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ADTRAN Holdings, Inc. Reports Third Quarter 2023 Financial Results and Announces Business Efficiency Program

  • Q3 revenue at $272.3 million with sequential improvement in GAAP and non-GAAP operating expenses
  • 15% projected reduction in non-GAAP operating expenses in Q4 2023 as compared to Q3 2023
  • Targeting positive non-GAAP operating margin for the second quarter 2024
  • Expected reduction of non-GAAP operating expenses of approximately $90 million for the year 2024 as compared to 2023
  • As part of the capital efficiency program, the Company has decided to suspend its quarterly dividend to reduce interest expense and support its long-term capital plan
  • Target Financial Model: Non-GAAP operating margin to be in the low teens for the full year 2025

ADTRAN Holdings, Inc. (NASDAQ: ADTN and FSE: QH9) (“ADTRAN Holdings” or the “Company”) today announced its financial results for the third quarter of 2023.

As reflected in the preliminary release, revenue for the third quarter was $272.3 million, slightly below the lower end of the guidance range.

GAAP gross margin for the quarter was 27.3%, and it was negatively impacted by an inventory write-off of approximately $21.0 million as a result of the exit from certain product lines in connection with our restructuring and the newly implemented and expanded business efficiency program.

Non-GAAP gross margin was 40.3%, and it was positively impacted by a more favorable customer and product mix and lower purchasing and transportation costs.

GAAP operating margin for the quarter was negative 32.8%, and it was negatively impacted by the exit from certain product lines discussed above and a $37.9 million goodwill impairment charge related to our Services & Support reporting unit. Sequentially, the Company reduced GAAP operating expenses by 8% from $137.2 million in the second quarter 2023 to $125.7 million in the third quarter 2023.

Non-GAAP operating margin for the quarter was negative 1.9%, which was at the upper end of the guidance range. The Company reduced non-GAAP operating expenses by 6.3% from $122.7 million in the second quarter 2023 to $114.9 million in the third quarter 2023.

GAAP net loss attributable to the Company for the third quarter of 2023 was $72.7 million. Diluted loss per share attributable to the Company for the quarter was $0.93.

Non-GAAP net loss attributable to the Company was $10.8 million. Non-GAAP diluted loss per share attributable to the Company was $0.14.

Business efficiency program

Due to the uncertainty around the current macro-economic environment, customer inventory levels and its impact on customer spending levels, the Company has implemented a comprehensive business efficiency program. The program includes:

  • a significant cost efficiency program targeting a reduction of non-GAAP operating expenses of approximately $90 million for the year 2024 as compared to 2023 and a projected $15 million reduction in non-GAAP operating expenses for the fourth quarter of 2023 compared to the third quarter of 2023; and
  • a capital efficiency program which includes a site consolidation plan that management expects to generate proceeds up to $150 million and the suspension of the quarterly dividend.

Ultimately, we believe the successful execution of our business efficiency program will benefit our shareholders.

ADTRAN Holdings’ Chairman and Chief Executive Officer Tom Stanton stated, "We anticipate that the ongoing uncertainty affecting customer spending will extend into 2024. We are actively addressing the challenges in our industry and have implemented a business efficiency program to ensure improvement in long-term shareholder return. Through this program, we are aiming to lower our costs by $90 million by the end of 2024 as compared to 2023. Although the environment has proven to be very challenging, interest in our products continues to grow as we gained market share and added new customers during the quarter. We expect the combination of our continued growth in market share with our new operating model to substantially improve returns to all our stakeholders."

Financial Outlook for the fourth quarter 2023

The outlook for the fourth quarter 2023, is as follows:

  • revenue to be between $210 million and $240 million; and
  • non-GAAP operating margin between negative 7% and 0%.

Non-GAAP operating margin (which is calculated as non-GAAP operating (loss) income divided by revenue) and non-GAAP operating expense are non-GAAP financial measures. The Company has provided fourth quarter guidance with regard to non-GAAP operating margin and projected reductions in non-GAAP operating expense as a result of its business efficiency program. These measures exclude from the corresponding GAAP financial measures the effect of adjustments as described below under “Explanation of Use of Non-GAAP Financial Measures.” The Company has not provided a reconciliation of such non-GAAP guidance to guidance presented on a GAAP basis because it cannot predict and quantify without unreasonable effort all of the adjustments that may occur during the period due to the difficulty of predicting the timing and amounts of various items within a reasonable range. In particular, these non-GAAP financial measures exclude certain items, including continued restructuring and integration expenses that will continue to evolve as our business efficiency program is implemented and, therefore, the Company is unable to quantitatively predict. Depending on the materiality of these items, they could have a significant impact on the Company's GAAP financial results.

The Company confirmed that it will hold a conference call to discuss its third quarter results on Tuesday, November 7, 2023, at 9:30 a.m. Central Time, or 4:30 p.m. Central European Summer Time. ADTRAN Holdings will webcast this conference call. To listen and view our investor presentation, simply visit our Investor Relations site at investors.adtran.com approximately 10 minutes prior to the start of the call, click on the event “ADTRAN Holdings Releases 3rd Quarter 2023 Financial Results and Earnings Call”, and click on the webcast link.

