ADTRAN Holdings, Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS ADTRAN Holdings, Inc. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands, except per share amounts) September 30, December 31, 2024 2023 ASSETS Current Assets Cash and cash equivalents $ 88,456 $ 87,167 Accounts receivable, less allowance for credit losses of $ 420 and $ 400 as of September 30, 2024 and December 31, 2023, respectively 172,025 216,445 Other receivables 12,871 17,450 Income tax receivable 13,466 7,933 Inventory, net 282,926 362,295 Prepaid expenses and other current assets 69,112 45,566 Total Current Assets 638,856 736,856 Property, plant and equipment, net 147,428 123,020 Deferred tax assets 25,697 25,787 Goodwill 56,884 353,415 Intangibles, net 286,098 327,985 Other non-current assets 86,677 87,706 Long-term investments 31,506 27,743 Total Assets $ 1,273,146 $ 1,682,512 LIABILITIES, REDEEMABLE NON-CONTROLLING INTEREST AND EQUITY Current Liabilities Accounts payable $ 173,354 $ 162,922 Unearned revenue 54,615 46,731 Accrued expenses and other liabilities 34,482 36,204 Accrued wages and benefits 40,366 27,030 Income tax payable, net 2,007 5,221 Total Current Liabilities 304,824 278,108 Non-current revolving credit agreement outstanding 189,849 195,000 Deferred tax liabilities 21,483 35,655 Non-current unearned revenue 24,901 25,109 Non-current pension liability 12,149 12,543 Deferred compensation liability 32,046 29,039 Non-current lease obligations 25,635 31,420 Other non-current liabilities 26,489 28,657 Total Liabilities 637,376 635,531 Commitments and contingencies (see Note 18) Redeemable Non-Controlling Interest 421,776 442,152 Equity Common stock, par value $ 0.01 per share; 200,000 shares authorized; 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 792 790 Additional paid-in capital 806,187 795,304 Accumulated other comprehensive income 47,377 47,465 Retained deficit ( 635,164 ) ( 232,905 ) Treasury stock at cost: 266 and 297 shares as of September 30, 2024 and December 31, 2023, respectively ( 5,198 ) ( 5,825 ) Total Equity 213,994 604,829 Total Liabilities, Redeemable Non-Controlling Interest and Equity $ 1,273,146 $ 1,682,512 See accompanying notes to condensed consolidated financial statements. 7 ADTRAN Holdings, Inc. CONDENSED CONSOLIDATED STA TEMENTS OF LOSS (Unaudited) (In thousands, except per share amounts) Three Months Ended Nine Months Ended September 30, September 30, 2024 2023 2024 2023 Revenue Network Solutions $ 181,488 $ 228,564 $ 541,955 $ 793,984 Services & Support 46,216 43,767 137,913 129,637 Total Revenue 227,704 272,331 679,868 923,621 Cost of Revenue Network Solutions 126,103 160,244 376,886 596,334 Network Solutions - other (credits), charges and inventory write-down ( 328 ) 21,043 8,597 21,043 Services & Support 16,678 16,807 55,304 51,646 Total Cost of Revenue 142,453 198,094 440,787 669,023 Gross Profit 85,251 74,237 239,081 254,598 Selling, general and administrative expenses 57,620 62,907 176,214 196,887 Research and development expenses 51,615 62,752 172,253 203,493 Goodwill impairment — 37,874 292,583 37,874 Operating Loss ( 23,984 ) ( 89,296 ) ( 401,969 ) ( 183,656 ) Interest and dividend income 664 521 1,427 1,183 Interest expense ( 5,679 ) ( 4,507 ) ( 17,183 ) ( 11,858 ) Net investment gain (loss) 1,382 ( 1,443 ) 4,507 1,071 Other (expense) income, net ( 850 ) 2,523 ( 441 ) 4,714 Loss Before Income Taxes ( 28,467 ) ( 92,202 ) ( 413,659 ) ( 188,546 ) Income tax (expense) benefit ( 390 ) 16,553 16,121 36,229 Net Loss $ ( 28,857 ) $ ( 75,649 ) $ ( 397,538 ) $ ( 152,317 ) Less: Net Income attributable to non-controlling interest (1) 2,382 2,561 7,417 4,380 Net Loss attributable to ADTRAN Holdings, Inc. $ ( 31,239 ) $ ( 78,210 ) $ ( 404,955 ) $ ( 156,697 ) Weighted average shares outstanding – basic 78,952 78,389 78,873 78,378 Weighted average shares outstanding – diluted 78,952 78,389 78,873 78,378 Loss per common share attributable to ADTRAN Holdings, Inc. – basic $ ( 0.36 ) (2) $ ( 1.00 ) $ ( 5.10 ) (2) $ ( 2.00 ) Loss per common share attributable to ADTRAN Holdings, Inc. – diluted $ ( 0.36 ) (2) $ ( 1.00 ) $ ( 5.10 ) (2) $ ( 2.00 ) (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. 8 ADTRAN Holdings, Inc. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited) (In thousands) Three Months Ended Nine Months Ended September 30, September 30, 2024 2023 2024 2023 Net Loss $ ( 28,857 ) $ ( 75,649 ) $ ( 397,538 ) $ ( 152,317 ) Other Comprehensive Income (Loss), net of tax Net unrealized gain on available-for-sale securities — 391 — 454 Defined benefit plan adjustments 109 ( 83 ) 42 ( 25 ) Foreign currency translation gain (loss) 18,988 ( 29,715 ) ( 130 ) ( 14,095 ) Other Comprehensive Income (Loss), net of tax 19,097 ( 29,407 ) ( 88 ) ( 13,666 ) Comprehensive Loss, net of tax ( 9,760 ) ( 105,056 ) ( 397,626 ) ( 165,983 ) Less: Comprehensive Income attributable to non-controlling interest, net of tax 2,382 2,561 7,417 4,762 Comprehensive Loss attributable to ADTRAN Holdings, Inc., net of tax $ ( 12,142 ) $ ( 107,617 ) $ ( 405,043 ) $ ( 170,745 ) See accompanying notes to condensed consolidated financial statements. 9 ADTRAN Holdings, Inc. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Unaudited) (In thousands, except per share amounts) Common Shares Common Stock Additional Paid-In Capital Retained Deficit Treasury Stock Accumulated Other Comprehensive Income Total Equity Balance as of December 31, 2023 78,970 $ 790 $ 795,304 $ ( 232,905 ) $ ( 5,825 ) $ 47,465 $ 604,829 Net loss — — — ( 321,670 ) — — ( 321,670 ) Annual recurring compensation earned — — — ( 2,531 ) — — ( 2,531 ) Other comprehensive loss, net of tax — — — — — ( 17,804 ) ( 17,804 ) Deferred compensation adjustments, net of tax — — ( 368 ) 3 627 — 262 ADTRAN RSUs and restricted stock vested 110 1 — ( 243 ) — — ( 242 ) ADTRAN stock options exercised 36 — — 219 — — 219 ADTRAN stock-based compensation expense — — 3,957 — — — 3,957 Redemption of redeemable non-controlling interest — — — 1 — — 1 Adtran Networks stock-based compensation expense — — 4 — — — 4 Balance as of March 31, 2024 79,116 $ 791 $ 798,897 $ ( 557,126 ) $ ( 5,198 ) $ 29,661 $ 267,025 Net loss — — — ( 47,011 ) — — ( 47,011 ) Annual recurring compensation earned — — — ( 2,504 ) — — ( 2,504 ) Other comprehensive loss, net of tax — — — — — ( 1,381 ) ( 1,381 ) Deferred compensation adjustments, net of tax — — — ( 3 ) — — ( 3 ) ADTRAN RSUs and restricted stock vested 5 — — ( 16 ) — — ( 16 ) ADTRAN stock-based compensation expense — — 3,836 — — — 3,836 Redemption of redeemable non-controlling interest — — — 4 — — 4 Adtran Networks stock-based compensation expense — — 4 — — — 4 Balance as of June 30, 2024 79,121 $ 791 $ 802,737 $ ( 606,656 ) $ ( 5,198 ) $ 28,280 $ 219,954 Net loss — — — ( 28,857 ) — — ( 28,857 ) Annual recurring compensation earned — — — ( 2,382 ) — — ( 2,382 ) Other comprehensive income, net of tax — — — — — 19,097 19,097 ADTRAN RSUs and restricted stock vested 112 1 — ( 245 ) — — ( 244 ) ADTRAN stock-based compensation expense — — 3,623 — — — 3,623 Redemption of redeemable non-controlling interest — — — 2,976 — — 2,976 Adtran Networks stock-based compensation expense — — 17 — — — 17 Modification of Stock Options — — ( 190 ) — — — ( 190 ) Balance as of September 30, 2024 79,233 $ 792 $ 806,187 $ ( 635,164 ) $ ( 5,198 ) $ 47,377 $ 213,994 See accompanying notes to condensed consolidated financial statements. 10 ADTRAN Holdings, Inc. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Unaudited) (In thousands, except per share amounts) Common Shares Common Stock Additional Paid-In Capital Retained Earnings Treasury Stock Accumulated Other Comprehensive Income Non-controlling interest Total Equity Balance as of December 31, 2022 78,088 $ 781 $ 895,834 $ 55,338 $ ( 4,125 ) $ 26,126 $ 329,659 $ 1,303,613 Net loss — — — ( 37,274 ) — — ( 3,179 ) ( 40,453 ) Annual recurring compensation earned — — — ( 2,464 ) — — — ( 2,464 ) Reclassification and remeasurement from equity to mezzanine equity for non-controlling interests in Adtran Networks — — ( 116,895 ) — — — ( 326,862 ) ( 443,757 ) Other comprehensive income, net of tax — — — — — 8,401 382 8,783 Dividend payments to ADTRAN Holdings, Inc. shareholders ($ 0.09 per share) — — — ( 7,076 ) — — — ( 7,076 ) Deferred compensation adjustments, net of tax — — — — ( 1,792 ) — — ( 1,792 ) ADTRAN RSUs and restricted stock vested 561 6 — ( 144 ) — — — ( 138 ) ADTRAN stock options exercised 6 — — 58 — — — 58 ADTRAN stock-based compensation expense — — 3,812 — — — — 3,812 Redemption of redeemable non-controlling interest — — — 343 — — — 343 Adtran Networks stock-based compensation expense — — 9 — — — — 9 Balance as of March 31, 2023 78,655 $ 787 $ 782,760 $ 8,781 $ ( 5,917 ) $ 34,527 $ — $ 820,938 Net loss — — — ( 36,215 ) — — — ( 36,215 ) Annual recurring compensation earned — — — ( 2,534 ) — — — ( 2,534 ) Other comprehensive income, net of tax — — — — — 6,958 — 6,958 Dividend payments to ADTRAN Holdings, Inc. shareholders ($ 0.09 per share) — — — ( 7,076 ) — — — ( 7,076 ) Dividends accrued for RSUs — — — 9 — — — 9 Deferred compensation adjustments, net of tax — — — — ( 26 ) — — ( 26 ) ADTRAN RSUs and restricted stock vested 6 — — ( 44 ) — — — ( 44 ) Adtran Networks stock options exercised — — 92 — — — — 92 ADTRAN stock-based compensation expense — — 4,291 — — — — 4,291 Redemption of redeemable non-controlling interest — — — 6 — — — 6 Adtran Networks stock-based compensation expense — — 10 — — — — 10 Balance as of June 30, 2023 78,661 $ 787 $ 787,153 $ ( 37,073 ) $ ( 5,943 ) $ 41,485 $ — $ 786,409 Net loss — — — ( 75,649 ) — — — ( 75,649 ) Annual recurring compensation earned — — — ( 2,561 ) — — — ( 2,561 ) Other comprehensive loss, net of tax — — — — — ( 29,407 ) — ( 29,407 ) Dividend payments ($ 0.09 per share) — — — ( 7,085 ) — — — ( 7,085 ) Dividends accrued for RSUs — — — ( 8 ) ( 8 ) Deferred compensation adjustments, net of tax — — — — ( 27 ) — — ( 27 ) ADTRAN RSUs and restricted stock vested 25 — — ( 175 ) — — — ( 175 ) ADTRAN stock options exercised 2 — — 15 — — — 15 Adtran Networks stock options exercised — — 8 — — — — 8 ADTRAN stock-based compensation expense — — 4,126 — — — — 4,126 Redemption of redeemable non-controlling interest — — — 2 — — — 2 Adtran Networks stock-based compensation expense — — 3 — — — — 3 Balance as of September 30, 2023 78,688 $ 787 $ 791,290 $ ( 122,534 ) $ ( 5,970 ) $ 12,078 $ — $ 675,651 See accompanying notes to condensed consolidated financial statements. 