ADTRAN Holdings, Inc. [ADTN] Filings

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 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 or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
901 Explorer Boulevard Huntsville, Alabama	35806-2807
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (256) 963-8000

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, Par Value $0.01 per share		ADTN		The NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer		☒		Accelerated filer		☐
Non-accelerated filer		☐		Smaller reporting company		☐
Emerging growth company		☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of August 7, 2023, the registrant had 78,681,829 shares of common stock, $0.01 par value per share, outstanding.

 

 

 

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ADTRAN Holdings, Inc.

Quarterly Report on Form 10-Q

For the Three and Six Months Ended June 30, 2023

Table of Contents

 

Item Number				Page Number
		Glossary of Selected Terms		3
		General		4
		Cautionary Note Regarding Forward-Looking Statements		4
		PART I. FINANCIAL INFORMATION
1		Financial Statements:
		Condensed Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022 – (Unaudited)		7
		Condensed Consolidated Statements of (Loss) Income for the three and six months ended June 30, 2023 and 2022 – (Unaudited)		8
		Condensed Consolidated Statements of Comprehensive Loss for the three and six months ended June 30, 2023 and 2022 – (Unaudited)		9
		Condensed Consolidated Statements of Changes in Equity for the three and six months ended June 30, 2023 and 2022 (Unaudited)		10
		Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2023 and 2022 – (Unaudited)		12
		Notes to Condensed Consolidated Financial Statements – (Unaudited)		13
2		Management’s Discussion and Analysis of Financial Condition and Results of Operations		45
3		Quantitative and Qualitative Disclosures About Market Risk		63
4		Controls and Procedures		65
		PART II. OTHER INFORMATION
1		Legal Proceedings		66
1A		Risk Factors		66
2		Unregistered Sales of Equity Securities and Use of Proceeds		73
5		Other Information		73
6		Exhibits		73
		SIGNATURE		77

 

 

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GLOSSARY OF SELECTED TERMS

 

Below are certain acronyms, concepts and defined terms commonly used in our industry and in this Quarterly Report on Form 10-Q, along with their meanings:

 

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

 

 

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GENERAL

Unless the context otherwise indicates or requires, references in this Quarterly Report on Form 10-Q to “ADTRAN,” the “Company,” “we,” “us” and “our” refer to ADTRAN, Inc. and its consolidated subsidiaries prior to the merger of Acorn MergeCo, Inc., a subsidiary of ADTRAN Holdings, Inc., with and into ADTRAN, Inc., on July 8, 2022, after which ADTRAN, Inc. became a wholly-owned direct subsidiary of ADTRAN Holdings, Inc. (the “Merger”), and to ADTRAN Holdings, Inc. and its consolidated subsidiaries following the Merger.

On May 24, 2023, at the annual general meeting of the shareholders of ADVA Optical Networking SE, a subsidiary of the Company ("ADVA"), the shareholders of ADVA approved the proposed change of its name to Adtran Networks SE ("Adtran Networks"), which was registered in the commercial register of the local court of Jena, Germany on June 8, 2023. Unless the context otherwise indicates or requires, references in this Quarterly Report on Form 10-Q to “Adtran Networks” refer to Adtran Networks SE (formerly ADVA Optical Networking SE).

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by or on behalf of ADTRAN. ADTRAN and its representatives may from time to time make written or oral forward-looking statements, including statements contained in this report, our other filings with the Securities and Exchange Commission (the “SEC”) and other communications with our stockholders. Any statement that does not directly relate to a historical or current fact is a forward-looking statement. Generally, the words “believe”, “expect”, “intend”, “estimate”, “anticipate”, “would”, “will”, “may”, “might”, “could”, “should”, “can”, “future”, “assume”, “plan”, “seek”, “predict”, “potential”, “objective”, “expect”, “target”, “project”, “outlook”, “forecast” and similar expressions identify forward-looking statements. We caution you that any forward-looking statements made by us or on our behalf are subject to uncertainties and other factors that could affect the accuracy of such statements. Forward-looking statements are based on management’s current expectations, as well as certain assumptions and estimates made by, and information available to, management at the time the statements are made. Those statements are based on general assumptions and are subject to various risks, and because they also relate to the future, they are likewise subject to inherent uncertainties and other factors that may cause actual results to differ materially from the views, beliefs and projections expressed in such statements. The following are some of the risks that could affect our financial performance or could cause actual results to differ materially from those expressed or implied in our forward-looking statements:

Risks related to the Business Combination and DPLTA

Risks related to our financial results and Company success

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Risks related to our control environment

 

Risks related to the telecommunications industry

5

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Risks related to the Company's stock price

Risks related to the regulatory environments in which we do business

The foregoing list of risks is not exclusive. For a more detailed description of the risk factors associated with our business, see Part I, Item 1A of Amendment No. 1 to the Company's Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC August 14, 2023, as well as the risk factors set forth in Part II, Item 1A of this Quarterly Report on Form 10-Q. We caution investors that other factors may prove to be important in the future in affecting our operating results. New factors emerge from time to time, and it is not possible for us to predict all of these factors, nor can we assess the impact each factor, or a combination of factors, may have on our business.

