HUNTSVILLE, Ala.--(BUSINESS WIRE)--Adtran today announced its readiness to support the Broadband Equity Access and Deployment (BEAD) program, welcoming the clarity and guidance provided by the Build America, Buy America (BABA) rule. With its commitment to US-based manufacturing spanning three decades, Adtran is at the forefront of the market with BABA-compliant fiber access solutions ready to enhance nationwide connectivity, economic growth and the digital inclusivity of communities across America. With 42. ...

ISTANBUL--(BUSINESS WIRE)--Adtran today announced that Vodafone Turkey has deployed its Oscilloquartz optical cesium atomic clock technology to bring new levels of resilient timing to its nationwide network. Adtran’s first-to-market solution will deliver robust protection against disruptions to GNSS signals, enabling Turkey’s leading service provider to maintain uninterrupted, reliable connectivity even while it readies 5G services. By combining its existing Adtran Oscilloquartz core grandmaster clock devic ...

HUNTSVILLE, Ala.--(BUSINESS WIRE)--ADTRAN Holdings, Inc. (NASDAQ: ADTN) announced today that the Company will release its financial results for the fourth quarter 2023 after market close on Monday, February 26, 2024. The Company will conduct a conference call on Tuesday, February 27, 2024, to discuss the results for the quarter. What: ADTRAN Holdings, Inc. Earnings Call When: 9:30 a.m. Central Time on Tuesday, February 27 Where: www.adtran.com/investor ADTRAN Holdings, Inc. will webcast this conference. ...

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) For the quarterly period ended September 30, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______ to _______ Commission File Number: 001-41446 ADTRAN Holdings, Inc. (Exact Name of Registrant as Specified in its Charter) Delaware 87-2164282 (State ...

ADTRAN Holdings, Inc (NASDAQ:ADTN) Q3 2023 Earnings Conference Call November 7, 2023 10:30 AM ET Company Participants Tom Stanton - Chief Executive Officer Ulrich Dopfer - Chief Financial Officer Conference Call Participants George Notter - Jefferies Michael Genovese - Rosenblatt Securities Ryan Koontz - Needham & Company Tim Savageaux - Northland Capital Markets Operator Ladies and gentlemen, thank you for standing by and welcome to the ADTRAN Holdings Inc. Third Quarter 2023 Earnings Release Conference Ca ...

GLOSSARY OF SELECTED TERMS This section defines key acronyms, concepts, and terms used in this Quarterly Report on Form 10-Q | Acronym/Concept/ Defined Term | Meaning | | :------------------------------ | :-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------| | BEAD | Broadband Equity, Access and Deployment Program | | CPE | Customer-Premises Equipment | | DPLTA | Domination and Profit and Loss Transfer Agreement | | DSO | Days Sales Outstanding | | E.U. | European Union | | EURIBOR | Euro Interbank Offered Rate | | IPCEI ME/CT | Important Project of Common European Interest - Microelectronics and Communication Technologies | | MSO | Multiple System Operator | | ODM | Original Design Manufacturing | | OLT | Optical Line Terminal | | RNCI | Redeemable Non-Controlling Interest | | SaaS | Software as a Service | | SEC | Securities and Exchange Commission | | Service Provider | Entity that provides voice, data or video services to consumers and businesses | | SI | Person or company that specializes in bringing together component subsystems into a whole and ensuring that those subsystems function together | | SLA | Service Level Agreement | | SMB | Small and Mid-Sized Business | | SOFR | Secured Overnight Financing Rate | | U.S. | United States of America | | VAR | Value-Added Reseller | GENERAL This section clarifies company references and notes a subsidiary's official name change - References to 'ADTRAN,' 'Company,' 'we,' 'us,' and 'our' in this report refer to ADTRAN, Inc. and its consolidated subsidiaries prior to the Merger on July 8, 2022, and to ADTRAN Holdings, Inc. and its consolidated subsidiaries following the Merger[10](index=10&type=chunk) - ADVA Optical Networking SE, a subsidiary of the Company, officially changed its name to Adtran Networks SE on June 8, 2023[10](index=10&type=chunk) CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This section warns about uncertainties and risks associated with forward-looking statements and disclaims future updates - Forward-looking statements are subject to uncertainties and other factors that could cause actual results to differ materially from the views, beliefs, and projections expressed[11](index=11&type=chunk) - Key risk categories include those related to the Business Combination and DPLTA, financial results and Company success, control environment, the telecommunications industry, the Company's stock price, and regulatory environments[12](index=12&type=chunk)[16](index=16&type=chunk)[17](index=17&type=chunk)[18](index=18&type=chunk)[21](index=21&type=chunk)[22](index=22&type=chunk) - The Company cautions investors not to place undue reliance on forward-looking statements and undertakes no obligation to publicly update or revise them, except as required by law[24](index=24&type=chunk) PART I. FINANCIAL INFORMATION [ITEM 1. FINANCIAL STATEMENTS](index=7&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS) This section presents the unaudited condensed consolidated financial statements of ADTRAN Holdings, Inc. for the periods ended June 30, 2023, and December 31, 2022, including balance sheets, statements of (loss) income, comprehensive loss, changes in equity, and cash flows, along with detailed notes explaining significant accounting policies, business combinations, revenue recognition, and other financial disclosures [Condensed Consolidated Balance Sheets](index=7&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) | ASSETS (in thousands) | June 30, 2023 | December 31, 2022 | | :-------------------- | :------------ | :---------------- | | Cash and cash equivalents | $124,294 | $108,644 | | Accounts receivable, net | $239,565 | $279,435 | | Inventory, net | $416,802 | $427,531 | | Total Current Assets | $850,024 | $882,358 | | Property, plant and equipment, net | $115,719 | $110,699 | | Goodwill | $388,163 | $381,724 | | Intangibles, net | $355,084 | $401,211 | | Total Assets | $1,882,938 | $1,943,494 | | LIABILITIES, REDEEMABLE NON-CONTROLLING INTEREST AND EQUITY (in thousands) | June 30, 2023 | December 31, 2022 | | :----------------------------------------------------------------------- | :------------ | :---------------- | | Accounts payable | $171,735 | $237,699 | | Total Current Liabilities | $309,641 | $428,575 | | Total Liabilities | $655,006 | $639,881 | | Redeemable Non-Controlling Interest | $445,462 | $— | | Total Equity | $782,470 | $1,303,613 | | Total Liabilities, Redeemable Non-Controlling Interest and Equity | $1,882,938 | $1,943,494 | [Condensed Consolidated Statements of (Loss) Income](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20(Loss)%20Income) | (In thousands, except per share amounts) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total Revenue | $327,378 | $172,038 | $651,290 | $326,556 | | Gross Profit | $92,553 | $62,506 | $180,361 | $116,822 | | Operating (Loss) Income | $(44,628) | $8,133 | $(94,360) | $8,065 | | Net (Loss) Income | $(36,215) | $2,143 | $(76,668) | $1,016 | | Net (Loss) Income attributable to ADTRAN Holdings, Inc. | $(33,334) | $2,143 | $(67,798) | $1,016 | | (Loss) earnings per common share – basic | $(0.43) | $0.04 | $(0.87) | $0.02 | | (Loss) earnings per common share – diluted | $(0.43) | $0.04 | $(0.87) | $0.02 | [Condensed Consolidated Statements of Comprehensive Loss](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Loss) | (In thousands) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net (Loss) Income | $(36,215) | $2,143 | $(76,668) | $1,016 | | Other Comprehensive Income (Loss), net of tax | $6,957 | $(3,140) | $15,739 | $(4,782) | | Comprehensive Loss attributable to ADTRAN Holdings, Inc., net of tax | $(29,258) | $(997) | $(61,173) | $(3,766) | [Condensed Consolidated Statements of Changes in Equity](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Equity) - Total Equity decreased from **$1,303,613 thousand** as of December 31, 2022, to **$782,470 thousand** as of June 30, 2023[37](index=37&type=chunk) - The reclassification and remeasurement from equity to mezzanine equity for noncontrolling interests in Adtran Networks resulted in a decrease of **$(443,757) thousand** for the six months ended June 30, 2023[37](index=37&type=chunk) - Net loss attributable to ADTRAN Holdings, Inc. for the six months ended June 30, 2023, was **$(67,798) thousand**[37](index=37&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=12&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) | (In thousands) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :------------- | :----------------------------- | :----------------------------- | | Net (loss) income | $(76,668) | $1,016 | | Net cash used in operating activities | $(36,160) | $(5,918) | | Net cash (used in) provided by investing activities | $(17,468) | $4,784 | | Net cash provided by (used in) financing activities | $68,179 | $(8,574) | | Net increase (decrease) in cash and cash equivalents | $14,551 | $(9,708) | | Cash and cash equivalents, end of period | $124,294 | $43,368 | [Notes to Condensed Consolidated Financial Statements](index=13&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) [GENERAL](index=13&type=section&id=GENERAL) - ADTRAN Holdings, Inc. is a leading global provider of networking and communications platforms, software, systems, and services focused on the broadband access market[46](index=46&type=chunk) - The Domination and Profit and Loss Transfer Agreement (DPLTA) with Adtran Networks SE became effective on January 16, 2023, granting ADTRAN Holdings, Inc. control and the right to Adtran Networks' annual profit, while obligating it to absorb annual net losses[46](index=46&type=chunk) - Minority shareholders of Adtran Networks can elect to receive either an Annual Recurring Compensation of **€0.59 per share** or Exit Compensation of **€17.21 per share** plus guaranteed interest, with appraisal proceedings ongoing that could increase these amounts[48](index=48&type=chunk) [1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=14&type=section&id=1.