SEC Info - ADTRAN Holdings, Inc. - ‘10-Q’ for 6/30/22

(In thousands)

Network Solutions

Services & Support

Total

Network Solutions

Services & Support

Total

Access & Aggregation

i 78,852

i 10,909

i 89,761

i 78,307

i 12,657

i 90,964

Subscriber Solutions & Experience

i 75,186

i 2,958

i 78,144

i 45,097

i 2,713

i 47,810

Traditional & Other Products

i 1,954

i 2,179

i 4,133

i 2,045

i 2,413

i 4,458

Total

i 155,992

i 16,046

i 172,038

i 125,449

i 17,783

i 143,232

Six Months Ended

(In thousands)

Network Solutions

Services & Support

Total

Network Solutions

Services & Support

Total

Access & Aggregation

i 163,141

i 22,080

i 185,221

i 138,360

i 21,678

i 160,038

Subscriber Solutions & Experience

i 127,009

i 5,741

i 132,750

i 97,366

i 5,013

i 102,379

Traditional & Other Products

i 4,216

i 4,369

i 8,585

i 3,532

i 4,816

i 8,348

Total

i 294,366

i 32,190

i 326,556

i 239,258

i 31,507

i 270,765

The aggregate amount of transaction price allocated to remaining performance obligations that have not been satisfied as of June 30, 2022 and December 31, 2021 related to contractual maintenance agreements, contractual SaaS and subscription services, and hardware contracts that exceed one year in duration amounted to $ i 164.5 million and $ i 101.1 million, respectively. As of June 30, 2022, approximately i 84% is expected to be recognized over the next i 12 months and the remainder recognized thereafter. The majority of the Company's remaining performance obligations at June 30, 2022 are related to contracts or orders that have an original expected duration of one year or less, for which the Company is electing to utilize the practical expedient available within the guidance, and are excluded from the transaction price related to these future obligations. The Company will generally satisfy the remaining performance obligations as we transfer control of the products ordered or services to our customers, excluding maintenance services, which are satisfied over time.

The following table provides information about receivables, contract assets and unearned revenue from contracts with customers:


	As of		As of
(In thousands)	June 30, 2022		December 31, 2021
Accounts receivable, net	$	i 172,088	$	i 158,742
Contract assets(1)	$	i 1,749	$	i 464
Unearned revenue	$	i 22,705	$	i 17,737
Non-current unearned revenue	$	i 10,133	$	i 9,271

(1) Included in other receivables on the Condensed Consolidated Balance Sheets.

Of the outstanding unearned revenue balances as of December 31, 2021, $ i 4.1 million and $ i 9.5 million was recognized as revenue during the three and six months ended June 30, 2022, respectively. Of the $ i 14.1 million of outstanding unearned revenue balances as of December 31, 2020, $ i 2.9 million and $ i 7.9 million was recognized as revenue during the three and six months ended June 30, 2021, respectively.

4. INCOME TAXES

Our effective tax rate changed from an expense of i 18.1% of pre-tax income for the three months ended June 30, 2021, to an expense of i 50.1% of pre-tax income for the three months ended June 30, 2022 and changed from an expense of i 26.7% of pre-tax income for the six months ended June 30, 2021, to a benefit of i 34.3% of pre-tax income for the six months ended June 30, 2022. The change in the effective tax rate for the three and six months ended June 30, 2022, was driven primarily by a change in our annual estimated tax rate as a result of the requirement to begin capitalizing research and development expenses for U.S. tax purposes beginning in 2022 as previously passed as part of the Tax Cuts and Jobs Act in December 2017 and the associated impact of those changes on our previously established valuation allowance.

The Company continually reviews the adequacy of its valuation allowance and recognizes the benefits of deferred tax assets only as the assessment indicates that it is more likely than not that the deferred tax assets will be recognized in accordance with ASC 740, Income Taxes. As of June 30, 2022, the Company had deferred tax assets totaling $ i 71.4 million, and a valuation allowance totaling $ i 62.9 million against those deferred tax assets. The remaining $ i 8.5 million in deferred tax assets not offset by a valuation allowance are located in various foreign jurisdictions where the Company believes it is more likely than not we will realize these deferred tax assets. During the six months ended June 30, 2022, the total change in the valuation allowance against our domestic and international deferred tax assets was recorded in the amount of an $ i 12.6 million increase and a $ i 0.2 million decrease, respectively. Our assessment of the realizability of our deferred tax assets includes the evaluation of historical operating results as well as the evaluation of evidence which requires significant judgment, including the evaluation of our three-year cumulative income position, future taxable income projections and tax planning strategies. Should management’s conclusion change in the future and an additional valuation allowance or a partial or full release of the valuation allowance becomes necessary, it may have a material effect on our consolidated financial statements.

