ADTRAN Holdings, Inc. 10-K

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS O F FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with our audited consolidated financial statements and the related notes included in Part II, Item 8 of this report. We have omitted discussion of the earliest of the three years of financial condition and results of operations and this information can be found in Part I, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Part I, Item 1A, Risk Factors, included in Amendment No. 1 to our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 15, 2024 (the “2023 Form 10-K”), as well as Part I, Item 1, Business, included in our Annual Report on Form 10-K filed with the SEC on March 15, 2024, which is available free of charge on the SEC's website at http://www.sec.gov and on our website at www.adtran.com. This discussion is designed to provide the reader with information that will assist in understanding our consolidated financial statements, the changes in certain key items in those financial statements from period to period, and the primary factors that accounted for those changes, as well as how certain accounting principles affect our consolidated financial statements. See “Cautionary Note Regarding Forward-Looking Statements” on page 2 of this report for a description of important factors that could cause actual results to differ from expected results. See also Part I, Item 1A, Risk Factors, of this Form 10-K. Unless the context otherwise indicates or requires, references in this Annual Report on Form 10-K to "Adtran", the “Company,” “we”, “us” and “our” refer to ADTRAN Holdings, Inc. and its consolidated subsidiaries for periods subsequent to the Merger and to ADTRAN, Inc. and its consolidated subsidiaries for periods prior to the Merger. The prior period results do not include the results of Adtran Networks prior to the Business Combination which occurred on July 15, 2022. Furthermore, unless the context otherwise indicates or requires, references in this Annual Report on Form 10-K to “Adtran Networks” refer to Adtran Networks SE (formerly ADVA Optical Networking SE). Overview The Company is a leading global provider of networking and communications platforms, software, systems and services focused on carrier networks, data center interconnect for private enterprise networks and mission critical infrastructure. It is 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; 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 have customers adopt our technology, 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 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 (formerly ADVA Optical Networking SE). Adtran 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. The chief operating decision maker regularly reviews the Company’s financial performance based on two reportable segments: (1) Network Solutions and (2) Services & Support. In addition to operating under two reportable segments, the Company also reports revenue across 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 customers' premises while providing an immersive and interactive experience for residential, business and wholesale subscribers. This revenue category includes hardware- and software-based products and services. These solutions include our Mosaic One SaaS applications, 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. 46 Our Access & Aggregation Solutions are solutions that are used by communications Service Providers to connect residential subscribers, business subscribers and mobile radio networks to the Service Providers’ metro network, primarily through fiber-based connectivity. This revenue category includes hardware- and software-based products and services. Our solutions within this category are a mix of fiber access and aggregation platforms, precision network synchronization and timing solutions and access orchestration solutions that ensure highly reliable and efficient network performance. Our Optical Networking Solutions are used by communications Service Providers, internet content providers and large-scale enterprises to securely interconnect metro and regional networks over fiber. 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. Adtran Networks Domination and Profit and Loss Transfer Agreement 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 Company’s payment obligation in satisfaction of the requirement that it absorb Adtran Networks’ annual net loss applied for the first time to the net loss generated in 2023. Additionally, and subject to certain limitations pursuant to applicable law and the specific terms of the DPLTA, the DPLTA provides that Adtran Networks shareholders (other than us) be offered, at their election, (i) to put their Adtran Networks shares to the Company in exchange for compensation in cash of €17.21 per share plus guaranteed interest (the "Exit Compensation"), or (ii) to remain Adtran Networks shareholders and receive a recurring compensation in cash of €0.52 per share for each full fiscal year of Adtran Networks (the “Annual Recurring Compensation”). The guaranteed interest component under the Exit Compensation is calculated from the effective date of the DPLTA to the date the shares are tendered, less any Annual Recurring Compensation paid. The guaranteed interest rate is 5.0% plus a variable component that was 3.37% as of December 31, 2024. 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. With respect to the 2024 fiscal year, Adtran Networks’ ordinary general shareholder meeting is scheduled for June 27, 2025, and therefore, the Annual Recurring Compensation will be due on July 2, 2025. The adequacy of both forms of compensation has been challenged by minority shareholders of Adtran Networks via court-led appraisal proceedings under German law, and it is possible that the courts in such appraisal proceedings may adjudicate a higher Exit Compensation (including interest thereon) or Annual Recurring Compensation than agreed upon in the DPLTA. 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 ). The Company expects to receive a procedural decision during 2025 that will likely be appealed. The date of a decision by the court on the merits of the case is uncertain, but it is unlikely that such decision will be rendered in 2025. Thereafter, an expected appeal process will take a further 12-24 months to resolve. For the year ended December 31, 2024, approximately 831 thousand shares 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 exchange rates at the time of the transactions, being paid to Adtran Networks shareholders. For the year ended December 31, 2023, 67 thousand shares of Adtran Networks stock were tendered to the Company and Exit Compensation payments of approximately €1.2 million or approximately $1.3 million based on an exchange rate as of December 31, 2023, were paid to Adtran Networks' shareholders. In addition to our cash and cash equivalents and the credit facility, we may fund a portion or all of the Exit Compensation through the sale of securities or additional alternative funding sources, if available. There can be no assurances that we would be successful in effecting these actions on commercially reasonable terms or at all. If we cannot raise additional funds as needed, it could have a material adverse impact on our financial results and financial condition. We currently hold 34,856,232 no-par value bearer shares of Adtran Networks, representing 67.0% of Adtran Networks outstanding shares as of December 31, 2024. 47 The foregoing description of the DPLTA does not purport to be complete and is qualified in its entirety by reference to the DPLTA, a non-binding English translation of which is incorporated by reference to Exhibit 10.7 included in our Annual Report on Form 10-K for the year ended December 31, 2023. Business Efficiency Program During the fourth quarter of 2023, the Company initiated a Business Efficiency 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 Business Efficiency Program included expenses specifically associated with achieving run-rate synergies as well as Business Efficiency Program expenses described below. Other than the Company's aim of selling its headquarters, the Business Efficiency Program was substantially complete as of December 31, 2024. See Note 20 of the Notes to Consolidated Financial Statements, included in Part II, Item 8 of this report for additional information. During the years ended December 31, 2024 and 2023, we recognized $44.7 million and $25.1 million of costs relating to the Business Efficiency Program, respectively. Future cash payments include severance costs, outplacement fees and site consolidation that are anticipated to be approximately $10.3 million. Business Combination Integration Costs During the years ended December 31, 2024 and 2023, we recognized $1.9 million and $4.9 million, respectively, of integration costs related to the Business Combination were incurred. These transaction costs are included in selling, general and administrative expenses, research & development expenses and cost of revenue in the Consolidated Statement of Loss. The Company does not anticipate additional material expenses to be incurred in connection with this integration program. Financial Performance and Trends We ended 2024 with a year-over-year revenue decrease of 19.7%, driven by decreased volume of sales activity due to customers' focus on reducing inventory levels and continuing uncertain macroeconomic conditions related to elevated inflation, elevated interest rates and currency fluctuation which impacted the spending behavior of our customers. During 2024, we had one customer with revenues greater than 10.0% which was an international Service Provider customer and our next five largest customers comprised 21.7% of our revenue. Our year-over-year domestic revenue decreased by 13.6% and continued to be impacted by elevated customer inventory levels, continuing effects of uncertain macroeconomic conditions and decreased shipments to distributor customers. Internationally, our year-over-year revenue decreased by 23.8%, primarily driven by decreased shipments to network operators in Europe and the unfavorable impact of foreign exchange on revenue as a result of the strengthened U.S. dollar. Access & Aggregation and Optical Networking revenue categories experienced a general slowdown in revenue as a result of reduced spending by our Service Provider customers as they continue to reduce excess inventory levels and monitor the uncertain macroeconomic conditions. Despite these challenges, we have maintained our emphasis on product development to enable us to respond to rapidly changing technology and evolving industry standards. For example, we expect public funding through projects such as IPCEI ME/CT to further our research and development for new communication technologies. Additionally, public funding through the Broadband Equity, Access and Deployment Program is expected to commence in 2025, which provides a positive outlook for the future. Nevertheless, these government-supported loan programs and grants generally include conditions such as deployment criteria, domestic preference provisions and other requirements that apply to the project and selected equipment as conditions for funding, which we expect will influence the extent to which such programs will have an impact on our revenue. In Europe, we continue to see increased activity from high-risk vendor replacement and broadband subsidy programs. While our 2023 and 2024 revenues have fluctuated and may continue to fluctuate on a quarterly basis, during the fourth quarter of 2024, our operating results have improved due to slowly stabilizing revenues, improving margins and tight operational cost controls. Nevertheless, a significant percentage of orders require delivery within a few days, requiring us to maintain higher inventory levels. These factors may result in limited order flow visibility. We have taken decisive steps to transform our business into a leaner, more efficient and more profitable company, including the substantial completion of our Business Efficiency Program (other than the Company’s aim of selling its headquarters), which included a significant cost efficiency program targeting a reduction of ongoing operating expenses and a capital efficiency program inclusive of certain salary reductions, an early retirement program, a site consolidation plan to include lease impairments and the partial sale of owned real estate (including the potential sale of portions of our headquarters), inventory write downs from product discontinuances, and the suspension of the quarterly dividend. Our operating expenses are relatively fixed in the short term, therefore, a shortfall in quarterly revenues has and may again in the future significantly impact our financial results in a given quarter. Our operating results have significantly fluctuated and may do so in the future as a result of a number of other factors, including a decline in general economic and market conditions, foreign currency exchange rate movements, inflation, increased competition, customer order patterns, changes in product and services mix, trade policies, timing differences between price decreases and product cost reductions, product warranty returns, expediting costs, tariffs and announcements of new products by us or our competitors. In recent years, inflationary pressures on input costs, such as raw materials and labor, and distribution costs had a negative impact on our operating 48 results. However, inflationary pressures on our supply chain have eased somewhat, which has led to reductions in cost premiums on raw material costs and freight. We continue to support our customer demand for our products by working with our suppliers, contract manufacturers, distributors, and customers to address and to limit the disruption to our operations and order fulfillment. Additionally, maintaining sufficient inventory levels to assure prompt delivery of our products increases the amount of inventory that may become obsolete and increases the risk that the obsolescence of this inventory may have an additional adverse effect on our business and operating results beyond the effects of the most recent inventory write-downs. Also, not maintaining sufficient inventory levels to ensure prompt delivery of our products may cause us to incur expediting costs to meet customer delivery requirements, which may negatively impact our operating results. The U.S. government issued orders in February 2025 increasing tariffs on imports from certain countries, including Canada, China and Mexico, and it has discussed further tariffs, including plans to increase U.S. tariffs to match the rates that other countries charge on imports and tariffs on semiconductors, automobiles and pharmaceuticals imported into the U.S. While the implementation of tariffs on Canadian and Mexican imports was initially deferred, such tariffs are expected to go into effect in March 2025 and the U.S. has increased tariffs on goods imported into the U.S. from China by 10%. In response, China imposed a 15% tariff on U.S. coal and liquified natural gas products, along with a 10% tariff on crude oil. The U.S. government has indicated that an additional 10% duty on Chinese imports may be forthcoming, which may result in further tariffs on U.S. products being imported into China. The recent tariffs come on top of ongoing trade tensions and regulatory actions involving the governments of the U.S. and China. Moreover, on February 11, 2025, the U.S. government ordered tariffs of 25% on imports of steel and aluminum regardless of where they originate. We are exposed to changes in foreign currencies relative to the U.S. dollar, which are references to the differences between the foreign-exchanges rates we use to convert the financial results of our international operations from local currencies into U.S. dollars for financial reporting purposes. This impact of foreign-exchange rate changes is calculated based on the difference between the current period’s currency exchange rates and that of the comparable prior period. Our primary exposures to foreign currency exchange rate movements are with the euro and the British pound. As a result of our global operations, our revenue, gross margins, operating expense and operating loss in some international markets have been and may continue to be affected by foreign currency fluctuations. The Company’s policy is to assess the realizability of assets (long-lived assets, intangibles and goodwill) held within our reporting units and to evaluate such assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. During the third quarter of 2023, the Company identified a triggering event due to a decrease in its 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 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 the Network Solutions reporting unit using a combination of an income approach and a market approach. 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 during the three months ended March 31, 2024. The quantitative impairment analysis indicated there was no impairment of the Services & Support goodwill during the three months ended March 31, 2024. There have been no triggering events identified affecting the valuation of goodwill in our Services & Support reporting unit during the remainder of 2024. Our historical financial performance is not necessarily a meaningful indicator of future results, and in general, management expects that our financial results may vary from period to period. For a discussion of risks associated with our operating results, see Part I, Item 1A, Risk Factors of this report. 49 Results of Operations The following table presents selected financial information derived from our Consolidated Statements of Loss expressed as a percentage of revenue for the years indicated. Amounts may not foot due to rounding. Year Ended December 31, 2024 2023 2022 Revenue Network Solutions 80.1 % 84.8 % 89.4 % Services & Support 19.9 15.2 10.6 Total Revenue 100.0 100.0 100.0 Cost of Revenue Network Solutions 55.4 62.9 63.1 Network Solutions - other (credits), charges and inventory write-down 0.9 2.1 — Services & Support 7.9 6.0 5.0 Total Cost of Revenue 64.2 71.0 68.1 Gross Profit 35.8 29.0 31.9 Selling, general and administrative expenses 25.3 22.5 20.4 Research and development expenses 24.0 22.5 16.9 Asset impairment — — 1.7 Goodwill impairments 31.7 3.3 — Operating Loss (45.2 ) (19.3 ) (7.1 ) Interest and dividend income 0.3 0.2 0.2 Interest expense (2.4 ) (1.4 ) (0.3 ) Net investment gain (loss) 0.4 0.2 (1.1 ) Other income, net — 0.1 1.4 Loss Before Income Taxes (46.8 ) (20.1 ) (6.9 ) Income tax (expense) benefit (1.0 ) (2.4 ) 6.1 Net Loss (47.8 )% (22.6 )% (0.9 )% Net Income (loss) attributable to non-controlling interest 1.1 0.6 (0.7 ) Net Loss attributable to ADTRAN Holdings, Inc. (48.9 )% (23.2 )% (0.2 )% The following discussion and financial information are presented to aid in an understanding of our current consolidated financial position, changes in financial position, results of operations and cash flows and should be read in conjunction with the audited consolidated financial statements and notes thereto included herein. The emphasis of the discussion is a comparison of the years ended December 31, 2024 and December 31, 2023. For a discussion of a comparison of the years ended December 31, 2023 and December 31, 2022, please refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 15, 2024. Comparison of Years Ended December 31, 2024 and December 31, 2023 Revenue Our revenue decreased 19.7% from $1,149.1 million for the year ended December 31, 2023 to $922.7 million for the year ended December 31, 2024. The decrease in revenue for the year ended December 31, 2024 is primarily driven by a decrease in volume of sales activity due to customers’ focus on reducing inventory levels and the completion of significant customer projects. The decrease in revenue by category for the year ended December 31, 2024 was primarily attributable to $192.0 million decrease in Optical Networking Solutions products and a $67.4 million decrease in Access & Aggregation Solutions partially offset by a $33.1 million increase in Subscriber Solutions category. Continued customer concerns over inventory stocking levels have affected our revenue year-to-date in our Optical Networking Solutions category, Access & Aggregation category and our Subscriber Solutions category. This includes our two largest Optical Networking Solutions customers, which we believe are focused on reducing existing inventory. Network Solutions segment revenue decreased 24.2% from $974.4 million in 2023 to $739.0 million in 2024, primarily attributable to $196.6 million decrease in Optical Networking Solutions products and a $71.1 million decrease in Access & Aggregation Solutions partially offset by a $32.3 million increase in Subscriber Solutions category. More specifically, for the year ended December 31, 2024, the decrease in revenue for our Subscriber Solutions products was primarily due to lower volume of sales of our residential solutions products as a result of customers focus on reducing inventory levels. 50 Services & Support revenue increased 5.2% from $174.7 million in 2023 to $183.8 million in 2024. The increase in revenue for 2024 was primarily attributable to $4.6 million increase in revenue for Optical Networking Solutions products, a $3.7 million increase in revenue for Access & Aggregation Solutions revenue and a $0.7 million increase in revenue for Subscriber Solutions services. More specifically, the increase in revenue for the year ended December 31, 2024 of our ADTRAN, Inc. operations was primarily due to higher volume of sales of our software services and business solutions services. Domestic revenue decreased 13.6% from $461.0 million in 2023 to $398.2 million in 2024, driven by lower volume of sales of our residential solutions products as a result of customers' focus on reducing inventory levels in our Subscriber Solutions segment, partially offset by an increase in volume of sales activity during the first half of 2024 from the Business Combination with Adtran Networks. International revenue, which is defined as revenue generated from the Network Solutions and Services & Support segments provided to a customer outside of the U.S., decreased 23.8% from $688.1 million for the year ended December 31, 2023 to $524.6 million for the year ended December 31, 2024. International revenue, as a percentage of total revenue, decreased from 59.8% for the year ended December 31, 2023 to 56.8% for the year ended December 31, 2024. The decrease in international revenue in 2024 was primarily due to the conclusion of specific customer projects and customer concerns over inventory levels. For the year ended December 31, 2024 as compared to the year ended December 31, 2023, changes in foreign currencies relative to the U.S dollar increased our net revenue by approximately $5.4 million. Our ADTRAN, Inc. international revenue is largely focused on broadband infrastructure and is consequently affected by the decisions of our customers as to timing for installation of new technologies, expansion of their networks and/or network upgrades. Our international customers must make these decisions in the regulatory and political environment in which they operate – both nationally and in some instances, regionally – whether of a multi-country region or a more local region within a country. Consequently, while we expect the global trend towards deployment of more robust broadband speeds and access to continue creating additional market opportunities for us, the factors described above may result in pressure on revenue and operating income. Our Adtran Networks international revenue is largely focused on the manufacture and selling of networking solutions that are based on three core areas of expertise: fiber-optic transmission technology (cloud interconnect), cloud access technology for rapid creation of innovative services around the network edge and solutions for precise timing and synchronization of networks. In addition, Adtran Networks' international operations offers a comprehensive portfolio of network design, implementation and maintenance services to assist operators in the deployment of market-leading networks while reducing their cost to maintain these networks. Cost of Revenue As a percentage of revenue, cost of revenue decreased from 71.0% for the year ended December 31, 2023 to 64.2% for the year ended December 31, 2024. The decrease for the twelve months ended December 31, 2024 was attributable to (1) a 2.6% decrease in expense as a percentage of revenue related to decreased amortization of intangible backlog, developed technology and fair value adjustments to inventory costs that flow through to cost of revenue as a result of the Business Combination with Adtran Networks, (2) a 2.7% decrease in expense as a percentage of revenue related to decreased acquisition costs, (3) a 1.4% decrease in expense as a percentage of revenue in connection with our Business Efficiency Program (primarily a decrease in inventory write-offs related to our strategy shift which included discontinuance of certain product lines, partially offset by increases in severance and employee related costs), (4) a 0.1% decrease in expense as a percentage of revenue attributable to changes in customer and product mix. For the year ended December 31, 2024, changes in foreign currencies relative to the U.S. dollar increased our cost of revenue by approximately $0.7 million. Network Solutions cost of revenue, as a percentage of that segment’s revenue, decreased from 76.7% of revenue in 2023 to 70.3% of revenue in 2024. The decrease in cost of revenue as a percentage of revenue for the twelve months ended December 31, 2024 was attributable to (1) a 3.3% decrease in expense as a percentage of revenue related to decreased amortization of intangible backlog, developed technology and fair value adjustments to inventory costs that flow through to cost of revenue as a result of the Business Combination with Adtran Networks, (2) a 3.4% decrease in expense as a percentage of revenue related to decreased acquisition costs, and (3) a 1.9% decrease in expense as a percentage of revenue in connection with our Business Efficiency Program, which resulted in an inventory write down and other charges of $8.6 million incurred as a result of a strategy shift including discontinuance of certain product lines, partially offset by (4) a 2.2% increase in expense as a percentage of revenue attributable to changes in customer and product mix. Services & Support cost of revenue, as a percentage of that segment’s revenue, remained flat at 39.6% of revenue in 2023 and 2024. Services & Support revenue is comprised of network planning and implementation, maintenance, support and cloud-based management services, with network planning and implementation being the largest and fastest growing component in the long-term. Compared to our other services, such as maintenance, support and cloud-based management services, our network planning and implementation services typically utilize a higher percentage of internal and subcontracted engineers, professionals and contractors to perform the work for customers. The additional costs incurred to perform these infrastructure and labor-intensive services inherently result in lower average gross margins as compared to maintenance and support services. Within the Services & Support segment, we do expect variability in gross margins from quarter-to-quarter based on the mix of the services recognized. 51 Gross Profit As a percentage of revenue, gross profit increased from 29.0% for the year ended December 31, 2023 to 35.8% for the year ended December 31, 2024. The increase for the twelve months ended December 31, 2024 was attributable to (1) a 2.6% increase in gross profit as a percentage of revenue related to decreased amortization of intangible backlog, developed technology and fair value adjustments to inventory costs that flow through to cost of revenue as a result of the Business Combination with Adtran Networks, (2) a 2.7% increase in gross profit as a percentage of revenue related to decreased acquisition costs, (3) a 1.4% increase in gross profit as a percentage of revenue in connection with decreased expenses with our Business Efficiency Program (primarily a decrease in inventory write-offs related to our strategy shift which included discontinuance of certain product lines, partially offset by increases in severance and employee related costs), (4) a 0.1% increase in gross profit as a percentage of revenue attributable to changes in customer and product mix. As a percentage of that segment's revenue, Network Solutions gross profit increased from 23.3% for the year ended December 31, 2023 to 29.7% for the year ended December 31, 2024. The increase for the twelve months ended December 31, 2024 was attributable to (1) a 3.3% increase in gross profit as a percentage of revenue related to decreased amortization of intangible backlog, developed technology and fair value adjustments to inventory costs that flow through to cost of revenue as a result of the Business Combination with Adtran Networks, (2) a 3.4% increase in gross profit as a percentage of revenue related to decreased acquisition costs, and (3) a 1.9% increase in gross profit as a percentage of revenue in connection with decreased expenses with our Business Efficiency Program, which resulted in an inventory write down and other charges of $8.6 million incurred as a result of a strategy shift including discontinuance of certain product lines, (4) partially offset by a 2.2% decrease in gross profit as a percentage of revenue attributable to changes in customer and product mix. As a percentage of that segment's revenue, Services & Support gross profit remained flat at 60.4% for the years ended December 31, 2023 and 2024. Selling, General and Administrative Expenses As a percentage of revenue, selling, general and administrative expenses increased from 22.5% for the year ended December 31, 2023, to 25.3% for the year ended December 31, 2024. Selling, general and administrative expenses as a percentage of revenue will generally fluctuate whenever there is a significant fluctuation in revenue for the periods being compared. Other than our stated aim of selling our headquarters, we have substantially completed implementation of our Business Efficiency Program. We expect to continue to see lower selling, general and administrative expenses as a percentage of revenue over time. Selling, general and administrative expenses decreased 9.6% from $258.1 million for the year ended December 31, 2023, to $233.4 million for the year ended December 31, 2024. Selling, general and administrative expenses include personnel costs for management, accounting, information technology, human resources, sales and marketing, as well as independent auditor, tax and other professional fees, contract services and legal and litigation related costs. The decrease in selling, general and administrative expenses for the twelve months ended December 31, 2024, compared to the twelve months ended December 31, 2023, was primarily attributable to the impact of the Company's Business Efficiency Program and integration programs. Specifically, the Company reduced its employee-related costs by $20.4 million. For the year ended December 31, 2024, as compared to the year ended December 31, 2023, changes in foreign currencies relative to the U.S dollar increased our selling, general and administrative expenses by approximately $0.6 million. Research and Development Expenses As a percentage of revenue, research and development expenses increased from 22.5% for the year ended December 31, 2023, to 24.0% for the year ended December 31, 2024. Research and development expenses as a percentage of revenue will generally fluctuate whenever there are incremental product development activities or significant fluctuations in revenue for the periods being compared. Other than our stated aim of selling our headquarters, we have substantially completed implementation of our Business Efficiency Program. We expect to continue to see lower research and development expense as a percentage of revenue over time. Research and development expenses decreased 14.3% from $258.3 million for the year ended December 31, 2023, to $221.5 million for the year ended December 31, 2024. The decrease in research and development expenses for the twelve months ended December 31, 2024, was primarily attributable to the impact of the Company's Business Efficiency Program and integration programs. Specifically, the Company reduced its employee-related costs by $16.7 million and contract services by $7.9 million. For the year ended December 31, 2024 as compared to the year ended December 31, 2023, changes in foreign currencies relative to the U.S. dollar increased our research and development expenses by approximately $1.4 million. Adtran Networks has arrangements with governmental entities for the purposes of obtaining funding for research and development activities. The Company classifies government grants received under these arrangements as a reduction to research and development expense incurred. For the years ended December 31, 2024 and 2023, the Company recognized $9.7 million and $5.2 million, respectively, as a reduction of research and development expense. 