ADTRAN Holdings, Inc.: Form 10-Q for the period ended Jun 30, 2026

The following discussion should be read in conjunction with the Condensed Consolidated Financial Statements and the related notes that appear in Part I, Item 1 of this document. In addition, the following discussion should be read in conjunction with our audited consolidated financial statements for the year ended December 31, 2025, Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, Part I, Item 1A, Risk Factors, and Part I, Item 1, Business, to our Annual Report on Form 10-K for the year ended December 31, 2025, filed with the SEC on February 26, 2026 (the "2025 Form 10-K").

This discussion is designed to provide the reader with information that will assist in understanding our Condensed Consolidated Financial Statements, the changes in certain key items in those financial statements from period to period, and the primary factors that accounted for those changes, as well as how certain accounting principles affect our Condensed Consolidated Financial Statements. See “Cautionary Note Regarding Forward-Looking Statements” on page 5 of this report for a description of important factors that could cause actual results to differ from expected results. See also Part 1, Item 1A, Risk Factors, of the 2025 Form 10‑K and Part II, Item 1A, Risk Factors of this Form 10-Q.

Unless the context otherwise indicates or requires, references in this Quarterly Report on Form 10-Q to "Adtran", the “Company,” “we”, “us” and “our” refer to ADTRAN Holdings, Inc. and its consolidated subsidiaries.

OVERVIEW

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.

Our innovative solutions and services enable voice, data, video and internet-communications across a variety of network infrastructures and are currently in use by millions worldwide. We support our customers through our direct global sales organization and our distribution networks. Our success depends upon our ability to have customers adopt our technology, increase unit volume and market share through the introduction of new products and succeeding generations of products having optimal selling prices and increased functionality as compared to both the prior generation of a product and the products of competitors in order to gain market share. To service our customers and grow revenue, we are continually conducting research and developing new products addressing customer needs and testing those products for the specific requirements of the particular customers. We offer a broad portfolio of flexible software and hardware network solutions and services that enable Service Providers to meet today’s service demands while enabling them to transition to the fully converged, scalable, highly-automated, cloud-controlled voice, data, internet and video network of the future. In addition to our global headquarters in Huntsville, Alabama, and our European headquarters in Munich, Germany, we have sales and research and development facilities in strategic global locations.

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 customer, especially upon the convergence of solutions at the network edge.

The chief operating decision maker regularly reviews the Company’s financial performance based on two reportable segments: (1) Network Solutions and (2) Services & Support. In addition to operating under two reportable segments, the Company also reports revenue across three categories – Subscriber Solutions, Access & Aggregation Solutions and Optical Networking Solutions.

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 and software-based products and services. These solutions include our Mosaic One SaaS 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 Access & Aggregation Solutions are solutions that are 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. This revenue category includes hardware and software-based products and services. Our solutions within this category are a mix of fiber access and aggregation platforms, precision network synchronization and timing solutions and access orchestration solutions that ensure highly reliable and efficient network performance.

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 and software-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.

ADTRAN NETWORKS DOMINATION AND PROFIT AND LOSS TRANSFER AGREEMENT

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 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 to the net loss generated by Adtran Networks in 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 ("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 June 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 shareholders’ meeting occurred on June 15, 2026 and, therefore, the Annual Recurring Compensation was paid after the general shareholders’ meeting in the 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. Following the effective date of the DPLTA 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 shareholders' claims. After the Regional Court Meiningen issues an opinion, an appeal is likely to follow, and thus the Company does not anticipate a final decision on the shareholders' claims until late 2027 or 2028.

For the three and six months ended June 30, 2026, approximately 0.4 million shares and 0.6 million shares, respectively, of Adtran Networks stock were tendered to the Company. This resulted in total Exit Compensation payments of approximately €11.7 million, or $13.8 million based on the applicable exchange rates at the time of the transactions, 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.

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

As of June 30, 2026 we hold 37,447,983 no-par value bearer shares of Adtran Networks, representing 71.9% of Adtran Networks outstanding shares as of June 30, 2026.

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 10.14 included in our 2025 Form 10-K.

FINANCIAL PERFORMANCE AND TRENDS

We ended the second quarter of 2026 with a year-over-year revenue increase of 6.1% as compared to the three months ended June 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 and a continued vendor consolidation due to a shift away from high-risk vendors. During the second quarter of 2026, we had no customers with revenues greater than 10.0% and our five largest customers comprised 28.8% of our revenue. Our year-over-year U.S. revenue increased by 11.7% due to continued customer spending and broadband expansion. Internationally, our year-over-year revenue increased by 1.4%, primarily due to broad-based strength across Europe, partially offset by a decrease in revenues due to a project delay from a single customer.

Our operating results improved due to continuing strong demand, improving margins and disciplined approach to controlling operational expenses. In addition, we continue to support our customer demand for our products by working with our suppliers, contract manufacturers, distributors, and customers to address and to limit potential disruptions to our operations and order fulfillment. Moreover, maintaining sufficient inventory levels to assure prompt delivery of our products increases the amount of inventory that may become obsolete and increases the risk that the obsolescence of this inventory may have an additional adverse effect on our business and operating results beyond the effects of the most recent inventory write-downs. On the other hand, not maintaining sufficient inventory levels to ensure prompt delivery of our products may cause us to incur expediting costs to meet customer delivery requirements, which may negatively impact our operating results.

Trade Policy/Tariffs

During 2025, the U.S. introduced various trade policy orders 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 this topic. Following the Supreme Court’s decision, the U.S. presidential administration invoked Section 122 of the Trade Act of 1974 to impose new tariffs of 10% 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), and also amended tariffs on imports of copper, steel and aluminum previously imposed under Section 232 of the Trade Expansion Act of 1962, effective April 6, 2026, to apply differentiated tariff rates based on metal content and the use of U.S.-origin metal inputs. By its terms, the Section 122 tariff expired on July 24, 2026. On July 23, 2026, the Office of the U.S. Trade Representative ("USTR") announced a final action under Section 301 of the Trade Act of 1974 imposing additional ad valorem tariffs of 10% or 12.5% on most goods imported from approximately 60 foreign trading partners, which together account for nearly all U.S. import trade. Under the final action, trading partners that have adopted, or have committed to adopt and effectively enforce, a qualifying forced labor import prohibition are subject to the lower 10% tariff rate, while trading partners that have not adopted such a prohibition are subject to the 12.5% rate. Certain categories of goods are excluded from the new tariffs, including articles already subject to duties under Section 232 of the Trade Expansion Act of 1962, and certain other products identified by USTR as warranting exemption.