11 ADTRAN Holdings, Inc. CONDENSED CONSOLIDATED S TATEMENTS OF CASH FLOWS (Unaudited) (In thousands) Nine Months Ended September 30, 2024 2023 Cash flows from operating activities: Net loss $ ( 397,538 ) $ ( 152,317 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 68,421 91,422 Goodwill Impairment 292,583 37,874 Amortization of debt issuance cost 1,013 607 Gain on investments, net ( 4,238 ) ( 3,316 ) Net loss on disposal of property, plant and equipment 203 — Stock-based compensation expense 11,417 12,229 Deferred income taxes ( 13,399 ) ( 45,941 ) Other, net ( 267 ) 204 Inventory write down - business efficiency program 4,135 21,043 Inventory reserves 6,667 29,836 Changes in operating assets and liabilities: Accounts receivable, net 59,446 47,347 Other receivables 4,875 8,340 Income taxes receivable, net ( 5,682 ) — Inventory 69,412 536 Prepaid expenses, other current assets and other assets ( 20,083 ) 1,816 Accounts payable 9,697 ( 87,903 ) Accrued expenses and other liabilities 15,039 6,476 Income taxes payable, net ( 3,175 ) 2,433 Net cash provided by (used in) operating activities 98,526 ( 29,314 ) Cash flows from investing activities: Purchases of property, plant and equipment ( 48,183 ) ( 33,674 ) Proceeds from sales and maturities of available-for-sale investments 1,195 10,545 Purchases of available-for-sale investments ( 195 ) ( 807 ) Proceeds from beneficial interests in securitized accounts receivable 282 1,178 Net cash used in investing activities ( 46,901 ) ( 22,758 ) Cash flows from financing activities: Tax withholdings related to stock-based compensation settlements ( 189 ) ( 6,331 ) Proceeds from stock option exercises 219 187 Dividend payments — ( 21,237 ) Proceeds from receivables purchase agreement 68,556 — Repayments on receivables purchase agreement ( 83,772 ) — Proceeds from draw on revolving credit agreements — 163,760 Repayment of revolving credit agreements ( 5,000 ) ( 49,233 ) Payment for redemption of redeemable non-controlling interest ( 17,395 ) ( 1,196 ) Payment for annual recurring compensation to non-controlling interest ( 10,084 ) — Payment of debt issuance cost ( 1,994 ) ( 708 ) Repayment of notes payable — ( 24,931 ) Net cash (used in) provided by financing activities ( 49,659 ) 60,311 Net increase in cash and cash equivalents 1,966 8,239 Effect of exchange rate changes ( 677 ) ( 791 ) Cash and cash equivalents, beginning of period 87,167 108,644 Cash and cash equivalents, end of period $ 88,456 $ 116,092 Supplemental disclosure of cash financing activities: Cash paid for interest $ 18,225 $ 8,540 Cash paid for income taxes $ 9,122 $ — Cash used in operating activities related to operating leases $ 7,380 $ 7,378 Supplemental disclosure of non-cash investing activities: Redemption of redeemable non-controlling interest $ 2,976 $ 351 Right-of-use assets obtained in exchange for lease obligations $ 2,122 $ 8,490 Purchases of property, plant and equipment included in accounts payable $ 952 $ 2,508 See accompanying notes to condensed consolidated financial statements. 12 ADTRAN Holdings, Inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) GENERAL 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, including Fortune 500 companies with sophisticated business continuity applications; and federal, state and local government agencies. Our innovative solutions and services enable voice, data, video and internet-communications across a variety of network infrastructures and are currently in use by millions worldwide. We support our customers through our direct global sales organization and our distribution networks. Our success depends upon our ability to increase unit volume and market share through the introduction of new products and succeeding generations of products having optimal selling prices and increased functionality as compared to both the prior generation of a product and to the products of competitors in order to gain market share. To service our customers and grow revenue, we are continually conducting research and developing new products addressing customer needs and testing those products for the specific requirements of the particular customers. We offer a broad portfolio of flexible software and hardware network solutions and services that enable Service Providers to meet today’s service demands, while enabling them to transition to the fully converged, scalable, highly-automated, cloud-controlled voice, data, internet and video network of the future. In addition to our global headquarters in Huntsville, Alabama, and our European headquarters in Munich, Germany, we have sales and research and development facilities in strategic global locations. The Company solely owns ADTRAN, Inc. and is the majority shareholder of Adtran Networks SE (“Adtran Networks”). ADTRAN, Inc. is a leading global provider of open, disaggregated networking and communications solutions. Adtran Networks is a global provider of network solutions for data, storage, voice and video services. We believe that the combined technology portfolio can best address current and future customer needs for high-speed connectivity from the network core to the end consumer, especially upon the convergence of solutions at the network edge. Liquidity, Domination and Profit and Loss Transfer Agreement and Credit Facility The DPLTA between the Company, as the controlling company, and Adtran Networks, as the controlled company, which was executed on December 1, 2022, became effective on January 16, 2023, as a result of its registration with the commercial register ( Handelsregister ) of the local court ( Amtsgericht ) at the registered seat of Adtran Networks (Jena). Under the DPLTA, subject to certain limitations pursuant to applicable law and the specific terms of the DPLTA, (i) the Company is entitled to issue binding instructions to the management board of Adtran Networks, (ii) Adtran Networks will transfer its annual profit to the Company, subject to, among other things, the creation or dissolution of certain reserves, and (iii) the Company will generally absorb the annual net loss incurred by Adtran Networks. The obligation of the Company to absorb Adtran Networks’ annual net loss applied for the first time to the loss generated 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 3.37 % 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. The opportunity for outside Adtran Networks shareholders to tender Adtran Networks shares in exchange for Exit Compensation had been scheduled to expire on March 16, 2023 . However, due to the appraisal proceedings that have been initiated in accordance with applicable German law, this time period for tendering shares has been extended pursuant to the German Stock Corporation Act (Aktiengesetz) and will end two months after the date on which a final decision in such appraisal proceedings has been published in the Federal Gazette (Bundesanzeiger). 13 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 € 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. The Annual Recurring Compensation is due on the third banking day following the ordinary general shareholders’ meeting of Adtran Networks for the respective preceding fiscal year (but in any event within eight months following expiration of the fiscal year). With respect to the 2023 fiscal year, Adtran Networks’ ordinary general shareholders’ meeting occurred on June 28, 2024 and, therefore, the Annual Recurring Compensation was paid on July 3, 2024. During the three 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 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. The Company had access to $ 205.6 million on its Credit Facility for future borrowings; 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 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 net leverage debt covenants. In summary, the Company believes that its cash and cash equivalents, investments, working capital management initiatives and availability to access cash under the Wells Fargo credit facility will be adequate to meet our business operating requirements, our capital expenditures and our expected obligations under the DPLTA, including anticipated levels of Exit Compensation and to support our ability to continue to comply with our debt covenants under the Credit Facility, for at least the next twelve months, from the issuance of these financial statements. See Note 11, Revolving Credit Agreements, for additional information regarding the terms of the Amendments of the Wells Fargo Credit agreement. 14 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying unaudited Condensed Consolidated Financial Statements of ADTRAN Holdings, Inc. and its subsidiaries have been prepared pursuant to the rules and regulations of the SEC applicable to interim financial information presented in Quarterly Reports on Form 10-Q. Accordingly, certain information and notes required by generally accepted accounting principles in the United States of America (“U.S. GAAP”) for complete financial statements are not included herein. The December 31, 2023, Condensed Consolidated Balance Sheet is derived from audited financial statements but does not include all disclosures required by U.S. GAAP for annual financial statements. In the opinion of management, all adjustments necessary to fairly state these interim statements have been recorded and are of a normal and recurring nature. The results of operations for an interim period are not necessarily indicative of the results for the full year. The interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in ADTRAN Holdings, Inc. 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. Dollar. 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. 