ADTN 10-K & 10-Q changes, risk factors and insider trading

Our business involves substantial risks. Any of the risk factors described below or elsewhere in this report could significantly and adversely affect our business prospects, financial condition and results of operations. The risks described below are not the only ones facing us. Additional risks and uncertainties not presently known to us or that we currently deem to be immaterial may also adversely affect us.

We are obligated to comply with covenants related to our Wells Fargo Credit Agreement that restrict our operating activities, and the failure to comply with such covenants could result in defaults that accelerate our debt.debt obligations.

The Wells Fargo Credit Agreement governing our indebtedness contains restrictive covenants that limit our ability to engage in activities that may be in our long-term best interest. Our failure to comply with those covenants couldhas resulted in events of default and may in the future result in an event of default that, if not cured or waived, could resultresults in the acceleration of all its debt. Our Wells Fargo Credit Agreement along with the amendments thereto, contain various restrictive covenants which include, among others, provisions limiting our ability to:

Our failure to comply with the covenants set forth in the Credit Agreement has resulted in events of default and could in the future result in defaults that accelerate the payment under such debt which would likely have a material adverse impact on our financial condition and results of operations. In addition, an event of default under the Credit Agreement wouldwould, if not cured or waived, permit the lenders to terminate all commitments to extend further credit under the applicable facility. Furthermore, if we were unable to repay the amounts due and payable under the Credit Agreement, the lenders could proceed against the collateral granted to them to secure that indebtedness. In the event our lenders accelerate the repayment of our borrowings, we and our subsidiaries may not have sufficient assets to repay that indebtedness. In addition, these defaults could impair our ability to access debt and equity capital markets. For additional information on our debt covenants, see "Liquidity & Capital Resources" in Part II, Item 7 of this report.

Accurately matching necessary inventory levels to customer demand within the current environment is challenging, and we may incur additional costs or be required to write off significant inventory that wouldcould adversely impact our results of operations.

In addition, these inventory practices, particularly when considered in the context of our backlog, further introduce obsolescence risk that can impact our results of operations and financial condition. During fiscal 2023 and fiscal 2024, certain customers that had earlier placed significant advanced orders, rescheduled deliveries for or cancelled a portion of such orders. Accordingly, our inventory needs for a particular period can fluctuate and be difficult to predict. If our customers were to cancel or delay orders for extended periods, inventory could become obsolete, and we could be required to write off or write down the inventory associated with those orders. In addition, if customers were to cancel or delay existing or forecasted orders for which we have significant outstanding commitments to our contract manufacturers or suppliers, we may be required to purchase inventory under these commitments that we are unable to sell. If we are required to write off or write down a significant amount of inventory, our results of operations for the applicable period would be materially adversely affected. For example, we recorded charges for excess and obsolete inventory of $8.6 million and $24.3 million in fiscal 2024 and 2023, respectively, primarily related to a strategy shift which included discontinuance of certain product lines in connection with the Business Efficiency Program. Our inability to effectively manage the matching of inventory with customer demand, particularly within any supply constrained environment, has had and could adverselyin the future have an adverse impact our results of operations and financial condition, and could result in loss of revenue, increased costs, or delays that could adversely impact customer satisfaction.condition.

The lengthy sales and approval process required by Service Providers for new products has resulted in fluctuations in our revenue and may result in fluctuations of future revenue and financial results.fluctuations.

Our ability to generate cash depends on many factors beyond our control and any failure to service our outstanding indebtedness could harm our business, financial condition and results of operations. Furthermore, we have entered into a DPLTA with Adtran Networks. Additionally, pursuant to the terms of the DPLTA, each Adtran Networks shareholder (other than the Company) has received an offer to elect either (1) to remain an Adtran Networks shareholder and receive from us ana recurring cash payment of €0.52 per share for each full fiscal year of Adtran Networks (the “Annual Recurring Compensation”) payment, or (2) to receiveput their Adtran Networks shares to the Company in exchange for compensation in cash of €17.21 per share, plus guaranteed interest (the “Exit Compensation.Compensation”). For the year ended December 31, 2024,2025, approximately 8312.0 thousandmillion shares of Adtran Networks stock were tendered to the Company. This resulted in total Exit Compensation payments of approximately €15.740.2 million, or approximately $17.4$46.6 million, based on exchange rates at the time of the transactions, being paid to Adtran Networks shareholders. Any failure to satisfy our payment obligations under the DPLTA could harm our business, financial condition and results of operations.

Our ability to make payments on and to refinance our indebtedness, to cover our payment obligations under the DPLTA,DPLTA and the 2030 Notes, and to fund working capital needs and planned capital expenditures depends on our ability to generate cash in the future. This, to a certain extent, is subject to general economic, financial, competitive, business, legislative, regulatory and other factors that are beyond our control. If our business does not generate sufficient cash flow from operations, we do not sufficiently reduce costs in a timely manner, or if our future borrowings are not available to us in an amount sufficient to enable us and our subsidiaries to pay our indebtedness or to fund our other liquidity needs, we may need to raise additional debt or equity capital, refinance all or a portion of our indebtedness, sell assets, reduce or delay capital investments, any of which could have a material adverse effect.

The Company experienced revenue declines in 2024. However, customers began replenishing their inventories to meet increasing demand, and revenue increased throughout fiscal 2025. There can be no assurance that revenue will continue to increase or that the Company will be successful in effecting its plans to preserve cash liquidity and maintain compliance with the Company's covenants on commercially reasonable terms or at all. We may need to further reduce capital expenditure and/or take other steps to preserve working capital in order to ensure that we can meet our needs and obligations and maintain compliance with our debt covenants. Our ability to raise additional debt capital or to restructure or refinance our indebtedness will depend on the condition of the capital markets and our financial condition at such time. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. The terms of existing or future debt instruments or preferred stock may limit or prevent us from taking any of these actions.

The DPLTA between the Company, as the controlling company, and Adtran Networks, as the controlled company, which was executed on December 1, 2022, became effective on January 16, 2023, as a result of its registration with the commercial register (Handelsregister) of the local court (Amtsgericht) at the registered seat of Adtran Networks (Jena).

Under the DPLTA, subject to certain limitations pursuant to applicable law and the specific terms of the DPLTA, (i) the Company is entitled to issue binding instructions to the management board of Adtran Networks, (ii) Adtran Networks will transfer its annual profit to the Company, subject to, among other things, the creation or dissolution of certain reserves, and (iii) the Company will generally absorb the annual net loss incurred by Adtran Networks. The Company’s payment obligation in satisfaction of the requirement that it absorb Adtran Networks’ annual net loss applied for the first timeapplies to the net loss generated by Adtran Networks in 2023.2025, and it will apply to any net loss generated by Adtran Networks in 2026.

Additionally, and subject to certain limitations pursuant to applicable law and the specific terms of the DPLTA, the DPLTA provides that Adtran Networks shareholders (other than the Company) be offered, at their election, (i) to put their Adtran Networks shares to the Company in exchange for compensation in cash of €17.21 per share, plus guaranteed interest (the “Exit Compensation”), or (ii) to remain Adtran Networks shareholders and receive a recurring compensation in cash of €0.52 per share for each full fiscal year of Adtran Networks (the “Annual Recurring Compensation”). The guaranteed interest under the Exit Compensation is calculated from the effective date of the DPLTA to the date the shares are tendered, less any Annual Recurring Compensation paid. The guaranteed interest rate is 5.0% plus a variable component that was 3.37%1.27% as of December 31, 2024.2025. The Annual Recurring Compensation is due on the third banking day following the ordinary general shareholders’ meeting of Adtran Networks for the respective preceding fiscal year (but in any event within eight months following expiration of the fiscal year). With respect to the 20232024 fiscal year, Adtran Networks'Networks’ ordinary general shareholders'shareholder meeting occurred on June 28,27, 2024,2025, and therefore, the Annual Recurring Compensation was paid on July 3,1, 2024.2025. With respect to the 20242025 fiscal year, Adtran Networks’ ordinary general shareholder meeting is scheduled for Junethe 27,second 2025,quarter of 2026, and therefore, the Annual Recurring Compensation will be due on Julythe 2,third 2025.banking day following the meeting. The adequacy of both forms of compensation has been challenged by minority shareholders of Adtran Networks via court-led appraisal proceedings under German law and it is possible that the courts in such appraisal proceedings may adjudicate a higher Exit Compensation (including interest thereon) or Annual Recurring Compensation than agreed upon in the DPLTA. Our obligation to pay Annual Recurring Compensation under the DPLTA is a continuing payment obligation, which will amount to approximately €8.97.9 million or $9.3 million (based on the exchange rate as of December 31, 20242025) per year assuming none of the minority Adtran Networks shareholders were to elect Exit Compensation. The foregoing amounts do not reflect any potential increase in payment obligations that we may have depending on the outcome of ongoing appraisal proceedings in Germany. For the year ended December 31, 2024,2025, a total of 8312.0 thousandmillion shares of Adtran Networks stock was tendered to the Company and Exit Compensation payments of approximately €15.740.2 million or approximately $17.4$46.6 million, based on exchange rates at the time of the transactions, were paid to Adtran Networks shareholders. Assuming all the minority holders of currently outstanding Adtran Networks shares were to elect the first option, we would be obligated to make aggregate Exit Compensation payments, including guaranteed interest, of approximately €333.2303.9 million or approximately $344.9$357.0 million, based on an exchange rate as of December 31, 2024.2025. In addition to our cash and cash equivalents and the credit facility, we may fund a portion or all of the Annual Recurring Compensation and Exit Compensation through the sale of securities or additional alternative funding sources, if available. There can be no assurances that we would be successful in effecting these actions at commercially reasonable terms or at all. If we cannot raise additional funds asto the extent needed, it could have a material adverseadversely impact on our financial results and financial condition. Additionally, the payment of the Annual Recurring Compensation and Exit Compensation could have a material adverse impact on our financial results and financial condition. See “Liquidity and Capital Resources” in Part II, Item 7 of this report for additional information.