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, the Company has taken steps to diversify its supply chain, manufacturing locations and relationships with suppliers to provide added flexibility. 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.

Tariff Refund

The Company has concluded that the potential refund of IEEPA tariffs should be evaluated under a loss recovery model pursuant to Accounting Standards Codification ("ASC") 410‑30. The tariffs at issue were previously capitalized to inventory and subsequently expensed through cost of goods sold. Accordingly, any refund represents a recovery of previously recognized costs, and recognition is limited to amounts previously recorded.

Under the loss recovery model, an asset for recovery may be recognized only when receipt is considered probable, as defined under ASC 450‑20. While the Supreme Court ruling establishes a legal basis for recovery, material uncertainty remains regarding the administrative process required to obtain refunds. The U.S. Customs and Border Protection ("CBP") system became operational on April 20, 2026.

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.

Additionally, Adtran may owe money to customers depending on final assessments of contractual or implicit passthrough obligations. The Company will continue to monitor developments related to both refund recoverability and customer refund considerations and will update its accounting conclusions in future periods as facts and circumstances evolve.

Foreign Currency

We are exposed to changes in foreign currencies relative to the U.S. dollar, which are references to the differences between the foreign-exchanges rates we use to convert the financial results of our international operations from local currencies into U.S. dollars for financial reporting purposes. This impact of foreign-exchange rate changes is calculated based on the difference between the current period’s currency exchange rates and that of the comparable prior period. Our primary exposures to foreign currency exchange rate movements are with the euro and the British pound. As a result of our global operations, our revenue, gross margin, operating expense and operating loss in some international markets has been and may continue to be affected by foreign currency fluctuations.

EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS

See Note 1 of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this report for a full description of recent accounting pronouncements, including the expected dates of adoption and estimated effects on results of operations and financial condition, which is incorporated herein by reference.

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

The following table presents selected financial information derived from our Condensed Consolidated Statements of Loss expressed as a percentage of revenue for the periods indicated. Amounts may not foot due to rounding.

Revenue

Our revenue increased 6.1% from $265.1 million for the three months ended June 30, 2025, to $281.1 million for the three months ended June 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 revenue for the three and six months ended June 30, 2026, was 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 and continued vendor consolidation due to a shift away from high-risk vendors.

The increase in revenue by category for the three months ended June 30, 2026, was primarily attributable to a $19.6 million increase in Optical Networking Solutions products, a $0.8 million increase in Subscriber Solutions products, partially offset by a $4.3 million decrease in Access & Aggregation revenue. The increase in revenue by category for the six months ended June 30, 2026, was primarily attributable to a $38.7 million increase in Optical Networking Solutions products, a $18.6 million increase in Subscriber Solutions products, partially offset by a $2.9 million decrease in Access & Aggregation revenue. The increase in Optical Networking Solutions products was primarily driven by high-risk vendor displacement across Europe and was helped by increased sales to enterprise, government and internet content provider customers. The increase in Subscriber Solutions products was primarily driven by continued investment in fiber-to-the-home, multi-Gig Wi-Fi 7, and Carrier Ethernet applications. The decrease in Access & Aggregation revenue was primarily driven by a project delay from a single customer, and was partially offset by increases in revenue driven by broad-based strength across the U.S. and Europe.

Network Solutions Segment Revenue

Network Solutions segment revenue increased 6.1% from $219.5 million for the three months ended June 30, 2025, to $232.9 million for the three months ended June 30, 2026, and increased 11.6% from $421.7 million for the six months ended June 30, 2025, to $470.8 million for the six months ended June 30, 2026. The increase in Network Solutions revenue by category for the three months ended June 30, 2026, was due to an increase in volume of sales activity of $20.6 million in Optical Networking products, partially offset by a $5.2 million decrease in Access & Aggregation products and a $2.0 million decrease in Subscriber Solutions products. The increase in Network Solutions revenue by category for the six months ended June 30, 2026, was due to an increase in volume of sales activity of $36.9 million in Optical Networking products and $16.5 million in Subscriber Solutions products, partially offset by a $4.3 million decrease in Access & Aggregation products.

Services & Support Segment Revenue

Services & Support segment revenue increased 5.9% from $45.6 million for the three months ended June 30, 2025, to $48.2 million for the three months ended June 30, 2026, and increased 5.8% from $91.1 million for the six months ended June 30, 2025, to $96.4 million for the six months ended June 30, 2026. The increase in Services & Support revenue by category for the three months ended June 30, 2026, was primarily attributable to a $2.8 million increase in Subscriber Solutions and $0.9 million in Access & Aggregation, partially offset by a $1.0 million decrease in Optical Networking services. The increase in Services & Support revenue by category for the six months ended June 30, 2026, was primarily attributable to increases of $2.1 million increase in Subscriber Solutions, $1.8 million in Optical Networking services and $1.4 million increase in Access & Aggregation.

Domestic Revenue

U.S. revenue increased by 11.7% from $120.3 million for the three months ended June 30, 2025, to $134.4 million for the three months ended June 30, 2026, and increased by 25.5% from $223.5 million for the six months ended June 30, 2025, to $280.6 million for the six months ended June 30, 2026. The increase in U.S. revenue for the three and six months ended June 30, 2026, was primarily due to continued customer spending and broadband expansion.

International Revenue

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., increased by 1.4% from $144.7 million for the three months ended June 30, 2025 to $146.7 million for the three months ended June 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 54.6% for the three months ended June 30, 2025, to 52.2% for the three months ended June 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 change in international revenue for the three and six months ended June 30, 2026 compared to the three and six months June 30, 2025, remained relatively flat, with minor fluctuations driven by changes in customer and product mix. For the three and six months ended June 30, 2026, as compared to the three and six months ended June 30, 2025, changes in foreign currencies relative to the U.S. dollar increased our net revenue by approximately $1.9 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 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.

Cost of Revenue

As a percentage of revenue, cost of revenue increased from 62.7% for the three months ended June 30, 2025, to 63.0% for the three months ended June 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. Cost of revenue as a percentage of revenue for the three and six months ended June 30, 2026, remained relatively flat, with minor fluctuations driven by changes in customer and product mix.

For the three and six months ended June 30, 2026, as compared to the three and six months ended June 30, 2025, changes in foreign currencies relative to the U.S. dollar increased our cost of revenue by approximately $1.3 million and $2.5 million, respectively.