15 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 Revision As Revised Other non-current liabilities $ 15,986 $ ( 346 ) (a) $ 15,640 Total Liabilities $ 675,765 $ (346 ) $ 675,419 Redeemable Non-Controlling Interest $ 442,668 $ ( 430 ) (b) $ 442,238 Accumulated Other Comprehensive Income $ 34,526 $ 1 (a) $ 34,527 Retained Earnings $ 8,006 $ 775 (a)(b) $ 8,781 Total Equity $ 820,162 $ 776 $ 820,938 Total Liabilities, Redeemable Non-Controlling Interest and Equity $ 1,938,595 $ — $ 1,938,595 For the Three Months Ended March 31, 2023 (In thousands) As Previously Reported Revision As Revised Less: Net Loss attributable to non-controlling interest $ ( 370 ) $ ( 345 ) (a) $ ( 715 ) Net Loss attributable to ADTRAN Holdings, Inc. $ ( 40,083 ) $ 345 (a) $ ( 39,738 ) Loss per common share attributable to ADTRAN Holdings, Inc. – basic $ ( 0.51 ) $ — $ ( 0.51 ) Loss per common share attributable to ADTRAN Holdings, Inc. – diluted $ ( 0.51 ) $ — $ ( 0.51 ) Foreign currency translation gain $ 8,678 $ 1 (a) $ 8,679 Other Comprehensive Income, net of tax $ 8,782 $ 1 $ 8,783 Comprehensive Loss, net of tax $ ( 31,671 ) $ 1 $ ( 31,670 ) Less: Comprehensive Income (Loss) attributable to non-controlling interest, net of tax $ 12 $ ( 345 ) (a) $ ( 333 ) Comprehensive Loss attributable to ADTRAN Holdings, Inc., net of tax $ ( 31,683 ) $ 346 (a) $ ( 31,337 ) June 30, 2023 (In thousands) As Previously Reported Revision As Revised Other non-current liabilities $ 16,401 $ ( 695 ) (a) $ 15,706 Total Liabilities $ 665,006 $ (695 ) $ 664,311 Redeemable Non-Controlling Interest $ 445,462 $ ( 3,244 ) (b) $ 442,218 Accumulated Other Comprehensive Income $ 41,483 $ 2 (a) $ 41,485 Retained Deficit $ ( 41,010 ) $ 3,937 (a)(b) $ ( 37,073 ) Total Equity $ 782,470 $ 3,939 $ 786,409 Total Liabilities, Redeemable Non-Controlling Interest and Equity $ 1,882,938 $ — $ 1,882,938 16 For the Three Months Ended June 30, 2023 For the Six Months Ended June 30, 2023 (In thousands) As Previously Reported Revision As Revised As Previously Reported Revision As Revised Less: Net Income attributable to non-controlling interest $ 2,882 $ ( 348 ) (a) $ 2,534 $ 2,512 $ ( 693 ) (a) $ 1,819 Net Loss attributable to ADTRAN Holdings, Inc. $ ( 39,097 ) $ 348 (a) $ ( 38,749 ) $ ( 79,180 ) $ 693 (a) $ ( 78,487 ) Loss per common share attributable to ADTRAN Holdings, Inc. – basic $ ( 0.50 ) $ — $ ( 0.50 ) $ ( 1.01 ) $ 0.01 (a) $ ( 1.00 ) Loss per common share attributable to ADTRAN Holdings, Inc. – diluted $ ( 0.50 ) $ — $ ( 0.50 ) $ ( 1.01 ) $ 0.01 (a) $ ( 1.00 ) Foreign currency translation gain $ 6,940 $ 1 (a) $ 6,941 $ 15,618 $ 2 (a) $ 15,620 Other Comprehensive Income, net of tax $ 6,957 $ 1 $ 6,958 $ 15,739 $ 2 $ 15,741 Comprehensive Loss, net of tax $ ( 29,258 ) $ 1 $ ( 29,257 ) $ ( 60,929 ) $ 2 $ ( 60,927 ) Less: Comprehensive Income attributable to non-controlling interest, net of tax $ 2,882 $ ( 348 ) (a) $ 2,534 $ 2,894 $ ( 693 ) (a) $ 2,201 Comprehensive Loss attributable to ADTRAN Holdings, Inc., net of tax $ ( 32,140 ) $ 349 (a) $ ( 31,791 ) $ ( 63,823 ) $ 695 (a) $ ( 63,128 ) September 30, 2023 (In thousands) As Previously Reported Revision As Revised Other non-current liabilities $ 17,408 $ ( 1,049 ) (a) $ 16,359 Total Liabilities $ 625,355 $ (1,049 ) $ 624,306 Redeemable Non-Controlling Interest $ 431,921 $ 10,291 (b) $ 442,212 Accumulated Other Comprehensive Income $ 12,075 $ 3 (a) $ 12,078 Retained Deficit $ ( 113,289 ) $ ( 9,245 ) (a)(b) $ ( 122,534 ) Total Equity $ 684,893 $ ( 9,242 ) $ 675,651 Total Liabilities, Redeemable Non-Controlling Interest and Equity $ 1,742,169 $ — $ 1,742,169 For the Three Months Ended September 30, 2023 For the Nine Months Ended September 30, 2023 (In thousands) As Previously Reported Revision As Revised As Previously Reported Revision As Revised Less: Net Income attributable to non-controlling interest $ 2,914 $ ( 353 ) (a) $ 2,561 $ 5,426 $ ( 1,046 ) (a) $ 4,380 Net Loss attributable to ADTRAN Holdings, Inc. $ ( 78,563 ) $ 353 (a) $ ( 78,210 ) $ ( 157,743 ) $ 1,046 (a) $ ( 156,697 ) Loss per common share attributable to ADTRAN Holdings, Inc. – basic $ ( 1.00 ) $ — $ ( 1.00 ) $ ( 2.01 ) $ 0.01 (a) $ ( 2.00 ) Loss per common share attributable to ADTRAN Holdings, Inc. – diluted $ ( 1.00 ) $ — $ ( 1.00 ) $ ( 2.01 ) $ 0.01 (a) $ ( 2.00 ) Foreign currency translation loss $ ( 29,716 ) $ 1 (a) $ ( 29,715 ) $ ( 14,098 ) $ 3 (a) $ ( 14,095 ) Other Comprehensive Loss, net of tax $ ( 29,408 ) $ 1 $ ( 29,407 ) $ ( 13,669 ) $ 3 $ ( 13,666 ) Comprehensive Loss, net of tax $ ( 105,057 ) $ 1 $ ( 105,056 ) $ ( 165,986 ) $ 3 $ ( 165,983 ) Less: Comprehensive Income attributable to non-controlling interest, net of tax $ 2,914 $ ( 353 ) (a) $ 2,561 $ 5,808 $ ( 1,046 ) (a) $ 4,762 Comprehensive Loss attributable to ADTRAN Holdings, Inc., net of tax $ ( 107,971 ) $ 354 (a) $ ( 107,617 ) $ ( 171,794 ) $ 1,049 (a) $ ( 170,745 ) 17 March 31, 2024 (In thousands) As Previously Reported Revision As Revised Accrued Expenses and Other Liabilities $ 36,404 $ ( 1,403 ) (a) $ 35,001 Total Current Liabilities $ 282,746 $ (1,403 ) $ 281,343 Other non-current liabilities $ 35,375 $ (350 ) (a) $ 35,025 Total Liabilities $ 620,488 $ (1,753 ) $ 618,735 Redeemable Non-Controlling Interest $ 441,635 $ 511 (b) $ 442,146 Accumulated Other Comprehensive Income $ 29,656 $ 5 (a) $ 29,661 Retained Deficit $ ( 558,363 ) $ 1,237 (a)(b) $ ( 557,126 ) Total Equity $ 265,783 $ 1,242 $ 267,025 Total Liabilities, Redeemable Non-Controlling Interest and Equity $ 1,327,906 $ — $ 1,327,906 For the Three Months Ended March 31, 2024 (In thousands) As Previously Reported Revision As Revised Less: Net Income attributable to non-controlling interest $ 2,880 $ ( 349 ) (a) $ 2,531 Net Loss attributable to ADTRAN Holdings, Inc. $ ( 324,550 ) $ 349 (a) $ ( 324,201 ) Loss per common share attributable to ADTRAN Holdings, Inc. – basic $ ( 4.12 ) $ — $ ( 4.12 ) Loss per common share attributable to ADTRAN Holdings, Inc. – diluted $ ( 4.12 ) $ — $ ( 4.12 ) Foreign currency translation loss $ ( 17,745 ) $ 1 (a) $ ( 17,744 ) Other Comprehensive Loss, net of tax $ ( 17,805 ) $ 1 $ ( 17,804 ) Comprehensive Loss, net of tax $ ( 339,475 ) $ 1 $ ( 339,474 ) Less: Comprehensive Income attributable to non-controlling interest, net of tax $ 2,880 $ ( 349 ) (a) $ 2,531 Comprehensive Loss attributable to ADTRAN Holdings, Inc., net of tax $ ( 342,355 ) $ 350 (a) $ ( 342,005 ) June 30, 2024 (In thousands) As Previously Reported Revision As Revised Accrued Expenses and Other Liabilities $ 36,307 $ ( 1,403 ) (a) $ 34,904 Total Current Liabilities $ 289,712 $ (1,403 ) $ 288,309 Other non-current liabilities $ 34,445 $ (701 ) (a) $ 33,744 Total Liabilities $ 630,810 $ (2,104 ) $ 628,706 Redeemable Non-Controlling Interest $ 439,743 $ 2,379 (b) $ 442,122 Accumulated Other Comprehensive Income $ 28,274 $ 6 (a) $ 28,280 Retained Deficit $ ( 606,375 ) $ ( 281 ) (a)(b) $ ( 606,656 ) Total Equity $ 220,229 $ ( 275 ) $ 219,954 Total Liabilities, Redeemable Non-Controlling Interest and Equity $ 1,290,782 $ — $ 1,290,782 18 For the Three Months Ended June 30, 2024 For the Six Months Ended June 30, 2024 (In thousands) As Previously Reported Revision As Revised As Previously Reported Revision As Revised Less: Net Income attributable to non-controlling interest $ 2,854 $ ( 350 ) (a) $ 2,504 $ 5,734 $ ( 699 ) (a) $ 5,035 Net Loss attributable to ADTRAN Holdings, Inc. $ ( 49,865 ) $ 350 (a) $ ( 49,515 ) $ ( 374,415 ) $ 699 (a) $ ( 373,716 ) Loss per common share attributable to ADTRAN Holdings, Inc. – basic $ ( 0.63 ) $ — $ ( 0.63 ) $ ( 4.75 ) $ 0.01 (a) $ ( 4.74 ) Loss per common share attributable to ADTRAN Holdings, Inc. – diluted $ ( 0.63 ) $ — $ ( 0.63 ) $ ( 4.75 ) $ 0.01 (a) $ ( 4.74 ) Foreign currency translation loss $ ( 1,375 ) $ 1 (a) $ ( 1,374 ) $ ( 19,120 ) $ 2 (a) $ ( 19,118 ) Other Comprehensive Loss, net of tax $ ( 1,382 ) $ 1 $ ( 1,381 ) $ ( 19,187 ) $ 2 $ ( 19,185 ) Comprehensive Loss, net of tax $ ( 48,393 ) $ 1 $ ( 48,392 ) $ ( 387,868 ) $ 2 $ ( 387,866 ) Less: Comprehensive Income attributable to non-controlling interest, net of tax $ 2,854 $ ( 350 ) (a) $ 2,504 $ 5,734 $ ( 699 ) (a) $ 5,035 Comprehensive Loss attributable to ADTRAN Holdings, Inc., net of tax $ ( 51,247 ) $ 351 (a) $ ( 50,896 ) $ ( 393,602 ) $ 701 (a) $ ( 392,901 ) 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 Revision As Revised Accrued Expenses and Other Liabilities $ 37,607 $ ( 1,403 ) (a) $ 36,204 Total Current Liabilities $ 279,511 $ (1,403 ) $ 278,108 Total Liabilities $ 636,934 $ (1,403 ) $ 635,531 Redeemable Non-Controlling Interest $ 451,756 $ ( 9,604 ) (b) $ 442,152 Accumulated Other Comprehensive Income $ 47,461 $ 4 (a) $ 47,465 Retained Deficit $ ( 243,908 ) $ 11,003 (a)(b) $ ( 232,905 ) Total Equity $ 593,822 $ 11,007 $ 604,829 Total Liabilities, Redeemable Non-Controlling Interest and Equity $ 1,682,512 $ — $ 1,682,512 For the Year Ended December 31, 2023 (In thousands) As Previously Reported Revision As Revised Less: Net Income attributable to non-controlling interest $ 8,345 $ ( 1,399 ) (a) $ 6,946 Net Loss attributable to ADTRAN Holdings, Inc. $ ( 267,688 ) $ 1,399 (a) $ ( 266,289 ) Loss per common share attributable to ADTRAN Holdings, Inc. – basic $ ( 3.41 ) $ 0.02 (a) $ ( 3.39 ) Loss per common share attributable to ADTRAN Holdings, Inc. – diluted $ ( 3.41 ) $ 0.02 (a) $ ( 3.39 ) Foreign currency translation gain $ 22,753 $ 4 (a) $ 22,757 Other Comprehensive Income, net of tax $ 21,717 $ 4 $ 21,721 Comprehensive Loss, net of tax $ ( 237,626 ) $ 4 $ ( 237,622 ) Less: Comprehensive Income attributable to non-controlling interest, net of tax $ 8,727 $ ( 1,399 ) (a) $ 7,328 Comprehensive Loss attributable to ADTRAN Holdings, Inc., net of tax $ ( 246,353 ) $ 1,403 (a) $ ( 244,950 ) 19 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 Revision As Revised As Previously Reported Revision As Revised Annual recurring compensation earned $ ( 2,809 ) $ 345 (a) $ ( 2,464 ) $ - $ - $ - Other comprehensive income, net of tax $ - $ - $ - $ 8,400 $ 1 (a) $ 8,401 Foreign currency remeasurement of redeemable non-controlling interest $ ( 430 ) $ 430 (b) $ - $ - $ - $ - Balance as of March 31, 2023 $ 8,006 $ 775 $ 8,781 $ 34,526 $ 1 $ 34,527 Annual recurring compensation earned $ ( 2,882 ) $ 348 (a) $ ( 2,534 ) $ - $ - $ - Other comprehensive income, net of tax $ - $ - $ - $ 6,957 $ 1 (a) $ 6,958 Foreign currency remeasurement of redeemable non-controlling interest $ ( 2,814 ) $ 2,814 (b) $ - $ - $ - $ - Balance as of June 30, 2023 $ ( 41,010 ) $ 3,937 $ ( 37,073 ) $ 41,483 $ 2 $ 41,485 Annual recurring compensation earned $ ( 2,914 ) $ 353 (a) $ ( 2,561 ) $ - $ - $ - Other comprehensive loss, net of tax $ - $ - $ - $ ( 29,408 ) $ 1 (a) $ ( 29,407 ) Foreign currency remeasurement of redeemable non-controlling interest $ 13,535 $ ( 13,535 ) (b) $ - $ - $ - $ - Balance as of September 30, 2023 $ ( 113,289 ) $ ( 9,245 ) $ ( 122,534 ) $ 12,075 $ 3 $ 12,078 Retained Deficit Accumulated Other Comprehensive Income (In thousands) As Previously Reported Revision As Revised As Previously Reported Revision As Revised Balance as of December 31, 2023 $ ( 243,908 ) $ 11,003 (a) $ ( 232,905 ) $ 47,461 $ 4 (a) $ 47,465 Annual recurring compensation earned $ ( 2,880 ) $ 349 (a) $ ( 2,531 ) $ - $ - $ - Other comprehensive loss, net of tax $ - $ - $ - $ ( 17,805 ) $ 1 (a) $ ( 17,804 ) Foreign currency remeasurement of redeemable non-controlling interest $ 10,115 $ ( 10,115 ) (b) $ - $ - $ - $ - Balance as of March 31, 2024 $ ( 558,363 ) $ 1,237 $ ( 557,126 ) $ 29,656 $ 5 $ 29,661 Annual recurring compensation earned $ ( 2,854 ) $ 350 (a) $ ( 2,504 ) $ - $ - Other comprehensive loss, net of tax $ - $ - $ - $ ( 1,382 ) $ 1 (a) $ ( 1,381 ) Foreign currency remeasurement of redeemable non-controlling interest $ 1,868 $ ( 1,868 ) (b) $ - $ - $ - $ - Balance as of June 30, 2024 $ ( 606,375 ) $ ( 281 ) $ ( 606,656 ) $ 28,274 $ 6 $ 28,280 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 Revision As Revised As Previously Reported Revision As Revised Annual recurring compensation earned $ ( 11,524 ) $ 1,399 (a) $ ( 10,125 ) $ - $ - $ - Other comprehensive income, net of tax $ - $ - $ - $ 21,335 $ 4 (a) $ 21,339 Foreign currency remeasurement of redeemable non-controlling interest $ ( 9,604 ) $ 9,604 (b) $ - $ - $ - $ - Balance as of December 31, 2023 $ ( 243,908 ) $ 11,003 $ ( 232,905 ) $ 47,461 $ 4 $ 47,465 Use of Estimates The preparation of financial statements in conformity with U.S. 