Supplemental balance sheet information related to deferred tax assets is as follows:

As of June 30, 2022

(In thousands)

Deferred Tax Assets

Valuation Allowance

Deferred Tax Assets, net

Domestic

i 60,873

( i 60,873

)

—

International

i 10,568

( i 2,060

)

i 8,508

Total

i 71,441

( i 62,933

)

i 8,508

(In thousands)

Deferred Tax Assets

Valuation Allowance

Deferred Tax Assets, net

Domestic

i 48,265

( i 48,265

)

—

International

i 11,378

( i 2,299

)

i 9,079

Total

i 59,643

( i 50,564

)

i 9,079

5. STOCK-BASED COMPENSATION

The following table summarizes stock-based compensation expense related to stock options, performance stock units (“PSUs”), restricted stock units (“RSUs”) and restricted stock:

Three Months Ended

Six Months Ended

June 30,

(In thousands)

2022

2021

2022

2021

Stock-based compensation expense included in cost of revenue

i 162

i 125

i 321

i 256

Selling, general and administrative expense

i 1,135

i 1,098

i 2,259

i 2,196

Research and development expense

i 591

i 585

i 1,201

i 1,163

Stock-based compensation expense included in operating expenses

i 1,726

i 1,683

i 3,460

i 3,359

Total stock-based compensation expense

i 1,888

i 1,808

i 3,781

i 3,615

Tax benefit for expense associated with stock options, PSUs, RSUs and restricted stock

( i 472

)

( i 452

)

( i 945

)

( i 883

)

Total stock-based compensation expense, net of tax

i 1,416

i 1,356

i 2,836

i 2,732

PSUs, RSUs and Restricted Stock

The following table summarizes PSUs, RSUs and restricted stock outstanding as of December 31, 2021 and June 30, 2022 and the changes that occurred during the six months ended June 30, 2022:


	Number of Shares (in thousands)			Weighted Avg. Grant Date Fair Value (per share)
Unvested PSUs, RSUs and restricted stock outstanding, December 31, 2021		i 1,930		$	i 14.11
PSUs, RSUs and restricted stock granted		i 336		$	i 20.14
PSUs, RSUs and restricted stock vested		( i 15	)	$	i 13.26
PSUs, RSUs and restricted stock forfeited		( i 41	)	$	i 14.08
Unvested PSUs, RSUs and restricted stock outstanding, June 30, 2022		i 2,210		$	i 15.04

During each of the six months ended June 30, 2022 and 2021, the Company granted i i 0.3 / million performance-based PSUs to its executive officers and certain employees. The grant-date fair value of these performance-based awards was based on the closing price of the Company’s stock on the date of grant. These awards vest over i one-year, i two-year and i three-year periods, respectively, subject to the grantee’s continued employment, with the ability to earn shares in a range of i i i 0 / / % to i i i 142.8 / / % of the awarded number of PSUs based on the achievement of defined performance targets. Equity-based compensation expense with respect to these awards may be adjusted over the vesting period to reflect the probability of achievement of performance targets defined in the award agreements.

The fair value of RSUs and restricted stock is equal to the closing price of our stock on the date of grant. The fair value of PSUs with market conditions is calculated using a Monte Carlo simulation valuation method.

As of June 30, 2022, total unrecognized compensation expense related to non-vested market-based PSUs, RSUs and restricted stock was approximately $ i 13.9 million, which will be recognized over the remaining weighted-average period of i 2.5 years. Pursuant to the Business Combination, which was closed on July 15, 2022, i 0.3 million of market-based PSUs were converted to time-based RSUs which will be treated as an award modification under U.S. GAAP in the third quarter of 2022. This will result in incremental compensation expense of $ i 1.6 million which will be recognized over the remaining weighted-average period of i 1.1 years. In addition, there was $ i 13.2 million of unrecognized compensation expense related to unvested 2020, 2021 and 2022 performance-based PSUs, which will be recognized over the remaining requisite service period of i 0.5 years if achievement of the performance obligation becomes probable. Pursuant to the Business Combination, which was closed on July 15, 2022, the unearned performance-based PSUs were converted to time-based RSUs which will be treated as an award modification under U.S. GAAP in the third quarter of 2022. This will result in incremental compensation and unrecognized compensation expense totaling $ i 17.8 million, which will be recognized over the remaining service period of i 0.5 years. Unrecognized compensation expense will be adjusted for actual forfeitures.

As of June 30, 2022, i 3.5 million shares were available for issuance under stockholder-approved equity plans.

Stock Options

The following table summarizes stock options outstanding as of December 31, 2021 and June 30, 2022 and the changes that occurred during the six months ended June 30, 2022:

Number of
Stock Options
(in thousands)

Weighted Avg.
Exercise Price
(per share)

Weighted Avg.
Remaining
Contractual
Life
(in years)

Aggregate
Intrinsic Value
(in thousands)

Stock options outstanding, December 31, 2021

i 1,721

i 19.37

i 2.4

i 6,669

Stock options exercised

( i 37

)

i 17.24

i 110

Stock options expired

( i 23

)

i 23.67

i 5

Stock options outstanding, June 30, 2022

i 1,661

i 19.36

i 1.9

i 1,127

Stock options exercisable, June 30, 2022

i 1,661

i 19.36

i 1.9

i 1,127

As of June 30, 2022, there was i no unrecognized compensation expense related to stock options as all awards vested in prior periods.

