ADTRAN Holdings, Inc.

ADTRAN Holdings, Inc. is a leading global provider of networking and communications platforms, software, systems and services focused on the metro optical transport, data center interconnect, and broadband access market, serving a diverse domestic and international customer base in multiple countries that includes large, medium and small Service Providers, alternative Service Providers such as utilities, municipalities and fiber overbuilders, cable/MSOs, SMBs and distributed enterprises, including Fortune 500 companies with sophisticated business continuity applications; hyper-scalers, neocloud and content providers and data center companies; and federal, state and local government agencies. The global growth of the cloud and mobility (5G), industrial applications, AI, home office and mobile working are accelerating the demand for more bandwidth, requiring more flexible provisioning of telecommunications services and more precise network synchronization. Communications Service Providers' investment in their networks is being driven by the pursuit of growth in subscriber acquisition, retention, and average revenue per user, as well as by the aims of streamlining operations, lowering energy consumption and improving their overall sustainability. Drivers facilitating this network investment cycle include the evolution of government funding programs, private equity infrastructure investment appetite, regulatory broadband policies, competition and ever-increasing subscriber demand for higher-speed broadband.

In the Subscriber Solutions category, the Company's primary competitors include Calix, Ciena, Nokia, eero, RAD, and a growing number of Asian based ODM's selling direct to carriers. In the Access & Aggregation solutions category, key competitors include Nokia, Calix, Vecima, Harmonic and Microchip. Main competitors of the Optical Networking solutions portfolio are Ciena, Cisco, Ekinops, Nokia, Smartoptics and Ribbon Communications. Across its markets and segments, the principal competitive factors can include differentiated feature functionality, price performance, quality and reliability, financial stability, ability to manage supply chains, ability to innovate, compelling technology roadmap, country of origin and trusted supplier status, security of enterprise value chain, energy consumption and commitment to sustainability, customer relationship and incumbency, ability to deliver comprehensive solutions, and broad range of services and support capabilities. The Company's strategy is to provide innovative and cost-effective solutions for its customers that enable them to address their increasing broadband demand, with elements including leadership in fiber networking, growth in focus markets, investment in converged edge, transformation through software, diversification of customers, and focus on sustainability.

The Company generates revenue through two reportable segments: Network Solutions, which includes hardware and software products, and Services & Support, which includes a portfolio of network design and implementation services, support services and AI-driven operations including cloud-hosted SaaS applications. These two segments span across three revenue categories: Subscriber Solutions, Access & Aggregation Solutions and Optical Networking Solutions. The Company's cloud-hosted services include a suite of SaaS applications under the Mosaic One platform that manages end-to-end network and service optimization for both fiber access infrastructure and mesh Wi-Fi connectivity, featuring AI-driven operations. The Company backs these services with a global support organization that offers on-site and off-site support services with varying SLAs.

The Subscriber Solutions portfolio is used by Service Providers to terminate their access services infrastructure at the customer's premises while providing an immersive and interactive experience for residential, business and wholesale subscribers. This revenue category includes hardware- and software-based products and services, including 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. The Access & Aggregation Solutions category represents solutions used by communications Service Providers to connect residential subscribers, business subscribers and mobile radio networks to the Service Providers’ metro network, primarily through fiber-based connectivity, and includes a mix of fiber access and aggregation platforms, precision network synchronization and timing solutions, and access orchestration solutions. The 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, and include open optical terminals, open line systems, optical subsystems and modules, network infrastructure assurance systems, and automation platforms.

During 2025, the Company launched many new products, including an auto-tunable 50G C-band pluggable transceiver, expanded its Wi-Fi 7 portfolio with SDG 9000 Series for residential, small business and MDU connectivity, and launched the new FSP 3000 OLS solution. On September 19, 2025, the Company issued $201.3 million ¹ aggregate principal amount of its 3.75% ² convertible senior notes due 2030 (the "2030 Notes"). In connection with the 2030 Notes, the Company entered into privately negotiated capped call transactions with one of the initial purchasers of the Notes or its affiliate and certain other financial institutions. For the year ended December 31, 2025, 2.0 million ³ shares of Adtran Networks stock were tendered to the Company, resulting in total Exit Compensation payments of approximately €40.2 million ⁴, or approximately $46.6 million ⁵, based on exchange rates at the time of the transactions. The Company did not incur any Business Efficiency Program costs during the year ended December 31, 2025, and as of December 31, 2025, all expenses related to the Business Efficiency Program have been paid.