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 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. 20 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. The accounting matters assessed included, but were not limited to, the allowance for credit losses, stock-based compensation, carrying value of goodwill, intangibles and other long-lived assets, financial assets, valuation allowances for tax as sets, revenue recognition and costs of revenue. Accounts Receivable Factoring 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. Redeemable Non-Controlling Interest 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. Therefore, the permanent equity noncontrolling interest balance was reclassified to redeemable non-controlling interest on January 16, 2023, and was remeasured to fair value based on the trading market price of the Adtran Networks shares. 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. For the period of time that the DPLTA is in effect, the RNCI will continue to be presented as RNCI outside of stockholders’ equity in the Condensed Consolidated Balance Sheets. See Note 14 for additional information on RNCI . 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. 21 In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures", which is intended to enhance the transparency, decision usefulness and effectiveness of income tax disclosures. The amendments in this ASU require a public entity to disclose a tabular tax rate reconciliation, using both percentages and currency, with specific categories. A public entity is also required to provide a qualitative description of the states and local jurisdictions that make up the majority of the effect of the state and local income tax category and the net amount of income taxes paid, disaggregated by federal, state and foreign taxes and also disaggregated by individual jurisdictions. The amendments also remove certain disclosures that are no longer considered cost beneficial. The amendments are effective prospectively for annual periods beginning after December 15, 2024, and early adoption and retrospective application are permitted. The Company is currently evaluating the effect that adoption of ASU 2023-09 will have on our disclosures. In November 2023, the FASB issued ASU 2023-7, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures", which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses, allowing financial statement users to better understand the components of a segment's profit or loss to assess potential future cash flows for each reportable segment and the entity as a whole. The amendments expand a public entity's segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker ("CODM"), clarifying when an entity may report one or more additional measures to assess segment performance, requiring enhanced interim disclosures, providing new disclosure requirements for entities with a single reportable segment, and requiring other new disclosures. The amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and early adoption is permitted. The Company expects to adopt the new disclosures as required for the year ended December 31, 2024. The Company is currently evaluating the impact on the related disclosures. Recently Adopted Accounting Pronouncements There are currently no recently adopted accounting pronouncements that are expected to have a material effect on the Condensed Consolidated Financial Statements. 2. REVENUE The following is a description of the principal activities from which revenue is generated by reportable segment: Network Solutions Segment - Includes hardware and software products that enable a digital future which support the Company's Subscriber, Access & Aggregation, and Optical Networking Solutions. Services & Support Segment - Includes network design, implementation, maintenance and cloud-hosted services supporting the Company's Subscriber, Access & Aggregation, and Optical Networking Solutions. Revenue by Category In addition to the Company's reportable segments, revenue is also reported for the following three categories – Subscriber Solutions, Access & Aggregation Solutions and Optical Networking Solutions. Our Subscriber Solutions portfolio is used by Service Providers to terminate their access services infrastructure at the customer premises while providing an immersive and interactive experience for residential, business and wholesale subscribers. This revenue category includes hardware- and software-based products and services. 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 Optical Networking Solutions are used by communications Service Providers, internet content providers and large-scale enterprises to securely interconnect metro and regional networks over fiber. This revenue category includes hardware- and software-based products and services. 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. 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. 22 The following tables disaggregate revenue by reportable segment and revenue category: Three Months Ended September 30, 2024 September 30, 2023 (In thousands) Network Solutions Services & Support Total Network Solutions Services & Support Total Subscriber Solutions $ 81,060 $ 9,036 $ 90,096 $ 52,921 $ 8,564 $ 61,485 Optical Networking Solutions 47,474 23,061 70,535 94,592 21,608 116,200 Access & Aggregation Solutions 52,954 14,119 67,073 81,051 13,595 94,646 Total $ 181,488 $ 46,216 $ 227,704 $ 228,564 $ 43,767 $ 272,331 Nine Months Ended September 30, 2024 September 30, 2023 (In thousands) Network Solutions Services & Support Total Network Solutions Services & Support Total Subscriber Solutions $ 215,044 $ 27,218 $ 242,262 $ 196,726 $ 25,760 $ 222,486 Optical Networking Solutions 152,068 67,246 219,314 342,390 64,562 406,952 Access & Aggregation Solutions 174,843 43,449 218,292 254,868 39,315 294,183 Total $ 541,955 $ 137,913 $ 679,868 $ 793,984 $ 129,637 $ 923,621 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. The following table provides information about accounts receivable, contract assets and unearned revenue from contracts with customers: As of As of (In thousands) September 30, 2024 December 31, 2023 Accounts receivable, net $ 172,025 $ 216,445 Contract assets (1) $ 668 $ 691 Unearned revenue $ 54,615 $ 46,731 Non-current unearned revenue $ 24,901 $ 25,109 (1) Included in other receivables on the Condensed Consolidated Balance Sheets. Accounts Receivable 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 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. 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. 23 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. 3. INCOME TAXES 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 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. Should management’s conclusion change in the future and an additional valuation allowance, or a partial or full release of the valuation allowance becomes necessary, it may have a material effect on our consolidated financial statements. 4. STOCK-BASED COMPENSATION 2024 Stock Incentive Plans At the annual meeting of stockholders held on May 8, 2024, the Company’s stockholders approved, upon recommendation of the Board of Directors, the adoption of the ADTRAN Holdings, Inc. 2024 Employee Stock Incentive Plan (“2024 Employee Plan”) and the ADTRAN Holdings, Inc. 2024 Directors Stock Plan (“2024 Directors Plan”). No additional awards will be granted under the Company’s previous stock incentive plans, including the 2020 Employee Stock Incentive Plan, the 2020 Directors Stock Plan, or the 2015 Employee Stock Incentive Plan. Outstanding awards granted under the Company's prior equity incentive plans will remain subject to the terms of such applicable plans, and shares under such plans that are cancelled or forfeited will be available for issuance under the 2024 Employee Plan or the 2024 Directors Plan, as applicable. Under the 2024 Employee Plan, the Company is authorized to issue 4.0 million shares of common stock to certain employees, key service providers and advisors through incentive stock options and non-qualified stock options, stock appreciation rights, RSUs and restricted stock, any of which may be subject to performance-based conditions. RSUs and restricted stock granted under the 2024 Employee Plan will typically vest pursuant to a four-year vesting schedule beginning on the first anniversary of the grant date. Stock options granted under the 2024 Employee Plan will typically become exercisable beginning after one year of continued employment, normally pursuant to a four-year vesting schedule beginning on the first anniversary of the grant date and have a ten-year contractual term. Stock options, RSUs and restricted stock granted under the 2024 Employee Plan reduce the shares authorized for issuance under the 2024 Employee Plan by one share of common stock for each share underlying the award. Forfeitures, cancellations and expirations of awards granted under the prior employee stock incentive plans increase the shares authorized for issuance under the 2024 Employee Plan by one share of common stock for each share underlying the award. 