ADTRAN Holdings, Inc. Reports Earnings for the First Quarter of 2023 and Declares Quarterly Cash Dividend

HUNTSVILLE, Ala.–(BUSINESS WIRE)–#Adtran–ADTRAN Holdings, Inc., (NASDAQ: ADTN and FSE: QH9) (“ADTRAN Holdings” or the “Company”), today announced its financial results for the first quarter of 2023. For the quarter, revenue was $323.9 million. Net loss inclusive of the non-controlling interest for the first quarter of 2023 was $40.5 million. Net loss attributable to the Company for the first quarter of 2023 was $34.5 million and diluted loss per share attributable to the Company was $0.44. Inclusive of non-controlling interest, non-GAAP net loss was $9.5 million. Non-GAAP net loss attributable to the Company was $5.0 million and non-GAAP diluted loss per share attributable to the Company was $0.06. Non-GAAP net (loss) income and non-GAAP diluted (loss) earnings per share exclude acquisition related expenses, amortizations, 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, asset impairments, integration expenses, restructuring expenses, changes in valuation allowance related to our deferred tax assets, and the tax effect of these adjustments to net (loss) income. The reconciliations between the non-GAAP net (loss) income measures presented herein and the respective equivalent GAAP financial measures are set forth in the tables provided below.

ADTRAN Holdings Chairman and Chief Executive Officer Tom Stanton stated, “As mentioned in our pre-release, the results of the quarter were impacted by slowing sales predominately in our Subscriber Solutions category. Although we expect customer inventory management efforts to continue to affect our near-term results, the underlying demand to upgrade and deploy fiber networks is at an unprecedented high and we are ideally positioned to capitalize on this opportunity.”

The Company also announced that its Board of Directors declared a cash dividend for the first quarter of 2023. The quarterly cash dividend of $0.09 per common share is to be paid to the Company’s stockholders of record as of the close of business on May 23, 2023. The ex-dividend date is May 22, 2023, and the payment date will be June 6, 2023.

The Company confirmed that it will hold a conference call to discuss its first quarter results on Tuesday, May 9, 2023, at 9:30 a.m. Central Time, or 4:30 p.m. Central European Time. ADTRAN Holdings will webcast this conference call. To listen, 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 1st 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 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 could 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, including as a result of the continued impact of the COVID-19 global pandemic; (ii) risks and uncertainties related to the completed business combination between the Company, ADTRAN and ADVA, including risks related to the ability to successfully integrate the ADTRAN’s and ADVA’s 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) the risk of fluctuations in revenue, including due to lengthy sales and approval processes required by major and other service providers for new products and changes in customer demand; (iv) the risk posed by potential breaches of information systems and cyber-attacks; (v) the risks that ADTRAN may not be able to effectively compete, including through product improvements and development; and (vi) 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 well as its Form 10-Q for the quarter ended March 31, 2023 to be filed with the SEC.

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 income (expense), net (loss) income inclusive of the non-controlling interest, net (loss) income attributable to the Company, net loss attributable to the non-controlling interest, and (loss) earnings 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, amortizations 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, asset impairments, integration expenses, restructuring expenses, 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 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, 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.

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 ADVA. Find more at Adtran, LinkedIn and Twitter.

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ADTRAN Holdings, Inc.

www.adtran.com

Condensed Consolidated Balance Sheets (Unaudited) (In thousands)
	March 31,				December 31,
	2023				2022
Assets
Current Assets
Cash and cash equivalents	$	136,457			$	108,644
Short-term investments		1,058				340
Accounts receivable, net		262,043				279,435
Other receivables		30,938				32,831
Inventory, net		416,291				427,531
Prepaid expenses and other current assets		37,021				33,577
Total Current Assets		883,808				882,358
Property, plant and equipment, net		111,969				110,699
Deferred tax assets		81,631				67,839
Goodwill		385,755				381,724
Intangibles, net		379,286				401,211
Other non-current assets		63,152				66,998
Long-term investments		32,994				32,665
Total Assets	$	1,938,595			$	1,943,494
Liabilities, Redeemable Non-Controlling Interest and Equity
Current Liabilities
Accounts payable	$	198,596			$	237,699
Revolving credit agreements outstanding		190,843				95,936
Notes payable		—				24,598
Unearned revenue		55,611				41,193
Accrued expenses and other liabilities		27,424				35,235
Accrued wages and benefits		30,333				44,882
Income tax payable, net		19,397				9,032
Total Current Liabilities		522,204				488,575
Deferred tax liabilities		51,850				61,629
Non-current unearned revenue		24,907				19,239
Pension liability		10,698				10,624
Deferred compensation liability		28,674				26,668
Non-current lease obligations		21,446				22,807
Other non-current liabilities		15,986				10,339
Total Liabilities		675,765				639,881
Redeemable Non-Controlling Interest		442,668				—
Equity
Common stock		787				781
Additional paid-in capital		762,035				895,834
Accumulated other comprehensive income		55,251				46,713
Retained earnings		8,006				55,338
Treasury stock		(5,917	)			(4,125	)
Non-controlling interest		—				309,072
Total Equity		820,162				1,303,613
Total Liabilities, Redeemable Non-Controlling Interest and Equity	$	1,938,595			$	1,943,494

