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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 March 31, 2024

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 May 2, 2024, the registrant had 79,116,535 shares of common stock, $0.01 par value per share, outstanding.

 

 

 

1


ADTRAN Holdings, Inc.

Quarterly Report on Form 10-Q

For the three months ended March 31, 2024

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 March 31, 2024 and December 31, 2023 – (Unaudited)

 

7

 

 

Condensed Consolidated Statements of Loss for the three months ended March 31, 2024 and 2023 – (Unaudited)

 

8

 

 

Condensed Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2024 and 2023 – (Unaudited)

 

9

 

 

Condensed Consolidated Statements of Changes in Equity for the three months ended March 31, 2024 and 2023 (Unaudited)

 

10

 

 

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2024 and 2023 – (Unaudited)

 

12

 

 

Notes to Condensed Consolidated Financial Statements – (Unaudited)

 

13

2

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

36

3

 

Quantitative and Qualitative Disclosures About Market Risk

 

54

4

 

Controls and Procedures

 

56

 

 

 

 

 

 

 

PART II. OTHER INFORMATION

 

 

1

 

Legal Proceedings

 

58

1A

 

Risk Factors

 

58

2

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

59

5

 

Other Information

 

59

6

 

Exhibits

 

59

 

 

SIGNATURE

 

61

 

 

 

 

 

 

 

 

 

 

 

 

2


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

CPE

Customer-premises equipment

DPLTA

Domination and Profit and Loss Transfer Agreement

DSO

Days Sales Outstanding

EURIBOR

Euro Interbank Offered Rate

MSO

Multiple System Operator

ODM

Original Design Manufacturing

RNCI

Redeemable Non-Controlling Interest

SaaS

Software as a Service

SEC

Securities and Exchange Commission

Service Provider or SP

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

 

 

3


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. Furthermore, 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 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 our financial results and Company success

We are obligated to comply with covenants related to our Wells Fargo Credit Agreement that could restrict our operating activities, and the failure to comply with such covenants could result in defaults that accelerates our debt.
We have experienced significant fluctuations in revenue and such fluctuations may continue. Fluctuations in revenue can cause our operating results in a given reporting period to be higher or lower than expected.
The lengthy sales and approval process required by Service Providers for new products has resulted in fluctuations in our revenue and may result in future revenue fluctuations.
We depend heavily on sales to certain customers; the loss of any of these customers or a significant project would significantly reduce our revenue and net income.
Our exposure to the credit risks of our customers and distributors may make it difficult to collect accounts receivable and could adversely affect our operating results, financial condition and cash flows.
We expect gross margins to continue to vary over time, and our levels of product and services gross margins may not be sustainable.
Our dependence on a limited number of suppliers for certain raw materials, key components and ODM products, combined with supply shortages, has prevented and may continue to prevent us from delivering our products on a timely basis, which has had and may continue to have a material adverse effect on operating results and could have a material adverse effect on customer relations.
We compete in markets that have become increasingly competitive, which may result in reduced gross profit margins and market share.
Our estimates regarding future warranty obligations may change due to product failure rates, installation and shipment volumes, field service repair obligations and other rework costs incurred in correcting product failures. If our estimates change, our liability for warranty obligations may increase or decrease, impacting future cost of revenue.
Managing our inventory is complex and has included and may continue to include write downs of excess or obsolete inventory.
The continuing growth of our international operations has and may continue to expose us to additional risks, increase our costs and adversely affect our operating results, financial condition and cash flows.
Our success depends on attracting and retaining key personnel.
We are exposed to adverse currency exchange rate fluctuations in jurisdictions where we transact in local currency, which could harm our financial results and cash flows.

4


We require a significant amount of cash to service our indebtedness, our payment obligations to Adtran Networks shareholders under the DPLTA, and other obligations.
We have recognized impairment charges related to goodwill and other intangible assets in the past and may be required to do so in the future.
We may be unable to successfully and effectively manage and integrate acquisitions, divestitures and other significant transactions, which could harm our operating results, business and prospects.
Ongoing inflationary pressures could negatively impact our revenues and profitability if increases in the prices of our products and services or a decrease in customer spending result in lower sales.