52 We expect to continue to incur research and development expenses in connection with our new and existing products. We continually evaluate new product opportunities and engage in significant research and product development efforts, which provides for new product development, enhancement of existing products and product cost reductions. We may incur significant research and development expenses prior to the receipt of revenue from a major new product group. Asset Impairments In connection with the planned integration of information technology following the Business Combination, we determined that certain projects no longer fit our needs. As a result, the Company recognized impairment charges of $17.4 million during the year ended December 31, 2022, primarily attributable to capitalized implementation costs for a cloud computing arrangement. There were no asset impairments recognized during the years ended December 31, 2024 and 2023. See Note 9 of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this report for additional information. Goodwill Impairment During the first quarter of 2024, qualitative factors such as a decrease in the Company’s market capitalization, cautious service provider spending due to economic uncertainty and continued customer focus on inventory adjustments, triggered a quantitative impairment assessment for our reporting units for goodwill and long-lived assets. 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. During the third quarter of 2023, qualitative factors, such as a decrease in the Company's market capitalization and long-term projections, triggered a quantitative impairment assessment for our reporting units. The Company determined upon its quantitative impairment assessment to recognize a $37.9 million non-cash goodwill impairment charge for the Services & Support reporting unit. There were no goodwill impairments recognized during the year ended December 31, 2022. See Note 8 of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this report for additional information. Interest and Dividend Income Interest and dividend income increased by 30.7% from $2.3 million for the year ended December 31, 2023 to $3.1 million for the year ended December 31, 2024. The increase in interest and dividend income is primarily attributable to fluctuations in investment balances and an increase in the rate of return on those investments due to interest rate movements. Interest Expense Interest expense increased from $16.3 million for the year ended December 31, 2023 to $22.1 million for the year ended December 31, 2024. The increase in interest expense was primarily driven by higher amortization of debt issuance costs, as well as higher interest rates associated with the amendments of the Credit Agreement and higher average borrowings outstanding versus the twelve months ending December 31, 2023. See Note 11 of the Notes to Consolidated Financial Statements, included in Part II, Item 8 of this report and “Financing Activities” in “Liquidity and Capital Resources” below. Net Investment Gain (Loss) We recognized a net investment gain of $2.8 million and a gain of $3.6 million for the years ended December 31, 2023 and 2024, respectively. The fluctuations in our net investments were primarily attributable to market driven changes in the fair value of our securities recognized during the period. We expect that any future market volatility could result in continued fluctuations in our investment portfolio. See “Investing Activities” in “Liquidity and Capital Resources” of this report and Note 1 and Note 4 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this report for additional information. Other Income, net Other income, net, which primarily consisted of gains and losses on foreign currency transactions and income from excess material sales, decreased from income of $1.3 million for the year ended December 31, 2023 to income of $0.2 million for the year ended December 31, 2024. See Note 10 of Notes to Consolidated Financial Statements included in Part II, Item 8 of the report for additional information on foreign exchange contracts. Income Tax (Expense) Benefit Our effective tax rate changed from an expense of 12.2%, for the year ended December 31, 2023 to an expense of 2.0% for the year ended December 31, 2024. The change in the effective tax rate for the year ended December 31, 2024, was driven primarily by non-deductible impairment charges and changes in our valuation allowance. See Note 12 of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this report for additional information. 53 Net Loss Attributable to ADTRAN Holdings, Inc. As a result of the above factors, our net loss attributable to ADTRAN Holdings, Inc. increased from $266.3 million for the year ended December 31, 2023 to a net loss of $450.9 million for the year ended December 31, 2024. As a percentage of revenue, net loss was 23.2% for the year ended December 31, 2023 and net loss was 48.9% for the year ended December 31, 2024. Liquidity and Capital Resources Liquidity We have historically financed our ongoing business with existing cash, investments and cash flow from operations; however, we have increasingly relied upon our credit arrangements to manage our working capital needs. We had a positive cash flow from operating activities of $103.1 million in the twelve months ended December 31, 2024. We have used, and expect to continue to use, existing cash, credit arrangements and cash generated from operations for working capital and other general corporate purposes, including product development activities to enhance our existing products and develop new products, expand our sales and marketing activities and fund capital expenditures. As of December 31, 2024, our cash on hand was $77.6 million of which $54.2 million was held by our foreign subsidiaries. The Company had access to $180.8 million on its Credit Facility for future borrowings; however, as of December 31, 2024, the Company was limited to additional borrowings of $56.1 million based on debt covenant compliance metrics. Generally, we intend to permanently reinvest funds held outside the U.S., except to the extent that any of these funds can be repatriated without withholding tax. As of December 31, 2023, our cash on hand was $87.2 million, of which $73.0 million was held by our foreign subsidiaries. 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 Company’s payment obligation in satisfaction of the requirement that it absorb Adtran Networks’ annual net loss applied for the first time to the net loss generated in 2023. Pursuant to the terms of the DPLTA, each Adtran Networks shareholder (other than the Company) has received an offer to elect either (1) to remain an Adtran Networks shareholder and receive from us an Annual Recurring Compensation payment, or (2) to receive Exit Compensation plus guaranteed interest. The guaranteed interest under the Exit Compensation is calculated from the effective date of the DPLTA to the date the shares are tendered, less any Annual Recurring Compensation paid. The guaranteed interest rate is 5.0% plus a variable component (according to the German Civil Code) that was 3.37% as of December 31, 2024. Assuming all the minority holders of currently outstanding Adtran Networks shares were to elect the second option, we would be obligated to make aggregate Exit Compensation payments, including guaranteed interest, of approximately €333.2 million or approximately $344.9 million, based on an exchange rate as of December 31, 2024 and reflecting interest accrued through December 31, 2024 during the pendency of the appraisal proceedings discussed below. Shareholders electing the first option of Annual Recurring Compensation may later elect the second option. 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 ). The Company expects to receive a procedural decision during 2025 that will likely be appealed. The date of a decision by the court on the merits of the case is uncertain, but it is unlikely that such decision will be rendered in 2025. Thereafter an expected appeal process will take a further 12-24 months to resolve. 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 $9.3 million (based on the current exchange rate) per year assuming none of the minority Adtran Networks shareholders were to elect Exit Compensation. The foregoing amounts do not reflect any potential increase in payment obligations that we may have depending on the outcome of ongoing appraisal proceedings in Germany. The 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; therefore, the Annual Recurring Compensation was paid on July 3, 2024. With respect to the 2024 fiscal year, Adtran Networks’ ordinary general shareholder meeting is scheduled for June 27, 2025, and therefore, the Annual Recurring Compensation will be due on July 2, 2025. During the twelve months ended December 31, 2024 and 2023, we accrued $9.8 million and $10.1 million, respectively, in Annual Recurring Compensation which is reflected as an increase to retained deficit. 54 On July 18, 2022, ADTRAN, Inc., as the borrower, and ADTRAN Holdings, Inc. entered into a credit agreement with a syndicate of banks, including Wells Fargo Bank, National Association, as administrative agent (“Administrative Agent”), and the other lenders named therein (the “Credit Agreement”), which has since been amended four times. The Company had access to $180.8 million on its Credit Facility for future borrowings; however, as of December 31, 2024, the Company was limited to additional borrowings of $56.1 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 5.00x, a Consolidated Senior Secured Net Leverage Ratio of 3.25x(or 4.0x to 3.5x during a Springing Covenant Period), and a Consolidated Fixed Charge Coverage Ratio of 1.25x. As of December 31, 2024, and as of the date of issuance of these financial statements, the Company does not have sufficient liquidity to meet the substantial majority of its payment obligations under the DPLTA pertaining to Exit Compensation. For the year ended December 31, 2024, approximately 831 thousand shares 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 exchange rates at the time of the transactions, being paid to Adtran Networks shareholders. For the year ended December 31, 2023, a total of 67 thousand shares of Adtran Networks stock was tendered to the Company and Exit Compensation payments of approximately €1.2 million or approximately $1.3 million based on an exchange rate as of December 31, 2023, were paid to Adtran Networks shareholders. 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 shareholders can exercise their right to receive the Exit Compensation until two months after publication of the final decision in the appraisal proceedings and we do not expect the publication of the final decision for at least another 12 months; (ii) the diverse base of shareholders that must make this election on an individual shareholder basis; (iii) the fact that the Company expects to receive a procedural decision during 2025 that will likely be appealed and, while the date of a decision by the court on the merits of the case is uncertain, it is unlikely that such decision will be rendered in 2025 and an expected appeal process will take a further 12-24 months to resolve; (iv) the current guaranteed Annual Recurring Compensation payment; and (v) the current trading value of Adtran Networks shares. The Company experienced revenue declines in 2024. However, customers have started to replenish their inventories to meet increasing demand and we expect orders and billings to steadily increase in 2025. The Company is implementing plans to preserve cash liquidity to maintain compliance with the Company’s covenants in case of further we are impacted by customer inventory reduction initiatives and uncertain macroeconomic conditions. Additionally, the Company suspended dividend payments and effectuated a Business Efficiency Program. The Business Efficiency Program was substantially completed as of December 31, 2024, other than the Company's aim of selling its headquarters. The Company has determined that it is probable that the sale of our headquarters in Huntsville will occur within the next twelve months after December 31, 2024. We expect to use the proceeds of the sale to repay indebtedness. We may need to further reduce capital expenditure and/or take other steps to preserve working capital in order to ensure that we can meet our needs and obligations and maintain compliance with our debt covenants. In summary, the Company believes that its cash and cash equivalents, investments, working capital management initiatives and availability to access cash under the Wells Fargo Credit Facility (described below), will be adequate to meet our business operating requirements, our capital expenditures and our expected obligations under the DPLTA, including anticipated levels of Exit Compensation and ability to continue to comply with our debt covenants under the Credit Facility for at least the next twelve months, from the issuance of these Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K . See Note 11 of Notes to Consolidated Financial Statements included in Part I, Item 8 of this report for additional information regarding the terms of the Wells Fargo Credit Agreement as amended. Wells Fargo Credit Facility On July 18, 2022, ADTRAN, Inc., as the borrower ("US Borrower"), and the Company entered into a credit agreement with a syndicate of banks, including Wells Fargo Bank, National Association, as administrative agent (“Administrative Agent”), and the other lenders named therein (as amended from time to time, the “Credit Agreement”). Initially, the Credit Agreement allowed for revolving credit borrowings of up to $400.0 million in aggregate principal amount ($100.0 million of which is, subject to the restrictive covenants described below, available to Adtran Networks as borrower pursuant to the Subline (as defined and further described below), as well as the $50.0 million delayed draw term loan facility described below. As of December 31, 2024, the aggregate principal amount was reduced to $374.0 million ($74.0 million of which is available to Adtran Networks as borrower pursuant to the Subline) due to a $26.0 million reduction on the Subline. The term of the delayed draw term loan facility expired on August 9, 2024. On August 9, 2023, ("First Amendment Effective Date") the Company and ADTRAN, Inc. entered into a First Amendment to Credit Agreement (“First Amendment”). 55 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”). The First Amendment provided that, 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 minority 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 December 31, 2024, Adtran’s borrowings under the revolving line of credit were $189.6 million, of which approximately $141.0 million were borrowed by ADTRAN, Inc. and $48.6 million were borrowed under the Subline by Adtran Networks. The credit facilities provided under the Credit Agreement mature in July 2027, but the US Borrower may request extensions subject to customary conditions. In addition, the US Borrower may utilize up to $50.0 million of the $374.0 million total revolving facility for the issuance of letters of credit. As of December 31, 2024, we had a total of $3.6 million in letters of credit under ADTRAN, Inc. outstanding under the Credit Agreement, leaving a net amount (after giving effect to the $189.6 million of outstanding borrowings described above) of $180.8 million available for future borrowings; however, as of December 31, 2024, the Company was limited to additional borrowings of $56.1 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 December 31, 2024, the Company was in compliance with all covenants. 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), 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). 56 “Base Rate” means the highest of (a) the federal funds rate (i.e., for any day, the rate per annum equal to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System, as published by the Federal Reserve Bank of New York on the business day next succeeding such day) plus ½ of 1.0%, (b) the prime commercial lending rate of the Administrative Agent, as established from time to time at its principal U.S. office (which such rate is an index or base rate and will not necessarily be its lowest or best rate charged to its customers or other banks), and (c) the daily Adjusted Term SOFR (as defined in the Credit Agreement) for a one-month tenor plus 1.0%. The Base Rate is subject to a floor of 1.00% per annum. “Adjusted Term SOFR” means Term SOFR for the applicable interest period plus 0.10% per annum. Adjusted Term SOFR is subject to a floor of 0.00% per annum. All euro borrowings under the revolving line of credit bear interest at a rate per annum equal to EURIBOR (as defined in the Credit Agreement and subject to a 0.00% per annum floor) plus an applicable margin ranging from 1.75% to 2.75% per annum based on the Company’s Consolidated Total Net Leverage Ratio (or, during the Covenant Relief Period, an applicable margin of 3.25% per annum). In addition, (x) if on or prior to December 31, 2024 we have not reduced the aggregate revolving credit commitment to $340.0 million or less, the applicable margin for all loans shall be increased by 1.00% per annum, and (y) if on or prior to June 30, 2025 we have not reduced the aggregate revolving credit commitment to $300.0 million or less, the applicable margin for all loans shall be increased by 1.00% per annum. In addition to paying interest on outstanding principal under the Credit Agreement, the Company is required to pay a quarterly commitment fee to the lenders under the Credit Agreement in respect of unutilized revolving loan commitments on the average daily unused portion of the revolving credit commitment of each lender, which commitment fee ranges from 0.20% to 0.25% per annum based on the Company’s Consolidated Total Net Leverage Ratio (or, during the 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 5.00x. • 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: 4.00x • Second fiscal quarter ending after a Springing Covenant Event: 3.75x • Third and fourth fiscal quarters ending after a Springing Covenant Event: 3.50x • 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 3.50x 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 3.25x . • As of the last day of any fiscal quarter, commencing with the fiscal quarter ended December 31, 2023, the Consolidated Fixed Charge Coverage Ratio may not exceed 1.25x. 57 • 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. Operating Activities Net cash provided by operating activities of $103.1 million during the year ended December 31, 2024 increased by $148.7 million compared to $45.6 million of net cash used in during the year ended December 31, 2023. The increase was primarily due to the declining net loss for the twelve months ended December 31, 2024 and 2023, excluding the goodwill impairment charge of $292.6 million, as adjusted primarily for decreased depreciation and amortization, decreased deferred taxes and increased net cash inflows from working capital. Additional details related to our working capital and its drivers are discussed below. Net accounts receivable decreased 17.8% from $216.4 million as of December 31, 2023 to $178.0 million as of December 31, 2024. There was an allowance for credit losses of $1.3 million and $0.4 million as of December 31, 2024 and December 31, 2023, respectively. The decrease in net accounts receivable was due primarily to a reduction in DSO. Quarterly accounts receivable DSO decreased from 88 days as of December 31, 2023 to 67 days as of December 31, 2024. The decrease in DSO was primarily driven by customer and geographical mix of commercial terms. Other receivables decreased 44.0% from $17.5 million as of December 31, 2023 to $9.8 million as of December 31, 2024. The decrease in other receivables was primarily attributable to a decrease in sales of raw materials. Annual inventory turnover decreased from 2.07 turns as of December 31, 2023 to 1.88 turns as of December 31, 2024. Inventory decreased 25.7% from $362.3 million as of December 31, 2023 to $269.3 million as of December 31, 2024. The decrease in inventory was primarily due to steps taken in with our Business Efficiency Program to improve working capital, a reduction in component purchases due to improved lead time, utilization of buffer stock and a $4.1 million write down of inventory due to a restructuring discontinuation of certain product lines within our Network Solutions segment. We expect inventory levels to fluctuate as we attempt to maintain sufficient inventory for customer demand and improve working capital. Accounts payable increased 4.6% from $162.9 million as of December 31, 2023 to $170.5 million as of December 31, 2024. The increase in accounts payable was primarily due to the timing of the receipt of inventory, supplies and services. Accounts payable will fluctuate due to variations in the timing of the receipt of inventory, supplies and services and our subsequent payments for these purchases. Investing Activities Capital expenditures, including intangibles totaled approximately $63.1 million and $43.1 million for the years ended December 31, 2024 and 2023, respectively. These expenditures were primarily used to purchase software, computer hardware, manufacturing and test equipment, building improvements and developed technologies. The increase in capital expenditures is primarily attributable to an increase in expenditures related to developed technology. 58 Our long-term investments increased 15.6% from $27.7 million as of December 31, 2023 to $32.1 million as of December 31, 2024. Our investments include various marketable equity securities classified as long-term investments with a fair market value of $1.1 million and $0.9 million, as of December 31, 2024 and 2023, respectively. Long-term investments as of December 31, 2024 and 2023 also included $31.0 million and $26.8 million, respectively, related to our deferred compensation plan. See Note 4 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this report for additional information. 59 Financing Activities Dividends During 2023 we paid stockholder dividends totaling $21.2 million. On November 6, 2023, the Board of Directors suspended the Company’s quarterly cash dividend in order to reduce debt and interest expense and support the Company's capital efficiency program. We consequently did not pay any dividends during the twelve months ended December 31, 2024. The payment of any future dividends will be at the discretion of the Board of Directors and will depend on the Company’s financial condition, results of operations, capital requirements, and any other factors deemed relevant by the Board of Directors; however, the Wells Fargo Credit Agreement currently does not allow for the payment of dividends to stockholders. For addition information, see Note 18 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this report and Liquidity & Capital Resources above . The following table shows dividends per common share paid to our stockholders in each quarter of 2024 and 2023: Dividends per Common Share 2024 2023 First Quarter $ - $ 0.09 Second Quarter $ - $ 0.09 Third Quarter $ - $ 0.09 Fourth Quarter $ - $ - Stock Repurchase Program The Company did not repurchase any stock during the years ended December 31, 2024 and 2023, and there currently is no authorized stock repurchase plan. Stock Option Exercises To accommodate employee stock option exercises, the Company issued 0.1 million and 23 thousand shares of common stock which resulted in proceeds of $0.8 million and $0.2 million during the years ended December 31, 2024 and 2023, respectively. Additionally, to accommodate Adtran Networks stock option exercises, Adtran Networks issued 0.1 million of Adtran Networks common stock which resulted in proceeds of $0.4 million, during the year ended December 31, 2023. No Adtran Networks stock options were exercised during the year ended December 31, 2024. Employee Pension Plan We maintain defined benefit pension plans covering employees in certain foreign countries. Pension benefit plan obligations are based on various assumptions used by our actuaries in calculating these amounts. These assumptions include discount rates, compensation rate increases, expected return on plan assets, retirement rates and mortality rates. Actual results that differ from the assumptions and changes in assumptions could affect future expenses and obligations. Details regarding the pension plans are set forth below. • In Germany, there are two defined benefit pension plans and two defined contribution plans. These plans provide benefits in the event of retirement, death or disability. The plan's benefits are based on age, years of service and salary. The defined benefit plans are financed by contributions paid by the Company and the defined contribution plans are financed by contributions paid by the participants. • In Switzerland, there are two defined benefit pension plans. Both plans provide benefits in the event of retirement, death or disability. The plan's benefits are based on age, years of service, salary and on a participant's old age account. The plans are financed by contributions paid by the participants and by the Company. • In Italy, the post-employment benefit plan is required due to statutory provisions. The plan is financed directly by the Company on a pay-as-you-go basis. Employees receive their pension payments as a function of salary, inflation and a notional account. • In Israel, there is a defined benefit plan that provides benefits in the event of a participant being dismissed involuntarily, retirement or death. The plan's benefits are based on the higher of the severance benefit required by law or the cash surrender value of the severance benefit component of any qualifying insurance policy or long-term employee benefit fund that is registered in the participant's name. The plan is financed by contributions paid by the Company. • In India, the post-employment benefit plan is required due to statutory provisions. The plan is financed directly by the Company on a pay-as-you-go basis. Our defined benefit plan assets consist of a balanced portfolio of equity funds, bond funds, emerging market funds, real estate funds and balanced funds. Our investment policy includes various guidelines and procedures designed to ensure assets are invested in a manner 60 necessary to meet expected future benefits earned by participants and consider a broad range of economic conditions. The objectives of our investment policy are to maintain investment portfolios that diversify risk through prudent asset allocation parameters, achieve asset returns that meet or exceed the plans’ actuarial assumptions and achieve asset returns that are competitive with like institutions employing similar investment strategies. The investment policy is periodically reviewed by us and a designated third-party fiduciary for investment matters. At December 31, 2024, the estimated fair market value of our defined benefit pension plans' assets decreased to $54.5 million from $55.2 million at December 31, 2023. The defined benefit pension plan is accounted for on an actuarial basis, which requires the use of various assumptions, including an expected rate of return on plan assets and a discount rate. The expected return on our German plan assets that is utilized in determining the benefit obligation and net periodic benefit cost is derived from periodic studies, which include a review of asset allocation strategies, anticipated future long-term performance of individual asset classes, risks using standard deviations and correlations of returns among the asset classes that comprise the plans' asset mix. While the studies give appropriate consideration to recent plan performance and historical returns, the assumptions are primarily long-term, prospective rates of return. The discount rate has been derived from the returns of high-quality, corporate bonds denominated in euro currency with durations close to the duration of our pension obligations. The projected benefit obligation for our defined benefit pension plans was $63.3 million and $67.9 million as of December 31, 2024 and 2023, respectively. The components of net periodic pension cost, other than the service cost component, are included in other income, net in the Consolidated Statements of Loss. The components of net periodic pension cost and amounts recognized in other comprehensive income (loss) for the years ended December 31, 2024 and 2023 were $0.3 million and ($3.9) million, respectively. Actuarial gains and losses are recorded in accumulated other comprehensive loss. To the extent unamortized gains and losses exceed 10% of the higher of the market-related value of assets or the projected benefit obligation, the excess is amortized as a component of net periodic pension cost over the remaining service period of active participants. We estimate that less than $0.1 million will be amortized from accumulated other comprehensive income into net periodic pension cost in 2025 for the net actuarial loss. The net actuarial loss recognized in accumulated other comprehensive loss as of December 31, 2024 and 2023 was $1.0 million and $2.5 million, respectively. See Note 14 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this report for additional information. Off-Balance Sheet Arrangements We have exposure to credit losses from off-balance sheet exposures used to provide various guarantees of performance such as bid bonds, performance bonds and customs bonds, where we believe the risk of loss is immaterial to our financial statements as of December 31, 2024. Otherwise, we do not have off-balance sheet financing arrangements and have not engaged in any related party transactions or arrangements with unconsolidated entities or other persons that are reasonably likely to materially affect liquidity or the availability of or requirements for capital resources. See Note 18 of the Notes to Consolidated Financial Statements, included in Part II, Item 8 of this report for additional information. Cash Requirements The following table summarizes the Company’s material short- and long-term cash requirements from known obligations pursuant to certain contracts and commitments as of December 31, 2024, as well as an estimate of the timing in which such obligations and payments are expected to be satisfied (but excluding payments that may be made pursuant to the DPLTA and currency hedging arrangements, which are discussed below). Other than operating lease obligations, the cash requirements table excludes interest payments. (In thousands) Total 2025 2026 2027 2028 2029 Thereafter Wells Fargo credit agreement (1) $ 189,576 $ — $ — $ 189,576 $ — $ — $ — Purchase obligations (2) 202,478 197,408 4,746 199 125 — — Operating lease obligations (3) 41,063 8,829 7,550 6,498 4,980 2,925 10,281 Totals $ 433,117 $ 206,237 $ 12,296 $ 196,273 $ 5,105 $ 2,925 $ 10,281 (1) See description below. (2) We have purchase obligations related to open purchase orders to our contract manufacturers, ODMs, component suppliers, service partners and other vendors. The settlement of our purchase obligations will occur at various dates beginning in 2025 and going through 2028. See Note 18 of the Notes to Consolidated Financial Statements, included in Part II, Item 8 of this report for more information. (3) We have operating leases for office space, automobiles and various other equipment in the U.S. and in certain international locations. Our operating leases had remaining lease terms ranging from 1 month to 167 months as of December 31, 2024. 61 Stock Repurchase Program There were no stock repurchases during the years ended December 31, 2024 and 2023, and there currently is no authorized stock repurchase plan. Wells Fargo Credit Agreement On July 18, 2022, ADTRAN Holdings, Inc. and ADTRAN, Inc., as the borrower, entered into the Credit Agreement with the Administrative Agent and the other lenders named therein. The Credit Agreement was subsequently amended on August 9, 2023, January 16, 2024, March 12, 2024, and June 4, 2024. As of December 31, 2024, ADTRAN, Inc.’s borrowings under the revolving line of credit were $189.6 million. The Credit Facility matures in July 2027; however, the Company has an option to request extensions subject to customary conditions. See Note 11 of the Notes to Consolidated Financial Statements, included in Part II, Item 8 of this report and “Liquidity and Capital Resources” in Part I, Item 2 of this report for additional information. Nord/LB Revolving Line of Credit On March 29, 2023, Adtran Networks entered into a $16.1 million unsecured revolving line of credit with Norddeutsche Landesbark - Girozentrale (Nord/LB) that bore interest of Euro Short Term Rate plus 1.94%. The line of credit had a perpetual term that could be terminated by the Company or Nord/LB at any time. As of December 31, 2023, Adtran Networks repaid the outstanding borrowings and terminated the Nord/LB Revolving Line of Credit. Prior Nord/LB Revolving Line of Credit On August 8, 2022, Adtran Networks entered into a $16.1 million revolving line of credit with Norddeutsche Landesbark - Girozentrale (Nord/LB) that bore interest of Euro Short Term Rate plus 1.4% and matured in August 2023. On January 31, 2023, the Company repaid the outstanding borrowings and terminated the Nord/LB revolving line of credit. Syndicated Credit Agreement Working Capital Line of Credit In September 2018, Adtran Networks entered into a syndicated credit agreement with Bayerische Landesbank and Deutsche Bank AG Branch German Business to borrow up to $10.7 million as part of a working capital line of credit. On January 31, 2023, the Company repaid the outstanding borrowings and terminated the syndicated credit agreement working capital line of credit. DZ Bank Revolving Line of Credit In the fourth quarter of 2022, Adtran Networks entered into a revolving line of credit with DZ Bank to borrow up to $9.1 million. Interest on the line of credit reset monthly based on renewal of the loan and was 2.8% at the time the loan was repaid. On March 12, 2023, the Company repaid the outstanding borrowings and terminated the DZ Bank revolving line of credit. Syndicated Credit Agreement Note Payable In September 2018, Adtran Networks entered into a syndicated credit agreement with Bayerische Landesbank and Deutsche Bank AG Branch German Business to borrow $63.7 million. On January 31, 2023, the Company repaid the outstanding borrowings and terminated the syndicated credit agreement note payable. Currency Hedging Arrangements On November 3, 2022, the Company entered into a euro/U.S. dollar forward contract arrangement (the "Initial Forward") with Wells Fargo Bank, N.A. (the “Hedge Counterparty”). The Initial Forward, which was 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, enabling 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 for 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 twelve months ended December 31, 2024, the Company settled four €20.0 million forward contract tranches. On March 21, 2023, the Company entered into a euro/U.S. dollar forward contract arrangement (the “Forward”) with the Hedge Counterparty. Under the Forward, which was 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 for U.S. dollars at an average rate of EUR/USD 1.085. During the twelve months ended December 31, 2024, the Company settled four $20.0 million forward contract tranches. As of December 31, 2024, both the Initial Forward and Forward have fully matured and are no longer outstanding. 