ADTRAN (ADTN) - 2024 Q2 - Quarterly Report

FORM 10-Q Filing Information This report is ADTRAN Holdings, Inc.'s quarterly report for the period ended June 30, 2024, with the company registered in Delaware, trading as ADTN on The NASDAQ Global Select Market, and classified as a large accelerated filer Registrant Information The company, a large accelerated filer registered in Delaware, submitted its quarterly report for Q2 2024, trading as ADTN on NASDAQ Company Basic Information | Indicator | Details | | :--- | :--- | | Commission File Number | 001-41446 | | Exact Name of Registrant | ADTRAN Holdings, Inc. | | State of Incorporation | Delaware | | Trading Symbol | ADTN | | Exchange Registered | The NASDAQ Global Select Market | | Filer Status | Large accelerated filer | | Common Stock Outstanding (as of Aug 1, 2024) | 79,232,047 shares | Table of Contents This section outlines the structure of the 10-Q report, divided into financial information and other disclosures Report Structure This 10-Q report is divided into two parts: Part I covers financial information, and Part II covers other disclosures including legal proceedings and risk factors - The report is primarily divided into financial information (Part I) and other information (Part II)[6] - Part I includes financial statements, management's discussion and analysis, quantitative and qualitative disclosures about market risk, and controls and procedures[6] - Part II includes legal proceedings, risk factors, unregistered sales of equity securities, other information, and exhibits[6] Glossary of Selected Terms This section provides definitions for key acronyms and concepts used throughout the report to enhance reader comprehension Key Acronyms and Concepts This section defines common industry abbreviations and concepts such as CPE, DPLTA, DSO, and SaaS to aid in understanding specialized terminology - The report includes a glossary of common industry terms to improve readability[7] Selected Key Terms | Acronym/Concept/Defined Term | Meaning | | :--- | :--- | | CPE | Customer-premises equipment | | DPLTA | Domination and Profit and Loss Transfer Agreement | | DSO | Days Sales Outstanding | | SaaS | Software as a Service | | SP | Service Provider | | SI | System Integrator | | VAR | Value-Added Reseller | GENERAL This section provides an overview of the company's structure and a cautionary note regarding forward-looking statements Company Overview and Merger Context ADTRAN Holdings, Inc. is the parent company of ADTRAN, Inc. and a majority shareholder of Adtran Networks SE, with ADTRAN, Inc. merging into it in 2022 - ADTRAN Holdings, Inc. is the parent company of ADTRAN, Inc. and the majority shareholder of Adtran Networks SE[10] - ADTRAN, Inc. merged into ADTRAN Holdings, Inc. as a wholly-owned subsidiary on July 8, 2022[10] Cautionary Note Regarding Forward-Looking Statements This report contains forward-looking statements subject to uncertainties and risks that may cause actual results to differ materially from expectations - Forward-looking statements are subject to uncertainties and risk factors, and actual results may differ materially from expectations[10] - Risks related to financial performance and company success: including compliance with credit agreement covenants, revenue fluctuations, lengthy sales and approval processes, reliance on specific customers, customer credit risk, gross margin volatility, reliance on a few suppliers, increased market competition, changes in warranty obligation estimates, inventory management complexity, international business risks, attracting and retaining key personnel, foreign currency exchange rate fluctuations, solvency, goodwill and intangible asset impairment, ability to integrate acquisitions, negative synergies, and inflationary pressures[10][11][12][13][14] - Risks related to the control environment: including financial statement restatements, material weaknesses in internal control, information system breaches, and cyberattacks[16] - Risks related to business combination and DPLTA: including failure to achieve expected strategic and financial benefits, high integration costs, debt burden, operational challenges, negative synergies and customer attrition, adverse effects of DPLTA terms, minority shareholder litigation risks, and personnel retention and incentives[17] - Risks related to the telecommunications industry: including product update and development needs, environmental regulation compliance, product interoperability, R&D investment limitations, outsourced manufacturing risks, intellectual property maintenance, third-party software and hardware availability, open-source software usage limitations, litigation risks, maintaining relationships with system integrators/service providers/value-added resellers, and reliance on third-party cloud platform providers[18] - Risks related to company stock price: including fluctuations in financial performance and operating results, and stock price volatility - Risks related to the regulatory environment: including compliance with complex regulations, changes in trade policy, changes in tax regulations, central bank monetary policy and financial services industry instability, ESG considerations, and US credit rating downgrades or government shutdowns PART I. FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial statements and related notes for the periods ended June 30, 2024 ITEM 1. FINANCIAL STATEMENTS This section includes the unaudited condensed consolidated financial statements, comprising balance sheets, statements of loss, comprehensive loss, changes in equity, and cash flows, along with their notes Condensed Consolidated Balance Sheets Total assets decreased to $1,290.8 million as of June 30, 2024, primarily due to a significant reduction in goodwill, while cash and cash equivalents increased Condensed Consolidated Balance Sheets Key Data (Thousands of US Dollars) | Indicator | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $111,185 | $87,167 | | Accounts receivable, net | $186,176 | $216,445 | | Inventory, net | $287,860 | $362,295 | | Total current assets | $668,319 | $736,856 | | Goodwill | $54,897 | $353,415 | | Intangible assets, net | $290,793 | $327,985 | | Total assets | $1,290,782 | $1,682,512 | | Liabilities and Equity | | | | Total current liabilities | $289,712 | $279,511 | | Non-current revolving credit facility outstanding | $190,273 | $195,000 | | Total liabilities | $630,810 | $636,934 | | Redeemable non-controlling interest | $439,743 | $451,756 | | Total equity | $220,229 | $593,822 | | Total liabilities, redeemable non-controlling interest and equity | $1,290,782 | $1,682,512 | - Total assets decreased from $1,682.5 million as of December 31, 2023, to $1,290.8 million as of June 30, 2024, primarily due to goodwill impairment[23] - Goodwill significantly decreased from $353.4 million to $54.9 million, reflecting impairment recognized in the first quarter of 2024[23] - Net inventory decreased from $362.3 million to $287.9 million, indicating a reduction in inventory levels[23] Condensed Consolidated Statements of Loss The