What changed in this filing

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Item 1. Financial Statements

2024-11-12 compared with 2024-08-09 · 533 added, 301 removed, 752 unchanged (53% of the section changed)

3 unchanged sentences

(In thousands, except per share amounts)

September 30,

Current Assets

Cash and cash equivalents

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

Accounts receivable, less allowance for credit losses of $ 420 and $ 400 as of September 30, 2024

and December 31, 2023, respectively

29 unchanged sentences

200,000 shares authorized;

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

79,233 shares issued and 78,967 outstanding as of September 30, 2024 and

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

3 unchanged sentences

Treasury stock at cost:

266 and 297 shares as of June 30, 2024

266 and 297 shares as of September 30, 2024

and December 31, 2023, respectively

5 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Network Solutions

3 unchanged sentences

Network Solutions

Network Solutions - inventory write-down and other charges

Network Solutions - other (credits), charges and inventory write-down

Services & Support

6 unchanged sentences

Interest expense

Net investment gain

Net investment gain (loss)

Other (expense) income, net

7 unchanged sentences

Loss per common share attributable to ADTRAN Holdings, Inc.

(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.

(1) For the three and nine months ended September 30, 2024, we accrued $ 2.4 million and $ 7.4 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 nine months ended September 30, 2023, we accrued $ 2.6 million and $ 7.6 million, respectively, representing the recurring cash compensation earned by non-controlling interest shareholders post-DPLTA, partially offset by a $ 3.2 million net loss attributable to non-controlling interests pre-DPLTA for the nine months ended September 30, 2023.

(2) Loss per common share attributable to ADTRAN Holdings, Inc.

- basic and diluted - reflects a $ 3.0 million effect of redemption of RNCI for the three and nine months ended September 30, 2024.

See Note 15 for additional information.

See accompanying notes to condensed consolidated financial statements.

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Three Months Ended

Six Months Ended

Other Comprehensive (Loss) Income, net of tax

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

Nine Months Ended

September 30,

Other Comprehensive Income (Loss), net of tax

Net unrealized gain on available-for-sale securities

Defined benefit plan adjustments

Foreign currency translation (loss) gain

Other Comprehensive (Loss) Income, net of tax

Foreign currency translation gain (loss)

Other Comprehensive Income (Loss), net of tax

Comprehensive Loss, net of tax

14 unchanged sentences

Redemption of redeemable non-controlling interest

Foreign currency remeasurement of redeemable non-controlling interest

Adtran Networks stock-based compensation expense

6 unchanged sentences

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

Annual recurring compensation earned

Other comprehensive income, net of tax

ADTRAN RSUs and restricted stock vested

ADTRAN stock-based compensation expense

Redemption of redeemable non-controlling interest

Adtran Networks stock-based compensation expense

Modification of Stock Options

Balance as of September 30, 2024

See accompanying notes to condensed consolidated financial statements.

15 unchanged sentences

Redemption of redeemable non-controlling interest

Foreign currency remeasurement of redeemable non-controlling interest

Adtran Networks stock-based compensation expense

Balance as of March 31, 2023

Annual recurring compensation earned

Other comprehensive income, net of tax

7 unchanged sentences

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

Annual recurring compensation earned

Other comprehensive loss, net of tax

Dividend payments ($ 0.09 per share)

Dividends accrued for RSUs

Deferred compensation adjustments, net of tax

ADTRAN RSUs and restricted stock vested

ADTRAN stock options exercised

Adtran Networks stock options exercised

ADTRAN stock-based compensation expense

Redemption of redeemable non-controlling interest

Adtran Networks stock-based compensation expense

Balance as of September 30, 2023

See accompanying notes to condensed consolidated financial statements.

2 unchanged sentences

(In thousands)

Six Months Ended

Nine Months Ended

September 30,

Cash flows from operating activities:

33 unchanged sentences

Payment for redemption of redeemable non-controlling interest

Payment for annual recurring compensation to non-controlling interest

Payment of debt issuance cost

10 unchanged sentences

Supplemental disclosure of non-cash investing activities:

Redemption of redeemable non-controlling interest

Right-of-use assets obtained in exchange for lease obligations

4 unchanged sentences

ADTRAN Holdings, Inc.

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

and federal, state and local government agencies.

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

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The Company solely owns ADTRAN, Inc.

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

and is the majority shareholder of Adtran Networks SE (“Adtran Networks”).

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

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

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

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

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

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

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

absorb the annual net loss incurred by Adtran Networks.

The obligation of the Company to absorb Adtran Networks’ annual net loss applied for the first time to the loss generated in 2023.

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

The obligation of the Company to absorb Adtran Networks’ annual net loss applied for the first time to the loss generated by Adtran Networks in 2023.

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

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

The guaranteed interest rate is 5.0 % plus a variable component (according to the German Civil Code) that was 3.62 % 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.

The guaranteed interest rate is 5.0 % plus a variable component (according to the German Civil Code) that was 3.37 % as of September 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 € 326.9 million or approximately $ 364.1 million, based on an exchange rate as of September 30, 2024, and reflecting interest accrued through September 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.

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

Additionally, our obligation to pay Annual Recurring Compensation under the DPLTA is a continuing payment obligation, which will amount to approximately € 10.6 million or $ 11.4 million (based on the current exchange rate) per year assuming none of the minority Adtran Networks shareholders were to elect Exit Compensation.

