ADTRAN 2026 nine-month operating cash flow falls to $14.1M
Nine-month operating cash flow was $14.1 million, while $261.7 million was available for future borrowings.
Sentiment and the balance of points
Rhea-AI Sentiment reads the wording of the document, how positive or negative its language is on a 1 to 5 scale. The balance of points shown with the takes weighs what the document actually discloses, so the two can disagree, for example when a trial that missed its main goal is described in upbeat language.
ADTRAN Holdings, Inc. (ADTN) reported revenue of $281.2 million for the third quarter ended September 30, 2026, compared with $279.4 million a year earlier. For the first nine months, revenue was $848.4 million, versus $792.2 million in 2025. Net loss attributable to ADTRAN Holdings was $9.2 million in the quarter and $21.5 million over nine months, compared with $10.3 million and $42.1 million, respectively.
Cash provided by operating activities was $14.1 million for the nine months, compared with $87.5 million in 2025. Cash and cash equivalents totaled $64.6 million as of September 30, 2026. Borrowings under the JPMorgan credit agreement were $83.0 million, with $261.7 million available for future borrowings; ADTRAN reported compliance with all agreement covenants as of that date.
Under its agreement with Adtran Networks shareholders, ADTRAN estimated aggregate Exit Compensation payments, including guaranteed interest, of approximately €281.1 million ($318.4 million) if all minority holders of currently outstanding Adtran Networks shares elected that option. The annual recurring-compensation obligation was approximately €7.2 million ($8.2 million) per year, assuming none of the minority shareholders as of September 30, 2026 elected Exit Compensation. The company also had $201.3 million of convertible notes due in 2030.
How this balance works
Rhea-AI gives every point it takes from this document a weight. Minor counts 1, Moderate 3 and Major 9, so one Major point outweighs several Minor ones. The bar adds up the weights on each side, and when neither side holds more than 65% of the total the balance reads Mixed.
It reads the document as published, with the same rules for every company, and it does not look at what the market expected or at how the stock traded, so a point can be objectively good on a day the stock falls.
Rhea-AI Sentiment measures something else, the tone of the wording.
Positive
- Moderate pointNine-month revenue increased to $848.4 million from $792.2 million in 2025.
- Moderate pointNine-month net loss attributable to ADTRAN narrowed to $21.5 million from $42.1 million.
Negative
- Major pointADTRAN disclosed identified material weaknesses in internal control over financial reporting.
- Moderate pointNine-month operating cash flow fell to $14.1 million from $87.5 million.
Filing Explained
Further DPLTA Exit Compensation remains election-dependent, and its tender window closes only after publication of the final appraisal decision.
This quarterly report records
The tender period ends two months after publication of a final decision in the German appraisal proceedings, and the company does not anticipate a final non-appealable decision before 2028 at the earliest.
As of
If conversion results in shares being issued, the share count rises and existing holders’ percentage ownership falls; the company says capped calls covering about 17.5 million shares may reduce dilution, subject to a
Key Figures
Key Terms
remaining performance obligations financial
Factoring Agreement financial
Net Leverage Ratio financial
Capped Calls financial
Redeemable Non-Controlling Interest financial
FAQ
AI-generated questions and answers. How Rhea-AI works. Not financial advice.
How much revenue did ADTN report for the first nine months of 2026?
How much operating cash flow did ADTN generate in the first nine months of 2026?
How much borrowing capacity did ADTN have available at September 30, 2026?
What are the terms of ADTN's convertible notes?
What potential Exit Compensation payments does ADTN disclose under its agreement with Adtran Networks shareholders?
AI-generated analysis. How Rhea-AI works. Not financial advice.
1
ADTRAN
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
For the quarterly period ended
or
For the transition period from _______ to _______
Commission File Number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer |
(Address of principal executive offices) |
(Zip Code) |
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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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.
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).
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.
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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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 October 31, 2026, the registrant had
1
ADTRAN Holdings, Inc.
Quarterly Report on Form 10-Q
For the three and nine months ended September 30, 2026
Table of Contents
Item Number |
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Glossary of Selected Terms |
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3 |
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General |
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4 |
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Cautionary Note Regarding Forward-Looking Statements |
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4 |
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PART I — FINANCIAL INFORMATION |
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1 |
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Financial Statements: |
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Condensed Consolidated Balance Sheets as of September 30, 2026 and December 31, 2025 – (Unaudited) |
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7 |
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Condensed Consolidated Statements of Loss for the three and nine months ended September 30, 2026 and 2025 – (Unaudited) |
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8 |
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Condensed Consolidated Statements of Comprehensive (Loss) Income for the three and nine months ended September 30, 2026 and 2025 – (Unaudited) |
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9 |
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Condensed Consolidated Statements of Changes in Equity for the three months ended September 30, 2026 and 2025 and for the nine months ended September 30, 2026 and 2025 – (Unaudited) |
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10 |
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Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2026 and 2025 – (Unaudited) |
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12 |
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Notes to Condensed Consolidated Financial Statements – (Unaudited) |
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13 |
2 |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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33 |
3 |
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Quantitative and Qualitative Disclosures About Market Risk |
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48 |
4 |
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Controls and Procedures |
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49 |
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PART II — OTHER INFORMATION |
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1 |
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Legal Proceedings |
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51 |
1A |
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Risk Factors |
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51 |
2 |
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Unregistered Sales of Equity Securities and Use of Proceeds |
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54 |
5 |
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Other Information |
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54 |
6 |
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Exhibits |
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55 |
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SIGNATURE |
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56 |
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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 |
AI |
Artificial intelligence |
Adtran Networks |
Adtran Networks SE, a European stock corporation incorporated under the laws of the EU and Germany, and a majority-owned subsidiary of the Company |
DPLTA |
Domination and Profit and Loss Transfer Agreement |
DSO |
Days Sales Outstanding |
GDPR |
General Data Protection Regulation |
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 |
Entity that provides voice, data or video services to consumers and businesses |
SMB |
Small and Mid-Sized Business |
SOFR |
Secured Overnight Financing Rate |
U.S. |
United States of America |
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 Holdings, Inc. and its consolidated subsidiaries.
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
4
Risks related to our control environment
Risks related to the telecommunications industry
5
Risks related to the Company's stock price
Risks related to our Convertible Senior Notes (the "2030 Notes" or the "Notes") and Capped Call Transactions (the "Capped Calls")
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 the Company's Annual Report on Form 10-K for the year ended December 31, 2025, filed with the SEC on February 26, 2026 (the "2025 Form 10-K"), 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)
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September 30, |
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December 31, |
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2026 |
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2025 |
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ASSETS |
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Current Assets |
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Cash and cash equivalents |
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$ |
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$ |
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Restricted cash |
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— |
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Accounts receivable, less allowance for credit losses of $ |
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Other receivables |
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Inventory, net |
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Income tax receivable |
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Prepaid expenses and other current assets |
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Short-term investments - deferred compensation |
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Assets held for sale |
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Total Current Assets |
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Property, plant and equipment, net |
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Goodwill |
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Intangible assets, net |
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Deferred tax assets |
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Other non-current assets |
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Long-term investments |
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Total Assets |
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$ |
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$ |
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LIABILITIES AND EQUITY |
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Current Liabilities |
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Accounts payable |
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$ |
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$ |
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Unearned revenue |
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Accrued expenses and other liabilities |
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Accrued wages and benefits |
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Deferred compensation liability |
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Income tax payable |
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Total Current Liabilities |
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Non-current revolving credit agreement |
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Non-current convertible senior notes, net of debt issuance costs |
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Deferred tax liabilities |
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Non-current unearned revenue |
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Non-current pension liability |
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Non-current lease obligations |
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Other non-current liabilities |
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Total Liabilities |
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Commitments and contingencies (see Note 18) |
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Redeemable Non-Controlling Interest |
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Equity |
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Common stock, par value $ |
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Additional paid-in capital |
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Accumulated other comprehensive income |
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Retained deficit |
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( |
) |
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( |
) |
Less treasury stock at cost: |
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( |
) |
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( |
) |
Total Equity |
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Total Liabilities and Equity |
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$ |
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$ |
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See accompanying notes to condensed consolidated financial statements.
7
ADTRAN Holdings, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF LOSS
(Unaudited)
(In thousands, except per share amounts)
|
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Three Months Ended |
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Nine Months Ended |
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||||||||||
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September 30, |
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September 30, |
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2026 |
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2025 |
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2026 |
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2025 |
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Revenue |
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Network Solutions |
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$ |
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$ |
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$ |
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$ |
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Services & Support |
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Total Revenue |
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Cost of Revenue |
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Network Solutions |
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Services & Support |
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Total Cost of Revenue |
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Gross Profit |
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Selling, general and administrative expenses |
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Research and development expenses |
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Operating Loss |
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( |
) |
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( |
) |
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( |
) |
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( |
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Interest and dividend income |
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Interest expense |
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( |
) |
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( |
) |
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( |
) |
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( |
) |
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Net investment (loss) gain |
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( |
) |
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Other income (expense), net |
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( |
) |
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( |
) |
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Loss Before Income Taxes |
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( |
) |
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( |
) |
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( |
) |
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( |
) |
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Income tax expense |
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( |
) |
|
|
( |
) |
|
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( |
) |
|
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( |
) |
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Net Loss |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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Less: Net Income attributable to non-controlling interest(1) |
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||||
Net Loss attributable to ADTRAN Holdings, Inc. |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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||||
Weighted average shares outstanding – basic |
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Weighted average shares outstanding – diluted |
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||||
Loss per common share attributable to ADTRAN Holdings, Inc. – basic(2) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Loss per common share attributable to ADTRAN Holdings, Inc. – diluted(2) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
(1)
(2)
See accompanying notes to condensed consolidated financial statements.
8
ADTRAN Holdings, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(Unaudited)
(In thousands)
|
|
Three Months Ended |
|
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Nine Months Ended |
|
||||||||||
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September 30, |
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September 30, |
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||||||||||
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2026 |
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2025 |
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2026 |
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2025 |
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||||
Net Loss |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Other Comprehensive (Loss) Income, net of tax |
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||||
Defined benefit plan adjustments |
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( |
) |
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( |
) |
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( |
) |
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Foreign currency translation (loss) gain |
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( |
) |
|
|
( |
) |
|
|
( |
) |
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|
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Other Comprehensive (Loss) Income, net of tax |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
Comprehensive (Loss) Income, net of tax |
|
|
( |
) |
|
|
( |
) |
|
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( |
) |
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Less: Comprehensive Income attributable to non-controlling interest |
|
|
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|
|
|
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|
||||
Comprehensive (Loss) Income attributable to ADTRAN Holdings, Inc., net of tax |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
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 |
|
|
Common |
|
|
Additional |
|
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Retained |
|
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Treasury |
|
|
Accumulated Other Comprehensive Income |
|
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Total |
|
|||||||
Balance as of December 31, 2025 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
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|
$ |
|
|||||
Net income |
|
|
— |
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|
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— |
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|
— |
|
|
|
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|
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— |
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— |
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Annual recurring compensation earned |
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— |
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— |
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|
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— |
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( |
) |
|
|
— |
|
|
|
— |
|
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|
( |
) |
Other comprehensive loss, net of tax |
|
|
— |
|
|
|
— |
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— |
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— |
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|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Dividends accrued on unvested restricted stock units |
|
|
— |
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|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
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( |
) |
Deferred compensation adjustments, net of tax |
|
|
— |
|
|
|
— |
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( |
) |
|
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— |
|
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— |
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||
ADTRAN RSUs and restricted stock vested |
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— |
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( |
) |
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— |
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— |
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( |
) |
||
ADTRAN stock options exercised |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||||
ADTRAN stock-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Redemption of redeemable non-controlling interest |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Balance as of March 31, 2026 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||||
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Annual recurring compensation earned |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Other comprehensive loss, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
ADTRAN RSUs and restricted stock vested |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
ADTRAN stock options exercised |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||||
ADTRAN stock-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Redemption of redeemable non-controlling interest |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Balance as of June 30, 2026 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||||
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Annual recurring compensation earned |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Other comprehensive loss, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
ADTRAN RSUs and restricted stock vested |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
ADTRAN stock options exercised |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
ADTRAN stock-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Redemption of redeemable non-controlling interest |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Balance as of September 30, 2026 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||||
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 |
|
|
Common |
|
|
Additional |
|
|
Retained |
|
|
Treasury |
|
|
Accumulated Other Comprehensive Income |
|
|
|
Total |
|
|||||||
Balance as of December 31, 2024 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|||||
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
|
( |
) |
Annual recurring compensation earned |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
|
( |
) |
Other comprehensive income, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
||
Deferred compensation adjustments, net of tax |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
||
ADTRAN RSUs and restricted stock vested |
|
|
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
|
( |
) |
||
ADTRAN stock options exercised |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
||||
ADTRAN stock-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
||
Redemption of redeemable non-controlling interest |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
|
( |
) |
Adtran Networks stock-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
||
Balance as of March 31, 2025 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|||||
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
|
( |
) |
Annual recurring compensation earned |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
|
( |
) |
Other comprehensive income, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
||
ADTRAN RSUs and restricted stock vested |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
|
( |
) |
|
ADTRAN stock options exercised |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|||
ADTRAN stock-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
||
Redemption of redeemable non-controlling interest |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
||
Balance as of June 30, 2025 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|||||
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
|
( |
) |
Annual recurring compensation earned |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
|
( |
) |
Other comprehensive loss, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
|
( |
) |
ADTRAN RSUs and restricted stock vested |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
|
( |
) |
|
ADTRAN stock options exercised |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
||||
ADTRAN stock-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
||
Purchase of capped calls related to the convertible senior notes |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
( |
) |
Redemption of redeemable non-controlling interest |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
||
Balance as of September 30, 2025 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|||||
See accompanying notes to condensed consolidated financial statements.
11
ADTRAN Holdings, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
|
|
Nine Months Ended |
|
|||||
|
|
September 30, |
|
|||||
|
|
2026 |
|
|
2025 |
|
||
Cash flows from operating activities: |
|
|
|
|
|
|
||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
|
|
|
|
||
Amortization of debt issuance cost |
|
|
|
|
|
|
||
Amortization of convertible notes issuance costs |
|
|
|
|
|
|
||
Gain on investments, net |
|
|
( |
) |
|
|
( |
) |
Net loss on disposal of property, plant and equipment |
|
|
|
|
|
|
||
Stock-based compensation expense |
|
|
|
|
|
|
||
Deferred income taxes |
|
|
( |
) |
|
|
|
|
Inventory reserves |
|
|
|
|
|
|
||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
||
Accounts receivable, net |
|
|
( |
) |
|
|
|
|
Other receivables |
|
|
( |
) |
|
|
|
|
Income taxes receivable, net |
|
|
|
|
|
( |
) |
|
Inventory |
|
|
( |
) |
|
|
|
|
Prepaid expenses, other current assets and other assets |
|
|
|
|
|
|
||
Accounts payable |
|
|
|
|
|
|
||
Accrued expenses and other liabilities |
|
|
( |
) |
|
|
( |
) |
Income taxes payable |
|
|
|
|
|
( |
) |
|
Net cash provided by operating activities |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Cash flows from investing activities: |
|
|
|
|
|
|
||
Purchases of property, plant and equipment |
|
|
( |
) |
|
|
( |
) |
Intangibles - internally developed technology |
|
|
( |
) |
|
|
( |
) |
Proceeds from sales and maturities of available-for-sale investments |
|
|
|
|
|
|
||
Purchases of available-for-sale investments |
|
|
( |
) |
|
|
( |
) |
Net payments for beneficial interest in securitized accounts receivable |
|
|
( |
) |
|
|
( |
) |
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
||
Cash flows from financing activities: |
|
|
|
|
|
|
||
Tax withholdings related to stock-based compensation settlements |
|
|
( |
) |
|
|
( |
) |
Proceeds from stock option exercises |
|
|
|
|
|
|
||
Payments on financing agreement |
|
|
( |
) |
|
|
— |
|
Redemption of redeemable non-controlling interest |
|
|
( |
) |
|
|
( |
) |
Payment of annual recurring compensation to non-controlling interest |
|
|
( |
) |
|
|
( |
) |
Proceeds from draw on revolving credit agreements |
|
|
|
|
|
|
||
Repayment of revolving credit agreements |
|
|
( |
) |
|
|
( |
) |
Proceeds from issuance of convertible notes |
|
|
— |
|
|
|
|
|
Payments for capped call transactions related to convertible senior notes |
|
|
— |
|
|
|
( |
) |
Payment of debt issuance costs |
|
|
( |
) |
|
|
( |
) |
Net cash provided by (used in) financing activities |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
||
Net (decrease) increase in cash, cash equivalents and restricted cash |
|
|
( |
) |
|
|
|
|
Effect of exchange rate changes |
|
|
( |
) |
|
|
|
|
Cash and cash equivalents, beginning of period |
|
|
|
|
|
|
||
Cash, cash equivalents and restricted cash, end of period |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Supplemental disclosure of cash financing activities: |
|
|
|
|
|
|
||
Cash paid for interest |
|
$ |
|
|
$ |
|
||
Cash paid for income taxes, net |
|
$ |
|
|
$ |
|
||
Cash used in operating activities related to operating leases |
|
$ |
|
|
$ |
|
||
Supplemental disclosure of non-cash investing and financing activities: |
|
|
|
|
|
|
||
Redemption of redeemable non-controlling interest |
|
$ |
|
|
$ |
|
||
Right-of-use assets obtained in exchange for lease obligations |
|
$ |
|
|
$ |
|
||
Purchases of property, plant and equipment included in accounts payable |
|
$ |
|
|
$ |
|
||
Purchases of property, plant and equipment included in other non-current liabilities |
|
$ |
— |
|
|
$ |
|
|
Debt issuance costs included in accrued expenses and other liabilities |
|
$ |
— |
|
|
$ |
|
|
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, including Fortune 500 companies with sophisticated business continuity applications; and federal, state and local government agencies. 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 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. 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, especially upon the convergence of solutions at the network edge.