Condensed Consolidated Statements of Loss (Unaudited) (In thousands, except per share amounts)
		Three Months Ended
		March 31,
		2023				2022
Revenue
Network Solutions		$	282,418			$	138,374
Services & Support			41,494				16,144
Total Revenue			323,912				154,518
Cost of Revenue
Network Solutions			219,130				90,653
Services & Support			16,974				9,549
Total Cost of Revenue			236,104				100,202
Gross Profit			87,808				54,316
Selling, general and administrative expenses			67,397				27,893
Research and development expenses			70,143				26,491
Operating Loss			(49,732	)			(68	)
Interest and dividend income			304				204
Interest expense			(3,287	)			(30	)
Net investment gain (loss)			1,252				(3,415	)
Other expense, net			(303	)			(226	)
Loss Before Income Taxes			(51,766	)			(3,535	)
Income tax benefit			11,313				2,408
Net Loss		$	(40,453	)		$	(1,127	)
Less: Net Loss attributable to non-controlling interest(1)			(5,989	)			—
Net Loss attributable to ADTRAN Holdings, Inc.		$	(34,464	)		$	(1,127	)
Weighted average shares outstanding – basic			78,358				49,113
Weighted average shares outstanding – diluted			78,358				49,113
Loss per common share attributable to ADTRAN Holdings, Inc. – basic		$	(0.44	)		$	(0.02	)
Loss per common share attributable to ADTRAN Holdings, Inc. – diluted		$	(0.44	)		$	(0.02	)

(1) Includes $3.2 million of net loss attributable to non-controlling interests pre-DPLTA and $2.8 million of annual recurring compensation earned by redeemable non-controlling interests and accrued by the Company post-DPLTA.

Condensed Consolidated Statements of Cash Flows (Unaudited) (In thousands)
		Three Months Ended
		March 31,
		2023				2022
Cash flows from operating activities:
Net loss		$	(40,453	)		$	(1,127	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization			33,402				3,661
Amortization of debt issuance cost			146				—
(Gain) loss on investments			(3,154	)			3,304
Stock-based compensation expense			3,812				1,893
Deferred income taxes			(24,019	)			—
Other, net			(1	)			(62	)
Inventory reserves			16,051				(1,754	)
Changes in operating assets and liabilities:
Accounts receivable, net			17,658				8,697
Other receivables			1,980				(6,205	)
Inventory			(2,764	)			(29,685	)
Prepaid expenses, other current assets and other assets			1,118				(1,170	)
Accounts payable			(40,367	)			24,818
Accrued expenses and other liabilities			6,349				3,803
Income taxes payable, net			10,316				(1,304	)
Net cash (used in) provided by operating activities			(19,926	)			4,869
Cash flows from investing activities:
Purchases of property, plant and equipment			(8,439	)			(1,461	)
Proceeds from sales and maturities of available-for-sale investments			930				10,265
Purchases of available-for-sale investments			(516	)			(11,504	)
Proceeds from beneficial interests in securitized accounts receivable			1,231				—
Net cash used in investing activities			(6,794	)			(2,700	)
Cash flows from financing activities:
Tax withholdings related to stock-based compensation settlements			(6,258	)			(54	)
Proceeds from stock option exercises			58				568
Dividend payments			(7,076	)			(4,438	)
Proceeds from draw on revolving credit agreements			138,236				8,000
Repayment of revolving credit agreements			(43,464	)			(8,000	)
Non-controlling interest put option buyback			(1,176	)			—
Repayment of notes payable			(24,692	)			—
Net cash provided by (used in) financing activities			55,628				(3,924	)
Net increase (decrease) in cash, cash equivalents and restricted cash			28,908				(1,755	)
Effect of exchange rate changes			(1,095	)			(1,032	)
Cash and cash equivalents, beginning of period			108,644				56,818
Cash and cash equivalents, end of period		$	136,457			$	54,031
Supplemental disclosure of cash financing activities:
Cash paid for interest		$	1,610			$	30
Cash used in operating activities related to operating leases		$	4,057			$	482
Supplemental disclosure of non-cash investing activities:
Right-of-use assets obtained in exchange for lease obligations		$	486			$	332
Purchases of property, plant and equipment included in accounts payable		$	4,354			$	392