 

Risks related to our control environment

We have had to restate our previously issued consolidated financial statements and, as part of that process, have identified material weaknesses in our internal control over financial reporting. If we are unable to develop and maintain effective internal control over financial reporting, we may not be able to accurately report our financial results in a timely manner, which may adversely affect investor confidence in us and may adversely affect our business, financial condition and results of operations.
We may face litigation and other risks as a result of the restatements of our previously issued consolidated financial statements and material weaknesses in our internal control over financial reporting.
Breaches of our information systems and cyberattacks could compromise our intellectual property and cause significant damage to our business and reputation.

Risks related to the Business Combination and DPLTA

Our ability to realize anticipated strategic and financial benefits sought from the Business Combination has been and may continue to be affected by a number of factors.
We have incurred and expect to continue to incur significant costs in connection with the Business Combination and post-closing integration and restructuring efforts.
We incurred a substantial amount of indebtedness in connection with the Business Combination and DPLTA. Our failure to meet our debt service obligations could have a material adverse effect on our business, financial condition and results of operations.
We have experienced operational challenges as a result of the Business Combination and may also experience negative synergies and loss of customers.
The terms of the DPLTA may have a material adverse effect on our financial results and condition.
We are exposed to additional litigation risk and uncertainty with respect to the remaining minority shareholders of Adtran Networks, which litigation may require us to pay a higher purchase price for additional Adtran Networks shares than the amount provided for under the DPLTA.
We may be unable to successfully retain and motivate our personnel.

 

Risks related to the telecommunications industry

We must continue to update and improve our products and develop new products to compete and to keep pace with improvements in communications technology.
Our failure or the failure of our contract manufacturers to comply with applicable environmental regulations could adversely impact our results of operations.
If our products do not interoperate with our customers’ networks, installations may be delayed or canceled, which could harm our business.
We engage in research and development activities to develop new, innovative solutions and to improve the application of developed technologies, and as a consequence may miss certain market opportunities enjoyed by larger companies with substantially greater research and development efforts and which may focus on more leading-edge development.
Our strategy of outsourcing a portion of our manufacturing requirements to subcontractors located in various international regions may result in us not meeting our cost, quality or performance standards.

5


Our failure to maintain rights to intellectual property used in our business could adversely affect the development, functionality and commercial value of our products.
Third party hardware or software that is used with our portfolios may not continue to be available or at commercially reasonable terms.
Our use of open source software could impose limitations on our ability to commercialize our products.
We may incur liabilities or become subject to litigation that would have a material effect on our business.
If we are unable to successfully develop and maintain relationships with SIs, Service Providers and enterprise VARs, our revenue may be negatively affected.
We depend on a third-party cloud platform provider to host our Mosaic One SaaS network operating platform, and if we were to experience a disruption or interference in service, our business and reputation could suffer.

Risks related to the Company's stock price

Our operating results and financial performance historically have fluctuated and are likely to continue to fluctuate in future periods. Such fluctuations can adversely affect our stock price.
The price of our common stock has been volatile and may continue to fluctuate significantly.

 

Risks related to the regulatory environments in which we do business

We are subject to complex and evolving U.S. and foreign laws, regulations and standards governing the conduct of our business. Violations of these laws and regulations may harm our business, subject us to penalties and to other adverse consequences.
Changes in trade policy in the U.S. and other countries, including the imposition of additional tariffs and the resulting consequences, may adversely impact our gross profits, gross margins, results of operations and financial condition.
New or revised tax regulations, changes in our effective tax rate, recognition of a valuation allowance or assessments arising from tax audits may have an adverse impact on our results.
Central banks’ monetary policy actions and instability in the financial services sector could increase our costs of borrowing money and negatively impact our financial condition and future operations.
Expectations relating to environmental, social and governance considerations expose the Company to potential liabilities, increased costs, reputational harm, and other adverse effects on the Company’s business.
Further downgrades of the U.S. credit rating, impending automatic spending cuts or a government shutdown could negatively impact our liquidity, financial condition and earnings.

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 the Company's Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 15, 2024, 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.

6


PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ADTRAN Holdings, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except per share amounts)

 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

ASSETS

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

106,757

 

 

$

87,167

 

Accounts receivable, less allowance for credit losses of $367 and $400 as of March 31, 2024
   and December 31, 2023, respectively

 

 

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

 

Commitments and contingencies (see Note 18)

 

 

 

 

 

 

Redeemable Non-Controlling Interest

 

 

441,635

 

 

 

451,756

 

Equity

 

 

 

 

 

 

Common stock, par value $0.01 per share; 200,000 shares authorized;
   
79,116 shares issued and 78,850 outstanding as of March 31, 2024 and
   
78,970 shares issued and 78,674 outstanding as of December 31, 2023

 

 

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 at cost: 265 and 297 shares as of March 31, 2024
   and December 31, 2023, respectively

 

 

(5,198

)

 

 

(5,825

)

Total Equity

 

 

265,783

 

 

 

593,822

 

Total Liabilities, Redeemable Non-Controlling Interest and Equity

 

$

1,327,906

 

 

$

1,682,512

 

 

See accompanying notes to condensed consolidated financial statements.