Network Solutions cost of revenue, as a percentage of that segment’s revenue, increased from 67.1% for the three months ended June 30, 2025, to 67.7% for the three months ended June 30, 2026, and decreased from 66.8% for the six months ended June 30, 2025, to 66.3% for the six months ended June 30, 2026. Network Solutions cost of revenue as a percentage of revenue for the three and six months ended June 30, 2026, remained relatively flat, with minor fluctuations driven by changes in customer and product mix.

Services & Support cost of revenue, as a percentage of that segment’s revenue, decreased from 41.3% for the three months ended June 30, 2025, to 40.6% for the three months ended June 30, 2026, and decreased from 40.8% for the six months ended June 30, 2025 to 39.5% for the six months ended June 30, 2026. Services & Support cost of revenue as a percentage of revenue for the three and six months ended June 30, 2026, remained relatively flat, with minor fluctuations driven by cyclical changes in customer buying habits.

Services & Support revenue is comprised of network planning and implementation, maintenance, support and cloud-based management services, with network planning and implementation being the largest and fastest growing component in the long-term. Compared to our other services, such as maintenance, support and cloud-based management services, our network planning and implementation services typically utilize a higher percentage of internal and subcontracted engineers, professionals and contractors to perform the work for customers. The additional costs incurred to perform these infrastructure and labor-intensive services inherently result in lower average gross margins as compared to maintenance and support services. Within the Services & Support segment, we do expect variability in gross margins from quarter-to-quarter based on the mix of the services recognized.

Gross Profit

As a percentage of revenue, gross profit decreased from 37.3% for the three months ended June 30, 2025, to 37.0% for the three months ended June 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 gross profit as a percentage of revenue for the three and six months ended June 30, 2026, remained relatively flat, with minor fluctuations driven by changes in customer and product mix. For the three and six months ended June 30, 2026, as compared to the three and six months ended June 30, 2025, changes in foreign currencies relative to the U.S. dollar increased our gross profit by approximately $0.7 million and $1.3 million, respectively.

As a percentage of that segment's revenue, Network Solutions gross profit decreased from 32.9% for the three months ended June 30, 2025, to 32.3% for the three months ended June 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 decrease in gross profit for the three and six months ended June 30, 2026, remained relatively flat, with minor fluctuations driven by changes in customer and product mix.

As a percentage of that segment's revenue, Services & Support gross profit increased from 58.7% for the three months ended June 30, 2025, to 59.4% for the three months ended June 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 gross profit for the three and six months ended June 30, 2026 remained relatively flat, with minor fluctuations driven by cyclical changes in customer buying habits.

Selling, General and Administrative Expenses

As a percentage of revenue, selling, general and administrative expenses decreased from 22.8% for the three months ended June 30, 2025, to 21.4% for the three months ended June 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 decreased 0.2% from $60.3 million for the three months ended June 30, 2025, to $60.2 million for the three months ended June 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 and back office departments, as well as auditor, tax and other professional fees. The increase 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 and increased travel related expenses. For the three and six months ended June 30, 2026, as compared to the three and six months ended June 30, 2025, changes in foreign currencies relative to the U.S. dollar increased our selling, general and administrative expenses by approximately $0.6 million and $1.3 million, respectively.

Research and Development Expenses

As a percentage of revenue, research and development expenses decreased from 19.6% for the three months ended June 30, 2025, to 19.1% for the three months ended June 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 3.6% from $51.9 million for the three months ended June 30, 2025, to $53.8 million for the three months ended June 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 June 30, 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 partially offset by increased governmental research and development subsidies. For the three and six months ended June 30, 2026 as compared to the three and six months ended June 30, 2025, changes in foreign currencies relative to the U.S. dollar increased our research and development expenses by approximately $1.3 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 June 30, 2026 and 2025, the Company recognized $3.4 million and $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.

We expect to continue to incur research and development expenses in connection with our new and existing products. We continually evaluate new product opportunities and engage in significant research and product development efforts, which provides for new product development, enhancement of existing products and product cost reductions. We may incur significant research and development expenses prior to the receipt of revenue from a major new product group.

Interest and Dividend Income

Interest and dividend income increased from $0.2 million for the three months ended June 30, 2025, to $0.4 million for the three months ended June 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

Interest expense decreased from $4.6 million for the three months ended June 30, 2025, to $4.2 million for the three months ended June 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 June 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 principal under the credit agreement with Wells Fargo which accrued interest at 8.6% for the three and six months ended June 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 Gain

We recognized a net investment gain of $3.1 million and $5.3 million for the three months ended June 30, 2025 and 2026, respectively and recognized a net investment gain of $1.4 million and $4.4 million for the six months ended June 30, 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 (Expense), net

Other income (expense), net, which primarily consisted of gains and losses on foreign currency transactions and income from excess material sales, increased from expense of $2.6 million for the three months ended June 30, 2025 to income of $0.7 million for the three months ended June 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

The Company's effective tax rate changed from an expense of 5.9% of pre-tax loss for the three months ended June 30, 2025, to an expense of 10.0% of pre-tax loss for the three months ended June 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 changes in the effective tax rate for the three and six months ended June 30, 2026, was driven primarily by loss jurisdictions for which the recognition of tax benefits on pre-tax losses incurred were limited due to a valuation allowance during the three and six months ended June 30, 2026.

Net Loss Attributable To Adtran Holdings, Inc.

As a result of the above factors, net loss attributable to ADTRAN Holdings, Inc. decreased from net loss of $20.5 million for the three months ended June 30, 2025, to a net loss of $10.9 million for the three months ended June 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.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

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 $38.6 million in the six months ended June 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 June 30, 2026, our cash on hand was $79.2 million of which $58.2 million was held by our foreign subsidiaries. As of June 30, 2026 the Company had access to $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.

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 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 applies to the net loss generated by Adtran Networks in 2025, and it will apply to any net loss generated by Adtran Networks in 2026.

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 June 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 €292.6 million or $334.2 million, based on an exchange rate as of June 30, 2026, and reflecting interest accrued through June 30, 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 effective date of the DPLTA 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 shareholders' claims. After the Regional Court Meiningen issues an opinion, an appeal is likely to follow, and thus the Company does not anticipate a final decision on the shareholders' claims until late 2027 or 2028.

