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What changed in ADTRAN Holdings, Inc.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of ADTRAN Holdings, Inc.'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+568 added−588 removedSource: 10-K (2025-03-03) vs 10-K (2024-03-15)

Top changes in ADTRAN Holdings, Inc.'s 2024 10-K

568 paragraphs added · 588 removed · 417 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

53 edited+9 added−11 removed87 unchanged
Biggest changeAreas of focus in our environmental sustainability program include: • established an ESG Committee of the Board of Directors; • maintained our mature environmental management system certified to ISO 14001 from 2015; 18 • advanced our Energy Management program with ISO 50001 readiness for the Huntsville site for 2024; • submitted our detailed Net Zero targets to SBTi in 2023; • continued purchase of Renewable Energy Credits, equaling ~20% of total Adtran energy consumption; • purchased certified carbon offsets to achieve Net Zero for our Scope 1 emissions; • continued using IntegrityNext, a platform to engage suppliers to obtain an ESG assessment aligned with international standards, allowing us to monitor ESG risks in our supply chain; • established Eco-Design guidelines in the Technology organization; • continued with Life Cycle Assessments across the portfolio; • continued with packaging optimization to reduce related materials and waste; • increased visibility of our program internally and externally through customer engagement, joining peer sustainability groups, offering training to team members and web site enhancements; • switched from the GRI reporting standard to the newer and more comprehensive ESRS standard; and • actively engaged our stakeholders with investor and supply chain assessments.
Biggest changeAreas of focus in our environmental sustainability program include: • dedicated ESG Committee of the Board of Directors; • maintained our mature environmental management system certified to ISO 14001:2015; 18 • advanced our Energy Management program with ISO 50001 readiness for the Huntsville site for 2025; • submitted our Net Zero targets to SBTi in 2023 and got them approved in 2024; • continued purchase of Renewable Energy Credits, equaling ~20% of total Adtran energy consumption; • continued using IntegrityNext, a platform to engage suppliers to obtain an ESG assessment aligned with international standards, allowing us to monitor ESG risks in our supply chain; • established Eco-Design guidelines in the Technology organization; • continued with Life Cycle Assessments across the portfolio; • continued with packaging optimization to reduce related materials and waste; • increased visibility of our program internally and externally through customer engagement, joining peer sustainability groups, offering training to team members and web site enhancements; • continued with the external CDP and EcoVadis assessments.
To service our customers and grow revenue, we are continually conducting research, developing new products addressing customer needs and testing those products for the specific requirements of particular customers.
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.
Additionally, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports, if applicable, filed or furnished pursuant to Section 13(a) or 15(d) of the Securities and Exchange Act of 1934, as amended, are available free of charge under the Investor Relations section of our website, www.adtran.com, as soon as reasonably practicable after we electronically file them with, or furnish them to, the SEC.
Additionally, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports, if applicable, filed or furnished pursuant to Section 13(a) or 15(d) of the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), are available free of charge under the Investor Relations section of our website, www.adtran.com, as soon as reasonably practicable after we electronically file them with, or furnish them to, the SEC.
For further discussion of risks associated with managing our inventory, see “Risk Factors – Managing our inventory is complex and may include write-downs of excess or obsolete inventory,” in Part I, Item 1A of this report. Government Regulation Telecommunications Matters Our products that are incorporated into wireless communications systems must comply with various government regulations, including those of the FCC.
For further discussion of risks associated with managing our inventory, see “Risk Factors – Managing our inventory is complex and may include write-downs of excess or obsolete inventory,” in Part I, Item 1A of this report. 17 Government Regulation Telecommunications Matters Our products that are incorporated into wireless communications systems must comply with various government regulations, including those of the FCC.
Our development process is conducted in accordance with ISO 9001, TL 9000, ISO 14001, and ISO 27001, all of which are international standards for quality and environmental management systems. Environmental Matters Our products must comply with various regulations and standards established by communications authorities in various countries, as well as those of certain international bodies.
Our development process is conducted in accordance with ISO 9001, TL 9000, ISO 14001, and ISO 27001, all of which are international standards for quality and environmental management systems. Environmental Matters Our products must comply with various regulations, directives and standards established by communications authorities in various countries, as well as those of certain international bodies.
We believe, however, that our competitive success will not fully depend on the ownership of intellectual property, but instead will depend primarily on the innovative skills, technical competence and marketing abilities of our personnel. 20 The communications industry is characterized by the existence of an ever-increasing volume of patent litigation and licensing activities.
We believe, however, that our competitive success will not fully depend on the ownership of intellectual property, but instead will depend primarily on the innovative skills, technical competence and marketing abilities of our personnel. The communications industry is characterized by the existence of an ever-increasing volume of patent litigation and licensing activities.
Competition We compete in markets for networking and communications services and solutions for Service Providers, businesses, government agencies and other organizations worldwide. Our products and services provide solutions supporting voice, data and video communications across fiber-, copper-, coaxial- and wireless-based infrastructure, as well as across wide area networks, local area networks and the internet.
Competition We compete in markets for networking and communications services and solutions for Service Providers, businesses, government agencies and other organizations worldwide. Our products and services provide solutions supporting voice, data and video communications across fiber-, copper-, and wireless-based infrastructure, as well as across wide area networks, local area networks and the internet.
We review our financial performance, specifically revenue and gross profit, based on these two segments. Network Solutions Segment The Network Solutions segment includes hardware and software products that enable a digital future which support our Subscriber, Access & Aggregation, and Optical Networking Solutions.
We review our financial performance, specifically revenue and gross profit, based on these two segments. Network Solutions Segment The Network Solutions segment includes hardware and software products that enable a digital future which support the Company's Subscriber, Access and Aggregation, and Optical Networking Solutions.
More specifically, our corporate strategy consists of the following elements: • Leadership in fiber networking : Breadth of portfolio, open and advanced architecture, assured and secure connectivity. • Growth in focus markets: More turnkey solutions and in-region resources, especially North America and EMEA. • Investment in converged edge: Innovation in optics, security, AI-driven networking, virtualization, SaaS, etc. • Transformation through software: Open and cloud-centric systems, end-to-end programmability, simplification through software, and innovative SaaS offerings. • Diversification of customers: Cross-selling current portfolio, acquisition of new customers and partners based on larger portfolio and trusted supplier status. • Focus on sustainability: Science-based emissions targets, process-based product eco-design, optimization of operations, logistics and all packaging, circular-economy processes. 13 Business Efficiency Program On November 6, 2023, due to the uncertainty around the current macroeconomic environment and its impact on customer spending levels, the Company’s management decided to implement a business efficiency program (the “Business Efficiency Program”) targeting the reduction of ongoing operating expenses and focusing on capital efficiency inclusive of certain salary reductions, an early retirement program, a site consolidation plan to include lease impairments and the partial sale of owned real estate (including the potential sale of portions of our headquarters), inventory write downs from product discontinuances, and the suspension of the quarterly dividend.
More specifically, our corporate strategy consists of the following elements: • Leadership in fiber networking : Breadth of portfolio, open and advanced architecture, assured and secure connectivity. • Growth in focus markets: Increased turnkey solutions and in-region resources, especially North America and EMEA. • Investment in converged edge: Innovation in optics, security, AI-driven networking, virtualization, SaaS, etc. • Transformation through software: Open and cloud-centric systems, end-to-end programmability, simplification through software, and innovative SaaS offerings. • Diversification of customers: Cross-selling current portfolio, acquisition of new customers and partners based on larger portfolio and trusted supplier status. • Focus on sustainability: Science-based emissions targets, process-based product eco-design, optimization of operations, logistics and all packaging, circular-economy processes. 13 Business Efficiency Program On November 6, 2023, due to the uncertainty around the current macroeconomic environment and its impact on customer spending levels, the Company’s management decided to implement a business efficiency program (“Business Efficiency Program”) targeting the reduction of ongoing operating expenses and focusing on capital efficiency inclusive of certain salary reductions, an early retirement program, a site consolidation plan to include lease impairments and the sale of owned real estate (including the probable sale of our headquarters), inventory write downs from product discontinuances, and the suspension of the quarterly dividend.
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 our Mosaic One platform that manages end-to-end network and service optimization for both fiber access infrastructure and mesh Wi-Fi connectivity.
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 Business Efficiency Program expands upon other recently implemented restructuring efforts and synergy costs following the Business Combination. For instance, on August 17, 2023, the Company’s management determined to discontinue its copper-based Digital Subscriber Line broadband access technology products and its fixed wireless access products in its Network Solutions segment.
The Business Efficiency Program expanded upon other recently implemented restructuring efforts and synergy costs following the Business Combination. For instance, on August 17, 2023, the Company’s management determined to discontinue its copper-based Digital Subscriber Line broadband access technology products and its fixed wireless access products in its Network Solutions segment.
Our 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 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").
Wilson, Jr. Age 53 2019 to present Chief Revenue Officer 2015 – 2019 Senior Vice President of Technology and Strategy 2006 – 2015 Senior Vice President and General Manager (Carrier Networks) There are no family relationships among our directors or executive officers. Adtran Networks is a majority-owned subsidiary of the Company.
Wilson, Jr. Age 54 2019 to present Chief Revenue Officer 2015 – 2019 Senior Vice President of Technology and Strategy 2006 – 2015 Senior Vice President and General Manager (Carrier Networks) There are no family relationships among our directors or executive officers. Adtran Networks is a majority-owned subsidiary of the Company.
The Optical Networking Solutions category includes the following products, software and services: Optical Transport: • FSP 3000 CC • FSP 3000 R7 Optical Engines: • AOE Coherent Pluggables • AOE MicroMax • AOE AccessWave Infrastructure Monitoring: • ALM Fiber Monitoring Software: • Ensemble Controller Services: • Build • Care • Training • Professional Services • Software Services • Managed Services 12 Industry Overview The global growth of the cloud and mobility, home office and mobile working, industrial applications and 5G are accelerating the demand for more bandwidth, requiring more flexible provisioning of telecommunications services and more precise network synchronization.
The Optical Networking Solutions category includes the following products, software and services: Optical Transport: • FSP 3000 CC • FSP 3000 R7 Optical Engines: • AOE Coherent Pluggables • AOE MicroMax • AOE AccessWave Infrastructure Monitoring: • ALM Fiber Monitoring Software: • Mosaic Network Controller Services: • Build • Care • Training • Professional Services • Software Services • Managed Services 12 Industry Overview The global growth of the cloud and mobility (5G), home office and mobile working, industrial applications and AI are accelerating the demand for more bandwidth, requiring more flexible provisioning of telecommunications services and more precise network synchronization.
Our portfolio includes products for multi-gigabit service delivery over fiber or alternative media to homes and businesses. Services & Support Segment 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.
The Company's portfolio includes products for multi-gigabit service delivery over fiber or alternative media to homes and businesses. Services & Support Segment 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.
The Access & Aggregation category includes the following products, software and services: Optical Line Terminals ("OLTs"): • TA5000 OLT • SDX OLT • EPON OLT • Pluggable Optics Optical Networking Terminals ("ONTs"): • EPON ONUs • GPON-XGS-PON ONTs Packet Aggregation: • FSF 150-XG400 Aggregators • SDX Aggregation • Activator Copper Access • Gfast DPUs • hiX • Total Access FTTN • Traditional Broadband Oscilloquartz: • OSA AccessSync • OSA Edge Sync Software: • MCP • AOE and ACI-E 11 • OSA CoreSync • OSA Inside • Mosaic One SaaS Applications • Ensemble Controller Service: • Build • Care • Training • Professional Services • Software Services • Managed Services 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.
The Access & Aggregation category includes the following products, software and services: Optical Line Terminals ("OLTs"): • TA5000 OLT • SDX OLT • EPON OLT • Pluggable Optics Optical Networking Terminals ("ONTs"): • EPON ONUs Packet Aggregation: • FSF 150-XG400 Aggregators • SDX Aggregation • Activator Copper Access: • Gfast DPUs • hiX • Total Access FTTN • Traditional Broadband Oscilloquartz: • OSA AccessSync • OSA Edge Sync Software: • MCP • AOE and ACI-E 11 • OSA CoreSync • OSA Inside • Mosaic One SaaS Applications • Mosaic Network Controller Service: • Build • Care • Training • Professional Services • Software Services • Managed Services 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.
Additionally, we offer access to many programs that provide additional monetary support in the event of a qualifying incident, including accident insurance, life insurance and hospital indemnity insurance, among others. We understand that mental health is an essential aspect of our employees’ wellbeing and we offer an employee assistance program at no charge to employees and their family members.
Additionally, we offer access to many programs that provide additional monetary support in the event of a qualifying incident, including accident insurance, life insurance and hospital indemnity insurance, among others. We understand that mental health is an essential aspect of our employees’ well-being and we offer an employee assistance program at no charge to employees and their family members.
We offer a broad portfolio of flexible software and hardware network solutions and services that enable network operators to meet today’s service demands while also enabling them to transition to the fully converged, scalable, highly automated, cloud-controlled voice, data, internet and video network of the future.
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.
The reference to our website address does not constitute incorporation by reference of the information contained on the website, which information should not be considered part of this report. 22
The reference to our website address does not constitute incorporation by reference of the information contained on the website, which information should not be considered part of this report. 21
In 2023, we released many market-leading products like additions to our SDX OLT range, new residential gateway and ONT families, outdoor packet demarcation devices, packet demarcation, encryption/security products, edge and core transport solutions. We enhanced our market leading synchronization & timing portfolio, as well as our SaaS delivery abilities and Mosaic One software.
In 2024, we released many market-leading products like additions to our SDX OLT series, new residential gateway and ONT families, outdoor packet demarcation devices, packet demarcation, encryption/security products, edge and core transport solutions. We enhanced our market-leading synchronization & timing portfolio, as well as our SaaS delivery abilities and Mosaic One software.
As of December 31, 2023, Adtran Networks had 91 employees in Switzerland, France, Italy, Finland and Spain that were subject to collective bargaining agreements of different associations. None of our other employees are subject to collective bargaining agreements. Additionally, we continually work to recruit technical talent in diverse communities through our cooperative education program.
As of December 31, 2024, Adtran Networks had 94 employees in Switzerland, France, Italy, Finland and Spain that were subject to collective bargaining agreements of different associations. None of our other employees are subject to collective bargaining agreements. Additionally, we continually work to recruit technical talent in diverse communities through our cooperative education program.
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.
Our success depends upon our ability to have customers adopt our technology, and 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.
We back these services with a global support organization that offers on-site and off-site support services with varying SLAs. Revenue Categories In addition to operating under two reportable segments, we also report revenue across three categories – Subscriber Solutions, Access & Aggregation Solutions and Optical Networking Solutions.
The Company backs these services with a global support organization that offers on-site and off-site support services with varying SLAs. Revenue Categories In addition to operating under two reportable segments, we also report revenue across three categories – Subscriber Solutions, Access & Aggregation Solutions and Optical Networking Solutions.
Other Regulations As a company with global operations, we are subject to complex foreign and U.S. laws and regulations, including trade regulations; tariffs; import and export regulations; anti-bribery and corruption laws; antitrust or competition laws; data privacy laws and regulations, such as the GDPR and the California Consumer Privacy Act; and cybersecurity laws and regulations, among others.
Other Regulations As a company with global operations, we are subject to complex foreign and U.S. laws and regulations, including anti-bribery and corruption laws; antitrust or competition laws; data privacy laws and regulations, such as the GDPR and the California Consumer Privacy Act; and cybersecurity laws and regulations, among others.
During the years ended December 31, 2023, 2022 and 2021, research and development expenditures totaled $258.3 million, $173.8 million and $108.7 million, respectively. While we develop the majority of our products internally, we also leverage partners for some solutions. Additionally, we license intellectual property or acquire technologies.
During the years ended December 31, 2024, 2023 and 2022, research and development expenditures totaled $221.5 million, $258.3 million and $173.8 million, respectively. While we develop the majority of our products internally, we also leverage partners for some solutions. Additionally, we license intellectual property or acquire technologies.
Stanton Age 59 2007 to present Chief Executive Officer and Chairman of the Board Chief Executive Officer and Management Board member of Adtran Networks Ulrich Dopfer Age 50 2023 to present Senior Vice President, Chief Financial Officer, Secretary and Treasurer Chief Financial Officer and Management Board member of Adtran Networks 2015 to 2023 Chief Financial Officer (Adtran Networks) Christoph Glingener Age 55 2023 to present Chief Technology Officer Chief Technology Officer and Management Board member of Adtran Networks 2022 to 2023 Chief Executive Officer (Adtran Networks) 2007 to 2022 Chief Technology Officer of Adtran Networks James D.
Stanton Age 60 2007 to present Chief Executive Officer and Chairman of the Board 2023 to present Chief Executive Officer and Management Board member of Adtran Networks Ulrich Dopfer Age 51 2023 to present Senior Vice President, Chief Financial Officer, Secretary and Treasurer Chief Financial Officer and Management Board member of Adtran Networks 2015 to 2023 Chief Financial Officer of Adtran Networks Christoph Glingener Age 56 2023 to present Chief Technology Officer Chief Technology Officer and Management Board member of Adtran Networks 2022 to 2023 Chief Executive Officer of Adtran Networks 2007 to 2022 Chief Technology Officer of Adtran Networks James D.