An online replay of the Company’s conference call, as well as the transcript of the Company's conference call, will be available on the Investor Relations site approximately 24 hours following the call and will remain available for at least 12 months. For more information, visit investors.adtran.com or email investor.relations@adtran.com.

Cautionary Note Regarding Forward-Looking Statements

Statements contained in this press release which are not historical facts, such as those relating to expectations regarding earnings, expenses and margin; ADTRAN Holdings’ ability to reduce expenses in the coming year and the amount thereof through its implementation of the business efficiency program; and ADTRAN Holdings’ strategy, outlook and financial guidance, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can also generally be identified by the use of words such as “believe,” “expect,” “intend,” “estimate,” “anticipate,” “will,” “may,” “could” and similar expressions. In addition, ADTRAN Holdings, through its senior management, may from time to time make forward-looking public statements concerning the matters described herein. All such projections and other forward-looking information speak only as of the date hereof, and ADTRAN Holdings undertakes no duty to publicly update or revise such forward-looking information, whether as a result of new information, future events, or otherwise, except to the extent as may be required by law. All such forward-looking statements are necessarily estimates and reflect management’s best judgment based upon current information. Actual events or results may differ materially from those anticipated in these forward-looking statements as a result of a variety of factors. While it is impossible to identify all such factors, factors which have caused and may in the future cause actual events or results to differ materially from those estimated by ADTRAN Holdings include, but are not limited to: (i) risks and uncertainties related to manufacturing and supply chain constraints; (ii) risks and uncertainties related to the completed business combination between the Company, ADTRAN, Inc. (“ADTRAN”) and Adtran Networks SE (“Adtran Networks”), including risks related to the ability to successfully integrate ADTRAN’s and Adtran Networks’ businesses, the disruption of management time from ongoing business operations due to integration efforts following the business combination, and the risk that ADTRAN Holdings may be unable to achieve expected synergies or that it may take longer or be more costly than expected to achieve those synergies; (iii) risks and uncertainties relating to the recent restatement of our previously issued consolidated financial statements and ongoing material weakness in our internal control over financial reporting; (iv) risks and uncertainties relating to ADTRAN Holdings’ ability to reduce expenditures and the impact of such reductions on its financial results and financial condition; (v) the risk of fluctuations in revenue due to lengthy sales and approval processes required by major and other service providers for new products, as well as ongoing tighter inventory management of ADTRAN Holdings’ customers; (vi) the risk posed by potential breaches of information systems and cyber-attacks; (vii) the risk that ADTRAN Holdings may not be able to effectively compete, including through product improvements and development; and (viii) other risks set forth in ADTRAN Holdings’ public filings made with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended December 31, 2022, as amended, as well as its Form 10-Q for the quarter ended June 30, 2023.

Explanation of Use of Non-GAAP Financial Measures

Set forth in the tables below are reconciliations of gross profit, gross margin, operating expenses, operating loss, other (expense) income, net (loss) income inclusive of the non-controlling interest, net loss attributable to the Company, net loss attributable to the non-controlling interest, and loss per share - basic and diluted, attributable to the Company, in each case as reported based on generally accepted accounting principles in the United States (“GAAP”), to non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating expenses, non-GAAP operating (loss) income, non-GAAP other (expense) income, non-GAAP net (loss) income inclusive of the non-controlling interest, non-GAAP net (loss) income attributable to the Company, non-GAAP net (loss) income attributable to the non-controlling interest, and non-GAAP (loss) earnings per share - basic and diluted, attributable to the Company, respectively. Such non-GAAP measures exclude acquisition related expenses, amortization and adjustments (consisting of intangible amortization of backlog, developed technology, customer relationships, and trade names acquired in connection with business combinations and amortization of inventory fair value adjustments), stock-based compensation expense, amortization of pension actuarial losses, deferred compensation adjustments, integration expenses, restructuring expenses, asset and goodwill impairments, changes in valuation allowance related to our deferred tax assets, and the tax effect of these adjustments to net income. These measures are used by management in our ongoing planning and annual budgeting processes. Additionally, we believe the presentation of these non-GAAP measures when combined with the presentation of the most directly comparable GAAP financial measure, is beneficial to the overall understanding of ongoing operating performance of the Company.

The information contained in this press release is solely based on unaudited condensed consolidated results. These non-GAAP financial measures are not prepared in accordance with, or an alternative for, GAAP and therefore should not be considered in isolation or as a substitution for analysis of our results as reported under GAAP. Additionally, our calculation of non-GAAP measures may not be comparable to similar measures calculated by other companies.