24 Under the 2024 Directors Plan, the Company is authorized to issue 0.7 million shares of common stock through stock options, restricted stock and RSUs to non-employee directors. Stock awards issued under the 2024 Directors Plan typically will become vested in full on the first anniversary of the grant date. Stock options issued under the 2024 Directors Plan will have a ten-year contractual term. Stock options, restricted stock and RSUs granted under the 2024 Directors Plan reduce the shares authorized for issuance under the 2024 Directors Plan by one share of common stock for each share underlying the award. Forfeitures, cancellations and expirations of awards granted under the prior directors stock plan increase the shares authorized for issuance under the 2024 Directors Plan by one share of common stock for each share underlying the award. As of 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 September 30, 2024 and the changes that occurred during the nine months ended September 30, 2024: Number of Shares (in thousands) Weighted Avg. Grant Date Fair Value (per share) Unvested PSUs, RSUs and restricted stock outstanding, December 31, 2023 1,942 $ 17.46 PSUs, RSUs and restricted stock granted 1,097 $ 7.85 PSUs, RSUs and restricted stock vested ( 263 ) $ 18.86 PSUs, RSUs and restricted stock forfeited ( 111 ) $ 14.25 Unvested PSUs, RSUs and restricted stock outstanding, September 30, 2024 2,665 $ 13.50 The fair value of PSUs with performance conditions, RSUs and restricted stock is equal to the closing price of the Company's stock on the date of grant. The fair value of PSUs with market conditions is calculated using a Monte Carlo simulation valuation method. As of September 30, 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. Stock Options - ADTRAN Holdings, Inc. The following table summarizes the ADTRAN Holdings, Inc. 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: Number of Stock Options (in thousands) Weighted Avg. Exercise Price (per share) Weighted Avg. Remaining Contractual Life (in years) Aggregate Intrinsic Value (in thousands) Stock options outstanding, December 31, 2023 3,894 $ 10.32 5.25 $ 3,087 Stock options exercised ( 36 ) $ 6.06 Stock options forfeited ( 171 ) $ 6.68 Stock options expired ( 243 ) $ 9.31 Stock options outstanding, September 30, 2024 3,444 $ 10.61 4.64 $ 829 Stock options exercisable, September 30, 2024 1,342 $ 12.63 1.11 $ — 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. These variables include, but are not limited to, the volatility of the Company's stock price and employee exercise behaviors. All of the options were previously issued at exercise prices that approximated fair market value at the date of grant. 25 The aggregate intrinsic value of stock options represents the total pre-tax intrinsic value (the difference between the Company's closing stock price on the last trading day of the quarter and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on September 30, 2024 . 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. 5. INVESTMENTS Debt Securities and Other Investments 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. The following tab le presents the gross realized gains and losses related to its debt securities: Three Months Ended Nine Months Ended September 30, September 30, (In thousands) 2024 2023 2024 2023 Gross realized gain on debt securities $ — $ 5 $ — $ 9 Gross realized loss on debt securities — ( 317 ) — ( 355 ) Total loss recognized, net $ — $ ( 312 ) $ — $ ( 346 ) Realized and unrealized gains and losses related to marketable equity securities were as follows: Three Months Ended Nine Months Ended September 30, September 30, (In thousands) 2024 2023 2024 2023 Unrealized gain (loss) on equity securities held $ 1,372 $ ( 1,130 ) $ 4,371 $ 1,404 Realized (loss) gain on equity securities sold 10 ( 1 ) 136 13 Total gain (loss) recognized, net $ 1,382 $ ( 1,131 ) $ 4,507 $ 1,417 Income generated from marketable equity securities was recorded as interest and dividend income in the Condensed Consolidated Statements of Loss. U.S. GAAP establishes a three-level valuation hierarchy based upon observable and unobservable inputs for fair value measurement of financial instruments: • Level 1 – Observable outputs; values based on unadjusted quoted prices for identical assets or liabilities in an active market; • Level 2 – Significant inputs that are observable; values based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly and • Level 3 – Significant unobservable inputs; values based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs could include information supplied by investees. The Company’s cash equivalents and investments held at fair value are categorized into this hierarchy as follows: Fair Value Measurements as of September 30, 2024 Using (In thousands) Fair Value Quoted Prices in Active Market for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Cash equivalents Money market funds $ 5,500 $ 5,500 $ — $ — Marketable equity securities Marketable equity securities – various industries 1,035 1,035 — — Deferred compensation plan assets 30,471 30,471 — — Total $ 37,006 $ 37,006 $ — $ — 26 Fair Value Measurements as of December 31, 2023 Using (In thousands) Fair Value Quoted Prices in Active Market for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Cash equivalents Money market funds $ 5,302 $ 5,302 $ — $ — Marketable equity securities Marketable equity securities – various industries 905 905 — — Deferred compensation plan assets 26,838 26,838 — — Total $ 33,045 $ 33,045 $ — $ — Market prices are obtained from a variety of industry standard data providers, large financial institutions and other third-party sources. These multiple market prices are used as inputs into a distribution-curve-based algorithm to determine the daily market value of each security. 27 28 6. INVENTORY Inventory consisted of the following: As of As of (In thousands) September 30, 2024 December 31, 2023 Raw materials $ 114,873 $ 152,140 Work in process 10,942 17,239 Finished goods 157,111 192,916 Total inventory, net $ 282,926 $ 362,295 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 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. 7. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consisted of the following: As of As of (In thousands) September 30, 2024 December 31, 2023 Engineering and other equipment $ 187,753 $ 183,336 Building 79,857 79,215 Computer hardware and software 139,006 101,572 Building and land improvements 59,487 58,238 Furniture and fixtures 21,542 21,368 Land 5,248 5,242 Total property, plant and equipment 492,893 448,971 Less: accumulated depreciation ( 345,465 ) ( 325,951 ) Total property, plant and equipment, net $ 147,428 $ 123,020 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 $ 8.7 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. 8. GOODWILL The changes in the carrying amount of goodwill for the nine months ended September 30, 2024, are as follows: (In thousands) Network Solutions Services & Support Total As of December 31, 2023 $ 297,031 $ 56,384 $ 353,415 Goodwill impairment ( 290,528 ) — ( 290,528 ) Foreign currency translation adjustments ( 6,503 ) 500 ( 6,003 ) As of September 30, 2024 $ — $ 56,884 $ 56,884 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 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. 28 During the third quarter of 2023, the Company identified a triggering event due to a decrease in the Company’s market capitalization and changes in projections (decrease in estimated cash flows). While the quantitative impairment analysis indicated that there was no impairment of Network Solutions goodwill, the Company determined that a $ 37.9 million non-cash impairment charge for goodwill was warranted for the Services & Support reporting unit. During the fourth quarter of 2023, the Company completed its annual impairment test. There were no significant market changes or changes to cash flow projections, as such no triggering event was identified during the fourth quarter of 2023. During the first quarter of 2024, qualitative factors such as a decrease in the Company’s market capitalization, lower service provider spending and delayed holding patterns of inventory with respect to customers caused us to reduce our forecasts, triggering a quantitative impairment assessment for our reporting units. The Company determined the fair value of each reporting unit using a combination of an income approach and a market-based peer group analysis. The significant inputs and assumptions used in the determination of the fair value of our reporting units based on future cash flows for the reporting units, requires significant judgment and the use of estimates and assumptions related to cash flow projections, discount rate, peer group determination and market multiple selection. The Company determined upon its quantitative impairment assessment to recognize a $ 292.6 million non-cash goodwill impairment charge for the Network Solutions reporting unit. The quantitative impairment analysis indicated there was no impairment of the Services & Support goodwill during the first quarter of 2024. 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. 29 9. INTANGIBLE ASSETS Intangible assets consisted of the following: As of September 30, 2024 As of December 31, 2023 (In thousands) Weighted Average Useful Life (in years) Gross Carrying Amount Accumulated Amortization Net Book Value Gross Carrying Amount Accumulated Amortization Net Book Value Developed technology 8.5 $ 332,245 $ ( 91,210 ) $ 241,035 $ 329,369 $ ( 61,271 ) $ 268,098 Customer relationships 10.9 $ 54,016 $ ( 18,461 ) $ 35,555 $ 54,856 $ ( 15,943 ) $ 38,913 Trade names 3.0 29,955 ( 24,993 ) 4,962 29,689 ( 16,379 ) 13,310 Backlog 1.6 57,905 ( 55,133 ) 2,772 57,391 ( 52,022 ) 5,369 Licensed technology 9.0 5,900 ( 4,288 ) 1,612 5,900 ( 3,797 ) 2,103 Licensing agreements 8.5 560 ( 398 ) 162 560 ( 368 ) 192 Patents 7.3 — — — 500 ( 500 ) — Total $ 480,581 $ ( 194,483 ) $ 286,098 $ 478,265 $ ( 150,280 ) $ 327,985 Intangible assets are reviewed for impairment whenever events and circumstances indicate impairment may have occurred. 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 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: As of (In thousands) September 30, 2024 2024 $ 14,905 2025 47,737 2026 44,408 2027 43,018 2028 42,870 Thereafter 93,160 Total $ 286,098 10. HEDGING The Company has certain forward rate agreements to hedge foreign currency exposure of expected future cash flows in foreign currency. The Company does not hold or issue derivative instruments for trading or other speculative purposes. Derivatives are initially recognized at fair value on the date a derivative contract is entered into and are subsequently re-measured to their fair value at the end of each reporting period. All changes in the fair value of derivative instruments are recognized as other (expense) income in the Consolidated Statements of Loss and are classified as Level II under the fair value hierarchy. The derivative instruments are not subject to master netting agreements and are not offset in the Consolidated Balance Sheets. We are exposed to risk from credit-related losses resulting from nonperformance by counterparties to our financial instruments. We perform credit evaluations of our counterparties under forward exchange contracts and expect all counterparties to meet their obligations. We have not experienced credit losses from our counterparties. As of September 30, 2024 , the Company had 41 forward rate contracts outstanding. 