%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) - The unaudited Condensed Consolidated Financial Statements are prepared in conformity with U.S. GAAP, requiring management to make significant estimates and assumptions[50](index=50&type=chunk)[52](index=52&type=chunk) - Due to the DPLTA's effectiveness on January 16, 2023, the non-controlling interest in Adtran Networks was reclassified to redeemable non-controlling interest (RNCI) and remeasured to fair value[53](index=53&type=chunk) - The Company early adopted ASU 2021-08 on July 1, 2022, for business combinations, affecting the accounting for contract assets and liabilities[55](index=55&type=chunk) [2. BUSINESS COMBINATION](index=17&type=section&id=2.%20BUSINESS%20COMBINATION) - ADTRAN, Inc. acquired **65.43%** of Adtran Networks' outstanding shares on July 15, 2022, for a total purchase price of **$578.3 million**, with ADTRAN, Inc. identified as the accounting acquirer[57](index=57&type=chunk)[58](index=58&type=chunk) - The Business Combination resulted in the recognition of **$350.5 million** of goodwill, allocated to the Network Solutions segment (**$272.8 million**) and the Services & Support segment (**$77.7 million**)[63](index=63&type=chunk) - Adtran Networks contributed **$379.0 million** in net revenue and a net loss of **$67.5 million** to the Company's consolidated financial statements for the six months ended June 30, 2023[63](index=63&type=chunk) [3. REVENUE](index=20&type=section&id=3.%20REVENUE) | (In thousands) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--------------------------------- | :----------------------------- | :----------------------------- | | Optical Networking Solutions | $290,752 | $— | | Access & Aggregation Solutions | $199,537 | $190,084 | | Subscriber Solutions | $161,001 | $136,472 | | Total Revenue | $651,290 | $326,556 | | Network Solutions Revenue | $565,420 | $294,366 | | Services & Support Revenue | $85,870 | $32,190 | - The aggregate amount of transaction price allocated to remaining performance obligations not yet satisfied was **$369.3 million** as of June 30, 2023, with approximately **46.5%** expected to be recognized over the next **12 months**[68](index=68&type=chunk) | (In thousands) | As of June 30, 2023 | As of December 31, 2022 | | :----------------------------- | :------------------ | :---------------------- | | Accounts receivable, net | $239,565 | $279,435 | | Contract assets | $1,153 | $1,852 | | Unearned revenue | $48,030 | $41,193 | | Non-current unearned revenue | $24,111 | $19,239 | [4. INCOME TAXES](index=23&type=section&id=4.%20INCOME%20TAXES) - The Company's effective tax rate changed from an expense of **50.1%** (Q2 2022) to a benefit of **18.8%** (Q2 2023) of pre-tax loss, and from a benefit of **34.3%** (H1 2022) to a benefit of **20.4%** (H1 2023) of pre-tax loss[78](index=78&type=chunk) - This change was primarily driven by the Business Combination with Adtran Networks and the release of the domestic valuation allowance during the fourth quarter of 2022[78](index=78&type=chunk) - As of June 30, 2023, the Company had net deferred tax assets totaling **$42.5 million**, with a valuation allowance of **$5.0 million**[78](index=78&type=chunk) [5. STOCK-BASED COMPENSATION](index=24&type=section&id=5.%20STOCK-BASED%20COMPENSATION) - Stock-based compensation expense was **$8.0 million** for the six months ended June 30, 2023, compared to **$3.8 million** for the same period in 2022[81](index=81&type=chunk) - As of June 30, 2023, total unrecognized compensation expense related to non-vested market-based RSUs and restricted stock was approximately **$21.8 million**, to be recognized over a weighted-average period of **2.4 years**[82](index=82&type=chunk) - Unrecognized compensation expense related to ADTRAN Holdings, Inc. stock options was **$6.3 million**, to be recognized over a weighted-average period of **2.0 years**[84](index=84&type=chunk) [6. INVESTMENTS](index=25&type=section&id=6.%20INVESTMENTS) | (In thousands) | As of June 30, 2023 | As of December 31, 2022 | | :-------------------------------------------- | :------------------ | :---------------------- | | Available-for-sale debt securities held at fair value | $8,074 | $9,253 | | Marketable equity securities | $858 | $810 | | Deferred compensation plan assets | $25,395 | $22,942 | | Total short-term and long-term investments | $34,327 | $33,005 | - Net investment gain for the six months ended June 30, 2023, was **$2,549 thousand**, compared to a net investment loss of **$7,948 thousand** for the same period in 2022[95](index=95&type=chunk) - The Company's cash equivalents and investments held at fair value are primarily categorized as Level 1 or Level 2 in the fair value hierarchy[96](index=96&type=chunk)[97](index=97&type=chunk) [7. INVENTORY](index=29&type=section&id=7.%20INVENTORY) | (In thousands) | As of June 30, 2023 | As of December 31, 2022 | | :--------------- | :------------------ | :---------------------- | | Raw materials | $186,262 | $186,346 | | Work in process | $13,576 | $12,087 | | Finished goods | $216,964 | $229,098 | | Total inventory, net | $416,802 | $427,531 | - Inventory reserves for estimated excess and obsolete inventory increased from **$57.0 million** as of December 31, 2022, to **$79.6 million** as of June 30, 2023[99](index=99&type=chunk) [8. PROPERTY, PLANT AND EQUIPMENT](index=29&type=section&id=8.%20PROPERTY,%20PLANT%20AND%20EQUIPMENT) | (In thousands) | As of June 30, 2023 | As of December 31, 2022 | | :------------------------------------- | :------------------ | :---------------------- | | Total property, plant and equipment | $431,787 | $409,800 | | Less: accumulated depreciation | $(316,068) | $(299,101) | | Total property, plant and equipment, net | $115,719 | $110,699 | - Depreciation expense was **$13.8 million** for the six months ended June 30, 2023, compared to **$5.5 million** for the same period in 2022[101](index=101&type=chunk) - No impairment charges on long-lived assets were recognized during the three and six months ended June 30, 2023, and 2022[101](index=101&type=chunk) [9. GOODWILL](index=29&type=section&id=9.%20GOODWILL) | (In thousands) | Network Solutions | Services & Support | Total | | :----------------------------------- | :---------------- | :----------------- | :-------- | | As of December 31, 2022 | $298,280 | $83,444 | $381,724 | | Foreign currency translation adjustments | $5,013 | $1,426 | $6,439 | | As of June 30, 2023 | $303,293 | $84,870 | $388,163 | - Goodwill of **$350.5 million** was recognized upon the closing of the Business Combination with Adtran Networks on July 15, 2022[103](index=103&type=chunk) - No impairment of goodwill was recorded during the three and six months ended June 30, 2023, and 2022[103](index=103&type=chunk) [10. INTANGIBLE ASSETS](index=30&type=section&id=10.%20INTANGIBLE%20ASSETS) | (In thousands) | Weighted Average Useful Life (in years) | Net Book Value (June 30, 2023) | Net Book Value (December 31, 2022) | | :--------------------- | :-------------------------------------- | :----------------------------- | :--------------------------------- | | Customer relationships | 10.9 | $40,935 | $42,745 | | Backlog | 1.6 | $8,571 | $33,057 | | Developed technology | 8.5 | $284,229 | $298,508 | | Trade names | 3.0 | $18,659 | $23,811 | | Total | | $355,084 | $401,211 | - Amortization expense was **$52.3 million** for the six months ended June 30, 2023, significantly higher than **$1.8 million** in the prior year, primarily due to the Business Combination[104](index=104&type=chunk) | (In thousands) | Estimated Future Amortization Expense | | :------------- | :------------------------------------ | | 2023 | $30,683 | | 2024 | $58,478 | | 2025 | $46,835 | | 2026 | $43,554 | | 2027 | $42,180 | | Thereafter | $133,354 | | Total | $355,084 | [11. HEDGING](index=30&type=section&id=11.%20HEDGING) - The Company uses forward rate agreements to hedge foreign currency exposure of expected future cash flows, not for trading or speculative purposes[106](index=106&type=chunk) | (In thousands) | Balance Sheet Location | June 30, 2023 | December 31, 2022 | | :-------------------------------------------- | :--------------------- | :------------ | :---------------- | | Foreign exchange contracts – derivative assets | Other receivables | $10,467 | $11,992 | | Foreign exchange contracts – derivative liabilities | Accounts payable | $(2,378) | $(633) | | Total derivatives | | $8,089 | $11,359 | - The Company entered into Euro/U.S. dollar forward contracts to convert Euro-denominated DPLTA payment obligations into U.S. Dollars, with an aggregate notional amount of **$160.0 million**[108](index=108&type=chunk) [12. REVOLVING CREDIT AGREEMENTS](index=31&type=section&id=12.