7


ADTRAN Holdings, Inc.

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 and other charges

 

 

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(1)

 

 

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

)

(1)For the three months ended March 31, 2024, we recognized $2.9 million of net gain attributable to non-controlling interest, representing the recurring cash compensation earned by non-controlling interest shareholders post-DPLTA. For the three months ended March 31, 2023, we recognized $3.2 million of net loss attributable to non-controlling interest pre-DPLTA, partially offset by $2.8 million, representing the recurring cash compensation earned by non-controlling interest shareholders post-DPLTA.

See accompanying notes to condensed consolidated financial statements.

8


ADTRAN Holdings, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

(In thousands)

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2024

 

 

2023

 

Net Loss

 

$

(321,670

)

 

$

(40,453

)

Other Comprehensive (Loss) Income, net of tax

 

 

 

 

 

 

Net unrealized gain on available-for-sale securities

 

 

 

 

 

69

 

Defined benefit plan adjustments

 

 

(60

)

 

 

35

 

Foreign currency translation (loss) gain

 

 

(17,745

)

 

 

8,678

 

Other Comprehensive (Loss) Income, net of tax

 

 

(17,805

)

 

 

8,782

 

Comprehensive Loss, net of tax

 

 

(339,475

)

 

 

(31,671

)

Less: Comprehensive Income attributable to non-controlling interest, net of tax

 

 

2,880

 

 

 

12

 

Comprehensive Loss attributable to ADTRAN Holdings, Inc., net of tax

 

$

(342,355

)

 

$

(31,683

)

 

See accompanying notes to condensed consolidated financial statements.

9


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

 

 

Treasury
Stock

 

 

Accumulated Other Comprehensive Income

 

 

Total
Equity

 

Balance as of December 31, 2023

 

 

78,970

 

 

$

790

 

 

$

795,304

 

 

$

(243,908

)

 

$

(5,825

)

 

$

47,461

 

 

$

593,822

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(321,670

)

 

 

 

 

 

 

 

 

(321,670

)

Annual recurring compensation earned

 

 

 

 

 

 

 

 

 

 

 

(2,880

)

 

 

 

 

 

 

 

 

(2,880

)

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(17,805

)

 

 

(17,805

)

Deferred compensation adjustments, net of tax

 

 

 

 

 

 

 

 

(368

)

 

 

3

 

 

 

627

 

 

 

 

 

 

262

 

ADTRAN RSUs and restricted stock vested

 

 

110

 

 

 

1

 

 

 

 

 

 

(243

)

 

 

 

 

 

 

 

 

(242

)

ADTRAN stock options exercised

 

 

36

 

 

 

 

 

 

 

 

 

219

 

 

 

 

 

 

 

 

 

219

 

ADTRAN stock-based compensation expense

 

 

 

 

 

 

 

 

3,957

 

 

 

 

 

 

 

 

 

 

 

 

3,957

 

Redemption of redeemable non-controlling interest

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

1

 

Foreign currency remeasurement of redeemable non-controlling interest

 

 

 

 

 

 

 

 

 

 

 

10,115

 

 

 

 

 

 

 

 

 

10,115

 

ADVA stock-based compensation expense

 

 

 

 

 

 

 

 

4

 

 

 

 

 

 

 

 

 

 

 

 

4

 

Balance as of March 31, 2024

 

 

79,116

 

 

$

791

 

 

$

798,897

 

 

$

(558,363

)

 

$

(5,198

)

 

$

29,656

 

 

$

265,783

 

 

See accompanying notes to condensed consolidated financial statements.