30 Foreign Currency Hedging Arrangements On November 3, 2022, the Company entered into a euro/U.S. dollar forward contract arrangement ("Initial Forward") with Wells Fargo Bank, N.A. (“Hedge Counterparty”). The Initial Forward, which is governed by the provisions of an ISDA Master Agreement (including schedules thereto and transaction confirmations that supplement such agreement) entered into between the Company and the Hedge Counterparty, enabled the Company to convert a portion of its euro denominated payment obligations under the proposed DPLTA into U.S. Dollars. 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 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; provided, however, that it must exchange the full tranche by the end of such quarter. The Initial Forward may be accelerated or terminated early for a number of reasons, including but not limited to (i) non-payment by the Company or the Hedge Counterparty, (ii) breach of representation or warranty or covenant by either party or (iii) insolvency or bankruptcy of either party. On March 21, 2023, the Company entered into a euro/U.S. 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 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 September 30, 2024 December 31, 2023 Derivatives Not Designated as Hedging Instruments (Level 2): Foreign exchange contracts – derivative assets Other receivables $ 1,712 $ 7,125 Foreign exchange contracts – derivative liabilities Accounts payable $ ( 1,030 ) $ ( 2,277 ) Total derivatives $ 682 $ 4,848 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 Nine Months Ended September 30, September 30, (In thousands) Income Statement Location 2024 2023 2024 2023 Derivatives Not Designated as Hedging Instruments: Foreign exchange contracts Other (expense) income, net $ ( 411 ) $ 1,012 $ ( 380 ) $ 1,076 11. CREDIT AGREEMENTS The carrying amounts of the Company's non-current revolving credit facility in its Condensed Consolidated Balance Sheets were as follows: As of As of (In thousands) September 30, 2024 December 31, 2023 Wells Fargo credit agreement $ 189,849 $ 195,000 Total non-current revolving credit facility $ 189,849 $ 195,000 As of September 30, 2024, the weighted average interest rate on our revolving credit agreements was 8.45 %. 31 Wells Fargo Credit Agreement 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”). 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). 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, 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. Any such convertible indebtedness must, among other things, be incurred in pro forma compliance with the financial covenants in the Credit Agreement, be unsecured, and otherwise rank junior to borrowings under the Credit Agreement and have a stated maturity date of at least 91 days after the latest scheduled maturity date of loans and commitments under the Credit Agreement. Net cash proceeds from any incurrence of convertible indebtedness must be used to repurchase shares of Adtran Networks or repay revolver borrowings under the Credit Agreement. On January 16, 2024 ("Second Amendment Effective Date"), the Company and ADTRAN, Inc. entered into a Second Amendment to Credit Agreement and First Amendment to Collateral Agreement ("Second Amendment"). The Second Amendment, among other things, 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. entered into a Third Amendment to Credit Agreement ("Third Amendment"). The Third Amendment, among other things, amended the definition of “Consolidated Funded Indebtedness” (which is used in the calculation of the Consolidated Total Net Leverage Ratio and the Consolidated Senior Secured Net Leverage Ratio) to exclude obligations of the Company and its subsidiaries under certain factoring arrangements when calculated for the fiscal quarters ending March 31, 2024, and June 30, 2024. On June 4, 2024, the Company, ADTRAN, Inc., and Adtran Networks entered into a Fourth Amendment to Credit Agreement ("Fourth Amendment"). The Fourth Amendment, among other things, created a new sublimit under the existing $ 400.0 million revolving commitments, in an aggregate amount of $ 100.0 million (“Subline”), which Subline is available for borrowings by Adtran Networks. Prepayments of outstanding loans under the Subline that result in the remaining outstanding loans under the Subline being less than the German Commitment Reduction Threshold will result in a permanent partial reduction of the commitments in respect of the Subline. The German Commitment Reduction Threshold is initially $ 75.0 million and may be lowered from time to time pursuant to the terms of the Fourth Amendment. The existing swing line sublimit and letter of credit sublimit under the Credit Agreement remained available to the US Borrower (and not to Adtran Networks) after giving effect to the Fourth Amendment. Otherwise, the loans under the Subline are subject to substantially the same terms and conditions under the Credit Agreement (including with respect to the interest rate and maturity date) as the other existing revolving commitments. As of 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. 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 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 September 30, 2024, the Company was in compliance with all covenants. 32 Revolving Line of Credit Interest Rate All U.S. 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), 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. “Adjusted Term SOFR” means Term SOFR for the applicable interest period plus 0.10 % per annum. Adjusted Term SOFR is subject to a floor of 0.00 % per annum. All euro borrowings under the revolving line of credit bear interest at a rate per annum equal to EURIBOR (as defined in the Credit Agreement and subject to a 0.00 % per annum floor) plus an applicable margin ranging from 1.75 % to 2.75 % per annum based on the Company’s Consolidated Total Net Leverage Ratio (or, during the Applicable Margin Increase Period, an applicable margin of 3.25 % 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). The Company is also required to pay a participation fee to the Administrative Agent for the account of each lender with respect to the Company’s participation in letters of credit at the then applicable rate for Adjusted Term SOFR Loans or EURIBOR Loans, and other customary fronting, issuance and administration fees with respect to letters of credit. The “Applicable Margin Interest Period” means the period commencing on the Second Amendment Effective Date and ending on the first date when each of the following conditions have been met: (a) the Covenant Relief Period has ended, (b) since the Second Amendment Effective Date, the borrowers have repaid the revolving credit outstanding borrowings by a principal amount of at least $ 75.0 million, (c) the borrowers have reduced the aggregate revolving credit commitment to an amount no greater than $ 300.0 million, and (d) the borrowers are in compliance with all financial covenants based on the financial statements for the most recently completed reference period. Default interest is 2.0 % per annum in excess of the rate otherwise applicable. Covenants Under the Credit Agreement The financial covenants under the Credit Agreement, as amended, include the following (capitalized terms used in this subsection and not otherwise defined herein have the meanings assigned to them in the Credit Agreement or its amendments, as applicable): • As of the last day of any fiscal quarter, commencing with the fiscal quarter ended December 31, 2023, the Consolidated Total Net Leverage Ratio may not exceed 5.00 x. • As of the last day of any fiscal quarter, commencing with the fiscal quarter ended December 31, 2023, the Consolidated Senior Secured Net Leverage Ratio may not exceed: • In the fiscal quarter in which a Springing Covenant Event occurs and the three consecutive quarterly test periods thereafter, (“Springing Covenant Period”), the following covenant levels: • First fiscal quarter ending after a Springing Covenant Event: 4.00 x • Second fiscal quarter ending after a Springing Covenant Event: 3.75 x • Third and fourth fiscal quarters ending after a Springing Covenant Event: 3.50 x 33 • 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 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 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”). To secure such guarantees, ADTRAN, Inc. and the Full Facility Guarantors have granted security interests in favor of the Administrative Agent over substantially all of their tangible and intangible assets, and ADTRAN, Inc. has granted mortgages in favor of the Administrative Agent over certain owned real estate assets. Certain of Adtran Networks' subsidiaries ("Subline Guarantors") have provided a guarantee solely of the obligations in respect of the Subline. Furthermore, to secure such guarantees, the Subline Guarantors have granted security interests in favor of the Administrative Agent over substantially all of their tangible and intangible assets. Adtran Networks has also granted security interests in favor of the Administrative Agent over substantially all of its tangible and intangible assets, to secure solely its obligations under the Subline. Upon repayment in full and termination of the Subline, the guarantees by the Subline Guarantors and the liens granted by Adtran Networks and the Subline Guarantors to secure obligations under the Subline will be released. 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. It also contains customary events of default, such as misrepresentation and a default in the performance or observance of any covenant (subject to customary cure periods and materiality thresholds). Upon the occurrence and during the continuance of an event of default, the Administrative Agent is entitled to take various actions, including the acceleration of all amounts due under the Credit Agreement. 