Adtran and the Adtran logo are registered trademarks of
Adtranʟ ʼn˖ʡ andʢor its afЃliates in the ˈʡˆʡ and other ˖o˨ntriesʡ
ˇo ˩ie˪ a list of Adtran trademarksʟ go to this ˈ˅ʿʭ ˪˪˪ʡadtranʡ
com/trademarks. Third-party trademarks mentioned in this
doc˨ment are the property of their respecti˩e o˪ners.
Intelligent
networking
solutions for
the AI-era
Ann˨al report ʥʣʥʨ
Dear fellow stockholders
This past year demonstrated the progress we have
made in trans˟ating o˨r operationa˟ initiatives and
strategic investments into stronger performance.
˂˨r goa˟ contin˨es to ˕e to create ˟ongʠterm va˟˨e
thro˨gh discip˟ined e˫ec˨tion and responsi˕˟e
stewardship of yo˨r capita˟. ˊe are enco˨raged ˕y
the progress we made d˨ring ʥʣʥʨ in p˨rs˨ing that
important goal.
ʼn ʥʣʥʨʟ improving ind˨stry conditions and o˨r
m˨ltiʠyear operational initiatives com˕ined to drive
˕roadʠ˕ased growth across o˨r ˕˨sinessʟ stronger
proЃta˕ility and increased cash Єow generation. ʴll
three of o˨r reven˨e categories e˫panded d˨ring
the yearʟ reЄecting increasing c˨stomer investment
across o˨r end mar˞ets.
ʷ˨ring the yearʟ we enhanced o˨r capital str˨ct˨reʟ
strengthening o˨r Ѓnancial position and providing
greater Єe˫i˕ility to s˨pport f˨t˨re investment and
growth.
ʴcross the mar˞ets we serveʟ the need for sec˨reʟ
highʠcapacity networ˞ing infrastr˨ct˨re contin˨es
to grow. ˂˨r glo˕al footprintʟ comprehensive Ѓ˕er
networ˞ing portfolioʟ and rep˨tation as a tr˨sted
technology partner position ʴdtran well to s˨pport
this ne˫t phase of networ˞ investment.
Financial highlights
˅even˨e for ʥʣʥʨ totaled ʗʤ.ʣʫ ˕illionʟ representing a
ʤʪʘ increase compared with the prior year. ʺrowth
was ˕roadʠ˕asedʟ with each of o˨r three prod˨ct
categories delivering do˨˕leʠdigit increases as
c˨stomers increased investment in ˕road˕and and
Ѓ˕er networ˞ infrastr˨ct˨re.
ʺross proЃt improved ˕y ʥʫʘ d˨ring the yearʟ
driven ˕y stronger demandʟ contin˨ed e˫ec˨tion
on o˨r operating initiativesʟ and the ˕eneЃts of
greater scale across the ˕˨siness. ʶash generation
was strongʟ with net cash provided ˕y operating
activities increasing ˕y ʗʥʩ.ʥ million to ʗʤʥʬ.ʫ million
d˨ring ʥʣʥʨ.
ˊe also too˞ steps to f˨rther strengthen o˨r ˕alance
sheet thro˨gh the iss˨ance of ʗʥʣʤ.ʦ million in
converti˕le senior notes at an attractive interest rate
relative to o˨r e˫isting revolving credit facility. These
actions reЄect o˨r contin˨ed foc˨s on Ѓnancial
discipline and long-term capital stewardship.
Letter to stockholders
Tom Stanton
ʶhairman and ʶʸ˂ of ʴdtran ʻoldings
Broad-based growth across
our portfolio
˂ptical ˁetwor˞ing ˆol˨tions led o˨r growth in ʥʣʥʨʟ
increasing ʥʩʘ from ʥʣʥʧʟ driven ˕y strong demand
across a ˕road mi˫ of c˨stomersʟ incl˨ding service
providersʟ clo˨d providersʟ enterprise networ˞s and
p˨˕lic sector networ˞s. This demand reЄects the
˕roader mar˞et reˤ˨irement for high-capacityʟ
sec˨re optical networ˞ing sol˨tionsʟ along with the
Єe˫i˕ility and capa˕ilities of o˨r optical platforms to
address these needs.
ʴccess ʙ ʴggregation ˆol˨tions reven˨e increased
ʤʨʘ d˨ring the yearʟ driven primarily ˕y the ongoing
investment cycle in high-speedʟ Ѓ˕er-˕ased
˕road˕and services across the ˈˆ and ʸ˨rope.
ˆ˨˕scri˕er ˆol˨tions reven˨e increased ʤʥʘ year-
over-yearʟ reЄecting the contin˨ed investment
˕y service providers to connect more homes and
˕˨sinesses with Ѓ˕er while ˨pgrading their ˊi-ʹi
platforms to clo˨d-managedʟ m˨lti-ʺig services.
ʶomplementing o˨r networ˞ infrastr˨ct˨re sol˨tions
is o˨r ˀosaic software portfolioʟ which ena˕les
operators to manage increasingly comple˫ Ѓ˕er
and ˊi-ʹi networ˞s with greater a˨tomation
and intelligence. ʴs networ˞s contin˨e to scaleʟ
software a˨tomation and ʴʼ-ena˕led capa˕ilities
are ˕ecoming increasingly important to improving
operational efЃciency and networ˞ performance.
ˊe e˫pect that ʴʼ-driven operationsʟ ena˕led ˕y o˨r
recently anno˨nced ˀosaic ˂ne ʶlarity applicationsʟ
will play a ˞ey role in the f˨t˨re of o˨r c˨stomersϠ
networ˞s and ena˕le additional software growth
opport˨nities for ˨s.
Market trends and
opportunities
ˆeveral long-term ind˨stry trends contin˨e to
s˨pport investment across these mar˞ets.
ʷemand for high-capacity Ѓ˕er infrastr˨ct˨re
remains strong as clo˨d operatorsʟ service
providersʟ enterprise c˨stomersʟ and governments
e˫pand and moderni˭e their networ˞s. ʼncreasing
data cons˨mptionʟ clo˨d adoptionʟ and the rapid
growth of artiЃcial intelligence applications are
driving the need for more resilient and scala˕le
comm˨nications infrastr˨ct˨re. ʴt the same timeʟ
network operators are placing greater emphasis
on sec˨rityʟ tr˨sted s˨pply chainsʟ and vendor
diversiЃcation. ʼn ʸ˨ropeʟ reg˨latory initiatives and
national sec˨rity considerations are enco˨raging
operators to move away from high-risk s˨ppliers
and adopt tr˨sted technology partners.
ˊith o˨r long-standing presence in ˕oth the
ˈnited ˆtates and ʸ˨ropeʟ a geographically diverse
s˨pply chainʟ and a portfolio tailored for sec˨re
comm˨nications networksʟ these market dynamics
align well with o˨r strategic direction.
“With our long-standing
presence in both the
United States and Europe, a
geographically diverse supply
chain, and a portfolio tailored
for secure communications
networks, these market
dynamics align well with our
strategic direction.“
Looking ahead
ʴs we move into ʥʣʥʩʟ we ˕elieve the positive
moment˨m achieved in ʥʣʥʨ provides a strong
fo˨ndation for contin˨ed progress.
ʼnvestment in Ѓ˕er infrastr˨ct˨re remains a priority
across many of o˨r core marketsʟ while demand for
ʴʼ-driven a˨tomation contin˨es to grow. ʴdtran has
improved its strategic positioning in key markets,
incl˨ding with ʸ˨ropean and ˈˆ c˨stomers, and in
emerging verticals, s˨ch as clo˨d providers and
critical infrastr˨ct˨re. ʵy com˕ining these market
opport˨nities with a disciplined operating model
and contin˨ed innovation, we ˕elieve we are well-
positioned to f˨rther improve proЃta˕ility and create
long-term val˨e for o˨r stockholders.
A note of gratitude
ʹinally, ʼ wo˨ld like to thank o˨r employees aro˨nd
the world for their dedication. Their commitment and
e˫pertise contin˨e to drive o˨r progress and s˨ccess.
To o˨r stockholders, we appreciate yo˨r contin˨ed
tr˨st and s˨pport as we work to ˕˨ild a stronger
Adtran.
ˊe look forward to sharing f˨rther progress as we
contin˨e to e˫ec˨te o˨r strategy and p˨rs˨e the
opport˨nities ahead.
ˆincerely,
Tom Stanton
ʶhairman and ʶʸ˂ of Adtran ʻoldings
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549.
FORM 10-K
շ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2025
ն TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the Transition Period from to
Commission file number 000-41446
ADTRAN Holdings, Inc.
(Exact name of registrant as specified in its charter)
Delaware
87-2164282
(State or Other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification Number)
901 Explorer Boulevard
Huntsville, Alabama
35806-2807
(Address of Principal Executive Offices)
(Zip code)
256-963-8000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, Par Value $0.01
ADTN
The Nasdaq Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ն
No շ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ն
No շ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes շ
No ն
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulations S-T (§ 232.405 of
this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes շ
No ն
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See
the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
շ
Accelerated Filer
ն
Non-accelerated Filer
ն
Smaller Reporting Company
ն
Emerging growth company
ն
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. ն
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting
under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
շ
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of
an error to previously issued financial statements. շ
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s
executive officers during the relevant recovery period pursuant to § 240.10D-1(b). շ
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ն
No շ
The aggregate market value of the registrant's outstanding common stock held by non-affiliates of the registrant on June 30, 2025 was $706,155,805 based on a closing market price of
$8.97 as reported on the NASDAQ Global Select.
There were 80,659,651 shares of common stock outstanding as of February 19, 2026.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the registrant's 2026 Annual Meeting of Stockholders to be filed within 120 days of the registrant's fiscal year-end are incorporated herein
by reference into Part III of this report to the extent described in Part III.
1
ADTRAN Holdings, Inc.
Annual Report on Form 10-K
For the Fiscal Year Ended December 31, 2025
Table of Contents
Page
Number
..............................................
Cautionary Note Regarding Forward-Looking Statements and Risk Factor Summary
3
........................................................................................................................................
Glossary of Selected Terms
6
PART I
Item 1.
.......................................................................................................................................................................
Business
9
Item 1A.
.................................................................................................................................................................
Risk Factors
22
Item 1B.
.......................................................................................................................................
Unresolved Staff Comments
46
Item 1C.
..............................................................................................................................................................
Cybersecurity
46
Item 2.
.....................................................................................................................................................................
Properties
47
Item 3.
.......................................................................................................................................................
Legal Proceedings
47
Item 4.
.............................................................................................................................................
Mine Safety Disclosures
47
PART II
Item 5.
.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
48
Item 6.
...................................................................................................................................................................
[Reserved]
50
Item 7.
.....................................
Management’s Discussion and Analysis of Financial Condition and Results of Operations
50
Item 7A.
....................................................................................
Quantitative and Qualitative Disclosures About Market Risk
68
Item 8.
...........................................................................................................
Financial Statements and Supplementary Data
69
Item 9.
....................................
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
115
Item 9A.
.............................................................................................................................................
Controls and Procedures
115
Item 9B
........................................................................................................................................................
Other Information
117
Item 9C
........................................................................
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
117
PART III
Item 10.
..........................................................................................
Directors, Executive Officers and Corporate Governance
118
Item 11.
.............................................................................................................................................
Executive Compensation
118
Item 12.
...................
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
119
Item 13.
...........................................................
Certain Relationships and Related Transactions, and Director Independence
119
Item 14.
.....................................................................................................................
Principal Accountant Fees and Services
119
PART IV
Item 15.
..............................................................................................................
Exhibits and Financial Statement Schedules
120
Item 16.
..................................................................................................................................................
Form 10-K Summary
125
SIGNATURES
2
GENERAL
We own or have rights to trademarks, service marks or trade names that we use in connection with the operation of our business. In
addition, our names, logos and website names and addresses are owned by us or licensed by us. We also own or have the rights to
copyrights that protect the content of our solutions. Solely for convenience, the trademarks, service marks, trade names and copyrights
referred to in this report are listed without the ©, ® and ™symbols, but we will assert, to the fullest extent under applicable law, our
rights or the rights of the applicable licensors to these trademarks, service marks, trade names and copyrights.
This report may include trademarks, service marks or trade names of other companies. Our use or display of other parties’ trademarks,
service marks, trade names or products is not intended to, and does not imply a relationship with, or endorsement or sponsorship of us
by, the trademark, service mark or trade name owners.
***
Unless otherwise indicated, information contained in this report concerning our industry and the markets in which we operate is based
on information from independent industry and research organizations, other third-party sources (including industry publications,
surveys and forecasts), and management estimates. Management estimates are derived from publicly available information released by
independent industry analysts and third-party sources, as well as data from our internal research, and are based on assumptions made
by us upon reviewing such data and our knowledge of such industry and markets that we believe to be reasonable. Although we
believe the data from these third-party sources is reliable, we have not independently verified any third-party information.
3
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS AND RISK FACTOR SUMMARY
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by or on behalf of
Adtran. Adtran and its representatives may from time to time make written or oral forward-looking statements, including statements
contained in this report, our other filings with the SEC and other communications with our stockholders. Any statement that does not
directly relate to a historical or current fact is a forward-looking statement. Generally, the words “believe”, “expect”, “intend”,
“estimate”, “anticipate”, “would”, “will”, “may”, “might”, “could”, “should”, “can”, “future”, “assume”, “plan”, “seek”, “predict”,
“potential”, “objective”, “expect”, “target”, “project”, “outlook”, “forecast” and similar expressions identify forward-looking
statements. We caution you that any forward-looking statements made by us or on our behalf are subject to uncertainties and other
factors that could affect the accuracy of such statements. Forward-looking statements are based on management’s current
expectations, as well as certain assumptions and estimates made by, and information available to, management at the time the
statements are made. Those statements are based on general assumptions and are subject to various risks, and because they also relate
to the future, they are likewise subject to inherent uncertainties and other factors that may cause actual results to differ materially from
the views, beliefs and projections expressed in such statements. These risks, uncertainties and other factors include, but are not limited
to, the risks identified in Item 1A. “Risk Factors” of this report and those described below:
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 obligations.
•
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.
•
Accurately matching necessary inventory levels to customer demand is challenging, and we may incur additional costs or
be required to write off significant inventory that could adversely impact our results of operations.
•
The lengthy sales and approval process required by Service Providers for new products has resulted in fluctuations in our
revenue and may result in future revenue fluctuations.
•
We require a significant amount of cash to service our indebtedness, our payment obligations to Adtran Networks
shareholders under the DPLTA, and other obligations.
•
The terms of the DPLTA may have a material adverse effect on our financial results and condition.
•
Our significant indebtedness exposes us to various risks.
•
We depend heavily on sales to certain customers; the loss of any of these customers or a significant project would
significantly reduce our revenue and net income.
•
Our exposure to the credit risks of our customers and distributors may make it difficult to collect accounts receivable and
could adversely affect our operating results, financial condition and cash flows.
•
We expect gross margins to continue to vary over time, and our levels of product and services gross margins may not be
sustainable.
•
Our dependence on a limited number of suppliers for certain raw materials, key components and ODM products,
combined with supply shortages, has prevented and may continue to prevent us from delivering our products on a timely
basis, which has had and may continue to have a material adverse effect on operating results and could have a material
adverse effect on customer relations.
•
We compete in markets that have become increasingly competitive, which may result in reduced gross profit margins and
market share.
•
Our estimates regarding future warranty obligations may change due to product failure rates, installation and shipment
volumes, field service repair obligations and other rework costs incurred in correcting product failures. If our estimates
materially change, our liability for warranty obligations may increase or decrease, impacting future cost of revenue.
•
Managing our inventory is complex and has included and may continue to include write downs of excess or obsolete
inventory.
•
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.
•
Our success depends on attracting and retaining key personnel.
4
•
We are exposed to currency exchange rate fluctuations in jurisdictions where we transact in local currency, which could
harm our financial results and cash flows.
•
We have recognized impairment charges related to goodwill and other intangible assets in the past and may be required to
do so in the future.
•
We may be unable to successfully and effectively manage and integrate acquisitions, divestitures and other significant
transactions, which could harm our operating results, business and prospects.
•
Ongoing inflationary pressures have negatively impacted our revenue and profitability.
Risks related to our control environment
•
We have had to restate our previously issued consolidated financial statements and, as part of that process, have identified
material weaknesses in our internal control over financial reporting. If we are unable to develop and maintain effective
internal control over financial reporting, we may not be able to accurately report our financial results in a timely manner,
which may adversely affect investor confidence in us and may adversely affect our business, financial condition and
results of operations.
•
We may face litigation and other risks as a result of our material weaknesses in our internal control over financial
reporting and any resulting restatement of our previously issued financial statements.
•
Breaches of our information systems and cyberattacks could compromise our intellectual property and cause significant
damage to our business and reputation.
•
Emerging issues related to the development and use of AI could give rise to legal or regulatory action, damage our
reputation, or otherwise materially harm our business.
Risks related to the telecommunications industry
•
We must continue to update and improve our products and develop new products to compete and to keep pace with
improvements in communications technology.
•
Our failure or the failure of our contract manufacturers to comply with applicable environmental regulations could
adversely impact our results of operations.
•
If our products do not interoperate with our customers’ networks, installations may be delayed or canceled, which could
harm our business.
•
We engage in research and development activities to develop new, innovative solutions and to improve the application of
developed technologies, and as a consequence may miss certain market opportunities enjoyed by larger companies with
substantially greater research and development efforts and which may focus on more leading-edge development.
•
Our strategy of outsourcing a portion of our manufacturing requirements to subcontractors located in various international
regions may result in us not meeting our cost, quality or performance standards.
•
Our failure to maintain rights to intellectual property used in our business could adversely affect the development,
functionality and commercial value of our products.
•
Third party hardware or software that is used with our portfolios may not continue to be available or at commercially
reasonable terms.
•
Our use of open source software could impose limitations on our ability to commercialize our products.
•
We may incur liabilities or become subject to litigation that would have a material effect on our business.
•
If we are unable to successfully develop and maintain relationships with Systems Integrators, Service Providers and
enterprise value-added resellers, our revenue may be negatively affected.
•
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.
5
Risks related to the Company's stock price
•
Our financial performance and operating results historically have fluctuated and could fluctuate in future periods, which
has affected and may in the future affect our stock price.
•
Future issuances of additional equity securities could result in dilution of existing stockholders’ equity ownership.
•
The price of our common stock has been volatile and may continue to fluctuate significantly.
Risks Related to our Convertible Senior Notes (the “2030 Notes” or the “Notes”) and Capped Call Transactions (the “Capped
Calls”)
•
Our indebtedness and liabilities could limit the cash flow available for our operations and expose us to risks that could
adversely affect our business, financial condition and results of operations. In addition, if we are unable to raise additional
capital and/or restructure some of our existing indebtedness, we may be unable to meet our obligations as they come due,
including with respect to the 2030 Notes.
•
We may be unable to raise the funds necessary to repurchase the 2030 Notes for cash following a fundamental change or
to pay any cash amounts due upon maturity or conversion of the 2030 Notes, and our other indebtedness may limit our
ability to repurchase the 2030 Notes or to pay any cash amounts due upon their maturity or conversion.
•
Provisions in the Indenture (as defined below) could delay or prevent an otherwise beneficial takeover of us.
•
The accounting method for the 2030 Notes has affected and may continue to adversely affect our reported financial
condition and results.
•
Transactions relating to our 2030 Notes may affect the value of our common stock.
•
We are subject to counterparty risk with respect to the Capped Calls, and the Capped Calls may not operate as planned.
Risks related to the regulatory environments in which we do business
•
We are subject to complex and evolving U.S. and foreign laws, regulations and standards governing the conduct of our
business. Violations of these laws and regulations may harm our business, subject us to penalties and to other adverse
consequences.
•
Changes in trade policy in the U.S. and other countries, including the imposition of additional tariffs and the resulting
consequences, may adversely impact our gross profits, gross margins, results of operations and financial condition.
•
New or revised tax regulations, changes in our effective tax rate, recognition of a valuation allowance or assessments
arising from tax audits may have an adverse impact on our results.
•
Interest rate fluctuations could increase our costs of borrowing money and negatively impact our financial condition and
future operations.
•
Expectations relating to sustainability and governance matters expose the Company to potential liabilities, increased costs,
reputational harm, and other adverse effects on the Company’s business.
•
Further downgrades of the U.S. credit rating, automatic spending cuts, the current government shutdown or future
government shutdowns could negatively impact our liquidity, financial condition and earnings.
We caution investors that other factors may prove to be important in the future in affecting our operating results. New factors emerge
from time to time, and it is not possible for us to predict all of these factors, nor can we assess the impact each factor, or a combination
of factors, may have on our business.
You are further cautioned not to place undue reliance on these forward-looking statements because they speak only of our views as of
the date that the statements were made. We undertake no obligation to publicly update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise, except as required by law.
6
GLOSSARY OF SELECTED TERMS
Below are certain acronyms, concepts and defined terms commonly used in our industry and in this report along with their meanings:
Acronym/Concept/
Defined Term
Meaning
ACI-E
Access Integrator Ethernet
Adtran Networks
Adtran Networks SE, a European stock corporation incorporated under the laws of
the EU and Germany, and a majority-owned subsidiary of the Company
Adtran GmbH
Adtran Gesellschaft mit beschränkter Haftung; Limited liability subsidiary of
Adtran, Inc. in Germany
ALM
Active line monitoring
AI
Artificial Intelligence
AOE
Adtran Operational Environment (Adtran EMS)
APAC
Asia Pacific
ASU
Accounting Standards Update
ATIS
Alliance for Telecommunications Industry Solutions; Standards organization that
develops technical and operational standards and solutions for the information and
technology industry
BBF
Broadband Forum
Carrier
Entity that provides voice, data or video services to consumers and businesses
CBAM
Carbon Border Adjustment Mechanism
COSO
Committee of Sponsoring Organizations of the Treadway Commission
CPE
Customer-Premises Equipment
CSRD
Corporate Sustainability Reporting Directive
C-TPAT
U.S. Customs Trade Partnership Against Terrorism
DPLTA
Domination and Profit and Loss Transfer Agreement
DPU
Distribution Point Unit
DSL
Digital Subscriber Line
DSO
Days Sales Outstanding
EMEA
Europe, Middle East and Africa
EPON
Ethernet PON
ESPR
Environmentally Sustainable Products Regulation
Ethernet
Means of connecting computers over a LAN (as defined below)
ETSI
European Telecommunications Standards Institute
EU
European Union
FCPA
Foreign Corrupt Practices Act
FOB
Free on Board
FTTN
Fiber to the Node
GDPR
General Data Protection Regulation
Gfast
DSL protocol standard for local loops (telephone lines) shorter than 500 meters with
performance targets between 100 Mbps (as defined below) and 1 gigabit per second,
depending on loop length
GILTI
Global Intangible Low-Taxed Income is a U.S. tax provision (IRC §951A) under the
2017 Tax Cuts and Jobs Act
GPON
Gigabit PON
hiX
Adtran Multiservice Access Platform sold in the EU
Hyper-scalers
Major cloud service providers operating massive, scalable data centers
ICT
Information and Communications Technology
7
IoT
Internet of Things
IP
Internet Protocol
ISDA
International Swaps and Derivatives Association
ISO
International Organization for Standardization
ITU-T
International Telecommunication Union – Telecommunication Standardization
Sector
LAN
Local Area Network
Mbps
Megabits Per Second
MDU Connectivity
Managed, high-speed fiber or Wi-Fi systems for multi-dwelling units
MEF
Metro Ethernet Forum
MSO
Multiple System Operator
MSP
Managed Service Provider
NASDAQ
National Association of Securities Dealers Automated Quotations, an American
stock exchange based in New York City
Neocloud
Cloud providers specialized in providing GPU-as-a-Service for AI, machine
learning, and high-performance computing
Net CFC Tested Income
Net controlled foreign corporations tested income, under IRC §951A, is the
aggregate of a U.S. shareholder's pro rata share of tested income from controlled
foreign corporations, reduced by their share of tested losses
ODM
Original Design Manufacturer
OLT
Optical Line Terminal
ONE
Optical Networking Edge
ONT
Optical Network Terminal
Operator
Entity that provides voice, data or video services to consumers and businesses
OS
Operating System
OTT
Over the Top
PCAOB
Public Company Accounting Oversight Board
PON
Passive Optical Network
PSU
Performance Stock Unit
RNCI
Redeemable Non-Controlling Interest
RSU
Restricted Stock Unit
SaaS
Software-as-a-Service
SDG
Service Delivery Gateway
SDN
Software Defined Networking
SDX
Software Defined Everything
SDO
Standards Developing Organizations
SEC
Securities and Exchange Commission
Service Provider or SP
An entity that provides voice, data or video services to consumers and businesses
SLA
Service Level Agreement
SMB
Small- to Medium-sized Business
SOFR
Secured Overnight Financing Rate
System Integrator or SI
Person or company that specializes in bringing together component subsystems into
a whole and ensuring that those subsystems function together
TIA
Telecommunications Industry Association
TIP
Telecom Infra-Project
8
TL 9000
Standard developed by and for the ICT industry to drive consistency in the quality of
products and services down the supply chain through the implementation of a
common body of QMS requirements and defined performance-based measurements
U.K.
United Kingdom
U.S.
United States
VAR
Value-Added Reseller
VoIP
Voice over IP
WEEE
Waste from Electrical and Electronic Equipment directive
Wi-Fi
Family of wireless network protocols, based on the IEEE 802.11 family of standards,
which are commonly used for LAN of devices and Internet access
XGS-PON
Updated standard for PONs that can support 10 Gbps symmetrical data transfer
9
PART I
ITEM 1. BUSINESS
Company Overview
ADTRAN Holdings, Inc. (“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; hyper-scalers, neocloud and content providers
and data center companies; and federal, state and local government agencies.
We are focused on being a top global supplier of fiber-based communications infrastructure and AI-driven operations including SaaS
applications spanning from the network core to the cloud edge (data centers) to the subscriber edge (customer premises) serving both
the residential and enterprise connectivity markets, including fiber-based infrastructure for mobile networks. We offer a broad
portfolio of flexible network infrastructure solutions, customer premises equipment, software applications, and global services and
support that enable Service Providers to meet their service demands now and in the future. These products and services enable Service
Providers to transition to a common network supporting the simplified delivery of high-capacity services, regardless of subscriber
density, network topology and infrastructure diversity. We support our customers through our direct global sales organization and our
distribution networks. Our success depends upon our ability to have customers adopt our technology, 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. To service our customers and grow revenue, we are continually conducting research and developing new products
addressing customer needs and testing those products for the specific requirements of the particular customers.
We solely own ADTRAN, Inc. and are the majority shareholder of Adtran Networks. ADTRAN, Inc. is a leading global provider of
open, disaggregated networking and communications solutions. Adtran Networks is a global provider of network solutions for data,
storage, voice and video services. We believe that the combined technology portfolio can best address current and future customer
needs for high-speed connectivity from the network core to the end consumer, especially upon the convergence of solutions at the
network edge.
We operate in two business segments: (1) Network Solutions, which includes hardware and software products, and (2) Services &
Support, which includes a portfolio of network design and implementation services, support services and AI-driven operations
including cloud-hosted SaaS applications that complement our product portfolio and can also be utilized to support other platforms.
These two segments span across our three revenue categories: (1) Subscriber Solutions, (2) Access & Aggregation Solutions and (3)
Optical Networking Solutions. See "Reportable Segments" below for a detailed discussion of these reportable segments and revenue
categories.
We began operations in January 1986. Our global headquarters are located at Cummings Research Park in Huntsville, Alabama, the
second largest research park in the U.S. and fourth largest in the world. Our European headquarters are located in Munich, Germany,
and we have sales and research and development facilities in strategic global locations. Our mailing address is 901 Explorer
Boulevard, Huntsville, Alabama, 35806. Our telephone number at that location is (800) 923-8726. Our website is www.adtran.com.
The information found on our website is not incorporated by reference in this report or any other report that we file or furnish to the
SEC.
Domination and Profit and Loss Transfer Agreement
The DPLTA between the Company, as the controlling company, and Adtran Networks, as the controlled company, was executed on
December 1, 2022 in connection with the Company’s business combination with Adtran Networks, and became effective on January
16, 2023. Pursuant to the DPLTA, the Company has effective control over Adtran Networks subject to the terms of DPLTA. For more
information on the DPLTA, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Adtran
Networks Domination and Profit and Loss Transfer Agreement” in Part II, Item 7 of this report.
10
Reportable Segments
Our business operates two reportable segments: (1) Network Solutions and (2) Services & Support. 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. The Company's cloud-managed Wi-Fi gateways,
virtualization software, and switches provide a mix of wired and wireless connectivity at the customer premises. In addition, its
Carrier Ethernet products support a variety of applications at the network edge ranging from mobile backhaul to connecting enterprise
customers (“Subscriber Solutions"). The Company's portfolio includes products for multi-gigabit service delivery over fiber or
alternative media to homes and businesses.
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. 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, featuring AI-driven operations. 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 our two reportable segments, we also report revenue across three categories – Subscriber Solutions, Access &
Aggregation Solutions and Optical Networking Solutions.
Our Subscriber Solutions portfolio is used by Service Providers to terminate their access services infrastructure at 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. These solutions include fiber termination solutions for
residential, business and wholesale subscribers, Wi-Fi access solutions for residential and business subscribers, Ethernet switching and
network edge virtualization solutions for business subscribers, and cloud software solutions covering a mix of subscriber types.
11
The Subscriber Solutions category includes the following products, software and services:
Residential Gateways ("RGs"):
•
Residential Gateways
Optical Networking Terminals ("ONTs"):
•
GPON/XGS-PON ONTs
Enterprise Connectivity:
•
Routers
•
Switches
Edge Compute:
•
Edge Cloud (VEC)
Carrier Ethernet Network Interface Devices ("CE NIDs"):
•
FSP 150-GE110
•
FSP 150-XG100
•
FSP 150-XG210
•
FSP 150-XG300
•
FSP 150-XG400-NIDs
Software:
•
Mosaic One SaaS applications
•
n-Command
•
Procloud
Service:
•
Build
•
Care
•
Training
•
Professional Services
•
Software Services
•
Managed Services
12
Our Access & Aggregation Solutions category represents solutions that are used by communications Service Providers to connect
residential subscribers, business subscribers and mobile radio networks to the Service Providers’ metro network, primarily through
fiber-based connectivity. This revenue category includes hardware- and software-based products and services. Our solutions within
this category are a mix of fiber access and aggregation platforms, precision network synchronization and timing solutions, and access
orchestration solutions that ensure highly reliable and efficient network performance.
The Access & Aggregation category includes the following products, software and services:
Optical Line Terminals:
•
TA5000 OLT
•
SDX OLT
•
EPON OLT
•
Pluggable Optics
Copper Access:
•
Gfast DPUs
•
hiX
•
Total Access FTTN
•
Traditional Broadband
Packet Aggregation:
•
FSF 150-XG400 Aggregators
•
SDX Aggregation
•
Activator
Software:
•
MCP
•
AOE and ACI-E
•
Ensemble Activator
•
Mosaic One SaaS Applications
•
Mosaic Network Controller
Oscilloquartz:
•
Cesium clocks
•
GNSS and LEO clocks
•
Embedded timing solutions
•
PIP grandmasters and NTP server clocks
•
Time scale systems
•
Synchronization monitoring
•
PTP clients and boundary clocks
•
NTP network time servers
•
Network management systems
Service:
•
Build
•
Care
•
Training
•
Professional Services
•
Software Services
•
Managed Services
13
Our Optical Networking Solutions are used by communications Service Providers, internet content providers and large-scale
enterprises to securely interconnect metro and regional networks over fiber. This revenue category includes hardware- and software-
based products and services. Our solutions within this category include open optical terminals, open line systems, optical subsystems
and modules, network infrastructure assurance systems, and automation platforms that are used to build high-scale, secure and assured
optical networks.
The Optical Networking Solutions category includes the following products, software and services:
Optical Transport:
•
FSP 3000
Optical Engines:
•
AOE Coherent Pluggables
•
AOE MicroMux
•
AOE AccessWave
Infrastructure Monitoring:
•
ALM Fiber Monitoring
Software:
•
Mosaic Network Controller
Services:
•
Build
•
Care
•
Training
•
Professional Services
•
Software Services
•
Managed Services
14
Industry Overview
The global growth of the cloud and mobility (5G), industrial applications, AI, home office and mobile working are accelerating the
demand for more bandwidth, requiring more flexible provisioning of telecommunications services and more precise network
synchronization. Communications Service Providers' investment in their networks is being driven by the pursuit of growth in
subscriber acquisition, retention, and average revenue per user, as well as by the aims of streamlining operations, lowering energy
consumption and improving their overall sustainability. Drivers facilitating this network investment cycle include the evolution of
government funding programs, private equity infrastructure investment appetite, regulatory broadband policies, competition and ever-
increasing subscriber demand for higher-speed broadband.
Subscriber demand for greater bandwidth continues to increase as connectivity is being woven ever more tightly into the fabric of
everyone’s day-to-day lives. Specifically, subscriber demand for greater bandwidth is being driven by increasing numbers of
connected devices, shifting working arrangements, the transition of entertainment over to OTT video, and the evolution of gaming
platforms towards subscription models where new hybrids of download and streaming are emerging globally. This is further
compounded by the rapid adoption of AI, the prevalence of IoT and the increasing transition of applications over to cloud-based
services and internet applications where recurring revenues replace one-time sales. Performance and user satisfaction are directly
related to bandwidth availability and service robustness. As the demand for high-definition video and game streaming services,
symmetric bandwidth for online collaboration, lower latency for interactive AI and cloud applications and smart home video
surveillance applications continue to increase, so too does the need increase for fiber-based broadband to be in every home and
business.
In order to satisfy these complex requirements and deliver on the efficiency improvements demanded by operators, communications
Service Providers are transitioning to full fiber access networks.
We aim to serve as a trusted partner to our customers. Working side-by-side with our customers, we assist them with maximizing the
performance of their networks by providing a flexible path for their networks to evolve cost-effectively over to full fiber while
availing themselves of the benefits that web-scale architectures deliver and helping to further monetize their investments.
Our Strategy
Our strategy is to provide innovative and cost-effective solutions for our customers that enable them to address their increasing
broadband demand. Our solutions focus on technology transformations that are happening in broadband network infrastructure, home
and business CPE and software platforms, and services needed to help our customers address increasing complexity while scaling to
meet increasing consumer demands.
We aspire to be one of the top communication technology players in the world and an innovation leader around the converged edge,
enabling the intelligent, self-optimizing, fiber-everywhere future. We plan to achieve this goal through innovation in network, home
and business technology paired with a customer-focused organizational structure that tailors solutions to meet the needs of our target
customers. We have one of the most comprehensive solutions portfolios that empowers operators to build a converged infrastructure
from the metro core to the customer premise, serving all networking applications for residential, business, wholesale and mobile users.
We take an approach to our portfolio in which we are focused in specific markets where we can offer competitive differentiation and
scale while also having enough diversity and breadth in the portfolio to provide end-to-end connectivity solutions that offer value to
our customers. 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.
15
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.
During 2025, 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 20.4% of our revenue. Additionally, our revenue in the U.S., U.K. and Germany each
comprised more than 10% of our revenue in 2025. The revenue from this Service Provider and these countries is reported in both our
Network Solutions and Services & Support segments.
Distribution, Sales and Marketing
We sell our products through our direct sales organization and our distribution network. Our direct sales organization supports major
accounts and has offices in global locations. Sales to most smaller and independent telecom companies are fulfilled through a
combination of direct sales and distributors. Our service offerings can be purchased directly from us or through one of our Service
Providers, channel partners or distribution partners.
Before placing an order, Service Providers typically require lengthy product qualification and standardization processes that can
extend for several months or even years. Once approved, product orders are typically placed under single or multi-year supply
agreements that are generally not subject to minimum volume commitments. Service Providers generally prefer having two or more
suppliers for most products. Therefore, individual orders are usually subject to competitive combinations of total value, service, price,
delivery and other terms.
Orders for end-user products are fulfilled through a combination of direct sales and distributors. This is supported by a direct sales
organization for major accounts and a channel-based sales organization to facilitate sales to our partners. MSPs, VARs and SIs may be
affiliated with us as channel partners, or they may purchase from a distributor in an unaffiliated fashion. Affiliated partners participate
with us at various program levels, based on sales volume and other factors, to receive benefits such as product discounts, market
development funds, technical support and training.
Outside of the U.S., most Service Provider products are sold through our direct sales organization and end-user products are sold
direct or through distribution arrangements customized for each region. Some regions are supported from a field office that offers
sales and support functions, and in some cases, warehousing and manufacturing support. Our field sales organizations, distributors and
Service Provider customers receive support from regional-based marketing, sales and customer support groups.
Our marketing organization promotes all brands associated with us to key stakeholders, including customers, partners and prospects
worldwide. Our product marketing and management teams work with our engineering teams to develop and promote new products
and services, as well as product enhancements.
Research and Development
Rapidly changing technologies, evolving industry standards, changing customer requirements, supply constraints and continuing
developments in communications service offerings characterize the markets for our products. Our on-going ability to adapt to these
changes and to develop new and enhanced products that meet or anticipate market demand is the main factor influencing our
competitive position and our ability to grow.
Our product development activities are a central part of our strategy. We plan to maintain our emphasis on product development to
enable us to respond to rapidly changing technology and evolving industry standards. Our research and development and engineering
functions are global. We maintain research and development functions at multiple sites in the U.S., Europe, Israel and Asia. During
the years ended December 31, 2025, 2024 and 2023, research and development expenditures totaled $204.3 million, $221.5 million
and $258.3 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. Internal development on advanced technology products gives us more control over
design and manufacturing issues, while for traditional designs, ODM and/or licensed intellectual property provides us with the ability
to leverage the economies of scale of our technology partners.
As we continue to create more software-based intellectual property, such as our SDN/Edge Cloud portfolio, our use of lean agile
practices in research and development ensures we remain responsive and customer-focused. We believe that this enables us to deliver
products faster, at higher quality and more economically to our customers and the market on a continuous basis.
Our ability to continually reduce product costs, while focusing on delivery and quality, are important parts of our overall business
strategy. Our product development efforts are often centered on entering a market with improved technology, which we believe
enables us to offer products at competitive prices and compete for market share.
16
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. 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.
During 2025, we launched many new products, including an auto-tunable 50G C-band pluggable transceiver, expanded our Wi-Fi 7
portfolio with SDG 9000 Series for residential, small business and MDU connectivity, and launched the new FSP 3000 OLS solution.
We also continued to advance our software and AI strategy through the Mosaic One platform.
Our research function and advanced technology team is driving many specific research projects in the fields of sustainable optical
transmission, security, quantum communications, SDN and access technologies. This research fosters differentiated product concepts
and guides our various product design and engineering teams in IPR creation, industry and network standards and technological
forecasting.
We are an active participant in several SDOs and have assisted with the development of worldwide standards in many technologies.
Our SDO activities are primarily in the areas of broadband access, optical networking and synchronization. This includes involvement
with standard-setting bodies such as the ITU-T, ATIS, ETSI and the BBF. We are involved in the evolution of optical access
technologies on next-generation PON. We also continue to be involved in driving optical networking, synchronization and SDN
standardization and participate in industry-wide interoperability, performance-testing and system-level projects related to those
standards in BBF. We are also members of MEF, TIA, CableLabs and TIP.
Manufacturing and Operations
The principal steps in our manufacturing process include the purchase and management of materials, assembly, testing, final
inspection, packing and shipping. We purchase parts and components for the assembly of some products from a large number of
suppliers through a worldwide sourcing program. Additionally, we manage a process that identifies the components that are best
purchased directly by contract manufacturers for use in the assembly of our products to achieve manufacturing efficiency, quality and
cost objectives. Certain key components used in our products are currently available from a single source, and other key components
are available from only a limited number of sources. In the past, we have experienced delays in the receipt of certain key components,
which has resulted in delays in related product deliveries. We attempt to manage these risks through developing alternative sources, by
staging inventories at strategic locations, through engineering efforts designed to prevent the necessity of certain components and by
maintaining close contact and building long-term relationships with our suppliers.
We rely on subcontractors for the assembly and testing of certain printed circuit board assemblies, sub-assemblies, chassis, enclosures
and equipment shelves, and to purchase some of the raw materials used in such assemblies. We typically manufacture our lower-
volume, higher-mix products and build and test product prototypes and many of our initial production units at our manufacturing site
in Huntsville, Alabama. We later transfer the production of higher-volume, lower-mix assemblies to our subcontractors. Subcontract
assembly operations can lengthen fulfillment cycle times, but we believe we can respond more rapidly to uncertainties in incoming
order rates by selecting assembly subcontractors that have significant reserve capacity and flexibility. Our subcontractors have
generally proven to be flexible and able to meet our quality requirements.
We ship the majority of products to our U.S. customers from our facilities in Huntsville, Alabama. The majority of international
customers are being served from our logistics hubs in Meiningen, Germany and York, United Kingdom. We also ship directly from
subcontractors to a number of customers in the U.S. and international locations. Most of our facilities are certified pursuant to the most
current releases of ISO 9001, TL 9000, ISO 14001 and ISO 27001. Our Huntsville, Alabama facilities and many of our key suppliers
are C-TPAT certified. Our products are also certified to certain other customers' industry and privacy standards, including those
relating to the emission of electromagnetic energy and safety specifications.
Our dependence on a limited number of suppliers for certain raw materials, key components and ODM products, has prevented and
may in the future 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. Recently, the Company has
experienced increased costs on imports of certain critical raw minerals and derivative products relevant to our business and products
due to tariffs imposed by the U.S. government and other nations. The availability, timing and amount of any potential refunds of such
tariffs remain unclear. Moreover, although the Company has been able to substantially mitigate the impact of tariffs that have been
enacted to date, if additional tariffs and reciprocal tariffs are implemented (whether as currently proposed or otherwise), such actions
could have a negative effect on our financial results, including our revenue and profitability.
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, LANs and the internet.
17
We compete with a number of companies in the markets we serve. In the Subscriber Solutions category, our primary competitors
include Calix, Ciena, Nokia, eero, RAD, and a growing number of Asian based ODM's selling direct to carriers. In our Access &
Aggregation solutions category, key competitors include Nokia, Calix, Vecima, Harmonic and Microchip. Main competitors of our
Optical Networking solutions portfolio are Ciena, Cisco, Ekinops, Nokia, Smartoptics and Ribbon Communications. Within our key
target markets, we also compete less often with designated "high-risk vendors" such as Huawei and ZTE Corporation.
Across our markets and segments, the principal competitive factors can include, among others:
•
differentiated feature functionality of our products and solutions;
•
price performance of our solutions and lowest total cost of ownership for customers;
•
quality and reliability of our products;
•
financial stability and health of our company;
•
ability to manage supply chains to produce and deliver products in accordance with customer wish date;
•
ability to innovate and provide customers with differentiated solutions, advantageous to their business model;
•
compelling technology roadmap and research and development power;
•
industry thought leadership and time to market with innovative solutions;
•
country of origin for products and solutions and trusted supplier status;
•
security of enterprise value chain, from design to product development, support processes, to products and solutions;
•
energy consumption of our products and commitment to sustainability, supporting customers in achieving their climate
goals;
•
customer relationship and incumbency;
•
ability to deliver comprehensive solutions with a high degree of automation and ease-of-use, including hardware, software
and services; and
•
broad range of services and support capabilities.
Seasonality
We experience quarterly fluctuations in our revenue that occur due to many factors, including the varying budget cycles and seasonal
buying patterns of our customers. More specifically, our customers tend to spend less in the first fiscal quarter as they are finalizing
their annual capital spending budgets. These seasonal effects may continue to vary and do not always correlate to our operating
results. Accordingly, they should not be considered a reliable indicator of our future revenue or operating results.
Foreign Currency
Transactions with customers that are denominated in foreign currencies are recorded using the appropriate exchange rates from
throughout the year. Assets and liabilities denominated in foreign currencies are remeasured at the balance sheet dates using the
closing rates of exchange between those foreign currencies and the functional currency with any transaction gains or losses reported in
other income, net. Our primary exposures to foreign currency exchange rate movements are with the euro and the British pound
sterling. Adjustments resulting from translating financial statements of international subsidiaries are recorded as a component of
accumulated other comprehensive income.
Inventory
A substantial portion of our shipments in any fiscal period relate to orders received and shipped within that fiscal period for customers
under agreements containing non-binding purchase commitments. Further, a significant percentage of orders require delivery within a
few days.
We maintain substantial inventories of raw materials for long lead time components to support this demand and avoid expedite fees.
We 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. Additionally, maintaining sufficient inventory levels to
assure prompt delivery of our products increases the amount of inventory that may become obsolete and increases the risk that the
obsolescence of this inventory may have an adverse effect on our business and operating results. Also, not maintaining sufficient
inventory levels to ensure prompt delivery of our products may cause us to incur expediting costs to meet customer delivery
requirements, which may negatively impact our operating results.
18
Government Regulation
Telecommunications Matters
Our products that are incorporated into wireless communications systems must comply with various government regulations,
including those of the FCC. We strive to deliver innovative network access solutions that lower the total cost and reduce the time of
deploying services, increase the level of performance achievable with established infrastructures, reduce operating and capital
expenses for our customers, increase network bandwidth and functionality, and extend network reach. 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. 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 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.
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. 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. 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. Global trade policy continues to evolve and the ultimate impact of recent developments with respect to U.S. tariffs
is unclear. On February 20, 2026, the United States Supreme Court issued a ruling striking down certain tariffs previously imposed
under the International Emergency Economic Powers Act ("IEEPA"). The ultimate availability, timing, and amount of any potential
refunds of such tariffs remain highly uncertain and are subject to further legal, regulatory, and administrative developments. Following
the Supreme Court’s decision, the U.S. presidential administration announced its intention to invoke other laws to collect tariffs and
announced new tariffs on imports from all countries, in addition to any existing non-IEEPA tariffs (including tariffs on
semiconductors, which are expected to increase in June 2027). Furthermore, recent U.S. trade actions have triggered retaliatory actions
by certain affected countries, and other foreign governments may impose further trade measures, including reciprocal tariffs, on
certain U.S. goods in the future. There remains substantial uncertainty regarding the duration of existing and newly announced tariffs,
potential changes or pauses to such tariffs, tariff levels, and whether further additional tariffs or other retaliatory actions may be
imposed, modified, or suspended, and the impacts of such actions on our business.
AI Regulations
In the U.S., proposed federal AI regulations, such as those under consideration by Congress or agencies like the Federal Trade
Commission, may impose requirements for transparency, ethical use, and data sourcing, particularly if AI systems are trained on
copyrighted materials. Non-compliance could lead to restrictions on AI use, fines, or intellectual property disputes. In Europe, the EU
Artificial Intelligence Act, expected to be fully implemented by 2026, categorizes AI applications by risk level and could classify our
content generation as high-risk, requiring stringent compliance with safety, transparency, and accountability standards. Violations
could result in fines of up to 7% of global annual revenue.
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. We have policies and procedures in place to promote compliance
with these laws and regulations. To date, our compliance actions and costs relating to these laws, rules and regulations have not
resulted in a material cost or effect on our capital expenditures, earnings or competitive position. Government regulations are subject
to change and, accordingly, we are unable to assess the possible effect of compliance with future requirements or whether our
compliance with such regulations will materially impact our business in the future.