10


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
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

)

 

$

26,126

 

 

$

329,659

 

 

$

1,303,613

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(37,274

)

 

 

 

 

 

 

 

 

(3,179

)

 

 

(40,453

)

Annual recurring compensation earned

 

 

 

 

 

 

 

 

 

 

 

(2,809

)

 

 

 

 

 

 

 

 

 

 

 

(2,809

)

Reclassification and remeasurement from equity to mezzanine equity for non-controlling interests in ADVA

 

 

 

 

 

 

 

 

(116,895

)

 

 

 

 

 

 

 

 

 

 

 

(326,862

)

 

 

(443,757

)

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8,400

 

 

 

382

 

 

 

8,782

 

Dividend payments to ADTRAN Holdings, Inc. shareholders ($0.09 per share)

 

 

 

 

 

 

 

 

 

 

 

(7,076

)

 

 

 

 

 

 

 

 

 

 

 

(7,076

)

Deferred compensation adjustments, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,792

)

 

 

 

 

 

 

 

 

(1,792

)

ADTRAN RSUs and restricted stock vested

 

 

561

 

 

 

6

 

 

 

 

 

 

(144

)

 

 

 

 

 

 

 

 

 

 

 

(138

)

ADTRAN stock options exercised

 

 

6

 

 

 

 

 

 

 

 

 

58

 

 

 

 

 

 

 

 

 

 

 

 

58

 

ADTRAN stock-based compensation expense

 

 

 

 

 

 

 

 

3,812

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,812

 

Redemption of redeemable non-controlling interest

 

 

 

 

 

 

 

 

 

 

 

343

 

 

 

 

 

 

 

 

 

 

 

 

343

 

Foreign currency remeasurement of redeemable non-controlling interest

 

 

 

 

 

 

 

 

 

 

 

(430

)

 

 

 

 

 

 

 

 

 

 

 

(430

)

ADVA stock-based compensation expense

 

 

 

 

 

 

 

 

9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9

 

Balance as of March 31, 2023

 

 

78,655

 

 

$

787

 

 

$

782,760

 

 

$

8,006

 

 

$

(5,917

)

 

$

34,526

 

 

$

 

 

$

820,162

 

 

See accompanying notes to condensed consolidated financial statements.

11


ADTRAN Holdings, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

 

 

 

 

 

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

 

 

3,992

 

 

 

 

Inventory reserves

 

 

1,837

 

 

 

16,051

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable, net

 

 

26,002

 

 

 

17,658

 

Other receivables

 

 

5,605

 

 

 

1,980

 

Income taxes receivable, net

 

 

(1,296

)

 

 

 

Inventory

 

 

30,426

 

 

 

(2,764

)

Prepaid expenses, other current assets and other assets

 

 

(15,882

)

 

 

1,118

 

Accounts payable

 

 

553

 

 

 

(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

)

Payment for 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 for 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

 

See accompanying notes to condensed consolidated financial statements.

12


ADTRAN Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

GENERAL

ADTRAN Holdings, Inc. (“ADTRAN” or the “Company”) is a leading global provider of networking and communications platforms, software, systems and services focused on the broadband access market, serving a diverse domestic and international customer base in multiple countries that includes large, medium and small Service Providers, alternative Service Providers, such as utilities, municipalities and fiber overbuilders, cable/MSOs, SMBs and distributed enterprises. Our innovative solutions and services enable voice, data, video and internet-communications across a variety of network infrastructures and are currently in use by millions worldwide. We support our customers through our direct global sales organization and our distribution networks. Our success depends upon our ability to increase unit volume and market share through the introduction of new products and succeeding generations of products having optimal selling prices and increased functionality as compared to both the prior generation of a product and to the products of competitors in order to gain market share. To service our customers and grow revenue, we are continually conducting research and developing new products addressing customer needs and testing those products for the specific requirements of the particular customers. We offer a broad portfolio of flexible software and hardware network solutions and services that enable Service Providers to meet today’s service demands, while enabling them to transition to the fully converged, scalable, highly-automated, cloud-controlled voice, data, internet and video network of the future. In addition to our global headquarters in Huntsville, Alabama, and our European headquarters in Munich, Germany, we have sales and research and development facilities in strategic global locations.

The Company solely owns ADTRAN, Inc. and is the majority shareholder of Adtran Networks (formerly ADVA Optical Networking SE). ADTRAN, Inc. is a leading global provider of open, disaggregated networking and communications solutions. Adtran Networks is a global provider of network solutions for data, storage, voice and video services. We believe that the combined technology portfolio can best address current and future customer needs for high-speed connectivity from the network core to the end consumer and in particular upon the convergence of solutions at the network edge.

Liquidity, Domination and Profit and Loss Transfer Agreement and Credit Facility

The DPLTA between the Company, as the controlling company, and Adtran Networks SE ("Adtran Networks"), as the controlled company, as executed on December 1, 2022, became effective on January 16, 2023, as a result of its registration with the commercial register (Handelsregister) of the local court (Amtsgericht) at the registered seat of Adtran Networks (Jena).