12. EMPLOYEE BENEFIT PLANS Pension Benefit Plan We maintain a defined benefit pension plan covering employees in certain foreign countries. The Company's net non-current pension liability for all defined benefit pension plans totaled $ 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. The following table summarizes the components of net periodic pension cost related to the Company's defined benefit pension plans: Three Months Ended Nine Months Ended September 30, September 30, (In thousands) 2024 2023 2024 2023 Service cost $ 340 $ 401 $ 1,013 $ 1,203 Interest cost 286 ( 33 ) 852 ( 99 ) Expected return on plan assets ( 360 ) 59 ( 1,074 ) 177 Amortization of actuarial losses 2 7 7 20 Net periodic pension cost $ 268 $ 434 $ 798 $ 1,301 The components of net periodic pension cost, other than the service cost component, are included in other (expense) income, net in the Condensed Consolidated Statements of Loss. Service cost is included in cost of revenue, selling, general and administrative expenses and research and development expenses in the Condensed Consolidated Statements of Loss. The Company made contributions to the defined benefit pension plans totaling $ 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. 34 13. EQUITY Accumulated Other Comprehensive Income The following tables present the changes in accumulated other comprehensive income, net of tax, by component: Three Months Ended September 30, 2024 (In thousands) Unrealized (Losses) Gains on Available- for-Sale Securities Defined Benefit Plan Adjustments Foreign Currency Adjustments ASU 2018-02 Adoption Total Balance as of June 30, 2024 $ ( 382 ) $ ( 2,573 ) $ 30,850 $ 385 $ 28,280 Other comprehensive (loss) income before reclassifications ( 10 ) — 18,988 — 18,978 Amounts reclassified from accumulated other comprehensive income 10 109 — — 119 Net current period other comprehensive gain — 109 18,988 — 19,097 Balance as of September 30, 2024 $ ( 382 ) $ ( 2,464 ) $ 49,838 $ 385 $ 47,377 Three Months Ended September 30, 2023 (In thousands) Unrealized (Losses) Gains on Available- for-Sale Securities Defined Benefit Plan Adjustments Foreign Currency Adjustments ASU 2018-02 Adoption Total Balance as of June 30, 2023 $ ( 773 ) $ ( 958 ) $ 42,831 $ 385 $ 41,485 Other comprehensive income (loss) before reclassifications 635 — ( 29,715 ) — ( 29,080 ) Amounts reclassified from accumulated other comprehensive income ( 244 ) ( 83 ) — — ( 327 ) Net current period other comprehensive income (loss) 391 ( 83 ) ( 29,715 ) — ( 29,407 ) Less: Comprehensive income attributable to non-controlling interest, net of tax — — — — — Balance as of September 30, 2023 $ ( 382 ) $ ( 1,041 ) $ 13,116 $ 385 $ 12,078 Nine Months Ended September 30, 2024 (In thousands) Unrealized Gains (Losses) on Available- for-Sale Securities Defined Benefit Plan Adjustments Foreign Currency Adjustments ASU 2018-02 Adoption Total Balance as of December 31, 2023 $ ( 382 ) $ ( 2,506 ) $ 49,968 $ 385 $ 47,465 Other comprehensive loss before reclassifications ( 134 ) — ( 130 ) — ( 264 ) Amounts reclassified from accumulated other comprehensive income 134 42 — — 176 Net current period other comprehensive income (loss) — 42 ( 130 ) — ( 88 ) Balance as of September 30, 2024 $ ( 382 ) $ ( 2,464 ) $ 49,838 $ 385 $ 47,377 35 Nine Months Ended September 30, 2023 (In thousands) Unrealized Gains (Losses) on Available- for-Sale Securities Defined Benefit Plan Adjustments Foreign Currency Adjustments ASU 2018-02 Adoption Total Balance as of December 31, 2022 $ ( 836 ) $ ( 1,016 ) $ 27,593 $ 385 $ 26,126 Other comprehensive income (loss) before reclassifications 733 — ( 14,095 ) — ( 13,362 ) Amounts reclassified from accumulated other comprehensive income ( 279 ) ( 25 ) — — ( 304 ) Net current period other comprehensive income (loss) 454 ( 25 ) ( 14,095 ) — ( 13,666 ) Less: Comprehensive income attributable to non-controlling interest, net of tax — — 382 — 382 Balance as of September 30, 2023 $ ( 382 ) $ ( 1,041 ) $ 13,116 $ 385 $ 12,078 The following tables present the details of reclassifications out of accumulated other comprehensive income: Three Months Ended September 30, 2024 (In thousands) Amount Reclassified from Accumulated Other Comprehensive Income Affected Line Item in the Statement Where Net Loss Is Presented Unrealized gain (loss) on available-for-sale securities: Net realized loss on sales of securities $ ( 13 ) Net investment gain (loss) Defined benefit plan adjustments – actuarial loss ( 158 ) (1) Total reclassifications for the period, before tax ( 171 ) Tax expense 52 Total reclassifications for the period, net of tax $ ( 119 ) (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 September 30, 2023 (In thousands) Amount Reclassified from Accumulated Other Comprehensive Income Affected Line Item in the Statement Where Net Loss Is Presented Unrealized gain (loss) on available-for-sale securities: Net realized gain on sales of securities $ 321 Net investment gain (loss) Defined benefit plan adjustments – actuarial gain 120 (1) Total reclassifications for the period, before tax 441 Tax benefit ( 114 ) Total reclassifications for the period, net of tax $ 327 (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. 36 Nine Months Ended September 30, 2024 (In thousands) Amount Reclassified from Accumulated Other Comprehensive Loss Affected Line Item in the Statement Where Net Loss Is Presented Unrealized gain (loss) on available-for-sale securities: Net realized loss on sales of securities $ ( 181 ) Net investment gain (loss) Defined benefit plan adjustments – actuarial loss ( 61 ) (1) Total reclassifications for the period, before tax ( 242 ) Tax expense 66 Total reclassifications for the period, net of tax $ ( 176 ) (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. Nine Months Ended September 30, 2023 (In thousands) Amount Reclassified from Accumulated Other Comprehensive Income Affected Line Item in the Statement Where Net Loss Is Presented Unrealized gain (loss) on available-for-sale securities: Net realized gain on sales of securities $ 367 Net investment gain (loss) Defined benefit plan adjustments – actuarial gain 36 (1) Total reclassifications for the period, before tax 403 Tax benefit ( 99 ) Total reclassifications for the period, net of tax $ 304 (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. 37 The following table presents the tax effects related to the change in each component of other comprehensive (loss) income: Three Months Ended Three Months Ended September 30, 2024 September 30, 2023 (In thousands) Before-Tax Amount Tax (Expense) Benefit Net-of-Tax Amount Before-Tax Amount Tax (Expense) Benefit Net-of-Tax Amount Unrealized (loss) gain on available-for-sale securities $ ( 13 ) $ 3 $ ( 10 ) $ 836 $ ( 201 ) $ 635 Reclassification adjustment for amounts related to available-for-sale investments included in net gain (loss) 13 ( 3 ) 10 ( 321 ) 77 ( 244 ) Reclassification adjustment for amounts related to defined benefit plan adjustments included in net gain (loss) 158 ( 49 ) 109 ( 120 ) 37 ( 83 ) Foreign currency translation adjustments 18,988 — 18,988 ( 29,715 ) — ( 29,715 ) Total Other Comprehensive Income (Loss) $ 19,146 $ ( 49 ) $ 19,097 $ ( 29,320 ) $ ( 87 ) $ ( 29,407 ) Nine Months Ended Nine Months Ended September 30, 2024 September 30, 2023 (In thousands) Before-Tax Amount Tax (Expense) Benefit Net-of-Tax Amount Before-Tax Amount Tax (Expense) Benefit Net-of-Tax Amount Unrealized (loss) gain on available-for-sale securities $ ( 181 ) $ 47 $ ( 134 ) $ 964 $ ( 231 ) $ 733 Reclassification adjustment for amounts related to available-for-sale investments included in net gain (loss) 181 ( 47 ) 134 ( 367 ) 88 ( 279 ) Reclassification adjustment for amounts related to defined benefit plan adjustments included in net gain (loss) 61 ( 19 ) 42 ( 36 ) 11 ( 25 ) Foreign currency translation adjustments ( 130 ) — ( 130 ) ( 14,095 ) — ( 14,095 ) Total Other Comprehensive Loss $ ( 69 ) $ ( 19 ) $ ( 88 ) $ ( 13,534 ) $ ( 132 ) $ ( 13,666 ) 38 14. REDEEMABLE NON-CONTROLLING INTEREST 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) September 30, 2024 December 31, 2023 Balance at beginning of period $ 442,152 $ — Reclassification of non-controlling interests — 443,757 Redemption of redeemable non-controlling interest ( 20,376 ) ( 1,657 ) Net income attributable to redeemable non-controlling interests 7,417 10,092 (1) Annual recurring compensation earned ( 7,417 ) ( 10,092 ) (1) Adtran Networks stock option exercises — 52 Balance at end of period $ 421,776 $ 442,152 (1) (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. 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. 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 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 . 15. LOSS PER SHARE The calculation of basic and diluted loss per share is as follows: Three Months Ended Nine Months Ended September 30, September 30, (In thousands, except per share amounts) 2024 2023 2024 2023 Numerator Net loss attributable to ADTRAN Holdings, Inc. $ ( 31,239 ) $ ( 78,210 ) $ ( 404,955 ) $ ( 156,697 ) Effect of redemption of RNCI 2,976 — 2,976 — Net loss attributable to ADTRAN Holdings, Inc. common shareholders $ ( 28,263 ) $ ( 78,210 ) $ ( 401,979 ) $ ( 156,697 ) Denominator Weighted average number of shares – basic 78,952 78,389 78,873 78,378 Effect of dilutive securities Stock options — — — — PSUs, RSUs and restricted stock — — — — Weighted average number of shares – diluted 78,952 78,389 78,873 78,378 Loss per share attributable to ADTRAN Holdings, Inc. – basic $ ( 0.36 ) $ ( 1.00 ) $ ( 5.10 ) $ ( 2.00 ) Loss per share attributable to ADTRAN Holdings, Inc. – diluted $ ( 0.36 ) $ ( 1.00 ) $ ( 5.10 ) $ ( 2.00 ) 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. 