What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-02-27 compared with 2024-02-28 · 207 added, 261 removed, 316 unchanged (60% of the section changed)

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Further, such factors may negatively impact our operating costs resulting in a reduction in net income.

The degree to which the ongoing wars in Israel and Ukraine and the inflationary and high interest rate environment impacts our future business, financial position and results of operations will depend on developments beyond our control, including the duration of the global economic downturn that has resulted from these factors.

The Ongoing Wars in Israel and Ukraine .

The uncertainty resulting from the wars in Israel and Ukraine, and the threat for expansion of one or both of these wars, could result in some of our customers delaying purchases from us.

As a result of safety concerns, we may close our offices in Israel from time to time.

Although our employees in these offices have the ability to work remotely and business continuity plans are in place to address any medium- or long-term disruptions that could result from the closure of these offices, the office closures and general effects of employees operating in a region at war could have a negative impact on our operations.

Further, a number of our employees in Israel are members of the military reserves and subject to immediate call-up in response to the war in Israel.

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While we have business continuity plans in place to address the military call-ups, it could affect the timing of projects in the short-term as the work is shifted to other team members both inside and outside of Israel.

Further, the U.S.

and other European countries have imposed sanctions and trade restrictions against Russia in connection with the war in Ukraine.

These sanctions and restrictions currently prohibit our ability to sell certain products and services.

The sanctions continue to evolve and further changes in the current sanctions or trade restrictions could further limit our ability to sell products and services to customers in Russia and, our ability to collect on outstanding accounts receivable from such customers.

These sanctions and restrictions currently prohibit our ability to sell hardware products in Russia or provide any replacement parts in Russia.

The sanctions continue to evolve and further changes in the current sanctions or trade restrictions could further limit our ability to sell products and services to customers in Russia, our ability to collect on outstanding accounts receivable from such customers, and our ability to repatriate funds.

If we are further limited in our ability to sell products and services to Russia and other countries for an extended period, it could have a material impact on our financial results.

Inflation and Interest Rates.

We continue to see near-term impacts on our business due to inflation, including ongoing global price pressures driving up energy prices, component costs, freight premiums, and other operating costs above normal rates.

Although headline inflation in the United States and Europe appears to have reached a peak , core inflation (excluding food and energy prices) remains elevated and is a source of continued cost pressure on businesses and households.

Interest rates have increased significantly as central banks in developed countries attempt to subdue inflation while government deficits and debt remain at high levels in many global markets.

Accordingly, the eventual implications of higher government deficits and debt, tighter monetary policy, and potentially higher long-term interest rates may drive a higher cost of capital for our business.

We continue to see near-term impacts on our business due to inflation, including ongoing global price pressures resulting in higher energy prices, component costs, freight premiums, and other operating costs above normal rates.

Although headline inflation in the United States and Europe appears to be easing, core inflation (excluding food and energy prices) remains elevated and is a source of continued cost pressure on businesses and households.

Interest rates remain high as central banks in developed countries attempt to subdue inflation while government deficits and debt remain at

high levels in many global markets.

However, since its peak in 2024, the Federal Reserve lowered the federal funds interest rate to 4.48% in December 2024, as a result of its view that inflation is cooling.

Yet, the economic outlook remains uncertain, and the implications of current and future tariffs, higher government deficits and debt, tighter monetary policy, and potentially higher long-term interest rates may drive a higher cost of capital for our business.

Unless otherwise noted, all financial amounts, excluding tabular information, in this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) are rounded to the nearest million dollar amount, and all percentages, excluding tabular information, are rounded to the nearest percentage point.

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The proceeds from the Private Placement were approximately $53.4 million, including approximately $10 million from existing related party stockholders.

On June 25, 2024, we redeemed the Preferred Stock with a portion of the proceeds from the refinancing of the 2020 Credit Facility at a rate of 103% for a total of approximately $63.5 million.

The Warrants remain outstanding and without modification.

For additional detail on the Private Placement, see Note 16 - Preferred Stock and Warrants to our consolidated financial statements.

2023 Restructuring Plan

In February 2023, our Board of Directors approved a strategic restructuring program (the "2023 Restructuring Plan") to streamline our operations in order to support our investment in critical growth areas.

The 2023 Restructuring Plan include s, among other things , charges related to a workforce reduction.

Any potential positions eliminated in countries outside the United States are subject to local law and consultation requirements.

We recorded restructuring and related expense of $ 9.9 million in the year ended December 31, 2023 in connection with the 2023 Restructuring Plan for severance related costs.

We anticipate that we will record nominal future expense for severance in connection with the 2023 Restructuring Plan.

Operating Segments

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Financial Results

We reported a loss from operations of $24.3 million for 2023 and $48.3 million for 2022.

We reported income from operations of $16.9 million for 2024 and a loss from operations of $24.3 million for 2023.

We reported a net loss of $54.2 million for 2024 and $66.2 million for 2023.

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In 2023, our Cloud and Edge gross margin was 62.8% and our IP Optical Networks gross margin was 31.0%.

The higher revenue in 2024 compared to 2023 is due to $27.6 million of higher Cloud and Edge sales, primarily to U.S.

service providers and Federal agencies, partially offset by $20.0 million of lower IP Optical Networks sales led by lower sales into Eastern Europe and India, which were partially offset by growth in the U.S.

rural market.

Our operating expenses were $422.6 million in 2024 and $432.4 million in 2023.

Our 2023 operating expenses included $28.6 million of amortization of acquired intangible assets, $4.5 million of acquisition-, disposal- and integration-related expense, and $16.2 million of restructuring and related expense.

Our 2024 operating expenses included $26.0 million of amortization of acquired intangible assets, and $10.2 million of restructuring and related expense.

We recorded stock-based compensation expense of $16.1 million in 2024 and $21.8 million in 2023.

These amounts are included as components of both Cost of revenue and Operating expenses in our consolidated statements of operations.

See “Results of Operations” in this MD&A for additional discussion of our results of operations for the years ended December 31, 2024 and 2023.

Restructuring and Cost Reduction Initiatives

In February 2023, our Board of Directors approved the 2023 Restructuring Plan to streamline our operations in order to support our investment in critical growth areas.

Our President and CEO approved workforce reductions in 2024 for certain of our operating locations to correspond with the current sales levels in those areas.

We recorded $2.1 million in 2024 related to these actions.

In February 2023, our Board of Directors approved a strategic restructuring program (the “2023 Restructuring Plan”) to streamline our operations in order to support our investment in critical growth areas.

The 2023 Restructuring Plan includes, among other things, charges related to a workforce reduction.

Any potential positions eliminated in countries outside the United States are subject to local law and consultation requirements.

We recorded restructuring and related expense of $9.9 million in 2023 in connection with the 2023 Restructuring Plan for severance related costs for approximately 200 employees.

In connection with the 2023 Restructuring Plan, we recorded restructuring and related expense for severance related costs of $2.0 million and $9.9 million in 2024 and 2023, respectively.

We anticipate that we will record nominal future expense for severance in connection with the 2023 Restructuring Plan.

In February 2022, our Board of Directors approved the 2022 Restructuring Plan to streamline our operations in order to support our investment in critical growth areas.

In February 2022, our Board of Directors approved a strategic restructuring program (the “2022 Restructuring Plan”) to streamline our operations in order to support our investment in critical growth areas.

The 2022 Restructuring Plan includes, among other things, charges related to a consolidation of facilities and a workforce reduction.

Any positions eliminated in countries outside the United States are subject to local law and consultation requirements.

In connection with the 2022 Restructuring Plan, we recorded restructuring and related expense of $6.3 million in 2023, comprised of $5.3 million for variable and other facilities-related costs and $1.0 million for accelerated amortization of lease assets no longer being used with no ability or intent to sublease.

In 2022, we recorded $10.2 million of expense for the 2022 Restructuring Plan, comprised of $3.3 million for variable and other facilities-related costs, $1.6 million for accelerated amortization of lease assets no longer being used with no ability or intent to sublease, and $5.3 million for severance and related costs for approximately 70 employees.

In connection with the 2022 Restructuring Plan, we recorded restructuring and related expense of $6.1 million in 2024 for variable and other facilities-related costs.

In 2023, we recorded $6.3 million of expense for the 2022 Restructuring Plan, comprised of $5.3 million for variable and other facilities-related costs, and $1.0 million for accelerated amortization of lease assets no longer being used with no ability or intent to sublease.