Additionally, our obligation to pay Annual Recurring Compensation under the DPLTA is a continuing payment obligation, which will amount to approximately € 8.9 million (or $ 10.0 millio n based on the current exchange rate) per year assuming none of the minority Adtran Networks shareholders as of September 30, 2024 were to elect Exit Compensation.

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

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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.

During the three months ended September 30, 2024 and 2023, we accrued $ 2.4 million and $ 2.6 million, respectively, in Annual Recurring Compensation.

During the nine months ended September 30, 2024 and 2023, we accrued $ 7.4 million and $ 7.6 million, respectively, in Annual Recurring Compensation.

The Annual Recurring Compensation is reflected as an increase to retained deficit in the Condensed Consolidated Balance Sheets.

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

For the three and 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.

For the three and nine months ended September 30, 2024, approximately 830 thousand shares and 831 thousand shares, respectively, of Adtran Networks stock were tendered to the Company.

This resulted in total Exit Compensation payments of approximately € 15.7 million, or approximately $ 17.4 million , based on an exchange rate as of September 30, 2024, being paid to Adtran Networks shareholders.

For the three and nine months ended September 30, 2023 , less than 1 thousand shares and 64 thousand shares, respectively, of Adtran Networks stock were tendered to the Company.

This resulted in Exit Compensation payments of approximately € 8 thousand and € 1.1 million, respectively, or approximately $ 9 thousand and $ 1.2 million, respectively, based on an exchange rate as of September 30, 2023, being 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 (“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 $ 205.6 million on its Credit Facility 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.

however, as of September 30, 2024 , the Company was limited to additional borrowings of $ 24.1 million based on debt covenant compliance metrics.

The financial covenants under the Credit Agreement, as amended, require the Company to maintain a Consolidated Total Net Leverage Ratio of 5.00 x, a Consolidated Senior Secured Net Leverage Ratio of 3.25 x ( 4.0 x to 3.5 x during a Springing Covenant Period) and a Consolidated Fixed Charge Coverage Ratio of 1.25 x.

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

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.

As of September 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.

While the Company did experience $17.4 million of redemptions in Q3 2024, 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 following factors:

(i) the diverse base of shareholders that must make this election on an individual shareholder basis, (ii) the fact that the Company expects to receive a procedural decision on a matter of law related to the current ongoing appraisal proceedings involving a dispute over the value of the Exit Compensation in 2024 or early 2025, after which the appeal process should take an additional 24-32 months to resolve, (iii) the current guaranteed Annual Recurring Compensation payment plus the interest earned on such shares during the ongoing appraisal proceedings, and (iv) 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 nine months ended September 30, 2024.

To the extent the Company does not experience anticipated revenue growth, the Company will implement plans to preserve cash liquidity and maintain compliance with the Company’s net leverage covenants.

The Company has suspended dividend payments and has implemented 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 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.

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

Revision of Previously Issued Condensed Consolidated Financial Statements

Following the third quarter of 2024, the Company identified errors primarily impacting the carrying values of the redeemable non-controlling interest, retained deficit, the net income attributable to the non-controlling interest and the net loss attributable to the Company and, as a consequence, of the loss per common share attributable to the Company.

The Company has evaluated the errors and determined that the related impacts were not material to the previously issued consolidated financial statements for any prior period.

A summary of the corrections to the Company's Condensed Consolidated Financial Statements for the periods ended March 31, 2023, June 30, 2023, September 30, 2023, December 31, 2023, March 31, 2024 and June 30, 2024, are as follows:

(a) Pursuant to the terms of the DPLTA, each Adtran Networks shareholder (other than the Company) is entitled to receive from us an Annual Recurring Compensation payment of € 0.52 per share.

The Company erroneously accrued this liability every quarter at € 0.59 per share, overstating the associated accrual, the net income attributable to non-controlling interest and the net loss attributable to ADTRAN Holdings, Inc.

for fiscal periods beginning with the quarter ended March 31, 2023 through the quarter ended June 30, 2024.

(b) For the periods beginning with the quarter ended March 31, 2023 through the quarter ended June 30, 2024 the Company remeasured the redeemable non-controlling interest each quarter-end at the current exchange rate of Euros to U.S.

The Company treated the redeemable non-controlling interest as a monetary mezzanine equity instrument but should have treated it as a non-monetary mezzanine equity instrument not subject to remeasurement.

We have revised our previously issued Condensed Consolidated Financial Statements for the periods ended March 31, 2023, June 30, 2023, September 30, 2023, December 31, 2023, March 31, 2024 and June 30, 2024.

Additionally, the Company will revise its previously issued 2023 interim financial statements and 2023 annual financial statements in connection with the future filings of the Form 10-K for the year ended December 31, 2024, and interim reporting on Form 10-Q for the periods ended March 31, 2025 and June 30, 2025.

The following tables reflect the impact of the revision to the specific line items presented in the Company's previously reported Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Loss, and Condensed Consolidated Statements of Comprehensive Loss for the for fiscal periods beginning with the quarter ended March 31, 2023 through the quarter ended June 30, 2024.

March 31, 2023

(In thousands)

As Previously Reported

Other non-current liabilities

Total Liabilities

Redeemable Non-Controlling Interest

Accumulated Other Comprehensive Income

Retained Earnings

Total Liabilities, Redeemable Non-Controlling Interest and Equity

For the Three Months Ended March 31, 2023

(In thousands)

As Previously Reported

Net Loss attributable to non-controlling interest

Net Loss attributable to ADTRAN Holdings, Inc.

Loss per common share attributable to ADTRAN Holdings, Inc.