%20REVOLVING%20CREDIT%20AGREEMENTS) | (In thousands) | As of June 30, 2023 | As of December 31, 2022 | | :-------------------------------------------- | :------------------ | :---------------------- | | New Nord/LB revolving line of credit | $10,912 | $— | | Total current revolving credit agreements | $10,912 | $35,936 | | Wells Fargo credit agreement (non-current) | $200,000 | $60,000 | - The Wells Fargo Credit Agreement allows for borrowings up to **$400.0 million**, maturing in July 2027, and the Company was in compliance with all material covenants as of June 30, 2023[114](index=114&type=chunk) - As of June 30, 2023, the weighted average interest rate on the Company's revolving credit agreements was **6.4%**[114](index=114&type=chunk) [13. NOTES PAYABLE](index=33&type=section&id=13.%20NOTES%20PAYABLE) | (In thousands) | As of June 30, 2023 | As of December 31, 2022 | | :----------------------------------- | :------------------ | :---------------------- | | Syndicated credit agreement notes payable | $— | $24,598 | | Total Notes Payable | $— | $24,598 | - The outstanding borrowings under the syndicated credit agreement note payable were fully repaid on January 31, 2023[119](index=119&type=chunk) [14. EMPLOYEE BENEFIT PLANS](index=33&type=section&id=14.%20EMPLOYEE%20BENEFIT%20PLANS) - The Company maintains defined benefit pension plans covering employees in certain foreign countries, with a net pension liability of **$10.9 million** as of June 30, 2023[120](index=120&type=chunk)[122](index=122&type=chunk) - In connection with the Business Combination, the Company acquired **$29.6 million** of additional obligations and **$22.3 million** of assets related to post-employment benefit plans[121](index=121&type=chunk) | (In thousands) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :------------------------- | :----------------------------- | :----------------------------- | | Service cost | $802 | $502 | | Interest cost | $(66) | $434 | | Expected return on plan assets | $118 | $(919) | | Amortization of actuarial losses | $13 | $174 | | Net periodic pension cost | $867 | $191 | [15. EQUITY](index=34&type=section&id=15.%20EQUITY) - Accumulated other comprehensive income increased from **$46,713 thousand** as of December 31, 2022, to **$62,208 thousand** as of June 30, 2023[127](index=127&type=chunk) - Foreign currency translation adjustments contributed **$15,618 thousand** to other comprehensive income for the six months ended June 30, 2023[127](index=127&type=chunk) | (In thousands) | Six Months Ended June 30, 2023 | | :--------------------------------------------------------------------------- | :----------------------------- | | Unrealized gain (loss) on available-for-sale securities | $98 | | Reclassification adjustment for amounts related to available-for-sale investments included in net (loss) gain | $(35) | | Reclassification adjustment for amounts related to defined benefit plan adjustments included in net gain (loss) | $58 | | Foreign currency translation adjustments | $15,618 | | Total Other Comprehensive Gain (Loss) | $15,739 | [16. REDEEMABLE NON-CONTROLLING INTEREST](index=38&type=section&id=16.%20REDEEMABLE%20NON-CONTROLLING%20INTEREST) | (In thousands) | Six Months Ended June 30, 2023 | | :------------------------------------------------------ | :----------------------------- | | Balance at beginning of period | $— | | Reclassification of non-controlling interests | $443,757 | | Redemption of redeemable non-controlling interest | $(1,552) | | Net income attributable to redeemable non-controlling interests | $5,691 | | Annual recurring compensation earned | $(5,691) | | Translation adjustment | $3,244 | | Adtran Networks stock option exercises | $13 | | Balance as of June 30, 2023 | $445,462 | - The redeemable non-controlling interest balance was **$445.5 million** as of June 30, 2023, following its reclassification from permanent equity due to the DPLTA becoming effective[139](index=139&type=chunk) - For the six months ended June 30, 2023, **$5.7 million** in Annual Recurring Compensation was recognized as accrued for non-controlling shareholders[139](index=139&type=chunk) [17. (LOSS) EARNINGS PER SHARE](index=38&type=section&id=17.%20(LOSS)%20EARNINGS%20PER%20SHARE) | (In thousands, except per share amounts) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net (loss) income attributable to ADTRAN Holdings, Inc. | $(33,334) | $2,143 | $(67,798) | $1,016 | | Weighted average shares outstanding – basic | 78,366 | 49,123 | 78,364 | 49,110 | | Weighted average shares outstanding – diluted | 78,366 | 49,809 | 78,364 | 49,813 | | (Loss) earnings per common share attributable to ADTRAN Holdings, Inc. – basic | $(0.43) | $0.04 | $(0.87) | $0.02 | | (Loss) earnings per common share attributable to ADTRAN Holdings, Inc. – diluted | $(0.43) | $0.04 | $(0.87) | $0.02 | - For the six months ended June 30, 2023, **0.3 million shares** of unvested PSUs, RSUs, and restricted stock were excluded from diluted EPS calculation due to their anti-dilutive effect[141](index=141&type=chunk) - For the six months ended June 30, 2023, **1.0 million stock options** were excluded from diluted EPS computation because their exercise prices were greater than the average market price[141](index=141&type=chunk) [18. SEGMENT INFORMATION](index=39&type=section&id=18.%20SEGMENT%20INFORMATION) | (In thousands) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :------------------- | :----------------------------- | :----------------------------- | | Network Solutions Revenue | $565,420 | $294,366 | | Network Solutions Gross Profit | $129,330 | $103,791 | | Services & Support Revenue | $85,870 | $32,190 | | Services & Support Gross Profit | $51,031 | $13,031 | | Total Revenue | $651,290 | $326,556 | | Total Gross Profit | $180,361 | $116,822 | | (In thousands) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--------------------------------- | :----------------------------- | :----------------------------- | | Optical Networking Solutions | $290,752 | $— | | Access & Aggregation Solutions | $199,537 | $190,084 | | Subscriber Solutions | $161,001 | $136,472 | | Total | $651,290 | $326,556 | | (In thousands) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :------------------ | :----------------------------- | :----------------------------- | | United States | $263,760 | $204,801 | | Germany | $151,824 | $25,376 | | United Kingdom | $109,468 | $59,243 | | Other international | $126,238 | $37,136 | | Total | $651,290 | $326,556 | [19. LIABILITY FOR WARRANTY RETURNS](index=41&type=section&id=19.%20LIABILITY%20FOR%20WARRANTY%20RETURNS) - The liability for warranty obligations totaled **$6.8 million** as of June 30, 2023, a decrease from **$7.2 million** as of December 31, 2022[153](index=153&type=chunk) | (In thousands) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------------------------- | :----------------------------- | :----------------------------- | | Balance at beginning of period | $7,196 | $5,403 | | Plus: Amounts charged to cost and expenses | $1,539 | $1,111 | | Plus: Foreign currency translation adjustments | $40 | $— | | Less: Deductions | $(1,944) | $(1,672) | | Balance at end of period | $6,831 | $4,842 | [20. COMMITMENTS AND CONTINGENCIES](index=41&type=section&id=20.%20COMMITMENTS%20AND%20CONTINGENCIES) - ADTRAN Networks and its subsidiary filed a lawsuit against Huawei Technologies Co. Ltd in May 2023 regarding standard essential patents (SEPs) and alleged infringement[156](index=156&type=chunk) - Assuming all minority shareholders elect Exit Compensation under the DPLTA, the Company would be obligated to make aggregate payments of approximately **$348.1 million**[158](index=158&type=chunk) - Purchase commitments totaled **$377.4 million** as of June 30, 2023, related to open purchase orders with contract manufacturers, ODMs, and suppliers[160](index=160&type=chunk) [21. RESTRUCTURING](index=43&type=section&id=21.%20RESTRUCTURING) - The Company initiated a restructuring program in Q4 2022 to optimize assets, business processes, and IT systems following the Business Combination, expected to be completed in late 2024[162](index=162&type=chunk) | (In thousands) | Six Months Ended June 30, 2023 | | :-------------------------------------- | :----------------------------- | | Balance at beginning of period | $159 | | Plus: Amounts charged to cost and expense | $8,305 | | Less: Amounts paid | $(2,012) | | Balance as of June 30, 2023 | $6,452 | | (In thousands) | Six Months Ended June 30, 2023 | | :------------------------------------- | :----------------------------- | | Cost of revenue | $76 | | Selling, general and administrative expenses | $3,573 | | Research and development expenses | $4,656 | | Total restructuring expenses | $8,305 | [22. SUBSEQUENT EVENTS](index=44&type=section&id=22.%20SUBSEQUENT%20EVENTS) - On August 6, 2023, the Board of Directors declared a quarterly cash dividend of **$0.09 per common share**, totaling approximately **$7.1 million**, payable on September 5, 2023[168](index=168&type=chunk) - The Wells Fargo Credit Agreement was amended on August 9, 2023, to include a new **$50 million** delayed draw term loan (DDTL) for repurchasing minority shares of Adtran Networks[168](index=168&type=chunk) - The amendment also revised financial covenants, including an automatic step-up in the consolidated total net leverage ratio to **5.00:1.00** upon a 'Springing Covenant Event,' and permitted up to **$172.5 million** in convertible indebtedness[168](index=168&type=chunk) [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=45&type=section&id=ITEM%202.