The opportunity for minority Adtran Networks shareholders to tender Adtran Networks shares in exchange for Exit Compensation had been scheduled to expire on March 16, 2023. However, due to the appraisal proceedings that were initiated in 2023 in accordance with applicable German law in 2023,law, this time period for tendering shares has been extended pursuant to the German Stock Corporation Act (Aktiengesetz) and will end two months after the date on which a final decision in such appraisal proceedings has been published in the Federal Gazette (Bundesanzeiger). TheFollowing Companythe expectscourt's todecision receiveon a procedural decisionmatter duringin 2025the thatDPLTA willappraisal likelyproceedings beon appealed.July The14, date2025, the trial on the merits of the DPLTA has recommenced. It is expected to take a decisionminimum byof 12 months for a ruling of the court on the merits of the case is uncertain, but it is unlikely thatand such decisionruling will most likely be renderedappealed, inwhich 2025.would Thereafterbe expected to take an expected appeal process will take a furtheradditional 12-24 months to resolve.be resolved. Accordingly, the Company does not expect a final decision on the DPLTA appraisal proceedings to be rendered and published prior to 2027, and most likely not until 2028 or beyond.

As of December 31, 2024,2025, ourthe Company’s borrowings under the Wells Fargo revolving line of credit were(the $189.6 million, of which approximately $141.0 million was borrowed by ADTRAN, Inc. and $48.6 million was borrowed by Adtran Networks. The credit facilities provided under the"Amended Credit Agreement") maturewere in$25.0 July 2027, but ADTRAN, Inc. may request extensions subject to customary conditions.million. As of December 31, 2024,2025, wethe U.S. Borrower had a total of $3.6$5.8 million in letters of credit under ADTRAN,the Inc. outstanding under theAmended Credit Agreement, leaving a net amount (after giving effect to the $189.6$25.0 million of outstanding borrowings described above) of $180.8$319.2 million available for future borrowings; however, as of December 31, 2024, the Company was limited to additional borrowings of $56.1 million based on debt covenant compliance metrics. The credit facilities provided under the Amended Credit Agreement mature in July 2027, but we may request extensions subject to customary conditions or we may seek to refinance the credit facilities prior to their maturity. In addition, on September 19, 2025, the Company issued $201.3 million principal amount of its 3.75% convertible senior notes due September 15, 2030 (the “2030 Notes” or the “Notes”). See "Cash Requirements" in Part II,I, Item 72 of this report for additional information.

limits our ability to assume debt in a future acquisitions.acquisition. Specifically, our Amended Credit Agreement with Wells Fargo limits the amount of debt we can assume in an acquisition. This could limit our ability to take advantage of significant business opportunities, such as acquisition opportunities, and to react to changes in market or industry conditions;

could cause us to be disadvantaged compared to competitors with less leverage; and limits our ability to borrow additional money. Specifically, our Amended Credit Agreement with Wells Fargo limits our ability to borrow additional money, which could limit our ability to fund working capital, capital expenditures, research and development and other general corporate needs in the future.

Our ability to satisfy our debt obligations and renew the credit facility is dependent upon our future performance and other risk factors discussed in this section. We cannot assure you that we will maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness. If we fail to pay interest on, or repay, our borrowings under the WellsAmended FargoCredit credit facilityAgreement when required, we will be in default under the applicable loans, and may also suffer an event of default under the terms of other borrowing arrangements that we may enter into from time to time. WeIn areaddition, attemptingour failure to furtherrepurchase reducethe our2030 operatingNotes expenses in orderor to fundpay ourthe obligations,cash andamounts wedue upon conversion when required will constitute a default under the indenture. We may be forced to further reduce or delay capital expenditures, sell assets or operations, seek additional capital or restructure or refinance our indebtedness. We cannot assure you that we would be able to take any of these actions, that these actions would be successful and permit us to meet our scheduled obligations or that these actions would be permitted under the terms of our current or future debt agreements. If we fail to implement these reductions or are unable to achieve sufficient operating results and resources, we could face substantial liquidity challenges and might be required to dispose of material assets or operations to meet our debt service and other obligations. We may not be able to consummate those dispositions or obtain sufficient proceeds from those dispositions to meet our debt service and other obligations when due. Any of these events could have a material adverse effect on our business, results of operations and financial condition.

slowdowns, recessions, economic instability (such as the instability in the financial services sector),instability, political unrest, armed conflicts (such as the ongoing military conflict in Ukraine and inthe IsraelMiddle and surrounding regions),East, or outbreaks of disease around the world; and an extended government shutdown resulting from budgetary decisions or other potential delays or changes in the government appropriations or other funding authorization processes.

Our dependence on a limited number of suppliers for certain raw materials, key components and ODM products, combined with supply shortages, havehas prevented and may continue to prevent us from delivering our products on a timely basis, which has had and may continue to have a material adverse effect on operating results and could have a material adverse effect on customer relations.

A reduction or interruption in supply, including disruptions on our global supply chain, caused in part by public health emergencies, geopolitical tensions (including as a result of the ongoing conflict in UkraineUkraine, andthe inMiddle Israel and surrounding regions,East, as well as China-Taiwan relations); a significant natural disaster (including as a result of climate change); tariffs or other trade restrictions; a significant increase in the price of one or more components (including as a result of inflation); a failure to adequately authorize procurement of inventory by our contract manufacturers; a failure to appropriately cancel, reschedule, or adjust our requirements based on our business needs; or a decrease in demand for our products could materially adversely affect our business, operating results, and financial condition and could materially damage customer relationships. Furthermore, as a result of binding price or purchase commitments with suppliers, we may be obligated to purchase raw materials or components at prices that are higher than those available in the current market. In the event that we become committed to purchasing raw materials or components at prices in excess of the current market price when the raw materials or components are actually used, our gross margins could decrease.

We believe that we may be faced with the following challenges in the future: new markets in which we participate may grow quickly, which may make it difficult to quickly obtain significantsufficient raw materials and/or components; as we acquire companies and new technologies, we may be dependent on unfamiliar supply chains or relatively small supply partners; and we face competition for certain raw materials or components that are supply-constrained from existing competitors and companies in other markets.

Our estimates regarding future warranty obligations may change due to product failure rates, installation and shipment volumes, field service repair obligations and other rework costs incurred in correcting product failures. If our estimates materially change, our liability for warranty obligations may increase or decrease, impacting future cost of revenue.

Managing our inventory of components and finished products is complicated by a number of factors, including the need to maintain a significant inventory of certain components that are in short supply, that have been discontinued by the component manufacturer, that must be purchased in bulk to obtain favorable pricing or that require long lead times. Economic growth, and the unprecedented nature of AI related demand, can make it more difficult for us and our suppliers to accurately forecast demand and to set optimized levels of manufacturing capacity and inventory. These issues have and may continue to result in our purchasing and maintaining significant amounts of inventory, which if not used or expected to be used based on anticipated production requirements, may become excess or obsolete. Any excess or obsolete inventory could also result in sales price reductions and/or inventory write- downs, which could adversely affect our business and results of operations. During the year ended December 31, 2023, we recognized write-downs of inventory of $24.3 million due to a discontinuation of certain product lines within our Network Solutions segment in connection with our Business Efficiency Program. Additionally, during the year ended December 31, 2024, we recognized write-downs of inventory and other charges of $8.6 million as a result of a strategy shift which included discontinuance of certain items in connection with the Business Efficiency Program, of which, $4.1 million relates to inventory write-downs and $4.5 million relates to other charges. Significant and unanticipated changes in our business could require additional charges for inventory write downs in a future period. AnyWhile there were no write-downs for 2025, any future charges relating to such inventory write-downs could materially adversely affect our business, financial condition and results of operations in the periods recognized. For additional details regarding the Business Efficiency Program, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Business Efficiency Program” in Part II, Item 7 of this report.

potential exposure to natural disasters, epidemics and pandemics (and government regulations in response thereto) and acts of war or terrorism; and potential exposure to ongoing military conflicts, including the conflict in Ukraine and the Middle East, as well as recent developments in IsraelVenezuela and surroundingLatin regions.America. The U.S. and certain other countries-imposed sanctions on Russia in connection with the conflict in Ukraine and could impose further sanctions against it, which could damage or disrupt international commerce and the global economy. Other potential consequences of such military conflicts include, but are not limited to, a heightened risk of cyber-warfare, biological warfare or nuclear warfare, growth in the number of popular uprisings in the affected regions, increased political discontent, especially in the regions most affected by the conflicts or economic sanctions, continued displacement of persons to regions close to the areas of conflict and an increase in the number of refugees, among other unforeseen social and humanitarian effects which could impact our business, customers, and suppliers.

We are exposed to adverse currency exchange rate fluctuations in jurisdictions where we transact in local currency, which could harm our financial results and cash flows.

The Business Combination added a significant amount of goodwill and other intangible assets to our consolidated balance sheets. In accordance with U.S. GAAP, management periodically assesses these assets to determine if they are impaired. Significant negative industry or economic trends, disruptions to our business, the inability to effectively integrate acquired businesses, the under performance of our business as compared to management’s initial expectations, unexpected significant changes or planned changes in use of the assets, divestitures, and market capitalization declines may impair goodwill and other intangible assets. During the year ended December 31, 2024, qualitative factors such as a decrease in the Company’s market capitalization, lower service provider spending and delayed holding patterns of inventory with respect to customers caused us to reduce our forecasts, triggering a quantitative impairment assessment for our reporting units. The Company determined the fair value of the Network Solutions reporting unit using a combination of an income approach and a market-based peer group analysis. The Company determined upon its quantitative impairment assessment to recognize a $292.6$297.4 million non-cash goodwill impairment charge for the Network Solutions reporting unit. The quantitative impairment analysis indicated there wasWhile no impairment of goodwill was recognized in 2025, the Services & Support goodwill. The Company will continue to monitor its stock price, operating results and other macroeconomic factors to determine if there is further indication of a sustained decline in fair value requiring an event driven assessment of the recoverability of its remaining goodwill. If our assumptions and related estimates change in the future, or if we change our reporting unit structure or other events and circumstances change (e.g., a sustained decrease in the price of our common stock (considered on both absolute terms and relative to peers)), we may be required to record impairment charges when we perform these tests, or in other future periods. A non-cash goodwill impairment charge would have the effect of decreasing earnings or increasing losses in such period. If we are required to take a substantial impairment charge, such impairment charge could have a material adverse effect on our business, financial condition and results of operations in the periods recognized.