company reported decreased revenue and gross profit for the three and six months ended June 30, 2024, with a significant net loss due to a $292.6 million goodwill impairment Condensed Consolidated Statements of Loss Key Data (Thousands of US Dollars, except per share amounts) | Indicator | 3 Months Ended June 30, 2024 | 3 Months Ended June 30, 2023 | 6 Months Ended June 30, 2024 | 6 Months Ended June 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $225,991 | $327,378 | $452,164 | $651,290 | | Cost of revenue | $144,416 | $234,825 | $298,334 | $470,929 | | Gross profit | $81,575 | $92,553 | $153,830 | $180,361 | | Selling, general and administrative expenses | $59,493 | $66,583 | $118,593 | $133,980 | | Research and development expenses | $60,388 | $70,598 | $120,639 | $140,741 | | Goodwill impairment | — | — | $292,583 | — | | Operating loss | $(38,306) | $(44,628) | $(377,985) | $(94,360) | | Net loss | $(47,011) | $(36,215) | $(368,681) | $(76,668) | | Net loss attributable to ADTRAN Holdings, Inc. | $(49,865) | $(39,097) | $(374,415) | $(79,180) | | Basic loss per share | $(0.63) | $(0.50) | $(4.75) | $(1.01) | - Total revenue for the three months ended June 30, 2024, decreased by 31.0% year-over-year, from $327.4 million to $226.0 million[26] - Total revenue for the six months ended June 30, 2024, decreased by 30.6% year-over-year, from $651.3 million to $452.2 million[26] - A goodwill impairment of $292.6 million was recognized in the first half of 2024, significantly increasing operating and net losses[26] - Basic loss per share attributable to ADTRAN Holdings, Inc. increased from $(1.01) in 2023 to $(4.75) for the six months ended June 30, 2024[26] Condensed Consolidated Statements of Comprehensive Loss Comprehensive loss for the three and six months ended June 30, 2024, significantly increased year-over-year, driven by net loss and foreign currency translation losses Condensed Consolidated Statements of Comprehensive Loss Key Data (Thousands of US Dollars) | Indicator | 3 Months Ended June 30, 2024 | 3 Months Ended June 30, 2023 | 6 Months Ended June 30, 2024 | 6 Months Ended June 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Net loss | $(47,011) | $(36,215) | $(368,681) | $(76,668) | | Other comprehensive (loss) income, net of tax | $(1,382) | $6,957 | $(19,187) | $15,739 | | Comprehensive loss, net of tax | $(48,393) | $(29,258) | $(387,868) | $(60,929) | | Comprehensive loss attributable to ADTRAN Holdings, Inc., net of tax | $(51,247) | $(32,140) | $(393,602) | $(63,823) | - Comprehensive loss attributable to ADTRAN Holdings, Inc. for the six months ended June 30, 2024, significantly increased to $(393.6 million) from $(63.8 million) in 2023[29] - Foreign currency translation losses were a major contributor to other comprehensive loss, totaling $(19.1 million) for the six months, compared to a gain of $15.6 million in the prior year period[29] Condensed Consolidated Statements of Changes in Equity Total equity significantly decreased to $220.2 million as of June 30, 2024, primarily due to net loss and a reduction in accumulated other comprehensive income Condensed Consolidated Statements of Changes in Equity Key Data (Thousands of US Dollars) | Indicator | Balance as of December 31, 2023 | Balance as of June 30, 2024 | | :--- | :--- | :--- | | Common stock | $790 | $791 | | Additional paid-in capital | $795,304 | $802,737 | | Accumulated deficit | $(243,908) | $(606,375) | | Accumulated other comprehensive income | $47,461 | $28,274 | | Total equity | $593,822 | $220,229 | - Accumulated deficit increased from $(243.9 million) as of December 31, 2023, to $(606.4 million) as of June 30, 2024, reflecting the net loss for the period[32] - Accumulated other comprehensive income decreased from $47.5 million to $28.3 million, primarily impacted by other comprehensive loss[32] - Total equity decreased by approximately $373.6 million over the six-month period[32] Condensed Consolidated Statements of Cash Flows Cash flow from operating activities turned positive at $56.5 million for the six months ended June 30, 2024, while investing outflows increased and financing outflows significantly decreased Condensed Consolidated Statements of Cash Flows Key Data (Thousands of US Dollars) | Indicator | 6 Months Ended June 30, 2024 | 6 Months Ended June 30, 2023 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $56,496 | $(36,160) | | Net cash used in investing activities | $(28,534) | $(17,468) | | Net cash (used in) provided by financing activities | $(4,832) | $68,179 | | Net increase in cash and cash equivalents | $23,130 | $14,551 | | Cash and cash equivalents at end of period | $111,185 | $124,294 | - Cash flow from operating activities improved from $(36.2 million) in the prior year period to $56.5 million in 2024, primarily due to changes in working capital, especially inventory reduction[38] - Cash outflow from investing activities increased, mainly for the purchase of property, plant, and equipment[38] - Cash outflow from financing activities significantly decreased, primarily due to substantial revolving credit facility drawdowns and dividend payments in 2023, with dividend payments suspended in 2024[38] NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS This section provides detailed explanations of significant accounting policies, account balances, and transactions within the condensed consolidated financial statements GENERAL ADTRAN Holdings, Inc. is a leading broadband access market provider, controlling Adtran Networks SE via DPLTA, and has suspended dividends and initiated efficiency plans due to liquidity challenges - ADTRAN Holdings, Inc. is a global provider of networking and communication solutions in the broadband access market, serving various service providers and enterprise customers[41] - The company controls Adtran Networks SE through a DPLTA, assuming its annual net losses while providing annual recurring or exit compensation to minority shareholders[41][43] - The total exit compensation under the DPLTA, including interest, is approximately $371.3 million as of June 30, 2024 - The annual recurring compensation is approximately $11.4 million per year - The company's liquidity is insufficient to pay the DPLTA exit compensation, but it believes the likelihood of minority shareholders opting for exit compensation in the next 12 months is low - The company has suspended dividend payments and implemented business efficiency programs, including operating expense reductions and facility consolidations, to preserve cash and comply with debt covenants 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This section outlines the basis of financial statement preparation, use of significant accounting estimates, accounting for receivables factoring, and classification of redeemable non-controlling interests - Financial statements are prepared in accordance with U.S. GAAP and involve significant estimates and assumptions regarding assets, liabilities, revenues, and expenses[45][47] - On December 19, 2023, the company entered into a new accounts receivable factoring agreement, treated