We anticipate that we will expense $5 million in 2025 related to the 2022 Restructuring Plan.

In 2020, we implemented a restructuring plan to eliminate certain positions and redundant facilities, primarily in connection with the ECI Acquisition, to further streamline our global footprint and improve our operations (the "2020 Restructuring Initiative").

In connection with the 2020 Restructuring Initiative, we eliminated duplicate functions arising from the ECI Acquisition in support of our efforts to integrate the two companies.

In connection with the 2020 Restructuring Initiative, we recorded no expense in 2023, a nominal amount of restructuring and related expense in 2022 and $4.7 million of such expense in 2021.

The 2021 amount was comprised of $4.6 million for severance and related costs for approximately 60 employees and $0.1 million for variable and other facilities-related costs.

All amounts will be fully paid in 2024.

We do not expect to record any future restructuring and related expense under the 2020 Restructuring Initiative.

In 2019, we implemented a restructuring plan to streamline our global footprint, improve our operations and enhance our customer delivery (the "2019 Restructuring Initiative").

The 2019 Restructuring Initiative includes facility consolidations, refinement of our research and development activities, and a reduction in workforce.

The facility consolidations under the 2019 Restructuring Initiative (the "Facilities Initiative") included a consolidation of our North Texas sites into a single campus, housing engineering, customer training and support, and administrative functions, as well as a reduction or elimination of certain excess and duplicative facilities worldwide.

In addition, the Facilities Initiative included consolidating our global software laboratories and server farms into two lower cost North American sites.

We continue to evaluate our properties included in the Facilities Initiative for accelerated amortization and/or right-of-use asset impairment.

We expect that the actions under the Facilities Initiative will be substantially completed in 2024.

In connection with the 2019 Restructuring Initiative, we recorded no restructuring and related expense in 2023, $0.7 million in 2022 comprised entirely of facilities related expense and $7.0 million of such expense in 2021, comprised of $5.7 million for variable and other facilities-related costs and $1.3 million of net expense for accelerated amortization of lease assets.

The amount of $1.3 million for accelerated amortization of lease assets was comprised of $3.4 million of expense, partially offset by $2.1 million of income related to a lease modification for one of our restructured lease facilities.

The amount initially accrued for severance and related costs under this 2019 Restructuring Initiative was paid in 2021.

Accelerated rent amortization is recognized from the date that we commence the plan to fully or partially vacate a facility, for which there is no intent or ability to enter into a sublease, through the final vacate date.

We recorded $1.0 million, $1.6 million and $3.4 million of expense for accelerated rent amortization in the years ended December 31, 2023, 2022 and 2021, respectively.

These amounts are included as components of Restructuring and related expense in our statements of operations, reducing our Operating lease right-of-use assets in our consolidated balance sheets at the end of each respective year.

We continue to evaluate our properties included in the Facilities Initiative for accelerated amortization and/or right-of-use asset impairment.

We may incur additional future expense if we are unable to sublease other locations included in the Facilities Initiative.

For facilities that are part of a restructuring plan, and for which we have no intent or ability to enter into a sublease, we recognize accelerated rent amortization over the period from the date that we commence the plan to fully or partially vacate a facility through the final vacate date.

We did not record accelerated rent amortization in 2024.

We recorded $1.0 million and $1.6 million for accelerated rent amortization in the years ended December 31, 2023 and 2022, respectively.

We continue to evaluate our properties included in our restructuring plans for accelerated amortization and/or right-of-use asset impairment.

We may incur additional expense in the future if we are unable to sublease other locations included in these initiatives.

Critical Accounting Policies and Estimates

This MD&A is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America.

The preparation of these financial statements requires us to make

estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities.

The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities.

We base our estimates and judgments on historical experience, knowledge of current conditions and beliefs of what could occur in the future given available information.

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products and services.

Product revenue is generated from sales of our stand-alone software, as well as software with attached hardware that function together to deliver the products' essential functionality.

Product revenue is generated from sales of our stand-alone software, as well as our proprietary hardware and software that function together to deliver the products’ essential functionality.

Both software and hardware are also sold on a standalone basis.

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For these contracts, we account for individual performance obligations separately if they are distinct.

The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis.

SSPs are typically estimated using all observable transactions, including when products and services are sold on a standalone basis.

The transaction price is allocated to the separate performance obligations on a relative standalone selling price (“SSP”) basis.

The software licenses typically provide a perpetual right to use our software.

We also sell term-based software licenses that expire and Software-as-as-Service ("SaaS")-based software, which are referred to as subscription arrangements.

However, we also sell term-based software licenses that expire and Software-as-as-Service (“SaaS”)-based software, which are referred to as subscription arrangements.

We do not customize our software nor are installation services required, as the customer has a right to utilize internal resources or a third-party service company.

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We have concluded that our software licenses are functional intellectual property that are distinct, as the user can benefit from the software on its own.

The product revenue is typically recognized upon transfer of control or when the software is made available for download, as this is the point that the user of the software can direct the use of, and obtain substantially all of the remaining benefits from, the functional intellectual property.

We begin to recognize software revenue related to the renewal of subscription software licenses at the start of the subscription period.

The product revenue related to our perpetual licenses is typically recognized when the software is made available for download, as this is the point that the user of the software can direct the use of and obtain substantially all of the remaining benefits from the functional intellectual property.

The product revenue related to our term-based software licenses is recognized over the license period.

We begin to recognize revenue related to the renewal of term-based software licenses at the start of the renewal period.

Revenue related to our SaaS-based software is recognized ratably over the service period as the customer does not take possession of the software or have the ability to take possession of the software.

Service revenue includes revenue from customer support and other professional services.

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The method to measure progress toward completion requires judgment and is based on the nature of the products or services to be provided.

We generally use the input method to measure progress for our contracts because we believe it best depicts the transfer of assets to the customer which occurs as we incur costs for the contracts.

However, in some instances, we use the output method because it best depicts the transfer of asset to the customer.

Under the cost-to-cost measure of progress, the progress toward completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation.

We generally use the input method to measure progress for our contracts and to recognize revenue because we believe this method, in general, best depicts the transfer of assets to the customer.

The input method measures costs we have incurred in the period for the contracts.

In some infrequent instances, we may engage a third-party to perform services for us and in those cases, we use the output method to recognize revenue because it best depicts the transfer of assets to the customer.

Under the output method, there is a cost-to-cost measure of progress.

The progress toward completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation.

When the measure of progress is based upon expended labor, progress toward completion is measured as the ratio of labor time expended to date versus the total estimated labor time required to complete the performance obligation.

Revenue is recorded proportionally as costs are incurred or as labor is expended.

Costs to fulfill these obligations include internal labor as well as subcontractor costs.

We offer customer training courses, for which the related revenue is typically recognized as the training services are performed.

Costs to fulfill these obligations can include internal labor as well as subcontractor costs.

We offer customer training courses, for which the related revenue is typically recognized over the period the training services are performed, typically over one to five days.

Our contracts with customers often include promises to transfer multiple products and services to the customer.

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Judgment is required to determine the SSP for each distinct performance obligation.

We typically have more than one SSP for individual products and services due to the stratification of those products and services by customers and circumstances.

SSPs are typically estimated using observable historical transactions of our products and services sold in comparable circumstances to similar customers, including when products and services are sold on a standalone basis.

We use a range of amounts to estimate SSP when we sell each of the products and services separately and need to determine whether there is a discount to be allocated based on the relative SSP of the various products and services.

In instances where SSP is not directly observable, such as when we do not sell the product or service separately, we determine the SSP using information that may include market conditions, current pricing practices, product specific business objectives, the cost to provide the performance obligation, and other observable inputs.

We typically have more than one SSP

for individual products and services due to the stratification of those products and services by customers and circumstances.

In these instances, we may use information such as the size of the customer and geographic region in determining the SSP.

As our go-to-market strategies evolve, we may modify our pricing practices in the future, which could result in changes to SSP.

However, historically, w e have not had any material changes to our SSP, nor do we expect any material changes to our SSP estimates in the future.

Valuation of Inventory.

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The Compensation Committee determines the number of shares earned, if any, after our financial results for each fiscal year performance period are finalized.

Upon determination by the Compensation Committee of the number of shares that will be received upon vesting, such number of shares becomes fixed and the unamortized expense is recorded through the remainder of the service period, at which time any performance-based stock units earned will vest pending each executive's continued employment with us through that date.