Additionally, our obligation to pay Annual Recurring Compensation under the DPLTA is a continuing payment obligation, which will amount to approximately €7.6 million or $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 shareholders’ meeting occurred on June 15, 2026 and, therefore, the Annual Recurring Compensation was paid after the ordinary general shareholders’ meeting in the amount of $8.9 million. During the three months ended June 30, 2026 and 2025, we accrued $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 is reflected as an increase to retained deficit in the Condensed Consolidated Balance Sheets.

On July 18, 2022, ADTRAN, Inc., as the borrower, and ADTRAN Holdings, Inc. entered into a credit agreement with a syndicate of banks, including Wells Fargo Bank, National Association, as administrative agent (“Administrative Agent”), and the other lenders named therein (the “Former Credit Agreement”), which was subsequently amended six times. As of June 30, 2026 the Company had access to $318.2 million on its Credit Facility for future borrowings based on debt covenant compliance metrics.

On July 21, 2026, ADTRAN Holdings, Inc. (the “Company”) as guarantor, ADTRAN, Inc., a Delaware corporation (the “US Borrower”), and Adtran Networks SE, a European stock corporation (the “German Borrower” and together with the US Borrower, collectively, the “Borrowers”), entered into a credit agreement (the “New Credit Agreement”) with J.P. Morgan Chase Bank, N.A., as administrative agent for the US Borrower and J.P. Morgan SE, as administrative agent for the German Borrower, and the financial institutions party thereto, as lenders. The New Credit Agreement allows for borrowings of up to $350.0 million in aggregate principal amount, with borrowings by the German Borrower limited to $50.0 million. The New Credit Agreement replaces the Former Credit Agreement. The proceeds of any loans are expected to be used for general corporate purposes not prohibited under the New Credit Agreement.

As of June 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 June 30, 2026, approximately 0.4 million shares and 0.6 million shares, respectively, of Adtran Networks stock were tendered to the Company. This resulted in total Exit Compensation payments of approximately €11.7 million, or $13.8 million based on the applicable exchange rates at the time of the transactions, 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 the Company does not anticipate a final decision on shareholder's challenges to Exit Compensation until late 2027 or 2028; (ii) the diverse base of shareholders that must make this election on an individual shareholder basis; (iii) the current guaranteed Annual Recurring Compensation payment; and (iv) the current trading value of Adtran Networks shares.

In summary, the Company believes that its cash and cash equivalents, working capital management and availability to access cash under its credit facility or other future sources of capital, will be adequate to meet its business operating requirements, its capital expenditures and its expected obligations under both the Notes and the DPLTA, including the anticipated levels of Exit Compensation as well to support the Company's ability to continue to comply with its debt covenants under its credit facility for at least the next twelve months, from the issuance of the condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q. See Note 10, Credit Agreements, and Note 18, Subsequent Events in the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 for additional information regarding the terms of the Former Credit Agreement and the New Credit Agreement, respectively.

Debt Obligations

Convertible Senior Notes

On September 19, 2025, the Company issued $201.3 million principal amount of 2030 Notes. The 2030 Notes were issued pursuant to, and are governed by, an indenture, dated as of September 19, 2025, between the Company and U.S. Bank Trust Company, National Association, as trustee. In connection with the 2030 Notes, the Company has entered into privately negotiated Capped Calls.

Interest expense related to the 2030 Notes was $2.3 million and $4.5 million for the three and six months ended June 30, 2026, respectively. In conjunction with the issuance of the 2030 Notes, the Company recognized debt issuance costs of $8.7 million, which were capitalized as components of the carrying amount and included in convertible senior notes, net within the Consolidated Balance Sheets. See Note 11 of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this report for more information.

J.P. Morgan Credit Agreement

On July 21, 2026, the Company entered into the New Credit Agreement with J.P. Morgan Chase Bank, N.A. The New Credit Agreement allows for borrowings of up to $350.0 million in aggregate principal amount, with borrowings by the German Borrower limited to $50.0 million. The New Credit Agreement matures in July 2031 and provides for borrowings bearing interest, at the Company’s election, at either the Term Benchmark Rate or the Base Rate, in each case subject to a 0.00% floor, plus an applicable margin based on the consolidated total net leverage ratio. The applicable margin ranges from 2.25% to 3.25% for Term Benchmark Rate loans and from 1.25% to 2.25% for Base Rate loans. The Borrowers are also required to pay a commitment fee of 0.25% on unused revolving commitments. The New Credit Agreement replaces the Former Credit Agreement. The proceeds of any loans are expected to be used for general corporate purposes not prohibited under the New Credit Agreement. Under the New Credit Agreement, the Company agreed to maintain certain leverage ratios and certain fixed charge coverage ratios commencing with the fiscal quarter ending December 31, 2026.

In connection with entering into the New Credit Agreement, on July 21, 2026, the Company terminated the Former Credit Agreement, the collateral agreement dated July 18, 2022, the ADVA domestic collateral agreement dated June 4, 2024, the guaranty agreement dated July 18, 2022 and the ADVA guaranty agreement dated June 4, 2024. See Note 10, Credit Agreements and Note 18, Subsequent Events of the Notes to Condensed Consolidated Financial Statements in Part 1, Item 1 of this report for additional information regarding the terms of the Former Credit Agreement and the new J.P. Morgan Chase Bank Credit Agreement.

Operating Activities

Net cash provided by operating activities of $38.6 million during the six months ended June 30, 2026, decreased by $36.7 million compared to net cash provided by operating activities of $75.3 million during the six months ended June 30, 2025.

The following table sets forth adjustments to reconcile net income to net cash provided by operating activities:

(In thousands)

Quarterly accounts receivable DSO increased from 66 days as of December 31, 2025, to 67 days as of June 30, 2026 and was primarily driven by customer and geographical mix of commercial terms.

The increase in other receivables was primarily attributable to an increase in our receivables for sales of raw materials and contract assets.

Quarterly inventory turnover increased from 2.8 turns as of December 31, 2025, to 3.4 turns as of June 30, 2026. The increase in inventory turnover was primarily attributable to increased volume of sales activity due to continue strength of spending within our core markets and utilization of buffer stock. The decrease in inventory was primarily attributable to increased volume of sales activity due to continue strength of spending within our core markets and utilization of buffer stock. We expect inventory levels to fluctuate as we attempt to maintain sufficient inventory for customer demand and improve working capital.

Accounts payable will fluctuate due to variations in the timing of the receipt of inventory, supplies and services and our subsequent payments for these purchases.

The decrease in accrued expenses and other liabilities was primarily attributable to the payment of accrued bonuses related to our variable incentive cash compensation program.