as a secured borrowing with collateral rather than a non-recourse sale - Due to the DPLTA, Adtran Networks' non-controlling interest was reclassified as redeemable non-controlling interest (RNCI) and measured at fair value - The company is evaluating the impact of ASU 2023-09 (income tax disclosure improvements) and ASU 2023-7 (segment reporting disclosure improvements) on future disclosures - The SEC's final rule on climate-related disclosures has been indefinitely stayed, and the company is assessing its potential impact 2. REVENUE Revenue is reported across Network Solutions and Services & Support segments, and by User, Access & Aggregation, and Optical Network Solutions categories, with total revenue declining year-over-year - Company revenue is reported across two segments (Network Solutions, Services & Support) and three revenue categories (User Solutions, Access & Aggregation Solutions, Optical Network Solutions)[53][55] Revenue by Segment and Category (Thousands of US Dollars) | Category | 3 Months Ended June 30, 2024 | 3 Months Ended June 30, 2023 | 6 Months Ended June 30, 2024 | 6 Months Ended June 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Network Solutions | $179,194 | $283,002 | $360,467 | $565,420 | | Optical Network Solutions | $51,467 | $120,221 | $104,594 | $247,798 | | Access & Aggregation Solutions | $54,112 | $89,263 | $121,889 | $173,817 | | User Solutions | $73,615 | $73,518 | $133,984 | $143,805 | | Services & Support | $46,797 | $44,376 | $91,697 | $85,870 | | Total revenue | $225,991 | $327,378 | $452,164 | $651,290 | - Total revenue for the three months ended June 30, 2024, decreased by 31.0% year-over-year, primarily due to reduced sales in Optical Network Solutions (down $69.3 million) and Access & Aggregation Solutions (down $32.8 million)[56] - Total revenue for the six months ended June 30, 2024, decreased by 30.6% year-over-year, primarily due to reduced sales in Optical Network Solutions (down $142.0 million) and Access & Aggregation Solutions (down $48.3 million)[56] - Services & Support segment revenue grew by 5.5% and 6.8% for the three and six months, respectively - As of June 30, 2024, the total transaction price of unsatisfied contract obligations was $276.9 million, with approximately 57% expected to be recognized within the next 12 months 3. INCOME TAXES The company's effective tax rate significantly changed for the three and six months ended June 30, 2024, primarily due to non-deductible impairment and unrecognized tax benefits - For the three months ended June 30, 2024, the effective tax rate changed from an 18.8% tax benefit in the prior year to a 4.8% tax expense - For the six months ended June 30, 2024, the effective tax rate changed from a 20.4% tax benefit in the prior year to a 4.3% tax benefit - Tax rate changes are primarily attributable to non-deductible impairment expenses and unrecognized tax benefits in certain loss jurisdictions - As of June 30, 2024, the company had $91.1 million in net deferred tax assets, with an $87.2 million valuation allowance recorded 4. STOCK-BASED COMPENSATION Shareholders approved new 2024 equity incentive plans authorizing 4.7 million shares for future awards, with $16.2 million in unrecognized compensation expense as of June 30, 2024 - Company shareholders approved new 2024 Employee Equity Incentive Plan and 2024 Director Equity Plan, replacing previous plans[61][63] - The 2024 Employee Plan authorizes 4.0 million shares of common stock, and the 2024 Director Plan authorizes 0.7 million shares - As of June 30, 2024, 4.7 million shares were available for future awards - Stock-based compensation expense for the three and six months ended June 30, 2024, was $3.8 million and $7.8 million, respectively, a slight decrease year-over-year - Unrecognized compensation expense related to unvested PSUs, RSUs, and restricted stock was $16.2 million as of June 30, 2024, to be recognized over the next 2.3 years - Unrecognized compensation expense related to stock options was $5.3 million as of June 30, 2024, to be recognized over the next 1.4 years 5. INVESTMENTS As of June 30, 2024, the company held no debt securities or other investments, with investment gains primarily from marketable equity securities and fair value measurements concentrated in Level 1 - As of June 30, 2024, the company held no debt securities or other investments[67] Net Gains on Marketable Equity Securities (Thousands of US Dollars) | Indicator | 3 Months Ended June 30, 2024 | 3 Months Ended June 30, 2023 | 6 Months Ended June 30, 2024 | 6 Months Ended June 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Unrealized gains on equity securities held | $4 | $1,288 | $127 | $2,535 | | Realized gains on equity securities sold | $868 | $1 | $2,998 | $14 | | Total gains recognized, net | $872 | $1,289 | $3,125 | $2,549 | Fair Value Measurement Classification (Thousands of US Dollars) | Category | Fair Value as of June 30, 2024 | Quoted Prices in Active Markets (Level 1) | | :--- | :--- | :--- | | Money market funds | $5,433 | $5,433 | | Marketable equity securities | $955 | $955 | | Deferred compensation plan assets | $29,204 | $29,204 | | Total | $35,592 | $35,592 | 6. INVENTORY Net inventory decreased to $287.9 million as of June 30, 2024, with $8.9 million in impairment and other charges recognized due to product line discontinuations Inventory Composition (Thousands of US Dollars) | Category | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Raw materials | $120,873 | $152,140 | | Work-in-process | $12,231 | $17,239 | | Finished goods | $154,756 | $192,916 | | Total inventory, net | $287,860 | $362,295 | - Total net inventory decreased from $362.3 million as of December 31, 2023, to $287.9 million as of June 30, 2024[74] - For the six months ended June 30, 2024, $8.9 million in inventory impairment and other charges were incurred due to product line discontinuations under the business efficiency program, comprising $4.1 million in inventory impairment and $4.8 million in other charges 7. PROPERTY, PLANT AND EQUIPMENT Net property, plant, and equipment increased to $134.6 million as of June 30, 2024, with depreciation expense increasing year-over-year Property, Plant and Equipment Composition (Thousands of US Dollars) | Category | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Machinery and other equipment | $183,253 | $183,336 | | Buildings | $79,433 | $79,215 | | Computer hardware and software | $122,273 | $101,572 | | Land | $5,224 | $5,242 | | Total property, plant and equipment | $469,958 | $448,971 | | Less: Accumulated depreciation | $(335,380) | $(325,951) | | Total property, plant and equipment, net | $134,578 | $123,020 | - Net property, plant, and equipment was $134.6 million as of June 30, 2024, an increase from $123.0 million as of December 31, 2023[76] - Depreciation expense for the three and six months ended June 30, 2024, was $8.1 million and $15.8 million, respectively, an increase year-over-year 8. GOODWILL Net goodwill significantly decreased to $54.9 million as of June 30, 2024, following a $292.6 million non-cash impairment