Managing these types of transactions require varying levels of management resources, which has in the past and may in the future divert our attention from other business operations. These transactions have resulted and could result in the future in significant costs and expenses and charges to earnings, including those related to severance pay, early retirement costs, employee benefit costs, asset impairment charges, charges from the elimination of duplicative facilities and contracts, in-process research and development charges, inventory adjustments, assumed litigation, regulatory compliance and other liabilities, legal, accounting and financial advisory fees and required payments to executive officers and key employees under retention plans. In the Business Combination with Adtran Networks, we have incurred significant restructuring and integration costs and we expect to incur additional restructuring and integration costs and such costs are expected to be material. Moreover, we could incur additional depreciation and amortization expense over the useful lives of certain assets acquired in connection with these transactions, and, to the extent that the value of goodwill or intangible assets acquired in connection with a transaction becomes impaired, we may be required to incur additional material charges relating to the impairment of those assets. For example, during the third quarter of 2023, we recognized a $37.9 million non-cash goodwill impairment charge related to the Business Combination with Adtran Networks. In order to complete ana future acquisition, we may issue additional common shares, potentially creating dilution for existing stockholders, or borrow funds, which could affect our financial condition, results of operations and potentially our credit ratings. Any prior or future downgrades in our credit rating associated with a transaction could adversely affect our ability to borrow and our borrowing cost,costs, and result in more restrictive borrowing terms. In addition, our effective tax rate on an ongoing basis is uncertain, and such transactions could impact our effective tax rate. We also may experience risks relating to the challenges and costs of closing a transaction and the risk that an announced transaction may not close. As a result, any completed, pending or future transactions may contribute to financial results that differ materially from the investment community’s expectations.

Ongoing inflationary pressures have negatively impacted our revenuesrevenue and profitability.

We have had to restate our previously issued consolidated financial statements and, as part of that process, have identified material weaknesses in our internal control over financial reporting. If we are unable to develop and maintain effective internal control over financial reporting, we may not be able to accurately report our financial results in a timely manner, which may adversely affect investor confidence in us and may adversely affect our business, financial condition and results of operations.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Effective internal control over financial reporting is necessary for us to provide reliable financial reporting and prevent fraud. We have had to restate our previously issued consolidated financial statements in the past, including in August 2023, March 2024 and May 2025, and, as part of that process, have identified material weaknesses in our internal control over financial reporting.reporting, including two material weaknesses that continued to exist at December 31, 2025 and as of the date of this filing. We have remediated certain material weaknesses, implemented newseveral controls with respect to oneour remaining material weakness,weaknesses, and we plancontinue to initiatetest remediationnew plansand withadditional respectcontrols in order to successfully remediate the otherremaining material weaknesses. These remediation measures have been time consuming and costly and there is no assurance that these initiatives will ultimately have the intended effects. AnyThe failure to maintain effective internal control over financial reporting could adversely impact our ability to report our financial position and results from operations on a timely and accurate basis. IfWhen our financial statements are not accurate, investors do not have a complete understanding of our operations. Likewise, ifwhen our financial statements are not filed on a timely basis,basis we could be subject to sanctions or investigations by the stock exchange on which our common stock is listed, the SEC, the Federal Financial Supervisory Authority, or other regulatory authorities. In either case, there could be an adverse effect on our business, financial condition and results of operations. Ineffective internal control over financial reporting could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our stock.

We can provide no assurance that the measures that we have taken,taken and are taking, and plan to take in the futuretaking will remediate the material weaknesses identified or that any additional material weaknesses or restatements of financial results will not arise in the future due to a failure to implement andor maintain adequate internal control over financial reporting or circumvention of these controls. In addition, while we have strengthened our controls and procedures,procedures inhave thenot future those controlsbeen and procedures may not be adequate in the future to prevent or identify irregularities or errors or to facilitate the fair presentation of our consolidated financial statements.

We may face litigation and other risks as a result ourof the material weaknesses in our internal control over financial reportingreporting, prior restatements of our financial statements, and any resultingfuture restatement of our previously issued consolidated financial statements.

We had to restate our previously issued consolidated financial statements in August 2023 and2023, March 2024 and May 2025 and, in connection with those restatements, we identified material weaknesses in our internal control over financial reporting, certain of which have continued as of the date hereof. Until such time as we have remediated our material weaknesses or in the event that we experience an additional material weakness, there is a higher risk of there being an error in our financial statements, which error could be material, thereby resulting in a restatement of our financial statements. In connection with our material weaknesses in our internal control over financial reportingreporting, the prior restatements of our financial statements, and any future restatement, we face potential for litigation or other disputes which may include, among others, claims invoking the federal and state securities laws, contractual claims or other claims. As of the date of this report, we have no knowledge of any such litigation or dispute. However, we can provide no assurance that such litigation or dispute will not arise in the future. Any such litigation or dispute, whether successful or not, could adversely affect our business, financial condition and results of operations.

We maintain sensitive data on our information systems and the networks of third-party providers, including intellectual property, financial data and proprietary or confidential business information relating to our business, customers, suppliers, and business partners. We also produce networking equipment solutions and software used by network operators to ensure security and reliability in their management and transmission of data. Our customers, particularly those in regulated industries, are increasingly focused on the security features of our technology solutions. Maintaining the security of information sensitive to us and our business partners is critical to our business and reputation. We rely upon several internal business processes and information systems to support key operations and financial functions, and the efficient operation of these processes and systems is critical. Companies are increasingly subjected to cyberattacks and other attempts to gain unauthorized access. Specifically, our network and storage applications and those systems and applications maintained by our third-party providers may be targeted by cyberattacks or potentially breached due to operator error, fraudulent activity, or other system disruptions. Furthermore, we, our employees and some of our third-party Service Providers have been, and anticipate continuing to be, the targets of various cybersecurity threats. These include hacking attacks, social engineering schemes such as "phishing," and business email compromise attacks, wherein attackers impersonate company executives or colleagues in emails to trick employees into transferring funds or revealing sensitive information. Our information systems are designed to reflect industry standards and are engineered to reduce downtime in the event of power outages, weather or climate events and cybersecurity issues. To date, these threats have not had a significant effect on our financial condition or operational results; however, we cannot ensure that future cybersecurity threats might not have a material impact on our business. Unauthorized access to or disclosure of our information could compromise our intellectual property and expose sensitive business information. Additionally, a significant failure or other compromise of our systems due to these issues could result in significant remediation costs, disrupt business operations, and divert management attention, which could result in harm to our business reputation, operating results, financial condition, and cash flows. These risks, as well as the number and frequency of cybersecurity events globally, may also be heightened during times of geopolitical tension or instability between countries. For example, a number of recent cybersecurity events have been alleged to have originated from the ongoing military conflictconflicts in Ukraine and inthe IsraelMiddle and its surrounding areas.East. Further, we have incurred, and will continue to incur, expenses to comply with cybersecurity, privacy, and data protection standards and protocols imposed by law, regulation, industry standards and contractual obligations. Continued increases in legislation and regulation from a variety of international, federal and state authorities regarding cybersecurity incidents, including risk assessment, notification obligations, regulatory reporting and other requirements, could increase our cost of compliance and could subject us to additional liability and reputational harm. And while we may be entitled to damages if our third-party providers fail to satisfy their security-related obligations to us, any award may be insufficient to cover our damages, or we may be unable to recover such award. Additionally, while we have purchased cybersecurity insurance, there are no assurances that the coverage would be adequate in relation to any incurred losses or not subject to any exclusions. Moreover, as cyberattacks increase in frequency and magnitude, we may be unable to obtain cybersecurity insurance in amounts and on terms we view as adequate for our operations. For information on our cybersecurity risk management, strategy and governance, see Part I, Item 1C of this report.

The markets for our products are characterized by rapidly changing technology, evolving industry standards and continuing improvements in the communications service offerings of Service Providers. If technologies or standards applicable to our products, or Service Provider offerings based on our products, become obsolete or fail to gain widespread commercial acceptance, our existing products or products under development may become obsolete or unmarketable, which can result in the discontinuation of products and write off of related inventory. For example, during the quarters ended March 31, 2024 and September 30, 2023, management determined that there would be a strategy shift which resulted in a discontinuation of certain product lines in the Network Solutions segment. For more information, see Note 5 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this report. While we did not discontinue any material product lines in 2025, future strategy shifts may result in the discontinuation of products and the write off of related inventory. Moreover, the introduction of products embodying new technologies, the emergence of new industry standards, or changes in Service Provider offerings could adversely affect our ability to sell our products.

We engage in research and development activities to develop new, innovative solutions and to improve the application of developed technologies, and as a consequence may miss certain market opportunities enjoyed by larger companies with substantially greater research and development efforts and which may focus on more leading edgeleading-edge development.