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Sustainability
We believe that as we follow our corporate vision to enable a fully connected world, we must continue to be responsible corporate
citizens. As more people are connected, work and life can be accomplished using fewer resources. We have established sustainability
programs and policies that encompass the elements of Environmental, Health & Safety, Ethics, Labor, and the related management
systems in alignment with the ISO 26000 Guidelines. We are committed to operating in full compliance with the laws, rules and
regulations of all the countries in which we operate. The major aims of our program are reducing waste and emissions, maximizing
energy efficiency and productivity and minimizing practices that can adversely affect utilization of natural resources by coming
generations. Our sustainability programs are important to us, consequently, sustainability is a dedicated focus throughout the
company. We have Board oversight including a Sustainability Committee, strong management support and engagement from our
employees.
Areas of focus in our environmental sustainability program include:
•
maintaining a dedicated Sustainability Committee of the Board of Directors;
•
maintaining our mature environmental management system certified to ISO 14001:2015;
•
advancing our Energy Management program with ISO 50001 readiness for the Huntsville site for 2025;
•
continuing the purchase of Renewable Energy Credits, equaling ~20% of total Adtran energy consumption;
•
continued use of IntegrityNext, a platform to engage suppliers to obtain an ESG assessment aligned with international
standards, allowing us to monitor sustainability risks in our supply chain;
•
establishing Eco-Design guidelines in the Technology organization;
•
conducting Life Cycle Assessments across the portfolio;
•
optimizing packaging to reduce related materials and waste;
•
increasing visibility of our program internally and externally through customer engagement, joining peer sustainability
groups, offering training to team members and web site enhancements; and
•
participating in external CDP and EcoVadis assessments.
We expect to issue a sustainability report for 2025 in early 2026, 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 sustainability and governance programs,
including quantitative and qualitative data for the entire Company. This information can also be found on our website at:
www.adtran.com/en/about-us/esg/environmental. The information found on our website is not incorporated by reference in this report
or any other report that we file or furnish to the SEC.
Human Capital
We believe that our most valuable asset is our people. To ensure we continue to succeed, our objective is to be able to recruit, hire and
retain top talent. Our ability to attract and retain a high-quality workforce is dependent on our ability to maintain a diverse, equitable
and inclusive workplace that provides opportunities for our employees to learn and grow in their careers. This is supported by
competitive compensation and benefits, along with strong community service and other programs that enable employees to build
connections within the community.
As of December 31, 2025 we had 3,338 total employees, of which 3,201 are full-time employees and 137 are part-time employees. We
had 1,162 employees in the U.S. and 2,176 employees in our international subsidiaries located in North America, Latin America,
EMEA and APAC regions. We also utilized 249 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 34 countries. We pride ourselves on a highly educated workforce, and
the majority of our employees serve in engineering, information technology and technical roles within the organization.
As of December 31, 2025 approximately 88 employees (75%) of Adtran GmbH and Adtran Technology 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, 2025, Adtran Networks had 98 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. This
program seeks to identify college students that major in relevant technological areas and expose them to our work environment on an
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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.
Health, Safety and Wellness
The well-being of our employees is paramount to the continued success of our business. To this end, we are committed to each of our
employees' health, safety and wellness. We provide our employees with access to various health and wellness benefits designed to
enable them and their family members to have affordable access to health, dental and vision insurance. 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. This program provides
access to qualified personnel to address various issues such as grief, financial stress, family and emotional issues.
Compensation and Benefits
We continually work to provide a competitive compensation and benefits program as this plays a key role in our ability to attract and
retain a highly skilled workforce. In addition to salaries, these programs, which vary by country/region, include long-term equity
incentive awards with certain vesting requirements, a 401(k) plan, healthcare and insurance benefits, health savings and flexible
spending accounts, paid time off, paid volunteer time off, employee assistance program and tuition assistance. Additionally, at our
global headquarters in Alabama, we offer our employees certain on-site services, including nurse practitioner care and a fitness center,
among others.
Talent Development
We invest significant resources to develop the talent needed to remain a market-leading global supplier of broadband infrastructure.
We offer numerous training opportunities on both technical and professional development topics. We utilize tools and processes to
provide performance feedback which helps develop high potential employees into becoming our future leaders.
Our Career Development Program provides an opportunity for employees to shape their career journey. The program provides
opportunities for employees to develop competencies in areas including technology, business acumen, emotional intelligence, design
and systems thinking. 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 have approximately 1,000 patents worldwide related to our
products and over 50 additional pending patent applications. Our patents expire at various dates between 2026 and 2044. 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.
The name "ADTRAN" is a registered trademark of ours 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. 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. We have received, and may continue to receive, notices of claims alleging that we are infringing upon patents or other
intellectual property. 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. It is possible
that such litigation may result in significant legal costs and judgments and that intellectual property infringement claims, or related
litigation against or by us could have a material adverse effect on our business and operating results.
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Information about our Executive Officers
Our executive officers as of February 26, 2026, 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).
Thomas R. Stanton
Age 61
2007 to present
Chief Executive Officer and Chairman of the Board
2023 to present
Chief Executive Officer and Management Board member of Adtran Networks
Timothy Santo
Age 49
2025 to present
Senior Vice President of Finance and Chief Financial Officer
Chief Financial Officer and Management Board member of Adtran Networks
February 2024 to
March 2025
Executive Vice President and Chief Financial Officer, Conn's, Inc.*
November 2023 to
February 2024
Interim Chief Financial Officer, Conn's, Inc.
April 2023 to
November 2023
Senior Vice President and Chief Accounting Officer, Conn's, Inc.
2018 to 2023
Senior Vice President and Global Controller of PRA Group
Christoph Glingener
Age 57
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. Wilson, Jr.
Age 55
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)
*On July 23, 2024, Conn’s, Inc. and certain of its subsidiaries filed voluntary petitions for relief under Chapter 11 of the Bankruptcy
Code.
There are no family relationships among our directors or executive officers. Adtran Networks is a majority-owned subsidiary of the
Company.
Availability of Information
We file annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and other
information as required with the SEC. The SEC maintains an internet website, http://www.sec.gov, that contains reports, proxy and
information statements, and other information regarding issuers, including Adtran, that file electronically with them. 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. 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.
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ITEM 1A. RISK FACTORS
Our business involves substantial risks. Any of the risk factors described below or elsewhere in this report could significantly and
adversely affect our business prospects, financial condition and results of operations. Additional risks and uncertainties not presently
known to us or that we currently deem to be immaterial may also adversely affect us.
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 obligations.
The Wells Fargo Credit Agreement governing our indebtedness contains restrictive covenants that limit our ability to engage in
activities that may be in our long-term best interest. Our failure to comply with those covenants has resulted in events of default and
may in the future result in an event of default that, if not cured or waived, results in the acceleration of all its debt. 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.
In addition, the Wells Fargo Credit Agreement contains customary events of default, such as misrepresentation and a default in the
performance or observance of any covenant (subject to customary cure periods and materiality thresholds).
In addition, certain covenants in the Wells Fargo Credit Agreement, including covenants set forth in the amendments thereto, require
us, among other things, to:
•
maintain certain leverage ratios; and
•
maintain certain fixed charge coverage ratios;
As a result of these restrictions, we have been and may be:
•
limited in how we conduct our business;
•
limited in how much additional funding we can draw on our line of credit;
•
unable to raise additional debt or equity financing to operate during general economic or business downturns; and
•
unable to compete effectively or to take advantage of new business opportunities.
Our failure to comply with the covenants set forth in the Credit Agreement has resulted in events of default and could in the future
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. In addition, an event of default under the Credit Agreement would, if not cured or waived, permit
the lenders to terminate all commitments to extend further credit under the applicable facility. Furthermore, if we were unable to repay
the amounts due and payable under the Credit Agreement, the lenders could proceed against the collateral granted to them to secure
that indebtedness. In the event our lenders accelerate the repayment of our borrowings, we and our subsidiaries may not have
sufficient assets to repay that indebtedness. In addition, these defaults could impair our ability to access debt and equity capital
markets. For additional information on our debt covenants, see "Liquidity & Capital Resources" in Part II, Item 7 of this report.
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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.
As a result of the many factors discussed in this report, our revenue for a particular quarter is difficult to predict and will fluctuate
from quarter to quarter. Visibility into customer spending levels is often uncertain, spending patterns are subject to change, and
reductions in our expense levels can take significant time to implement. 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. Our deployment/installation cycle can also vary depending on the customer’s schedule, site readiness,
network size and complexity and other factors, which can cause our revenue to fluctuate from period to period. Our ability to meet
financial expectations could also be affected if the variable revenue patterns seen in prior quarters recur in future quarters. We have
experienced periods of time during which manufacturing issues have delayed shipments, leading to variable shipping patterns. In
addition, to the extent that manufacturing issues and any related component shortages continue to result in delayed shipments in the
future, and particularly in quarters in which we and our subcontractors are operating at higher levels of capacity, it is possible that
revenue for a quarter could be adversely affected, and we may not be able to remediate the conditions within the same quarter.
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. Furthermore, our expenses and the impact of long-
term commitments are relatively fixed in the short term. A shortfall in revenue has led and could again in the future lead to operating
results being below expectations, partially due to an inability to quickly reduce these fixed expenses in response to short-term business
changes.
Accurately matching necessary inventory levels to customer demand is challenging, and we may incur additional costs or be
required to write off significant inventory that could adversely impact our results of operations.
Customer demand for our products can change rapidly in response to market, supply environment and technological developments.
We periodically evaluate our supplier purchase commitments to take steps to mitigate these challenges. We have had and could in the
future have to extend purchase commitments or place non-cancellable, advanced orders with or through suppliers, particularly for long
lead-time components. This has in the past and could in the future lead to increased inventory and adversely impact our results of
operations and financial condition.
In addition, these inventory practices, particularly when considered in the context of our backlog, further introduce obsolescence risk
that can impact our results of operations and financial condition. Accordingly, our inventory needs for a particular period can fluctuate
and be difficult to predict. If our customers were to cancel or delay orders for extended periods, inventory could become obsolete, and
we could be required to write off or write down the inventory associated with those orders. In addition, if customers were to cancel or
delay existing or forecasted orders for which we have significant outstanding commitments to our contract manufacturers or suppliers,
we may be required to purchase inventory under these commitments that we are unable to sell. If we are required to write off or write
down a significant amount of inventory, our results of operations for the applicable period would be materially adversely affected. Our
inability to effectively manage the matching of inventory with customer demand, particularly within any supply constrained
environment, has had and could in the future have an adverse impact our results of operations and financial condition.
The lengthy sales and approval process required by Service Providers for new products has resulted in fluctuations in our revenue
and may result in future revenue fluctuations.
In the industry in which we compete, sales and approval cycles are often lengthy. Selling efforts often involve a significant
commitment of time and resources by us and our customers that may include extensive product testing, laboratory or network
certification, or region-specific product certification and homologation requirements for deployment in networks. 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. 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. We cannot be certain that we will obtain these approvals in the future or that sales of these products
will continue to occur. Any attempt by a major or other Service Provider to seek out additional or alternative suppliers, or to
undertake, as permitted under applicable regulations, the production of these products internally, could have a material adverse effect
on our operating results. Furthermore, the delay in sales until the completion of the approval process, the length of which is difficult to
predict, has and may continue to result in fluctuations of revenue and uneven operating results from quarter to quarter or year to year.
For example, we have seen a decrease in volume of sales activity due to customers’ focus on reducing inventory levels in our domestic
ADTRAN, Inc. operations, which has impacted and may continue to materially impact demand in that category. Further, once
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customer approval or certifications are met, our supply chain customers typically do not guarantee us a minimum, or any, volume of
sales.
We require a significant amount of cash to service our indebtedness, our payment obligations to Adtran Networks shareholders
under the DPLTA, and other obligations.
Our ability to generate cash depends on many factors beyond our control and any failure to service our outstanding indebtedness could
harm our business, financial condition and results of operations. Furthermore, we have entered into a DPLTA with Adtran Networks.
Additionally, 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 a recurring cash payment of €0.52 per share for each
full fiscal year of Adtran Networks (the “Annual Recurring Compensation”) payment, or (2) 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”). For the
year ended December 31, 2025, approximately 2.0 million shares of Adtran Networks stock were tendered to the Company. This
resulted in total Exit Compensation payments of approximately €40.2 million, or approximately $46.6 million, based on exchange
rates at the time of the transactions, being paid to Adtran Networks shareholders. Any failure to satisfy our payment obligations under
the DPLTA could harm our business, financial condition and results of operations.
Moreover, on September 19, 2025, the Company issued $201.3 million aggregate principal amount of convertible senior notes (the
“2030 Notes” or the “Notes”). The Notes accrue interest at a rate of 3.75% per annum, payable semi-annually in arrears on March 15
and September 15 of each year, beginning March 15, 2026. Unless repurchased earlier, redeemed, or converted, the Notes will mature
on September 15, 2030.
Our ability to make payments on and to refinance our indebtedness, to cover our payment obligations under the DPLTA and the 2030
Notes, and to fund working capital needs and planned capital expenditures depends on our ability to generate cash in the future. This,
to a certain extent, is subject to general economic, financial, competitive, business, legislative, regulatory and other factors that are
beyond our control. 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.
The Company experienced revenue declines in 2024. However, customers began replenishing their inventories to meet increasing
demand, and revenue increased throughout fiscal 2025. There can be no assurance that revenue will continue to increase or that the
Company will be successful in effecting its plans to preserve cash liquidity and maintain compliance with the Company's covenants on
commercially reasonable terms or at all. We may need to further reduce capital expenditure and/or take other steps to preserve
working capital in order to ensure that we can meet our needs and obligations and maintain compliance with our debt covenants. Our
ability to raise additional debt capital or to restructure or refinance our indebtedness will depend on the condition of the capital
markets and our financial condition at such time. Any refinancing of our debt could be at higher interest rates and may require us to
comply with more onerous covenants, which could further restrict our business operations. The terms of existing or future debt
instruments or preferred stock may limit or prevent us from taking any of these actions.
In addition, any failure to make scheduled payments of interest and principal on our outstanding indebtedness or dividend payments
on any future outstanding shares of preferred stock would likely result in a reduction of our credit rating, which could harm our ability
to incur additional indebtedness or otherwise raise capital on commercially reasonable terms or at all. Our inability to generate
sufficient cash flow to satisfy our debt service, payment obligations to Adtran Networks shareholders under the DPLTA, and other
obligations, or to refinance or restructure our obligations on commercially reasonable terms or at all, would have an adverse effect,
which could be material, on our business, financial condition and results of operations. Furthermore, if we raise additional funds
through the issuance of equity or securities convertible into equity, or undertake certain transactions intended to address our existing
indebtedness, our existing stockholders could suffer dilution in their percentage ownership of the Company, or our leverage and
outstanding indebtedness could increase. Current capital market conditions, including the impact of inflation, have increased
borrowing rates and can be expected to significantly increase our cost of capital as compared to prior periods should we seek
additional funding.
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The terms of the DPLTA may have a material adverse effect on our financial results and condition.
The DPLTA between the Company, as the controlling company, and Adtran Networks, as the controlled company, became effective
on January 16, 2023, as a result of its registration with the commercial register (Handelsregister) of the local court (Amtsgericht) at
the registered seat of Adtran Networks (Jena).
Under the DPLTA, subject to certain limitations pursuant to applicable law and the specific terms of the DPLTA, (i) the Company is
entitled to issue binding instructions to the management board of Adtran Networks, (ii) Adtran Networks will transfer its annual profit
to the Company, subject to, among other things, the creation or dissolution of certain reserves, and (iii) the Company will generally
absorb the annual net loss incurred by Adtran Networks. The Company’s payment obligation in satisfaction of the requirement that it
absorb Adtran Networks’ annual net loss applies to the net loss generated by Adtran Networks in 2025, and it will apply to any net
loss generated by Adtran Networks in 2026.
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”). 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 1.27% as of December 31, 2025. The Annual Recurring Compensation is due
on the third banking day following the ordinary general shareholders’ meeting of Adtran Networks for the respective preceding fiscal
year (but in any event within eight months following expiration of the fiscal year). With respect to the 2024 fiscal year, Adtran
Networks’ ordinary general shareholder meeting occurred on June 27, 2025, and therefore, the Annual Recurring Compensation was
paid on July 1, 2025. With respect to the 2025 fiscal year, Adtran Networks’ ordinary general shareholder meeting is scheduled for the
second quarter of 2026, and the Annual Recurring Compensation will be due on the third banking day following the meeting. 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. Our obligation to pay
Annual Recurring Compensation under the DPLTA is a continuing payment obligation, which will amount to approximately €7.9
million or $9.3 million (based on the exchange rate as of December 31, 2025) per year assuming none of the minority Adtran
Networks shareholders were to elect Exit Compensation. The foregoing amounts do not reflect any potential increase in payment
obligations that we may have depending on the outcome of ongoing appraisal proceedings in Germany. For the year ended December
31, 2025, a total of 2.0 million shares of Adtran Networks stock was tendered to the Company and Exit Compensation payments of
approximately €40.2 million or approximately $46.6 million, based on exchange rates at the time of the transactions, were paid to
Adtran Networks shareholders. 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
€303.9 million or approximately $357.0 million, based on an exchange rate as of December 31, 2025. In addition to our cash and cash
equivalents and the credit facility, we may fund a portion or all of the Annual Recurring Compensation and Exit Compensation
through the sale of securities or additional alternative funding sources, if available. There can be no assurances that we would be
successful in effecting these actions at commercially reasonable terms or at all. If we cannot raise additional funds to the extent
needed, it could adversely impact our financial results and financial condition. Additionally, the payment of the Annual Recurring
Compensation and Exit Compensation could have a material adverse impact on our financial results and financial condition. See
“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. However, due to the appraisal proceedings that were initiated in 2023 in accordance with
applicable German law, this time period for tendering shares has been extended pursuant to the German Stock Corporation Act
(Aktiengesetz) and will end two months after the date on which a final decision in such appraisal proceedings has been published in the
Federal Gazette (Bundesanzeiger). Following the court's decision on a procedural matter in the DPLTA appraisal proceedings on July
14, 2025, the trial on the merits of the DPLTA has recommenced. It is expected to take a minimum of 12 months for a ruling of the
court on the merits and such ruling will most likely be appealed, which would be expected to take an additional 12-24 months to be
resolved. Accordingly, the Company does not expect a final decision on the DPLTA appraisal proceedings to be rendered and
published prior to 2027, and most likely not until 2028 or beyond.
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.
Our significant indebtedness exposes us to various risks.
As of December 31, 2025, the Company’s borrowings under the Wells Fargo revolving line of credit (the "Amended Credit
Agreement") were $25.0 million. As of December 31, 2025, the U.S. Borrower had a total of $5.8 million in letters of credit under the
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Amended Credit Agreement, leaving a net amount (after giving effect to the $25.0 million of outstanding borrowings described above)
of $319.2 million available for future borrowings based on debt covenant compliance metrics. The credit facilities provided under the
Amended Credit Agreement mature in July 2027, but we may request extensions subject to customary conditions or we may seek to
refinance the credit facilities prior to their maturity. In addition, on September 19, 2025, the Company issued $201.3 million principal
amount of its 3.75% convertible senior notes due September 15, 2030 (the “2030 Notes” or the “Notes”). See "Cash Requirements" in
Part I, Item 2 of this report for additional information.
Our indebtedness has and may continue to adversely affect our operations and liquidity. Our level of indebtedness:
•
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;
•
limits our ability to assume debt in a future acquisition. Specifically, our Amended Credit Agreement limits the amount of
debt we can assume in an acquisition. 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. Specifically, our Amended Credit Agreement limits our ability to borrow
additional money, which could limit our ability to fund working capital, capital expenditures, research and development and
other general corporate needs in the future.
Our ability to satisfy our debt obligations and renew the credit facility is dependent upon our future performance and other risk factors
discussed in this section. We cannot assure you that we will maintain a level of cash flows from operating activities sufficient to
permit us to pay the principal, premium, if any, and interest on our indebtedness. If we fail to pay interest on, or repay, our borrowings
under the Amended Credit Agreement when required, we will be in default under the applicable loans, and may also suffer an event of
default under the terms of other borrowing arrangements that we may enter into from time to time. In addition, our failure to
repurchase the 2030 Notes or to pay the cash amounts due upon conversion when required will constitute a default under the
indenture. We may be forced to further reduce or delay capital expenditures, sell assets or operations, seek additional capital or
restructure or refinance our indebtedness. We cannot assure you that we would be able to take any of these actions, that these actions
would be successful and permit us to meet our scheduled obligations or that these actions would be permitted under the terms of our
current or future debt agreements. If we are unable to achieve sufficient operating results and resources, we could face substantial
liquidity challenges and might be required to dispose of material assets or operations to meet our debt service and other obligations.
We may not be able to consummate those dispositions or obtain sufficient proceeds from those dispositions to meet our debt service
and other obligations when due. Any of these events could have a material adverse effect on our business, results of operations and
financial condition.
We may also incur additional long-term debt and working capital lines of credit to meet future financing needs, which would increase
our total indebtedness. Although the terms of its existing and future credit agreements and of the indentures governing its debt contain
restrictions on the incurrence of additional debt, including secured debt, these restrictions are subject to a number of important
exceptions and debt incurred in compliance with these restrictions could be substantial. If we or our restricted subsidiaries incur
significant additional debt, the relative risks may intensify.
We depend heavily on sales to certain customers; the loss of any of these customers or a significant project would significantly
reduce our revenue and net income.
Historically, a large percentage of our revenue has been made to major Service Providers and larger independent communications
companies. As long as the major and larger independent communications companies represent such a substantial percentage of our
total revenue, our future success will significantly depend upon certain factors which are not within our control, including:
•
the timing and size of future purchase orders, if any, from these customers;
•
changes in strategic plans and capital budgets of these customers;
•
the product requirements of these customers;
•
the subscriber take rate, including subscriber loss or churn, of our customers;
•
the financial and operational success of these customers;
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•
the impact of legislative and regulatory changes on these customers;
•
consolidation, acquisition of, or corporate reorganization among these customers;
•
the success of these customers' services deployed using our products; and
•
the impact of work stoppages at these customers.
In the past, revenue generated by our large customers has fluctuated significantly from quarter to quarter and year to year, and it may
continue to fluctuate in the future. The loss of, or a significant reduction or delay in, revenue to any such customer or the occurrence
of revenue fluctuations could have a material adverse effect on our business and results of operations. Further, any attempt by a major
or other Service Provider to seek out additional or alternative suppliers or to undertake, as permitted under applicable regulations, the
production of these products internally, could have a material adverse effect on our operating results.
There has been a trend toward industry consolidation in our markets for several years. We expect this trend to continue as companies
attempt to strengthen or hold their market positions or are unable to continue operations. This could lead to variability in our operating
results and could have a material adverse effect on our business, operating results, financial condition and cash flow. 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.
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.
Most of our revenue is made on an open credit basis, generally with payment terms of 30 to 45 days in the U.S. and typically 45 to 60
days in many geographic markets outside the U.S. As our international revenue grows, our total accounts receivable balance has
increased and will likely continue to increase. Our DSO could also increase as a result of a greater mix of international revenue.
Additionally, international laws may not provide the same degree of protection against defaults on accounts receivable as provided
under U.S. laws governing domestic transactions; therefore, as our international business grows, we may be subject to higher bad debt
expense compared to historical trends. Overall, we monitor individual customer and distributor payment capability in granting such
open credit arrangements, seek to limit such open credit to amounts that we believe customers and distributors can pay and maintain
reserves we believe are adequate to cover exposure for credit losses and other macroeconomic indicators. In the course of our sales to
customers and distributors, we may encounter difficulty collecting accounts receivable and could be exposed to risks associated with
uncollectible accounts receivable due to various reasons, including potential declining operating cash flows or bankruptcy filings.
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. Such write-downs or write-offs could negatively affect our operating results for
the period in which they occur and could potentially have a material adverse effect on our results of operations, financial condition and
cash flows.
We expect gross margins to continue to vary over time, and our levels of product and services gross margins may not be
sustainable.
Our 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;
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•
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, political unrest, armed conflicts (such as the ongoing military conflict in
Ukraine and the Middle East, 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.
Our dependence on a limited number of suppliers for certain raw materials, key components and ODM products, combined with
supply shortages, has prevented and may continue to prevent us from delivering our products on a timely basis, which has had and
may continue to have a material adverse effect on operating results and could have a material adverse effect on customer relations.
The fact that we are reliant on our extended supply chain could have an adverse impact on the supply of our products and on our
business and operating results. The financial problems of our suppliers and industry consolidation occurring within one or more
component supplier markets, such as the semiconductor market, in each case, could either limit supply or increase costs.
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, the Middle East, 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. Furthermore, as a result of binding price or purchase commitments with suppliers, we
may be obligated to purchase raw materials or components at prices that are higher than those available in the current market. In the
event that we become committed to purchasing raw materials or components at prices in excess of the current market price when the
raw materials or components are actually used, our gross margins could decrease.
In addition, certain raw materials and key components used in our products are currently available from only one source, and others
are available from only a limited number of sources. The availability of these raw materials and supplies may be subject to market
forces beyond our control, such as inflation, merger and acquisition activity of our suppliers and consolidation in some segments of
our supplier base. We have experienced and expect to continue to experience increased inflationary pressures on input costs, such as,
raw materials, supplies, labor and distribution costs. Our attempts to offset these cost pressures, through increases in the selling prices
of some of our products, may not be successful and could negatively affect our operating results. In addition, from time to time, there
may not be sufficient quantities of raw materials and supplies in the marketplace to meet customer demand. Many companies utilize
the same raw materials and supplies that we do in the production of their products. Suppliers may be under pressure to allocate
product to certain customers for business, regulatory or political reasons, and/or demand changes in agreed pricing as a condition of
supply. As a result, companies with more resources than our own may have a competitive advantage in obtaining raw materials and
supplies. These factors have resulted in reduced supply, higher prices of raw materials and delays in the receipt of certain of our key
components, which in turn has generated increased costs, lower margins and delays in product delivery, with a corresponding adverse
effect on revenue. Delays in product deliveries and corresponding product price increases may likewise have an adverse effect on
customer relationships. We attempt to manage these risks through developing alternative sources, by staging inventories at strategic
locations, through engineering efforts designed to obviate the necessity of certain components and by building long-term relationships
and close contact with each of our key suppliers; however, we cannot assure that delays in or failures of deliveries of key components,
either to us or to our contract manufacturers, and consequent delays in product deliveries, will not continue to occur in the future.
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 sufficient 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.
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We compete in markets that have become increasingly competitive, which may result in reduced gross profit margins and market
share.
The markets for our products are intensely competitive. New manufacturers have entered the markets in recent years to offer products
in competition with us. Additionally, certain companies have, in recent years, developed the ability to deliver competing products
using coaxial cable and cellular transmission, especially in high-density metropolitan areas. Competition will further increase if new
companies enter the market or existing competitors expand their product lines. Some of these potential competitors may have greater
financial, technological, manufacturing, sales and marketing, and personnel resources. 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. As a consequence of higher supply chain and
manufacturing costs, we have in the past increased the prices of many of our products and services to maintain or improve our revenue
and gross margin, and we may do so again in the future. In addition, competitors who have a greater presence in some of the lower-
cost markets in which we compete, or who can obtain better pricing, more favorable contractual terms and conditions, or more
favorable allocations of products and components during periods of limited supply may be able to offer lower prices than we are able
to offer. Our cash flows, results of operations, and financial condition may be adversely affected by these and other industry-wide
pricing pressures.
In addition, our present and future competitors may be able to enter our existing or future markets with products or technologies
comparable or superior to those that we offer. An increase in competition could cause us to reduce prices, decrease our market share,
require increased spending by us on product development and sales and marketing, or cause delays or cancellations in customer
orders, any one of which could reduce our gross profit margins and adversely affect our business and results of operations.
Our estimates regarding future warranty obligations may change due to product failure rates, installation and shipment volumes,
field service repair obligations and other rework costs incurred in correcting product failures. If our estimates materially change,
our liability for warranty obligations may increase or decrease, impacting future cost of revenue.
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. The development and production of new products with high complexity often involves problems with software, components
and manufacturing methods. If significant warranty obligations arise due to reliability or quality issues arising from defects in
software, faulty components or manufacturing methods, our operating results, financial position and cash flows could be negatively
impacted by:
•
costs associated with fixing software or hardware defects;
•
costs associated with internal or third-party installation errors;
•
high service and warranty expenses;
•
costs associated with recalling and replacing products with software or hardware defects, including costs from writing-off
defective products recalled or recovering expenses from our suppliers;
•
high inventory obsolescence expense;
•
delays in collecting accounts receivable;
•
payment of liquidated damages for performance failures;
•
extended performance bond expenses; and
•
a decline in revenue from existing customers.
Managing our inventory is complex and has included and may continue to include write downs of excess or obsolete inventory.
Managing our inventory of components and finished products is complicated by a number of factors, including the need to maintain a
significant inventory of certain components that are in short supply, that have been discontinued by the component manufacturer, that
must be purchased in bulk to obtain favorable pricing or that require long lead times. Economic growth, and the unprecedented nature
of AI related demand, can make it more difficult for us and our suppliers to accurately forecast demand and to set optimized levels of
manufacturing capacity and inventory. These issues have and may continue to result in our purchasing and maintaining significant
amounts of inventory, which if not used or expected to be used based on anticipated production requirements, may become excess or
obsolete. Any excess or obsolete inventory could also result in sales price reductions and/or inventory write- downs, which could
adversely affect our business and results of operations. During the year ended December 31, 2023, we recognized write-downs of
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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, during the year ended December 31, 2024, we recognized write-downs of inventory
and other charges of $8.6 million as a result of a strategy shift which included discontinuance of certain items in connection with the
Business Efficiency Program, of which, $4.1 million relates to inventory write-downs and $4.5 million relates to other charges.
Significant and unanticipated changes in our business could require additional charges for inventory write downs in a future period.
While there were no write-downs for 2025, any future charges relating to inventory write-downs could materially adversely affect our
business, financial condition and results of operations in the periods recognized. 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.
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.
International sales represented 55.6% and 56.8% of our net revenue for the years ended December 31, 2025 and 2024. We have a
significant international presence, and our international presence may continue to grow. If we continue to expand our presence in
international markets, we expect to continue to experience increased revenue and operating costs in these markets. 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 the Middle East, as well as recent
developments in Venezuela and Latin America. The U.S. and certain other countries-imposed sanctions on Russia in
connection with the conflict in Ukraine and could impose further sanctions against it, which could damage or disrupt
international commerce and the global economy. 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.
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Our success depends on attracting and retaining key personnel.
Our business has grown significantly since its inception. Our success is dependent in large part on the continued employment of our
executive officers, including Thomas R. Stanton, our Chief Executive Officer, and other key management personnel. There have been,
and may continue to be, changes in our management team resulting from the hiring or departure of key personnel, and we have
recently made, and may continue to make, changes in compensation that may be viewed as disruptive by our key personnel. These
changes may result in increased attrition or reduced productivity of our key personnel as new reporting relationships are established,
and as other companies may increasingly target our executives and other key personnel, particularly during the current highly
competitive market for qualified personnel. Such changes have and may continue to result in a loss of institutional knowledge, and
they may cause disruptions to our business, impede our ability to achieve our objectives, or distract or result in diminished morale in,
or the loss of, key personnel. In addition, for Adtran to continue as a successful entity we must also be able to attract and retain key
engineers and software developers and architects whose expertise helps us maintain competitive advantages. We believe that our
future success will depend, in large part, upon our ability to continue to attract, retain, train and motivate highly-skilled employees
who are in great demand. Stock awards are designed to reward employees for their long-term contributions and to provide incentives
for them to remain with us. Changes to our overall compensation program, including changes in salaries and our stock incentive
program, may adversely affect our ability to retain key employees. Properly managing our continued growth, avoiding the problems
often resulting from such growth and expansion and continuing to operate in the manner which has proven successful to us to date
remains critical to the future success of our business.
We are exposed to currency exchange rate fluctuations in jurisdictions where we transact in local currency, which could harm our
financial results and cash flows.
Because a significant portion of our business is conducted outside the U.S., we face exposure to adverse movements in foreign
currency exchange rates, including emerging market currencies which can have extreme currency volatility. An increase in the value
of the dollar increases the real cost to our customers of our products in those markets outside the U.S. where we sell in dollars and a
weakened dollar increases the cost of local operating expenses and procurement of raw materials to the extent that we must purchase
components in foreign currencies. These exposures change over time as business practices evolve, and they could materially harm our
financial results and cash flows. Our primary exposures to foreign currency exchange rate movements are the euro and the British
pound sterling. As a result of our global operations, our revenue, gross margins, operating expense and operating income in some
international markets have been and may continue to be affected by foreign currency fluctuations.
We have recognized impairment charges related to goodwill and other intangible assets in the past and may be required to do so in
the future.
In accordance with U.S. GAAP, management periodically assesses these assets to determine if they are impaired. Significant negative
industry or economic trends, disruptions to our business, the inability to effectively integrate acquired businesses, the under
performance of our business as compared to management’s initial expectations, unexpected significant changes or planned changes in
use of the assets, divestitures, and market capitalization declines may impair goodwill and other intangible assets. During the year
ended December 31, 2024, qualitative factors such as a decrease in the Company’s market capitalization, lower service provider
spending and delayed holding patterns of inventory with respect to customers caused us to reduce our forecasts, triggering a
quantitative impairment assessment for our reporting units. The Company determined the fair value of the Network Solutions
reporting unit using a combination of an income approach and a market-based peer group analysis. The Company determined upon its
quantitative impairment assessment to recognize a $297.4 million non-cash goodwill impairment charge for the Network Solutions
reporting unit. While no impairment of goodwill was recognized in 2025, the Company will continue to monitor its stock price,
operating results and other macroeconomic factors to determine if there is further indication of a sustained decline in fair value
requiring an event driven assessment of the recoverability of its remaining goodwill. If our assumptions and related estimates change
in the future, or if we change our reporting unit structure or other events and circumstances change (e.g., a sustained decrease in the
price of our common stock (considered on both absolute terms and relative to peers)), we may be required to record impairment
charges when we perform these tests, or in future periods. A non-cash goodwill impairment charge would have the effect of
decreasing earnings or increasing losses in such period. If we are required to take a substantial impairment charge, such impairment
charge could have a material adverse effect on our business, financial condition and results of operations in the periods recognized.
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We may be unable to successfully and effectively manage and integrate acquisitions, divestitures and other significant
transactions, which could harm our operating results, business and prospects.
As part of our business strategy, we frequently engage in discussions with third parties regarding possible investments, acquisitions,
strategic alliances, joint ventures, divestitures and outsourcing arrangements, and we enter into agreements relating to such
transactions in order to further our business objectives. In order to pursue this strategy successfully, we must identify suitable
candidates, successfully complete transactions, some of which may be large and complex, and manage post-closing issues such as the
integration of acquired companies or employees and the divestiture of combined businesses, operations and employees. Integration,
divestiture and other risks of these transactions can be more pronounced in larger and more complicated transactions, or if multiple
transactions are pursued simultaneously. If we fail to identify and successfully complete transactions that further our strategic
objectives, we may be required to expend resources to develop products and technology internally. 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. 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.
We evaluate and enter into these types of transactions on an ongoing basis. We may not fully realize all of the anticipated benefits of
any transaction and the time frame for achieving benefits of a transaction may depend partially upon the actions of employees,
suppliers or other third parties. In addition, the pricing and other terms of our contracts for these transactions require us to make
estimates and assumptions at the time we enter into these contracts, and, during the course of our due diligence, we may not identify
all of the factors necessary to estimate costs accurately. Any increased or unexpected costs, unanticipated delays or failure to achieve
contractual obligations could make these agreements less profitable or unprofitable.
Managing these types of transactions require varying levels of management resources, which has in the past and may in the future
divert our attention from other business operations. These transactions have resulted and could result in the future in significant costs
and expenses and charges to earnings, including those related to severance pay, early retirement costs, employee benefit costs, asset
impairment charges, charges from the elimination of duplicative facilities and contracts, in-process research and development charges,
inventory adjustments, assumed litigation, regulatory compliance and other liabilities, legal, accounting and financial advisory fees
and required payments to executive officers and key employees under retention plans. In order to complete a future acquisition, we
may issue additional 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. Any prior or future downgrades in our credit rating
associated with a transaction could adversely affect our ability to borrow and our borrowing costs, and result in more restrictive
borrowing terms. In addition, our effective tax rate on an ongoing basis is uncertain, and such transactions could impact our effective
tax rate. We also may experience risks relating to the challenges and costs of closing a transaction and the risk that an announced
33
transaction may not close. As a result, any completed, pending or future transactions may contribute to financial results that differ
materially from the investment community’s expectations.
Ongoing inflationary pressures have negatively impacted our revenue and profitability.
Ongoing inflationary pressures have resulted and may continue to result in decreased demand for our products and services, increased
manufacturing and operating costs (including our labor costs), reduced liquidity, and limitations on our ability to access credit or
otherwise raise debt and equity capital. 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. We also may experience lower than expected sales and potential
adverse impacts on our competitive position if there is a decrease in customer spending or a negative reaction to any price increases
we are able to implement. A reduction in our revenue would be detrimental to our profitability and financial condition and could also
have an adverse impact on our future growth.
Risks related to our control environment
We have had to restate our previously issued consolidated financial statements and, as part of that process, identified material
weaknesses in our internal control over financial reporting. If we are unable to develop and maintain effective internal control
over financial reporting, we may not be able to accurately report our financial results in a timely manner, which may adversely
affect investor confidence in us and may adversely affect our business, financial condition and results of operations.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a
reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a
timely basis. Effective internal control over financial reporting is necessary for us to provide reliable financial reporting and prevent
fraud. We have had to restate our previously issued consolidated financial statements in the past, including in August 2023, March
2024 and May 2025, and, as part of that process, have identified material weaknesses in our internal control over financial reporting,
including two material weaknesses that continued to exist at December 31, 2025 and as of the date of this filing. We have remediated
certain material weaknesses, implemented several controls with respect to our remaining material weaknesses, and continue to test
new and additional controls in order to successfully remediate the remaining 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. The 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. When our financial statements are not accurate, investors do not have a
complete understanding of our operations. Likewise, when 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. 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.
We can provide no assurance that the measures that we have taken and are taking 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 or
maintain adequate internal control over financial reporting or circumvention of these controls. In addition, our controls and procedures
have not been and may not be adequate in the future to prevent or identify irregularities or errors or to facilitate the fair presentation of
our consolidated financial statements.
We may face litigation and other risks as a result of the material weaknesses in our internal control over financial reporting, prior
restatements of our financial statements, and any future restatement of our previously issued financial statements.
We had to restate our previously issued consolidated financial statements in August 2023, March 2024 and May 2025 and, in
connection with those restatements, we identified material weaknesses in our internal control over financial reporting, certain of which
have continued as of the date hereof. Until such time as we have remediated our material weaknesses or in the event that we
experience an additional material weakness, there is a higher risk of there being an error in our financial statements, which error could
be material, thereby resulting in a restatement of our financial statements. In connection with our material weaknesses in our internal
control over financial reporting, the prior restatements of our financial statements, and any future restatement, we face potential for
litigation or other disputes which may include, among others, claims invoking the federal and state securities laws, contractual claims
or other claims. 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.
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Breaches of our information systems and cyberattacks could compromise our intellectual property and cause significant damage to
our business and reputation.
We maintain sensitive data on our information systems and the networks of third-party providers, including intellectual property,
financial data and proprietary or confidential business information relating to our business, customers, suppliers, and business
partners. We also produce networking equipment solutions and software used by network operators to ensure security and reliability in
their management and transmission of data. Our customers, particularly those in regulated industries, are increasingly focused on the
security features of our technology solutions. 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. Specifically, our network and storage applications and those
systems and applications maintained by our third-party providers may be targeted by cyberattacks or potentially breached due to
operator error, fraudulent activity, or other system disruptions. Furthermore, we, our employees and some of our third-party Service
Providers have been, and anticipate continuing to be, the targets of various cybersecurity threats. These include hacking attacks, social
engineering schemes such as "phishing," and business email compromise attacks, wherein attackers impersonate company executives
or colleagues in emails to trick employees into transferring funds or revealing sensitive information. Our information systems are
designed to reflect industry standards and are engineered to reduce downtime in the event of power outages, weather or climate events
and cybersecurity issues. To date, these threats have not had a significant effect on our financial condition or operational results;
however, we cannot ensure that future cybersecurity threats might not have a material impact on our business. Unauthorized access to
or disclosure of our information could compromise our intellectual property and expose sensitive business information. 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. 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 conflicts in Ukraine and the Middle East. Further, we have incurred, and will
continue to incur, expenses to comply with cybersecurity, privacy, and data protection standards and protocols imposed by law,
regulation, industry standards and contractual obligations. 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. And while we may be entitled to damages if our third-party providers fail to satisfy their security-related
obligations to us, any award may be insufficient to cover our damages, or we may be unable to recover such award. Additionally,
while we have purchased cybersecurity insurance, there are no assurances that the coverage would be adequate in relation to any
incurred losses or not subject to any exclusions. Moreover, as cyberattacks increase in frequency and magnitude, we may be unable to
obtain cybersecurity insurance in amounts and on terms we view as adequate for our operations. For information on our cybersecurity
risk management, strategy and governance, see Part I, Item 1C of this report.
Emerging issues related to the development and use of AI could give rise to legal or regulatory action, damage our reputation, or
otherwise materially harm our business.
AI represents a new technology frontier. While we are leveraging exciting possibilities in our products and organization, the novelty
and incredible speed of change brings an associated set of risks. Our development and use of AI technology in our products and
operations remains in the early phases. While we aim to develop and use AI responsibly and attempt to mitigate ethical and legal
issues presented by its use, we may ultimately be unsuccessful in identifying or resolving issues before they arise. AI technologies are
complex and rapidly evolving, and the technologies that we develop or use may ultimately be flawed. Moreover, AI technology is
subject to rapidly evolving domestic and international laws and regulations, including executive orders by the U.S. government and
the EU’s Artificial Intelligence Act, which could impose significant costs and obligations on the Company. Emerging regulations may
also pertain to data privacy, data protection, and the ethical use of AI, as well as clarifying intellectual property considerations. Our
use of AI could give rise to legal or regulatory action or increased scrutiny or liability, and may damage our reputation or otherwise
materially harm our business.
Our competitors may incorporate AI technologies into their products and services more quickly or more successfully than us and
could impair our ability to compete effectively and adversely affect our results of operations. Further, the rapid evolution of AI may
require the dedication of significant resources to develop, test and maintain AI technologies. If our incorporation of AI technologies
does not increase our operational efficiency in accordance with our expectations, or if competition increases for the technology and
services provided by third parties, our business, results of operations and financial condition may be harmed.
Additionally, any sensitive information (including confidential, competitive, proprietary, or personal data) that we input into a third-
party generative AI platform could be leaked or disclosed to others or otherwise result in an information- or cyber-security incident,
including if sensitive information is used to train the third parties’ AI model. Additionally, where an AI model ingests personal data
and makes connections using such data, those technologies may reveal other personal or sensitive information generated by the model.
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Moreover, AI models may create flawed, incomplete, or inaccurate outputs, some of which may appear correct. This may happen if
the inputs that the model relied on were inaccurate, incomplete or flawed (including if a bad actor “poisons” the AI with bad inputs or
logic), or if the logic of the AI is flawed (a so-called “hallucination”). We may use AI outputs to make certain decisions. Due to these
potential inaccuracies or flaws, the model could be biased and could lead us to make decisions that could bias certain individuals (or
classes of individuals), and adversely impact their rights, employment, and ability to obtain certain pricing, products, services, or
benefits.
Further, we have and may continue to rely on AI models developed by third parties, and would be dependent in part on the manner in
which those third parties develop, train and deploy their models, including risks arising from the inclusion of any unauthorized
material in the training data for their models, the effectiveness of the steps these third parties have taken to limit the risks associated
with the output of their models and other matters over which we may have limited visibility. Any of these risks could expose us to
liability or adverse legal or regulatory consequences and harm our reputation and the public perception of our business or the
effectiveness of our security measures.
We are also exposed to risks arising from the use of AI technologies by bad actors to commit fraud and misappropriate funds and to
facilitate cyberattacks. AI, if used to perpetrate fraud or launch cyberattacks, could harm our business, results of operations and
financial condition.
Risks related to the telecommunications industry
We must continue to update and improve our products and develop new products to compete and to keep pace with improvements
in communications technology.
The markets for our products are characterized by rapidly changing technology, evolving industry standards and continuing
improvements in the communications service offerings of Service Providers. If technologies or standards applicable to our products,
or Service Provider offerings based on our products, become obsolete or fail to gain widespread commercial acceptance, our existing
products or products under development may become obsolete or unmarketable, which can result in the discontinuation of products
and write off of related inventory. 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.
While we did not discontinue any material product lines in 2025, future strategy shifts may result in the discontinuation of products
and the write off of related inventory. Moreover, the introduction of products embodying new technologies, the emergence of new
industry standards, or changes in Service Provider offerings could adversely affect our ability to sell our products.
Our revenue and profitability in the past have, to a significant extent, resulted from our ability to anticipate changes in technology,
industry standards and Service Provider offerings, and to develop and introduce new and enhanced products. Our continued ability to
adapt will be a significant factor in maintaining or improving our competitive position and our prospects for growth. We cannot assure
that we will be able to respond effectively to changes in technology, industry standards, Service Provider offerings or new product
announcements by our competitors. We also cannot assure that we will be able to successfully develop and market new products or
product enhancements, or that these products or enhancements will achieve market acceptance. We also may not have sufficient
resources to make the technological advances necessary to be competitive and successful in the markets we serve. 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.
Our failure or the failure of our contract manufacturers to comply with applicable environmental regulations could adversely
impact our results of operations.
The manufacture, assembly and testing of our products at times requires the use of hazardous materials that are subject to
environmental, health and safety regulations. In particular, our manufacturing operations use substances that are regulated by various
federal, state, local, foreign and international laws and regulations governing health, safety and the environment, including U.S.
Environmental Protection Agency regulations and the Waste Electrical and Electronic Equipment Directive, Directive on the
Restriction of the Use of Certain Hazardous Substances in Electrical and Electronic Equipment and Registration, Evaluation,
Authorization, and Restriction of Chemicals regulations adopted by the EU. Our failure or the failure of our contract manufacturers to
comply with any of these applicable requirements could result in regulatory penalties, legal claims or disruption of production. In
addition, our failure or the failure of our contract manufacturers to properly manage the use, transportation, emission, discharge,
storage, recycling or disposal of hazardous materials could subject us to increased costs or liabilities. Existing and future
environmental regulations may restrict our use of certain materials to manufacture, assemble and test products. Any of these
consequences could adversely impact our results of operations by increasing our expenses and/or requiring us to alter our
manufacturing processes.
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If our products do not interoperate with our customers’ networks, installations may be delayed or canceled, which could harm our
business.
