First Quarter 2024 Earnings Release

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands)

March 31,

December 31,

2024

2023

Assets

Current Assets

Cash and cash equivalents

$

106,757

$

87,167

Accounts receivable, net

187,554

216,445

Other receivables

12,116

17,450

Income tax receivable

8,717

7,933

Inventory, net

322,147

362,295

Prepaid expenses and other current assets

59,667

45,566

Total Current Assets

696,958

736,856

Property, plant and equipment, net

126,969

123,020

Deferred tax assets

25,421

25,787

Goodwill

55,129

353,415

Intangibles, net

306,448

327,985

Other non-current assets

87,729

87,706

Long-term investments

29,252

27,743

Total Assets

$

1,327,906

$

1,682,512

Liabilities, Redeemable Non-Controlling Interest and Equity

Current Liabilities

Accounts payable

$

159,083

$

162,922

Unearned revenue

55,124

46,731

Accrued expenses and other liabilities

36,404

37,607

Accrued wages and benefits

25,869

27,030

Income tax payable, net

6,266

5,221

Total Current Liabilities

282,746

279,511

Non-current revolving credit agreement outstanding

195,000

195,000

Deferred tax liabilities

15,414

35,655

Non-current unearned revenue

22,884

25,109

Non-current pension liability

11,692

12,543

Deferred compensation liability

29,709

29,039

Non-current lease obligations

27,668

31,420

Other non-current liabilities

35,375

28,657

Total Liabilities

620,488

636,934

Redeemable Non-Controlling Interest

441,635

451,756

Equity

Common stock

791

790

Additional paid-in capital

798,897

795,304

Accumulated other comprehensive income

29,656

47,461

Retained deficit

(558,363

)

(243,908

)

Treasury stock

(5,198

)

(5,825

)

Total Equity

265,783

593,822

Total Liabilities, Redeemable Non-Controlling Interest and Equity

$

1,327,906

$

1,682,512

Condensed Consolidated Statements of Loss

(Unaudited)

(In thousands, except per share amounts)

Three Months Ended

March 31,

2024

2023

Revenue

Network Solutions

$

181,273

$

282,418

Services & Support

44,900

41,494

Total Revenue

226,173

323,912

Cost of Revenue

Network Solutions

126,326

219,130

Network Solutions - inventory write-down

8,782

-

Services & Support

18,810

16,974

Total Cost of Revenue

153,918

236,104

Gross Profit

72,255

87,808

Selling, general and administrative expenses

59,100

67,397

Research and development expenses

60,251

70,143

Goodwill impairment

292,583

-

Operating Loss

(339,679

)

(49,732

)

Interest and dividend income

397

304

Interest expense

(4,598

)

(3,287

)

Net investment gain

2,253

1,252

Other income (expense), net

1,310

(303

)

Loss Before Income Taxes

(340,317

)

(51,766

)

Income tax benefit

18,647

11,313

Net Loss

$

(321,670

)

$

(40,453

)

Less: Net Income (Loss) attributable to non-controlling interest

2,880

(370

)

Net Loss attributable to ADTRAN Holdings, Inc.

$

(324,550

)

$

(40,083

)

Weighted average shares outstanding - basic

78,814

78,358

Weighted average shares outstanding - diluted

78,814

78,358

Loss per common share attributable to ADTRAN Holdings, Inc. - basic

$

(4.12

)

$

(0.51

)

Loss per common share attributable to ADTRAN Holdings, Inc. - diluted

$

(4.12

)

$

(0.51

)

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

Three Months Ended

March 31,

2024

2023

Cash flows from operating activities:

Net loss

$

(321,670

)

$

(40,453

)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Depreciation and amortization

22,528

33,402

Goodwill impairment

292,583

-

Amortization of debt issuance cost

1,013

146

Gain on investments, net

(2,621

)

(3,154

)

Net loss on disposal of property, plant and equipment

150

-

Stock-based compensation expense

3,957

3,812

Deferred income taxes

(19,738

)

(24,019

)

Other, net

545

(1

)