Under the DPLTA, subject to certain limitations pursuant to applicable law and the specific terms of the DPLTA, (i) the Company is entitled to issue binding instructions to the management board of Adtran Networks, (ii) Adtran Networks will transfer its annual profit to the Company, subject to, among other things, the creation or dissolution of certain reserves, and (iii) the Company will generally

13


absorb the annual net loss incurred by Adtran Networks. The obligation of the Company to absorb Adtran Networks’ annual net loss applied for the first time to the loss generated in 2023.

Pursuant to the terms of the DPLTA, each Adtran Networks shareholder (other than the Company) has received an offer to elect either (1) to remain an Adtran Networks shareholder and receive from us an Annual Recurring Compensation payment, or (2) to receive Exit Compensation plus guaranteed interest. The guaranteed interest under the Exit Compensation is calculated from the effective date of the DPLTA to the date the shares are tendered, less any Annual Recurring Compensation paid. The guaranteed interest rate is 5.0% plus a variable component (according to the German Civil Code) that was 3.62% as of March 31, 2024. Assuming all the minority holders of currently outstanding Adtran Networks shares were to elect the second option, we would be obligated to make aggregate Exit Compensation payments, including guaranteed interest, of approximately €338.9 million or approximately $365.7 million, based on an exchange rate as of March 31, 2024 and reflecting interest accrued through March 31, 2024 during the pendency of the appraisal proceedings discussed below. Shareholders electing the first option of Annual Recurring Compensation may later elect the second option. The opportunity for outside Adtran Networks shareholders to tender Adtran Networks shares in exchange for Exit Compensation had been scheduled to expire on March 16, 2023. However, due to the appraisal proceedings that have been initiated in accordance with applicable German law, this time period for tendering shares has been extended pursuant to the German Stock Corporation Act (Aktiengesetz) and will end two months after the date on which a final decision in such appraisal proceedings has been published in the Federal Gazette (Bundesanzeiger).

We are also obligated to absorb any annual net loss of Adtran Networks under the DPLTA. Additionally, our obligation to pay Annual Recurring Compensation under the DPLTA is a continuing payment obligation, which will amount to approximately €10.6 million or $11.5 million (based on the current exchange rate) per year assuming none of the minority Adtran Networks shareholders were to elect Exit Compensation. The foregoing amounts do not reflect any potential increase in payment obligations that we may have depending on the outcome of ongoing appraisal proceedings in Germany. During the three months ended March 31, 2024 and 2023, we accrued $2.9 million and $2.8 million, respectively, in Annual Recurring Compensation, which was reflected as an increase to retained deficit. With respect to the year ended December 31, 2023, we are obligated to pay $11.5 million in Annual Recurring Compensation on the third banking day following the 2024 ordinary general shareholders’ meeting of Adtran Networks, which is expected to occur on June 28, 2024 (but in any event within eight months following December 31, 2023).

On October 18, 2022, the Company's Board of Directors authorized the Company to purchase additional shares of Adtran Networks through open market purchases not to exceed 15,346,544 shares. For the three months ended March 31, 2024 and 2023, less than one thousand and 62 thousand shares, respectively, of Adtran Networks stock was tendered to the Company and Exit Compensation payments of approximately €4 thousand and €1.1 million, respectively, or approximately $5 thousand and $1.2 million based on an exchange rate as of March 31, 2024 and 2023, respectively, were paid to Adtran Networks shareholders.

On July 18, 2022, ADTRAN, Inc., as the borrower, and ADTRAN Holdings, Inc. entered into a credit agreement with a syndicate of banks, including Wells Fargo Bank, National Association, as administrative agent (“Administrative Agent”), and the other lenders named therein (the “Credit Agreement”), which has since been amended three times. Pursuant to the terms of the Credit Agreement, as amended, the Company, ADTRAN, Inc., and the subsidiary guarantors (together, the “Credit Parties”) are subject to a liquidity covenant, which provides that, during the fourth quarter of 2023 through and including the third quarter of 2024 (the “Covenant Relief Period”) or a Springing Covenant Period (i.e., the period beginning upon the purchase by the Company of at least 60% of the outstanding shares of Adtran Networks not owned by the Company as of August 9, 2023 and the three consecutive quarterly test periods after such date), as of the last day of any fiscal quarter, the cash and cash equivalents of the Credit Parties must be at least $50.0 million and the cash and cash equivalents of the Company and its subsidiaries must be at least $75.0 million, limiting our ability to pay the obligations under the DPLTA. The Company had access to $203.0 million on its Credit Facility for future borrowings; however, as of March 31, 2024, the Company was limited to additional borrowings of $22.7 million based on debt covenant compliance metrics. See Note 11, Revolving Credit Agreements for additional information regarding the terms of the Wells Fargo Credit Agreement and its amendments.