62 Receivables Purchase Arrangements On July 1, 2024, the Company entered into 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 December 31, 2024, totaled $18.3 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 Consolidated Balance Sheets. The cost of the Factoring Agreement is included in interest expense in the Consolidated Statements of Loss and totaled $0.6 million for the year ended December 31, 2024. Costs of a previous receivables purchase agreement, which are included in interest expense in the Consolidated Statements of Loss totaled $0.9 million for the year ended December 31, 2023. Domination and Profit and Loss Transfer Agreement The DPLTA between the Company, as the controlling company, and Adtran Networks SE, as the controlled company, as executed on December 1, 2022, became effective on January 16, 2023, as a result of its registration with the commercial register ( Handelsregister ) of the local court ( Amtsgericht ) at the registered seat of Adtran Networks (Jena). Under the DPLTA, subject to certain limitations pursuant to applicable law and the specific terms of the DPLTA, (i) the Company is entitled to issue binding instructions to the management board of Adtran Networks, (ii) Adtran Networks will transfer its annual profit to the Company, subject to, among other things, the creation or dissolution of certain reserves, and (iii) the Company will generally absorb the annual net loss incurred by Adtran Networks. The Company’s payment obligation in satisfaction of the requirement that it absorb Adtran Networks’ annual net loss applied for the first time to the net loss generated in 2023. Pursuant to the terms of the DPLTA, each Adtran Networks shareholder (other than the Company) has received an offer to elect either (1) to remain an Adtran Networks shareholder and receive from us an Annual Recurring Compensation payment, or (2) to receive Exit Compensation plus guaranteed interest. The guaranteed interest under the Exit Compensation is calculated from the effective date of the DPLTA to the date the shares are tendered, less any Annual Recurring Compensation paid. The guaranteed interest rate is 5.0% plus a variable component (according to the German Civil Code) that was 3.37% as of December 31, 2024. Assuming all the minority holders of currently outstanding Adtran Networks shares were to elect the second option, we would be obligated to make aggregate Exit Compensation payments, including guaranteed interest, of approximately €333.2 million or approximately $344.9 million, based on an exchange rate as of December 31, 2024 and reflecting interest accrued through December 31, 2024 during the pendency of the appraisal proceedings discussed below. Shareholders electing the first option of Annual Recurring Compensation may later elect the second option. 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 ). The Company expects to receive a procedural decision during 2025 that will likely be appealed. The date of a decision by the court on the merits of the case is uncertain, but it is unlikely that such decision will be rendered in 2025. Thereafter an expected appeal process will take a further 12-24 months to resolve. 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 $9.3 million (based on the current exchange rate) per year assuming none of the minority Adtran Networks shareholders were to elect Exit Compensation. The foregoing amounts do not reflect any potential increase in payment obligations that we may have depending on the outcome of ongoing appraisal proceedings in Germany. The 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. With respect to the 2024 fiscal year, Adtran Networks’ ordinary general shareholder meeting is scheduled for June 27, 2025, and therefore, the Annual Recurring Compensation will be due on July 2, 2025. During the year ended December 31, 2024 and 2023, we accrued $9.8 million and $10.1 million, respectively, in Annual Recurring Compensation. The Annual Recurring Compensation is reflected as an increase to retained deficit in the 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 year ended December 31, 2024, approximately 831 thousand shares 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 exchange rates at the time of the transactions, being paid to Adtran Networks shareholders. For the year ended December 31, 2023, a total of 67 thousand shares of Adtran Networks stock was tendered to the Company and Exit Compensation payments of approximately €1.2 million or approximately $1.3 million based on an exchange rate as of December 31, 2023, were paid to Adtran Networks shareholders. We currently hold 34,856,559 no-par value bearer shares of Adtran Networks, representing 67.0% of Adtran Networks outstanding shares as of February 27, 2025. 63 The foregoing description of the DPLTA does not purport to be complete and is qualified in its entirety by reference to the DPLTA, a non-binding English translation of which incorporated by reference to Exhibit 10.5 of this Annual Report on Form 10-K. Business Efficiency Program During the fourth quarter of 2023, the Company initiated a Business Efficiency 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 Business Efficiency Program included expenses specifically associated with achieving run-rate synergies as well as Business Efficiency Program expenses described below. Other than the Company's stated air of selling its headquarters, the Business Efficiency Program was substantially complete as of December 31, 2024. See Note 20 of the Notes to Consolidated Financial Statements, included in Part II, Item 8 of this report for additional information. During the years ended December 31, 2024 and 2023, we recognized $44.7 million and $25.1 million of costs relating to the Business Efficiency Program, respectively. Future cash payments include severance costs, outplacement fees and site consolidation that are anticipated to be approximately $10.3 million. Business Combination Integration Costs During the years ended December 31, 2024 and 2023, we recognized $1.9 million and $4.9 million of integration costs related to the Business Combination, respectively, that are included in selling, general and administrative expenses, research & development expenses and cost of revenue in the Condensed Consolidated Statement of Loss. Other Cash Requirements During the year ended December 31, 2024, other than the Exit Compensation payments, Annual Recurring Compensation under the DPLTA, restructuring costs and increased debt service costs, there have been no other material changes in cash requirements from those discussed in the 2023 Form 10-K and our cash requirements table shown in Liquidity and Capital Resources above. 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 December 31, 2024 and 2023, we had commitments related to these bonds totaling $15.7 million and $10.8 million, respectively, which expire at various dates through April 2029. 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. 64 Critical Accounting Policies and Estimates An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made if different estimates reasonably could have been used or if changes in the accounting estimate that are reasonably likely to occur could materially impact the results of financial operations. Several accounting policies, as described in Note 1 of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this report, require material subjective or complex judgment and have a significant impact on our financial condition and results of operations, as applicable. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our Consolidated Financial Statements: Revenue Revenue is measured based on the consideration expected to be received in exchange for transferring goods or providing services to a customer and as performance obligations under the terms of the contract are satisfied. Generally, this occurs with the transfer of control of a product to the customer. For transactions where there are multiple performance obligations, individual products and services are accounted for separately if they are distinct (if a product or service is separately identifiable from other items and if a customer can benefit from it on its own or with other resources that are readily available to the customer). The consideration, including any discounts, is allocated between separate products and services based on their stand-alone selling prices. Stand-alone selling prices are determined based on the prices at which the separate products and services are sold and are allocated based on each item’s relative value to the total value of the products and services in the arrangement. For items that are not sold separately, we estimate stand-alone selling prices primarily using the “expected cost plus a margin” approach. Payment terms are generally 30 days in the U.S. and typically longer in many geographic markets outside the U.S. Shipping fees collected are recorded as revenue and the related cost is included in cost of revenue. Revenue, value-added and other taxes collected concurrently with revenue-producing activities are excluded from revenue. Incremental costs of obtaining a contract, that are recoverable, are capitalized and amortized over the period that the related revenue is recognized if greater than one year. We have elected to account for shipping fees paid as a cost of fulfilling the related contract. We have also elected to apply the practical expedient related to the incremental costs of obtaining contracts and recognize those costs as an expense when incurred if the amortization period of the assets is one year or less. These costs are included in selling, general and administrative expenses. Capitalized costs with an amortization period greater than one year were immaterial. Revenue is generated by two reportable segments: Network Solutions and Services & Support. Network Solutions Segment - Includes hardware products and software defined next-generation virtualized solutions used in Service Provider or business networks, as well as prior generation products. The majority of the revenue from this segment is from hardware revenue. Hardware and Software Revenue Revenue from hardware sales is recognized when control is transferred to the customer, which is generally when the products are shipped. Shipping terms are generally FOB shipping point. Revenue from software license sales is recognized at delivery and transfer of control to the customer. Revenue is recorded net of estimated discounts and rebates using historical trends. Customers are typically invoiced when control is transferred and revenue is recognized. Our products generally include assurance-based warranties of 90 days to five years for product defects, which are accrued at the time products are delivered. Services & Support Segment - Includes a complete portfolio of maintenance, network implementation and solutions integration and managed services, which include hosted cloud services and subscription services to complement our Network Solutions segment. Maintenance Revenue Our maintenance service periods range from one month to five years. Customers are typically invoiced and pay for maintenance services at the beginning of the maintenance period. We recognize revenue for maintenance services on a straight-line basis over the maintenance period as our customers benefit evenly throughout the contract term and deferred revenue, when applicable, is recorded in unearned revenue and non-current unearned revenue. The total balance of our unearned revenue was $74.8 million and $71.8 million as of December 31, 2024 and 2023, respectively. Network Implementation Revenue We recognize revenue for network implementation, which primarily consists of engineering, execution and enablement services at a point in time when each performance obligation is complete. If we have recognized revenue but have not billed the customer, the right to consideration is recognized as a contract asset that is included in other receivables on the Consolidated Balance Sheets. The contract asset is transferred to accounts receivable when the completed performance obligation is invoiced to the customer. 65 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 Consolidated Balance Sheets and cash received is reflected as cash flows provided by (used in) operating activities in the Consolidated Statements of Cash Flow. Factoring related interest expense is recorded to interest expense on the 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 Consolidated Balance Sheets. Previous Receivables Purchase Agreement On December 19, 2023, the Company entered into a factoring agreement with a third-party financial institution to sell, on a revolving basis, undivided interests in the Company’s accounts receivable. The 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 . The receivables factored were carried in accounts receivable, less allowance for credit losses on the Consolidated Balance Sheets, the secured borrowings were carried on the Company’s Consolidated Balance Sheets as a current liability, in accounts payable, proceeds and repayments of the secured borrowings are reflected as cash flows (used in) provided by financing activities in the Consolidated Statements of Cash Flows and program fees are recorded in interest expense in the Company’s 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. The receivables purchase agreement was terminated on July 1, 2024 and there were no secured borrowings under this agreement as of December 31, 2024. See Note 2 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this report for additional information. Inventory We carry our inventory at the lower of cost and net realizable value, with cost being determined using the first-in, first-out method. Standard costs for material, labor, and manufacturing overhead are used to value inventory and are updated at least quarterly. Most variances are expensed in the current period; therefore, our inventory costs approximate actual costs at the end of each reporting period. We establish reserves 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 consider historical usage, known trends, inventory age and market conditions. If actual trends and market conditions are less favorable than those projected by management, we may be required to make additional inventory write-downs. Stock-Based Compensation For purposes of determining the estimated fair value of market-based PSU awards on the date of grant, the Monte Carlo Simulation valuation method is used. These PSUs are subject to a market condition based on the relative total stockholder return of Adtran against all of the companies in the NASDAQ Telecommunications Index and vest at the end of a three-year performance period. The fair value of performance-based PSUs, RSUs and restricted stock is equal to the closing price of our stock on the business day immediately preceding the grant date. Compensation expense related to unvested performance-based PSUs is recognized over the requisite service period of two to three years as the achievement of the performance obligation becomes probable. For purposes of determining the estimated fair value of our stock option awards on the date of grant, we use the Black-Scholes Model. This model requires the input of certain assumptions that require subjective judgment. These assumptions include, but are not limited to, expected stock price volatility over the term of the awards and actual and projected employee stock option exercise behaviors. Because our stock option awards have characteristics significantly different from those of traded options, and because changes in the input assumptions can materially affect the fair value estimate, the existing model may not provide a reliable, single measure of the fair value of our stock option awards. Management will continue to assess the assumptions and methodologies used to calculate the estimated fair value of stock-based compensation. Circumstances may change and additional data may become available over time, which could result in changes to these assumptions and methodologies and thereby materially impact our fair value determination. If factors change in future periods, the compensation expense that we record may differ significantly from what we have recorded in the current period. As of December 31, 2024, total unrecognized compensation expense related to the non-vested portion of market-based PSUs, RSUs and restricted stock was approximately $10.7 million. 66 Pursuant to the Business Combination, which closed on July 15, 2022, Adtran Networks stock option holders were entitled to have their Adtran Networks stock options assumed by ADTRAN Holdings (applying the exchange ratio in the Business Combination Agreement), thereafter representing options to acquire stock of ADTRAN Holdings. The maximum number of shares of ADTRAN Holdings stock potentially issuable upon such assumption was 2.3 million shares. The period in which such options could be assumed ended July 22, 2022. A total of 2.1 million shares of ADTRAN Holdings stock were subject to assumed Adtran Networks options. The determination of the fair value of stock options assumed by ADTRAN Holdings was estimated using the Monte Carlo method and is affected by its stock price, as well as assumptions regarding a number of complex and subjective variables that may have a significant impact on the fair value estimate. The stock option pricing model requires the use of several assumptions that impact the fair value estimate. These variables include, but are not limited to, the volatility of the Company's stock price and employee exercise behaviors. As of December 31, 2024, total unrecognized compensation expense related to the non-vested portion of stock options was approximately $3.2 million. Assets Held for Sale An asset is considered to be held for sale when all the following criteria are met: (i) management commits to a plan to sell the asset; (ii) the asset is available for immediate sale in its present condition; (iii) actions required to complete the sale of the asset have been initiated; (iv) sale of the asset is probable and the completed sale is expected to occur within one year; (v) it is unlikely that the disposal plan will be significantly modified; and (vi) the asset is actively being marketed for sale at a price that is reasonable given its current market value. The Company records assets held for sale at the lower of their carrying value or fair value. The total carrying value of assets held for sale was $11.9 million as of December 31, 2024 and is separately recorded on the balance sheet. Goodwill Goodwill represents the excess purchase price over the fair value of net assets acquired. The Company’s annual impairment assessment is done at the reporting unit level, which we determined are generally the same as our operating segments, which are identified in Note 16 to the Consolidated Financial Statements. We review goodwill for impairment annually during the fourth quarter and also test for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of our reporting units below their carrying amount. Such events and circumstances may include among others: a significant adverse change in legal factors or in the general business climate; significant decline in our stock price and market capitalization; unanticipated competition; the testing for recoverability of a significant asset within the reporting unit; and an adverse action or assessment by a regulator. Any adverse change in these factors could have a significant impact on the recoverability of goodwill and could have a material impact on our consolidated financial statements. 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 approach. 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. The Company’s annual impairment test date is October 1, 2024. Based on our analysis, management concluded that there was no impairment of goodwill as of that date. Between the annual impairment date of October 1, 2024 and year-end December 31, 2024, there were no additional triggering events. During 2023, the Company experienced decreased market capitalization and long-term projections. Therefore, an interim impairment test over goodwill was performed as of September 30, 2023. The Company determined the fair value of each reporting unit using a combination of an income approach and a market approach. Management’s 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. It was determined that the decreases in projected future cash flows, discount rates, overall macroeconomic conditions, as well as the decrease in our market capitalization applied in the valuation, were required to align with market-based assumptions and company-specific risk, which resulted in lower fair values of the Services & Support reporting unit. As a result of the interim assessment, the Company recorded a goodwill impairment charge of $37.9 million as its estimated fair value was less than its book value on that date. No other goodwill impairment charges were recorded during 2023. No goodwill impairment charge was recorded in 2022 as a result of the Company’s internal assessment. The balance of our goodwill was $52.9 million and $353.4 million as of December 31, 2024 and 2023, respectively. 67 Intangible Assets Purchased intangible assets with finite lives are carried at cost less accumulated amortization. Amortization is recorded over the estimated useful lives of the respective assets. The balance of our intangible assets was $306.1 million and $337.4 million as of December 31, 2024 and 2023, respectively. Impairment of Long-Lived Assets and Intangibles Long-lived assets, such as property, plant and equipment, right of use lease assets and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset or asset group. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset or asset group. During the first quarter of 2024, factors triggered a quantitative impairment assessment for the Network Solutions asset group. The long-lived assets associated with the Network Solutions asset group was $358.6 million as of December 31, 2024 There were no impairment losses for long-lived assets and intangible assets during the years ended December 31, 2024, 2023 and 2022. Income Taxes We estimate our income tax provision or benefit in each of the jurisdictions in which we operate, including estimating exposures related to examinations by taxing authorities. We also make judgments regarding the realization of deferred tax assets and establish valuation allowances where we believe it is more likely than not that future taxable income in certain jurisdictions will be insufficient to realize these deferred tax assets. Our estimates regarding future taxable income and income tax provision or benefit may vary due to changes in market conditions, changes in tax laws, or other factors. If our assumptions, and consequently our estimates, change in the future, the valuation allowances we have established may be increased or decreased, impacting future income tax expense. We continually review the adequacy of our valuation allowance and recognize the benefits of deferred tax assets only as the reassessment indicates that it is more likely than not that the deferred tax assets will be realized in accordance with ASC 740, Income Taxes. During the fourth quarter of 2023, after considering all quantitative and qualitative evidence, including our cumulative loss position, we have determined that the negative evidence outweighs the positive evidence and have concluded that it is not more likely than not that our U.S. federal and certain other state deferred tax assets were realizable for one of the consolidated filing groups. As a result, we recorded a valuation allowance against those assets and continue to maintain the valuation allowance through 2024. Additional valuation allowance was recorded against certain deferred tax assets on our foreign entities as not more likely than not realizable. However, the amount of deferred tax assets considered realizable could be adjusted and valuation allowance released in future periods in the event that sufficient positive evidence is present to support a conclusion that it is more likely than not that all or a portion of our domestic and foreign deferred tax assets will be realized. In determining whether an uncertain tax position exists, the Company determines, based solely on its technical merits, whether the tax position is more likely than not to be sustained upon examination, and if so, a tax benefit is measured on a cumulative probability basis that is more likely than not to be realized upon the ultimate settlement. The Company recognizes interest and penalties related to unrecognized tax benefits through interest expense and income tax expense, respectively. Pension Benefit Plan Obligations Pension benefit plan obligations are based on various assumptions used by our actuaries in calculating these amounts. These assumptions include discount rates, compensation rate increases, expected return on plan assets, retirement rates and mortality rates. Actual results that differ from the assumptions and changes in assumptions could affect future expenses and obligations. Our net pension liability totaled $8.8 million and $12.7 million at December 31, 2024 and December 31, 2023, respectively. This liability is included in non-current pension liability, accrued wages and benefits and other non-current assets in the accompanying Consolidated Balance Sheets. Lease Obligations We have operating leases for office space, automobiles and various other equipment in the U.S. and in certain international locations. Other contracts, such as manufacturing agreements and service agreements, are reviewed to determine if they contain potential embedded leases. These other contracts are specifically reviewed to determine whether we have the right to substantially all of the economic benefit from the use of any specified assets or the right to direct the use of any specified assets, either of which would indicate the existence of a lease. Some of our leases include options to renew. For those leases that are reasonably assured to be renewed, we have included the option to extend as part of our right of use asset and lease liability. The exercise of lease renewal options is at our sole discretion. The depreciable life of leased assets and leasehold improvements are limited by the expected lease term. Leases with an initial term of 12 months or less are not recorded on the balance sheet and lease expense for these leases is recognized on a straight-line basis over the 68 lease term. For lease agreements entered into or reassessed after the adoption of Topic 842, we elected to not separate lease and non-lease components. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. Business Combinations The Company records assets acquired, liabilities assumed, contractual contingencies, when applicable, and intangible assets recognized as part of business combinations based on their fair values on the date of acquisition subject to purchase accounting adjustments. The excess of the purchase price over the estimated fair values of the net tangible and intangible assets and liabilities assumed or acquired is recorded as goodwill. If the estimated fair values of net tangible and intangible assets acquired and liabilities assumed exceed the purchase price, a bargain purchase gain is recorded. The Company’s estimates of fair value are based on historical experience, industry knowledge, certain information obtained from the management of the acquired company and, in some cases, valuations performed by independent third-party firms. The results of operations of acquired companies are included in the accompanying Consolidated Statements of Loss since their dates of acquisition. Costs incurred to complete the Business Combination, such as legal, accounting or other professional fees, are charged to selling, general and administrative expenses as incurred. Recently Issued Accounting Pronouncements For a discussion of recently issued accounting pronouncements, see Note 1 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this report for additional information. 69 ITEM 7A. QUANTITATIVE AND QUALITA TIVE DISCLOSURES ABOUT MARKET RISK We are exposed to financial market risks, including changes in foreign currency rates, prices of marketable equity and fixed-income securities. In addition, the ongoing global pandemic raises the possibility of an extended economic downturn and has caused volatility in financial markets. The primary objective of the large majority of our investment activities is to preserve principal while at the same time achieve appropriate yields without significantly increasing risk. To achieve this objective, a majority of our marketable securities are investment grade, fixed-rate bonds and municipal money market instruments denominated in U.S. dollars. Our investment policy provides limitations for issuer concentration, by restricting, at the time of purchase, the concentration in any one issuer to 5% of the market value of our total investment portfolio. We maintain depository investments with certain financial institutions. As of December 31, 2024, $74.0 million of our cash and cash equivalents, primarily foreign depository accounts, were in excess of government provided insured depository limits. Although these depository investments exceed government insured depository limits, we have evaluated the credit worthiness of these financial institutions and determined the risk of material financial loss due to exposure of such credit risk to be minimal. Interest Rate Risk As of December 31, 2024, approximately $5.9 million of our cash and investments may be directly affected by changes in interest rates. As of December 31, 2024, we held $5.9 million of cash and variable-rate investments where a change in interest rates would impact our interest income. A hypothetical 50 basis point decline in interest rates as of December 31, 2024, assuming all other variables remain constant, would reduce annualized interest income on our cash and investments by less than $0.1 million. As of December 31, 2024, the carrying amounts of our revolving credit agreements totaled $189.6 million where a change in interest rates would impact our interest expense. A hypothetical 50 basis point increase in interest rates as of December 31, 2024, assuming all other variables remain constant, would increase our interest expense by $1.0 million. The analyses cover our debt and investments. The analyses use actual or approximate maturities for the debt and investments. The discount rates used were based on the market interest rates in effect at December 31, 2024. As of December 31, 2024 we have not entered into any derivative instruments to hedge the impact of the changes in variable interest rates under our revolving credit agreements. Foreign Currency Exchange Rate Risk We are exposed to changes in foreign currency exchange rates to the extent that such changes affect our revenue and gross margin on revenue derived from some international customers, operating expenses, and assets and liabilities held in non-functional currencies related to our foreign subsidiaries. Our primary exposures to foreign currency exchange rate movements are with the euro and the British pound. Our revenue is primarily denominated in the respective functional currency of the subsidiary and paid in that subsidiary's functional currency or certain other local currency. The majority of our global supply chain predominately makes payments in U.S. dollars and some of our operating expenses are paid in certain local currencies (approximately 45.2% of total operating expense for the year ended December 31, 2024, respectively). Therefore, our revenue, gross margins, operating expenses and operating loss are all subject to foreign currency fluctuations. As a result, changes in currency exchange rates could cause variations in our operating loss. A hypothetical 10% movement in foreign exchange rates would result in a before-tax positive or negative impact of approximately $7.1 million for the year ended December 31, 2024. Actual future gains and losses associated with our foreign currency exposures and positions may differ materially from the sensitivity analyses performed as of December 31, 2024 due to the inherent limitations associated with predicting the foreign currency exchange rates, and our actual exposures and positions. We have certain customers and suppliers who are invoiced or pay in a non-functional currency. Changes in the monetary exchange rates used to invoice such customers versus the functional currency of the entity billing such customers may adversely affect our results of operations and financial condition. To manage the volatility relating to these typical business exposures, we may enter into various derivative transactions, when appropriate. We do not hold or issue derivative instruments for trading or other speculative purposes. All non-functional currencies billed would result in a combined hypothetical gain or loss of $7.4 million if the U.S. dollar weakened or strengthened 10% against the billing currencies. All non-functional currencies invoiced by suppliers would result in a combined hypothetical gain or loss of $7.1 million if the U.S. dollar weakened or strengthened 10% against the billing currencies. This change represents an increase in the amount of hypothetical gain or loss compared to prior periods and is mainly due to an increase in U.S. dollar denominated billings in a non-U.S. dollar denominated subsidiary. As of December 31, 2024, we had certain material contracts subject to currency revaluation, including accounts receivable, accounts payable and lease liabilities denominated in foreign currencies. As of December 31, 2024, we had 39 forward contracts outstanding with a fair value of $0.6 million. The objective of these foreign currency forward contracts is to reduce the impact of currency exchange rate movements on our operating results by offsetting gains and losses on the forward contracts with increases or decreases in foreign currency transactions. We do not use foreign currency contracts for speculative or trading purposes. Hedging of our currency exposures may not always be effective to protect us against currency exchange rate fluctuations. See Note 10 of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this report. 