39 16. SEGMENT INFORMATION The chief operating decision maker regularly reviews the Company’s financial performance based on two reportable segments: (1) Network Solutions and (2) Services & Support. The Network Solutions segment includes hardware and software products that enable a digital future which support the Company's Subscriber, Access & Aggregation, and Optical Networking Solutions. The Company's cloud-managed Wi-Fi gateways, virtualization software, and switches provide a mix of wired and wireless connectivity at the customer premises. In addition, its Carrier Ethernet products support a variety of applications at the network edge ranging from mobile backhaul to connecting enterprise customers (“Subscriber Solutions"). The Company's portfolio includes products for multi-gigabit service delivery over fiber or alternative media to homes and businesses. The Services & Support segment offers a comprehensive portfolio of network design, implementation, maintenance and cloud-hosted services supporting its Subscriber, Access & Aggregation, and Optical Networking Solutions. These services assist operators in the deployment of multi-vendor networks while reducing their cost to maintain these networks. The cloud-hosted services include a suite of SaaS applications under the Company's Mosaic One platform that manages end-to-end network and service optimization for both fiber access infrastructure and mesh Wi-Fi connectivity. The Company backs these services with a global support organization that offers on-site and off-site support services with varying SLAs. The performance of these segments is evaluated based on revenue, gross profit and gross margin; therefore, selling, general and administrative expenses, research and development expenses, interest and dividend income, interest expense, net investment gain, other income (expense), net and income tax benefit are reported on a consolidated basis only. There is no inter-segment revenue. Asset information by reportable segment is not produced and, therefore, is not reported. The following tables present information about the revenue and gross profit of the Company's reportable segments: Three Months Ended September 30, 2024 September 30, 2023 (In thousands) Revenue Gross Profit Revenue Gross Profit Network Solutions $ 181,488 $ 55,713 $ 228,564 $ 47,277 Services & Support 46,216 29,538 43,767 26,960 Total $ 227,704 $ 85,251 $ 272,331 $ 74,237 Nine Months Ended September 30, 2024 September 30, 2023 (In thousands) Revenue Gross Profit Revenue Gross Profit Network Solutions $ 541,955 $ 156,472 $ 793,984 $ 176,607 Services & Support 137,913 82,609 129,637 77,991 Total $ 679,868 $ 239,081 $ 923,621 $ 254,598 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 The following table presents revenue information by geographic area: Three Months Ended Nine Months Ended September 30, September 30, (In thousands) 2024 2023 2024 2023 United States $ 102,527 $ 111,494 $ 293,420 $ 375,254 United Kingdom 49,366 60,347 145,666 212,171 Germany 27,270 41,242 91,553 150,710 Other international 48,541 59,248 149,229 185,486 Total $ 227,704 $ 272,331 $ 679,868 $ 923,621 40 17. LIABILITY FOR WARRANTY RETURNS The Company's products generally include warranties of 90 days to five years for product defects. The Company accrues for warranty returns at the time of product shipment based on its historical return rate and estimate of the cost to repair or replace the defective products. The Company engages in extensive product quality programs and processes, including actively monitoring and evaluating the quality of its component suppliers. The increasing complexity of the Company's products may cause warranty incidences, when they arise, to be more costly. Estimates regarding future warranty obligations may change due to product failure rates, material usage and other rework costs incurred in correcting a product failure. In addition, from time to time, specific warranty accruals may be recorded if unforeseen problems arise. Should the Company's actual experience relative to these factors be worse than its estimates, the Company will record additional warranty expense. 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 Nine Months Ended September 30, September 30, (In thousands) 2024 2023 2024 2023 Balance at beginning of period $ 6,024 $ 6,831 $ 6,445 $ 7,196 Plus: Amounts charged to cost and expenses 395 752 1,779 2,289 Plus: Foreign currency translation adjustments 84 ( 73 ) 21 ( 33 ) Less: Deductions ( 854 ) ( 943 ) ( 2,596 ) ( 2,885 ) Balance at end of period $ 5,649 $ 6,567 $ 5,649 $ 6,567 18. COMMITMENTS AND CONTINGENCIES Legal Matters From time to time, the Company is subject to or otherwise involved in various lawsuits, claims, investigations and legal proceedings that arise out of or are incidental to the conduct of our business (collectively, “Legal Matters”), including those relating to employment matters, patent rights, regulatory compliance matters, stockholder claims, and contractual and other commercial disputes. Such Legal Matters, even if not meritorious, could result in the expenditure of significant financial and managerial resources. Additionally, an unfavorable outcome in a legal matter, including in a patent dispute, could require the Company to pay damages, entitle claimants to other relief, such as royalties, or could prevent the Company from selling some of its products in certain jurisdictions. The Company records an accrual for any Legal Matters that arise whenever it considers that it is probable that it is exposed to a loss contingency and the amount of the loss contingency can be reasonably estimated. Although the ultimate disposition of asserted claims cannot be predicted with certainty, it is our belief that the outcome of any such claims, either individually or on a combined basis, will not have a material adverse effect on our consolidated financial position. DPLTA Exit and Recurring Compensation Costs 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 3.37 % 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. The opportunity for outside Adtran Networks shareholders to tender Adtran Networks shares in exchange for Exit Compensation had been scheduled to expire on March 16, 2023 . However, due to the appraisal proceedings that have been initiated in accordance with applicable German law, this time period for tendering shares has been extended pursuant to the German Stock Corporation Act (Aktiengesetz) and will end two months after the date on which a final decision in such appraisal proceedings has been published in the Federal Gazette (Bundesanzeiger). 41 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 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. 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. 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. Performance Bonds Certain contracts, customers and jurisdictions in which we do business require us to provide various guarantees of performance such as bid bonds, performance bonds and customs bonds. As of September 30, 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. Purchase Obligations 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 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 September 30, 2024, purchase obligations totaled $ 261.8 mi llion. 19. RESTRUCTURING During the fourth quarter of 2022, the Company initiated a restructuring program designed to optimize the assets, business processes, and information technology systems of the Company in relation to the Business Combination with Adtran Networks. The restructuring program is expected to maximize cost synergies by realizing operation scale, combining sales channels, streamlining corporate and general and administrative functions, including human capital resources and combining sourcing and production costs. This restructuring program is expected to be completed in late 2024 and includes expenses specifically associated with achieving run-rate synergies, as well as Business Efficiency Program expenses described below. On November 6, 2023, due to the uncertainty around the current macroeconomic environment and its impact on customer spending levels, the Company’s management decided to implement a business efficiency program (“Business Efficiency Program”) targeting the reduction of ongoing operating expenses and focusing on capital efficiency inclusive of certain salary reductions, an early retirement program, a site consolidation plan to include lease impairments and the partial sale of owned real estate (including the potential sale of portions of our headquarters), inventory write downs from product discontinuances, and the suspension of the quarterly dividend. The Business Efficiency Program expands upon other recently implemented restructuring efforts and synergy costs following the Business Combination. For instance, on August 17, 2023, the Company’s management determined to discontinue its copper-based Digital Subscriber Line broadband access technology products and its fixed wireless access products in its Network Solutions segment. Furthermore, on September 29, 2023, the Company’s management decided to exit the "IoT" gateway market (indoor and outdoor), a subset of the broader IoT market (together with the other product discontinuations, the “Discontinuations”). On October 25, 2023, all employees were informed of certain personnel measures, which included the reduction of salary for select management, a reduction of approximately 5 % of the workforce, an early retirement program and a hiring freeze. Additionally, on April 11, 2024, Management determined to close a facility in Greifswald, Germany. The closure of the facility is expected to be completed by December 31, 2024. 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 fourth quarter 2024 relating to the 42 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). 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.  However, we are not able to estimate the amount or range of amounts of such potential incremental charges as of the date of this filing. If required, we will amend this disclosure at such time as management is able in good faith to estimate the amount, or range of amounts, of these charges. For the three 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 Nine Months Ended (In thousands) September 30, 2024 September 30, 2024 Balance at beginning of period $ 18,657 $ 8,309 Plus: Amounts charged to cost and expense 5,936 36,441 Less: Amounts paid ( 7,770 ) ( 27,927 ) Balance as of September 30, 2024 $ 16,823 $ 16,823 For the Year Ended (In thousands) December 31, 2023 Balance as of December 31, 2022 $ 159 Plus: Amounts charged to cost and expense 22,241 Less: Amounts paid ( 14,091 ) Balance as of December 31, 2023 $ 8,309 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 Nine Months Ended September 30, September 30, (In thousands) 2024 2023 2024 2023 Network Solutions - Cost of revenue $ 517 $ 611 $ 3,359 $ 669 Network Solutions - other (credits), charges and inventory write-down ( 328 ) 21,043 $ 8,597 21,043 Services & Support - Cost of revenue ( 182 ) ( 24 ) 2,086 ( 6 ) Cost of revenue $ 7 $ 21,630 $ 14,042 $ 21,706 Selling, general and administrative expenses 2,681 3,387 7,980 6,960 Research and development expenses 3,248 ( 144 ) 18,554 4,512 Total restructuring expenses $ 5,936 $ 24,873 $ 40,576 $ 33,178 43 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 Nine Months Ended September 30, September 30, (In thousands) 2024 2023 2024 2023 United States $ 1,208 $ 22,598 $ 17,495 $ 25,217 International 4,728 2,275 23,081 7,961 Total restructuring expenses $ 5,936 $ 24,873 $ 40,576 $ 33,178 44