Upon determination by the Compensation Committee of the number of shares that will be received upon vesting, such number of shares becomes fixed and the unamortized expense is recorded through the remainder of the service period, at which time any performance-based stock units earned will vest pending each employee’s continuing employment with us through that date.

The amount of stock-based compensation expense recorded in any period for unvested awards requires estimates of the amount of stock-based awards that are expected to be forfeited prior to vesting, as well as assumptions regarding the probability that performance-based stock awards without market conditions will be earned.

Preferred Stock and Warrants.

We account for the Preferred Stock and Warrants as liability-classified instruments based on an assessment of their specific terms in accordance with ASC Topic 480, Distinguishing Liabilities from Equity .

The fair value option was elected for the Preferred Stock, as we consider fair value to best reflect the expected future economic value.

These liabilities are remeasured to fair value at each reporting date using the same valuation methodology applied upon issuance.

The Preferred Stock is considered to be debt for our Consolidated Net Leverage Ratio covenant calculation required under our 2020 Credit Facility.

We accounted for the Preferred Stock until it was redeemed on June 25, 2024 and we continue to account for the Warrants as liability-classified instruments based on an assessment of their specific terms in accordance with ASC Topic 480, Distinguishing Liabilities from Equity .

The fair value option was elected for the Preferred Stock, as we considered fair value to best reflect its expected future economic value.

These liabilities are remeasured to fair value at each reporting date using the same valuation methodology applied upon issuance using current input assumptions.

The Preferred Stock was considered to be debt for our Consolidated Net Leverage Ratio covenant calculation required under our 2020 Credit Facility.

Business Combinations.

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We perform a fair value analysis for each reporting unit using both an income and market approach, which encompasses a discounted cash flow analysis and a guideline public company analysis using selected multiples.

We assesse each valuation methodology based upon the relevance and availability of the data at the time the valuation is performed and the methodologies are weighted appropriately.

We assess each valuation methodology based upon the relevance and availability of the data at the time the valuation is performed and the methodologies are weighted appropriately.

Any impairment charges are reported separately in our consolidated statements of operations.

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We assess each valuation methodology based upon the relevance and availability of the data at the time the valuation is performed and the methodologies are weighted appropriately.

Based upon the completion of our 2023 and 2022 annual test for goodwill impairment, we determined that there was no impairment of goodwill for either of our reporting units.

The results of our 2021 impairment test determined that the carrying value of our IP Optical Networks segment exceeded its fair value.

The amount of the impairment of $116.0 million was recorded in the fourth quarter of 2021 and is reported separately in our consolidated statement of operations for the year ended December 31, 2021.

We determined that there was no impairment of our Cloud and Edge segment in 2021.

Based upon the completion of our 2024, 2023, and 2022 annual tests for goodwill impairment, we determined that there was no impairment of goodwill for either of our reporting units.

We account for our leases in accordance with Accounting Standards Codification (“ASC”) 842, Leases (“ASC 842”).

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Revenue for the years ended December 31, 2024 and 2023 was as follows (in thousands, except percentages):

December 31, Increase

from prior year

2023 2022 $ %

Product $ 445,150 $ 442,680 $ 2,470 0.6 %

Service 381,189 377,080 4,109 1.1 %

Total revenue

Segment revenue for the years ended December 31, 2024 and 2023 was as follows (in thousands):

December 31, 2023 Year ended

December 31, 2024

Cloud and Edge IP Optical Networks Total Cloud and Edge IP Optical Networks Total

Product $ 184,729 $ 260,421 $ 445,150 $ 215,770 $ 226,910 $ 442,680

Service 292,918 88,271 381,189 292,367 84,713 377,080

December 31, 2023

Total revenue

The increase in our product revenue in 2023 compared to 2022 was primarily the result of $ 33 million of higher sales of our IP Optical Networks products, offset by $31 million of lower sales of our Cloud and Edge products.

The increase in revenue from the sale of IP Optical Networks products was primarily attributable to higher sales in India and the U.S.

markets following the introduction of new products and capabilities, including support for Long Haul Optical Transport, 5G Cell Site Routers, and a new series of IP Routers.

The decrease in revenue from the sale of Cloud and Edge products was primarily attributable to lower sales to U.S.

Tier One service providers, partially offset by increased sales to Enterprise customers, including U.S.

Federal agencies to support voice network modernization.

The increase in our product revenue in 2024 compared to 2023 was primarily the result of $26 million of higher sales of our Cloud and Edge products, partially offset by $24 million of lower sales of our IP Optical products.

The increase in revenue from the sale of Cloud and Edge products was primarily attributable to sales into U.S.

service providers, U.S.

Federal agencies and global enterprise customers.

The decrease in revenue from the sale of IP Optical products was primarily attributable to lower sales in Eastern Europe and India.

Revenue from sales to enterprise customers was 39% and 32% of our product revenue in 2024 and 2023, respectively.

These sales were made through both our direct sales team and indirect sales channel partners.

The increase in enterprise sales reflects stronger sales of our products to customers in Federal agencies.

Revenue from indirect sales through our channel partner program was 38% and 35% of our product revenue in 2024 and 2023, respectively.

The increase in channel sales reflects stronger deployments through systems integrators as well as sell-through from our Service Provider channel partners.

The increase in channel sales in 2024 reflects stronger IP Optical Networks deployments through systems integrators as well as sell-thru service provider channel partners in Eastern Europe.

The timing of the completion of customer projects and revenue recognition criteria satisfaction may cause our product revenue to fluctuate from one period to the next.

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Service revenue for the years ended December 31, 2024 and 2023 was comprised of the following (in thousands, except percentages):

December 31, Increase (decrease)

Increase/(decrease)

from prior year

2023 2022 $ %

Maintenance $ 279,653 $ 282,095 $ (2,442) (0.9) %

Professional services

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Segment service revenue for the years ended December 31, 2024 and 2023 was comprised of the following (in thousands):

December 31, 2023 Year ended

December 31, 2024

Cloud and Edge IP Optical Networks Total Cloud and Edge IP Optical Networks Total

Maintenance $ 219,939 $ 59,714 $ 279,653 $ 222,238 $ 59,857 $ 282,095

December 31, 2023

Professional services

Total service revenue

Total service revenue from our Cloud and Edge segment was slightly higher in 2023 compared to 2022 due to a $3 million increase in professional services revenue and a decline in maintenance revenue.

The increase in professional services revenue is related to the timing and completion of certain projects to both service providers and enterprise customers.

The lower maintenance revenue reflects decommissioning of older equipment with several customers.

Service revenue from our IP Optical Networks segment increased by 4.2% in 2023 compared to 2022, primarily due to an increase in projects driven by higher product sales.

Total service revenue was $5 million higher in 2024 compared to 2023 due to increased revenue in both of our segments.

Total service revenue increased by $4 million and $1 million in our IP Optical Networks and Cloud and Edge segments, respectively.

Maintenance revenue was $5 million lower in 2024 compared to 2023 primarily due to modestly lower renewal rates from decommissioning some older legacy equipment with several Cloud and Edge customers.

Professional services revenue was $10 million higher in 2024 compared to 2023, with increases of $8 million and $2 million in our Cloud and Edge and IP Optical Networks segments, respectively.

The higher revenue in Cloud and Edge is due to the growth in services to U.S.

service providers, primarily for voice modernization projects with Verizon and U.S.

Federal agencies.

Our IP Optical Networks segment experienced growth in sales of services primarily in the North America and APAC regions.

The following customer contributed 10% or more of our revenue in the years ended December 31, 2024 and 2023:

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Revenue earned from customers domiciled outside the United States was 53% and 58% of total revenue in 2024 and 2023, respectively.

revenue is increasing due to higher sales into the U.S.

market from both the Cloud and Edge and IP Optical Networks segments.

Due to the timing of project completions, we expect that the domestic and international components as a percentage of our revenue may fluctuate from quarter to quarter and year to year.