There were i i no / stock options granted during the six months ended June 30, 2022 and 2021. All of the options were previously issued at exercise prices that approximated fair market value at the date of grant.

The aggregate intrinsic value of stock options represents the total pre-tax intrinsic value (the difference between ADTRAN’s closing stock price on the last trading day of the quarter and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on June 30, 2022. The amount of aggregate intrinsic value was $ i 1.1 million as of June 30, 2022 and will change based on the fair market value of ADTRAN’s stock. The total pre-tax intrinsic value of options exercised during the six months ended June 30, 2022 was $ i 0.1 million.

6. INVESTMENTS

Debt Securities and Other Investments

The following debt securities and other investments were included on the Condensed Consolidated Balance Sheet and recorded at fair value:

As of June 30, 2022

Amortized

Gross Unrealized

Fair

(In thousands)

Cost

Gains

Losses

Value

Corporate bonds

i 10,854

i 1

( i 286

)

i 10,569

Municipal fixed-rate bonds

i 1,563

—

( i 49

)

i 1,514

Asset-backed bonds

i 1,018

i 1

( i 16

)

i 1,003

Mortgage/Agency-backed bonds

i 4,199

—

( i 185

)

i 4,014

U.S. government bonds

i 12,287

—

( i 503

)

i 11,784

Foreign government bonds

i 410

—

( i 22

)

i 388

Available-for-sale debt securities held at fair value

i 30,331

i 2

( i 1,061

)

i 29,272

Amortized

Gross Unrealized

Fair

(In thousands)

Cost

Gains

Losses

Value

Corporate bonds

i 10,776

i 6

( i 35

)

i 10,747

Municipal fixed-rate bonds

i 1,553

i 2

( i 4

)

i 1,551

Asset-backed bonds

i 322

i 3

( i 3

)

i 322

Mortgage/Agency-backed bonds

i 4,754

i 15

( i 33

)

i 4,736

U.S. government bonds

i 12,251

i 12

( i 92

)

i 12,171

Foreign government bonds

i 543

—

( i 4

)

i 539

Available-for-sale debt securities held at fair value

i 30,199

i 38

( i 171

)

i 30,066

The contractual maturities related to debt securities and other investments were as follows:

As of June 30, 2022

(In thousands)

Corporate
bonds

Municipal
fixed-rate
bonds

Asset-
backed
bonds

Mortgage/
Agency-
backed bonds

U.S. government
bonds

Foreign government bonds

Less than one year

i 621

i 148

—

i 637

i 367

—

One to two years

i 6,484

i 1,254

—

i 472

i 8,315

i 279

Two to three years

i 3,339

i 112

i 248

i 621

i 3,102

i 109

Three to five years

i 125

—

i 313

i 189

—

Five to ten years

—

i 215

i 925

—

More than ten years

—

i 227

i 1,170

—

Total

i 10,569

i 1,514

i 1,003

i 4,014

i 11,784

i 388

Actual maturities may differ from contractual maturities as some borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

Realized gains and losses on sales of debt securities are computed under the specific identification method. i The following table presents the gross realized gains and losses related to our debt securities:


	Three Months Ended						Six Months Ended
	June 30,						June 30,
(In thousands)	2022			2021			2022			2021
Gross realized gain on debt securities	$	—		$	i 97		$	i 12		$	i 184
Gross realized loss on debt securities		( i 85	)		( i 20	)		( i 125	)		( i 36	)
Total (loss) gain recognized, net	$	( i 85	)	$	i 77		$	( i 113	)	$	i 148

Income generated from available-for-sale debt securities was recorded as interest and dividend income in the Condensed Consolidated Statements of Income. i i No / allowance for credit losses was recorded for the six months ended June 30, 2022 and 2021 related to available-for-sale debt securities. The Company’s investment policy provides limitations for issuer concentration, which limits, at the time of purchase, the concentration in any one issuer to i 5% of the market value of our total investment portfolio. The Company did i not purchase any available-for-sale debt security with credit deterioration during the six months ended June 30, 2022.

Marketable Equity Securities

Our marketable equity securities consist of publicly traded stock, interests in funds and certain other investments measured at fair value or cost (where appropriate).

The Company has an equity investment which does not have a readily determinable fair value and is recorded using the measurement alternative. Under the measurement alternative, equity investments that do not have a readily determinable fair value can be recorded at cost less impairment, if any, adjusted for observable price changes for an identical or similar investment. The carrying value of the equity investment as of June 30, 2022 and December 31, 2021 was $ i i 1.0 / million. During the year ended December 31, 2021, impairment charges totaling $ i 0.4 million, were recorded related to the equity investment. As of June 30 2022, cumulative impairment charges totaling $ i 2.4 million were recorded related to the equity investment. There were i i no / impairment charges during the three and six months ended June 30, 2022 and 2021. During the year ended December 31, 2021, an unsecured loan totaling $ i 0.5 million was converted to equity which increased the Company's carrying value of the equity investment.