Inventory write down

8,782

-

Inventory reserves

(17,247

)

16,051

Changes in operating assets and liabilities:

Accounts receivable, net

26,002

17,658

Other receivables

5,606

1,980

Income taxes receivable, net

(1,296

)

-

Inventory

49,514

(2,764

)

Prepaid expenses, other current assets and other assets

(15,888

)

1,118

Accounts payable

(4,236

)

(40,367

)

Accrued expenses and other liabilities

7,459

6,349

Income taxes payable, net

1,155

10,316

Net cash provided by (used in) operating activities

36,598

(19,926

)

Cash flows from investing activities:

Purchases of property, plant and equipment

(13,374

)

(8,439

)

Proceeds from sales and maturities of available-for-sale investments

873

930

Purchases of available-for-sale investments

(44

)

(516

)

Proceeds from beneficial interests in securitized accounts receivable

-

1,231

Net cash used in investing activities

(12,545

)

(6,794

)

Cash flows from financing activities:

Tax withholdings related to stock-based compensation settlements

(176

)

(6,258

)

Proceeds from stock option exercises

219

58

Dividend payments

-

(7,076

)

Proceeds from receivables purchase agreement

30,231

-

Repayments on receivables purchase agreement

(32,437

)

-

Proceeds from draw on revolving credit agreements

-

138,236

Repayment of revolving credit agreements

-

(43,464

)

Payment of redemption of redeemable non-controlling interest

(5

)

(1,176

)

Payment of debt issuance cost

(1,994

)

-

Repayment of notes payable

-

(24,692

)

Net cash (used in) provided by financing activities

(4,162

)

55,628

Net increase in cash and cash equivalents

19,891

28,908

Effect of exchange rate changes

(301

)

(1,095

)

Cash and cash equivalents, beginning of period

87,167

108,644

Cash and cash equivalents, end of period

$

106,757

$

136,457

Supplemental disclosure of cash financing activities:

Cash paid for interest

$

5,243

$

1,610

Cash paid for income taxes

$

2,315

$

1,251

Cash used in operating activities related to operating leases

$

2,384

$

4,057

Supplemental disclosure of non-cash investing activities:

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

$

842

$

486

Purchases of property, plant and equipment included in accounts payable

$

1,689

$

4,354

Supplemental Information

Reconciliation of Gross Profit and Gross Margin to

Non-GAAP Gross Profit and Non-GAAP Gross Margin

(Unaudited)

(In thousands)

Three Months Ended

March 31,

2024

December 31,

2023

March 31,

2023

Total Revenue

$

226,173

$

225,479

$

323,912

Cost of Revenue

$

153,918

$

147,014

$

236,104

Acquisition-related expenses, amortizations and adjustments⁽¹⁾

(10,177

)

(10,048

)

(32,578

)

Stock-based compensation expense

(275

)

(440

)

(240

)

Restructuring expenses⁽²⁾

(11,247

)

(5,517

)

(76

)

Integration expenses⁽³⁾

(35

)

39

-

Non-GAAP Cost of Revenue

$

132,184

$

131,048

$

203,210

Gross Profit

$

72,255

$

78,465

$

87,808

Non-GAAP Gross Profit

$

93,989

$

94,431

$

120,702

Gross Margin

31.9

%

34.8

%

27.1

%

Non-GAAP Gross Margin

41.6

%

41.9

%

37.3

%

^{(1) Includes intangible amortization of backlog, inventory fair value adjustments, developed technology, customer relationships, and trade names acquired in connection with business combinations.}

^{(2) Includes expenses for restructuring program designed to optimize the assets and business processes following the business combination with Adtran Networks SE. These expenses include inventory write down and other charges of $8.8M incurred as a result of a strategic shift in certain product lines in connection with the restructuring program. The restructuring program commenced upon the closing of the business combination with Adtran Networks SE and is expected to be substantially completed in late 2024.}

^{(3) Includes expenses related to the Company's one-time integration bonus program in connection with synergy targets as a result of the business combination with Adtran Networks SE.}