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section provides management's perspective on the company's financial condition and results of operations for the three and six months ended June 30, 2023, compared to the prior year. It covers an overview of the business, the impact of the Adtran Networks Business Combination and DPLTA, financial performance trends, and liquidity and capital resources [OVERVIEW](index=45&type=section&id=OVERVIEW) - ADTRAN is a leading global provider of networking and communications platforms, software, systems, and services focused on the broadband access market, serving diverse domestic and international customers[171](index=171&type=chunk) - The Company's strategy relies on increasing unit volume and market share through continuous product development and enhanced functionality[171](index=171&type=chunk) - Financial performance is reviewed based on two reportable segments (Network Solutions and Services & Support) and three revenue categories (Subscriber Solutions, Access & Aggregation Solutions, and Optical Networking Solutions)[171](index=171&type=chunk) [ADTRAN NETWORKS DOMINATION AND PROFIT AND LOSS TRANSFER AGREEMENT](index=47&type=section&id=ADTRAN%20NETWORKS%20DOMINATION%20AND%20PROFIT%20AND%20LOSS%20TRANSFER%20AGREEMENT) - The DPLTA with Adtran Networks became effective on January 16, 2023, granting ADTRAN Holdings, Inc. control, the right to Adtran Networks' annual profit, and the obligation to absorb annual net losses for fiscal year 2023 onwards[175](index=175&type=chunk) - Minority shareholders can elect Exit Compensation (**€17.21 per share** plus interest) or Annual Recurring Compensation (**€0.59 per share**), with ongoing appraisal proceedings potentially increasing these amounts[175](index=175&type=chunk) - As of June 30, 2023, ADTRAN Holdings, Inc. incurred **$26.2 million** in transaction costs related to the Business Combination[175](index=175&type=chunk) [MULTI-YEAR INTEGRATION PROGRAM](index=47&type=section&id=MULTI-YEAR%20INTEGRATION%20PROGRAM) - A multi-year integration program was initiated in Q4 2022 to optimize assets, business processes, and IT systems post-Business Combination, aiming to realize cost synergies[176](index=176&type=chunk) - Identified cost synergies include operational scale, combined sales channels, streamlined corporate functions, and combined sourcing and production costs[176](index=176&type=chunk) - For the six months ended June 30, 2023, **$1.4 million** in integration costs and **$8.3 million** in restructuring costs related to the Business Combination were recognized[177](index=177&type=chunk)[178](index=178&type=chunk) [FINANCIAL PERFORMANCE AND TRENDS](index=48&type=section&id=FINANCIAL%20PERFORMANCE%20AND%20TRENDS) - Revenue increased **90.3%** year-over-year for Q2 2023, primarily driven by the Business Combination with Adtran Networks and increased sales to Service Provider customers[179](index=179&type=chunk) - Domestic revenue increased **25.1%** year-over-year, while international revenue increased **194.3%**, largely due to the Business Combination and increased shipments in Europe[179](index=179&type=chunk) - Challenges include growing customer concerns over inventory stocking levels for Subscriber Solutions, supply constraints limiting backlog clearance, and inflationary pressures on input and distribution costs[179](index=179&type=chunk) [EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS](index=49&type=section&id=EFFECT%20OF%20RECENT%20ACCOUNTING%20PRONOUNCEMENTS) - Refer to Note 1 of the Notes to Condensed Consolidated Financial Statements for a full description of recent accounting pronouncements, including adoption dates and estimated effects[181](index=181&type=chunk) [RESULTS OF OPERATIONS – THREE AND SIX MONTHS ENDED JUNE 30, 2023 COMPARED TO THE THREE AND SIX MONTHS ENDED JUNE 30, 2022](index=50&type=section&id=RESULTS%20OF%20OPERATIONS%20%E2%80%93%20THREE%20AND%20SIX%20MONTHS%20ENDED%20JUNE%2030,%202023%20COMPARED%20TO%20THE%20THREE%20AND%20SIX%20MONTHS%20ENDED%20JUNE%2030,%202022) [REVENUE](index=50&type=section&id=REVENUE) - Total revenue increased **90.3%** to **$327.4 million** for the three months ended June 30, 2023, and **99.4%** to **$651.3 million** for the six months ended June 30, 2023, primarily due to the Business Combination with Adtran Networks[186](index=186&type=chunk) - International revenue increased **194.3%** for the three months and **218.3%** for the six months ended June 30, 2023, representing **59.6%** and **59.5%** of total revenue, respectively[187](index=187&type=chunk) - Subscriber Solutions category was affected by growing customer concerns over inventory stocking levels, which is expected to continue into Q3 2023[186](index=186&type=chunk) [COST OF REVENUE](index=51&type=section&id=COST%20OF%20REVENUE) - Cost of revenue as a percentage of total revenue increased from **63.7%** (Q2 2022) to **71.7%** (Q2 2023) and from **64.2%** (H1 2022) to **72.3%** (H1 2023)[188](index=188&type=chunk) - The increase was primarily attributable to **$33.4 million** (Q2 2023) and **$66.0 million** (H1 2023) in adjustments from intangible amortization of backlog, developed technology, and fair value adjustments to inventory costs due to the Business Combination[188](index=188&type=chunk) - Services & Support cost of revenue as a percentage of segment revenue decreased from **59.9%** (Q2 2022) to **40.3%** (Q2 2023), driven by customer mix and changes in service mix[189](index=189&type=chunk) [GROSS PROFIT](index=52&type=section&id=GROSS%20PROFIT) - Gross profit as a percentage of revenue decreased from **36.3%** (Q2 2022) to **28.3%** (Q2 2023) and from **35.8%** (H1 2022) to **27.7%** (H1 2023)[190](index=190&type=chunk) - The decrease was primarily due to **$33.4 million** (Q2 2023) and **$66.0 million** (H1 2023) in adjustments from intangible amortization and fair value adjustments to inventory costs from the Business Combination[190](index=190&type=chunk) - Services & Support gross profit as a percentage of segment revenue increased from **40.1%** (Q2 2022) to **59.7%** (Q2 2023), driven by increased sales volume and favorable changes in service mix[190](index=190&type=chunk) [SELLING, GENERAL AND ADMINISTRATIVE EXPENSES](index=53&type=section&id=SELLING,%20GENERAL%20AND%20ADMINISTRATIVE%20EXPENSES) - Selling, general and administrative (SG&A) expenses increased **138.9%** to **$66.6 million** for Q2 2023 and **140.3%** to **$134.0 million** for H1 2023[192](index=192&type=chunk) - As a percentage of revenue, SG&A increased from **16.2%** (Q2 2022) to **20.3%** (Q2 2023) and from **17.1%** (H1 2022) to **20.6%** (H1 2023)[192](index=192&type=chunk) - The increase was primarily due to higher employee-related costs, restructuring program costs, amortization of intangible assets, and transaction costs related to the Business Combination[192](index=192&type=chunk) [RESEARCH AND DEVELOPMENT EXPENSES](index=53&type=section&id=RESEARCH%20AND%20DEVELOPMENT%20EXPENSES) - Research and development (R&D) expenses increased **166.4%** to **$70.6 million** for Q2 2023 and **165.6%** to **$140.7 million** for H1 2023[193](index=193&type=chunk) - As a percentage of revenue, R&D increased from **15.4%** (Q2 2022) to **21.6%** (Q2 2023) and from **16.2%** (H1 2022) to **21.6%** (H1 2023)[193](index=193&type=chunk) - The increase was primarily due to higher employee-related costs and expenses related to the multi-year integration program and restructuring from the Business Combination[193](index=193&type=chunk) [INTEREST AND DIVIDEND INCOME](index=53&type=section&id=INTEREST%20AND%20DIVIDEND%20INCOME) - Interest and dividend income increased from **$0.2 million** (Q2 2022) to **$0.4 million** (Q2 2023) and from **$0.4 million** (H1 2022) to **$0.7 million** (H1 2023)[194](index=194&type=chunk) - The increase was due to higher income related to the Business Combination with Adtran Networks[194](index=194&type=chunk) [INTEREST EXPENSE](index=54&type=section&id=INTEREST%20EXPENSE) - Interest expense increased from **$0.1 million** (Q2 2022) to **$4.1 million** (Q2 2023) and from **$0.1 million** (H1 2022) to **$7.4 million** (H1 2023)[196](index=196&type=chunk) - The increase was primarily related to the Wells Fargo Credit Agreement and assumed debt associated with the Business Combination[196](index=196&type=chunk) [NET INVESTMENT (LOSS) GAIN](index=54&type=section&id=NET%20INVESTMENT%20(LOSS)%20GAIN) - The Company recognized a net investment gain of **$1.3 million** for Q2 2023 (compared to a loss of **$4.6 million** in Q2 2022) and a gain of **$2.5 million** for H1 2023 (compared to a loss of **$8.1 million** in H1 2022)[197](index=197&type=chunk) - Fluctuations in net investments were primarily attributable to changes in the fair value of securities[197](index=197&type=chunk) [OTHER INCOME, NET](index=54&type=section&id=OTHER%20INCOME,%20NET) - Other income, net, increased from **$0.7 million** (Q2 2022) to **$2.5 million** (Q2 2023) and from **$0.5 million** (H1 2022) to **$2.2 million** (H1 2023)[198](index=198&type=chunk) [INCOME TAX BENEFIT (EXPENSE)](index=54&type=section&id=INCOME%20TAX%20BENEFIT%20(EXPENSE)) - The effective tax rate changed from an expense of **50.1%** (Q2 2022) to a benefit of **18.8%** (Q2 2023) of pre-tax income, and from a benefit of **34.3%** (H1 2022) to a benefit of **20.4%** (H1 2023) of pre-tax income[199](index=199&type=chunk) - This change was primarily driven by the Business Combination with Adtran Networks and the release of the domestic valuation allowance in Q4 2022[199](index=199&type=chunk) [NET (LOSS) INCOME ATTRIBUTABLE TO ADTRAN HOLDINGS, INC.](index=54&type=section&id=NET%20(LOSS)%20INCOME%20ATTRIBUTABLE%20TO%20ADTRAN%20HOLDINGS,%20INC.) - Net (loss) income attributable to ADTRAN Holdings, Inc. decreased from net income of **$2.1 million** (Q2 2022) to a net