The Company has a secured note receivable as of June 30, 2022 and December 31, 2021 which totaled $ i i 0.4 / million and is included in long term investments on the Consolidated Balance Sheets. During the year ended December 31, 2021, an impairment charge of $ i 0.5 million was recognized against the secured note receivable. There were i i no / impairment charges during the three and six months ended June 30, 2022 and 2021.

Realized and unrealized gains and losses related to marketable equity securities were as follows:


	Three Months Ended						Six Months Ended
	June 30,						June 30,
(In thousands)	2022			2021			2022			2021
Realized (loss) gain on equity securities sold	$	( i 293	)	$	( i 79	)	$	( i 318	)	$	( i 55	)
Unrealized (loss) gain on equity securities held		( i 4,268	)		i 2,011			( i 7,630	)		i 2,912
Total (loss) gain recognized, net	$	( i 4,561	)	$	i 1,932		$	( i 7,948	)	$	i 2,857

Income generated from marketable equity securities was recorded as interest and dividend income in the Condensed Consolidated Statements of Income. U.S. GAAP establishes a three-level valuation hierarchy based upon observable and unobservable inputs for fair value measurement of financial instruments:

• Level 1 – Observable outputs; values based on unadjusted quoted prices for identical assets or liabilities in an active market;

• Level 2 – Significant inputs that are observable; values based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly;

• Level 3 – Significant unobservable inputs; values based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs could include information supplied by investees.

T i he Company’s cash equivalents and investments held at fair value are categorized into this hierarchy as follows:

Fair Value Measurements as of June 30, 2022 Using

(In thousands)

Fair Value

Quoted Prices
in Active
Market for
Identical
Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant Unobservable Inputs
(Level 3)

Cash equivalents

Money market funds

i 409

—

Available-for-sale debt securities

Corporate bonds

i 10,569

—

i 10,569

—

Municipal fixed-rate bonds

i 1,514

—

i 1,514

—

Asset-backed bonds

i 1,003

—

i 1,003

—

Mortgage/Agency-backed bonds

i 4,014

—

i 4,014

—

U.S. government bonds

i 11,784

—

Foreign government securities

i 388

—

i 388

—

Marketable equity securities

Marketable equity securities – various industries

i 873

—

Deferred compensation plan assets

i 22,567

—

Total

i 53,121

i 35,633

i 17,488

—

Fair Value Measurements as of December 31, 2021 Using

(In thousands)

Fair Value

Quoted Prices
in Active
Market for
Identical
Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant Unobservable Inputs
(Level 3)

Cash equivalents

Money market funds

i 652

—

Available-for-sale debt securities

Corporate bonds

i 10,747

—

i 10,747

—

Municipal fixed-rate bonds

i 1,551

—

i 1,551

—

Asset-backed bonds

i 322

—

i 322

—

Mortgage/Agency-backed bonds

i 4,736

—

i 4,736

—

U.S. government bonds

i 12,171

—

Foreign government bonds

i 539

—

i 539

—

Marketable equity securities

Marketable equity securities – various industries

i 12,606

—

Deferred compensation plan assets

i 26,935

—

Total

i 70,259

i 52,364

i 17,895

—

The fair value of our Level 2 securities is calculated using a weighted average market price for each security. Market prices are obtained from a variety of industry standard data providers, large financial institutions and other third-party sources. These multiple market prices are used as inputs into a distribution-curve-based algorithm to determine the daily market value of each security.

7. INVENTORY

Inventory consisted of the following:


	As of		As of
(In thousands)	June 30, 2022		December 31, 2021
Raw materials	$	i 116,307	$	i 74,709
Work in process		i 2,258		i 2,143
Finished goods		i 78,351		i 63,039
Total inventory, net	$	i 196,916	$	i 139,891

Inventory reserves are established for estimated excess and obsolete inventory equal to the difference between the cost of the inventory and the estimated net realizable value of the inventory based on estimated reserve percentages, which considers historical usage, known trends, inventory age and market conditions. As of June 30, 2022 and December 31, 2021, inventory reserves were $ i 48.9 million and $ i 44.6 million, respectively.

8. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consisted of the following:


	As of			As of
(In thousands)	June 30, 2022			December 31, 2021
Engineering and other equipment	$	i 134,748		$	i 134,771
Computer hardware and software		i 74,141			i 72,274
Building		i 68,151			i 68,157
Building and land improvements		i 35,719			i 35,578
Furniture and fixtures		i 19,967			i 19,917
Land	$	i 4,575		$	i 4,575
Total property, plant and equipment		i 337,301			i 335,272
Less: accumulated depreciation		( i 283,869	)		( i 279,506	)
Total property, plant and equipment, net	$	i 53,432		$	i 55,766

Long-lived assets used in operations are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable and the undiscounted cash flows estimated to be generated by the asset are less than the asset’s carrying value. i i i i No / / / impairment charges were recognized during the three and six months ended June 30, 2022 and 2021.