charge in Q1 2024 for the Network Solutions reporting unit Goodwill Changes (Thousands of US Dollars) | Category | December 31, 2023 | June 30, 2024 | | :--- | :--- | :--- | | Network Solutions | $297,031 | $0 | | Services & Support | $56,384 | $54,897 | | Total | $353,415 | $54,897 | - In the first quarter of 2024, the company recognized a $292.6 million non-cash goodwill impairment charge for the Network Solutions reporting unit[78] - As of June 30, 2024, the Network Solutions reporting unit had no goodwill, while the Services & Support reporting unit had $54.9 million in goodwill[78] - The company will continue to monitor stock price, operating performance, and macroeconomic factors to assess the likelihood of future goodwill impairment 9. INTANGIBLE ASSETS Net intangible assets decreased to $290.8 million as of June 30, 2024, with amortization expense significantly lower year-over-year Intangible Assets Composition (Thousands of US Dollars) | Category | Net Book Value as of June 30, 2024 | Net Book Value as of December 31, 2023 | | :--- | :--- | :--- | | Developed technology | $242,087 | $268,098 | | Customer relationships | $35,724 | $38,913 | | Trademarks | $7,510 | $13,310 | | Backlog | $3,525 | $5,369 | | Licensed technology | $1,775 | $2,103 | | Licensing agreements | $172 | $192 | | Patents | $0 | $0 | | Total | $290,793 | $327,985 | - Net intangible assets were $290.8 million as of June 30, 2024, a decrease from $328.0 million as of December 31, 2023[80] - Amortization expense for the three and six months ended June 30, 2024, was $14.4 million and $29.0 million, respectively, a significant decrease year-over-year (compared to $26.5 million and $52.3 million in the prior year periods)[80] - Expected future amortization expense: $28.8 million for the remainder of 2024, $46.2 million for 2025, and $42.9 million for 2026 10. HEDGING The company uses forward exchange rate agreements to hedge foreign currency risk on future Euro cash flows, holding 43 contracts with a net derivative asset fair value of $2.6 million - The company uses forward exchange rate agreements to hedge Euro-denominated future cash flows, mitigating foreign exchange volatility without engaging in speculative trading[84][85] Fair Value of Derivative Instruments (Thousands of US Dollars) | Category | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Foreign currency contracts – derivative assets | $2,700 | $7,125 | | Foreign currency contracts – derivative liabilities | $(80) | $(2,277) | | Total derivative instruments | $2,620 | $4,848 | - As of June 30, 2024, the company held 43 forward contracts[88] - Changes in the fair value of foreign currency contracts resulted in net other (expense) income of $(735) thousand and $31 thousand for the three and six months ended June 30, 2024, respectively 11. CREDIT AGREEMENTS The company has a credit agreement with Wells Fargo Bank for a $400 million revolving credit facility and a $50 million delayed draw term loan, with $190.3 million outstanding as of June 30, 2024 - The company's credit agreement with Wells Fargo Bank provides a $400 million revolving credit facility and a $50 million delayed draw term loan (DDTL), with the DDTL maturing on August 9, 2024[91] - As of June 30, 2024, the outstanding balance on the revolving credit facility was $190.3 million, with $115.0 million borrowed by ADTRAN, Inc. and $75.3 million by Adtran Networks[91] - As of June 30, 2024, the company had $206.0 million available for future borrowings, but actual borrowing capacity was $16.4 million due to debt covenant restrictions - The credit agreement includes several financial covenants, such as a consolidated total net leverage ratio (not to exceed 5.00x), a consolidated senior secured net leverage ratio (not to exceed 3.25x-4.00x during specific periods), and a consolidated fixed charge coverage ratio (not less than 1.25x) - During covenant waiver or trigger periods, cash and cash equivalents at the credit parties must be at least $50.0 million, and at the company and its subsidiaries, at least $70.0 million - As of June 30, 2024, the company was in compliance with all covenants 12. EMPLOYEE BENEFIT PLANS The company maintains a defined benefit pension plan in certain foreign countries, with a net non-current pension liability of $11.5 million as of June 30, 2024 - The company maintains a defined benefit pension plan in certain foreign countries[98] Net Periodic Pension Cost Components (Thousands of US Dollars) | Category | 3 Months Ended June 30, 2024 | 3 Months Ended June 30, 2023 | 6 Months Ended June 30, 2024 | 6 Months Ended June 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Service cost | $333 | $404 | $673 | $802 | | Interest cost | $281 | $(33) | $566 | $(66) | | Expected return on plan assets | $(354) | $59 | $(713) | $118 | | Amortization of actuarial loss | $2 | $6 | $5 | $13 | | Net periodic pension cost | $262 | $436 | $531 | $867 | - As of June 30, 2024, the net non-current pension liability was $11.5 million, a decrease from $12.5 million as of December 31, 2023 - For the six months ended June 30, 2024, the company contributed $2.2 million to the defined benefit pension plan 13. EQUITY Accumulated other comprehensive income decreased to $28.3 million as of June 30, 2024, primarily due to foreign currency translation losses Changes in Accumulated Other Comprehensive Income (Thousands of US Dollars) | Indicator | Balance as of December 31, 2023 | Balance as of June 30, 2024 | | :--- | :--- | :--- | | Unrealized gains and losses on available-for-sale securities | $(382) | $(382) | | Defined benefit plan adjustments | $(2,506) | $(2,573) | | Foreign currency translation adjustments | $49,964 | $30,844 | | ASU 2018-02 adoption | $385 | $385 | | Total | $47,461 | $28,274 | - As of June 30, 2024, net accumulated other comprehensive income was $28.3 million, a decrease from $47.5 million as of December 31, 2023[103] - Foreign currency translation adjustments were the primary factor contributing to the decrease in accumulated other comprehensive income, resulting in a $(19.1 million) loss for the six months[103] 14. REDEEMABLE NON-CONTROLLING INTEREST Adtran Networks' non-controlling shareholders hold approximately 35% equity, with redeemable non-controlling interest (RNCI) at $439.7 million, primarily impacted by foreign currency translation adjustments - As of June 30, 2024, Adtran Networks' non-controlling shareholders held approximately 35% equity[114] Changes in Redeemable Non-Controlling Interest (Thousands of US Dollars) | Indicator | Year Ended December 31, 2023 | 6 Months Ended June 30, 2024 | | :--- | :--- | :--- | | Beginning balance | $0 | $451,756 | | Reclassification of non-controlling interest | $443,757 | $0 | | Fair value of redeemable non-controlling interest redeemed | $(1,657) | $(30) | | Net income attributable to redeemable non-controlling interest | $11,525 | $5,734 | | Annual recurring compensation earned | $(11,525) | $(5,734) | | Translation adjustment | $9,604 | $(11,983) | | Ending balance | $451,756 | $439,743 | - As of June 30, 2024, the redeemable non-controlling