loss of **$33.3 million** (Q2 2023) and from net income of **$1.0 million** (H1 2022) to a net loss of **$67.8 million** (H1 2023)[200](index=200&type=chunk) - The Company began absorbing all Adtran Networks losses after the DPLTA became effective on January 16, 2023[200](index=200&type=chunk) [LIQUIDITY AND CAPITAL RESOURCES](index=54&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) - The Company historically finances operations with existing cash, investments, and cash flow from operations, and expects to continue using these sources for working capital, acquisitions, dividends, and general corporate purposes[201](index=201&type=chunk) - As of June 30, 2023, available short-term liquidity was **$127.4 million**, with **$86.3 million** held by foreign subsidiaries[207](index=207&type=chunk) - Net cash used in operating activities increased by **$30.2 million** to **$36.2 million** for the six months ended June 30, 2023, primarily due to net loss and working capital changes[208](index=208&type=chunk) - Capital expenditures totaled **$20.1 million** for the six months ended June 30, 2023, primarily for manufacturing and test equipment, software, and building improvements[211](index=211&type=chunk) - Dividends paid totaled **$14.2 million** for the six months ended June 30, 2023[213](index=213&type=chunk) | (In thousands) | Total | 2023 | 2024 | 2025 | 2026 | 2027 | After 2027 | | :------------------------------- | :-------- | :-------- | :------- | :------ | :------ | :---------- | :--------- | | Wells Fargo credit agreement | $200,000 | $— | $— | $— | $— | $200,000 | $— | | Nord/LB revolving line of credit | $10,912 | $10,912 | $— | $— | $— | $— | $— | | Purchase obligations | $377,427 | $308,708 | $62,976 | $5,736 | $7 | $— | $— | | Operating lease obligations | $32,499 | $4,662 | $8,658 | $7,159 | $4,506 | $2,950 | $4,564 | | Totals | $620,838 | $324,282 | $71,634 | $12,895 | $4,513 | $202,950 | $4,564 | [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=63&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) This section outlines the company's exposure to financial market risks, including interest rate risk and foreign currency exchange rate risk, and describes the strategies employed to manage these exposures - The Company is exposed to interest rate risk; a hypothetical **50 basis point** increase in interest rates would increase interest expense by **$1.1 million**[229](index=229&type=chunk) - Primary foreign currency exposures are with the Euro and British pound sterling, which can affect revenue, gross margins, operating expenses, and operating income[230](index=230&type=chunk) - The Company uses foreign currency forward contracts to reduce the impact of currency exchange rate movements, with **51 contracts** outstanding and a fair value of **$8.1 million** as of June 30, 2023[230](index=230&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=65&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) This section reports on the evaluation of the company's disclosure controls and procedures, identifies a material weakness in internal control over financial reporting, and details management's remediation efforts, while noting the exclusion of Adtran Networks from the initial internal control evaluation - Disclosure controls and procedures were not effective as of June 30, 2023, due to a material weakness in internal control over financial reporting[234](index=234&type=chunk) - The identified material weakness relates to the design and maintenance of effective controls over the presentation and disclosure of debt agreements, which led to a restatement of prior financial statements[234](index=234&type=chunk) - Management plans to remediate the material weakness by implementing a new control for reviewing new or amended debt agreements for terms and conditions impacting presentation or disclosure[235](index=235&type=chunk) - Adtran Networks operations are currently excluded from the internal control over financial reporting evaluation for the first year after the Business Combination, but oversight processes are being extended[236](index=236&type=chunk) PART II. OTHER INFORMATION [ITEM 1. LEGAL PROCEEDINGS](index=66&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) This section discloses the company's involvement in various lawsuits, claims, and legal proceedings, including patent disputes, and notes the inability to predict outcomes or estimate potential losses - The Company is subject to various lawsuits, claims, investigations, and legal proceedings, including those related to employment matters, patent rights, and commercial disputes[238](index=238&type=chunk) - An unfavorable outcome in a legal matter could result in damages, royalties, or restrictions on product sales, potentially requiring significant financial and managerial resources[238](index=238&type=chunk) - The Company is currently unable to predict the outcome or estimate the possible loss or range of loss associated with these legal matters[238](index=238&type=chunk) [ITEM 1A. RISK FACTORS](index=66&type=section&id=ITEM%201A.%20RISK%20FACTORS) This section updates and elaborates on factors that could materially affect the company's business, financial condition, or operating results, with a focus on risks related to the Business Combination and DPLTA, financial performance, control environment, and regulatory changes - The Company expects to incur significant non-recurring integration and restructuring costs related to the Business Combination, with **$26.2 million** in transaction costs incurred as of June 30, 2023[239](index=239&type=chunk) - Increased indebtedness from the Wells Fargo Credit Agreement (**$200.0 million**) and Nord/LB revolving line of credit (**$10.9 million**) could adversely affect operations and liquidity, potentially limiting the ability to meet debt service obligations[240](index=240&type=chunk) - The DPLTA terms, including potential Exit Compensation of approximately **$348.1 million**, could have a material adverse effect on financial results and condition, especially if ongoing appraisal proceedings result in higher payment obligations[244](index=244&type=chunk) - A material weakness in internal control over financial reporting has been identified, leading to a restatement of previously issued financial statements and potential litigation risks, which could adversely affect investor confidence and financial results[253](index=253&type=chunk) - Rising interest rates due to central bank monetary policy actions could increase borrowing costs under variable interest rate debt facilities, negatively impacting financial condition and future operations[257](index=257&type=chunk) [ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](index=73&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) This section confirms that the company did not repurchase any shares of its common stock during the six months ended June 30, 2023, and currently has no authorized stock repurchase program - No shares of common stock were repurchased during the six months ended June 30, 2023[258](index=258&type=chunk) - There is no current authorized stock repurchase program[258](index=258&type=chunk) [ITEM 5. OTHER INFORMATION](index=73&type=section&id=ITEM%205.%20OTHER%20INFORMATION) This section provides updates on insider trading arrangements and details the First Amendment to the Wells Fargo Credit Agreement, which enhances financial flexibility for potential share repurchases and modifies financial covenants - No directors or executive officers adopted or terminated Rule 10b5-1 trading arrangements during the fiscal quarter ended June 30, 2023[259](index=259&type=chunk) - The Wells Fargo Credit Agreement was amended on August 9, 2023, to include a new **$50 million** delayed draw term loan (DDTL) specifically for repurchasing minority shares of Adtran Networks[259](index=259&type=chunk) - The First Amendment also revised financial covenants and permitted the incurrence of up to **$172.5 million** in convertible indebtedness, subject to certain conditions, for share repurchases or revolver repayments[260](index=260&type=chunk) [ITEM 6. EXHIBITS](index=75&type=section&id=ITEM%206.%20EXHIBITS) This section lists all exhibits filed with the Quarterly Report on Form 10-Q, including corporate governance documents, employment agreements, and the First Amendment to the Credit Agreement - The exhibits include the Amended and Restated Certificate of Incorporation and Bylaws of ADTRAN Holdings, Inc[262](index=262&type=chunk) - Several employment agreements and their amendments are listed as exhibits, including those for Christoph Glingener and Ulrich Dopfer[262](index=262&type=chunk) - The First Amendment to Credit Agreement, dated August 9, 2023, is filed as Exhibit 10.7[262](index=262&type=chunk) [SIGNATURE](index=77&type=section&id=SIGNATURE) This section contains the signature of the Chief Financial Officer, Ulrich Dopfer, certifying the filing of the Quarterly Report on Form 10-Q - The report was signed by Ulrich Dopfer, Chief Financial Officer of ADTRAN Holdings, Inc., on August 14, 2023[265](index=265&type=chunk)

ADTRAN Holdings, Inc. (NASDAQ:ADTN) Q2 2023 Earnings Conference Call August 8, 2023 10:30 AM ET Company Participants Tom Stanton - Chief Executive Officer Uli Dopfer - Senior Vice President and Chief Financial Officer Conference Call Participants Michael Genovese - Rosenblatt Securities Greg Mesniaeff - WestPark Capital George Notter - Jefferies Ryan Koontz - Needham & Company Bill Dezellem - Tieton Capital Management Operator Ladies and gentlemen, thank you for standing by, and welcome to ADTRAN Holdings, ...