We also utilized 192 contractors and 160 temporary employees domestically and internationally in various manufacturing, engineering, sales and general and administrative capacities. We believe that our relationship with our employees is good. We have a diverse employee base located in 36 countries.
We also utilized 240 contractors and numerous temporary employees domestically and internationally in various manufacturing, engineering, sales and general and administrative capacities. We believe that our relationship with our employees is good. We have a diverse employee base located in 37 countries.
As of December 31, 2023, approximately 167 employees (75%) of ADTRAN GmbH were subject to collective bargaining agreements of either the Association of Metal and Electrical Industry in Berlin and Brandenburg e.V. or NORDMETALL Association of Metal and Electrical Industry e.V.
As of December 31, 2024 approximately 90 employees (76%) of Adtran GmbH were subject to collective bargaining agreements of either the Association of Metal and Electrical Industry in Berlin and Brandenburg e.V. or NORDMETALL Association of Metal and Electrical Industry e.V.
During 2023, we had one customer who comprised greater than 10.0% of our revenue, which was an international Service Provider and our five largest customers comprised 37.0% of our revenue. Additionally, our revenue in the U.S., U.K. and Germany comprised more than 10% of our revenue in 2023.
During 2024, we had one customer who comprised greater than 10.0% of our revenue, which was an international Service Provider and our next five largest customers comprised 21.7% of our revenue. Additionally, our revenue in the U.S., U.K. and Germany each comprised more than 10% of our revenue in 2024.
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.
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.
Optical Networking Solutions was added as a revenue category to represent a meaningful portion of Adtran Networks' portfolio. 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.
Our Subscriber Solutions portfolio is used by Service Providers to terminate their access services infrastructure at the customer's 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.
Additionally, on October 25, 2023, all employees were informed of certain personnel measures, which included the reduction of salary for select management, a reduction of approximately 5% of the workforce, an early retirement program and a hiring freeze.
On October 25, 2023, all employees were informed of certain personnel measures, which included the reduction of salary for select management, a reduction of approximately 5% of the workforce, an early retirement program and a hiring freeze. Additionally, on April 11, 2024, Management determined to close a facility in Greifswald, Germany which was completed in November 2024.
We will issue an ESG report for 2023 in order to fulfill the reporting obligations set forth in the German commercial code applicable to Adtran Networks. Within the report is information on our environmental, social and governance programs, including quantitative and qualitative data for both Adtran Networks and the Company.
We will issue an ESG report for 2024 in early 2025, which will use the EU ESRS guidelines, in order to fulfill the reporting obligations set forth in the EU CSRD. Within the report is information on our environmental, social and governance programs, including quantitative and qualitative data for both Adtran Networks and the Company.
In addition to our global headquarters in Huntsville, Alabama, and our European headquarters in Munich, Germany, we have sales, administrative, services and support and research and development facilities in strategic global locations. The Company solely owns ADTRAN, Inc. and is the majority shareholder of Adtran Networks (formerly ADVA Optical Networking SE).
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 SE (“Adtran Networks”). ADTRAN, Inc. is a leading global provider of open, disaggregated networking and communications solutions.
We are 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; and federal, state and local government agencies.
(“Adtran” or the “Company”) is a leading global provider of networking and communications platforms, software, systems and services focused on the metro optical transport, data center interconnect, and 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.
We compete with a number of companies in the markets we serve. In the Subscriber Solutions & Experience category, our primary competitors include Calix, Cisco, CommScope, and Ribbon Communications. In our Access & Aggregation solutions category, key competitors include Calix, Casa Systems, Ciena, CommScope, DZS, Harmonic, Huawei, Nokia, Reliance/Radisys, Vecima Networks and ZTE.
We compete with a number of companies in the markets we serve. In the Subscriber Solutions & Experience category, our primary competitors include Calix, Ciena, DZS, Nokia, eero, and a growing number of Asian based ODM's selling direct to carriers. In our Access & Aggregation solutions category, key competitors include Nokia, Calix, Huawei, ZTE Corporation, DZS, Vecima, Harmonic and Microchip.
For additional information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Business Efficiency Program” in Part II, Item 7 of this report.
For additional information regarding the Business Efficiency Program, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 or Note 20 of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this report.
Due to the improved supply situation and the associated reduction in lead times, our customers began to optimize their inventories in the past fiscal year. This has led to a slowdown in ordering behavior.
Due to the stabilizing supply chain environment and the associated reduction in lead times, our customers began to optimize their inventories in the past fiscal year. This has led to a slowdown in ordering behavior. In addition, the continuing uncertain macroeconomic conditions related to inflationary pressures and elevated interest rates has impacted the spending behavior of our customers.
As of December 31, 2023, we had 3,227 full-time employees, with 1,249 in the U.S. and 1,978 in our international subsidiaries located in North America, Latin America, EMEA and APAC regions. 2,027 of these full-time employees are employees of Adtran Networks and its subsidiaries.
As of December 31, 2024 we had 3,234 total employees, of which 3,091 full-time employees and 143 part-time employees.We had 1,133 employees in the U.S. and 2,101 employees in our international subsidiaries located in North America, Latin America, EMEA and APAC regions.
This program seeks to identify college students that major in relevant technological areas and expose them to our work environment on an 19 alternating semester basis. Our goal is to retain as many of these students as possible for full-time employment after graduation to build our organization's future.
This program seeks to identify college students that major in relevant technological areas and expose them to our work environment on an alternating semester basis.
For additional information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Business Efficiency Program” in Part II, Item 7 of this report. Customers We have a diverse global customer base that includes large, medium and small Service Providers, alternative Service Providers, such as utilities, municipalities and fiber overbuilders; cable/MSOs; SMBs and distributed enterprises.
Customers We have a diverse global customer base that includes large, medium and small Service Providers, alternative Service Providers, such as utilities, municipalities and fiber overbuilders; cable/MSOs; SMBs and distributed enterprises.
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 the disruption to our operations and order fulfillment.
However, inflationary pressures on our supply chain have eased somewhat, which has led to reductions in cost premiums on raw material costs and freight. 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 the disruption to our operations and order fulfillment.
For a discussion of risks associated with our intellectual property and proprietary rights, see “Risk Factors – Our failure to maintain rights to intellectual property used in our business could adversely affect the development, functionality, and commercial value of our products” in Part I, Item 1A of this report. 21 Information about our Executive Officers Set forth below is certain information regarding our current executive officers.
For a discussion of risks associated with our intellectual property and proprietary rights, see “Risk Factors – Our failure to maintain rights to intellectual property used in our business could adversely affect the development, functionality, and commercial value of our products” in Part I, Item 1A of this report. 20 Information about our Executive Officers Our executive officers as of March 3, 2025, are listed below, along with their ages on that date, positions and offices held with the Company, and principal occupations and employment, focused primarily on the past five years (and all positions within the Company).
We do not derive any material amount of revenue from the licensing of our patents. The name "ADTRAN" is a registered trademark of ours, as is the name “SmartRG” and a number of our product identifiers and names. We also claim rights to a number of unregistered trademarks.
The name "Adtran" is a registered trademark of ours, as is the name “SmartRG” and a number of our product identifiers and names. We also claim rights to a number of unregistered trademarks. We protect our intellectual property and proprietary rights in accordance with good legal and business practices.
In addition, we focus on vertical optical technologies like Silicon Photonics, as well as microelectronics in order to differentiate and fully control the vertical value stack of our solutions.
This includes optical transport, packet demarcation and aggregation, synchronization and fiber-optic access, DSL, access routing, ethernet switching, wireless LANs, integrated access, converged services, VoIP, network management and professional services. In addition, we focus on vertical optical technologies like Silicon Photonics, as well as microelectronics in order to differentiate and fully control the vertical value stack of our solutions.
We encourage an environment where individuality is embraced regardless of age, gender, identity, race, sexual orientation, physical or mental ability, ethnicity and perspective and where each employee is accepted and respected and can, therefore, bring their most authentic self to work.
We encourage an environment where individuality is embraced regardless of age, gender, identity, race, sexual orientation, physical or mental ability, ethnicity and perspective and where each employee is accepted. Our Board of Directors is comprised of seven members, two of which are females and three of which are ethnically diverse.
Environmental legislation within the EU may increase our cost of doing business as we amend our products to comply with these requirements. For example, the EU issued the RoHS directive, the WEEE directive and the REACH regulation. We are also subject to disclosure and related requirements that apply to the presence of conflict minerals in our products or supply chain.
Environmental legislation in particular within the EU may increase our cost of doing business as we amend our products to comply with these requirements. This includes the CSRD directive, the CBAM regulation, the WEEE directive and the ESPR adopted by the EU.
We continue to implement measures to comply with these and other similar directives and regulations from additional countries.
We are also subject to disclosure and related requirements that apply to the presence of conflict minerals in our products or supply chain. We continue to implement measures to comply with these and other similar directives and regulations from additional countries.
Intellectual Property We develop and own a significant amount of intellectual property. We hold over 1,000 patents worldwide related to our products and over 50 additional pending patent applications. Our patents expire at various dates between 2024 and 2041. We continue to seek additional patents related to our research and development activities.
As employees increase their competencies in these areas and master skills within their individual roles, this program offers a variety of career advancement paths. Intellectual Property We develop and own a significant amount of intellectual property. We hold over 1,000 patents worldwide related to our products and over 50 additional pending patent applications.
Diversity, Equity and Inclusion We believe that maintaining a diverse and inclusive workforce is critical to the success of our business.
Our goal is to retain as many of these students as possible for full-time employment after graduation to build our organization's future. 19 Workplace Diversity We believe that maintaining a diverse and inclusive workforce is important to the success of our business.
In recent years, inflationary pressures on input costs, such as raw materials and labor, and distribution costs negatively impacted our operating results. However, inflationary pressures on our supply chain have eased somewhat, which has led to reductions in cost premiums on raw material costs and freight.
We maintain substantial inventories of raw materials for long lead time components to support this demand and avoid expedite fees. In recent years, inflationary pressures on input costs, such as raw materials and labor, and distribution costs negatively impacted our operating results.
We are actively engaged in developing and refining technologies to support data, voice and video transport primarily over IP/Ethernet and optical network architectures. This includes optical transport, packet demarcation and aggregation, synchronization and fiber-optic access, DSL, access routing, ethernet switching, wireless LANs, integrated access, converged services, VoIP, network management and professional services.
Development activities focus on solutions that support both existing and emerging communications industry technologies in segments that we consider viable revenue opportunities. We are actively engaged in developing and refining technologies to support data, voice and video transport primarily over IP/Ethernet and optical network architectures.
In addition, the current macroeconomic environment, related to continued elevated interest rates and ongoing inflationary pressures, has negatively impacted customer behavior in the Large and Medium/Small Service Provider segment. We expect these trends to continue in 2024. Foreign Currency Transactions with customers that are denominated in foreign currencies are recorded using the appropriate exchange rates from throughout the year.
However, customers have started to replenish their inventories to meet increasing demand; therefore, we expect order and billings to steadily increase in 2025. Foreign Currency Transactions with customers that are denominated in foreign currencies are recorded using the appropriate exchange rates from throughout the year.
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ITEM 1. BUSINESS Company Overview We are a leading global provider of networking and communications platforms, software, systems and services focused on the broadband access and optical networking market.
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ITEM 1. BUSINESS Company Overview ADTRAN Holdings, Inc.
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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.
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As of December 31, 2024, the Company classified the Company's property, specifically the North and South Towers located on our Huntsville, Alabama campus, as assets held for sale, see Note 1 and Note 6 of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this report for additional information .
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Prior to the Business Combination with Adtran Networks on July 15, 2022, ADTRAN, Inc. reported revenue across the following three categories: (1) Access & Aggregation, (2) Subscriber Solutions & Experience and (3) Traditional & Other Products.
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Other than our stated aim of selling our headquarters, the restructuring program was substantially complete as of December 31, 2024.
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Following the Business Combination with Adtran Networks, we recast these revenues such that ADTRAN, Inc.'s former Access & Aggregation revenue is combined with a portion of the applicable Adtran Networks solutions to create Access & Aggregation Solutions, ADTRAN’s former Subscriber Solutions & Experience revenue is combined with a portion of the applicable Adtran Networks solutions to create Subscriber Solutions and the revenue from Traditional & Other products is now included in the applicable Access & Aggregation Solutions or Subscriber Solutions category.
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Global Trade As a global company, the import and export of our products and services are subject to various laws and regulations, including international treaties, U.S. trade policy, tariffs, export controls and sanctions laws, customs regulations, and local trade rules around the world.
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See Inventory included in Part I, Item 1 of this report for additional information regarding our supply chain disruptions. Development activities focus on solutions that support both existing and emerging communications industry technologies in segments that we consider viable revenue opportunities.
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Such laws, rules, and regulations may delay the introduction of some of our products or impact our competitiveness through restricting our ability to do business in certain places or with certain entities and individuals, or the need to comply with domestic preference programs, laws concerning transfer and disclosure of sensitive or controlled technology or source code, unique technical standards, localization mandates, and duplicative in-country testing and inspection requirements.
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However, with the current global supply chain and transportation constraints, and limited availability of semiconductor chips and other components of our products, we have experienced and may continue to experience extended lead times, increased logistics intervals and costs, and lower volume of products deliveries, which have had and may continue to have a material adverse effect on our operating results and could have a material adverse effect on our customer relations and our financial condition. 17 We maintain substantial inventories of raw materials for long lead time components to support this demand and avoid expedite fees.
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Furthermore, material changes in such laws, rules or regulations or the failure by us to comply with such laws, rules and regulations could limit our ability to conduct business globally.
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Although these collective bargaining agreements will expire on September 30, 2024, negotiations with the employees of ADTRAN GmbH for a new collective bargaining agreement are ongoing and we have not experienced any work stoppage.
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For further discussion of risks associated with government regulation, see “Risk Factors – 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 1, Item 1A of this report.
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In addition to diversity in our workforce, we seek to ensure diversity in our Board of Directors with respect to skills, experience, gender, race and ethnicity. Our Board of Directors is comprised of nine members, two of which are females and three of which are ethnically diverse.
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As of December 31, 2024, the Company had substantially completed the goals outlined in our Business Efficiency Program except for the Company's aim of selling its headquarters. For additional information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Business Efficiency Program” in Part II, Item 7 of this report.
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As employees increase their competencies in these areas and master skills within their individual roles, this program offers a variety of career advancement paths. Employees also have access to the Learning module available in Workday. This platform houses all required training, as well as optional training in a variety of areas.
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Our patents expire at various dates between 2025 and 2041. We continue to seek additional patents related to our research and development activities. We do not derive any material amount of revenue from the licensing of our patents.
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We protect our intellectual property and proprietary rights in accordance with good legal and business practices.
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The age of each executive set forth below is as of February 29, 2024. Thomas R.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

115 edited+65 added−58 removed171 unchanged
Biggest changeOur level of gross margins may not be sustainable and has been and may continue to be adversely affected by numerous factors, including: • changes in customer, geographic or product or services mix, including software and the mix of configurations and professional services revenue within each product segment; • mix of domestic versus international revenue; • introduction of new products by competitors, including products with price-performance advantages; • our ability to reduce product cost; • increases in labor or material cost, including increases in material costs resulting from inflation or tariffs; • foreign currency exchange rate movements; • expediting costs incurred to meet customer delivery requirements; • excess inventory and inventory holding charges; • excess and obsolescence charges; • changes in shipment volume; • our ability to absorb fixed manufacturing costs during short-term fluctuations in customer demand; • loss of cost savings due to changes in component pricing or charges incurred due to inventory holding periods if parts ordering does not correctly anticipate product demand; • lower than expected benefits from value engineering; • increased price competition, including competitors from Asia, specifically China; • changes in distribution channels; • increased warranty cost or quality issues; • liquidated damages costs relating to customer contractual terms; • our ability to manage the impact of foreign currency exchange rate fluctuations relating to our revenue or cost of revenue; • slowdowns, recessions, economic instability (such as the instability in the financial services sector), political unrest, armed conflicts (such as the ongoing military conflict in Ukraine and in Israel and surrounding regions), or outbreaks of disease around the world; and • an extended government shutdown resulting from budgetary decisions or other potential delays or changes in the government appropriations or other funding authorization processes. 26 Our dependence on a limited number of suppliers for certain raw materials, key components and ODM products, combined with supply shortages, have prevented and may continue to prevent us from delivering our products on a timely basis, which has had and may continue to have a material adverse effect on operating results and could have a material adverse effect on customer relations.