Investing Activities

Capital expenditures totaled approximately $33.2 million and $32.5 million for the six months ended June 30, 2026 and 2025, respectively. The increase in capital expenditures for the six months ended June 30, 2026, was primarily attributable to increases in expenditures related to developed technology, equipment and building improvements.

Our deferred compensation plan assets increased 11.1% from $35.2 million as of December 31, 2025, to $39.1 million as of June 30, 2026. Our investments include various marketable equity securities with a fair market value of $1.0 million and $1.0 million as of June 30, 2026, and December 31, 2025. See Note 5 of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this report for additional information.

Financing Activities

For the six months ended June 30, 2026, net cash used in financing activities was $19.0 million, which was primarily due to $13.8 million of payments for redemption of redeemable non-controlling interest, $8.9 million payment of annual recurring compensation to non-controlling interests, $1.6 million of payments of tax withholdings related to stock-based compensation settlements, $1.4 million of payments on a financing agreement partially offset by $6.6 million proceeds from stock option exercises.

Stock Repurchase Program

There were no stock repurchases during the periods ended June 30, 2026, and 2025, and there currently is no authorized stock repurchase program for the repurchase of ADTRAN Holdings, Inc. shares.

Stock Option Exercises

To accommodate employee stock option exercises, the Company issued 0.9 million and 0.2 million shares of common stock which resulted in proceeds of $6.6 million and $1.2 million during the six months ended June 30, 2026 and 2025, respectively.

Pension Plans

We maintain defined benefit pension plans covering employees in certain foreign countries. For additional information, see Note 12 of Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this report.

Deferred Compensation Programs

We have maintained two deferred compensation programs for certain executive management employees and our Board of Directors. On November 3, 2025 (the “Termination Date”), in an effort to streamline the benefits offered to members of management and other key employees, the Company terminated its Deferred Compensation Program for Employees (the “Deferred Compensation Plan”) and its Equity Deferral Program for Employees (the "Equity Deferral Program" together with the Deferred Compensation Plan, the “Plans”). The Company has also terminated its deferred compensation plans for its non-employee directors. The payment of all benefits to each Plan’s participants and beneficiaries will be in the form of lump sum or installment distributions which are expected to occur prior to December 31, 2026, but can occur no earlier than twelve (12) months and no later than twenty-four (24) months following the Termination Date (the “Liquidation Date”). Distributions of amounts that are set to occur prior to the Liquidation Date will be made as scheduled under the terms of each Plan. Until the Liquidation Date, each of the Plans will continue to operate in the ordinary course, except that no new deferrals will be credited to the participants for compensation earned after the Termination Date.

The fair value of the assets held by the deferred compensation programs totaled $39.1 million and $35.2 million as of June 30, 2026, and December 31, 2025, respectively, and is included in short-term investments on the Condensed Consolidated Balance Sheets. The amounts payable to the deferred compensation program participants totaled $42.7 million and $37.4 million as of June 30, 2026, and December 31, 2025, respectively. For additional information, see Note 5 of Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this report.

Off-Balance Sheet Arrangements

We have exposure to credit losses from off-balance sheet exposures, to provide various guarantees of performance such as bid bonds, performance bonds and customs bonds, where we believe the risk of loss is immaterial to our financial statements as of June 30, 2026. Otherwise, we do not have off-balance sheet financing arrangements and have not engaged in any related party transactions or arrangements with unconsolidated entities or other persons that are reasonably likely to materially affect liquidity or the availability of or requirements for capital resources. See Note 17 of the Notes to Condensed Consolidated Financial Statements, included in Part I, Item 1 of this report for additional information.

Cash Requirements

The following table summarizes the Company’s material short- and long-term cash requirements from known obligations pursuant to certain contracts and commitments as of the date of this filing, as well as an estimate of the timing in which such obligations and payments are expected to be satisfied (but excluding payments that may be made pursuant to the DPLTA, which is discussed below). Other than operating lease obligations, the cash requirements table excludes interest payments.

(In thousands)

(1) On July 21, 2026, the Company, entered into the New Credit Agreement with J.P. Morgan Chase Bank, N.A. The New Credit Agreement allows

for borrowings of up to $350.0 million in aggregate principal amount. The borrowings outstanding as of the date of the filing include funds for

closing and legal fees and other general corporate purposes. See Note 18, Subsequent Events of the Notes to Condensed Consolidated Financial

Statements in Part 1, Item 1 of this report and “Liquidity and Capital Resources - J.P. Morgan Credit Agreement” for additional information

regarding the terms of the new J.P. Morgan Chase Bank Credit Agreement.

(2) See description below.

(3) We have purchase obligations related to open purchase orders to our contract manufacturers, ODMs, component suppliers, service partners and

other vendors. The settlement of our purchase obligations will occur at various dates beginning in 2026 and going

through 2029. See Note 17 of the Notes to Condensed Consolidated Financial Statements, included in Part I, Item 1 of the report for more

information.

(4) We have operating leases for office space, automobiles and various other equipment in the U.S. and in certain international locations.

Our operating leases have remaining lease terms ranging from 1 month to 149 months as of June 30, 2026.

Convertible Senior Notes

On September 19, 2025, the Company issued $201.3 million aggregate principal amount of the Notes. The Notes accrue interest at a rate of 3.75% per annum, payable semi-annually in arrears on March 15 and September 15 of each year, beginning March 15, 2026. Unless earlier repurchased, redeemed, or converted, the Notes will mature on September 15, 2030. See Note 11 of the Notes to Condensed Consolidated Financial Statements, included in Part I, Item 1 of this report and “Liquidity and Capital Resources - Convertible Senior Notes” in Part I, Item 2 of this report for additional information.

Receivables Purchase Arrangements

On July 1, 2024, the Company entered into a Factoring Agreement with a third-party financial institution (the "Factor"), which accelerates receivable collection and helps to better manage cash flow. The Factoring Agreement provides for up to $40.0 million in factoring capacity, subject to eligible receivables and reserve requirements, secured by the receivables. Total accounts receivables factored as of the end of June 30, 2026, totaled $18.3 million of which $3.7 million was retained pursuant to the Factoring Agreement in the reserve account. During the six months ended June 30, 2026 and 2025, the Company received $94.8 million and $73.8 million in cash proceeds from the Factoring Agreement, respectively, which are recorded in operating cash flows on the Condensed Consolidated Statement of Cash Flows. See Note 2 of the Notes to Condensed Consolidated Financial Statements, included in Part I, Item 1 of this report for additional information.