Financial Data and Key Metrics Changes - Q1 2023 revenue was $323.9 million, up 109.6% year-over-year but down 9.6% quarter-over-quarter, missing the guidance range of $355 million to $375 million by 8.8% [15][16] - Non-GAAP gross margin was 37.3%, an increase of 200 basis points year-over-year but a decrease of 180 basis points sequentially [17] - Non-GAAP operating loss was $5.2 million, translating to a non-GAAP operating margin of negative 1.6%, compared to positive 1% in Q1 2022 [18] Business Line Data and Key Metrics Changes - The Network Solutions segment accounted for 87.2% of revenues in Q1 2023, down from 89.6% in Q1 2022 [15] - Optical Networking Solutions contributed 45.6% of revenue, up 3.9% quarter-over-quarter, while Access & Aggregation revenue share was 29.9%, slightly down 1% year-over-year [16] - Subscriber Solutions category was up 39.9% year-over-year but down 34.1% quarter-over-quarter due to inventory management issues [15][16] Market Data and Key Metrics Changes - Domestic revenue grew by 32.7% year-over-year, while international revenue increased by 246.9%, making up 59.4% of total revenue [16] - In the U.S. market, there was a 47% quarter-over-quarter growth in fiber access platforms, driven by success in the regional service provider market [10] Company Strategy and Development Direction - The company is focused on long-term growth in fiber networks, with a comprehensive fiber network portfolio built on Optical Network Solutions, Access & Aggregation Solutions, and Subscriber Solutions [8][12] - Management emphasized the importance of integrating teams and processes to enhance cross-selling opportunities within the fiber portfolio [8][12] - The company aims to achieve cost synergies of $52 million, with 40% expected to materialize in 2023 and 60% in 2024 [22] Management's Comments on Operating Environment and Future Outlook - Management noted that while inventory management issues are expected to persist in the near term, the long-term demand for fiber networks remains strong [7][12] - The company is cautious about spending due to current market uncertainties but remains confident in its long-term growth outlook [12][24] - Management highlighted that the supply chain situation is improving, which should positively impact gross margins in the second half of the year [36][25] Other Important Information - The company transitioned CFO roles from Mike Foliano to Uli Dopfer, with a focus on financial performance and operational efficiency [13] - Cash and cash equivalents totaled $136.5 million at quarter-end, with a negative operating cash flow of $19.9 million due to lower earnings and increased working capital [19][20] Q&A Session Summary Question: Can you provide insights on the broadband infrastructure and optical business outlook? - Management acknowledged good performance in the infrastructure business but expressed caution due to unclear inventory levels and adjustments in customer ordering patterns [28][30] Question: What are the current lead times for fiber access and optical products? - Lead times have improved from 52 weeks to approximately 2 to 4 months, although some complex chips still face constraints [42] Question: How is the Mosaic One deployment progressing? - The uptake of Mosaic One has been positive, with 200 service providers adopting the offering, but onboarding remains a challenge [57] Question: Are there any labor constraints affecting fiber deployment? - Labor constraints are more pronounced in Europe, with some projects throttled due to labor availability, while the U.S. market is less impacted [66][67]

[Part I. Financial Information](index=7&type=section&id=Part%20I.%20FINANCIAL%20INFORMATION) [Financial Statements](index=7&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS) Q1 2023 financial statements reflect significant revenue growth and increased operating loss, primarily due to the ADVA business combination [Condensed Consolidated Balance Sheets](index=7&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheet as of March 31, 2023, shows **$1.94 billion** in total assets, increased liabilities, and a new **$442.7 million** Redeemable Non-Controlling Interest Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $136,457 | $108,644 | | Inventory, net | $416,291 | $427,531 | | Goodwill | $385,755 | $381,724 | | Total Assets | $1,938,595 | $1,943,494 | | **Liabilities & Equity** | | | | Revolving credit agreements | $190,843 | $95,936 | | Total Liabilities | $675,765 | $639,881 | | Redeemable Non-Controlling Interest | $442,668 | $0 | | Total Equity | $820,162 | $1,303,613 | - The non-controlling interest in ADVA was reclassified to **Redeemable Non-Controlling Interest (RNCI)** on January 16, 2023, now classified outside stockholders' equity upon DPLTA effectiveness[50](index=50&type=chunk) - The December 31, 2022 balance sheet was revised to correct a **$61.6 million** understatement of deferred tax assets and liabilities, affecting gross balances but not the net amount[47](index=47&type=chunk)[48](index=48&type=chunk) [Condensed Consolidated Statements of Loss](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Loss) Q1 2023 total revenue surged **109.6%** to **$323.9 million** due to the ADVA acquisition, resulting in a **$49.7 million** operating loss and **$34.5 million** net loss Q1 2023 vs. Q1 2022 Performance (in thousands, except per share data) | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Total Revenue | $323,912 | $154,518 | | Gross Profit | $87,808 | $54,316 | | Operating Loss | $(49,732) | $(68) | | Net Loss Attributable to ADTRAN | $(34,464) | $(1,127) | | Loss Per Share (diluted) | $(0.44) | $(0.02) | - Significant increases in operating expenses, with **SG&A at $67.4 million** and **R&D at $70.1 million**, primarily drove the operating loss, reflecting expanded post-ADVA operations[28](index=28&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=12&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Q1 2023 operating activities used **$19.9 million** cash, while financing activities provided **$55.6 million** from increased borrowings, leading to a **$27.8 million** cash increase Cash Flow Summary (in thousands) | Activity | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(19,926) | $4,869 | | Net cash used in investing activities | $(6,794) | $(2,700) | | Net cash provided by (used in) financing activities | $55,628 | $(3,924) | | **Net increase (decrease) in cash** | **$28,908** | **$(1,755)** | - Financing activities were driven by **$94.8 million** net proceeds from revolving credit agreements, used to fund operations, repay **$24.7 million** in notes, and pay **$7.1 million** in dividends[40](index=40&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=13&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Notes detail the ADVA business combination's impact, including purchase price allocation, goodwill, intangibles, DPLTA effects, new revenue categories, debt, and segment performance [Note 2. Business Combination](index=15&type=section&id=Note%202.%20Business%20Combination) ADTRAN acquired ADVA for **$578.3 million**, recognizing **$350.5 million** goodwill and **$403.8 million** intangibles, with ADVA contributing **$192.3 million** revenue and a **$25.4 million** net loss in Q1 2023 Purchase Price Allocation (in thousands) | Category | Fair Value | | :--- | :--- | | Total purchase price | $578,260 | | Non-controlling interest | $316,415 | | **Net Assets Acquired** | **$544,217** | | **Goodwill** | **$350,458** | - Identifiable intangible assets acquired totaled **$403.8 million**, primarily **Developed Technology ($291.9 million)**, **Backlog ($52.2 million)**, and **Customer Relationships ($32.7 million)**[59](index=59&type=chunk) - For Q1 2023, the ADVA business contributed **$192.3 million** in revenue and a net loss of **$25.4 million** to consolidated results[59](index=59&type=chunk) [Note 3. Revenue](index=19&type=section&id=Note%203.%20Revenue) Q1 2023 total revenue was **$323.9 million**, disaggregated into new categories post-ADVA, with **Optical Networking Solutions** contributing **$147.8 million**, and remaining performance obligations increasing to **$389.0 million** Revenue by Category (in thousands) | Revenue Category | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Subscriber Solutions | $79,336 | $56,722 | | Access & Aggregation Solutions | $96,820 | $97,796 | | Optical Networking Solutions | $147,756 | $0 | | **Total** | **$323,912** | **$154,518** | - Remaining performance obligations totaled **$389.0 million** as of March 31, 2023, with approximately **68%** expected to be recognized within the next 12 months[64](index=64&type=chunk) [Debt (Revolving Credit & Notes Payable)](index=30&type=section&id=Note%2012%20%26%2013.%20Debt) Total revolving credit agreements increased to **$190.8 million** as of March 31, 2023, primarily from increased Wells Fargo borrowings, while **$24.6 million** in notes payable were fully repaid - Borrowings under the main Wells Fargo credit facility increased from **$60.0 million** to **$180.0 million** during the quarter, with the total facility size expanding to **$400 million** upon DPLTA effectiveness[107](index=107&type=chunk)[108](index=108&type=chunk) - The company fully repaid the **$24.6 million** syndicated credit agreement note payable on January 31, 2023[113](index=113&type=chunk)[114](index=114&type=chunk) [Segment and Geographic Information](index=35&type=section&id=Note%2018.%20Segment%20and%20Geographic%20Information) Q1 2023 revenue was **$282.4 million** for Network Solutions and **$41.5 million** for Services & Support, with international revenue growing to **59.4%** of total, driven by the ADVA combination Revenue by Geographic Area (in thousands) | Geographic Area | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | United States | $131,466 | $99,048 | | Germany | $76,286 | $10,920 | | United Kingdom | $57,397 | $30,388 | | Other international | $58,763 | $14,162 | | **Total** | **$323,912** | **$154,518** | Segment Performance (in thousands) | Segment | Q1 2023 Revenue | Q1 2023 Gross Profit | | :--- | :--- | :--- | | Network Solutions | $282,418 | $63,288 | | Services & Support | $41,494 | $24,520 | | **Total** | **$323,912** | **$87,808** | [Commitments and Contingencies](index=37&type=section&id=Note%2020.