Biggest changeOur level of gross margins may not be sustainable and has been and may continue to be adversely affected by numerous factors, including: • changes in customer, geographic or product or services mix, including software and the mix of configurations and professional services revenue within each product segment; • mix of domestic versus international revenue; • introduction of new products by competitors, including products with price-performance advantages; • our ability to reduce product cost; • increases in labor or material cost, including increases in material costs resulting from inflation or tariffs; • foreign currency exchange rate movements; • expediting costs incurred to meet customer delivery requirements; • excess inventory and inventory holding charges; • excess and obsolescence charges; • changes in shipment volume; • our ability to absorb fixed manufacturing costs during short-term fluctuations in customer demand; • loss of cost savings due to changes in component pricing or charges incurred due to inventory holding periods if parts ordering does not correctly anticipate product demand; • lower than expected benefits from value engineering; • increased price competition, including competitors from Asia, specifically China; • changes in distribution channels; • increased warranty cost or quality issues; • liquidated damages costs relating to customer contractual terms; • our ability to manage the impact of foreign currency exchange rate fluctuations relating to our revenue or cost of revenue; • slowdowns, recessions, economic instability (such as the instability in the financial services sector), political unrest, armed conflicts (such as the ongoing military conflict in Ukraine and in Israel and surrounding regions), or outbreaks of disease around the world; and 27 • an extended government shutdown resulting from budgetary decisions or other potential delays or changes in the government appropriations or other funding authorization processes.
In addition, an event of default under the Credit Agreement would 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 Agreement, the lenders could proceed against the collateral granted them to secure that indebtedness.
In addition, an event of default under the Credit Agreement would 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 Agreement, the lenders could proceed against the collateral granted to them to secure that indebtedness.
The challenges involved in integrating and divesting include: • combining service and product offerings and entering into new markets in which we are not experienced; • convincing customers and distributors that any such transaction will not diminish client service standards or business focus, preventing customers and distributors from deferring purchasing decisions or switching to other suppliers or Service Providers (which could result in additional obligations to address customer uncertainty), and coordinating service, sales, marketing and distribution efforts; • consolidating and rationalizing corporate information technology infrastructure, which may include multiple legacy systems from various acquisitions and integrating software code; • minimizing the diversion of the Board of Directors and management's attention from ongoing business concerns; • persuading employees that business cultures are compatible, maintaining employee morale and retaining key employees, integrating employees into our company, correctly estimating employee benefit costs and implementing restructuring programs; • coordinating and combining administrative, service, manufacturing, research and development and other operations, subsidiaries, facilities and relationships with third parties in accordance with local laws and other obligations while maintaining adequate standards, controls and procedures; • increasing our responsibility for the liabilities of the businesses we acquire, some of which we may not anticipate, including costs of third-party advisors to resolve disputes; • achieving savings from supply chain and administration integration; and 31 • efficiently divesting combined business operations which may cause increased costs as divested businesses are de-integrated from embedded systems and operations.
The challenges involved in integrating and divesting include: • combining service and product offerings and entering into new markets in which we are not experienced; • convincing customers and distributors that any such transaction will not diminish client service standards or business focus, preventing customers and distributors from deferring purchasing decisions or switching to other suppliers or Service Providers (which could result in additional obligations to address customer uncertainty), and coordinating service, sales, marketing and distribution efforts; • consolidating and rationalizing corporate information technology infrastructure, which may include multiple legacy systems from various acquisitions and integrating software code; • minimizing the diversion of the Board of Directors and management's attention from ongoing business concerns; • persuading employees that business cultures are compatible, maintaining employee morale and retaining key employees, integrating employees into our company, correctly estimating employee benefit costs and implementing restructuring programs; • coordinating and combining administrative, service, manufacturing, research and development and other operations, subsidiaries, facilities and relationships with third parties in accordance with local laws and other obligations while maintaining adequate standards, controls and procedures; • increasing our responsibility for the liabilities of the businesses we acquire, some of which we may not anticipate, including costs of third-party advisors to resolve disputes; • achieving savings from supply chain and administration integration; and • efficiently divesting combined business operations which may cause increased costs as divested businesses are de-integrated from embedded systems and operations.
Because our supply chain is complex, we may face reputational challenges with our customers, stockholders and other stakeholders if we are unable to verify sufficiently the origins for the conflict minerals used in our products and cannot assert that our products are “conflict free.” Environmental or similar social initiatives may also make it difficult to obtain supply of compliant components or may require us to write off non-compliant inventory, which could have an adverse effect on our business and operating results. 42 • the insider trading prohibitions and the respective directors' dealing rules, as well as disclosure and reporting obligations under the German Securities Trading Act ( Wertpapierhandelsgesetz ) and Regulation (EU) No. 596/2014 of the European Parliament and of the Council of April 16, 2014, and other applicable regulations.
Because our supply chain is complex, we may face reputational challenges with our customers, stockholders and other stakeholders if we are unable to verify sufficiently the origins for the conflict minerals used in our products and cannot assert that our products are “conflict free.” Environmental or similar social initiatives may also make it difficult to obtain supply of compliant components or may require us to write off non-compliant inventory, which could have an adverse effect on our business and operating results. • the insider trading prohibitions and the respective directors' dealing rules, as well as disclosure and reporting obligations under the German Securities Trading Act ( Wertpapierhandelsgesetz ) and Regulation (EU) No. 596/2014 of the European Parliament and of the Council of April 16, 2014, and other applicable regulations.
This international expansion has increased and may continue to increase our operational risks and impact our results of operations, including: • foreign currency exchange rate volatility has had and may continue to have an unfavorable impact on our cash flows, financial condition and results of operations; • exposure to unfavorable commercial terms in certain countries; • the time and cost to staff and manage foreign operations, including the time and cost to maintain good relationships with employee associations and work councils; • the time and cost to ensure adequate business interruption controls, processes and facilities; • the time and cost to manage and evolve financial reporting systems, maintain effective financial disclosure controls and procedures, and comply with corporate governance requirements in multiple jurisdictions; • the cost to collect accounts receivable and extension of collection periods; • the cost and potential disruption of facilities transitions required in some business acquisitions; • risks as a result of less regulation of patents or other safeguards of intellectual property in certain countries; • the potential impact of adverse tax, customs regulations and transfer-pricing issues; • exposure to increased price competition from additional competitors in some countries; • exposure to global social, political and economic instability, changes in economic conditions and foreign currency exchange rate movements; • potential exposure to liability or damage of reputation resulting from a higher incidence of corruption or unethical business practices in some countries; • potential regulations on data protection, regarding the collection, use, disclosure and security of data; • potential trade protection measures, export compliance issues, domestic preference procurement requirements, qualification to transact business and additional regulatory requirements; • potential exposure to natural disasters, epidemics and pandemics (and government regulations in response thereto) and acts of war or terrorism; and • potential exposure to ongoing military conflicts, including the conflict in Ukraine and in Israel and surrounding regions.
Furthermore, international expansion may continue to increase our operational risks and impact our results of operations, including: • foreign currency exchange rate volatility has had and may continue to have an unfavorable impact on our cash flows, financial condition and results of operations; • exposure to unfavorable commercial terms in certain countries; • the time and cost to staff and manage foreign operations, including the time and cost to maintain good relationships with employee associations and work councils; • the time and cost to ensure adequate business interruption controls, processes and facilities; • the time and cost to manage and evolve financial reporting systems, maintain effective financial disclosure controls and procedures, and comply with corporate governance requirements in multiple jurisdictions; • the cost to collect accounts receivable and extension of collection periods; • the cost and potential disruption of facilities transitions required in some business acquisitions; • risks as a result of less regulation of patents or other safeguards of intellectual property in certain countries; • the potential impact of adverse tax, customs regulations and transfer-pricing issues; • exposure to increased price competition from additional competitors in some countries; • exposure to global social, political and economic instability, changes in economic conditions and foreign currency exchange rate movements; • potential exposure to liability or damage of reputation resulting from a higher incidence of corruption or unethical business practices in some countries; • potential regulations on data protection, regarding the collection, use, disclosure and security of data; • potential trade protection measures, export compliance issues, domestic preference procurement requirements, qualification to transact business and additional regulatory requirements; • potential exposure to natural disasters, epidemics and pandemics (and government regulations in response thereto) and acts of war or terrorism; and • potential exposure to ongoing military conflicts, including the conflict in Ukraine and in Israel and surrounding regions.
Our level of indebtedness: • could make it more difficult for us to pay or refinance our debts as they become due during adverse economic and industry conditions because we may not have sufficient cash flows to make its scheduled debt payments; • has caused us and may continue to cause us to use a larger portion of our cash flow to fund interest and principal payments, reducing the availability of cash to fund working capital, capital expenditures, research and development and other business activities; • has contributed to our decision to suspend quarterly dividend payments to the Company's stockholders; • limits our ability to assume debt in a future acquisitions.
Our level of indebtedness: • could make it more difficult for us to pay or refinance our debts as they become due during adverse economic and industry conditions because we may not have sufficient cash flows to make its scheduled debt payments; • has caused us and may continue to cause us to use a larger portion of our cash flow to fund interest and principal payments, reducing the availability of cash to fund working capital, capital expenditures, research and development and other business activities; 25 • has contributed to our decision to suspend quarterly dividend payments to the Company's stockholders; • limits our ability to assume debt in a future acquisitions.
Further, the cost of complying with the evolving standards and regulations, including the cost of product re-design if necessary, or the failure to obtain timely domestic or foreign regulatory approvals or certification such that we may not be able to sell our products where these standards or regulations apply, may adversely affect our revenue, results of operations, financial condition and cash flows. • compliance with a wide variety of provincial, state, national and international laws and regulations applicable to the collection, use, retention, protection, disclosure, transfer and other processing of data, including personal data.
Further, the cost of complying with the evolving standards and regulations, including the cost of product re-design if necessary, or the failure to obtain timely domestic or foreign regulatory approvals or certification such that we may not be able to sell our products 38 where these standards or regulations apply, may adversely affect our revenue, results of operations, financial condition and cash flows. • compliance with a wide variety of provincial, state, national and international laws and regulations applicable to the collection, use, retention, protection, disclosure, transfer and other processing of data, including personal data.
Nevertheless, if our business does not generate sufficient cash flow from operations, we do not sufficiently reduce costs in a timely manner, or our future borrowings are not available to us in an amount sufficient to enable us and our subsidiaries to pay our indebtedness or to fund our other liquidity needs, we may need to raise additional debt or equity capital, refinance all or a portion of our indebtedness, sell assets, reduce or delay capital investments, any of which could have a material adverse effect.
If our business does not generate sufficient cash flow from operations, we do not sufficiently reduce costs in a timely manner, or if our future borrowings are not available to us in an amount sufficient to enable us and our subsidiaries to pay our indebtedness or to fund our other liquidity needs, we may need to raise additional debt or equity capital, refinance all or a portion of our indebtedness, sell assets, reduce or delay capital investments, any of which could have a material adverse effect.
In the current inflationary environment, because certain of our customer contracts provide for fixed pricing and/or due to our competitor’s pricing strategies, we are not always been able to raise the sales prices of our products and services at or above the rate at which our costs increase, which has reduced our profit and operating margins and has and could continue to have a material adverse effect on our financial results.
In the current inflationary environment, because certain of our customer contracts provide for fixed pricing and/or due to our competitor’s pricing strategies, we are not always been able to raise the sales prices of our products and services at or above the rate at which our costs increase, which has reduced our profit and operating margins and has and could continue 32 to have a material adverse effect on our financial results.
If further claims of intellectual property infringement against us are successful and we fail to obtain a license or develop or license non-infringing technology, our business, operating results, financial condition and cash flows could be materially adversely affected. Third party hardware or software that is used with our portfolios may not continue to be available or at commercially reasonable terms.
If claims of intellectual property infringement against us are successful and we fail to obtain a license or develop or license non-infringing technology, our business, operating results, financial condition and cash flows could be materially adversely affected. Third party hardware or software that is used with our portfolios may not continue to be available or at commercially reasonable terms.
Our products are highly complex, and we cannot ensure that our extensive product development, manufacturing and integration testing will be adequate to detect all defects, errors, failures and quality issues. Quality or performance problems for products covered under warranty could adversely impact our reputation and negatively affect our operating results, financial position and cash flows.
Our products are highly complex, and we cannot ensure that our extensive product development, manufacturing and integration testing will be adequate to detect all defects, errors, failures and quality issues. Material quality or performance problems for products covered under warranty could adversely impact our reputation and negatively affect our operating results, financial position and cash flows.
This may put us at a competitive disadvantage and we may be adversely affected by negative market perceptions, any of which may have a material adverse effect on our revenue, gross margin and profitability. Integration and divestiture issues are complex, time-consuming and expensive and, without proper planning and implementation, could significantly disrupt our business.
This may put us at a competitive disadvantage and we may be adversely affected by negative market perceptions, any of which may have a material adverse effect on our revenue, gross margin and profitability. 31 Integration and divestiture issues are complex, time-consuming and expensive and, without proper planning and implementation, could significantly disrupt our business.
Additionally, the European Commission published revised standard contractual clauses for data transfers from the European Economic Area in 2021, 41 which were required to go into effect by December 2022. Finally, the U.K. has enacted a version of the GDPR the implementation of which occurred by way of the Data Protection Act 2018, collectively referred to as the "U.K.
Additionally, the European Commission published revised standard contractual clauses for data transfers from the European Economic Area in 2021, which were required to go into effect by December 2022. Finally, the U.K. has enacted a version of the GDPR the implementation of which occurred by way of the Data Protection Act 2018, collectively referred to as the "U.K.
Our inability to identify and engage alternative subcontractors if and as required in the future, or the need to undertake required retraining and other activities related to establishing and developing a 38 new subcontractor relationship, could result in delays or reductions in product shipments which, in turn, could have a negative effect on our customer relationships and operating results.
Our inability to identify and engage alternative subcontractors if and as required in the future, or the need to undertake required retraining and other activities related to establishing and developing a new subcontractor relationship, could result in delays or reductions in product shipments which, in turn, could have a negative effect on our customer relationships and operating results.
This could limit our ability to take advantage of significant business opportunities, such as acquisition opportunities, and to react to changes in market or industry conditions; • could cause us to be more vulnerable to general adverse economic and industry conditions; 34 • could cause us to be disadvantaged compared to competitors with less leverage; and • limits our ability to borrow additional money.
This could limit our ability to take advantage of significant business opportunities, such as acquisition opportunities, and to react to changes in market or industry conditions; • could cause us to be more vulnerable to general adverse economic and industry conditions; • could cause us to be disadvantaged compared to competitors with less leverage; and • limits our ability to borrow additional money.
Our failure to comply with the restrictive covenants set forth in the Credit Agreement could result in defaults that accelerate the payment under such debt which would likely have a material adverse impact on our financial condition and results of operations.
Our failure to comply with the covenants set forth in the Credit Agreement could result in defaults that accelerate the payment under such debt which would likely have a material adverse impact on our financial condition and results of operations.
Other potential consequences of such military conflicts include, but are not limited to, a heightened risk of cyber-warfare, biological warfare or nuclear warfare, growth in the number of popular uprisings in the affected regions, increased political discontent, especially in the regions most affected by the conflicts or economic sanctions, continued displacement of persons to regions close to the areas of conflict and an increase in the number of refugees, among other unforeseen social and humanitarian effects which could impact our business, customers, and suppliers. 29 Our success depends on attracting and retaining key personnel.
Other potential consequences of such military conflicts include, but are not limited to, a heightened risk of cyber-warfare, biological warfare or nuclear warfare, growth in the number of popular uprisings in the affected regions, increased political discontent, especially in the regions most affected by the conflicts or economic sanctions, continued displacement of persons to regions close to the areas of conflict and an increase in the number of refugees, among other unforeseen social and humanitarian effects which could impact our business, customers, and suppliers. 30 Our success depends on attracting and retaining key personnel.
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 markets.
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.
Consequently, we are involved in a constant process of submitting for approval succeeding generations of products, as well as products that deploy new technology or respond to new technology demands from a major or other Service Provider.
Consequently, we are involved in a constant process of submitting for approval succeeding generations of 23 products, as well as products that deploy new technology or respond to new technology demands from a major or other Service Provider.
Our Wells Fargo Credit Agreement along with the amendments thereto, contain various restrictive covenants which include, among others, provisions restricting our ability to: • pay dividends or make other distributions or repurchase capital stock; • incur or guarantee additional debt; • make certain distributions, investments and other restricted payments; • engage in transactions with affiliates; • engage in mergers or consolidations; • grant or incur liens on assets; • dispose of assets; • make loans and investments; • modify our organization documents; and • enter into certain restrictive agreements.
Our Wells Fargo Credit Agreement along with the amendments thereto, contain various restrictive covenants which include, among others, provisions limiting our ability to: • pay dividends or make other distributions or repurchase capital stock; • incur or guarantee additional debt; • make certain distributions, investments and other restricted payments; • engage in transactions with affiliates; • engage in mergers or consolidations; • grant or incur liens on assets; • dispose of assets; • make loans and investments; • modify our organization documents; and • enter into certain restrictive agreements.
For example, during the third quarter of 2023, we recognized a $37.9 million non-cash goodwill impairment charge related to the Business Combination with Adtran Networks. In order to complete an acquisition, we may issue common shares, potentially creating dilution for existing shareholders, or borrow funds, which could affect our financial condition, results of operations and potentially our credit ratings.
For example, during the third quarter of 2023, we recognized a $37.9 million non-cash goodwill impairment charge related to the Business Combination with Adtran Networks. In order to complete an acquisition, we may issue common shares, potentially creating dilution for existing stockholders, or borrow funds, which could affect our financial condition, results of operations and potentially our credit ratings.