Foreign currency translation gain

Other Comprehensive Income, net of tax

Comprehensive Loss, net of tax

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

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

June 30, 2023

(In thousands)

As Previously Reported

Other non-current liabilities

Total Liabilities

Redeemable Non-Controlling Interest

Accumulated Other Comprehensive Income

Retained Deficit

Total Liabilities, Redeemable Non-Controlling Interest and Equity

For the Three Months Ended June 30, 2023

For the Six Months Ended June 30, 2023

(In thousands)

As Previously Reported

Net Income attributable to non-controlling interest

Net Loss attributable to ADTRAN Holdings, Inc.

Loss per common share attributable to ADTRAN Holdings, Inc.

Foreign currency translation gain

Other Comprehensive Income, net of tax

Comprehensive Loss, net of tax

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

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

September 30, 2023

(In thousands)

As Previously Reported

Other non-current liabilities

Total Liabilities

Redeemable Non-Controlling Interest

Accumulated Other Comprehensive Income

Retained Deficit

Total Liabilities, Redeemable Non-Controlling Interest and Equity

For the Three Months Ended September 30, 2023

For the Nine Months Ended September 30, 2023

(In thousands)

As Previously Reported

Net Income attributable to non-controlling interest

Net Loss attributable to ADTRAN Holdings, Inc.

Loss per common share attributable to ADTRAN Holdings, Inc.

Foreign currency translation loss

Other Comprehensive Loss, net of tax

Comprehensive Loss, net of tax

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

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

March 31, 2024

(In thousands)

As Previously Reported

Accrued Expenses and Other Liabilities

Total Current Liabilities

Other non-current liabilities

Total Liabilities

Redeemable Non-Controlling Interest

Accumulated Other Comprehensive Income

Retained Deficit

Total Liabilities, Redeemable Non-Controlling Interest and Equity

For the Three Months Ended March 31, 2024

(In thousands)

As Previously Reported

Net Income attributable to non-controlling interest

Net Loss attributable to ADTRAN Holdings, Inc.

Loss per common share attributable to ADTRAN Holdings, Inc.

Foreign currency translation loss

Other Comprehensive Loss, net of tax

Comprehensive Loss, net of tax

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

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

June 30, 2024

(In thousands)

As Previously Reported

Accrued Expenses and Other Liabilities

Total Current Liabilities

Other non-current liabilities

Total Liabilities

Redeemable Non-Controlling Interest

Accumulated Other Comprehensive Income

Retained Deficit

Total Liabilities, Redeemable Non-Controlling Interest and Equity

For the Three Months Ended June 30, 2024

For the Six Months Ended June 30, 2024

(In thousands)

As Previously Reported

Net Income attributable to non-controlling interest

Net Loss attributable to ADTRAN Holdings, Inc.

Loss per common share attributable to ADTRAN Holdings, Inc.

Foreign currency translation loss

Other Comprehensive Loss, net of tax

Comprehensive Loss, net of tax

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

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

The following tables reflect the impact of the revisions to the specific line items presented in the Company’s previously reported Consolidated Balance Sheet as of December 31, 2023, the Consolidated Statement of Loss and the Consolidated Statement of Comprehensive Loss for the year ended December 31, 2023.

December 31, 2023

(In thousands)

As Previously Reported

Accrued Expenses and Other Liabilities

Total Current Liabilities

Total Liabilities

Redeemable Non-Controlling Interest

Accumulated Other Comprehensive Income

Retained Deficit

Total Liabilities, Redeemable Non-Controlling Interest and Equity

For the Year Ended December 31, 2023

(In thousands)

As Previously Reported

Net Income attributable to non-controlling interest

Net Loss attributable to ADTRAN Holdings, Inc.

Loss per common share attributable to ADTRAN Holdings, Inc.

Foreign currency translation gain

Other Comprehensive Income, net of tax

Comprehensive Loss, net of tax

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

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

The following tables reflect the impact of the revision to the specific line items presented in the Company's previously reported Condensed Consolidated Statements of Changes in Stockholders Equity as of September 30, 2023 and 2024:

Retained Earnings (Deficit)

Accumulated Other Comprehensive Income

(In thousands)

As Previously Reported

Annual recurring compensation earned

Other comprehensive income, net of tax

Foreign currency remeasurement of redeemable non-controlling interest

Balance as of March 31, 2023

Annual recurring compensation earned

Other comprehensive income, net of tax

Foreign currency remeasurement of redeemable non-controlling interest

Balance as of June 30, 2023

Annual recurring compensation earned

Other comprehensive loss, net of tax

Foreign currency remeasurement of redeemable non-controlling interest

Balance as of September 30, 2023

Retained Deficit

Accumulated Other Comprehensive Income

(In thousands)

As Previously Reported

Balance as of December 31, 2023

Annual recurring compensation earned

Other comprehensive loss, net of tax

Foreign currency remeasurement of redeemable non-controlling interest

Balance as of March 31, 2024

Annual recurring compensation earned

Other comprehensive loss, net of tax

Foreign currency remeasurement of redeemable non-controlling interest

Balance as of June 30, 2024

The following tables reflect the impact of the revision to the specific line items presented in the Company's previously reported Consolidated Statement of Changes in Stockholders as of December 31, 2023:

Retained Earnings (Deficit)

Accumulated Other Comprehensive Income

(In thousands)

As Previously Reported

Annual recurring compensation earned

Other comprehensive income, net of tax

Foreign currency remeasurement of redeemable non-controlling interest

Balance as of December 31, 2023

Use of Estimates

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GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expense during the reporting period.