%20Commitments%20and%20Contingencies) The company faces significant DPLTA commitments, including potential **$335.6 million** Exit Compensation or **$11.3 million** annual recurring compensation, alongside **$459.3 million** in purchase commitments - Under the DPLTA, the company is obligated to offer either Exit Compensation of **€17.21 per share** (totaling approximately **$335.6 million**) or Annual Recurring Compensation of **€0.59 per share** to remaining ADVA shareholders[144](index=144&type=chunk) - As of March 31, 2023, the company had purchase commitments totaling **$459.3 million** for inventory and manufacturing services[147](index=147&type=chunk) [Management's Discussion and Analysis (MD&A)](index=40&type=section&id=ITEM%202.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) MD&A attributes **109.6%** Q1 2023 revenue growth to ADVA, noting gross margin decline due to purchase accounting, increased operating expenses, and ongoing integration for synergies, with liquidity managed via cash and credit facility [Results of Operations](index=45&type=section&id=Results%20of%20Operations) Q1 2023 revenue increased **109.6%** to **$323.9 million** due to ADVA, but gross margin fell to **27.1%** due to purchase accounting, leading to a **$49.7 million** operating loss - Revenue increase was primarily attributable to a **$192.3 million** increase in sales from the ADVA business combination[174](index=174&type=chunk) - Gross margin was negatively impacted by **$32.6 million** of ADVA acquisition adjustments, including intangible amortization and fair value adjustments to inventory[176](index=176&type=chunk)[177](index=177&type=chunk) - Customer concerns over inventory stocking levels negatively affected the **Subscriber Solutions** category, a trend expected to continue into Q2 2023[167](index=167&type=chunk)[174](index=174&type=chunk) [Liquidity and Capital Resources](index=48&type=section&id=Liquidity%20and%20Capital%20Resources) Q1 2023 ended with **$136.5 million** cash and access to a **$400 million** credit facility, deemed sufficient for operations and DPLTA obligations, including potential **$335.6 million** exit payments and **$459.3 million** purchase obligations - The company believes its liquidity, including **$136.5 million** cash and available credit, is adequate to meet obligations for at least the next 12 months[191](index=191&type=chunk) - Material cash requirements include operating leases (**$33.5 million**), purchase obligations (**$459.3 million**), outstanding debt (**$190.8 million**), and significant potential DPLTA payments[201](index=201&type=chunk) - The company entered into forward contracts to hedge an aggregate notional amount of **$160.0 million** of its Euro-denominated DPLTA payment obligations[203](index=203&type=chunk)[205](index=205&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=55&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The company faces interest rate and foreign currency risks, with a **50 basis point** rate increase impacting annual interest expense by **$1.0 million**, and uses forward contracts to hedge Euro and British pound exposures, including DPLTA obligations - A hypothetical **50 basis point** increase in interest rates would increase annual interest expense by **$1.0 million** on the **$190.8 million** variable-rate debt[211](index=211&type=chunk) - The company's primary foreign currency exposures are to the **Euro** and **British pound sterling**, with approximately **40.9%** of Q1 2023 operating expenses paid in local currencies[212](index=212&type=chunk) - To manage DPLTA payment risk, the company entered into Euro/U.S. dollar forward contracts to hedge a notional amount of **$160.0 million**[212](index=212&type=chunk)[214](index=214&type=chunk) [Controls and Procedures](index=57&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) Management concluded disclosure controls were effective as of March 31, 2023, excluding the ADVA acquisition as permitted by SEC guidance, with ongoing efforts to integrate ADVA's internal controls - The CEO and CFO concluded that disclosure controls and procedures were effective as of the end of the period[217](index=217&type=chunk) - As permitted by the SEC, the evaluation of internal control over financial reporting excluded the ADVA acquisition, which represented **42.4%** of consolidated assets and **59.4%** of consolidated revenues for the quarter[218](index=218&type=chunk) [Part II. Other Information](index=58&type=section&id=Part%20II.%20OTHER%20INFORMATION) [Legal Proceedings & Risk Factors](index=58&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS%20%26%20ITEM%201A.%20RISK%20FACTORS) The company faces various legal matters, including a new ADVA lawsuit against Huawei, with no material changes to previously disclosed risk factors regarding revenue predictability, gross margins, and ADVA integration - In May 2023, ADVA filed a lawsuit against Huawei Technologies Co. Ltd seeking a declaration that Huawei violated commitments to license standard essential patents on FRAND terms[156](index=156&type=chunk)[225](index=225&type=chunk) - No material changes to risk factors from the 2022 Form 10-K were noted, with reiterated risks including revenue predictability, gross margin sustainability, and ADVA internal control integration challenges[221](index=221&type=chunk)[222](index=222&type=chunk)[224](index=224&type=chunk) [Other Corporate Matters](index=39&type=section&id=Other%20Corporate%20Matters) No common stock repurchases occurred during the quarter, Ulrich Dopfer was appointed Principal Accounting Officer, and a **$0.09 per share** quarterly cash dividend was declared post-quarter end - The Board of Directors declared a quarterly cash dividend of **$0.09 per common share** on May 8, 2023[154](index=154&type=chunk) - Effective May 10, 2023, **Ulrich Dopfer** was appointed as the company's Principal Accounting Officer[155](index=155&type=chunk)[228](index=228&type=chunk) - No shares of common stock were repurchased during the three months ended March 31, 2023[227](index=227&type=chunk)

[PART I](index=9&type=section&id=PART%20I) [Business](index=9&type=section&id=Item%201.%20Business) ADTRAN Holdings, Inc. provides open networking and communications platforms, significantly expanding its portfolio in 2022 through the ADVA business combination - In 2022, the company completed a business combination with ADVA Optical Networking SE, significantly expanding its technology portfolio, especially in optical networking[35](index=35&type=chunk) - The company operates under two reportable segments: **Network Solutions** (hardware and software products) and **Services & Support** (network design, implementation, and SaaS applications)[39](index=39&type=chunk)[40](index=40&type=chunk) - Following the ADVA combination, revenue is reported across three new categories: **Subscriber Solutions**, **Access & Aggregation Solutions**, and **Optical Networking Solutions**[43](index=43&type=chunk)[44](index=44&type=chunk)[47](index=47&type=chunk) Research and Development Expenditures (2020-2022) | Year | R&D Expense (in millions) | | :--- | :--- | | 2022 | $173.8 | | 2021 | $108.7 | | 2020 | $113.3 | - As of December 31, 2022, the company had **3,307 full-time employees**, with 1,948 from ADVA and its subsidiaries[76](index=76&type=chunk) - One service provider customer accounted for **more than 10% of total revenue** in 2022, with the U.S., U.K., and Germany each contributing over 10% of total revenue[55](index=55&type=chunk) [Risk Factors](index=27&type=section&id=Item%201A.%20Risk%20Factors) The company faces multiple risks including ADVA integration, financial predictability, supply chain, competition, and complex regulatory environments - **Business Combination & DPLTA Risks:** - Failure to realize anticipated strategic and financial benefits from the ADVA combination[92](index=92&type=chunk) - Complex operational and personnel integration challenges may disrupt business[93](index=93&type=chunk) - The DPLTA creates significant financial obligations, including potential Exit Compensation payments to minority ADVA shareholders of approximately **€310.6 million** and an Annual Recurring Compensation payment obligation[96](index=96&type=chunk) - **Financial & Operational Risks:** - Revenue is difficult to predict quarterly due to short order-to-delivery cycles and supply chain constraints[106](index=106&type=chunk) - Heavy dependence on sales to a few major customers, the loss of which would significantly reduce revenue[107](index=107&type=chunk) - Gross margins may be adversely affected by supply chain costs, inflation, and product mix[108](index=108&type=chunk) - Reliance on a limited number of suppliers for key components has led to delivery delays and increased costs[108](index=108&type=chunk) - **Industry & Technology Risks:** - The telecommunications market requires continuous product updates and innovation due to rapidly changing technology and evolving standards[110](index=110&type=chunk) - Intense competition from companies with greater financial and R&D resources could reduce market share and gross margins[129](index=129&type=chunk) - Products must interoperate with diverse and complex customer networks, and failure to do so can lead to delayed or canceled installations[129](index=129&type=chunk) - **Regulatory & Macroeconomic Risks:** - Subject to complex and evolving U.S. and foreign laws, including trade policies, tariffs (especially concerning China), and environmental regulations[140](index=140&type=chunk) - Changes in tax regulations or assessments from tax audits could adversely impact results[142](index=142&type=chunk) - Rising inflation and central bank monetary policy actions could increase borrowing costs and negatively impact profitability[144](index=144&type=chunk) [Unresolved Staff Comments](index=47&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports that there are no unresolved staff comments from the SEC - None[148](index=148&type=chunk) [Properties](index=47&type=section&id=Item%202.