70 On November 3, 2022, the Company entered into a euro/U.S. dollar forward contract arrangement (the "Initial Forward") with Wells Fargo Bank, N.A. (the “Hedge Counterparty”). The Initial Forward, which was 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, enabling 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 for 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 twelve months ended December 31, 2024, the Company settled four €20.0 million forward contract tranches. On March 21, 2023, the Company entered into a euro/U.S. dollar forward contract arrangement (the “Forward”) with the Hedge Counterparty. Under the Forward, which was 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 for U.S. dollars at an average rate of EUR/USD 1.085. During the twelve months ended December 31, 2024, the Company settled four $20.0 million forward contract tranches. As of December 31, 2024, both the Initial Forward and Forward have fully matured and are no longer outstanding. For further information about the fair value of our investments as of December 31, 2024, see Note 10 of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this report. 71 ITEM 8. FINANCIAL STATEME NTS AND SUPPLEMENTARY DATA The following consolidated financial statements are contained in this report. Page Report of Independent Registered Public Accounting Firm Financial Statements 76 Consolidated Balance Sheets, As of December 31, 2024 and 2023 76 Consolidated Statements of Loss, Years Ended December 31, 2024, 2023 and 2022 77 Consolidated Statements of Comprehensive (Loss) Income, Years Ended December 31, 2024, 2023 and 2022 78 Consolidated Statements of Changes in Equity, Years Ended December 31, 2024, 2023 and 2022 79 Consolidated Statements of Cash Flows, Years Ended December 31, 2024, 2023 and 2022 80 Schedule II - Valuation and Qualifying Accounts, Years Ended December 31, 2024, 2023 and 2022 133 PricewaterhouseCoopers LLP ; PCAOB Firm ID: 238 ; Birmingham, Alabama 72 Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of ADTRAN Holdings, Inc. Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of ADTRAN Holdings, Inc. and its subsidiaries (the "Company") as of December 31, 2024 and 2023, and the related consolidated statements of loss, of comprehensive (loss) income, of changes in equity and of cash flows for each of the three years in the period ended December 31, 2024, including the related notes and financial statement schedule listed in the accompanying index (collectively referred to as the "consolidated financial statements"). We also have audited the Company's internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO because material weaknesses in internal control over financial reporting existed as of that date related to the Company not (i) designing and maintaining effective controls in response to the risks of material misstatement; (ii) designing and maintaining effective controls over financial statement preparation, presentation and disclosure commensurate with its financial reporting requirements; and (iii) designing and maintaining effective controls to address the initial application of complex accounting standards and accounting of non-routine, unusual or complex events and transactions. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses referred to above are described in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. We considered these material weaknesses in determining the nature, timing, and extent of audit tests applied in our audit of the 2024 consolidated financial statements, and our opinion regarding the effectiveness of the Company’s internal control over financial reporting does not affect our opinion on those consolidated financial statements. Basis for Opinions The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in management's report referred to above. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in 73 accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Valuation of Inventory – Estimate of Certain Excess and Obsolete Reserves As described in Notes 1 and 5 to the consolidated financial statements, the Company’s consolidated net inventory as of December 31, 2024 was $269.3 million, of which certain inventory is subject to certain excess and obsolete reserves. Management establishes reserves 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 consider historical usage, known trends, inventory age, and market conditions. The principal considerations for our determination that performing procedures relating to the valuation of inventory – estimate of certain excess and obsolete reserves is a critical audit matter are (i) the significant judgment by management when developing the estimate of certain excess and obsolete inventory reserves and (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumption related to the estimated reserve percentages. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to certain excess and obsolete inventory reserves, including controls over the significant assumption related to estimated reserve percentages. These procedures also included, among others (i) testing management’s process for developing the estimate of certain excess and obsolete inventory reserves; (ii) evaluating the appropriateness of management’s estimation methodology; (iii) testing the completeness and accuracy of the underlying data used in developing the estimate of certain excess and obsolete inventory reserves, including historical usage, known trends, and inventory age; and (iv) evaluating the reasonableness of the significant assumption used by management related to the estimated reserve percentages. Evaluating management’s assumption related to the estimated reserve percentages involved considering (i) the current and past results of the Company; (ii) a comparison of the prior year estimate to actual activity in the current year; and (iii) whether the assumption was consistent with evidence obtained in other areas of the audit. Accounts Receivable Factoring As described in Notes 1 and 2 to the consolidated financial statements, 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. Total accounts receivables factored as of December 31, 2024 totaled $18.3 million, of which $3.7 million was retained pursuant to the Factoring Agreement in the reserve account. These transactions result in a reduction in accounts receivable because the Factoring Agreement transfers effective control and risk related to the receivables to the buyers. 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 principal considerations for our determination that performing procedures relating to the accounts receivable factoring is a critical audit matter are a high degree of auditor effort in performing procedures and evaluating audit evidence related to evaluating the Factoring Agreement. As described in the “Opinions on the Financial Statements and Internal Control over Financial Reporting” section, a material weakness was identified related to this matter. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included, among others (i) reading the Factoring Agreement; (ii) evaluating management’s assessment that the transactions under the Factoring Agreement were appropriately accounted for; (iii) confirming the accounts receivables factored as of December 31, 2024 with the Factor; (iv) testing the classification of accounts receivable factored, including whether balances have been properly excluded from the accounts receivable balance as of December 31, 2024; and (v) evaluating the sufficiency of the disclosures in the consolidated financial statements. 74 Interim Goodwill and Asset Group Impairment Assessments – Network Solutions Reporting Unit and Asset Group As described in Notes 1, 8, and 9 to the consolidated financial statements, the Company’s goodwill balance was $52.9 million as of December 31, 2024, and the goodwill associated with the Network Solutions reporting unit was $0 million. The Company’s long-lived assets, such as property, plant and equipment, right of use lease assets, and purchased intangibles subject to amortization were $418.2 million as of December 31, 2024, and the long-lived assets associated with the Network Solutions asset group were $358.6 million. Goodwill is tested by management for impairment annually during the fourth quarter and reviewed for impairment if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting units below their carrying amount. Long lived assets are reviewed by management for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. During the first quarter of 2024, management identified factors triggering a quantitative impairment assessment for the Company’s reporting units and Network Solutions asset group, resulting in a $292.6 million goodwill impairment charge for the Network Solutions reporting unit. Management determined the fair value of the Network Solutions reporting unit using a combination of an income approach and a market approach. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset group. The significant inputs and assumptions used in the determination of the fair value of the reporting unit requires significant judgment and the use of estimates and assumptions related to revenue growth rates, earnings before interest, taxes, depreciation and amortization (“EBITDA”) margins, discount rate, peer group determination, and revenue and EBITDA market multiples. The significant inputs and assumptions used in the determination of the cash flows expected to be generated by the asset group requires significant judgment and the use of estimates and assumptions related to revenue growth rates, EBITDA margins, peer group determination, and disposition exit multiple. The principal considerations for our determination that performing procedures relating to the interim goodwill and asset group impairment assessments of the Network Solution reporting unit and asset group is a critical audit matter are (i) the significant judgment by management when developing the fair value estimate of the Network Solutions reporting unit and when developing the cash flows expected to be generated by the Network Solutions asset group; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to (a) revenue growth rates and EBITDA margins for the Network Solutions reporting unit and asset group, (b) revenue and EBITDA market multiples for the Network Solutions reporting unit, and (c) disposition exit multiple for the Network Solutions asset group (collectively, the “aforementioned assumptions”); and (iii) the audit effort involved the use of professionals with specialized skill and knowledge. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s goodwill and asset group impairment assessments, including controls over the valuation of the Network Solutions reporting unit and asset group. These procedures also included, among others (i) testing management’s process for developing the fair value estimate of the Network Solutions reporting unit and for developing the cash flows expected to be generated by the Network Solutions asset group; (ii) evaluating the appropriateness of the income approach, market approach, and undiscounted future cash flows approach used by management; (iii) testing the completeness and accuracy of underlying data used by management in the income approach, market approach, and undiscounted future cash flows approach; and (iv) evaluating the reasonableness of the significant assumptions used by management related to the aforementioned assumptions. Evaluating management’s assumptions related to revenue growth rates and EBITDA margins for the Network Solutions reporting unit and asset group involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the Network Solutions reporting unit and asset group; (ii) the consistency with external market and industry data; and (iii) whether the assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in evaluating (i) the appropriateness of the income approach, market approach, and undiscounted future cash flows approach and (ii) the reasonableness of the revenue and EBITDA market multiples assumptions for the Network Solutions reporting unit and disposition exit multiple assumption for the Network Solutions asset group. /s/ PricewaterhouseCoopers LLP Birmingham, Alabama March 3, 2025 We have served as the Company’s auditor since 1986. 75 Financial Statements ADTRAN Holdings, Inc. Consolidated Balance Sheets (In th ousands, except per share amount) December 31, 2024 and 2023 ASSETS 2024 2023 Current Assets Cash and cash equivalents $ 77,567 $ 87,167 Accounts receivable, less allowance for credit losses of $ 1,300 and $ 400 as of December 31, 2024 and 2023, respectively 178,030 216,445 Other receivables 9,775 17,450 Income tax receivable 5,461 7,933 Inventory, net 269,337 362,295 Assets held for sale 11,901 — Prepaid expenses and other current assets 58,534 45,566 Total Current Assets 610,605 736,856 Property, plant and equipment, net 102,942 113,582 Deferred tax assets, net 17,826 25,787 Goodwill 52,918 353,415 Intangibles, net 284,893 337,423 Other non-current assets 78,128 87,706 Long-term investments 32,060 27,743 Total Assets $ 1,179,372 $ 1,682,512 LIABILITIES AND EQUITY Current Liabilities Accounts payable $ 170,451 $ 162,922 Unearned revenue 52,701 46,731 Accrued expenses and other liabilities 35,704 36,204 Accrued wages and benefits 32,853 27,030 Income tax payable 1,936 5,221 Total Current Liabilities 293,645 278,108 Non-current revolving credit agreement outstanding 189,576 195,000 Deferred tax liabilities 30,690 35,655 Non-current unearned revenue 22,065 25,109 Non-current pension liability 8,983 12,543 Deferred compensation liability 33,203 29,039 Non-current lease obligations 25,925 31,420 Other non-current liabilities 17,928 28,657 Total Liabilities 622,015 635,531 Commitments and contingencies (see Note 18) Redeemable Non-Controlling Interest 422,943 442,152 Equity Common stock, par value $ 0.01 per share; 200,000 shares authorized; 79,483 shares issued and 79,218 outstanding as of December 31, 2024 and 78,970 shares issued and 78,674 shares outstanding as of December 31, 2023 795 790 Additional paid-in capital 808,913 795,304 Accumulated other comprehensive income 10,897 47,465 Retained deficit ( 680,993 ) ( 232,905 ) Less treasury stock at cost: 266 and 297 shares as of December 31, 2024 and 2023, respectively ( 5,198 ) ( 5,825 ) Total Equity 134,414 604,829 Total Liabilities and Equity $ 1,179,372 $ 1,682,512 See accompanying notes to consolidated financial statements. 76 ADTRAN Holdings, Inc. Consolidated Statements of Loss (In thousands, except per share amounts) Years ended December 31, 2024, 2023 and 2022 2024 2023 2022 Revenue Network Solutions $ 738,964 $ 974,389 $ 916,793 Services & Support 183,756 174,711 108,743 Total Revenue 922,720 1,149,100 1,025,536 Cost of Revenue Network Solutions 511,070 722,582 647,105 Network Solutions - charges and inventory write-down 8,597 24,313 — Services & Support 72,739 69,142 51,179 Total Cost of Revenue 592,406 816,037 698,284 Gross Profit 330,314 333,063 327,252 Selling, general and administrative expenses 233,369 258,149 208,889 Research and development expenses 221,463 258,311 173,757 Asset impairment — — 17,433 Goodwill impairment 292,583 37,874 — Operating Loss ( 417,101 ) ( 221,271 ) ( 72,827 ) Interest and dividend income 3,058 2,340 2,123 Interest expense ( 22,053 ) ( 16,299 ) ( 3,437 ) Net investment gain (loss) 3,587 2,754 ( 11,339 ) Other income, net 246 1,266 14,517 Loss Before Income Taxes ( 432,263 ) ( 231,210 ) ( 70,963 ) Income tax (expense) benefit ( 8,785 ) ( 28,133 ) 62,075 Net Loss $ ( 441,048 ) $ ( 259,343 ) $ ( 8,888 ) Net Income (Loss) attributable to non-controlling interest (1) 9,824 6,946 ( 6,851 ) Net Loss attributable to ADTRAN Holdings, Inc. $ ( 450,872 ) $ ( 266,289 ) $ ( 2,037 ) Weighted average shares outstanding – basic 78,928 78,416 62,346 Weighted average shares outstanding – diluted 78,928 78,416 62,346 Loss per common share attributable to ADTRAN Holdings, Inc. – basic $ ( 5.67 ) (2) $ ( 3.39 ) $ ( 0.03 ) Loss per common share attributable to ADTRAN Holdings, Inc. – diluted $ ( 5.67 ) (2) $ ( 3.39 ) $ ( 0.03 ) (1) For the year ended December 31, 2024 we accrued $ 9.8 million of net income attributable to non-controlling interest, representing the recurring cash compensation earned by non-controlling interest shareholders post-DPLTA. For the year ended December 31, 2023, we accrued $ 10.1 million, 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.12-24 (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 year ended December 31, 2024. See Note 19 for additional information. See accompanying notes to consolidated financial statements. 77 ADTRAN Holdings, Inc. Consolidated Statements of Compr ehensive (Loss) Income (In thousands) Years ended December 31, 2024, 2023 and 2022 2024 2023 2022 Net Loss $ ( 441,048 ) $ ( 259,343 ) $ ( 8,888 ) Other Comprehensive (Loss) Income, net of tax Net unrealized gain (loss) on available-for-sale securities — 454 ( 284 ) Defined benefit plan adjustments 1,479 ( 1,490 ) 4,597 Foreign currency translation (loss) gain ( 38,047 ) 22,757 53,396 Other Comprehensive (Loss) Income, net of tax ( 36,568 ) 21,721 57,709 Comprehensive (Loss) Income, net of tax ( 477,616 ) ( 237,622 ) 48,821 Less: Comprehensive Income attributable to non-controlling interest 9,824 7,328 12,818 Comprehensive (Loss) Income attributable to ADTRAN Holdings, Inc., net of tax $ ( 487,440 ) $ ( 244,950 ) $ 36,003 See accompanying notes to consolidated financial statements. 78 ADTRAN Holdings, Inc. Consolidated Statements of Changes in Equity (In thousands, except per share amounts) Years ended December 31, 2024, 2023 and 2022 Common Shares Common Stock Additional Paid-In Capital Retained Earnings (Deficit) Treasury Stock Accumulated Other Comprehensive Income (Loss) Non-controlling interest Total Equity Balance as of December 31, 2021 79,652 $ 797 $ 288,946 $ 740,820 $ ( 661,547 ) $ ( 11,914 ) $ — $ 357,102 Net loss — — — ( 2,037 ) — — ( 6,851 ) ( 8,888 ) Acquisition of Adtran Networks 27,995 280 577,980 — — — 316,415 894,675 Retirement of treasury stock ( 30,330 ) ( 303 ) — ( 655,761 ) 656,064 — — — Other comprehensive income, net of tax — — — — — 38,040 19,669 57,709 Dividend payments ($ 0.09 per share) — — — ( 22,885 ) — — — ( 22,885 ) Dividends accrued on unvested restricted stock units — — — 353 — — — 353 Deferred compensation adjustments, net of tax — — — — ( 71 ) — — ( 71 ) ADTRAN RSUs and restricted stock vested 372 4 — ( 10,482 ) 631 — — ( 9,847 ) ADTRAN stock options exercised 399 3 — 5,330 798 — — 6,131 Reclassification of Adtran Networks stock options — — 187 — — — 99 286 Adtran Networks stock options exercised — — 472 — — — 254 726 ADTRAN stock-based compensation expense — — 26,141 — — — — 26,141 Adtran Networks stock-based compensation expense — — 2,108 — — — 73 2,181 Balance as of December 31, 2022 78,088 781 895,834 55,338 ( 4,125 ) 26,126 329,659 1,303,613 Net loss — — — ( 256,164 ) — — ( 3,179 ) ( 259,343 ) Annual recurring compensation earned — — — ( 10,125 ) — — — ( 10,125 ) 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 — — — — — 21,339 382 21,721 Dividend payments ($ 0.09 per share) — — — ( 21,237 ) — — — ( 21,237 ) Dividends accrued on unvested restricted stock units — — — 8 — — — 8 Deferred compensation adjustments, net of tax — — — ( 145 ) ( 1,700 ) — — ( 1,845 ) ADTRAN RSUs and restricted stock vested 859 9 — ( 1,115 ) — — — ( 1,106 ) ADTRAN stock options exercised 23 — — 164 — — — 164 Redemption of redeemable non-controlling interest — — — 371 — — — 371 Adtran Networks stock options exercised — — 323 — — — — 323 ADTRAN stock-based compensation expense — — 16,016 — — — — 16,016 Adtran Networks stock-based compensation expense — — 26 — — — — 26 Balance as of December 31, 2023 78,970 790 795,304 ( 232,905 ) ( 5,825 ) 47,465 — 604,829 Net loss — — — ( 441,048 ) — — — ( 441,048 ) Annual recurring compensation earned — — — ( 9,824 ) — — — ( 9,824 ) Remeasurement of redeemable non-controlling interest — — ( 1,175 ) — — — — ( 1,175 ) Other comprehensive loss, net of tax — — — — — ( 36,568 ) — ( 36,568 ) Deferred compensation adjustments, net of tax — — ( 368 ) — 627 — — 259 ADTRAN RSUs and restricted stock vested 374 4 — ( 1,026 ) — — — ( 1,022 ) ADTRAN stock options exercised 139 1 — 824 — — — 825 Modification of Stock Options — — ( 190 ) — — — — ( 190 ) Redemption of redeemable non-controlling interest — — — 2,986 — — — 2,986 ADTRAN stock-based compensation expense — — 14,825 — — — — 14,825 Adtran Networks stock-based compensation expense — — 517 — — — — 517 Balance as of December 31, 2024 79,483 $ 795 $ 808,913 $ ( 680,993 ) $ ( 5,198 ) $ 10,897 $ — $ 134,414 See accompanying notes to consolidated financial statements. 79 ADTRAN Holdings, Inc. Consolidated Statements of Cash Flows (In thousands) Years ended December 31, 2024, 2023 and 2022 2024 2023 2022 Cash flows from operating activities: Net Loss $ ( 441,048 ) $ ( 259,343 ) $ ( 8,888 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 90,985 112,949 67,553 Asset impairment — — 17,433 Goodwill impairment 292,583 37,874 — Amortization of debt issuance cost 3,950 862 288 (Accretion) amortization on available-for-sale investments, net — ( 22 ) 19 (Gain) loss on investments ( 5,030 ) ( 2,900 ) 9,826 Net loss on disposal of property, plant and equipment 1,371 458 152 Stock-based compensation expense 15,342 16,016 28,322 Deferred income taxes 2,247 15,558 ( 62,388 ) Inventory write down - business efficiency program 4,135 24,313 — Inventory reserves 3,980 25,546 ( 2,363 ) Other, net — ( 2,942 ) — Change in operating assets and liabilities: Accounts receivable, net 46,108 65,612 788 Other receivables 10,713 10,315 ( 20,088 ) Income taxes receivable 648 ( 2,637 ) — Inventory 75,171 20,537 ( 73,237 ) Prepaid expenses, other current assets and other assets ( 10,718 ) ( 29,883 ) ( 7,116 ) Accounts payable 11,784 ( 91,907 ) 28,105 Accrued expenses and other liabilities 5,519 17,929 ( 20,483 ) Income taxes payable ( 4,670 ) ( 3,939 ) ( 2,151 ) Net cash provided by (used in) operating activities 103,070 ( 45,604 ) ( 44,228 ) Cash flows from investing activities: Purchases of property, plant and equipment ( 32,454 ) ( 33,683 ) ( 17,072 ) Purchases of intangibles - developed technology ( 30,671 ) ( 9,438 ) — Proceeds from sales and maturities of available-for-sale investments 1,240 10,567 51,661 Purchases of available-for-sale investments ( 268 ) ( 868 ) ( 23,899 ) (Payments) for and proceeds from beneficial interests in securitized accounts receivable ( 55 ) 1,218 1,126 Proceeds from disposals of property, plant and equipment — — 12 Acquisition of business, net of cash acquired — — 44,003 Net cash (used in) provided by investing activities ( 62,208 ) ( 32,204 ) 55,831 Cash flows from financing activities: Tax withholdings related to stock-based compensation settlements ( 1,143 ) ( 6,458 ) ( 4,253 ) Proceeds from stock option exercises 824 540 6,904 Dividend payments — ( 21,237 ) ( 22,885 ) Proceeds from receivables purchase agreement 68,556 14,099 — Repayments on receivables purchase agreement ( 83,772 ) — — Proceeds from draw on revolving credit agreements 26,000 163,733 141,887 Repayment of revolving credit agreements ( 31,000 ) ( 64,987 ) ( 48,000 ) Redemption of redeemable non-controlling interest ( 17,398 ) ( 1,224 ) — Payment of annual recurring compensation to non-controlling interest ( 10,084 ) — — Payment of debt issuance cost ( 1,994 ) ( 708 ) ( 3,015 ) Repayment of notes payable — ( 24,891 ) ( 17,702 ) Net cash (used in) provided by financing activities ( 50,011 ) 58,867 52,936 Net (decrease) increase in cash and cash equivalents ( 9,149 ) ( 18,941 ) 64,539 Effect of exchange rate changes ( 451 ) ( 2,536 ) ( 12,713 ) Cash, cash equivalents and restricted cash, beginning of year 87,167 108,644 56,818 Cash, cash equivalents and restricted cash, end of year $ 77,567 $ 87,167 $ 108,644 Supplemental disclosure of cash flow information: Cash paid for interest $ 20,884 $ 12,596 $ 1,728 Cash paid for income taxes, net of refunds $ 6,691 $ 18,552 $ 3,832 Cash used in operating activities related to operating leases $ 9,274 $ 9,682 $ 5,229 Supplemental disclosure of non-cash investing activities: Right-of-use assets obtained in exchange for lease obligations $ 5,317 $ 17,865 $ 3,410 Purchases of property, plant and equipment included in accounts payable $ 2,635 $ 1,298 $ 1,165 Redemption of redeemable non-controlling interest $ 2,986 $ 371 $ — Adtran Networks common shares exchanged in acquisition $ — $ — $ 565,491 Adtran Networks options assumed in acquisition $ — $ — $ 12,769 Non-controlling interest related to Adtran Networks $ — $ — $ 316,415 See accompanying notes to consolidated financial statements. 80 ADTRAN Holdings, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 SE ("Adtran Networks"), as the controlled company, as executed on December 1, 2022, became effective on January 16, 2023, as a result of its registration with the commercial register ( Handelsregister ) of the local court ( Amtsgericht ) at the registered seat of Adtran Networks (Jena). Under the DPLTA, subject to certain limitations pursuant to applicable law and the specific terms of the DPLTA, (i) the Company is entitled to issue binding instructions to the management board of Adtran Networks, (ii) Adtran Networks will transfer its annual profit to the Company, subject to, among other things, the creation or dissolution of certain reserves, and (iii) the Company will generally absorb the annual net loss incurred by Adtran Networks. The Company’s payment obligation in satisfaction of the requirement that it absorb Adtran Networks’ annual net loss applied for the first time to the net loss generated in 2023. Pursuant to the terms of the DPLTA, each Adtran Networks shareholder (other than the Company) has received an offer to elect either (1) to remain an Adtran Networks shareholder and receive from us an Annual Recurring Compensation payment, or (2) to receive Exit Compensation plus guaranteed interest. The guaranteed interest under the Exit Compensation is calculated from the effective date of the DPLTA to the date the shares are tendered, less any Annual Recurring Compensation paid. The guaranteed interest rate is 5.0 % plus a variable component (according to the German Civil Code) that was 3.37 % as of December 31, 2024. Assuming all the minority holders of currently outstanding Adtran Networks shares were to elect the second option, we would be obligated to make aggregate Exit Compensation payments, including guaranteed interest, of approximately € 333.2 million or approximately $ 344.9 million, based on an exchange rate as of December 31, 2024 and reflecting interest accrued through December 31, 2024 during the pendency of the appraisal proceedings discussed below. Shareholders electing the first option of Annual Recurring Compensation may later elect the second option. 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 ). The Company expects to receive a procedural decision during 2025 that will likely be appealed. The date of a decision by the court on the merits of the case is uncertain, but it is unlikely that such decision will be rendered in 2025. Thereafter an expected appeal process will take a further 12-24 months to resolve. 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 $ 9.3 millio n based on the current exchange rate) per year assuming none of the minority Adtran Networks shareholders as of December 31, 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 81 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. With respect to the 2024 fiscal year, Adtran Networks’ ordinary general shareholder meeting is scheduled for June 27, 2025 and, therefore, the Annual Recurring Compensation will be due on July 2, 2025. During the year ended December 31, 2024 and 2023, we accrued $ 9.8 million and $ 10.1 million, respectively, in Annual Recurring Compensation. The Annual Recurring Compensation is reflected as an increase to retained deficit in the 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 year ended December 31, 2024, approximately 831 thousand shares 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 exchange rates at the time of the transactions, being paid to Adtran Networks shareholders. For the year ended December 31, 2023, a total of 67 thousand shares of Adtran Networks stock was tendered to the Company and Exit Compensation payments of approximately € 1.2 million or approximately $ 1.3 million based on an exchange rate as of December 31, 2023, were paid to Adtran Networks shareholders. 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 $ 180.8 million on its Credit Facility for future borrowings; however, as of December 31 2024, the Company was limited to additional borrowings of $ 56.1 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, Credit Agreements for additional information regarding the terms of the Wells Fargo Credit Agreement and its amendments. As of December 31, 2024, and as of the date of issuance of these financial statements, the Company does not have sufficient liquidity to meet payment obligations under the DPLTA pertaining to Exit Compensation. While the Company did experience $ 17.4 million of redemptions during 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 shareholders can exercise their right to receive the Exit Compensation until two months after publication of the final decision in the appraisal proceedings and we do not expect the publication of the final decision for at least another 12 months; (ii) the diverse base of shareholders that must make this election on an individual shareholder basis; (iii) the fact that the Company expects to receive a procedural decision during 2025 that will likely be appealed and, while the date of a decision by the court on the merits of the case is uncertain, it is unlikely that such decision will be rendered in 2025 and an expected appeal process will take a further 12-24 months to resolve; (iv) the current guaranteed Annual Recurring Compensation payment; and (v) the current trading value of Adtran Networks shares. The Company experienced revenue declines in 2024. The Company is implementing plans to preserve cash liquidity to maintain compliance with the Company’s covenants in case of further impacts related to customer inventory reduction initiatives and uncertain macroeconomic conditions. Additionally, the Company suspended dividend payments and effectuated a Business Efficiency Program. The Business Efficiency Program was substantially completed as of December 31, 2024, other than the Company's aim of selling its headquarters. The Company has determined that it is probable that the sale of our headquarters in Huntsville will occur within the next twelve months after December 31, 2024. We may need to further reduce capital expenditure and/or take other steps to preserve working capital in order to ensure that we can meet our needs and obligations and maintain compliance with our debt covenants. In summary, the Company believes that its cash and cash equivalents, investments, working capital management initiatives and availability to access cash under the Wells Fargo credit facility will be adequate to meet our business operating requirements, our capital expenditures and our expected obligations under the DPLTA, including anticipated levels of Exit Compensation and to support our ability to continue to comply with our debt covenants under the Credit Facility, for at least the next twelve months, from the issuance of these financial statements. See Note 11, Credit Agreements, for additional information regarding the terms of the Amendments of the Wells Fargo Credit agreement. Note 1 - Summary Of Significant Accounting Policies Basis of Presentation The accompanying Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“U.S. GAAP”) and include the financial position, results of operations, comprehensive (loss) income, changes in equity and cash flows of Adtran and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. 