Significant estimates include allowance for credit losses on accounts receivable and contract assets, excess and obsolete inventory reserves, warranty reserves, customer rebates, determination and accrual of the deferred revenue related to performance obligations under contracts with customers, estimated costs to complete obligations associated with deferred and accrued revenues and network installations, estimated income tax provision and income tax contingencies, fair value of stock-based compensation, assessment of goodwill and other intangibles for impairment, estimated lives of intangible assets, estimates of intangible assets upon measurement, estimated pension liability and fair value of investments and estimated contingent liabilities.

Significant estimates include allowance for credit losses on accounts receivable and contract assets, excess and obsolete inventory reserves, warranty reserves, customer rebates, determination and accrual of the deferred revenue related to performance obligations under contracts with customers, estimated costs to complete obligations associated with deferred and accrued revenue and network installations, estimated income tax provision and income tax contingencies, fair value of stock-based compensation, assessment of goodwill and other intangibles for impairment, estimated lives of intangible assets, estimates of intangible assets upon measurement, estimated pension liability and fair value of investments and estimated contingent liabilities.

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, 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.

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 September 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.

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Accounts Receivable Factoring

New Accounts Receivable Factoring Agreement

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

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

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

The proceeds and repayments of secured borrowings are reflected as cash flows (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.

Receivables Purchase Agreement

On July 1, 2024, the Company entered into a receivables purchase agreement (the “Factoring Agreement”) with a third-party financial institution (the “Factor”), which accelerates receivable collection and helps to better manage cash flow.

These transactions are accounted for in accordance with ASC Topic 860 and result in a reduction in accounts receivable because the Factoring Agreement transfers effective control over, and risk related to the receivables to the buyers.

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

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

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

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

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

Previous Receivables Purchase Agreement

On December 19, 2023, the Company entered into a receivables purchase agreement (the “Prior Factoring Agreement”) with a third-party financial institution and was terminated on July 1, 2024.

The Prior Factoring Agreement qualified for treatment as a secured borrowing with a pledge of collateral under Accounting Standards Codification ("ASC") Topic 810, Consolidations, as the Company was considered the primary beneficiary in a variable interest entity created to hold the factored receivables and the Company retained a residual claim on reserves related to the factored receivables .

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

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

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

See Note 2 for additional information.

Previous Accounts Receivable Factoring Agreement

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

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

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

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

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

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

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

Redeemable Non-Controlling Interest

As of 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 of September 30, 2024 and December 31, 2023, the non-controlling Adtran Networks stockholders’ equity ownership percentage in Adtran Networks was approximatel y 33.0 % and 34.6 %, respectively.

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

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

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

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

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Recent Accounting Pronouncements Not Yet Adopted

In November 2024, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") 2024-03, "Disaggregation of Income Statement Expenses (DISE) (Topic 220):

Improvements to Income Statement Disclosures", which applies to all public business entities (PBEs) and is intended to enhance disclosures about specific types of expenses included in the expense captions presented on the face of the income statement as well as disclosures about selling expenses.

The amendments are effective prospectively for annual periods beginning after December 15, 2026, and early adoption and retrospective application are permitted.

The Company is currently evaluating the effect that adoption of ASU 2024-03 will have on our disclosures.

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

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

Recent Final Rules Not Yet Adopted

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

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

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

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

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

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

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

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

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

Court of Appeals, Eighth Circuit.

Recently Adopted Accounting Pronouncements

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

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

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

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

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

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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.

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

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

Three Months Ended

June 30, 2024

June 30, 2023

September 30, 2024

September 30, 2023

(In thousands)

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Services & Support

Subscriber Solutions

Optical Networking Solutions

Access & Aggregation Solutions

Subscriber Solutions

Six Months Ended

June 30, 2024

June 30, 2023

Nine Months Ended

September 30, 2024

September 30, 2023

(In thousands)

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Services & Support

Subscriber Solutions

Optical Networking Solutions

Access & Aggregation Solutions

Subscriber Solutions

The aggregate amount of transaction price allocated to remaining performance obligations that have not been satisfied as of 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 aggregate amount of transaction price allocated to remaining performance obligations that have not been satisfied as of September 30, 2024, related to contractual maintenance agreements, contractual SaaS and subscription services, and hardware contracts that exceed one year in duration amounte d to $ 280.8 million.

As of September 30, 2024 , approximately 66.0 % 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 September 30, 2024, are related to contracts or orders that have an original expected duration of one year or less and are excluded from the transaction price related to these future obligations.

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

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(In thousands)

June 30, 2024

September 30, 2024

December 31, 2023

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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 and six months ended June 30, 2024 and 2023 related to contract assets.

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

Receivables Purchase Agreement

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 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 $ 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.

Total accounts receivables factored as of the end of September 30, 2024, totaled $ 16.7 million of which $ 3.7 million was retained pursuant to the Factoring Agreement in the reserve account.

The Factoring Agreement provides for up to $ 40.0 million in factoring capacity, subject to eligible receivables and reserve requirements, secured by the receivables.

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

The cost of the Factoring Agreement is included in interest expense in the Condensed Consolidated Statements of Loss and totaled $ 0.3 million for the three months and nine months ended September 30, 2024.

Costs of a previous receivables purchase agreement which are included in interest expense in the Condensed Consolidated Statements of Loss totaled $ 0.3 million and $ 0.9 million for the three and nine months ended September 30, 2023.

Previous Receivable Purchase Agreement

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

The prior factoring agreement provided for up to $ 40.0 million in borrowing capacity, subject to eligible receivables and reserve requirements, secured by the receivables.