Depreciation expense was $ i 2.7 million and $ i 3.0 million for the three months ended June 30, 2022 and 2021 and $ i 5.5 million and $ i 6.1 million for the six months ended June 30, 2022 and 2021, respectively, which is recorded in cost of revenue, selling, general and administrative expenses and research and development expenses in the Condensed Consolidated Statements of Income.

9. GOODWILL

Goodwill was $ i i 7.0 / million as of June 30, 2022 and December 31, 2021, of which $ i i 6.6 / million and $ i i 0.4 / million was allocated to our Network Solutions and Services & Support reportable segments, respectively.

Goodwill represents the excess purchase price over the fair value of net assets acquired. We qualitatively assess the carrying value of goodwill each reporting period for events or circumstance changes that would more likely than not reduce the fair value of the reporting unit below its carrying amount. Based on our assessment of certain qualitative factors such as macro-economic conditions, industry and market considerations, costs factors and overall financial performance, management concluded that no such events or circumstance changes were identified that would suggest that the fair value of the goodwill was more likely than not greater than its carrying amount as of June 30, 2022. i i i i No / / / impairment of goodwill was recorded during the three and six months ended June 30, 2022 and 2021.

10. INTANGIBLE ASSETS

Intangible assets consisted of the following:

As of June 30, 2022

(In thousands)

Gross Carrying Amount

Accumulated Amortization

Net Book Value

Gross Carrying Amount

Accumulated Amortization

Net Book Value

Customer relationships

i 20,451

( i 10,415

)

i 10,036

i 20,796

( i 9,906

)

i 10,890

Developed technology

i 8,200

( i 4,251

)

i 3,949

i 8,200

( i 3,683

)

i 4,517

Licensed technology

i 5,900

( i 2,813

)

i 3,087

i 5,900

( i 2,486

)

i 3,414

Licensing agreements

i 560

( i 262

)

i 298

i 560

( i 225

)

i 335

Patents

i 500

( i 397

)

i 103

i 500

( i 363

)

i 137

Trade names

i 210

( i 210

)

—

i 210

( i 210

)

—

Total

i 35,821

( i 18,348

)

i 17,473

i 36,166

( i 16,873

)

i 19,293

The Company evaluates the carrying value of intangible assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable and the undiscounted cash flows estimated to be generated by the asset are less than the asset’s carrying value. Due to the current economic environment, particularly related to COVID-19, the Company assessed impairment triggers related to intangible assets during the first and second quarters of 2022 and 2021. As a result, i i no / quantitative impairment test of long-lived assets was performed as of June 30, 2022 and 2021, and i i i i no / / / impairment losses of intangible assets were recorded during the three and six months ended June 30, 2022 and 2021.

Amortization expense was $ i 0.9 million and $ i 1.0 million in the three months ended June 30, 2022 and 2021 and $ i 1.8 million and $ i 2.1 million in the six months ended June 30, 2022 and 2021, respectively, and was included in cost of revenue, selling, general and administrative expenses and research and development expenses in the Condensed Consolidated Statements of Income.

Estimated future amortization expense of intangible assets was as follows:


	As of
(In thousands)	June 30, 2022
2022	$	i 1,696
2023		i 3,305
2024		i 3,213
2025		i 3,019
2026		i 1,985
Thereafter		i 4,255
Total	$	i 17,473

11. LEASES

Net Investment in Sales-Type Leases

We are the lessor in sales-type lease arrangements for network equipment, which consisted of the following:


	As of		As of
(In thousands)	June 30, 2022		December 31, 2021
Current minimum lease payments receivable(1)	$	i 33	$	i 92
Non-current minimum lease payments receivable(2)		—		i 4
Total minimum lease payments receivable		i 33		i 96
Less: Current unearned revenue(1)		i 23		i 70
Less: Non-current unearned revenue(2)		—		i 1
Net investment in sales-type leases	$	i 10	$	i 25

(1)

Included in other receivables on the Condensed Consolidated Balance Sheets.

(2)

Included in other assets on the Condensed Consolidated Balance Sheets.