interest balance was $439.7 million, a decrease from $451.8 million as of December 31, 2023[115] - Foreign currency translation adjustments resulted in a $12.0 million decrease during the period - For the three and six months ended June 30, 2024, the company recognized $2.9 million and $5.7 million in annual recurring compensation, respectively 15. LOSS PER SHARE Basic and diluted loss per share attributable to ADTRAN Holdings, Inc. significantly increased for the three and six months ended June 30, 2024, primarily due to increased net loss Loss Per Share Calculation (Thousands of Shares, except per share amounts) | Indicator | 3 Months Ended June 30, 2024 | 3 Months Ended June 30, 2023 | 6 Months Ended June 30, 2024 | 6 Months Ended June 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Net loss attributable to ADTRAN Holdings, Inc. | $(49,865) | $(39,097) | $(374,415) | $(79,180) | | Basic weighted-average shares outstanding | 78,852 | 78,366 | 78,803 | 78,364 | | Diluted weighted-average shares outstanding | 78,852 | 78,366 | 78,803 | 78,364 | | Basic loss per share attributable to ADTRAN Holdings, Inc. | $(0.63) | $(0.50) | $(4.75) | $(1.01) | | Diluted loss per share attributable to ADTRAN Holdings, Inc. | $(0.63) | $(0.50) | $(4.75) | $(1.01) | - For the six months ended June 30, 2024, basic and diluted loss per share attributable to ADTRAN Holdings, Inc. increased from $(1.01) in 2023 to $(4.75)[119] - A significant number of unvested PSUs, RSUs, restricted stock, and stock options were excluded from diluted EPS calculation due to their anti-dilutive effect 16. SEGMENT INFORMATION The company evaluates financial performance based on two reportable segments: Network Solutions and Services & Support, with Network Solutions revenue and gross profit declining - The company has two reportable segments: Network Solutions and Services & Support[121] Segment Revenue and Gross Profit (Thousands of US Dollars) | Segment | 3 Months Ended June 30, 2024 Revenue | 3 Months Ended June 30, 2024 Gross Profit | 3 Months Ended June 30, 2023 Revenue | 3 Months Ended June 30, 2023 Gross Profit | | :--- | :--- | :--- | :--- | :--- | | Network Solutions | $179,194 | $54,594 | $283,002 | $66,042 | | Services & Support | $46,797 | $26,981 | $44,376 | $26,511 | | Total | $225,991 | $81,575 | $327,378 | $92,553 | | Segment | 6 Months Ended June 30, 2024 Revenue | 6 Months Ended June 30, 2024 Gross Profit | 6 Months Ended June 30, 2023 Revenue | 6 Months Ended June 30, 2023 Gross Profit | | :--- | :--- | :--- | :--- | :--- | | Network Solutions | $360,467 | $100,759 | $565,420 | $129,330 | | Services & Support | $91,697 | $53,071 | $85,870 | $51,031 | | Total | $452,164 | $153,830 | $651,290 | $180,361 | - For the three months ended June 30, 2024, Network Solutions revenue decreased by 36.7% year-over-year, and gross profit decreased by 17.3%[122] - For the three months ended June 30, 2024, Services & Support revenue increased by 5.5% year-over-year, and gross profit increased by 1.8%[122] - Domestic revenue decreased by 18.7% and 27.6% for the three and six months, respectively - International revenue decreased by 39.3% and 32.6% for the three and six months, respectively 17. LIABILITY FOR WARRANTY RETURNS Warranty liability was $6.0 million as of June 30, 2024, a slight decrease from year-end 2023, with warranty expense increasing but offset by higher deductions - The company's products typically offer warranties against defects ranging from 90 days to five years, with provisions estimated based on historical return rates and repair costs[125] Changes in Warranty Liability (Thousands of US Dollars) | Indicator | 3 Months Ended June 30, 2024 | 3 Months Ended June 30, 2023 | 6 Months Ended June 30, 2024 | 6 Months Ended June 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Beginning balance | $6,221 | $7,200 | $6,445 | $7,196 | | Charged to costs and expenses | $738 | $459 | $1,384 | $1,539 | | Foreign currency translation adjustment | $(9) | $14 | $(63) | $40 | | Deductions | $(926) | $(842) | $(1,742) | $(1,944) | | Ending balance | $6,024 | $6,831 | $6,024 | $6,831 | - As of June 30, 2024, warranty liability was $6.0 million, a decrease from $6.4 million as of December 31, 2023[126] - For the six months ended June 30, 2024, amounts charged to costs and expenses for warranties were $1.4 million, compared to $1.5 million in the prior year period 18. COMMITMENTS AND CONTINGENCIES The company faces legal proceedings, DPLTA compensation obligations, performance bonds, and purchase obligations, with DPLTA exit compensation totaling approximately $371.3 million - The company faces legal proceedings, DPLTA compensation obligations, performance bonds, and purchase obligations[127][128][129][130] - The total exit compensation under the DPLTA, including interest, is approximately $371.3 million (based on June 30, 2024, exchange rates), though ongoing valuation procedures may result in higher payments - Annual recurring compensation obligations are approximately $11.4 million per year - As of June 30, 2024, total performance bond commitments were $13.9 million - As of June 30, 2024, total purchase obligations were $280.9 million, primarily with contract manufacturers and component suppliers 19. RESTRUCTURING The company initiated a multi-year restructuring plan in Q4 2022 and a business efficiency program in November 2023, incurring $34.6 million in related costs for the six months ended June 30, 2024 - The company initiated a multi-year restructuring plan in Q4 2022 and a business efficiency program in November 2023 to optimize operations and address macroeconomic challenges[131] - The business efficiency program includes workforce reductions (approximately 5% of employees), salary reductions, early retirement programs, facility consolidations (including selling part of headquarters), product line discontinuations (e.g., copper-based DSL and fixed wireless access products, IoT gateway market), and suspension of quarterly dividends - For the three and six months ended June 30, 2024, the company recognized $17.5 million and $34.6 million, respectively, in business efficiency program related costs - Costs for the six months included $8.9 million in inventory impairment and other charges, with $4.1 million for inventory impairment and $4.8 million for other charges - Additional business efficiency program costs are estimated to be between $8.1 million and $19.1 million for Q3 2024 and beyond, primarily for severance and facility consolidation transaction fees - As of June 30, 2024, the restructuring liability balance was $18.7 million 20. SUBSEQUENT EVENTS Subsequent to the reporting period, the company renegotiated its accounts receivable purchase agreement on July 1, 2024, and paid the 2023 annual recurring compensation on July 3, 2024 - On July 1, 2024, the company renegotiated its accounts receivable purchase agreement, which will result in the derecognition of sold receivables and removal of the secured borrowing liability[137] - The annual recurring compensation for fiscal year 2023 was paid on July 3, 