We are heavily dependent on subcontractors for the assembly and testing of certain printed circuit board assemblies, subassemblies, chassis, enclosures and equipment shelves, and the purchase of some raw materials used in such assemblies. This reliance involves several risks, including the unavailability of, or interruptions in, access to certain process technologies and reduced control over product quality, delivery schedules, transportation, manufacturing yields and costs. We may not be able to provide product order volumes to our subcontractors that are high enough to achieve sufficient cost savings. If shipments fall below forecasted levels, we may incur increased costs or be required to take ownership of excess inventory. In addition, these same suppliers may decide to no longer manufacture or support specific components necessary for some of our legacy products, which could lead to our inability to fulfill demand without increased engineering and material costs necessary to replace such components or cause us to transition such products to end-of-life status sooner than planned. Further, our suppliers could enter into exclusive arrangements with our competitors, refuse to sell their products or components to us at commercially reasonable prices or at all, go out of business or discontinue their relationships with us. We also have experienced and expect to continue to experience ongoing inflationary pressures on input costs, such as, raw materials, labor and distribution costs. Our attempts to offset these cost pressures, such as through increases in the selling prices of some of our products and services, may not be successful and could negatively affect our operating results. In addition, a significant component of maintaining cost competitiveness is the ability of our subcontractors to adjust their costs to compensate for possible adverse exchange rate movements. To the extent that the subcontractors are unable to do so, and we are unable to procure alternative product supplies, then our competitiveness and results of operations could be adversely impaired. These risks may be exacerbated by economic, regulatory or political changes or uncertainties, terrorist actions, acts of war, the effects of climate change, natural disasters or pandemics in the foreign countries in which our subcontractors are located. These risks could also be heightened by geopolitical factors. For example, the renegotiation or termination of existing bilateral and multilateral trade agreements, as well as, changes in international tariff structures, could adversely impact our product costs. In addition, a number of the components we use in our products are sourced directly or indirectly through Taiwan. Deterioration of relations between Taiwan and China and the United States,U.S., the resulting actions taken by any of these parties, and other factors affecting the political or economic conditions of Taiwan in the future, could adversely impact our supply chain, international sales, and operations.

We integrate third-party software into certain of our products. Licenses for this technology may not be available or may not continue to be available to us on commercially reasonable terms. Difficulties with third-party technology licensors could result in the termination of such licenses, which may result in increased costs or require us to purchase or develop a substitute technology. Difficulty obtaining and maintaining third-party technology licenses may disrupt the development of our products and increase our costs, which could harm our business.

In addition, as a result of the Businessbusiness Combinationcombination with Adtran Networks SE,Networks, we continue to be exposed to litigation risk and uncertainty associated with the remaining minority shareholders of Adtran Networks. The terms of the DPLTA, including the adequacy of compensation payments to minority Adtran Networks shareholders under the terms of the DPLTA, have been challenged by minority shareholders of Adtran Networks by initiating court-led appraisal proceedings under German law. It is possible that the court in these appraisal proceedings may hold that we must pay higher Exit Compensation or Annual Recurring Compensation to such Adtran Networks SE shareholders than agreed upon in the DPLTA, the financial impact and timing of which is uncertain.

If we are unable to successfully develop and maintain relationships with SIs,Systems Integrators, Service Providers and enterprise VARs,value-added resellers, our revenue may be negatively affected.

As part of our sales strategy, we are targeting SIs,Systems Integrators, Service Providers and enterprise VARs. In addition to specialized technical expertise, SIs,Systems Integrators, Service Providers and VARs typically offer sophisticated service capabilities that are frequently desired by enterprise customers. To expand our distribution channel to include resellers with such capabilities, we must be able to provide effective support to these resellers. If our sales, marketing or service capabilities are not sufficient to provide effective support to such SIs,Systems Integrators, Service Providers and VARs, our revenue may be negatively affected, and current SI,Systems Integrators, Service Provider and VAR partners may terminate their relationships with us, which would adversely impact our revenue and overall results of operations. Moreover, if our Systems Integrators, Service Providers or VARs cease doing business with us for any other reason or fail to successfully sell our products, our ability to sustain and grow our revenue could be materially adversely affected.

Our financial performance and operating results historically have fluctuated and are likely to continue tocould fluctuate in future periods.periods, Suchwhich fluctuationshas canaffected adverselyand may in the future affect our stock price.

our dependence on sales of our products by channel partners and the timing of their replenishment orders. Specifically,For example, while we experienced an increased volume of sales activity in 2025 due to a return of normalized customer spending, our sales volume in 2024 has beenwas negatively impacted due to our channel partners focus on reducing inventory levels;

The following discussion should be read in conjunction with our audited consolidated financial statements and the related notes included in Part II, Item 8 of this report. We have omitted discussion of the earliest of the three years of financial condition and results of operations and this information can be found in Part I, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023,, Part II,I, Item 7,1A, Management’s“Risk Discussion and Analysis of Financial Condition and Results of Operations,Factors”, and Part I, Item 1A,1, Risk Factors,“Business”, included in Amendment No. 1 to our Annual Report on Form 10-K for the fiscal year ended December 31, 2023,2024, filed with the SEC on MarchMay 15,20, 20242025 (the “2023"2024 Form 10-K”/A"), as well as Part I, Item 1, Business, included in our Annual Report on Form 10-K filed with the SEC on March 15, 2024, which is available free of charge on the SEC's website at http://www.sec.gov and on our website at www.adtran.com.

The Company is a leading global provider of networking and communications platforms, software, systems and services focused on carrier networks, data center interconnect for private enterprise networks and mission critical infrastructure. It is serving a diverse domestic and international customer base in multiple countries that includes Large, Medium and Small Service Providers, alternative Service Providers, such as utilities, municipalities and fiber overbuilders; cable/MSOs; SMBs; distributed enterprises, including Fortune 500 companies with sophisticated business continuity applications; hyper-scalers, neocloud and content providers and data center companies; and federal, state and local government agencies.

The Company solely owns ADTRAN, Inc. and is the majority shareholder of Adtran Networks (formerly ADVA Optical Networking SE).Networks. Adtran is a leading global provider of open, disaggregated networking and communications solutions. Adtran Networks is a global provider of network solutions for data, storage, voice and video services. We believe that the combined technology portfolio can best address current and future customer needs for high-speed connectivity from the network core to the end consumer, especially upon the convergence of solutions at the network edge.

Our Subscriber Solutions portfolio is used by Service Providers to terminate their access services infrastructure at customers' premises while providing an immersive and interactive experience for residential, business and wholesale subscribers. This revenue category includes hardware-hardware and software-basedsoftware based products and services. These solutions include our Mosaic One SaaS applications,applications featuring AI driven operations, fiber termination solutions for residential, business and wholesale subscribers, Wi-Fi access solutions for residential and business subscribers, Ethernet switching and network edge virtualization solutions for business subscribers and cloud software solutions covering a mix of subscriber types.

Our Optical Networking Solutions are used by communications Service Providers, internet content providers and large-scale enterprises to securely interconnect metro and regional networks over fiber. This revenue category includes hardware-hardware and software-basedsoftware based products and services. Our solutions within this category include open optical terminals, open line systems, optical subsystems and modules, network infrastructure assurance systems and automation platforms that are used to build high-scale, secure and assured optical networks.

Under the DPLTA, subject to certain limitations pursuant to applicable law and the specific terms of the DPLTA, (i) the Company is entitled to issue binding instructions to the management board of Adtran Networks, (ii) Adtran Networks will transfer its annual profit to the Company, subject to, among other things, the creation or dissolution of certain reserves, and (iii) the Company will generally absorb the annual net loss incurred by Adtran Networks. The Company’s payment obligation in satisfaction of the requirement that it absorb Adtran Networks’ annual net loss applied for the first timeapplies to the net loss generated by Adtran Networks in 2023.2025 and it will apply to any net loss generated by Adtran Networks in 2026.

Additionally, and subject to certain limitations pursuant to applicable law and the specific terms of the DPLTA, the DPLTA provides that Adtran Networks shareholders (other than us) be offered, at their election, (i) to put their Adtran Networks shares to the Company in exchange for compensation in cash of €17.21 per share plus guaranteed interest (the "Exit Compensation"), or (ii) to remain Adtran Networks shareholders and receive a recurring compensation in cash of €0.52 per share for each full fiscal year of Adtran Networks (the “Annual Recurring Compensation”). The guaranteed interest component under the Exit Compensation is calculated from the effective date of the DPLTA to the date the shares are tendered, less any Annual Recurring Compensation paid. The guaranteed interest rate is 5.0% plus a variable component that was 3.37%1.27% as of December 31, 2024.2025. The Annual Recurring Compensation is due on the third banking day following the ordinary general shareholders’ meeting of Adtran Networks for the respective preceding fiscal year (but in any event within eight months following expiration of the fiscal year). With respect to the 20232024 fiscal year, Adtran Networks'Networks’ ordinary general shareholders'shareholder meeting occurred on June 28, 2024,2025, and therefore, the Annual Recurring Compensation was paid on July 3,1, 2024.2025. With respect to the 20242025 fiscal year, Adtran Networks’ ordinary general shareholder meeting is scheduled for Junethe 27,second 2025,quarter of 2026, and therefore, the Annual Recurring Compensation will be due on Julythe 2,third 2025.banking day following the meeting. The adequacy of both forms of compensation has been challenged by minority shareholders of Adtran Networks via court-led appraisal proceedings under German law, and it is possible that the courts in such appraisal proceedings may adjudicate a higher Exit Compensation (including interest thereon) or Annual Recurring Compensation than agreed upon in the DPLTA.