82 Revision of Previously Issued 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 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. 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 ) 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, 83 determination and accrual of the deferred revenue related to performance obligations under contracts with customers, estimated costs to complete obligations associated with deferred and accrued revenue and network installations, estimated income tax provision and income tax contingencies, fair value of stock-based compensation, assessment of goodwill and other intangibles for impairment, estimated lives of intangible assets, estimates of intangible assets upon measurement, estimated pension liability and fair value of investments and estimated contingent liabilities. Actual amounts could differ significantly from these estimates. We assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to us and the unknown future impacts of ongoing inflationary pressures, continued elevated interest rates, instability in the financial services industry, currency fluctuations and political tensions as of December 31, 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. Summary of Significant Accounting Policies Cash and Cash Equivalents Cash and cash equivalents represent demand deposits, money market funds and short-term investments classified as available-for-sale with original maturities of three months or less. We maintain depository investments with certain financial institutions. As of December 31, 2024 $ 74.0 million of our cash and cash equivalents, primarily certain domestic money market funds and foreign depository accounts, were in excess of government provided insured depository limits. Although these depository investments may exceed government insured depository limits, we have evaluated the credit worthiness of these applicable financial institutions and determined the risk of material financial loss due to the exposure of such credit risk to be minimal. Fair Value of Financial Instruments Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models may be applied. Assets and liabilities recorded at fair value in our consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair values. The carrying amounts reported in the Consolidated Balance Sheets for cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to the immediate or short-term maturity of these financial instruments. The fair value measurements of our derivative instruments are determined using models that maximize the use of the observable market inputs including interest rate curves and both forward and spot prices for currencies, and are classified as Level II under the fair value hierarchy. The fair values of our derivatives are included in Note 10. Investments with contractual maturities beyond one year may be classified as short-term based on their highly liquid nature and because such marketable securities represent the investment of cash that is available for current operations. Despite the long-term nature of their stated contractual maturities, we routinely buy and sell these securities and we believe we have the ability to quickly sell them to the remarketing agent, tender agent or issuer at par value plus accrued interest in the event we decide to liquidate our investment in a particular variable rate demand note. All income generated from these investments is recorded as interest income. We have not recorded any losses relating to variable rate demand notes. Long-term investments is comprised of our deferred compensation plan assets, marketable equity securities and other equity investments. Marketable equity securities are reported at fair value as determined by the most recently traded price of the securities at the balance sheet date, although the securities may not be readily marketable due to the size of the available market. Any changes in fair value are recognized in net investment gain (loss). Realized gains and losses on sales of debt securities are computed under the specific identification method and are included in other income, net. See Note 4 for additional information. Accounts Receivable The Company records accounts receivable at amortized cost. Prior to establishing payment terms for a new customer, we evaluate the credit risk of the customer. Credit limits and payment terms established for new customers are re-evaluated periodically based on customer collection experience and other financial factors. As of December 31, 2024, no customer comprised more than 10% of our total accounts receivable balance. As of December 31, 2023, a single customer comprised more than 10% of our total accounts receivable balance, which accounted for 11.9 % of our total accounts receivable. The Company regularly reviews the need for an allowance for credit losses related to our outstanding accounts receivable balances using the historical loss-rate method, as well as assessing asset-specific risks. The assessment of asset-specific risks included the evaluation of relevant available information, from internal and external sources, relating to current conditions that may affect a customer’s ability to pay, such as the customer’s current financial condition or credit rating by geographic location, as provided by a third party and/or by 84 customer, if needed, and overall macro-economic conditions in which the customer operates. Based on this assessment, an allowance for credit losses would be recorded if the Company determined that, based on our historical write-offs, which have been immaterial, and such asset specific risks, there was risk in collectability of the full amount of any accounts receivable. 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 Consolidated Balance Sheets and cash received is reflected as cash flows provided by (used in) operating activities in the Consolidated Statements of Cash Flow. Factoring related interest expense is recorded to interest expense on the 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 Consolidated Balance Sheets. Previous Receivables Purchase Agreement On December 19, 2023, the Company entered into a factoring agreement with a third-party financial institution to sell, on a revolving basis, undivided interests in the Company’s accounts receivable. The 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. The receivables factored were carried in accounts receivable, less allowance for credit losses on the Consolidated Balance Sheets, the secured borrowings were carried on the Company’s Consolidated Balance Sheets as a current liability, in accounts payable, proceeds and repayments of the secured borrowings are reflected as cash flows (used in) provided by financing activities in the Consolidated Statements of Cash Flows and program fees are recorded in interest expense in the Company’s 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. The receivables purchase agreement was terminated on July 1, 2024 and there were no secured borrowings under this agreement as of December 31, 2024. See Note 2 for additional information. Inventory Inventory is carried at the lower of cost and estimated net realizable value, with cost being determined using the first-in, first-out method. Standard costs for material, labor and manufacturing overhead are used to value inventory and are updated at least quarterly. We establish reserves 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 consider historical usage, known trends, inventory age and market conditions. When we dispose of excess and obsolete inventories, the related disposals are charged against the inventory reserve. See Note 5 for additional information. Property, Plant and Equipment Property, plant and equipment, which is stated at cost, is depreciated using the straight-line method over the estimated useful lives of the assets. We depreciate building and land improvements from 5 to 39 years, office machinery and equipment from three to seven years , engineering machinery and equipment from three to seven years , and computer software from three to five years . Expenditures for repairs and maintenance are charged to expense as incurred. Major improvements that materially prolong the lives of the assets are capitalized. Gains and losses on the disposal of property, plant and equipment are recorded in operating loss. See Note 6 for additional information. Assets Held for Sale An asset is considered to be held for sale when all the following criteria are met: (i) management commits to a plan to sell the asset; (ii) the asset is available for immediate sale in its present condition; (iii) actions required to complete the sale of the asset have been initiated; (iv) sale of the asset is probable and the completed sale is expected to occur within one year; (v) it is unlikely that the disposal plan will be significantly modified; and (vi) the asset is actively being marketed for sale at a price that is reasonable given its current market value. The Company records assets held for sale at the lower of their carrying value or fair value. The total carrying value of assets held for sale was $ 11.9 million as of December 31, 2024 and is separately recorded on the balance sheet. 85 Intangible Assets Purchased intangible assets with finite lives are carried at cost less accumulated amortization. Amortization is recorded over the estimated useful lives of the respective assets. See Note 9 for additional information . Impairment of Long-Lived Assets and Intangibles Long-lived assets, such as property, plant and equipment, right of use lease assets and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset or asset group. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset or asset group. During the first quarter of 2024, factors triggered a quantitative impairment assessment for the Network Solutions asset group. The long-lived assets associated with the Network Solutions asset group was approximately $ 358.6 million as of December 31, 2024 There were no impairment losses for long-lived assets and intangible assets during the years ended December 31, 2024, 2023 and 2022. See Note 9 for additional information. Goodwill Goodwill represents the excess purchase price over the fair value of net assets acquired. The Company’s annual impairment assessment is done at the reporting unit level, which we determined are generally the same as our operating segments, which are identified in Note 16 to the Consolidated Financial Statements. We review goodwill for impairment annually during the fourth quarter and also test for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of our reporting units below their carrying amount. Such events and circumstances may include among others: a significant adverse change in legal factors or in the general business climate; significant decline in our stock price and market capitalization; unanticipated competition; the testing for recoverability of a significant asset within the reporting unit; and an adverse action or assessment by a regulator. Any adverse change in these factors could have a significant impact on the recoverability of goodwill and could have a material impact on our consolidated financial statements. The Company’s annual impairment test date is October 1, 2024. Based on our analysis, management concluded that there was no impairment of goodwill as of that date. Between the annual impairment date of October 1, 2024 and year-end December 31, 2024, there were no additional triggering events. The Company recognized impairments of $ 292.6 million and $ 37.9 million during the years ended December 31, 2024 and 2023, respectively. No goodwill impairment charge was recorded during the year ended December 31, 2022. See Note 8 for additional information. Other Non-Current Assets Implementation costs incurred for hosting arrangements that are related to service contracts are capitalized and amortized over the term of the arrangement. Capitalized implementation costs totaled $ 0.1 million and $ 0.3 million as of December 31, 2024 and 2023, respectively, and are included in other non-current assets on the Consolidated Balance Sheets. In connection with the planned integration of information technology following the Business Combination, we determined that certain projects no longer fit our needs. The Company recognized impairment charges of $ 16.9 million during the year ended December 31, 2022 primarily related to capitalized implementation costs for a cloud computing arrangement. The impairment charges were determined based on actual costs incurred. During the year ended December 31, 2024 and 20 23, no impairment charges were recognized. We depreciate capitalized implementation costs over various lives. Amortization expense was $ 0.1 million, $ 5.9 million and $ 3.9 million for the years ended December 31, 2024, 2023 and 2022, respectively, which is recorded almost entirely in selling, general and a dministrative expenses in the Consolidated Statements of Loss. Pension Benefit Plan Obligations The Company maintains a defined benefit pension plans covering employees in certain foreign countries. Pension benefit plan obligations are based on various assumptions used by our actuaries in calculating these amounts. These assumptions include discount rates, compensation rate increases, expected return on plan assets, retirement rates and mortality rates. Actual results that differ from the assumptions and changes in assumptions could affect future expenses and obligations. See Note 13 for additional information. Lease Obligations The Company has operating leases for office space, automobiles and various other equipment in the U.S. and in certain international locations. Other contracts, such as manufacturing agreements and service agreements, are reviewed to determine if they contain potential embedded leases. These other contracts are specifically reviewed to determine whether we have the right to substantially all of the 86 economic benefit from the use of any specified assets or the right to direct the use of any specified assets, either of which would indicate the existence of a lease. Some of our leases include options to renew. For those leases that are reasonably assured to be renewed, we have included the option to extend as part of our right of use asset and lease liability. The exercise of lease renewal options is at our sole discretion. The depreciable life of leased assets and leasehold improvements are limited by the expected lease term. Leases with an initial term of 12 months or less are not recorded on the balance sheet and lease expense for these leases is recognized on a straight-line basis over the lease term. For lease agreements entered into or reassessed after the adoption of Topic 842, we elected to not separate lease and non-lease components. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. Stock-Based Compensation The Company has two stock incentive plans from which stock options, performance stock units (“PSUs”), restricted stock units (“RSUs”) and restricted stock are available for grant to employees and directors. Costs related to these awards are recognized over their vesting periods. Stock-based compensation expense recognized for the years ended December 31, 2024, 2023 and 2022 was approximately $ 15.3 million, $ 16.0 million and $ 28.3 million, respectively. See Note 3 for additional information. Research and Development Costs Research and development costs include compensation for engineers and support personnel, contracted services, depreciation and material costs associated with new product development, enhancement of current products and product cost reductions. We continually evaluate new product opportunities and engage in intensive research for product and software develop ment efforts. Research and development costs totaled $ 221.5 million, $ 258.3 million and $ 173.8 million for the years ended December 31 , 2024, 2023 and 2022, respectively. Adtran Networks has arrangements with governmental entities for the purposes of obtaining funding for research and development activities. The Company classifies government grants received under these arrangements as a reduction to research and development expense incurred. For the years ended December 31, 2024, 2023 and 2022, the Company recognized $ 9.2 million, $ 5.2 million and $ 1.1 million, respectively, as a reduction of research and development expense. Income Taxes The provision for income taxes has been determined using the asset and liability approach of accounting for income taxes. Under this approach, deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. The provision for income taxes represents income taxes paid or payable for the current year plus the change in deferred taxes during the year. Deferred taxes result from the difference between financial and tax basis of our assets and liabilities and are adjusted for changes in tax rates and tax laws when such changes are enacted. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. In determining whether an uncertain tax position exists, the Company determines, based solely on its technical merits, whether the tax position is more likely than not to be sustained upon examination, and if so, a tax benefit is measured on a cumulative probability basis that is more likely than not to be realized upon the ultimate settlement. The Company recognizes interest and penalties related to unrecognized tax benefits through interest expense and income tax expense, respectively. Foreign Currency Transactions with customers that are denominated in foreign currencies are recorded using the appropriate exchange rates from throughout the year. Assets and liabilities denominated in foreign currencies are remeasured at the balance sheet dates using the closing rates of exchange between those foreign currencies and the functional currency with any transaction gains or losses reported in other income, net. Our primary exposures to foreign currency exchange rate movements are with our German and United Kingdom subsidiaries, whose functional currencies are the euro and the British pound sterling. Adjustments resulting from translating financial statements of international subsidiaries are recorded as a component of accumulated other comprehensive income. Revenue Revenue is measured based on the consideration expected to be received in exchange for transferring goods or providing services to a customer and as performance obligations under the terms of the contract are satisfied. Generally, this occurs with the transfer of control of a product to the customer. For transactions where there are multiple performance obligations, individual products and services are accounted for separately if they are distinct (if a product or service is separately identifiable from other items and if a customer can benefit from it on its own or with other resources that are readily available to the customer). The consideration, including any discounts, is allocated between separate products and services based on their stand-alone selling prices. Stand-alone selling prices are determined based on the prices at which the separate products and services are sold and are allocated based on each item’s relative value to the total value of the products and services in the arrangement. For items that are not sold separately, we estimate stand-alone selling prices 87 primarily using the “expected cost plus a margin” approach. Payment terms are generally 30 days in the U.S. and typically longer in many geographic markets outside the U.S. Shipping fees collected are recorded as revenue and the related cost is included in cost of revenue. Revenue, value-added and other taxes collected concurrently with revenue-producing activities are excluded from revenue. Incremental costs of obtaining a contract, that are recoverable, are capitalized and amortized over the period that the related revenue is recognized if greater than one year. We have elected to account for shipping fees paid as a cost of fulfilling the related contract. We have also elected to apply the practical expedient related to the incremental costs of obtaining contracts and recognize those costs as an expense when incurred if the amortization period of the assets is one year or less. These costs are included in selling, general and administrative expenses. Capitalized costs with an amortization period greater than one year were immaterial. Revenue is generated by two reportable segments: Network Solutions and Services & Support. Network Solutions Segment - Includes hardware products and software defined next-generation virtualized solutions used in Service Provider or business networks, as well as prior generation products. The majority of the revenue from this segment is from hardware revenue. Hardware and Software Revenue Revenue from hardware sales is recognized when control is transferred to the customer, which is generally when the products are shipped. Shipping terms are generally FOB shipping point. Revenue from software license sales is recognized at delivery and transfer of control to the customer. Revenue is recognized net of estimated discounts and rebates using historical trends. Customers are typically invoiced when control is transferred and revenue is recognized. Our products generally include assurance-based warranties of 90 days to five years for product defects, which are accrued at the time products are delivered. Services & Support Segment - Includes a complete portfolio of maintenance, network implementation and solutions integration and managed services, which include hosted cloud services and subscription services to complement our Network Solutions segment. Maintenance Revenue Our maintenance service periods range from one month to five years . Customers are typically invoiced and pay for maintenance services at the beginning of the maintenance period. We recognize revenue for maintenance services on a straight-line basis over the maintenance period as our customers benefit evenly throughout the contract term and deferred revenue, when applicable, are recorded in current and non-current unearned revenue. Network Implementation Revenue The Company recognizes revenue for network implementation, which primarily consists of engineering, execution and enablement services at a point in time when each performance obligation is complete. If we have recognized revenue but have not billed the customer, the right to consideration is recognized as a contract asset that is included in other receivables on the Consolidated Balance Sheet. The contract asset is transferred to accounts receivable when the completed performance obligation is invoiced to the customer. See Notes 2 and 16 for additional information on reportable segments. Unearned Revenue Unearned revenue primarily represents customer billings on maintenance service programs and unearned revenue related to multiple element contracts where we still have contractual obligations to our customers. We currently offer maintenance contracts ranging from one month to five years . Revenue attributable to maintenance contracts is recognized on a straight-line basis over the related contract term. In addition, we provide software maintenance and a variety of hardware maintenance services to customers under contracts with terms up to ten years. When we defer revenue related to multiple performance obligations where we still have contractual obligations, we also defer the related costs. Current deferred costs are included in prepaid expenses and other current assets on the accompanying Consolidated Balance Sheets and totaled $ 2.2 million and $ 2.1 million as of December 31, 2024 and 2023, respectively. Non-current deferred costs included in other non-current assets on the accompanying Consolidated Balance Sheets were less than $ 0.1 million as of December 31, 2024 and December 31, 2023. Redeemable Non-Controlling Interest As of December 31, 2024 and 2023, the non-controlling Adtran Networks stockholders’ equity ownership percentage in Adtran Networks was approximately 33.0 % and 34.7 %, respectively. As a result of the effectiveness of the DPLTA on January 16, 2023, the Adtran Networks shares, representing the equity interest in Adtran Networks held by holders other than the Company, can be tendered at any time and are, therefore, redeemable and must be classified outside stockholders’ equity. Therefore, the permanent equity noncontrolling interest balance was reclassified to redeemable non-controlling interest (RNCI) on January 16, 2023 and was remeasured to fair value based on the trading market price of the Adtran Networks shares. 88 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 Consolidated Balance Sheets. See Note 15 for additional information on RNCI . Loss per Share Loss per common share and loss per common share assuming dilution are based on the weighted average number of common shares and, when dilutive, common equivalent shares outstanding during the year. See Note 19 for additional information. Loss per common share attributable to ADTRAN Holdings, Inc. - basic and diluted - reflects a $3.0 million effect of redemption of RNCI for the year ended December 31, 2024. See Note 19 for additional information. Recent Accounting Pronouncements Not Yet Adopted In November 2024, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, as amended by ASU 2025-01, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date, which applies to all public business entities 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 in the first annual period beginning after December 15, 2026 and interim reporting periods within annual reporting periods beginning after December 15, 2027. Early adoption and retrospective application are permitted. The Company is currently evaluating the effect that adoption of ASU 2024-03 will have on our disclosures. In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") 2023-09, "Income Taxes (Topic 740): 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. Recently Adopted Accounting Pronouncements 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. The Company adopted the new standard on January 1, 2024 . The adoption of this standard resulted in additional footnote disclosures. The adoption of this standard did not have a material impact on our Consolidated Balance Sheet, Consolidated Statement of Income or Consolidated Statement of Cash Flows. See Note 16 for additional information. There have been no other recently adopted accounting pronouncements that are expected to have a material effect on the Consolidated Financial Statements. Reclassification of Prior Year Presentation Certain prior year amounts have been reclassified for consistency with current year presentation. These reclassifications had no effect on reported results of operations. An adjustment has been made to the Consolidated Balance Sheet and Consolidated Statement of Cash Flows for the fiscal year ended December 31, 2023, to reclassify between Property, Plant and Equipment and Intangible Assets. 89 Note 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 and Aggregation, and Optical Networking Solutions. Services & Support Segment - Includes network design, implementation, maintenance and cloud-hosted services supporting the Company's Subscriber, Access and Aggregation, and Optical Networking Solutions. Revenue by Category In addition to operating under two reportable segments, the Company also reports revenue across 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 Access & Aggregation Solutions are solutions that are used by communications Service Providers to connect residential subscribers, business subscribers and mobile radio networks to the Service Providers’ metro network, primarily through fiber-based connectivity. This revenue category includes hardware- and software-based products and services. Our solutions within this category are a mix of fiber access and aggregation platforms, precision network synchronization and timing solutions, and access orchestration solutions that ensure highly reliable and efficient network performance. Our Optical Networking Solutions are used by communications Service Providers, internet content providers and large-scale enterprises to securely interconnect metro and regional networks over fiber. 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. The following table disaggregates revenue by reportable segment and revenue category for the year ended December 31, 2024: (In thousands) Network Solutions Services & Support Total Subscriber Solutions $ 295,541 $ 35,237 $ 330,778 Access & Aggregation Solutions 232,934 58,072 291,006 Optical Networking Solutions 210,489 90,447 300,936 Total $ 738,964 $ 183,756 $ 922,720 The following table disaggregates revenue by reportable segment and revenue category for the year ended December 31, 2023: (In thousands) Network Solutions Services & Support Total Subscriber Solutions $ 263,192 $ 34,516 $ 297,708 Access & Aggregation Solutions 304,074 54,344 358,418 Optical Networking Solutions 407,123 85,851 492,974 Total $ 974,389 $ 174,711 $ 1,149,100 The following table disaggregates revenue by reportable segment and revenue category for the year ended December 31, 2022: (In thousands) Network Solutions Services & Support Total Subscriber Solutions $ 364,238 $ 26,216 $ 390,454 Access & Aggregation Solutions 326,934 47,068 374,002 Optical Networking Solutions 225,621 35,459 261,080 Total $ 916,793 $ 108,743 $ 1,025,536 90 The aggregate amount of transaction price allocated to remaining performance obligations that have not been satisfied as of December 31, 2024 and December 31, 2023 related to contractual maintenance agreements, contractual SaaS and subscription services, and hardware contracts that exceed one year in duration amounted to $ 325.7 million and 314.8 million, respectively. As of December 31, 2024, approximately 73.0 % 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 December 31, 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: (In thousands) December 31, 2024 December 31, 2023 Accounts receivable $ 178,030 $ 216,445 Contract assets (1) $ 631 $ 691 Unearned revenue $ 52,701 $ 46,731 Non-current unearned revenue $ 22,065 $ 25,109 (1) Included in other receivables on the Consolidated Balance Sheets. Accounts Receivable The allowance for credit losses were $ 1.3 million and, $ 0.4 million as of December 31, 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 December 31 2024, totaled $ 18.3 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 Consolidated Balance Sheets. The cost of the Factoring Agreement is included in interest expense in the Consolidated Statements of Loss and totaled $ 0.6 million for the year ended December 31, 2024. Costs of a previous receivables purchase agreement which are included in interest expense in the Consolidated Statements of Loss totaled $ 0.9 million for the year ended December 31, 2023. Previous Receivable Purchase Agreement On December 19, 2023, the Company entered into a receivables purchase agreement (the “Prior Factoring Agreement”) with a third-party financial institution (the "Prior Factoring Agreement") 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 December 31, 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 year ended December 31, 2024, the Company incurred program fee expenses of $ 0.6 million. Contract Assets No allowance for credit losses was recorded for the years ended December 31, 2024 and 2023, respectively, related to contract assets. Unearned Revenue Of the outstanding unearned revenue balances as of December 31, 2023 , $ 50.5 million were recognized as revenue during the year ended December 31, 2024. Of the outstanding unearned revenue balances as of December 31, 2022, $ 36.2 million were recognized as revenue during the year ended December 31, 2023. 