Supplemental Information

Reconciliation of Operating Expenses to Non-GAAP Operating Expenses

(Unaudited)

(In thousands)

Three Months Ended

March 31,

December 31,

March 31,

2024

2023

2023

Operating Expenses

$

411,934

$

116,080

$

137,540

Acquisition-related expenses, amortizations and adjustments

(4,881

)

⁽¹⁾

(4,150

)

⁽⁷⁾

(4,584

)

⁽¹¹⁾

Stock-based compensation expense

(3,447

)

⁽²⁾

(3,181

)

⁽⁸⁾

(3,458

)

⁽¹²⁾

Restructuring expenses

(5,862

)

⁽³⁾

(7,859

)

⁽⁹⁾

(2,361

)

⁽¹³⁾

Integration expenses

(480

)

⁽⁴⁾

(1,928

)

⁽¹⁰⁾

(849

)

⁽¹⁴⁾

Deferred compensation adjustments⁽⁵⁾

(1,940

)

(1,324

)

(394

)

Goodwill impairment

(292,583

)

⁽⁶⁾

-

-

Non-GAAP Operating Expenses

$

102,741

$

97,638

$

125,894

^{(1) Includes intangible amortization of developed technology, customer relationships, and trade names acquired in connection with business combinations, of which $4.4 million is included in selling, general and administrative expenses and $0.5 million is included in research and development expenses on the condensed consolidated statements of loss.}

^{(2) $2.5 million is included in selling, general and administrative expenses and $1.0 million is included in research and development expenses on the condensed consolidated statements of loss.}

^{(3) $1.8 million is included in selling, general and administrative expenses and $4.1 million is included in research and development expenses on the condensed consolidated statements of loss.}

^{(4) $0.5 million is included in selling, general and administrative expenses and $0.02 million is included in research and development expenses on the condensed consolidated statements of loss. Includes legal and advisory fees totaling $0.1 million related primarily to the DPLTA proceedings that are recorded in selling, general and administrative expenses. Includes expenses totaling $0.4 million related to the Company's one-time integration bonus program in connection with synergy targets as a result of the business combination with Adtran Networks SE of which $0.4 million are included in selling, general and administrative expenses and $0.02 million are included in research and development expenses. The transformation bonus expense of $0.4 million includes $0.2 million of stock compensation expense.}

^{(5) Includes non-cash change in fair value of equity investments held in the ADTRAN Holdings, Inc. Deferred Compensation Program for Employees, all of which is included in selling, general and administrative expenses on the condensed consolidated statement of loss.}

^{(6) Non-cash impairment of goodwill in our Network Solutions reporting unit, necessitated by factors such as a decrease in the Company's market capitalization, cautious service provider spending due to economic uncertainty and continued customer inventory adjustments.}

^{(7) Includes intangible amortization of developed technology, customer relationships, and trade names acquired in connection with business combinations, of which $3.7 million is included in selling, general and administrative expenses and $0.5 million is included in research and development expenses on the condensed consolidated statements of loss.}

^{(8) $2.3 million is included in selling, general and administrative expenses and $0.9 million is included in research and development expenses on the condensed consolidated statements of loss.}

^{(9) $4.6 million is included in selling, general and administrative expenses and $3.2 million is included in research and development expenses on the condensed consolidated statements of loss.}

^{(10) $1.9 million is included in selling, general and administrative expenses and $0.02 million is included in research and development expenses on the condensed consolidated statements of loss. Includes legal and advisory fees totaling $1.2 million related to a contemplated capital raise transaction that are recorded in selling, general and administrative expenses. Includes expenses totaling $0.4 million related to the Company's one-time integration bonus program in connection with synergy targets as a result of the business combination with Adtran Networks SE of which $0.4 million are included in selling, general and administrative expenses and $0.02 million are included in research and development expenses. The integration bonus expense of $0.4 million includes $0.2 million of stock compensation expense. Additionally, includes fees relating to the expansion of internal controls at Adtran Networks SE and the implementation of the DPLTA.}