The Company ended 2025 with a year-over-year revenue increase of 17.5% ⁶, driven by increased volume of sales activity due to a return of normalized customer spending, increased growth due to fiber expansion brought about by higher service provider spending, vendor consolidation, a continuing shift away from high-risk vendors, increased demand for modernizing and upgrading critical infrastructure within governments, utilities, large enterprises, and bandwidth hungry applications including AI. Total revenue was $1,083.8 million ⁷ for the year ended December 31, 2025, compared to $922.7 million ⁸ for the year ended December 31, 2024. Net loss attributable to ADTRAN Holdings, Inc. decreased from a net loss of $459.9 million ⁹ for the year ended December 31, 2024 to a net loss of $45.7 million ¹⁰ for the year ended December 31, 2025. Gross profit as a percentage of revenue increased from 35.1% ¹¹ for the year ended December 31, 2024 to 38.3% ¹² for the year ended December 31, 2025.

The Company's outlook is supported by public funding through the Broadband Equity, Access and Deployment Program ("BEAD") which is expected to commence in 2026, providing a positive outlook for the future. The Company has taken steps to transform its business into a leaner, more efficient and more profitable company, including the completion of its Business Efficiency Program. Management expects to continue to see lower selling, general and administrative expenses as a percentage of revenue over time, and expects to continue to see lower research and development expense as a percentage of revenue over time.

A key growth vector is the Company's strategy of leadership in fiber networking, with a breadth of portfolio, open and advanced architecture, and assured and secure connectivity. The Company is focused on growth in focus markets, with increased turnkey solutions and in-region resources, especially North America and EMEA. Another growth vector is investment in the converged edge, with innovation in optics, security, AI-driven networking, virtualization, and SaaS. The Company also aims to diversify its customer base through cross-selling the current portfolio and acquisition of new customers and partners based on a larger portfolio and trusted supplier status. The Company's strategy includes transformation through software, with open and cloud-centric systems, end-to-end programmability, simplification through software, and innovative SaaS offerings.

The Company's operating results improved due to slowly stabilizing revenues, improving margins and tight operational cost controls. The decrease in cost of revenue as a percentage of revenue for the twelve months ended December 31, 2025, was attributable to a 2.6% ¹³ decrease in restructuring expense and labor cost expense as a percentage of revenue as a result of the previous Business Efficiency Program, which was completed as of December 31, 2024, and a 1.3% ¹⁴ decrease in expense as a percentage of revenue attributable to changes in customer and product mix, partially offset by a 0.7% ¹⁵ increase in expense as a percentage of revenue attributable to changes in foreign currencies relative to the U.S. dollar. Selling, general and administrative expenses decreased 2.9% ¹⁶ from $232.9 million ¹⁷ for the year ended December 31, 2024, to $226.3 million ¹⁸ for the year ended December 31, 2025. Research and development expenses decreased 7.8% ¹⁹ from $221.5 million ²⁰ for the year ended December 31, 2024, to $204.3 million ²¹ for the year ended December 31, 2025.

The Company supports its customer demand for its products by working with its suppliers, contract manufacturers, distributors, and customers to address and to limit potential disruptions to its operations and order fulfillment. The Company relies on subcontractors for the assembly and testing of certain printed circuit board assemblies, sub-assemblies, chassis, enclosures and equipment shelves, and to purchase some of the raw materials used in such assemblies. The Company typically manufactures its lower-volume, higher-mix products and builds and tests product prototypes and many of its initial production units at its manufacturing site in Huntsville, Alabama. The Company ships the majority of products to its U.S. customers from its facilities in Huntsville, Alabama, and the majority of international customers are being served from its logistics hubs in Meiningen, Germany and York, United Kingdom. As of December 31, 2025, the Company had 3,338 ²² total employees, of which 3,201 ²³ are full-time employees and 137 ²⁴ are part-time employees.