Domination and Profit and Loss Transfer Agreement, Liquidity, Credit Facility and Notes Offering
The DPLTA between the Company, as the controlling company, and Adtran Networks, as the controlled company, which was 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 absorb the annual net loss incurred by Adtran Networks. The Company’s payment obligation in satisfaction of the requirement that it absorb Adtran Networks’ annual net loss applied to the net loss generated by Adtran Networks in 2025 and it will apply to any net loss generated by Adtran Networks in 2026.
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
13
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. The Annual Recurring Compensation is due on the third banking day following the ordinary general shareholders’ meeting of Adtran Networks for the respective preceding fiscal year (but in any event within eight months following expiration of the fiscal year). With respect to the 2025 fiscal year, Adtran Networks’ ordinary general shareholder meeting occurred on June 15, 2026 and, therefore, the Annual Recurring Compensation was paid after the ordinary general shareholders' meeting in the amount of $
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
For the three and nine months ended September 30, 2026, approximately
Moreover, on September 19, 2025, the Company issued $
On July 21, 2026, ADTRAN Holdings, Inc. entered into a credit agreement (the "Credit Agreement") with J.P. Morgan Chase Bank. The Credit Agreement allows for borrowings of up to $
The Company believes that its cash and cash equivalents, working capital management and availability to access cash under its credit facility or other future sources of capital will be adequate to meet its business operating requirements, its capital expenditures and its expected obligations under both the Notes and the DPLTA, including the anticipated levels of Exit Compensation, as well as to support the Company’s ability to continue to comply with its debt covenants under its credit facility for at least the next twelve months, from the issuance of these financial statements.
14
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, 2025, 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, 2025, filed with the SEC on February 26, 2026.
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, 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 revenue 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, continued elevated interest rates, currency fluctuations and political tensions as of September 30, 2026, and through the date of this report. These conditions could result in further impacts to the Company's consolidated financial statements in future reporting periods. 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.
During the nine months ended September 30, 2026, there were no other significant changes to our critical accounting policies or estimates from those described in the financial statements contained in the 2025 Form 10-K.
Recent Accounting Pronouncements Not Yet Adopted
In September 2025, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2025-06, "Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software," which is intended to modernize the accounting for the costs of internal-use software given the evolution of software development to the incremental and iterative development method. The amendments remove all references to prescriptive and sequential development stages and, instead, require an entity to start capitalizing software costs when management has authorized and committed to funding the software project, and it is probable that the project will be completed and the software will be used to perform the function intended. The amendments are effective for annual reporting periods beginning after December 15, 2027, and interim reporting periods within those annual reporting periods. Early adoption is permitted as of the beginning of an annual reporting period with the amendments to be applied using a prospective, modified or retrospective transition approach. The Company is currently evaluating the impact of adopting this guidance on the consolidated financial statements.
In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, as amended by ASU 2025-01, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date", which applies to all public business entities (PBEs) and is intended to enhance disclosures about specific types of expenses included in the expense captions presented on the face of the income statement as well as disclosures about selling expenses. The amendments are effective prospectively for annual periods beginning after December 15, 2026, and interim reporting periods within annual reporting periods beginning after December 15, 2027. Early adoption and retrospective application are permitted. The Company is currently evaluating the effect that adoption of ASU 2024-03 will have on our disclosures.
15
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. CASH, CASH EQUIVALENTS AND RESTRICTED CASH
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Condensed Consolidated Balance Sheet that agree to the total of the same such amounts shown in the Condensed Consolidated Statement of Cash Flows:
|
|
As of |
|
|
As of |
|
||
(In thousands) |
|
September 30, 2026 |
|
|
September 30, 2025 |
|
||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
||
Restricted cash |
|
|
|
|
|
|
||
Cash, cash equivalents and restricted cash |
|
$ |
|
|
$ |
|
||
In July 2026, the Company pledged cash as collateral for $
3. REVENUE AND RECEIVABLES
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
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.
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.
16
The following tables disaggregate revenue by reportable segment and revenue category:
|
|
Three Months Ended |
|
|||||||||||||||||||||
|
|
September 30, 2026 |
|
|
September 30, 2025 |
|
||||||||||||||||||
(In thousands) |
|
Network Solutions |
|
|
Services & Support |
|
|
Total |
|
|
Network Solutions |
|
|
Services & Support |
|
|
Total |
|
||||||
Access & Aggregation Solutions |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Subscriber Solutions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Optical Networking Solutions |
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
|
|
Nine Months Ended |
|
|||||||||||||||||||||
|
|
September 30, 2026 |
|
|
September 30, 2025 |
|
||||||||||||||||||
(In thousands) |
|
Network Solutions |
|
|
Services & Support |
|
|
Total |
|
|
Network Solutions |
|
|
Services & Support |
|
|
Total |
|
||||||
Access & Aggregation Solutions |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Subscriber Solutions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Optical Networking Solutions |
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
The aggregate amount of transaction price allocated to remaining performance obligations ("RPO") that have not been satisfied as of September 30, 2026 related to non-cancellable contractual maintenance agreements, non-cancellable contractual SaaS and subscription services, and non-cancellable hardware contracts amounted to $
The following table provides information about accounts receivable, contract assets and unearned revenue from contracts with customers:
|
|
As of |
|
|
As of |
|
||
(In thousands) |
|
September 30, 2026 |
|
|
December 31, 2025 |
|
||
Accounts receivable, net |
|
$ |
|
|
$ |
|
||
Contract assets(1) |
|
$ |
|
|
$ |
|
||
Unearned revenue |
|
$ |
|
|
$ |
|
||
Non-current unearned revenue |
|
$ |
|
|
$ |
|
||
(1)
Accounts Receivable
The allowance for credit losses was $
Receivables Purchase Agreement
On July 1, 2024, the Company entered into a receivables purchase agreement (the "Factoring Agreement") with a third-party financial institution (the "Factor"), which accelerates receivable collection and helps to better manage cash flow. Total accounts receivables factored as of the end of September 30, 2026, totaled $
During the three and nine months ended September 30, 2026, the Company received $
17
Contract Assets
Unearned Revenue
Of the outstanding unearned revenue balances as of December 31, 2025, $
4. INCOME TAXES
The Company’s effective tax rate changed from an expense of
The Company continually reviews the adequacy of its valuation allowance and recognizes the benefits of deferred tax assets only as the assessment indicates that it is more likely than not that the deferred tax assets will be recognized in accordance with ASC 740, Income Taxes. As of September 30, 2026, the Company had net deferred tax assets totaling $
5. STOCK-BASED COMPENSATION
2024 Stock Incentive Plans
At the annual meeting of stockholders held on May 8, 2024, the Company’s stockholders approved, upon recommendation of the Board of Directors, the adoption of the ADTRAN Holdings, Inc. 2024 Employee Stock Incentive Plan ("2024 Employee Plan") and the ADTRAN Holdings, Inc. 2024 Directors Stock Plan ("2024 Directors Plan"). Outstanding awards granted under the Company's prior equity incentive plans will remain subject to the terms of such applicable plans, and shares under such plans that are cancelled or forfeited will be available for issuance under the 2024 Employee Plan or the 2024 Directors Plan, as applicable.
As of September 30, 2026,
For the three months ended September 30, 2026 and 2025, stock-based compensation expense was $
PSUs, RSUs and Restricted Stock
The following table summarizes the changes of the PSUs, RSUs and restricted stock outstanding as of December 31, 2025 and September 30, 2026 and the changes that occurred during the nine months ended September 30, 2026:
|
|
Number of |
|
|
Weighted Avg. Grant Date Fair Value |
|
||
Unvested PSUs, RSUs and restricted stock outstanding, December 31, 2025 |
|
|
|
|
$ |
|
||
PSUs, RSUs and restricted stock granted |
|
|
|
|
$ |
|
||
PSUs, RSUs and restricted stock vested |
|
|
( |
) |
|
$ |
|
|
PSUs, RSUs and restricted stock forfeited |
|
|
( |
) |
|
$ |
|
|
Unvested PSUs, RSUs and restricted stock outstanding, September 30, 2026 |
|
|
|
|
$ |
|
||
The fair value of PSUs with performance conditions, RSUs and restricted stock is equal to the closing price of the Company's stock on the date of grant. The fair value of PSUs with market conditions is calculated using a Monte Carlo simulation valuation method.
18
As of September 30, 2026, total unrecognized compensation expense related to the non-vested portion of market-based PSUs, RSUs and restricted stock was approximately $
6. INVESTMENTS
The Company has cash equivalents and investments which are held at fair value as follows:
|
|
|
|
|
Fair Value Measurements as of September 30, 2026 Using |
|
||||||||||
(In thousands) |
|
Fair Value |
|
|
Quoted Prices |
|
|
Significant |
|
|
Significant Unobservable Inputs |
|
||||
Cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market funds (1) |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
||
Marketable equity securities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Marketable equity securities |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||
Deferred compensation plan assets |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||
Total |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
||
|
|
|
|
Fair Value Measurements as of December 31, 2025 Using |
|
||||||||||
(In thousands) |
Fair Value |
|
|
Quoted Prices |
|
|
Significant |
|
|
Significant Unobservable Inputs |
|
||||
Cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
||||
Money market funds (1) |
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
||
Marketable equity securities |
|
|
|
|
|
|
|
|
|
|
|
||||
Marketable equity securities |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||
Deferred compensation plan assets |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||
Total |
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
||
Market prices are obtained from a variety of industry standard data providers, large financial institutions and other third-party sources. These multiple market prices are used as inputs into a distribution-curve-based algorithm to determine the daily market value of each security.
19
20
7. INVENTORY
As of September 30, 2026 and December 31, 2025, inventory, net was comprised of the following:
|
|
As of |
|
|
As of |
|
||
(In thousands) |
|
September 30, 2026 |
|
|
December 31, 2025 |
|
||
Raw materials |
|
$ |
|
|
$ |
|
||
Work in process |
|
|
|
|
|
|
||
Finished goods |
|
|
|
|
|
|
||
Total inventory, net |
|
$ |
|
|
$ |
|
||
Inventory reserves are established for estimated excess and obsolete inventory equal to the difference between the cost of the inventory and the estimated net realizable value of the inventory based on estimated reserve percentages, which considers historical usage, known trends, inventory age and market conditions.
8. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
|
|
As of |
|
|
As of |
|
||
(In thousands) |
|
September 30, 2026 |
|
|
December 31, 2025 |
|
||
Engineering and other equipment |
|
$ |
|
|
$ |
|
||
Building |
|
|
|
|
|
|
||
Computer hardware and software |
|
|
|
|
|
|
||
Building and land improvements |
|
|
|
|
|
|
||
Furniture and fixtures |
|
|
|
|
|
|
||
Land |
|
|
|
|
|
|
||
Total property, plant and equipment |
|
|
|
|
|
|
||
Less: accumulated depreciation and amortization |
|
|
( |
) |
|
|
( |
) |
Total property, plant and equipment, net |
|
$ |
|
|
$ |
|
||
Long-lived assets used in operations are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable and the undiscounted cash flows estimated to be generated by the asset are less than the asset’s carrying value.
Depreciation and amortization expense was $
Assets Held For Sale
On December 31, 2025, the Company determined that it continued to meet the held for sale criteria pursuant to ASC 360, "Impairment and Disposal of Long-Lived Assets" on a portion of the Company's property located at its Huntsville, Alabama campus and ceased recording depreciation on the assets. The Company continues to assess the probability that the sale of its headquarters in Huntsville will occur and has determined it is probable of occurring in the next
The Company records assets held for sale at the lower of their carrying value or fair value less costs to sell. The total carrying value of assets held for sale was $
9. GOODWILL
The changes in the carrying amount of goodwill for the nine months ended September 30, 2026, and the twelve months ended December 31, 2025, are as follows:
(In thousands) |
|
Services & Support |
|
|
|
|
|
|
|
As of December 31, 2024 |
|
$ |
|
|
Foreign currency translation adjustments |
|
|
|
|
As of December 31, 2025 |
|
$ |
|
|
Foreign currency translation adjustments |
|
|
( |
) |
As of September 30, 2026 |
|
$ |
|
|
20
Goodwill represents the excess purchase price over the fair value of net assets acquired. The Company performs its annual goodwill impairment assessment on the first day of the fourth quarter. In addition, the Company performs an interim impairment assessment prior to our annual measurement date whenever events or changes in circumstances indicate that the carrying amount of such assets (or group of assets) may not be recoverable.
10. INTANGIBLE ASSETS
Intangible assets as of September 30, 2026, and December 31, 2025, consisted of the following:
|
|
|
|
As of September 30, 2026 |
|
|
As of December 31, 2025 |
|
|||||||||||||||||||
(In thousands excluding years) |
Weighted Average Useful Life |
|
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
|
Net Book Value |
|
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
|
Net Book Value |
|
|||||||
Customer relationships |
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||
Backlog |
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||||
Developed technology |
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||||
Licensed technology |
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||||
Licensed agreements |
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||||
Trade names |
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||||
Total |
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||
Amortization expense was $
During the nine months ended September 30, 2026, the Company had development costs of $
Estimated future amortization expense of intangible assets is as follows:
|
|
As of |
|
|
(In thousands) |
|
September 30, 2026 |
|
|
2026 |
|
$ |
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
2029 |
|
|
|
|
2030 |
|
|
|
|
Thereafter |
|
|
|
|
Total |
|
$ |
|
|
11. CREDIT AGREEMENTS
The carrying amounts of the Company's non-current revolving credit facility in its Condensed Consolidated Balance Sheets were as follows:
|
|
As of |
|
|
As of |
|
||
(In thousands) |
|
September 30, 2026 |
|
|
December 31, 2025 |
|
||
J. P. Morgan credit agreement |
|
$ |
|
|
$ |
— |
|
|
Wells Fargo credit agreement |
|
|
— |
|
|
|
|
|
Total non-current revolving credit facility |
|
$ |
|
|
$ |
|
||
21
As of September 30, 2026 and December 31, 2025, the estimated fair value of our revolving credit agreements approximates the carrying value. As of September 30, 2026, the weighted average interest rate on our revolving credit agreement was
J.P. Morgan Credit Agreement
On July 21, 2026, ADTRAN Holdings, Inc. as guarantor, ADTRAN, Inc., a Delaware corporation (the "US Borrower"), and Adtran Networks SE, a European stock corporation (the "German Borrower" and together with the US Borrower, collectively, the "Borrowers"), entered into a credit agreement with J.P. Morgan Chase Bank, N.A., as administrative agent for the US Borrower and J.P. Morgan SE, as administrative agent for the German Borrower, and the financial institutions party thereto, as lenders. The Credit Agreement allows for borrowings of up to $
Borrowings under the Credit Agreement bear interest, at the Company’s election, at either the Term Benchmark Rate or the Base Rate, in each case subject to a
Under the Credit Agreement, beginning with the fiscal quarter ending December 31, 2026, the Company is required to maintain a consolidated senior secured net leverage ratio (the "Net Leverage Ratio") of no greater than
The Credit Agreement also contains customary events of default, such as misrepresentation and a default in the performance or observance of any covenant (subject to customary cure periods). Upon the occurrence and during the continuance of an event of default, the lender is entitled to take various actions, including the acceleration of all amounts due under the Credit Agreement.
