our Services & Support segment.

Revenue by Geographic Area

1 unchanged sentence

Three Months Ended

Six Months Ended

(In thousands)

9 unchanged sentences

In addition, from time to time, specific warranty accruals may be recorded if unforeseen problems arise.

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 $ 6.2 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:

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

The liability for warranty obligations totaled $ 6.0 million and $ 6.4 million as of June 30, 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 and six months ended June 30, 2024 and 2023 are summarized as follows:

Three Months Ended

Six Months Ended

(In thousands)

8 unchanged sentences

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

At this time, 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.

The Company records an accrual for any Legal Matters that arise whenever it considers that it is probable that it is exposed to a loss contingency and the amount of the loss contingency can be reasonably estimated.

Although the ultimate disposition of asserted claims cannot be predicted with certainty, it is our belief that the outcome of any such claims, either individually or on a combined basis, will not have a material adverse effect on our consolidated financial position.

DPLTA Exit and Recurring Compensation Costs

1 unchanged sentence

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 3.62 % as of March 31, 2024.

The guaranteed interest rate is 5.0 % plus a variable component (according to the German Civil Code) that was 3.62 % as of June 30, 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 € 345.6 million or approximately $ 371.3 million, based on an exchange rate as of June 30, 2024, and reflecting interest accrued through June 30, 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.

3 unchanged sentences

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.

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.

With respect to the 2023 fiscal year, Adtran Networks’ ordinary general shareholders’ meeting occurred on June 28, 2024 and, therefore, the Annual Recurring Compensation was paid on July 3, 2024.

For the three and six months ended June 30, 2024, approximately one thousand shares of Adtran Networks stock were tendered to the Company.

For the three and six months ended June 30, 2023, approximately 46 thousand shares and 63 thousand shares, respectively, of Adtran Networks stock were tendered to the Company.

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 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 .

As of June 30, 2024, and December 31, 2023, we had commitments related to these bonds totaling $ 13.9 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 Obligations

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

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

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.

As of June 30, 2024, purchase obligations totaled $ 280.9 million.

RESTRUCTURING

2 unchanged sentences

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.

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 (“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.

3 unchanged sentences

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.

The closure of the facility is expected to be completed by December 31, 2024.

During the three and six months ended June 30, 2024, we recognized $ 17.5 million and $ 34.6 million of costs related to the Business Efficiency Program, respectively.

The costs recognized during the six months ended June 30, 2024, included charges of $ 8.9 million as a result of a strategy shift which included discontinuance of certain items in connection with the Business Efficiency Program, of which, $ 4.1 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 $ 59.7 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 expect costs in the third quarter 2024 and thereafter relating to the Business Efficiency Program to range between $8.1 million and $19.1 million.

Management expects these planned costs to include severance costs ranging from $ 4.6 million to $ 11.4 million in

connection with reductions in workforce and site consolidation transaction expenses (primarily brokers fees and Greifswald exit costs) ranging from $ 3.5 million to $ 7.7 million .

The broker fees related to our site consolidation expenses will be netted against proceeds upon the sale of the building(s).

F uture cash payments include:

severance costs and outplacement fees that are anticipated to be in the range of $21.3 million to $ 28.1 million, payments relating to the site consolidation transaction expenses that are anticipated to be in the range of $ 3.4 million to $ 7.6 million and remaining payments related to the inventory strategy shift of $ 2.0 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.

1 unchanged sentence

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:

For the three and six months ended June 30, 2023, we recognized $ 5.9 million and $ 8.3 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, respectively.

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 June 30, 2024, and December 31, 2023, is as follows:

Three Months Ended

Six Months Ended

(In thousands)

March 31, 2024

June 30, 2024

Balance at beginning of period

Amounts charged to cost and expense

Balance as of March 31, 2024

Balance as of June 30, 2024

For the Year Ended

4 unchanged sentences

Balance as of December 31, 2023

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

Restructuring expenses included in the Condensed Consolidated Statements of Loss are for the three and six months ended June 30, 2024 and 2023:

Three Months Ended

Six Months Ended

(In thousands)

6 unchanged sentences

Total restructuring expenses

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

The following table represents the components of restructuring expenses by geographic area for the three and six months ended June 30, 2024 and 2023:

Three Months Ended

Six Months Ended

(In thousands)

3 unchanged sentences

SUBSEQUENT EVENTS

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.

Receivables Purchase Agreement

On July 1, 2024, the Company renegotiated our receivables purchase agreement which is currently treated as a secured borrowing.

The renegotiated receivables purchase agreement will result in a derecognition of the accounts receivable sold and the removal of the secured borrowing liability given the agreement transfers effective control over, and risk related to the receivables to the buyers.

S ee Note 1 and Note 2 above for additional information on the accounting treatment of our receivable purchase agreements.

Annual Recurring Compensation Payment

On July 3, 2024, the Annual Recurring Compensation was paid with respect to the 2023 fiscal year.

See Note 1 and Note 18 for additional information on the Annual Recurring Compensation payment.

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