Our products must interface with existing networks, each of which may have different specifications, utilize multiple protocol
standards and incorporate products from other vendors. Many of our customers’ networks contain multiple generations of products
that have been added over time as these networks have grown and evolved. Our products may be required to interoperate with many or
all of the products within these networks, as well as future products to meet our customers’ requirements. If we find errors in the
existing software or defects in the hardware used in our customers’ networks, we may have to modify our software or hardware to fix
or overcome these errors so that our products will interoperate with the existing software and hardware. Implementation of product
corrections involving interoperability issues could increase our costs and adversely affect our results of operations. Such issues may
affect our ability to obtain product acceptance from other customers.
We engage in research and development activities to develop new, innovative solutions and to improve the application of developed
technologies, and as a consequence may miss certain market opportunities enjoyed by larger companies with substantially greater
research and development efforts and which may focus on more leading-edge development.
A portion of our research and development activities are focused on the continued innovation of currently accepted access and edge
transmission technologies in order to deliver faster internet speeds, more capacity, better quality of service and operational efficiency.
These research and development efforts result in improved applications of technologies for which demand already exists or is latent.
We also focus our research and development efforts on developing software, solutions and platforms that enable Service Providers to
increase revenue-generating service velocity, reducing operational costs, increasing scale and providing service agility. We rarely
engage in research projects that represent a vast departure from the current business practices of our key customers. While we believe
our strategy provides a higher likelihood of producing nearer term or more sustainable revenue streams, this strategy could result in
lost revenue opportunities and higher operating expenses should a new technology achieve rapid and widespread market acceptance.
When we do engage in research and development activities for new, leading-edge technologies and market approaches, there is no
guarantee that those technologies or market approaches will be successful or that they will be adopted and purchased by our
customers.
Our strategy of outsourcing a portion of our manufacturing requirements to subcontractors located in various international
regions may result in us not meeting our cost, quality or performance standards.
We are heavily dependent on subcontractors for the assembly and testing of certain printed circuit board assemblies, subassemblies,
chassis, enclosures and equipment shelves, and the purchase of some raw materials used in such assemblies. This reliance involves
several risks, including the unavailability of, or interruptions in, access to certain process technologies and reduced control over
product quality, delivery schedules, transportation, manufacturing yields and costs. We may not be able to provide product order
volumes to our subcontractors that are high enough to achieve sufficient cost savings. If shipments fall below forecasted levels, we
may incur increased costs or be required to take ownership of excess inventory. In addition, these same suppliers may decide to no
longer manufacture or support specific components necessary for some of our legacy products, which could lead to our inability to
fulfill demand without increased engineering and material costs necessary to replace such components or cause us to transition such
products to end-of-life status sooner than planned. Further, our suppliers could enter into exclusive arrangements with our competitors,
refuse to sell their products or components to us at commercially reasonable prices or at all, go out of business or discontinue their
relationships with us. We also have experienced and expect to continue to experience ongoing inflationary pressures on input costs,
such as, raw materials, labor and distribution costs. Our attempts to offset these cost pressures, such as through increases in the selling
prices of some of our products and services, may not be successful and could negatively affect our operating results. In addition, a
significant component of maintaining cost competitiveness is the ability of our subcontractors to adjust their costs to compensate for
possible adverse exchange rate movements. To the extent that the subcontractors are unable to do so, and we are unable to procure
alternative product supplies, then our competitiveness and results of operations could be adversely impaired. 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. For example, the renegotiation or termination of existing bilateral and multilateral trade agreements, as well as,
changes in international tariff structures, could adversely impact our product costs. In addition, a number of the components we use in
our products are sourced directly or indirectly through Taiwan. Deterioration of relations between Taiwan and China and the U.S., the
resulting actions taken by any of these parties, and other factors affecting the political or economic conditions of Taiwan in the future,
could adversely impact our supply chain, international sales, and operations.
We cannot be assured that delays in product deliveries will not occur in the future because of shortages resulting from this limited
number of subcontractors or from the financial or other difficulties of these parties. 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.
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Our failure to maintain rights to intellectual property used in our business could adversely affect the development, functionality
and commercial value of our products.
Our future success depends in part upon our proprietary technology. Although we attempt to protect our proprietary technology by
contract, trademark, copyright and patent registration and internal security, including trade secret protection, these protections may not
be adequate. Furthermore, our competitors can develop similar technology independently without violating our proprietary rights.
From time to time, we receive and may continue to receive notices of claims alleging that we are infringing upon patents or other
intellectual property. Any of these claims, whether with or without merit, could result in significant legal fees, divert our
management’s time, attention and resources, delay our product shipments or require us to enter into royalty or licensing agreements.
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. 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.
We integrate third-party software into certain of our products. Licenses for this technology may not be available or may not continue
to be available to us on commercially reasonable terms. Difficulties with third-party technology licensors could result in the
termination of such licenses, which may result in increased costs or require us to purchase or develop a substitute technology.
Difficulty obtaining and maintaining third-party technology licenses may disrupt the development of our products and increase our
costs, which could harm our business.
Our use of open source software could impose limitations on our ability to commercialize our products.
Several of our solutions utilize elements of open source or publicly available software. Although we closely monitor our use of open
source software, the terms of many open source software licenses have not been interpreted by the courts, and there is a risk that such
licenses could be construed in a manner that could impose unanticipated conditions or restrictions on our ability to sell our products.
In such event, we could be required to make our proprietary software generally available to third parties, including competitors, at no
cost, to seek licenses from third parties in order to continue offering our products, to re-engineer our products or to discontinue the
sale of our products in the event re-engineering cannot be accomplished on a timely basis or at all, any of which could adversely affect
our revenue and operating profitability.
We may incur liabilities or become subject to litigation that would have a material effect on our business.
In the ordinary course of business, we accept purchase orders, and enter into sales and other related contracts, for the marketing, sale,
manufacture, distribution or use of our products and services. We may incur liabilities relating to our performance under such
agreements, or which result from damage claims arising from certain events as outlined within the particular contract. While we
attempt to include reasonable limitations of liability and other protective measures to all agreements, such agreements may not always
contain, or be subject to, maximum loss clauses and liabilities arising from them may result in significant adverse changes to our
results of operations, financial condition and cash flows.
In the ordinary course of business, we are subject to various legal proceedings and claims, including employment disputes, patent
claims, disputes over contract agreements and other commercial disputes. In some cases, claimants seek monetary recovery, or other
relief, including damages such as royalty payments related to patents, lost profits or injunctive relief, which, if granted, could require
significant expenditures. Any such disputes may be resolved before trial, or if tried, may be resolved in our favor; however, the cost of
claims sustained in litigation, and costs associated with the litigation process, may not be covered by our insurance. Such costs, and
the demands on management time during such an event, could harm our business, reputation and have a material adverse effect on our
liquidity, results of operations, financial condition and cash flows.
In addition, as a result of the business combination with Adtran Networks, we continue to be exposed to litigation risk and uncertainty
associated with the remaining minority shareholders of Adtran Networks. The terms of the DPLTA, including the adequacy of
compensation payments to minority Adtran Networks shareholders under the terms of the DPLTA, have been challenged by minority
shareholders of Adtran Networks by initiating court-led appraisal proceedings under German law. It is possible that the court in these
appraisal proceedings may hold that we must pay higher Exit Compensation or Annual Recurring Compensation to such Adtran
Networks shareholders than agreed upon in the DPLTA, the financial impact and timing of which is uncertain.
If we are unable to successfully develop and maintain relationships with Systems Integrators, Service Providers and enterprise
value-added resellers, our revenue may be negatively affected.
As part of our sales strategy, we are targeting Systems Integrators, Service Providers and enterprise VARs. In addition to specialized
technical expertise, Systems Integrators, 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. If our sales, marketing or service capabilities are not sufficient to provide effective
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support to such Systems Integrators, Service Providers and VARs, our revenue may be negatively affected, and current Systems
Integrators, Service Provider and VAR partners may terminate their relationships with us, which would adversely impact our revenue
and overall results of operations. Moreover, if our Systems Integrators, Service Providers or VARs cease doing business with us for
any other reason or fail to successfully sell our products, our ability to sustain and grow our revenue could be materially adversely
affected.
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.
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. The use of these service providers gives
us greater flexibility in efficiently delivering a more tailored, scalable customer experience, but also exposes us to additional risks and
vulnerabilities. Third-party service providers operate their own platforms that we access, and we are, therefore, vulnerable to their
service interruptions. 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. Such outages
could adversely impact our business, reputation, financial condition and results of operations.
Risks related to the Company’s stock price
Our financial performance and operating results historically have fluctuated and could fluctuate in future periods, which has
affected and may in the future affect our stock price.
Our operating results have been, and will continue to be, subject to quarterly and annual fluctuations as a result of numerous factors.
These factors include, but are not limited to:
•
fluctuations in demand for our products and services, especially with respect to significant network expansion projects
undertaken by Service Providers;
•
continued growth of communications network traffic and the adoption of communication services and applications by
enterprise and consumer end users;
•
changes in sales and implementation cycles for our products and reduced visibility into our customers’ spending plans and
associated revenue, especially should a slowdown in communications industry spending occur due to economic
downturns, tight capital markets, or declining liquidity trends;
•
reductions in demand for our traditional products as new technologies gain acceptance;
•
our ability, and that of our distributors, to maintain appropriate inventory levels and related purchase commitments;
•
price and product competition in the communications and networking industries, which can change rapidly due to
technological innovation;
•
the overall movement toward industry consolidation among both our competitors and our customers;
•
our dependence on sales of our products by channel partners and the timing of their replenishment orders. For example,
while we experienced an increased volume of sales activity in 2025 due to a return of normalized customer spending, our
sales volume in 2024 was 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);
•
our ability to achieve cost reductions;
•
the ability of our customers, channel partners and suppliers to obtain financing or to fund capital expenditures;
39
•
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.
•
short sales, hedging and other derivative transactions involving our capital stock, including by holders of our 2030 Notes
that employ a convertible arbitrage strategy with respect to such notes.
Moreover, shortfalls in our sales or earnings in any given period relative to our guidance or the levels expected by securities analysts
have in the past and may in the future adversely affect the trading price of our common stock.
Future issuances of additional equity securities could result in dilution of existing stockholders’ equity ownership.
We may determine from time to time to issue additional equity securities to raise additional capital, to support growth, or to make
acquisitions. Furthermore, we may issue stock options, grant restricted stock awards or other equity awards to retain, compensate
and/or motivate our employees and directors. The issuance of additional shares of common stock could result in the dilution of the
voting and economic interests of existing stockholders. Furthermore, as part of our business strategy, we may acquire additional shares
of Adtran Networks’ common stock and issue equity securities to pay for any such acquisitions. In addition, we may seek additional
capital due to favorable market conditions or strategic considerations even if we believe we have sufficient funds for our current or
future operating plans. Any such issuances of additional share capital may cause stockholders to experience significant dilution of
their ownership interests and the per share value of our common stock to decline.
The price of our common stock has been volatile and may continue to fluctuate significantly.
Our common stock is traded on the NASDAQ Global Select Market under the symbol ADTN and on the Frankfurt Stock Exchange
under the symbol QH9. Since our initial public offering in August 1994, there has been, and may continue to be, significant volatility
in the market for our common stock, based on a variety of factors, including factors listed in this section, some of which are beyond
our control.
Risks Related to our 2030 Notes and Capped Calls
Our indebtedness and liabilities could limit the cash flow available for our operations and expose us to risks that could adversely
affect our business, financial condition and results of operations. In addition, if we are unable to raise additional capital and/or
restructure some of our existing indebtedness, we may be unable to meet our obligations as they come due, including with respect
to the 2030 Notes.
Our indebtedness could have significant negative consequences for our security holders and our business, results of operations and
financial condition by, among other things:
•
increasing our vulnerability to adverse economic and industry conditions;
•
limiting our ability to obtain additional financing;
•
making us unable to meet our obligations as they come due;
•
requiring the dedication of a substantial portion of our cash flows from operations to service our indebtedness, which will
reduce the amount of cash available for other purposes;
•
limiting our flexibility to plan for, or react to, changes in our business;
•
diluting the interests of our existing stockholders as a result of issuing shares of our common stock upon conversion of the
2030 Notes; and
•
placing us at a possible competitive disadvantage with competitors that are less leveraged than us or have better access to
capital.
Our business may not generate sufficient funds, and we may otherwise be unable to maintain sufficient cash reserves, to pay amounts
due under our indebtedness, including the 2030 Notes and the Amended Credit Agreement, and our cash needs may increase in the
future. In addition, the Wells Fargo credit agreement contains, and any future indebtedness that we may incur may contain, financial
and other restrictive covenants that limit our ability to operate our business, raise capital or make payments under our other
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indebtedness. If we fail to comply with these covenants or to make payments under our indebtedness when due, then we would be in
default under that indebtedness, which could, in turn, result in that and our other indebtedness becoming immediately payable in full.
We may be unable to raise the funds necessary to repurchase the 2030 Notes for cash following a fundamental change or to pay
any cash amounts due upon maturity or conversion of the 2030 Notes, and our other indebtedness may limit our ability to
repurchase the 2030 Notes or to pay any cash amounts due upon their maturity or conversion.
Noteholders may, subject to a limited exception, require us to repurchase their 2030 Notes following a “fundamental change” (as
defined in the Indenture) at a cash repurchase price generally equal to the principal amount of the 2030 Notes to be repurchased, plus
accrued and unpaid interest, if any. In addition, all conversions of the 2030 Notes will be settled partially or entirely in cash. We may
not have enough available cash or be able to obtain financing at the time we are required to repurchase the 2030 Notes or pay the cash
amounts due upon conversion. In addition, applicable law, regulatory authorities and the agreements governing our other indebtedness
may restrict our ability to repurchase the 2030 Notes or pay the cash amounts due upon conversion. Our failure to repurchase the 2030
Notes or to pay the cash amounts due upon conversion when required will constitute a default under the indenture. A default under the
indenture or the fundamental change itself could also lead to a default under agreements governing our other indebtedness, which may
result in that other indebtedness becoming immediately payable in full. We may not have sufficient funds to satisfy all amounts due
under the other indebtedness and the 2030 Notes.
Provisions in the Indenture could delay or prevent an otherwise beneficial takeover of us.
Certain provisions in the 2030 Notes and the Indenture could make a third party attempt to acquire us more difficult or expensive. For
example, if a takeover constitutes a fundamental change, then, subject to a limited exception, noteholders will have the right to require
us to repurchase their 2030 Notes for cash. In addition, if a takeover constitutes a make-whole fundamental change, then we may be
required to temporarily increase the conversion rate. In either case, and in other cases, our obligations under the 2030 Notes and the
Indenture could increase the cost of acquiring us or otherwise discourage a third party from acquiring us or removing incumbent
management, including in a transaction that noteholders or holders of our common stock may view as favorable.
The accounting method for the 2030 Notes has affected and may continue to adversely affect our reported financial condition and
results.
The accounting method for reflecting the 2030 Notes on our balance sheet, accruing interest expense for the 2030 Notes and reflecting
the underlying shares of our common stock in our reported diluted earnings per share may adversely affect our reported earnings and
financial condition.
In accordance with applicable accounting standards, the 2030 Notes have been and may continue to be reflected as a liability on our
balance sheets, with the initial carrying amount equal to the principal amount of the 2030 Notes, net of discount and issuance costs.
The issuance costs have been and may continue to be treated as a debt discount for accounting purposes, which are amortized into
interest expense over the term of the 2030 Notes. As a result of this amortization, the interest expense that we have recognized and
expect to continue to recognize for the 2030 Notes for accounting purposes has been and may continue to be greater than the cash
interest payments we will pay on the 2030 Notes, which has resulted and may continue to result in higher reported loss and which may
result in lower reported income in the future.
In addition, the shares underlying the 2030 Notes have been reflected and may continue to be reflected in our diluted earnings per
share using the “if converted” method, in accordance with ASU 2020-06. Under that method, if the conversion value of the 2030
Notes exceeds their principal amount for a reporting period, then we calculate our diluted earnings per share assuming that all of the
Notes were converted at the beginning of the reporting period and that we issued shares of our common stock to settle the excess.
However, if reflecting the Notes in diluted earnings per share in this manner is anti-dilutive, or if the conversion value of the Notes
does not exceed their principal amount for a reporting period, then the shares underlying the Notes will not be reflected in our diluted
earnings per share. The application of the "if converted" method may reduce our reported diluted earnings per share, and accounting
standards may change in the future in a manner that may adversely affect our diluted earnings per share.
Furthermore, if any of the conditions to the convertibility of the 2030 Notes is satisfied, then we may be required under applicable
accounting standards to reclassify the liability carrying value of the 2030 Notes as a current, rather than a long-term, liability. This
reclassification could be required even if no noteholders convert their 2030 Notes and could materially reduce our reported working
capital.
Transactions relating to our 2030 Notes may affect the value of our common stock.
Conversions of the 2030 Notes offered hereby may significantly dilute the ownership interests of our common stockholders and
depress the market price of our common stock. Furthermore, in connection with the 2030 Notes, we have entered into privately
negotiated Capped Calls with one of the initial purchasers of the Notes or its affiliate and certain other financial institutions. The
Capped Calls are expected generally to reduce the potential dilution to our common stock upon any conversion of the 2030 Notes
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and/or offset any potential cash payments we are required to make in excess of the principal amount of converted Notes, as the case
may be, with such reduction and/or offset subject to a cap.
In addition, the option counterparties and/or their respective affiliates may modify their hedge positions by entering into or unwinding
various derivative transactions with respect to our common stock and/or purchasing or selling our common stock or other securities of
ours in secondary market transactions prior to the maturity of the Notes (and (x) are likely to do so following any repurchase of the
Notes by us in connection with any fundamental change and (y) are likely to do so during any observation period related to a
conversion of the Notes or following any repurchase or redemption of Notes by us, other than in connection with any fundamental
change, if we elect to unwind a corresponding portion of the Capped Calls in connection with such conversion, repurchase or
redemption). This activity could also cause or avoid an increase or decrease in the market price of our common stock.
We are subject to counterparty risk with respect to the Capped Calls, and the Capped Calls may not operate as planned.
The option counterparties are, or are affiliates of, financial institutions, and we will be subject to the risk that one or more of such
option counterparties might default under the Capped Calls. Our exposure to the credit risk of the option counterparties is not secured
by any collateral. If an option counterparty becomes subject to insolvency proceedings, we will become an unsecured creditor in those
proceedings with a claim equal to our exposure at that time under our Capped Calls with that option counterparty. Our exposure will
depend on many factors, but, generally, the increase in our exposure will be correlated with increases in the market price or the
volatility of our common stock. In addition, upon a default by an option counterparty, we may suffer more dilution than we currently
anticipate with respect to our common stock. We can provide no assurances as to the financial stability or viability of any option
counterparty.
In addition, the Capped Calls are complex, and they may not operate as planned. For example, the terms of the Capped Calls may be
subject to adjustment, modification or, in some cases, renegotiation if certain corporate or other transactions occur. Accordingly, these
transactions may not operate as we intend if we are required to adjust their terms as a result of transactions in the future or upon
unanticipated developments that may adversely affect the functioning of the Capped Calls.
Risks related to the regulatory environments in which we do business
We are subject to complex and evolving U.S. and foreign laws, regulations and standards governing the conduct of our business.
Violations of these laws and regulations may harm our business, subject us to penalties and to other adverse consequences.
We are subject to laws and regulations that govern conduct by our Company, our employees and agents and the manufacture, sale and
use of our products. Our inability to comply with current and evolving laws and regulations governing our business domestically and
internationally may adversely affect our revenue, results of operations, financial conditions and cash flows. New and changing laws,
regulations and industry practices could require us to modify our business, products or services offered, potentially in a material
manner, and may limit our ability to develop new products, services and features. If we violate these laws and regulations,
governmental authorities in the U.S. and in foreign jurisdictions could seek to impose civil and/or criminal fines and penalties which
could have an adverse effect on our reputation, as well as our results of operations, financial condition and cash flows.
These laws and regulations include, but are not limited to:
•
various regulations and regional standards established by communications authorities and import/export control
authorities that govern the manufacture, sale and use of our products. Changes in domestic or international
communications regulations, tariffs, changes in trade policies by the U.S. and other nations, application requirements,
import/export controls or expansion of regulation to new areas, including access, communications or commerce over the
internet, may affect customer demand for our products or slow the adoption of new technologies which may affect our
revenue. 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. Foreign
data protection, privacy and other laws and regulations, including GDPR, are often more restrictive than those in the U.S.
These data protection and privacy-related laws and regulations are varied, evolving, can be subject to significant change,
may be augmented or replaced by new or additional laws and regulations and may result in ever-increasing regulatory and
public scrutiny and escalating levels of enforcement and sanctions. For example, within the past three years, numerous
states have adopted or are in the process of adopting various privacy-related laws and regulations. There is also a risk that
we, directly or as the result of a third-party Service Provider we use, could be found to have failed to comply with the
laws and regulations applicable in a jurisdiction regarding the collection, consent, handling, transfer or disposal of
personal data. In addition to the U.S. and Europe, we do business in numerous other countries around the globe. Those
42
countries and jurisdictions may have, currently or in the future, data protection or privacy laws or regulations with similar
or additional requirements, resulting in increased compliance costs and regulatory risk.
•
the FCPA, which prohibits U.S. companies and their intermediaries from making corrupt payments to foreign officials for
the purpose of directing, obtaining or keeping business, and requires companies to maintain reasonable books and records
and a system of internal accounting controls. 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. On June 9, 2025, the U.S. Department of Justice issued new guidelines for the enforcement of the FCPA,
focusing on a narrower range of misconduct than prosecutors have previously targeted while prioritizing prosecution of
individuals engaging in criminal misconduct.
•
environmental, health and safety regulations governing the manufacture, assembly and testing of our products, including
without limitation regulations governing the use of hazardous materials. Our failure or the failure of our contract
manufacturers to properly manage the use, transportation, emission, discharge, storage, recycling or disposal of hazardous
materials could subject us to increased costs or liabilities. Existing and future environmental regulations may restrict our
use of certain materials to manufacture, assemble and test products.
•
requirements by the SEC governing the disclosure regarding the use of conflict minerals mined from the Democratic
Republic of the Congo and adjoining countries (the “DRC”) and disclosure with respect to procedures regarding a
manufacturer’s efforts to prevent the sourcing of such minerals from the DRC. Certain of these minerals are present in our
products. SEC rules implementing these requirements may have the effect of reducing the pool of suppliers that can
supply “conflict free” components and parts, and we may not be able to obtain conflict free products or supplies in
sufficient quantities for our 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.
•
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.
•
article 17 of the Market Abuse Regulation (EU) No. 596/2014 of the European Parliament and of the Council of 16 April
2014, which mandates that issuers such as us that are listed on the primary standard of the Frankfurt Stock Exchange
provide real time disclosure in certain circumstances, including where management’s expected results materially deviate
from previously announced guidance or analyst consensus. Such requirements have in the past caused and may in the
future cause us to release earnings results before they are final, which has affected and could in the future affect our stock
price.
Moreover, changes in the U.S. political landscape can significantly impact our business. The recent changes in the U.S. government
administration have resulted in substantial modifications to laws and regulations, including, but not limited to, those related to trade
policies, tariffs, export controls and technology transfers. New executive orders and legislative actions have altered and may in the
future further alter the business environment in which we operate.
Changes in trade policy in the U.S. and other countries, including the imposition of additional tariffs and the resulting
consequences, may adversely impact our gross profits, gross margins, results of operations and financial condition.
In recent years, international market conditions and the international regulatory environment have been increasingly affected by
competition among countries and geopolitical frictions. During the year ended December 31, 2025, the U.S. introduced trade policy
actions that increased import tariffs across a wide range of countries at various rates, with certain exemptions. On February 20, 2026,
the United States Supreme Court issued a ruling striking down certain tariffs previously imposed under the IEEPA. The ultimate
availability, timing, and amount of any potential refunds of such tariffs remain highly uncertain and are subject to further legal,
regulatory, and administrative developments. Following the Supreme Court’s decision, the U.S. presidential administration announced
its intention to invoke other laws to collect tariffs and announced new tariffs on imports from all countries, in addition to any existing
non-IEEPA tariffs (including tariffs on semiconductors, which are expected to increase in June 2027). Furthermore, recent U.S. trade
actions have triggered retaliatory actions by certain affected countries, and other foreign governments may impose further trade
measures, including reciprocal tariffs, on certain U.S. goods in the future. Because not all products can be sourced in all countries, we
expect to experience increased costs in our supply chain as a result of such tariffs, which may lead to reduced margins or increased
prices. At this time, it remains unclear what additional actions, if any, will be taken by the U.S. or other governments with respect to
international trade agreements, the imposition of or changes to tariffs on goods imported into the U.S. or exported to other countries,
tax policy related to international commerce, increased export control, sanctions and investment restrictions, import or use of foreign
43
communications equipment, or other trade matters. Related costs and the uncertainty during transition periods could lead to changes in
buying behavior, such as decreased demand. These impacts could have a negative effect on our financial results, including our revenue
and profitability.
In addition, the extent and duration of increased tariffs and the resulting impact on general economic conditions and on our business
are uncertain and depend on various factors, such as negotiations between the U.S. and affected countries, the responses of other
countries or regions, exemptions or exclusions that may be granted, availability and cost of alternative sources of supply, and reduced
demand for our and our customers’ products and services. Such conditions could have a material adverse impact on our business,
results of operations and cash flows. Also, disruptions and volatility in the financial markets may lead to adverse changes in the
availability, terms and cost of capital. Such adverse changes could increase our costs of capital and limit our access to external
financing sources to fund acquisitions, capital projects, or refinancing of debt maturities on similar terms, which could in turn reduce
our cash flows and limit our ability to pursue growth opportunities. Changes in tariffs and trade restrictions can be announced with
little or no advance notice. The adoption and expansion of tariffs or other trade restrictions, increasing trade tensions, or other changes
in governmental policies related to taxes, tariffs, trade agreements or policies, are difficult to predict, which makes attendant risks
difficult to anticipate and mitigate. If we are unable to navigate further changes in U.S. or international trade policy, it could have a
material adverse impact on our business and results of operations.
The complexity of announced or future tariffs may also increase the risk that we or our customers or suppliers may be subject to
enforcement actions in the U.S. or foreign jurisdictions related to compliance with trade regulations. In May 2025, the U.S.
Department of Justice announced that trade and customs fraud, including tariff evasion, is a high-impact area and designated it as an
enforcement priority area. Additionally, the imposition of tariffs is dependent upon the classification of items under the Harmonized
Tariff System (“HTS”) and the country of origin of the item. Determination of the HTS and the origin of the item is a technical matter
that can be subjective in nature. Accordingly, although we believe our classifications of both HTS and origin are appropriate, there is
no certainty that the U.S. government will agree with us. If the U.S. government does not agree with our determinations, we could be
required to pay additional amounts, including potential penalties, and our profitability would be adversely impacted.
Finally, tariffs on our customers’ products may adversely affect our gross profit margins in the future due to the potential for increased
pressure on our selling prices by customers seeking to offset the impact of tariffs on their own products. In addition, tariffs could make
our products less attractive relative to products offered by competitors, which may not be subject to similar tariffs. In reaction to the
increased tariffs, customers may elect to reduce spending, renegotiate contracts, defer orders or delivery of existing orders, or shift
purchases to other vendors, each of which would adversely impact our financial results and competitive position with customers.
Increases in tariffs on imported goods or the failure to resolve current international trade disputes could further decrease demand and
have a material adverse effect on our business and operating results.
Recently, the Company has experienced increased costs on imports of certain critical raw minerals and derivative products relevant to
our business and products due to tariffs imposed by the U.S. government and other nations, and the availability, timing, and amount of
any potential refunds of related U.S. tariffs remains uncertain. We have taken steps, and may take additional steps, to attempt to
mitigate the impact of tariffs on our business, including by availing ourselves of certain exemptions to tariffs; by making changes to
our supply chain practices, sources of supply, or manufacturing locations; and by passing the cost of tariffs to customers. These
changes could take considerable time to implement, result in significant costs, and cause supply chain delays or disruption.
New or revised tax regulations, changes in our effective tax rate, recognition of a valuation allowance or assessments arising from
tax audits may have an adverse impact on our results.
We are subject to taxation in various jurisdictions, both domestically and internationally, in which we conduct business. Significant
judgment is required in the determination of our provision for income taxes, and this determination requires the interpretation and
application of complex and sometimes uncertain tax laws and regulations. Our effective tax rate may be adversely impacted by
changes in the mix of earnings between jurisdictions with different statutory tax rates, in the valuation of our deferred tax assets, and
by changes in tax rules and regulations. We continually monitor our deferred tax assets and when it becomes more likely than not that
a tax benefit will not be recognized, a valuation allowance is recorded against those assets.
In addition, we are subject to examination of our income tax returns by the Internal Revenue Service and various other tax authorities
in the jurisdictions in which we conduct business. We regularly assess the likelihood of adverse outcomes resulting from these
examinations to determine the adequacy of our provision for income taxes. There can be no assurance that the outcomes from these
continuous examinations will not have an adverse effect on our results of operations, financial condition and cash flow. Additionally,
we continually review the adequacy of the valuation allowance and recognize the benefits of deferred tax assets only as the
reassessment indicates that it is more likely than not that the deferred tax assets will be recognized. As such, we may release a portion
of the valuation allowance or establish a new valuation allowance based on operations in the jurisdictions in which these assets arose.
Management continues to evaluate all evidence including historical operating results, the existence of losses in the most recent year,
forecasted earnings, future taxable income and tax planning strategies. Should management determine that a valuation allowance is
needed in the future due to not being able to absorb deferred tax assets, it would have a material impact on our consolidated financial
statements.
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In August 2022, the Inflation Reduction Act was signed into law, making several changes to the Internal Revenue Code, including a
1% excise tax on stock buybacks by publicly traded corporations and a 15% corporate minimum tax on adjusted financial statement
income of certain large companies. The impact of these provisions on our effective tax rate will depend on additional guidance to be
issued by the Secretary of the U.S. Department of the Treasury. We are currently evaluating the effect of these provisions in light of
more recent legislation described below.
Additionally, in January 2026, the OECD Inclusive Framework released administrative guidance (the “Side-by-Side Package”)
introducing a new Side-by-Side (“SbS”) Safe Harbor, an Ultimate Parent Entity (“UPE”) Safe Harbor, among other measures,
effective for fiscal years beginning on or after January 1, 2026. This elective SbS safe harbor deems top-up tax as zero for purposes of
the Income Inclusion Rule (“IIR”) and Undertaxed Profits Rule (“UTPR”) for multinational enterprise groups with an ultimate parent
entity in a qualifying jurisdiction, such as the United States (currently the only jurisdiction listed in the OECD Central Record as
having a Qualified SbS Regime). As a result, qualifying U.S.-headquartered groups that make a valid election will have top-up tax
deemed zero for IIR and UTPR purposes across domestic and foreign operations, subject to specified eligibility criteria. However, this
relief does not eliminate Pillar Two obligations entirely, as qualified domestic minimum top-up taxes (“QDMTTs”) in implementing
jurisdictions and GloBE (Global Anti-Base Erosion) Information Return (“GIR”) reporting requirements continue to apply. The Side-
by-Side Package also extends the transitional country-by-country reporting safe harbor (“CbCR”) through fiscal year 2027, introduces
a permanent simplified effective tax rate safe harbor applicable to fiscal years beginning on or after January 1, 2027, and establishes a
substance-based tax incentive safe harbor applicable to fiscal years beginning on or after January 1, 2026 to better accommodate
certain tax incentives. These developments have reconfigured key aspects of Pillar Two compliance, particularly for U.S.-based
multinational groups, but require ongoing monitoring of jurisdictional implementations, potential future assessments of additional
qualifying regimes, and a planned formal stocktake by 2029 that could identify and address risks to the global minimum tax
framework. As a result, the tax laws in the U.S. and other countries in which we do business could change on a prospective or
retroactive basis, including through refinements to these rules, new adoptions, or responses to evolving international developments,
and any such changes could adversely affect our business, financial condition, and results of operations.
In July 2025, the U.S. enacted significant tax legislation commonly referred to as the One Big Beautiful Bill Act (“OBBBA”). The
OBBBA makes permanent certain provisions of the Tax Cuts and Jobs Act of 2017 and introduces additional changes affecting
individuals and businesses. Key business-related provisions include the continuation of the 21% federal corporate income tax rate;
enhancements to bonus depreciation and expensing rules, including 100% bonus depreciation for qualified property acquired after
January 19, 2025, and full expensing of domestic research and experimental expenditures under Section 174A; and modifications to
certain international provisions, including Net CFC Tested Income (NCTI, formerly GILTI) and Foreign-Derived Deduction Eligible
Income (FDDEI, formerly FDII), with permanent Section 250 deductions generally effective for taxable years beginning after
December 31, 2025. The OBBBA also includes other targeted measures, such as an excise tax on certain foreign remittances.
We have reviewed the OBBBA and continue to monitor and model its potential impact on our operations and effective tax rate. Based
on our current analysis of the Company’s operating profile, we do not expect material effects on our 2025 fiscal year results or on our
results in the near term, considering our existing tax profile. Many provisions that represent substantive changes to existing law,
including adjustments to international tax regimes and certain deduction limitations, phase in in future years. While the impact of the
OBBBA is uncertain, any increase in our tax exposure could materially and adversely affect our business, financial condition, and
results of operations.
Interest rate fluctuations could increase our costs of borrowing money and negatively impact our financial condition and future
operations.
Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international
economic and political considerations and other factors beyond our control. 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. To assess the creditworthiness of banks, we
utilize current credit ratings from rating agencies, such as S&P, 0RRG\ތV 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. Any such losses could be material and could materially
and adversely affect our business, financial condition and results of operations.
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Expectations relating to sustainability and governance matters expose the Company to potential liabilities, increased costs,
reputational harm, and other adverse effects on the Company’s business.
Many governments, regulators, investors, employees, customers and other stakeholders are increasingly focused on sustainability 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 sustainability and governance goals and initiatives
through our website, press statements and other communications. Responding to these sustainability and governance considerations
and implementation of these goals and initiatives involves risks and uncertainties, requires investments, and depends in part on third-
party performance or data that is outside of our control. 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 sustainability 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.
In addition, simultaneous, disparate and divergent sentiments on sustainability and governance-related matters from multiple
stakeholder groups must be considered. For example, there is an increasing number of anti-sustainability and governance initiatives in
the U.S., including with respect to diversity, equity and inclusion, that may conflict with other regulatory requirements or our various
stakeholders' expectations. Such divergent, sometimes conflicting views on sustainability and governance-related matters increase the
risk that any action or lack thereof by us on such matters will be perceived negatively by some stakeholders.
Further downgrades of the U.S. credit rating, automatic spending cuts, the current government shutdown or future government
shutdowns 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 U.S. Although U.S. lawmakers passed legislation to raise the federal debt ceiling on multiple
occasions, ratings agencies have lowered or threatened to lower the long-term sovereign credit rating on the U.S. Most recently, on
May 16, 2025, Moody’s downgraded the U.S. long-term issuer and senior unsecured ratings to Aa1 from Aaa and changed its outlook
from negative to stable. This is in response to the increase in government debt and interest payment ratios to levels that are
significantly higher than similarly rated sovereigns.
On July 4, 2025, President Trump signed the OBBBA into law. The bill increased the federal government’s debt limit by $5 trillion,
making it unlikely that the limit will be reached in the immediate future. The effects of the bill and the continued budget deficits
enabled thereunder remain uncertain.
The impact of this or any further downgrades to the U.S. government’s sovereign credit rating or its perceived creditworthiness could
adversely affect the U.S. and global financial markets and economic conditions. 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. Moreover, the current government shutdown or any future government shutdowns, as well as
adverse political and economic conditions relating to such shutdowns, could have a material adverse effect on our business, financial
condition and results of operations.
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ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 1C. CYBERSECURITY
Risk Management and Strategy
We recognize the importance of establishing governance and oversight over cybersecurity risks, and we have implemented
mechanisms, controls, technologies, and processes designed to help us assess, identify, and manage these risks.
The landscape of cyber threats is constantly evolving, making it increasingly challenging to effectively defend against them or
implement sufficient preventative measures. We have observed a rise in the volume, frequency, and sophistication of cyber-attacks.
There can be no assurance that our controls and procedures in place to monitor and mitigate the risks of cyber threats, including the
remediation of critical information security and software vulnerabilities, will be sufficient and/or timely and that we will not suffer
material losses or consequences in the future. Additionally, while we have in place insurance coverage designed to address certain
aspects of cyber risks, such insurance coverage may be insufficient to cover all insured losses or all types of claims that may arise. For
more information regarding the cybersecurity risks that we face, see “Risks Related to Our Control Environment – Breaches of our
information systems and cyberattacks could compromise our intellectual property and cause significant damage to our business and
reputation” included as part of our risk factor disclosures in Part I, Item 1A of this report.
We have adopted and continue to maintain a cybersecurity risk management program that implements various controls, technology,
and procedures for the evaluation, identification, and handling of significant cybersecurity risks that could impact the confidentiality,
integrity, or availability of our information systems.
Our practices include providing ongoing security awareness training for our global workforce, conducting ransomware and phishing
simulations, deploying advanced tools for detecting and analyzing anomalous network activities, and implementing robust
containment and incident response procedures. We leverage threat intelligence from our security vendors, as well as from trusted
sources such as CISA and the FBI, to enhance our defenses and stay ahead of emerging threats. Additionally, we are committed to
staying aligned with the latest industry standards and actively participating in industry forums to exchange insights and proactively
address evolving cybersecurity challenges.
A critical component of our cybersecurity strategy is the integration of a third-party Security Operations Center support, which
monitors our global network environment on a 24/7/365 basis, and is designed to rapidly identify and respond to threats. This program
monitors both internally detected and externally reported vulnerabilities that could impact our products, which are then evaluated for
their cybersecurity implications according to Company protocols. We also utilize third-party service providers as part of our
cybersecurity risk management program and maintain a framework for managing cybersecurity risks presented by our third-party
Service Providers. This framework governs the third party’s security management system and mandates that the program (i) adhere to
certain information handling and asset management protocols and (ii) promptly notify us of any cybersecurity incidents that impact its
systems.
Our enterprise risk management ("ERM") framework is designed to systematically integrate the assessment, identification, and
handling of cybersecurity-related risks into our broader risk management strategy. This process involves an annual evaluation of the
spectrum of risks facing the enterprise, including those related to cybersecurity. When elevated cybersecurity risks are detected,
designated risk owners are tasked with formulating and overseeing the execution of targeted mitigation strategies.
We did not experience any material losses relating to cybersecurity threats or incidents for the year ended December 31, 2025. We are
not aware of any risks from cybersecurity threats, including as a result of any previous cybersecurity incidents, that have materially
affected us or are reasonably likely to materially affect us, including our business strategy, results of operations, or financial condition.
Governance
Adtran maintains a cybersecurity governance structure led by its Information Security Management "ISM" team, which oversees the
Company's cybersecurity risk management efforts. The ISM team ensures that appropriate controls are in place to protect Adtran’s
corporate assets, ensuring their availability, confidentiality, and integrity. This risk management approach informs strategic decision-
making, resource allocation, and oversight mechanisms. The governance of Adtran’s cybersecurity program is ultimately the
responsibility of the Board of Directors, with the Audit Committee providing critical oversight through regular reviews and periodic
updates at least quarterly, or more frequently as needed.
The Company’s cybersecurity leadership includes the Chief Information Officer "CIO", who is responsible for governing and
protecting Adtran’s information assets, leading the cybersecurity strategy, and reporting directly to the Chief Executive Officer. The
CIO is an accomplished engineering and security professional with extensive leadership experience in research and development and
product security and holds a Ph.D. in electrical engineering. Additionally, the Chief Technology Officer ("CTO"), who joined the
company in January 2023 following the Business Combination, plays a key role in product security oversight, drawing on prior
47
experience as Adtran Networks' CTO leading their product management and advanced technology teams. Our CTO helps oversee our
product security programs.
Adtran employs a comprehensive cybersecurity program that integrates proactive risk management strategies to identify, assess, and
mitigate cybersecurity threats. Key elements of this program include an Incident Response Plan to manage and resolve security
incidents, regular vulnerability scanning to identify and address potential risks, and a structured patch management process to ensure
timely remediation of security vulnerabilities. Additionally, the Company has established a dedicated Product Security Incident
Response Team (PSIRT) to assess and respond to product security vulnerabilities. To strengthen its security culture, Adtran
implements a Cybersecurity Testing and Awareness Program, requiring all employees to participate in quarterly cybersecurity
assessments and complete mandatory annual training. This initiative ensures that employees remain well-informed about emerging
cybersecurity threats and best practices, reinforcing a proactive security mindset across the organization.
Cybersecurity risk management is integrated into Adtran’s Enterprise Risk Management "ERM" program, in order to provide for
continuous oversight and executive engagement. The ERM program undergoes quarterly executive reviews and annual assessments by
the Board of Directors, and the Board receives regular briefings on cybersecurity risks, regulatory compliance, and security program
updates from management. Key policies include the Information Security Program, which establishes governance principles across
facilities, employees, business partners, and customers; the Cybersecurity Framework, which ensures compliance with ISO 27001 and
industry standards; employee handbooks outlining security best practices; and the Incident Response Plan, which includes a material
impact assessment workflow to support timely regulatory disclosures.
For additional discussion of risks associated with cybersecurity, see “Risk Factors – Breaches of our information systems and
cyberattacks could compromise our intellectual property and cause significant damage to our business and reputation.
ITEM 2. PROPERTIES
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 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. We own a production and development
facility in Meiningen, Germany. We lease a facility for our European headquarters in Munich, Germany. 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 2038. 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. LEGAL PROCEEDINGS
The information presented under the captions "Legal Matters" and “DPLTA Appraisal Proceedings” in Note 17 “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 SAFETY DISCLOSURES
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
Our common stock is traded on the NASDAQ Global Select Market under the symbol "ADTN" and the Frankfurt Stock Exchange
under the symbol "QH9". As of February 9, 2026, we had 43 stockholders of record and approximately 19,352 beneficial owners of
shares held in street name.
Dividends
The payment of any 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. 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 stockholder return on common stock (specifically, the total stockholder return
on ADTRAN, Inc.’s common stock for all periods prior to the merger of Acorn MergeCo, Inc., a subsidiary of ADTRAN Holdings,
Inc., with and into ADTRAN, Inc., on July 8, 2022, after which ADTRAN, Inc. became a wholly-owned direct subsidiary of
ADTRAN Holdings, Inc. (the "Merger") and that of ADTRAN Holdings, Inc. following the Merger) with the cumulative total returns
of the NASDAQ Telecommunications index and the NASDAQ Composite index. 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, 2020 to December 31,
2025. 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”). 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.
* Assumes that $100 was invested on December 31, 2020 in stock or index, including reinvestment of dividends through fiscal year
ending December 31, 2025.
12/31/20
12/31/21
12/31/22
12/31/23
12/31/24
12/31/25
ADTRAN Holdings, Inc.
$
100.00
$
157.43
$
131.83
$
52.87
$
60.00
$
62.59
NASDAQ Composite
$
100.00
$
122.17
$
82.42
$
119.22
$
154.79
$
187.42
NASDAQ Telecommunications
$
100.00
$
106.15
$
80.59
$
92.14
$
104.62
$
117.28
The stock price performance included in this graph is not necessarily indicative of future stock price performance. The Company's
cumulative total returns for the period December 31, 2020 through December 31, 2021 relate to Adtran, Inc. prior to its business
combination with Adtran Networks and the Company's cumulative total returns for the period December 31, 2022 through December
31, 2025 relate to Adtran Holdings, Inc. subsequent to the business combination with Adtran Networks.
49
Recent Sales of Unregistered Securities
None.
Purchases of Equity Securities
During the year ended December 31, 2025, 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.
50
ITEM 6. RESERVED
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion should be read in conjunction with our audited consolidated financial statements and the related notes
included in Part II, Item 8 of this report. 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”, Part I, Item 1A, “Risk Factors”, and Part I, Item 1, “Business”, included in Amendment No. 1 to our Annual
Report on Form 10-K for the fiscal year ended December 31, 2024, filed with the SEC on May 20, 2025 (the "2024 Form 10-K/A"),
which is available free of charge on the SEC's website at http://www.sec.gov and on our website at www.adtran.com.
This discussion is designed to provide the reader with information that will assist in understanding our consolidated financial
statements, the changes in certain key items in those financial statements from period to period, and the primary factors that
accounted for those changes, as well as how certain accounting principles affect our consolidated financial statements. See
“Cautionary Note Regarding Forward-Looking Statements” on page 2 of this report for a description of important factors that could
cause actual results to differ from expected results. See also Part I, Item 1A, Risk Factors, of this Form 10-K.
Overview
The Company is a leading global provider of networking and communications platforms, software, systems and services focused on
carrier networks, data center interconnect for private enterprise networks and mission critical infrastructure. It is serving a diverse
domestic and international customer base in multiple countries that includes Large, Medium and Small Service Providers, alternative
Service Providers, such as utilities, municipalities and fiber overbuilders; cable/MSOs; SMBs; distributed enterprises, including
Fortune 500 companies with sophisticated business continuity applications; hyper-scalers, neocloud and content providers and data
center companies; and federal, state and local government agencies.
Our innovative solutions and services enable voice, data, video and internet-communications across a variety of network
infrastructures and are currently in use by millions worldwide. We support our customers through our direct global sales organization
and our distribution networks. Our success depends upon our ability to have customers adopt our technology, increase unit volume
and market share through the introduction of new products and succeeding generations of products having optimal selling prices and
increased functionality as compared to both the prior generation of a product and the products of competitors in order to gain market
share. To service our customers and grow revenue, we are continually conducting research and developing new products addressing
customer needs and testing those products for the specific requirements of the particular customers. We offer a broad portfolio of
flexible software and hardware network solutions and services that enable Service Providers to meet today’s service demands while
enabling them to transition to the fully converged, scalable, highly-automated, cloud-controlled voice, data, internet and video
network of the future. In addition to our global headquarters in Huntsville, Alabama, and our European headquarters in Munich,
Germany, we have sales and research and development facilities in strategic global locations.
The Company solely owns ADTRAN, Inc. and is the majority shareholder of Adtran Networks. Adtran is a leading global provider of
open, disaggregated networking and communications solutions. Adtran Networks is a global provider of network solutions for data,
storage, voice and video services. We believe that the combined technology portfolio can best address current and future customer
needs for high-speed connectivity from the network core to the end consumer, especially upon the convergence of solutions at the
network edge.
The chief operating decision maker regularly reviews the Company’s financial performance based on two reportable segments: (1)
Network Solutions and (2) Services & Support. In addition to operating under two reportable segments, the Company also reports
revenue across three categories – Subscriber Solutions, Access & Aggregation Solutions and Optical Networking Solutions.
Our Subscriber Solutions portfolio is used by Service Providers to terminate their access services infrastructure at customers' premises
while providing an immersive and interactive experience for residential, business and wholesale subscribers. This revenue category
includes hardware and software based products and services. These solutions include our Mosaic One SaaS applications featuring AI
driven operations, fiber termination solutions for residential, business and wholesale subscribers, Wi-Fi access solutions for residential
and business subscribers, Ethernet switching and network edge virtualization solutions for business subscribers and cloud software
solutions covering a mix of subscriber types.