The prior factoring agreement qualified for treatment as a secured borrowing with a pledge of collateral under Accounting Standards Codification ("ASC") Topic 810, Consolidations .

The receivables purchase agreement was terminated on July 1, 2024 and there were no secured borrowings under this agreement as of September 30, 2024.

Total secured borrowings under the agreement were $ 14.3 million as of December 31, 2023, which left $ 25.4 million available for future borrowings as of December 31, 2023.

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

For the nine months ended September 30, 2024, the Company incurred program fee expenses of $ 0.6 million.

Contract Assets

No allowance for credit losses was recorded for the three and nine months ended September 30, 2024 and 2023, respectively, related to contract assets.

Unearned Revenue

Of the outstanding unearned revenue balances as of December 31, 2023 , $ 10.03 million and $ 43.1 million were recognized as revenue during the three and nine months ended September 30, 2024 , respectively.

Of the $ 60.4 million of outstanding unearned revenue balances as of December 31, 2022, $ 6.1 million and $ 31.3 million were recognized as revenue during the three and nine months ended September 30, 2023 , respectively.

The Company’s effective tax rate changed from a benefit of 18.0 % of pre-tax loss for the three months ended September 30, 2023 , to a expense of 1.4 % of pre-tax loss for the three months ended September 30, 2024 , and changed from a benefit of 19.2 % of pre-tax loss for the nine months ended September 30, 2023 , to a benefit of 3.9 % of pre-tax loss for the nine months ended September 30, 2024.

The change in the effective tax rate for the three and nine months ended September 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 nine months ended September 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 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.

As of September 30, 2024 , the Company had net deferred tax assets totaling $ 91.3 million, and a valuation allowance totaling $ 87.1 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.

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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.

As of September 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 September 30, 2024 and 2023 , stock-based compensation expense was $ 3.6 million and $ 4.2 million, respectively, and for the nine months ended September 30, 2024 and 2023 , stock-based compensation expense was $ 11.4 million and $ 12.2 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 June 30, 2024 and the changes that occurred during the six months ended June 30, 2024:

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

(in thousands)

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PSUs, RSUs and restricted stock forfeited

Unvested PSUs, RSUs and restricted stock outstanding, June 30, 2024

Unvested PSUs, RSUs and restricted stock outstanding, September 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 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.

As of September 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 $ 13.3 million, which will be recognized over the remaining weighted-average period of 2.2 years.

As of September 30, 2024 , there was $ 11.0 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 1.3 years if achievement of the performance obligation becomes probable.

Unrecognized compensation expense will be adjusted for actual forfeitures.

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The following table summarizes the ADTRAN Holdings, Inc.

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 outstanding as of December 31, 2023, and September 30, 2024, and the changes that occurred during the nine months ended September 30, 2024:

Stock Options

9 unchanged sentences

Stock options expired

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.

Stock options outstanding, September 30, 2024

Stock options exercisable, September 30, 2024

As of September 30, 2024 , there was $ 4.2 million of unrecognized compensation expense related to stock options which will be recognized over the remaining weighted-average period of 1.2 years.

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

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

1 unchanged sentence

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 June 30, 2024 .

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.

The amount of aggregate intrinsic value was $ 0.8 million as of September 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 nine months ended September 30, 2024 , and 2023 was $ 34 thousand and $ 0.2 million , respectively.

During the three and nine months ended September 30, 2024, 0.1 million stock options vested.

No stock options vested during the three and nine months ended September 30, 2023.

Stock Options - Adtran Networks

During the third quarter of 2024, all remaining Adtran Networks stock options were modified which resulted in the acceleration of vesting and conversion to liability based awards that were settled for cash totaling $ 0.2 million.

As of September 30, 2024, Adtran Networks had no remaining vested or unvested stock option awards outstanding.

Debt Securities and Other Investments

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

The Company did no t have any debt securities and other investments as of September 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

Nine Months Ended

September 30,

(In thousands)

4 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(In thousands)

Unrealized gain on equity securities held

Realized gain on equity securities sold

Total gain recognized, net

Unrealized gain (loss) on equity securities held

Realized (loss) gain on equity securities sold

Total gain (loss) recognized, net

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

8 unchanged sentences

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

Fair Value Measurements as of June 30, 2024 Using

Fair Value Measurements as of September 30, 2024 Using

(In thousands)

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(In thousands)

June 30, 2024

September 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 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.

During the three and nine months ended September 30, 2024 , we renegotiated $ 0.3 million related to charges and an inventory write-down of $( 0.3 ) million and $ 8.6 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 $ 4.1 million relates to inventory write-downs and $ 4.5 million relates to other charges all of which are included in cost of revenue in the Condensed Consolidated Statements of Loss.

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

PROPERTY, PLANT AND EQUIPMENT

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(In thousands)

June 30, 2024

September 30, 2024

December 31, 2023

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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 $ 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:

Depreciation expense was $ 8.7 million and $ 7.4 million for the three months ended September 30, 2024 and 2023 , respectively, and $ 24.5 million and $ 22.6 million for the nine months ended September 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 nine months ended September 30, 2024, are as follows:

(In thousands)

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Foreign currency translation adjustments

As of June 30, 2024

As of September 30, 2024

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

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

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

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

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

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

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

impairment test.

During the fourth quarter of 2023, the Company completed its annual impairment test.

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

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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.

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

Goodwill impairment recognized during the nine months ended September 30, 2024 , was $ 292.6 million.