Our total revenue for the years ended December 31, 2024 and 2023 was disaggregated geographically as follows (in thousands):

Year ended December 31, 2023 Product revenue Service revenue (maintenance) Service revenue (professional services) Total revenue

(professional

Year ended December 31, 2024

(maintenance)

Total revenue

United States

Europe, Middle East and Africa

Asia Pacific 115,923 39,891 11,269 167,083

Other 15,344 30,546 7,050 52,940

$ 445,150 $ 279,652 $ 101,537 $ 826,339

Year ended December 31, 2022 Product revenue Service revenue (maintenance) Service revenue (professional services) Total revenue

(professional

Year ended December 31, 2023

(maintenance)

Total revenue

United States

Europe, Middle East and Africa

Asia Pacific 95,828 41,677 13,594 151,099

Other 24,140 31,815 7,262 63,217

$ 442,680 $ 282,095 $ 94,985 $ 819,760

Our deferred product revenue was $14 million at December 31, 2024 and $17 million at December 31, 2023.

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Our deferred revenue balance may fluctuate as a result of the timing of revenue recognition, customer payments, maintenance contract renewals, contractual billing rights and maintenance revenue deferrals included in multiple element arrangements.

We expect that our total revenue in 2024 will increase compared to our 2023 total revenue as our IP Optical sales continue to grow.

From a regional perspective, we anticipate continued IP Optical revenue growth in 2024 from North America, Europe, the Middle East and Africa, and Central and Latin America.

In the Cloud & Edge segment, we anticipate continued growth in Enterprise including U.S.

Federal agencies, offsetting lower spending from U.S.

service providers.

We expect that our total revenue in 2025 will increase compared to our revenue in 2024 due to the growth in the Cloud & Edge segment, particularly with the increased purchases from Verizon as part of a voice modernization project, as well as growth in IP Optical segment sales.

From a regional perspective, we anticipate continued IP Optical revenue growth in 2025 from North America, and EMEA, offset by lower revenue in Eastern Europe due to additional trade restrictions.

In the Cloud & Edge segment, we expect continued revenue growth from enterprise customers, as well as higher U.S.

service provider spending.

Cost of Revenue/Gross Margin.

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Our cost of revenue, gross profit and gross margin for the years ended December 31, 2024 and 2023 were as follows (in thousands, except percentages):

December 31, Increase (decrease)

Increase/(decrease)

from prior year

2023 2022 $ %

Cost of revenue:

Product $ 250,609 $ 245,145 $ 5,464 2.2 %

Service 139,357 142,137 (2,780) (2.0) %

Amortization of acquired technology

Total cost of revenue

Gross profit $ 408,083 $ 400,936 $ 7,147 1.8 %

Gross margin 49.4 % 48.9 %

Our segment cost of revenue, gross profit and gross margin for the years ended December 31, 2024 and 2023 were as follows (in thousands, except percentages):

December 31, 2023 Year ended

December 31, 2024

Cloud and Edge IP Optical Networks Total Cloud and Edge IP Optical Networks Total

Product $ 72,081 $ 178,528 $ 250,609 $ 80,570 $ 164,575 $ 245,145

Service 92,644 46,713 139,357 98,799 43,338 142,137

December 31, 2023

Amortization of acquired technology

Total cost of revenue

Gross profit $ 300,018 $ 108,065 $ 408,083 $ 310,297 $ 90,639 $ 400,936

Gross margin 62.8 % 31.0 % 49.4 % 61.1 % 29.1 % 48.9 %

Our gross margin was slightly higher with a 0.5 percentage point increase in 2023 compared to 2022.

Our gross margin was 3.3 percentage points higher in 2024 compared to 2023.

This increase was the result of higher margins in both of our segments.

The higher margin in our IP Optical segment was due to higher sales volume, favorable mix, lower product costs and royalties, and improved absorption of fixed costs from higher sales.

The higher margin in our Cloud and Edge segment was primarily attributable to favorable product mix and lower product costs, including lower amortization of acquired technology costs.

We believe that our IP Optical Networks segment gross margin will improve in 2024 compared to 2023.

Our overall consolidated gross margin may decrease in 2024 as a result of higher expected sales from IP Optical Networks, which has lower margins due to the higher hardware content in its products and higher production costs.

The higher margin in our IP Optical segment was due to favorable regional mix, partially offset by lower sales volume and higher royalties.

The higher margin in our Cloud and Edge segment was primarily attributable to favorable product mix and lower costs associated with an increase in software sales.

We expect our overall consolidated gross margin to decrease slightly in 2025 due to higher expected sales in our IP Optical segment, which has lower margins due to the higher hardware content in its products, as well as the higher mix of professional services revenue in our Cloud and Edge segment which generates lower gross margins than product sales.

Research and Development.

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R&D expenses for the years ended December 31, 2024 and 2023 were as follows (in thousands, except percentages):

December 31, Decrease

from prior year

2023 2022 $ %

$ 190,660 $ 203,676 $ (13,016) (6.4) %

The decrease in our research and development expenses in 2024 compared to 2023 was primarily attributable to approximately $9 million of lower expenses in our IP Optical Networks segment and approximately $2 million of lower expenses in our Cloud and Edge segment.

The reduced expenses are a combination of lower employee headcount and outside subcontractors.

The reduced expenses are a combination of lower employee headcount and outside subcontractors resulting from the cost savings implemented in the 2023 Restructuring Plan.

Our IP Optical Networks R&D investment is focused on significantly expanding our portfolio of IP Routing solutions, adding additional features and capabilities to our Optical Transport portfolio, and supporting features in our next generation SDN management and orchestration platform.

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We believe that rapid technological innovation is critical to our long-term success, and we are tailoring our investments to meet the requirements of our customers and market.

We believe that our R&D expenses will continue to decrease modestly in 2024, with reduced investment in both segments in areas such as sustaining engineering, as well as a full year benefit of the cost savings implemented in the 2023 Restructuring Plan.

We believe that our R&D expenses will increase modestly in 2025 primarily due to higher employee and consulting costs related to modifying certain legacy products and certain of our cloud native solutions.

Sales and Marketing.

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Sales and marketing expenses for the years ended December 31, 2024 and 2023 were as follows (in thousands, except percentages):

December 31, Decrease

from prior year

2023 2022 $ %

$ 137,460 $ 147,766 $ (10,306) (7.0) %

The decrease in sales and marketing expenses in 2023 compared to 2022 was primarily a result of a global sales organization re-alignment that reduced management layers, as well as reduced investment in under-performing regions.

In the year 2023 compared to 2022, this resulted in a reduction of expenses of approximately $7 million in our IP Optical Networks segment and approximately $3 million in our Cloud & Edge segment.

We believe that our sales and marketing expenses will be modestly lower in 2024 compared to 2023 as we continue to benefit from the realigned global sales structure and continue to implement additional efficiencies.

Sales and marketing expenses in 2024 were relatively flat compared to 2023.

We believe our sales and marketing expenses will be relatively flat in 2025 as compared to 2024.

General and Administrative.

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General and administrative expenses for the years ended December 31, 2024 and 2023 were as follows (in thousands, except percentages):

December 31, Increase

from prior year

2023 2022 $ %

$ 54,962 $ 51,053 $ 3,909 7.7 %

The increase in general and administrative expenses in 2023 compared to 2022 was primarily attributable to higher stock-based and other incentive compensation.

We believe that our general and administrative expenses in 2024 will increase slightly compared to our 2023 levels, primarily due to higher employee costs and as a result of inflation.

The increase in general and administrative expenses in 2024 compared to 2023 was primarily attributable to a $5.0 million legal settlement and associated legal fees related to certain specific legal matters, as well as increased employee incentive costs.

We believe that our general and administrative expenses in 2025 will decrease compared to our 2024 levels, primarily due to lower litigation expenses, partially offset by higher employee costs related to annual merit increases.

Amortization of Acquired Intangible Assets included in Operating expenses.

Amortization of acquired intangible assets included in Operating expenses (“Opex Amortization”) for the years ended December 31, 2024 and 2023 was as follows (in thousands, except percentages):

December 31, Decrease

from prior year

2023 2022 $ %

$ 28,601 $ 29,646 $ (1,045) (3.5) %

Opex Amortization was lower in 2024 compared to 2023 due to our method of amortization.

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Acquisition- and disposal-related expenses include professional and services fees, such as legal, audit, consulting, paying agent and other fees.

Integration-related expenses

represent incremental costs related to combining our systems and processes with those of acquired businesses, such as third-party consulting and other third-party services.

We recorded $4.5 million of acquisition-, disposal- and integration-related expenses in 2023 compared to $6.3 million in 2022.

These costs were related to integration following the ECI Acquisition and included license fees for systems in the process of being retired.