^{(11) Includes intangible amortization of backlog, inventory fair value adjustments, developed technology, customer relationships, and trade names acquired in connection with business combinations, of which $4.1 million is included in selling, general and administrative expenses and $0.5 million is included in research and development expenses on the condensed consolidated statements of loss.}

^{(12) $2.5 million is included in selling, general and administrative expenses and $1.0 million is included in research and development expenses on the condensed consolidated statements of loss.}

^{(13) $2.2 million is included in selling, general and administrative expenses and $0.2 million is included in research and development expenses on the condensed consolidated statements of loss.}

^{(14) $0.8 million is included in selling, general and administrative expenses on the condensed consolidated statements of loss. Includes fees relating to the expansion of internal controls at ADTRAN Networks SE and the implementation of the DPLTA.}

Supplemental Information

Reconciliation of Operating Loss to Non-GAAP Operating Loss

(Unaudited)

(In thousands)

Three Months Ended

March 31,

December 31,

March 31,

2024

2023

2023

Operating Loss

$

(339,679

)

$

(37,615

)

$

(49,732

)

Acquisition related expenses, amortizations and adjustments⁽¹⁾

15,058

14,198

37,162

Stock-based compensation expense

3,722

3,621

3,698

Restructuring expenses⁽²⁾

17,110

13,376

2,437

Integration expenses⁽³⁾

514

1,890

849

Deferred compensation adjustments⁽⁴⁾

1,940

1,324

394

Goodwill impairment⁽⁵⁾

292,583

-

-

Non-GAAP Operating Loss

$

(8,752

)

$

(3,206

)

$

(5,192

)

^{(1) Includes intangible amortization of backlog, inventory fair value adjustments, developed technology, customer relationships, and trade names acquired in connection with business combinations.}

^{(2) Includes expenses for restructuring program designed to optimize the assets and business processes following the business combination with Adtran Networks SE. These expenses include inventory write down and other charges of $8.8M incurred as a result of a strategic shift in certain product lines in connection with the restructuring program. The restructuring program commenced upon the closing of the business combination with Adtran Networks SE and is expected to be completed in late 2024.}

^{(3) Includes expenses related to the Company's one-time integration bonus program in connection with synergy targets as a results of the business combination with Adtran Networks SE. Additionally, includes legal and advisory fees relating to a contemplated capital raise transactions as part of the integration. Includes fees incurred for the expansion of internal controls at Adtran Networks SE and the implementation of the DPTLA.}

^{(4) Includes non-cash change in fair value of equity investments held in the ADTRAN Holdings, Inc. Deferred Compensation Program for Employees, all of which is included in selling, general and administrative expenses on the condensed consolidated statement of loss.}

^{(5) Non-cash impairment of goodwill in our Network Solutions reporting unit, necessitated by factors such as a decrease in the Company's market capitalization, cautious service provider spending due to economic uncertainty and continued customer inventory adjustments.}

Supplemental Information

Reconciliation of Other Expense to Non-GAAP Other Expense

(Unaudited)

(In thousands)

Three Months Ended

March 31,

2024

December 31,

2023

March 31,

2023

Interest and dividend income

$

397

$

1,157

$

304

Interest expense

(4,598

)

(4,441

)

(3,287

)

Net investment gain

2,253

1,683

1,252

Other income (expense), net

1,310

(3,448

)

(303

)

Total Other Expense

$

(638

)

$

(5,049

)

$

(2,034

)

Deferred compensation adjustments ⁽¹⁾

(2,439

)

(1,590

)

(1,250

)

Pension expense ⁽²⁾

7

6

7

Non-GAAP Other Expense

$

(3,070

)

$

(6,633

)

$

(3,277

)

^{(1) Includes non-cash change in fair value of equity investments held in the ADTRAN Holdings, Inc. Deferred Compensation Program for Employees.}

^{(2) Includes amortization of actuarial losses related to the Company's pension plan for employees in certain foreign countries}