Goodwill impairment recognized during the three and nine months ended September 30, 2023 , was $ 37.9 million.

As of September 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.

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Intangible assets consisted of the following:

As of June 30, 2024

As of September 30, 2024

As of December 31, 2023

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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.

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

Amortization expense was $ 14.7 million and $ 16.5 million in the three months ended September 30, 2024 and 2023 , respectively, and $ 43.7 million and $ 68.8 million in the nine months ended September 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)

June 30, 2024

September 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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We have not experienced credit losses from our counterparties.

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

As of September 30, 2024 , the Company had 41 forward rate contracts outstanding.

Foreign Currency Hedging Arrangements

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(“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.

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, enabled 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 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 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.

dollars at a daily fixed forward rate ranging from EUR/USD 0.98286 to 1.03290 .

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

During the nine months ended September 30, 2024 , the Company settled three € 20.0 million forward contract tranches, leaving the remaining tranche of € 20.0 million to be settled in the fourth quarter of 2024.

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

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dollar forward contract arrangements (“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 converted to U.S.

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

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 exchanged an aggregate notional amount of € 160.0 million converted to U.S.

dollars at an average rate of EUR/USD 1.085 .

During the nine months ended September 30, 2024 , the Company settled three $ 20.0 million forward contract tranches, leaving the remaining tranche of $ 20.0 million to be settled in the fourth quarter of 2024.

These forward contracts were executed to sell EUR and to buy USD and were entered into for the purpose of unwinding th e Initial Forward to buy EUR and to sell USD.

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

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

(In thousands)

Balance Sheet Location

June 30, 2024

September 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 and six months ended June 30, 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 nine months ended September 30, 2024 and 2023 were as follows:

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(In thousands)

6 unchanged sentences

(In thousands)

June 30, 2024

September 30, 2024

December 31, 2023

1 unchanged sentence

Total non-current revolving credit facility

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

As of September 30, 2024, the weighted average interest rate on our revolving credit agreements was 8.45 %.

Wells Fargo Credit Agreement

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 July 18, 2022, ADTRAN, Inc., as the borrower ("U.S.

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”).

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, among other things, increased the available funding from $ 100.0 million to $ 400.0 million.

In addition, a new $ 50.0 million delayed draw term loan facility (“DDTL”) was introduced, which (subject to certain conditions) was 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 was tendered (such event, a “Springing Covenant Event”).

Upon the occurrence of a Springing Covenant Event, the Company will enter a “Springing Covenant Period”, defined as the fiscal quarter in which a Springing Covenant Event occurs and the three (3) consecutive fiscal quarters thereafter.

During the Springing Covenant Period, the Company’s leverage ratios are increased.

Although the ability to borrow under the DDTL expired on August 9, 2024, the Springing Covenant Event and Springing Covenant Period remain in effect.

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.

3 unchanged sentences

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.

The Second Amendment, among other things, introduced the Covenant Relief Period, which provided the Company with additional covenant headroom while imposing a minimum liquidity financial covenant from the end of the fourth quarter of 2023 to the end of the third quarter of 2024.

The Covenant Relief Period ended on November 7, 2024.

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

7 unchanged sentences

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.

As of September 30, 2024 , ADTRAN, Inc.’s borrowings under the revolving line of credit were $ 189.8 million, of which approximately $ 115.0 million were borrowed by ADTRAN, Inc.

and $ 75.0 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.

The credit facilities provided under the Credit Agreement mature in July 2027, but the U.S.

Borrower may request extensions subject to custo mary conditions.

In addition, the U.S.

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 September 30, 2024 , we had a total of $ 4.4 million in letters of credit under ADTRAN, Inc.

outstanding under the Credit Agreement, leaving a net amount (after giving effect to the $ 189.8 million of outstanding borrowings described above) of $ 205.6 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.

however, as of September 30, 2024 , the Company was limited to additional borrowings of $ 24.1 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 June 30, 2024, the Company was in compliance with all covenants.

As of September 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), 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).

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 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.

office (which such rate is an index or base rate and will not necessarily be its lowest or best rate charged to its customers or other banks), and (c) the daily Adjusted Term SOFR (as defined in the Credit Agreement) for a one-month tenor plus 1.0 %.

office (which such rate is an index or base rate and will not necessarily be its lowest or best rate charged to its customers or other banks), or (c) the daily Adjusted Term SOFR (as defined in the Credit Agreement) for a one-month tenor plus 1.0 %.

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

2 unchanged sentences

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, 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 Applicable Margin Increase Period, is equal to 0.25 % per annum).

3 unchanged sentences

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 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.

Covenants Under the Credit Agreement

7 unchanged sentences

• 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:

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

• From July 1, 2024, and thereafter:

• If a Springing Covenant Period is not in effect, the Consolidated Senior Secured Net Leverage Ratio may not exceed 3.25 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.

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

• During 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.

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

(“Full Facility Guarantors”).

6 unchanged sentences

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.

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

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

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

The negative covenants are subject to various exceptions and carveouts.

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

It also contains customary events of default, such as misrepresentation and a default in the performance or observance of any covenant (subject to customary cure periods and materiality thresholds).

3 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 $ 11.5 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 net non-current pension liability for all defined benefit pension plans totaled $ 12.1 million and $ 12.5 million as of September 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 September 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

Nine Months Ended

September 30,

(In thousands)

5 unchanged sentences

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

The Company made contributions to the defined benefit pension plans totaling $ 2.2 million and $ 1.8 million during the six months ended June 30, 2024 and 2023, respectively.