Pursuant to the Guarantee and Collateral Agreement, among the Company, the US Borrower, certain subsidiaries of the US Borrower and the administrative agents, the Borrowers’ obligations under the Credit Agreement are (a) secured by substantially all of the assets of the Company, the US Borrower and certain subsidiaries of the US Borrower and (b) guaranteed by the Company, US Borrower and certain subsidiaries of the US Borrower. Pursuant to the Share Pledge Agreement, the obligations under the credit agreement are secured by all of the shares owned by the Company in the German Borrower.
Pursuant to the Credit Agreement, the Company is subject to certain restrictions on the payment of dividends and other distributions with respect to its common stock, as well as on the redemption and repurchase of its common stock, except as expressly permitted by the Credit Agreement.
Wells Fargo Credit Agreement
In connection with entering into the Credit Agreement, on July 21, 2026, the Company terminated the Former Credit Agreement with Wells Fargo, the collateral agreement dated July 18, 2022, the ADVA domestic collateral agreement dated June 4, 2024, the guaranty agreement dated July 18, 2022 and the ADVA guaranty agreement dated June 4, 2024 and all principal amounts under the Former Credit Agreement were repaid. Upon extinguishment of the Former Credit Agreement, the Company recorded an extinuishment loss of $
12. CONVERTIBLE SENIOR NOTES AND CAPPED CALLS
22
The outstanding principal and carrying value of the convertible senior notes were as follows:
|
|
As of |
|
|
As of |
|
||
(In thousands) |
|
September 30, 2026 |
|
|
December 31, 2025 |
|
||
Convertible senior notes |
|
$ |
|
|
$ |
|
||
Less: unamortized debt issuance costs |
|
|
( |
) |
|
|
( |
) |
Non-current convertible senior notes |
|
$ |
|
|
$ |
|
||
The estimated fair value of the 2030 Notes was $
The effective interest rate of the 2030 Notes over their expected life is
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
Three and Nine Months Ended |
|
|||
(In thousands) |
|
September 30, 2026 |
|
|
September 30, 2026 |
|
|
September 30, 2025 |
|
|||
Contractual interest |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Amortization of issuance costs |
|
|
|
|
|
|
|
|
|
|||
Total interest expense |
|
$ |
|
|
$ |
|
|
$ |
|
|||
On September 19, 2025, the Company issued $
For additional information regarding the terms of the 2030 Notes, refer to the Consolidated Financial Statements and related footnotes in the Company's fiscal 2025 Annual Report on Form 10-K.
Capped Calls
In connection with the pricing of the 2030 Notes and the exercise of the initial purchasers’ option to purchase additional 2030 Notes, the Company entered into privately negotiated capped call transactions with one of the initial purchasers of the 2030 Notes or its affiliate and certain other financial institutions pursuant to capped call confirmations (collectively, the "Capped Calls"). The premiums paid for the purchases of the Capped Calls were approximately $
The Capped Calls are generally expected to reduce potential dilution to the Company’s common stock and/or offset any cash payments that the Company is required to make in excess of the principal amount of any converted 2030 Notes, with such reduction and/or offset subject to a cap, based on the cap price of the Capped Calls.
The Capped Calls are separate transactions and are not part of the terms of the 2030 Notes. The Capped Calls do not meet the criteria for separate accounting as a derivative as they are indexed to the Company's stock and meet the requirements to be classified in equity and, as such, are not remeasured each reporting period.
23
13. EMPLOYEE BENEFIT PLANS
Pension Benefit Plan
We maintain a defined benefit pension plan covering employees in certain foreign countries.
|
|
|
|
As of |
|
|
As of |
|
||
(In thousands) |
|
Balance Sheet Location |
|
September 30, 2026 |
|
|
December 31, 2025 |
|
||
Non-current pension asset |
|
Other non-current assets |
|
$ |
|
|
$ |
|
||
Current pension liability |
|
Accrued wages and benefits |
|
|
( |
) |
|
|
( |
) |
Non-current pension liability |
|
Non-current pension liability |
|
|
( |
) |
|
|
( |
) |
Net pension liability |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
The Company's defined benefit pension liability represents the projected benefit obligation, which is the actuarial present value of the vested benefits to which the employee is currently entitled based on the employee's expected date of retirement.
The following table summarizes the components of net periodic pension cost related to the Company's defined benefit pension plans:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
(In thousands) |
|
2026 |
|
|
2025 |
|
|
2026 |
|
|
2025 |
|
||||
Service cost |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Interest cost |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Expected return on plan assets |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Amortization of actuarial losses |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Net periodic pension cost |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The components of net periodic pension cost, other than the service cost component, are included in other income (expense), net in the Condensed Consolidated Statements of Loss. Service cost is included in cost of revenue, selling, general and administrative expenses and research and development expenses in the Condensed Consolidated Statements of Loss. The Company made contributions to the defined benefit pension plans totaling $
14. EQUITY
Accumulated Other Comprehensive Income
The following tables present the changes in accumulated other comprehensive income, net of tax, by component:
|
|
Three Months Ended September 30, 2026 |
|
|||||||||||||||||
(In thousands) |
|
Unrealized |
|
|
Defined |
|
|
Foreign |
|
|
ASU 2018-02 Adoption |
|
|
Total |
|
|||||
Balance as of June 30, 2026 |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Other comprehensive income (loss) before |
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Amounts reclassified from accumulated other |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Net current period other comprehensive loss |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Balance as of September 30, 2026 |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
24
|
|
Three Months Ended September 30, 2025 |
|
|||||||||||||||||
(In thousands) |
|
Unrealized |
|
|
Defined |
|
|
Foreign |
|
|
ASU 2018-02 Adoption |
|
|
Total |
|
|||||
Balance as of June 30, 2025 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Other comprehensive (loss) income before |
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Amounts reclassified from accumulated other |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Net current period other comprehensive loss |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Balance as of September 30, 2025 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|||
|
|
Nine Months Ended September 30, 2026 |
|
|||||||||||||||||
(In thousands) |
|
Unrealized |
|
|
Defined |
|
|
Foreign |
|
|
ASU 2018-02 Adoption |
|
|
Total |
|
|||||
Balance as of December 31, 2025 |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Other comprehensive income (loss) before |
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Amounts reclassified from accumulated other |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Net current period other comprehensive loss |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Balance as of September 30, 2026 |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
Nine Months Ended September 30, 2025 |
|
|||||||||||||||||
(In thousands) |
|
Unrealized |
|
|
Defined |
|
|
Foreign |
|
|
ASU 2018-02 Adoption |
|
|
Total |
|
|||||
Balance as of December 31, 2024 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Other comprehensive income before reclassifications |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Amounts reclassified from accumulated other |
|
|
( |
) |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Net current period other comprehensive income |
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Balance as of September 30, 2025 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|||
25
The following tables present the details of reclassifications out of accumulated other comprehensive income:
|
|
Three Months Ended September 30, 2026 |
||||
(In thousands) |
|
Amount Reclassified from Accumulated |
|
|
Affected Line Item |
|
Unrealized gain on available-for-sale securities: |
|
|
|
|
|
|
Net realized loss on sales of securities |
|
$ |
( |
) |
|
Net investment gain |
Defined benefit plan adjustments – actuarial loss |
|
|
( |
) |
|
Other income (expense) |
Total reclassifications for the period, before tax |
|
|
( |
) |
|
|
Tax benefit |
|
|
|
|
|
|
Total reclassifications for the period, net of tax |
|
$ |
( |
) |
|
|
|
|
Three Months Ended September 30, 2025 |
||||
(In thousands) |
|
Amount Reclassified from Accumulated Other Comprehensive Loss |
|
|
Affected Line Item |
|
Unrealized gain on available-for-sale securities: |
|
|
|
|
|
|
Net realized loss on sales of securities |
|
$ |
( |
) |
|
Net investment gain |
Defined benefit plan adjustments – actuarial loss |
|
|
( |
) |
|
Other income (expense) |
Total reclassifications for the period, before tax |
|
|
( |
) |
|
|
Tax benefit |
|
|
|
|
|
|
Total reclassifications for the period, net of tax |
|
$ |
( |
) |
|
|
The following table presents the tax effects related to the change in each component of other comprehensive loss:
|
|
Nine Months Ended September 30, 2026 |
||||
(In thousands) |
|
Amount Reclassified from Accumulated Other Comprehensive Loss |
|
|
Affected Line Item |
|
Unrealized loss on available-for-sale securities: |
|
|
|
|
|
|
Net realized loss on sales of securities |
|
$ |
( |
) |
|
Net investment gain |
Defined benefit plan adjustments – actuarial loss |
|
|
( |
) |
|
Other income (expense) |
Total reclassifications for the period, before tax |
|
|
( |
) |
|
|
Tax benefit |
|
|
|
|
|
|
Total reclassifications for the period, net of tax |
|
$ |
( |
) |
|
|
|
|
Nine Months Ended September 30, 2025 |
||||
(In thousands) |
|
Amount Reclassified from Accumulated Other Comprehensive Income |
|
|
Affected Line Item |
|
Unrealized loss on available-for-sale securities: |
|
|
|
|
|
|
Net realized loss on sales of securities |
|
$ |
( |
) |
|
Net investment gain |
Defined benefit plan adjustments – actuarial gain |
|
|
|
|
Other income (expense) |
|
Total reclassifications for the period, before tax |
|
|
|
|
|
|
Tax expense |
|
|
( |
) |
|
|
Total reclassifications for the period, net of tax |
|
$ |
|
|
|
|
26
The following table presents the tax effects related to the change in each component of other comprehensive loss:
|
|
Three Months Ended |
|
|
Three Months Ended |
|
||||||||||||||||||
|
|
September 30, 2026 |
|
|
September 30, 2025 |
|
||||||||||||||||||
(In thousands) |
|
Before-Tax |
|
|
Tax |
|
|
Net-of-Tax |
|
|
Before-Tax |
|
|
Tax |
|
|
Net-of-Tax |
|
||||||
Unrealized gain on available-for-sale securities |
|
$ |
|
|
$ |
( |
) |
|
|
|
|
$ |
|
|
$ |
( |
) |
|
|
|
||||
Reclassification adjustment for amounts related to available-for-sale investments included in net loss |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Reclassification adjustment for amounts related to defined benefit plan adjustments included in net loss |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Foreign currency translation adjustments |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Total Other Comprehensive Loss |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
|
|
Nine Months Ended |
|
|
Nine Months Ended |
|
||||||||||||||||||
|
|
September 30, 2026 |
|
|
September 30, 2025 |
|
||||||||||||||||||
(In thousands) |
|
Before-Tax |
|
|
Tax |
|
|
Net-of-Tax |
|
|
Before-Tax |
|
|
Tax |
|
|
Net-of-Tax |
|
||||||
Unrealized gain on available-for-sale securities |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
Reclassification adjustment for amounts related to available-for-sale investments included in net loss |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Reclassification adjustment for amounts related to defined benefit plan adjustments included in net (loss) gain |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|||
Foreign currency translation adjustments |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
— |
|
|
|
|
||
Total Other Comprehensive (Loss) Income |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
15. REDEEMABLE NON-CONTROLLING INTEREST
As of September 30, 2026 and December 31, 2025, the non-controlling Adtran Networks stockholders’ equity ownership percentage in Adtran Networks was approximately
The following table summarizes the redeemable non-controlling interest activity for the nine months ended September 30, 2026 and for the year ended December 31, 2025:
|
|
Nine Months Ended |
|
|
For the Year Ended |
|
|
||
(In thousands) |
|
September 30, 2026 |
|
|
December 31, 2025 |
|
|
||
Balance at beginning of period |
|
$ |
|
|
$ |
|
|
||
Redemption of redeemable non-controlling interest |
|
|
( |
) |
|
|
( |
) |
|
Net income attributable to redeemable non-controlling interests |
|
|
|
|
|
|
|
||
Annual recurring compensation earned |
|
|
( |
) |
|
|
( |
) |
|
Balance at end of period |
|
$ |
|
|
$ |
|
|
||
Annual Recurring Compensation payable on untendered outstanding shares under the DPLTA must be recognized as it is accrued. For the three and nine months ended September 30, 2026, we have accrued $
27
16. LOSS PER SHARE
The calculation of basic and diluted loss per share for the three and nine months ended September 30, 2026 and 2025 are as follows:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
(In thousands, except per share amounts) |
|
2026 |
|
|
2025 |
|
|
2026 |
|
|
2025 |
|
||||
Numerator |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net loss attributable to ADTRAN Holdings, Inc. |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Effect of redemption of RNCI |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net loss attributable to ADTRAN Holdings, Inc. common stockholders |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Denominator |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average number of shares – basic |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average number of shares – diluted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Loss per share attributable to ADTRAN Holdings, Inc. – basic |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Loss per share attributable to ADTRAN Holdings, Inc. – diluted |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
The following potentially dilutive shares were excluded from the calculation of the diluted weighted average number of shares outstanding as the effect would have been anti-dilutive:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
(In thousands) |
|
2026 |
|
|
2025 |
|
|
2026 |
|
|
2025 |
|
||||
Convertible senior notes |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Stock options |
|
|
|
|
|
|
|
|
|
|
|
|
||||
PSUs, RSUs and restricted stock |
|
|
|
|
|
|
|
|
|
|
|
|
||||
28
17. SEGMENT INFORMATION
The chief operating decision maker, the Company's CEO, regularly reviews the Company’s financial performance based on
The 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. The Company's cloud-managed Wi-Fi gateways, virtualization software, and switches provide a mix of wired and wireless connectivity at the customer premises. In addition, its Carrier Ethernet products support a variety of applications at the network edge ranging from mobile backhaul to connecting enterprise customers ("Subscriber Solutions"). The Company's portfolio includes products for multi-gigabit service delivery over fiber or alternative media to homes and businesses.
The Services & Support segment offers a comprehensive portfolio of network design, implementation, maintenance and cloud-hosted services supporting its Subscriber, Access & Aggregation, and Optical Networking Solutions. These services assist operators in the deployment of multi-vendor networks while reducing their cost to maintain these networks. The cloud-hosted services include a suite of SaaS applications under the Company's Mosaic One platform that manages end-to-end network and service optimization for both fiber access infrastructure and mesh Wi-Fi connectivity. The Company backs these services with a global support organization that offers on-site and off-site support services with varying SLAs.
The performance of these segments is evaluated based on revenue, gross profit and gross margin; therefore, selling, general and administrative expenses, research and development expenses, interest and dividend income, interest expense, net investment gain, other income (expense), net and income tax expense are reported on a consolidated basis only. There is no inter-segment revenue. Asset information by reportable segment is not produced and, therefore, is not reported.