The opportunity for outside Adtran Networks shareholders to tender Adtran Networks shares in exchange for Exit Compensation had been scheduled to expire on March 16, 2023. However, due to the appraisal proceedings that have beenwere initiated in 2023 in accordance with applicable German law, this time period for tendering shares has been extended pursuant to the German Stock Corporation Act (Aktiengesetz) and will end two months after the date on which a final decision in such appraisal proceedings has been published in the Federal Gazette (Bundesanzeiger). TheFollowing Companythe expectscourt's todecision receiveon a procedural decisionmatter duringin 2025the thatDPLTA willappraisal likelyproceedings beon appealed.July The14, date2025, the trial on the merits of the DPLTA has recommenced. It is expected to take a decisionminimum byof 12 months for a ruling of the court on the merits of the case is uncertain, but it is unlikely thatand such decisionruling will most likely be renderedappealed, inwhich 2025.would Thereafter,be expected to take an expected appeal process will take a furtheradditional 12-24 months to resolve.be Forresolved. the year ended December 31, 2024, approximately 831 thousand shares of Adtran Networks stock were tendered to the Company. This resulted in total Exit Compensation payments of approximately €15.7 million, or approximately $17.4 million, based on exchange rates at the time of the transactions, being paid to Adtran Networks shareholders. For the year ended December 31, 2023, 67 thousand shares of Adtran Networks stock were tendered toAccordingly, the Company does not expect a final decision on the DPLTA appraisal proceedings to be rendered and Exitpublished Compensationprior paymentsto of2027, approximatelyand €1.2most millionlikely not until 2028 or approximately $1.3 million based on an exchange rate as of December 31, 2023, were paid to Adtran Networks' shareholders.beyond.

The foregoing description of the DPLTA does not purport to be complete and is qualified in its entirety by reference to the DPLTA, a non-binding English translation of which is incorporated by reference to Exhibit 10.710.14 includedof in ourthis Annual Report on Form 10-K for the year ended December 31, 2023.10-K.

During the fourth quarter of 2023, the Company initiated a Business Efficiency Program designed to optimize the assets, business processes, and information technology systems of the Company in relation to the Businessbusiness Combinationcombination with Adtran Networks. The Business Efficiency Program included expenses specifically associated with achieving run-rate synergies as well as Business Efficiency Program expenses described below. Other than the Company's aim of selling its headquarters, the Business Efficiency Program was substantially complete as of December 31, 2024. See Note 2019 of the Notes to Consolidated Financial Statements, included in Part II, Item 8 of this report for additional information.

The following discussion and financial information are presented to aid in an understanding of our current consolidated financial position, changes in financial position, results of operations and cash flows and should be read in conjunction with the audited consolidated financial statements and notes thereto included herein. The emphasis of the discussion is a comparison of the years ended December 31, 20242025 and December 31, 2023.2024. For a discussion of a comparison of the years ended December 31, 20232024 and December 31, 2022,2023, please refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K/A for the year ended December 31, 2023,2024, filed with the SEC on MarchMay 15,20, 2024.2025.

Network Solutions segment revenue decreasedincreased 24.2%21.4% from $974.4 million in 2023 to $739.0 million in 2024,2024 to $896.9 million in 2025, primarily attributable to $196.6$71.3 million decreaseincrease in Optical Networking Solutions products andproducts, a $71.1$45.9 million decreaseincrease in Access & Aggregation Solutions partially offset byand a $32.3$40.8 million increase in Subscriber Solutions category. More specifically, for the year ended December 31, 2024, the decrease in revenue for our Subscriber Solutions products was primarily due to lower volume of sales of our residential solutions products as a result of customers focus on reducing inventory levels.

Services & Support revenue increased 5.2%1.7% from $174.7 million in 2023 to $183.8 million in 2024.2024 to $186.9 million in 2025. The increase in revenue for 20242025 was primarily attributable to $4.6$8.1 million increase in revenue for Optical Networking Solutions products,products partially offset by a $3.7$2.5 million increasedecrease in revenue for Access & Aggregation Solutions revenue and a $0.7$2.5 million increasedecrease in revenue for Subscriber Solutions services. More specifically, the increase in revenue for the year ended December 31, 2024 of our ADTRAN, Inc. operations was primarily due to higher volume of sales of our software services and business solutions services.

International revenue, which is defined as revenue generated from the Network Solutions and Services & Support segments provided to a customer outside of the U.S., decreasedincreased 23.8%15.0% from $688.1 million for the year ended December 31, 2023 to $524.6 million for the year ended December 31, 2024.2024 to $603.1 million for the year ended December 31, 2025. The increase in international revenue in 2025 was primarily due to increased volume of sales activity due to a return of normalized customer spending and, increased growth due to fiber expansion. International revenue, as a percentage of total revenue, decreased from 59.8% for the year ended December 31, 2023 to 56.8% for the year ended December 31, 2024. The decrease in international revenue in 2024 was primarily due to 55.6% for the conclusionyear ofended specificDecember customer31, projects and customer concerns over inventory levels.2025. For the year ended December 31, 20242025 as compared to the year ended December 31, 2023,2024, changes in foreign currencies relative to the U.S dollar increased our net revenue by approximately $5.4$17.8 million.

As a percentage of revenue, cost of revenue decreased from 71.0%64.9% for the year ended December 31, 20232024 to 64.2%61.7% for the year ended December 31, 2024.2025. The decrease in cost of revenue as a percentage of revenue for the twelve months ended December 31, 20242025, was attributable to (1) a 2.6% decrease in restructuring expense and labor cost expense as a percentage of revenue related to decreased amortization of intangible backlog, developed technology and fair value adjustments to inventory costs that flow through to cost of revenue as a result of theour Business Combination with Adtran Networks, (2) a 2.7% decrease in expense as a percentage of revenue related to decreased acquisition costs, (3) a 1.4% decrease in expense as a percentage of revenue in connection with ourprevious Business Efficiency ProgramProgram, (primarilywhich was completed as of December 31, 2024 and a decrease in inventory write-offs related to our strategy shift which included discontinuance of certain product lines, partially offset by increases in severance and employee related costs), (4) a 0.1%1.3% decrease in expense as a percentage of revenue attributable to changes in customer and product mix.mix, partially offset by a 0.7% increase in expense as a percentage of revenue attributable to changes in foreign currencies relative to the U.S. dollar. For the year ended December 31, 2024,2025, changes in foreign currencies relative to the U.S. dollar increased our cost of revenue by approximately $0.7$8.9 million.

Services & Support cost of revenue, as a percentage of that segment’s revenue, remainedincreased flat atfrom 39.6% of revenue in 20232024 andto 2024.41.0% of revenue in 2025.

As a percentage of revenue, gross profit increased from 29.0%35.1% for the year ended December 31, 20232024 to 35.8%38.3% for the year ended December 31, 2024.2025. The increase in gross profit for the twelve months ended December 31, 20242025, was attributable to (1) a 2.6% increase in gross profit as a percentage of revenue relateddue to decreaseda amortizationdecrease ofin intangiblerestructuring backlog, developed technologyexpense and fair value adjustments to inventory costs that flow through tolabor cost of revenue as a result of theour previous Business CombinationEfficiency withProgram, Adtran Networks, (2)and a 2.7%0.5% increase in gross profit as a percentage of revenue related to decreased acquisition costs, (3) a 1.4% increase in gross profit as a percentage of revenue in connection with decreased expenses with our Business Efficiency Program (primarily a decrease in inventory write-offs related to our strategy shift which included discontinuance of certain product lines, partially offset by increases in severance and employee related costs), (4) a 0.1% increase in gross profit as a percentage of revenue attributabledue to changes in customer and product mix.

As a percentage of that segment's revenue, Network Solutions gross profit increased from 23.3%28.8% for the year ended December 31, 20232024 to 29.7%34.0% for the year ended December 31, 2024.2025. The increase in gross profit for the twelve months ended December 31, 20242025, was attributable to (1) a 3.3%2.3% increase in gross profit as a percentage of revenue relateddue to decreasedchanges amortizationin of intangible backlog, developed technologycustomer and fairproduct valuemix adjustments to inventory costs that flow through to cost of revenue asand a result of the Business Combination with Adtran Networks, (2) a 3.4%2.7% increase in gross profit as a percentage of revenue relateddue to decreaseda acquisitiondecrease costs,in restructuring expense and (3)labor a 1.9% increase in gross profit as a percentage of revenue in connection with decreased expenses with our Business Efficiency Program, which resulted in an inventory write down and other charges of $8.6 million incurredcost as a result of aour strategyprevious shiftBusiness includingEfficiency discontinuance of certain product lines, (4) partially offset by a 2.2% decrease in gross profit as a percentage of revenue attributable to changes in customer and product mix.Program.

As a percentage of that segment's revenue, Services & Support gross profit remaineddecreased flat atfrom 60.4% for the yearsyear ended December 31, 20232024 andto 2024.59.0% for the year ended December 31, 2025.

As a percentage of revenue, selling, general and administrative expenses increaseddecreased from 22.5%25.2% for the year ended December 31, 2023,2024, to 25.3%20.9% for the year ended December 31, 2024.2025. Selling, general and administrative expenses as a percentage of revenue will generally fluctuate whenever there is a significant fluctuation in revenue for the periods being compared. Other than our stated aim of selling our headquarters, weWe have substantially completed implementation of our Business Efficiency Program.Program as of December 31, 2024. We expect to continue to see lower selling, general and administrative expenses as a percentage of revenue over time.

Selling, general and administrative expenses decreased 9.6%2.9% from $258.1$232.9 million for the year ended December 31, 2023,2024, to $233.4$226.3 million for the year ended December 31, 2024.2025. Selling, general and administrative expenses include personnel costs for management, accounting, information technology, human resources, sales and marketing, as well as independent auditor, tax and other professional fees, contract services and legal and litigation related costs. The decrease in selling, general and administrative expenses for the twelve months ended December 31, 2024,2025, compared to the twelve months ended December 31, 2023,2024, was primarily attributable to the impactdecreases of the$14.7 Company'smillion Businessfor Efficiencyacquisition/integration Programrelated expenses, $1.9 million for restructuring expense, and integration$1.4 programs.million Specifically, the Company reduced itsfor employee-related costs partially offset by $20.4increases million.of $8.4 million for professional fees and other costs, $2.2 million for travel related costs and $1.4 million for depreciation expense. For the year ended December 31, 2024,2025, as compared to the year ended December 31, 2023,2024, changes in foreign currencies relative to the U.S dollar increased our selling, general and administrative expenses by approximately $0.6$3.8 million.