The Company made contributions to the defined benefit pension plans totaling $ 3.0 million and $ 2.8 million during the nine months ended September 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 $ 1.0 million.

1 unchanged sentence

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

Three Months Ended June 30, 2024

Three Months Ended September 30, 2024

(In thousands)

1 unchanged sentence

ASU 2018-02 Adoption

Balance as of March 31, 2024

Other comprehensive loss before

Balance as of June 30, 2024

Other comprehensive (loss) income before

reclassifications

Amounts reclassified from accumulated other

comprehensive income (loss)

Net current period other comprehensive loss

Balance as of June 30, 2024

Three Months Ended June 30, 2023

comprehensive income

Net current period other comprehensive gain

Balance as of September 30, 2024

Three Months Ended September 30, 2023

(In thousands)

ASU 2018-02 Adoption

Balance as of March 31, 2023

Other comprehensive income before

Balance as of June 30, 2023

Other comprehensive income (loss) before

reclassifications

Amounts reclassified from accumulated other

comprehensive (loss) income

Net current period other comprehensive income

comprehensive income

Net current period other comprehensive income (loss)

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

Balance as of June 30, 2023

Six Months Ended June 30, 2024

Balance as of September 30, 2023

Nine Months Ended September 30, 2024

(In thousands)

4 unchanged sentences

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

comprehensive income

Net current period other comprehensive income (loss)

Balance as of September 30, 2024

Nine Months Ended September 30, 2023

(In thousands)

1 unchanged sentence

Balance as of December 31, 2022

Other comprehensive loss before

Other comprehensive income (loss) before

reclassifications

1 unchanged sentence

comprehensive income

Net current period other comprehensive (loss) income

Net current period other comprehensive income (loss)

Comprehensive income attributable to non-controlling

interest, net of tax

Balance as of June 30, 2023

Balance as of September 30, 2023

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

Three Months Ended June 30, 2024

Three Months Ended September 30, 2024

(In thousands)

5 unchanged sentences

Net realized loss on sales of securities

Net investment gain

Defined benefit plan adjustments – actuarial gain

Net investment gain (loss)

Defined benefit plan adjustments – actuarial loss

Total reclassifications for the period, before tax

1 unchanged sentence

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

Three Months Ended June 30, 2023

Three Months Ended September 30, 2023

(In thousands)

5 unchanged sentences

Net realized gain on sales of securities

Net investment gain

Defined benefit plan adjustments – actuarial loss

Net investment gain (loss)

Defined benefit plan adjustments – actuarial gain

Total reclassifications for the period, before tax

1 unchanged sentence

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

Six Months Ended June 30, 2024

Nine Months Ended September 30, 2024

(In thousands)

4 unchanged sentences

Net realized loss on sales of securities

Net investment gain

Defined benefit plan adjustments – actuarial gain

Net investment gain (loss)

Defined benefit plan adjustments – actuarial loss

Total reclassifications for the period, before tax

1 unchanged sentence

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

Six Months Ended June 30, 2023

Nine Months Ended September 30, 2023

(In thousands)

4 unchanged sentences

Net realized gain on sales of securities

Net investment gain

Defined benefit plan adjustments – actuarial loss

Net investment gain (loss)

Defined benefit plan adjustments – actuarial gain

Total reclassifications for the period, before tax

4 unchanged sentences

Three Months Ended

June 30, 2024

June 30, 2023

September 30, 2024

September 30, 2023

(In thousands)

1 unchanged sentence

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

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

Foreign currency translation adjustments

Total Other Comprehensive (Loss) Income

Six Months Ended

June 30, 2024

June 30, 2023

Total Other Comprehensive Income (Loss)

Nine Months Ended

September 30, 2024

September 30, 2023

(In thousands)

1 unchanged sentence

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

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

Foreign currency translation adjustments

Total Other Comprehensive (Loss) Income

Total Other Comprehensive Loss

REDEEMABLE NON-CONTROLLING INTEREST

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

As of September 30, 2024 , the non-controlling Adtran Networks stockholders’ equity ownership percentage in Adtran Networks was approximately 33.0 %.

The following table summarizes the redeemable non-controlling interest activity for the nine months ended September 30, 2024 and for the year ended December 31, 2023:

Nine Months Ended

For the Year Ended

(In thousands)

June 30, 2024

September 30, 2024

December 31, 2023

1 unchanged sentence

Reclassification of non-controlling interests

Fair value on redemption of redeemable non-controlling interest

Redemption of redeemable non-controlling interest

Net income attributable to redeemable non-controlling interests

1 unchanged sentence

Adtran Networks stock option exercises

Translation adjustment

Balance at end of period

(1) Following the third quarter of 2024, the Company identified errors primarily impacting the carrying values of the redeemable non-controlling interest, retained deficit, the net income attributable to the non-controlling interest and the net loss attributable to the Company and, as a consequence, of the loss per common share attributable to the Company.

See Note 1 for additional information.

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

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.

For the three and nine months ended September 30, 2024, we have accrued $ 2.4 million and $ 7.4 million, respectively, representing the portion of the annual recurring cash compensation to the non-controlling shareholders during such periods, which will be paid after the ordinary general shareholders' meeting of Adtran Networks in 2025.

For the year ended December 31, 2023, w e paid $ 10.1 mi llion representing the portion of the annual recurring cash compensation to the non-controlling shareholders during such period.

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

2 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(In thousands, except per share amounts)

Net loss attributable to ADTRAN Holdings, Inc.