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 (in each case, including interest thereon) than agreed upon in the DPLTA.
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 (including interest thereon) or Annual Recurring Compensation than agreed upon in the DPLTA.
For additional information on our debt covenants, see "Liquidity & Capital Resources" in Part II, Item 7 of this report. 23 We have experienced significant fluctuations in revenue and such fluctuations may continue. Fluctuations in revenue can cause our operating results in a given reporting period to be higher or lower than expected.
For additional information on our debt covenants, see "Liquidity & Capital Resources" in Part II, Item 7 of this report. 22 We have experienced significant fluctuations in revenue and such fluctuations may continue. Fluctuations in revenue can cause our operating results in a given reporting period to be higher or lower than expected.
Our continued growth depends in part on the ability of our existing and potential customers to use and access our Mosaic One SaaS network operating platform. We use third-party service providers that we do not control for key components of our infrastructure, particularly with respect to delivery of our SaaS products.
Our quality of customer service and our continued growth depends in part on the ability of our existing and potential customers to use and access our Mosaic One SaaS network operating platform. We use third-party service providers that we do not control for key components of our infrastructure, particularly with respect to delivery of our SaaS products.
A reduction or interruption in supply, including disruptions on our global supply chain, caused in part by public health emergencies, geopolitical tensions (including as a result of the ongoing conflict in Ukraine and in Israel and surrounding regions, as well as China-Taiwan relations) or a significant natural disaster (including as a result of climate change); a significant increase in the price of one or more components (including as a result of inflation); a failure to adequately authorize procurement of inventory by our contract manufacturers; a failure to appropriately cancel, reschedule, or adjust our requirements based on our business needs; or a decrease in demand for our products could materially adversely affect our business, operating results, and financial condition and could materially damage customer relationships.
A reduction or interruption in supply, including disruptions on our global supply chain, caused in part by public health emergencies, geopolitical tensions (including as a result of the ongoing conflict in Ukraine and in Israel and surrounding regions, as well as China-Taiwan relations); a significant natural disaster (including as a result of climate change); tariffs or other trade restrictions; a significant increase in the price of one or more components (including as a result of inflation); a failure to adequately authorize procurement of inventory by our contract manufacturers; a failure to appropriately cancel, reschedule, or adjust our requirements based on our business needs; or a decrease in demand for our products could materially adversely affect our business, operating results, and financial condition and could materially damage customer relationships.
S ee “Liquidity and Capital Resources” in Part II, Item 7 of this report for additional information. 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.
S ee “Liquidity and Capital Resources” in Part II, Item 7 of this report for additional information. The opportunity for minority Adtran Networks shareholders to tender Adtran Networks shares in exchange for Exit Compensation had been scheduled to expire on March 16, 2023.
Any failure to maintain effective internal control over financial reporting could adversely impact our ability to report our financial position and results from operations on a timely and accurate basis. If our financial statements are not accurate, investors may not have a complete understanding of our operations.
Any failure to maintain effective internal control over financial reporting could adversely impact our ability to report our financial position and results from operations on a timely and accurate basis. If our financial statements are not accurate, investors do not have a complete understanding of our operations.
However, a significant failure or other compromise of our systems due to these issues could result in significant remediation costs, disrupt business operations, and divert management attention, which could result in harm to our business reputation, operating results, financial condition, and cash flows.
Additionally, a significant failure or other compromise of our systems due to these issues could result in significant remediation costs, disrupt business operations, and divert management attention, which could result in harm to our business reputation, operating results, financial condition, and cash flows.
Additionally, the Organization for Economic Co-operation and Development (the “OECD”), the G20, and other invited countries developed a global tax framework 43 inclusive of a 15% global minimum tax under the Pillar Two Global Anti-Base Erosion Rules (“Pillar Two”).
Additionally, the Organization for Economic Co-operation and Development (the “OECD”), the G20, and other invited countries developed a global tax framework inclusive of a 15% global 40 minimum tax under the Pillar Two Global Anti-Base Erosion Rules (“Pillar Two”).
Risks related to our financial results and Company success We are obligated to comply with covenants related to our Wells Fargo Credit Agreement that could restrict our operating activities, and the failure to comply with such covenants could result in defaults that accelerates our debt.
Risks related to our financial results and Company success We are obligated to comply with covenants related to our Wells Fargo Credit Agreement that restrict our operating activities, and the failure to comply with such covenants could result in defaults that accelerate our debt.
Likewise, if our financial statements are not filed on a timely basis, we could be subject to sanctions or investigations by the stock exchange on which our common stock is listed, the SEC or other regulatory authorities. In either case, there could be an adverse effect on our business, financial condition and results of operations.
Likewise, if our financial statements are not filed on a timely basis, we could be subject to sanctions or investigations by the stock exchange on which our common stock is listed, the SEC, the Federal Financial Supervisory Authority, or other regulatory authorities. In either case, there could be an adverse effect on our business, financial condition and results of operations.
However, due to the appraisal proceedings that have been initiated in accordance with applicable German law, this time period for tendering shares has been extended pursuant to the German Stock Corporation Act ( Aktiengesetz ) and will end two months after the date on which a final decision in such appraisal proceedings has been published in the Federal Gazette ( Bundesanzeiger ).
However, due to the appraisal proceedings that were initiated in accordance with applicable German law in 2023, this time period for tendering shares has been extended pursuant to the German Stock Corporation Act ( Aktiengesetz ) and will end two months after the date on which a final decision in such appraisal proceedings has been published in the Federal Gazette ( Bundesanzeiger ).
We are reducing our operating expenses in order to fund our obligations, and 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 are attempting to further reduce our operating expenses in order to fund our obligations, and we may be forced to further reduce or delay capital expenditures, sell assets or operations, seek additional capital or restructure or refinance our indebtedness.
Any failure, or perceived failure, by us to achieve our targets, further our initiatives, adhere to our public statements, comply with federal, state or international environmental, social and governance laws and regulations, or meet evolving and varied stakeholder expectations and standards could result in legal and regulatory proceedings against us and materially adversely affect our business, reputation, results of operations, financial condition and stock price.
Any failure, or perceived failure, by us to achieve our targets, further our initiatives, adhere to our public statements, comply with federal, state or international ESG laws and regulations, or meet evolving and varied stakeholder expectations and standards could result in legal and regulatory proceedings against us and materially adversely affect our business, reputation, results of operations, financial condition and stock price.
Although U.S. lawmakers passed legislation to raise the federal debt ceiling on multiple occasions, including a suspension of the federal debt ceiling in June 2023, ratings agencies have lowered or threatened to lower the long-term sovereign credit rating on the United States.
Although U.S. lawmakers passed legislation to raise the federal debt ceiling on multiple occasions, including a suspension of the federal debt ceiling in June 2023, ratings agencies have lowered or threatened to lower the long-term sovereign credit rating on the United States. On January 21, 2025, the U.S.
We may experience interruptions, delays and outages in service and availability from time to time as a result of problems with our third-party service providers’ infrastructure. Lack of availability of this infrastructure could be due to a number of potential causes including technical failures, natural disasters, fraud or security attacks that we cannot predict or prevent.
In the future, we may experience interruptions, delays and outages in service and availability from time to time as a result of our third-party service providers’ infrastructure. Lack of availability of this infrastructure could be due to a number of potential causes including technical failures, natural disasters, fraud or security attacks that we cannot predict or prevent.
Many governments, regulators, investors, employees, customers and other stakeholders are increasingly focused on environmental, social and governance considerations relating to businesses, including climate change and greenhouse gas emissions, human and civil rights, and diversity, equity and inclusion. In addition, we may make statements about our environmental, social and governance goals and initiatives through our website, press statements and other communications.
Many governments, regulators, investors, employees, customers and other stakeholders are increasingly focused on ESG considerations relating to businesses, including climate change and greenhouse gas emissions, human and civil rights, and diversity, equity and inclusion. In addition, we may make statements about our ESG goals and initiatives through our website, press statements and other communications.
We depend on a third-party cloud platform provider to host our Mosaic One SaaS network operating platform, and if we were to experience a disruption or interference in service, our business and reputation could suffer.
We depend on a third-party cloud platform provider to host our Mosaic One SaaS network and other operating platforms, and if we were to experience a material disruption or interference in service, our business and reputation could suffer.
Further, the Tax Act amended the Internal Revenue Code to require that specific research and experimental (“R&E”) expenditures be capitalized and amortized over five years (U.S. R&E) or fifteen years (non-U.S. R&E) beginning in the Company’s fiscal 2023. Although the U.S.
Further, the Tax Act amended the Internal Revenue Code to require that specific research and experimental (“R&E”) expenditures be capitalized and amortized over five years (U.S. R&E) or fifteen years (non-U.S. R&E), which began in fiscal 2023. Although the U.S.
These risks, as well as the number and frequency of cybersecurity events globally, may also be heightened during times of geopolitical tension or instability between countries. For example, a number of recent cybersecurity events have been alleged to have originated from the ongoing military conflict in Ukraine and in the Israel/Hamas war.
These risks, as well as the number and frequency of cybersecurity events globally, may also be heightened during times of geopolitical tension or instability between countries. For example, a number of recent cybersecurity events have been alleged to have originated from the ongoing military conflict in Ukraine and in Israel and its surrounding areas.
As a result of the Business Combination, we continue to be exposed to litigation risk and uncertainty associated with the remaining minority shareholders of Adtran Networks.
In addition, as a result of the Business Combination with Adtran Networks SE, we continue to be exposed to litigation risk and uncertainty associated with the remaining minority shareholders of Adtran Networks.
For additional details regarding the business efficiency program, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Business Efficiency Program” in Part II, Item 7 of this report. 28 The continuing growth of our international operations has and may continue to expose us to additional risks, increase our costs and adversely affect our operating results, financial condition and cash flows.
For additional details regarding the Business Efficiency Program, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Business Efficiency Program” in Part II, Item 7 of this report. 29 Our international operations have and may continue to expose us to additional risks, increase our costs and adversely affect our operating results, financial condition and cash flows.
These risks may be exacerbated by economic, regulatory or political changes or uncertainties, terrorist actions, acts of war, the effects of climate change, natural disasters or pandemics in the foreign countries in which our subcontractors are located.
These risks may be exacerbated by economic, regulatory or political changes or uncertainties, terrorist actions, acts of war, the effects of climate change, natural disasters or pandemics in the foreign countries in which our subcontractors are located. These risks could also be heightened by geopolitical factors.
As part of our sales strategy, we are targeting SIs, Service Providers and enterprise VARs. In addition to specialized technical expertise, SIs, Service Providers and VARs typically offer sophisticated service capabilities that are frequently desired by enterprise customers. To expand our distribution channel to include resellers with such capabilities, we must be able to provide effective support to these resellers.
In addition to specialized technical expertise, SIs, Service Providers and VARs typically offer sophisticated service capabilities that are frequently desired by enterprise customers. To expand our distribution channel to include resellers with such capabilities, we must be able to provide effective support to these resellers.
Specifically, our sales volume in 2023 has been negatively impacted due to our channel partners focus on reducing inventory levels; • the potential for conflicts and competition involving our channel partners and large end-user customers and the potential for consolidation among our channel partners; • variations in sales channels, product cost or mix of products and services sold; • delays in receiving acceptance, as defined under contract, from certain customers for shipments or services performed near the end of a reporting period; • our ability to maintain high levels of product support and professional services; • manufacturing and customer order lead times, and potential restrictions in the supply of key components; • fluctuations in our gross margin and the factors that contribute to this (as described above); 40 • our ability to achieve cost reductions; • the ability of our customers, channel partners and suppliers to obtain financing or to fund capital expenditures; • our ability to execute on our strategy and operating plans; • benefits anticipated from our investments in engineering, sales and marketing activities; • the effects of climate change and other natural events; • the effect of political or economic conditions, including the effect of tariffs or so-called “trade wars” on us and our supply chain, acts of war, terrorist attacks or other unrest in certain international markets; • the effect of escalating tensions resulting from the conflict in Israel and its surrounding regions, as well as the military conflict in Ukraine.
Specifically, our sales volume in 2024 has been negatively impacted due to our channel partners focus on reducing inventory levels; • the potential for conflicts and competition involving our channel partners and large end-user customers and the potential for consolidation among our channel partners; 37 • variations in sales channels, product cost or mix of products and services sold; • delays in receiving acceptance, as defined under contract, from certain customers for shipments or services performed near the end of a reporting period; • our ability to maintain high levels of product support and professional services; • manufacturing and customer order lead times, and potential restrictions in the supply of key components; • fluctuations in our gross margin and the factors that contribute to this (as described above); • our ability to achieve cost reductions; • the ability of our customers, channel partners and suppliers to obtain financing or to fund capital expenditures; • our ability to execute on our strategy and operating plans; • benefits anticipated from our investments in engineering, sales and marketing activities; • the effects of climate change and other natural events; • the effect of political or economic conditions, including the effect of tariffs or so-called “trade wars” on us and our supply chain, acts of war, terrorist attacks or other unrest in certain international markets; and • changes in tax laws and regulations or accounting pronouncements.
We may face litigation and other risks as a result of the restatements of our previously issued consolidated financial statements and material weaknesses in our internal control over financial reporting.
We may face litigation and other risks as a result our material weaknesses in our internal control over financial reporting and any resulting restatement of our previously issued consolidated financial statements.
Maintaining the security of information sensitive to us and our business partners is critical to our business and reputation. We rely upon several internal business processes and information systems to support key operations and financial functions, and the efficient operation of these processes and systems is critical. Companies are increasingly subjected to cyberattacks and other attempts to gain unauthorized access.
We rely upon several internal business processes and information systems to support key operations and financial functions, and the efficient operation of these processes and systems is critical. Companies are increasingly subjected to cyberattacks and other attempts to gain unauthorized access.
As a result, these competitors may be able to respond more rapidly or effectively to new or emerging technologies and changes in customer requirements, withstand significant price decreases, or devote greater resources to the development, promotion and sale of their products.
As a result, these competitors may be able to respond more rapidly or effectively to new or emerging technologies and changes in customer requirements, withstand significant price decreases, or devote greater resources to the development, promotion and sale of their products. Furthermore, we face aggressive price competition and may continue to do so.
Our obligation to pay Annual Recurring Compensation under the DPLTA is a continuing payment obligation, which will amount to approximately €10.6 million or $11.7 million (based on the exchange rate as of December 31, 2023) per year assuming none of the minority Adtran Networks shareholders were to elect Exit Compensation.
Our obligation to pay Annual Recurring Compensation under the DPLTA is a continuing payment obligation, which will amount to approximately €8.9 million or $9.3 million (based on the exchange rate as of December 31, 2024) per year assuming none of the minority Adtran Networks shareholders were to elect Exit Compensation.
In the past, under certain market conditions, long manufacturing lead times have caused our customers to place the same order multiple times. When multiple ordering occurs, along with other factors, it may cause difficulty in predicting our revenue and, as a result, could impair our ability to manage inventory effectively.
Under certain market conditions, long manufacturing lead times have caused our customers to place the same order multiple times. When multiple ordering occurs, along with other factors, it may cause difficulty in predicting our revenue and, as a result, could impair our ability to manage inventory effectively. We plan our operating expense levels based primarily on forecasted revenue levels.
Any failure by us to continue to anticipate or respond in a cost-effective and timely manner to changes in technology, industry standards, Service Provider offerings or new product announcements by our competitors, or any significant delays in product development or introduction, could have a material adverse effect on our ability to competitively market our products and on our revenue, results of operations, financial condition and cash flows. 37 Our failure or the failure of our contract manufacturers to comply with applicable environmental regulations could adversely impact our results of operations.
Any failure by us to continue to anticipate or respond in a cost-effective and timely manner to changes in technology, industry standards, Service Provider offerings or new product announcements by our competitors, or any significant delays in product development or introduction, could 34 have a material adverse effect on our ability to competitively market our products and on our revenue, results of operations, financial condition and cash flows.
We believe that we may be faced with the following challenges in the future: new markets in which we participate may grow quickly, which may make it difficult to quickly obtain significant raw materials and/or components; as we acquire companies and new technologies, we may be dependent on unfamiliar supply chains or relatively small supply partners; and we face competition for certain raw materials or components that are supply-constrained from existing competitors and companies in other markets. 27 We compete in markets that have become increasingly competitive, which may result in reduced gross profit margins and market share.
We believe that we may be faced with the following challenges in the future: new markets in which we participate may grow quickly, which may make it difficult to quickly obtain significant raw materials and/or components; as we acquire companies and new technologies, we may be dependent on unfamiliar supply chains or relatively small supply partners; and we face competition for certain raw materials or components that are supply-constrained from existing competitors and companies in other markets.
Assuming all the minority holders of currently outstanding Adtran Networks shares were to elect the first option, we would be obligated to make aggregate Exit Compensation payments, including guaranteed interest, of approximately €310.3 million or approximately $342.5 million, based on an exchange rate as of December 31, 2023.
Assuming all the minority holders of currently outstanding Adtran Networks shares were to elect the first option, we would be obligated to make aggregate Exit Compensation payments, including guaranteed interest, of approximately €333.2 million or approximately $344.9 million, based on an exchange rate as of December 31, 2024.