Our Access & Aggregation Solutions are solutions that are used by communications Service Providers to connect residential
subscribers, business subscribers and mobile radio networks to the Service Providers’ metro network, primarily through fiber-based
connectivity. This revenue category includes hardware- and software-based products and services. Our solutions within this category
are a mix of fiber access and aggregation platforms, precision network synchronization and timing solutions and access orchestration
solutions that ensure highly reliable and efficient network performance.
51
Our Optical Networking Solutions are used by communications Service Providers, internet content providers and large-scale
enterprises to securely interconnect metro and regional networks over fiber. This revenue category includes hardware and software
based products and services. Our solutions within this category include open optical terminals, open line systems, optical subsystems
and modules, network infrastructure assurance systems and automation platforms that are used to build high-scale, secure and assured
optical networks.
Adtran Networks Domination and Profit and Loss Transfer Agreement
The DPLTA between the Company, as the controlling company, and Adtran Networks, as the controlled company, which was
executed on December 1, 2022, became effective on January 16, 2023, as a result of its registration with the commercial register
(Handelsregister) of the local court (Amtsgericht) at the registered seat of Adtran Networks (Jena).
Under the DPLTA, subject to certain limitations pursuant to applicable law and the specific terms of the DPLTA, (i) the Company is
entitled to issue binding instructions to the management board of Adtran Networks, (ii) Adtran Networks will transfer its annual profit
to the Company, subject to, among other things, the creation or dissolution of certain reserves, and (iii) the Company will generally
absorb the annual net loss incurred by Adtran Networks. The Company’s payment obligation in satisfaction of the requirement that it
absorb Adtran Networks’ annual net loss applies to the net loss generated by Adtran Networks in 2025 and it will apply to any net loss
generated by Adtran Networks in 2026.
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”). The guaranteed interest component under the Exit Compensation is calculated from the
effective date of the DPLTA to the date the shares are tendered, less any Annual Recurring Compensation paid. The guaranteed
interest rate is 5.0% plus a variable component that was 1.27% as of December 31, 2025. The Annual Recurring Compensation is due
on the third banking day following the ordinary general shareholders’ meeting of Adtran Networks for the respective preceding fiscal
year (but in any event within eight months following expiration of the fiscal year). With respect to the 2024 fiscal year, Adtran
Networks’ ordinary general shareholder meeting occurred on June 28, 2025, and therefore, the Annual Recurring Compensation was
paid on July 1, 2025. With respect to the 2025 fiscal year, Adtran Networks’ ordinary general shareholder meeting is scheduled for the
second quarter of 2026, and the Annual Recurring Compensation will be due on the third banking day following the meeting. 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.
The opportunity for outside Adtran Networks shareholders to tender Adtran Networks shares in exchange for Exit Compensation had
been scheduled to expire on March 16, 2023. However, due to the appraisal proceedings that were initiated in 2023 in accordance with
applicable German law, this time period for tendering shares has been extended pursuant to the German Stock Corporation Act
(Aktiengesetz) and will end two months after the date on which a final decision in such appraisal proceedings has been published in the
Federal Gazette (Bundesanzeiger). Following the court's decision on a procedural matter in the DPLTA appraisal proceedings on July
14, 2025, the trial on the merits of the DPLTA has recommenced. It is expected to take a minimum of 12 months for a ruling of the
court on the merits and such ruling will most likely be appealed, which would be expected to take an additional 12-24 months to be
resolved. Accordingly, the Company does not expect a final decision on the DPLTA appraisal proceedings to be rendered and
published prior to 2027, and most likely not until 2028 or beyond.
For the year ended December 31, 2025, 2.0 million shares of Adtran Networks stock were tendered to the Company. This resulted in
total Exit Compensation payments of approximately €40.2 million, or approximately $46.6 million, based on exchange rates at the
time of the transactions, being paid to Adtran Networks shareholders. For the year ended December 31, 2024, approximately 0.8
million shares of Adtran Networks stock were tendered to the Company. This resulted in total Exit Compensation payments of €15.7
million, or approximately $17.4 million, based on exchange rates at the time of the transactions, being paid to Adtran Networks
shareholders.
In summary, the Company believes that its cash and cash equivalents, working capital management initiatives and availability to
access cash under the Wells Fargo credit facility or other future sources of capital will be adequate to meet our business operating
requirements, our capital expenditures and our expected obligations under both the Notes and the DPLTA, including anticipated levels
of Exit Compensation, as well as to support our ability to continue to comply with our debt covenants under the Credit Facility for at
least the next twelve months, from the issuance of these financial statements. See Note 10, Credit Agreement, for additional
information regarding the terms of the Amendments of the Credit Agreement.
We currently hold 36,871,784 no-par value bearer shares of Adtran Networks, representing 70.8% of Adtran Networks outstanding
shares as of December 31, 2025.
52
The foregoing description of the DPLTA does not purport to be complete and is qualified in its entirety by reference to the DPLTA, a
non-binding English translation of which is incorporated by reference to Exhibit 10.14 of this Annual Report on Form 10-K.
Financial Performance and Trends
We ended 2025 with a year-over-year revenue increase of 17.5%, driven by increased volume of sales activity due to a return of
normalized customer spending, increased growth due to fiber expansion brought about by higher service provider spending, vendor
consolidation, a continuing shift away from high-risk vendors, increased demand for modernizing and upgrading critical infrastructure
within governments, utilities, large enterprises, and bandwidth hungry applications including, AI. During 2025, we had one customer
with revenues greater than 10.0% which was an international Service Provider, and our next five largest customers comprised 20.4%
of our revenue. Our year-over-year U.S. revenue increased by 20.7% due to a return to normalized customer spending and fiber
expansion. Internationally, our year-over-year revenue increased by 15.0%, primarily driven by fiber expansion. For 2025 our Access
& Aggregation, Subscriber Solutions and Optical Networking revenue categories all experienced increased volume of sales activity
year-over-year due to growth across geographies, most product lines, and the continued expansion of our customer base.
Our revenues have fluctuated in recent years and they may continue to fluctuate going forward. However, during the year ended
December 31, 2025, our operating results improved due to recovery in end markets, including a decrease in inventories held by
customers, improving margins and tight operational cost controls. Additionally, public funding through the Broadband Equity, Access
and Deployment Program ("BEAD") is expected to commence in 2026, which provides a positive outlook for the future. We have also
taken steps to transform our business into a leaner, more efficient and more profitable company, including the completion of our
business efficiency program (the "Business Efficiency Program"). Nevertheless, our operating expenses are relatively fixed in the
short term.
Our operating results improved due to slowly stabilizing revenues, improving margins and tight operational cost controls. In addition,
we continue to support our customer demand for our products by working with our suppliers, contract manufacturers, distributors, and
customers to address and to limit potential disruptions to our operations and order fulfillment. Moreover, maintaining sufficient
inventory levels to assure prompt delivery of our products increases the amount of inventory that may become obsolete and increases
the risk that the obsolescence of this inventory may have an additional adverse effect on our business and operating results beyond the
effects of the most recent inventory write-downs. On the other hand, not maintaining sufficient inventory levels to ensure prompt
delivery of our products may cause us to incur expediting costs to meet customer delivery requirements, which may negatively impact
our operating results.
Trade Policy/Tariffs
During the year ended December 31, 2025 and continuing to the date of this filing, the U.S. introduced trade policy actions that have
increased import tariffs across a wide range of countries at various rates, with certain exemptions. On February 20, 2026, the United
States Supreme Court issued a ruling striking down certain tariffs previously imposed under the IEEPA. The ultimate availability,
timing, and amount of any potential refunds of such tariffs remain highly uncertain and are subject to further legal, regulatory, and
administrative developments. Following the Supreme Court’s decision, the U.S. presidential administration announced its intention to
invoke other laws to collect tariffs and announced new tariffs on imports from all countries, in addition to any existing non-IEEPA
tariffs (including tariffs on semiconductors, which are expected to increase in June 2027). Furthermore, recent U.S. trade actions have
triggered retaliatory actions by certain affected countries, and other foreign governments may impose further trade measures,
including reciprocal tariffs, on certain U.S. goods in the future. There remains substantial uncertainty regarding the duration of
existing and newly announced tariffs, potential changes or pauses to such tariffs, tariff levels, and whether further additional tariffs or
other retaliatory actions may be imposed, modified, or suspended, and the impacts of such actions on our business. These changes in
U.S. trade policy and subsequent retaliatory actions have the potential to materially alter various input costs for the Company.
Moreover, related costs and the uncertainty arising from such changes in trade policy may result in shifts in customer behavior, such
as decreased demand. These impacts could have a negative effect on our financial results, including our revenue and profitability. To
help mitigate this, we have taken steps to diversify our supply chain, manufacturing locations and relationships with suppliers to give
us added flexibility. For example, beginning in the first quarter of 2026 our suppliers will be able to ship products directly to a free
trade zone which is set to open at our Huntsville, Alabama facility, which we expect to further mitigate the impact of tariffs. See
“Changes in trade policy in the U.S. and other countries, including the imposition of additional tariffs and the resulting consequences,
may adversely impact our gross profits, gross margins, results of operations and financial condition,” in Part I, Item 1A “Risk
Factors” of this report for further discussion of the risks associated with the changes to U.S. and foreign trade policies.
Enactment of the “One Big Beautiful Bill Act”
On July 4, 2025, the “One Big Beautiful Bill Act” (OBBBA) was signed into law in the U.S. Key corporate tax provisions include the
restoration of 100% bonus depreciation under 6HFWLRQௗ N for qualified property acquired after January 19, 2025; immediate
expensing of domestic research and experimental (R&E) expenditures under new 6HFWLRQௗ$ (with foreign R&E continuing to be
capitalized and amortized over 15 years), effective for tax years beginning after December 31, 2024; restoration of the EBITDA-based
limitation on business interest expense under 6HFWLRQௗ M for taxable years beginning after December 31, 2024; updates to certain
53
international provisions, including Net CFC Tested Income (NCTI, formerly GILTI) and Foreign-Derived Deduction Eligible Income
(FDDEI, formerly FDII), with permanent 6HFWLRQௗ deductions effective for tax years beginning after December 31, 2025;
amendments to energy credits, including accelerated phase outs or modifications for certain clean energy incentives; and expanded
6HFWLRQௗ P aggregation requirements that apply the $1 million deduction limitation on an aggregate basis across controlled group
members.
In accordance with ASC 740, the effects of the new tax law are recognized in the period of enactment. The Company is currently
evaluating the impact of the OBBBA; however, it does not currently expect the law to have a material impact on its effective tax rate
or cash flows in the current fiscal year.
Issuance of Convertible Senior Notes
On September 19, 2025, the Company issued $201.3 million principal amount of its 3.75% convertible senior notes due 2030 (the
“2030 Notes” or “Notes”). The 2030 Notes were issued pursuant to, and are governed by, an indenture (the “Indenture”), dated as of
September 19, 2025, between the Company and U.S. Bank Trust Company, National Association, as trustee (the “Trustee”). Pursuant
to the purchase agreement between the Company and Evercore Group, L.L.C., as representative of the several initial purchasers of the
Notes, the Company granted the initial purchasers an option to purchase, for settlement within a period of 13 days from, and
including, the date the Notes are first issued, up to an additional approximately $26.3 million principal amount of Notes. The Notes
issued on September 19, 2025 include approximately $26.3 million principal amount of Notes issued pursuant to the full exercise by
the initial purchasers of such option. See Note 11 of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this
report for more details.
Capped Call Transactions
In connection with the 2030 Notes, the Company has entered into privately negotiated capped call transactions with one of the initial
purchasers of the Notes or its affiliate and certain other financial institutions pursuant to capped call confirmations (collectively, the
“Capped Calls”). The Capped Calls are generally expected to reduce potential dilution to the Company’s common stock and/or offset
any cash payments that the Company is required to make in excess of the principal amount of any converted 2030 Notes, with such
reduction and/or offset subject to a cap. See Note 11 of the Notes to Consolidated Financial Statements included in Part II, Item 8 of
this report for more details.
Foreign Currency
We are exposed to changes in foreign currencies relative to the U.S. dollar, which are references to the differences between the
foreign-exchanges rates we use to convert the financial results of our international operations from local currencies into U.S. dollars
for financial reporting purposes. This impact of foreign-exchange rate changes is calculated based on the difference between the
current period’s currency exchange rates and that of the comparable prior period. Our primary exposures to foreign currency exchange
rate movements are with the euro and the British pound. As a result of our global operations, our revenue, gross margin, operating
expense and operating loss in some international markets has been and may continue to be affected by foreign currency fluctuations.
Goodwill Impairment
The Company’s policy is to assess the realizability of assets (long-lived assets, intangibles and goodwill) held within our reporting
units and to evaluate such assets for impairment whenever events or changes in circumstances indicate that the carrying amount of
such assets may not be recoverable.
No impairment of goodwill was recognized during the year ended December 31, 2025. During the first quarter of 2024, qualitative
factors such as a decrease in the Company’s market capitalization, lower service provider spending and delayed holding patterns of
inventory with respect to customers caused us to reduce our forecasts, triggering a quantitative impairment assessment for our
reporting units. The Company determined the fair value of the Network Solutions reporting unit using a combination of an income
approach and a market-based peer group analysis. The Company determined upon its quantitative impairment assessment to recognize
a $297.4 million non-cash goodwill impairment charge for the Network Solutions reporting unit during the year ended December 31,
2024. The quantitative impairment analysis indicated there was no impairment of the Services & Support goodwill during the year
ended December 31, 2024.
Business Efficiency Program
During the fourth quarter of 2023, the Company initiated a Business Efficiency Program designed to optimize the assets, business
processes, and information technology systems of the Company in relation to the business combination with Adtran Networks. The
Business Efficiency Program included expenses specifically associated with achieving run-rate synergies as well as Business
Efficiency Program expenses described below. See Note 19 of the Notes to Consolidated Financial Statements, included in Part II,
Item 8 of this report for additional information.
54
We did not incur any Business Efficiency Program costs during the year ended December 31, 2025. The Company reduced previously
accrued costs related to the Business Efficiency Program by $0.3 million during the year ended December 31, 2025. During the years
ended December 31, 2024 and 2023, respectively, we recognized $44.7 million and $25.1 million, respectively, of costs relating to the
Business Efficiency Program, respectively. As of December 31, 2025, all expenses related to the Business Efficiency Program have
been paid.
Our historical financial performance is not necessarily a meaningful indicator of future results, and in general, management expects
that our financial results may vary from period to period. For a discussion of risks associated with our operating results, see Part I,
Item 1A, Risk Factors of this report.
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.
Year Ended December 31,
2025
2024
2023
Revenue
Network Solutions
82.8%
80.1%
84.8%
Services & Support
17.2
19.9
15.2
Total Revenue
100.0
100.0
100.0
Cost of Revenue
Network Solutions
54.6
56.1
63.1
Network Solutions - other (credits), charges and inventory write-down
—
0.9
2.1
Services & Support
7.1
7.9
6.0
Total Cost of Revenue
61.7
64.9
71.2
Gross Profit
38.3
35.1
28.8
Selling, general and administrative expenses
20.9
25.2
22.5
Research and development expenses
18.8
24.0
22.5
Goodwill impairments
—
32.2
3.3
Operating Loss
(1.4)
(46.3)
(19.5)
Interest and dividend income
0.2
0.3
0.2
Interest expense
(1.8)
(2.4)
(1.4)
Net investment gain
0.3
0.4
0.2
Other (expense) income, net
(0.2)
—
0.1
Loss Before Income Taxes
(2.9)
(48.0)
(20.3)
Income tax expense
(0.5)
(0.8)
(2.5)
Net Loss
(3.3)%
(48.8)%
(22.8)%
Net Income attributable to non-controlling interest
0.9
1.1
0.6
Net Loss attributable to ADTRAN Holdings, Inc.
(4.2)%
(49.8)%
(23.4)%
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 emphasis of the discussion is a comparison of the years ended
December 31, 2025 and December 31, 2024. For a discussion of a comparison of the years ended December 31, 2024 and December
31, 2023, 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, 2024, filed with the SEC on May 20, 2025.
Comparison of Years Ended December 31, 2025 and December 31, 2024
Revenue
Our revenue increased 17.5% from $922.7 million for the year ended December 31, 2024 to $1,083.8 million for the year ended
December 31, 2025. The increase in revenue for the year ended December 31, 2025 was driven by increased volume of sales activity
due to a return of normalized customer spending, increased growth due to fiber expansion brought about by higher service provider
spending, vendor consolidation, a continuing shift away from high-risk vendors, increased demand for modernizing and upgrading
critical infrastructure within governments, utilities, large enterprises, and bandwidth-hungry applications, including AI, partially offset
by a decrease in revenue related to installation/system integration services. The increase in revenue by category for the year ended
55
December 31, 2025, was primarily attributable to a $79.4 million increase in Optical Networking Solutions products and services, a
$38.3 million increase in Subscriber Solutions products and services and a $43.4 million increase in Access & Aggregation products
and services. All revenue categories for the year ended December 31, 2025 experienced increased volume of sales activity due to
growth across geographies, most product lines, and the continued expansion of our customer base.
Network Solutions segment revenue increased 21.4% from $739.0 million in 2024 to $896.9 million in 2025, primarily attributable to
$71.3 million increase in Optical Networking Solutions products, a $45.9 million increase in Access & Aggregation Solutions and a
$40.8 million increase in Subscriber Solutions category.
Services & Support revenue increased 1.7% from $183.8 million in 2024 to $186.9 million in 2025. The increase in revenue for 2025
was primarily attributable to $8.1 million increase in revenue for Optical Networking Solutions products partially offset by a $2.5
million decrease in revenue for Access & Aggregation Solutions revenue and a $2.5 million decrease in revenue for Subscriber
Solutions services.
Domestic revenue increased 20.7% from $398.2 million in 2024 to $480.8 million in 2025, was primarily due to an increase in volume
of sales activity due to a return of normalized customer spending and increased growth due to fiber expansion.
International revenue, which is defined as revenue generated from the Network Solutions and Services & Support segments provided
to a customer outside of the U.S., increased 15.0% from $524.6 million for the year ended December 31, 2024 to $603.1 million for
the year ended December 31, 2025. The increase in international revenue in 2025 was primarily due to increased volume of sales
activity due to a return of normalized customer spending and, increased growth due to fiber expansion. International revenue, as a
percentage of total revenue, decreased from 56.8% for the year ended December 31, 2024 to 55.6% for the year ended December 31,
2025. For the year ended December 31, 2025 as compared to the year ended December 31, 2024, changes in foreign currencies
relative to the U.S dollar increased our net revenue by approximately $17.8 million.
Our ADTRAN, Inc. international revenue is largely focused on broadband infrastructure and is consequently affected by the decisions
of our customers as to timing for installation of new technologies, expansion of their networks and/or network upgrades. Our
international customers must make these decisions in the regulatory and political environment in which they operate – both nationally
and in some instances, regionally – whether of a multi-country region or a more local region within a country. Consequently, while we
expect the global trend towards deployment of more robust broadband speeds and access to continue creating additional market
opportunities for us, the factors described above may result in pressure on revenue and operating income. Our Adtran Networks
international revenue is largely focused on the manufacture and selling of networking solutions that are based on three core areas of
expertise: fiber-optic transmission technology (cloud interconnect), cloud access technology for rapid creation of innovative services
around the network edge and solutions for precise timing and synchronization of networks. In addition, Adtran Networks' international
operations offers a comprehensive portfolio of network design, implementation and maintenance services to assist operators in the
deployment of market-leading networks while reducing their cost to maintain these networks.
Cost of Revenue
As a percentage of revenue, cost of revenue decreased from 64.9% for the year ended December 31, 2024 to 61.7% for the year ended
December 31, 2025. The decrease in cost of revenue as a percentage of revenue for the twelve months ended December 31, 2025, was
attributable to a 2.6% decrease in restructuring expense and labor cost expense as a percentage of revenue as a result of our previous
Business Efficiency Program, which was completed as of December 31, 2024 and a 1.3% decrease in expense as a percentage of
revenue attributable to changes in customer and product mix, partially offset by a 0.7% increase in expense as a percentage of revenue
attributable to changes in foreign currencies relative to the U.S. dollar. For the year ended December 31, 2025, changes in foreign
currencies relative to the U.S. dollar increased our cost of revenue by approximately $8.9 million.
Network Solutions cost of revenue, as a percentage of that segment’s revenue, decreased from 71.2% of revenue in 2024 to 66.0% of
revenue in 2025. The decrease in Network Solutions cost of revenue as a percentage of revenue for the twelve months ended
December 31, 2025, was attributable to a 3.2% decrease in expense as a percentage of revenue attributable to changes in customer and
product mix, and a 2.7% decrease in restructuring expense and labor cost expense as a percentage of revenue as a result of our
previous Business Efficiency Program, partially offset by a 0.8% increase in expense as a percentage of revenue attributable to
changes in foreign currencies relative to the U.S. dollar.
Services & Support cost of revenue, as a percentage of that segment’s revenue, increased from 39.6% of revenue in 2024 to 41.0% of
revenue in 2025.
Services & Support revenue is comprised of network planning and implementation, maintenance, support and cloud-based
management services, with network planning and implementation being the largest and fastest growing component in the long-term.
Compared to our other services, such as maintenance, support and cloud-based management services, our network planning and
implementation services typically utilize a higher percentage of internal and subcontracted engineers, professionals and contractors to
perform the work for customers. The additional costs incurred to perform these infrastructure and labor-intensive services inherently
56
result in lower average gross margins as compared to maintenance and support services. Within the Services & Support segment, we
do expect variability in gross margins from quarter-to-quarter based on the mix of the services recognized.
Gross Profit
As a percentage of revenue, gross profit increased from 35.1% for the year ended December 31, 2024 to 38.3% for the year ended
December 31, 2025. The increase in gross profit for the twelve months ended December 31, 2025, was attributable to 2.6% increase in
gross profit as a percentage of revenue due to a decrease in restructuring expense and labor cost as a result of our previous Business
Efficiency Program, and a 0.5% increase in gross profit as a percentage of revenue due to changes in customer and product mix.
As a percentage of that segment's revenue, Network Solutions gross profit increased from 28.8% for the year ended December 31,
2024 to 34.0% for the year ended December 31, 2025. The increase in gross profit for the twelve months ended December 31, 2025,
was attributable to a 2.3% increase in gross profit as a percentage of revenue due to changes in customer and product mix and a 2.7%
increase in gross profit as a percentage of revenue due to a decrease in restructuring expense and labor cost as a result of our previous
Business Efficiency Program.
As a percentage of that segment's revenue, Services & Support gross profit decreased from 60.4% for the year ended December 31,
2024 to 59.0% for the year ended December 31, 2025.
Selling, General and Administrative Expenses
As a percentage of revenue, selling, general and administrative expenses decreased from 25.2% for the year ended December 31,
2024, to 20.9% for the year ended December 31, 2025. Selling, general and administrative expenses as a percentage of revenue will
generally fluctuate whenever there is a significant fluctuation in revenue for the periods being compared. We have completed
implementation of our Business Efficiency Program as of December 31, 2024. We expect to continue to see lower selling, general and
administrative expenses as a percentage of revenue over time.
Selling, general and administrative expenses decreased 2.9% from $232.9 million for the year ended December 31, 2024, to $226.3
million for the year ended December 31, 2025. Selling, general and administrative expenses include personnel costs for management,
accounting, information technology, human resources, sales and marketing, as well as independent auditor, tax and other professional
fees, contract services and legal and litigation related costs. The decrease in selling, general and administrative expenses for the twelve
months ended December 31, 2025, compared to the twelve months ended December 31, 2024, was primarily attributable to decreases
of $14.7 million for acquisition/integration related expenses, $1.9 million for restructuring expense, and $1.4 million for employee-
related costs partially offset by increases of $8.4 million for professional fees and other costs, $2.2 million for travel related costs and
$1.4 million for depreciation expense. For the year ended December 31, 2025, as compared to the year ended December 31, 2024,
changes in foreign currencies relative to the U.S dollar increased our selling, general and administrative expenses by approximately
$3.8 million.
Research and Development Expenses
As a percentage of revenue, research and development expense decreased from 24.0% for the year ended December 31, 2024, to
18.8% for the year ended December 31, 2025. Research and development expenses as a percentage of revenue will generally fluctuate
whenever there are incremental product development activities or significant fluctuations in revenue for the periods being compared.
We have completed implementation of our Business Efficiency Program as of December 31, 2024. We expect to continue to see lower
research and development expense as a percentage of revenue over time.
Research and development expenses decreased 7.8% from $221.5 million for the year ended December 31, 2024, to $204.3 million for
the year ended December 31, 2025. The decrease in research and development expenses for the twelve months ended December 31,
2025, was primarily attributable to decreases of $6.2 million for employee-related costs, $6.1 million for restructuring expense, $0.8
million for professional services, $0.6 million for contract services and $2.1 million of additional research and development subsidies.
For the year ended December 31, 2025 as compared to the year ended December 31, 2024, changes in foreign currencies relative to
the U.S. dollar increased our research and development expenses by approximately $4.2 million.
Adtran Networks has arrangements with governmental entities for the purposes of obtaining funding for research and development
activities. The Company classifies government grants received under these arrangements as a reduction to research and development
expense incurred. For the years ended December 31, 2025 and 2024, the Company recognized $11.8 million and $9.7 million,
respectively, as a reduction of research and development expense.
We expect to continue to incur research and development expenses in connection with our new and existing products. We continually
evaluate new product opportunities and engage in significant research and product development efforts, which provides for new
product development, enhancement of existing products and product cost reductions. We may incur significant research and
development expenses prior to the receipt of revenue from a major new product group.
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Goodwill Impairment
There was no goodwill impairment recognized during the year ended December 31, 2025.
During the first quarter of 2024, qualitative factors such as a decrease in the Company’s market capitalization, cautious service
provider spending due to economic uncertainty and continued customer focus on inventory adjustments, triggered a quantitative
impairment assessment for our reporting units for goodwill and long-lived assets. The Company determined upon its quantitative
impairment assessment to recognize a $297.4 million non-cash goodwill impairment charge for the Network Solutions reporting unit.
Interest and Dividend Income
Interest and dividend income decreased from $3.1 million for the year ended December 31, 2024 to $2.3 million for the year ended
December 31, 2025. The decrease in interest and dividend income is primarily attributable to fluctuations in investment balances and a
decrease in the rate of return on those investments due to interest rate movements.
Interest Expense
Interest expense decreased from $22.1 million for the year ended December 31, 2024 to $19.3 million for the year ended December
31, 2025. The decrease in interest expense was primarily driven by the issuance of the 2030 Notes which accrues interest at 4.7% and
the repayment of the majority of the Credit Agreement which accrued interest at 9.0% in 2025 versus the twelve months ending
December 31, 2024. See Notes 10 and 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
We recognized a net investment gain of $3.6 million and $3.0 million for the years ended December 31, 2024 and 2025, respectively.
The fluctuations in our net investments were primarily attributable to market driven changes in the fair value of our securities
recognized during the period. We expect that any future market volatility could result in continued fluctuations in our investment
portfolio. See “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.
Other (Expense) Income, net
Other (expense) income, net, which primarily consisted of gains and losses on foreign currency transactions and income from excess
material sales, decreased from income of $0.2 million for the year ended December 31, 2024 to expense of $1.6 million for the year
ended December 31, 2025.
Income Tax Expense
Our effective tax rate changed from an expense of 1.7%, for the year ended December 31, 2024 to an expense of 16.0% for the year
ended December 31, 2025. The change in the effective tax rate for the year ended December 31, 2025, was driven primarily by
changes in the mix of earnings between jurisdictions with different statutory tax rates and changes in our valuation allowance. See
Note 12 of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this report for additional information.
Net Loss Attributable to ADTRAN Holdings, Inc.
As a result of the above factors, our net loss attributable to ADTRAN Holdings, Inc. decreased from a net loss of $459.9 million for
the year ended December 31, 2024 to a net loss of $45.7 million for the year ended December 31, 2025. As a percentage of revenue,
net loss was 49.8% for the year ended December 31, 2024 and net loss was 4.2% for the year ended December 31, 2025.
Liquidity and Capital Resources
Liquidity
We generally finance our ongoing business with existing cash, investments, credit arrangements and cash flow from operations to
manage our working capital needs. We had a positive cash flow from operating activities of $129.8 million in the twelve months
ended December 31, 2025. We have used, and expect to continue to use, existing cash, credit arrangements and cash generated from
operations for working capital and other general corporate purposes, including product development activities to enhance our existing
products and develop new products, expand our sales and marketing activities and fund capital expenditures.
As of December 31, 2025, our cash on hand was $95.7 million of which $87.5 million was held by our foreign subsidiaries. The
Company had access to $319.2 million on its Credit Facility for future borrowings, based on debt covenant compliance metrics.
Generally, we intend to permanently reinvest funds held outside the U.S., except to the extent that any of these funds can be
repatriated without withholding tax. As of December 31, 2024, our cash on hand was $76.0 million, of which $52.6 million was held
by our foreign subsidiaries.
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Under the DPLTA, subject to certain limitations pursuant to applicable law and the specific terms of the DPLTA, (i) the Company is
entitled to issue binding instructions to the management board of Adtran Networks, (ii) Adtran Networks will transfer its annual profit
to the Company, subject to, among other things, the creation or dissolution of certain reserves, and (iii) the Company will absorb the
annual net loss incurred by Adtran Networks. The Company’s payment obligation in satisfaction of the requirement that it absorb
Adtran Networks’ annual net loss applies to the net loss generated by Adtran Networks in 2025, and it will apply to any net loss
generated by Adtran Networks in 2026.
Pursuant to the terms of the DPLTA, each Adtran Networks shareholder (other than the Company) has received an offer to elect either
(1) to remain an Adtran Networks shareholder and receive from us an Annual Recurring Compensation payment, or (2) to receive Exit
Compensation plus guaranteed interest. The guaranteed interest under the Exit Compensation is calculated from the effective date of
the DPLTA to the date the shares are tendered, less any Annual Recurring Compensation paid. The guaranteed interest rate is 5.0%
plus a variable component (according to the German Civil Code) that was 1.27% as of December 31, 2025. 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 €303.9 million or approximately $357.0 million, based
on an exchange rate as of December 31, 2025 and reflecting interest accrued through December 31, 2025 during the pendency of the
appraisal proceedings discussed below. Shareholders electing the first option of Annual Recurring Compensation may later elect the
second option. The opportunity for outside Adtran Networks shareholders to tender Adtran Networks shares in exchange for Exit
Compensation had been scheduled to expire on March 16, 2023. However, due to the appraisal proceedings that were initiated in 2023
in accordance with applicable German law, this time period for tendering shares has been extended pursuant to the German Stock
Corporation Act (Aktiengesetz) and will end two months after the date on which a final decision in such appraisal proceedings has
been published in the Federal Gazette (Bundesanzeiger). Following the court's decision on a procedural matter in the DPLTA
appraisal proceedings on July 14, 2025, the proceeding for the trial on the merits of the DPLTA has recommenced. It is expected to
take a minimum of 12 months for a ruling of the court on the merits and such ruling will most likely be appealed, which would be
expected to take an additional 12-24 months to be resolved. Accordingly, the Company does not expect a final decision on the DPLTA
appraisal proceedings to be rendered and published prior to 2027, and most likely not until 2028 or beyond.
Additionally, our obligation to pay Annual Recurring Compensation under the DPLTA is a continuing payment obligation, which will
amount to approximately €7.9 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. The foregoing amounts do not reflect any potential increase in
payment obligations that we may have depending on the outcome of ongoing appraisal proceedings in Germany. The Annual
Recurring Compensation is due on the third banking day following the ordinary general shareholders’ meeting of Adtran Networks for
the respective preceding fiscal year (but in any event within eight months following expiration of the fiscal year). With respect to the
2023 fiscal year, Adtran Networks’ ordinary general shareholders’ meeting occurred on June 28, 2024; therefore, the Annual
Recurring Compensation was paid on July 3, 2024. With respect to the 2024 fiscal year, Adtran Networks’ ordinary general
shareholder meeting occurred on June 28, 2025, and therefore, the Annual Recurring Compensation was paid on July 1, 2025. With
respect to the 2025 fiscal year, Adtran Networks’ ordinary general shareholder meeting is scheduled for the second quarter of 2026,
and the Annual Recurring Compensation will be due on the third banking day following the meeting. During the years ended
December 31, 2025 and 2024, we accrued $9.3 million and $9.8 million, respectively, in Annual Recurring Compensation which is
reflected as an increase to retained deficit.
As of December 31, 2025, and as of the date of issuance of these financial statements, the Company has sufficient liquidity through its
operating cash flow and the borrowings available under the Credit Facility to meet a majority of its payment obligations under the
DPLTA pertaining to Exit Compensation. For the year ended December 31, 2025, approximately 2.0 million shares of Adtran
Networks stock were tendered to the Company. This resulted in total Exit Compensation payments of approximately €40.2 million, or
approximately $46.6 million, based on exchange rates at the time of the transactions, being paid to Adtran Networks shareholders. For
the year ended December 31, 2024, a total of 0.8 million 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 an exchange rate as of December
31, 2024, were paid to Adtran Networks shareholders. We believe the probability that more than a small minority of Adtran Networks
shareholders elect to receive Exit Compensation in the next twelve months is remote based on the following factors: (i) the
shareholders can exercise their right to receive the Exit Compensation until two months after publication of the final decision in the
appraisal proceedings and we do not expect the final decision to be published within the next 12 months; (ii) the diverse base of
shareholders that must make this election on an individual shareholder basis; (iii) the fact that the date of a decision by the court on the
merits of the case is uncertain, it will likely take a minimum of 12 months for a ruling on the merits and thereafter, an expected appeal
process will take a further 12-24 months to resolve; (iv) the current guaranteed Annual Recurring Compensation payment; and (v) the
current trading value of Adtran Networks shares.
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In summary, the Company believes that its cash and cash equivalents, working capital management initiatives and availability to
access cash under the Wells Fargo Credit Facility or other future sources of capital, will be adequate to meet our business operating
requirements, our capital expenditures and our expected obligations under both the Notes and the DPLTA, including anticipated levels
of Exit Compensation, as well as to support our ability to continue to comply with our debt covenants under the Credit Facility for at
least the next twelve months, from the issuance of these Consolidated Financial Statements included in Part II, Item 8 of this Form 10-
K See Note 10 of Notes to Consolidated Financial Statements included in Part I, Item 8 of this report for additional information
regarding the terms of the Wells Fargo Credit Agreement as amended.
Debt Obligations
Wells Fargo Credit Facility
On July 18, 2022, ADTRAN, Inc., as the borrower ("U.S. Borrower"), and the Company entered into a credit agreement with a
syndicate of banks, including Wells Fargo Bank, National Association, as administrative agent (“Administrative Agent”), and the
other lenders named therein (the “Original Credit Agreement”), as amended by the First Amendment to Credit Agreement, dated
August 9, 2023 (“Amendment No. 1”), the Second Amendment to Credit Agreement, dated January 16, 2024 (“Amendment No. 2”),
the Third Amendment to Credit Agreement, dated March 12, 2024 (“Amendment No. 3”), the Fourth Amendment to Credit
Amendment, dated June 4, 2024, among Adtran Networks (the "German Borrower") and the parties set forth above ("Amendment No.
4") and the Fifth Amendment to Credit Agreement and Waiver, dated May 6, 2025, among the German Borrower and the parties set
forth above (“Amendment No. 5”; the Original Credit Agreement as amended by Amendment No. 1, Amendment No. 2. Amendment
No. 3, Amendment No. 4 and Amendment No. 5, the “Existing Credit Agreement”).
On September 16, 2025, the U.S. Borrower, the Company, the German Borrower, and the lenders party thereto, including the
Administrative Agent, entered into the Sixth Amendment and Consent to Credit Agreement, dated September 16, 2025 (“Amendment
No. 6”; the Existing Credit Agreement as amended by Amendment No. 6, the “Amended Credit Agreement”). Amendment No. 6,
among other things, (i) provides for a consent from the lenders to the issuance by the Company of new unsecured convertible
indebtedness in an amount not to exceed $230.0 million, notwithstanding the cap on the amount of Permitted Convertible
Indebtedness (as defined in the Amended Credit Agreement) the Company is permitted to incur, (ii) requires that the net cash proceeds
of the new unsecured convertible indebtedness be used to (a) repay outstanding revolving credit loans under the Amended Credit
Agreement, (b) pay fees, costs, and expenses related to Amendment No. 6 and the issuance of the new unsecured convertible
indebtedness and (c) cash collateralize the obligations of the Company and its subsidiaries under the Amended Credit Agreement
(with such cash only being permitted to be withdrawn for the purpose of financing the purchase of additional outstanding shares of
Equity Interests (as defined in the Amended Credit Agreement) of the German Borrower that were not owned by the Company and its
subsidiaries as of August 9, 2023 pursuant to Section 5, paragraph 1 of the DPLTA), and (iii) after the prepayment contemplated in the
foregoing clause (ii)(a) and the provision of cash collateral contemplated in the foregoing clause (ii)(c), amends provisions governing
the Subline (as defined below) to provide that future prepayments in respect of borrowings under the Subline will no longer
permanently reduce the commitments in respect of the Subline.
As of December 31, 2025, the Amended Credit Agreement provided for a secured revolving credit facility of up to $350.0 million of
borrowings, $50.0 million of which is solely available to the German Borrower.
As of December 31, 2025, the Company’s borrowings under the revolving line of credit were $25.0 million. The credit facilities
provided under the Amended Credit Agreement mature in July 2027, but the U.S. Borrower may request extensions subject to
customary conditions. In addition, the U.S. Borrower may utilize up to $50.0 million of the $350.0 million total revolving facility for
the issuance of letters of credit. As of December 31, 2025, the U.S. Borrower had a total of $5.8 million in letters of credit under the
Amended Credit Agreement, leaving a net amount (after giving effect to the $25.0 million of outstanding borrowings described above)
of $319.2 million available for future borrowings based on debt covenant compliance metrics. Any future credit extensions under the
Amended Credit Agreement are subject to customary conditions precedent. The proceeds of any loans may be used as described
above, as well as for working capital and other general corporate purposes.
Moreover, the Amended Credit Agreement provides for a sublimit under the existing $350.0 million revolving commitments in an
aggregate amount of $50.0 million (“Subline”), which Subline is available for borrowings by the German Borrower. The Company
had no borrowings under the Subline as of December 31, 2025. The existing swing line sublimit and letter of credit sublimit under the
Amended Credit Agreement remain available to the U.S. Borrower (and not to the German Borrower). Otherwise, the loans under the
Subline are subject to substantially the same terms and conditions under the Amended Credit Agreement (including with respect to the
interest rate and maturity date) as the other existing revolving commitments.
All U.S. borrowings under the Amended Credit Agreement bear interest at a rate tied to the Base Rate (as defined in the Amended
Credit Agreement) or SOFR, at the Company’s option, and all E.U. borrowings bear interest at a rate tied to the Euro Interbank
Offered Rate as administered by the European Money Markets Institute (or a comparable or successor administrator approved by the
Administrative Agent), in each case plus applicable margins which vary based on the consolidated net leverage ratio of the Company
and its subsidiaries as determined pursuant to the terms of the Amended Credit Agreement. Default interest is 2.00% per annum in
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excess of the rate otherwise applicable. As of December 31, 2025, the weighted average interest rate on our revolving credit
agreement was 8.98%.
The Company made certain representations and warranties to the lenders in the Amended Credit Agreement that are customary for
credit arrangements of this type. The Company also agreed to maintain a Consolidated Total Net Leverage Ratio of 5.00x, a
Consolidated Senior Secured Net Leverage Ratio of 3.25x (4.0x to 3.5x during a “Springing Covenant Period,” as defined below) and
a Consolidated Fixed Charge Coverage Ratio of 1.25x (as such ratios are defined in the Amended Credit Agreement). A “Springing
Covenant Event” occurs when at least sixty percent (60.0%) of the outstanding shares of Adtran Networks that were not owned by the
Company and its subsidiaries as of August 9, 2023 have been tendered and purchased by the Company. Upon the occurrence of a
Springing Covenant Event, the Company will enter a “Springing Covenant Period”, defined as the fiscal quarter in which a Springing
Covenant Event occurs and the three (3) consecutive fiscal quarters thereafter. During a Springing Covenant Period, the Company’s
leverage ratios are increased. In addition, the cash and cash equivalents of the credit parties must be at least $50.0 million and the cash
and cash equivalents of the Company and its subsidiaries must be at least $70.0 million. As of December 31, 2025, the Company was
in compliance with all covenants.
The Amended Credit Agreement also contains customary events of default, such as misrepresentation and a default in the performance
or observance of any covenant (subject to customary cure periods and materiality thresholds). Upon the occurrence and during the
continuance of an event of default, the Administrative Agent is entitled to take various actions, including the acceleration of all
amounts due under the Amended Credit Agreement.
All obligations under the Amended Credit Agreement (including under the Subline) are guaranteed by the U.S. Borrower and certain
subsidiaries of the U.S. Borrower (“Full Facility Guarantors”). To secure such guarantees, the U.S. Borrower and the Full Facility
Guarantors have granted security interests in favor of the Administrative Agent over substantially all of their tangible and intangible
assets, and the U.S. Borrower has granted mortgages in favor of the Administrative Agent over certain owned real estate assets.
Certain of the German Borrower' subsidiaries (the “Subline Guarantors”) have also provided a guarantee solely of the obligations in
respect of the Subline. Furthermore, to secure such guarantees, the German Borrower and the Subline Guarantors have granted
security interests in favor of the Administrative Agent over substantially all of their tangible and intangible assets. Upon repayment in
full and termination of the Subline, the guarantees by the Subline Guarantors and the liens granted by the German Borrower and the
Subline Guarantors to secure obligations under the Subline will be released.
Convertible Senior Notes
On September 19, 2025, the Company issued $201.3 million principal amount of 2030 Notes. The 2030 Notes were issued pursuant
to, and are governed by, an indenture, dated as of September 19, 2025, between the Company and U.S. Bank Trust Company, National
Association, as trustee. The proceeds were primarily used to, among other items, pay down certain outstanding indebtedness under the
Credit Facility. In connection with the 2030 Notes, the Company has entered into privately negotiated Capped Calls.
Interest expense related to the 2030 Notes was $2.6 million for the year ended December 31, 2025. In conjunction with the issuance of
the 2030 Notes, the Company recognized $201.3 million of principal and debt issuance costs of $8.7 million, which were capitalized
as components of the carrying amount and included in convertible senior notes, net within the Consolidated Balance Sheets. See Note
11 of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this report for more information.
Unamortized Discounts and Debt Issuance Costs
Unamortized discounts and debt issuance costs totaled $8.2 million as of December 31, 2025. Amortization expense related to
unamortized discounts and debt issuance costs (included in interest expense within the consolidated statements of operations) totaled
$0.4 million for the year ended December 31, 2025.
Operating Activities
Net cash provided by operating activities of $129.8 million during the year ended December 31, 2025 increased by $26.2 million
compared to $103.6 million of net cash provided by the year ended December 31, 2024. The increase was primarily due to the
declining net loss for the years ended December 31, 2025 and 2024, excluding the goodwill impairment charge of $297.4 million, as
adjusted primarily for decreased depreciation and amortization, decreased deferred taxes and increased net cash inflows from working
capital. Additional details related to our working capital and its drivers are discussed below.
Net accounts receivable increased 18.3% from $178.0 million as of December 31, 2024 to $210.7 million as of December 31, 2025.
There was an allowance for credit losses of $1.3 million as of December 31, 2025 and December 31, 2024. The increase in net
accounts receivable was primarily due to increased revenues. Quarterly accounts receivable DSO decreased from 67 days as of
December 31, 2024 to 66 days as of December 31, 2025.
Other receivables decreased from $9.8 million as of December 31, 2024 to $7.0 million as of December 31, 2025. The decrease in
other receivables was primarily attributable to a decrease in sales of raw materials.
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Annual inventory turnover increased from 1.92 turns as of December 31, 2024 to 2.80 turns as of December 31, 2025. Inventory
decreased 17.5% from $261.6 million as of December 31, 2024 to $215.7 million as of December 31, 2025. The decrease in inventory
was primarily due to steps taken in connection with our Business Efficiency Program to improve working capital, a reduction in
component purchases due to improved lead time and utilization of buffer stock. We expect inventory levels to fluctuate as we attempt
to maintain sufficient inventory for customer demand and improve working capital.
Accounts payable increased from $171.8 million as of December 31, 2024 to $167.3 million as of December 31, 2025. The increase in
accounts payable was primarily due to the timing of the receipt of inventory, supplies and services. Accounts payable will fluctuate
due to variations in the timing of the receipt of inventory, supplies and services and our subsequent payments for these purchases.
Investing Activities
Capital expenditures, including intangibles totaled approximately $69.3 million and $65.2 million for the years ended December 31,
2025 and 2024, respectively. These expenditures were primarily used to purchase software, computer hardware, manufacturing and
test equipment, building improvements and developed technologies. The increase in capital expenditures is primarily attributable to an
increase in expenditures related to developed technology.
Our deferred compensation plan assets increased 13.5% from $31.0 million as of December 31, 2024 to $35.2 million as of December
31, 2025. See Notes 4 and 13 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this report for additional
information. Our investments include various marketable equity securities with a fair market value of $1.0 million and $1.1 million, as
of December 31, 2025 and 2024, respectively. See Note 4 of Notes to Consolidated Financial Statements included in Part II, Item 8 of
this report for additional information.
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Financing Activities
Stock Option Exercises
To accommodate employee stock option exercises, the Company issued 0.3 million and 0.1 million shares of common stock which
resulted in proceeds of $1.8 million and $0.8 million during the years ended December 31, 2025 and 2024, respectively.
Employee Pension Plan
We maintain defined benefit pension plans covering employees in certain foreign countries. Pension benefit plan obligations are based
on various assumptions used by our actuaries in calculating these amounts. These assumptions include discount rates, compensation
rate increases, expected return on plan assets, retirement rates and mortality rates. Actual results that differ from the assumptions and
changes in assumptions could affect future expenses and obligations. Details regarding the pension plans are set forth below.
•
In Germany, there are two defined benefit pension plans and two defined contribution plans. These 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 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 age, years of service, salary and on a participant's old age account. The plans
are financed by contributions paid by the participants and by the Company.
•
In Italy, 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. Employees receive their pension payments as a function of salary, inflation and a
notional account.
•
In Israel, there is a defined benefit plan that provides benefits in the event of a participant being dismissed involuntarily,
retirement or death. 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. 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.
•
In Poland, 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. 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. The
objectives of our investment policy are to maintain investment portfolios that diversify risk through prudent asset allocation
parameters, achieve asset returns that meet or exceed the plans’ actuarial assumptions and achieve asset returns that are competitive
with like institutions employing similar investment strategies. The investment policy is periodically reviewed by us and a designated
third-party fiduciary for investment matters. At December 31, 2025, the estimated fair market value of our defined benefit pension
plans' assets increased to $64.3 million from $54.5 million at December 31, 2024.