12. REVOLVING CREDIT AGREEMENTS

Cadence Revolving Credit Agreement

On May 19, 2022, the Company, as borrower, modified its Revolving Credit and Security Agreement and related Promissory Note (together, the “Cadence Revolving Credit Agreement”) with Cadence Bank, N.A., as lender (the “Cadence Lender”). The modified Cadence Revolving Credit Agreement provides the Company with a $ i 25.0 million secured revolving credit facility. Loans under the Cadence Revolving Credit Agreement will bear interest at a rate equal to i 1.50% over the screen rate as obtained by Reuter’s, Bloomberg or another commercially available source as may be designated by the Cadence Lender from time to time; provided, however, that in no event shall the applicable rate of interest under the Cadence Revolving Credit Agreement be less than i 1.50% per annum. Such loans are secured by all of the cash, securities, securities entitlements and investment property in a certain bank account, as outlined in the Cadence Revolving Credit Agreement, at a maximum loan-to-value ratio of i 85% determined by dividing the full commitment amount under the Cadence Revolving Credit Agreement on the date of testing, determined by the Cadence Lender each fiscal quarter, by the market value of the collateral. The Cadence Revolving Credit Agreement matures on i November 3, 2022, subject to earlier termination upon the concurrence of certain events of default. The Company entered into the Cadence Revolving Credit Agreement in order to increase the flexibility and management of its short-term liquidity. During the first half of 2022, the Company made draws totaling $ i 18.0 million under the Cadence Revolving Credit Agreement all of which had been repaid as of June 30, 2022. The Company agreed to certain negative covenants that are customary for credit arrangements of this type, including, among other things, restrictions on the Company’s ability to enter into mergers, acquisitions or other business combination transactions, grant liens or suffer a material adverse change in the condition or affairs (financial or otherwise) of the Company. As of June 30, 2022, the Company was in compliance with all contractual requirements under the Cadence Revolving Credit Agreement.

Wells Fargo Revolving Credit Agreement

On April 1, 2022, the Company entered into a Credit Agreement and related Revolving Line of Credit Note (together, the “Wells Revolving Credit Agreement”) in favor of Wells Fargo Bank, National Association, as lender (the “Wells Lender”). The Wells Revolving Credit Agreement provides the Company with a new $ i 25.0 million secured revolving credit facility. The Wells Revolving Credit Agreement matures on i April 1, 2023, subject to earlier termination upon the occurrence of certain events of default as set forth in the Wells Revolving Credit Agreement. Loans under the Wells Revolving Credit Agreement will bear interest at a fluctuating rate per annum equal to: (i) the Daily Simple SOFR (as defined herein) plus (ii) an applicable margin, which will equal i 1.00%, i 1.25%, i 1.5% or i 2.0% per annum depending on the Company’s senior funded debt to EBITDA ratio. The “Daily Simple SOFR” is calculated based upon the greater of (x) a floor of i 0.00% and (b) the Secured Overnight Financing Rate, as established by the Federal Reserve Bank of New York (or a successor thereto) from time to time. Accrued interest is payable on the last day of each quarter, commencing June 30, 2022. Borrowings under the Wells Revolving Credit Agreement may be used solely for issuing letters of credit, financing capital expenditures, and working capital and general corporate purposes. Loans under the Wells Revolving Credit Agreement are secured by a first priority security interest in all of the accounts receivable of the Company and its subsidiary, ADTRAN International, Inc. Specifically, in connection with the Wells Revolving Credit Agreement, the Company entered into a security agreement, dated April 1, 2022, pursuant to which the Company pledged to the Wells Lender all of the rights to payment, accounts, deposit accounts, chattel paper (whether electronic or tangible), instruments, promissory notes, documents, licenses, general intangibles, payment intangibles, software, letter of credit rights and healthcare insurance receivables existing as of the date of execution or arising at any time thereafter. During the first half of 2022, the Company made draws totaling $ i 10.0 million under the Wells Revolving Credit Agreement all of which had been repaid as of June 30, 2022. As of June 30, 2022, the Company was in compliance with all contractual requirements under the Wells Fargo Credit Agreement.

13. STOCKHOLDERS’ EQUITY

Stock Repurchase Program

During the six months ended June 30, 2022, we did i not repurchase any shares of our common stock. As of June 30, 2022, we had the authority to purchase an additional i 2.5 million shares of our common stock under the current authorization of up to i 5.0 million shares. Subsequent to the Business Combination in July 2022, there is i no current authorization to repurchase common stock.

Accumulated Other Comprehensive Loss

The following tables present the changes in accumulated other comprehensive loss, net of tax, by component:

Three Months Ended June 30, 2022

(In thousands)

Unrealized
(Losses) Gains
on
Available-
for-Sale
Securities

Defined
Benefit Plan
Adjustments

Foreign
Currency
Adjustments

ASU 2018-02 Adoption

Total

Balance as of March 31, 2022

( i 1,276

)

( i 5,626

)

( i 7,039

)

i 385

( i 13,556

)

Other comprehensive loss before
reclassifications

( i 589

)

—

( i 2,853

)

—

( i 3,442

)

Amounts reclassified from accumulated other
comprehensive loss

i 389

( i 87

)

—

i 302

Net current period other comprehensive loss

( i 200

)

( i 87

)

( i 2,853

)

—

( i 3,140

)

Balance as of June 30, 2022

( i 1,476

)

( i 5,713

)

( i 9,892

)

i 385

( i 16,696

)

Three Months Ended June 30, 2021

(In thousands)