Adtran Networks Domination and Profit and Loss Transfer Agreement

The DPLTA between the Company, as the controlling company, and Adtran Networks SE ("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 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 applies to the net loss generated by Adtran Networks in 2025, and it will apply to any net loss generated by Adtran Networks in 2026.

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 June 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 €292.6 million or $334.2 million, based on an exchange rate as of June 30, 2026, and reflecting interest accrued through June 30, 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 effective date of the DPLTA 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 shareholders' claims. After the Regional Court Meiningen issues an opinion, an appeal is likely to follow, and thus the Company does not anticipate a final decision on the shareholders' claims until late 2027 or 2028.

Additionally, our obligation to pay Annual Recurring Compensation under the DPLTA is a continuing payment obligation, which will amount to approximately €7.6 million or $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 shareholders’ meeting occurred on June 15, 2026 and, therefore, the Annual Recurring Compensation was paid after the ordinary general shareholders’ meeting in the amount of $8.9 million. During the three months ended June 30, 2026 and 2025, we accrued $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 is reflected as an increase to retained deficit in the Condensed Consolidated Balance Sheets.

On October 18, 2022, the Company's Board of Directors authorized the Company to purchase additional shares of Adtran Networks through open market purchases not to exceed 15,346,544 shares.

For the three and six months ended June 30, 2026, approximately 0.4 million shares and 0.6 million shares, respectively, of Adtran Networks stock were tendered to the Company. This resulted in total Exit Compensation payments of approximately €11.7 million, or $13.8 million based on the applicable exchange rates at the time of the transactions, 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.

As of June 30, 2026 we held 37,447,983 no-par value bearer shares of Adtran Networks, representing 71.9% of Adtran Networks outstanding shares as of June 30, 2026.

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 incorporated by reference to Exhibit 10.14 of the 2025 Form 10-K.

Other Cash Requirements

During the six months ended June 30, 2026, other than the Exit Compensation payments, Annual Recurring Compensation under the DPLTA, and receivables purchase arrangements there have been no other material changes in cash requirements from those discussed in the 2025 Form 10-K and our cash requirements table shown in Liquidity and Capital Resources above.

Performance Bonds

Certain contracts, customers and jurisdictions in which we do business require us to provide various guarantees of performance such as bid bonds, performance bonds and customs bonds. As of June 30, 2026, and December 31, 2025, we had commitments related to these bonds totaling $23.3 million and $22.4 million, respectively, which expire at various dates through October 2029. In general, we would only be liable for the amount of these guarantees in the event of default under each contract, the probability of which we believe is remote.

Critical Accounting Policies and Estimates

Accounting Policies

An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably could have been used or if changes in the accounting estimate that are reasonably likely to occur could materially impact the results of financial operations. Several accounting policies, as described in Note 1 of Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this report, require material subjective or complex judgment and have a significant impact on our financial condition and results of operations, as applicable. We believe the critical accounting policies affect our more significant judgments and estimates used in the preparation of our Condensed Consolidated Financial Statements. During the six months ended June 30, 2026, there were no significant changes to our critical accounting policies and estimates as described in the financial statements contained in the 2025 Form 10-K.

We are exposed to financial market risks, including changes in foreign currency rates, prices of marketable equity and fixed-income securities. The primary objective of our investment activities is to preserve principal while at the same time achieving appropriate yields without significantly increasing risk. To achieve this objective, a majority of our marketable securities are investment grade money market instruments denominated in U.S. dollars.

We maintain depository investments with certain financial institutions. As of June 30, 2026, $75.2 million of our cash and cash equivalents, primarily foreign depository accounts, were in excess of government provided insured depository limits. Although these depository investments exceed government insured depository limits, we have evaluated the credit worthiness of these financial institutions and determined the risk of material financial loss due to exposure of such credit risk to be minimal.

Interest Rate Risk

As of June 30, 2026, we held $0.6 million of cash and variable-rate investments where a change in interest rates would impact our interest income. A hypothetical 50 basis point decline in interest rates as of June 30, 2026, assuming all other variables remain constant, would reduce annualized interest income on our cash and investments by less than $0.1 million. As of June 30, 2026, the carrying amounts of our revolving credit agreements totaled $25.0 million where a change in interest rates would impact our interest expense. A hypothetical 50 basis point increase in interest rates as of June 30, 2026, assuming all other variables remain constant, would increase our interest expense by $0.1 million annually. The analysis covers our debt and investments. The analyses use actual or approximate maturities for the debt and investments. The discount rates used were based on the market interest rates in effect at June 30, 2026.

Foreign Currency Exchange Rate Risk

We are exposed to changes in foreign currency exchange rates to the extent that such changes affect our revenue and gross margin on revenue derived from some international customers, operating expenses, and assets and liabilities held in non-functional currencies related to our foreign subsidiaries. Our primary exposures to foreign currency exchange rate movements are with the euro and the British pound. Our revenue is primarily denominated in the respective functional currency of the subsidiary and paid in that subsidiary's functional currency or certain other local currency. The majority of our global supply chain predominately makes payments in U.S. dollars and some of our operating expenses are paid in certain local currencies (approximately 43.2% and 43.9% of total operating expense for the periods ended June 30, 2026 and 2025, respectively. Therefore, our revenue, gross margins, operating expenses and operating loss are all subject to foreign currency fluctuations. As a result, changes in currency exchange rates could cause variations in our operating loss. For the six months ended June 30, 2026, the effect of a hypothetical 10% movement in foreign exchange rates would result in a before-tax positive or negative impact of approximately $0.2 million. Actual future gains and losses associated with our foreign currency exposures and positions may differ materially from the sensitivity analyses performed as of June 30, 2026, due to the inherent limitations associated with predicting the foreign currency exchange rates, and our actual exposures and positions.

We have certain customers and suppliers who are invoiced or pay in a non-functional currency. Changes in the monetary exchange rates used to invoice such customers versus the functional currency of the entity billing such customers may adversely affect our results of operations and financial condition. To manage the volatility relating to these typical business exposures, we may enter into various derivative transactions, when appropriate. We do not hold or issue derivative instruments for trading or other speculative purposes. All non-functional currencies billed would result in a combined hypothetical gain or loss of $7.5 million if the U.S. dollar weakened or strengthened 10% against the billing currencies. All non-functional currencies invoiced by suppliers would result in a combined hypothetical gain or loss of $12.1 million if the U.S. dollar weakened or strengthened 10% against the billing currencies. This change represents an increase in the amount of hypothetical gain or loss compared to prior periods and is mainly due to an increase in U.S. dollar denominated billings in a non-U.S. dollar denominated subsidiary.