2024[137] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's perspective on the company's financial condition, results of operations, and key trends for the reported periods OVERVIEW ADTRAN Holdings, Inc. is a global broadband access market provider, operating through two segments and three revenue categories, controlling Adtran Networks SE via DPLTA - The company is a global provider of networking and communication platforms, software, systems, and services in the broadband access market, serving a diverse domestic and international customer base[140] - The company operates through two reportable segments (Network Solutions and Services & Support) and reports revenue across three categories (User Solutions, Access & Aggregation Solutions, and Optical Network Solutions)[140] - The DPLTA became effective on January 16, 2023, granting the company the right to issue instructions to Adtran Networks' management board and absorb its annual net losses - The DPLTA offers Adtran Networks' minority shareholders an exit compensation of €17.21 per share (plus guaranteed interest) or an annual recurring compensation of €0.59 per share - The guaranteed interest rate for exit compensation is 5.0% plus a floating component of 3.62% as of June 30, 2024 - As of June 30, 2024, the company held 65.37% of Adtran Networks' outstanding shares Multi-Year Integration Program The company launched a multi-year integration program in Q4 2022 to optimize assets, business processes, and IT systems, with no significant costs incurred in the current period - The company launched a multi-year integration program in Q4 2022 to optimize assets, business processes, and IT systems[144] - For the three and six months ended June 30, 2024, the company incurred no costs related to this integration program and anticipates no significant additional expenses in the future[144] Business Efficiency Program The company implemented a business efficiency program in November 2023 to cut operating expenses and improve capital efficiency, incurring $34.6 million in related costs for the six months ended June 30, 2024 - The company implemented a business efficiency program on November 6, 2023, to address macroeconomic uncertainties, aiming to reduce operating expenses and improve capital efficiency[145] - The program includes salary reductions, early retirement plans, a workforce reduction of approximately 5%, facility consolidations (including selling part of headquarters), product line discontinuations (e.g., copper-based DSL, fixed wireless access products, and IoT gateway market), and suspension of quarterly dividends - For the three and six months ended June 30, 2024, the company recognized $17.5 million and $34.6 million, respectively, in business efficiency program related costs - Costs for the six months included $8.9 million in inventory impairment and other charges, with $4.1 million for inventory impairment and $4.8 million for other charges - Additional costs for this program are estimated to be between $8.1 million and $19.1 million for Q3 2024 and beyond Business Combination Integration Costs The company recognized $0.7 million and $1.2 million in business combination integration costs for the three and six months ended June 30, 2024, with significant additional costs expected for DPLTA implementation - Business combination integration costs were $0.7 million for the three months ended June 30, 2024 - Business combination integration costs were $1.2 million for the six months ended June 30, 2024 - Significant additional integration costs related to DPLTA implementation are expected throughout 2024 FINANCIAL PERFORMANCE AND TRENDS Q2 2024 revenue declined by 31.0% due to customer destocking and macroeconomic factors, while the company focuses on product development and anticipates future growth from public funding - Q2 2024 revenue decreased by 31.0% year-over-year, primarily due to customer destocking and macroeconomic uncertainties - Domestic revenue decreased by 18.7% year-over-year, and international revenue decreased by 39.3%, mainly due to a stronger US dollar and reduced shipments to European network operators - Access & Aggregation and Optical Network revenue categories experienced a general slowdown due to reduced service provider spending - The company is transforming through its business efficiency program to achieve leaner, more efficient, and profitable operations - Public funding initiatives (e.g., IPCEI ME/CT, BEAD program) are expected to drive future R&D and broadband deployment EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS This section refers to Note 1 of the financial statements for a comprehensive description of recent accounting pronouncements and their estimated impact on financial results - For the impact of recent accounting pronouncements, refer to Note 1 to the financial statements in Part I, Item 1 of this report[149] RESULTS OF OPERATIONS – THREE AND SIX MONTHS ENDED JUNE 30, 2024, COMPARED TO THE THREE AND SIX MONTHS ENDED JUNE 30, 2023 This section provides a detailed comparison of the company's operating results for the three and six months ended June 30, 2024, versus the prior year, covering key financial metrics Revenue Total revenue decreased by 31.0% and 30.6% for the three and six months ended June 30, 2024, respectively, primarily due to customer destocking and project completions - Total revenue for the three months ended June 30, 2024, decreased by 31.0% year-over-year, from $327.4 million to $226.0 million - Total revenue for the six months ended June 30, 2024, decreased by 30.6% year-over-year, from $651.3 million to $452.2 million - Network Solutions segment revenue decreased by 36.7% and 36.2% for the three and six months, respectively - Services & Support segment revenue increased by 5.5% and 6.8% for the three and six months, respectively - Domestic revenue decreased by 18.7% and 27.6% for the three and six months, respectively - International revenue decreased by 39.3% and 32.6% for the three and six months, respectively Cost of Revenue Cost of revenue as a percentage of revenue decreased to 63.9% and 66.0% for the three and six months ended June 30, 2024, driven by reduced amortization and acquisition costs - Cost of revenue as a percentage of revenue decreased from 71.7% to 63.9% for the three months ended June 30, 2024 - Cost of revenue as a percentage of revenue decreased from 72.3% to 66.0% for the six months ended June 30, 2024 - The decrease was primarily due to reduced amortization of intangible backlog and developed technology (5.0%-5.1%) and lower business combination acquisition costs (5.1%-5.3%) - Partially offsetting factors included inventory impairment and other charges from the business efficiency program (increasing by 1.2% for three months, 3.1% for six months) and changes in customer and product mix Gross Profit Gross profit as a percentage of revenue increased to 36.1% and 34.0% for the three and six months ended June 30, 2024, driven by reduced intangible asset amortization and acquisition costs - Gross profit as a percentage of revenue increased from 28.3% to 36.1% for the three