The following tables present information about the revenue and gross profit of the Company's reportable segments:
|
|
Three Months Ended |
|
|||||||||||||||||||||
|
|
September 30, 2026 |
|
|
September 30, 2025 |
|
||||||||||||||||||
(In thousands) |
|
Revenue |
|
|
Cost of Revenue |
|
|
Gross Profit |
|
|
Revenue |
|
|
Cost of Revenue |
|
|
Gross Profit |
|
||||||
Network Solutions |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Services & Support |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
|
|
Nine Months Ended |
|
|||||||||||||||||||||
|
|
September 30, 2026 |
|
|
September 30, 2025 |
|
||||||||||||||||||
(In thousands) |
|
Revenue |
|
|
Cost of Revenue |
|
|
Gross Profit |
|
|
Revenue |
|
|
Cost of Revenue |
|
|
Gross Profit |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Network Solutions |
|
$ |
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Services & Support |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
For the three months ended September 30, 2026 and 2025, $
29
Revenue by Geographic Area
The following table presents revenue information by geographic area:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
(In thousands) |
|
2026 |
|
|
2025 |
|
|
2026 |
|
|
2025 |
|
||||
United States |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
United Kingdom |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Germany |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other international |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
18. COMMITMENTS AND CONTINGENCIES
Legal Matters
From time to time, the Company is subject to or otherwise involved in various lawsuits, claims, investigations and legal proceedings that arise out of or are incidental to the conduct of our business (collectively, "Legal Matters"), including those relating to employment matters, patent rights, regulatory compliance matters, stockholder claims, and contractual and other commercial disputes. Such Legal Matters, even if not meritorious, could result in the expenditure of significant financial and managerial resources. Additionally, an unfavorable outcome in a legal matter, including in a patent dispute, could require the Company to pay damages, entitle claimants to other relief, such as royalties, or could prevent the Company from selling some of its products in certain jurisdictions. The Company records an accrual for any Legal Matters that arise whenever it considers that it is probable that it is exposed to a loss contingency and the amount of the loss contingency can be reasonably estimated. Although the ultimate disposition of asserted claims cannot be predicted with certainty, it is our belief that the outcome of any such claims, either individually or on a combined basis, will not have a material adverse effect on our consolidated financial position.
As disclosed in Amendment No. 1 to our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, filed with the SEC on May 20, 2025, we identified errors in our previously issued financial statements related to the historical accounting for certain inventory and cost of revenue transactions ("Adjustment"). The affected periods included the annual periods ended December 31, 2023 and 2024 and the interim periods ended March 31, 2024, June 30, 2024 and September 30, 2024. In connection with the identification of the Adjustment, the Audit Committee oversaw an internal investigation into the circumstances surrounding the Adjustment and its impact on the Company’s historical financial statements. Based on the findings of the internal investigation, it was determined that the underlying errors giving rise to the Adjustment were not properly addressed in the Company’s previously filed financial statements as of and for the years ended December 31, 2024 and 2023 and were not communicated to the Audit Committee or the independent auditors prior to the filing of the initial Annual Report on Form 10-K for the year ended December 31, 2024. The Company has taken certain remedial actions to address the material weaknesses in its internal controls associated with these findings.
DPLTA Appraisal Proceedings
In addition to such Legal Matters, the Company is a party to appraisal proceedings relating to the DPLTA which were originally filed with the Landgericht Meiningen (Meiningen District Court) on February 3, 2023. The DPLTA provides that Adtran Networks shareholders (other than the Company) be offered, at their election, (i) to put their Adtran Networks shares to the Company in exchange for compensation in cash of €
DPLTA Exit and Recurring Compensation Costs and the Absorption of Adtran Network's Annual Net Loss
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
30
of currently outstanding Adtran Networks shares were to elect the second option, the Company would be obligated to make aggregate Exit Compensation payments, including guaranteed interest, of approximately €
Our obligation to pay Annual Recurring Compensation under the DPLTA is a continuing payment obligation, which will amount to approximately €
For the three and nine months ended September 30, 2026, approximately
In addition, 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 absorb the annual net loss incurred by Adtran Networks. The Company’s payment obligation in satisfaction of the requirement that it absorb Adtran Networks’ annual net loss applies to the net loss generated by Adtran Networks in 2025, and it will apply to any net loss generated by Adtran Networks in 2026.
Performance Bonds
Certain contracts, customers and jurisdictions in which we do business require us to provide various guarantees of performance such as bid bonds, performance bonds and customs bonds. As of September 30, 2026 and December 31, 2025, we had commitments related to these bonds totaling $
Purchase Obligations
The Company purchases components from a variety of suppliers and uses contract manufacturers to provide manufacturing services for our products. Our inventory purchase obligations are for product manufacturing requirements, as well as for commitments to suppliers to secure manufacturing capacity. Certain of our inventory purchase obligations with contract manufacturers and suppliers relate to arrangements to secure supply and pricing for certain product components for multi-year periods. As of September 30, 2026, purchase obligations totaled $
401(k) Plan Corrective Action
In June 2024, the Company identified that within our Adtran, Inc. 401(k) plan for the year ended 2023, that deferrals and matching contributions should have been applied to vested equity award amounts in accordance with the plan documents. As such, we filed a voluntary correction program ("VCP") application with the IRS and in May 2026, the Company received a compliance statement from the IRS approving a retroactive amendment to correct the matter and modify administrative procedures, and in June 2026, the Company
31
executed the retroactive amendment. Based on this resolution, the Company reversed $
19. SUBSEQUENT EVENTS
Distribution of Terminated Deferred Compensation Plans
As previously disclosed, on November 3, 2025 the Company terminated its Deferred Compensation Program for Employees, its Equity Deferral Program for Employees and its deferred compensation plans for its non-employee directors (collectively “the Plans”). On November 3, 2026, in accordance with the terms of the Plans, the Company commenced the liquidation of related investments and settlement of obligations to the participants, including the distribution of cash and Company common stock which will be completed by the end of 2026. The liquidation and settlement of the Plans are not expected to have a material effect on the Company’s results of operations.
32
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Condensed Consolidated Financial Statements and the related notes that appear in Part I, Item 1 of this document. In addition, the following discussion should be read in conjunction with our audited consolidated financial statements for the year ended December 31, 2025, Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, Part I, Item 1A, Risk Factors, and Part I, Item 1, Business, to our Annual Report on Form 10-K for the year ended December 31, 2025, filed with the SEC on February 26, 2026 (the "2025 Form 10-K").
This discussion is designed to provide the reader with information that will assist in understanding our Condensed Consolidated Financial Statements, the changes in certain key items in those financial statements from period to period, and the primary factors that accounted for those changes, as well as how certain accounting principles affect our Condensed Consolidated Financial Statements. See "Cautionary Note Regarding Forward-Looking Statements" on page 5 of this report for a description of important factors that could cause actual results to differ from expected results. See also Part 1, Item 1A, Risk Factors, of the 2025 Form 10‑K and Part II, Item 1A, Risk Factors of this Form 10-Q.
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 Holdings, Inc. and its consolidated subsidiaries.
OVERVIEW
The Company is a leading global provider of networking and communications platforms, software, systems and services focused on carrier networks, data center interconnect for private enterprise networks and mission critical infrastructure. It is 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; distributed enterprises, including Fortune 500 companies with sophisticated business continuity applications; hyper-scalers, neocloud and content providers and data center companies; and federal, state and local government agencies.
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 have customers adopt our technology, 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 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. Adtran 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 customer, especially upon the convergence of solutions at the network edge.
The chief operating decision maker regularly reviews the Company’s financial performance based on two reportable segments: (1) Network Solutions and (2) Services & Support. In addition to operating under two reportable segments, the Company also reports revenue across 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 customers' 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 our Mosaic One SaaS applications featuring AI driven operations, 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.
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.
33
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.
ADTRAN NETWORKS DOMINATION AND PROFIT AND LOSS TRANSFER AGREEMENT
The DPLTA between the Company, as the controlling company, and Adtran Networks, as the controlled company, which was 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 absorb the annual net loss incurred by Adtran Networks. The Company’s payment obligation in satisfaction of the requirement that it absorb Adtran Networks’ annual net loss applied to the net loss generated by Adtran Networks in 2025, and it will apply to any net loss generated by Adtran Networks in 2026.
Additionally, and subject to certain limitations pursuant to applicable law and the specific terms of the DPLTA, the DPLTA provides that Adtran Networks shareholders (other than us) be offered, at their election, (i) to put their Adtran Networks shares to the Company in exchange for compensation in cash of €17.21 per share plus guaranteed interest ("Exit Compensation"), or (ii) to remain Adtran Networks shareholders and receive a recurring compensation in cash of €0.52 per share for each full fiscal year of Adtran Networks ("Annual Recurring Compensation"). The guaranteed interest component 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 that was 1.52% as of September 30, 2026. The Annual Recurring Compensation is due on the third banking day following the ordinary general shareholders’ meeting of Adtran Networks for the respective preceding fiscal year (but in any event within eight months following expiration of the fiscal year). With respect to the 2025 fiscal year, Adtran Networks’ ordinary general shareholders’ meeting occurred on June 15, 2026 and, therefore, the Annual Recurring Compensation was paid after the general shareholders’ meeting in the amount of $8.9 million. The adequacy of both forms of compensation has been challenged by minority shareholders of Adtran Networks via court-led appraisal proceedings under German law, and it is possible that the courts in such appraisal proceedings may adjudicate a higher Exit Compensation or Annual Recurring Compensation (including interest thereon) than agreed upon in the DPLTA.
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 were initiated in 2023 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). Following the court's decision on a procedural matter in the DPLTA appraisal proceedings on July 14, 2025, the trial on the merits of the DPLTA has recommenced. Following the effective date of the DPLTA on January 16, 2023, certain Adtran Networks shareholders filed lawsuits against the Company in the Regional Court Meiningen, Germany challenging the Exit Compensation offered under the DPLTA. The Regional Court Meiningen has not yet ruled on the shareholders' claims. After the Regional Court Meiningen issues an opinion, an appeal is likely to follow, and thus the Company does not anticipate a final non-appealable decision on the shareholders' claims until 2028 at the earliest.
For the three and nine months ended September 30, 2026, approximately 0.8 million shares and 1.3 million shares, respectively, of Adtran Networks stock were tendered to the Company. This resulted in total Exit Compensation payments for the three and nine months ended September 30, 2026 of approximately €15.6 million or $18.1 million and €27.3 million, or $31.9 million, respectively, based on the applicable exchange rates at the time of the transactions, being paid to Adtran Networks shareholders. For the three and nine months ended September 30, 2025, less than one thousand shares and approximately 0.9 million shares, respectively, of Adtran Networks stock were tendered to the Company. This resulted in total Exit Compensation payments for the three and nine months ended September 30, 2025 of approximately €16.9 million, or $19.4 million based on the applicable exchange rates at the time of the transactions, being paid to Adtran Networks shareholders.
In summary, the Company believes that its cash and cash equivalents, working capital management and availability to access cash under its Credit Agreement or other future sources of capital will be adequate to meet its business operating requirements, its capital expenditures and its expected obligations under both the Notes and the DPLTA, including the anticipated levels of Exit Compensation, as well as to support the Company's ability to continue to comply with its debt covenants under its credit facility for at least the next twelve months, from the issuance of the consolidated financial statements included in Part I, Item 1 of this 10-Q. See Note 11, Credit Agreements, for additional information regarding the terms of the Former Credit Agreement and the J.P. Morgan Credit Agreement.
As of September 30, 2026 we hold 38,218,023 no-par value bearer shares of Adtran Networks, representing 73.4% of Adtran Networks outstanding shares as of September 30, 2026.
34
The foregoing description of the DPLTA does not purport to be complete and is qualified in its entirety by reference to the DPLTA, a non-binding English translation of which is incorporated by reference to Exhibit 10.14 included in our 2025 Form 10-K.
FINANCIAL PERFORMANCE AND TRENDS
We ended the third quarter of 2026 with a year-over-year revenue increase of 0.6% as compared to the three months ended September 30, 2025, driven by increased volume of sales activity and continued strength of our core markets, due to broadband expansion brought about by higher service provider spending and a continued vendor consolidation due to a shift away from high-risk vendors. During the third quarter of 2026, we had one customer with revenues greater than 10.0% and our five largest customers comprised 33.7% of our revenue. Our year-over-year U.S. revenue increased by 6.5% due to continued customer spending and broadband expansion. Internationally, our year-over-year revenue decreased by 3.8%, which was primarily due to a project delay from a single customer.
Our operating results improved due to continuing strong demand, improving margins and disciplined approach to controlling operational expenses. In addition, we continue to support our customer demand for our products by working with our suppliers, contract manufacturers, distributors, and customers to address and to limit potential disruptions to our operations and order fulfillment. Moreover, maintaining sufficient inventory levels to assure prompt delivery of our products increases the amount of inventory that may become obsolete and increases the risk that the obsolescence of this inventory may have an additional adverse effect on our business and operating results beyond the effects of the most recent inventory write-downs. On the other hand, not maintaining sufficient inventory levels to ensure prompt delivery of our products may cause us to incur expediting costs to meet customer delivery requirements, which may negatively impact our operating results.
Trade Policy/Tariffs
During 2025, the U.S. introduced various trade policy orders that have increased import tariffs across a wide range of countries at various rates, with certain exemptions. On February 20, 2026, the U.S. Supreme Court issued a ruling striking down certain tariffs previously imposed under the International Emergency Economic Powers Act ("IEEPA"). Following the Supreme Court’s decision, the U.S. presidential administration invoked Section 122 of the Trade Act of 1974 to impose new tariffs of 10% on imports from all countries, in addition to any existing non-IEEPA tariffs (including tariffs on semiconductors, which are expected to increase in June 2027), and also amended tariffs on imports of copper, steel and aluminum previously imposed under Section 232 of the Trade Expansion Act of 1962, effective April 6, 2026, to apply differentiated tariff rates based on metal content and the use of U.S.-origin metal inputs. By its terms, the Section 122 tariff expired on July 24, 2026. On July 23, 2026, the Office of the U.S. Trade Representative ("USTR") announced a final action under Section 301 of the Trade Act of 1974 imposing additional ad valorem tariffs of 10% or 12.5% on most goods imported from approximately 60 foreign trading partners, which together account for nearly all U.S. import trade. Under the final action, trading partners that have adopted, or have committed to adopt and effectively enforce, a qualifying forced labor import prohibition are subject to the lower 10% tariff rate, while trading partners that have not adopted such a prohibition are subject to the 12.5% rate. Certain categories of goods are excluded from the new tariffs, including articles already subject to duties under Section 232 of the Trade Expansion Act of 1962, and certain other products identified by USTR as warranting exemption.
Furthermore, recent U.S. trade actions have triggered retaliatory actions by certain affected countries, and other foreign governments may impose further trade measures, including reciprocal tariffs, on certain U.S. goods in the future. There remains substantial uncertainty regarding the duration of existing and newly announced tariffs, potential changes or pauses to such tariffs, tariff levels, and whether further additional tariffs or other retaliatory actions may be imposed, modified, or suspended, and the impacts of such actions on our business. These changes in U.S. trade policy and subsequent retaliatory actions have the potential to materially alter various input costs for the Company. Moreover, related costs and the uncertainty arising from such changes in trade policy may result in shifts in customer behavior, such as decreased demand. These impacts could have a negative effect on our financial results, including our revenue and profitability. To help mitigate this, the Company has taken steps to diversify its supply chain, manufacturing locations and relationships with suppliers to provide added flexibility. See "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," in Part II, Item 1A "Risk Factors" of this report for further discussion of the risks associated with the changes to U.S. and foreign trade policies.
Tariff Refund
The Company has concluded that the refund of IEEPA tariffs should be evaluated under a loss recovery model pursuant to Accounting Standards Codification ("ASC") 410‑30. The tariffs at issue were previously capitalized to inventory and subsequently expensed through cost of revenue. Accordingly, any refund represents a recovery of previously recognized costs, and recognition is limited to amounts previously recorded.
During the period, the Company received the remaining refunds of IEEPA tariffs, which were recognized as recoveries of previously recognized costs and recorded as a reduction of cost of revenue. Related interest received was recognized as interest income. Excluding the effects of the tariff refunds, gross profit would decrease from 38.5% to 36.5% for the three months ended September 30, 2026 and decrease from 38.3% to 37.7% for the nine months ended September 30, 2026.
Foreign Currency
35
We are exposed to changes in foreign currencies relative to the U.S. dollar, which are references to the differences between the foreign-exchanges rates we use to convert the financial results of our international operations from local currencies into U.S. dollars for financial reporting purposes. This impact of foreign-exchange rate changes is calculated based on the difference between the current period’s currency exchange rates and that of the comparable prior period. Our primary exposures to foreign currency exchange rate movements are with the euro and the British pound. As a result of our global operations, our revenue, gross margin, operating expense and operating loss in some international markets has been and may continue to be affected by foreign currency fluctuations.
EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS
See Note 1 of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this report for a full description of recent accounting pronouncements, including the expected dates of adoption and estimated effects on results of operations and financial condition, which is incorporated herein by reference.