We have certain assets and liabilities, primarily accounts receivable and accounts payable and lease liabilities that are denominated in currencies other than the relevant entity’s functional currency. In certain circumstances, changes in the functional currency value of these assets and liabilities create fluctuations in our reported consolidated financial position, cash flows and results of operations.

For further information about the fair value of our investments as of June 30, 2026, see Note 5 of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this report.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that the information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the rules and forms promulgated by the SEC, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As of the end of the period covered by this report, an evaluation was carried out by management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) under the Exchange Act. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that due to the material weaknesses in our internal control over financial reporting described below, our disclosure controls and procedures were not effective as of June 30, 2026.

Material Weaknesses in Internal Control over Financial Reporting

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. In its assessment of the effectiveness of internal control over financial reporting as of June 30, 2026, management determined that there were deficiencies in Adtran’s internal control over financial reporting that constituted material weaknesses that existed as of June 30, 2026. Such material weaknesses were as follows:

• Adtran did not design and maintain effective controls in response to the risks of material misstatement. Specifically, changes to existing controls or the implementation of new controls have not been sufficient to respond to changes to the risks of material misstatement to financial reporting. This material weakness contributed to the following additional material weakness.
• Adtran did not design and maintain effective controls over financial statement preparation, presentation and disclosure commensurate with its financial reporting requirements. Specifically, Adtran did not design and maintain effective controls over the presentation and disclosure of transactions, including non-controlling interest.

The material weaknesses resulted in the restatements and revision to our consolidated financial statements for the years ended December 31, 2022, 2023 and 2024, as well as the condensed consolidated financial statements for the quarterly and year-to-date periods ended September 30, 2022, March 31, 2023, June 30, 2023, September 30, 2023, March 31, 2024, June 30, 2024 and September 30, 2024. The material weaknesses also resulted in material adjustments that were corrected prior to the issuance of the condensed consolidated financial statements for the quarterly period ended March 31, 2025. Additionally, these material weaknesses could result in misstatements of Adtran’s accounts or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected.

Management’s Remediation Efforts

To remediate the material weaknesses in Adtran’s internal control over financial reporting related to the risks of material misstatement, and financial statement preparation, presentation and disclosure of transactions including non-controlling interest, Adtran has enhanced existing controls over the review of Adtran’s consolidated financial statements and in the fourth quarter of 2025 completed the implementation of additional financial statement review controls. We believe these enhanced and additional controls operated effectively through the date of this filing. Adtran’s management believes that the continued operation of the activities outlined above in subsequent reporting periods will be effective in remediating such material weaknesses. The material weaknesses cannot be considered remediated until the applicable controls have operated for a sufficient period of time and management has concluded that, through testing, these controls are operating effectively.

Until the remediation steps set forth above, including the implementation of all necessary control activities that we identify, continue to operate effectively for a sufficient amount of time, and there has been time for us to conclude through testing that the control activities have been operating effectively for such time, the material weaknesses described above will not be considered fully remediated.

Changes in Internal Control over Financial Reporting

There were no changes in Adtran’s internal control over financial reporting that occurred during the most recent fiscal quarter covered by this report that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

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, other than as described in the risk factors below.

Risks related to our financial results and Company success

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

On July 21, 2026, we terminated the Former Credit Agreement with Wells Fargo. All outstanding principal amounts thereunder were repaid, and we entered into a new five-year, $350.0 million credit agreement with JPMorgan Chase Bank, N.A. (the “New Credit Agreement”) on such date. As with our Former Credit Agreement, the New Credit Agreement governs a portion of our indebtedness and 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 the restrictive covenants in our Former Credit Agreement has resulted in prior events of default, and a failure to comply with the restrictive covenants in the New Credit Agreement may in the future result in an event of default that, if not cured or waived, results in the acceleration of all of our debt. Specifically, our New Credit Agreement contains various restrictive covenants which include, among others, provisions limiting our ability to:

• pay dividends or make other distributions or repurchase capital stock;
• incur or guarantee additional debt;
• make certain distributions, investments and other restricted payments;
• engage in transactions with affiliates;
• engage in mergers or consolidations or other change in control transactions;
• grant or incur liens on assets;
• dispose of assets;
• make loans and investments;
• modify our organization documents in a manner that is materially adverse to the lenders, taken as a whole; and
• enter into certain restrictive agreements.

In addition, the New Credit Agreement contains customary events of default, such as misrepresentation and a default in the performance or observance of any covenant (subject to customary cure periods and materiality thresholds for certain covenants).

In addition, certain covenants in the New Credit Agreement, require us, among other things, to:

• maintain certain leverage ratios; and
• maintain certain fixed charge coverage ratios;

As a result of these restrictions, we have been and may be:

• limited in how we conduct our business;
• limited in how much additional funding we can draw on our line of credit;
• unable to raise additional debt or equity financing to operate during general economic or business downturns; and
• unable to compete effectively or to take advantage of new business opportunities.

Our failure to comply with the restrictive covenants in our Former Credit Agreement has resulted in prior events of default, and a failure to comply with the restrictive covenants in the New Credit Agreement may in the future result in an event of default that accelerates the payment of 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 New Credit Agreement would, 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 New

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 and Capital Resources" in Part I, Item 2 of this report.

Our significant indebtedness exposes us to various risks.

As of June 30, 2026, the Company’s borrowings under the Former Credit Agreement were $25.0 million. As of June 30, 2026, the U.S. Borrower had a total of $6.8 million in letters of credit under the Former Credit Agreement, leaving a net amount (after giving effect to the $25.0 million of outstanding borrowings described above) of $318.2 million available for future borrowings based on debt covenant compliance metrics. The credit facilities provided under the Former Credit Agreement were to mature in July 2027.

On July 21, 2026, the Company terminated the Former Credit Agreement and entered into the New Credit Agreement. As of the date of this filing, the Company had total outstanding borrowings under the New Credit Agreement of $48.0 million, leaving $302.0 million available for future borrowings.

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 I, Item 2 of this report for additional information.