A list of factors that could materially affect our business, financial condition or operating results is described in Part I, Item 1A, “Risk Factors” in the 2025 Form 10-K. There have been no material changes to our risk factors from those disclosed in Part I, Item 1A, “Risk Factors” in the 2025 Form 10-K.10-K, other than as described in the risk factors below.

The Company solely owns ADTRAN, Inc. and is the majority shareholder of Adtran Networks. Adtran is a leading global provider of open, disaggregated networking and communications solutions. Adtran Networks is a global provider of network solutions for data, storage, voice and video services. We believe that the combined technology portfolio can best address current and future customer needs for high-speed connectivity from the network core to the end consumer,customer, especially upon the convergence of solutions at the network edge.

Additionally, and subject to certain limitations pursuant to applicable law and the specific terms of the DPLTA, the DPLTA provides that Adtran Networks shareholders (other than us) be offered, at their election, (i) to put their Adtran Networks shares to the Company in exchange for compensation in cash of €17.21 per share plus guaranteed interest ("Exit Compensation"), or (ii) to remain Adtran Networks shareholders and receive a recurring compensation in cash of €0.52 per share for each full fiscal year of Adtran Networks (“Annual Recurring Compensation”). The guaranteed interest component under the Exit Compensation is calculated from the effective date of the DPLTA to the date the shares are tendered, less any Annual Recurring Compensation paid. The guaranteed interest rate is 5.0% plus a variable component that was 1.27% as of MarchJune 31,30, 2026. The Annual Recurring Compensation is due on the third banking day following the ordinary general shareholders’ meeting of Adtran Networks for the respective preceding fiscal year (but in any event within eight months following expiration of the fiscal year). With respect to the 2025 fiscal year, Adtran Networks’ ordinary general shareholdershareholders’ meeting isoccurred scheduledon forJune the15, second2026 quarterand, of 2026, andtherefore, the Annual Recurring Compensation willwas bepaid due onafter the thirdgeneral bankingshareholders’ daymeeting followingin the meeting.amount of $8.9 million. The adequacy of both forms of compensation has been challenged by minority shareholders of Adtran Networks via court-led appraisal proceedings under German law, and it is possible that the courts in such appraisal proceedings may adjudicate a higher Exit Compensation or Annual Recurring Compensation (including interest thereon) than agreed upon in the DPLTA.

The opportunity for outside Adtran Networks shareholders to tender Adtran Networks shares in exchange for Exit Compensation had been scheduled to expire on March 16, 2023. However, due to the appraisal proceedings that were initiated in 2023 in accordance with applicable German law, this time period for tendering shares has been extended pursuant to the German Stock Corporation Act (Aktiengesetz) and will end two months after the date on which a final decision in such appraisal proceedings has been published in the Federal Gazette (Bundesanzeiger). Following the court's decision on a procedural matter in the DPLTA appraisal proceedings on July 14, 2025, the trial on the merits of the DPLTA has recommenced. ItFollowing isthe expectedeffective to take a minimum of 12 months for a rulingdate of the courtDPLTA on January 16, 2023, certain Adtran Networks shareholders filed lawsuits against the Company in the Regional Court Meiningen, Germany challenging the Exit Compensation offered under the DPLTA. The Regional Court Meiningen has not yet ruled on the meritsshareholders' claims. After the Regional Court Meiningen issues an opinion, an appeal is likely to follow, and such ruling will most likely be appealed, which would be expected to take an additional 12-24 months to be resolved. Accordingly,thus the Company does not expectanticipate a final decision on the DPLTAshareholders' appraisal proceedings to be rendered and published prior to 2027, and most likely notclaims until 2028late 2027 or beyond.2028.

In summary, the Company believes that its cash and cash equivalents, working capital management initiatives and availability to access cash under the Wells Fargoits credit facility or other future sources of capital will be adequate to meet ourits business operating requirements, ourits capital expenditures and ourits expected obligations under both the Notes and the DPLTA, including the anticipated levels of Exit Compensation, as well as to support ourthe Company's ability to continue to comply with ourits debt covenants under theits Creditcredit Facilityfacility for at least the next twelve months, from the issuance of the consolidated financial statements included in Part I, Item 1 of this Q.10-Q. See Note 10, Credit Agreements, for additional information regarding the terms of the Amendments of the CreditWells Agreement.Fargo credit agreement.

WeAs currentlyof June 30, 2026 we hold 37,047,08637,447,983 no-par value bearer shares of Adtran Networks, representing 71.2%71.9% of Adtran Networks outstanding shares as of MarchJune 31,30, 2026.

We ended the firstsecond quarter of 2026 with a year-over-year revenue increase of 15.5%6.1% as compared to the three months ended MarchJune 31,30, 2025, driven by increased volume of sales activity and continued strength of our core markets, due to broadband expansion brought about by higher service provider spending,spending and a continued vendor consolidation due to a shift away from high-risk vendors. During the firstsecond quarter of 2026, we had oneno customercustomers with revenues greater than 10.0%, which was an international Service Provider customer10.0% and our five largest customers comprised 28.7%28.8% of our revenue. Our year-over-year domesticU.S. revenue increased by 41.6%11.7% due to continued customer spending and broadband expansion. Internationally, our year-over-year revenue decreasedincreased by 3.2%,1.4%, primarily driven by the timing of sales with an international Service Provider customer. Our Access & Aggregation, Subscriber Solutions and Optical Networking revenue categories all experienced increased volume of sales activity due to growthbroad-based strength across mostEurope, productpartially lines,offset andby thea continueddecrease expansionin ofrevenues ourdue customerto base.a project delay from a single customer.

During 2025, the U.S. introduced trade policy actions that have increased import tariffs across a wide range of countries at various rates, with certain exemptions. On February 20, 2026, the U.S. Supreme Court issued a ruling striking down certain tariffs previously imposed under the International Emergency Economic Powers Act ("IEEPA"). The ultimate availability, timing, and amount of any potential refunds of such tariffs remain highly uncertain and are subject to further legal, regulatory, and administrative developments. See ‘Tariff Refund” below for further discussion of the tariff refunds. Following the Supreme Court’s decision, the U.S. presidential administration announced its intention to invoke other laws to collect tariffs and announced new tariffs on imports from all countries, in addition to any existing non-IEEPA tariffs (including tariffs on semiconductors, which are expected to increase in June 2027). On April 2, 2026, President Trump further amended the copper, steel and aluminum tariffs issued under Section 232 of the Trade Expansion Act (TEA). The amended tariffs include a 50% tariff on raw copper, steel and aluminum, a flat 25% tariff on derivative products made with greater than 15% of copper, steel or aluminum, and a 15% tariff until 2027 on certain metal-intensive industrial equipment and electrical grid equipment. Derivative products with less than 15% of copper, steel or aluminum will no longer be subject to tariffs and if derivative products are made with U.S. copper, steel or aluminum, the tariff is lowered to a 10% tariff. The new tariff regime for copper, steel and aluminum became effective on April 6, 2026. Furthermore, recent U.S. trade actions have triggered retaliatory actions by certain affected countries, and other foreign governments may impose further trade measures, including reciprocal tariffs, on certain U.S. goods in the future. There remains substantial uncertainty regarding the duration of existing and newly announced tariffs, potential changes or pauses to such tariffs, tariff levels, and whether further additional tariffs or other retaliatory actions may be imposed, modified, or suspended, and the impacts of such actions on our business. These changes in U.S. trade policy and subsequent retaliatory actions have the potential to materially alter various input costs for the Company. Moreover, related costs and the uncertainty arising from such changes in trade policy may result in shifts in customer behavior, such as decreased demand. These impacts could have a negative effect on our financial results, including our revenue and profitability. To help mitigate this, wethe haveCompany has taken steps to diversify ourits supply chain, manufacturing locations and relationships with suppliers to give usprovide added flexibility. For example, beginning in the first quarter of 2026 our suppliers became able to ship products directly to a free trade zone which opened at our Huntsville, Alabama facility. See “Changes in trade policy in the U.S. and other countries, including the imposition of additional tariffs and the resulting consequences, may adversely impact our gross profits, gross margins, results of operations and financial condition,” in Part II, Item 1A “Risk Factors” of this report for further discussion of the risks associated with the changes to U.S. and foreign trade policies.

Given the lack of clarity surrounding refund execution to determine expected recovery amount, the Company has concluded that recovery of the IEEPA tariffs is not probable as of the reporting date. Accordingly, no refund receivable has been recognized. Management will continue to monitor developments, including CBP implementation milestones, formal guidance on claim submission, and claim acceptance processes.

RESULTS OF OPERATIONS – THREE AND SIX MONTHS ENDED MARCHJUNE 31,30, 2026, COMPARED TO THE THREE AND SIX MONTHS ENDED MARCHJUNE 31,30, 2025

U.S.Our revenue increased by 41.6%6.1% from $103.2$265.1 million for the three months ended MarchJune 31,30, 2025, to $146.2$281.1 million for the three months ended MarchJune 31,30, 2026, and increased 10.6% from $512.8 million for the six months ended June 30, 2025, to $567.2 million for the six months ended June 30, 2026. The increase in U.S. revenue for the three and six months ended MarchJune 31,30, 2026, was primarilydriven by increased volume of sales activity and continued strength of our core markets, due to continuedbroadband customerexpansion brought about by higher service provider spending and broadbandcontinued expansion.vendor consolidation due to a shift away from high-risk vendors.