Integration-related expenses represent incremental costs related to combining our systems and processes with those of acquired businesses, such as third-party consulting and other third-party services.

We recorded no such expenses in 2024 compared to $4.5 million recorded in 2023.

These costs were related to integration following the Company’s acquisition of ECI and included license fees for systems in the process of being retired.

Restructuring and Related.

We are committed to streamlining operations and reducing operating costs by closing and consolidating certain facilities and reducing our worldwide workforce.

We have been committed to streamlining operations and reducing operating costs by closing and consolidating certain facilities and reducing our worldwide workforce.

Please see the additional discussion of our restructuring initiatives in the “Restructuring and Cost Reduction Initiatives” section of the Overview of this MD&A.

We recorded restructuring and related expense of $16.2 million in 2023, comprised of $9.9 million for severance and related costs, and $6.3 million for variable and other facilities-related costs, including $1.0 million of net expense for the accelerated amortization of lease assets.

We recorded $10.8 million of restructuring and related expense in 2022, comprised of $5.3 million for severance and related costs, and $5.5 million for variable and other facilities-related costs, including $1.6 million of net expense for the accelerated amortization of lease assets.

We recorded restructuring and related expense of $10.2 million in 2024, comprised of $4.1 of severance and related costs, and $6.1 million for variable and other facilities-related costs.

In 2023, we recorded restructuring and related expense of $16.2

million, comprised of $9.9 million for severance and related costs, and $6.3 million for variable and other facilities-related costs, including $1.0 million of net expense for the accelerated amortization of lease assets.

Although we have eliminated positions as part of our restructuring initiatives, we continue to hire in certain areas that we believe are important to our future growth.

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Interest expense and interest income for the years ended December 31, 2024 and 2023 were as follows (in millions, except percentages):

December 31, Increase

Increase/(decrease)

from prior year

2023 2022 $ %

Interest income

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Interest expense, net

Interest income was nominal in 2023.

Interest expense in 2023 was primarily comprised of costs related to the 2020 Credit Facility (as defined below), consisting of $25.5 million of interest on our term loan and revolver, $3.2 million of amortization of debt issuance costs, $0.5 million of which related to the March 2023 Sixth Amendment to the 2020 Credit Facility.

We also incurred $4.3 million of fees related to factoring certain accounts receivable.

Our interest expense, amortization of debt issuance costs, and factoring fees were partially offset by $5.6 million of amortization of gains in Accumulated other comprehensive income from the sales of our interest rate swap.

Our interest expense for the years ended December 31, 2023 and 2022 benefited from our interest rate swap, which was sold in March 2023.

See Note 14 to our consolidated financial statements.

Interest income was nominal in 2022.

Interest expense in 2022 was primarily comprised of $16.0 million of interest on our outstanding term debt, $2.3 million in the aggregate related to amortization of debt issuance costs in connection with the 2020 Credit Facility (as defined below) and $1.7 million primarily related to factoring certain accounts receivable .

We had nominal interest income in both 2024 and 2023.

Our interest expense in 2024 primarily represents interest, amortization of debt issuance costs and original issue discount, and the amortization of gains in accumulated other comprehensive (loss) income from the sales of our interest rate swap.

Interest expense in 2024 was higher than 2023 primarily due to higher margins under our 2024 Term Loan compared to our 2020 Term Loan, and higher interest in 2024 due to our interest rate swap no longer being in place, partially offset by write-offs related to the refinancing of the 2020 Credit Facility with a portion of the proceeds from the 2024 Credit Facility on June 21, 2024.

The write-offs related to the refinancing consisted of the remaining unamortized gains in accumulated other comprehensive (loss) income from the sales of our interest rate swap totaling $4.9 million, partially offset by the write-off of debt issuance costs from the 2020 Credit Facility totaling $2.0 million.

Our interest expense in 2023 benefited from our interest rate swap that fixed the variable rate component of our interest rate at 0.904% and was sold in March 2023.

See Note 15 to our consolidated financial statements for a discussion of the sale of our interest rate swap.

Other (Expense) Income, Net .

We recorded other expense, net, aggregating $3.8 million in 2023, primarily comprised of the $5.3 million fair value adjustment of our Preferred Stock and Warrants, including dividends on the Preferred Stock, and $3.5 million of costs incurred in the Private Placement, partially offset by the gain of $7.3 million recognized from Accumulated other comprehensive income in connection with the sale of our interest rate swap .

We recorded other expense, net of $44.5 million in 2022, primarily comprised of $41.3 million of losses resulting from the change in the fair value of the AVCT Investment.

Our other expense, net in 2024 was $29.1 million and was primarily comprised of $9.1 of fair value adjustments to the Preferred Stock and Warrants, $2.7 of accrued dividends and the $1.8 million call premium on our Preferred Stock that we redeemed on June 25, 2024, the $6.3 million write-off of an expired tax indemnity asset associated with the ECI Acquisition, and foreign currency exchange losses of $5.7 million.

We recorded other expense, net, aggregating $3.8 million in 2023, primarily comprised of $5.3 million fair value adjustments for our Preferred Stock and Warrants, including dividends on the Preferred Stock, and $3.5 million of costs incurred in the Private Placement, partially offset by the gain of $7.3 million recognized from Accumulated other comprehensive income in connection with the sale of our interest rate swap.

Income Taxes.

We recorded an income tax provision of $10.8 million and income tax benefit of $14.5 million in 2023 and 2022, respectively.

The change from a tax benefit in 2022 to a tax provision in 2023 is a result of changes in the jurisdictional mix of pre-tax book income between those jurisdictions that have a valuation allowance and those that do not.

We recorded an income tax provision of $8.2 million and $10.8 million in 2024 and 2023, respectively.

During 2024 and 2023, we performed an analysis to determine if, based on all available evidence, we considered it more likely than not that some portion or all of the recorded deferred tax assets will not be realized in a future period.

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As a result of our evaluations for Israel, we maintained a full valuation allowance against our net deferred tax assets in Israel.

The Organization for Economic Cooperation and Development (the "OECD") Pillar 2 global minimum tax rules are

intended to apply for tax years beginning in 2024.

On February 1, 2023, the FASB staff noted that they believe that the Pillar 2 tax would be an alternative minimum tax and therefore deferred tax assets would not need to be recognized related to this parallel taxing system.

On February 2, 2023, the OECD issued administrative guidance providing transition and safe harbor rules around the implementation of the Pillar 2 global minimum tax.

Under an additional transitional safe harbor released July 17, 2023, the undertaxed profits rule top-up tax will not be applied by any constituent entity's jurisdiction of residence with respect to income earned by a company's ultimate parent entity in its jurisdiction of residence, if the ultimate parent entity's jurisdiction has a corporate tax rate of at least 20%.

This transition safe harbor will apply to fiscal years beginning on or before December 31, 2025 and ending before December 31, 2026.

We are closely monitoring developments and evaluating the impacts these new rules will have on our tax rate, including eligibility to qualify for these safe harbor rules and do not expect Pillar 2 to have a significant impact on our financial statements.

In October 2021, the Organization for Economic Co-operation and Development (the "OECD") announced the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting, which agreed to a two-pillar solution to address tax challenges arising from digitalization of the economy.

In December 2021, the OECD released Pillar Two Model Rules defining the global minimum tax rules, which contemplate a minimum tax rate of 15% (“Pillar Two”).

In addition, the OECD issued administrative guidance providing transition and safe harbor rules that could delay the impact of the minimum tax directive.

Certain countries in which we operate have enacted legislation consistent with the OECD model rules effective beginning in 2024.

We considered the applicable tax laws in relevant jurisdictions and concluded there was no material effect on our tax provision for the year ended December 31, 2024.

We will continue to evaluate the potential effect of Pillar Two rules on our future reporting periods, but we do not expect Pillar Two to have a significant impact on our results of operations, financial position, or cash flows.

Years Ended December 31, 2023 and 2022

For a comparison of our results of operations for the fiscal years ended December 31, 2023 and 2022, see “Part II, Item 7.

MD&A" of our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 31, 2023.

MD&A” of our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 28, 2024.