Consequently, we do not typically carry a significant order backlog and are dependent upon obtaining orders and completing delivery in accordance with shipping terms that are predominantly within each quarter to achieve our targeted revenue.
Typically, our customers request product delivery within a short period following our receipt of an order. Consequently, we do not typically carry a significant order backlog and are dependent upon obtaining orders and completing delivery in accordance with shipping terms that are predominantly within each quarter to achieve our targeted revenue.
The FCPA applies to companies, individual directors, officers, employees and agents. Under the FCPA, U.S. companies may be held liable for the corrupt actions taken by employees, strategic or local partners or other representatives.
The FCPA applies to companies, individual directors, officers, employees and agents. Under the FCPA, U.S. companies may be held liable for the corrupt actions taken by employees, strategic or local partners or other representatives. On February 10, 2025, the U.S. government temporarily paused the enforcement of the FCPA.
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, that is based on the interest rate according to the German Civil Code, which was 3.12% as of December 31, 2023.
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 that was 3.37% as of December 31, 2024.
Any future charges relating to such inventory write-downs could materially adversely affect our business, financial condition and results of operations in the periods recognized.
Significant and unanticipated changes in our business could require additional charges for inventory write downs in a future period. Any future charges relating to such inventory write-downs could materially adversely affect our business, financial condition and results of operations in the periods recognized.
Our customers in the subscriber solutions & experience technology category are increasingly focusing on working capital optimization and depletion of overstocked inventories, which has impacted and may continue to materially impact demand in that category.
Our customers in the subscriber solutions & experience technology category are increasingly focusing on working capital optimization and depletion of overstocked inventories, which has impacted and may continue to materially impact demand in that category. Our future revenue growth will depend, in part, on securing increased orders from customers.
We have implemented new controls with respect to one material weakness, and we continue to evaluate steps to remediate the other material weaknesses. These remediation measures may be time consuming and costly and there is no assurance that these initiatives will ultimately have the intended effects.
We have implemented new controls with respect to one material weakness, and we plan to initiate remediation plans with respect to the other material weaknesses. These remediation measures have been time consuming and costly and there is no assurance that these initiatives will ultimately have the intended effects.
For example, during the quarter ended September 30, 2023, management determined that there would be a discontinuation of product lines in the Network Solutions segment. For more information, see Note 6 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this report.
For example, during the quarters ended March 31, 2024 and September 30, 2023, management determined that there would be a strategy shift which resulted in a discontinuation of certain product lines in the Network Solutions segment. For more information, see Note 5 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this report.
Changes in interest rates have impacted and may in the future further impact our costs of borrowing money under certain of our debt facilities with variable interest rates, which could negatively impact our financial condition and future operations.
Changes in interest rates have impacted and may in the future further impact our costs of borrowing money under certain of our debt facilities with variable interest rates, which could negatively impact our financial condition and future operations. We seek to only enter into transactions with creditworthy banks and financial institutions.
During the year ended December 31, 2023, we recognized a write down of inventory of $24.3 million due to a discontinuation of certain product lines within our Network Solutions segment in connection with our business efficiency program. Significant and unanticipated changes in our business could require additional charges for inventory write downs in a future period.
During the year ended December 31, 2023, we recognized write-downs of inventory of $24.3 million due to a discontinuation of certain product lines within our Network Solutions segment in connection with our Business Efficiency Program.
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 the Company) 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 (the “Exit Compensation”), or (ii) to remain Adtran Networks shareholders and receive a recurring compensation in cash of €0.59 (€0.52 net under the current tax regime) per share for each full fiscal year of Adtran Networks (the “Annual Recurring Compensation”).
The Company’s payment obligation in satisfaction of the requirement that it absorb Adtran Networks’ annual net loss applied for the first time to the net loss generated in 2023. 24 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 the Company) 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 (the “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 (the “Annual Recurring Compensation”).
We have generally been successful in the past in obtaining these approvals; however, we cannot be certain that we will obtain these approvals in the future or that sales of these products will continue to occur.
We cannot be certain that we will obtain these approvals in the future or that sales of these products will continue to occur.
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) it will be payable for the first time after the ordinary general shareholders’ meeting of Adtran Networks in 2024 for the fiscal year ended December 31, 2023.
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).
Ineffective internal control over financial reporting could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our stock. 32 We can provide no assurance that the measures that we have taken, are taking, and plan to take in the future will remediate the material weaknesses identified or that any additional material weaknesses or restatements of financial results will not arise in the future due to a failure to implement and maintain adequate internal control over financial reporting or circumvention of these controls.
We can provide no assurance that the measures that we have taken, are taking, and plan to take in the future will remediate the material weaknesses identified or that any additional material weaknesses or restatements of financial results will not arise in the future due to a failure to implement and maintain adequate internal control over financial reporting or circumvention of these controls.
We cannot predict whether we will prevail in any claims or litigation over alleged infringements, or whether we will be able to license any valid and infringed patents, or other intellectual property, on commercially reasonable terms. For example, on August 22, 2023, Adtran Networks and its subsidiary Adtran Networks North America, Inc.
We cannot predict whether we will prevail in any claims or litigation over alleged infringements, or whether we will be able to license any valid and infringed patents, or other intellectual property, on commercially reasonable terms.
The situation involving U.S.-China trade relations remains volatile and uncertain and there can be no assurance that further actions by either country will not have an adverse impact on our business, operations and access to technology, or components thereof, sourced from China.
There can also be no assurance that further trade tensions between the U.S. and China will not have an adverse impact on our business, operations and access to technology, or components thereof, sourced from China.
We seek to only enter into transactions with creditworthy banks and financial institutions. To assess the creditworthiness of banks, we utilize current credit ratings from rating agencies, such as S&P, Moodyʼs and Fitch, as well as current default rates (credit default swaps). We are also in frequent dialogue with customers and suppliers to assess counterparty risks.
To assess the creditworthiness of banks, we utilize current credit ratings from rating agencies, such as S&P, Moodyʼs and Fitch, as well as current default rates (credit default swaps). We are also in frequent dialogue with customers and suppliers to assess counterparty risks. Nevertheless, many of these transactions expose us to credit risk in the event of our counterparty’s default.
While we attempt to monitor these situations carefully and attempt to take appropriate measures to collect accounts receivable balances, including through the recent $20.0 million expansion of a Receivables Purchase and Servicing Agreement with True Value S.A.R.L., there are no assurances we can avoid write-downs and/or write-offs of accounts receivable as a result of declining financial conditions for our customers, including bankruptcy.
While we attempt to monitor these situations carefully and attempt to take appropriate measures to collect accounts receivable balances, there are no assurances we can avoid write-downs and/or write-offs of accounts receivable as a result of declining financial conditions for our customers, including bankruptcy.
Further, continued increases in legislation and regulation from a variety of international, federal and state authorities regarding cybersecurity incidents, including risk assessment, notification obligations, regulatory reporting and other requirements, could subject us to additional liability and reputational harm. We carry cybersecurity insurance policies meant to limit our risk and exposure should one of these cybersecurity issues occur.
Continued increases in legislation and regulation from a variety of international, federal and state authorities regarding cybersecurity incidents, including risk assessment, notification obligations, regulatory reporting and other requirements, could increase our cost of compliance and could subject us to additional liability and reputational harm.
While it is uncertain whether the U.S. will enact legislation to adopt the minimum tax directive, certain countries in which we operate have adopted legislation, and other countries are in the process of introducing legislation to implement the minimum tax directive.
While it is uncertain whether the U.S. will enact legislation to adopt the minimum tax directive, certain countries in which we operate have adopted legislation, and other countries are in the process of introducing legislation to implement the minimum tax directive. Interest rate fluctuations could increase our costs of borrowing money and negatively impact our financial condition and future operations.
The amount of this Annual Recurring Compensation payment obligation pursuant to the DPLTA could exceed the amount of dividends that otherwise might be distributed by Adtran Networks to minority shareholders and would even have to be paid if Adtran Networks incurs losses, which could have a material adverse impact on our financial results and financial condition. 36 We are exposed to additional litigation risk and uncertainty with respect to the remaining minority shareholders of Adtran Networks, which litigation may require us to pay a higher purchase price for additional Adtran Networks shares than the amount provided for under the DPLTA.
The amount of this Annual Recurring Compensation payment obligation pursuant to the DPLTA could exceed the amount of dividends that otherwise might be distributed by Adtran Networks to minority shareholders and would even have to be paid if Adtran Networks incurs losses, which could have a material adverse impact on our financial results and financial condition.
In addition, particularly in the Service Provider market, rapid consolidation will lead to fewer customers, with the effect that a loss of a major customer could have a material impact on our results that we would not have anticipated in a marketplace composed of more numerous participants. 25 Our exposure to the credit risks of our customers and distributors may make it difficult to collect accounts receivable and could adversely affect our operating results, financial condition and cash flows.
In addition, 26 particularly in the Service Provider market, rapid consolidation will lead to fewer customers, with the effect that a loss of a major customer could have a material impact on our results that we would not have anticipated in a marketplace composed of more numerous participants.
Changes in trade policy in the U.S. and other countries, specifically the U.K. and China, including the imposition of additional tariffs and the resulting consequences, may adversely impact our gross profits, gross margins, results of operations and financial condition.
New executive orders and legislative actions could alter the business environment in which we operate. 39 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.
For the year ended December 31, 2023, a total of 67 thousand shares of Adtran Networks stock was tendered to the Company and Exit Compensation payments of approximately €1.2 million or approximately $1.3 million based on an exchange rate as of December 31, 2023, were paid to Adtran Networks shareholders.
For the year ended December 31, 2024, a total of 831 thousand shares of Adtran Networks stock was tendered to the Company and Exit Compensation payments of approximately €15.7 million or approximately $17.4 million, based on exchange rates at the time of the transactions, were paid to Adtran Networks shareholders.
Absent further quantitative easing by the Federal Reserve, these developments could cause interest rates and borrowing costs to rise, which may negatively impact our ability to access the debt markets on favorable terms.
Absent further quantitative easing by the Federal Reserve, these developments could cause interest rates and borrowing costs to rise, which may negatively impact our ability to access the debt markets on favorable terms. On December 21, 2024, the previous administration signed a continuing resolution to extend federal spending and avert a government shutdown through March 14, 2025.
Further downgrades of the U.S. credit rating, impending automatic spending cuts or a government shutdown could negatively impact our liquidity, financial condition and earnings. U.S. debt ceiling and budget deficit concerns have increased the possibility of additional credit-rating downgrades and economic slowdowns, or a recession in the United States.
U.S. debt ceiling and budget deficit concerns have increased the possibility of additional credit-rating downgrades and economic slowdowns, or a recession in the United States.
Additionally, a supplier must first obtain product approval from a major or other Service Provider to sell its products to these Service Providers. This process can last from six to eighteen months, or longer, depending on the technology, the Service Provider and the demand for the product from the Service Provider’s subscribers.
This process can last from six to eighteen months, or longer, depending on the technology, the Service Provider and the demand for the product from the Service Provider’s subscribers.
As of the date of this report, we have no knowledge of any such litigation or dispute. However, we can provide no assurance that such litigation or dispute will not arise in the future. Any such litigation or dispute, whether successful or not, could adversely affect our business, financial condition and results of operations.
However, we can provide no assurance that such litigation or dispute will not arise in the future. Any such litigation or dispute, whether successful or not, could adversely affect our business, financial condition and results of operations. 33 Breaches of our information systems and cyberattacks could compromise our intellectual property and cause significant damage to our business and reputation.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeITEM 2. P ROPERTIES Our global headquarters and certain administrative, engineering and manufacturing facilities are located on an 82-acre campus in Cummings Research Park in Huntsville, Alabama. Two office buildings in Huntsville, Alabama serve both our Network Solutions and our Services & Support segments. We lease a facility for our European headquarters in Munich, Germany.
Biggest changeITEM 2. P ROPERTIES Our global headquarters and certain administrative, engineering and manufacturing facilities are located on an 82-acre campus in Cummings Research Park in Huntsville, Alabama. The office buildings in Huntsville, Alabama serve both our Network Solutions and our Services & Support segments.
We lease engineering facilities in the U.S., EMEA and APAC that are used to develop products sold by our Network Solutions segment. In addition, we lease office space in North America, Latin America, EMEA and APAC, which provide sales and service support for both of our segments. These cancelable and non-cancelable leases expire at various times through 2033.
We lease engineering facilities in the U.S., EMEA and APAC that are used to develop products sold by our Network Solutions segment. In addition, we lease office space in North America, Latin America, EMEA and APAC, which provide sales and service support for both of our segments. These cancelable and non-cancelable leases expire at various times through 2039.
For more information, see Note 8 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this report. We also have numerous sales and support staff operating from home-based offices serving both our Network Solutions and our Services & Support segments, which are located within the U.S. and abroad.
For more information, see Note 7 of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this report. We also have numerous sales and support staff operating from home-based offices serving both our Network Solutions and our Services & Support segments, which are located within the U.S. and abroad. ITEM 3.
Added
We are currently in the process of selling a portion of our headquarters facility and expect to sell it within the next twelve months, so it is classified as assets held for sale on our balance sheet.
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In order to facilitate this, we have relocated the associated operations located in our North and South Towers to our East Tower without any significant disruption to our operations. We lease a facility for our European headquarters in Munich, Germany.
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LEGAL PROCEEDINGS The information presented under the caption “DPLTA Appraisal Proceedings” in Note 18 “Commitments and Contingencies” of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this report is incorporated herein by reference. ITEM 4. MINE SAF ETY DISCLOSURES Not applicable. 43 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeFiscal year ending December 31. 47 12/31/18 12/31/19 12/31/20 12/31/21 12/31/22 12/31/23 ADTRAN Holdings, Inc. $ 100.00 $ 94.81 $ 146.36 $ 230.41 $ 192.95 $ 77.38 NASDAQ Composite $ 100.00 $ 136.69 $ 198.10 $ 242.03 $ 163.28 $ 236.17 NASDAQ Telecommunications $ 100.00 $ 113.65 $ 141.14 $ 149.82 $ 113.74 $ 130.05 The stock price performance included in this graph is not necessarily indicative of future stock price performance.
Biggest changeFiscal year ending December 31, 2024. 44 12/31/19 12/31/20 12/31/21 12/31/22 12/31/23 12/31/24 ADTRAN Holdings, Inc. $ 100.00 $ 154.37 $ 243.02 $ 203.51 $ 81.62 $ 92.62 NASDAQ Composite $ 100.00 $ 144.93 $ 177.06 $ 119.45 $ 172.78 $ 224.34 NASDAQ Telecommunications $ 100.00 $ 124.19 $ 131.83 $ 100.08 $ 114.43 $ 129.93 The stock price performance included in this graph is not necessarily indicative of future stock price performance.
The payment of any future dividends will be at the discretion of the Board of Directors and will depend on the Company’s financial condition, results of operations, capital requirements, and any other factors deemed relevant by the Board of Directors. In addition, the Wells Fargo Credit Agreement currently does not allow for the payment of dividends to shareholders.
The payment of any future dividends will be at the discretion of the Board of Directors and will depend on the Company’s financial condition, results of operations, capital requirements, and any other factors deemed relevant by the Board of Directors. In addition, the Wells Fargo Credit Agreement currently does not allow for the payment of dividends to stockholders.
Performance Graph The graph below matches our cumulative 5-Year total shareholder return on common stock (specifically, the total shareholder return on ADTRAN, Inc.’s common stock for all periods prior to the Merger and that of ADTRAN Holdings, Inc. following the Merger) with the cumulative total returns of the NASDAQ Telecommunications index and the NASDAQ Composite index.
Performance Graph The graph below matches our cumulative 5-Year total stockholder return on common stock (specifically, the total stockholder return on ADTRAN, Inc.’s common stock for all periods prior to the Merger and that of ADTRAN Holdings, Inc. following the Merger) with the cumulative total returns of the NASDAQ Telecommunications index and the NASDAQ Composite index.
On November 6, 2023, the Board of Directors suspended the Company’s quarterly cash dividend in order to reduce debt and interest expense and support the Company's capital efficiency program.
On November 6, 2023, the Board of Directors suspended the Company’s quarterly cash dividend in order to reduce debt and interest expense and support the Company's Business Efficiency Program.
The shares purchased relate to shares withheld to cover taxes for vested stock awards. 48 ITEM 6. R E SERVED
The shares purchased relate to shares withheld to cover taxes for vested stock awards. 45 ITEM 6. R E SERVED
For additional information, see Note 20 of Notes to Consolidated Financial Statements included in Part II, Item 8 and Liquidity & Capital Resources included in Part II, Item 7 of this report .
For additional information, see Note 18 of the Notes to Consolidated Financial Statements included in Part II, Item 8 and Liquidity & Capital Resources included in Part II, Item 7 of this report .
As of January 22, 2024, we had 47 stockholders of record and approximately 19,709 beneficial owners of shares held in street name. Dividends We declared a quarterly dividend of $0.09 per share of common stock to record holders during each of the quarters through September 30, 2023.