91 Note 3 – 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 4.5 million shares of common stock to certain employees, key service providers and advisors through incentive stock options and non-qualified stock options, stock appreciation rights, RSUs and restricted stock, any of which may be subject to performance-based conditions. RSUs and restricted stock granted under the 2024 Employee Plan will typically vest pursuant to a four-year vesting schedule beginning on the first anniversary of the grant date. Stock options granted under the 2024 Employee Plan will typically become exercisable beginning after one year of continued employment, normally pursuant to a four-year vesting schedule beginning on the first anniversary of the grant date and have a ten-year contractual term. Stock options, RSUs and restricted stock granted under the 2024 Employee Plan reduce the shares authorized for issuance under the 2024 Employee Plan by one share of common stock for each share underlying the award. Forfeitures, cancellations and expirations of awards granted under the prior employee stock incentive plans increase the shares authorized for issuance under the 2024 Employee Plan by one share of common stock for each share underlying the award. Under the 2024 Directors Plan, the Company is authorized to issue 0.6 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 December 31, 2024, 5.1 million shares were available for issuance pursuant to awards that may be made in the future under stockholder-approved equity plans. For the years ended December 31, 2024, 2023 and 2022, stock-based compensation expense was $ 15.3 million, $ 16.0 million and $ 28.3 million respectively. PSUs, RSUs and Restricted Stock - ADTRAN Holdings, Inc. The following table summarizes stock-based compensation expense related to stock options, PSUs, RSUs and restricted stock for the years ended December 31, 2024, 2023 and 2022: (In thousands) 2024 2023 2022 Stock-based compensation expense included in cost of revenue $ 1,142 $ 1,293 $ 2,876 Selling, general and administrative expenses 10,412 10,701 20,844 Research and development expenses 3,788 4,022 4,602 Stock-based compensation expense included in operating expenses 14,200 14,723 25,446 Total stock-based compensation expense 15,342 16,016 28,322 Tax benefit for expense associated with non-qualified stock options, PSUs, RSUs and restricted stock ( 2,102 ) ( 3,837 ) ( 5,152 ) Total stock-based compensation expense, net of tax $ 13,240 $ 12,179 $ 23,170 92 PSUs, RSUs and restricted stock - ADTRAN Holdings, Inc. The following table is a summary of our PSUs, RSUs and restricted stock outstanding as of December 31, 2023 and 2024 and the changes that occurred during 2024: Number of shares (In thousands) Weighted Average 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 ( 575 ) $ 18.76 PSUs, RSUs and restricted stock forfeited ( 129 ) $ 14.20 Unvested PSUs, RSUs and restricted stock outstanding, December 31, 2024 2,335 $ 13.22 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. The following table details the significant assumptions that impact the fair value estimate of the market-based PSUs: 2024 2023 2022 Estimated fair value per share $ 8.29 $ 19.26 $ 24.01 Expected volatility 51.34 % 51.52 % 45.77 % Risk-free interest rate 4.12 % 3.93 % 4.28 % Expected dividend yield — 2.55 % 1.76 % For market-based PSUs, the number of shares of common stock earned by a recipient is subject to a market condition based on Adtran’s relative total stockholder return against all companies in the NASDAQ Telecommunications Index at the end of a three-year performance period. Depending on the relative total stockholder return over the performance period, the recipient may earn from 0 % to 150 % of the shares underlying the PSUs, with the shares earned distributed upon the vesting. The fair value of the award is based on the market price of our common stock on the date of grant, adjusted for the expected outcome of the impact of market conditions using a Monte Carlo Simulation valuation method. A portion of the granted PSUs vests and the underlying shares become deliverable upon the death or disability of the recipient or upon a change of control of Adtran, as defined by the 2020 Employee Plan. The recipients of the PSUs receive dividend credits based on the shares of common stock underlying the PSUs. The dividend credits vest and are earned in the same manner as the PSUs and are paid in cash upon the issuance of common stock for the PSUs. During the year ended December 31, 2024, and 2023, the Company granted 0.1 and 0.9 million performance-based PSUs to its executive officers and certain employees, respectively. The grant-date fair value of these performance-based awards was based on the closing price of the Company’s stock on the date of grant. These awards vest over either a two or three-year period, subject to the grantee’s continued employment, with the ability to earn shares in a range of 0 % to either 100 % or 150 % of the awarded number of PSUs based on the achievement of defined performance targets. Equity-based compensation expense and liabilities with respect to these awards may be adjusted over the vesting period to reflect the probability of achievement of performance targets defined in the award agreements. During each of the years ended December 2023 and 2022, the Company granted 0.9 and 0.3 million performance-based PSUs to its executive officers and certain employees. The grant-date fair value of these performance-based awards was based on the closing price of the Company’s stock on the date of grant. These awards vested over one-year and two-year periods, respectively, subject to the grantee’s continued employment, with the ability to earn shares in a range of 0 % to 142.8 % of the awarded number of PSUs based on the achievement of defined performance targets. Equity-based compensation expense with respect to these awards may be adjusted over the vesting period to reflect the probability of achievement of performance targets defined in the award agreements. Pursuant to the Business Combination, the unearned performance-based PSUs converted to time-based RSUs which were treated as an award modification during the third quarter of 2022. This resulted in incremental compensation expense totaling $ 17.8 million being recognized during the twelve months ended December 31, 2022. These awards were fully vested as of December 31, 2022. Pursuant to the Business Combination, 0.3 million shares of market-based PSU awards converted to time-based RSU awards which were treated as an award modification during the third quarter of 2022. Given that the fair value of these awards after the modification was less than the fair value of the awards immediately before the modification, no incremental compensation expense was recognized. The Company continued to recognize compensation expense based on the award's original grant date fair value. The fair value of RSUs and restricted stock is equal to the closing price of our stock on the grant date. RSUs and restricted stock vest ratably over four-year and one-year periods, respectively. 93 We will continue to assess the assumptions and methodologies used to calculate the estimated fair value of stock-based compensation. If circumstances change, and additional data becomes available over time, we may change our assumptions and methodologies, which may materially impact our fair value determination. As of December 31, 2024 , total unrecognized compensation expense related to the non-vested portion of market-based PSUs, RSUs and restricted stock was approximately $ 10.7 million, which is expected to be recognized over an average remaining recognition period of 2.1 years. There was $ 10.9 million of unrecognized compensation expense related to unvested 2024 performance-based PSUs, which will be recognized over the remaining requisite service period of 1 years if achievement of the performance obligation becomes probable. Unrecognized compensation expense will be adjusted for actual forfeitures as they occur. Stock Options - ADTRAN Holdings, Inc. The following table is a summary of stock options outstanding as of December 31, 2024 and 2023 and the changes that occurred during 2024: Number of Options (In thousands) Weighted Average Exercise Price (Per share) Weighted Average 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 ( 139 ) $ 5.93 Stock options forfeited ( 202 ) $ 6.78 Stock options expired ( 609 ) $ 14.69 Stock options outstanding, December 31, 2024 2,944 $ 9.86 4.98 $ 3,762 Stock options exercisable, December 31, 2024 1,465 $ 8.73 4.18 $ 1,960 As of December 31, 2024, there was $ 3.2 million of unrecognized compensation expense related to stock options which will be recognized over the remaining weighted-average period of 0.9 years. No stock options were granted during 2024. 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. 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 December 31, 2024. The amount of aggregate intrinsic value was $ 3.8 million as of December 31, 2024, which will change based on the fair market value of the Company's stock. The total pre-tax intrinsic value of options exercised during the years ended December 31, 2024 and 2023 was $ 0.3 million and $ 0.1 million , respectively. The following table further describes our stock options outstanding as of December 31, 2024: Options Outstanding Options Exercisable Range of Exercise Prices (Per Share) Options Outstanding at December 31, 2024 (In thousands) Weighted Average Remaining Contractual Life in Years Weighted Average Exercise Price (Per Share) Options Exercisable at December 31, 2024 (In thousands) Weighted Average Exercise Price $ 5.23 – $ 5.23 1,131 8.87 $ 5.23 550 $ 5.23 $ 5.24 – $ 8.58 431 1.85 $ 7.86 431 $ 7.86 $ 8.59 – $ 12.17 696 2.81 $ 11.57 155 $ 9.49 $ 12.18 – $ 15.33 378 1.23 $ 15.33 329 $ 15.33 $ 15.34 – $ 19.08 308 4.37 $ 19.08 — $ — 2,944 1,465 The Black-Scholes option pricing model (the “Black-Scholes Model”) is used to determine the estimated fair value of stock option awards on the date of grant. The Black-Scholes Model requires the input of certain assumptions that involve judgment. Because our stock options have characteristics significantly different from those of traded options, and because changes in the input assumptions can materially affect the fair value estimate, existing models may not provide reliable measures of fair value of our stock options. The stock 94 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 our stock price and employee exercise behaviors. 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 our stock price and employee exercise behaviors. The weighted-average estimated fair value of stock options granted to employees during the years ended December 31, 2023 was $ 2.99 per share with the following weighted-average assumptions: 2023 Expected volatility $ 51.78 % Risk-free interest rate 4.13 % Expected dividend yield — Expected life (in years) 5.8 % Note 4 – Investments Debt Securities and Other Investments The Company did no t have any debt securities and other investments as of December 31, 2024. Realized gains and losses on sales of securities are computed under the specific identification method. The following table presents gross realized gains and losses related to our debt securities for the years ended December 31, 2024, 2023 and 2022: For the year ended December 31, (In thousands) 2024 2023 2022 Gross realized gains on debt securities $ — $ 9 $ 17 Gross realized losses on debt securities — ( 355 ) ( 1,211 ) Total (loss) gain recognized, net $ — $ ( 346 ) $ ( 1,194 ) The Company’s investment policy provides limitations for issuer concentration, which limits, at the time of purchase, the concentration in any one issuer to 5 % of the market value of the total investment portfolio. The Company did no t purchase any available-for-sale debt with credit deterioration during the years ended December 31, 2024, 2023 and 2022. Marketable Equity Securities Marketable equity securities consist of publicly traded stock, funds and certain other investments measured at fair value or cost, where appropriate. Re alized and unrealized gains and losses for our marketable equity securities for the year ended December 31, 2024, 2023 and 2022 were as follows: For the year ended December 31, (In thousands) 2024 2023 2022 Realized gains (losses) on equity securities sold $ 277 $ 17 $ ( 1,675 ) Unrealized gains (losses) on equity securities held 3,310 3,083 ( 8,470 ) Total gain (loss) recognized, net $ 3,587 $ 3,100 $ ( 10,145 ) As of December 31, 2024, gross unrealized losses related to individual investments in a continuous loss position for twelve months or longer were not material. 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; • 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; inputs could include information supplied by investees. 95 The Company’s cash equivalents and investments held at fair value are categorized into this hierarchy as follows: Fair Value Measurements as of December 31, 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 $ 5,538 $ 5,538 $ — $ — Marketable equity securities Marketable equity securities - various industries 1,068 1,068 — — Deferred compensation plan assets 30,991 30,991 — — Total $ 37,597 $ 37,597 $ — $ — 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. Note 5 – Inventory As of December 31, 2024 and 2023, inventory, net was comprised of the following: (In thousands) 2024 2023 Raw materials $ 107,369 $ 152,140 Work in process 9,724 17,239 Finished goods 152,244 192,916 Total Inventory, net $ 269,337 $ 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 consider historical usage, known trends, inventory age and market conditions. During the twelve months ended December 31, 2024 , the Company recorded an inventory write-down of $ 8.6 million, as a result of a strategy shift which included discontinuance of certain product lines in connection with the Business Efficiency Program of which $ 4.1 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 Consolidated Statements of Loss. In connection with the Company’s restructuring efforts, during the twelve months ended December 31, 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 $ 24.3 million, which is included in cost of revenue in the Consolidated Statements of Loss. 96 Note 6 – Property, Plant and Equipment As of December 31, 2024 and 2023, property, plant and equipment, net was comprised of the following: (In thousands) 2024 2023 Engineering and other equipment $ 184,694 $ 183,336 Building 50,871 79,215 Computer hardware and software 109,729 91,752 Building and land improvements 39,979 58,238 Furniture and fixtures 20,994 21,368 Land 2,989 5,242 Total Property, Plant and Equipment 409,256 439,151 Less: accumulated depreciation ( 306,314 ) ( 325,569 ) Total Property, Plant and Equipment, net $ 102,942 $ 113,582 Long-lived assets used in operations are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable and the undiscounted cash flows estimated to be generated by the asset are less than the asset’s carrying value. In connection with the planned integration of information technology following the Business Combination, we determined that certain projects no longer fit our needs or strategic plan. As a result, the Company recognized impairment charges of $ 0.5 million during the year ended December 31, 2022 related to software and web site development. The impairment charges were determined based on actual costs incurred. During the years ended December 31, 2024 and 2023, no impairment charges were recognized. Depreciation expense was $ 27.7 million, $ 30.2 million and $ 20.9 million for the years ended December 31, 2024, 2023 and 2022, respectively, which is recorded in cost of revenue, selling, general and administrative expenses and research and development expenses in the Consolidated Statements of Loss. Assets Held For Sale On December 31, 2024, the Company determined it met the held for sale criteria pursuant to ASC 360, "Impairment and Disposal of Long-Live Assets" on the Company's property located at the North and South Towers in its Huntsville, Alabama campus and ceased recording depreciation on the assets. The Company expects to dispose of the property within the next twelve months . The Company records assets held for sale at the lower of their carrying value or fair value. The total carrying value of assets held for sale was $ 11.9 million as of December 31, 2024 and is separately recorded on the balance sheet. Note 7 – Leases We have operating leases for office space, automobiles and various other equipment in the U.S. and in certain international locations. As of December 31, 2024, our operating leases had remaining lease terms of 1 month to 167 months , some of which included options to extend the leases for up to one year , and some of which included options to terminate the leases within three months . Supplemental balance sheet information related to operating leases is as follows: December 31, December 31, (In thousands) Classification 2024 2023 Assets Operating lease assets Other non-current assets $ 30,342 $ 37,474 Total lease asset $ 30,342 $ 37,474 Liabilities Current operating lease liability Accrued expenses and other liabilities $ 7,154 $ 7,720 Non-current lease obligations Non-current lease obligations 25,925 31,420 Total lease liability $ 33,079 $ 39,140 Lease expense related to short-term leases was less th an $ 0.2 million for the twelve months ended December 31, 2024 and $ 0.1 million for the twelve months ended December 31, 2023 and 2022, and is included in cost of revenue, selling, general and administrative expenses and research and development expenses in the Consolidated Statements of Loss. Lease expense related to variable lease payments that do not depend on an index or rate, such as real estate taxes and insurance reimbursements, was $ 0.3 million, $ 0.7 million and $ 0.6 million for the twelve months ended December 31, 2024, 2023 and 2022, respectively. 97 The components of lease expense included in the Consolidated Statements of Loss were as follows: For the Year Ended December 31, (In thousands) 2024 2023 2022 Cost of revenue $ 150 $ 163 $ 110 Research and development expenses 412 990 942 Selling, general and administrative expenses 9,213 9,708 3,961 Total operating lease expense $ 9,775 $ 10,861 $ 5,013 As of December 31, 2024, operating lease liabilities included on the Consolidated Balance Sheet by future maturity were as follows: (In thousands) Amount 2025 8,829 2026 7,550 2027 6,498 2028 4,980 2029 2,925 Thereafter 10,281 Total lease payments 41,063 Less: Interest ( 7,984 ) Present value of lease liabilities $ 33,079 Future operating lease payments include $ 5.3 million related to options to extend lease terms that are reasonably certain of being exercised. There are no legally binding leases that have not yet commenced. An incremental borrowing rate is used based on information available at the commencement date in determining the present value of lease payments. The incremental borrowing rate is determined on a portfolio basis by grouping leases with similar terms, as well as grouping leases based on a U.S. dollar or euro functional currency. The following table provides information about our weighted average lease terms and weighted average discount rates: As of December 31, Weighted average remaining lease term (years) 2024 2023 Operating leases with USD functional currency 7.3 8.1 Operating leases with EUR functional currency 5.9 5.8 Weighted average discount rate Operating leases with USD functional currency 3.64 % 3.70 % Operating leases with EUR functional currency 4.50 % 3.92 % Note 8 – Goodwill The changes in the carrying amount of goodwill for the year ended December 31, 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 ) ( 3,466 ) ( 9,969 ) As of December 31, 2024 $ — $ 52,918 $ 52,918 The Company’s annual impairment test date is October 1, 2024. Based on our analysis, management concluded that there was no impairment of goodwill as of that date. Between the annual impairment date of October 1, 2024 and year-end December 31, 2024, there were no additional triggering events. 98 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 approach. 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 revenue growth rates, earnings before interest, taxes, depreciation and amortization ("EBITDA") margins, discount rate, peer group determination, revenue and EBITDA market multiple. 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. During 2023, the Company experienced decreased market capitalization and long-term projections. Therefore, an interim impairment test over goodwill was performed as of September 30, 2023. The Company determined the fair value of each reporting unit using a combination of an income approach and a market approach. Management’s 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. It was determined that the decreases in projected future cash flows, discount rates, overall macroeconomic conditions, as well as the decrease in our market capitalization applied in the valuation, were required to align with market-based assumptions and company-specific risk, which resulted in lower fair values of the Services & Support reporting unit. As a result of the interim assessment, the Company recorded a goodwill impairment charge of $ 37.9 million as its estimated fair value was less than its book value on that date. No other goodwill impairment charges were recorded during 2023. As of December 31, 2024, accumulated goodwill impairment losses in total were $ 330.5 million. Note 9 – Intangible Assets Intangible assets as of December 31, 2024 and 2023, consisted of the following: 2024 2023 (In thousands) Weighted Average Useful Life (in years) Gross Value Accumulated Amortization Net Value Gross Value Accumulated Amortization Net Value Customer relationships 11.0 $ 51,165 $ ( 18,778 ) $ 32,387 $ 54,856 $ ( 15,943 ) $ 38,913 Backlog 1.7 53,839 ( 52,258 ) 1,581 57,391 ( 52,022 ) 5,369 Developed technology 7.9 346,923 ( 99,588 ) 247,335 339,189 ( 61,653 ) 277,536 Licensed technology 9.0 5,900 ( 4,452 ) 1,448 5,900 ( 3,797 ) 2,103 Licensing agreements 8.5 560 ( 407 ) 153 560 ( 368 ) 192 Patents 7.3 — — — 500 ( 500 ) — Trade names 3.0 27,851 ( 25,862 ) 1,989 29,689 ( 16,379 ) 13,310 Total $ 486,238 $ ( 201,345 ) $ 284,893 $ 488,085 $ ( 150,662 ) $ 337,423 99 Intangible assets are reviewed for impairment whenever events and circumstances indicate impairment may have occurred. During the first quarter of 2024, qualitative factors such as a decrease in the Company’s market capitalization, cautious service provider spending due to economic uncertainty and continued customer inventory adjustments triggered a quantitative reassessment of our estimated future undiscounted cash flows for the Network Solutions asset group. The significant inputs and assumptions used in the determination of the cash flows expected to be generated by the asset group, requires significant judgment and the use of estimates and assumptions related to revenue growth rates, EBITDA margins, peer group determination, and disposition exit multiple. The Company determined that our estimated future undiscounted cash flows exceeded the carrying value of our asset groups. No impairment losses of intangible assets were recorded during the years ended December 31, 2024, 2023 and 2022. Amortization expense was $ 63.0 million, $ 82.8 million and $ 47.3 million for the years ended December 31, 2024, 2023 and 2022, respectively, and was included in cost of revenue, selling, general and administrative expenses and research and development expenses in the Consolidated Statements of Loss. As of December 31, 2024, estimated future amortization expense of intangible assets was as follows: As of (In thousands) December 31, 2024 2025 $ 56,268 2026 53,231 2027 47,585 2028 40,374 2029 40,028 Thereafter 47,407 Total $ 284,893 Note 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 income, net in the Consolidated Statements of Loss. 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 December 31, 2024, the Company had 39 forward rate contracts outstanding. Foreign Currency Hedging Agreement On November 3, 2022, the Company entered into a euro/U.S. dollar forward contract arrangement (the "Initial Forward") with Wells Fargo Bank, N.A. (the “Hedge Counterparty”). The Initial Forward, which was 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, enabling 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 for 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 twelve months ended December 31, 2024, the Company settled four € 20.0 million forward contract tranches. On March 21, 2023, the Company entered into a euro/U.S. dollar forward contract arrangement (the “Forward”) with the Hedge Counterparty. Under the Forward, which was 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 for U.S. dollars at an average rate of EUR/USD 1.085 . During the twelve months ended December 31, 2024, the Company settled four $ 20.0 million forward contract tranches. As of December 31, 2024, both the Initial Forward and Forward have fully matured and are no longer outstanding. The fair values of the Company's derivative instruments recorded in the Consolidated Balance Sheet as of December 31, 2024 were as follows: 100 (In thousands) Balance Sheet Location December 31, 2024 December 31, 2023 Derivatives Not Designated as Hedging Instruments (Level 2): Foreign exchange contracts – derivative assets Other receivables $ 565 $ 7,125 Foreign exchange contracts – derivative liabilities Accounts payable $ — $ ( 2,277 ) Total derivatives $ 565 $ 4,848 The change in the fair values of the Company's derivative instruments recorded in the Consolidated Statements of Loss during the years ended December 31, 2024, 2023 and 2022 were as follows: (In thousands) Income Statement Location 2024 2023 2022 Derivatives Not Designated as Hedging Instruments: Foreign exchange contracts Other income, net $ 2,197 $ 758 $ 10,793 Note 11 – Credit Agreements The carrying amounts of the Company's revolving credit agreements in its Consolidated Balance Sheets were as follows: As of December 31, (In thousands) 2024 2023 Wells Fargo credit agreement $ 189,576 $ 195,000 Total non-current revolving credit facility $ 189,576 $ 195,000 As of December 31, 2024 and 2023, the estimated fair value of our revolving credit agreements, approximates the carrying value. As of December 31, 2024 and 2023, the weighted average interest rate on our revolving credit agreements was 8.64 % and 7.45 %, respectively. 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”). Initially, the Credit Agreement allowed for revolving credit borrowings of up to $ 400.0 million in aggregate principal amount ($ 100.0 million of which is, subject to the covenants described below, available to Adtran Networks as borrower pursuant to the Subline (as defined and further described below). As of December 31, 2024, the aggregate principal amount was reduced to $ 374.0 million ($ 74.0 million of which is available to Adtran Networks as borrower pursuant to the Subline) due to a $ 26.0 million reduction on the Subline. 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 minority shares of Adtran Networks or repay revolver borrowings under the Credit Agreement. 101 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 December 31, 2024, Adtran's borrowings under the revolving line of credit were $ 189.6 million, of which approximately $ 141.0 million were borrowed by ADTRAN, Inc. and $ 48.6 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 $ 374.0 million total revolving facility for the issuance of letters of credit. As of December 31, 2024, we had a total of 3.6 million in letters of credit under ADTRAN, Inc. outstanding under the Credit Agreement, leaving a net amount (after giving effect to the $ 189.6 million of outstanding borrowings described above) of $ 180.8 million available for future borrowings; however, as of December 31, 2024, the Company was limited to additional borrowings of $ 56.1 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 December 31, 2024, the Company was in compliance with all covenants. 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 Covenant Relief Period, an applicable margin of 2.15 % per annum), or (B) Adjusted Term SOFR (as defined below) plus an applicable margin ranging from 1.65 % to 2.65 % per annum based on the Company’s Consolidated Total Net Leverage Ratio (or, during the Covenant Relief Period, an applicable margin of 3.15 % per annum). “Base Rate” means the highest of (a) the federal funds rate (i.e., for any day, the rate per annum equal to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System, as published by the Federal Reserve Bank of New York on the business day next succeeding such day) plus ½ of 1.0 %, (b) the prime commercial lending rate of the Administrative Agent, as established from time to time at its principal U.S. office (which such rate is an index or base rate and will not necessarily be its lowest or best rate charged to its customers or other banks), and (c) the daily Adjusted Term SOFR (as defined in the Credit Agreement) for a one-month tenor plus 1.0 %. 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 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. 102 In addition to paying interest on outstanding principal under the Credit Agreement, the Company is required to pay a quarterly commitment fee to the lenders under the Credit Agreement in respect of unutilized revolving loan commitments on the average daily unused portion of the revolving credit commitment of each lender, which commitment fee ranges from 0.20 % to 0.25 % per annum based on the Company’s Consolidated Total Net Leverage Ratio (or, during the Covenant Relief Period, is equal to 0.25 % per annum). The Company is also required to pay a participation fee to the Administrative Agent for the account of each lender with respect to the Company’s participation in letters of credit at the then applicable rate for Adjusted Term SOFR Loans or EURIBOR Loans, and other customary fronting, issuance and administration fees with respect to letters of credit. The “Applicable Margin Increase 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 • 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. 103 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. Note 12 – Income Taxes The components of income tax expense (benefit) for the years ended December 31, 2024, 2023 and 2022 are as follows: (In thousands) 2024 2023 2022 Current Federal $ ( 1,456 ) $ 2,545 $ 4,572 State 575 26 88 International 7,419 10,004 ( 4,347 ) Total Current 6,538 12,575 313 Deferred Federal 332 46,252 ( 47,429 ) State ( 405 ) 6,607 ( 6,776 ) International 2,320 ( 37,301 ) ( 8,183 ) Total Deferred 2,247 15,558 ( 62,388 ) Total Income Tax Expense (Benefit) $ 8,785 $ 28,133 $ ( 62,075 ) The effective income tax rate differs from the federal statutory rate due to the following: 2024 2023 2022 Tax provision computed at the federal statutory rate 21.00 % 21.00 % 21.00 % State income tax provision, net of federal benefit 0.06 1.34 2.60 Federal research credits 0.68 3.26 6.74 Foreign taxes 0.50 3.52 6.29 Tax-exempt income 0.04 0.06 0.21 Change in valuation allowance ( 5.88 ) ( 35.19 ) 63.92 Non-deductible transaction costs — — ( 2.74 ) Foreign tax credits 0.86 2.45 ( 0.40 ) Stock-based compensation ( 0.40 ) ( 0.57 ) ( 2.09 ) Withholding taxes ( 0.08 ) 0.01 0.03 Adtran Networks tax exempt income — 1.42 — Return to accrual ( 0.50 ) 0.62 0.24 Global intangible low-taxed income ("GILTI") ( 3.14 ) ( 5.87 ) ( 8.08 ) Adtran Networks Goodwill Impairment ( 14.17 ) ( 4.62 ) — Other, net ( 1.00 ) 0.40 ( 0.24 ) Effective Tax Rate ( 2.03 )% ( 12.17 )% 87.48 % Loss before expense (benefit) for income taxes for the years ended December 31, 2024, 2023 and 2022 is as follows: (In thousands) 2024 2023 2022 U.S. entities $ ( 71,684 ) $ ( 113,951 ) $ ( 33,720 ) International entities ( 360,579 ) ( 117,259 ) ( 37,243 ) Total $ ( 432,263 ) $ ( 231,210 ) $ ( 70,963 ) 104 Loss before expense (benefit) for income taxes for international entities reflects loss based on statutory transfer pricing agreements. This amount does not correlate to consolidated international revenue, which occurs from our U.S. entity. 105 Deferred income taxes on t he Consolidated Balance Sheets result from temporary differences between the amount of assets and liabilities recognized for financial reporting and tax purposes. The significant components of current and non-current deferred taxes as of December 31, 2024 and 2023 consist of the following: (In thousands) 2024 2023 Deferred tax assets: Inventory $ 14,121 $ 19,623 Accrued expenses 845 3,533 Deferred compensation 7,093 6,284 Stock-based compensation 1,770 2,023 Uncertain tax positions related to state taxes and related interest 105 105 Pensions 5,121 8,607 Foreign losses 70,666 2,705 State losses and credit carry-forwards 4,901 4,259 Federal loss and research carry-forwards 20,874 78,450 Lease liabilities 6,153 7,701 Capitalized research and development expenditures 43,574 48,192 Interest expense limitation 6,815 — Valuation allowance ( 110,960 ) ( 86,567 ) Total Deferred Tax Assets 71,078 94,915 Deferred tax liabilities: Property, plant and equipment ( 8,368 ) ( 9,093 ) Intellectual property ( 67,923 ) ( 86,572 ) Right of use lease assets ( 6,175 ) ( 8,424 ) Investments ( 1,476 ) ( 694 ) Total Deferred Tax Liabilities ( 83,942 ) ( 104,783 ) Net Deferred Tax Liabilities $ ( 12,864 ) $ ( 9,868 ) On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law. Subsequently, the Internal Revenue Service (“IRS”) released its final GILTI regulations on July 9, 2020. The passage of the CARES Act and subsequent issuance of the GILTI final regulations together resulted in the Company’s recognition of a tax benefit in the amount of $ 10.8 million during 2020, $ 7.9 million of which related to the utilization of deferred tax assets which had previously been offset with a valuation allowance and $ 2.9 million primarily related to the tax rate differential on carrying back losses from 2018 and 2019 tax years to prior years in which the U.S. Corporate tax rate was 35 % versus the current 21 % federal tax rate. On December 20, 2021, the Organization for Economic Co-operation and Development (“OECD”) published Pillar Two Model Rules defining the global minimum tax, which calls for the taxation of large corporations at a minimum rate of 15 %. The OECD has since issued administrative guidance providing transition and safe harbor rules around the implementation of the Pillar Two global minimum tax. Many non-U.S. tax jurisdictions have either recently enacted legislation to adopt certain components of the Pillar Two Model Rules beginning in 2024 (including the European Union Member States) with the adoption of additional components in later years or announced their plans to enact legislation in future years. The Pillar Two Model Rules did not have a material impact on the Company’s financial statements for the 2024 tax year. We are still closely monitoring developments and evaluating the potential impact on future periods. On August 16, 2022, the Inflation Reduction Act of 2022 (“Inflation Reduction Act”) was signed into law, with tax provisions primarily focused on implementing a 15 % minimum tax on global adjusted financial statement income (“AFSI”) for corporations with average AFSI exceeding $ 1 billion over a three-year period, a 1 % excise tax on share repurchases and various climate and clean energy tax incentives. The Inflation Reduction Act did not have a material impact on the Company’s financial statements for the 2024 tax year. As of December 31, 2024 and 2023, non-current deferred taxes reflected deferred taxes on net unrealized gains and losses on available-for-sale investments and deferred taxes on unrealized losses in our pension plan. The net change in non-current deferred taxes associated with these items, which resulted in a deferred tax benefit of $ 0.2 million and $ 0.3 million in 2024 and 2023, respectively, was recorded as an adjustment to other comprehensive (loss) income, presented in the Consolidated Statements of Comprehensive (Loss) Income. 