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. The expected return on our German plan assets that is utilized in determining
the benefit obligation and net periodic benefit cost is derived from periodic studies, which include a review of asset allocation
strategies, anticipated future long-term performance of individual asset classes, risks using standard deviations and correlations of
returns among the asset classes that comprise the plans' asset mix. While the studies give appropriate consideration to recent plan
performance and historical returns, the assumptions are primarily long-term, prospective rates of return. The discount rate has been
derived from the returns of high-quality, corporate bonds denominated in euro currency with durations close to the duration of our
pension obligations. The projected benefit obligation for our defined benefit pension plans was $68.7 million and $63.3 million as of
December 31, 2025 and 2024, 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 components of net periodic pension cost and amounts recognized in other comprehensive
income (loss) for the years ended December 31, 2025 and 2024 were $3.3 million and $0.3 million, respectively.
Actuarial gains and losses are recorded in accumulated other comprehensive loss. To the extent unamortized gains and losses exceed
10% of the higher of the market-related value of assets or the projected benefit obligation, the excess is amortized as a component of
net periodic pension cost over the remaining service period of active participants. We estimate that approximately $0.1 million of net
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actuarial gains and approximately $0.1 million of net actuarial losses will be amortized from accumulated other comprehensive
income into net periodic pension cost in 2026. The net actuarial gain and (loss) recognized in accumulated other comprehensive
income as of December 31, 2025 and 2024 was $3.1 million and ($1.0) million, respectively. See Notes 13 and 14 of Notes to
Consolidated Financial Statements included in Part II, Item 8 of this report for additional information.
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, 2025. Otherwise, we do not have off-balance sheet financing arrangements and have not engaged in any related party
transactions or arrangements with unconsolidated entities or other persons that are reasonably likely to materially affect liquidity or
the availability of or requirements for capital resources. See Note 17 of the Notes to Consolidated Financial Statements, included in
Part II, Item 8 of this report for additional information.
Cash Requirements
The following table summarizes the Company’s short- and long-term cash requirements from known obligations pursuant to certain
contracts and commitments as of December 31, 2025, as well as an estimate of the timing in which such obligations and payments are
expected to be satisfied (but excluding payments that may be made pursuant to the DPLTA and currency hedging arrangements, which
are discussed below). Other than operating lease obligations, the cash requirements table excludes interest payments.
(In thousands)
Total
2026
2027
2028
2029
2030
Thereafter
Wells Fargo credit agreement(1)
$
25,000
$
—
$
25,000
$
—
$
—
$
—
$
—
Convertible Senior Notes(1)
201,250
—
—
—
—
201,250
—
Purchase obligations(2)
205,851
200,733
4,583
535
—
—
—
Operating lease obligations(3)
43,424
9,395
8,376
7,885
3,884
3,236
10,648
Totals
$
475,525
$
210,128
$
37,959
$
8,420
$
3,884
$ 204,486
$
10,648
(1) See description below.
(2) We have purchase obligations related to open purchase orders to our contract manufacturers, ODMs, component suppliers, service partners and other vendors. The settlement of our purchase obligations
will occur at various dates beginning in 2026 and going through 2028. See Note 17 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. Our operating leases had remaining lease terms ranging from 1 month
to 155 months as of December 31, 2025.
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 six times. As of
December 31, 2025, the Company's borrowings under the revolving line of credit were $25.0 million. As of December 31 2025, the
Company had access to $319.2 million on its Credit Facility for future borrowings based on debt covenant compliance metrics. The
Credit Facility matures in July 2027; however, the Company may request extensions subject to customary conditions. See Note 10 of
the Notes to Consolidated Financial Statements, included in Part II, Item 8 of this report and “Liquidity and Capital Resources” in
Part II, Item 7 of this report for additional information.
Convertible Senior Notes
On September 19, 2025, the Company issued $201.3 million aggregate principal amount of the Notes. The Notes accrue interest at a
rate of 3.75% per annum, payable semi-annually in arrears on March 15 and September 15 of each year, beginning March 15, 2026.
Unless earlier repurchased, redeemed, or converted, the Notes will mature on September 15, 2030. See Note 11 of the Notes to
Consolidated Financial Statements, included in Part II, Item 8 of this report and “Liquidity and Capital Resources - Convertible
Senior Notes” in Part II, Item 7 of this report for additional information.
64
Currency Hedging Arrangements
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 “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. 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. During the
year 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. 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. During
the year 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.
The Company has no outstanding hedges as of December 31, 2025.
Receivables Purchase Arrangements
On July 1, 2024, the Company entered into a receivables purchase agreement (the “Factoring Agreement”) with a third-party financial
institution, which accelerates receivable collection and helps to better manage cash flow. Total accounts receivables factored as of the
end of December 31, 2025, totaled $25.3 million net of $3.8 million retained pursuant to the Factoring Agreement in the reserve
account. Total accounts receivables factored as of the end of December 31, 2024, totaled $18.3 million net of $3.7 million retained
pursuant to the Factoring Agreement in the reserve account. The Factoring Agreement provides for up to $40.0 million in factoring
capacity, subject to eligible receivables and reserve requirements, secured by the receivables. The balance in the reserve account is
included in other assets. The Company at its own expense does have collection and administrative responsibilities for the sold
receivables and that is its only continuing involvement with the Factor. The Company is not compensated for the servicing of the
factoring program and deems the costs of servicing the receivables sold to be immaterial.
During the years ended, December 31, 2025 and 2024, the Company received $169.1 million and $78.4 million, in cash proceeds from
the Factoring Agreement, respectively, which are recorded as a component of accounts receivable in operating cash flows on the
Consolidated Statement of Cash Flows. The cost of the Factoring Agreement is included in interest expense in the Consolidated
Statements of Loss and totaled $1.4 million and $0.6 million for the years ended December 31, 2025 and 2024, respectively.
On December 19, 2023, the Company entered into a receivables purchase agreement (the "Prior Factoring Agreement") with a third-
party financial institution which qualified for treatment as a secured borrowing with a pledge of collateral under Accounting Standards
Codification Topic 810, Consolidation. The Prior Factoring Agreement was terminated on July 1, 2024. See Note 2 of the Notes to
Consolidated Financial Statements, included in Part II, Item 8 of this report for additional information.
Domination and Profit and Loss Transfer Agreement
The DPLTA between the Company, as the controlling company, and Adtran Networks, as the controlled company, as executed on
December 1, 2022, became effective on January 16, 2023, as a result of its registration with the commercial register (Handelsregister)
of the local court (Amtsgericht) at the registered seat of Adtran Networks (Jena).
Under the DPLTA, subject to certain limitations pursuant to applicable law and the specific terms of the DPLTA, (i) the Company is
entitled to issue binding instructions to the management board of Adtran Networks, (ii) Adtran Networks will transfer its annual profit
to the Company, subject to, among other things, the creation or dissolution of certain reserves, and (iii) the Company will absorb the
annual net loss incurred by Adtran Networks. The Company’s payment obligation in satisfaction of the requirement that it absorb
Adtran Networks’ annual net loss applies to the net loss generated by Adtran Networks in 2025, and it will apply to any net loss
generated by Adtran Networks in 2026.
Pursuant to the terms of the DPLTA, each Adtran Networks shareholder (other than the Company) has received an offer to elect either
(1) to remain an Adtran Networks shareholder and receive from us an Annual Recurring Compensation payment, or (2) to receive Exit
Compensation plus guaranteed interest. The guaranteed interest under the Exit Compensation is calculated from the effective date of
the DPLTA to the date the shares are tendered, less any Annual Recurring Compensation paid. The guaranteed interest rate is 5.0%
plus a variable component (according to the German Civil Code) that was 1.27% as of December 31, 2025. 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 €303.9 million or approximately $357.0 million, based on an exchange
rate as of December 31, 2025 and reflecting interest accrued through December 31, 2025 during the pendency of the appraisal
65
proceedings discussed below. Shareholders electing the first option of Annual Recurring Compensation may later elect the second
option. The opportunity for outside Adtran Networks shareholders to tender Adtran Networks shares in exchange for Exit
Compensation had been scheduled to expire on March 16, 2023. However, due to the appraisal proceedings that were initiated in 2023
in accordance with applicable German law, this time period for tendering shares has been extended pursuant to the German Stock
Corporation Act (Aktiengesetz) and will end two months after the date on which a final decision in such appraisal proceedings has
been published in the Federal Gazette (Bundesanzeiger). Following the court's decision on a procedural matter in the DPLTA
appraisal proceedings on July 14, 2025, the proceeding for the trial on the merits of the DPLTA has recommenced. It is expected to
take a minimum of 12 months for a ruling of the court on the merits and such ruling will most likely be appealed, which would be
expected to take an additional 12-24 months to be resolved. Accordingly, the Company does not expect a final decision on the DPLTA
appraisal proceedings to be rendered and published prior to 2027, and most likely not until 2028 or beyond.
Additionally, our obligation to pay Annual Recurring Compensation under the DPLTA is a continuing payment obligation, which will
amount to approximately €7.9 million (or $9.3 million based on the exchange rate as of December 31, 2025) per year assuming none
of the minority Adtran Networks shareholders as of December 31, 2025 were to elect Exit Compensation. The foregoing amounts do
not reflect any potential increase in payment obligations that we may have depending on the outcome of ongoing appraisal
proceedings in the German court. The Annual Recurring Compensation is due on the third banking day following the ordinary general
shareholders’ meeting of Adtran Networks for the respective preceding fiscal year (but in any event within eight months following
expiration of the fiscal year). With respect to the 2025 fiscal year, Adtran Networks’ ordinary general shareholder meeting is
scheduled for the second quarter of 2026, and the Annual Recurring Compensation will be due on the third banking day following the
meeting. With respect to the 2024 fiscal year, Adtran Networks’ ordinary general shareholder meeting occurred on June 27, 2025 and,
therefore, the Annual Recurring Compensation was paid on July 1, 2025. During the years ended December 31, 2025 and 2024, we
accrued $9.3 million and $9.8 million, respectively, in Annual Recurring Compensation. The Annual Recurring Compensation is
reflected as an increase to retained deficit in the Consolidated Balance Sheets.
On October 18, 2022, the Company's Board of Directors authorized the Company to purchase additional shares of Adtran Networks
through open market purchases not to exceed 15,346,544 shares. For the year ended December 31, 2025, 2.0 million shares of Adtran
Networks stock were tendered to the Company. This resulted in total Exit Compensation payments of €40.2 million, or approximately
$46.6 million, based on exchange rates at the time of the transactions, being paid to Adtran Networks shareholders. For the year ended
December 31, 2024, approximately 0.8 million shares of Adtran Networks stock was tendered to the Company and Exit Compensation
payments of €15.7 million or approximately $17.4 million based on an exchange rate as of December 31, 2024, were paid to Adtran
Networks shareholders.
We currently hold 36,871,784 no-par value bearer shares of Adtran Networks, representing 70.8% of Adtran Networks outstanding
shares as of December 31, 2025.
The foregoing description of the DPLTA does not purport to be complete and is qualified in its entirety by reference to the DPLTA, a
non-binding English translation of which is incorporated by reference to Exhibit 10.14 of this Annual Report on Form 10-K.
Business Efficiency Program
During the fourth quarter of 2023, the Company initiated a Business Efficiency Program designed to optimize the assets, business
processes, and information technology systems of the Company in relation to the business combination with Adtran Networks. The
Business Efficiency Program included expenses specifically associated with achieving run-rate synergies as well as Business
Efficiency Program expenses described below. See Note 19 of the Notes to Consolidated Financial Statements, included in Part II,
Item 8 of this report for additional information.
We did not incur any Business Efficiency Program costs during the year ended December 31, 2025. The Company reduced previously
accrued costs by $0.3 million during the year ended December 31, 2025. During the years ended December 31, 2024 and 2023, we
recognized $44.7 million and $25.1 million, respectively, of costs relating to the Business Efficiency Program, respectively. As of
December 31, 2025, all expenses related to the Business Efficiency Program have been paid.
Other Cash Requirements
During the year ended December 31, 2025, other than the Exit Compensation payments, Annual Recurring Compensation under the
DPLTA, and receivables purchase arrangements there have been no other material changes in cash requirements from those discussed
in the 2024 Form 10-K/A and our cash requirements table shown in Liquidity and Capital Resources above.
Performance Bonds
Certain contracts, customers and jurisdictions in which we do business require us to provide various guarantees of performance such
as bid bonds, performance bonds and customs bonds. As of December 31, 2025 and 2024, we had commitments related to these bonds
totaling $22.4 million and $15.7 million, respectively, which expire at various dates through April 2029. In general, we would only be
liable for the amount of these guarantees in the event of default under each contract; the probability of which we believe is remote.
66
Critical Accounting Policies and Estimates
Accounting Policies
An accounting policy is deemed to be critical if it requires significant judgment, relies on key assumptions, and materially affects our
reported financial condition and results of operations. These areas involve complex and subjective assessments, and changes in the
underlying estimates or assumptions may have a material impact on our financial statements. Management reviews these policies
regularly in light of evolving business conditions, market trends, and regulatory developments.
The policies described below represent the accounting areas that we believe require the most significant use of judgment and
estimation.
Revenue
Revenue is recognized upon transfer of control to the customer. For transactions where there are multiple performance obligations,
individual products and services are accounted for separately if they are distinct (if a product or service is separately identifiable from
other items and if a customer can benefit from it on its own or with other resources that are readily available to the customer). The
consideration, including any discounts, is allocated between separate products and services based on their stand-alone selling prices.
Stand-alone selling prices are determined based on the prices at which the separate products and services are sold and are allocated
based on each item’s relative value to the total value of the products and services in the arrangement. For items not sold separately,
we apply an “expected cost plus margin” approach.
Judgments include:
•
identifying distinct performance obligations;
•
estimating stand̻alone selling prices;
•
assessing material rights and contract modifications; and
•
determining the pattern and timing of revenue recognition for service̻based deliverables.
We closely monitor customer buying behavior, discounting patterns, and regional economic conditions that may change pricing or
delivery cycles. As our product mix changes and begins to shift toward next̻generation virtualized platforms and cloud̻based
services, we expect the complexity of revenue arrangements to increase, which may require refinements to our estimation
methodologies.
Inventory Valuation
We carry our inventory at the lower of cost and net realizable value, with cost being determined using the first-in, first-out method.
Standard costs for material, labor, and manufacturing overhead are used to value inventory and are updated at least quarterly. Most
variances are expensed in the current period; therefore, our inventory costs approximate actual costs at the end of each reporting
period. We establish reserves for estimated excess and obsolete inventory equal to the difference between the cost of the inventory and
the estimated net realizable value of the inventory based on estimated reserve percentages, which consider historical usage, known
trends, inventory age and market conditions. If actual trends and market conditions are less favorable than those projected by
management, we may be required to make additional inventory write-downs.
Goodwill
Goodwill represents the excess purchase price over the fair value of net assets acquired. The Company’s annual impairment
assessment is done at the reporting unit level, which we determined are generally the same as our operating segments. 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. 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. Any adverse change in these factors
could have a significant impact on the recoverability of goodwill and could have a material impact on our consolidated financial
statements. Management updates these estimates based on the most recent market data, customer demand expectations, and strategic
initiatives.
Impairment of Long-Lived Assets and Intangibles
Long-lived assets, such as property, plant and equipment, right of use lease assets and purchased intangibles subject to amortization,
are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated
undiscounted future cash flows expected to be generated by the asset or asset group. Forecasting future cash flows for asset groups
67
involves uncertainties related to technology adoption rates, product roadmaps, and cost̻efficiency initiatives. If the carrying amount
of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount
of the asset exceeds the fair value of the asset or asset group.
An asset is considered to be held for sale when all the following criteria are met: (i) management commits to a plan to sell the asset;
(ii) the asset is available for immediate sale in its present condition; (iii) actions required to complete the sale of the asset have been
initiated; (iv) sale of the asset is probable and the completed sale is expected to occur within one year; (v) it is unlikely that the
disposal plan will be significantly modified; and (vi) the asset is actively being marketed for sale at a price that is reasonable given its
current market value. Making this determination is subject to management judgment regarding the facts and circumstances of the
assets. Management reviews these factors on at least an annual basis to determine if an asset remains or now should be classified as
held for sale.
Income Taxes
We estimate our income tax provision or benefit in each of the jurisdictions in which we operate, including estimating exposures
related to examinations by taxing authorities. We also make judgments regarding the realization of deferred tax assets and establish
valuation allowances where we believe it is more likely than not that future taxable income in certain jurisdictions will be insufficient
to realize these deferred tax assets. Our estimates regarding future taxable income and income tax provision or benefit may vary due to
changes in market conditions, changes in tax laws, or other factors. If our assumptions, and consequently our estimates, change in the
future, the valuation allowances we have established may be increased or decreased, impacting future income tax expense. We
continually review the adequacy of our valuation allowance and recognize the benefits of deferred tax assets only as the reassessment
indicates that it is more likely than not that the deferred tax assets will be realized in accordance with ASC 740, Income Taxes.
In determining whether an uncertain tax position exists, the Company determines, based solely on its technical merits, whether the tax
position is more likely than not to be sustained upon examination, and if so, a tax benefit is measured on a cumulative probability
basis that is more likely than not to be realized upon the ultimate settlement. The Company recognizes interest and penalties related to
unrecognized tax benefits through interest expense and income tax expense, respectively.
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.
68
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We maintain depository investments with certain financial institutions. As of December 31, 2025, $92.0 million of our cash and cash
equivalents, primarily foreign depository accounts, were in excess of government provided insured depository limits. Although these
depository investments exceed government insured depository limits, we have evaluated the credit worthiness of these financial
institutions and determined the risk of material financial loss due to exposure of such credit risk to be minimal.
Interest Rate Risk
As of December 31, 2025, approximately $0.6 million of our cash and investments may be directly affected by changes in interest
rates. As of December 31, 2025, we held $0.6 million of cash and variable-rate investments where a change in interest rates would
impact our interest income. A hypothetical 50 basis point decline in interest rates as of December 31, 2025, assuming all other
variables remain constant, would reduce annualized interest income on our cash and investments by less than $0.1 million. As of
December 31, 2025, the carrying amounts of our revolving credit agreement totaled $25.0 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, 2025, assuming all other
variables remain constant, would increase our interest expense by $0.1 million. 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, 2025. As of December 31, 2025 we have not entered into any derivative instruments to hedge the
impact of the changes in variable interest rates under our revolving credit agreement.
Foreign Currency Exchange Rate Risk
We are exposed to changes in foreign currency exchange rates to the extent that such changes affect our revenue and gross margin on
revenue derived from some international customers, operating expenses, and assets and liabilities held in non-functional currencies
related to our foreign subsidiaries. Our primary exposures to foreign currency exchange rate movements are with the euro and the
British pound. Our revenue is primarily denominated in the respective functional currency of the subsidiary and paid in that
subsidiary's functional currency or certain other local currency. The majority of our global supply chain predominately makes
payments in U.S. dollars and some of our operating expenses are paid in certain non-USD local currencies (approximately 44.0% of
total operating expense for the year ended December 31, 2025, respectively). Therefore, our revenue, gross margins, operating
expenses and operating loss are all subject to foreign currency fluctuations. As a result, changes in currency exchange rates could
cause variations in our operating loss. A hypothetical 10% movement in foreign exchange rates would result in a before-tax positive or
negative impact of approximately $6.3 million for the year ended December 31, 2025. 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, 2025
due to the inherent limitations associated with predicting the foreign currency exchange rates, and our actual exposures and positions.
We have certain customers and suppliers who are invoiced or pay in a non-functional currency. Changes in the monetary exchange
rates used to invoice such customers versus the functional currency of the entity billing such customers may adversely affect our
results of operations and financial condition. To manage the volatility relating to these typical business exposures, we may enter into
various derivative transactions, when appropriate. We do not hold or issue derivative instruments for trading or other speculative
purposes. All non-functional currencies billed would result in a combined hypothetical gain or loss of $8.1 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 $9.2 million if the U.S. dollar weakened or strengthened 10% against the billing currencies. This
change represents an increase in the amount of hypothetical gain or loss compared to prior periods and is mainly due to an increase in
U.S. dollar denominated billings in a non-U.S. dollar denominated subsidiary.
As of December 31, 2025, we had certain material contracts subject to currency revaluation, including accounts receivable, accounts
payable and lease liabilities denominated in foreign currencies.
For further information about the fair value of our investments as of December 31, 2025, see Note 4 of the Notes to Consolidated
Financial Statements included in Part II, Item 8 of this report.
69
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements are contained in this report.
Page
..............................................................................................................
Report of Independent Registered Public Accounting Firm
..........................................................................................................................................................................
Financial Statements
72
.........................................................................................................................................
Consolidated Balance Sheets,
As of December 31, 2025 and 2024
72
....................................................................................................................
Consolidated Statements of Loss,
Years Ended December 31, 2025, 2024 and 2023
73
....................................................................................................................
Consolidated Statements of Comprehensive Income (Loss),
Years Ended December 31, 2025, 2024 and 2023
74
....................................................................................................................
Consolidated Statements of Changes in Equity,
Years Ended December 31, 2025, 2024 and 2023
75
....................................................................................................................
Consolidated Statements of Cash Flows,
Years Ended December 31, 2025, 2024 and 2023
76
...........................................................................................................................
Notes To Consolidated Financial Statements
77
............................................................................................................................
Schedule II - Valuation and Qualifying Accounts,
Years Ended December 31, 2025, 2024 and 2023
126
PricewaterhouseCoopers LLP; PCAOB Firm ID: 238; Birmingham, Alabama
70
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of ADTRAN Holdings, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of ADTRAN Holdings, Inc. and its subsidiaries (the "Company") as
of December 31, 2025 and 2024, and the related consolidated statements of loss, of comprehensive income (loss), of changes in equity
and of cash flows for each of the three years in the period ended December 31, 2025, including the related notes and financial
statement schedule listed in the accompanying index (collectively referred to as the "consolidated financial statements"). We also have
audited the Company's internal control over financial reporting as of December 31, 2025, based on criteria established in Internal
Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of
the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the three years in the
period ended December 31, 2025 in conformity with accounting principles generally accepted in the United States of America. Also in
our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of
December 31, 2025, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO because
material weaknesses in internal control over financial reporting existed as of that date as the Company did not design and maintain
effective controls (i) in response to the risks of material misstatement and (ii) over financial statement preparation, presentation and
disclosure commensurate with its financial reporting requirements.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a
reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a
timely basis. The material weaknesses referred to above are described in Management’s Report on Internal Control over Financial
Reporting appearing under Item 9A. We considered these material weaknesses in determining the nature, timing, and extent of audit
tests applied in our audit of the 2025 consolidated financial statements, and our opinion regarding the effectiveness of the Company’s
internal control over financial reporting does not affect our opinion on those consolidated financial statements.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in management's
report referred to above. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the
Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public
Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to
error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the
consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well
as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included
performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable
basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding
71
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect
on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements
that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are
material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The
communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a
whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or
on the accounts or disclosures to which it relates.
Valuation of Inventory – Estimate of Certain Excess and Obsolete Reserves
As described in Notes 1 and 5 to the consolidated financial statements, the Company’s consolidated net inventory as of December 31,
2025 was $215.7 million, of which certain inventory is subject to certain excess and obsolete reserves. Management establishes
reserves for estimated excess and obsolete inventory equal to the difference between the cost of the inventory and the estimated net
realizable value of the inventory based on estimated reserve percentages, which consider historical usage, known trends, inventory
age, and market conditions.
The principal considerations for our determination that performing procedures relating to the valuation of inventory – estimate of
certain excess and obsolete reserves is a critical audit matter are (i) the significant judgment by management when developing the
estimate of certain excess and obsolete inventory reserves and (ii) a high degree of auditor judgment, subjectivity, and effort in
performing procedures and evaluating management’s significant assumption related to the estimated reserve percentages.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion
on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to certain excess and
obsolete inventory reserves, including controls over the significant assumption related to estimated reserve percentages. These
procedures also included, among others (i) testing management’s process for developing the estimate of certain excess and obsolete
inventory reserves; (ii) evaluating the appropriateness of management’s estimation methodology; (iii) testing the completeness and
accuracy of the underlying data used in developing the estimate of certain excess and obsolete inventory reserves, including historical
usage, known trends, and inventory age; and (iv) evaluating the reasonableness of the significant assumption used by management
related to the estimated reserve percentages. Evaluating management’s assumption related to the estimated reserve percentages
involved considering (i) the current and past results of the Company; (ii) a comparison of the prior year estimate to actual activity in
the current year; and (iii) whether the assumption was consistent with evidence obtained in other areas of the audit.
/s/PricewaterhouseCoopers LLP
Birmingham, Alabama
February 26, 2026
We have served as the Company’s auditor since 1986.
72
Financial Statements
ADTRAN Holdings, Inc.
Consolidated Balance Sheets
(In thousands, except per share amount)
December 31, 2025 and 2024
ASSETS
2025
2024
Current Assets
Cash and cash equivalents
$
95,696
$
76,021
Accounts receivable, less allowance for credit losses of $1,318 and $1,300 as of December 31,
2025 and 2024, respectively
210,687
178,030
Other receivables
7,046
9,775
Inventory, net
215,736
261,557
Income tax receivable
3,667
5,461
Prepaid expenses and other current assets
55,317
56,395
Short-term investments - deferred compensation
35,174
—
Assets held for sale
11,901
11,901
Total Current Assets
635,224
599,140
Property, plant and equipment, net
124,384
106,454
Goodwill
59,983
52,918
Intangibles, net
294,047
284,893
Deferred tax assets
16,481
17,826
Other non-current assets
73,352
78,128
Long-term investments
1,022
32,060
Total Assets
$
1,204,493
$
1,171,419
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable
$
167,337
$
171,825
Unearned revenue
87,541
52,701
Accrued expenses and other liabilities
33,690
34,158
Accrued wages and benefits
32,203
32,853
Deferred compensation liability
37,447
—
Income tax payable
3,642
1,936
Total Current Liabilities
361,860
293,473
Non-current revolving credit agreement outstanding
25,000
189,576
Non-current convertible senior notes, net of debt issuance costs
193,038
—
Deferred tax liabilities
27,453
30,372
Non-current unearned revenue
27,143
22,065
Non-current pension liability
6,277
8,983
Non-current deferred compensation liability
—
33,203
Non-current lease obligations
27,000
25,925
Other non-current liabilities
17,564
17,928
Total Liabilities
685,335
621,525
Commitments and contingencies (see Note 17)
Redeemable Non-Controlling Interest
373,328
422,943
Equity
Common stock, par value $0.01 per share; 200,000 shares authorized;
80,188 shares issued and 79,926 outstanding as of December 31, 2025 and
79,483 shares issued and 79,218 outstanding as of December 31, 2024
802
795
Additional paid-in capital
801,269
808,913
Accumulated other comprehensive income
78,877
11,254
Retained deficit
(730,010)
(688,813)
Less treasury stock at cost: 262 and 266 shares as of December 31, 2025 and 2024, respectively
(5,108)
(5,198)
Total Equity
145,830
126,951
Total Liabilities and Equity
$
1,204,493
$
1,171,419
See accompanying notes to consolidated financial statements.
73
ADTRAN Holdings, Inc.
Consolidated Statements of Loss
(In thousands, except per share amounts)
Years ended December 31, 2025, 2024 and 2023
2025
2024
2023
Revenue
Network Solutions
$
896,911
$
738,964
$
974,389
Services & Support
186,896
183,756
174,711
Total Revenue
1,083,807
922,720
1,149,100
Cost of Revenue
Network Solutions
592,141
517,220
724,518
Network Solutions - charges and inventory write-down
—
8,597
24,313
Services & Support
76,711
72,739
69,142
Total Cost of Revenue
668,852
598,556
817,973
Gross Profit
414,955
324,164
331,127
Selling, general and administrative expenses
226,275
232,918
258,610
Research and development expenses
204,276
221,458
258,311
Goodwill impairment
—
297,353
37,874
Operating Loss
(15,596)
(427,565)
(223,668)
Interest and dividend income
2,321
3,058
2,340
Interest expense
(19,344)
(22,053)
(16,299)
Net investment gain
3,001
3,587
2,754
Other (expense) income, net
(1,632)
246
1,266
Loss Before Income Taxes
(31,250)
(442,727)
(233,607)
Income tax expense
(4,993)
(7,340)
(28,299)
Net Loss
$
(36,243)
$
(450,067)
$
(261,906)
Net Income attributable to non-controlling interest (1)
9,413
9,824
6,946
Net Loss attributable to ADTRAN Holdings, Inc.
$
(45,656)
$
(459,891)
$
(268,852)
Weighted average shares outstanding – basic
79,742
78,928
78,416
Weighted average shares outstanding – diluted
79,742
78,928
78,416
Loss per common share attributable to ADTRAN Holdings, Inc. – basic(2)
$
(0.52)
$
(5.79)
$
(3.43)
Loss per common share attributable to ADTRAN Holdings, Inc. – diluted(2)
$
(0.52)
$
(5.79)
$
(3.43)
(1) For the years ended December 31, 2025 and 2024 we accrued $9.3 million and $9.8 million, respectively, of net income attributable to non-controlling interest, representing the recurring cash
compensation earned by non-controlling interest shareholders post-DPLTA. For the year ended December 31, 2023, we accrued $10.1 million, representing the recurring cash compensation earned by non-
controlling interest shareholders post-DPLTA, partially offset by a $3.2 million net loss attributable to non-controlling interests pre-DPLTA.12-24
(2) Loss per common share attributable to ADTRAN Holdings, Inc. - basic and diluted - reflects a $4.1 million, $3.0 million and $0 effect of redemption of RNCI for the years ended December 31, 2025,
2024 and 2023, respectively. See Note 18 for additional information.
See accompanying notes to consolidated financial statements.
74
ADTRAN Holdings, Inc.
Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
Years ended December 31, 2025, 2024 and 2023
2025
2024
2023
Net Loss
$
(36,243)
$
(450,067)
$
(261,906)
Other Comprehensive Income (Loss), net of tax
Net unrealized gain on available-for-sale securities
—
—
454
Defined benefit plan adjustments
4,110
1,479
(1,490)
Foreign currency translation gain (loss)
63,513
(37,755)
22,822
Other Comprehensive Income (Loss), net of tax
67,623
(36,276)
21,786
Comprehensive Income (Loss), net of tax
31,380
(486,343)
(240,120)
Less: Comprehensive Income attributable to non-controlling interest
9,413
9,824
7,328
Comprehensive Income (Loss) attributable to ADTRAN Holdings, Inc., net
of tax
$
21,967
$
(496,167)
$
(247,448)
See accompanying notes to consolidated financial statements.
75
ADTRAN Holdings, Inc.
Consolidated Statements of Changes in Equity
(In thousands, except per share amounts)
Years ended December 31, 2025, 2024 and 2023
Common
Shares
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
(Deficit)
Treasury
Stock
Accumulat
ed Other
Comprehe
nsive
Income
Non-
controlling
interest
Total
Equity
Balance as of December 31, 2022
78,088
$
781
$
895,834
$
55,338
$
(4,125)
$
26,126
$
329,659
$ 1,303,613
Net loss
—
—
—
(258,727)
—
—
(3,179)
(261,906)
Annual recurring compensation earned
—
—
—
(10,125)
—
—
—
(10,125)
Acquisition of Adtran Networks
—
—
—
3,762
—
—
—
3,762
Reclassification and remeasurement from equity to
mezzanine equity for non-controlling interests in
Adtran Networks
—
—
(116,895)
—
—
—
(326,862)
(443,757)
Mezzanine equity for non-controlling interest in
Adtran Networks for Adtran Networks stock options
exercised
(1,175)
—
(1,175)
Other comprehensive income, net of tax
—
—
—
—
—
21,404
382
21,786
Dividend payments ($0.09 per share)
—
—
—
(21,237)
—
—
—
(21,237)
Dividends accrued on unvested restricted stock units
—
—
—
8
—
—
—
8
Deferred compensation adjustments, net of tax
—
—
—
(145)
(1,700)
—
—
(1,845)
Adtran RSUs and restricted stock vested
859
9
—
(1,115)
—
—
—
(1,106)
Adtran stock options exercised
23
—
—
164
—
—
—
164
Redemption of redeemable non-controlling interest
—
—
—
371
—
—
—
371
Adtran Networks stock options exercised
—
—
323
—
—
—
—
323
Modification of stock options
—
—
339
339
Adtran stock-based compensation expense
—
—
16,016
—
—
—
—
16,016
Adtran Networks stock-based compensation expense
—
—
26
—
—
—
—
26
Balance as of December 31, 2023
78,970
790
794,468
(231,706)
(5,825)
47,530
—
605,257
Net loss
—
—
—
(450,067)
—
—
—
(450,067)
Annual recurring compensation earned
—
—
—
(9,824)
—
—
—
(9,824)
Reclassification and remeasurement from equity to
mezzanine equity for non-controlling interests in
Adtran Networks
—
—
(1,175)
—
—
—
—
(1,175)
Other comprehensive loss, net of tax
—
—
—
—
—
(36,276)
—
(36,276)
Deferred compensation adjustments, net of tax
—
—
(368)
—
627
—
—
259
Adtran RSUs and restricted stock vested
374
4
—
(1,026)
—
—
—
(1,022)
Adtran stock options exercised
139
1
—
824
—
—
—
825
Redemption of redeemable non-controlling interest
—
—
—
2,986
—
—
—
2,986
Modification of stock options
—
—
(190)
—
—
—
—
(190)
Adtran stock-based compensation expense
—
—
14,825
—
—
—
—
14,825
Adtran Networks stock-based compensation expense
—
—
1,353
—
—
—
—
1,353
Balance as of December 31, 2024
79,483
795
808,913
(688,813)
(5,198)
11,254
—
126,951
Net loss
—
—
—
(36,243)
—
—
—
(36,243)
Annual recurring compensation earned
—
—
—
(9,413)
—
—
—
(9,413)
Other comprehensive income, net of tax
—
—
—
—
—
67,623
—
67,623
Dividends accrued on unvested restricted stock units
—
—
—
(4)
—
—
—
(4)
Deferred compensation adjustments, net of tax
—
—
(56)
—
90
—
—
34
Adtran RSUs and restricted stock vested
432
4
—
(1,448)
—
—
—
(1,444)
Adtran stock options exercised
273
3
—
1,826
—
—
—
1,829
Purchase of capped calls related to the convertible
senior notes
—
—
(17,650)
—
—
—
—
(17,650)
Redemption of redeemable non-controlling interest
—
—
—
4,085
—
—
—
4,085
Adtran stock-based compensation expense
—
—
10,062
—
—
—
—
10,062
Balance as of December 31, 2025
80,188
$
802
$
801,269
$
(730,010)
$
(5,108)
$
78,877
$
—
$
145,830
See accompanying notes to consolidated financial statements.
76
ADTRAN Holdings, Inc.
Consolidated Statements of Cash Flows
(In thousands)
Years ended December 31, 2025, 2024 and 2023
2025
2024
2023
Cash flows from operating activities:
Net Loss
$
(36,243)
$
(450,067)
$
(261,906)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization
92,546
90,529
112,949
Goodwill impairment
—
297,353
37,874
Amortization of revolving credit facility issuance costs
1,351
3,950
862
Amortization of convertible notes issuance costs
441
—
—
Accretion on available-for-sale investments, net
—
—
(22)
Gain on investments
(4,740)
(5,030)
(2,900)
Net loss on disposal of property, plant and equipment
228
1,371
458
Stock-based compensation expense
10,062
15,988
16,381
Deferred income taxes
(3,847)
5,576
15,724
Inventory write down - business efficiency program
—
4,135
24,313
Inventory reserves
(2,541)
5,316
25,546
Other, net
—
—
(2,942)
Change in operating assets and liabilities:
Accounts receivable, net
(18,301)
46,108
72,320
Other receivables
5,767
10,713
10,315
Income taxes receivable
2,034
648
2,098
Inventory
64,494
79,985
22,408
Prepaid expenses, other current assets and other assets
19,223
(13,445)
(31,964)
Accounts payable
17,982
10,238
(91,907)
Accrued expenses and other liabilities
(17,967)
4,873
11,317
Income taxes payable
(722)
(4,670)
(3,939)
Net cash provided by (used in) operating activities
129,767
103,571
(43,015)
Cash flows from investing activities:
Purchases of property, plant and equipment
(31,737)
(34,501)
(36,337)
Purchases of intangibles - developed technology
(37,528)
(30,671)
(9,438)
Proceeds from sales and maturities of available-for-sale investments
1,019
1,240
10,567
Purchases of available-for-sale investments
(383)
(268)
(868)
(Payments for) proceeds from beneficial interests in securitized accounts receivable
(539)
(55)
1,218
Net cash used in investing activities
(69,168)
(64,255)
(34,858)
Cash flows from financing activities:
Tax withholdings related to stock-based compensation settlements
(1,478)
(1,143)
(6,458)
Proceeds from stock option exercises
1,829
824
540
Dividend payments
—
—
(21,237)
Proceeds from receivables purchase agreement
—
68,556
14,099
Repayments on receivables purchase agreement
—
(83,772)
—
Proceeds from draw on revolving credit agreement
49,000
26,000
163,733
Repayment of revolving credit agreement
(214,000)
(31,000)
(64,987)
Redemption of redeemable non-controlling interest
(46,575)
(17,398)
(1,224)
Payment of annual recurring compensation to non-controlling interest
(10,053)
(10,084)
—
Payment of debt issuance cost
(9,003)
(1,994)
(708)
Proceeds from issuance of senior convertible notes
201,250
—
—
Payments for capped call transactions related to convertible senior notes
(17,650)
—
—
Repayment of notes payable
—
—
(24,891)
Net cash (used in) provided by financing activities
(46,680)
(50,011)
58,867
Net increase (decrease) in cash and cash equivalents
13,919
(10,695)
(19,006)
Effect of exchange rate changes
5,756
(451)
(2,471)
Cash and cash equivalents, beginning of year
76,021
87,167
108,644
Cash and cash equivalents, end of year
$
95,696
$
76,021
$
87,167
Supplemental disclosure of cash financing activities:
Cash paid for interest
$
13,273
$
20,884
$
12,596
Cash used in operating activities related to operating leases
$
10,216
$
9,274
$
9,682
Supplemental disclosure of non-cash investing and financing activities:
Right-of-use assets obtained in exchange for lease obligations
$
6,432
$
5,317
$
17,865
Purchases of property, plant and equipment included in accounts payable
$
3,716
$
2,635
$
1,298
Purchases of property, plant and equipment included in other non-current liabilities
$
5,119
$
—
$
—
Redemption of redeemable non-controlling interest
$
4,085
$
2,986
$
371
See accompanying notes to consolidated financial statements.
77
oADTRAN Holdings, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GENERAL
ADTRAN Holdings, Inc. (“Adtran” or the “Company”) is a leading global provider of networking and communications platforms,
software, systems and services focused on the broadband access market, serving a diverse domestic and international customer base in
multiple countries that includes large, medium and small Service Providers, alternative Service Providers, such as utilities,
municipalities and fiber overbuilders, cable/MSOs, SMBs and distributed enterprises, including Fortune 500 companies with
sophisticated business continuity applications; and federal, state and local government agencies. Our innovative solutions and services
enable voice, data, video and internet-communications across a variety of network infrastructures and are currently in use by millions
worldwide. We support our customers through our direct global sales organization and our distribution networks. Our success depends
upon our ability to increase unit volume and market share through the introduction of new products and succeeding generations of
products having optimal selling prices and increased functionality as compared to both the prior generation of a product and to the
products of competitors in order to gain market share. To service our customers and grow revenue, we are continually conducting
research and developing new products addressing customer needs and testing those products for the specific requirements of the
particular customers. We offer a broad portfolio of flexible software and hardware network solutions and services that enable Service
Providers to meet today’s service demands, while enabling them to transition to the fully converged, scalable, highly-automated,
cloud-controlled voice, data, internet and video network of the future. In addition to our global headquarters in Huntsville, Alabama,
and our European headquarters in Munich, Germany, we have sales and research and development facilities in strategic global
locations.
The Company solely owns ADTRAN, Inc. and is the majority shareholder of Adtran Networks SE (“Adtran Networks”). ADTRAN,
Inc. is a leading global provider of open, disaggregated networking and communications solutions. Adtran Networks is a global
provider of network solutions for data, storage, voice and video services. We believe that the combined technology portfolio can best
address current and future customer needs for high-speed connectivity from the network core to the end consumer, especially upon the
convergence of solutions at the network edge.
Domination and Profit and Loss Transfer Agreement, Liquidity, Credit Facility and Notes Offering
The DPLTA between the Company, as the controlling company, and Adtran Networks, as the controlled company, which was
executed on December 1, 2022, became effective on January 16, 2023, as a result of its registration with the commercial register
(Handelsregister) of the local court (Amtsgericht) at the registered seat of Adtran Networks (Jena).
Under the DPLTA, subject to certain limitations pursuant to applicable law and the specific terms of the DPLTA, (i) the Company is
entitled to issue binding instructions to the management board of Adtran Networks, (ii) Adtran Networks will transfer its annual profit
to the Company, subject to, among other things, the creation or dissolution of certain reserves, and (iii) the Company will absorb the
annual net loss incurred by Adtran Networks. The Company’s payment obligation in satisfaction of the requirement that it absorb
Adtran Networks’ annual net loss applies to the net loss generated by Adtran Networks in 2025, and it will apply to any net loss
generated by Adtran Networks in 2026.
Pursuant to the terms of the DPLTA, each Adtran Networks shareholder (other than the Company) has received an offer to elect either
(1) to remain an Adtran Networks shareholder and receive from us recurring compensation in cash of €0.52 per share for each full
fiscal year of Adtran Networks (the "Annual Recurring Compensation"), or (2) 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"). The guaranteed interest
under the Exit Compensation is calculated from the effective date of the DPLTA to the date the shares are tendered, less any Annual
Recurring Compensation paid. The guaranteed interest rate is 5.0% plus a variable component (according to the German Civil Code)
that was 1.27% as of December 31, 2025. 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 €303.9 million or $357.0 million, based on an exchange rate as of December 31, 2025 and reflecting interest accrued
through December 31, 2025 during the pendency of the appraisal proceedings discussed below. Shareholders electing the first option
of Annual Recurring Compensation may later elect the second option. The opportunity for outside Adtran Networks shareholders to
tender Adtran Networks shares in exchange for Exit Compensation had been scheduled to expire on March 16, 2023. However, due to
the appraisal proceedings that were initiated in 2023 in accordance with applicable German law, this time period for tendering shares
has been extended pursuant to the German Stock Corporation Act (Aktiengesetz) and will end two months after the date on which a
final decision in such appraisal proceedings has been published in the Federal Gazette (Bundesanzeiger). Following the court's
decision on a procedural matter in the DPLTA appraisal proceedings on July 14, 2025, the trial on the merits of the DPLTA has
recommenced. It is expected to take a minimum of 12 months for a ruling of the court on the merits and such ruling will most likely be
appealed, which would be expected to take an additional 12-24 months to be resolved. Accordingly, the Company does not expect a
78
final decision on the DPLTA appraisal proceedings to be rendered and published prior to 2027, and most likely not until 2028 or
beyond.
Additionally, our obligation to pay Annual Recurring Compensation under the DPLTA is a continuing payment obligation, which will
amount to approximately €7.9 million (or $9.3 million based on the exchange rate as of December 31, 2025) per year assuming none
of the minority Adtran Networks shareholders as of December 31, 2025 were to elect Exit Compensation. The foregoing amounts do
not reflect any potential increase in payment obligations that we may have depending on the outcome of ongoing appraisal
proceedings in the German court. The Annual Recurring Compensation is due on the third banking day following the ordinary general
shareholders’ meeting of Adtran Networks for the respective preceding fiscal year (but in any event within eight months following
expiration of the fiscal year). With respect to the 2023 fiscal year, Adtran Networks’ ordinary general shareholders’ meeting occurred
on June 28, 2024 and, therefore, the Annual Recurring Compensation was paid on July 3, 2024. With respect to the 2024 fiscal year,
Adtran Networks’ ordinary general shareholder meeting occurred on June 27, 2025 and, therefore, the Annual Recurring
Compensation was paid on July 1, 2025. With respect to the 2025 fiscal year, Adtran Networks’ ordinary general shareholder meeting
is scheduled for the second quarter of 2026, and the Annual Recurring Compensation will be due on the third banking day following
the meeting. During the years ended December 31, 2025 and 2024, we accrued $9.3 million and $9.8 million, respectively, in Annual
Recurring Compensation. The Annual Recurring Compensation is reflected as an increase to retained deficit in the Consolidated
Balance Sheets.
On July 18, 2022, ADTRAN, Inc., as the borrower, and ADTRAN Holdings, Inc. entered into a credit agreement with a syndicate of
banks, including Wells Fargo Bank, National Association, as administrative agent (“Administrative Agent”), and the other lenders
named therein (“Credit Agreement”), which has since been amended six times. The Company had access to $319.2 million on its
Credit Facility for future borrowings based on debt covenant compliance metrics. The financial covenants under the Credit
Agreement, as amended, require the Company to maintain a Consolidated Total Net Leverage Ratio of 5.00x, a Consolidated Senior
Secured Net Leverage Ratio of 3.25x (4.0x to 3.5x during a Springing Covenant Period) and a Consolidated Fixed Charge Coverage
Ratio of 1.25x (as such terms are defined in the Credit Agreement). In addition, during a Springing Covenant Period the cash and cash
equivalents of the credit parties must be at least $50.0 million and the cash and cash equivalents of the Company and its subsidiaries
must be at least $70.0 million.
On October 18, 2022, the Company's Board of Directors authorized the Company to purchase additional shares of Adtran Networks
through open market purchases not to exceed 15,346,544 shares.
As of December 31, 2025, and as of the date of issuance of these financial statements, the Company has sufficient liquidity to meet the
majority of its payment obligations under the DPLTA pertaining to Exit Compensation. For the year ended December 31, 2025, 2.0
million shares of Adtran Networks stock were tendered to the Company. This resulted in total Exit Compensation payments of
approximately €40.2 million, or approximately $46.6 million, based on exchange rates at the time of the transactions, being paid to
Adtran Networks shareholders. For the year ended December 31, 2024, approximately 0.8 million shares of Adtran Networks stock
were tendered to the Company and Exit Compensation payments of approximately €15.7 million or approximately $17.4 million
based on an exchange rate as of December 31, 2024, were paid to Adtran Networks shareholders. We believe the probability that more
than a small minority of Adtran Networks shareholders elect to receive Exit Compensation in the next twelve months is remote based
on the following factors: (i) the shareholders can exercise their right to receive the Exit Compensation until two months after
publication of the final decision in the appraisal proceedings and we do not expect the final decision to be published within the next 12
months; (ii) the diverse base of shareholders that must make this election on an individual shareholder basis; (iii) the fact the date of a
decision by the court on the merits of the case is uncertain, it will most likely take a minimum of 12 months for a ruling and,
thereafter, an expected appeal process will take a further 12-24 months to resolve; (iv) the current guaranteed Annual Recurring
Compensation payment; and (v) the current trading value of Adtran Networks shares.