As of January 24, 2025, we had 47 stockholders of record and approximately 15,860 beneficial owners of shares held in street name. Dividends We declared a quarterly dividend of $0.09 per share of common stock to record holders during each of the quarters through September 30, 2023.
Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs October 1, 2023 – October 31, 2023 356 $ 7.47 — — November 1, 2023 – November 30, 2023 128,122 $ 5.44 — — December 1, 2023 – December 31, 2023 7,105 $ 7.09 — — Total 135,583 — (1) During the year ended December 31, 2023, the Company did not repurchase any shares of Company common stock as part of a publicly announced plan or program and there is no current authorization to repurchase Company common stock.
Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs October 1, 2024 – October 31, 2024 5,477 $ 6.02 — — November 1, 2024 – November 30, 2024 62,046 $ 7.75 — — December 1, 2024 – December 31, 2024 86 $ 8.54 — — Total 67,609 — (1) During the year ended December 31, 2024, the Company did not repurchase any shares of Company common stock as part of a publicly announced plan or program and there is no current authorization to repurchase Company common stock.
The graph tracks the performance of a $100 investment in our common stock and in each index (with the reinvestment of all dividends) from December 31, 2018 to December 31, 2023. * $100 invested on 12/31/18 in stock or index-including reinvestment of dividends.
The graph tracks the performance of a $100 investment in our common stock and in each index (with the reinvestment of all dividends) from December 31, 2019 to December 31, 2024.
Added
In accordance with the rules of the SEC, this section, captioned “Performance Graph,” is not incorporated by reference into any of our future filings made under the Exchange Act or the Securities Act of 1933, as amended (the “Securities Act”).
Added
The Performance Graph, including its accompanying table and footnotes, is not deemed to be soliciting material or to be filed under the Exchange Act or the Securities Act. * $100 invested on 12/31/19 in stock or index-including reinvestment of dividends.
Added
The Company's cumulative total returns for the period December 31, 2019 through December 31, 2021 relate to Adtran, Inc. prior to the Business Combination and the Company's cumulative total returns for the period December 31, 2022 through December 31, 2024 relate to Adtran Holdings, Inc. subsequent to the Business Combination.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

216 edited+69 added−99 removed83 unchanged
Biggest changeCovenants Under the Credit Agreement The financial covenants under the Credit Agreement, as amended, include the following (capitalized terms used in this subsection and not otherwise defined herein have the meanings assigned to them in the Credit Agreement or its amendments, as applicable):: • As of the last day of any fiscal quarter, commencing with the fiscal quarter ended December 31, 2023, the Consolidated Total Net Leverage Ratio may not exceed 5.00x. • As of the last day of any fiscal quarter, commencing with the fiscal quarter ended December 31, 2023, the Consolidated Senior Secured Net Leverage Ratio may not exceed: • In the event of the purchase by the Company of at least sixty percent (60%) of the outstanding shares of Adtran Networks SE not owned by the Company as of August 9, 2023 that have been tendered (such event, a “Springing Covenant Event” and the fiscal quarter in which the Springing Covenant Event Occurs and the three consecutive quarterly test periods thereafter, the “Springing Covenant Period”), the following covenant levels: • First fiscal quarter ending after a Springing Covenant Event: 4.00x • Second fiscal quarter ending after a Springing Covenant Event: 3.75x • Third and fourth fiscal quarters ending after a Springing Covenant Event: 3.50x • If the Company or any of its subsidiaries incurs certain unsecured indebtedness in excess of $50,000,000 in connection with a transaction that is a Springing Covenant Event or during a Springing Covenant Period, the Consolidated Senor Secured Net Leverage Ratio covenant will step down to 3.50x at the time of such incurrence. • If a Springing Covenant Period is not in effect, the following covenant levels: • From December 31, 2023 through and including March 31, 2024: 3.25x. • From April 1, 2024 through and including June 30, 2024: 3.50x. • From July 1, 2024 and thereafter: 3.25x. • As of the last day of any fiscal quarter, commencing with the fiscal quarter ended December 31, 2023, the Consolidated Fixed Charge Coverage Ratio may not exceed 1.25x. • During the Covenant Relief Period or a Springing Covenant Period, as of the last day of any fiscal quarter (i) cash and cash equivalents of the Credit Parties must be at least $50.0 million and (ii) cash and cash equivalents of the Company and its subsidiaries must be at least $75.0 million. 61 The Credit Agreement is guaranteed by certain domestic subsidiaries of the Company, and the Company is also required to add certain additional domestic and international subsidiaries as guarantors under the Credit Agreement (such existing and new guarantors, collectively, the “Guarantors”).
Biggest changeCovenants Under the Credit Agreement The financial covenants under the Credit Agreement, as amended, include the following (capitalized terms used in this subsection and not otherwise defined herein have the meanings assigned to them in the Credit Agreement or its amendments, as applicable): • As of the last day of any fiscal quarter, commencing with the fiscal quarter ended December 31, 2023, the Consolidated Total Net Leverage Ratio may not exceed 5.00x. • As of the last day of any fiscal quarter, commencing with the fiscal quarter ended December 31, 2023, the Consolidated Senior Secured Net Leverage Ratio may not exceed: • In the fiscal quarter in which a Springing Covenant Event occurs and the three consecutive quarterly test periods thereafter, (“Springing Covenant Period”), the following covenant levels: • First fiscal quarter ending after a Springing Covenant Event: 4.00x • Second fiscal quarter ending after a Springing Covenant Event: 3.75x • Third and fourth fiscal quarters ending after a Springing Covenant Event: 3.50x • If the Company or any of its subsidiaries incurs certain unsecured indebtedness in excess of $50.0 million in connection with a transaction that is a Springing Covenant Event or during a Springing Covenant Period, the Consolidated Senor Secured Net Leverage Ratio covenant will step down to 3.50x at the time of such incurrence. • If a Springing Covenant Period is not in effect, the Consolidated Senior Secured Net Leverage Ratio may not exceed 3.25x . • As of the last day of any fiscal quarter, commencing with the fiscal quarter ended December 31, 2023, the Consolidated Fixed Charge Coverage Ratio may not exceed 1.25x. 57 • During a Springing Covenant Period, as of the last day of any fiscal quarter (i) cash and cash equivalents of the Credit Parties must be at least $50.0 million and (ii) cash and cash equivalents of the Company and its subsidiaries must be at least $70.0 million.
However, due to the appraisal proceedings that have been initiated in accordance with applicable German law, this time period for tendering shares has been extended pursuant to the German Stock Corporation Act ( Aktiengesetz ) and will end two months after the date on which a final decision in such appraisal proceedings has been published in the Federal Gazette ( Bundesanzeiger ).
However, due to the appraisal proceedings that have been initiated in accordance with applicable German law, this time period for tendering shares has been extended pursuant to the German Stock Corporation Act ( Aktiengesetz ) and will end two months after the date on which a final decision in such appraisal proceedings has been published in the Federal Gazette ( Bundesanzeiger ).
Under the DPLTA, subject to certain limitations pursuant to applicable law and the specific terms of the DPLTA, (i) the Company is entitled to issue binding instructions to the management board of Adtran Networks, (ii) Adtran Networks will transfer its annual profit to the Company, subject to, among other things, the creation or dissolution of certain reserves, and (iii) the Company will generally absorb the annual net loss incurred by Adtran Networks.
Under the DPLTA, subject to certain limitations pursuant to applicable law and the specific terms of the DPLTA, (i) the Company is entitled to issue binding instructions to the management board of Adtran Networks, (ii) Adtran Networks will transfer its annual profit to the Company, subject to, among other things, the creation or dissolution of certain reserves, and (iii) the Company will generally absorb the annual net loss incurred by Adtran Networks.
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.
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.
However, due to the appraisal proceedings that have been initiated in accordance with applicable German law, this time period for tendering shares has been extended pursuant to the German Stock Corporation Act ( Aktiengesetz ) and will end two months after the date on which a final decision in such appraisal proceedings has been published in the Federal Gazette ( Bundesanzeiger ).
However, due to the appraisal proceedings that have been initiated in accordance with applicable German law, this time period for tendering shares has been extended pursuant to the German Stock Corporation Act ( Aktiengesetz ) and will end two months after the date on which a final decision in such appraisal proceedings has been published in the Federal Gazette ( Bundesanzeiger ).
Several accounting policies, as described in Note 1 of Notes to the Consolidated Financial Statements included in Part II, Item 8 of this report, require material subjective or complex judgment and have a significant impact on our financial condition and results of operations, as applicable.
Several accounting policies, as described in Note 1 of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this report, require material subjective or complex judgment and have a significant impact on our financial condition and results of operations, as applicable.
Leases with an initial term of 12 months or less are not recorded on the balance sheet and lease expense for these leases is recognized on a straight-line basis over the lease term. For lease agreements entered into or reassessed after the adoption of Topic 842, we elected to not separate lease and non-lease components.
Leases with an initial term of 12 months or less are not recorded on the balance sheet and lease expense for these leases is recognized on a straight-line basis over the 68 lease term. For lease agreements entered into or reassessed after the adoption of Topic 842, we elected to not separate lease and non-lease components.
The plan is financed by contributions paid by the Company. 64 • In India, the post-employment benefit plan is required due to statutory provisions. The plan is financed directly by the Company on a pay-as-you-go basis. Our defined benefit plan assets consist of a balanced portfolio of equity funds, bond funds, emerging market funds, real estate funds and balanced funds.
The plan is financed by contributions paid by the Company. • In India, the post-employment benefit plan is required due to statutory provisions. The plan is financed directly by the Company on a pay-as-you-go basis. Our defined benefit plan assets consist of a balanced portfolio of equity funds, bond funds, emerging market funds, real estate funds and balanced funds.
Such events and circumstances may include among others: a significant adverse change in legal factors or in the general business climate; significant decline in our stock price and market capitalization; unanticipated competition; the testing for recoverability of a significant asset group within the reporting unit; and an adverse action or assessment by a regulator.
Such events and circumstances may include among others: a significant adverse change in legal factors or in the general business climate; significant decline in our stock price and market capitalization; unanticipated competition; the testing for recoverability of a significant asset within the reporting unit; and an adverse action or assessment by a regulator.
For the year ended December 31, 2023, 67 thousand shares, respectively, of Adtran Networks stock were tendered to the Company and Exit Compensation payments of approximately €1.2 million or approximately $1.3 million based on an exchange rate as of December 31, 2023, were paid to Adtran Networks' shareholders.
For the year ended December 31, 2023, 67 thousand shares of Adtran Networks stock were tendered to the Company and Exit Compensation payments of approximately €1.2 million or approximately $1.3 million based on an exchange rate as of December 31, 2023, were paid to Adtran Networks' shareholders.
In recent years, inflationary pressures on input costs, such as raw materials and labor, and distribution costs had a negative impact on our operating results. However, inflationary pressures on our supply chain have eased somewhat, which has led to reductions in cost premiums on raw material costs and freight.
In recent years, inflationary pressures on input costs, such as raw materials and labor, and distribution costs had a negative impact on our operating 48 results. However, inflationary pressures on our supply chain have eased somewhat, which has led to reductions in cost premiums on raw material costs and freight.
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 sterling.
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.
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 55 for customers.
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.
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 67 had been scheduled to expire on March 16, 2023.
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.
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. 69 Critical Accounting Policies and Estimates 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.
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. 64 Critical Accounting Policies and Estimates 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.
Our investment policy includes various guidelines and procedures designed to ensure assets are invested in a manner necessary to meet expected future benefits earned by participants and consider a broad range of economic conditions.
Our investment policy includes various guidelines and procedures designed to ensure assets are invested in a manner 60 necessary to meet expected future benefits earned by participants and consider a broad range of economic conditions.
Nevertheless, our operating expenses are relatively fixed in the short term; therefore, a shortfall in quarterly revenues has and may again in the future significantly impact our financial results in a given quarter.
Our operating expenses are relatively fixed in the short term, therefore, a shortfall in quarterly revenues has and may again in the future significantly impact our financial results in a given quarter.
Costs incurred to complete the Business Combination, such as legal, accounting or other professional fees, are charged to selling, general and administrative expenses as incurred. Recently Issued Accounting Pronouncements For a discussion of recently issued accounting pronouncements, see Note 1 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this report for additional information. 74
Costs incurred to complete the Business Combination, such as legal, accounting or other professional fees, are charged to selling, general and administrative expenses as incurred. Recently Issued Accounting Pronouncements For a discussion of recently issued accounting pronouncements, see Note 1 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this report for additional information. 69
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 (in each case, including interest thereon) than agreed upon in the DPLTA.
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 (including interest thereon) or Annual Recurring Compensation than agreed upon in the DPLTA.
For a discussion of risks associated with our operating results, see Part I, Item 1A, Risk Factors of this report. 53 Results of Operations The following table presents selected financial information derived from our Consolidated Statements of Loss expressed as a percentage of revenue for the years indicated. Amounts may not foot due to rounding.
For a discussion of risks associated with our operating results, see Part I, Item 1A, Risk Factors of this report. 49 Results of Operations The following table presents selected financial information derived from our Consolidated Statements of Loss expressed as a percentage of revenue for the years indicated. Amounts may not foot due to rounding.
The Third Amendment, among other things, amends the definition of “Consolidated Funded Indebtedness” (which is used in the calculation of the Consolidated Total Net Leverage Ratio and the Consolidated Senior Secured Net Leverage Ratio) to exclude obligations of the Company and its subsidiaries under certain factoring arrangements when calculated for the fiscal quarters ending March 31, 2024 and June 30, 2024.
The Third Amendment, among other things, amended the definition of “Consolidated Funded Indebtedness” (which is used in the calculation of the Consolidated Total Net Leverage Ratio and the Consolidated Senior Secured Net Leverage Ratio) to exclude obligations of the Company and its subsidiaries under certain factoring arrangements when calculated for the fiscal quarters ending March 31, 2024, and June 30, 2024.
Nord/LB Revolving Line of Credit On March 29, 2023, Adtran Networks entered into a $16.1million unsecured revolving line of credit with Norddeutsche Landesbark - Girozentrale (Nord/LB) that bore interest of Euro Short Term Rate plus 1.94%. The line of credit had a perpetual term that could be terminated by the Company or Nord/LB at any time.
Nord/LB Revolving Line of Credit On March 29, 2023, Adtran Networks entered into a $16.1 million unsecured revolving line of credit with Norddeutsche Landesbark - Girozentrale (Nord/LB) that bore interest of Euro Short Term Rate plus 1.94%. The line of credit had a perpetual term that could be terminated by the Company or Nord/LB at any time.
We estimate that less than $0.1 million will be amortized from accumulated other comprehensive income into net periodic pension cost in 2024 for the net actuarial loss. The net actuarial loss recognized in accumulated other comprehensive loss as of December 31, 2023 and 2022 was $2.5 million and $1.1 million, respectively.
We estimate that less than $0.1 million will be amortized from accumulated other comprehensive income into net periodic pension cost in 2025 for the net actuarial loss. The net actuarial loss recognized in accumulated other comprehensive loss as of December 31, 2024 and 2023 was $1.0 million and $2.5 million, respectively.
Off-Balance Sheet Arrangements We have exposure to credit losses from off-balance sheet exposures used 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 December 31, 2023.
Off-Balance Sheet Arrangements We have exposure to credit losses from off-balance sheet exposures used 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 December 31, 2024.
Wells Fargo Credit Agreement On July 18, 2022, ADTRAN Holdings, Inc. and ADTRAN, Inc., as the borrower, entered into the Credit Agreement with the Administrative Agent and the other lenders named therein. The Credit Agreement was subsequently amended on August 9, 2023, January 16, 2024 and March 12, 2024.
Wells Fargo Credit Agreement On July 18, 2022, ADTRAN Holdings, Inc. and ADTRAN, Inc., as the borrower, entered into the Credit Agreement with the Administrative Agent and the other lenders named therein. The Credit Agreement was subsequently amended on August 9, 2023, January 16, 2024, March 12, 2024, and June 4, 2024.
Unless the context otherwise indicates or requires, references in this Annual Report on Form 10-K to "ADTRAN", the “Company,” “we,” “us” and “our” refer to ADTRAN Holdings, Inc. and its consolidated subsidiaries for periods subsequent to the Merger and to ADTRAN, Inc. and its consolidated subsidiaries for periods prior to the Merger.
Unless the context otherwise indicates or requires, references in this Annual Report on Form 10-K to "Adtran", the “Company,” “we”, “us” and “our” refer to ADTRAN Holdings, Inc. and its consolidated subsidiaries for periods subsequent to the Merger and to ADTRAN, Inc. and its consolidated subsidiaries for periods prior to the Merger.
Furthermore, the Credit Agreement, as amended, contain customary affirmative and negative covenants, including incurrence covenants and certain other limitations on the ability of the Company and the Company’s subsidiaries to incur additional debt, guarantee other obligations, grant liens on assets, make investments, dispose of assets, make restricted payments, engage in mergers or consolidations, engage in transactions with affiliates, modify its organizational documents, and enter into certain restrictive agreements.