36
RESULTS OF OPERATIONS – THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2026, COMPARED TO THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2025
The following table presents selected financial information derived from our Condensed Consolidated Statements of Loss expressed as a percentage of revenue for the periods indicated. Amounts may not foot due to rounding.
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
|
||||||||||
|
|
2026 |
|
|
2025 |
|
|
2026 |
|
|
2025 |
|
|
||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Network Solutions |
|
|
82.2 |
|
% |
|
83.2 |
|
% |
|
82.8 |
|
% |
|
82.6 |
|
% |
Services & Support |
|
|
17.8 |
|
|
|
16.8 |
|
|
|
17.2 |
|
|
|
17.4 |
|
|
Total Revenue |
|
|
100.0 |
|
|
|
100.0 |
|
|
|
100.0 |
|
|
|
100.0 |
|
|
Cost of Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Network Solutions |
|
|
54.8 |
|
|
|
54.8 |
|
|
|
55.0 |
|
|
|
54.9 |
|
|
Services & Support |
|
|
6.7 |
|
|
|
6.9 |
|
|
|
6.7 |
|
|
|
7.1 |
|
|
Total Cost of Revenue |
|
|
61.5 |
|
|
|
61.7 |
|
|
|
61.7 |
|
|
|
62.0 |
|
|
Gross Profit |
|
|
38.5 |
|
|
|
38.3 |
|
|
|
38.3 |
|
|
|
38.0 |
|
|
Selling, general and administrative expenses |
|
|
20.3 |
|
|
|
20.8 |
|
|
|
20.4 |
|
|
|
21.3 |
|
|
Research and development expenses |
|
|
18.5 |
|
|
|
18.5 |
|
|
|
18.5 |
|
|
|
19.2 |
|
|
Operating Loss |
|
|
(0.3 |
) |
|
|
(1.0 |
) |
|
|
(0.5 |
) |
|
|
(2.5 |
) |
|
Interest and dividend income |
|
|
0.2 |
|
|
|
0.1 |
|
|
|
0.2 |
|
|
|
0.1 |
|
|
Interest expense |
|
|
(1.9 |
) |
|
|
(2.0 |
) |
|
|
(1.6 |
) |
|
|
(1.9 |
) |
|
Net investment (loss) gain |
|
|
(0.1 |
) |
|
|
0.8 |
|
|
|
0.5 |
|
|
|
0.5 |
|
|
Other income (expense), net |
|
|
0.4 |
|
|
|
(0.3 |
) |
|
|
0.4 |
|
|
|
(0.3 |
) |
|
Loss Before Income Taxes |
|
|
(1.6 |
) |
|
|
(2.3 |
) |
|
|
(1.1 |
) |
|
|
(4.2 |
) |
|
Income tax expense |
|
|
(0.9 |
) |
|
|
(0.4 |
) |
|
|
(0.6 |
) |
|
|
(0.2 |
) |
|
Net Loss |
|
|
(2.5 |
) |
% |
|
(2.8 |
) |
% |
|
(1.8 |
) |
% |
|
(4.4 |
) |
% |
Less: Net Income attributable to non-controlling interest |
|
|
0.7 |
|
|
|
0.9 |
|
|
|
0.8 |
|
|
|
0.9 |
|
|
Net Loss attributable to ADTRAN Holdings, Inc. |
|
|
(3.3 |
) |
% |
|
(3.7 |
) |
% |
|
(2.5 |
) |
% |
|
(5.3 |
) |
% |
Revenue
Our revenue increased 0.6% from $279.4 million for the three months ended September 30, 2025, to $281.2 million for the three months ended September 30, 2026, and increased 7.1% from $792.2 million for the nine months ended September 30, 2025, to $848.4 million for the nine months ended September 30, 2026. The increase in revenue for the three and nine months ended September 30, 2026, was driven by increased volume of sales activity and continued strength of our core markets, due to broadband expansion brought about by higher service provider spending and continued vendor consolidation due to a shift away from high-risk vendors.
The increase in revenue by category for the three months ended September 30, 2026, was primarily attributable to a $11.0 million increase in Optical Networking Solutions products, a $3.7 million increase in Access & Aggregation revenue, partially offset by a $13.0 million decrease in Subscriber Solutions products. The increase in revenue by category for the nine months ended September 30, 2026, was primarily attributable to a $49.8 million increase in Optical Networking Solutions products, a $5.6 million increase in Subscriber Solutions products and a $0.8 million increase in Access & Aggregation revenue. The increase in Optical Networking Solutions products was primarily driven by high-risk vendor displacement across Europe and was helped by increased sales to enterprise, government and internet content provider customers. The increase in Access & Aggregation revenue was primarily driven by strong sales related to broadband access platforms. The decrease in Subscriber Solutions products during the three months ended September 30, 2026, was primarily driven by decreased revenues related to a project delay from a single customer. The increase in Subscriber Solutions products during the nine months ended September 30, 2026 was primarily driven by continued investment in fiber-to-the-home, multi-Gig Wi-Fi 7, and Carrier Ethernet applications, partially offset by decreased revenues related to a project delay from a single customer.
Network Solutions Segment Revenue
Network Solutions segment revenue decreased 0.6% from $232.5 million for the three months ended September 30, 2025, to $231.2 million for the three months ended September 30, 2026, and increased 7.3% from $654.3 million for the nine months ended September 30, 2025, to $702.1 million for the nine months ended September 30, 2026. The increase in Network Solutions revenue by category for the three months ended September 30, 2026, was due to an increase in volume of sales activity of $12.7 million in Optical Networking products, partially offset by a $13.6 million decrease in Subscriber Solutions products and a $0.4 million decrease in Access & Aggregation products. The increase in Network Solutions revenue by category for the nine months ended September 30, 2026, was
37
due to an increase in volume of sales activity of $49.6 million in Optical Networking products and $2.9 million in Subscriber Solutions products, partially offset by a $4.7 million decrease in Access & Aggregation products.
Services & Support Segment Revenue
Services & Support segment revenue increased 6.5% from $46.9 million for the three months ended September 30, 2025, to $49.9 million for the three months ended September 30, 2026, and increased 6.1% from $138.0 million for the nine months ended September 30, 2025, to $146.3 million for the nine months ended September 30, 2026. The increase in Services & Support revenue by category for the three months ended September 30, 2026, was primarily attributable to a $4.1 million increase in Access & Aggregation and $0.6 million in Subscriber Solutions, partially offset by a $1.7 million decrease in Optical Networking services. The increase in Services & Support revenue by category for the nine months ended September 30, 2026, was primarily attributable to increases of $5.5 million increase in Access & Aggregation, $2.7 million in Subscriber Solutions and $0.1 million increase in Optical Networking services.
Domestic Revenue
U.S. revenue increased by 6.5% from $120.2 million for the three months ended September 30, 2025, to $128.0 million for the three months ended September 30, 2026, and increased by 18.9% from $343.7 million for the nine months ended September 30, 2025, to $408.6 million for the nine months ended September 30, 2026. The increase in U.S. revenue for the three and nine months ended September 30, 2026, was primarily due to continued customer spending and broadband expansion.
International Revenue
International revenue, which is defined as revenue generated from the Network Solutions and Services & Support segments provided to a customer outside of the U.S., decreased by 3.8% from $159.2 million for the three months ended September 30, 2025 to $153.2 million for the three months ended September 30, 2026 and decreased by 1.9% from $448.5 million for the nine months ended September 30, 2025 to $439.8 million for the nine months ended September 30, 2026. International revenue, as a percentage of total revenue, decreased from 57.0% for the three months ended September 30, 2025, to 54.5% for the three months ended September 30, 2026, and decreased from 56.6% for the nine months ended September 30, 2025, to 51.8% for the nine months ended September 30, 2026. The decrease in international revenue for the three and nine months ended September 30, 2026 compared to the three and nine months September 30, 2025, was primarily due to decreased revenues related to a project delay from a single customer. For the three and nine months ended September 30, 2026, as compared to the three and nine months ended September 30, 2025, changes in foreign currencies relative to the U.S. dollar decreased our net revenue by approximately $1.6 million and $4.9 million, respectively.
Our ADTRAN, Inc. international revenue is largely focused on broadband infrastructure and is consequently affected by the decisions of our customers as to timing for installation of new technologies, expansion of their networks and/or network upgrades. Our international customers must make these decisions in the regulatory and political environment in which they operate – both nationally and, in some instances, regionally – whether of a multi-country region or a more local region within a country. Consequently, while we expect the global trend towards deployment of more robust broadband speeds and access to continue creating additional market opportunities for us, the factors described above may result in continued pressure on revenue and operating income. Our Adtran Networks international revenue is largely focused on the manufacture and selling of networking solutions that are based on three core areas of expertise: fiber-optic transmission technology (cloud interconnect), cloud access technology for rapid creation of innovative services around the network edge and solutions for precise timing and synchronization of networks. In addition, Adtran Networks international operations offers a comprehensive portfolio of network design, implementation and maintenance services to assist operators in the deployment of market-leading networks while reducing costs to maintain these networks.
Cost of Revenue
As a percentage of revenue, cost of revenue decreased from 61.7% for the three months ended September 30, 2025, to 61.5% for the three months ended September 30, 2026, and decreased from 62.0% for the nine months ended September 30, 2025, to 61.7% for the nine months ended September 30, 2026. Cost of revenue as a percentage of revenue for the three and nine months ended September 30, 2026, remained relatively flat, with minor fluctuations driven by changes in customer and product mix and tariff refunds. Excluding the effects of the tariff refunds, cost of revenue as a percentage of revenue would have been 63.5% and 62.3% for the three and nine months ended September 30, 2026, respectively.
For the three and nine months ended September 30, 2026, as compared to the three and nine months ended September 30, 2025, changes in foreign currencies relative to the U.S. dollar decreased our cost of revenue by approximately $1.0 million and $3.1 million, respectively.
Network Solutions cost of revenue, as a percentage of that segment’s revenue, increased from 65.8% for the three months ended September 30, 2025, to 66.6% for the three months ended September 30, 2026, and was 66.4% for the nine months ended September 30, 2025 and 2026. Network Solutions cost of revenue as a percentage of revenue for the three and nine months ended September 30, 2026, remained relatively flat, with minor fluctuations driven by changes in customer and product mix.
Services & Support cost of revenue, as a percentage of that segment’s revenue, decreased from 40.9% for the three months ended September 30, 2025, to 38.0% for the three months ended September 30, 2026, and increased from 40.8% for the nine months ended September 30, 2025 to 39.0% for the nine months ended September 30, 2026. The decrease in Services & Support cost of revenue as a
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percentage of revenue for the three months ended September 30, 2026, was primarily due to a higher share of maintenance revenue which has a lower cost.
Services & Support revenue is comprised of network planning and implementation, maintenance, support and cloud-based management services, with network planning and implementation being the largest and fastest growing component in the long-term. Compared to our other services, such as maintenance, support and cloud-based management services, our network planning and implementation services typically utilize a higher percentage of internal and subcontracted engineers, professionals and contractors to perform the work for customers. The additional costs incurred to perform these infrastructure and labor-intensive services inherently result in lower average gross margins as compared to maintenance and support services. Within the Services & Support segment, we do expect variability in gross margins from quarter-to-quarter based on the mix of the services recognized.
Gross Profit
As a percentage of revenue, gross profit increased from 38.3% for the three months ended September 30, 2025, to 38.5% for the three months ended September 30, 2026, and increased from 38.0% for the nine months ended September 30, 2025, to 38.3% for the nine months ended September 30, 2026. The gross profit as a percentage of revenue for the three and nine months ended September 30, 2026, remained relatively flat, with minor fluctuations driven by changes in customer and product mix. Excluding the effects of the tariff refunds, gross profit would have been 36.5% and 37.7% for the three and nine months ended September 30, 2026, respectively. For the three and nine months ended September 30, 2026, as compared to the three and nine months ended September 30, 2025, changes in foreign currencies relative to the U.S. dollar decreased our gross profit by approximately $0.6 million and $1.8 million, respectively.
As a percentage of that segment's revenue, Network Solutions gross profit decreased from 34.2% for the three months ended September 30, 2025, to 33.4% for the three months ended September 30, 2026, and was 33.6% for the nine months ended September 30, 2025 and 2026. The gross profit for the three and nine months ended September 30, 2026, remained relatively flat, with minor fluctuations driven by changes in customer and product mix.
As a percentage of that segment's revenue, Services & Support gross profit increased from 59.1% for the three months ended September 30, 2025, to 62.0% for the three months ended September 30, 2026, and increased from 59.2% for the nine months ended September 30, 2025, to 61.0% for the nine months ended September 30, 2026. The increase in Services & Support gross profit for the three and nine months ended September 30, 2026, was primarily due to a higher share of maintenance revenue which has higher gross margins.
Selling, General and Administrative Expenses
As a percentage of revenue, selling, general and administrative expenses decreased from 20.8% for the three months ended September 30, 2025, to 20.3% for the three months ended September 30, 2026, and decreased from 21.3% for the nine months ended September 30, 2025, to 20.4% for the nine months ended September 30, 2026. Selling, general and administrative expenses as a percentage of revenue will generally fluctuate whenever there is a significant fluctuation in revenue for the periods being compared.
Selling, general and administrative expenses decreased 2.1% from $58.2 million for the three months ended September 30, 2025, to $57.0 million for the three months ended September 30, 2026, and increased 2.5% from $168.9 million for the nine months ended September 30, 2025, to $173.1 million for the nine months ended September 30, 2026. Selling, general and administrative expenses include personnel costs for management and back office departments, as well as auditor, tax and other professional fees. The increase for the nine months ended September 30, 2026, compared to the nine months ended September 30, 2025, was primarily attributable to increased employee-related costs and increased travel related expenses. For the three and nine months ended September 30, 2026, as compared to the three and nine months ended September 30, 2025, changes in foreign currencies relative to the U.S. dollar decreased our selling, general and administrative expenses by approximately $0.4 million and $1.1 million, respectively.
Research and Development Expenses
As a percentage of revenue, research and development expenses for the three months ended September 30, 2025 and 2026 was 18.5%, and decreased from 19.2% for the nine months ended September 30, 2025, to 18.5% for the nine months ended September 30, 2026. Research and development expenses as a percentage of revenue will generally fluctuate whenever there are incremental product development activities or significant fluctuations in revenue for the periods being compared.
Research and development expenses increased 0.6% from $51.7 million for the three months ended September 30, 2025, to $52.0 million for the three months ended September 30, 2026, and increased 2.7% from $152.4 million for the nine months ended September 30, 2025, to $156.6 million for the nine months ended September 30, 2026. Research and development expenses for the three months ended September 30, 2026 compared to the three months ended September 30, 2025, was primarily attributable to increased employee-related costs. The increase in research and development expenses for the nine months ended September 30, 2026 compared to the nine months ended September 30, 2025, was primarily attributable to increased employee-related costs partially offset by increased governmental research and development subsidies. For the three and nine months ended September 30, 2026 as compared to the three and nine months ended September 30, 2025, changes in foreign currencies relative to the U.S. dollar decreased our research and development expenses by approximately $0.4 million and $1.1 million, respectively.
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Adtran Networks has arrangements with governmental entities for the purpose of obtaining funding for research and development activities. The Company classifies government grants received under these arrangements as a reduction to research and development expenses incurred. For the three months ended September 30, 2026 and 2025, the Company recognized $3.1 million and $2.9 million as a reduction of research and development expense, respectively. For the nine months ended September 30, 2026 and 2025, the Company recognized $9.6 million and $8.3 million as a reduction of research and development expense, respectively.
We expect to continue to incur research and development expenses in connection with our new and existing products. We continually evaluate new product opportunities and engage in significant research and product development efforts, which provides for new product development, enhancement of existing products and product cost reductions. We may incur significant research and development expenses prior to the receipt of revenue from a major new product group.
Interest and Dividend Income
Interest and dividend income increased from $0.3 million for the three months ended September 30, 2025, to $0.6 million for the three months ended September 30, 2026 and increased from $0.6 million for the nine months ended September 30, 2025, to $1.3 million for the nine months ended September 30, 2026. The increase in interest and dividend income is primarily attributable to fluctuations in investment balances and IEEPA Tariff Refunds related interest.