Off-Balance Sheet Arrangements

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Our consolidated statements of cash flows are summarized as follows (in thousands):

2023 2022 Change

Net loss $ (66,206) $ (98,083) $ 31,877

Adjustments to reconcile net loss to cash flows used in operating activities 79,209 122,052 (42,843)

Adjustments to reconcile net loss to cash flows provided by operating activities:

Changes in operating assets and liabilities

Net cash provided by (used in) operating activities $ 17,087 $ (26,364) $ 43,451

Net cash provided by operating activities

Net cash used in investing activities

Net cash (used in) provided by financing activities $ (47,859) $ 931 $ (48,790)

We had cash and cash equivalents aggregating $27 million and $67 million at December 31, 2023 and 2022, respectively.

Net cash provided by (used in) financing activities

We had cash, cash equivalents, and restricted cash aggregating $90 million and $27 million at December 31, 2024 and 2023, respectively.

We had cash held by our non-U.S.

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subsidiaries as of December 31, 2024, we do not believe that the amounts of potential withholding taxes that would arise from the repatriation would have a material effect on our liquidity.

We currently maintain the Senior Secured Credit Facilities Credit Agreement (as amended, the "2020 Credit Facility"), which we entered into on March 3, 2020, by and among us, as a guarantor, Ribbon Communications Operating Company, Inc., as the borrower ("Borrower"), Citizens Bank, N.A.

("Citizens"), Santander Bank, N.A., and others as lenders, ("Lenders").

For additional details regarding the terms of the 2020 Credit Facility, see Note 14 to our consolidated financial statements.

On March 10, 2022, we entered into the Fourth Amendment to the 2020 Credit Facility to increase the Maximum Consolidated Net Leverage Ratio (as defined in the 2020 Credit Facility) and in conjunction we made a $15.0 million prepayment that was applied to the final payment due on the maturity date.

On June 30, 2022, we entered into the Fifth Amendment to the 2020 Credit Facility (the "Fifth Amendment") to increase the Maximum Consolidated Net Leverage Ratio (as defined in the 2020 Credit Facility) for 2022, with the fourth quarter of 2022 increased to 4.75:1.00.

In the first and second quarters of 2023, the Maximum Consolidated Net Leverage Ratio allowed declined to 3.25:1.00 and in all subsequent quarters the ratio will be fixed at 3.00:1.00.

Also, the Fifth Amendment reduced the minimum Consolidated Fixed Charge Coverage Ratio (as defined in the 2020 Credit Facility) in 2022, with the fourth quarter of 2022 reduced to 1.10:1.00 and in all subsequent quarters the ratio will be fixed at 1.25:1.00.

In addition, the Fifth Amendment increased the maximum rate at which loans bear interest if our Consolidated Net Leverage Ratio for any quarter is greater than 4.50:1.00.

Specifically, loans incurred were to bear interest, at our option, at either LIBOR plus a margin ranging from 1.50% to 4.50% per year, or the base rate plus 0.50%, or the prime rate plus a margin ranging from 0.50% to 3.50% per year.

Amendment allowed us to incur junior secured or unsecured debt in an amount no less than $50 million, subject to certain conditions, including the requirement that 50% of the aggregate amount of such incurred debt (net of certain costs, fees and other amounts) must be applied to prepay the 2020 Credit Facility, and compliance with certain leverage ratio-based covenant exceptions.

In connection with the Fifth Amendment, we made a $10.0 million voluntary prepayment that was applied to the final payment due on the maturity date.

Subsequent to the Fifth Amendment, we are required to make quarterly principal payments on the 2020 Term Loan aggregating approximately $5.0 million per quarter through March 31, 2024 and $10.0 million in each of the three quarters thereafter, with the final payment due on the maturity date in March 2025.

On March 24, 2023, we entered into the Sixth Amendment to the 2020 Credit Facility (the “Sixth Amendment”) that was effective March 30, 2023.

The Sixth Amendment, among other things, increased the Maximum Consolidated Net Leverage Ratio (as defined in the 2020 Credit Facility), with the first, second and third quarters of 2023 increasing to 4.50:1.00 and then decreasing to 4.25:1.00 and 4.00:1.00 in the fourth quarter of 2023 and the first quarter of 2024, respectively.

In all subsequent quarters, the Maximum Consolidated Senior Net Leverage Ratio will be fixed at 3.00:1.00 and the Maximum Consolidated Net Leverage Ratio will be fixed at 4.00:1.00.

Also, the Sixth Amendment reduced the minimum Consolidated Fixed Charge Coverage Ratio (as defined in the 2020 Credit Facility) to 1.10:1.00 through the first quarter of 2024 and in all subsequent quarters the ratio will be fixed at 1.25:1.00.

On June 21, 2024, we entered into a Senior Secured Credit Facilities Credit Agreement (the “2024 Credit Facility” or “Credit Agreement”) as guarantor, with our wholly-owned subsidiary, Ribbon Communications Operating Company, Inc., as the borrower (“Borrower”), HPS Investment Partners, LLC ("HPS"), as administrative agent, and HPS and WhiteHorse Capital Management, LLC ("WhiteHorse" and, together with HPS, the "Lenders"), pursuant to which the Lenders provided us with a $385 million Credit Agreement comprised of (i) a $350 million term loan (the “2024 Term Loan”) and (ii) a $35 million revolving credit facility (the “2024 Revolver”), including a $20 million sublimit for letters of credit.

The proceeds received from the 2024 Term Loan were used to (a) repay 100% of the amounts outstanding under the 2020 Credit Facility, (b) redeem in full the Preferred Stock and (c) pay fees and expenses related to the 2024 Credit Facility.

Excess proceeds are being used by us for working capital and other general corporate purposes.

The 2024 Term Loan and the 2024 Revolver bear interest, at the Borrower’s option, at either the Alternate Base Rate (“ABR”) or Term Secured Overnight Financing Rate ("SOFR") with an Applicable Margin for each (all as defined in the 2024 Credit Facility).

Margins for the first six months are 5.25% per annum for ABR Loans and 6.25% per annum for SOFR Loans.

Thereafter, margins vary based on our Consolidated Net Leverage Ratio, ranging from 4.75% to 5.25% per annum for ABR Loans and 5.75% to 6.25% per annum for SOFR Loans.

The 2024 Term Loan and the 2024 Revolver will both mature on June 21, 2029.

The 2024 Term Loan is being repaid in equal quarterly installments:

approximately $0.9 million beginning with the third quarter of 2024 through the second quarter of 2025;

approximately $2.2 million beginning with the third quarter of 2025 and ending with the second quarter of 2027;

and approximately $4.4 million quarterly thereafter, with the remaining principal balance of approximately $298.4 million due on the maturity date of June 21, 2029.

In connection with the establishment of the 2024 Credit Facility, $7.7 million of original issue discount was withheld by the Lenders and we incurred $6.3 million of debt issuance costs for a total of $14.0 million that is being amortized to Interest expense, net over the term of the agreement.

Our previous credit facility was the Senior Secured Credit Facilities Credit Agreement (as amended, the "2020 Credit Facility"), which we entered into on March 3, 2020, by and among us, as a guarantor, Ribbon Communications Operating Company, Inc., as the borrower (the "Borrower"), Citizens Bank, N.A., Santander Bank, N.A., and others as lenders, ("2020 Credit Facility Lenders").

For additional details regarding the terms of the 2024 Credit Facility and 2020 Credit Facility, see Note 14 to our consolidated financial statements.

On March 24, 2023, we entered into the Sixth Amendment to the 2020 Credit Facility (the “Sixth Amendment”) effective March 30, 2023.

In the fourth quarter of 2023 and the first quarter of 2024, the Maximum Consolidated Net Leverage Ratio declined to 4.25:1.00 and 4.00:1.00, respectively.

Also, the Sixth Amendment reduced the minimum Consolidated Fixed Charge Coverage Ratio (as defined in the 2020 Credit Facility) to 1.10:1.00 through the first quarter of 2024.

The Sixth Amendment reduced the maximum borrowings allowed under the 2020 Revolving Credit Facility from $100 million to $75 million and the sublimit available for letters of credit was reduced from $30 million to $20 million.

In addition, the Sixth Amendment replaced LIBOR with the Secured Overnight Financing Rate ("SOFR") as the alternative rate that may be used by us for calculating interest owed under the 2020 Credit Facility, with the margin now fixed at 4.5%.

In conjunction with the Sixth Amendment, we made a $75 million prepayment that was applied to the final payment due upon maturity in March 2025 of approximately $200.3 million.

In addition, the Sixth Amendment replaced LIBOR with the Secured Overnight Financing Rate ("SOFR") as the alternative rate available to us for calculating interest owed under the 2020 Credit Facility with the margin fixed at 4.5%.