You are further cautioned not to place undue reliance on these forward-looking statements because they speak only of our views as of the date that the statements were made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ADTRAN Holdings, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except per share amounts)

 

		June 30,				December 31,
		2023				2022
ASSETS
Current Assets
Cash and cash equivalents		$	124,294			$	108,644
Short-term investments (includes $3,089 and $340 of available-for-sale securities as of    June 30, 2023 and December 31, 2022, respectively, reported at fair value)			3,089				340
Accounts receivable, less allowance for credit losses of $26 and $49 as of June 30, 2023    and December 31, 2022, respectively			239,565				279,435
Other receivables			32,394				32,831
Inventory, net			416,802				427,531
Prepaid expenses and other current assets			33,880				33,577
Total Current Assets			850,024				882,358
Property, plant and equipment, net			115,719				110,699
Deferred tax assets			82,076				67,839
Goodwill			388,163				381,724
Intangibles, net			355,084				401,211
Other non-current assets			60,634				66,998
Long-term investments (includes $4,985 and $8,913 of available-for-sale securities as of    June 30, 2023 and December 31, 2022, respectively, reported at fair value)			31,238				32,665
Total Assets		$	1,882,938			$	1,943,494
LIABILITIES, REDEEMABLE NON-CONTROLLING INTEREST AND EQUITY
Current Liabilities
Accounts payable		$	171,735			$	237,699
Revolving credit agreements outstanding			10,912				35,936
Notes payable			—				24,598
Unearned revenue			48,030				41,193
Accrued expenses and other liabilities			26,807				35,235
Accrued wages and benefits			36,843				44,882
Income tax payable, net			15,314				9,032
Total Current Liabilities			309,641				428,575
Non-current revolving credit agreement outstanding			200,000				60,000
Deferred tax liabilities			44,614				61,629
Non-current unearned revenue			24,111				19,239
Pension liability			10,883				10,624
Deferred compensation liability			28,522				26,668
Non-current lease obligations			20,834				22,807
Other non-current liabilities			16,401				10,339
Total Liabilities			655,006				639,881
Commitments and contingencies (see Note 20)
Redeemable Non-Controlling Interest			445,462				—
Equity
Common stock, par value $0.01 per share; 200,000 shares authorized;    78,661 shares issued and 78,364 outstanding as of June 30, 2023 and    78,088 shares issued and 77,889 shares outstanding as of December 31, 2022			787				781
Additional paid-in capital			766,428				895,834
Accumulated other comprehensive income			62,208				46,713
Retained (deficit) earnings			(41,010	)			55,338
Treasury stock at cost: 297 and 198 shares as of June 30, 2023    and December 31, 2022, respectively			(5,943	)			(4,125	)
Non-controlling interest			—				309,072
Total Equity			782,470				1,303,613
Total Liabilities, Redeemable Non-Controlling Interest and Equity		$	1,882,938			$	1,943,494

 

See accompanying notes to condensed consolidated financial statements.

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ADTRAN Holdings, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF (LOSS) INCOME

(Unaudited)

(In thousands, except per share amounts)

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2023				2022				2023				2022
Revenue
Network Solutions		$	283,002			$	155,992			$	565,420			$	294,366
Services & Support			44,376				16,046				85,870				32,190
Total Revenue			327,378				172,038				651,290				326,556
Cost of Revenue
Network Solutions			216,960				99,921				436,090				190,575
Services & Support			17,865				9,611				34,839				19,159
Total Cost of Revenue			234,825				109,532				470,929				209,734
Gross Profit			92,553				62,506				180,361				116,822
Selling, general and administrative expenses			66,583				27,873				133,980				55,766
Research and development expenses			70,598				26,500				140,741				52,991
Operating (Loss) Income			(44,628	)			8,133				(94,360	)			8,065
Interest and dividend income			358				217				662				421
Interest expense			(4,064	)			(94	)			(7,351	)			(124	)
Net investment gain (loss)			1,262				(4,646	)			2,514				(8,061	)
Other income, net			2,494				681				2,191				455
(Loss) Income Before Income Taxes			(44,578	)			4,291				(96,344	)			756
Income tax benefit (expense)			8,363				(2,148	)			19,676				260
Net (Loss) Income		$	(36,215	)		$	2,143			$	(76,668	)		$	1,016
Less: Net Loss attributable to non-controlling interest(1)			(2,881	)			—				(8,870	)			—
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

(1)For the three and six months ended June 30, 2023, we have recognized $2.9 million and $5.7 million, respectively, representing the recurring cash compensation earned by non-controlling interest shareholders post-DPLTA and an incremental $3.2 million net loss attributable to non-controlling interests pre-DPLTA for the six months ended June 30, 2023.

See accompanying notes to condensed consolidated financial statements.

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ADTRAN Holdings, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

(In thousands)

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2023				2022				2023				2022
Net (Loss) Income		$	(36,215	)		$	2,143			$	(76,668	)		$	1,016
Other Comprehensive Income (Loss), net of tax
Net unrealized (loss) gain on available-for-sale securities			(6	)			(200	)			64				(924	)
Defined benefit plan adjustments			23				(87	)			57				(100	)
Foreign currency translation gain (loss)			6,940				(2,853	)			15,618				(3,758	)
Other Comprehensive Income (Loss), net of tax			6,957				(3,140	)			15,739				(4,782	)
Less: Comprehensive Income attributable to non-controlling interest, net of tax			—				—				244				—
Comprehensive Loss attributable to ADTRAN Holdings, Inc., net of tax		$	(29,258	)		$	(997	)		$	(61,173	)		$	(3,766	)

 

See accompanying notes to condensed consolidated financial statements.

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ADTRAN Holdings, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)

(In thousands, except per share amounts)

 

		Common Shares				Common Stock				Additional Paid-In Capital				Retained (Deficit) Earnings				Treasury Stock				Accumulated Other Comprehensive Income				Non-controlling interest				Total Equity
Balance as of December 31, 2022			78,088			$	781			$	895,834			$	55,338			$	(4,125	)		$	46,713			$	309,072			$	1,303,613
Net loss			—				—				—				(37,274	)			—				—				(3,179	)			(40,453	)
Reclassification and remeasurement from equity to mezzanine equity for non-controlling interests in Adtran Networks			—				—				(137,620	)			—				—				—				(306,137	)			(443,757	)
Other comprehensive income, net of tax			—				—