Moreover, on September 19, 2025, the Company issued $201.3 million aggregate principal amount of convertible senior notes due
2030 (the “Notes”). The Notes accrue interest at a rate of 3.75% per annum, payable semi-annually in arrears on March 15 and
September 15 of each year, beginning March 15, 2026. Unless repurchased earlier, redeemed, or converted, the Notes will mature on
September 15, 2030. After deducting the initial purchasers’ discounts, commissions, and estimated offering expenses, the Company
received net proceeds of $192.6 million.
The Company experienced revenue declines in the year ended December 31, 2024. However, customers began replenishing their
inventories to meet increasing demand, and revenue increased throughout the year ended December 31, 2025. In 2023, the Company
suspended dividend payments and effectuated a business efficiency program (the "Business Efficiency Program"), which targeted the
reduction of ongoing operating expenses and focused on enhancing capital efficiency. The Business Efficiency Program was
completed as of December 31, 2024. In addition, the Company continues to assess the probability that the sale of its headquarters in
Huntsville will occur and has determined it is probable of occurring in the next twelve months.
In summary, the Company believes that its cash and cash equivalents, working capital management initiatives and availability to
access cash under the Wells Fargo credit facility or other future sources of capital will be adequate to meet our business operating
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requirements, our capital expenditures and our expected obligations under both the Notes and the DPLTA, including anticipated levels
of Exit Compensation, as well as to support our ability to continue to comply with our debt covenants under the Credit Facility for at
least the next twelve months, from the issuance of these financial statements. See Note 10, Credit Agreement, for additional
information regarding the terms of the Amendments of the Wells Fargo Credit Agreement.
Note 1 - Summary Of Significant Accounting Policies
Basis of Presentation
The accompanying Consolidated Financial Statements have been prepared in accordance with accounting principles generally
accepted in the U.S. (“U.S. GAAP”) and include the financial position, results of operations, comprehensive (loss) income, changes in
equity and cash flows of Adtran and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated
in consolidation.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenue and expense during the reporting period. Significant estimates include allowance for
credit losses on accounts receivable and contract assets, excess and obsolete inventory reserves, determination and accrual of the
deferred revenue related to performance obligations under contracts with customers, estimated costs to complete obligations
associated with deferred and accrued revenue and network installations, estimated income tax provision and income tax contingencies,
fair value of stock-based compensation, assessment of goodwill and other intangibles for impairment, estimated lives of intangible
assets, estimates of intangible assets upon measurement, estimated pension liability and fair value of investments and estimated
contingent liabilities. Actual amounts could differ significantly from these estimates.
We assessed certain accounting matters that generally require consideration of forecasted financial information in context with the
information reasonably available to us and the unknown future impacts of ongoing inflationary pressures, continued elevated interest
rates, instability in the financial services industry, currency fluctuations and political tensions as of December 31, 2025, and through
the date of this report. These conditions could result in further impacts to the Company's consolidated financial statements in future
reporting periods. The accounting matters assessed included, but were not limited to, the allowance for credit losses, stock-based
compensation, carrying value of goodwill, intangibles and other long-lived assets, financial assets, valuation allowances for tax assets,
revenue recognition and costs of revenue.
Summary of Significant Accounting Policies
Cash and Cash Equivalents
Cash and cash equivalents represent demand deposits, money market funds and short-term investments classified as available-for-sale
with original maturities of three months or less. We maintain depository investments with certain financial institutions. As of
December 31, 2025, $92.0 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. Although these depository investments may
exceed government insured depository limits, we have evaluated the credit worthiness of these applicable financial institutions and
determined the risk of material financial loss due to the exposure of such credit risk to be minimal.
Fair Value of Financial Instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. Where available, fair value is based on observable market prices or parameters or derived
from such prices or parameters. Where observable prices or inputs are not available, valuation models may be applied. Assets and
liabilities recorded at fair value in our consolidated balance sheets are categorized based upon the level of judgment associated with
the inputs used to measure their fair values.
The carrying amounts reported in the Consolidated Balance Sheets for cash and cash equivalents, accounts receivable and accounts
payable approximate fair value due to the immediate or short-term maturity of these financial instruments.
The fair value measurements of our derivative instruments are determined using models that maximize the use of the observable
market inputs including interest rate curves and both forward and spot prices for currencies, and are classified as Level II under the
fair value hierarchy.
Investments with contractual maturities beyond one year may be classified as short-term based on their highly liquid nature and
because such marketable securities represent the investment of cash that is available for current operations. Despite the long-term
nature of their stated contractual maturities, we routinely buy and sell these securities and we believe we have the ability to quickly
sell them to the remarketing agent, tender agent or issuer at par value plus accrued interest in the event we decide to liquidate our
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investment in a particular variable rate demand note. All income generated from these investments is recorded as interest income. We
have not recorded any losses relating to variable rate demand notes.
Short-term investments is comprised of our deferred compensation plan assets. Long-term investments is comprised of our marketable
equity securities and other equity investments. Marketable equity securities are reported at fair value as determined by the most
recently traded price of the securities at the balance sheet date, although the securities may not be readily marketable due to the size of
the available market. Any changes in fair value are recognized in net investment gain. Realized gains and losses on sales of debt
securities are computed under the specific identification method and are included in other (expense) income, net. See Note 4 for
additional information.
Accounts Receivable
The Company records accounts receivable at amortized cost. Prior to establishing payment terms for a new customer, we evaluate the
credit risk of the customer. Credit limits and payment terms established for new customers are re-evaluated periodically based on
customer collection experience and other financial factors. As of December 31, 2025, no customer comprised more than 10% of our
total accounts receivable balance. As of December 31, 2024, no customer comprised more than 10% of our total accounts receivable
balance.
Accounts receivable balances are considered past due when payment has not been received by the date indicated on the relevant
invoice or based on agreed upon terms between the customer and the Company. The Company regularly reviews the need for an
allowance for credit losses related to our outstanding accounts receivable balances using the historical loss-rate method, as well as
assessing asset-specific risks. The assessment of asset-specific risks included the evaluation of relevant available information, from
internal and external sources, relating to current conditions that may affect a customer’s ability to pay, such as the customer’s current
financial condition or credit rating by geographic location, as provided by a third party and/or by customer, if needed, and overall
macro-economic conditions in which the customer operates. The Company pools assets by geographic location to determine if an
allowance should be applied to its accounts receivable balance, assessing the specific country risk rating and overall economics of that
particular country. If elevated risk existed, or customer specific risk indicated the accounts receivable balance was at risk, the
Company would further analyze the need for an allowance related to specific accounts receivable balances. Additionally, the
Company would determine if significant changes to customer country risk rating from period-to-period and from the end of the prior
year to the end of the current quarter would require further review and analysis by the Company. Based on these assessments, an
allowance for credit losses would be recorded if the Company determined that, based on our historical write-offs, which have been
immaterial, and such asset specific risks, there was risk in collectability of the full amount of any accounts receivable.
Accounts Receivable Factoring
Receivables Purchase Agreement
On July 1, 2024, the Company entered into a receivables purchase agreement (the “Factoring Agreement”) with a third-party financial
institution (the “Factor”), which accelerates receivable collection and helps to better manage cash flow. These transactions are
accounted for in accordance with ASC Topic 860 and result in a reduction in accounts receivable because the Factoring Agreement
transfers effective control over, and risk related to the receivables to the buyers. 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. On each sale date, the Factor retains from the sale price a default reserve, up to a required balance, which is held
by the Factor in a reserve account and pledged to the Company. The Factor is entitled to withdraw from the reserve account the sale
price of a defaulted receivable. The balance in the reserve account is included in other assets on the Consolidated Balance Sheets. The
Company at its own expense does have collection and administrative responsibilities for the sold receivables and that is its only
continuing involvement with the Factor. The Company is not compensated for the servicing of the factoring program and deems the
costs of servicing the receivables sold to be immaterial.
On December 19, 2023, the Company entered into a factoring agreement with a third-party financial institution to sell, on a revolving
basis, undivided interests in the Company’s accounts receivable. 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. 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 short-term liability classification of the secured borrowings
was based on the estimated timing of the collection of the accounts receivable which were expected to be received within 12 months.
The receivables purchase agreement was terminated on July 1, 2024 and there were no secured borrowings under this agreement as of
December 31, 2024. See Note 2 for additional information.
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Inventory
Inventory is carried at the lower of cost and estimated net realizable value, with cost being determined using the first-in, first-out
method. Standard costs for material, labor and manufacturing overhead are used to value inventory and are updated at least quarterly.
We establish reserves for estimated excess and obsolete inventory equal to the difference between the cost of the inventory and the
estimated net realizable value of the inventory based on estimated reserve percentages, which consider historical usage, known trends,
inventory age and market conditions. When we dispose of excess and obsolete inventories, the related disposals are charged against
the inventory reserve. See Note 5 for additional information.
Property, Plant and Equipment
Property, plant and equipment, which is stated at cost, is depreciated using the straight-line method over the estimated useful lives of
the assets. Generally, we depreciate building and land improvements from 5 to 39 years, office machinery and equipment from three
to seven years, engineering machinery and equipment from three to seven years, and computer software from 3 to 5 years.
Expenditures for repairs and maintenance are charged to expense as incurred. Major improvements that materially prolong the lives of
the assets are capitalized. Gains and losses on the disposal of property, plant and equipment are recorded in operating loss. See Note 6
for additional information.
Assets Held for Sale
An asset is considered to be held for sale when all the following criteria are met: (i) management commits to a plan to sell the asset;
(ii) the asset is available for immediate sale in its present condition; (iii) actions required to complete the sale of the asset have been
initiated; (iv) sale of the asset is probable and the completed sale is expected to occur within one year; (v) it is unlikely that the
disposal plan will be significantly modified; and (vi) the asset is actively being marketed for sale at a price that is reasonable given its
current market value. The Company records assets held for sale at the lower of their carrying value or fair value.
Intangible Assets
Purchased intangible assets with finite lives are carried at cost less accumulated amortization. Amortization is recorded over the
estimated useful lives of the respective assets. See Note 9 for additional information.
Impairment of Long-Lived Assets and Intangibles
Long-lived assets, such as property, plant and equipment, right of use lease assets and purchased intangibles subject to amortization,
are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated
undiscounted future cash flows expected to be generated by the asset or asset group. If the carrying amount of an asset exceeds its
estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the
fair value of the asset or asset group.
There were no impairment losses for long-lived assets and intangible assets during the years ended December 31, 2025, 2024 and
2023. See Note 9 for additional information.
Goodwill
Goodwill represents the excess purchase price over the fair value of net assets acquired. The Company’s annual impairment
assessment is done at the reporting unit level, which we determined are generally the same as our operating segments, which are
identified in Note 16 to the Consolidated Financial Statements. 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. 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. Any adverse change in these factors could have a significant impact on the recoverability of
goodwill and could have a material impact on our consolidated financial statements. See Note 8 for additional information.
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Convertible Senior Notes
We account for our convertible senior notes with embedded conversion features in accordance with ASC 470-20, under which
convertible debt instruments would only be separated into multiple components if they were issued at a substantial premium or if
embedded derivatives requiring bifurcation were identified. The convertible senior notes (the "2030 Notes" or the “Notes”) were not
issued at a substantial premium, and we analyzed the provisions of the 2030 Notes and did not identify any material embedded
features which would require bifurcation from the host debt. As such, the 2030 Notes are accounted for entirely as a liability, net of
unamortized issuance costs. The carrying amount of the liability is classified as long-term as the instrument does not mature within
one year of the balance sheet date and the holder is not permitted to demand repayment of the principal within one year of the balance
sheet date. However, if conditions to convertibility are met and holders are expected to convert within one year as described further in
Note 11, we may be required to reclassify the carrying amount of the liability to current. Issuance costs are amortized to interest
expense using the effective interest rate method.
Pension Benefit Plan Obligations
The Company maintains a defined benefit pension plans covering employees in certain foreign countries. Pension benefit plan
obligations are based on various assumptions used by our actuaries in calculating these amounts. These assumptions include discount
rates, compensation rate increases, expected return on plan assets, retirement rates and mortality rates. The pension benefit plan
obligation is calculated based on the actuarial present value of expected future payments as of the balance sheet date required to settle
the obligation resulting from employee service rendered prior to that date. This amount is known as the projected benefit obligation.
Actual results that differ from the assumptions and changes in assumptions could affect future expenses and obligations. See Note 13
for additional information.
Lease Obligations
The Company has operating leases for office space, automobiles and various other equipment in the U.S. and in certain international
locations. Other contracts, such as manufacturing agreements and service agreements, are reviewed to determine if they contain
potential embedded leases. These other contracts are specifically reviewed to determine whether we have the right to substantially all
of the economic benefit from the use of any specified assets or the right to direct the use of any specified assets, either of which would
indicate the existence of a lease. Some of our leases include options to renew. For those leases that are reasonably assured to be
renewed, we have included the option to extend as part of our right of use asset and lease liability. The exercise of lease renewal
options is at our sole discretion. The depreciable life of leased assets and leasehold improvements are limited by the expected lease
term. 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. Our lease agreements do not contain any material residual value
guarantees or material restrictive covenants.
Stock-Based Compensation
The Company has two stock incentive plans from which stock options, performance stock units (“PSUs”), restricted stock units
(“RSUs”) and restricted stock are available for grant to employees and directors. Costs related to these awards are recognized over
their vesting periods. See Note 3 for additional information.
Research and Development Costs
Research and development costs include compensation for engineers and support personnel, contracted services, depreciation and
material costs associated with new product development, enhancement of current products and product cost reductions. We
continually evaluate new product opportunities and engage in intensive research for product and software development efforts.
Research and development costs totaled $204.3 million, $221.5 million and $258.3 million for the years ended December 31, 2025,
2024 and 2023, respectively.
Adtran Networks has arrangements with governmental entities for the purposes of obtaining funding for research and development
activities. The Company classifies government grants received under these arrangements as a reduction to research and development
expense incurred. For the years ended December 31, 2025, 2024 and 2023, the Company recognized $11.8 million, $9.2 million and
$5.2 million, respectively, as a reduction of research and development expense.
Advertising Costs
The Company expenses all advertising costs as incurred. Advertising expenses for the years ended December 31, 2025, 2024 and
2023, totaled $0.2 million, $0.1 million and $0.2 million, respectively.
Income Taxes
The provision for income taxes has been determined using the asset and liability approach of accounting for income taxes. Under this
approach, deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities
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are recovered or paid. The provision for income taxes represents income taxes paid or payable for the current year plus the change in
deferred taxes during the year. Deferred taxes result from the difference between financial and tax basis of our assets and liabilities
and are adjusted for changes in tax rates and tax laws when such changes are enacted. Valuation allowances are recorded to reduce
deferred tax assets when it is more likely than not that a tax benefit will not be realized.
In determining whether an uncertain tax position exists, the Company determines, based solely on its technical merits, whether the tax
position is more likely than not to be sustained upon examination, and if so, a tax benefit is measured on a cumulative probability
basis that is more likely than not to be realized upon the ultimate settlement. The Company recognizes interest and penalties related to
unrecognized tax benefits through interest expense and income tax expense, respectively.
Foreign Currency
Transactions with customers that are denominated in foreign currencies are recorded using the appropriate exchange rates from
throughout the year. Assets and liabilities denominated in foreign currencies are remeasured at the balance sheet dates using the
closing rates of exchange between those foreign currencies and the functional currency with any transaction gains or losses reported in
other income, net. Our primary exposures to foreign currency exchange rate movements are with our German and U.K. subsidiaries,
whose functional currencies are the euro and the British pound sterling. Adjustments resulting from translating financial statements of
international subsidiaries are recorded as a component of accumulated other comprehensive income.
Revenue
Revenue is measured based on the consideration expected to be received in exchange for transferring goods or providing services to a
customer and as performance obligations under the terms of the contract are satisfied. Generally, this occurs with the transfer of
control of a product to the customer. For transactions where there are multiple performance obligations, individual products and
services are accounted for separately if they are distinct (if a product or service is separately identifiable from other items and if a
customer can benefit from it on its own or with other resources that are readily available to the customer). The consideration,
including any discounts, is allocated between separate products and services based on their stand-alone selling prices. Stand-alone
selling prices are determined based on the prices at which the separate products and services are sold and are allocated based on each
item’s relative value to the total value of the products and services in the arrangement. For items that are not sold separately, we
estimate stand-alone selling prices primarily using the “expected cost plus a margin” approach. Payment terms are generally 30 days
in the U.S. and typically longer in many geographic markets outside the U.S. Shipping fees collected are recorded as revenue and the
related cost is included in cost of revenue. Revenue, value-added and other taxes collected concurrently with revenue-producing
activities are excluded from revenue. Incremental costs of obtaining a contract, that are recoverable, are capitalized and amortized
over the period that the related revenue is recognized if greater than one year. We have elected to account for shipping fees paid as a
cost of fulfilling the related contract. We have also elected to apply the practical expedient related to the incremental costs of obtaining
contracts and recognize those costs as an expense when incurred if the amortization period of the assets is one year or less. These costs
are included in selling, general and administrative expenses. Capitalized costs with an amortization period greater than one year were
immaterial.
Revenue is generated by two reportable segments: Network Solutions and Services & Support.
Network Solutions Segment - Includes hardware products and software defined next-generation virtualized solutions used in Service
Provider or business networks, as well as prior generation products. The majority of the revenue from this segment is from hardware
revenue.
Hardware and Software Revenue
Revenue from hardware sales is recognized when control is transferred to the customer, which is generally when the products are
shipped. Shipping terms are generally FOB shipping point. Revenue from software license sales is recognized at delivery and transfer
of control to the customer. Revenue is recognized net of estimated discounts and rebates using historical trends. Customers are
typically invoiced when control is transferred and revenue is recognized. Our products generally include assurance-based warranties
of 90 days to five years for product defects, which are accrued at the time products are delivered.
Services & Support Segment - Includes a complete portfolio of maintenance, network implementation and solutions integration and
managed services, which include hosted cloud services and subscription services to complement our Network Solutions segment.
Maintenance Revenue
Our maintenance service periods range from one month to five years. Customers are typically invoiced and pay for maintenance
services at the beginning of the maintenance period. We recognize revenue for maintenance services on a straight-line basis over the
maintenance period as our customers benefit evenly throughout the contract term and deferred revenue, when applicable, are recorded
in current and non-current unearned revenue.
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Network Implementation Revenue
The Company recognizes revenue for network implementation, which primarily consists of engineering, execution and enablement
services at a point in time when each performance obligation is complete. If we have recognized revenue but have not billed the
customer, the right to consideration is recognized as a contract asset that is included in other receivables on the Consolidated Balance
Sheet. The contract asset is transferred to accounts receivable when the completed performance obligation is invoiced to the customer.
See Notes 2 and 16 for additional information on reportable segments.
Unearned Revenue
Unearned revenue primarily represents customer billings on maintenance service programs and unearned revenue related to multiple
element contracts where we still have contractual obligations to our customers. We currently offer maintenance contracts ranging from
one month to five years. Revenue attributable to maintenance contracts is recognized on a straight-line basis over the related contract
term. We currently provide software maintenance and a variety of hardware maintenance services to customers ranging from one
month to five years. When we defer revenue related to multiple performance obligations where we still have contractual obligations,
we also defer the related costs. Current deferred costs are included in prepaid expenses and other current assets on the accompanying
Consolidated Balance Sheets and totaled $2.0 million and $2.2 million as of December 31, 2025 and 2024, respectively. Non-current
deferred costs included in other non-current assets on the accompanying Consolidated Balance Sheets were less than $0.1 million as of
December 31, 2025 and 2024.
Redeemable Non-Controlling Interest
As of December 31, 2025 and 2024, the non-controlling Adtran Networks stockholders’ equity ownership percentage in Adtran
Networks was approximately 29.2% and 33.0%, respectively.
As a result of the effectiveness of the DPLTA on January 16, 2023, the Adtran Networks shares, representing the equity interest in
Adtran Networks held by holders other than the Company, can be tendered at any time and are, therefore, redeemable and must be
classified outside stockholders’ equity. Therefore, the permanent equity noncontrolling interest balance was reclassified to redeemable
non-controlling interest (RNCI) on January 16, 2023 and was remeasured to fair value based on the trading market price of the Adtran
Networks shares.
Subsequently, the carrying value of the RNCI is adjusted to its maximum redemption value at each reporting date when the maximum
redemption value is greater than the initial carrying amount of the RNCI. For the period of time that the DPLTA is in effect, the RNCI
will continue to be presented as RNCI outside of stockholders’ equity in the Consolidated Balance Sheets. See Note 15 for additional
information on RNCI.
Loss per Share
Loss per common share and loss per common share assuming dilution are based on the weighted average number of common shares
and, when dilutive, common equivalent shares outstanding during the year. See Note 18 for additional information.
Loss per common share attributable to ADTRAN Holdings, Inc. - basic and diluted - reflects a $4.1 million and $3.0 million effect of
redemption of RNCI for the years ended December 31, 2025 and 2024, respectively. There was no effect of redemption during the
year ended December 31, 2023. See Note 18 for additional information.
Recent Accounting Pronouncements Not Yet Adopted
In September 2025, the Financial Accounting Standards Board (“FASB”) issued ASU 2025-06, "Intangibles-Goodwill and Other-
Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software," which is intended to
modernize the accounting for the costs of internal-use software given the evolution of software development to the incremental and
iterative development method. The amendments remove all references to prescriptive and sequential development stages and, instead,
require an entity to start capitalizing software costs when management has authorized and committed to funding the software project,
and it is probable that the project will be completed and the software will be used to perform the function intended. The amendments
are effective for annual reporting periods beginning after December 15, 2027, and interim reporting periods within those annual
reporting periods. Early adoption is permitted as of the beginning of an annual reporting period with the amendments to be applied
using a prospective, modified or retrospective transition approach. The Company is currently evaluating the impact of adopting this
guidance on the consolidated financial statements.
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In November 2024, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") 2024-03,
Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of
Income Statement Expenses, as amended by ASU 2025-01, Income Statement—Reporting Comprehensive Income—Expense
Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date, which applies to all public business entities and is
intended to enhance disclosures about specific types of expenses included in the expense captions presented on the face of the income
statement as well as disclosures about selling expenses. The amendments are effective prospectively in the first annual period
beginning after December 15, 2026 and interim reporting periods within annual reporting periods beginning after December 15, 2027.
Early adoption and retrospective application are permitted. The Company is currently evaluating the effect that adoption of ASU
2024-03 will have on our disclosures.
Recently Adopted Accounting Pronouncements
In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") 2023-09,
"Income Taxes (Topic 740): Improvements to Income Tax Disclosures", which is intended to enhance the transparency, decision
usefulness and effectiveness of income tax disclosures. The amendments in this ASU require a public entity to disclose a tabular tax
rate reconciliation, using both percentages and currency, with specific categories. A public entity is also required to provide a
qualitative description of the states and local jurisdictions that make up the majority of the effect of the state and local income tax
category and the net amount of income taxes paid, disaggregated by federal, state and foreign taxes and also disaggregated by
individual jurisdictions. The amendments also remove certain disclosures that are no longer considered cost beneficial. The
amendments are effective prospectively for annual periods beginning after December 15, 2024, and early adoption and retrospective
application are permitted. The Company adopted the new standard with prospective application on January 1, 2025. The adoption of
this standard resulted in additional footnote disclosures. The adoption of this standard did not have a material impact on our
Consolidated Balance Sheet, Consolidated Statement of Income or Consolidated Statement of Cash Flows. See Note 12 for additional
information.
There have been no other recently adopted accounting pronouncements that are expected to have a material effect on the Consolidated
Financial Statements.
Note 2 - Revenue and Receivables
The following is a description of the principal activities from which revenue is generated by reportable segment:
Network Solutions Segment - Includes hardware and software products that enable a digital future which support the Company's
Subscriber, Access and Aggregation, and Optical Networking Solutions.
Services & Support Segment - Includes network design, implementation, maintenance and cloud-hosted services supporting the
Company's Subscriber, Access and Aggregation, and Optical Networking Solutions.
Revenue by Category
In addition to operating under two reportable segments, the Company also reports revenue across three categories – Subscriber
Solutions, Access & Aggregation Solutions and Optical Networking Solutions.
Our Subscriber Solutions portfolio is used by Service Providers to terminate their access services infrastructure at the customer
premises while providing an immersive and interactive experience for residential, business and wholesale subscribers. This revenue
category includes hardware- and software-based products and services. These solutions include fiber termination solutions for
residential, business and wholesale subscribers, Wi-Fi access solutions for residential and business subscribers, Ethernet switching and
network edge virtualization solutions for business subscribers, and cloud software solutions covering a mix of subscriber types.
Our Access & Aggregation Solutions are solutions that are used by communications Service Providers to connect residential
subscribers, business subscribers and mobile radio networks to the Service Providers’ metro network, primarily through fiber-based
connectivity. This revenue category includes hardware- and software-based products and services. Our solutions within this category
are a mix of fiber access and aggregation platforms, precision network synchronization and timing solutions, and access orchestration
solutions that ensure highly reliable and efficient network performance.
Our Optical Networking Solutions are used by communications Service Providers, internet content providers and large-scale
enterprises to securely interconnect metro and regional networks over fiber. This revenue category includes hardware- and software-
based products and services. Our solutions within this category include open optical terminals, open line systems, optical subsystems
and modules, network infrastructure assurance systems, and automation platforms that are used to build high-scale, secure and assured
optical networks.
86
The following table disaggregates revenue by reportable segment and revenue category for the year ended December 31, 2025:
(In thousands)
Network Solutions
Services & Support
Total
Optical Networking Solutions
$
281,771
$
98,541
$
380,312
Subscriber Solutions
336,297
32,779
369,076
Access & Aggregation Solutions
278,843
55,576
334,419
Total
$
896,911
$
186,896
$
1,083,807
The following table disaggregates revenue by reportable segment and revenue category for the year ended December 31, 2024:
(In thousands)
Network Solutions
Services & Support
Total
Optical Networking Solutions
$
210,489
$
90,447
$
300,936
Subscriber Solutions
295,541
35,237
330,778
Access & Aggregation Solutions
232,934
58,072
291,006
Total
$
738,964
$
183,756
$
922,720
The following table disaggregates revenue by reportable segment and revenue category for the year ended December 31, 2023:
(In thousands)
Network Solutions
Services & Support
Total
Optical Networking Solutions
$
407,123
$
85,851
$
492,974
Subscriber Solutions
263,192
34,516
297,708
Access & Aggregation Solutions
304,074
54,344
358,418
Total
$
974,389
$
174,711
$
1,149,100
The aggregate amount of transaction price allocated to remaining performance obligations ("RPO") that have not been satisfied as of
December 31, 2025 related to non-cancellable contractual maintenance agreements, non-cancellable contractual SaaS and subscription
services, and non-cancellable hardware contracts amounted to $209.7 million. The Company will generally satisfy the remaining
performance obligations as we transfer control of the products ordered or services to our customers, excluding maintenance services,
which are satisfied over time.
The following table provides information about accounts receivable, contract assets and unearned revenue from contracts with
customers:
(In thousands)
December 31, 2025
December 31, 2024
Accounts receivable
$
210,687
$
178,030
Contract assets(1)
$
432
$
631
Unearned revenue
$
87,541
$
52,701
Non-current unearned revenue
$
27,143
$
22,065
(1) Included in other receivables on the Consolidated Balance Sheets.
Accounts Receivable
The allowance for credit losses was $1.3 million as of December 31, 2025, and December 31, 2024, related to accounts receivable.
Receivables Purchase Agreement
On July 1, 2024, the Company entered into a receivables purchase agreement (the “Factoring Agreement”) with a third-party financial
institution, which accelerates receivable collection and helps to better manage cash flow. Total accounts receivables factored as of the
end of December 31, 2025, totaled $25.3 million net of $3.8 million retained pursuant to the Factoring Agreement in the reserve
account. Total accounts receivables factored as of the end of December 31, 2024, totaled $18.3 million net of $3.7 million retained
pursuant to the Factoring Agreement in the reserve account. The Factoring Agreement provides for up to $40.0 million in factoring
capacity, subject to eligible receivables and reserve requirements, secured by the receivables.
During the years ended, December 31, 2025 and 2024, the Company received $169.1 million and $78.4 million, in cash proceeds from
the Factoring Agreement, respectively. The cost of the Factoring Agreement totaled $1.4 million and $0.6 million for the years ended
December 31, 2025 and 2024, respectively. The Company received $103.6 million in cash proceeds and incurred costs of $0.9 million
from a previous receivables purchase agreement for the year ended December 31, 2023.
87
On December 19, 2023, the Company entered into a receivables purchase agreement (the “Prior Factoring Agreement”) with a third-
party financial institution to replace a prior accounts receivable purchase agreement and to sell, on a revolving basis, undivided
interests in the Company’s accounts receivable. The Prior Factoring Agreement provided for up to $40.0 million in borrowing
capacity, subject to eligible receivables and reserve requirements, secured by the receivables. The Prior Factoring Agreement qualified
for treatment as a secured borrowing with a pledge of collateral under Accounting Standards Codification ("ASC") Topic 810,
Consolidations. The receivables purchase agreement was terminated on July 1, 2024 and there were no secured borrowings under this
agreement as of December 31, 2024. For the year ended December 31, 2024, the Company incurred program fee expenses of $0.6
million.
Contract Assets
No allowance for credit losses was recorded for the years ended December 31, 2025 and 2024, respectively, related to contract assets.
Unearned Revenue
Of the outstanding unearned revenue balances as of December 31, 2024, $50.5 million were recognized as revenue during the year
ended December 31, 2025. Of the outstanding unearned revenue balances as of December 31, 2023, $50.5 million were recognized as
revenue during the year ended December 31, 2024.
Note 3 – Stock-Based Compensation
2024 Stock Incentive Plans
At the annual meeting of stockholders held on May 8, 2024, the Company’s stockholders approved, upon recommendation of the
Board of Directors, the adoption of the ADTRAN Holdings, Inc. 2024 Employee Stock Incentive Plan (“2024 Employee Plan”) and
the ADTRAN Holdings, Inc. 2024 Directors Stock Plan (“2024 Directors Plan”). No additional awards may be granted under the
Company’s previous stock incentive plans, including the 2020 Employee Stock Incentive Plan, the 2020 Directors Stock Plan, or the
2015 Employee Stock Incentive Plan. Outstanding awards granted under the Company's prior equity incentive plans will remain
subject to the terms of such applicable plans, and shares under such plans that are cancelled or forfeited will be available for issuance
under the 2024 Employee Plan or the 2024 Directors Plan, as applicable.
Under the 2024 Employee Plan, the Company is authorized to issue 4.0 million shares of common stock to certain employees, key
service providers and advisors through incentive stock options, non-qualified stock options, stock appreciation rights, RSUs and
restricted stock, any of which may be subject to performance-based conditions. RSUs and restricted stock granted under the 2024
Employee Plan will typically vest pursuant to a four-year vesting schedule beginning on the first anniversary of the grant date. Stock
options granted under the 2024 Employee Plan will typically become exercisable beginning after one year of continued employment,
normally pursuant to a four-year vesting schedule beginning on the first anniversary of the grant date and have a ten-year contractual
term. Stock options, RSUs and restricted stock granted under the 2024 Employee Plan reduce the shares authorized for issuance under
the 2024 Employee Plan by one share of common stock for each share underlying the award. Forfeitures, cancellations and expirations
of awards granted under the prior employee stock incentive plans increase the shares authorized for issuance under the 2024 Employee
Plan by one share of common stock for each share underlying the award.
Under the 2024 Directors Plan, the Company is authorized to issue 0.7 million shares of common stock through stock options,
restricted stock and RSUs to non-employee directors. Stock awards issued under the 2024 Directors Plan typically will become vested
in full on the first anniversary of the grant date. Stock options issued under the 2024 Directors Plan will have a ten-year contractual
term. Stock options, restricted stock and RSUs granted under the 2024 Directors Plan reduce the shares authorized for issuance under
the 2024 Directors Plan by one share of common stock for each share underlying the award. Forfeitures, cancellations and expirations
of awards granted under the prior directors stock plan increase the shares authorized for issuance under the 2024 Directors Plan by one
share of common stock for each share underlying the award.
As of December 31, 2025, 4.7 million shares were available for issuance pursuant to awards that may be made in the future under
stockholder-approved equity plans.
For the years ended December 31, 2025, 2024 and 2023, stock-based compensation expense was $10.1 million, $16.0 million and
$16.4 million respectively.
88
The following table summarizes stock-based compensation expense related to stock options, PSUs, RSUs and restricted stock for the
years ended December 31, 2025, 2024 and 2023:
(In thousands)
2025
2024
2023
Stock-based compensation expense included in cost of revenue
$
986
$
1,142
$
1,293
Selling, general and administrative expenses
5,971
11,058
11,066
Research and development expenses
3,105
3,788
4,022
Stock-based compensation expense included in operating expenses
9,076
14,846
15,088
Total stock-based compensation expense
10,062
15,988
16,381
Tax benefit for expense associated with stock based compensation
(1,267)
(1,976)
(3,837)
Total stock-based compensation expense, net of tax
$
8,795
$
14,012
$
12,544
PSUs, RSUs and Restricted stock
The following table summarizes the activity related to our PSUs, RSUs and restricted stock for the year ended December 31, 2025:
Number of
shares (In
thousands)
Weighted
Average Grant
Date Fair Value
(Per Share)
Unvested PSUs, RSUs and restricted stock outstanding, December 31, 2024
2,335
$
13.22
PSUs, RSUs and restricted stock granted
1,308
$
10.33
PSUs, RSUs and restricted stock vested
(572)
$
12.70
PSUs, RSUs and restricted stock forfeited
(1,104)
$
13.87
Unvested PSUs, RSUs and restricted stock outstanding, December 31, 2025
1,967
$
10.70
The fair value of PSUs with performance conditions, RSUs and restricted stock is equal to the closing price of the Company's stock on
the date of grant. The fair value of PSUs with market conditions is calculated using a Monte Carlo simulation valuation method.
The following table details the significant assumptions that impact the fair value estimate of the market-based PSUs:
2025
2024
2023
Estimated fair value per share
$
12.32
$
8.29
$
19.26
Expected volatility
55.09%
51.34%
51.52%
Risk-free interest rate
4.22%
4.12%
3.93%
Expected dividend yield
—
—
2.55%
For market-based PSUs, the number of shares of common stock earned by a recipient is subject to a market condition based on
Adtran’s relative total stockholder return against all companies in the NASDAQ Telecommunications Index at the end of a three-year
performance period. Depending on the relative total stockholder return over the performance period, the recipient may earn from 0%
to 150% of the shares underlying the PSUs, with the shares earned distributed upon the vesting. The fair value of the award is based
on the market price of our common stock on the date of grant, adjusted for the expected outcome of the impact of market conditions
using a Monte Carlo Simulation valuation method. A portion of the granted PSUs vests and the underlying shares become deliverable
upon the death or disability of the recipient or upon a change of control of Adtran, as defined by the 2020 Employee Plan. The
recipients of the PSUs receive dividend credits based on the shares of common stock underlying the PSUs. The dividend credits vest
and are earned in the same manner as the PSUs and are paid in cash upon the issuance of common stock for the PSUs.
The fair value of RSUs and restricted stock is equal to the closing price of our stock on the grant date. RSUs and restricted stock vest
ratably over four-year and one-year periods, respectively.
We will continue to assess the assumptions and methodologies used to calculate the estimated fair value of stock-based compensation.
If circumstances change, and additional data becomes available over time, we may change our assumptions and methodologies, which
may materially impact our fair value determination.
As of December 31, 2025, total unrecognized compensation expense related to the non-vested portion of market-based PSUs, RSUs
and restricted stock was approximately $13.1 million, which is expected to be recognized over an average remaining recognition
period of 2.4 years. Unrecognized compensation expense will be adjusted for actual forfeitures as they occur.
89
Stock Options
The following table summarizes the activity related to our stock options for the year ended December 31, 2025:
Number of
Options
(In thousands)
Weighted
Average
Exercise Price
(Per share)
Weighted Average
Remaining
Contractual Life
in Years
Aggregate
Intrinsic Value
(In thousands)
Stock options outstanding, December 31, 2024
2,944
$
9.86
4.98
$
3,762
Stock options exercised
(273) $
6.70
Stock options forfeited
(233) $
14.65
Stock options expired
(426) $
14.01
Stock options outstanding, December 31, 2025
2,012
$
8.86
4.81
$
3,559
Stock options exercisable, December 31, 2025
1,828
$
7.83
4.95
$
3,559
As of December 31, 2025, there was $0.1 million of unrecognized compensation expense related to stock options which will be
recognized over the remaining weighted-average period of 0.4 years. No stock options were granted during 2025.
The determination of the fair value of stock options was estimated using the Monte Carlo method and is affected by the historical
volatility of its stock price, as well as assumptions regarding a number of complex and subjective variables that may have a significant
impact on the fair value estimate. 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.
All of the options were previously issued at exercise prices that approximated fair market value at the date of grant.
The aggregate intrinsic value of stock options represents the total pre-tax intrinsic value (the difference between the Company's
closing stock price on the last trading day of the quarter and the exercise price, multiplied by the number of in-the-money options) that
would have been received by the option holders had all option holders exercised their options on December 31, 2025. The amount of
aggregate intrinsic value was $3.6 million as of December 31, 2025, which will change based on the fair market value of the
Company's stock. The total pre-tax intrinsic value of options exercised during the years ended December 31, 2025 and 2024 was $0.8
million and $0.3 million, respectively.
The following table further describes our stock options outstanding as of December 31, 2025:
Options Outstanding
Options Exercisable
Range of
Exercise Prices (Per Share)
Options
Outstanding at
December 31, 2025
(In thousands)
Weighted Average
Remaining
Contractual Life
in Years
Weighted
Average
Exercise Price
(Per Share)
Options
Exercisable at
December 31, 2025
(In thousands)
Weighted
Average
Exercise
Price
$5.23 – $5.23
959
7.83
$
5.23
959
$
5.23
$5.24 – $8.58
329
1.07
$
7.95
329
$
7.95
$8.59 – $12.17
496
2.02
$
12.10
496
$
12.10
$12.18 – $19.08
228
3.27
$
18.34
44
$
15.31
2,012
1,828
The Black-Scholes option pricing model (the “Black-Scholes Model”) is used to determine the estimated fair value of stock option
awards on the date of grant. The Black-Scholes Model requires the input of certain assumptions that involve judgment. Because our
stock options have characteristics significantly different from those of traded options, and because changes in the input assumptions
can materially affect the fair value estimate, existing models may not provide reliable measures of fair value of our stock options. 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 our stock price and employee exercise behaviors.
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 our stock price and employee exercise behaviors.
90
Note 4 – Investments
The Company’s cash equivalents and investments held at fair value are categorized into this hierarchy as follows:
Fair Value Measurements as of December 31, 2025 Using
(In thousands)
Classification
Fair Value
Quoted Prices
in Active
Market for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Cash equivalents
Money market funds
Cash and cash equivalents
$
245
$
245
$
—
$
—
Marketable equity securities
Marketable equity securities - various
industries
Long-term investments
1,022
1,022
—
—
Deferred compensation plan assets
Short-term investments -
deferred compensation
35,174
35,174
—
—
Total
$
36,441
$
36,441
$
—
$
—
Fair Value Measurements as of December 31, 2024 Using
(In thousands)
Classification
Fair Value
Quoted Prices
in Active
Market for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Cash equivalents
Money market funds
Cash and cash equivalents
$
5,538
$
5,538
$
—
$
—
Marketable equity securities
Marketable equity securities - various
industries
Long-term investments
1,068
1,068
—
—
Deferred compensation plan assets
Long-term investments
30,991
30,991
—
—
Total
$
37,597
$
37,597
$
—
$
—
Market prices are obtained from a variety of industry standard data providers, large financial institutions and other third-party sources.
These multiple market prices are used as inputs into a distribution-curve-based algorithm to determine the daily market value of each
security.
U.S. GAAP establishes a three-level valuation hierarchy based upon observable and unobservable inputs for fair value measurement
of financial instruments:
•
Level 1 – Observable outputs; values based on unadjusted quoted prices for identical assets or liabilities in an active
market;
•
Level 2 – Significant inputs that are observable; values based on quoted prices in markets that are not active or model
inputs that are observable either directly or indirectly;
•
Level 3 – Significant unobservable inputs; values based on prices or valuation techniques that require inputs that are both
unobservable and significant to the overall fair value measurement; inputs could include information supplied by
investees.
Note 5 – Inventory
As of December 31, 2025 and 2024, inventory, net was comprised of the following:
(In thousands)
2025
2024
Raw materials
$
78,230
$
106,384
Work in process
12,801
9,724
Finished goods
124,705
145,449
Total Inventory, net
$
215,736
$
261,557
91
Inventory reserves are established for estimated excess and obsolete inventory equal to the difference between the cost of the
inventory and the estimated net realizable value of the inventory based on estimated reserve percentages, which consider historical
usage, known trends, inventory age and market conditions.
During the year ended December 31, 2024, the company recorded an inventory write-down of $8.6 million, as a result of a strategy
shift which included discontinuance of certain product lines in connection with the Business Efficiency Program of which $4.1 million
relates to inventory write-downs and $4.5 million relates to other charges all of which are included in cost of revenue in the
Consolidated Statements of Loss. In connection with the Company’s restructuring efforts, during the year ended December 31, 2023,
management determined that there would be a discontinuation of product lines in the Network solutions segment and, as a result,
wrote-down related inventories of $24.3 million, which is included in cost of revenue in the Consolidated Statements of Loss.
Note 6 – Property, Plant and Equipment, net
As of December 31, 2025 and 2024, property, plant and equipment, net was comprised of the following:
(In thousands)
2025
2024
Engineering and other equipment
$
131,665
$
184,694
Building
52,586
50,871
Computer hardware and software
109,703
113,241
Building and land improvements
43,271
39,979
Furniture and fixtures
19,287
20,994
Land
3,073
2,989
Total Property, Plant and Equipment
359,585
412,768
Less: accumulated depreciation
(235,201)
(306,314)
Total Property, Plant and Equipment, net
$
124,384
$
106,454
Long-lived assets used in operations are reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable and the undiscounted cash flows estimated to be generated by the asset are less
than the asset’s carrying value. During the years ended December 31, 2025 and 2024, no impairment charges were recognized.
Depreciation expense was $30.3 million, $27.7 million and $30.2 million for the years ended December 31, 2025, 2024 and 2023,
respectively, which is recorded in cost of revenue, selling, general and administrative expenses and research and development
expenses in the Consolidated Statements of Loss.
Assets Held For Sale
On December 31, 2025, the Company determined that it continues to meet the held for sale criteria pursuant to ASC 360, "Impairment
and Disposal of Long-Live Assets" on a portion of the Company's property located at its Huntsville, Alabama campus and ceased
recording depreciation on the assets. The Company continues to assess the probability that the sale of its headquarters in Huntsville
will occur and has determined it is probable of occurring in the next twelve months.
The total carrying value of assets held for sale was $11.9 million as of December 31, 2025 and 2024 and is separately recorded on the
balance sheet.
Note 7 – Leases
We have operating leases for office space, automobiles and various other equipment in the U.S. and in certain international locations.
As of December 31, 2025, our operating leases had remaining lease terms of 1 month to 155 months, some of which included options
to extend the leases for up to one year, and some of which included options to terminate the leases within three months. Supplemental
balance sheet information related to operating leases is as follows:
December 31,
December 31,
(In thousands)
Classification
2025
2024
Assets
Operating lease assets
Other non-current assets
$
32,072
$
30,342
Total lease asset
$
32,072
$
30,342
Liabilities
Current operating lease liability
Accrued expenses and other liabilities
$
7,092
$
7,154
Non-current lease obligations
Non-current lease obligations
27,000
25,925
Total lease liability
$
34,092
$
33,079
92
Lease expense related to short-term leases was approximately $0.1 million, $0.2 million and $0.1 million for the years ended
December 31, 2025, 2024 and 2023, respectively, and is included in cost of revenue, selling, general and administrative expenses and
research and development expenses in the Consolidated Statements of Loss. Lease expense related to variable lease payments that do
not depend on an index or rate, such as real estate taxes and insurance reimbursements, was $0.1 million, $0.3 million and $0.7 million
for the year ended December 31, 2025, 2024 and 2023, respectively.
The components of lease expense included in the Consolidated Statements of Loss were as follows:
For the Year Ended December 31,
(In thousands)
2025
2024
2023
Cost of revenue
$
40
$
150
$
163
Research and development expenses
51
412
990
Selling, general and administrative expenses
9,674
9,213
9,708
Total operating lease expense
$
9,765
$
9,775
$
10,861
As of December 31, 2025, operating lease liabilities by future maturity, included on the Consolidated Balance Sheet were as follows:
(In thousands)
Amount
2026
$
9,395
2027
8,376
2028
7,885
2029
3,884
2030
3,236
Thereafter
10,648
Total lease payments
$
43,424
Less: Interest
(9,332)
Present value of lease liabilities
$
34,092
Future operating lease payments include $6.4 million related to options to extend lease terms that are reasonably certain of being
exercised. There are no legally binding leases that have not yet commenced.
An incremental borrowing rate is used based on information available at the commencement date in determining the present value of
lease payments. The incremental borrowing rate is determined on a portfolio basis by grouping leases with similar terms, as well as
grouping leases based on a U.S. dollar or euro functional currency. The following table provides information about our weighted
average lease terms and weighted average discount rates:
As of December 31,
Weighted average remaining lease term (years)
2025
2024
Operating leases with USD functional currency
6.8
7.3
Operating leases with EUR functional currency
6.5
5.9
Weighted average discount rate
Operating leases with USD functional currency
3.90%
3.64%
Operating leases with EUR functional currency
7.11%
4.50%
Note 8 – Goodwill
The changes in the carrying amount of goodwill for the year ended December 31, 2025 and December 31, 2024 are as follows:
(In thousands)
Network Solutions
Services & Support
Total
As of December 31, 2023
$
301,766
$
56,384
$
358,150
Goodwill impairment
(295,298)
—
(295,298)
Foreign currency translation adjustments
(6,468)
(3,466)
(9,934)
As of December 31, 2024
$
—
$
52,918
$
52,918
Foreign currency translation adjustments
—
7,065
7,065
As of December 31, 2025
$
—
$
59,983
$
59,983
The Company’s annual impairment test date was October 1, 2025. Based on our analysis, management concluded that there was no
impairment of goodwill as of that date. Between the annual impairment date of October 1, 2025 and year-end December 31, 2025,
there were no triggering events.
93
During the first quarter of 2024, qualitative factors such as a decrease in the Company’s market capitalization, lower service provider
spending and delayed holding patterns of inventory with respect to customers caused us to reduce our forecasts, triggering a
quantitative impairment assessment for our reporting units. The Company determined the fair value of each reporting unit using a
combination of an income approach and a market approach. The significant inputs and assumptions used in the determination of the
fair value of our reporting units, based on future cash flows for the reporting units, requires significant judgment and the use of
estimates and assumptions related to revenue growth rates, earnings before interest, taxes, depreciation and amortization ("EBITDA")
margins, discount rate, peer group determination, revenue and EBITDA market multiple. The Company determined upon its
quantitative impairment assessment to recognize a $297.4 million non-cash goodwill impairment charge for the Network Solutions
reporting unit. The quantitative impairment analysis indicated there was no impairment of the Services & Support goodwill during the
first quarter of 2024.