About Adtran

ADTRAN Holdings, Inc. (NASDAQ: ADTN and FSE: QH9) is the parent company of Adtran, Inc., a leading global provider of open, disaggregated networking and communications solutions that enable voice, data, video and internet communications across any network infrastructure. From the cloud edge to the subscriber edge, Adtran empowers communications service providers around the world to manage and scale services that connect people, places and things. Adtran solutions are used by service providers, private enterprises, government organizations and millions of individual users worldwide. ADTRAN Holdings, Inc. is also the largest shareholder of Adtran Networks SE, formerly ADVA Optical Networking SE. Find more at Adtran, LinkedIn and Twitter.

Published by

ADTRAN Holdings, Inc.

www.adtran.com

 

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands)

 

 

September 30,

 

 

December 31,

 

 

2023

 

 

2022

 

Assets

 

 

 

 

 

Current Assets

 

 

 

 

 

Cash and cash equivalents

$

116,092

 

 

$

108,644

 

Short-term investments

 

 

 

 

340

 

Accounts receivable, net

 

229,333

 

 

 

279,435

 

Other receivables

 

24,337

 

 

 

32,831

 

Inventory, net

 

373,971

 

 

 

427,531

 

Prepaid expenses and other current assets

 

35,826

 

 

 

33,577

 

Total Current Assets

 

779,559

 

 

 

882,358

 

Property, plant and equipment, net

 

118,623

 

 

 

110,699

 

Deferred tax assets

 

90,260

 

 

 

67,839

 

Goodwill

 

339,083

 

 

 

381,724

 

Intangibles, net

 

328,695

 

 

 

401,211

 

Other non-current assets

 

60,770

 

 

 

66,998

 

Long-term investments

 

25,179

 

 

 

32,665

 

Total Assets

$

1,742,169

 

 

$

1,943,494

 

 

 

 

 

 

 

Liabilities, Redeemable Non-Controlling Interest and Equity

 

 

 

 

 

Current Liabilities

 

 

 

 

 

Accounts payable

$

148,913

 

 

$

237,699

 

Revolving credit agreements outstanding

 

10,580

 

 

 

35,936

 

Notes payable

 

 

 

 

24,598

 

Unearned revenue

 

49,832

 

 

 

41,193

 

Accrued expenses and other liabilities

 

29,708

 

 

 

35,235

 

Accrued wages and benefits

 

35,957

 

 

 

44,882

 

Income tax payable, net

 

10,302

 

 

 

9,032

 

Total Current Liabilities

 

285,292

 

 

 

428,575

 

Non-current revolving credit agreement outstanding

 

200,000

 

 

 

60,000

 

Deferred tax liabilities

 

37,977

 

 

 

61,629

 

Non-current unearned revenue

 

23,501

 

 

 

19,239

 

Pension liability

 

10,732

 

 

 

10,624

 

Deferred compensation liability

 

26,833

 

 

 

26,668

 

Non-current lease obligations

 

23,612

 

 

 

22,807

 

Other non-current liabilities

 

17,408

 

 

 

10,339

 

Total Liabilities

 

625,355

 

 

 

639,881

 

Redeemable Non-Controlling Interest

 

431,921

 

 

 

 

Equity

 

 

 

 

 

Common stock

 

787

 

 

 

781

 

Additional paid-in capital

 

770,565

 

 

 

895,834

 

Accumulated other comprehensive income

 

32,800

 

 

 

46,713

 

Retained (deficit) earnings

 

(113,289

)

 

 

55,338

 

Treasury stock

 

(5,970

)

 

 

(4,125

)

Non-controlling interest

 

 

 

 

309,072

 

Total Equity

 

684,893

 

 

 

1,303,613

 

Total Liabilities, Redeemable Non-Controlling Interest and Equity

$

1,742,169

 

 

$

1,943,494

 

 

Condensed Consolidated Statements of Loss

(Unaudited)

(In thousands, except per share amounts)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

Network Solutions

 

$

228,564

 

 

$

304,940

 

 

$

793,984

 

 

$

599,306

 

Services & Support

 

 

43,767

 

 

 

35,769

 

 

 

129,637

 

 

 

67,959

 

Total Revenue

 

 

272,331

 

 

 

340,709

 

 

 

923,621

 

 

 

667,265

 

Cost of Revenue

 

 

 

 

 

 

 

 

 

 

 

 

Network Solutions

 

 

160,244

 

 

 

222,606

 

 

 

596,334

 

 

 

413,180

 

Network Solutions - Inventory Write Down

 

 

21,043

 

 

 

 

 

 

21,043

 

 

 

 

Services & Support

 

 

16,807

 

 

 

15,076

 

 

 

51,646

 

 

 

34,236

 

Total Cost of Revenue

 

 

198,094

 

 

 

237,682

 

 

 

669,023

 

 

 

447,416

 

Gross Profit

 

 

74,237

 

 

 

103,027

 

 

 

254,598

 

 

 

219,849

 

Selling, general and administrative expenses

 

 

62,907

 

 

 

74,880

 

 

 

196,887

 

 

 

130,646

 

Research and development expenses

 

 

62,752

 

 

 

59,196

 

 

 

203,493

 

 

 

112,187

 

Asset impairment

 

 

 

 

 

16,969

 

 

 