International revenue, which is defined as revenue generated from the Network Solutions and Services & Support segments provided to a customer outside of the U.S., decreasedincreased by 3.2%1.4% from $144.6$144.7 million for the three months ended MarchJune 31,30, 2025 to $139.9$146.7 million for the three months ended MarchJune 31,30, 2026 and decreased by 0.9% from $289.3 million for the six months ended June 30, 2025 to $286.7 million for the six months ended June 30, 2026. International revenue, as a percentage of total revenue, decreased from 58.3%54.6% for the three months ended MarchJune 31,30, 2025, to 48.9%52.2% for the three months ended MarchJune 31,30, 2026, and decreased from 56.4% for the six months ended June 30, 2025, to 50.5% for the six months ended June 30, 2026. The decreasechange in international revenue for the three and six months ended MarchJune 31,30, 2026,2026 wascompared primarilyto the three and six months June 30, 2025, remained relatively flat, with minor fluctuations driven by thechanges timingin of sales with an international Service Provider customer. While international revenue has decreased for the three months ended March 31, 2026customer and 2025product the mix of our Network Solutions and Services & Support segments as a percentage of total international revenue remains relatively consistent.mix. For the three and six months ended MarchJune 31,30, 2026, as compared to the three and six months ended MarchJune 31,30, 2025, changes in foreign currencies relative to the U.S. dollar increased our net revenue by approximately $9.3$1.9 million.million and $3.8 million, respectively.

Our ADTRAN, Inc. international revenue is largely focused on broadband infrastructure and is consequently affected by the decisions of our customers as to timing for installation of new technologies, expansion of their networks and/or network upgrades. Our international customers must make these decisions in the regulatory and political environment in which they operate – both nationally and, in some instances, regionally – whether of a multi-country region or a more local region within a country. Consequently, while we expect the global trend towards deployment of more robust broadband speeds and access to continue creating additional market opportunities for us, the factors described above may result in pressure on revenue and operating income. Our Adtran Networks international revenue is largely focused on the manufacture and selling of networking solutions that are based on three core areas of expertise: fiber-optic transmission technology (cloud interconnect), cloud access technology for rapid creation of innovative services around the network edge and solutions for precise timing and synchronization of networks. In addition, Adtran Networks'Networks international operations offers a comprehensive portfolio of network design, implementation and maintenance services to assist operators in the deployment of market-leading networks while reducing costs to maintain these networks.

Services & Support cost of revenue, asAs a percentage of that segment’s revenue, decreasedcost of revenue increased from 40.3%62.7% for the three months ended MarchJune 31,30, 2025, to 38.3%63.0% for the three months ended MarchJune 31,30, 2026, and decreased from 62.1% for the six months ended June 30, 2025, to 61.8% for the six months ended June 30, 2026. The decrease in costCost of revenue as a percentage of revenue for the three and six months ended MarchJune 31,30, 2026, wasremained primarilyrelatively attributableflat, towith aminor 4.5%fluctuations decrease in material costs partially offsetdriven by a 2.1% increasechanges in labor and assembly cost as a percentage of revenue as a result of as a result of customer and product mix.

As a percentage of revenue, gross profit increaseddecreased from 38.4%37.3% for the three months ended MarchJune 31,30, 2025, to 39.5%37.0% for the three months ended MarchJune 31,30, 2026, and increased from 37.9% for the six months ended June 30, 2025, to 38.2% for the six months ended June 30, 2026. The increase in gross profit as a percentage of revenue for the three and six months ended MarchJune 31,30, 20262026, wasremained attributablerelatively toflat, awith 1.0%minor decreasefluctuations driven by changes in material costs as a percentage of revenue as a result of customer and product mix and a 0.2% decrease is labor cost as a percentage of revenue as a result of leveraging fixed costs on higher sales volume.mix. For the three and six months ended MarchJune 31,30, 2026, as compared to the three and six months ended MarchJune 31,30, 2025, changes in foreign currencies relative to the U.S. dollar increased our gross profit by approximately $4.3$0.7 million.million and $1.3 million, respectively.

As a percentage of that segment's revenue, Network Solutions gross profit increaseddecreased from 33.6%32.9% for the three months ended MarchJune 31,30, 2025, to 35.0%32.3% for the three months ended MarchJune 31,30, 2026, and increased from 33.2% for the six months ended June 30, 2025 to 33.7% for the six months ended June 30, 2026. The increasedecrease in gross profit as a percentage of revenue for the three and six months ended MarchJune 31,30, 20262026, wasremained attributablerelatively toflat, awith 1.0%minor decreasefluctuations driven by changes in material costs as a percentage of revenue as a result of customer and product mix and a 0.4% decrease is labor cost as a percentage of revenue as a result of leveraging fixed costs on higher sales volume.mix.

As a percentage of that segment's revenue, Services & Support gross profit increased from 59.7%58.7% for the three months ended MarchJune 31,30, 2025, to 61.7%59.4% for the three months ended MarchJune 31,30, 2026, and increased from 59.2% for the six months ended June 30, 2025, to 60.5% for the six months ended June 30, 2026. The increase in costgross of revenue as a percentage of revenueprofit for the three and six months ended MarchJune 31,30, 2026,2026 wasremained primarilyrelatively attributableflat, towith aminor 4.5%fluctuations decreasedriven by cyclical changes in material costs partially offset by a 2.1% increase in labor and assembly cost as a percentage of revenue as a result of as a result of customer andbuying product mix.habits.

As a percentage of revenue, selling, general and administrative expenses decreased from 20.3%22.8% for the three months ended MarchJune 31,30, 2025, to 19.5%21.4% for the three months ended MarchJune 31,30, 2026, and decreased from 21.6% for the six months ended June 30, 2025, to 20.5% for the six months ended June 30, 2026. Selling, general and administrative expenses as a percentage of revenue will generally fluctuate whenever there is a significant fluctuation in revenue for the periods being compared.

Selling, general and administrative expenses increaseddecreased 11.0%0.2% from $50.3$60.3 million for the three months ended MarchJune 31,30, 2025, to $55.8$60.2 million for the three months ended MarchJune 31,30, 2026, and increased 4.9% from $110.6 million for the six months ended June 30, 2025, to $116.1 million for the six months ended June 30, 2026. Selling, general and administrative expenses include personnel costs for management, accounting, information technology, human resources, salesmanagement and marketing,back office departments, as well as professionalauditor, fees, contract servicestax and legalother andprofessional litigation related costs.fees. The increase infor selling,the generalsix andmonths administrativeended expensesJune 30, 2026, compared to the six months ended June 30, 2025, was primarily attributable to increased employee-related costs of $3.7 million, increased deferred compensation plan expense of $1.5 million and increased travel related expenses of $0.6 million, partially offset by a decrease in stock-based compensation expense of $0.8 million.expenses. For the three and six months ended MarchJune 31,30, 2026, as compared to the three and six months ended MarchJune 31,30, 2025, changes in foreign currencies relative to the U.SU.S. dollar increased our selling, general and administrative expenses by approximately $2.3$0.6 million.million and $1.3 million, respectively.

As a percentage of revenue, research and development expenses decreased from 19.7%19.6% for the three months ended MarchJune 31,30, 2025, to 17.7%19.1% for the three months ended MarchJune 31,30, 2026, and decreased from 19.6% for the six months ended June 30, 2025, to 18.4% for the six months ended June 30, 2026. Research and development expenses as a percentage of revenue will generally fluctuate whenever there are incremental product development activities or significant fluctuations in revenue for the periods being compared.

Research and development expenses increased 3.9%3.6% from $48.9$51.9 million for the three months ended MarchJune 31,30, 2025, to $50.8$53.8 million for the three months ended MarchJune 31,30, 2026, and increased 3.8% from $100.8 million for the six months ended June 30, 2025, to $104.6 million for the six months ended June 30, 2026. The increase in research and development expenses for the three months ended MarchJune 31,30, 2026,2026 compared to the three months ended June 30, 2025, was primarily attributable to increased employee-related costs. The increase in research and development expenses for the six months ended June 30, 2026 compared to the six months ended June 30, 2025, was primarily attributable to increased employee-related costs of $2.6 million, increased office lease expense of $0.4 million and increased depreciation and amortization expense of $0.4 million partially offset by increased governmental research and development subsidies of $0.8 million and decreased stock-based compensation expense of $0.4 million.subsidies. For the three and six months ended MarchJune 31,30, 2026,2026 as compared to the three and six months ended MarchJune 31,30, 2025, changes in foreign currencies relative to the U.S. dollar increased our research and development expenses by approximately $2.3$1.3 million.million and $2.5 million, respectively.

Adtran Networks has arrangements with governmental entities for the purpose of obtaining funding for research and development activities. The Company classifies government grants received under these arrangements as a reduction to research and development expenses incurred. For the three months ended MarchJune 31,30, 2026 and 2025, the Company recognized $3.1$3.4 million and $2.2$3.1 million as a reduction of research and development expense, respectively. For the six months ended June 30, 2026 and 2025, the Company recognized $6.4 million and $5.3 million as a reduction of research and development expense, respectively.

Interest and dividend income increased from $0.1$0.2 million for the three months ended MarchJune 31,30, 20252025, to $0.3$0.4 million for the three months ended MarchJune 31,30, 2026 and increased from $0.3 million for the six months ended June 30, 2025, to $0.7 million for the six months ended June 30, 2026. The increase in interest and dividend income is primarily attributable to fluctuations in investment balances and an increase in the rate of return on those investments due to interest rate movements.

Interest expense decreased from $4.8$4.6 million for the three months ended MarchJune 31,30, 2025, to $4.2 million for the three months ended MarchJune 31,30, 2026, and decreased from $9.3 million for the six months ended June 30, 2025, to $8.5 million for the six months ended June 30, 2026. The decrease in interest expense during the three and six months ended MarchJune 31,30, 2026, was primarily driven by the issuance of the 2030 Notes, which accrues interest at 4.7%, and the repayment of the majority of the Creditprincipal Agreementunder the credit agreement with Wells Fargo which accrued interest at 8.6% for the three and six months ended MarchJune 31,30, 2025. See Note 10 and Note 11 of the Notes to Condensed Consolidated Financial Statements, included in Part I, Item 1 of this report for additional information.