Interest Expense
Interest expense decreased from $5.5 million for the three months ended September 30, 2025 to $5.3 million for the three months ended September 30, 2026, and decreased from $14.8 million for the nine months ended September 30, 2025, to $13.7 million for the nine months ended September 30, 2026. The decrease in interest expense during the three and nine months ended September 30, 2026, was primarily driven by the issuance of the 2030 Notes, with an effective rate of 4.7%, and the repayment of the majority of the principal under the credit agreement with Wells Fargo which accrued interest at 8.6% for the three and nine months ended September 30, 2025. See Note 11 and Note 12 of the Notes to Condensed Consolidated Financial Statements, included in Part I, Item 1 of this report for additional information.
Net Investment Gain
We recognized a net investment gain of $2.2 million and net investment loss of $0.2 million for the three months ended September 30, 2025 and 2026, respectively and recognized a net investment gain of $3.6 million and $4.3 million for the nine months ended September 30, 2025, and 2026, respectively. The fluctuations in our net investments were primarily attributable to changes in the fair value of our securities recognized during the period. We expect that any future market volatility could result in continued fluctuations in our investment portfolio. See Note 6 of the Notes to Condensed Consolidated Financial Statements, included in Part I, Item 1 of this report, and "Investing Activities" in "Liquidity and Capital Resources" below for additional information.
Other Income (Expense), net
Other income (expense), net, which primarily consisted of gains and losses on foreign currency transactions and income from excess material sales, increased from expense of $0.7 million for the three months ended September 30, 2025 to income of $1.0 million for the three months ended September 30, 2026 and increased from expense of $2.4 million for the nine months ended September 30, 2025 to income of $3.0 million for the nine months ended September 30, 2026.
Income Tax Expense
The Company's effective tax rate changed from an expense of 18.3% of pre-tax loss for the three months ended September 30, 2025, to an expense of 56.6% of pre-tax loss for the three months ended September 30, 2026 and changed from an expense of 5.5% of pre-tax loss for the nine months ended September 30, 2025, to an expense of 54.9% of pre-tax loss for the nine months ended September 30, 2026. The changes in the effective tax rate for the three and nine months ended September 30, 2026, was driven primarily by loss jurisdictions for which the recognition of tax benefits on pre-tax losses incurred were limited due to a valuation allowance during the three and nine months ended September 30, 2026.
Net Loss Attributable To Adtran Holdings, Inc.
As a result of the above factors, net loss attributable to ADTRAN Holdings, Inc. decreased from net loss of $10.3 million for the three months ended September 30, 2025, to a net loss of $9.2 million for the three months ended September 30, 2026, and decreased from net loss of $42.1 million for the nine months ended September 30, 2025, to a net loss of $21.5 million for the nine months ended September 30, 2026.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
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We generally finance our ongoing business with existing cash, investments, credit arrangements and cash flow from operations to manage our working capital needs. We had a positive cash flow from operating activities of $14.1 million in the nine months ended September 30, 2026. We have used, and expect to continue to use, existing cash, credit arrangements and cash generated from operations for working capital and other general corporate purposes, including product development activities to enhance our existing products and develop new products, expand our sales and marketing activities and fund capital expenditures.
As of September 30, 2026, our cash, cash equivalents and restricted cash was $71.7 million of which $57.4 million was held by our foreign subsidiaries. As of September 30, 2026 the Company had access to $261.7 million on its Credit Facility for future borrowings based on debt covenant compliance metrics. Generally, we intend to permanently reinvest funds held outside the U.S., except to the extent that any of these funds can be repatriated without withholding tax. As of December 31, 2025, our cash on hand was $95.7 million, of which $87.5 million was held by our foreign subsidiaries.
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 absorb the annual net loss incurred by Adtran Networks. The Company’s payment obligation in satisfaction of the requirement that it absorb Adtran Networks’ annual net loss applies to the net loss generated by Adtran Networks in 2025, and it will apply to any net loss generated by Adtran Networks in 2026.
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 1.52% as of September 30, 2026. 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 €281.1 million or $318.4 million, based on an exchange rate as of September 30, 2026, and reflecting interest accrued through September 30, 2026 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 were initiated in 2023 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). Following the effective date of the DPLTA on January 16, 2023, certain Adtran Networks shareholders filed lawsuits against the Company in the Regional Court Meiningen, Germany challenging the Exit Compensation offered under the DPLTA. The Regional Court Meiningen has not yet ruled on the shareholders' claims. After the Regional Court Meiningen issues an opinion, an appeal is likely to follow, and thus the Company does not anticipate a final non-appealable decision on the shareholders' claims until 2028 at the earliest.
Additionally, our obligation to pay Annual Recurring Compensation under the DPLTA is a continuing payment obligation, which will amount to approximately €7.2 million or $8.2 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. The Annual Recurring Compensation is due on the third banking day following the ordinary general shareholders’ meeting of Adtran Networks for the respective preceding fiscal year (but in any event within eight months following expiration of the fiscal year). With respect to the 2025 fiscal year, Adtran Networks’ ordinary general shareholders’ meeting occurred on June 15, 2026 and, therefore, the Annual Recurring Compensation was paid after the ordinary general shareholders’ meeting in the amount of $8.9 million. During the three months ended September 30, 2026 and 2025, we accrued $2.1 million and $2.5 million, respectively, in Annual Recurring Compensation. During the nine months ended September 30, 2026 and 2025, we accrued $6.1 million and $7.5 million, respectively, in Annual Recurring Compensation. The Annual Recurring Compensation is reflected as an increase to retained deficit in the Condensed Consolidated Balance Sheets.
For the three and nine months ended September 30, 2026, approximately 0.8 million shares and 1.3 million shares, respectively, of Adtran Networks stock were tendered to the Company. This resulted in total Exit Compensation payments for the three and nine months ended September 30, 2026 of approximately €15.6 million or $18.1 million and €27.3 million, or $31.9 million, respectively, based on the applicable exchange rates at the time of the transactions, being paid to Adtran Networks shareholders. For the three and nine months ended September 30, 2025, less than one thousand and approximately 0.9 million shares, respectively, of Adtran Networks stock were tendered to the Company. This resulted in total Exit Compensation payments for the three and nine months ended September 30, 2025 of approximately €16.9 million, or $19.4 million based on the applicable exchange rates at the time of the transactions, being 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 following factors: (i) the shareholders can exercise their right to receive the Exit Compensation until two months after publication of the final decision in the appraisal proceedings and the Company does not anticipate a final non-appealable decision on shareholder's challenges to Exit Compensation until 2028 at the earliest;
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(ii) the diverse base of shareholders that must make this election on an individual shareholder basis; (iii) the current guaranteed Annual Recurring Compensation payment; and (iv) the current trading value of Adtran Networks shares.
The Company's Credit Agreement with J.P. Morgan allows for borrowings of up to $350.0 million in aggregate principal amount, with borrowings by the German Borrower limited to $50.0 million. As of September 30, 2026, and as of the date of issuance of the condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q, the Company’s borrowings under the Credit Agreement were $83.0 million, with no borrowings outstanding attributable to the German Borrower. As of September 30, 2026, and as of the date of issuance of the condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q, the Company had a total of $5.3 million, in letters of credit under the Credit Agreement, leaving a net amount (after giving effect to the outstanding borrowings described above) of $261.7 million available for future borrowings. The proceeds of any loans may be used working capital and for general corporate purposes not prohibited under the Credit Agreement.
In summary, as of September 30, 2026, and as of the date of issuance of the condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q, the Company believes that its cash and cash equivalents, working capital management and availability to access cash under the Credit Agreement or other future sources of capital, will be adequate to meet its business operating requirements, its capital expenditures and its expected obligations under both the Notes and the DPLTA, including the anticipated levels of Exit Compensation as well to support the Company's ability to continue to comply with its debt covenants under its Credit Agreement for at least the next twelve months, from the issuance of the condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q. See Note 11, Credit Agreements in the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 for additional information regarding the terms of the Former Credit Agreement and the Credit Agreement, respectively.
Debt Obligations
Convertible Senior Notes
On September 19, 2025, the Company issued $201.3 million principal amount of 2030 Notes. The 2030 Notes were issued pursuant to, and are governed by, an indenture, dated as of September 19, 2025, between the Company and U.S. Bank Trust Company, National Association, as trustee. In connection with the 2030 Notes, the Company has entered into privately negotiated Capped Calls.
Interest expense related to the 2030 Notes was $2.3 million and $6.8 million for the three and nine months ended September 30, 2026, respectively. Interest expense related to the 2030 Notes was $0.3 million for the three and nine months ended September 30, 2025. In conjunction with the issuance of the 2030 Notes, the Company recognized debt issuance costs of $8.7 million, which were capitalized as components of the carrying amount and included in convertible senior notes, net within the Consolidated Balance Sheets. See Note 12 of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this report for more information.
J.P. Morgan Credit Agreement
On July 21, 2026, ADTRAN Holdings, Inc. as guarantor, ADTRAN, Inc., a Delaware corporation, and Adtran Networks SE, a European stock corporation (the "German Borrower" and together with the US Borrower, collectively, the "Borrowers"), entered into a credit agreement with J.P. Morgan Chase Bank, N.A., as administrative agent for the US Borrower and J.P. Morgan SE, as administrative agent for the German Borrower, and the financial institutions party thereto, as lenders. The Credit Agreement allows for borrowings of up to $350.0 million in aggregate principal amount, with borrowings by the German Borrower limited to $50.0 million. The Credit Agreement matures in July 2031. However, the maturity date of the Credit Agreement will be 91 days prior to the final maturity date of the senior convertible notes, unless the senior convertible notes have been repaid, refinanced or defeased in full on or prior to such date. As of September 30, 2026, and as of the date of issuance of the condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q, the Company’s borrowings under the Credit Agreement were $83.0 million, with no borrowings outstanding attributable to the German Borrower. As of September 30, 2026, and as of the date of issuance of the condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q, the Company had a total of $5.3 million in letters of credit under the Credit Agreement, leaving a net amount (after giving effect to the $83.0 million of outstanding borrowings described above) of $261.7 million available for future borrowings.
Borrowings under the Credit Agreement bear interest, at the Company’s election, at either the Term Benchmark Rate or the Base Rate, in each case subject to a 0.00% floor, plus an applicable margin based on the consolidated total net leverage ratio. The applicable margin ranges from 2.25% to 3.25% for Term Benchmark Rate loans and from 1.25% to 2.25% for Base Rate loans. The Borrowers are also required to pay a commitment fee of 0.25% on unused revolving commitments. The proceeds of any loans may be used working capital and for general corporate purposes not prohibited under the Credit Agreement.
Under the Credit Agreement, beginning with the fiscal quarter ending December 31, 2026, the Company is required to maintain a consolidated senior secured net leverage ratio (the "Net Leverage Ratio") of no greater than 3.25x and a consolidated fixed charge coverage ratio of at least 1.25x. During a Springing Covenant Period, the Net Leverage Ratio may not exceed 3.75x as of the last day of the first and second Reference Periods and 3.50x as of the last day of the third Reference Period. In addition, as of the last day of any fiscal quarter during a Springing Covenant Period, the Company is required to maintain Liquidity, as defined in the Credit Agreement, of at least $50.0 million. As of September 30, 2026, the Company was in compliance with all covenants under the Credit Agreement.
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The Credit Agreement also contains customary events of default, such as misrepresentation and a default in the performance or observance of any covenant (subject to customary cure periods). Upon the occurrence and during the continuance of an event of default, the lender is entitled to take various actions, including the acceleration of all amounts due under the Credit Agreement.
Pursuant to the Guarantee and Collateral Agreement, among the Company, the US Borrower, certain subsidiaries of the US Borrower and the administrative agents, the Borrowers’ obligations under the Credit Agreement are (a) secured by substantially all of the assets of the Company, the US Borrower and certain subsidiaries of the US Borrower and (b) guaranteed by the Company, US Borrower and certain subsidiaries of the US Borrower. Pursuant to the Share Pledge Agreement, the obligations under the credit agreement are secured by all of the shares owned by the Company in the German Borrower.
Pursuant to the Credit Agreement, the Company is subject to certain restrictions on the payment of dividends and other distributions with respect to its common stock, as well as on the redemption and repurchase of its common stock, except as expressly permitted by the Credit Agreement.
In connection with entering into the Credit Agreement, on July 21, 2026, the Company terminated the Former Credit Agreement, the collateral agreement dated July 18, 2022, the ADVA domestic collateral agreement dated June 4, 2024, the guaranty agreement dated July 18, 2022 and the ADVA guaranty agreement dated June 4, 2024. See Note 11, Credit Agreements of the Notes to Condensed Consolidated Financial Statements in Part 1, Item 1 of this report for additional information regarding the terms of the Former Credit Agreement and the new J.P. Morgan Chase Bank Credit Agreement.
Operating Activities
Net cash provided by operating activities of $14.1 million during the nine months ended September 30, 2026, decreased by $73.4 million compared to net cash provided by operating activities of $87.5 million during the nine months ended September 30, 2025.
The following table sets forth adjustments to reconcile net loss to net cash provided by operating activities:
(In thousands) |
|
Nine Months Ended |
|
|
Net loss |
|
$ |
(14,917 |
) |
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
|
Depreciation and amortization |
|
|
76,657 |
|
Amortization of debt issuance cost |
|
|
2,501 |
|
Amortization of convertible notes issuance costs |
|
|
1,197 |
|
Gain on investments, net |
|
|
(4,531 |
) |
Net loss on disposal of property, plant and equipment |
|
|
82 |
|
Stock-based compensation expense |
|
|
7,626 |
|
Deferred income taxes |
|
|
(1,205 |
) |
Inventory reserves |
|
|
2,655 |
|
Changes in operating assets and liabilities |
|
|
|
|
Accounts receivable, net |
|
|
(29,897 |
) |
Other receivables |
|
|
(4,989 |
) |
Income taxes receivable, net |
|
|
1,695 |
|
Inventory |
|
|
(18,684 |
) |
Prepaid expenses, other current assets and other assets |
|
|
2,839 |
|
Accounts payable |
|
|
15,332 |
|
Accrued expenses and other liabilities |
|
|
(25,706 |
) |
Income taxes payable |
|
|
3,460 |
|
Net cash provided by operating activities |
|
$ |
14,115 |
|
Quarterly accounts receivable DSO increased from 66 days as of December 31, 2025, to 77 days as of September 30, 2026 and was primarily driven by customer and geographical mix of commercial terms.
The increase in other receivables was primarily attributable to an increase in our receivables for sales of raw materials and contract assets.
Quarterly inventory turnover increased from 2.8 turns as of December 31, 2025, to 3.2 turns as of September 30, 2026. The increase in inventory turnover was primarily attributable to increased volume of sales activity due to continue strength of spending within our core markets. We expect inventory levels to fluctuate as we attempt to maintain sufficient inventory for customer demand and improve working capital.
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Accounts payable will fluctuate due to variations in the timing of the receipt of inventory, supplies and services and our subsequent payments for these purchases.
The decrease in accrued expenses and other liabilities was primarily attributable to the payment of accrued bonuses related to our variable incentive cash compensation program.
Investing Activities
Capital expenditures totaled approximately $48.1 million and $49.6 million for the nine months ended September 30, 2026 and 2025, respectively. The decrease in capital expenditures for the nine months ended September 30, 2026, was primarily attributable to decreases in expenditures related to developed technology.
Our deferred compensation plan assets increased 10.3% from $35.2 million as of December 31, 2025, to $38.8 million as of September 30, 2026. Our investments include various marketable equity securities with a fair market value of $1.0 million as of September 30, 2026, and December 31, 2025. See Note 6 of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this report for additional information.
Financing Activities
For the nine months ended September 30, 2026, net cash provided by financing activities was $13.1 million, which was primarily due to $88.0 million of draws on the Company's revolving credit agreements and $6.7 million proceeds from stock option exercises partially offset by $31.9 million of payments for redemption of redeemable non-controlling interests, $30.0 million of payments on the Company's revolving credit agreements, $8.9 million payment of annual recurring compensation to non-controlling interests, $6.4 million of payments for debt issuance costs on the Credit Agreement, $2.8 million of payments on a financing agreement, and $1.6 million of payments of tax withholdings related to stock-based compensation settlements.
Stock Repurchase Program
There were no stock repurchases during the periods ended September 30, 2026, and 2025, and there currently is no authorized stock repurchase program for the repurchase of ADTRAN Holdings, Inc. shares.