Unrealized
Gains
(Losses)
on
Available-
for-Sale
Securities

Defined
Benefit Plan
Adjustments

Foreign
Currency
Adjustments

ASU 2018-02 Adoption

Total

Balance as of March 31, 2021

( i 160

)

( i 9,522

)

( i 4,298

)

i 385

( i 13,595

)

Other comprehensive (loss) income before
reclassifications

( i 272

)

—

i 338

—

i 66

Amounts reclassified from accumulated other
comprehensive loss

i 177

i 212

—

i 389

Net current period other comprehensive (loss) income

( i 95

)

i 212

i 338

—

i 455

Balance as of June 30, 2021

( i 255

)

( i 9,310

)

( i 3,960

)

i 385

( i 13,140

)

Six Months Ended June 30, 2022

(In thousands)

Unrealized
Gains
(Losses)
on
Available-
for-Sale
Securities

Defined
Benefit Plan
Adjustments

Foreign
Currency
Adjustments

ASU 2018-02 Adoption

Total

( i 552

)

( i 5,613

)

( i 6,134

)

i 385

( i 11,914

)

Other comprehensive loss before
reclassifications

( i 1,564

)

—

( i 3,758

)

—

( i 5,322

)

Amounts reclassified from accumulated other
comprehensive loss

i 640

( i 100

)

—

i 540

Net current period other comprehensive loss

( i 924

)

( i 100

)

( i 3,758

)

—

( i 4,782

)

As of June 30, 2022

( i 1,476

)

( i 5,713

)

( i 9,892

)

i 385

( i 16,696

)

Six Months Ended June 30, 2021

(In thousands)

Unrealized
Gains
(Losses)
on
Available-
for-Sale
Securities

Defined
Benefit Plan
Adjustments

Foreign
Currency
Adjustments

ASU 2018-02 Adoption

Total

As of December 31, 2020

i 32

( i 9,621

)

( i 2,435

)

i 385

( i 11,639

)

Other comprehensive loss before
reclassifications

( i 329

)

—

( i 1,525

)

—

( i 1,854

)

Amounts reclassified from accumulated other
comprehensive loss

i 42

i 311

—

i 353

Net current period other comprehensive (loss) income

( i 287

)

i 311

( i 1,525

)

—

( i 1,501

)

As of June 30, 2021

( i 255

)

( i 9,310

)

( i 3,960

)

i 385

( i 13,140

)

The following tables present the details of reclassifications out of accumulated other comprehensive loss:


	Three Months Ended June 30, 2022
(In thousands)	Amount Reclassified from Accumulated Other Comprehensive (Loss) Income			Affected Line Item in the Statement Where Net (Loss) Income Is Presented
Unrealized gain (loss) on available-for-sale securities:
Net realized loss on sales of securities	$	( i 512	)	Net investment gain (loss)
Defined benefit plan adjustments – actuarial gain		i 126		(1)
Total reclassifications for the period, before tax		( i 386	)
Tax benefit		i 84
Total reclassifications for the period, net of tax	$	( i 302	)

(1)

A part of the computation of net periodic pension cost, which is included in other (expense) income, net in the Condensed Consolidated Statements of Income.


	Three Months Ended June 30, 2021
(In thousands)	Amount Reclassified from Accumulated Other Comprehensive (Loss) Income			Affected Line Item in the Statement Where Net (Loss) Income Is Presented
Unrealized gain (loss) on available-for-sale securities:
Net realized loss on sales of securities	$	( i 233	)	Net investment gain (loss)
Defined benefit plan adjustments – actuarial losses		( i 307	)	(1)
Total reclassifications for the period, before tax		( i 540	)
Tax benefit		i 151
Total reclassifications for the period, net of tax	$	( i 389	)

(1)

A part of the computation of net periodic pension cost, which is included in other (expense) income, net in the Condensed Consolidated Statements of Income.


	Six Months Ended June 30, 2022
(In thousands)	Amount Reclassified from Accumulated Other Comprehensive (Loss) Income			Affected Line Item in the Statement Where Net Income Is Presented
Unrealized gain (loss) on available-for-sale securities:
Net realized loss on sales of securities	$	( i 842	)	Net investment gain (loss)
Defined benefit plan adjustments – actuarial gain		i 145		(1)
Total reclassifications for the period, before tax		( i 697	)
Tax benefit		i 157
Total reclassifications for the period, net of tax	$	( i 540	)

(1)

A part of the computation of net periodic pension cost, which is included in other (expense) income, net in the Condensed Consolidated Statements of Income.


	Six Months Ended June 30, 2021
(In thousands)	Amount Reclassified from Accumulated Other Comprehensive (Loss) Income			Affected Line Item in the Statement Where Net Income Is Presented
Unrealized gain (loss) on available-for-sale securities:
Net realized loss on sales of securities	$	( i 55	)	Net investment gain (loss)
Defined benefit plan adjustments – actuarial gain		( i 451	)	(1)
Total reclassifications for the period, before tax		( i 506	)
Tax benefit		i 153
Total reclassifications for the period, net of tax	$	( i 353	)

(1)

A part of the computation of net periodic pension cost, which is included in other (expense) income, net in the Condensed Consolidated Statements of Income.