As of March 31, 2024, and as of the date of issuance of these financial statements, the Company does not have sufficient liquidity to meet payment obligations under the DPLTA pertaining to Exit Compensation. For the three months ended March 31, 2024 and 2023, less than one thousand and 62 thousand shares, respectively, of Adtran Networks stock was tendered to the Company and Exit Compensation payments of approximately €4 thousand and €1.1 million, respectively, or approximately $5 thousand and $1.2 million based on an exchange rate as of March 31, 2024 and 2023, respectively, were paid to Adtran Networks shareholders. We believe the probability that more than a small minority of Adtran Networks shareholders elect to receive Exit Compensation in the next twelve months is remote based on the diverse base of shareholders that must make this election on an individual shareholder basis, the current ongoing appraisal proceedings involving a dispute on the value of the Exit Compensation which is expected to take 24-32 months to resolve, the current guaranteed Annual Recurring Compensation payment plus the interest earned on such shares during the ongoing appraisal proceedings, and the current trading value of Adtran Networks shares.

The Company experienced revenue declines in the year ended December 31, 2023 and during the three months ended March 31, 2024. To the extent that the Company is further impacted by the uncertain macroeconomic environment related to continued elevated interest rates and ongoing inflationary pressures, the Company has established plans to preserve cash liquidity and maintain compliance with the Company’s covenants. The Company has suspended dividend payments and is continuing to implement a business efficiency program, which includes, but is not limited to planned reductions in operating expenses and a site consolidation plan. In connection with

14


the site consolidation plan, the Company is also exploring a potential sale of portions of our headquarters in Huntsville. There can be no assurance that the Company will be successful in effecting this action on commercially reasonable terms or at all. We may need to further reduce capital expenditures and/or take other steps to preserve working capital in order to ensure that we can meet our needs and obligations and maintain compliance with our debt covenants.

In summary, the Company believes that its cash and cash equivalents, investments, working capital management initiatives and availability to access cash under the Wells Fargo credit facility, including (i) the additional funding provided for under the First Amendment to the Wells Fargo Credit Facility that was signed on August 9, 2023, (ii) the additional covenant headroom during the Covenant Relief Period provided for under the Second Amendment to Wells Fargo Credit Facility, and (iii) the exclusion of the Factoring Agreement as debt for purposes of the Credit Facility’s financial covenants as provided for under the Third Amendment to the Wells Fargo Credit Facility will be adequate to meet our business operating requirements, our capital expenditures and our expected obligations under the DPLTA, including anticipated levels of Exit Compensation and ability to continue to comply with our debt covenants under the Credit Facility, for at least the next twelve months, from the issuance of these financial statements. See Note 11, Revolving Credit Agreements, for additional information regarding the terms of the First, Second and Third Amendments of the Wells Fargo Credit agreement.

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements of ADTRAN Holdings, Inc. and its subsidiaries have been prepared pursuant to the rules and regulations of the SEC applicable to interim financial information presented in Quarterly Reports on Form 10-Q. Accordingly, certain information and notes required by generally accepted accounting principles in the United States of America (“U.S. GAAP”) for complete financial statements are not included herein. The December 31, 2023 Condensed Consolidated Balance Sheet is derived from audited financial statements but does not include all disclosures required by U.S. GAAP for annual financial statements.

In the opinion of management, all adjustments necessary to fairly state these interim statements have been recorded and are of a normal and recurring nature. The results of operations for an interim period are not necessarily indicative of the results for the full year. The interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in ADTRAN Holdings, Inc. Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 15, 2024.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expense during the reporting period. Significant estimates include allowance for credit losses on accounts receivable and contract assets, excess and obsolete inventory reserves, warranty reserves, customer rebates, determination and accrual of the deferred revenue related to performance obligations under contracts with customers, estimated costs to complete obligations associated with deferred and accrued revenues and network installations, estimated income tax provision and income tax contingencies, fair value of stock-based compensation, assessment of goodwill and other intangibles for impairment, estimated lives of intangible assets, estimates of intangible assets upon measurement, estimated pension liability and fair value of investments and estimated contingent liabilities. Actual amounts could differ significantly from these estimates.

We assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to us and the unknown future impacts of ongoing inflationary pressures, the energy crisis, currency fluctuations and political tensions as of March 31, 2024, and through the date of this report. The accounting matters assessed included, but were not limited to, the allowance for credit losses, stock-based compensation, carrying value of goodwill, intangibles and other long-lived assets, financial assets, valuation allowances for tax assets, revenue recognition and costs of revenue. Future conditions related to ongoing inflationary pressures, the energy crisis, continued elevated interest rates, instability in the financial services industry, currency fluctuations and political tensions could result in further impacts to the Company's consolidated financial statements in future reporting periods.

 

15


 

 

Accounts Receivable Factoring

New Accounts Receivable Factoring Agreement

On December 19, 2023, the Company entered into a new factoring agreement with a third-party financial institution to replace the Company’s prior accounts receivable purchase agreement, to sell on a revolving basis, undivided interests in the Company’s accounts receivable. The new factoring agreement qualifies for treatment as a secured borrowing with a pledge of collateral under Accounting Standards Codification ("ASC") Topic 810, Consolidations, as the Company is considered the primary beneficiary in a variable interest entity created to hold the factored receivables and the Company retains a residual claim on reserves related to the factored receivables. Within the Condensed Consolidated Balance Sheets, the receivables factored continue to be carried in accounts receivable, less allowance for credit losses, and the secured borrowings are carried as a current liability within accounts payable. The proceeds and repayments of secured borrowings are reflected as cash flows provided by (used in) financing activities within the Condensed Consolidated Statements of Cash Flows, and program fees are recorded as interest expense in the Consolidated Statements of Loss. The short-term liability classification of the secured borrowings is based on the estimated timing of the collection of the accounts receivable which are expected to be received within 12 months. See Note 2 for additional information.

Previous Accounts Receivable Factoring Agreement

The Company had previously entered into a factoring agreement to sell certain receivables to an unrelated third-party financial institution on a non-recourse basis. These transactions were accounted for in accordance with ASC Topic 860 and resulted in a reduction in accounts receivable because the agreement transferred effective control over and risk related to the receivables to the buyers. Trade accounts receivables balances sold were removed from the Condensed Consolidated Balance Sheets and cash received was reflected as cash flows provided by (used in) operating activities in the Condensed Consolidated Statements of Cash Flow. Factoring related interest expense was recorded to interest expense on the Condensed Consolidated Statements of Loss. On each sale date, the financial institution retained from the sale price a default reserve, up to a required balance, which was held by the financial institution in a reserve account and pledged to the Company. The financial institution was entitled to withdraw from the reserve account the sale price of a defaulted receivable. The balance in the reserve account was included in other assets on the Condensed Consolidated Balance Sheets.

Redeemable Non-Controlling Interest

As of March 31, 2024 and December 31, 2023, the non-controlling Adtran Networks stockholders’ equity ownership percentage in Adtran Networks was approximately 34.7% for each period.

As a result of the effectiveness of the DPLTA on January 16, 2023, the Adtran Networks shares, representing the equity interest in Adtran Networks held by holders other than the Company, can be tendered at any time and are, therefore, redeemable and must be classified outside stockholders’ equity. Therefore, the permanent equity noncontrolling interest balance was reclassified to redeemable non-controlling interest on January 16, 2023 and was remeasured to fair value based on the trading market price of the Adtran Networks shares.

Subsequently, the carrying value of the RNCI is adjusted to its maximum redemption value at each reporting date when the maximum redemption value is greater than the initial carrying amount of the RNCI. However, the RNCI will be remeasured using the current exchange rate at each reporting date as long as the RNCI is currently redeemable. For the period of time that the DPLTA is in effect, the RNCI will continue to be presented as RNCI outside of stockholders’ equity in the Condensed Consolidated Balance Sheets. See Note 14 for additional information on RNCI.