Stock Option Exercises
To accommodate employee stock option exercises, the Company issued 0.9 million and 0.2 million shares of common stock which resulted in proceeds of $6.7 million and $1.4 million during the nine months ended September 30, 2026 and 2025, respectively.
Pension Plans
We maintain defined benefit pension plans covering employees in certain foreign countries. For additional information, see Note 13 of Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this report.
Deferred Compensation Programs
We have maintained four deferred compensation programs for certain executive management employees and our Board of Directors. On November 3, 2025 (the “Termination Date”), in an effort to streamline the benefits offered to members of management and other key employees, the Company terminated its Deferred Compensation Program for Employees (the “Deferred Compensation Plan”) and its Equity Deferral Program for Employees (the “Equity Deferral Program” together with the Deferred Compensation Plan, the “Plans”). The Company also terminated its deferred compensation plans for its non-employee directors. On November 3, 2026, the Company commenced the liquidation of the related investments and settlement of obligations to the participants, including the distribution of cash and the issuance of shares of common stock to satisfy the equity component of the Plans, which is expected to occur prior to December 31, 2026. The liquidation of the plan assets and stock issuance are not expected to have a material impact on the Company’s cash flows or its results of operations. For additional information, see Note 6 and Note 19 of Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this report.
Off-Balance Sheet Arrangements
We have exposure to credit losses from off-balance sheet exposures, to provide various guarantees of performance such as bid bonds, performance bonds and customs bonds, where we believe the risk of loss is immaterial to our financial statements as of September 30, 2026. Otherwise, we do not have off-balance sheet financing arrangements and have not engaged in any related party transactions or arrangements with unconsolidated entities or other persons that are reasonably likely to materially affect liquidity or the availability of or requirements for capital resources. See Note 18 of the Notes to Condensed Consolidated Financial Statements, included in Part I, Item 1 of this report for additional information.
44
Cash Requirements
The following table summarizes the Company’s material short- and long-term cash requirements from known obligations pursuant to certain contracts and commitments as of the date of this filing, as well as an estimate of the timing in which such obligations and payments are expected to be satisfied (but excluding payments that may be made pursuant to the DPLTA, which is discussed below). Other than operating lease obligations, the cash requirements table excludes interest payments.
(In thousands) |
|
Total |
|
|
2026 |
|
|
2027 |
|
|
2028 |
|
|
2029 |
|
|
2030 |
|
|
Thereafter |
|
|||||||
J.P. Morgan credit agreement(1) |
|
$ |
82,961 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
82,961 |
|
Convertible Senior Notes (1) |
|
|
201,250 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
201,250 |
|
|
|
— |
|
Purchase obligations(2) |
|
|
274,179 |
|
|
|
121,993 |
|
|
|
118,945 |
|
|
|
19,500 |
|
|
|
5,393 |
|
|
|
4,151 |
|
|
|
4,197 |
|
Operating lease obligations(3) |
|
|
35,267 |
|
|
|
2,294 |
|
|
|
8,477 |
|
|
|
7,532 |
|
|
|
4,234 |
|
|
|
3,131 |
|
|
|
9,599 |
|
Totals |
|
$ |
593,657 |
|
|
$ |
124,287 |
|
|
$ |
127,422 |
|
|
$ |
27,032 |
|
|
$ |
9,627 |
|
|
$ |
208,532 |
|
|
$ |
96,757 |
|
(1) See description below.
(2) We have purchase obligations related to open purchase orders to our contract manufacturers, ODMs, component suppliers, service partners and
other vendors. The settlement of our purchase obligations will occur at various dates beginning in 2026 and going through 2031. See Note 18 of
the Notes to Condensed Consolidated Financial Statements, included in Part I, Item 1 of the report for more information.
(3) We have operating leases for office space, automobiles and various other equipment in the U.S. and in certain international locations.
Our operating leases have remaining lease terms ranging from 1 month to 143 months as of September 30, 2026.
J.P. Morgan Credit Agreement
On July 21, 2026, ADTRAN Holdings, Inc. entered into a credit agreement with J.P. Morgan Chase Bank, N.A. The Credit Agreement allows for borrowings of up to $350.0 million in aggregate principal amount. The Credit Agreement matures in July 2031. However, the maturity date of the Credit Agreement will be 91 days prior to the final maturity date of the senior convertible notes, unless the senior convertible notes have been repaid, refinanced or defeased in full on or prior to such date. As of September 30, 2026, and as of the date of issuance of the condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q, the Company’s borrowings under the Credit Agreement were $83.0 million. See Note 11 of the Notes to Condensed Consolidated Financial Statements, included in Part I, Item 1 of this report and "Liquidity and Capital Resources - J.P. Morgan Credit Agreement" in Part I, Item 2 of this report for additional information.
Convertible Senior Notes
On September 19, 2025, the Company issued $201.3 million aggregate principal amount of the Notes. The Notes accrue interest at a rate of 3.75% per annum, payable semi-annually in arrears on March 15 and September 15 of each year, beginning March 15, 2026. Unless earlier repurchased, redeemed, or converted, the Notes will mature on September 15, 2030. See Note 12 of the Notes to Condensed Consolidated Financial Statements, included in Part I, Item 1 of this report and "Liquidity and Capital Resources - Convertible Senior Notes" in Part I, Item 2 of this report for additional information.
Receivables Purchase Arrangements
On July 1, 2024, the Company entered into a Factoring Agreement with a third-party financial institution (the "Factor"), which accelerates receivable collection and helps to better manage cash flow. The Factoring Agreement provides for up to $40.0 million in factoring capacity, subject to eligible receivables and reserve requirements, secured by the receivables. Total accounts receivables factored as of the end of September 30, 2026, totaled $16.8 million of which $3.7 million was retained pursuant to the Factoring Agreement in the reserve account. During the nine months ended September 30, 2026 and 2025, the Company received $135.0 million and $119.4 million in cash proceeds from the Factoring Agreement, respectively, which are recorded in operating cash flows on the Condensed Consolidated Statement of Cash Flows. See Note 3 of the Notes to Condensed Consolidated Financial Statements, included in Part I, Item 1 of this report for additional information.
Adtran Networks Domination and Profit and Loss Transfer Agreement
The DPLTA between the Company, as the controlling company, and Adtran Networks SE ("Adtran Networks"), as the controlled company, which was 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 absorb the annual net loss incurred by Adtran Networks. The Company’s payment obligation in satisfaction of the requirement that it absorb Adtran Networks’ annual net loss applies to the net loss generated by Adtran Networks in 2025, and it will apply to any net loss generated by Adtran Networks in 2026.
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
45
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 1.52% as of September 30, 2026. 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 €281.1 million or $318.4 million, based on an exchange rate as of September 30, 2026, and reflecting interest accrued through September 30, 2026, 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 were initiated in 2023 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). Following the effective date of the DPLTA on January 16, 2023, certain Adtran Networks shareholders filed lawsuits against the Company in the Regional Court Meiningen, Germany challenging the Exit Compensation offered under the DPLTA. The Regional Court Meiningen has not yet ruled on the shareholders' claims. After the Regional Court Meiningen issues an opinion, an appeal is likely to follow, and thus the Company does not anticipate a final non-appealable decision on the shareholders' claims until 2028 at the earliest.
Additionally, our obligation to pay Annual Recurring Compensation under the DPLTA is a continuing payment obligation, which will amount to approximately €7.2 million or $8.2 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. The Annual Recurring Compensation is due on the third banking day following the ordinary general shareholders’ meeting of Adtran Networks for the respective preceding fiscal year (but in any event within eight months following expiration of the fiscal year). With respect to the 2025 fiscal year, Adtran Networks’ ordinary general shareholders’ meeting occurred on June 15, 2026 and, therefore, the Annual Recurring Compensation was paid after the ordinary general shareholders’ meeting in the amount of $8.9 million. During the three months ended September 30, 2026 and 2025, we accrued $2.1 million and $2.5 million, respectively, in Annual Recurring Compensation. During the nine months ended September 30, 2026 and 2025, we accrued $6.1 million and $7.5 million, respectively, in Annual Recurring Compensation. The Annual Recurring Compensation is reflected as an increase to retained deficit in the Condensed Consolidated Balance Sheets.
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 and nine months ended September 30, 2026, approximately 0.8 million shares and 1.3 million shares, respectively, of Adtran Networks stock were tendered to the Company. This resulted in total Exit Compensation payments for the three and nine months ended September 30, 2026 of approximately €15.6 million or $18.1 million and €27.3 million, or $31.9 million, respectively, based on the applicable exchange rates at the time of the transactions, being paid to Adtran Networks shareholders. For the three and nine months ended September 30, 2025, less than one thousand shares and approximately 0.9 million shares, respectively, of Adtran Networks stock were tendered to the Company. This resulted in total Exit Compensation payments for the three and nine months ended September 30, 2026 of approximately €16.9 million, or $19.4 million based on the applicable exchange rates at the time of the transactions, being paid to Adtran Networks shareholders.
As of September 30, 2026 we held 38,218,023 no-par value bearer shares of Adtran Networks, representing 73.4% of Adtran Networks outstanding shares as of September 30, 2026.
The foregoing description of the DPLTA does not purport to be complete and is qualified in its entirety by reference to the DPLTA, a non-binding English translation of which incorporated by reference to Exhibit 10.14 of the 2025 Form 10-K.
Other Cash Requirements
During the nine months ended September 30, 2026, other than the Exit Compensation payments, Annual Recurring Compensation under the DPLTA, and receivables purchase arrangements there have been no other material changes in cash requirements from those discussed in the 2025 Form 10-K and our cash requirements table shown in Liquidity and Capital Resources above.
Performance Bonds
Certain contracts, customers and jurisdictions in which we do business require us to provide various guarantees of performance such as bid bonds, performance bonds and customs bonds. As of September 30, 2026, and December 31, 2025, we had commitments related to these bonds totaling $28.4 million and $22.4 million, respectively, which expire at various dates through October 2029. In general, we would only be liable for the amount of these guarantees in the event of default under each contract, the probability of which we believe is remote.
46
Critical Accounting Policies and Estimates
Accounting Policies
An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably could have been used or if changes in the accounting estimate that are reasonably likely to occur could materially impact the results of financial operations. Several accounting policies, as described in Note 1 of Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this report, require material subjective or complex judgment and have a significant impact on our financial condition and results of operations, as applicable. We believe the critical accounting policies affect our more significant judgments and estimates used in the preparation of our Condensed Consolidated Financial Statements. During the nine months ended September 30, 2026, there were no significant changes to our critical accounting policies and estimates as described in the financial statements contained in the 2025 Form 10-K.
47
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to financial market risks, including changes in foreign currency rates, prices of marketable equity and fixed-income securities. The primary objective of our investment activities is to preserve principal while at the same time achieving appropriate yields without significantly increasing risk. To achieve this objective, a majority of our marketable securities are investment grade money market instruments denominated in U.S. dollars.
We maintain depository investments with certain financial institutions. As of September 30, 2026, $65.1 million of our cash and cash equivalents and restricted cash, primarily foreign depository accounts, were in excess of government provided insured depository limits. Although these depository investments exceed government insured depository limits, we have evaluated the creditworthiness of these financial institutions and determined the risk of material financial loss due to exposure of such credit risk to be minimal.
Interest Rate Risk
As of September 30, 2026, we held $1.2 million of cash and variable-rate investments where a change in interest rates would impact our interest income. A hypothetical 50 basis point decline in interest rates as of September 30, 2026, assuming all other variables remain constant, would reduce annualized interest income on our cash and investments by less than $0.1 million. As of September 30, 2026, the carrying amounts of our revolving credit agreements totaled $83.0 million where a change in interest rates would impact our interest expense. A hypothetical 50 basis point increase in interest rates as of September 30, 2026, assuming all other variables remain constant, would increase our interest expense by $0.4 million annually. The analysis covers our debt and investments. The analyses use actual or approximate maturities for the debt and investments. The discount rates used were based on the market interest rates in effect at September 30, 2026.
Foreign Currency Exchange Rate Risk
We are exposed to changes in foreign currency exchange rates to the extent that such changes affect our revenue and gross margin on revenue derived from some international customers, operating expenses, and assets and liabilities held in non-functional currencies related to our foreign subsidiaries. Our primary exposures to foreign currency exchange rate movements are with the euro and the British pound. Our revenue is primarily denominated in the respective functional currency of the subsidiary and paid in that subsidiary's functional currency or certain other local currency. The majority of our global supply chain predominately makes payments in U.S. dollars and some of our operating expenses are paid in certain local currencies (approximately 50.3% and 43.9% of total operating expense for the periods ended September 30, 2026 and 2025, respectively). Therefore, our revenue, gross margins, operating expenses and operating loss are all subject to foreign currency fluctuations. As a result, changes in currency exchange rates could cause variations in our operating loss. For the nine months ended September 30, 2026, the effect of a hypothetical 10% movement in foreign exchange rates would result in a before-tax positive or negative impact of approximately $8.4 million. Actual future gains and losses associated with our foreign currency exposures and positions may differ materially from the sensitivity analyses performed as of September 30, 2026, due to the inherent limitations associated with predicting the foreign currency exchange rates, and our actual exposures and positions.
We have certain customers and suppliers who are invoiced or pay in a non-functional currency. Changes in the monetary exchange rates used to invoice such customers versus the functional currency of the entity billing such customers may adversely affect our results of operations and financial condition. To manage the volatility relating to these typical business exposures, we may enter into various derivative transactions, when appropriate. We do not hold or issue derivative instruments for trading or other speculative purposes. All non-functional currencies billed would result in a combined hypothetical gain or loss of $8.4 million if the U.S. dollar weakened or strengthened 10% against the billing currencies. All non-functional currencies invoiced by suppliers would result in a combined hypothetical gain or loss of $15.0 million if the U.S. dollar weakened or strengthened 10% against the billing currencies. This change represents an increase in the amount of hypothetical gain or loss compared to prior periods and is mainly due to an increase in U.S. dollar denominated billings in a non-U.S. dollar denominated subsidiary.
We have certain assets and liabilities, primarily accounts receivable and accounts payable and lease liabilities that are denominated in currencies other than the relevant entity’s functional currency. In certain circumstances, changes in the functional currency value of these assets and liabilities create fluctuations in our reported consolidated financial position, cash flows and results of operations.
For further information about the fair value of our investments as of September 30, 2026, see Note 6 of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this report.
48
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that the information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed, summarized and reported within the time periods specified in the rules and forms promulgated by the SEC, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
As of the end of the period covered by this report, an evaluation was carried out by management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) under the Exchange Act. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that due to the material weaknesses in our internal control over financial reporting described below, our disclosure controls and procedures were not effective as of September 30, 2026.
Material Weaknesses in Internal Control over Financial Reporting
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. In its assessment of the effectiveness of internal control over financial reporting as of September 30, 2026, management determined that there were deficiencies in Adtran’s internal control over financial reporting that constituted material weaknesses that existed as of September 30, 2026. Such material weaknesses were as follows:
The material weaknesses resulted in the restatements and revision to our consolidated financial statements for the years ended December 31, 2022, 2023 and 2024, as well as the condensed consolidated financial statements for the quarterly and year-to-date periods ended September 30, 2022, March 31, 2023, June 30, 2023, September 30, 2023, March 31, 2024, June 30, 2024 and September 30, 2024. The material weaknesses also resulted in material adjustments that were corrected prior to the issuance of the condensed consolidated financial statements for the quarterly period ended March 31, 2025. Additionally, these material weaknesses could result in misstatements of Adtran’s accounts or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected.
Management’s Remediation Efforts
To remediate the material weaknesses in Adtran’s internal control over financial reporting related to the risks of material misstatement, and financial statement preparation, presentation and disclosure of transactions including non-controlling interest, Adtran has enhanced existing controls over the review of Adtran’s consolidated financial statements and in the fourth quarter of 2025 completed the implementation of additional financial statement review controls. We believe these enhanced and additional controls operated effectively through the date of this filing. Adtran’s management believes that the continued operation of the activities outlined above in subsequent reporting periods will be effective in remediating such material weaknesses. The material weaknesses cannot be considered remediated until the applicable controls have operated for a sufficient period of time and management has concluded that, through testing, these controls are operating effectively.