months ended June 30, 2024 - Gross profit as a percentage of revenue increased from 27.7% to 34.0% for the six months ended June 30, 2024 - The improvement in gross margin was primarily due to reduced amortization of intangible backlog and developed technology (5.0%-5.1%) and lower business combination acquisition costs (5.1%-5.3%) - Partially offsetting factors included increased expenses from the business efficiency program (decreasing by 1.2% for three months, 3.1% for six months) and changes in customer and product mix Selling, General and Administrative Expenses Selling, general, and administrative expenses as a percentage of revenue increased to 26.3% and 26.2% for the three and six months ended June 30, 2024, despite absolute reductions due to lower revenue - Selling, general, and administrative expenses decreased by 10.6% to $59.5 million for the three months ended June 30, 2024, from $66.6 million - Selling, general, and administrative expenses decreased by 11.5% to $118.6 million for the six months ended June 30, 2024, from $134.0 million - The decrease in expenses was primarily attributable to the business efficiency program and integration plan, specifically reduced employee-related costs (down $6.7 million for three months, $13.5 million for six months) and lower travel expenses Research and Development Expenses Research and development expenses as a percentage of revenue increased to 26.7% for both periods ended June 30, 2024, despite absolute reductions, due to a larger decline in revenue - Research and development expenses decreased by 14.5% to $60.4 million for the three months ended June 30, 2024, from $70.6 million - Research and development expenses decreased by 14.3% to $120.6 million for the six months ended June 30, 2024, from $140.7 million - The decrease in expenses was primarily attributable to the business efficiency program and integration plan, specifically reduced contract services (down $4.3 million for six months) and lower employee-related costs (down $3.8 million for six months) - For the three and six months ended June 30, 2024, the company recognized $1.9 million and $2.1 million, respectively, in government R&D grants as a reduction to R&D expenses Goodwill Impairment No goodwill impairment was recognized for the three and six months ended June 30, 2024, but a $292.6 million non-cash impairment was recorded in Q1 2024 for Network Solutions - No goodwill impairment was recognized for the three and six months ended June 30, 2024[161] - In the first quarter of 2024, the company recognized a $292.6 million non-cash goodwill impairment charge for the Network Solutions reporting unit[161] Interest and Dividend Income Interest and dividend income remained at $0.4 million for the three months and increased to $0.8 million for the six months ended June 30, 2024, influenced by investment balances and rising interest rates - Interest and dividend income remained at $0.4 million for the three months ended June 30, 2024 - Interest and dividend income increased from $0.7 million to $0.8 million for the six months ended June 30, 2024 - The increase was primarily due to fluctuations in investment balances and rising interest rates Interest Expense Interest expense increased to $6.9 million and $11.5 million for the three and six months ended June 30, 2024, respectively, due to higher debt issuance cost amortization, increased interest rates, and average borrowing balances - Interest expense increased from $4.1 million to $6.9 million for the three months ended June 30, 2024 - Interest expense increased from $7.4 million to $11.5 million for the six months ended June 30, 2024 - The increase was primarily due to higher amortization of debt issuance costs, increased interest rates from credit agreement amendments, and higher average borrowing balances Net Investment Gain Net investment gain was $0.9 million for the three months and $3.1 million for the six months ended June 30, 2024, with fluctuations primarily driven by changes in securities' fair value - Net investment gain was $0.9 million for the three months ended June 30, 2024 (compared to $1.3 million in the prior year period) - Net investment gain was $3.1 million for the six months ended June 30, 2024 (compared to $2.5 million in the prior year period) - Fluctuations were primarily due to changes in the fair value of securities Other (Expense) Income, Net Other (expense) income, net, shifted from a $2.5 million income to a $0.9 million expense for the three months, and decreased to $0.4 million income for the six months ended June 30, 2024 - Other (expense) income, net, changed from $2.5 million income in the prior year period to $0.9 million expense for the three months ended June 30, 2024 - Other (expense) income, net, decreased from $2.2 million income in the prior year period to $0.4 million income for the six months ended June 30, 2024 - Primarily composed of foreign currency transaction gains and losses and excess material sales income Income Tax Benefit The effective tax rate for the three months ended June 30, 2024, shifted from an 18.8% benefit to a 4.8% expense, while for six months it changed from a 20.4% benefit to a 4.3% benefit - For the three months ended June 30, 2024, the effective tax rate changed from an 18.8% tax benefit in the prior year to a 4.8% tax expense - For the six months ended June 30, 2024, the effective tax rate changed from a 20.4% tax benefit in the prior year to a 4.3% tax benefit - Changes were primarily attributable to non-deductible impairment expenses and unrecognized tax benefits in certain loss jurisdictions Net Loss Attributable to ADTRAN Holdings, Inc. Net loss attributable to ADTRAN Holdings, Inc. increased to $49.9 million for three months and $374.4 million for six months ended June 30, 2024, primarily due to goodwill impairment - Net loss attributable to ADTRAN Holdings, Inc. increased from $39.1 million in the prior year period to $49.9 million for the three months ended June 30, 2024 - Net loss attributable to ADTRAN Holdings, Inc. increased from $79.2 million in the prior year period to $374.4 million for the six months ended June 30, 2024 - The increased loss was primarily due to the combined impact of goodwill impairment and other operating factors LIQUIDITY AND CAPITAL RESOURCES The company funds operations through cash, investments, and operating cash flow, holding $111.2 million in cash, facing DPLTA exit compensation, and implementing efficiency plans to preserve cash - The company primarily funds its operations through existing cash, investments, and cash flows from operating activities[168] - As of June 30, 2024, the company had $111.2 million in cash and cash equivalents, with $81.7 million held by foreign subsidiaries - As of June 30, 2024, the company's credit facility had $206.0 million available for future borrowings, but actual borrowing capacity was $16.4 million due to debt covenant restrictions - The DPLTA exit compensation obligation is approximately $371.3 million (as of June 30, 2024), but the company believes the likelihood of large-scale redemptions in the next 