Our indebtedness has and may continue to adversely affect our operations and liquidity. Our level of indebtedness:

• could make it more difficult for us to pay or refinance our debts as they become due during adverse economic and industry conditions because we may not have sufficient cash flows to make its scheduled debt payments;
• has caused us and may continue to cause us to use a larger portion of our cash flow to fund interest and principal payments, reducing the availability of cash to fund working capital, capital expenditures, research and development and other business activities;
• limits our ability to assume debt in a future acquisition. Specifically, our New Credit Agreement 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 more vulnerable to general adverse economic and industry conditions;
• could cause us to be disadvantaged compared to competitors with less leverage; and
• limits our ability to borrow additional money. Specifically, our New Credit Agreement 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 to refinance our indebtedness in the future 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 New Credit Agreement 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. In addition, our failure to repurchase the 2030 Notes or to pay the cash amounts due 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 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.

We may also incur additional long-term debt and working capital lines of credit to meet future financing needs, which would increase our total indebtedness. Although the terms of its existing and future credit agreements and of the indentures governing its debt contain restrictions on the incurrence of additional debt, including secured debt, these restrictions are subject to a number of important exceptions and debt incurred in compliance with these restrictions could be substantial. If we or our restricted subsidiaries incur significant additional debt, the relative risks may intensify.

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 recent years, international market conditions and the international regulatory environment have been increasingly affected by competition among countries and geopolitical frictions. Since early 2025, the U.S. has introduced trade policy actions that increased import tariffs across a wide range of countries at various rates, with certain exemptions. On February 20, 2026, the United States Supreme Court issued a ruling striking down certain tariffs previously imposed under the 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. Following the Supreme Court’s decision, the U.S. presidential administration invoked Section 122 of the Trade Act of 1974 to impose new tariffs of 10% 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), and also amended tariffs on imports of copper, steel and aluminum previously imposed under Section 232 of the Trade Expansion Act of 1962, effective April 6, 2026, to apply differentiated tariff rates based on metal content and the use of U.S.-origin metal inputs. By its terms, the Section 122 tariff expired on July 24, 2026. On July 23, 2026, the Office of the U.S. Trade Representative ("USTR") announced a final action under Section 301 of the Trade Act of 1974 imposing additional ad valorem tariffs of 10% or 12.5% on most goods imported from approximately 60 foreign trading partners, which together account for nearly all U.S. import trade. Under the final action, trading partners that have adopted, or have committed to adopt and effectively enforce, a qualifying forced labor import prohibition are subject to the lower 10% tariff rate, while trading partners that have not adopted such a prohibition are subject to the 12.5% rate. Certain categories of goods are excluded from the new tariffs, including articles already subject to duties under Section 232 of the Trade Expansion Act of 1962, and certain other products identified by USTR as warranting exemption.

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. Because not all products can be sourced in all countries, we have experienced, and expect to continue to experience, increased costs in our supply chain as a result of such tariffs, which may lead to reduced margins or increased prices. We have taken, and may continue to take, steps intended to mitigate these impacts, but there is no assurance that these measures will be sufficient to offset the impact of tariffs on our business. At this time, it remains unclear what additional actions, if any, will be taken by the U.S. or other governments with respect to international trade agreements, the imposition of or changes to tariffs on goods imported into the U.S. or exported to other countries, tax policy related to international commerce, increased export control, sanctions and investment restrictions, import or use of foreign communications equipment, or other trade matters. Related costs and the uncertainty during transition periods could lead to changes in buying behavior, such as decreased demand. These impacts could have a negative effect on our financial results, including our revenue and profitability.

In addition, the extent and duration of increased tariffs and the resulting impact on general economic conditions and on our business are uncertain and depend on various factors, such as negotiations between the U.S. and affected countries, the responses of other countries or regions, exemptions or exclusions that may be granted, availability and cost of alternative sources of supply, and reduced demand for our and our customers’ products and services. Such conditions could have a material adverse impact on our business, results of operations and cash flows. Also, disruptions and volatility in the financial markets may lead to adverse changes in the availability, terms and cost of capital. Such adverse changes could increase our costs of capital and limit our access to external financing sources to fund acquisitions, capital projects, or refinancing of debt maturities on similar terms, which could in turn reduce our cash flows and limit our ability to pursue growth opportunities. Changes in tariffs and trade restrictions can be announced with little or no advance notice. The adoption and expansion of tariffs or other trade restrictions, increasing trade tensions, or other changes in governmental policies related to taxes, tariffs, trade agreements or policies, are difficult to predict, which makes attendant risks difficult to anticipate and mitigate. If we are unable to navigate further changes in U.S. or international trade policy, it could have a material adverse impact on our business and results of operations.

The complexity of announced or future tariffs may also increase the risk that we or our customers or suppliers may be subject to enforcement actions in the U.S. or foreign jurisdictions related to compliance with trade regulations. In May 2025, the U.S. Department of Justice announced that trade and customs fraud, including tariff evasion, is a high-impact area and designated it as an enforcement priority area. Additionally, the imposition of tariffs is dependent upon the classification of items under the Harmonized Tariff System (“HTS”) and the country of origin of the item. Determination of the HTS and the origin of the item is a technical matter that can be subjective in nature. Accordingly, although we believe our classifications of both HTS and origin are appropriate, there is no certainty that the U.S. government will agree with us. If the U.S. government does not agree with our determinations, we could be required to pay additional amounts, including potential penalties, and our profitability would be adversely impacted.

Finally, tariffs on our customers’ products may adversely affect our gross profit margins in the future due to the potential for increased pressure on our selling prices by customers seeking to offset the impact of tariffs on their own products. In addition, tariffs could make our products less attractive relative to products offered by competitors, which may not be subject to similar tariffs. In reaction to the increased tariffs, customers may elect to reduce spending, renegotiate contracts, defer orders or delivery of existing orders, or shift purchases to other vendors, each of which would adversely impact our financial results and competitive position with customers. Increases in tariffs on imported goods or the failure to resolve current international trade disputes could further decrease demand and have a material adverse effect on our business and operating results.

Recently, the Company has experienced increased costs on imports of certain critical raw minerals and derivative products relevant to our business and products due to tariffs imposed by the U.S. government and other nations, and the availability, timing, and amount of any potential refunds of related U.S. tariffs remains uncertain. We have taken steps, and may take additional steps, to attempt to mitigate the impact of tariffs on our business, including by availing ourselves of certain exemptions to tariffs; by making changes to our supply chain practices, sources of supply, or manufacturing locations; and by passing the cost of tariffs to customers. These changes could take considerable time to implement, result in significant costs, and cause supply chain delays or disruption.