Until the remediation steps set forth above, including the implementation of all necessary control activities that we identify, continue to operate effectively for a sufficient amount of time, and there has been time for us to conclude through testing that the control activities have been operating effectively for such time, the material weaknesses described above will not be considered fully remediated.
49
Changes in Internal Control over Financial Reporting
During the fiscal quarter ended September 30, 2026, Adtran completed the expansion of its SAP enterprise resource planning ("ERP") system, which was previously used by the Adtran Networks SE business, to substantially all of Adtran’s remaining operations. The implementation included the migration of certain financial and operational processes and data from Adtran’s legacy systems to the existing ERP environment.
In connection with the implementation, Adtran modified certain internal controls over financial reporting, including controls and procedures related to transaction processing, financial close and reporting, and the completeness and accuracy of information and reports used in the performance of internal controls. Adtran also updated certain control responsibilities, documentation and procedures to reflect the operation of controls in the expected ERP system.
The implementation and related changes to Adtran's processes and controls are changes in internal control over financial reporting during the most recent fiscal quarter covered by this report that have materially affected, or are reasonably likely to materially affect, Adtran's internal control over financial reporting. Management continues to monitor the operation of the new and modified controls and may make additional changes as Adtran completes post-implementation activities.
50
PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information presented under the captions "Legal Matters" and "DPLTA Appraisal Proceedings" in Note 18 "Commitments and Contingencies" of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this report is incorporated herein by reference.
ITEM 1A. RISK FACTORS
A list of factors that could materially affect our business, financial condition or operating results is described in Part I, Item 1A, "Risk Factors" in the 2025 Form 10-K. There have been no material changes to our risk factors from those disclosed in Part I, Item 1A, "Risk Factors" in the 2025 Form 10-K, other than as described in the risk factors below.
Risks related to our financial results and Company success
We are obligated to comply with covenants related to our JPMorgan Chase Bank Credit Agreement that restrict our operating activities, and the failure to comply with such covenants could result in defaults that accelerate our debt obligations.
On July 21, 2026, we terminated the Former Credit Agreement with Wells Fargo. All outstanding principal amounts thereunder were repaid, and we entered into a new five-year, $350.0 million credit agreement with JPMorgan Chase Bank, N.A. (the "Credit Agreement") on such date. As with our Former Credit Agreement, the Credit Agreement governs a portion of our indebtedness and contains restrictive covenants that limit our ability to engage in activities that may be in our long-term best interest. Our failure to comply with the restrictive covenants in our Former Credit Agreement has resulted in prior events of default, and a failure to comply with the restrictive covenants in the Credit Agreement may in the future result in an event of default that, if not cured or waived, results in the acceleration of all of our debt. Specifically, our Credit Agreement contains various restrictive covenants which include, among others, provisions limiting our ability to:
In addition, the Credit Agreement contains customary events of default, such as misrepresentation and a default in the performance or observance of any covenant (subject to customary cure periods and materiality thresholds for certain covenants).
In addition, certain covenants in the Credit Agreement, require us, among other things, to:
As a result of these restrictions, we have been and may be:
Our failure to comply with the restrictive covenants in our Former Credit Agreement has resulted in prior events of default, and a failure to comply with the restrictive covenants in the Credit Agreement may in the future result in an event of default that accelerates the payment of such debt, which would likely have a material adverse impact on our financial condition and results of operations. In addition, an event of default under the Credit Agreement would, if not cured or waived, permit the lenders to terminate all commitments to extend further credit under the applicable facility. Furthermore, if we were unable to repay the amounts due and payable under the Credit
51
Agreement, the lenders could proceed against the collateral granted to them to secure that indebtedness. In the event our lenders accelerate the repayment of our borrowings, we and our subsidiaries may not have sufficient assets to repay that indebtedness. In addition, these defaults could impair our ability to access debt and equity capital markets. For additional information on our debt covenants, see "Liquidity and Capital Resources" in Part I, Item 2 of this report.
Our significant indebtedness exposes us to various risks.
On July 21, 2026, the Company terminated the Former Credit Agreement and entered into the Credit Agreement. As of the date of this filing, the Company had total outstanding borrowings under the Credit Agreement of $83.0 million, leaving $261.7 million available for future borrowings.
In addition, on September 19, 2025, the Company issued $201.3 million principal amount of its 3.75% convertible senior notes due September 15, 2030 (the "2030 Notes" or the "Notes"). See "Cash Requirements" in Part I, Item 2 of this report for additional information.
Our indebtedness has and may continue to adversely affect our operations and liquidity. Our level of indebtedness:
Our ability to satisfy our debt obligations and to refinance our indebtedness in the future is dependent upon our future performance and other risk factors discussed in this section. We cannot assure you that we will maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness. If we fail to pay interest on, or repay, our borrowings under the Credit Agreement when required, we will be in default under the applicable loans, and may also suffer an event of default under the terms of other borrowing arrangements that we may enter into from time to time. In addition, our failure to repurchase the 2030 Notes or to pay the cash amounts due upon conversion when required will constitute a default under the indenture. We may be forced to further reduce or delay capital expenditures, sell assets or operations, seek additional capital or restructure or refinance our indebtedness. We cannot assure you that we would be able to take any of these actions, that these actions would be successful and permit us to meet our scheduled obligations or that these actions would be permitted under the terms of our current or future debt agreements. If we are unable to achieve sufficient operating results and resources, we could face substantial liquidity challenges and might be required to dispose of material assets or operations to meet our debt service and other obligations. We may not be able to consummate those dispositions or obtain sufficient proceeds from those dispositions to meet our debt service and other obligations when due. Any of these events could have a material adverse effect on our business, results of operations and financial condition.
We may also incur additional long-term debt and working capital lines of credit to meet future financing needs, which would increase our total indebtedness. Although the terms of its existing and future credit agreements and of the indentures governing its debt contain restrictions on the incurrence of additional debt, including secured debt, these restrictions are subject to a number of important exceptions and debt incurred in compliance with these restrictions could be substantial. If we or our restricted subsidiaries incur significant additional debt, the relative risks may intensify.
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.
In recent years, international market conditions and the international regulatory environment have been increasingly affected by competition among countries and geopolitical frictions. Since early 2025, the U.S. has introduced trade policy actions that increased import tariffs across a wide range of countries at various rates, with certain exemptions. On February 20, 2026, the United States Supreme Court issued a ruling striking down certain tariffs previously imposed under the IEEPA. Following the Supreme Court’s decision, the U.S. presidential administration invoked Section 122 of the Trade Act of 1974 to impose new tariffs of 10% on imports from all countries, in addition to any existing non-IEEPA tariffs (including tariffs on semiconductors, which are expected to increase in June 2027), and also amended tariffs on imports of copper, steel and aluminum previously imposed under Section 232 of the Trade Expansion
52
Act of 1962, effective April 6, 2026, to apply differentiated tariff rates based on metal content and the use of U.S.-origin metal inputs. On July 23, 2026, the USTR announced a final action under Section 301 of the Trade Act of 1974 imposing additional ad valorem tariffs of 10% or 12.5% on most goods imported from approximately 60 foreign trading partners, which together account for nearly all U.S. import trade. Under the final action, trading partners that have adopted, or have committed to adopt and effectively enforce, a qualifying forced labor import prohibition are subject to the lower 10% tariff rate, while trading partners that have not adopted such a prohibition are subject to the 12.5% rate. Certain categories of goods are excluded from the new tariffs, including articles already subject to duties under Section 232 of the Trade Expansion Act of 1962, and certain other products identified by USTR as warranting exemption.
Furthermore, recent U.S. trade actions have triggered retaliatory actions by certain affected countries, and other foreign governments may impose further trade measures, including reciprocal tariffs, on certain U.S. goods in the future. Because not all products can be sourced in all countries, we have experienced, and expect to continue to experience, increased costs in our supply chain as a result of such tariffs, which may lead to reduced margins or increased prices. We have taken, and may continue to take, steps intended to mitigate these impacts, but there is no assurance that these measures will be sufficient to offset the impact of tariffs on our business. At this time, it remains unclear what additional actions, if any, will be taken by the U.S. or other governments with respect to international trade agreements, the imposition of or changes to tariffs on goods imported into the U.S. or exported to other countries, tax policy related to international commerce, increased export control, sanctions and investment restrictions, import or use of foreign communications equipment, or other trade matters. Related costs and the uncertainty during transition periods could lead to changes in buying behavior, such as decreased demand. These impacts could have a negative effect on our financial results, including our revenue and profitability.
In addition, the extent and duration of increased tariffs and the resulting impact on general economic conditions and on our business are uncertain and depend on various factors, such as negotiations between the U.S. and affected countries, the responses of other countries or regions, exemptions or exclusions that may be granted, availability and cost of alternative sources of supply, and reduced demand for our and our customers’ products and services. Such conditions could have a material adverse impact on our business, results of operations and cash flows. Also, disruptions and volatility in the financial markets may lead to adverse changes in the availability, terms and cost of capital. Such adverse changes could increase our costs of capital and limit our access to external financing sources to fund acquisitions, capital projects, or refinancing of debt maturities on similar terms, which could in turn reduce our cash flows and limit our ability to pursue growth opportunities. Changes in tariffs and trade restrictions can be announced with little or no advance notice. The adoption and expansion of tariffs or other trade restrictions, increasing trade tensions, or other changes in governmental policies related to taxes, tariffs, trade agreements or policies, are difficult to predict, which makes attendant risks difficult to anticipate and mitigate. If we are unable to navigate further changes in U.S. or international trade policy, it could have a material adverse impact on our business and results of operations.
The complexity of announced or future tariffs may also increase the risk that we or our customers or suppliers may be subject to enforcement actions in the U.S. or foreign jurisdictions related to compliance with trade regulations. In May 2025, the U.S. Department of Justice announced that trade and customs fraud, including tariff evasion, is a high-impact area and designated it as an enforcement priority area. Additionally, the imposition of tariffs is dependent upon the classification of items under the Harmonized Tariff System ("HTS") and the country of origin of the item. Determination of the HTS and the origin of the item is a technical matter that can be subjective in nature. Accordingly, although we believe our classifications of both HTS and origin are appropriate, there is no certainty that the U.S. government will agree with us. If the U.S. government does not agree with our determinations, we could be required to pay additional amounts, including potential penalties, and our profitability would be adversely impacted.
Finally, tariffs on our customers’ products may adversely affect our gross profit margins in the future due to the potential for increased pressure on our selling prices by customers seeking to offset the impact of tariffs on their own products. In addition, tariffs could make our products less attractive relative to products offered by competitors, which may not be subject to similar tariffs. In reaction to the increased tariffs, customers may elect to reduce spending, renegotiate contracts, defer orders or delivery of existing orders, or shift purchases to other vendors, each of which would adversely impact our financial results and competitive position with customers. Increases in tariffs on imported goods or the failure to resolve current international trade disputes could further decrease demand and have a material adverse effect on our business and operating results.
Recently, the Company has experienced increased costs on imports of certain critical raw minerals and derivative products relevant to our business and products due to tariffs imposed by the U.S. government and other nations, and the availability, timing, and amount of any potential refunds of related U.S. tariffs remains uncertain. We have taken steps, and may take additional steps, to attempt to mitigate the impact of tariffs on our business, including by availing ourselves of certain exemptions to tariffs; by making changes to our supply chain practices, sources of supply, or manufacturing locations; and by passing the cost of tariffs to customers. These changes could take considerable time to implement, result in significant costs, and cause supply chain delays or disruption.
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Risks related to our control environment
We have completed the expansion of our enterprise resource planning ("ERP") system, and if this ERP system proves ineffective, we may be unable to timely or accurately prepare financial reports, make payments to our suppliers and employees, or invoice and collect from our users.
During the fiscal quarter ended September 30, 2026, we completed the expansion of our ERP system, which was previously used by the Adtran Networks SE business, to substantially all of our remaining operations. The ERP system is a critical element of our financial planning, reporting and compliance programs. If the ERP system does not work as planned, our ability to timely or accurately make payments to our suppliers and employees, and our ability to invoice and collect from our customers could be harmed. Data integrity problems or other issues may be discovered which, if not corrected, could impact our business or financial results. In addition, we may experience periodic or prolonged disruption of our financial functions arising out of our reliance on our ERP system, periodic upgrades or updates, or other external factors that are outside of our control.
Moreover, we operate our ERP system on a cloud platform. We are highly dependent upon the ERP system to host, manage and maintain our ERP system and supporting applications. Any disruptions to their business or processes, or delays in their ability to provide services to us, may in turn disrupt our business operations or increase costs. Furthermore, we receive regular system updates and enhancements on the cloud platform according to the ERP systems release timeline and change management processes, which if not managed properly may disrupt our business operations and delay our ability to process transactions and produce reports necessary to conduct our business.
Any unforeseen problems with our new ERP system, including failure to maintain or implement new or improved internal controls or in migrating away from previous systems and processes, could adversely affect our financial reporting systems and the effectiveness of our internal control over financial reporting, result in material weaknesses, result in material misstatements in our financial statements or cause us to fail to meet our reporting obligations. Our business, operating results and financial condition could also be adversely affected, and we could lose public confidence or the trading price of our common stock could decline.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Sales of Unregistered Securities
None.
Issuer Purchases of Equity Securities
During the three months ended September 30, 2026, we did not repurchase any shares of our common stock. As of September 30, 2026, there is no current authorization to repurchase common stock.
ITEM 5. OTHER INFORMATION
(a) Not applicable
(b) Not applicable
(c) Insider Trading Arrangements
During the fiscal quarter ended September 30, 2026, none of the Company’s directors or executive officers
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ITEM 6. EXHIBITS
Exhibits.
Exhibit No. |
Description |
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3.1 |
Amended and Restated Certificate of Incorporation of ADTRAN Holdings, Inc. (incorporated by reference to Exhibit 3.1 to the Company's Form 8-K filed July 8, 2022) |
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3.2 |
Certificate of Amendment to the Amended and Restated Certificate of Incorporation of ADTRAN Holdings, Inc. (incorporated by reference to Exhibit 3.1 to the Company's Form 8-K filed May 18, 2026) |
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3.3 |
Second Amended and Restated Bylaws of ADTRAN Holdings, Inc. (incorporated by reference to Exhibit 3.1 to the Company's Form 8-K filed October 24, 2023) |
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10.1 |
Credit Agreement dated July 21, 2026, by and among ADTRAN Holdings, Inc., as holdings, ADTRAN, Inc. and Adtran Networks SE, as borrowers, JPMorgan Chase Bank, N.A. and J.P. Morgan SE, as administrative agents and the lenders party thereto (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed July 23, 2026) |
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10.2 |
Guarantee and Collateral Agreement dated July 21, 2026 by and among ADTRAN Holdings, Inc., ADTRAN, Inc. and certain subsidiaries party thereto in favor of JPMorgan Chase Bank, N.A. (incorporated by reference to Exhibit 10.2 to the Company's Form 8-K filed July 23, 2026) |
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10.3 |
Share Pledge Agreement dated July 21, 2026 by and among ADTRAN Holdings, Inc., Adtran Networks SE, and JPMorgan Chase Bank, N.A., as administrative agent (incorporated by reference to Exhibit 10.3 to the Company's Form 8-K filed July 23, 2026) |
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10.4 |
Twenty-First Amendment to Employment Agreement, dated August 10, 2026, by and between Adtran Networks SE and Christoph Glingener (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed August 10, 2026) |
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31.1* |
Certification of the Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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31.2* |
Certification of the Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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32* |
Section 1350 Certifications |
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101 |
The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2026, formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets as of September 30, 2026 and December 31, 2025; (ii) Condensed Consolidated Statements of Loss for the three and nine months ended September 30, 2026 and 2025; (iii) Condensed Consolidated Statements of Comprehensive (Loss) Income for the three and nine months ended September 30, 2026 and 2025; (iv) Condensed Consolidated Statements of Changes in Equity for the three and nine months ended September 30, 2026 and 2025; (v) Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2026 and 2025; and (vi) Notes to Condensed Consolidated Financial Statements |
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104 |
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
* Filed herewith.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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ADTRAN Holdings, Inc. |
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Date: November 5, 2026 |
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/s/ Timothy Santo |
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Timothy Santo |
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Senior Vice President of Finance and Chief Financial Officer |
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(Principal Financial Officer and Duly Authorized Officer)
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