In conjunction with the Sixth Amendment, we made a $75 million prepayment that was applied to the final payment due upon maturity in March 2025.

The $75 million prepayment was almost entirely funded with the net proceeds from the Private Placement and the sales of our interest rate swap.

Debt issuance costs associated with the Sixth Amendment totaled $1.7 million and are being amortized on a straight-line basis over the remaining life of the 2020 Credit Facility to Interest expense, net.

At December 31, 2023, we had an outstanding balance under the 2020 Term Loan of $235.4 million at an average interest rate of 10.0% and $2.7 million of letters of credit outstanding with an interest rate of 4.5%.

At December 31, 2022, we had an outstanding balance under the 2020 Term Loan of $330.4 million at an average interest rate of 5.4% and $3.3 million of letters of credit outstanding with an interest rate of 4.5%.

Our interest rates under our 2020 Term Loan benefited from a hedge instrument that was in place, specifically a fixed rate swap, until the instrument was sold in March 2023 (see Note 15).

We were in compliance with all covenants of the 2020 Credit Facility at both December 31, 2023 and 2022 , including the current Consolidated Net Leverage Ratio calculation that considers our debt to include Preferred Stock.

We use letters of credit, bank guarantees, and performance and bid bonds in the course of our business.

At December 31, 2023, we had $7.9 million of letters of credit, bank guarantees, and performance and bid bonds outstanding (collectively, "Guarantees"), comprised of $2.7 million of letters of credit under the 2020 Credit Facility described above (the "Letters of Credit") and $5.2 million of bank guarantees and performance and bid bonds (collectively, the "Other Guarantees").

At December 31, 2022, we had $8.3 million of Guarantees, comprised of the $3.3 million of Letters of Credit and $5.0 million of Other Guarantees.

Debt issuance costs associated with the Sixth Amendment totaled $1.7 million and were being amortized on a straight-line basis over the remaining life of the 2020 Credit Facility to Interest expense, net and were written off in conjunction with the early extinguishment of the 2020 Credit Facility on June 21, 2024.

The 2020 Credit Facility, as amended, allowed us to incur junior secured or unsecured debt in an amount no less than $50 million, subject to certain conditions, including the requirement that 50% of the aggregate amount of such incurred debt (net of certain costs, fees and other amounts) must be applied to prepay the 2020 Credit Facility and compliance with certain leverage ratio-based covenant exceptions.

Quarterly principal payments were required on the 2020 Term Loan aggregating approximately $5.0 million per quarter through March 31, 2024, and if the refinancing had not occurred, $10.0 million would have been required in each of the three quarters thereafter, with the remaining and final payment due on the maturity date in March 2025.

At December 31, 2024, we had an outstanding balance under the 2024 Term Loan of $348.3 million at an average interest rate of 10.6%, with no revolver balance and no letters of credit outstanding under our 2024 Credit Facility.

Our interest rates under our 2020 Term Loan for the year ended December 31, 2023 benefited from a hedge instrument that was in place, specifically a fixed rate swap, which was sold in March 2023 (see Note 10).

We were in compliance with all covenants of the 2024 Credit Facility and 2020 Credit Facility at December 31, 2024 and 2023, respectively, including the Consolidated Net Leverage Ratio calculation under the 2020 Credit Facility that considered our debt to include Preferred Stock.

We use letters of credit, bank guarantees and surety bonds in the course of our business.

At December 31, 2024, we had $10.9 million of letters of credit, bank guarantees, and surety bonds outstanding (collectively, "Guarantees") under various uncommitted facilities and no letters of credit outstanding under the 2024 Credit Facility.

At December 31, 2023, we had Guarantees aggregating $7.9 million, comprised of $2.7 million of letters of credit under the 2020 Credit Facility described above and $5.2 million of Other Guarantees.

At December 31, 2024 and 2023, we had cash collateral of $2.7 million and $0.1 million, respectively, supporting the Guarantees, which are reported in Restricted cash in our consolidated balance sheets.

We are exposed to financial market risk related to foreign currency fluctuations and changes in interest rates.

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As a result of exposure to interest rate movements, during March 2020, we entered into an interest rate swap arrangement, which effectively converted our $400 million term loan with its variable interest rate based upon one-month LIBOR to an aggregate fixed rate of 0.904%, plus a leverage-based margin as defined in the 2020 Credit Facility.

The swap was to mature on March 3, 2025, the same date the 2020 Credit Facility matures.

On July 22, 2022, we sold $30 million of the notional amount of our interest rate swap back to our counterparty for $1.5 million, reducing the notional amount of this swap to $370 million.

On August 16, 2022, we sold another $30 million of the notional amount of our interest rate swap back to our counterparty for $1.6 million, reducing the notional amount to $340 million, which approximated the term loan debt then outstanding.

The gain in Accumulated other comprehensive income related to the $60 million notional amount sold of $3.1 million is being released into earnings on a straight-line basis over the remaining term of the 2020 Credit Facility as a decrease to interest expense, the amortization of which totaled $0.9 million for the year ended December 31, 2023.

On March 24, 2023, we received $9.4 million, consisting of $0.4 million of interest and $9.0 million for the sale of $170 million of the $340 million notional amount of our interest rate swap back to our counterparty, reducing the notional amount to $170 million.

2023, we received $9.8 million, consisting of $0.4 million of interest and $9.4 million for the sale of the remaining $170 million of our interest rate swap back to our counterparty.

The portion of the gain in Accumulated other comprehensive income related to the term loan debt prepaid on the date of the final sale of our swap totaled $7.3 million and was released into earnings immediately as Other expense, net.

The portion of the gain in Accumulated other comprehensive income related to our remaining term loan debt balance totaled $12.0 million and is being released into earnings on a straight-line basis over the remaining term of the 2020 Credit Facility as a decrease to interest expense, the amortization of which was $4.7 million for the year ended December 31, 2023.

On August 16, 2022, we sold another $30 million of the notional amount of our interest

rate swap back to our counterparty for $1.6 million, reducing the notional amount to $340 million, which approximated the term loan debt then outstanding.

The gain in accumulated other comprehensive (loss) income related to the $60 million notional amount sold of $3.1 million was being released into earnings on a straight line basis over the remaining term of the 2020 Credit Facility as a decrease to interest expense, the amortization of which totaled $0.4 million and $0.9 million for the years ended December 31, 2024 and 2023, respectively.

The remaining unamortized gain in accumulated other comprehensive (loss) income of approximately $0.5 million was written off to interest expense in conjunction with the refinancing of the 2020 Credit Facility on June 21, 2024.

On March 24, 2023, we received $9.4 million, consisting of $0.4 million of interest and $9.0 million for the sale of $170 million of our $340 million notional amount interest rate swap back to our counterparty, reducing the notional amount to $170 million.

On March 27, 2023, we received $9.8 million, consisting of $0.4 million of interest and $9.4 million for the sale of the remaining $170 million of our interest rate swap back to our counterparty.

The portion of the gain in accumulated other comprehensive (loss) income related to the term loan debt prepaid on the date of the final sale of our swap totaled $7.3 million and was released into earnings immediately as Other expense, net.

The portion of the gain in accumulated other comprehensive (loss) income related to our remaining term loan debt balance totaled $12.0 million and was being released into earnings on a straight line basis over the remaining term of the 2020 Credit Facility as a decrease to interest expense beginning in the second quarter of 2023, the amortization of which was $3.0 million and $4.7 million for the years ended December 31, 2024 and 2023, respectively.

The remaining unamortized gain in accumulated other comprehensive (loss) income of $4.4 million was written off to interest expense in conjunction with the refinancing of the 2020 Credit Facility on June 21, 2024.

Our objectives in using interest rate derivatives have been to add stability to interest expense and to manage our exposure to interest rate movements.

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The effective portion of changes in the fair value of designated derivatives that qualify as cash flow hedges is recorded in Accumulated other comprehensive income in the consolidated balance sheet and is subsequently reclassified into earnings in the period that the hedged forecasted transactions affect earnings.

During the years ended December 31, 2023 and 2022, such a derivative was used to hedge the variable cash flows associated with the outstanding borrowings under the 2020 Credit Facility and we have accounted for this derivative as an effective hedge until the final portion of the swap was sold on March 27, 2023.

Any ineffective portion of the change in fair value of the derivative was recognized directly in earnings.