Effect of redemption of RNCI

Net loss attributable to ADTRAN Holdings, Inc.

common shareholders

Weighted average number of shares – basic

5 unchanged sentences

Loss per share attributable to ADTRAN Holdings, Inc.

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.

For the three months ended September 30, 2024 and 2023 , 0.9 million and 0.5 million shares, respectively, and for the nine months ended September 30, 2024 and 2023 , 1.1 million and 0.4 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 September 30, 2024 and 2023 , 4.0 million and 2.6 million stock options, respectively, and for the nine months ended September 30, 2024 and 2023 , 4.2 million and 1.4 million stock options, respectively, were outstanding but were not included in the computation of diluted earnings per share.

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

SEGMENT INFORMATION

15 unchanged sentences

Three Months Ended

June 30, 2024

June 30, 2023

September 30, 2024

September 30, 2023

(In thousands)

1 unchanged sentence

Services & Support

Six Months Ended

June 30, 2024

June 30, 2023

Nine Months Ended

September 30, 2024

September 30, 2023

(In thousands)

1 unchanged sentence

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.

For each of the three months ended September 30, 2024 and 2023 , $ 2.9 million and $ 1.5 million, respectively, of depreciation expense was included in gross profit for our Network Solutions segment.

For the nine months ended September 30, 2024 and 2023 , $ 7.4 million and $ 4.5 million, respectively, of depreciation expense was included in gross profit for our Network Solutions segment.

For the three months ended September 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 nine months ended September 30, 2024 and 2023 , $ 0.2 million and $ 7 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

Nine Months Ended

September 30,

(In thousands)

10 unchanged sentences

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:

The liability for warranty obligations totaled $ 5.6 million and $ 6.4 million as of September 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 nine months ended September 30, 2024 and 2023 are summarized as follows:

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(In thousands)

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

The guaranteed interest rate is 5.0 % plus a variable component (according to the German Civil Code) that was 3.62 % 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.

The guaranteed interest rate is 5.0 % plus a variable component (according to the German Civil Code) that was 3.37 % as of September 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 € 326.9 million or approximately $ 364.1 million, based on an exchange rate as of September 30, 2024, and reflecting interest accrued through September 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.

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Our obligation to pay Annual Recurring Compensation under the DPLTA is a continuing payment obligation, which will amount to approximately € 8.9 million (or $ 10.0 million based on the current exchange rate) per year assuming none of the minority Adtran Networks shareholders were to elect Exit Compensation.

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

The foregoing amounts do n ot reflect any potential increase in payment obligations that we may have depending on the outcome of ongoing appraisal proceedings in Germany.

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.

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.

During the three months ended September 30, 2024 and 2023, we accrued $ 2.4 million and $ 2.6 million, r espectively, in Annual Recurring Compensation.

During the nine months ended September 30, 2024 and 2023, we accrued $ 7.4 million and $ 7.6 million, r espectively, in Annual Recurring Compensation, which was reflected as an increase to retained deficit.

For the three and nine months ended September 30, 2024, approximately 830 thousand shares and 831 thousand shares, respectively, of Adtran Networks stock were tendered to the Company.

For the three and nine months ended September 30, 2023, less than 1 thousand shares and 64 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 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 .

As of September 30, 2024, and December 31, 2023, we had commitments related to these bonds totaling $ 14.6 million and $ 10.8 million, respectively, which expire at various dates through April 2031 .

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

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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.

Our inventory purchase obligations are for 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 June 30, 2024, purchase obligations totaled $ 280.9 million.

As of September 30, 2024, purchase obligations totaled $ 261.8 mi llion.

RESTRUCTURING

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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.

During the three and nine months ended September 30, 2024 , we recognized $ 5.9 million and $ 40.6 million of costs related to the Business Efficiency Program, respectively.

The costs recognized during the nine months ended September 30, 2024 , included total other renegotiated charges and inventory write-down of $ 8.6 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 $ 4.5 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 $ 65.6 million of costs.

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 .

We expect costs in the fourth quarter 2024 relating to the

Business Efficiency Program to range between $ 9.6 million and $ 13.8 million.

Management expects these planned costs to include severance costs to be approximately $ 6.2 million in connection with reductions in workforce and site consolidation transaction expenses (primarily brokers fees and Greifswald exit costs) ranging from $ 3.4 million to $ 7.6 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.

Future cash payments include:

severance costs and outplacement fees that are anticipated to be $ 23.1 million, and payments relating to the site consolidation transaction expenses that are anticipated to be in the range of $ 3.4 million to $ 7.6 million.

We do not anticipate any remaining payments related to the inventory strategy shift.

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.

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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 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:

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

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

See Note 6, Inventory, for additional information regarding the write down of inventory.

A reconciliation of the beginning and ending restructuring liabilities, which is included in accrued wages and benefits and accounts payable in the Condensed Consolidated Balance Sheets as of September 30, 2024, and December 31, 2023, is as follows:

Three Months Ended

Six Months Ended

Nine Months Ended

(In thousands)

June 30, 2024

September 30, 2024

Balance at beginning of period

Amounts charged to cost and expense

Balance as of June 30, 2024

Balance as of September 30, 2024

For the Year Ended

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Balance as of December 31, 2023

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

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

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(In thousands)

Network Solutions - Cost of revenue

Network Solutions - inventory write-down

Network Solutions - other (credits), charges

and inventory write-down

Services & Support - Cost of revenue

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Total restructuring expenses

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

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

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(In thousands)

2 unchanged sentences

Total restructuring expenses

SUBSEQUENT EVENTS

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