 

 

 

16,969

 

Goodwill Impairment

 

 

37,874

 

 

 

 

 

 

37,874

 

 

 

 

Operating Loss

 

 

(89,296

)

 

 

(48,018

)

 

 

(183,656

)

 

 

(39,953

)

Interest and dividend income

 

 

521

 

 

 

347

 

 

 

1,183

 

 

 

768

 

Interest expense

 

 

(4,507

)

 

 

(1,303

)

 

 

(11,858

)

 

 

(1,427

)

Net investment (loss) gain

 

 

(1,443

)

 

 

(2,691

)

 

 

1,071

 

 

 

(10,752

)

Other income, net

 

 

2,523

 

 

 

2,494

 

 

 

4,714

 

 

 

2,949

 

Loss Before Income Taxes

 

 

(92,202

)

 

 

(49,171

)

 

 

(188,546

)

 

 

(48,415

)

Income tax benefit

 

 

16,553

 

 

 

4,312

 

 

 

36,229

 

 

 

4,572

 

Net Loss

 

$

(75,649

)

 

$

(44,859

)

 

$

(152,317

)

 

$

(43,843

)

Less: Net Loss attributable to non-controlling interest(1)

 

 

(2,914

)

 

 

(2,925

)

 

 

(11,784

)

 

 

(2,925

)

Net Loss attributable to ADTRAN Holdings, Inc.

 

$

(72,735

)

 

$

(41,934

)

 

$

(140,533

)

 

$

(40,918

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding – basic

 

 

78,389

 

 

 

73,036

 

 

 

78,378

 

 

 

57,175

 

Weighted average shares outstanding – diluted

 

 

78,389

 

 

 

73,036

 

 

 

78,378

 

 

 

57,175

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss per common share attributable to ADTRAN Holdings, Inc. – basic

 

$

(0.93

)

 

$

(0.57

)

 

$

(1.79

)

 

$

(0.72

)

Loss per common share attributable to ADTRAN Holdings, Inc. – diluted

 

$

(0.93

)

 

$

(0.57

)

 

$

(1.79

)

 

$

(0.72

)

(1) For the three and six months ended September 30, 2023, we have recognized $2.9 million and $8.6 million, respectively, representing the recurring cash compensation earned by non-controlling interest shareholders post-DPLTA and an incremental $3.2 million net loss attributable to non-controlling interests pre-DPLTA for the six months ended September 30, 2023.

 

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2023

 

 

2022

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(152,317

)

 

$

(43,843

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

91,422

 

 

 

34,783

 

Asset impairment

 

 

 

 

 

16,969

 

Goodwill impairment

 

 

37,874

 

 

 

 

Amortization of debt issuance cost

 

 

607

 

 

 

200

 

(Gain) loss on investments, net

 

 

(3,316

)

 

 

10,395

 

Stock-based compensation expense

 

 

12,229

 

 

 

15,912

 

Deferred income taxes

 

 

(45,941

)

 

 

(26,366

)

Other, net

 

 

204

 

 

 

32

 

Inventory write down

 

 

21,043

 

 

 

 

Inventory reserves

 

 

29,836

 

 

 

(6,681

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable, net

 

 

47,347

 

 

 

(34,535

)

Other receivables

 

 

8,340

 

 

 

(2,154

)

Inventory

 

 

536

 

 

 

(76,293

)

Prepaid expenses, other current assets and other assets

 

 

1,816

 

 

 

610

 

Accounts payable

 

 

(87,903

)

 

 

70,381

 

Accrued expenses and other liabilities

 

 

6,476

 

 

 

(23,005

)

Income taxes payable, net

 

 

2,433

 

 

 

20,862

 

Net cash used in operating activities

 

 

(29,314

)

 

 

(42,733

)

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of property, plant and equipment

 

 

(33,674

)

 

 

(10,141

)

Proceeds from sales and maturities of available-for-sale investments

 

 

10,545

 

 

 

30,474

 

Purchases of available-for-sale investments

 

 

(807

)

 

 

(22,215

)

Proceeds from beneficial interests in securitized accounts receivable

 

 

1,178

 

 

 

1,294

 

Proceeds from disposals of property, plant and equipment

 

 

 

 

 

12

 

Acquisition of business, net of cash acquired

 

 

 

 

 

43,957

 

Net cash (used in) provided by investing activities

 

 

(22,758

)

 

 

43,381

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

Tax withholdings related to stock-based compensation settlements

 

 

(6,331

)

 

 

(515

)

Proceeds from stock option exercises

 

 

187

 

 

 

5,434

 

Dividend payments

 

 

(21,237

)

 

 

(15,859

)

Proceeds from draw on revolving credit agreements

 

 

163,760

 

 

 

133,141

 

Repayment of revolving credit agreements

 

 

(49,233

)

 

 

(48,000

)

Non-controlling interest put option buyback

 

 

(1,196

)

 

 

 

Payment of debt issuance cost

 

 

(708

)

 

 

(3,015

)

Repayment of notes payable

 

