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

Rhea-AI Summary

ADTRAN Holdings, Inc. reported Q3 revenue of $272.3 million, with a 15% reduction in non-GAAP operating expenses projected for Q4 2023. The company aims to achieve a positive non-GAAP operating margin by Q2 2024 and expects to reduce non-GAAP operating expenses by approximately $90 million in 2024 compared to 2023. As part of its capital efficiency program, the company will suspend its quarterly dividend. The target financial model is a non-GAAP operating margin in the low teens for the full year 2025.

• 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

HUNTSVILLE, Ala.--(BUSINESS WIRE)-- 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 3^rd 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.

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20231106008780/en/

For media

Gareth Spence

+44 1904 699 358

public.relations@adtran.com



For investors

Steven Williams

+49 89 890 665 918

investor@adtran.com

Source: ADTRAN Holdings, Inc.

FAQ

What was ADTRAN Holdings' Q3 revenue?

ADTRAN Holdings reported Q3 revenue of $272.3 million.

What is the projected reduction in non-GAAP operating expenses for Q4 2023?

ADTRAN Holdings projects a 15% reduction in non-GAAP operating expenses for Q4 2023.

What is the company's target for non-GAAP operating margin by Q2 2024?

The company aims to achieve a positive non-GAAP operating margin by Q2 2024.

How much is the expected reduction in non-GAAP operating expenses for 2024 compared to 2023?

ADTRAN Holdings expects to reduce non-GAAP operating expenses by approximately $90 million in 2024 compared to 2023.

What is the company's capital efficiency program?

The capital efficiency program includes a site consolidation plan expected to generate proceeds up to $150 million and the suspension of the quarterly dividend.

What is the target financial model for the full year 2025?

The target financial model is a non-GAAP operating margin in the low teens for the full year 2025.