During the years ended December 31, 2025, 2024 and 2023, research and development expenditures totaled $204.3 million ²⁵, $221.5 million ²⁶ and $258.3 million ²⁷, respectively. Capital expenditures, including intangibles, totaled approximately $69.3 million ²⁸ and $65.2 million ²⁹ for the years ended December 31, 2025 and 2024, respectively. The Company did not repurchase any shares of Company common stock as part of a publicly announced plan or program during the year ended December 31, 2025, and there is no current authorization to repurchase Company common stock. The payment of any dividends will be at the discretion of the Board of Directors, and the Wells Fargo Credit Agreement currently does not allow for the payment of dividends to stockholders.

The Company faces headwinds from ongoing inflationary pressures, which have resulted and may continue to result in decreased demand for its products and services, increased manufacturing and operating costs, reduced liquidity, and limitations on its ability to access credit or otherwise raise debt and equity capital. The Company also faces exposure to adverse movements in foreign currency exchange rates, with its primary exposures being the euro and the British pound sterling. Changes in trade policy in the U.S. and other countries, including the imposition of additional tariffs and the resulting consequences, may adversely impact the Company's gross profits, gross margins, results of operations and financial condition. The Company has experienced increased costs on imports of certain critical raw minerals and derivative products due to tariffs imposed by the U.S. government and other nations, and the availability, timing, and amount of any potential refunds of such tariffs remain highly uncertain.

The Company is subject to complex and evolving U.S. and foreign laws, regulations and standards governing the conduct of its business, including data protection and privacy laws such as the GDPR and the California Consumer Privacy Act, anti-bribery and corruption laws such as the FCPA, and environmental regulations. The Company is also subject to emerging regulations related to AI, including the EU Artificial Intelligence Act, expected to be fully implemented by 2026, which could classify certain AI applications as high-risk, requiring stringent compliance with safety, transparency, and accountability standards, with violations potentially resulting in fines of up to 7% ³⁰ of global annual revenue.

The Company is obligated to comply with covenants related to its Wells Fargo Credit Agreement that restrict its operating activities, and the failure to comply with such covenants could result in defaults that accelerate its debt obligations. The Company has experienced significant fluctuations in revenue and such fluctuations may continue, as visibility into customer spending levels is often uncertain and the lengthy sales and approval process required by Service Providers for new products can last from six to eighteen months ³¹ or longer. The Company depends heavily on sales to certain customers; during 2025, one customer comprised greater than 10.0% ³² of revenue, and the next five largest customers comprised 20.4% ³³ of revenue. The Company has identified material weaknesses in its internal control over financial reporting, including two material weaknesses that continued to exist at December 31, 2025, and if the Company is unable to develop and maintain effective internal control over financial reporting, it may not be able to accurately report its financial results in a timely manner. The Company's significant indebtedness, including $201.3 million ³⁴ aggregate principal amount of 3.75% ³⁵ convertible senior notes due 2030 and $25.0 million ³⁶ in borrowings under its credit agreement, exposes it to various risks, including limiting cash flow available for operations and making it more vulnerable to adverse economic conditions.

Management's message emphasizes that the Company ended 2025 with a year-over-year revenue increase of 17.5% ³⁷, driven by a return of normalized customer spending, fiber expansion, vendor consolidation, and increased demand for modernizing critical infrastructure and AI applications. Management highlights that the Company's operating results improved due to recovery in end markets, including a decrease in inventories held by customers, improving margins and tight operational cost controls. Management notes that public funding through the BEAD program is expected to commence in 2026, providing a positive outlook for the future. The strategic priorities emphasized for the period ahead include continuing to transform the business into a leaner, more efficient and more profitable company, supporting customer demand by working with suppliers and contract manufacturers, and navigating the impacts of trade policy and tariffs, including steps to diversify the supply chain and manufacturing locations, such as the opening of a free trade zone at the Huntsville, Alabama facility in the first quarter of 2026.