 

(24,931

)

 

 

(10,057

)

Net cash provided by financing activities

 

 

60,311

 

 

 

61,129

 

 

 

 

 

 

 

 

Net increase in cash and cash equivalents

 

 

8,239

 

 

 

61,777

 

Effect of exchange rate changes

 

 

(791

)

 

 

(7,496

)

Cash and cash equivalents, beginning of period

 

 

108,644

 

 

 

56,818

 

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

 

$

116,092

 

 

$

111,099

 

 

 

 

 

 

 

 

Supplemental disclosure of cash financing activities:

 

 

 

 

 

 

Cash paid for interest

 

$

8,540

 

 

$

633

 

Cash used in operating activities related to operating leases

 

$

7,378

 

 

$

2,272

 

Supplemental disclosure of non-cash investing activities:

 

 

 

 

 

 

Right-of-use assets obtained in exchange for lease obligations

 

$

8,490

 

 

$

904

 

Purchases of property, plant and equipment included in accounts payable

 

$

2,508

 

 

$

1,037

 

Adtran Networks common shares exchanged in acquisition

 

$

 

 

$

565,491

 

Adtran Networks options assumed in acquisition

 

$

 

 

$

12,769

 

Non-controlling interest related to Adtran Networks

 

$

 

 

$

315,415

 

 

 

 

 

 

 

 

 

Supplemental Information

Reconciliation of Gross Profit and Gross Margin to

Non-GAAP Gross Profit and Non-GAAP Gross Margin

(Unaudited)

(In thousands)

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30,

2023

 

 

June 30,

2023

 

 

September 30,

2022

 

 

September 30,

2023

 

 

September 30,

2022

 

Total Revenue

$

272,331

 

 

$

327,378

 

 

$

340,709

 

 

$

923,621

 

 

$

667,265

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of Revenue

$

198,094

 

 

$

234,825

 

 

$

237,682

 

 

$

669,023

 

 

$

447,416

 

Acquisition-related expenses, amortization and adjustments(1)

 

(13,537

)

 

 

(33,439

)

 

 

(25,530

)

 

 

(79,554

)

 

 

(25,530

)

Stock-based compensation expense

 

(279

)

 

 

(335

)

 

 

(1,269

)

 

 

(854

)

 

 

(1,590

)

Pension adjustments

 

 

 

 

 

 

 

(59

)

 

 

 

 

 

(59

)

Restructuring expenses(2)

 

(21,630

)

 

 

 

 

 

 

 

 

(21,706

)

 

 

 

Integration expenses(3)

 

(154

)

 

 

 

 

 

 

 

 

(154

)

 

 

 

Non-GAAP Cost of Revenue

$

162,494

 

 

$

201,051

 

 

$

210,824

 

 

$

566,755

 

 

$

420,237

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Profit

$

74,237

 

 

$

92,553

 

 

$

103,027

 

 

$

254,598

 

 

$

219,849

 

Non-GAAP Gross Profit

$

109,837

 

 

$

126,327

 

 

$

129,885

 

 

$

356,866

 

 

$

247,028

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Margin

 

27.3

%

 

 

28.3

%

 

 

30.2

%

 

 

27.6

%

 

 

32.9

%

Non-GAAP Gross Margin

 

40.3

%

 

 

38.6

%

 

 

38.1

%

 

 

38.6

%

 

 

37.0

%

(1) Includes intangible amortization of backlog, inventory fair value adjustments, developed technology, customer relationships, and trade names acquired in connection with business combinations.

(2) Includes expenses for restructuring program designed to optimize the assets and business processes following the business combination with Adtran Networks. These expenses include inventory write down charges totaling approximately $21.0 million incurred as a result of the exit from certain product lines in connection with the restructuring program. The restructuring program commenced upon the closing of the business combination with Adtran Networks and is expected to be completed in late 2024.

(3) Includes expenses related to the Company's one-time integration bonus program in connection with synergy targets as a result of the business combination with Adtran Networks of which $73.4 thousand is stock compensation expense for the program.

 

Supplemental Information

Reconciliation of Operating Expenses to Non-GAAP Operating Expenses

(Unaudited)

(In thousands)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

 

September 30,

 

 

June 30,

 

 

September 30,

 

 

September 30,

 

 

September 30,

 

 

 

 

2023

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

Operating Expenses

 

$

125,659

 

 

$

137,181

 

 

$

134,076

 

 

$

400,380

 

 

$

242,833

 

 

Acquisition-related expenses, amortization and adjustments

 

 

(4,534

)

(1)

 

(4,398

)

(6)

 

(14,780

)

(10)

 

(13,516

)

(13)

 

(19,233

)

(17)

Stock-based compensation expense

 

 

(3,251

)

(2)

 

(3,974

)

(7)

 

(10,862

)

(11)

 

(10,683

)

(14)

 

(14,322

)

(18)

Restructuring expenses

 

 

(3,243

)

(3)

 

(5,868

)

(8)

 

 

 

 

(11,472

)

(15)

 

(2

)