Net Investment LossGain

We recognized a net investment lossgain of $1.7$3.1 million and $5.3 million for the three months ended MarchJune 31,30, 2025 and 2026, respectively and recognized a net investment lossgain of $0.9$1.4 million and $4.4 million for the threesix months ended MarchJune 31,30, 2026.2025, and 2026, respectively. The fluctuations in our net investments were primarily attributable to changes in the fair value of our securities recognized during the period. We expect that any future market volatility could result in continued fluctuations in our investment portfolio. See Note 5 of the Notes to Condensed Consolidated Financial Statements, included in Part I, Item 1 of this report, and “Investing Activities” in “Liquidity and Capital Resources” below for additional information.

Other Income,Income (Expense), net

Other income,income (expense), net, which primarily consisted of gains and losses on foreign currency transactions and income from excess material sales, increased from incomeexpense of $0.9$2.6 million for the three months ended MarchJune 31,30, 2025 to income of $1.3$0.7 million for the three months ended MarchJune 31,30, 2026 and increased from expense of $1.7 million for the six months ended June 30, 2025 to income of $2.0 million for the six months ended June 30, 2026.

Income Tax (Expense) Benefit

The Company's effective tax rate changed from aan benefitexpense of 4.2%5.9% of pre-tax loss for the three months ended MarchJune 31,30, 2025, to an expense of 67.3%10.0% of pre-tax incomeloss for the three months ended MarchJune 31,30, 2026 and changed from an expense of 2.3% of pre-tax loss for the six months ended June 30, 2025, to an expense of 53.4% of pre-tax loss for the six months ended June 30, 2026. The changechanges in the effective tax rate for the three and six months ended MarchJune 31,30, 2026, was driven primarily by loss jurisdictions for which the recognition of tax benefits on pre-tax losses incurred during the first quarter of 2026 were limited due to a valuation allowance.allowance during the three and six months ended June 30, 2026.

As a result of the above factors, net loss attributable to ADTRAN Holdings, Inc. decreased from net loss of $11.3$20.5 million for the three months ended MarchJune 31,30, 2025, to a net loss of $1.3$10.9 million for the three months ended MarchJune 31,30, 2026, and decreased from net loss of $31.8 million for the six months ended June 30, 2025, to a net loss of $12.2 million for the six months ended June 30, 2026.

We generally finance our ongoing business with existing cash, investments, credit arrangements and cash flow from operations to manage our working capital needs. We had a positive cash flow from operating activities of $12.7$38.6 million in the threesix months ended MarchJune 31,30, 2026. We have used, and expect to continue to use, existing cash, credit arrangements and cash generated from operations for working capital and other general corporate purposes, including product development activities to enhance our existing products and develop new products, expand our sales and marketing activities and fund capital expenditures.

As of MarchJune 31,30, 2026, our cash on hand was $88.3$79.2 million of which $66.6$58.2 million was held by our foreign subsidiaries. As of MarchJune 31,30, 2026 the Company had access to $319.2$318.2 million on its Credit Facility for future borrowings based on debt covenant compliance metrics. Generally, we intend to permanently reinvest funds held outside the U.S., except to the extent that any of these funds can be repatriated without withholding tax. As of December 31, 2025, our cash on hand was $95.7 million, of which $87.5 million was held by our foreign subsidiaries.

Pursuant to the terms of the DPLTA, each Adtran Networks shareholder (other than the Company) has received an offer to elect either (1) to remain an Adtran Networks shareholder and receive from us an Annual Recurring Compensation payment, or (2) to receive Exit Compensation plus guaranteed interest. The guaranteed interest under the Exit Compensation is calculated from the effective date of the DPLTA to the date the shares are tendered, less any Annual Recurring Compensation paid. The guaranteed interest rate is 5.0% plus a variable component (according to the German Civil Code) that was 1.27% as of MarchJune 31,30, 2026. Assuming all the minority holders of currently outstanding Adtran Networks shares were to elect the second option, we would be obligated to make aggregate Exit Compensation payments, including guaranteed interest, of approximately €304.4292.6 million or approximately $351.7$334.2 million, based on an exchange rate as of MarchJune 31,30, 2026, and reflecting interest accrued through MarchJune 31,30, 2026,2026 during the pendency of the appraisal proceedings discussed below. Shareholders electing the first option of Annual Recurring Compensation may later elect the second option. The opportunity for outside Adtran Networks shareholders to tender Adtran Networks shares in exchange for Exit Compensation had been scheduled to expire on March 16, 2023. However, due to the appraisal proceedings that were initiated in 2023 in accordance with applicable German law, this time period for tendering shares has been extended pursuant to the German Stock Corporation Act (Aktiengesetz) and will end two months after the date on which a final decision in such appraisal proceedings has been published in the Federal Gazette (Bundesanzeiger). Following the court'seffective decision on a procedural matter in the DPLTA appraisal proceedings on July 14, 2025, the proceeding for the trial on the meritsdate of the DPLTA hason recommenced.January It16, is2023, expectedcertain toAdtran takeNetworks ashareholders minimumfiled oflawsuits 12 months for a ruling ofagainst the courtCompany in the Regional Court Meiningen, Germany challenging the Exit Compensation offered under the DPLTA. The Regional Court Meiningen has not yet ruled on the meritsshareholders' claims. After the Regional Court Meiningen issues an opinion, an appeal is likely to follow, and such ruling will most likely be appealed, which would be expected to take an additional 12-24 months to be resolved. Accordingly,thus the Company does not expectanticipate a final decision on the DPLTAshareholders' appraisal proceedings to be rendered and published prior to 2027, and most likely notclaims until 2028late 2027 or beyond.2028.

Additionally, our obligation to pay Annual Recurring Compensation under the DPLTA is a continuing payment obligation, which will amount to approximately €7.87.6 million or $9.0$8.7 million (based on the current exchange rate) per year assuming none of the minority Adtran Networks shareholders were to elect Exit Compensation. The foregoing amounts do not reflect any potential increase in payment obligations that we may have depending on the outcome of ongoing appraisal proceedings in Germany. The Annual Recurring Compensation is due on the third banking day following the ordinary general shareholders’ meeting of Adtran Networks for the respective preceding fiscal year (but in any event within eight months following expiration of the fiscal year). With respect to the 2025 fiscal year, Adtran Networks’ ordinary general shareholdershareholders’ meeting isoccurred scheduledon forJune the15, second2026 quarterand, of 2026, andtherefore, the Annual Recurring Compensation willwas bepaid due onafter the thirdordinary bankinggeneral dayshareholders’ followingmeeting in the meeting.amount of $8.9 million. During the three months ended MarchJune 31,30, 2026 and 2025, we accrued $2.2$2.1 million and $2.4 million, respectively, in Annual Recurring Compensation. During the six months ended June 30, 2026 and 2025, we accrued $4.3 million and $4.8 million, respectively, in Annual Recurring Compensation. The Annual Recurring Compensation which is reflected as an increase to retained deficit.deficit in the Condensed Consolidated Balance Sheets.

As of MarchJune 31,30, 2026, and as of the date of issuance of the condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q, the Company has sufficient liquidity through its operating cash flow and the borrowings available under the Credit Facility to meet a majority of its payment obligations under the DPLTA pertaining to Exit Compensation. For the three and six months ended MarchJune 31,30, 2026, approximately 0.20.4 million shares and 0.6 million shares, respectively, of Adtran Networks stock were tendered to the CompanyCompany. andThis resulted in total Exit Compensation of €3.6 million or approximately $4.1 million are to be settled in cash in April 2026. For the three months ended March 31, 2025, less than one thousand shares of Adtran Networks stock were tendered to the Company and exit compensation payments of approximately €1211.7 thousandmillion, or $13$13.8 thousandmillion based on the applicable exchange rates at the time of the transactiontransactions, being paid to Adtran Networks shareholders. For the three and six months ended June 30, 2025, approximately 0.9 million shares, of Adtran Networks stock were tendered to the Company. This resulted in total Exit Compensation payments of approximately €16.9 million, or $19.4 million based on the applicable exchange rates at the time of the transactions, being paid to Adtran Networks shareholders. We believe the probability that more than a small minority of Adtran Networks shareholders elect to receive Exit Compensation in the next twelve months is remote based on the following factors: (i) the shareholders can exercise their right to receive the Exit Compensation until two months after publication of the final decision in the appraisal proceedings and wethe doCompany does not expectanticipate thea final decision on shareholder's challenges to beExit publishedCompensation withinuntil thelate next2027 12or months2028; (ii) the diverse base of shareholders that must make this election on an individual shareholder basis; (iii) the fact that the date of a decision by the court on the merits of the case is uncertain, it will likely take a minimum of 12 months for a ruling on the merits and thereafter, an expected appeal process will take a further 12-24 months to resolve; (iv) the current guaranteed Annual Recurring Compensation payment; and (viv) the current trading value of Adtran Networks shares.

In summary, the Company believes that its cash and cash equivalents, working capital management initiatives and availability to access cash under theits Wellscredit Fargo Credit Facility (described below)facility or other future sources of capital, will be adequate to meet ourits business operating requirements, ourits capital expenditures and ourits expected obligations under both the Notes and the DPLTA, including the anticipated levels of Exit Compensation andas well to support the Company's ability to continue to comply with ourits debt covenants under theits Creditcredit Facilityfacility for at least the next twelve months, from the issuance of thesethe condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q. See Note 10, Credit Agreements, forand additionalNote information18, regardingSubsequent Events in the terms of the Wells Fargo Credit agreement and Notes to Condensed Consolidated Financial Statements included in Part I, Item,Item 1 for additional information regarding the terms of the Wells FargoFormer Credit Agreement.Agreement and the New Credit Agreement, respectively.