The Credit Agreement, as amended, contains customary affirmative and negative covenants, including incurrence covenants and certain other limitations on the ability of the Company and the Company’s subsidiaries to incur additional debt, guarantee other obligations, grant liens on assets, make investments, dispose of assets, make restricted payments, engage in mergers or consolidations, engage in transactions with affiliates, modify its organizational documents, and enter into certain restrictive agreements.
Both plans provide benefits in the event of retirement, death or disability. The plan's benefits are based on age, years of service and salary. The defined benefit plan is financed by contributions paid by the Company and the defined contribution plan is financed by contributions paid by the participants. • In Switzerland, there are two defined benefit pension plans.
The plan's benefits are based on age, years of service and salary. The defined benefit plans are financed by contributions paid by the Company and the defined contribution plans are financed by contributions paid by the participants. • In Switzerland, there are two defined benefit pension plans. Both plans provide benefits in the event of retirement, death or disability.
The plan's benefits are based on the higher of the severance benefit required by law or the cash surrender value of the severance benefit component of any qualifying insurance policy or long-term employee benefit fund that is registered in the participants name.
The plan's benefits are based on the higher of the severance benefit required by law or the cash surrender value of the severance benefit component of any qualifying insurance policy or long-term employee benefit fund that is registered in the participant's name.
These PSUs are subject to a market condition based on the relative total shareholder return of ADTRAN against all of the companies in the NASDAQ Telecommunications Index and vest at the end of a three-year performance period.
These PSUs are subject to a market condition based on the relative total stockholder return of Adtran against all of the companies in the NASDAQ Telecommunications Index and vest at the end of a three-year performance period.
Our operating results have significantly fluctuated and may do so in the future as a result of a number of other factors, including a decline in general economic and market conditions, foreign currency exchange rate movements, inflation, regional conflicts, increased competition, customer order patterns, changes in product and services mix, timing differences between price decreases and product cost reductions, product warranty returns, expediting costs, tariffs and announcements of new products by us or our competitors.
Our operating results have significantly fluctuated and may do so in the future as a result of a number of other factors, including a decline in general economic and market conditions, foreign currency exchange rate movements, inflation, increased competition, customer order patterns, changes in product and services mix, trade policies, timing differences between price decreases and product cost reductions, product warranty returns, expediting costs, tariffs and announcements of new products by us or our competitors.
Other Cash Requirements During the year ended December 31, 2023, other than the Exit Compensation payments, Annual Recurring Compensation under the DPLTA, restructuring costs and increased debt service costs, there have been no other material changes in cash requirements from those discussed in the 2022 Form 10-K/A and our cash requirements table shown in Liquidity and Capital Resources above.
Other Cash Requirements During the year ended December 31, 2024, other than the Exit Compensation payments, Annual Recurring Compensation under the DPLTA, restructuring costs and increased debt service costs, there have been no other material changes in cash requirements from those discussed in the 2023 Form 10-K and our cash requirements table shown in Liquidity and Capital Resources above.
More specifically, the increase in revenue for the year ended December 31, 2023 of our ADTRAN, Inc. operations was primarily due to higher volume of sales of our software services and business solutions services.
More specifically, the increase in revenue for the year ended December 31, 2024 of our ADTRAN, Inc. operations was primarily due to higher volume of sales of our software services and business solutions services.
See “Investing Activities” in “Liquidity and Capital Resources” of this report and Note 1 and Note 5 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this report for additional information.
See “Investing Activities” in “Liquidity and Capital Resources” of this report and Note 1 and Note 4 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this report for additional information.
Net cash proceeds from any incurrence of convertible indebtedness must be used to repurchase minority shares of Adtran Networks or repay revolver borrowings under the Credit Agreement. On January 16, 2024, the Company entered into a Second Amendment to the Credit Agreement and First Amendment to the Collateral Agreement.
Net cash proceeds from any incurrence of convertible indebtedness must be used to repurchase minority shares of Adtran Networks or repay revolver borrowings under the Credit Agreement. On January 16, 2024 ("Second Amendment Effective Date"), the Company and ADTRAN, Inc. entered into a Second Amendment to Credit Agreement and First Amendment to Collateral Agreement ("Second Amendment").
For the year ended December 31, 2023, 67 thousand shares, respectively, of Adtran Networks stock was tendered to the Company and Exit Compensation payments of approximately €1.2 million or approximately $1.3 million based on an exchange rate as of December 31, 2023, were paid to Adtran Networks shareholders.
For the year ended December 31, 2023, a total of 67 thousand shares of Adtran Networks stock was tendered to the Company and Exit Compensation payments of approximately €1.2 million or approximately $1.3 million based on an exchange rate as of December 31, 2023, were paid to Adtran Networks shareholders.
For addition information, see Note 20 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this report and Liquidity & Capital Resources above .
For addition information, see Note 18 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this report and Liquidity & Capital Resources above .
In connection with the planned integration of information technology following the Business Combination, we determined that certain projects no longer fit our needs. As a result the Company recognized impairment charges of $17.4 million during the year ended December 31, 2022 primarily related to capitalized implementation costs for a cloud computing arrangement.
Asset Impairments In connection with the planned integration of information technology following the Business Combination, we determined that certain projects no longer fit our needs. As a result, the Company recognized impairment charges of $17.4 million during the year ended December 31, 2022, primarily attributable to capitalized implementation costs for a cloud computing arrangement.
The receivables factored continue to be carried in accounts receivable, less allowance for credit losses on the Consolidated Balance Sheets, secured borrowings are carried on the Company’s Consolidated Balance Sheets as a current liability, in accounts payable, proceeds and repayments of secured borrowings are reflected as cash flows provided by (used in) financing activities in the Consolidated Statements of Cash Flows and program fees are recorded in interest expense in the Company’s Consolidated Statements of Loss.
The receivables factored were carried in accounts receivable, less allowance for credit losses on the Consolidated Balance Sheets, the secured borrowings were carried on the Company’s Consolidated Balance Sheets as a current liability, in accounts payable, proceeds and repayments of the secured borrowings are reflected as cash flows (used in) provided by financing activities in the Consolidated Statements of Cash Flows and program fees are recorded in interest expense in the Company’s Consolidated Statements of Loss.
The Initial Forward, which is governed by the provisions of an ISDA Master Agreement (including schedules thereto and transaction confirmations that supplement such agreement) entered into between the Company and the Hedge Counterparty, enable the Company to convert a portion of its euro denominated payment obligations under the proposed DPLTA into U.S. Dollars.
The Initial Forward, which was governed by the provisions of an ISDA Master Agreement (including schedules thereto and transaction confirmations that supplement such agreement) entered into between the Company and the Hedge Counterparty, enabling the Company to convert a portion of its euro denominated payment obligations under the proposed DPLTA into U.S. Dollars.
In addition to paying interest on outstanding principal under the Credit Agreement, the Company is required to pay a quarterly commitment fee to the lenders under the Credit Agreement in respect of unutilized revolving loan commitments on the average daily unused portion of the revolving credit commitment of each lender, which commitment fee ranges from 0.20% to 0.25% per annum based on the Company’s Consolidated Total Net Leverage Ratio (or, during the Covenant Relief Period, is equal to 0.25% per annum).
In addition to paying interest on outstanding principal under the Credit Agreement, the Company is required to pay a quarterly commitment fee to the lenders under the Credit Agreement in respect of unutilized revolving loan commitments on the average daily unused portion of the revolving credit commitment of each lender, which commitment fee ranges from 0.20% to 0.25% per annum based on the Company’s Consolidated Total Net Leverage Ratio (or, during the Applicable Margin Increase Period, is equal to 0.25%per annum).
The following table shows dividends per common share paid to our shareholders in each quarter of 2023 and 2022: Dividends per Common Share 2023 2022 First Quarter $ 0.09 $ 0.09 Second Quarter $ 0.09 $ 0.09 Third Quarter $ 0.09 $ 0.09 Fourth Quarter $ - $ 0.09 Stock Repurchase Program The Company did not repurchase any stock during the years ended December 31, 2023 and 2022, and there currently is no authorized stock repurchase plan.
The following table shows dividends per common share paid to our stockholders in each quarter of 2024 and 2023: Dividends per Common Share 2024 2023 First Quarter $ - $ 0.09 Second Quarter $ - $ 0.09 Third Quarter $ - $ 0.09 Fourth Quarter $ - $ - Stock Repurchase Program The Company did not repurchase any stock during the years ended December 31, 2024 and 2023, and there currently is no authorized stock repurchase plan.
For the year ended December 31, 2023 as compared to the year ended December 31, 2022, changes in foreign currencies relative to the U.S. dollar increased our research and development expenses by approximately $0.1 million. Adtran Networks has arrangements with governmental entities for the purposes of obtaining funding for research and development activities.
For the year ended December 31, 2024 as compared to the year ended December 31, 2023, changes in foreign currencies relative to the U.S. dollar increased our research and development expenses by approximately $1.4 million. Adtran Networks has arrangements with governmental entities for the purposes of obtaining funding for research and development activities.
See Note 10 of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this report for additional information.
See Note 18 of the Notes to Consolidated Financial Statements, included in Part II, Item 8 of this report for additional information.
The guaranteed interest under the Exit Compensation is calculated from the effective date of the DPLTA to the date the shares are tendered, less any Annual Recurring Compensation paid. The guaranteed interest rate is 5.0% plus a variable component (according to the German Civil Code) that was 3.12% as of December 31, 2023.
The guaranteed interest under the Exit Compensation is calculated from the effective date of the DPLTA to the date the shares are tendered, less any Annual Recurring Compensation paid. The guaranteed interest rate is 5.0% plus a variable component (according to the German Civil Code) that was 3.37% as of December 31, 2024.
The guaranteed interest under the Exit Compensation is calculated from the effective date of the DPLTA to the date the shares are tendered, less any Annual Recurring Compensation paid. The guaranteed interest rate is 5.0% plus a variable component (according to the German Civil Code) that was 3.12% as of December 31, 2023.
The guaranteed interest under the Exit Compensation is calculated from the effective date of the DPLTA to the date the shares are tendered, less any Annual Recurring Compensation paid. The guaranteed interest rate is 5.0% plus a variable component (according to the German Civil Code) that was 3.37% as of December 31, 2024.
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 (the "Exit Compensation"), or (ii) to remain Adtran Networks shareholders and receive a recurring compensation in cash of €0.59 (€0.52 net under the current tax regime) per share for each full fiscal year of Adtran Networks (the “Annual Recurring Compensation”).
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 (the "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 (the “Annual Recurring Compensation”).
See Note 15 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this report for additional information.
See Note 14 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this report for additional information.
We review goodwill for impairment annually during the fourth quarter and also test for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of our reporting unit below its carrying amount.
We review goodwill for impairment annually during the fourth quarter and also test for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of our reporting units below their carrying amount.
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 the products of competitors in order to gain market share.
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.
The projected benefit obligation for our defined benefit pension plans was $67.9 million and $59.3 million as of December 31, 2023 and 2022, respectively. The components of net periodic pension cost, other than the service cost component, are included in other income, net in the Consolidated Statements of Loss.
The projected benefit obligation for our defined benefit pension plans was $63.3 million and $67.9 million as of December 31, 2024 and 2023, respectively. The components of net periodic pension cost, other than the service cost component, are included in other income, net in the Consolidated Statements of Loss.
See Note 20 of the Notes to Consolidated Financial Statements, included in Part II, Item 8 of this report for more information. (4) We have operating leases for office space, automobiles and various other equipment in the U.S. and in certain international locations.
See Note 18 of the Notes to Consolidated Financial Statements, included in Part II, Item 8 of this 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.
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 3.12% as of December 31, 2023.
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 3.37% as of December 31, 2024.
For the year ended December 31, 2023, 67 thousand shares of Adtran Networks stock were tendered to the Company and Exit Compensation payments of approximately €1.2 million or approximately $1.3 million based on an exchange rate of December 31, 2023, were paid to Adtran Networks shareholders.
For the year ended December 31, 2023, a total of 67 thousand shares of Adtran Networks stock was tendered to the Company and Exit Compensation payments of approximately €1.2 million or approximately $1.3 million based on an exchange rate as of December 31, 2023, were paid to Adtran Networks shareholders.
Trade accounts receivables balances sold were removed from the Consolidated Balance Sheets and cash received was reflected as cash flows (used in) provided by operating activities in the Consolidated Statements of Cash Flow. Factoring related interest expense was recorded to interest expense on the Consolidated Statements of Loss.
Trade accounts receivables balances sold are removed from the Consolidated Balance Sheets and cash received is reflected as cash flows provided by (used in) operating activities in the Consolidated Statements of Cash Flow. Factoring related interest expense is recorded to interest expense on the Consolidated Statements of Loss.
See Note 12 and Note 13 of the Notes to Consolidated Financial Statements, included in Part II, Item 8 of this report and “Financing Activities” in “Liquidity and Capital Resources” below. Net Investment Gain (Loss) We recognized a net investment loss of $11.3 million and a gain of $2.8 million for the years ended December 31, 2022 and 2023, respectively.
See Note 11 of the Notes to Consolidated Financial Statements, included in Part II, Item 8 of this report and “Financing Activities” in “Liquidity and Capital Resources” below. Net Investment Gain (Loss) We recognized a net investment gain of $2.8 million and a gain of $3.6 million for the years ended December 31, 2023 and 2024, respectively.
The total balance of our unearned revenue was $71.8 million and $60.4 million as of December 31, 2023 and 2022, respectively. Network Implementation Revenue We recognize revenue for network implementation, which primarily consists of engineering, execution and enablement services at a point in time when each performance obligation is complete.
The total balance of our unearned revenue was $74.8 million and $71.8 million as of December 31, 2024 and 2023, respectively. Network Implementation Revenue We recognize revenue for network implementation, which primarily consists of engineering, execution and enablement services at a point in time when each performance obligation is complete.
We have omitted discussion of the earliest of the three years of financial condition and results of operations and this information can be found in Part I, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Part I, Item 1A, Risk Factors, included in Amendment No. 1 to our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on August 14, 2023 (the “2022 Form 10-K/A”), as well as Part I, Item 1, Business, included in our Annual Report on Form 10-K filed with the SEC on March 1, 2023., which is available free of charge on the SEC's website at http://www.sec.gov and on our website at www.adtran.com.
We have omitted discussion of the earliest of the three years of financial condition and results of operations and this information can be found in Part I, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Part I, Item 1A, Risk Factors, included in Amendment No. 1 to our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 15, 2024 (the “2023 Form 10-K”), as well as Part I, Item 1, Business, included in our Annual Report on Form 10-K filed with the SEC on March 15, 2024, which is available free of charge on the SEC's website at http://www.sec.gov and on our website at www.adtran.com.
As of December 31, 2023, total unrecognized compensation expense related to the non-vested portion of market-based PSUs, RSUs and restricted stock was approximately $15.5 million. 71 Pursuant to the Business Combination, which closed on July 15, 2022, Adtran Networks stock option holders were entitled to have their Adtran Networks stock options assumed by ADTRAN Holdings (applying the exchange ratio in the Business Combination Agreement), thereafter representing options to acquire stock of ADTRAN Holdings.
As of December 31, 2024, total unrecognized compensation expense related to the non-vested portion of market-based PSUs, RSUs and restricted stock was approximately $10.7 million. 66 Pursuant to the Business Combination, which closed on July 15, 2022, Adtran Networks stock option holders were entitled to have their Adtran Networks stock options assumed by ADTRAN Holdings (applying the exchange ratio in the Business Combination Agreement), thereafter representing options to acquire stock of ADTRAN Holdings.
The stock option pricing model requires the use of several assumptions that impact the fair value estimate. These variables include, but are not limited to, the volatility of the Company's stock price and employee exercise behaviors. As of December 31, 2023, total unrecognized compensation expense related to the non-vested portion of stock options was approximately $8.1 million.
The stock option pricing model requires the use of several assumptions that impact the fair value estimate. These variables include, but are not limited to, the volatility of the Company's stock price and employee exercise behaviors. As of December 31, 2024, total unrecognized compensation expense related to the non-vested portion of stock options was approximately $3.2 million.
(23.3 )% (0.2 )% (1.5 )% The following discussion and financial information are presented to aid in an understanding of our current consolidated financial position, changes in financial position, results of operations and cash flows and should be read in conjunction with the audited consolidated financial statements and notes thereto included herein.
(48.9 )% (23.2 )% (0.2 )% The following discussion and financial information are presented to aid in an understanding of our current consolidated financial position, changes in financial position, results of operations and cash flows and should be read in conjunction with the audited consolidated financial statements and notes thereto included herein.
The payment of any future dividends will be at the discretion of the Board of Directors and will depend on the Company’s financial condition, results of operations, capital requirements, and any other factors deemed relevant by the Board of Directors. In addition, the Wells Fargo Credit Agreement currently does not allow for the payment of dividends to shareholders.
The payment of any future dividends will be at the discretion of the Board of Directors and will depend on the Company’s financial condition, results of operations, capital requirements, and any other factors deemed relevant by the Board of Directors; however, the Wells Fargo Credit Agreement currently does not allow for the payment of dividends to stockholders.
Therefore an interim impairment test over goodwill was performed as of September 30, 2023. The Company determined the fair value of each reporting unit using a combination of an income approach and a market based peer group analysis.