 

Integration expenses

 

 

(1,485

)

(4)

 

(563

)

(9)

 

 

 

 

(2,897

)

(16)

 

 

 

Pension adjustments

 

 

 

 

 

 

 

 

(185

)

(12)

 

 

 

 

(185

)

(12)

Deferred compensation adjustments(5)

 

 

1,801

 

 

 

307

 

 

 

740

 

 

 

1,714

 

 

 

7,173

 

 

Non-GAAP Operating Expenses

 

$

114,947

 

 

$

122,685

 

 

$

108,989

 

 

$

363,526

 

 

$

216,264

 

 

(1) Includes intangible amortization of developed technology, customer relationships, and trade names acquired in connection with business combinations, of which $4.0 million is included in selling, general and administrative expenses and $0.5 million is included in research and development expenses on the condensed consolidated statements of loss.

(2) $2.4 million is included in selling, general and administrative expenses and $0.8 million is included in research and development expenses on the condensed consolidated statements of loss.

(3) $3.4 million is included in selling, general and administrative expenses and $(0.2) million is included in research and development expenses on the condensed consolidated statements of loss.

(4) $1.4 million is included in selling, general and administrative expenses and $0.1 million is included in research and development expenses on the condensed consolidated statements of loss. Includes fees relating to the expansion of internal controls at Adtran Networks and the implementation of the DPLTA. Additionally, includes expenses related to the Company's one-time integration bonus program in connection with synergy targets as a result of the business combination with Adtran Networks of which $0.5 million is stock compensation expense for the program.

(5) Includes non-cash change in fair value of equity investments held in the ADTRAN Holdings, Inc. Deferred Compensation Program for Employees, all of which is included in selling, general and administrative expenses on the condensed consolidated statement of loss.

(6) Includes intangible amortization of developed technology, customer relationships, and trade names acquired in connection with business combinations, of which $3.9 million is included in selling, general and administrative expenses and $0.5 million is included in research and development expenses on the condensed consolidated statements of loss.

(7) $2.7 million is included in selling, general and administrative expenses and $1.3 million is included in research and development expenses on the condensed consolidated statements of loss.

(8) $1.4 million is included in selling, general and administrative expenses and $4.5 million is included in research and development expenses on the condensed consolidated statements of loss.

(9) $0.6 million is included in selling, general and administrative expenses on the condensed consolidated statements of loss. Includes fees relating to the expansion of internal controls at Adtran Networks and the implementation of the DPLTA.

(10) Includes intangible amortization of developed technology, customer relationships, and trade names acquired in connection with business combinations, of which $14.3 million is included in selling, general and administrative expenses and $0.5 million is included in research and development expenses on the condensed consolidated statements of loss.

(11) $9.2 million is included in selling, general and administrative expenses and $1.7 million is included in research and development expenses on the condensed consolidated statements of loss.

(12) $0.1 million is included in selling, general and administrative expenses and $0.1 million is included in research and development expenses on the condensed consolidated statements of loss. Includes amortization of actuarial losses related to the Company's pension plan for employees in certain foreign countries.

(13) Includes intangible amortization of developed technology, customer relationships, and trade names acquired in connection with business combinations, of which $12.0 million is included in selling, general and administrative expenses and $1.5 million is included in research and development expenses on the condensed consolidated statements of loss.

(14) $7.6 million is included in selling, general and administrative expenses and $3.1 million is included in research and development expenses on the condensed consolidated statements of loss.

(15) $7.0 million is included in selling, general and administrative expenses and $4.5 million is included in research and development expenses on the condensed consolidated statements of loss.

(16) $2.8 million is included in selling, general and administrative expenses and $0.1 million is included in research and development expenses on the condensed consolidated statements of loss. Includes fees relating to the expansion of internal controls at Adtran Networks and the implementation of the DPLTA. Additionally, includes expenses related to the Company's one-time integration bonus program in connection with synergy targets as a result of the business combination with Adtran Networks of which $0.5 million is stock compensation expense for the program.

(17) Includes intangible amortization of developed technology, customer relationships, and trade names acquired in connection with business combinations, of which $17.7 million is included in selling, general and administrative expenses and $1.5 million is included in research and development expenses on the condensed consolidated statements of loss.

(18) $11.4 million is included in selling, general and administrative expenses and $2.9 million is included in research and development expenses on the condensed consolidated statements of loss.