The gross amount of accumulated goodwill impairment losses as of December 31, 2025 and 2024 total $297.4 million for our Network
Solutions reporting unit and $37.9 million for our Services & Support reporting unit.
Note 9 – Intangible Assets, net
Intangible assets as of December 31, 2025 and 2024, consisted of the following:
2025
2024
(In thousands)
Weighted
Average
Useful Life
(in years)
Gross Value
Accumulated
Amortization
Net Value
Gross Value
Accumulated
Amortization
Net Value
Customer relationships
11.0
$
56,244
$
(25,306) $
30,938
$
51,165
$
(18,778) $
32,387
Backlog
1.7
61,081
(61,081)
—
53,839
(52,258)
1,581
Developed technology
7.5
429,329
(168,073)
261,256
346,923
(99,588)
247,335
Licensed technology
9.0
5,900
(5,108)
792
5,900
(4,452)
1,448
Licensing agreements
8.5
560
(446)
114
560
(407)
153
Trade names
2.8
31,598
(30,651)
947
27,851
(25,862)
1,989
Total
$
584,712
$
(290,665) $
294,047
$
486,238
$
(201,345) $
284,893
Intangible assets are reviewed for impairment whenever events and circumstances indicate impairment may have occurred. During the
first quarter of 2024, qualitative factors such as a decrease in the Company’s market capitalization, cautious service provider spending
due to economic uncertainty and continued customer inventory adjustments triggered a quantitative reassessment of our estimated
future undiscounted cash flows for the Network Solutions asset group. The significant inputs and assumptions used in the
determination of the cash flows expected to be generated by the asset group, requires significant judgment and the use of estimates and
assumptions related to revenue growth rates, EBITDA margins, peer group determination, and disposition exit multiple. The Company
determined that our estimated future undiscounted cash flows exceeded the carrying value of our asset groups. No impairment losses
of intangible assets were recorded during the years ended December 31, 2025, 2024 and 2023.
During the year ended December 31, 2025, the Company acquired $38.8 million of developed technology assets with a weighted
average amortization period of three years and with no expected residual value.
Amortization expense was $62.9 million, $63.0 million and $82.8 million for the years ended December 31, 2025, 2024 and 2023,
respectively, and was included in cost of revenue, selling, general and administrative expenses and research and development
expenses in the Consolidated Statements of Loss.
As of December 31, 2025, estimated future amortization expense of intangible assets was as follows:
As of
(In thousands)
December 31, 2025
2026
$
68,285
2027
63,081
2028
54,148
2029
47,084
2030
45,249
Thereafter
16,200
Total
$
294,047
94
Note 10 – Credit Agreement
The carrying amounts of the Company's revolving credit agreement in its Consolidated Balance Sheets were as follows:
As of December 31,
(In thousands)
2025
2024
Wells Fargo credit agreement
$
25,000
$
189,576
Total non-current revolving credit facility
$
25,000
$
189,576
As of December 31, 2025 and 2024, the estimated fair value of our revolving credit agreement, approximates the carrying value. As of
December 31, 2025 and 2024, the weighted average interest rate on our revolving credit agreement was 8.98% and 8.64%,
respectively.
Revolving Credit Agreement
On July 18, 2022, ADTRAN, Inc., as the borrower ("U.S. Borrower"), and the Company entered into a credit agreement with a
syndicate of banks, including Wells Fargo Bank, National Association, as administrative agent (“Administrative Agent”), and the
other lenders named therein (the “Original Credit Agreement”), as amended by the First Amendment to Credit Agreement, dated
August 9, 2023 (“Amendment No. 1”), the Second Amendment to Credit Agreement, dated January 16, 2024 (“Amendment No. 2”),
the Third Amendment to Credit Agreement, dated March 12, 2024 (“Amendment No. 3”), the Fourth Amendment to Credit
Amendment, dated June 4, 2024 among Adtran Networks (the "German Borrower") and the parties set forth above ("Amendment No.
4") and the Fifth Amendment to Credit Agreement and Waiver, dated May 6, 2025, among the German Borrower and the parties set
forth above (“Amendment No. 5”; the Original Credit Agreement as amended by Amendment No. 1, Amendment No. 2. Amendment
No. 3, Amendment No. 4 and Amendment No. 5, the “Existing Credit Agreement”).
On September 16, 2025, the U.S. Borrower, the German Borrower, and the lenders party thereto, including the Administrative Agent,
entered into the Sixth Amendment and Consent to Credit Agreement, dated September 16, 2025 (“Amendment No. 6”; the Existing
Credit Agreement as amended by Amendment No. 6, the “Amended Credit Agreement”). Amendment No. 6, among other things, (i)
provides for a consent from the lenders to the issuance by the Company of new unsecured convertible indebtedness in an amount not
to exceed $230.0 million, notwithstanding the cap on the amount of Permitted Convertible Indebtedness (as defined in the Amended
Credit Agreement) the Company is permitted to incur, (ii) requires that the net cash proceeds of the new unsecured convertible
indebtedness be used to (a) repay outstanding revolving credit loans under the Amended Credit Agreement, (b) pay fees, costs, and
expenses related to Amendment No. 6 and the issuance of the new unsecured convertible indebtedness and (c) cash collateralize the
obligations of the Company and its subsidiaries under the Amended Credit Agreement (with such cash only being permitted to be
withdrawn for the purpose of financing the purchase of additional outstanding shares of Equity Interests (as defined in the Amended
Credit Agreement) of the German Borrower that were not owned by the Company and its subsidiaries as of August 9, 2023 pursuant
to Section 5, paragraph 1 of the DPLTA), and (iii) after the prepayment contemplated in the foregoing clause (ii)(a) and the provision
of cash collateral contemplated in the foregoing clause (ii)(c), amends provisions governing the Subline (as defined below) to provide
that future prepayments in respect of borrowings under the Subline will no longer permanently reduce the commitments in respect of
the Subline.
As of December 31, 2025, the Amended Credit Agreement provided for a secured revolving credit facility of up to $350.0 million of
borrowings, $50.0 million of which is solely available to the German Borrower.
As of December 31, 2025, the Company’s borrowings under the revolving line of credit were $25.0 million. The credit facilities
provided under the Amended Credit Agreement mature in July 2027, but the U.S. Borrower may request extensions subject to
customary conditions. In addition, the U.S. Borrower may utilize up to $50.0 million of the $350.0 million total revolving facility for
the issuance of letters of credit. As of December 31, 2025, the U.S. Borrower had a total of $5.8 million in letters of credit under the
Amended Credit Agreement, leaving a net amount (after giving effect to the $25.0 million of outstanding borrowings described above)
of $319.2 million available for future borrowings, based on debt covenant compliance metrics. Any future credit extensions under the
Amended Credit Agreement are subject to customary conditions precedent. The proceeds of any loans may be used as described
above, as well as for working capital and other general corporate purposes.
Moreover, the Amended Credit Agreement provides for a sublimit under the existing $350.0 million revolving commitments in an
aggregate amount of $50.0 million (“Subline”), which Subline is available for borrowings by the German Borrower. The Company
had no borrowings under the Subline as of December 31, 2025. The existing swing line sublimit and letter of credit sublimit under the
Amended Credit Agreement remain available to the U.S. Borrower (and not to the German Borrower). Otherwise, the loans under the
Subline are subject to substantially the same terms and conditions under the Amended Credit Agreement (including with respect to the
interest rate and maturity date) as the other existing revolving commitments.
95
All U.S. borrowings under the Amended Credit Agreement bear interest at a rate tied to the Base Rate (as defined in the Amended
Credit Agreement) or SOFR, at the Company’s option, and all E.U. borrowings bear interest at a rate tied to the Euro Interbank
Offered Rate as administered by the European Money Markets Institute (or a comparable or successor administrator approved by the
Administrative Agent), in each case plus applicable margins which vary based on the consolidated net leverage ratio of the Company
and its subsidiaries as determined pursuant to the terms of the Amended Credit Agreement. Default interest is 2.00% per annum in
excess of the rate otherwise applicable.
The Company made certain representations and warranties to the lenders in the Amended Credit Agreement that are customary for
credit arrangements of this type. The Company also agreed to maintain a Consolidated Total Net Leverage Ratio of 5.00x, a
Consolidated Senior Secured Net Leverage Ratio of 3.25x (4.0x to 3.5x during a “Springing Covenant Period,” as defined below) and
a Consolidated Fixed Charge Coverage Ratio of 1.25x (as such ratios are defined in the Amended Credit Agreement). A “Springing
Covenant Event” occurs when at least sixty percent (60.0%) of the outstanding shares of Adtran Networks that were not owned by the
Company and its subsidiaries as of August 9, 2023 have been tendered and purchased by the Company. Upon the occurrence of a
Springing Covenant Event, the Company will enter a “Springing Covenant Period”, defined as the fiscal quarter in which a Springing
Covenant Event occurs and the three (3) consecutive fiscal quarters thereafter. During a Springing Covenant Period, the Company’s
leverage ratios are increased. In addition, the cash and cash equivalents of the credit parties must be at least $50.0 million and the cash
and cash equivalents of the Company and its subsidiaries must be at least $70.0 million. As of December 31, 2025, the Company was
in compliance with all covenants under the Credit Agreement.
The Amended Credit Agreement also contains customary events of default, such as misrepresentation and a default in the performance
or observance of any covenant (subject to customary cure periods and materiality thresholds). Upon the occurrence and during the
continuance of an event of default, the Administrative Agent is entitled to take various actions, including the acceleration of all
amounts due under the Amended Credit Agreement.
All obligations under the Amended Credit Agreement (including under the Subline) are guaranteed by the U.S. Borrower and certain
subsidiaries of the U.S. Borrower (“Full Facility Guarantors”). To secure such guarantees, the U.S. Borrower and the Full Facility
Guarantors have granted security interests in favor of the Administrative Agent over substantially all of their tangible and intangible
assets, and the U.S. Borrower has granted mortgages in favor of the Administrative Agent over certain owned real estate assets.
Certain of the German Borrower's subsidiaries (the “Subline Guarantors”) have also provided a guarantee solely of the obligations in
respect of the Subline. Furthermore, to secure such guarantees, the German Borrower and the Subline Guarantors have granted
security interests in favor of the Administrative Agent over substantially all of their tangible and intangible assets. Upon repayment in
full and termination of the Subline, the guarantees by the Subline Guarantors and the liens granted by the German Borrower and the
Subline Guarantors to secure obligations under the Subline will be released.
Note 11 – Convertible Senior Notes and Capped Calls
The outstanding principal and carrying value of the convertible senior notes were as follows:
As of
(In thousands)
December 31, 2025
Convertible senior notes
$
201,250
Less: unamortized debt issuance costs
(8,212)
Non-current convertible senior notes, net of debt issuance costs
$
193,038
The estimated fair value of the 2030 Notes was $217.5 million as of December 31, 2025. The estimated fair value of the 2030 Notes,
based on Level 2 inputs of the valuation hierarchy, were determined based on the quoted bid prices of the 2030 Notes in an over-the-
counter market on the last trading day of the reporting period.
The effective interest rate of the 2030 Notes over their expected life is 4.7%. The following is a summary of interest expense for the
2030 Notes:
For the Year Ended
(In thousands)
December 31, 2025
Contractual interest
$
2,150
Amortization of issuance costs
441
Total interest expense
$
2,591
On September 19, 2025, the Company issued $201.3 million principal amount of its 3.75% convertible senior notes due September 15,
2030. The 2030 Notes were issued pursuant to, and are governed by, an indenture (the “Indenture”), dated as of September 19, 2025,
between the Company and U.S. Bank Trust Company, National Association, as trustee (the “Trustee”). The 2030 Notes are the
Company’s senior, unsecured obligations and bear interest at a rate of 3.75% per year payable semi-annually in arrears on March 15
96
and September 15 of each year, beginning on March 15, 2026. Each $1,000 principal amount of the 2030 Notes will be convertible
into 86.8206 shares of the Company’s common stock, which is equivalent to a conversion price of approximately $11.52 per share,
subject to adjustment upon the occurrence of specified events. In addition, if certain corporate events that constitute a “make-whole
fundamental change” (as defined in the Indenture) occur, then the conversion rate will, in certain circumstances, be increased for a
specified period of time.
The 2030 Notes are convertible at the option of the holders of the 2030 Notes before June 15, 2030, only under the following
circumstances: (1) during any calendar quarter (and only during such calendar quarter) commencing after the calendar quarter ending
on December 31, 2025, if the last reported sale price per share of the Company’s common stock exceeds 130% of the conversion price
for each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the
last trading day of the immediately preceding calendar quarter; (2) during the five consecutive business days immediately after any 10
consecutive trading day period (such 10 consecutive trading day period, the “measurement period”) if the trading price per $1,000
principal amount of the 2030 Notes for each trading day of the measurement period was less than 98% of the product of the last
reported sale price per share of our common stock on such trading day and the conversion rate on such trading day; (3) upon the
occurrence of certain corporate events or distributions on the Company’s common stock; or (4) if the Company calls (or is deemed to
have called) the 2030 Notes for redemption. From and after June 15, 2030, noteholders may convert their 2030 Notes at any time at
their election until the close of business on the second scheduled trading day immediately before the maturity date. The Company will
settle conversions by paying cash up to the aggregate principal amount of the 2030 Notes to be converted and paying or delivering, as
applicable, cash, shares of its common stock or a combination of cash and shares of its common stock, at the Company’s election, in
respect of the remainder, if any, of its conversion obligation in excess of the aggregate principal amount of the Notes being converted,
based on the applicable conversion rate.
The 2030 Notes will be redeemable, in whole or in part (subject to certain limitations described below), at the Company’s option at
any time, and from time to time, on or after September 20, 2028 and on or before the 46th scheduled trading day immediately before
the maturity date, but only if (i) the Notes are “Freely Tradable” (as defined in the Indenture) as of the date the Company sends the
related redemption notice, and all accrued and unpaid additional interest, if any, has been paid in full as of the most recent interest
payment date occurring on or before the date the Company sends the related redemption notice; and (ii) the last reported sale price per
share of the Company’s common stock exceeds 130% of the conversion price on (1) each of at least 20 trading days, whether or not
consecutive, during the 30 consecutive trading days ending on, and including, the trading day immediately before the date the
Company sends the related redemption notice; and (2) the trading day immediately before the date the Company sends such
redemption notice. However, the Company may not redeem less than all of the outstanding Notes unless at least $70.0 million
aggregate principal amount of Notes are outstanding and not called for redemption as of the time the Company sends, and after giving
effect to, the related redemption notice. The redemption price will be a cash amount equal to the principal amount of the Notes to be
redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. In addition, calling (or the deemed calling
of) any Note for redemption will constitute a “make-whole fundamental change” with respect to that Note, in which case the
conversion rate applicable to the conversion of that Note will be increased in certain circumstances if it is converted during the related
redemption conversion period. No sinking fund is provided for the 2030 Notes, which means the Company is not required to redeem
or retire the 2030 Notes periodically.
If certain corporate events that constitute a “fundamental change” (as defined in the Indenture) occur, then, subject to a limited
exception for certain cash mergers, noteholders may require the Company to repurchase their Notes at a cash repurchase price equal to
the principal amount of the Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental
change repurchase date. The definition of “fundamental change” includes certain business combination transactions involving the
Company and certain de-listing events with respect to the Company’s common stock.
Capped Calls
In connection with the pricing of the 2030 Notes and the exercise of the initial purchasers’ option to purchase additional 2030 Notes,
the Company entered into privately negotiated capped call transactions with one of the initial purchasers of the 2030 Notes or its
affiliate and certain other financial institutions pursuant to capped call confirmations (collectively, the “Capped Calls”). The premiums
paid for the purchases of the Capped Calls were approximately $17.6 million. The Capped Calls have an initial strike price of
approximately $11.52 per share, subject to certain adjustments substantially similar to those applicable to the corresponding 2030
Notes. The Capped Calls have an initial cap price of approximately $15.51 per share, subject to certain adjustments. The Capped Calls
cover, subject to anti-dilution adjustments, approximately 17.5 million shares of the Company’s common stock.
The Capped Calls are generally expected to reduce potential dilution to the Company’s common stock and/or offset any cash
payments that the Company is required to make in excess of the principal amount of any converted 2030 Notes, with such reduction
and/or offset subject to a cap, based on the cap price of the Capped Calls.
The Capped Calls are separate transactions and are not part of the terms of the 2030 Notes. The Capped Calls do not meet the criteria
for separate accounting as a derivative as they are indexed to the Company's stock and meet the requirements to be classified in equity
97
and, as such, are not remeasured each reporting period. The premiums paid for the Capped Calls were included as a net reduction to
additional paid-in capital within stockholders’ equity during the year ended December 31, 2025.
Note 12 – Income Taxes
The components of income tax expense for the years ended December 31, 2025, 2024 and 2023 are as follows:
(In thousands)
2025
2024
2023
Current
Federal
$
1,042
$
(1,456)
$
2,545
State
458
575
26
International
7,340
2,645
10,004
Total Current
8,840
1,764
12,575
Deferred
Federal
142
357
46,672
State
17
(405)
6,607
International
(4,006)
5,624
(37,555)
Total Deferred
(3,847)
5,576
15,724
Total Income Tax Expense
$
4,993
$
7,340
$
28,299
As further described in Note 1, Summary of Significant Accounting Policies, the Company has elected to prospectively adopt the
guidance in ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Taxes Disclosures, or ASU 2023-09. The
following table presents the income taxes paid disaggregated by domestic, state and international taxes, with further disaggregation by
jurisdiction in accordance with the guidance under ASU 2023-09.
(In thousands)
2025
Federal
$
(436)
State
515
International
United Kingdom
1,607
India
977
Poland
618
Germany
497
Other
1,666
Total cash paid for income taxes, (net of refunds)
$
5,444
During the years ended, December 31, 2024 and 2023, the Company paid cash for income taxes, net of refunds, of $6.7 million and
$18.6 million, respectively.
98
The following table is a reconciliation of the U.S. federal statutory rate of 21% to the Company's effective rate for the year ended
December 31, 2025 in accordance with the guidance in ASU 2023-09.
2025
Amount
Percentage
United States statutory tax rate
$
(6,562)
21.0%
State and local income taxes, net of federal income tax effect (1)
378
(1.2)
Foreign tax effects:
Germany
Change in valuation allowance
8,899
(28.5)
Foreign rate differential
2,586
(8.3)
Trade tax
(6,073)
19.5
Adjustment of NOL deferred tax assets
1,548
(5.0)
Adjustment of deferred tax liabilities
441
(1.4)
Tax rate change
385
(1.2)
Other
527
(1.7)
India
Withholding tax
559
(1.8)
Other
61
(0.2)
United Kingdom
Audit assessment
814
(2.6)
Other
575
(1.8)
Other foreign jurisdictions
193
(0.6)
Effect of cross-border tax laws:
Gross GILTI inclusion
6,016
(19.3)
Subpart F income
1,506
(4.8)
Tax credits:
R&D credit
(4,338)
13.9
Changes in valuation allowances
(3,532)
11.3
Nontaxable or nondeductible items:
Section 162(m) limitation
488
(1.6)
Other
(167)
0.5
Other adjustments:
Transfer pricing
590
(1.9)
Other
99
(0.3)
Effective Tax Rate
$
4,993
-16.0%
(1) State taxes in Texas and Colorado made up the majority (greater than 50%) of the tax effect in this category.
99
The following table is a reconciliation of the U.S. federal statutory tax rate of 21% to the Company's effective rate for the years ended
December 31, 2024 and 2023 in accordance with the guidance prior to the adoption of ASU 2023-09.
2024
2023
Tax provision computed at the federal statutory rate
21.0%
21.0%
State income tax provision, net of federal benefit
0.1
1.3
Federal research credits
0.7
3.2
Foreign taxes
(0.0)
3.2
Tax-exempt income
0.0
0.1
Change in valuation allowance
(6.5)
(34.8)
Foreign tax credits
0.8
2.4
Stock-based compensation
(0.4)
(0.6)
Withholding taxes
(0.1)
0.0
Adtran Networks tax exempt income
0.0
1.4
Return to accrual
0.6
0.6
Global intangible low-taxed income ("GILTI")
(3.1)
(5.8)
Adtran Networks Goodwill Impairment
(13.8)
(4.6)
Other, net
(1.0)
0.4
Effective Tax Rate
(1.7)%
(12.1)%
Loss before income taxes for the years ended December 31, 2025, 2024 and 2023 is as follows:
(In thousands)
2025
2024
2023
U.S. entities
$
2,943
$
(71,684)
$
(113,951)
International entities
(34,193)
(371,043)
(119,656)
Total
$
(31,250)
$
(442,727)
$
(233,607)
Loss before income taxes for international entities reflects loss based on statutory transfer pricing agreements. This amount does not
correlate to consolidated international revenue, which occurs in our U.S. entity.
100
Deferred income taxes on the Consolidated Balance Sheets result from temporary differences between the amount of assets and
liabilities recognized for financial reporting and tax purposes. The significant components of current and non-current deferred taxes as
of December 31, 2025 and 2024 consist of the following:
(In thousands)
2025
2024
Deferred tax assets:
Inventory
$
14,025
$
14,121
Accrued expenses
5,127
845
Deferred compensation
7,964
7,093
Stock-based compensation
1,942
1,770
Uncertain tax positions related to state taxes and related interest
—
105
Goodwill
2,971
3,001
Pensions
5,534
5,121
Foreign losses
85,427
73,162
State losses and credit carry-forwards
4,919
4,901
Federal loss and research carry-forwards
23,409
20,874
Lease liabilities
5,706
6,153
Capitalized research and development expenditures
27,441
43,574
Interest expense limitation
10,821
6,815
Valuation allowance
(124,451)
(115,694)
Total Deferred Tax Assets
70,835
71,841
Deferred tax liabilities:
Property, plant and equipment
(12,971)
(8,368)
Intellectual property
(59,750)
(67,923)
Right of use lease assets
(6,424)
(6,175)
Investments
(2,662)
(1,921)
Total Deferred Tax Liabilities
(81,807)
(84,387)
Net Deferred Tax Liabilities
$
(10,972)
$
(12,546)
As of December 31, 2025 and 2024, non-current deferred taxes reflected deferred taxes on net unrealized gains and losses on
available-for-sale investments and deferred taxes on unrealized losses in our pension plan. The net change in non-current deferred
taxes associated with these items, which resulted in a deferred tax benefit of $0.3 million and $0.2 million in 2025 and 2024,
respectively, was recorded as an adjustment to other comprehensive income (loss), presented in the Consolidated Statements of
Comprehensive Income (Loss).
The Company continually reviews the adequacy of our valuation allowance and recognizes the benefits of deferred tax assets only as
the reassessment indicates that it is more likely than not that the deferred tax assets will be realized in accordance with ASC 740,
Income Taxes. Due to the decrease in revenue and profitability in 2023 and 2024 and all other positive and negative objective evidence
considered as part of our analysis, our ability to consider other subjective evidence such as projections for future growth continues to
be limited when evaluating whether our deferred tax assets will be realized. As such, the Company maintains its conclusion from 2024
that it is not more likely than not that our domestic deferred tax assets will be realized and a valuation allowance against certain
domestic deferred tax assets remains through 2025. Additional valuation allowance was recorded against certain deferred tax assets on
our foreign entities as not more likely than not realizable in the fourth quarter of 2024 and remains through 2025. The amount of the
deferred tax assets considered realizable, however, could be adjusted in future periods in the event sufficient evidence is present to
support a conclusion that it is more likely than not that all or a portion of our deferred tax assets will be realized.
As of December 31, 2025 and 2024, the Company had gross deferred tax assets totaling $113.5 million offset by a valuation allowance
totaling $124.5 million and gross deferred tax assets totaling $103.1 million offset by a valuation allowance of $115.7 million,
respectively. Of the current valuation allowance, $82.5 million was established against our domestic deferred tax assets and the
remaining $42.0 million is related to foreign tax assets where we lacked sufficient future source of taxable income to realize those
deferred tax assets. The change in our valuation allowance for the year ending December 31, 2025 was an increase of $8.8 million.
The change in the valuation allowance was primarily related to the decrease in deferred tax liabilities remaining from the step up in
book basis from purchase accounting and the increase in deferred tax assets associated with net operating losses and interest expense
limitation during the year.
101
Supplemental balance sheet information related to deferred tax assets (liabilities) as of December 31, 2025 and 2024 were as follows:
December 31, 2025
(In thousands)
Deferred Tax Assets (Liabilities)
Valuation Allowance
Deferred Tax Assets (Liabilities),
net
Domestic
$
95,680
$
(82,428)
$
13,252
International
17,799
(42,023)
(24,224)
Total
$
113,479
$
(124,451)
$
(10,972)
December 31, 2024
(In thousands)
Deferred Tax Assets (Liabilities)
Valuation Allowance
Deferred Tax Assets (Liabilities),
net
Domestic
$
102,002
$
(87,030)
$
14,972
International
1,146
(28,664)
(27,518)
Total
$
103,148
$
(115,694)
$
(12,546)
As of December 31, 2025 and 2024, the deferred tax assets for foreign and domestic loss carry-forwards, research and development
tax credits, unamortized research and development costs and state credit carry-forwards totaled $141.2 million and $142.5 million,
respectively. As of December 31, 2025, $30.1 million of these deferred tax assets will expire at various times between 2026 and 2041.
The remaining deferred tax assets will either amortize through 2040 or carryforward indefinitely.
As of December 31, 2025 and 2024, respectively, our cash and cash equivalents were $95.7 million and $76.0 million. Of these
amounts, our foreign subsidiaries held cash of $87.5 million and $52.6 million, respectively, representing approximately 91% and
78% of available short-term liquidity, which is used to fund ongoing liquidity needs of these subsidiaries. As part of our restructuring
plan, the Company’s assertion on being indefinitely reinvested changed in a particular jurisdiction in a previous year. The Company
has a hypothetical withholding tax liability of $0.4 million as of December 31, 2025 and 2024. The Company maintains its assertion in
all other jurisdictions that it is indefinitely reinvesting its funds held in foreign jurisdictions outside of the U.S., except to the extent
any of these funds can be repatriated without withholding tax. However, if all of these funds were repatriated to the U.S., or used for
U.S. operations, certain amounts could be subject to tax. Due to the timing and circumstances of repatriation of such earnings, if any,
it is not practicable to determine the amount of funds subject to unrecognized deferred tax liability.
During 2025, 2024 and 2023, no income tax benefit or expense was recorded for stock options exercised as an adjustment to equity.
The change in the unrecognized income tax benefits for the years ended December 31, 2025, 2024 and 2023 were as follows:
(In thousands)
2025
2024
2023
Balance at beginning of period
$
252
$
989
$
17,885
Increases for tax position related to:
Prior years
—
—
—
Current year
—
—
129
Decreases for tax positions related to:
Prior years
—
(121)
(17,025)
Expiration of applicable statute of limitations
—
(616)
—
Balance at end of period
$
252
$
252
$
989
102
As of December 31, 2025, 2024 and 2023, our total liability for unrecognized tax benefits was $0.3 million, $0.3 million and $1.0
million, respectively, of which $0.3 million, $0.3 million and $1.0 million, respectively, would reduce our effective tax rate if we were
successful in upholding all of the uncertain positions and recognized the amounts recorded. We classify interest and penalties
recognized on the liability for unrecognized tax benefits as income tax expense. There were no accrued interest and penalties as of
December 31, 2025 and 2024, and $0.1 million in accrued interest and penalties as of December 31, 2023.
We do not anticipate a single tax position generating a significant increase or decrease in our liability for unrecognized tax benefits
within 12 months of this reporting date. We file income tax returns in the U.S. for federal and various state jurisdictions and several
foreign jurisdictions. The Company's 2023 tax return is currently under audit by the Internal Revenue Service. Generally, we are not
subject to changes in income taxes by any taxing jurisdiction for the years prior to 2019.
Note 13 – Employee Benefit Plans
Pension Benefit Plan
We maintain defined benefit pension plans covering employees in certain foreign countries. Pension benefit plan obligations are based
on various assumptions used by our actuaries in calculating these amounts. These assumptions include discount rates, compensation
rate increases, expected return on plan assets, retirement rates and mortality rates. Actual results that differ from the assumptions and
changes in assumptions could affect future expenses and obligations. Details regarding the pension plans are set forth below.
•
In Germany, there are two defined benefit pension plans and two defined contribution plans. These 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 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 age, years of service, salary and on a participant's old age account. The plans
are financed by contributions paid by the participants and by the Company.
•
In Italy, 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. Employees receive their pension payments as a function of salary, inflation and a
notional account.
•
In Israel, there is a defined benefit pension plan that provides benefits in the event of a participant being dismissed
involuntarily, retirement or death. 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 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.
•
In Poland, 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.
103
The pension benefit plan obligations and funded status as of December 31, 2025 and 2024, were as follows:
(In thousands)
2025
2024
Change in projected benefit obligation:
Projected benefit obligation at beginning of period
$
63,259
$
67,897
Service cost
1,669
1,664
Interest cost
570
1,902
Actuarial gain - experience
(384)
(238)
Actuarial (gain) loss - assumptions
(3,334)
860
Benefit payments
(3,607)
(4,108)
Plan amendments
—
(874)
Participant contributions
439
429
Effects of foreign currency exchange rate changes
10,089
(4,273)
Projected benefit obligation at end of period
68,701
63,259
Change in plan assets:
Fair value of plan assets at beginning of period
54,490
55,218
Actual gain on plan assets
2,871
3,966
Contributions
1,314
1,288
Benefit payments
(2,185)
(2,244)
Effects of foreign currency exchange rate changes
7,853
(3,738)
Fair value of plan assets at end of period
64,343
54,490
Unfunded status at end of period
$
(4,358)
$
(8,769)
The accumulated benefit obligation was $67.9 million and $62.8 million as of December 31, 2025 and 2024, respectively. The
increase in the accumulated benefit obligation, projected benefit obligation and the actuarial (gain)/loss was primarily attributable to
the effect of exchange rates during the year partially offset by benefit payments to retirees.
The net amounts recognized in the Consolidated Balance Sheets for the unfunded pension liability as of December 31, 2025 and 2024
were as follows:
(In thousands)
Balance Sheet Location
2025
2024
Non-current pension asset
Other non-current assets
$
2,291
$
517
Current pension liability
Accrued wages and benefits
(372)
(303)
Non-current pension liability
Non-current pension liability
(6,277)
(8,983)
Total
$
(4,358) $
(8,769)
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 components of net periodic pension cost and amounts recognized in other comprehensive (loss)
income for the years ended December 31, 2025, 2024 and 2023 were as follows:
(In thousands)
2025
2024
2023
Net periodic benefit cost:
Service cost
$
1,669
$
1,664
$
1,579
Interest cost
570
1,902
1,851
Expected return on plan assets
(1,486)
(2,529)
(1,750)
Amortization of actuarial losses
11
28
26
Net periodic benefit cost
764
1,065
1,706
Other changes in plan assets and benefit obligations
recognized in other comprehensive income (loss):
Net actuarial (gain) loss
(3,631)
(1,640)
2,304
Amortization of actuarial gains (losses)
(419)
233
(145)
Amount recognized in other comprehensive (income) loss
(4,050)
(1,407)
2,159
Total recognized in net periodic benefit cost and other
comprehensive (income) loss
$
(3,286)
$
(342)
$
3,865
104
The amounts recognized in accumulated other comprehensive income as of December 31, 2025 and 2024 were as follows:
(In thousands)
2025
2024
Net actuarial gain (loss)
$
2,226
$
(1,824)
The defined benefit pension plans are 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. The expected return on our plan's assets is utilized in determining the benefit
obligation and net periodic benefit cost is derived from periodic studies, which include a review of asset allocation strategies,
anticipated future long-term performance of individual asset classes, risks using standard deviations and correlations of returns among
the asset classes that comprise the plans' asset mix. While the studies give appropriate consideration to recent plan performance and
historical returns, the assumptions are primarily long-term, prospective rates of return. The discount rate has been derived from the
returns of high-quality, corporate bonds denominated in euro currency with durations close to the duration of our pension obligations.
The weighted-average assumptions that were used to determine the net periodic benefit cost for the years ended December 31, 2025,
2024 and 2023 were as follows:
2025
2024
2023
Discount rate
2.7%
2.8%
3.2%
Rate of compensation increase
1.7%
1.5%
2.2%
Expected long-term rates of return
4.8%
4.9%
4.8%
The weighted-average assumptions that were used to determine the benefit obligation as of December 31, 2025 and 2024:
2025
2024
Discount rate
3.1%
2.7%
Rate of compensation increase
1.7%
1.5%
Actuarial gains and losses are recorded in accumulated other comprehensive income. To the extent unamortized gains and losses
exceed 10% of the higher of the market-related value of assets or the projected benefit obligation, the excess is amortized as a
component of net periodic pension cost over the remaining service period of active participants.
The Company anticipates making approximately $2.7 million in contributions to the pension plans in 2026.
The following pension benefit payments, which reflect expected future service, as appropriate, are expected to be paid to participants:
(In thousands)
2026
$
3,839
2027
4,192
2028
3,697
2029
4,037
2030
3,481
2031 - 2035
19,368
Total
$
38,614
U.S. GAAP establishes a three-level valuation hierarchy based upon observable and unobservable inputs for fair value measurement
of financial instruments:
•
Level 1 – Observable outputs; values based on unadjusted quoted prices for identical assets or liabilities in an active market;
•
Level 2 – Significant inputs that are observable; values based on quoted prices in markets that are not active or model inputs
that are observable either directly or indirectly;
•
Level 3 – Significant unobservable inputs; values based on prices or valuation techniques that require inputs that are both
unobservable and significant to the overall fair value measurement. These inputs could include information supplied by
investees.
105
We have categorized our cash equivalents and our investments held at fair value into this hierarchy as follows:
Fair Value Measurements at December 31, 2025 Using
(In thousands)
Fair Value
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Cash and cash equivalents
$
1,757
$
1,757
$
—
$
—
Available-for-sale securities
Bond funds
20,826
19,431
1,394
—
Equity funds
25,333
25,016
317
—
Other funds
8,538
7,313
1,225
—
Real estate funds
7,889
1,382
2,636
3,872
Available-for-sale securities
62,586
53,142
5,572
3,872
Total
$
64,343
$
54,899
$
5,572
$
3,872
Fair Value Measurements at December 31, 2024 Using
(In thousands)
Fair Value
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Cash and cash equivalents
$
753
$
753
$
—
$
—
Available-for-sale securities
Bond funds
18,058
16,867
1,191
—
Equity funds
21,376
21,183
193
—
Other funds
7,406
6,089
1,317
—
Real estate funds
6,897
1,737
2,106
3,054
Available-for-sale securities
53,737
45,876
4,807
3,054
Total
$
54,490
$
46,629
$
4,807
$
3,054
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. The objectives of the target
allocations are to maintain investment portfolios that diversify risk through prudent asset allocation parameters, achieve asset returns
that meet or exceed the plans’ actuarial assumptions and achieve asset returns that are competitive with like institutions employing
similar investment strategies.
The investment policy is periodically reviewed by the Company and a designated third-party fiduciary for investment matters. The
policy is established and administered in a manner that is compliant at all times with applicable government regulations.
401(k) Savings Plans
We maintain the Adtran, Inc. 401(k) Retirement plan and the Adtran Networks 401(k) Retirement Plan (the “Savings Plans”) for the
benefit of eligible employees. The Savings Plans are intended to qualify under Sections 401(a) and 401(k) of the Internal Revenue
Code of 1986, as amended (the “Code”), and is intended to be a “safe harbor” 401(k) plan under Code Section 401(k)(12). The
Savings Plans allows employees to save for retirement by contributing part of their compensation to the plan on a tax-deferred basis.
The Savings Plans also requires us to contribute a “safe harbor” amount each year. In our legacy ADTRAN, Inc. plan, we match up to
4% of employee contributions (100% of an employee’s first 3% of contributions and 50% of their next 2% of contributions),
beginning on the employee’s one-year anniversary date. All matching contributions under the legacy ADTRAN, Inc. Savings Plan
vest immediately. In our legacy Adtran Networks plan, we match up to 1.5% of employee contributions (25% of an employee's first
6% of contributions). All matching contributions under the legacy Adtran Networks Savings Plan vest ratably over five years
beginning on the employee's one-year anniversary date. In addition, under the legacy Adtran Networks plan, an annual matching
employer contribution is made which is based on the Company's achievement against a yearly relative Pro-forma EBIT target which
can range from no additional match up to an additional 50% match. In calculating our matching contributions, compensation up to the
statutory maximum under the Code is used ($350,000 for 2025). Employer contribution expense and plan administration costs for both
Savings Plans amounted to approximately $3.6 million, $3.5 million and $4.2 million in 2025, 2024 and 2023, respectively.
106
In June 2024, the Company identified that within our Adtran, Inc. 401(k) plan for the year ended December 31, 2023, that deferrals
and matching contributions should have been applied to vested equity award amounts in accordance with the plan documents. As
such, we filed a voluntary correction program (“VCP”) application with the IRS and the Company is still in negotiations with the IRS
regarding the appropriate corrective actions for this failure. Nonetheless, based on the current facts and circumstances surrounding the
VCP negotiations, it appears likely that any corrective action to be approved by the IRS are reasonably estimated to total $1.4 million
and have been accrued during the period ended December 31, 2025.
Deferred Compensation Plans
We have maintained two deferred compensation programs for certain executive management employees. On November 3, 2025 (the
“Termination Date”), in an effort to streamline the benefits offered to members of management and other key employees, the
Company terminated its Deferred Compensation Program for Employees (the “Deferred Compensation Plan”) and its Equity Deferral
Program for Employees (the "Equity Deferral Program") together with the Deferred Compensation Plan, (the “Plans”). The Company
has also terminated its deferred compensation plans for its non-employee directors. The payment of all benefits to each Plan’s
participants and beneficiaries will be in the form of lump sum or installment distributions which are expected to occur prior to
December 31, 2026, but can occur no earlier than twelve (12) months and no later than twenty-four (24) months following the
Termination Date (the “Liquidation Date”). Distributions of amounts that are set to occur prior to the Liquidation Date will be made as
scheduled under the terms of each Plan. Until the Liquidation Date, each of the Plans will continue to operate in the ordinary course,
except that no new deferrals will be credited to the participants for compensation earned after the Termination Date.
The Deferred Compensation Plan was offered as a supplement to our tax-qualified 401(k) plan and was available to certain executive
management employees who have been designated by our Board of Directors. The Equity Deferral Program allowed participants to
elect to defer all or a portion of their vested PSUs and RSUs to the plan. Such deferrals continue to be held and deemed to be invested
in shares of Adtran stock unless and until the amounts are distributed or such deferrals are moved to another deemed investment
pursuant to an election made by the participant.
The Company has set aside the plan assets for all plans in a rabbi trust (the “Trust”) and all contributions are credited to bookkeeping
accounts for the participants. The Trust assets are subject to the claims of our creditors in the event of bankruptcy or insolvency. The
assets of the Trust are deemed to be invested in pre-approved mutual funds as directed by each participant and the participant’s
bookkeeping account is credited with the earnings and losses attributable to those investments. The fair value of the assets held by the
Trust and the amounts payable to the plan participants as of December 31, 2025 and 2024 were as follows:
(In thousands)
2025
2024
Fair Value of Plan Assets
Short term investments - deferred compensation plans
$
35,174
$
—
Long-term investments
—
30,991
Total Fair Value of Plan Assets
$
35,174
$
30,991
Amounts Payable to Plan Participants
Deferred compensation liability
$
37,447
$
—
Non-current deferred compensation liability
—
33,203
Total Amounts Payable to Plan Participants
$
37,447
$
33,203
107
Because the plans have been terminated and all assets will be liquidated or distributed to the plan participants within one year, the plan
assets and liabilities have been reclassified to short-term as of December 31, 2025.
The Trust held $2.3 million of common stock in the Company as of December 31, 2025 and 2024. Shares of the Company held by the
Trust are recorded at cost and classified as treasury stock on the Consolidated Balance Sheet.
Interest and dividend income of the Trust are included in interest and dividend income in the accompanying 2025, 2024 and 2023
Consolidated Statements of Loss. Changes in the fair value of the plan assets held by the Trust have been included in other income,
net in the accompanying 2025, 2024 and 2022 Consolidated Statements of Loss. Changes in the fair value of the deferred
compensation liability are included as selling, general and administrative expense in the accompanying 2025, 2024 and 2023
Consolidated Statements of Loss. Based on the changes in the total fair value of the Trust’s assets, the Company recorded deferred
compensation income in 2025, 2024 and 2023 of $3.0 million, $3.4 million and $3.0 million, respectively.
Note 14 – Equity
The following table presents changes in accumulated other comprehensive income (loss), net of tax, by components of accumulated
other comprehensive income (loss) for the years ended December 31, 2025, 2024 and 2023:
(In thousands)
Unrealized
Gains (Losses)
on Available-
for-Sale
Securities
Defined
Benefit Plan
Adjustments
Foreign
Currency
Adjustments
ASU 2018-02
Adoption (1)
Total
Balance as of December 31, 2022
$
(836) $
(1,016) $
27,593
$
385
$
26,126
Other comprehensive (loss) income before
reclassifications
734
(1,590)
22,822
—
21,966
Amounts reclassified from accumulated other
comprehensive (loss) income
(280)
100
—
—
(180)
Net current period other comprehensive income (loss)
454
(1,490)
22,822
—
21,786
Less: Other comprehensive income attributable to non-
controlling interest, net of tax
—
—
382
—
382
Balance as of December 31, 2023
(382)
(2,506)
50,033
385
47,530
Other comprehensive (loss) income before
reclassifications
(160)
1,640
(37,755)
—
(36,275)
Amounts reclassified from accumulated other
comprehensive income (loss)
160
(161)
—
—
(1)
Net current period other comprehensive income (loss)
—
1,479
(37,755)
—
(36,276)
Balance as of December 31, 2024
(382)
(1,027)
12,278
385
11,254
Other comprehensive income (loss) before
reclassifications
1
3,691
63,513
—
67,205
Amounts reclassified from accumulated other
comprehensive (loss) income
(1)
419
—
—
418
Net current period other comprehensive income
—
4,110
63,513
—
67,623
Balance as of December 31, 2025
$
(382) $
3,083
$
75,791
$
385
$
78,877
(1) With the adoption of ASU 2018-02 on January 1, 2019, stranded tax effects related to the Tax Cuts and Jobs Act of 2017- were reclassified to retained earnings.
108
The following tables present the details of reclassifications out of accumulated other comprehensive income (loss) for the years ended
December 31, 2025, 2024 and 2023:
(In thousands)
For the year ended December 31,
Details about Accumulated Other Comprehensive (Loss)
Income Components
2025
2024
2023
Affected Line Item in the
Statement Where Net Loss
Is Presented
Unrealized gains (loss) on available-for-sale
securities:
Net realized (loss) gain on sales of securities
$
(1)
$
216
$
(378)
Net investment gain
Defined benefit plan adjustments – actuarial gain
(loss)
419
(233)
145
Other (expense) income
Total reclassifications for the period, before tax
418
(17)
(233)
Tax expense
—
16
53
Total reclassifications for the period, net of tax
$
418
$
(1)
$
(180)
The following tables present the tax effects related to the change in each component of other comprehensive income (loss) for the
years ended December 31, 2025, 2024 and 2023:
2025
(In thousands)
Before-Tax
Amount
Tax
(Expense)
Benefit
Net-of-Tax
Amount
Unrealized gains on available-for-sale securities
$
1
$
—
$
1
Reclassification adjustment for amounts related to available-for-sale
investments included in net loss
(1)
—
(1)
Defined benefit plan adjustments
3,631
60
3,691
Reclassification adjustment for amounts related to defined benefit plan
adjustments included in net income
419
—
419
Foreign currency translation adjustment
63,513
—
63,513
Total Other Comprehensive Income
$
67,563
$
60
$
67,623
2024
(In thousands)
Before-Tax
Amount
Tax
(Expense)
Benefit
Net-of-Tax
Amount
Unrealized (loss) gains on available-for-sale securities
$
(216)
$
56
$
(160)
Reclassification adjustment for amounts related to available-for-sale
investments included in net income (loss)
216
(56)
160
Defined benefit plan adjustments
1,640
—
1,640
Reclassification adjustment for amounts related to defined benefit plan
adjustments included in net (loss) income
(233)
72
(161)
Foreign currency translation adjustment
(37,755)
—
(37,755)
Total Other Comprehensive Loss
$
(36,348)
$
72
$
(36,276)
2023
(In thousands)
Before-Tax
Amount
Tax
(Expense)
Benefit
Net-of-Tax
Amount
Unrealized gains (loss) on available-for-sale securities
$
992
$
(258)
$
734
Reclassification adjustment for amounts related to available-for-sale
investments included in net (loss) income
(378)
98
(280)
Defined benefit plan adjustments
(2,304)
714
(1,590)
Reclassification adjustment for amounts related to defined benefit plan
adjustments included in net income (loss)
145
(45)
100
Foreign currency translation adjustment
22,822
—
22,822
Total Other Comprehensive Income
$
21,277
$
509
$
21,786
109
Note 15 – Redeemable Non-Controlling Interest
As of December 31, 2025 and 2024, the non-controlling Adtran Networks stockholders’ equity ownership percentage in Adtran
Networks was approximately 29.2% and 33.0%, respectively.
The following table summarizes the redeemable non-controlling interest activity for the year ended December 31, 2025 and 2024:
For the year ended December 31,
(In thousands)
2025
2024
Balance at beginning of period
$
422,943
$
443,327
Redemption of redeemable non-controlling interests
(49,615)
(20,384)
Net income attributable to redeemable non-controlling interests
9,413
9,824
Annual recurring compensation earned
(9,413)
(9,824)
Balance at end of period
$
373,328
$
422,943
Annual Recurring Compensation payable on untendered outstanding shares under the DPLTA must be recognized as it is accrued. For
the years ended December 31, 2025 and 2024, we accrued $9.3 million and $9.8 million, respectively, representing the portion of the
annual recurring cash compensation cash to the non-controlling shareholders during such periods. On July 1, 2025, the Company paid
the Annual Recurring Compensation with respect to the 2024 fiscal year, which is paid annually after the ordinary general
shareholders' meeting of Adtran Networks which was held on June 27, 2025. The 2025 Annual Recurring Compensation accrual will
be paid after the ordinary general shareholders' meeting of Adtran Networks in 2026. See Note 1 for additional information on RNCI
and the Annual Recurring Compensation.
Note 16 – Segment Information and Major Customers
The chief operating decision maker is the Company's Chief Executive Officer who regularly reviews the Company’s financial
performance based on two reportable segments: (1) Network Solutions and (2) Services & Support.
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. The Company's cloud-managed Wi-Fi gateways,
virtualization software, and switches provide a mix of wired and wireless connectivity at the customer premises. In addition, its
Carrier Ethernet products support a variety of applications at the network edge ranging from mobile backhaul to connecting enterprise
customers (“Subscriber Solutions"). The Company's portfolio includes products for multi-gigabit service delivery over fiber or
alternative media to homes and businesses.