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
	March 31, 2023				December 31, 2022				March 31, 2022
Total Revenue	$	323,912			$	358,271			$	154,518
Cost of Revenue	$	236,104			$	250,868			$	100,202
Acquisition-related expenses, amortizations and adjustments		(32,578	)	(1)		(31,577	)	(3)		—
Stock-based compensation expense		(240	)	(2)		(1,287	)	(4)		(159	)
Pension adjustments		—				144				—
Restructuring expenses		(76	)			(8	)			—
Non-GAAP Cost of Revenue	$	203,210			$	218,140			$	100,043
Gross Profit	$	87,808			$	107,403			$	54,316
Non-GAAP Gross Profit	$	120,702			$	140,131			$	54,475
Gross Margin		27.1	%			30.0	%			35.2	%
Non-GAAP Gross Margin		37.3	%			39.1	%			35.3	%

(1) Includes intangible amortization of backlog, inventory fair value adjustments, developed technology, customer relationships, and trade names acquired in connection with business combinations, of which $32.6 million is included in total cost of revenue, on the condensed consolidated statements of loss.

(2) Includes $0.2 million in cost of revenue expenses incremental stock-based award modification expense related to the business combination on the condensed consolidated statements of loss.

(3) Includes intangible amortization of backlog, inventory fair value adjustments, developed technology, customer relationships, and trade names acquired in connection with business combinations, and certain one-time transaction expenses of which $31.6 million is included in total cost of revenue, on the condensed consolidated statements of loss.

(4) Includes $1.3 million in cost of revenue expenses incremental stock-based award modification expense related to the business combination on the condensed consolidated statements of loss.

Supplemental Information Reconciliation of Operating Expenses to Non-GAAP Operating Expenses (Unaudited) (In thousands)
	Three Months Ended
	March 31,				December 31,				March 31,
	2023				2022				2022
Operating Expenses	$	137,540			$	139,813			$	54,384
Acquisition-related expenses, amortizations and adjustments		(4,584	)	(1)		(8,328	)	(6)		(2,330	)	(10)
Stock-based compensation expense		(3,458	)	(2)		(11,095	)	(7)		(1,734	)	(11)
Restructuring expenses		(2,361	)	(3)		(1,618	)	(8)		(2	)	(12)
Integration expenses		(849	)	(4)		—				—
Pension adjustments		—				43		(9)		—
Deferred compensation adjustments		(394	)	(5)		(168	)	(5)		2,696		(5)
Non-GAAP Operating Expenses	$	125,894			$	118,647			$	53,014

(1) Includes intangible amortization of backlog, inventory fair value adjustments, developed technology, customer relationships, and trade names acquired in connection with business combinations, of which $4.1 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) $2.5 million is included in selling, general and administrative expenses and $1.0 million is included in research and development expenses on the condensed consolidated statements of loss.

(3) $2.2 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) $0.8 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 ADVA and the implementation of the DPLTA.

(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 backlog, inventory fair value adjustments, developed technology, customer relationships, and trade names acquired in connection with business combinations, and certain one-time transaction expenses of which $7.8 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) $9.4 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. Includes $7.3 million of in selling, general and administrative expenses and $0.6 million is included in research and development expenses incremental stock-based award modification expense related to the business combination.

(8) $0.1 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.

(9) $0.2 million is included in selling, general and administrative expenses and ($0.3) million is included in research and development expenses on the condensed consolidated statements of loss.

(10) $0.5 million is included in selling, general and administrative expenses and $1.8 million is included in research and development expenses on the condensed consolidated statements of loss .