106 The Company continually reviews the adequacy of our valuation allowance and recognizes the benefits of deferred tax assets only as the reassessment indicates that it is more likely than not that the deferred tax assets will be realized in accordance with ASC 740, Income Taxes . Due to the decrease in revenue and profitability for 2023 and 2024 and all other positive and negative objective evidence considered as part of our analysis, our ability to consider other subjective evidence such as projections for future growth continues to be limited when evaluating whether our deferred tax assets will be realized. As such, the Company maintains its conclusion from 2023 that it is not more likely than not that our domestic deferred tax assets will be realized and a valuation allowance against certain domestic deferred tax assets remains through 2024. Additional valuation allowance was recorded against certain deferred tax assets on our foreign entities as not more likely than not realizable in the fourth quarter of 2024. The amount of the deferred tax assets considered realizable, however, could be adjusted in future periods in the event sufficient evidence is present to support a conclusion that it is more likely than not that all or a portion of our deferred tax assets will be realized. As of December 31, 2024 and 2023, the Company had gross deferred tax assets totaling $ 98.1 million offset by a valuation allowance totaling $ 111.0 million and gross deferred tax assets totaling $ 76.7 million offset by a valuation allowance of $ 86.6 million, respectively. Of the current valuation allowance, $ 87.0 million was established against our domestic deferred tax assets and the remaining $ 24.0 million is related to foreign tax assets where we lacked sufficient future source of taxable income to realize those deferred tax assets. The change in our valuation allowance for the year ending December 31, 2024 was an increase of $ 24.4 million. The change in the valuation allowance was primarily related to the decrease in deferred tax liabilities remaining from the step up in book basis from purchase accounting and the increase in deferred tax assets associated with net operating losses and interest expense limitation during the year. Supplemental balance sheet information related to deferred tax assets (liabilities) as of December 31, 2024 and 2023 were as follows: December 31, 2024 (In thousands) Deferred Tax Assets (Liabilities) Valuation Allowance Deferred Tax Assets (Liabilities), net Domestic $ 102,447 $ ( 87,030 ) $ 15,417 International ( 4,351 ) ( 23,930 ) ( 28,281 ) Total $ 98,096 $ ( 110,960 ) $ ( 12,864 ) December 31, 2023 (In thousands) Deferred Tax Assets (Liabilities) Valuation Allowance Deferred Tax Assets (Liabilities), net Domestic $ 101,120 $ ( 84,767 ) $ 16,353 International ( 24,421 ) ( 1,800 ) ( 26,221 ) Total $ 76,699 $ ( 86,567 ) $ ( 9,868 ) As of December 31, 2024 and 2023, the deferred tax assets for foreign and domestic loss carry-forwards, research and development tax credits, unamortized research and development costs and state credit carry-forwards totaled $ 140.0 million and $ 135.1 million, respectively. As of December 31, 2024, $ 27.7 million of these deferred tax assets will expire at various times between 2025 and 2045 . The remaining deferred tax assets will either amortize through 2040 or carryforward indefinitely. As of December 31, 2024 and 2023, respectively, our cash and cash equivalents were $ 77.6 million and $ 87.2 million. Of these amounts, our foreign subsidiaries held cash of $ 54.2 million and $ 73.0 million, respectively, representing approximately 78 % and 88 % of available short-term liquidity, which is used to fund ongoing liquidity needs of these subsidiaries. As part of our restructuring plan, the Company’s assertion on being indefinitely reinvested changed in a particular jurisdiction in a previous year. The Company has a withholding tax liability of $ 0.4 million as of December 31, 2024 and 2023. The Company maintains its assertion in all other jurisdictions that it is indefinitely reinvesting its funds held in foreign jurisdictions outside of the U.S., except to the extent any of these funds can be repatriated without withholding tax. However, if all of these funds were repatriated to the U.S., or used for U.S. operations, certain amounts could be subject to tax. Due to the timing and circumstances of repatriation of such earnings, if any, it is not practicable to determine the amount of funds subject to unrecognized deferred tax liability. During 2024, 2023 and 2022, no income tax benefit or expense was recorded for stock options exercised as an adjustment to equity. 107 The change in the unrecognized income tax benefits for the years ended December 31, 2024, 2023 and 2022 were as follows: (In thousands) 2024 2023 2022 Balance at beginning of period $ 989 $ 17,885 $ 17,836 Increases for tax position related to: Prior years — — — Current year — 129 123 Decreases for tax positions related to: Prior years ( 121 ) ( 17,025 ) ( 13 ) Expiration of applicable statute of limitations ( 616 ) — ( 61 ) Balance at end of period $ 252 $ 989 $ 17,885 As of December 31, 2024, 2023 and 2022, our total liability for unrecognized tax benefits was $ 0.3 million, $ 1.0 million and $ 17.9 million, respectively, of which $ 0.3 million, $ 1.0 million and $ 17.9 million, respectively, would reduce our effective tax rate if we were successful in upholding all of the uncertain positions and recognized the amounts recorded. We classify interest and penalties recognized on the liability for unrecognized tax benefits as income tax expense. As of December 31, 2023 and 2022, the balances of accrued interest and penalties $ 0.1 million and $ 0.1 million, respectively. There was no accrued interest and penalties as of December 31, 2024. We do not anticipate a single tax position generating a significant increase or decrease in our liability for unrecognized tax benefits within 12 months of this reporting date. We file income tax returns in the U.S. for federal and various state jurisdictions and several foreign jurisdictions. We are not currently under audit by the Internal Revenue Service. Generally, we are not subject to changes in income taxes by any taxing jurisdiction for the years prior to 2019. Note 13 – Employee Benefit Plans Pension Benefit Plan We maintain a defined benefit pension plans covering employees in certain foreign countries. Pension benefit plan obligations are based on various assumptions used by our actuaries in calculating these amounts. These assumptions include discount rates, compensation rate increases, expected return on plan assets, retirement rates and mortality rates. Actual results that differ from the assumptions and changes in assumptions could affect future expenses and obligations. Details regarding the pension plans are set forth below. • In Germany, there are two defined benefit pension plans and two defined contribution plans. These plans provide benefits in the event of retirement, death or disability. The plan's benefits are based on age, years of service and salary. The defined benefit plans are financed by contributions paid by the Company and the defined contribution plans are financed by contributions paid by the participants. • In Switzerland, there are two defined benefit pension plans. Both plans provide benefits in the event of retirement, death or disability. The plan's benefits are based on age, years of service, salary and on a participant's old age account. The plans are financed by contributions paid by the participants and by the Company. • In Italy, the post-employment benefit plan is required due to statutory provisions. The plan is financed directly by the Company on a pay as you go basis. Employees receive their pension payments as a function of salary, inflation and a notional account. • In Israel, there is a defined benefit pension plan that provides benefits in the event of a participant being dismissed involuntarily, retirement or death. The plan's benefits are based on the higher of the severance benefit required by law or the cash surrender value of the severance benefit component of any qualifying insurance policy or long-term employee benefit fund that is registered in the participants name. The plan is financed by contributions paid by the Company. • In India, the post-employment benefit plan is required due to statutory provisions. The plan is financed directly by the Company on a pay as you go basis. 108 The pension benefit plan obligations and funded status as of December 31, 2024 and 2023, were as follows: (In thousands) 2024 2023 Change in projected benefit obligation: Projected benefit obligation at beginning of period $ 67,897 $ 59,344 Service cost 1,664 1,579 Interest cost 1,902 1,851 Actuarial (gain) loss - experience ( 238 ) 1,181 Actuarial loss - assumptions 860 1,791 Benefit payments ( 4,108 ) ( 1,966 ) Plan amendments ( 874 ) 966 Participant contributions 429 — Effects of foreign currency exchange rate changes ( 4,273 ) 3,151 Projected benefit obligation at end of period 63,259 67,897 Change in plan assets: Fair value of plan assets at beginning of period 55,218 48,720 Actual gain on plan assets 3,966 3,125 Contributions 1,288 1,215 Benefit payments ( 2,244 ) ( 231 ) Effects of foreign currency exchange rate changes ( 3,738 ) 2,389 Fair value of plan assets at end of period 54,490 55,218 Unfunded status at end of period $ ( 8,769 ) $ ( 12,679 ) The accumulated benefit obligation was $ 62.8 million and $ 67.1 million as of December 31, 2024 and 2023, respectively. The decrease in the accumulated benefit obligation, projected benefit obligation and the actuarial loss was primarily attributable to benefit payments to retirees and the effect of exchange rates during the year. The net amounts recognized in the Consolidated Balance Sheets for the unfunded pension liability as of December 31, 2024 and 2023 were as follows: (In thousands) Balance Sheet Location 2024 2023 Non-current pension asset Other non-current assets $ 517 $ — Current pension liability Accrued wages and benefits ( 303 ) ( 136 ) Non-current pension liability Non-current pension liability ( 8,983 ) ( 12,543 ) Total $ ( 8,769 ) $ ( 12,679 ) The components of net periodic pension cost, other than the service cost component, are included in other income, net in the Consolidated Statements of Loss. The components of net periodic pension cost and amounts recognized in other comprehensive (loss) income for the years ended December 31, 2024, 2023 and 2022 were as follows: (In thousands) 2024 2023 2022 Net periodic benefit cost: Service cost $ 1,664 $ 1,579 $ 1,426 Interest cost 1,902 1,851 1,168 Expected return on plan assets ( 2,529 ) ( 1,750 ) ( 2,129 ) Amortization of actuarial losses 28 26 355 Net periodic benefit cost 1,065 1,706 820 Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss): Net actuarial (gain) loss ( 1,640 ) 2,304 ( 6,549 ) Amortization of actuarial gains (losses) 233 ( 145 ) ( 113 ) Amount recognized in other comprehensive (income) loss ( 1,407 ) 2,159 ( 6,662 ) Total recognized in net periodic benefit cost and other comprehensive (income) loss $ ( 342 ) $ 3,865 $ ( 5,842 ) 109 The amounts recognized in accumulated other comprehensive loss as of December 31, 2024 and 2023 were as follows: (In thousands) 2024 2023 Net actuarial loss $ ( 1,824 ) $ ( 3,231 ) The defined benefit pension plans are accounted for on an actuarial basis, which requires the use of various assumptions, including an expected rate of return on plan assets and a discount rate. The expected return on our plan's assets is utilized in determining the benefit obligation and net periodic benefit cost is derived from periodic studies, which include a review of asset allocation strategies, anticipated future long-term performance of individual asset classes, risks using standard deviations and correlations of returns among the asset classes that comprise the plans' asset mix. While the studies give appropriate consideration to recent plan performance and historical returns, the assumptions are primarily long-term, prospective rates of return. The discount rate has been derived from the returns of high-quality, corporate bonds denominated in euro currency with durations close to the duration of our pension obligations. The weighted-average assumptions that were used to determine the net periodic benefit cost for the years ended December 31, 2024, 2023 and 2022 were as follows: 2024 2023 2022 Discount rate 2.84 % 3.17 % 3.24 % Rate of compensation increase 1.54 % 2.22 % 2.17 % Expected long-term rates of return 4.85 % 4.83 % 4.65 % The weighted-average assumptions that were used to determine the benefit obligation as of December 31, 2024 and 2023: 2024 2023 Discount rate 2.73 % 2.84 % Rate of compensation increase 1.54 % 2.22 % Actuarial gains and losses are recorded in accumulated other comprehensive income. To the extent unamortized gains and losses exceed 10 % of the higher of the market-related value of assets or the projected benefit obligation, the excess is amortized as a component of net periodic pension cost over the remaining service period of active participants. The Company anticipates making approximately $ 2.0 million in contributions to the pension plans in 2025. The following pension benefit payments, which reflect expected future service, as appropriate, are expected to be paid to participants: (In thousands) 2025 $ 3,032 2026 3,214 2027 3,906 2028 3,346 2029 4,352 2030 - 2034 18,834 Total $ 36,684 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; • 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. 110 We have categorized our cash equivalents and our investments held at fair value into this hierarchy as follows: Fair Value Measurements at December 31, 2024 Using (In thousands) Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Cash and cash equivalents $ 753 $ 753 $ — $ — Available-for-sale securities Bond funds 18,058 16,867 1,191 — Equity funds 21,376 21,183 193 — Other funds 7,406 6,089 1,317 — Real estate funds 6,897 1,737 2,106 3,054 Available-for-sale securities 53,737 45,876 4,807 3,054 Total $ 54,490 $ 46,629 $ 4,807 $ 3,054 Fair Value Measurements at December 31, 2023 Using (In thousands) Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Cash and cash equivalents $ 987 $ 987 $ — $ — Available-for-sale securities Bond funds 20,155 18,840 1,315 - Equity funds 21,525 21,288 237 — Other funds 6,054 5,343 711 — Insurance contracts 353 — 353 — Real estate funds 6,144 546 2,326 3,272 Available-for-sale securities 54,231 46,017 4,942 3,272 Total $ 55,218 $ 47,004 $ 4,942 $ 3,272 Our investment policy includes various guidelines and procedures designed to ensure assets are invested in a manner necessary to meet expected future benefits earned by participants and consider a broad range of economic conditions. The objectives of the target allocations are to maintain investment portfolios that diversify risk through prudent asset allocation parameters, achieve asset returns that meet or exceed the plans’ actuarial assumptions and achieve asset returns that are competitive with like institutions employing similar investment strategies. The investment policy is periodically reviewed by the Company and a designated third-party fiduciary for investment matters. The policy is established and administered in a manner that is compliant at all times with applicable government regulations. 401(k) Savings Plans We maintain the ADTRAN, Inc. 401(k) Retirement Plan and the Adtran Networks SE 401(k) Retirement Plan (the “Savings Plans”) for the benefit of eligible employees. The Savings Plans are intended to qualify under Sections 401(a) and 401(k) of the Internal Revenue Code of 1986, as amended (the “Code”), and is intended to be a “safe harbor” 401(k) plan under Code Section 401(k)(12). The Savings Plans allows employees to save for retirement by contributing part of their compensation to the plan on a tax-deferred basis. The Savings Plans also requires us to contribute a “safe harbor” amount each year. In our legacy ADTRAN, Inc. plan, we match up to 4 % of employee contributions ( 100 % of an employee’s first 3 % of contributions and 50 % of their next 2 % of contributions ), beginning on the employee’s one-year anniversary date. All matching contributions under the legacy ADTRAN, Inc. Savings Plan vest im mediately. In our legacy Adtran Networks, plan, we match up to 1.5 % of employee contributions ( 25 % of an employee's first 6 % of contributions ). All matching contributions under the legacy Adtran Networks Savings Plan vest ratably over five years beginning on the employee's one-year anniversary date. In addition, under the legacy Adtran Networks plan, an annual matching employer contribution is made which is based on the Company's achievement against a yearly relative Pro-forma EBIT target which can range from no additional match up to an additional 50 % match. In calculating our matching contributions, compensation up to the statutory maximum under the Code is used ($ 345,000 for 2024). Em ployer contribution expense and plan administration costs for both Savings Plan amounted to approximately $ 3.5 million, $ 4.2 million and $ 4.1 million in 2024, 2023 and 2022, respectively. 111 Deferred Compensation Plans We maintain two deferred compensation programs for certain executive management employees. The ADTRAN, Inc. Deferred Compensation Program for Employees is offered as a supplement to our tax-qualified 401(k) plan and is available to certain executive management employees who have been designated by our Board of Directors. This deferred compensation plan allows participants to defer all or a portion of certain specified bonuses and up to 25 % of remaining cash compensation and permits us to make matching contributions on a discretionary basis without the limitations that apply to the 401(k) plan. To date, we have not made any matching contributions under this plan. We also maintain the ADTRAN, Inc. Equity Deferral Program for Employees. Under this plan, participants may elect to defer all or a portion of their vested PSUs and RSUs to the plan. Such deferrals shall continue to be held and deemed to be invested in shares of Adtran stock unless and until the amounts are distributed or such deferrals are moved to another deemed investment pursuant to an election made by the participant. We have set aside the plan assets for all plans in a rabbi trust (the “Trust”) and all contributions are credited to bookkeeping accounts for the participants. The Trust assets are subject to the claims of our creditors in the event of bankruptcy or insolvency. The assets of the Trust are deemed to be invested in pre-approved mutual funds as directed by each participant and the participant’s bookkeeping account is credited with the earnings and losses attributable to those investments. Benefits are scheduled to be distributed six months after termination of employment in a single lump sum payment or annual installments paid over a three or ten-year term based on the participant’s election . Distributions will be made on a pro-rata basis from each of the hypothetical investments of the participant’s account in cash. Any whole shares of ADTRAN, Inc. common stock that are distributed will be distributed in-kind. Assets of the Trust are deemed invested in mutual funds that cover an investment spectrum ranging from equities to money market instruments. These mutual funds are publicly quoted and reported at fair value. The fair value of the assets held by the Trust and the amounts payable to the plan participants as of December 31, 2024 and 2023 were as follows: (In thousands) 2024 2023 Fair Value of Plan Assets Long-term investments $ 30,991 $ 26,838 Total Fair Value of Plan Assets $ 30,991 $ 26,838 Amounts Payable to Plan Participants Deferred compensation liability $ 33,203 $ 29,039 Total Amounts Payable to Plan Participants $ 33,203 $ 29,039 112 The Trust held $ 2.2 million of common stock in the Company as of December 31, 2024 and 2023. Shares of the Company held by the Trust are recorded at cost and classified as treasury stock on the Consolidated Balance Sheet. Interest and dividend income of the Trust are included in interest and dividend income in the accompanying 2024, 2023 and 2022 Consolidated Statements of Loss. Changes in the fair value of the plan assets held by the Trust have been included in other income, net in the accompanying 2024, 2023 and 2022 Consolidated Statements of Loss. Changes in the fair value of the deferred compensation liability are included as selling, general and administrative expense in the accompanying 2024, 2023 and 2022 Consolidated Statements of Loss. Based on the changes in the total fair value of the Trust’s assets, the Company recorded deferred compensation income in 2024, 2023 and 2022 of $ 3.4 million, $ 3.0 million and $ 6.3 million, respectively. Note 14 – Equity The following table presents changes in accumulated other comprehensive income (loss), net of tax, by components of accumulated other comprehensive income (loss) for the years ended December 31, 2024, 2023 and 2022: (In thousands) Unrealized Gains (Losses) on Available- for-Sale Securities Defined Benefit Plan Adjustments Foreign Currency Adjustments ASU 2018-02 Adoption (1) Total Balance as of December 31, 2022 ( 836 ) ( 1,016 ) 27,593 385 26,126 Other comprehensive (loss) income before reclassifications 734 ( 1,590 ) 22,757 — 21,901 Amounts reclassified from accumulated other comprehensive (loss) income ( 280 ) 100 — — ( 180 ) Net current period other comprehensive income (loss) 454 ( 1,490 ) 22,757 — 21,721 Less: Other comprehensive income attributable to non-controlling interest, net of tax — — 382 — 382 Balance as of December 31, 2023 ( 382 ) ( 2,506 ) 49,968 385 47,465 Other comprehensive (loss) income before reclassifications ( 160 ) 1,640 ( 38,047 ) — ( 36,567 ) Amounts reclassified from accumulated other comprehensive income (loss) 160 ( 161 ) — — ( 1 ) Net current period other comprehensive income (loss) — 1,479 ( 38,047 ) — ( 36,568 ) Balance as of December 31, 2024 $ ( 382 ) $ ( 1,027 ) $ 11,921 $ 385 $ 10,897 (1) With the adoption of ASU 2018-02 on January 1, 2019, stranded tax effects related to the Tax Cuts and Jobs Act of 2017 were reclassified to retained earnings. 113 The following tables present the details of reclassifications out of accumulated other comprehensive income (loss) for the years ended December 31, 2024, 2023 and 2022: (In thousands) For the year ended December 31, Details about Accumulated Other Comprehensive (Loss) Income Components 2024 2023 2022 Affected Line Item in the Statement Where Net Loss Is Presented Unrealized gains (loss) on available-for-sale securities: Net realized gain (loss) on sales of securities $ 216 $ ( 378 ) $ ( 328 ) Net investment gain Defined benefit plan adjustments – actuarial (loss) gain ( 233 ) 145 113 (1) Total reclassifications for the period, before tax ( 17 ) ( 233 ) ( 215 ) Tax expense 16 53 50 Total reclassifications for the period, net of tax $ ( 1 ) $ ( 180 ) $ ( 165 ) (1) Included in the computation of net periodic pension cost. See Note 13 for additional information. The following tables present the tax effects related to the change in each component of other comprehensive income (loss) for the years ended December 31, 2024, 2023 and 2022: 2024 (In thousands) Before-Tax Amount Tax (Expense) Benefit Net-of-Tax Amount Unrealized (losses) gains on available-for-sale securities $ ( 216 ) $ 56 $ ( 160 ) Reclassification adjustment for amounts related to available-for-sale investments included in net income (loss) 216 ( 56 ) 160 Defined benefit plan adjustments 1,640 — 1,640 Reclassification adjustment for amounts related to defined benefit plan adjustments included in net (loss) income ( 233 ) 72 ( 161 ) Foreign currency translation adjustment ( 38,047 ) — ( 38,047 ) Total Other Comprehensive Loss $ ( 36,640 ) $ 72 $ ( 36,568 ) 2023 (In thousands) Before-Tax Amount Tax (Expense) Benefit Net-of-Tax Amount Unrealized gains (losses) on available-for-sale securities $ 992 $ ( 258 ) $ 734 Reclassification adjustment for amounts related to available-for-sale investments included in net (loss) income ( 378 ) 98 ( 280 ) Defined benefit plan adjustments ( 2,304 ) 714 ( 1,590 ) Reclassification adjustment for amounts related to defined benefit plan adjustments included in net income (loss) 145 ( 45 ) 100 Foreign currency translation adjustment 22,757 — 22,757 Total Other Comprehensive Income $ 21,212 $ 509 $ 21,721 2022 (In thousands) Before-Tax Amount Tax (Expense) Benefit Net-of-Tax Amount Unrealized (losses) gains on available-for-sale securities $ ( 55 ) $ 14 $ ( 41 ) Reclassification adjustment for amounts related to available-for-sale investments included in net (loss) income ( 328 ) 85 ( 243 ) Defined benefit plan adjustments 6,549 ( 2,030 ) 4,519 Reclassification adjustment for amounts related to defined benefit plan adjustments included in net income (loss) 113 ( 35 ) 78 Foreign currency translation adjustment 53,396 — 53,396 Total Other Comprehensive Income (Loss) $ 59,675 $ ( 1,966 ) $ 57,709 114 Note 15 – Redeemable Non-Controlling Interest As of December 31, 2024 and 2023, the non-controlling Adtran Networks stockholders’ equity ownership percentage in Adtran Networks was approximately 33.0 % and 34.7 %, respectively. The following table summarizes the redeemable non-controlling interest activity for the year ended December 31, 2024 and 2023: For the year ended December 31, (In thousands) 2024 2023 Balance at beginning of period $ 442,152 $ — Reclassification of non-controlling interests 1,175 443,757 Redemption of redeemable non-controlling interests ( 20,384 ) ( 1,657 ) Net income attributable to redeemable non-controlling interests 9,824 10,092 (1) Annual recurring compensation earned ( 9,824 ) ( 10,092 ) (1) Adtran Networks stock option exercises — 52 Balance at end of period $ 422,943 $ 442,152 (1) (1) During the 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 Consolidated Financial Statements for the year ended December 31, 2023. 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 years ended December 31, 2024 and 2023, we accrued $ 9.8 million and $ 10.1 million, respectively, representing the portion of the annual recurring cash compensation cash to the non-controlling shareholders du ring such periods. The 2024 Annual Recurring Compensation accrual 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 Recurring Compensation . 115 Note 16 – Segment Information and Major Customers The chief operating decision maker is the Company's Chief Executive Officer who 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 and 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 and 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 (loss), other income, net and income tax (expense) benefit are reported on a Company-wide basis only. There is no inter-segment revenue. Asset information by reportable segment is not produced and, therefore, is not reported. Revenue and Gross Profit The following table presents information about revenue and gross profit of our reportable segments for each of the years ended December 31, 2024, 2023 and 2022: 2024 2023 2022 (In thousands) Revenue Cost of Revenue Gross Profit Revenue Cost of Revenue Gross Profit Revenue Cost of Revenue Gross Profit Network Solutions $ 738,964 $ 519,667 $ 219,297 $ 974,389 $ 746,895 $ 227,494 $ 916,793 $ 647,105 $ 269,688 Services & Support 183,756 72,739 111,017 174,711 69,142 105,569 108,743 51,179 57,564 Total $ 922,720 $ 592,406 $ 330,314 $ 1,149,100 $ 816,037 $ 333,063 $ 1,025,536 $ 698,284 $ 327,252 For the years ended December 31, 2024, 2023 and 2022, $ 6.1 million, $ 6.5 million and $ 3.2 million, respectively, of depreciation expense was included in gross profit for our Network Solutions segment. For the years ended December 31, 2024, 2023 and 2022, $ 0.1 million, $ 20 thousand and $ 10 thousand, respectively, of depreciation expense was included in gross profit for our Services & Support segment. Revenue by Category In addition to operating under two reportable segments, the Company also reports revenue across three categories – Subscriber Solutions, Access & Aggregation Solutions and Optical Networking Solutions. Prior to the Business Combination with Adtran Networks on July 15, 2022, ADTRAN, Inc. reported revenue across the following three categories: (1) Access & Aggregation, (2) Subscriber Solutions & Experience and (3) Traditional & Other Products. Following the Business Combination with Adtran Networks, the Company has recast these revenues such that ADTRAN, Inc’s former Access & Aggregation revenue is combined with a portion of the applicable Adtran Networks solutions to create Access & Aggregation Solutions, Adtran’s former Subscriber Solutions & Experience revenue is combined with a portion of the applicable Adtran Networks solutions to create Subscriber Solutions, and the revenue from Traditional & Other products is now included in the applicable Access & Aggregation Solutions or Subscriber Solutions category. Optical Networking Solutions was added as a new revenue category to represent a meaningful portion of Adtran Networks' portfolio. Our Subscriber Solutions portfolio is used by Service Providers to terminate their access services infrastructure at customers' premises while providing an immersive and interactive experience for residential, business and wholesale subscribers. This revenue category includes hardware- and software-based products and services. 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. 116 Our Access & Aggregation Solutions are solutions that are used by communications Service Providers to connect residential subscribers, business subscribers and mobile radio networks to the Service Providers’ metro network, primarily through fiber-based connectivity. This revenue category includes hardware- and software-based products and services. Our solutions within this category are a mix of fiber access and aggregation platforms, precision network synchronization and timing solutions, and access orchestration solutions that ensure highly reliable and efficient network performance. Our Optical Networking Solutions are used by communications Service Providers, internet content providers and large-scale enterprises to securely interconnect metro and regional networks over fiber. 