The Services & Support segment offers a comprehensive portfolio of network design, implementation, maintenance and cloud-hosted
services supporting its Subscriber, Access and Aggregation, and Optical Networking Solutions. These services assist operators in the
deployment of multi-vendor networks while reducing their cost to maintain these networks. The cloud-hosted services include a suite
of SaaS applications under the Company's Mosaic One platform that manages end-to-end network and service optimization for both
fiber access infrastructure and mesh Wi-Fi connectivity. The Company backs these services with a global support organization that
offers on-site and off-site support services with varying SLAs.
The performance of these segments is evaluated based on revenue, gross profit and gross margin; therefore, selling, general and
administrative expenses, research and development expenses, interest and dividend income, interest expense, net investment gain,
other (expense) income, net and income tax expense are reported on a Company-wide basis only. There is no inter-segment revenue.
Asset information by reportable segment is not produced and, therefore, is not reported.
Revenue and Gross Profit
The following table presents information about revenue and gross profit of our reportable segments for each of the years ended
December 31, 2025, 2024 and 2023:
2025
2024
2023
(In thousands)
Revenue
Cost of
Revenue
Gross Profit
Revenue
Cost of
Revenue
Gross Profit
Revenue
Cost of
Revenue
Gross Profit
Network Solutions
$
896,911
$
592,141
$
304,770
$
738,964
$
525,817
$
213,147
$
974,389
$
748,831
$
225,558
Services & Support
186,896
76,711
110,185
183,756
72,739
111,017
174,711
69,142
105,569
Total
$
1,083,807
$
668,852
$
414,955
$
922,720
$
598,556
$
324,164
$
1,149,100
$
817,973
$
331,127
110
For the years ended December 31, 2025, 2024 and 2023, $5.7 million, $6.1 million and $6.5 million, respectively, of depreciation
expense was included in gross profit for our Network Solutions segment. For the years ended December 31, 2025, 2024 and 2023,
$0.1 million, $0.1 million and $20 thousand, respectively, of depreciation expense was included in gross profit for our Services &
Support segment.
Revenue by Category
In addition to operating under two reportable segments, the Company also reports revenue across three categories – Subscriber
Solutions, Access & Aggregation Solutions and Optical Networking Solutions.
Our Subscriber Solutions portfolio is used by Service Providers to terminate their access services infrastructure at customers' premises
while providing an immersive and interactive experience for residential, business and wholesale subscribers. This revenue category
includes hardware and software based products and services. These solutions include fiber termination solutions for residential,
business and wholesale subscribers, Wi-Fi access solutions for residential and business subscribers, Ethernet switching and network
edge virtualization solutions for business subscribers, and cloud software solutions covering a mix of subscriber types.
Our Access & Aggregation Solutions are solutions that are used by communications Service Providers to connect residential
subscribers, business subscribers and mobile radio networks to the Service Providers’ metro network, primarily through fiber-based
connectivity. This revenue category includes hardware and software based products and services. Our solutions within this category
are a mix of fiber access and aggregation platforms, precision network synchronization and timing solutions, and access orchestration
solutions that ensure highly reliable and efficient network performance.
Our Optical Networking Solutions are used by communications Service Providers, internet content providers and large-scale
enterprises to securely interconnect metro and regional networks over fiber. This revenue category includes hardware and software
based products and services. Our solutions within this category include open optical terminals, open line systems, optical subsystems
and modules, network infrastructure assurance systems, and automation platforms that are used to build high-scale, secure and assured
optical networks.
The following tables disaggregate our revenue by category for the years ended December 31, 2025, 2024 and 2023:
2025
(In thousands)
Network Solutions
Services &
Support
Total
Optical Networking Solutions
$
281,771
$
98,541
$
380,312
Subscriber Solutions
336,297
32,779
369,076
Access & Aggregation Solutions
278,843
55,576
334,419
Total
$
896,911
$
186,896
$
1,083,807
2024
(In thousands)
Network Solutions
Services &
Support
Total
Optical Networking Solutions
$
210,489
$
90,447
$
300,936
Subscriber Solutions
295,541
35,237
330,778
Access & Aggregation Solutions
232,934
58,072
291,006
Total
$
738,964
$
183,756
$
922,720
2023
(In thousands)
Network Solutions
Services &
Support
Total
Optical Networking Solutions
$
407,123
$
85,851
$
492,974
Subscriber Solutions
263,192
34,516
297,708
Access & Aggregation Solutions
304,074
54,344
358,418
Total
$
974,389
$
174,711
$
1,149,100
111
Additional Information
The following table presents revenue information by geographic area for the years ended December 31, 2025, 2024 and 2023:
(In thousands)
2025
2024
2023
United States
$
480,750
$
398,170
$
460,985
United Kingdom
213,113
196,064
214,655
Germany
129,734
119,976
230,922
Other international
260,210
208,510
242,538
Total
$ 1,083,807
$
922,720
$ 1,149,100
Customers comprising more than 10% of revenue can change from year to year. The Company had one customer comprising more
than 10% of revenue in 2025, 2024 and 2023, respectively, at 14.2%, 12.1% and 10.4% and was included in both our Network
Solutions and Services & Support segments. This customer accounted for $153.7 million, $111.8 million and $126.0 million in
revenues for the years ended December 31, 2025, 2024 and 2023, respectively. Other than those with more than 10% of revenue
disclosed above, our next five largest customers can change, and have historically changed, from year-to-year. The next five largest
customers combined represented 20%, 22% and 28% of total revenue in 2025, 2024 and 2023, respectively.
As of December 31, 2025, property, plant and equipment, net totaled $124.4 million, which included $49.3 million held in the U.S.
and $75.1 million held outside the U.S. As of December 31, 2024, property, plant and equipment, net totaled $106.5 million, which
included $46.3 million held in the U.S. and $60.2 million held outside the U.S. Property, plant and equipment, net is reported on a
Company-wide, functional basis only.
Note 17 – Commitments and Contingencies
Legal Matters
From time to time, the Company is subject to or otherwise involved in various lawsuits, claims, investigations and legal proceedings
that arise out of or are incidental to the conduct of our business (collectively, “Legal Matters”), including those relating to employment
matters, patent rights, regulatory compliance matters, stockholder claims, and contractual and other commercial disputes. Such Legal
Matters, even if not meritorious, could result in the expenditure of significant financial and managerial resources. Additionally, an
unfavorable outcome in a legal matter, including in a patent dispute, could require the Company to pay damages, entitle claimants to
other relief, such as royalties, or could prevent the Company from selling some of its products in certain jurisdictions. The Company
records an accrual for any Legal Matters that arise whenever it considers that it is probable that it is exposed to a loss contingency and
the amount of the loss contingency can be reasonably estimated. Although the ultimate disposition of asserted claims cannot be
predicted with certainty, it is our belief that the outcome of any such claims, either individually or on a combined basis, will not have a
material adverse effect on our consolidated financial position.
As disclosed in Amendment No. 1 to our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, filed with the
SEC on May 20, 2025, we identified errors in our previously issued financial statements related to the historical accounting for certain
inventory and cost of goods sold transactions (“Adjustment”). The affected periods included the annual periods ended December 31,
2023 and 2024 and the interim periods ended March 31, 2024, June 30, 2024 and September 30, 2024. In connection with the
identification of the Adjustment, the Audit Committee oversaw an internal investigation into the circumstances surrounding the
Adjustment and its impact on the Company’s historical financial statements. Based on the findings of the internal investigation, it was
determined that the underlying errors giving rise to the Adjustment were not properly addressed in the Company’s previously filed
financial statements as of and for the years ended December 31, 2024 and 2023 and were not communicated to the Audit Committee
or the independent auditors prior to the filing of the initial Annual Report on Form 10-K for the year ended December 31, 2024. The
Company has taken certain remedial actions to address the material weaknesses in its internal controls associated with these findings.
On August 4, 2025, the Company received a letter from the Atlanta regional office of the SEC in connection with a non-public, fact-
finding inquiry, requesting that we voluntarily provide information regarding the internal investigation. The Company is cooperating
in response to the SEC’s inquiry and cannot predict the timing or outcome of the inquiry.
112
DPLTA Appraisal Proceedings
In addition to such Legal Matters, the Company is a party to appraisal proceedings relating to the DPLTA which were originally filed
with the Landgericht Meiningen (Meiningen Regional Court) on February 3, 2023. The DPLTA provides that Adtran Networks
shareholders (other than the Company) be offered, at their election, (i) to put their Adtran Networks shares to the Company in
exchange for compensation in cash of €17.21 per share, plus guaranteed interest or (ii) to remain Adtran Networks shareholders and
receive recurring cash compensation of €0.52 per share for each full fiscal year of Adtran Networks. The appraisal proceedings, which
were initiated by certain minority shareholders of Adtran Networks, challenge the adequacy of both forms of compensation. While the
Company believes that the compensation offered in connection with the DPLTA is fair, it notes that German courts often adjudicate
increases of the cash compensation to plaintiffs in varying amounts in connection with German appraisal proceedings. Therefore, the
Company cannot rule out that the court or an appellate court may increase the cash compensation owed to the minority Adtran
Networks shareholders. Given the stage of the appraisal proceedings, the Company is currently unable to predict the likely outcome or
estimate the potential financial impact, if any, of the appraisal proceedings. If a ruling were to occur and be upheld upon appeal that
required the Company to pay significant additional cash compensation to the Adtran Networks minority shareholders, there exists the
possibility of a material adverse effect on our financial position and results of operations for the period in which the ruling occurs or
future periods.
DPLTA Exit and Recurring Compensation Costs and the Absorption of Adtran Network's Annual Net Loss
Pursuant to the terms of the DPLTA, each Adtran Networks shareholder (other than the Company) has received an offer to elect either
(1) to remain an Adtran Networks shareholder and receive from us an Annual Recurring Compensation payment, or (2) to receive Exit
Compensation plus guaranteed interest. The guaranteed interest under the Exit Compensation is calculated from the effective date of
the DPLTA to the date the shares are tendered, less any Annual Recurring Compensation paid. The guaranteed interest rate is 5.0%
plus a variable component (according to the German Civil Code) that was 1.27% as of December 31, 2025. 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 €303.9 million or approximately $357.0 million, based
on an exchange rate as of December 31, 2025 and reflecting interest accrued through December 31, 2025 during the pendency of the
appraisal proceedings discussed below. Shareholders electing the first option of Annual Recurring Compensation may later elect the
second option. The opportunity for outside Adtran Networks shareholders to tender Adtran Networks shares in exchange for Exit
Compensation had been scheduled to expire on March 16, 2023. However, due to the appraisal proceedings that were initiated in 2023
in accordance with applicable German law, this time period for tendering shares has been extended pursuant to the German Stock
Corporation Act (Aktiengesetz) and will end two months after the date on which a final decision in such appraisal proceedings has
been published in the Federal Gazette (Bundesanzeiger). Following the court's decision on a procedural matter in the DPLTA
appraisal proceedings on July 14, 2025, the proceeding for the trial on the merits of the DPLTA has recommenced. It is expected to
take a minimum of 12 months for a ruling of the court on the merits and such ruling will most likely be appealed, which would be
expected to take an additional 12-24 months to be resolved. Accordingly, the Company does not expect a final decision on the DPLTA
appraisal proceedings to be rendered and published prior to 2027, and most likely not until 2028 or beyond.
Our obligation to pay Annual Recurring Compensation under the DPLTA is a continuing payment obligation, which will amount to
approximately €7.9 million (or $9.3 million based on the exchange rate as of December 31, 2025) per year assuming none of the
minority Adtran Networks shareholders were to elect Exit Compensation. The foregoing amounts do not reflect any potential increase
in payment obligations that we may have depending on the outcome of ongoing appraisal proceedings in Germany. The Annual
Recurring Compensation is due on the third banking day following the ordinary general shareholders’ meeting of Adtran Networks for
the respective preceding fiscal year (but in any event within eight months following expiration of the fiscal year). With respect to the
2024 fiscal year, Adtran Networks’ ordinary general shareholders' meeting occurred on June 27, 2025 and, therefore, the Annual
Recurring Compensation was paid on July 1, 2025. With respect to the 2025 fiscal year, Adtran Networks’ ordinary general
shareholder meeting is scheduled for the second quarter of 2026, and the Annual Recurring Compensation will be due on the third
banking day following the meeting. During the years ended December 31, 2025 and 2024, we accrued $9.3 million and $9.8 million,
respectively, in Annual Recurring Compensation, which was reflected as an increase to retained deficit.
For the year ended December 31, 2025, 2.0 million shares, of Adtran Networks stock were tendered to the Company. This resulted in
total Exit Compensation payments of €40.2 million, or $46.6 million, based on exchange rates at the time of the transactions, being
paid to Adtran Networks shareholders. For the year ended December 31, 2024, 0.8 million shares of Adtran Networks shares were
tendered to the Company. This resulted in Exit Compensation payments of €15.7 million or $17.4 million, based on an exchange rate
as of December 31, 2024, being paid to Adtran Networks shareholders.
In addition, under the DPLTA, subject to certain limitations pursuant to applicable law and the specific terms of the DPLTA, (i) the
Company is entitled to issue binding instructions to the management board of Adtran Networks, (ii) Adtran Networks will transfer its
annual profit to the Company, subject to, among other things, the creation or dissolution of certain reserves, and (iii) the Company will
113
absorb the annual net loss incurred by Adtran Networks. The Company’s payment obligation in satisfaction of the requirement that it
absorb Adtran Networks’ annual net loss applies to the net loss generated by Adtran Networks in 2025, and it will apply to any net
loss generated by Adtran Networks in 2026.
Performance Bonds
Certain contracts, customers and jurisdictions in which the Company operates require us to provide various guarantees of performance
such as bid bonds, performance bonds and customs bonds. As of December 31, 2025 and December 31, 2024, the Company had
commitments related to these bonds totaling $22.4 million and $15.7 million, respectively, which expire at various dates through April
2029. In general the Company would only be liable for the amount of these guarantees in the event of default under each contract, the
probability of which the Company believes is remote.
Purchase Obligations
The Company purchases components from a variety of suppliers and use contract manufacturers to provide manufacturing services for
our products. Our inventory purchase obligations are for short-term product manufacturing requirements, as well as for obligations to
suppliers to secure manufacturing capacity. Certain of our inventory purchase obligations with contract manufacturers and suppliers
relate to arrangements to secure supply and pricing for certain product components for multi-year periods. As of December 31, 2025,
purchase obligations totaled $205.9 million.
Note 18 – Loss per Share
The calculations of basic and diluted loss per share for the years ended December 31, 2025, 2024 and 2023 are as follows:
(In thousands, except for per share amounts)
2025
2024
2023
Numerator
Net loss attributable to ADTRAN Holdings, Inc.
$
(45,656)
$
(459,891)
$
(268,852)
Effect of redemption of RNCI
4,085
2,981
—
Net loss attributable to ADTRAN Holdings, Inc. common stockholders
$
(41,571)
$
(456,910)
$
(268,852)
Denominator
Weighted average number of shares – basic
79,742
78,928
78,416
Effect of dilutive securities:
Stock options
—
—
—
PSUs, RSUs and restricted stock
—
—
—
Weighted average number of shares – diluted
79,742
78,928
78,416
Loss per share attributable to ADTRAN Holdings, Inc. – basic
$
(0.52)
$
(5.79)
$
(3.43)
Loss per share attributable to ADTRAN Holdings, Inc. – diluted
$
(0.52)
$
(5.79)
$
(3.43)
The following potentially dilutive shares were excluded from the calculation of the diluted weighted average number of shares
outstanding as the effect would have been anti-dilutive:
(In thousands)
2025
2024
2023
Convertible senior notes
4,931
—
—
Stock options
882
3,410
1,761
PSUs, RSUs and restricted stock
911
834
514
Note 19 – Restructuring
On November 6, 2023, due to the uncertainty around the then-current macroeconomic environment and its impact on customer
spending levels, the Company’s management decided to implement a Business Efficiency Program targeting the reduction of ongoing
operating expenses and focusing on capital efficiency. This included certain salary reductions, an early retirement program, a site
consolidation plan to include lease impairments, inventory write downs from product discontinuances, and the suspension of the
quarterly dividend. The Business Efficiency Program was completed as of December 31, 2024.
During the years ended December 31, 2024 and 2023, we recognized $44.7 million and $25.1 million, respectively, of costs related to
the Business Efficiency Program. The costs recognized during the year ended December 31, 2024, included total other renegotiated
charges and inventory write-down of $8.6 million as a result of a strategy shift which included discontinuance of certain items in
connection with the Business Efficiency Program, of which, $4.1 million relates to inventory write-downs and $4.5 million relates to
other charges, and are included in cost of revenue in the Consolidated Statements of Loss.
114
For the year ended December 31, 2023, we recognized $21.5 million of restructuring costs relating to the Business Combination under
the multi-year integration program and synergy realization, respectively, that are included in cost of revenue, selling, general and
administrative expenses and research and development expenses in the Consolidated Statement of Loss.
A reconciliation of the beginning and ending restructuring liability, which is included in accrued wages and benefits and accrued
expenses and other liabilities in the Consolidated Balance Sheets as of December 31, 2025 and 2024, is as follows:
(In thousands)
2025
2024
Balance at beginning of period
$
10,336
$
8,309
Plus: Amounts charged to cost and expense
(284)
40,545
Less: Amounts paid
(10,052)
(38,518)
Balance at end of period
$
—
$
10,336
Restructuring expenses included in the Consolidated Statements of Loss are for the years ended December 31, 2025, 2024 and 2023:
(In thousands)
2025
2024
2023
Network solutions - cost of revenue
$
—
$
3,693
$
2,910
Network solutions - inventory write-down
—
8,597
24,313
Services & support - cost of revenue
—
2,289
—
Cost of revenue
$
—
$
14,579
$
27,223
Selling, general and administrative expenses
—
9,128
11,603
Research and development expenses
(284)
20,973
7,728
Total restructuring expenses
$
(284)
$
44,680
$
46,554
The following table represents the components of restructuring expense by geographic area for the years ended December 31, 2025,
2024 and 2023:
(In thousands)
2025
2024
2023
United States
$
—
$
18,422
$
34,629
International
(284)
26,258
11,925
Total restructuring expenses
$
(284)
$
44,680
$
46,554
Note 20 – Subsequent Events
U.S. Tariff Update
On February 20, 2026, the United States Supreme Court issued a ruling striking down certain tariffs previously imposed under the
International Emergency Economic Powers Act ("IEEPA"). The ultimate availability, timing, and amount of any potential refunds of
such tariffs remain highly uncertain and are subject to further legal, regulatory, and administrative developments. Following the
Supreme Court’s decision, the U.S. presidential administration announced its intention to invoke other laws to collect tariffs and
announced new tariffs on imports from all countries, in addition to any existing non-IEEPA tariffs. There remains substantial
uncertainty regarding the duration of existing and newly announced tariffs, potential changes or pauses to such tariffs, tariff levels, and
whether additional tariffs or other retaliatory actions may be imposed, modified, or suspended, and the impacts of such actions on the
Company's business. The Company continues to monitor and evaluate these developments and assess their potential impact on the
Company’s business, financial condition, and results of operations.
115
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that the information required to be disclosed by us in
reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed,
summarized and reported within the time periods specified in the rules and forms promulgated by the SEC, and that such information
is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosure.
As of the end of the period covered by this report, an evaluation was carried out by management, including our Chief Executive
Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e)) under the Exchange Act. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that
due to the material weaknesses in our internal control over financial reporting described below, our disclosure controls and procedures
were not effective as of December 31, 2025.
Management’s Report on Internal Control over Financial Reporting
Management of ADTRAN Holdings, Inc. (“Adtran”) is responsible for establishing and maintaining adequate internal control over
financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Adtran’s internal control over financial
reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles. Adtran’s internal control over
financial reporting includes those policies and procedures that:
•
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of Adtran;
•
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of Adtran are being made
only in accordance with authorizations of management and directors of Adtran; and
•
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of
Adtran’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of Adtran’s internal control over financial reporting as of December 31, 2025. In making this
assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission
("COSO") in “Internal Control-Integrated Framework” (2013).
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a
reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a
timely basis.
Management determined the following material weaknesses existed as of December 31, 2025:
•
Adtran did not design and maintain effective controls in response to the risks of material misstatement. Specifically,
changes to existing controls or the implementation of new controls have not been sufficient to respond to changes to the
risks of material misstatement to financial reporting. This material weakness contributed to the following additional
material weakness.
•
Adtran did not design and maintain effective controls over financial statement preparation, presentation and disclosure
commensurate with its financial reporting requirements. Specifically, Adtran did not design and maintain effective
controls over the presentation and disclosure of transactions, including non-controlling interest.
The material weaknesses resulted in the restatements and revisions to our consolidated financial statements for the years ended
December 31, 2022, 2023, and 2024, as well as the condensed consolidated financial statements for the quarterly and year-to-date
periods ended September 30, 2022, March 31, 2023, June 30, 2023, September 30, 2023, March 31, 2024, June 30, 2024, and
September 30, 2024. The material weaknesses also resulted in material adjustments that were corrected prior to the issuance of the
116
condensed consolidated financial statements for the quarterly period ended March 31, 2025. Additionally, these material weaknesses
could result in misstatements of Adtran’s accounts or disclosures that would result in a material misstatement to the annual or interim
consolidated financial statements that would not be prevented or detected.
Because of these material weaknesses, management has concluded that Adtran did not maintain effective internal control over
financial reporting as of December 31, 2025.
The effectiveness of Adtran's internal control over financial reporting as of December 31, 2025 has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears in Part II, Item
8 of this report.
Remediation of Previously Identified Material Weaknesses
As previously reported in our 2024 Form 10-K/A, management identified the following material weaknesses in our internal control
over financial reporting, which have been remediated as of December 31, 2025:
•
Adtran did not design and maintain effective controls relating to communicating accurate information internally and with
those charged with governance. This includes providing information pursuant to objectives, responsibilities and functions
of internal control.
•
Adtran did not design and maintain effective controls to address the initial application of complex accounting standards
and accounting of non-routine, unusual or complex events and transactions. Specifically, Adtran did not design and
maintain effective controls to timely analyze and account for (i) non-controlling interest and (ii) a receivable purchase and
servicing agreement.
•
Adtran did not design and maintain effective controls over an inventory suspense account. Specifically, certain inventory
activity was not reviewed at a sufficient level of precision to identify the nature and aging of the individual inventory
suspense account activity.
Following the identification of the material weaknesses and continuing throughout the year ended December 31, 2025, management
executed its remediation plan through the following actions:
•
Adtran implemented and enhanced key internal controls and communication policies, training sessions for personnel on
internal control expectations, a quarterly sub-certification process, and redesigned controls over the identification and
review of contracts, transactions or arrangements that may result in a financial obligation to remediate the material
weakness relating to the communication of accurate information internally and with those charged with governance.
•
Adtran implemented redesigned controls over the identification and review of contracts, transactions or arrangements that
may result in a financial obligation including the use of an accounting or reporting third-party advisor as needed to ensure
proper presentation of these items within its consolidated financial statements to remediate the material weaknesses
relating to accounting for non-routine, unusual or complex events and transactions for non-controlling interest and the
receivable purchase and servicing agreement.
•
Adtran redesigned the reconciliation control specific to the inventory suspense account and enhanced its review
procedures (including review of aged items and training sessions for personnel on reconciliation procedures) to remediate
the material weakness relating to maintaining effective controls over that account.
As a result of the actions taken above, management has determined that the controls were effectively designed and demonstrated
effective operation for a sufficient period of time to enable the Company to conclude that these material weaknesses in internal control
over financial reporting have been remediated as of December 31, 2025.
Management’s On-Going Remediation Efforts
As previously reported in our 2024 Form 10-K/A, management identified material weaknesses in our internal control over financial
reporting, two of which continue to exist as of December 31, 2025, as disclosed above. Management has made and continues to make
progress towards remediating these material weaknesses. Remediation of the material weaknesses and strengthening our internal
control environment is a top priority.
To remediate the material weaknesses in Adtran’s internal control over financial reporting related to the risks of material misstatement
and financial statement preparation, presentation and disclosure of transactions, including non-controlling interest, Adtran completed
the following activities during the second half of 2025:
•
The global identification and reassessment of all key risks, processes and controls.
•
Increased training and awareness of control activities, and increased scrutiny of control performance and documentation
standards.
117
•
Hired additional resources, enhancing global leadership in the Accounting function, and strengthening the overall
technical skill set and capacity.
•
Adtran enhanced existing controls over the review of Adtran’s consolidated financial statements, and in the fourth quarter
of 2025 completed the implementation of additional financial statement review controls.
Adtran’s management believes that the continued operation of the activities outlined above in subsequent reporting periods will be
effective in remediating such material weaknesses. The material weaknesses cannot be considered remediated until the applicable
controls have operated for a sufficient period of time and management has concluded that, through testing, these controls are operating
effectively.
Changes in Internal Control over Financial Reporting
The fourth quarter remediation activities described above are the only changes in the Company’s internal control over financial
reporting during the quarter ended December 31, 2025 that have materially affected, or are reasonably likely to materially affect, the
Company’s internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
(a) None.
(b) Dr. Christoph Glingener, our Chief Technology Officer, adopted a Rule 10b5-1 trading arrangement (as defined in Item
408 of Regulation S-K) on December 12, 2025. Dr. Glingener’s trading arrangement covers the exercise of 148,392 stock options and
the sale of the underlying shares of the Company’s common stock, and it is scheduled to terminate on the earlier of (i) December 31,
2026 and (ii) the date that all such options are exercised and the underlying shares are sold.
Other than as disclosed above, during the fiscal quarter ended December 31, 2025, none of the Company’s directors or executive
officers adopted or terminated any contract, instruction or written plan for the purchase or sale of Company securities that was
intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement” as defined in
Item 408 of Regulation S-K.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
None.
118
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Code of Ethics
We have adopted a Code of Business Conduct and Ethics, which applies to all employees, officers and directors of Adtran. The Code
of Business Conduct and Ethics meets the requirements of a "code of ethics" as defined by Item 406 of Regulation S-K, and applies to
our Chief Executive Officer, Chief Financial Officer (who is both our principal financial and principal accounting officer), as well as
all other employees, as indicated above. The Code of Business Conduct and Ethics also meets the requirements of a code of conduct
under NASDAQ listing standards. The Code of Business Conduct and Ethics is posted on our website at www.adtran.com under the
links "About – Investor Relations – Corporate Governance – Charters and Documents." We intend to disclose any amendments to the
Code of Business Conduct and Ethics, as well as any waivers for executive officers or directors, on our website at www.adtran.com.
The information found on our website is not incorporated by reference in this report or any other report that we file or furnish to the
SEC.
Certain information required by this Item regarding Adtran’s executive officers is included in Part I of this report under the caption
“Information about our Executive Officers” in accordance with the Instructions to Item 401 of Regulation S-K.
Other information required by this Item is incorporated by reference pursuant to General Instruction G(3) of Form 10-K from Adtran’s
definitive Proxy Statement for the 2026 Annual Meeting of Stockholders (the “2026 Proxy Statement”) to be filed with the SEC
pursuant to Regulation 14A.
Insider Trading Policy
We have adopted the ADTRAN Holdings, Inc. Insider Trading Policy (the “Insider Trading Policy”), which governs the purchase,
sale and other disposition of our securities by our directors, officers, managers, employees, independent contractors, and consultants,
and by the Company. The Insider Trading Policy is designed to promote compliance with U.S. federal and state securities laws, rules
and regulations, as well as European Regulation No. 596/2014 and the applicable rules and regulations of The Nasdaq Stock Market,
LLC, with respect to the purchase, sale and/or disposition of the Company’s securities (and the securities of other companies in certain
circumstances). The Insider Trading Policy addresses the implementation of certain trading blackout periods in the Company’s
securities for Company insiders. A copy of the Insider Trading Policy is filed as Exhibit 19 to this 2025 Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference pursuant to General Instruction G(3) of Form 10-K from the 2026
Proxy Statement to be filed with the SEC pursuant to Regulation 14A.
119
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The following table provides information about our common stock that may be issued under all of our existing equity compensation
plans as of December 31, 2025, including the 2015 Employee Plan and the 2020 Employee Plan (collectively, the “Prior Plans”), the
2024 Employee Stock Incentive Plan (“2024 Employee Plan”) and the 2024 Directors Stock Plan (“2024 Directors Plan”)
(collectively, the “Plans”). Each of the Plans has been approved by our stockholders.
(In thousands)
Number of
securities to be
issued
upon exercise of
outstanding
options,
warrants and
rights
(a)(1)
Weighted average
exercise price of
outstanding
options,
warrants and
rights
(b)(1)
Number of
securities
remaining
available
for future issuance
under
equity
compensation
plans
(excluding
securities
reflected in column
(a))
(c)(2)
Plan Category
Equity compensation plans approved by stockholders
2,012
$
8.86
4,733
Equity compensation plans not approved by stockholders
—
—
—
Total
2,012
$
8.86
4,733
(1) Excludes 0.4 million of target PSUs and 1.5 million of time-based RSUs outstanding under our 2024 Employee Plan. The outstanding stock options have a weighted average remaining term of 4.8 years.
(2) Represents 4.2 million shares of common stock available for future issuance pursuant to the 2024 Employee Plan and 0.5 million shares of common stock available for future issuance pursuant to the 2024
Directors Plan. Following the stockholders’ approval of the 2024 Employee Plan and the 2024 Directors Plan were approved by the stockholders, we are no longer making any future grants under the Prior
Plans, but certain shares underlying awards that are forfeited, cancelled or terminated under the Prior Plans will again be available for issuance under the 2024 Employee Plan and the 2024 Directors Plan, as
applicable.
The other information required by this Item is incorporated by reference pursuant to General Instruction G(3) of Form 10-K from the
2026 Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
The information required by this Item is incorporated by reference pursuant to General Instruction G(3) of Form 10-K from the 2026
Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item is incorporated by reference pursuant to General Instruction G(3) of Form 10-K from the 2026
Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A.
120
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Documents Filed as Part of This Report.
1. Consolidated Financial Statements
The consolidated financial statements of Adtran and the report of independent registered public accounting firm thereon
are set forth under Part II, Item 8 of this report.
Consolidated Balance Sheets as of December 31, 2025 and 2024
Consolidated Statements of Loss for the years ended December 31, 2025, 2024 and 2023
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2025, 2024 and 2023
Consolidated Statements of Changes in Equity for the years ended December 31, 2025, 2024 and 2023
Consolidated Statements of Cash Flows for the years ended December 31, 2025, 2024 and 2023
Notes to Consolidated Financial Statements
2. Consolidated Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts
3. Exhibits
The following exhibits are filed with or incorporated by reference in this report. Where such filing is made by incorporation by
reference to a previously filed registration statement or report, such registration statement or report is identified in parentheses. We
will furnish any exhibit upon request to: ADTRAN Holdings, Inc., Attn: Investor Relations, 901 Explorer Boulevard, Huntsville,
Alabama 35806. There is a charge of $0.50 per page to cover expenses for copying and mailing.
Effective as of July 8 2022, ADTRAN Holdings, Inc. became the successor to ADTRAN, Inc. Any reference to "ADTRAN, Inc." in
these exhibits should be read as "ADTRAN Holdings, Inc." as set forth in the Exhibit List below.
Furthermore, effective June 8, 2023, ADVA Optical Networking SE (“ADVA”), a subsidiary of ADTRAN Holdings, Inc., changed its
name to Adtran Networks SE. By operation of law, any reference to ADVA Optical Networking SE in these exhibits should be read as
Adtran Networks SE as set forth in the Exhibit List below.
Exhibit
Number
Description
2.1
Business Combination Agreement, dated August 30, 2021, by and among ADTRAN Holdings, Inc., Acorn HoldCo, Inc.,
Acorn MergeCo, Inc. and Adtran Networks SE (incorporated by reference to Exhibit 2.1 to the Company's Form 8-K filed
August 30, 2021)
3.1
Amended and Restated Certificate of Incorporation of ADTRAN Holdings, Inc. (incorporated by reference to Exhibit 3.1 to
the Company's Form 8-K filed July 8, 2022)
3.2
Second Amended and Restated Bylaws of ADTRAN Holdings, Inc. (incorporated by reference to Exhibit 3.1 to the
Company's Form 8-K filed October 24, 2023)
4.1
Description of Securities (incorporated by reference to Exhibit 4.1 to the Company’s Form 10-K filed March 3, 2025)
4.2
Indenture, dated as of September 19, 2025, between ADTRAN Holdings, Inc. and U.S. Bank Trust Company, National
Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company's Form 8-K filed September 22, 2025)
4.3
Form of certificate representing the 3.75% convertible senior notes due 2030 (included as Exhibit A to Exhibit 4.2, which is
incorporated by reference to Exhibit 4.1 to the Company's Form 8-K filed September 22, 2025)
121
10.1
Management Contracts and Compensatory Plans:
(a)
ADTRAN Holdings, Inc. 2015 Employee Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to the
Company's Form 8-K filed May 15, 2015)
(b)
Summary of Terms of Assumed Options (incorporated by reference to Exhibit 4.1 to the Company’s Form S-8 filed
July 11, 2022)
(c)*
ADTRAN Holdings, Inc. Deferred Compensation Program for Employees, as amended and restated, effective as of
July 15, 2022
(d)*
ADTRAN Holdings, Inc. Deferred Compensation Program for Directors, as amended and restated, effective as of
July 15, 2022
(e)*
ADTRAN Holdings, Inc. Equity Deferral Program for Employees, as amended and restated, effective as of July 15,
2022
(f)*
ADTRAN Holdings, Inc. Equity Deferral Program for Directors, as amended and restated, effective as of July 15,
2022
(g)
Amended and Restated ADTRAN Holdings, Inc. 2020 Employee Stock Incentive Plan (incorporated by reference to
Exhibit 10.1(t) to the Company's Form 10-K filed March 1, 2023)
(h)
Form of Notice Letter with respect to RSU and PSU awards under the ADTRAN Holdings, Inc. 2020 Employee
Stock Incentive Plan (incorporated by reference to Exhibit 10.3 (ae) to the Company's Form 10-K filed February 26,
2021)
(i)
Form of Stock Option Award Agreement under the ADTRAN, Inc. 2020 Employee Stock Incentive Plan
(incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K filed December 5, 2023)
(j)
Form of Market-Based Performance Stock Unit Agreement under the ADTRAN Holdings, Inc. 2020 Employee
Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company's Form 10-Q filed May 6, 2021)
(k)
Form of Restricted Stock Unit Agreement under the ADTRAN Holdings, Inc. 2020 Employee Stock Incentive Plan
(incorporated by reference to Exhibit 10.2 to the Company's Form 10-Q filed May 6, 2021)
(l)
ADTRAN Holdings, Inc. 2024 Employee Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to the
Company’s Form 8-K filed May 9, 2024)
(m)
ADTRAN Holdings, Inc. 2024 Directors Stock Plan (incorporated by reference to Exhibit 10.2 to the Company’s
Form 8-K filed May 9, 2024)
(n)
Form of Market-Based Performance Stock Unit Agreement under the ADTRAN Holdings, Inc. 2024 Employee
Stock Incentive Plan incorporated by reference to Exhibit 10.1(y) to the Company's Form 10-K filed March 3, 2025)
(o)
Form of Restricted Stock Unit Agreement under the ADTRAN Holdings, Inc. 2024 Employee Stock Incentive Plan
(incorporated by reference to Exhibit 10.1(z) to the Company's Form 10-K/A filed May 20, 2025)
(p)
Form of Restricted Stock Unit Agreement for CEO under the ADTRAN Holdings, Inc. 2024 Employee Stock
Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company's Form 10-Q filed on August 5, 2025)
(q)
Form of Market-Based Performance Stock Unit Agreement for CEO under the ADTRAN Holdings, Inc. 2024
Employee Stock Incentive Plan (incorporated by reference to Exhibit 10.3 to the Company’s Form 10-Q filed
August 5, 2025)
(r)
Form of Performance Share Agreement for CEO under the ADTRAN Holdings, Inc. 2024 Employee Stock
Incentive Plan (incorporated by reference to Exhibit 10.4 to the Company's Form 10-Q filed August 5, 2025)
122
(s)
Form of Adtran Sales Incentive Compensation Program – General Terms (participants include James D. Wilson)
(incorporated by reference to Exhibit 10.3(ad) to the Company’s Form 10-K filed February 26, 2021)
(t)
Amended and Restated Variable Incentive Compensation Plan (incorporated by reference to Exhibit 10.1 to the
Company's Form 8-K filed January 26, 2023)
(u)†
Form of 2025 Variable Incentive Compensation Plan Award Letter (incorporated by reference to Exhibit 10.1(u) to
the Company's Form 10-K filed March 3, 2025)
(v)†*
Form of 2026 Variable Incentive Compensation Plan Award Letter
(w)(i)
Employment Agreement, dated July 13, 2022, by and between Thomas R. Stanton and ADTRAN Holdings, Inc.
(incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed July 15, 2022) (“CEO Employment
Agreement”)
(w)(ii) First Amendment to the CEO Employment Agreement dated March 29, 2023 (incorporated by reference to Exhibit
10.1 to the Company’s Form 8-K filed April 3, 2023).
(x)(i)
Employment Agreement, dated January 28, 2015, and Amendment Nos. 1-9, by and between Adtran Networks SE
and Ulrich Dopfer (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed March 30, 2023)
(x)(ii)
†
Eighth Amendment, dated May 26, 2023 including Exhibit 1 thereto, to the Employment Agreement by and
between Adtran Networks SE and Ulrich Dopfer (incorporated by reference to Exhibit 10.1 to the Company's Form
8-K filed June 1, 2023)
(x)(iii)
Ninth Amendment, dated December 4, 2023, to the Employment Agreement by and between Adtran Networks SE
and Ulrich Dopfer (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed December 5, 2023)
(x)(iv)
†
Tenth Amendment Employment Agreement, dated August 27, 2024, by and between Adtran Networks SE and
Ulrich Dopfer (incorporated by reference to Exhibit 10.2 to the Company's Form 8-K filed August 30, 2024)
(x)(v)
Settlement Agreement, dated May 12, 2025, by and between Adtran Networks SE and Ulrich Dopfer (incorporated
by reference to Exhibit 10.1 to the Company's Form 10-Q filed August 5, 2025)
(y)(i)
Service Agreement, dated September 29, 2006 and Amendment Nos. 1-16, by and between Adtran Networks and
Christoph Glingener (incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K filed April 3, 2023)
(y)(ii)
Seventeenth Amendment, dated March 28, 2023, to Service Agreement by and between Adtran Networks SE and
Christoph Glingener (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed April 3, 2023)
(y)(iii)
†
Exhibit 1 to the Seventeenth Amendment, dated March 28, 2023 and executed May 31, 2023, to the Service
Agreement by and between Adtran Networks SE and Christoph Glingener (incorporated by reference to Exhibit
10.3 to the Company's Form 8-K filed June 1, 2023)
(y)(iv)
Eighteenth Amendment, dated December 4, 2023, to the Service Agreement by and between Adtran Networks SE
and Christoph Glingener (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed December 5,
2023
(y)(v)
†
Nineteenth Amendment to Service Agreement, dated August 27, 2024, by and between Adtran Networks SE and
Christoph Glingener (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed August 30, 2024)
(y)(vi)
†*
Twentieth Amendment to Employment Agreement, dated December 9, 2025, by and between Adtran Networks SE
and Christoph Glingener
(z)
Offer Letter, dated February 28, 2025, by and between ADTRAN Holdings, Inc. and Timothy Santo (incorporated
by reference to Exhibit 10.1 to the Company’s Form 8-K filed March 7, 2025)
123
(aa)
ADTRAN Holdings, Inc. Amended and Restated Clawback Policy (incorporated by reference to Exhibit 10.2 to the
Company's Form 8-K filed October 24, 2023)
10.2
Form of Confirmation for Capped Call Transactions (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K
filed September 22, 2025)
10.3+
Credit Agreement dated July 18, 2022, by and among ADTRAN Holdings, Inc. and ADTRAN, Inc. as borrowers, in favor
of Wells Fargo Bank, National Association as lender (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K
filed July 22, 2022)
10.4+
First Amendment to Credit Agreement, dated August 9, 2023, by and between ADTRAN Holdings, Inc. and Wells Fargo
Bank, National Association (incorporated by reference to Exhibit 10.7 to the Company's Form 10-Q filed August 14, 2023)
10.5+
Second Amendment to Credit Agreement and First Amendment to Collateral Agreement, dated as of January 16, 2024, by
and among ADTRAN Holdings, Inc., ADTRAN, Inc., Wells Fargo Bank, National Association, and the lenders party
thereto (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed January 22, 2024)
10.6
Third Amendment to Credit Agreement, dated as of March 12, 2024, by and among ADTRAN Holdings, Inc., ADTRAN,
Inc., Wells Fargo Bank, National Association, and the lenders party thereto (incorporated by reference to Exhibit 10.5 to the
Company’s Form 10-K filed March 15, 2024)
10.7+
Fourth Amendment to Credit Agreement, dated as of June 4, 2024, by and among ADTRAN Holdings, Inc., ADTRAN,
Inc., Adtran Networks SE, Wells Fargo Bank, National Association, and the lenders party thereto (incorporated by
reference to Exhibit 10.1 to the Company's Form 8-K filed June 10, 2024)
10.8
Fifth Amendment to Credit Agreement and Waiver, by and between ADTRAN, Inc., Adtran Networks, SE and Wells Fargo
Bank, National Association, dated May 6, 2025 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K
filed May 12, 2025)
10.9
Sixth Amendment and Consent to Credit Agreement, dated as of September 16, 2025 (incorporated by reference to Exhibit
10.1 to the Company's Form 8-K filed September 17, 2025)
10.10+
Collateral Agreement dated July 18, 2022, by and among ADTRAN Holdings, Inc., ADTRAN, Inc., and Wells Fargo Bank,
National Association (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed July 22, 2022)
10.11
ADVA Domestic Collateral Agreement, dated as of June 4, 2024, by and among ADVA NA Holdings, Inc., Adtran
Networks North America, Inc., and Adtran Networks SE, in favor of Wells Fargo Bank, National Association (incorporated
by reference to Exhibit 10.6 to the Company's Form 8-K filed June 10, 2024)
10.12
Guaranty Agreement dated July 18, 2022, by and between ADTRAN Holdings, Inc. and ADTRAN, Inc. in favor of Wells
Fargo Bank, National Association (incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K filed July 22,
2022)
10.13
ADVA Guaranty Agreement, dated as of June 4, 2024 by and between ADVA NA Holdings, Inc., Adtran Networks North
America, Inc., Adtran Networks (UK) Limited, in favor of Wells Fargo Bank, National Association (incorporated by
reference to Exhibit 10.5 to the Company's Form 8-K filed June 10, 2024)
10.14
Domination and Profit and Loss Transfer Agreement between ADTRAN Holdings, Inc. and Adtran Networks SE, dated
November 30, 2022 (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed December 5, 2022)
19*
ADTRAN Holdings, Inc. Insider Trading Policy
21*
Subsidiaries of Adtran Holdings, Inc.
23*
Consent of PricewaterhouseCoopers LLP.
124
31.1*
Certification of the Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
31.2*
Certification of the Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
32*
Section 1350 Certifications.
97
ADTRAN Holdings, Inc. Policy for the Recovery of Erroneously Awarded Incentive Based Compensation (incorporated by
reference to Exhibit 10.1 to the Company's Form 8-K filed October 24, 2023)
101
The following financial statements from the Company's Annual Report on Form 10-K for the year ended December 31,
2025, formatted in inline eXtensible Business Reporting Language (iXBRL): (i) Consolidated Balance Sheets, (ii)
Consolidated Statements of Loss, (iii) Consolidated Statements of Comprehensive Income (Loss), (iv) Consolidated
Statements of Changes in Equity, (v) Consolidated Statements of Cash Flows, (vi) Notes to Consolidated Financial
Statements, and (vii) Schedule II – Valuation and Qualifying Accounts
104
Cover Page Interactive Data File (formatted in iXBRL and contained in Exhibit 101)
* Furnished or filed herewith, as applicable
+ Schedules and exhibits omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company agrees to furnish a copy of any omitted
schedule or exhibit to the SEC upon request.
† Certain identified information has been excluded from these exhibits because it is not material and is the type of information that the
Company customarily and actually treats as private and confidential. Redacted information is indicated by [ ] or [***].
125
ITEM 16. FORM 10-K SUMMARY
ADTRAN has elected not to provide a summary of the information contained in this report at this time.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized on this 26th day of February 2026.
ADTRAN Holdings, Inc.
(Registrant)
By: /s/ Timothy Santo
Timothy Santo
Senior Vice President of Finance and Chief Financial Officer
(Principal Financial Officer and Duly Authorized Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities indicated on February 26, 2026.
Signature
Title
/s/ Thomas R. Stanton
Chief Executive Officer and Chairman of the Board (Principal Executive
Officer)
Thomas R. Stanton
/s/ Timothy Santo
Chief Financial Officer (Principal Financial Officer and Principal Accounting
Officer)
Timothy Santo
/s/ H. Fenwick Huss
Director
H. Fenwick Huss
/s/ Gregory McCray
Director
Gregory McCray
/s/ Balan Nair
Director
Balan Nair
/s/ Jacqueline H. Rice
Director
Jacqueline H. Rice
/s/ Nikos Theodosopoulos
Director
Nikos Theodosopoulos
/s/ Kathryn A. Walker
Director
Kathryn A. Walker
126
ADTRAN Holdings, Inc.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Balance at
Beginning
of Period
Charged to
Costs &
Expenses
Deductions
Balance at
End of
Period
Year ended December 31, 2025
Allowance for Credit Losses
$
1,300
18
—
$
1,318
Deferred Tax Asset Valuation Allowance
$
115,694
13,463
4,706
$
124,451
Year ended December 31, 2024
Allowance for Credit Losses
$
400
900
—
$
1,300
Deferred Tax Asset Valuation Allowance
$
86,567
29,217
90
$
115,694
Year ended December 31, 2023
Allowance for Credit Losses
$
49
351
—
$
400
Deferred Tax Asset Valuation Allowance
$
5,201
81,590
224
$
86,567
DIRECTORS AND OFFICERS
Board of Directors
Thomas R. Stanton
Chief Executive Officer and Chairman, ADTRAN Holdings, Inc.
H. Fenwick Huss
Retired, former Willem Kooyker Dean of the Zicklin School of Business at The City University of
New York
Gregory McCray
Chief Executive Officer, PBE Axell
Balan Nair
President and Chief Executive Officer, Liberty Latin America Ltd.
Jackqueline H. Rice
Chief Legal Officer and Corporate Secretary, MillerKnoll, Inc.
Nikos Theodosopoulos
Director, Hercules Capital, Inc.
Kathryn A. Walker
Managing Director, OpenAir Equity Partners
Officers
Thomas R. Stanton
Chief Executive Officer and Chairman of the Board
Timothy Santo
Senior Vice President of Finance and Chief Financial Officer
Christoph Glingener
Chief Technology Officer
James D. Wilson, Jr.
Chief Revenue Officer