12 months is low - The company has suspended dividend payments and implemented business efficiency programs, including operating expense reductions and facility consolidations, to preserve cash and comply with debt covenants - The company believes its cash, investments, working capital management initiatives, and credit facility will be sufficient to meet operating needs and DPLTA obligations for the next 12 months Wells Fargo Credit Facility The company's Wells Fargo credit agreement provides a $400 million revolving credit facility and a $50 million delayed draw term loan, with $190.3 million outstanding and all covenants met as of June 30, 2024 - The company's credit agreement with Wells Fargo Bank provides a $400 million revolving credit facility and a $50 million delayed draw term loan (DDTL), with the DDTL maturing on August 9, 2024, and the overall credit facility maturing in July 2027[173] - As of June 30, 2024, the outstanding balance on the revolving credit facility was $190.3 million, with $115.0 million borrowed by ADTRAN, Inc. and $75.3 million by Adtran Networks[173] - As of June 30, 2024, the company had $206.0 million available for future borrowings, but actual borrowing capacity was $16.4 million due to debt covenant restrictions - The credit agreement includes several financial covenants, such as a consolidated total net leverage ratio (not to exceed 5.00x), a consolidated senior secured net leverage ratio (not to exceed 3.25x-4.00x during specific periods), and a consolidated fixed charge coverage ratio (not less than 1.25x) - During covenant waiver or trigger periods, cash and cash equivalents at the credit parties must be at least $50.0 million, and at the company and its subsidiaries, at least $70.0 million - As of June 30, 2024, the company was in compliance with all covenants Operating Activities Cash flow from operating activities significantly improved to $56.5 million for the six months ended June 30, 2024, driven by increased cash inflows from working capital, particularly reduced receivables and inventory - Cash flow from operating activities significantly improved to $56.5 million for the six months ended June 30, 2024, compared to $(36.2 million) in the prior year period[180] - Net accounts receivable decreased by 14.0% from $216.4 million as of December 31, 2023, to $186.2 million as of June 30, 2024, with Days Sales Outstanding (DSO) decreasing from 88 days to 75 days - Inventory decreased by 20.6% from $362.3 million as of December 31, 2023, to $287.9 million as of June 30, 2024, primarily due to reduced component purchases and $4.1 million in inventory impairment - Accounts payable decreased by 2.7% from $162.9 million as of December 31, 2023, to $158.6 million as of June 30, 2024, with average days to pay decreasing from 67 days to 60 days Investing Activities Capital expenditures totaled approximately $29.4 million for the six months ended June 30, 2024, primarily for manufacturing and testing equipment, software, computer hardware, and building improvements - Capital expenditures totaled approximately $29.4 million for the six months ended June 30, 2024, an increase from $20.1 million in the prior year period - Expenditures were primarily for the purchase of manufacturing and testing equipment, software, computer hardware, and building improvements - Long-term investments increased from $27.7 million as of December 31, 2023, to $30.2 million as of June 30, 2024, primarily comprising deferred compensation plan assets Dividends The company suspended quarterly cash dividends on November 6, 2023, to reduce debt and interest expenses and support capital efficiency initiatives, with no dividends paid for the six months ended June 30, 2024 - The company suspended quarterly cash dividends on November 6, 2023, to reduce debt and interest expenses and support capital efficiency initiatives[182] - For the six months ended June 30, 2024, the company did not pay any dividends[182] Stock Repurchase Program The company did not repurchase any common stock during the period ended June 30, 2024, and currently has no authorized stock repurchase program - The company did not repurchase any common stock during the period ended June 30, 2024[184] - There is currently no authorized stock repurchase program[184] Stock Option Exercises The company issued 36,000 shares of common stock for employee stock option exercises, generating $0.2 million in proceeds for the six months ended June 30, 2024 - For the six months ended June 30, 2024, the company issued 36,000 shares of common stock, generating $0.2 million in proceeds, for employee stock option exercises - Adtran Networks did not have any stock option exercises during this period Pension Plans The company maintains defined benefit pension plans in certain foreign countries, with a net non-current pension liability of $11.5 million as of June 30, 2024 - The company maintains defined benefit pension plans in certain foreign countries[186] - As of June 30, 2024, the company's net non-current pension liability was $11.5 million[186] Deferred Compensation Programs The company maintains four deferred compensation plans for executives and board members, with plan assets at $29.2 million and amounts payable to participants at $30.6 million as of June 30, 2024 - The company maintains four deferred compensation programs covering certain executives and board members - As of June 30, 2024, the fair value of plan assets was $29.2 million, and the amount payable to participants was $30.6 million Off-Balance Sheet Arrangements The company faces off-balance sheet risks related to performance bonds, but considers the risk of loss immaterial to its financial statements, with no other significant off-balance sheet financing - The company faces off-balance sheet risks related to performance bonds but considers the risk of loss immaterial to its financial statements[188] - The company has no other off-balance sheet financing arrangements and has not engaged in transactions with unconsolidated entities or related parties that could materially affect liquidity[188] Cash Requirements Total known short-term and long-term cash requirements were $527.8 million as of June 30, 2024, including credit agreements, purchase obligations, and operating leases, with DPLTA exit compensation at $371.3 million Cash Requirements from Contracts and Commitments (Thousands of US Dollars) | Category | Total | 2024 | 2025 | 2026 | 2027 | 2028 | Thereafter | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Wells Fargo Credit Agreement | $190,273 | $0 | $0 | $0 | $190,273 | $0 | $0 | | Accounts Receivable Secured Borrowing | $17,316 | $17,316 | $0 | $0 | $0 | $0 | $0 | | Purchase Obligations | $280,889 | $228,386 | $48,338 | $4,110 | $55 | $0 | $0 | | Operating Lease Obligations | $39,295 | $4,605 | $8,400 | $6,332 | $4,865 | $3,486 | $11,607 | | Total | $527,773 | $250,307 | $56,738 | $10,442 | $195,193 | $3,486 | $11,607 | - The DPLTA exit compensation obligation is approximately $371.3 million (based on June 30, 2024, exchange rates), but the company believes the likelihood of larg