 

Supplemental Information

Reconciliation of Operating Loss to Non-GAAP Operating (Loss) Income

(Unaudited)

(In thousands)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

June 30,

 

 

September 30,

 

 

September 30,

 

 

September 30,

 

 

 

2023

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Operating Loss

 

$

(89,296

)

 

$

(44,628

)

 

$

(48,018

)

 

$

(183,656

)

 

$

(39,953

)

Acquisition related expenses, amortization and adjustments(1)

 

 

18,070

 

 

 

37,837

 

 

 

40,310

 

 

 

93,069

 

 

 

44,763

 

Asset impairments(2)

 

 

 

 

 

 

 

 

16,969

 

 

 

 

 

 

16,969

 

Stock-based compensation expense

 

 

3,530

 

 

 

4,309

 

 

 

12,131

 

 

 

11,537

 

 

 

15,912

 

Pension adjustments

 

 

 

 

 

 

 

 

244

 

 

 

 

 

 

244

 

Restructuring expenses(3)

 

 

24,873

 

 

 

5,868

 

 

 

 

 

 

33,178

 

 

 

2

 

Integration expenses(4)

 

 

1,639

 

 

 

563

 

 

 

 

 

 

3,051

 

 

 

 

Deferred compensation adjustments(5)

 

 

(1,801

)

 

 

(307

)

 

 

(740

)

 

 

(1,714

)

 

 

(7,173

)

Goodwill impairment(6)

 

 

37,874

 

 

 

 

 

 

 

 

 

37,874

 

 

 

 

Non-GAAP Operating (Loss) Income

 

$

(5,111

)

 

$

3,642

 

 

$

20,896

 

 

$

(6,661

)

 

$

30,764

 

(1) Includes intangible amortization of backlog, inventory fair value adjustments, developed technology, customer relationships, and trade names acquired in connection with business combinations.

(2) Includes impairment charges related to the abandonment of certain information technology projects due to the business combination.

(3) Includes expenses for restructuring program designed to optimize the assets and business processes following the business combination with Adtran Networks. These expenses include inventory write down charges totaling approximately $21.0 million incurred as a result of the exit from certain product lines in connection with the restructuring program. The restructuring program commenced upon the closing of the business combination with Adtran Networks and is expected to be completed in late 2024.

(4) Includes fees relating to the expansion of internal controls at Adtran Networks and the implementation of the DPTLA. Additionally, includes expenses related to the Company's one-time integration bonus program in connection with synergy targets as a results of the business combination with Adtran Networks.

(5) Includes non-cash change in fair value of equity investments held in the ADTRAN Holdings, Inc. Deferred Compensation Program for Employees, all of which is included in selling, general and administrative expenses on the condensed consolidated statement of loss.

(6) Includes non-cash goodwill impairment charge related to our Services and Support reporting unit. The impairment primarily resulted from a decrease in projected revenue growth rates and EBITDA margins.

 

Supplemental Information

Reconciliation of Other (Expense) Income to Non-GAAP Other (Expense) Income

(Unaudited)

(In thousands)

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30,

2023

 

 

June 30,

2023

 

 

September 30,

2022

 

 

September 30,

2023

 

 

September 30,

2022

 

Interest and dividend income

$

521

 

 

$

358

 

 

$

347

 

 

$

1,183

 

 

$

768

 

Interest expense

 

(4,507

)

 

 

(4,064

)

 

 

(1,303

)

 

 

(11,858

)

 

 

(1,427

)

Net investment (loss) gain

 

(1,443

)

 

 

1,262

 

 

 

(2,691

)

 

 

1,071

 

 

 

(10,752

)

Other income, net

 

2,523

 

 

 

2,494

 

 

 

2,494

 

 

 

4,714

 

 

 

2,949

 

Total Other (Expense) Income

$

(2,906

)

 

$

50

 

 

$

(1,153

)

 

$

(4,890

)

 

$

(8,462

)

Deferred compensation adjustments (1)

 

1,117

 

 

 

(1,254

)

 

 

1,124

 

 

 

(1,387

)

 

 

6,561

 

Pension expense(2)

 

7

 

 

 

6

 

 

 

81

 

 

 

20

 

 

 

255

 

Non-GAAP Other (Expense) Income

$

(1,782

)

 

$

(1,198

)

 

$

52

 

 

$

(6,257

)

 

$

(1,646

)

(1) Includes non-cash change in fair value of equity investments held in the ADTRAN Holdings, Inc. Deferred Compensation Program for Employees.

(2) Includes amortization of actuarial losses related to the Company's pension plan for employees in certain foreign countries.

 

Supplemental Information

 

Reconciliation of Net Loss inclusive of Non-Controlling Interest to

Non-GAAP Net (Loss) Income inclusive of Non-Controlling Interest

(Unaudited)

 

and

 

Reconciliation of Net Loss attributable to Non-Controlling Interest to

Non-GAAP Net Loss (Income) attributable to Non-Controlling Interest

(Unaudited)

and

 

Reconciliation of Net Loss attributable to ADTRAN Holdings, Inc. and

Loss per Common Share attributable to ADTRAN Holdings, Inc. – Basic and Diluted to

Non-GAAP Net (Loss) Income attributable to ADTRAN Holdings, Inc. and

Non-GAAP (Loss) Earnings per Common Share attributable to ADTRAN Holdings, Inc. – Basic and Diluted

(Unaudited)

(In thousands, except per share amounts)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

2023

 

 

June 30,

2023

 

 

September 30,

2022

 

 

September 30,

2023

 

 

September 30,

2022

 

Net Loss attributable to ADTRAN Holdings, Inc.