(11) $0.6 million is included in selling, general and administrative expenses and $1.1 million is included in research and development expenses on the condensed consolidated statements of loss.

(12) Less than $0.1 million is included in selling, general and administrative 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
	March 31,				December 31,				March 31,
	2023				2022				2022
Operating Loss	$	(49,732	)		$	(32,874	)		$	(68	)
Acquisition related expenses, amortizations and adjustments		37,162				39,904				2,330
Asset impairments		—				463				—
Stock-based compensation expense		3,698				12,383				1,893
Pension adjustments		—				(187	)			—
Restructuring expenses		2,437				1,627				2
Integration expenses		849				—				—
Deferred compensation adjustments(1)		394				168				(2,696	)
Non-GAAP Operating (Loss) Income	$	(5,192	)		$	21,484			$	1,461

(1) 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.

Supplemental Information Reconciliation of Other (Expense) Income to Non-GAAP Other (Expense) Income (Unaudited) (In thousands)
	Three Months Ended
	March 31, 2023				December 31, 2022				March 31, 2022
Interest and dividend income	$	304			$	1,355			$	204
Interest expense		(3,287	)			(2,010	)			(30	)
Net investment gain (loss)		1,252				(587	)			(3,415	)
Other (expense) income, net		(303	)			11,568				(226	)
Total Other (Expense) Income	$	(2,034	)		$	10,326			$	(3,467	)
Deferred compensation adjustments (1)		(1,250	)			(349	)			1,841
Pension expense (2)		7				77				89
Non-GAAP Other (Expense) Income	$	(3,277	)		$	10,054			$	(1,537	)

(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) Income 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) Income attributable to ADTRAN Holdings, Inc. and (Loss) Earnings 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
		March 31, 2023				December 31, 2022				March 31, 2022
Net (Loss) Income attributable to ADTRAN Holdings, Inc.		$	(34,464	)		$	38,881			$	(1,127	)
Plus: Net Loss attributable to non-controlling interest (1)			(5,989	)			(3,926	)			—
Net (Loss) Income inclusive of non-controlling interest		$	(40,453	)		$	34,955			$	(1,127	)
Acquisition related expenses, amortizations and adjustments			37,162				39,904				2,330
Asset impairments			—				463				—
Stock-based compensation expense			3,698				12,383				1,893
Valuation allowance			—				(60,908	)			8,079
Deferred compensation adjustments (2)			(856	)			(182	)			(855	)
Pension adjustments (3)			7				(109	)			89
Restructuring expenses			2,437				1,627				2
Integration expenses			849				—				—
Tax effect of adjustments to net income (loss)			(12,307	)			(12,463	)			(505	)
Non-GAAP Net (Loss) Income inclusive of non-controlling interest		$	(9,463	)		$	15,670			$	9,906
Less: Non-GAAP Net (Loss) Income attributable to non-controlling interest (1)			(4,460	)			5,769				—
Non-GAAP Net (Loss) Income attributable to ADTRAN Holdings, Inc.		$	(5,003	)		$	9,901			$	9,906
GAAP Net Loss attributable to non-controlling interest (1)		$	(5,989	)		$	(3,926	)		$	—
Acquisition related expenses, amortizations and adjustments			1,457				9,039				—
Restructuring expenses			29				402				—
Integration expenses			6				—				—
Stock-based compensation expense			37				300				—
Pension adjustments (3)			—				(46	)			—
Non-GAAP Net (Loss) Income attributable to non-controlling interest (1)		$	(4,460	)		$	5,769			$	—
Weighted average shares outstanding – basic			78,358				77,659				49,113
Weighted average shares outstanding – diluted			78,358				79,243				49,113
(Loss) Earnings per common share attributable to ADTRAN Holdings, Inc. – basic		$	(0.44	)		$	0.50			$	(0.02	)
(Loss) Earnings per common share attributable to ADTRAN Holdings, Inc. – diluted		$	(0.44	)		$	0.49			$	(0.02	)
Non-GAAP (Loss) Earnings per common share attributable to ADTRAN – basic		$	(0.06	)		$	0.13			$	0.20
Non-GAAP (Loss) Earnings per common share attributable to ADTRAN – diluted		$	(0.06	)		$	0.12			$	0.20

Contacts

For media
Gareth Spence

+44 1904 699 358

public-relations@adva.com

For investors
Steven Williams

+49 89 890 665 918

investor.relations@adtran.com

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