Therefore, an interim impairment test over goodwill was performed as of September 30, 2023. The Company determined the fair value of each reporting unit using a combination of an income approach and a market approach.
We have used, and expect to continue to use, existing cash, investments, credit arrangements and cash generated from operations for working capital, business acquisitions, shareholder dividends 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.
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.
The emphasis of the discussion is a comparison of the years ended December 31, 2023 and December 31, 2022.
The emphasis of the discussion is a comparison of the years ended December 31, 2024 and December 31, 2023.
For a discussion of a comparison of the years ended December 31, 2022 and December 31, 2021, please refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K/A for the year ended December 31, 2022, filed with the SEC on August 14, 2023.
For a discussion of a comparison of the years ended December 31, 2023 and December 31, 2022, please refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 15, 2024.
The new factoring agreement qualifies for treatment as a secured borrowing with a pledge of collateral under Accounting Standards Codification ("ASC") Topic 810, Consolidations, as the Company is considered the primary beneficiary in a variable interest entity created to hold the factored receivables and the Company retains a residual claim on reserves related to the factored receivables .
The factoring agreement qualified for treatment as a secured borrowing with a pledge of collateral under Accounting Standards Codification ("ASC") Topic 810, Consolidations, as the Company was considered the primary beneficiary in a variable interest entity created to hold the factored receivables and the Company retained a residual claim on reserves related to the factored receivables .
Additionally, our obligation to pay Annual Recurring Compensation under the DPLTA is a continuing payment obligation, which will amount to approximately €10.6 million or $11.7 million (based on the current exchange rate) per year assuming none of the minority Adtran Networks shareholders were to elect Exit Compensation.
Additionally, our obligation to pay Annual Recurring Compensation under the DPLTA is a continuing payment obligation, which will amount to approximately €8.9 million or $9.3 million (based on the current exchange rate) per year assuming none of the minority Adtran Networks shareholders were to elect Exit Compensation.
Additionally, our obligation to pay Annual Recurring Compensation under the DPLTA is a continuing payment obligation, which will amount to approximately €10.6 million or $11.7 million (based on the current exchange rate) per year assuming none of the minority Adtran Networks shareholders were to elect Exit Compensation.
Additionally, our obligation to pay Annual Recurring Compensation under the DPLTA is a continuing payment obligation, which will amount to approximately €8.9 million or $9.3 million (based on the current exchange rate) per year assuming none of the minority Adtran Networks shareholders were to elect Exit Compensation.
There were no goodwill impairments recognized during the years ended December 31, 2022 and 2021. See Note 9 of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this report for additional information.
There were no asset impairments recognized during the years ended December 31, 2024 and 2023. See Note 9 of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this report for additional information.
At December 31, 2023, the estimated fair market value of our defined benefit pension plans' assets increased to $55.2 million from $48.7 million at December 31, 2022. The defined benefit pension plan is accounted for on an actuarial basis, which requires the use of various assumptions, including an expected rate of return on plan assets and a discount rate.
At December 31, 2024, the estimated fair market value of our defined benefit pension plans' assets decreased to $54.5 million from $55.2 million at December 31, 2023. The defined benefit pension plan is accounted for on an actuarial basis, which requires the use of various assumptions, including an expected rate of return on plan assets and a discount rate.
We have taken decisive steps to transform our business into a leaner, more efficient and more profitable company, including through the implementation of a Business Efficiency Program, which includes a significant cost efficiency program targeting a reduction of ongoing operating expenses and a capital efficiency program inclusive of certain salary reductions, an early retirement program, a site consolidation plan to include lease impairments and the partial sale of owned real estate (including the potential sale of portions of our headquarters), inventory write downs from product discontinuances, and the suspension of the quarterly dividend.
We have taken decisive steps to transform our business into a leaner, more efficient and more profitable company, including the substantial completion of our Business Efficiency Program (other than the Company’s aim of selling its headquarters), which included a significant cost efficiency program targeting a reduction of ongoing operating expenses and a capital efficiency program inclusive of certain salary reductions, an early retirement program, a site consolidation plan to include lease impairments and the partial sale of owned real estate (including the potential sale of portions of our headquarters), inventory write downs from product discontinuances, and the suspension of the quarterly dividend.
See Note 11 of Notes to Consolidated Financial Statements included in Part II, Item 8 of the report for additional information on foreign exchange contracts. Income Tax (Expense) Benefit Our effective tax rate changed from a benefit of 87.5%, for the year ended December 31, 2022 to an expense of 12.2% for the year ended December 31, 2023.
See Note 10 of Notes to Consolidated Financial Statements included in Part II, Item 8 of the report for additional information on foreign exchange contracts. Income Tax (Expense) Benefit Our effective tax rate changed from an expense of 12.2%, for the year ended December 31, 2023 to an expense of 2.0% for the year ended December 31, 2024.
Under the Initial Forward, the Company agreed to exchange an aggregate notional amount of €160.0 million for U.S. dollars at a daily fixed forward rate ranging from $1.0141 to $1.0305. The aggregate amount of €160.0 million is divided into eight quarterly tranches of €20.0 million, which commenced in the fourth quarter of 2022.
Under the Initial Forward, the Company agreed to exchange an aggregate notional amount of €160.0 million for U.S. dollars at a daily fixed forward rate ranging from EUR/USD 0.98286 to 1.03290. The aggregate amount of €160.0 million was divided into eight quarterly tranches of €20.0 million, which commenced in the fourth quarter of 2022.
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 December 31, 2023 and 2022, we had commitments related to these bonds totaling $10.8 million and $21.1 million, respectively, which expire at various dates through April 2031.
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 December 31, 2024 and 2023, we had commitments related to these bonds totaling $15.7 million and $10.8 million, respectively, which expire at various dates through April 2029.
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 €310.3 million or approximately $342.5 million, based on an exchange rate as of December 31, 2023 and reflecting interest accrued through December 31, 2023 during the pendency of the appraisal proceedings discussed below.
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 €333.2 million or approximately $344.9 million, based on an exchange rate as of December 31, 2024 and reflecting interest accrued through December 31, 2024 during the pendency of the appraisal proceedings discussed below.
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 €310.3 million or approximately $342.5 million, based on an exchange rate as of December 31, 2023 and reflecting interest accrued through December 31, 2023 during the pendency of the appraisal proceedings discussed below.
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 €333.2 million or approximately $344.9 million, based on an exchange rate as of December 31, 2024 and reflecting interest accrued through December 31, 2024 during the pendency of the appraisal proceedings discussed below.
For the year ended December 31, 2023, as compared to the year ended December 31, 2022, changes in foreign currencies relative to the U.S dollar increased our selling, general and administrative expenses by approximately $1.3 million.
For the year ended December 31, 2024, as compared to the year ended December 31, 2023, changes in foreign currencies relative to the U.S dollar increased our selling, general and administrative expenses by approximately $0.6 million.
However, the amount of deferred tax assets considered realizable could be adjusted in future periods in the event that sufficient evidence is no longer present to support a conclusion that it is more likely than not that all or a portion of our domestic deferred tax assets will be realized.
However, the amount of deferred tax assets considered realizable could be adjusted and valuation allowance released in future periods in the event that sufficient positive evidence is present to support a conclusion that it is more likely than not that all or a portion of our domestic and foreign deferred tax assets will be realized.
Domestic revenue decreased 10.9% from $517.4 million in 2022 to $461.0 million in 2023, driven by lower volume of sales of our residential solutions products as a result of customers' focus on reducing inventory levels in our Subscriber Solutions segment, partially offset by an increase in volume of sales activity during the first half of 2023 from the Business Combination with Adtran Networks.
Domestic revenue decreased 13.6% from $461.0 million in 2023 to $398.2 million in 2024, driven by lower volume of sales of our residential solutions products as a result of customers' focus on reducing inventory levels in our Subscriber Solutions segment, partially offset by an increase in volume of sales activity during the first half of 2024 from the Business Combination with Adtran Networks.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeTo achieve this objective, a majority of our marketable securities are investment grade, fixed-rate bonds and municipal money market instruments denominated in U.S. dollars. Our investment policy provides limitations for issuer concentration, which limits, at the time of purchase, the concentration in any one issuer to 5% of the market value of our total investment portfolio.
Biggest changeThe primary objective of the large majority of our investment activities is to preserve principal while at the same time achieve appropriate yields without significantly increasing risk. To achieve this objective, a majority of our marketable securities are investment grade, fixed-rate bonds and municipal money market instruments denominated in U.S. dollars.
Our primary exposures to foreign currency exchange rate movements are with the euro and the British pound sterling. 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.
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.
Actual future gains and losses associated with our foreign currency exposures and positions may differ materially from the sensitivity analyses performed as of December 31, 2023 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.
Actual future gains and losses associated with our foreign currency exposures and positions may differ materially from the sensitivity analyses performed as of December 31, 2024 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.
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 $6.7 million if the U.S. dollar weakened or strengthened 10% against the billing currencies.
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 $7.4 million if the U.S. dollar weakened or strengthened 10% against the billing currencies.
A hypothetical 50 basis point decline in interest rates as of December 31, 2023, assuming all other variables remain constant, would reduce annualized interest income on our cash and investments by less than $0.1 million.
A hypothetical 50 basis point decline in interest rates as of December 31, 2024, assuming all other variables remain constant, would reduce annualized interest income on our cash and investments by less than $0.1 million.
Hedging of our currency exposures may not always be effective to protect us against currency exchange rate fluctuations. See Note 11 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this report. 75 On November 3, 2022, the Company entered into a euro/U.S. dollar forward contract arrangement (the "Initial Forward") with Wells Fargo Bank, N.A.
Hedging of our currency exposures may not always be effective to protect us against currency exchange rate fluctuations. See Note 10 of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this report. 70 On November 3, 2022, the Company entered into a euro/U.S. dollar forward contract arrangement (the "Initial Forward") with Wells Fargo Bank, N.A.
The analyses cover 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 December 31, 2023.
The analyses cover 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 December 31, 2024.
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 43.2% of total operating expense for the year ended December 31, 2023, respectively). Therefore, our revenue, gross margins, operating expenses and operating loss are all subject to foreign currency fluctuations.
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 45.2% of total operating expense for the year ended December 31, 2024, respectively). Therefore, our revenue, gross margins, operating expenses and operating loss are all subject to foreign currency fluctuations.
(the “Hedge Counterparty”). The Initial Forward, which is governed by the provisions of an ISDA Master Agreement (including schedules thereto and transaction confirmations that supplement such agreement) entered into between the Company and the Hedge Counterparty, enable the Company to convert a portion of its euro denominated payment obligations under the proposed DPLTA into U.S. Dollars.
(the “Hedge Counterparty”). The Initial Forward, which was governed by the provisions of an ISDA Master Agreement (including schedules thereto and transaction confirmations that supplement such agreement) entered into between the Company and the Hedge Counterparty, enabling the Company to convert a portion of its euro denominated payment obligations under the proposed DPLTA into U.S. Dollars.
Interest Rate Risk As of December 31, 2023, approximately $5.7 million of our cash and investments may be directly affected by changes in interest rates. As of December 31, 2023, we held $5.7 million of cash and variable-rate investments where a change in interest rates would impact our interest income.
Interest Rate Risk As of December 31, 2024, approximately $5.9 million of our cash and investments may be directly affected by changes in interest rates. As of December 31, 2024, we held $5.9 million of cash and variable-rate investments where a change in interest rates would impact our interest income.
As of December 31, 2023, the carrying amounts of our revolving credit agreements totaled $195.0 million where a change in interest rates would impact our interest expense. A hypothetical 50 basis point increase in interest rates as of December 31, 2023, assuming all other variables remain constant, would increase our interest expense by $1.0 million.
As of December 31, 2024, the carrying amounts of our revolving credit agreements totaled $189.6 million where a change in interest rates would impact our interest expense. A hypothetical 50 basis point increase in interest rates as of December 31, 2024, assuming all other variables remain constant, would increase our interest expense by $1.0 million.
All non-functional currencies invoiced by suppliers would result in a combined hypothetical gain or loss of $11.4 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 $7.1 million if the U.S. dollar weakened or strengthened 10% against the billing currencies.
As a result, changes in currency exchange rates could cause variations in our operating loss. A hypothetical 10% movement in foreign exchange rates would result in a before-tax positive or negative impact of approximately $15.0 million for the year ended December 31, 2023.
As a result, changes in currency exchange rates could cause variations in our operating loss. A hypothetical 10% movement in foreign exchange rates would result in a before-tax positive or negative impact of approximately $7.1 million for the year ended December 31, 2024.
Under the Initial Forward, the Company agreed to exchange an aggregate notional amount of €160.0 million for U.S. dollars at a daily fixed forward rate ranging from $1.0141 to $1.0305. The aggregate amount of €160.0 million is divided into eight quarterly tranches of €20.0 million, which commenced in the fourth quarter of 2022.
Under the Initial Forward, the Company agreed to exchange an aggregate notional amount of €160.0 million for U.S. dollars at a daily fixed forward rate ranging from EUR/USD 0.98286 to 1.03290. The aggregate amount of €160.0 million was divided into eight quarterly tranches of €20.0 million, which commenced in the fourth quarter of 2022.
As of December 31, 2023, we had certain material contracts subject to currency revaluation, including accounts receivable, accounts payable and lease liabilities denominated in foreign currencies. As of December 31, 2023, we had 47 forward contracts outstanding with a fair value of $4.8 million.
As of December 31, 2024, we had certain material contracts subject to currency revaluation, including accounts receivable, accounts payable and lease liabilities denominated in foreign currencies. As of December 31, 2024, we had 39 forward contracts outstanding with a fair value of $0.6 million.
Under the Forward, which is governed by the provisions of an ISDA Master Agreement (including schedules thereto and transaction confirmations that supplement such agreement) entered into between the Company and the Hedge Counterparty, the Company will exchange an aggregate notional amount of €160.0 million U.S. dollars for euros at a daily fixed forward rate ranging from $1.0882 to $1.0955 per €1.00.
Under the Forward, which was governed by the provisions of an ISDA Master Agreement (including schedules thereto and transaction confirmations that supplement such agreement) entered into between the Company and the Hedge Counterparty, the Company exchanged an aggregate notional amount of €160.0 million for U.S. dollars at an average rate of EUR/USD 1.085.
The drawdown dates of the Initial Forward are set to the same date as the maturity of the new offsetting Forward. For further information about the fair value of our investments as of December 31, 2023, see Note 5 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this report. 76
For further information about the fair value of our investments as of December 31, 2024, see Note 10 of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this report. 71
On March 21, 2023, the Company entered into a euro/U.S. dollar forward contract arrangement (the “Forward”) with the Hedge Counterparty.
During the twelve months ended December 31, 2024, the Company settled four €20.0 million forward contract tranches. On March 21, 2023, the Company entered into a euro/U.S. dollar forward contract arrangement (the “Forward”) with the Hedge Counterparty.
We maintain depository investments with certain financial institutions. As of December 31, 2023, $83.2 million of our cash and cash equivalents, primarily certain domestic money market funds and foreign depository accounts, were in excess of government provided insured depository limits.
As of December 31, 2024, $74.0 million of our cash and cash equivalents, primarily foreign depository accounts, were in excess of government provided insured depository limits.
During the twelve months ended December 31, 2023, the Company settled four €20.0 million forward contract tranches and the remaining amount will be divided into four quarterly tranches of €20.0 million over the course of 2024.
During the twelve months ended December 31, 2024, the Company settled four $20.0 million forward contract tranches. As of December 31, 2024, both the Initial Forward and Forward have fully matured and are no longer outstanding.
ITEM 7A. QUANTITATIVE AND QUALITA TIVE DISCLOSURES ABOUT MARKET RISK We are exposed to financial market risks, including changes in interest rates and foreign currency exchange rates. The primary objective of the large majority of our investment activities is to preserve principal while at the same time achieve appropriate yields without significantly increasing risk.
ITEM 7A. QUANTITATIVE AND QUALITA TIVE 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. In addition, the ongoing global pandemic raises the possibility of an extended economic downturn and has caused volatility in financial markets.
Removed
The Company, at its sole discretion, may exchange all or part of each tranche on any given day within the applicable quarter; provided, however, that it must exchange the full tranche by the end of such quarter.
Added
Our investment policy provides limitations for issuer concentration, by restricting, at the time of purchase, the concentration in any one issuer to 5% of the market value of our total investment portfolio. We maintain depository investments with certain financial institutions.
Removed
The Initial Forward may be accelerated or terminated early for a number of reasons, including but not limited to (i) non-payment by the Company or the Hedge Counterparty, (ii) breach of representation or warranty or covenant by either party or (iii) insolvency or bankruptcy of either party.
Added
As of December 31, 2024 we have not entered into any derivative instruments to hedge the impact of the changes in variable interest rates under our revolving credit agreements.
Removed
During the twelve months ended December 31, 2023, the Company settled four $20.0 million forward contract tranches and the remaining amount will be divided into four quarterly tranches of $20.0 million. These forward contracts were executed on March 21, 2023 (to sell EUR/buy USD) and were entered into for the purpose of unwinding the Initial Forward (to buy EUR/sell USD).

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