%20Properties) ADTRAN's global headquarters are in Huntsville, Alabama, with a European headquarters in Munich, Germany, and various other leased facilities - The company's primary facilities include its global headquarters in Huntsville, Alabama, and a leased European headquarters in Munich, Germany[148](index=148&type=chunk) [Legal Proceedings](index=47&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in various legal matters incidental to its business, but the outcome and potential loss cannot be estimated - The company is subject to various legal proceedings arising from the normal course of business, but the outcome and potential financial impact cannot be estimated at this time[149](index=149&type=chunk) [Mine Safety Disclosures](index=47&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section is not applicable to the company's operations - Not applicable[150](index=150&type=chunk) [PART II](index=48&type=section&id=PART%20II) [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=48&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) ADTRAN's common stock trades on NASDAQ and Frankfurt, paid quarterly dividends of $0.09 per share in 2022, and had no share repurchases - The company's common stock is traded on the NASDAQ (ADTN) and the Frankfurt Stock Exchange (QH9)[152](index=152&type=chunk) - A quarterly dividend of **$0.09 per share** was declared in each quarter of 2022[158](index=158&type=chunk) - The company did not repurchase any of its common stock during the fourth quarter of 2022 and has no current repurchase plan authorized[157](index=157&type=chunk) [(Reserved)](index=50&type=section&id=Item%206.%20%28Reserved%29) This item is intentionally left blank - This item is reserved[160](index=160&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=51&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) 2022 revenue significantly increased due to the ADVA acquisition, gross margin declined, operating expenses rose, and net loss improved, supported by strong liquidity Financial Performance Comparison (2022 vs. 2021) | Metric | 2022 (in millions) | 2021 (in millions) | % Change | | :--- | :--- | :--- | :--- | | Total Revenue | $1,025.5 | $563.0 | 82.2% | | Gross Profit | $327.3 | $218.4 | 49.9% | | Gross Margin | 31.9% | 38.8% | (6.9 p.p.) | | Operating Loss | ($72.8) | ($14.7) | 395.2% | | Net Loss Attributable to ADTRAN | ($2.0) | ($8.6) | (76.7%) | - The **82.2% revenue increase** in 2022 was primarily driven by a **$365.9 million** contribution from the ADVA business combination and a **$96.6 million** increase from legacy ADTRAN operations[173](index=173&type=chunk) - Gross margin declined to **31.9%** from 38.8% in 2021, attributed to acquisition-related expenses and ongoing supply chain constraint costs[175](index=175&type=chunk)[177](index=177&type=chunk) - Operating expenses increased substantially due to the ADVA acquisition, with SG&A expenses rising **67.9% to $208.9 million** and R&D expenses increasing **59.9% to $173.8 million**[178](index=178&type=chunk)[180](index=180&type=chunk) - The company recorded an income tax benefit of **$62.1 million** in 2022, compared to a $2.3 million expense in 2021, primarily due to the release of a valuation allowance against U.S. deferred tax assets[186](index=186&type=chunk) - Inventory increased **205.6% to $427.5 million** at year-end 2022, driven by the ADVA acquisition and strategic buffer purchases to mitigate supply chain constraints[190](index=190&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=71&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company is exposed to interest rate and foreign currency risks, managed through its investment portfolio and derivative instruments - **Interest Rate Risk:** A hypothetical **50 basis point increase** in interest rates would increase the company's annual interest expense by approximately **$0.6 million**, primarily affecting its revolving credit agreements and notes payable[234](index=234&type=chunk) - **Foreign Currency Risk:** Primary exposures are to the Euro and British pound sterling; a hypothetical **10% strengthening/weakening** of the U.S. dollar would result in a gain/loss of **$8.0 million** on receivables and **$10.4 million** on payables denominated in non-functional currencies[235](index=235&type=chunk) - The company utilizes hedging instruments to manage currency risk, including **47 forward contracts** and a Euro/U.S. dollar cross-currency swap with a notional amount of **$160 million** to hedge DPLTA payment obligations[235](index=235&type=chunk) [Financial Statements and Supplementary Data](index=73&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents audited financial statements with an unqualified auditor's opinion, highlighting the critical audit matter of ADVA intangible asset valuation - The independent auditor, PricewaterhouseCoopers LLP, issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting[247](index=247&type=chunk) - A Critical Audit Matter was identified concerning the valuation of developed technology (**$291.9 million**), customer relationships (**$32.7 million**), and backlog (**$52.2 million**) intangible assets from the ADVA acquisition, due to significant management judgment and complex assumptions[251](index=251&type=chunk) Consolidated Balance Sheet Summary | (In thousands) | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | **Total Assets** | **$1,881,865** | **$569,017** | | Total Current Liabilities | $488,575 | $155,359 | | Total Liabilities | $578,252 | $211,915 | | **Total Equity** | **$1,303,613** | **$357,102** | Consolidated Statement of (Loss) Income Summary | (In thousands) | Year Ended Dec 31, 2022 | Year Ended Dec 31, 2021 | | :--- | :--- | :--- | | Total Revenue | $1,025,536 | $563,004 | | Gross Profit | $327,252 | $218,377 | | Operating Loss | ($72,827) | ($14,700) | | Net Loss Attributable to ADTRAN | ($2,037) | ($8,635) | Consolidated Statement of Cash Flows Summary | (In thousands) | Year Ended Dec 31, 2022 | Year Ended Dec 31, 2021 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | ($44,228) | $3,008 | | Net cash provided by investing activities | $55,831 | $10,266 | | Net cash provided by (used in) financing activities | $52,936 | ($12,958) | [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=129&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants regarding accounting principles or financial disclosure - None[474](index=474&type=chunk) [Controls and Procedures](index=129&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded disclosure controls and internal controls were effective, excluding the recently acquired ADVA business from the assessment - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2022[475](index=475&type=chunk) - The assessment of internal control over financial reporting excluded the ADVA acquisition, which constituted **41.4% of consolidated assets** and **35.7% of consolidated revenues** for the year[476](index=476&type=chunk)[480](index=480&type=chunk) [Other Information](index=131&type=section&id=Item%209B.%20Other%20Information) An "Integration Bonus Plan" was established to incentivize key employees for achieving cost-saving synergies from the ADVA business combination - An "Integration Bonus Plan" was established on March 1, 2023, to incentivize key employees to achieve cost-saving synergies from the ADVA business combination[482](index=482&type=chunk) Integration Bonus Plan Potential Awards for NEOs | Named Executive Officer | Base Salary (as of Mar 1, 2023) | Max Total Value of Award | | :--- | :--- | :--- | | Thomas R. Stanton | $1,000,000 | $1,320,000 | | James D. Wilson, Jr. | $405,072 | $534,696 | | Ronald D. Centis | $349,398 | $461,206 | | Raymond Harris | $313,611 | $413,966 | [Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](index=131&type=section&id=Item%209C.%20Disclosure%20Regarding%20Foreign%20Jurisdictions%20that%20Prevent%20Inspections) This section is not applicable to the company - None[483](index=483&type=chunk) [PART III](index=132&type=section&id=PART%20III) [Directors, Executive Officers and Corporate Governance](index=132&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information on directors, executive officers, and corporate governance is incorporated by reference from the forthcoming 2023 Proxy Statement - The company has adopted a Code of Business Conduct and Ethics applicable to all employees, officers, and directors[485](index=485&type=chunk) - Other required information for this item is incorporated by reference from the forthcoming 2023 Proxy Statement[485](index=485&type=chunk) [Executive Compensation](index=132&type=section&id=Item%2011.%20Executive%20Compensation) Executive compensation information is incorporated by reference from the 2023 Proxy Statement - All information required by this item is incorporated by reference from the 2023 Proxy Statement[486](index=486&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=132&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Details on securities authorized for issuance under equity compensation plans are provided, with other ownership information incorporated by reference Equity Compensation Plan Information (as of Dec 31, 2022) | Plan Category | Securities to be Issued Upon Exercise (a) | Weighted-Average Exercise Price (b) | Securities Remaining for Future Issuance (c) | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by stockholders | 4,234,225 | $9.06 | 3,311,439 | | Equity compensation plans not approved by stockholders | — | — | — | | **Total** | **4,234,225** | **$9.06** | **3,311,439** | - Other information required by this item is incorporated by reference from the 2023 Proxy Statement[489](index=489&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=133&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information on related party transactions and director independence is incorporated by reference from the 2023 Proxy Statement - All information required by this item is incorporated by reference from the 2023 Proxy Statement[490](index=490&type=chunk) [Principal Accountant Fees and Services](index=133&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Information on principal accountant fees and services is incorporated by reference from the 2023 Proxy Statement - All information required by this item is incorporated by reference from the 2023 Proxy Statement[491](index=491&type=chunk) [PART IV](index=134&type=section&id=PART%20IV) [Exhibits and Financial Statement Schedules](index=134&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists all documents filed as part of the Form 10-K, including financial statements, schedules, and key exhibits - This item lists the financial statements, financial statement schedules, and exhibits filed with the report[493](index=493&type=chunk) - Key exhibits include the Business Combination Agreement, Credit Agreement, Domination and Profit and Loss Transfer Agreement, and various employee and director compensation plans[495](index=495&type=chunk)[501](index=501&type=chunk)[503](index=503&type=chunk) [Form 10-K Summary](index=138&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company has elected not to provide a summary of the information contained in this Form 10-K report - ADTRAN has elected not to provide a Form 10-K summary[509](index=509&type=chunk)