Supplemental Information

Reconciliation of Net Loss inclusive of Non-Controlling Interest to

Non-GAAP Net Loss inclusive of Non-Controlling Interest

(Unaudited)

and

Reconciliation of Net Income (Loss) attributable to Non-Controlling Interest to

Non-GAAP Net Income attributable to Non-Controlling Interest

(Unaudited)

and

Reconciliation of Net Loss attributable to ADTRAN Holdings, Inc. and

Loss per Common Share attributable to ADTRAN Holdings, Inc. - Basic and Diluted to

Non-GAAP Net Loss attributable to ADTRAN Holdings, Inc. and

Non-GAAP Loss per Common Share attributable to ADTRAN Holdings, Inc. - Basic and Diluted

(Unaudited)

(In thousands, except per share amounts)

Three Months Ended

March 31,

2024

December 31,

2023

March 31,

2023

Net Loss attributable to ADTRAN Holdings, Inc.

$

(324,550

)

$

(109,945

)

$

(40,083

)

Plus: Net Income (Loss) attributable to non-controlling interest ⁽¹⁾

2,880

2,919

(370

)

Net Loss inclusive of non-controlling interest

$

(321,670

)

$

(107,026

)

$

(40,453

)

Acquisition related expenses, amortizations and adjustments

15,058

14,198

37,162

Stock-based compensation expense

3,722

3,621

3,698

Deferred compensation adjustments ⁽²⁾

(499

)

(267

)

(856

)

Pension adjustments ⁽³⁾

7

6

7

Restructuring expenses

17,110

13,376

2,437

Integration expenses

514

1,890

849

Goodwill impairment

292,583

-

-

Tax effect of adjustments to net loss

(5,614

)

(8,735

)

(12,307

)

Non-GAAP Net Loss inclusive of non-controlling interest

$

1,211

$

(82,937

)

$

(9,463

)

Less: Non-GAAP Net Income attributable to non-controlling interest ⁽¹⁾

2,880

2,919

1,159

Non-GAAP Net Loss attributable to ADTRAN Holdings, Inc.

$

(1,669

)

$

(85,856

)

$

(10,622

)

GAAP Net Income (Loss) attributable to non-controlling interest ⁽¹⁾

$

2,880

$

2,919

$

(370

)

Acquisition related expenses, amortizations and adjustments

-

-

1,457

Restructuring expenses

-

-

29

Integration expenses

-

-

6

Stock-based compensation expense

-

-

37

Non-GAAP Net Income attributable to non-controlling interest ⁽¹⁾

$

2,880

$

2,919

$

1,159

Weighted average shares outstanding - basic

78,814

78,530

78,358

Weighted average shares outstanding - diluted

78,814

78,530

78,358

Loss per common share attributable to ADTRAN Holdings, Inc. - basic

$

(4.12

)

$

(1.40

)

$

(0.51

)

Loss per common share attributable to ADTRAN Holdings, Inc. - diluted

$

(4.12

)

$

(1.40

)

$

(0.51

)

Non-GAAP Loss per common share attributable to ADTRAN - basic

$

(0.02

)

$

(1.09

)

$

(0.14

)

Non-GAAP Loss per common share attributable to ADTRAN - diluted

$

(0.02

)

$

(1.09

)

$

(0.14

)

^{(1) Represents the non-controlling interest portion of the Company's ownership of Adtran Networks SE pre-DPLTA and the annual recurring compensation earned by redeemable non-controlling interests and accrued by the Company post-DPLTA.}

^{(2) Includes non-cash change in fair value of equity investments held in deferred compensation plans offered to certain employees.}

^{(3) Includes amortization of actuarial losses related to the Company's pension plan for employees in certain foreign countries.}

Supplemental Information

Reconciliation of Net Cash Provided By (Used In) Operating Activities to Free Cash Flow

(Unaudited)

(In thousands)

Three Months Ended

March 31,

December 31,

March 31,

2024

2023

2023

Net Cash provided by (used in) operating activities

$

36,598

$

(16,290)

$

(19,926)

Purchases of property, plant and equipment

(13,374)

(9,447)

(8,439)

Free cash flow

$

23,224

$

(25,737)

$

(28,365)