16


Recent Accounting Pronouncements Not Yet Adopted

In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures", which is intended to enhance the transparency, decision usefulness and effectiveness of income tax disclosures. The amendments in this ASU require a public entity to disclose a tabular tax rate reconciliation, using both percentages and currency, with specific categories. A public entity is also required to provide a qualitative description of the states and local jurisdictions that make up the majority of the effect of the state and local income tax category and the net amount of income taxes paid, disaggregated by federal, state and foreign taxes and also disaggregated by individual jurisdictions. The amendments also remove certain disclosures that are no longer considered cost beneficial. The amendments are effective prospectively for annual periods beginning after December 15, 2024, and early adoption and retrospective application are permitted. The Company is currently evaluating the effect that adoption of ASU 2023-09 will have on our disclosures.

In November 2023, the FASB issued ASU 2023-7, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures", which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses, allowing financial statement users to better understand the components of a segment's profit or loss to assess potential future cash flows for each reportable segment and the entity as a whole. The amendments expand a public entity's segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker ("CODM"), clarifying when an entity may report one or more additional measures to assess segment performance, requiring enhanced interim disclosures, providing new disclosure requirements for entities with a single reportable segment, and requiring other new disclosures. The amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and early adoption is permitted. The Company expect to adopt the new disclosures as required for the year ended December 31, 2024. The Company is currently evaluating the impact on the related disclosures.

Recent Final Rules Not Yet Adopted

In March 2024, the SEC adopted final rules under SEC Release No. 33-11275, The Enhancement and Standardization of Climate-Related Disclosures for Investors, which requires registrants to provide certain climate-related information in their registration statements and annual reports. The rules require information about a registrant's climate-related risks that are reasonably likely to have a material impact on its business, results of operations, or financial condition. The required information about climate-related risks will also include disclosure of a registrant's greenhouse gas emissions. In addition, the rules will require registrants to present certain climate-related financial metrics in their audited financial statements. These requirements are effective for the Company in various fiscal years, starting with its fiscal year beginning January 1, 2025. Disclosures will be required prospectively, with information for prior periods required only to the extent it was previously disclosed in an SEC filing. The Company is currently evaluating the impact of these final rules on its consolidated financial statements and disclosures. On April 12, 2024, the final rules were indefinitely delayed pending the completion of judicial review in consolidated proceedings in the U.S. Court of Appeals, Eighth Circuit.

Recently Adopted Accounting Pronouncements

There are currently no recently adopted accounting pronouncements that are expected to have a material effect on the Condensed Consolidated Financial Statements.

 

2. REVENUE

The following is a description of the principal activities from which revenue is generated by reportable segment:

Network Solutions Segment - Includes hardware and software products that enable a digital future which support the Company's Subscriber, Access & Aggregation, and Optical Networking Solutions.

Services & Support Segment - Includes network design, implementation, maintenance and cloud-hosted services supporting the Company's Subscriber, Access & Aggregation, and Optical Networking Solutions.

Revenue by Category

In addition to the Company's reportable segments, revenue is also reported for the following three categories – Subscriber Solutions, Access & Aggregation Solutions and Optical Networking Solutions.

Our Subscriber Solutions portfolio is used by Service Providers to terminate their access services infrastructure at the customer premises while providing an immersive and interactive experience for residential, business and wholesale subscribers. This revenue category includes hardware- and software-based products and services. These solutions include fiber termination solutions for residential, business and wholesale subscribers, Wi-Fi access solutions for residential and business subscribers, Ethernet switching and network edge virtualization solutions for business subscribers, and cloud software solutions covering a mix of subscriber types.

17


Our Access & Aggregation Solutions are solutions that are used by communications Service Providers to connect residential subscribers, business subscribers and mobile radio networks to the Service Providers’ metro network, primarily through fiber-based connectivity. This revenue category includes hardware- and software-based products and services. Our solutions within this category are a mix of fiber access and aggregation platforms, precision network synchronization and timing solutions, and access orchestration solutions that ensure highly reliable and efficient network performance.

Our Optical Networking Solutions are used by communications Service Providers, internet content providers and large-scale enterprises to securely interconnect metro and regional networks over fiber. This revenue category includes hardware- and software-based products and services. Our solutions within this category include open optical terminals, open line systems, optical subsystems and modules, network infrastructure assurance systems, and automation platforms that are used to build high-scale, secure and assured optical networks.

The following table disaggregates revenue by reportable segment and revenue category:

 

 

 

Three Months Ended

 

 

 

March 31, 2024

 

 

March 31, 2023

 

(In thousands)

 

Network Solutions

 

 

Services & Support

 

 

Total

 

 

Network Solutions

 

 

Services & Support

 

 

Total

 

Subscriber Solutions

 

$

60,369