 

$

(72,735

)

 

$

(33,334

)

 

$

(41,934

)

 

$

(140,533

)

 

$

(40,918

)

Plus: Net Loss attributable to non-controlling interest (1)

 

 

(2,914

)

 

 

(2,881

)

 

 

(2,925

)

 

 

(11,784

)

 

 

(2,925

)

Net Loss inclusive of non-controlling interest

 

$

(75,649

)

 

$

(36,215

)

 

$

(44,859

)

 

$

(152,317

)

 

$

(43,843

)

Acquisition related expenses, amortization and adjustments

 

 

18,070

 

 

 

37,837

 

 

 

40,310

 

 

 

93,069

 

 

 

44,763

 

Asset impairments

 

 

 

 

 

 

 

 

16,969

 

 

 

 

 

 

16,969

 

Stock-based compensation expense

 

 

3,530

 

 

 

4,309

 

 

 

12,131

 

 

 

11,537

 

 

 

15,912

 

Valuation allowance

 

 

 

 

 

(185

)

 

 

3,182

 

 

 

(185

)

 

 

15,550

 

Deferred compensation adjustments (2)

 

 

(684

)

 

 

(1,561

)

 

 

383

 

 

 

(3,101

)

 

 

(612

)

Pension adjustments (3)

 

 

7

 

 

 

6

 

 

 

325

 

 

 

20

 

 

 

499

 

Restructuring expenses

 

 

24,873

 

 

 

5,868

 

 

 

 

 

 

33,178

 

 

 

2

 

Integration expenses

 

 

1,639

 

 

 

563

 

 

 

 

 

 

3,051

 

 

 

 

Goodwill impairment

 

 

37,874

 

 

 

-

 

 

 

 

 

 

37,874

 

 

 

 

Tax effect of adjustments to net loss

 

 

(23,366

)

 

 

(13,426

)

 

 

(16,245

)

 

 

(49,099

)

 

 

(17,430

)

Non-GAAP Net (Loss) Income inclusive of non-controlling interest

 

$

(13,706

)

 

$

(2,804

)

 

$

12,196

 

 

$

(25,973

)

 

$

31,810

 

Less: Non-GAAP Net Loss (Income) attributable to non-controlling interest (1)

 

 

(2,914

)

 

 

(2,881

)

 

 

4,486

 

 

 

(10,255

)

 

 

4,486

 

Non-GAAP Net (Loss) Income attributable to ADTRAN Holdings, Inc.

 

$

(10,792

)

 

$

77

 

 

$

7,710

 

 

$

(15,718

)

 

$

27,324

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP Net Loss attributable to non-controlling interest (1)

 

$

(2,914

)

 

$

(2,881

)

 

$

(2,925

)

 

$

(11,784

)

 

$

(2,925

)

Acquisition related expenses, amortization and adjustments

 

 

 

 

 

 

 

 

7,120

 

 

 

1,457

 

 

 

7,120

 

Restructuring expenses

 

 

 

 

 

 

 

 

 

 

 

29

 

 

 

 

Integration expenses

 

 

 

 

 

 

 

 

 

 

 

6

 

 

 

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

231

 

 

 

37

 

 

 

231

 

Pension adjustments

 

 

 

 

 

 

 

 

60

 

 

 

 

 

 

60

 

Non-GAAP Net Loss (Income) attributable to non-controlling interest(1)

 

$

(2,914

)

 

$

(2,881

)

 

$

4,486

 

 

$

(10,255

)

 

$

4,486

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding – basic

 

 

78,389

 

 

 

78,366

 

 

 

73,036

 

 

 

78,378

 

 

 

57,175

 

Weighted average shares outstanding – diluted

 

 

78,389

 

 

 

78,366

 

 

 

73,036

 

 

 

78,378

 

 

 

57,175

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss per common share attributable to ADTRAN Holdings, Inc. – basic

 

$

(0.93

)

 

$

(0.43

)

 

$

(0.57

)

 

$

(1.79

)

 

$

(0.72

)

Loss per common share attributable to ADTRAN Holdings, Inc. – diluted

 

$

(0.93

)

 

$

(0.43

)

 

$

(0.57

)

 

$

(1.79

)

 

$

(0.72

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP (Loss) Earnings per common share attributable to ADTRAN – basic

 

$

(0.14

)

 

$

0.00

 

 

$

0.11

 

 

$

(0.20

)

 

$

0.48

 

Non-GAAP (Loss) Earnings per common share attributable to ADTRAN – diluted

 

$

(0.14

)

 

$

0.00

 

 

$

0.11

 

 

$

(0.20

)

 

$

0.48

 

(1) Represents the non-controlling interest portion of the Company's ownership of Adtran Networks pre-DPLTA and the annual recurring compensation earned by redeemable non-controlling interests and accrued by the Company post-DPLTA.

(2) Includes non-cash change in fair value of equity investments held in deferred compensation plans offered to certain employees.

(3) Includes amortization of actuarial losses related to the Company's pension plan for employees in certain foreign countries.

 

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