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. The following tables disaggregate our revenue by category for the years ended December 31, 2024, 2023 and 2022: 2024 (In thousands) Network Solutions Services & Support Total Subscriber Solutions $ 295,541 $ 35,237 $ 330,778 Access & Aggregation Solutions 232,934 58,072 291,006 Optical Networking Solutions 210,489 90,447 300,936 Total $ 738,964 $ 183,756 $ 922,720 2023 (In thousands) Network Solutions Services & Support Total Subscriber Solutions $ 263,192 $ 34,516 $ 297,708 Access & Aggregation Solutions 304,074 54,344 358,418 Optical Networking Solutions 407,123 85,851 492,974 Total $ 974,389 $ 174,711 $ 1,149,100 2022 (In thousands) Network Solutions Services & Support Total Subscriber Solutions $ 364,238 $ 26,216 $ 390,454 Access & Aggregation Solutions 326,934 47,068 374,002 Optical Networking Solutions 225,621 35,459 261,080 Total $ 916,793 $ 108,743 $ 1,025,536 Additional Information The following table presents revenue information by geographic area for the years ended December 31, 2024, 2023 and 2022: (In thousands) 2024 2023 2022 United States $ 398,170 $ 460,985 $ 517,433 United Kingdom 196,064 214,655 189,685 Germany 119,976 230,922 146,797 Other international 208,510 242,538 171,621 Total $ 922,720 $ 1,149,100 $ 1,025,536 Customers comprising more than 10% of revenue can change from year to year. The Company had one customer comprising more than 10% of revenue in 2024 at 12.1 % and was included in both our Network Solutions and Services & Support segments. This customer accounted for $ 111.8 million, $ 126.0 million and $ 106.3 million in revenues for the years ended December 31, 2024, 2023 and 2022, respectively. Single customers comprising more than 10% of revenue in 2023 included one customer at 10.4 % and was included in both our Network Solutions and Services & Support segments. Single customers comprising more than 10% of revenue in 2022 included one customer at 18 % and was included in both our Network Solutions and Services & Support segments. Other than those with more than 10% of revenue disclosed above, our next five largest customers can change, and have historically changed, from year-to-year. The next five largest customers combined represented 22 %, 28 % and 33 % of total revenue in 2024, 2023 and 2022, respectively. As of December 31, 2024 , property, plant and equipment, net totaled $ 102.9 million, which included $ 46.3 million held in the U.S. and $ 56.6 million held outside the U.S. As of December 31, 2023, property, plant and equipm ent, net totaled $ 113.6 million, which included 117 $ 55.1 million held in the U.S. and $ 58.5 million held outside the U.S. Property, plant and equipment, net is reported on a Company-wide, functional basis only. Note 17 – Liability for Warranty Returns The liability for warranty obligations totaled $ 4.5 million and $ 6.4 million as of December 31, 2024 and 2023, respectively. These liabilities are included in accrued expenses and other liabilities and other non-current liabilities in the accompanying Consolidated Balance Sheets. A summary of warranty expense and write-off activity for the years ended December 31, 2024, 2023 and 2022 is as follows: Year Ended December 31, (In thousands) 2024 2023 2022 Balance at beginning of period $ 6,445 $ 7,196 $ 5,403 Plus: Adtran Networks acquisition — — 3,756 Plus: Amounts charged to cost and expenses 1,772 2,952 3,104 Plus: Foreign currency translation adjustments ( 119 ) 82 334 Less: Deductions ( 3,586 ) ( 3,784 ) ( 5,401 ) Balance at end of period $ 4,512 $ 6,445 $ 7,196 Note 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 Appraisal Proceedings In addition to such Legal Matters, the Company is a party to appraisal proceedings relating to the DPLTA. The DPLTA provides that Adtran Networks shareholders (other than the Company) be offered, at their election, (i) to put their Adtran Networks shares to the Company in exchange for compensation in cash of € 17.21 per share, plus guaranteed interest or (ii) to remain Adtran Networks shareholders and receive recurring cash compensation of € 0.52 per share for each full fiscal year of Adtran Networks. The appraisal proceedings, which were initiated by certain minority shareholders of Adtran Networks, challenge the adequacy of both forms of compensation. While the Company believes that the compensation offered in connection with the DPLTA is fair, it notes that German courts often adjudicate increases of the cash compensation to plaintiffs in varying amounts in connection with German appraisal proceedings. Therefore, the Company cannot rule out that the first instance court or an appellate court may increase the cash compensation owed to the minority Adtran Networks shareholders. Given the stage of the appraisal proceedings, the Company is currently unable to predict the likely outcome or estimate the potential financial impact, if any, of the appraisal proceedings. If a ruling were to occur and be upheld upon appeal that required the Company to pay significant additional cash compensation to the Adtran Networks minority shareholders, there exists the possibility of a material adverse effect on our financial position and results of operations for the period in which the ruling occurs or future periods. DPLTA Exit and Recurring Compensation Costs and the Absorption of Adtran Network's Annual Net Loss P ursuant 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 December 31, 2024. Assuming all the minority holders of currently outstanding Adtran Networks shares were to elect the second option, we would be obligated to make aggregate Exit Compensation payments, including guaranteed interest, of approximately € 333.2 million or approximately $ 344.9 million, based on an exchange rate as of December 31, 2024 and reflecting interest accrued through December 31, 2024 during the pendency of the appraisal proceedings discussed below. Shareholders electing the first option of Annual Recurring Compensation may later elect the second 118 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 ). Our obligation to pay Annual Recurring Compensation under the DPLTA is a continuing payment obligation, which will amount to approximately € 8.9 million (or $ 9.3 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.With respect to the 2024 fiscal year, Adtran Networks’ ordinary general shareholders meeting is scheduled for June 27, 2025 and, therefore, the Annual Recurring Compensation will be due on July 2, 2025. During the year ended December 31, 2024 and 2023, we accrued $ 9.8 million and $ 10.1 million, r espectively, in Annual Recurring Compensation, which was reflected as an increase to retained deficit. For the year ended December 31, 2024, approximate ly 831 thousand shares, 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 exchange rates at the time of the transactions , being paid to Adtran Networks shareholders. For the year ended December 31, 2023, 67 thousand shares, respectively, of Adtran Networks shares were tendered to the Company. This resulted in Exit Compensation payments of approximately € 1.2 million, respectively, or approximately $ 1.3 million, based on an exchange rate as of December 31, 2023, being paid to Adtran Networks shareholders. In addition, 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 Company’s payment obligation in satisfaction of the requirement that it absorb Adtran Networks’ annual net loss applied for the first time to the net loss generated in 2023. Performance Bonds Certain contracts, customers and jurisdictions in which the Company do business require us to provide various guarantees of performance such as bid bonds, performance bonds and customs bonds. As of December 31, 2024 and December 31, 2023, the Company had commitments related to these bonds totaling $ 15.7 million and $ 10.8 million, respectively, which expire at various dates through April 2029 . In general the Company would only be liable for the amount of these guarantees in the event of default under each contract, the probability of which the Company believes is remote. Purchase Obligations The Company purchases components from a variety of suppliers and use contract manufacturers to provide manufacturing services for our products. Our inventory purchase obligations are for short-term product manufacturing requirements, as well as for obligations 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 December 31, 2024, purchase obligations totaled $ 202.5 million. 119 Note 19 – Loss per Share The calculations of basic and diluted loss per share for the years ended December 31, 2024, 2023 and 2022 are as follows: (In thousands, except for per share amounts) 2024 2023 2022 Numerator Net loss attributable to ADTRAN Holdings, Inc. $ ( 450,872 ) $ ( 266,289 ) $ ( 2,037 ) Effect of redemption of RNCI 2,981 — — Net loss attributable to ADTRAN Holdings, Inc. common stockholders $ ( 447,891 ) $ ( 266,289 ) $ ( 2,037 ) Denominator Weighted average number of shares – basic 78,928 78,416 62,346 Effect of dilutive securities: Stock options — — — PSUs, RSUs and restricted stock — — — Weighted average number of shares – diluted 78,928 78,416 62,346 Loss per share attributable to ADTRAN Holdings, Inc. – basic $ ( 5.67 ) $ ( 3.39 ) $ ( 0.03 ) Loss per share attributable to ADTRAN Holdings, Inc. – diluted $ ( 5.67 ) $ ( 3.39 ) $ ( 0.03 ) For each of the years ended December 31, 2024, 2023 and 2022, less than 0.8 million, 0.5 million and 0.1 million shares of unvested or unearned, as applicable, PSUs, RSUs and restricted stock were excluded from the calculation of diluted loss per share due to their anti-dilutive effect. For the years ended December 31, 2024, 2023 and 2022, 3.4 million, 1.8 million and 0.2 million stock options, respectively, were outstanding but were not included in the computation of diluted loss per share due to their exercise prices being greater than the average market price of the common shares during the quarter, making them anti-dilutive u nder t he treasury stock method. Note 20 – 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 included 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 sale of owned real estate (including the sale of our headquarters), inventory write downs from product discontinuances, and the suspension of the quarterly dividend. The Business Efficiency Program expanded 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 which occurred in November 2024. As of December 31, 2024, the Company classified the Company's property, specifically the North and South Towers located on our Huntsville, Alabama campus, as assets held for sale, s ee Note 1 and Note 6 of this report for additional information . The Business Efficiency Program was substantially complete as of December 31, 2024. During the years ended December 31, 2024 and 2023, we recognized $ 44.7 million and $ 25.1 of costs related to the Business Efficiency Program. The costs recognized during the year ended December 31, 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 120 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 Consolidated Statements of Loss. For the years ended December 31, 2023 and 2022, we recognized $ 21.5 million and $ 1.6 million of restructuring costs relating to the Business Combination under the multi-year integration program and synergy realization, respectively, that are included in cost of revenue, selling, general and administrative expenses and research and development expenses in the Consolidated Statement of Loss. A reconciliation of the beginning and ending restructuring liability, which is included in accrued wages and benefits and accrued expenses and other liabilities in the Consolidated Balance Sheets as of December 31, 2024 and 2023, is as follows: (In thousands) 2024 2023 Balance at beginning of period $ 8,309 $ 159 Plus: Amounts charged to cost and expense 40,545 22,241 Less: Amounts paid ( 38,518 ) ( 14,091 ) Balance at end of period $ 10,336 $ 8,309 Restructuring expenses included in the Consolidated Statements of Loss are for the years ended December 31, 2024, 2023 and 2022: (In thousands) 2024 2023 2022 Network solutions - cost of revenue $ 3,693 $ 2,910 $ 8 Network solutions - inventory write-down 8,597 24,313 — Services & support - cost of revenue 2,289 — — Cost of revenue $ 14,579 $ 27,223 $ 8 Selling, general and administrative expenses 9,128 11,603 117 Research and development expenses 20,973 7,728 1,504 Total restructuring expenses $ 44,680 $ 46,554 $ 1,629 The following table represents the components of restructuring expense by geographic area for the years ended December 31, 2024, 2023 and 2022: (In thousands) 2024 2023 2022 United States $ 18,422 $ 34,629 $ 2 International 26,258 11,925 1,627 Total restructuring expenses $ 44,680 $ 46,554 $ 1,629 Note 21 – Current Expected Credit Losses Under ASC 326 – Financial Instruments – Credit Losses, the Company estimates credit losses for the contractual life of assets that are measured at amortized cost and are within the scope of this guidance, which includes accounts receivable, net investment in sales-type leases, contract assets under the revenue recognition model and outstanding notes receivable. Where appropriate, the Company pools assets if similar risk characteristics exist. Additionally, the Company analyzes its available-for-sale debt securities for impairment and records a credit loss allowance as needed. Assets Measured at Amortized Cost Accounts Receivable The Company records accounts receivable in the normal course of business as products are shipped or services are performed and invoiced, but payment has not yet been remitted by the customer. Accounts receivable balances are considered past due when payment has not been received by the date indicated on the relevant invoice or based on agreed upon terms between the customer and the Company. As of December 31, 2024 and 2023, the Company’s net outstanding accounts receivable balance was $ 178.0 million and $ 216.4 million, respectively. The Company assessed the need for an allowance for credit losses related to its outstanding accounts receivable using the historical loss-rate method as well as assessing asset-specific risks. The Company’s historical losses related to accounts receivable have been immaterial as evidenced by its historical allowance and write-offs due to collectability. The assessment of asset-specific risks included the evaluation of relevant available information, from internal and external sources, relating to current conditions that may affect a customer’s ability to pay, such as the customer’s current financial condition, credit rating by geographic location, as provided by a third party and/or by customer, if needed, and the overall macro-economic conditions in which the customer operates. The Company pooled assets by geographic location to determine if an allowance should be applied to its accounts receivable balance, assessing the specific country risk rating and overall economics of that particular country. If elevated risk existed, or customer 121 specific risk indicated the accounts receivable balance was at risk, the Company further analyzed the need for an allowance related to specific accounts receivable balances. Additionally, the Company determined that significant changes to customer country risk rating from period-to-period and from the end of the prior year to the end of the current quarter would require further review and analysis by the Company. Credit losses totaling $ 1.3 million and $ 0.4 million were recorded for the years ended December 31, 2024 and 2023, respectively, related to accounts receivable. Contract Assets The Company records contract assets when it has recognized revenue but has not yet billed the customer. As of December 31, 2024 and 2023, the Company’s outstanding contract asset balance was $ 0.6 million and $ 0.7 million, respectively, which is included in other receivables on the Consolidated Balance Sheets. The Company assessed the need for an allowance for credit losses related to its outstanding contract assets using the historical loss-rate method as well as asset-specific risks. The Company’s historical losses related to contract assets receivable have been immaterial as evidenced by historical write-offs due to collectability. Asset-specific risk included the evaluation of relevant available information, from internal and external sources, relating to current conditions that may affect a customer’s ability to pay once invoiced, such as the customer’s financial condition, credit rating by geographic location as provided by a third party and/or by customer, if needed, and the overall macro-economic conditions in which the customer operates. The Company pooled assets by geographic location to determine if an allowance should be applied to its contract asset balance, assessing the specific country risk rating and the overall economics of that particular country. If elevated risk existed, or customer specific risk indicated the contract balance was at risk, the Company further analyzed the need for an allowance related to specific customer balances. Additionally, the Company determined that significant changes to customer country risk rating from period-to-period and from the end of the prior year to the end of the current quarter would be subject to further review and analysis by the Company. No allowance for credit losses was recorded for the years ended December 31, 2024 and 2023 related to contract assets. O ff-Balance Sheet Arrangements We have exposure to credit losses from off-balance sheet exposures, to provide various guarantees of performance such as bid bonds, performance bonds and customs bonds, where we believe the risk of loss is immaterial to our financial statements as of December 31, 2024 and 2023, respectively. Otherwise, we do not have off-balance sheet financing arrangements and have not engaged in any related party transactions or arrangements with unconsolidated entities or other persons that are reasonably likely to materially affect liquidity or the availability of or requirements for capital resources. See Note 18 of the Notes to Consolidated Financial Statements, included in Part II, Item 8 of this report for additional information . Available-for-Sale Debt Securities As of December 31, 2024 and 2023 the Company had sold all available-for-sale debt securities. 122 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCO UNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 9A. CONTROL S AND PROCEDURES Evaluation of Disclosure Controls and Procedures We maintain disclosure controls and procedures that are designed to ensure that the information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the rules and forms promulgated by the SEC, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. As of the end of the period covered by this report, an evaluation was carried out by management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) under the Exchange Act. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that due to the material weaknesses in our internal control over financial reporting described below, our disclosure controls and procedures were not effective as of December 31, 2024. Management's Report on Internal Control over Financial Reporting Management of ADTRAN Holdings, Inc. (“Adtran”) is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Adtran’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Adtran’s internal control over financial reporting includes those policies and procedures that: • pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of Adtran; • provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of Adtran are being made only in accordance with authorizations of management and directors of Adtran; and • provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of Adtran’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management assessed the effectiveness of Adtran’s internal control over financial reporting as of December 31, 2024. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control-Integrated Framework (2013). A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. In its assessment of the effectiveness of internal control over financial reporting as of December 31, 2024, management determined that there were deficiencies in Adtran’s internal control over financial reporting that constituted material weaknesses that existed as of December 31, 2024. Such material weaknesses were as follows: • Adtran did not design and maintain effective controls in response to the risks of material misstatement. Specifically, changes to existing controls or the implementation of new controls have not been sufficient to respond to changes to the risks of material misstatement to financial reporting. This material weakness contributed to the following additional material weaknesses: • Adtran did not design and maintain effective controls over financial statement preparation, presentation and disclosure commensurate with its financial reporting requirements. Specifically, Adtran did not design and maintain effective controls over the presentation and disclosure of transactions, including non-controlling interest. • Adtran did not design and maintain effective controls to address the initial application of complex accounting standards and accounting of non-routine, unusual or complex events and transactions. Specifically, Adtran did not design and maintain 123 effective controls to timely analyze and account for (i) non-controlling interest and (ii) the receivable purchase and servicing agreement. The material weaknesses resulted in the restatements and revisions of immaterial adjustments to our consolidated financial statements for the years ended December 31, 2022, and December 31, 2023, as well as the condensed consolidated financial statements for the quarterly and year-to-date periods ended September 30, 2022, March 31, 2023, June 30, 2023, September 30, 2023, March 31, 2024, and June 30, 2024. The material weaknesses also resulted in material adjustments to our consolidated financial statements for the year ended December 31, 2023. The material weaknesses also resulted in immaterial adjustments to our consolidated financial statements for the years ended December 31, 2023 and December 31, 2024, as well as the condensed consolidated financial statements for the quarterly and year-to-date periods ended March 31, 2023, June 30, 2023, September 30, 2023, March 31, 2024, June 30, 2024, and September 30, 2024. Additionally, these material weaknesses could result in misstatements of Adtran’s accounts or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected. Because of these material weaknesses, management has concluded that Adtran did not maintain effective internal control over financial reporting as of December 31, 2024. The effectiveness of Adtran's internal control over financial reporting as of December 31, 2024 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears in Item 8. Management’s Remediation Efforts To remediate the material weaknesses in Adtran’s internal control over financial reporting related to the risks of material misstatement, including financial statement preparation, presentation and disclosure of transactions and the non-controlling interest, Adtran has implemented a remediation plan that involves introducing new or enhanced controls over the review of Adtran's consolidated financial statements, global identification and reassessment of all key process and controls, increased training and awareness of control activities, and increased scrutiny on control performance and documentation standards. Adtran believes that the foregoing actions will support the improvement of the Company’s internal control over financial reporting, and, through our efforts to identify, design, and implement the necessary control activities, will be effective in remediating such material weaknesses. To remediate the material weaknesses in Adtran’s internal control over financial reporting relating to accounting of non-routine, unusual or complex events and transactions for non-controlling interest and the receivable purchase and servicing agreement, Adtran has prepared a remediation plan that included designing and implementing new controls over the identification and review of contracts, transactions or arrangements that may result in a financial obligation including the use of an accounting third-party consultant as needed to ensure proper presentation of these items within our financial statements. These controls have been in place since the third quarter of 2024. We have implemented the above-referenced controls and are in the process of testing their effectiveness. We will continue to devote significant time and attention to these remediation efforts. Adtran continues to evaluate and work to improve our internal control over financial reporting, management may decide to take additional measures to address the material weaknesses or determine to modify the remediation plans described above. Until the remediation steps set forth above, including the implementation of all necessary control activities that we identify, are fully completed, and there has been time for us to conclude through testing that the control activities are operating effectively, the material weaknesses described above will not be considered remediated. Changes in Internal Control over Financial Reporting. There were no changes in Adtran’s internal control over financial reporting that occurred during the most recent fiscal quarter covered by this report that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting. ITEM 9B. OTH ER INFORMATION (a) None. (b) During the fiscal quarter ended December 31, 2024, none of the Company’s directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of Company securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Ru le 10b5-1 trading arrangement.” ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS None. 124 PART III ITEM 10. DIRECTORS, EXECUTIVE O FFICERS AND CORPORATE GOVERNANCE Code of Ethics We have adopted a Code of Business Conduct and Ethics, which applies to all employees, officers and directors of ADTRAN. The Code of Business Conduct and Ethics meets the requirements of a "code of ethics" as defined by Item 406 of Regulation S-K, and applies to our Chief Executive Officer, Chief Financial Officer (who is both our principal financial and principal accounting officer), as well as all other employees, as indicated above. The Code of Business Conduct and Ethics also meets the requirements of a code of conduct under NASDAQ listing standards. The Code of Business Conduct and Ethics is posted on our website at www.adtran.com under the links "About – Investor Relations – Corporate Governance – Charters and Documents." We intend to disclose any amendments to the Code of Business Conduct and Ethics, as well as any waivers for executive officers or directors, on our website at www.adtran.com. The information found on our website is not incorporated by reference in this report or any other report that we file or furnish to the SEC. Certain information required by this Item regarding Adtran’s executive officers is included in Part I of this report under the caption “Information about our Executive Officers” in accordance with the Instructions to Item 401 of Regulation S-K. Other information required by this Item is incorporated by reference pursuant to General Instruction G(3) of Form 10-K from Adtran’s definitive Proxy Statement for the 2025 Annual Meeting of Stockholders (the “2025 Proxy Statement”) to be filed with the SEC pursuant to Regulation 14A. Insider Trading Policy We have adopted the ADTRAN Holdings, Inc. Insider Trading Policy (the “Insider Trading Policy”), which applies to all directors, officers, employees, independent contractors, and consultants of the Company and its subsidiaries, as well as certain other persons. The Insider Trading Policy is designed to promote compliance with U.S. federal and state securities laws, rules and regulations, as well as European Regulation No. 596/2014 and the applicable rules and regulations of The Nasdaq Stock Market, LLC, with respect to the purchase, sale and/or disposition of the Company’s securities (and the securities of other companies in certain circumstances). The Insider Trading Policy addresses the implementation of certain trading blackout periods in the Company’s securities for Company insiders. A copy of the Insider Trading Policy is filed as Exhibit 19 to this 2024 Form 10-K. ITEM 11. EXECUT IVE COMPENSATION The information required by this Item is incorporated by reference pursuant to General Instruction G(3) of Form 10-K from the 2025 Proxy Statement to be filed with the SEC pursuant to Regulation 14A. 125 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL O WNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The following table provides information about our common stock that may be issued under all of our existing equity compensation plans as of December 31, 2024, , which include the 2006 Employee Plan, the 2010 Directors Plan, the 2015 Employee Plan, the 2020 Employee Plan and the 2020 Directors Plan (collectively, the “Prior Plans”), the 2024 Employee Stock Incentive Plan (“2024 Employee Plan”) and the 2024 Directors Stock Plan (“2024 Directors Plan”) (collectively, the “Plans”). Each of the Plans has been approved by our stockholders. (In thousands) Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)(1) Weighted average exercise price of outstanding options, warrants and rights (b)(1) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)(2) Plan Category Equity compensation plans approved by stockholders 2,944 $ 9.86 5,051 Equity compensation plans not approved by stockholders — — — Total 2,944 $ 9.86 5,051 (1) Excludes 1.0 million of target PSUs and 2.2 million of time-based RSUs outstanding under our 2024 Employee Stock Incentive Plan and 0.1 million shares of time-based restricted stock outstanding under our 2024 Directors Plan. The outstanding stock options have a weighted average remaining term of 5.0 years. (2) Represents 4.5 million shares of common stock available for future issuance pursuant to the 2024 Employee Plan and 0.6 million shares of common stock available for future issuance pursuant to the 2024 Directors Plan. Following the stockholders’ approval of the 2024 Employee Plan and the 2024 Directors Plan were approved by the stockholders, we are no longer making any future grants under the Prior Plans, but certain shares underlying awards that are forfeited, cancelled or terminated under the Prior Plans will again be available for issuance under the 2024 Employee Plan and the 2024 Directors Plan, as applicable. The other information required by this Item is incorporated by reference pursuant to General Instruction G(3) of Form 10-K from the 2025 Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A. ITEM 13. CERTAIN RELATIONSHIPS AND RELAT ED TRANSACTIONS AND DIRECTOR INDEPENDENCE The information required by this Item is incorporated by reference pursuant to General Instruction G(3) of Form 10-K from the 2025 Proxy Statement to be filed with the SEC pursuant to Regulation 14A. ITEM 14. PRINCIPAL ACCOU NTANT FEES AND SERVICES The information required by this Item is incorporated by reference pursuant to General Instruction G(3) of Form 10-K from the 2025 Proxy Statement to be filed with the SEC pursuant to Regulation 14A. 126 PART IV ITEM 15. EXHIBITS AND FINA NCIAL STATEMENT SCHEDULES Documents Filed as Part of This Report. 1. Consolidated Financial Statements The consolidated financial statements of Adtran and the report of independent registered public accounting firm thereon are set forth under Part II, Item 8 of this report. Consolidated Balance Sheets as of December 31, 2024 and 2023 Consolidated Statements of Loss for the years ended December 31, 2024, 2023 and 2022 Consolidated Statements of Comprehensive (Loss) Income for the years ended December 31, 2024, 2023 and 2022 Consolidated Statements of Changes in Equity for the years ended December 31, 2024, 2023 and 2022 Consolidated Statements of Cash Flows for the years ended December 31, 2024, 2023 and 2022 Notes to Consolidated Financial Statements 2. Consolidated Financial Statement Schedule Schedule II - Valuation and Qualifying Accounts 3. Exhibits The following exhibits are filed with or incorporated by reference in this report. Where such filing is made by incorporation by reference to a previously filed registration statement or report, such registration statement or report is identified in parentheses. We will furnish any exhibit upon request to: ADTRAN Holdings, Inc., Attn: Investor Relations, 901 Explorer Boulevard, Huntsville, Alabama 35806. There is a charge of $0.50 per page to cover expenses for copying and mailing. Effective as of July 8 2022, ADTRAN Holdings, Inc. became the successor to ADTRAN, Inc. Any reference to "ADTRAN, Inc." in these exhibits should be read as "ADTRAN Holdings, Inc." as set forth in the Exhibit List below. Furthermore, effective June 8, 2023, ADVA Optical Networking SE (“ADVA”), a subsidiary of ADTRAN Holdings, Inc., changed its name to Adtran Networks SE. By operation of law, any reference to ADVA Optical Networking SE in these exhibits should be read as Adtran Networks SE as set forth in the Exhibit List below. Exhibit Number Description 2.1 Business Combination Agreement, dated August 30, 2021, by and among ADTRAN Holdings, Inc., Acorn HoldCo, Inc., Acorn MergeCo, Inc. and Adtran Networks SE (incorporated by reference to Exhibit 2.1 to Adtran’s Form 8-K filed August 30, 2021) 3.1 Amended and Restated Certificate of Incorporation of ADTRAN Holdings, Inc. (incorporated by reference to Exhibit 3.1 to Adtran's Form 8-K filed July 8, 2022) 3.2 Second Amended and Restated Bylaws of ADTRAN Holdings, Inc. (incorporated by reference to Exhibit 3.1 to the Company's Form 8-K filed October 24, 2023) 4.1* Description of Securities 10.1 Management Contracts and Compensatory Plans: (a) ADTRAN Holdings, Inc. 2006 Employee Stock Incentive Plan (incorporated by reference to Exhibit 4.1 to Adtran’s Registration Statement on Form S-8 (File No. 333-133927) filed May 9, 2006) (b) First Amendment to the ADTRAN Holdings, Inc. 2006 Employee Stock Incentive Plan (incorporated by reference to Exhibit 10.3(h) to Adtran’s 2007 Form 10-K filed February 28, 2008) (c) Form of Nonqualified Stock Option Agreement under the 2006 Employee Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed June 8, 2006) 127 (d) Form of Incentive Stock Option Agreement under the 2006 Employee Stock Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company's Form 8-K filed June 8, 2006) (e) ADTRAN Holdings, Inc. 2015 Employee Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed May 15, 2015) (f) Form of Option Award Agreement under the ADTRAN Holdings, Inc. 2015 Employee Stock Incentive Plan (incorporated by reference to Exhibit 10.3(p) to the Company's Form 10-K filed February 25, 2020) (g) ADTRAN Holdings, Inc. Deferred Compensation Program for Employees, as amended and restated as of June 1, 2010 (incorporated by reference to Exhibit 10.3(n) to the Company's Form 10-K filed February 24, 2016) (h) ADTRAN Holdings, Inc. Deferred Compensation Program for Directors, as amended and restated as of June 1, 2010 (incorporated by reference to Exhibit 10.3(o) to the Company's Form 10-K filed February 24, 2016) (i)