The following tables present the tax effects related to the change in each component of other comprehensive (loss) income:

Three Months Ended

(In thousands)

Before-Tax
Amount

Tax
(Expense)
Benefit

Net-of-Tax
Amount

Before-Tax
Amount

Tax
(Expense)
Benefit

Net-of-Tax
Amount

Unrealized loss on available-for-sale
securities

( i 775

)

i 186

( i 589

)

( i 358

)

i 86

( i 272

)

Reclassification adjustment for amounts related to
available-for-sale investments included in net
income

i 512

( i 123

)

i 389

i 233

( i 56

)

i 177

Reclassification adjustment for amounts related to
defined benefit plan adjustments included in net
income

( i 126

)

i 39

( i 87

)

i 307

( i 95

)

i 212

Foreign currency translation adjustment

( i 2,853

)

—

( i 2,853

)

i 338

—

i 338

Total Other Comprehensive (Loss) Income

( i 3,242

)

i 102

( i 3,140

)

i 520

( i 65

)

i 455

Six Months Ended

(In thousands)

Before-Tax
Amount

Tax
(Expense)
Benefit

Net-of-Tax
Amount

Before-Tax
Amount

Tax
(Expense)
Benefit

Net-of-Tax
Amount

Unrealized loss on available-for-sale
securities

( i 2,058

)

i 494

( i 1,564

)

( i 433

)

i 104

( i 329

)

Reclassification adjustment for amounts related to
available-for-sale investments included in net
income

i 842

( i 202

)

i 640

i 55

( i 13

)

i 42

Reclassification adjustment for amounts related to
defined benefit plan adjustments included in net
income

( i 145

)

i 45

( i 100

)

i 451

( i 140

)

i 311

Foreign currency translation adjustment

( i 3,758

)

—

( i 3,758

)

( i 1,525

)

—

( i 1,525

)

Total Other Comprehensive Loss

( i 5,119

)

i 337

( i 4,782

)

( i 1,452

)

( i 49

)

( i 1,501

)

14. EARNINGS PER SHARE

The calculation of basic and diluted earnings per share is as follows:

Three Months Ended

Six Months Ended

June 30,

(In thousands, except per share amounts)

2022

2021

2022

2021

Numerator

Net income

i 2,143

i 5,086

i 1,016

i 5,982

Denominator

Weighted average number of shares – basic

i 49,123

i 48,449

i 49,110

i 48,393

Effect of dilutive securities

Stock options

i 84

i 816

i 111

i 722

PSUs, RSUs and restricted stock

i 602

i 161

i 592

i 110

Weighted average number of shares – diluted

i 49,809

i 49,426

i 49,813

i 49,225

Earnings per share – basic

i 0.04

i 0.10

i 0.02

i 0.12

Earnings per share – diluted

i 0.04

i 0.10

i 0.02

i 0.12

For the three months ended June 30, 2022 and 2021, i 33 thousand and i one thousand shares, respectively, and for the six months ended June 30, 2022 and 2021, i eight thousand and i three thousand, respectively, of unvested PSUs, RSUs and restricted stock were excluded from the calculation of diluted earnings per share due to their anti-dilutive effect.

For the three months ended June 30, 2022 and 2021, i 0.2 million and i 0.4 million stock options, respectively, and for the six months ended June 30, 2022 and 2021, i 0.1 million and i 0.6 million stock options, respectively, were outstanding but were not included in the computation of diluted earnings per share. These stock options were excluded because their exercise prices were greater than the average market price of the common shares during the applicable period, making them anti-dilutive under the treasury stock method.

15. SEGMENT INFORMATION

The chief operating decision maker regularly reviews the Company’s financial performance based on i two reportable segments: (1) Network Solutions and (2) Services & Support. Network Solutions includes hardware and software products and next-generation virtualized solutions used in service provider or business networks, as well as prior-generation products. Services & Support includes a portfolio of maintenance, network installation and solution integration services, which include hosted cloud services and subscription services.

The performance of these segments is evaluated based on gross profit; therefore, selling, general and administrative expenses, research and development expenses, interest and dividend income, interest expense, net investment gain (loss), other income (expense), net and income tax benefit (expense) are reported on a Company-wide basis only. There is no inter-segment revenue. Asset information by reportable segment is not produced and, therefore, is not reported.

The following tables present information about the revenue and gross profit of our reportable segments:

Three Months Ended

(In thousands)

Revenue

Gross Profit

Revenue

Gross Profit

Network Solutions

i 155,992

i 56,071

i 125,449

i 55,435

Services & Support

i 16,046

i 6,435

i 17,783

i 7,233

Total

i 172,038

i 62,506

i 143,232

i 62,668

Six Months Ended