However, during the years ended December 31, 2023, 2022 and 2021, we recorded no hedge ineffectiveness.

During the year ended December 31, 2023, such a derivative was used to hedge the variable cash flows associated with the outstanding borrowings under the 2020 Credit Facility and we accounted for this derivative as an effective hedge until the final portion of the swap was sold on March 27, 2023.

Any ineffective portion of the change in fair value of the derivative would be recognized directly in earnings.

However, we recorded no hedge ineffectiveness over the life of our swap.

In the year ended December 31, 2023, we recorded $7.3 million of Other expense, net due to the sale of our interest rate swap arrangement.

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Our primary uses of cash from operating activities have been for personnel costs and investment in our research and development and in our sales and marketing, and general and administrative departments.

Our operating activities provided $17 million of cash in 2023, primarily resulting from our net loss, which was more than offset by certain non-cash expenses, such as amortization of intangible assets, stock-based compensation, depreciation and amortization of property and equipment, amortization of debt issuance costs and the change in the fair value of our preferred stock and warrant liabilities, including dividends on our preferred stock, partially offset by deferred income taxes and the gain on the sale of our interest rate swap.

Our operating activities provided cash of $50.2 million in 2024, primarily as a result of lower other operating assets and accounts receivable, the increase in the fair value of our preferred stock and warrant liabilities, and higher deferred revenue.

These amounts were partially offset by lower accounts payable, accrued expenses and other long-term liabilities, and higher inventory.

Our net loss was more than offset by adjustments for certain non-cash expenses, such as amortization of intangible assets and stock-based compensation.

These adjustments were partially offset by a $6.7 million one-time payment of accumulated dividends as a result of our redemption of our Preferred Stock liability on June 25, 2024, $8.2 million of amortization of an accumulated other comprehensive gain related to our interest rate swap, and $16.9 million of deferred income tax expense.

Higher revenue in our Cloud and Edge segment and lower operating expenses company-wide due to our various cost saving initiatives, including lower employee and facilities expenses, continue to positively affect our operating cash flow.

Our operating activities provided $17.1 million of cash in 2023, primarily resulting from our net loss, which was more than offset by certain non-cash expenses, such as amortization of intangible assets, stock-based compensation, depreciation and amortization of property and equipment, amortization of debt issuance costs and the change in the fair value of our preferred stock and warrant liabilities, including dividends on our preferred stock, partially offset by deferred income taxes and the gain

on the sale of our interest rate swap.

Also, the changes in our operating assets and liabilities provided operating cash, including lower other operating assets and accounts receivable, partially offset by lower accrued expenses and other long-term liabilities, higher inventory, and lower accounts payable.

Higher product revenue in our IP Optical Networks segment and lower operating expenses company-wide due to our various cost saving initiatives, including lower employee and facilities expenses, have all positively affected our operating cash flow in 2023.

Our operating activities used $26 million of cash in 2022, primarily resulting from our net loss, lower accrued expenses and other long-term liabilities, and higher inventory.

The decrease in accrued expenses and other long-term liabilities was primarily due to employee-related cash payments and payments related to facilities, professional fees and royalties.

These amounts were partially offset by certain non-cash expenses, such as amortization of intangible assets, the decrease in the fair value of the AVCT Investment, stock-based compensation, as well as depreciation and amortization of property and equipment.

Higher product revenue in our IP Optical Networks segment and lower operating expenses company-wide due to our various cost saving initiatives, including lower employee and facilities expenses, all positively affected our operating cash flow in 2023.

Cash Flows from Investing Activities

Our investing activities used $9 million and $12 million of cash in 2023 and 2022, respectively.

Our 2023 investing activities were used to purchase property and equipment and software licenses.

Our 2022 investing activities were comprised of $10 million paid for purchases of property and equipment, and $3 million paid for purchases of software licenses, partially offset by $1 million of proceeds from the sale of a business.

Our investing activities used cash of $22.9 million and $9.5 million in 2024 and 2023, respectively.

Our investing activities were primarily used to purchase property and equipment.

The $13.4 million increase in purchases of property and equipment in 2024 compared to 2023 is primarily due to the build out of a new facility in Israel.

Cash Flows from Financing Activities

Our financing activities used $48 million of cash in 2023, primarily due to $95 million of principal payments on our term debt, including a $75 million prepayment in connection with the Sixth Amendment to the 2020 Credit Facility, $2 million of debt issuance costs also paid in connection with the Sixth Amendment, and $4 million for the payment of tax withholding

related to the net share settlements of restricted stock awards upon vesting.

Our financing activities provided $37.7 million of cash in 2024.

We received $342.3 million of proceeds, net of $7.7 million of original issue discount, from the issuance of term debt under the 2024 Credit Facility that was established on June 21, 2024 to refinance the 2020 Credit Facility.

Also, we had $44.1 million of both borrowings and principal payments under the 2020 Revolving Credit Facility.

In conjunction with the establishment of the 2024 Credit Facility, we repaid the 2020 Term Debt amounting to $235.4 million, redeemed all of the outstanding Preferred Stock totaling $56.9 million, and paid $6.3 million in debt issuance costs.

Also, we paid $1.8 million in principal payments on our 2024 Term Debt.

In addition, we paid $4.3 million of tax obligations related to the vesting of stock awards and units.

Our financing activities used $47.9 million of cash in 2023, primarily due to $95.1 million of principal payments on our term debt, including a $75.0 million prepayment in connection with the Sixth Amendment to the 2020 Credit Facility, $1.7 million of debt issuance costs also paid in connection with the Sixth Amendment, and $4.5 million for the payment of tax withholding related to the net share settlements of restricted stock awards upon vesting.

In addition, we received $53.4 million of proceeds from the issuance of the Preferred Stock and Warrants in the Private Placement.

Our financing activities provided $1 million of cash in 2022, primarily due to $50 million of net proceeds from the private placement by us of 17,071,311 shares of our common stock, par value $0.0001 per share, at a price of $3.05 per share on August 12, 2022 (the "Equity Offering"), partially offset by $45 million of principal payments on the 2020 Credit Facility, including the voluntary $15 million incremental principal payment in connection with the Fourth Amendment and voluntary $10 million incremental principal payment in connection with the Fifth Amendment, and $3 million for the payment of tax withholding obligations related to the net share settlements of restricted stock awards upon vesting.

Payments of debt issuance costs and principal payments of finance leases together totaled approximately $2 million.

Based on our current expectations, we believe our current cash balance, the cash generated from our operations, and borrowings available under the 2020 Credit Facility, will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least twelve months from the date of issuance of these financial statements.

The rate at which we consume cash is dependent on the cash needs of our future operations, including our contractual obligations at December 31, 2023, primarily comprised of our debt principal and interest obligations as described above, and our operating lease and purchase obligations.

Our operating lease obligations totaled $ 65 million at December 31, 2023, with payments aggregating $19 million in 2024, $10 million in 2025, $9 million in 2026 and $27 million thereafter.

The rate at which we consume cash is dependent upon the cash needs of our future operations, including our contractual obligations at December 31, 2024, primarily comprised of our debt principal and interest obligations as described above, and our operating lease and purchase obligations.

Our operating lease obligations totaled $57.0 million at December 31, 2024, with payments to be made aggregating $12.7 million in 2025, $11.5 million in 2026, $10.2 million in 2027 and $22.6 million thereafter.

Our purchase obligations totaled $106.6 million at December 31, 2024, with estimated payments aggregating $96.2 million in 2025 and $10.4 million thereafter.

We anticipate devoting substantial capital resources to continue our research and development efforts, to maintain our sales, support and marketing, and for other general corporate activities.

We further believe that our financial resources, along with managing discretionary expenses, will allow us to manage the ongoing impact of inflation and the supply chain disruptions on our business operations.

We anticipate devoting substantial capital resources to continue our R&D efforts, to maintain our sales, support and marketing, and for other general corporate activities.

We believe that our financial resources, along with managing discretionary expenses, will allow us to manage the ongoing impact of inflation on our business operations.

Looking ahead, we have developed contingency plans to reduce costs further if the situation deteriorates.

However, it is difficult to predict future liquidity requirements with certainty, and our cash and available borrowings under the 2020 Credit Facility may not be sufficient to meet our future needs, which would require us to refinance our debt and/or obtain additional financing.

We may not be able to refinance our debt or obtain additional financing on favorable terms or at all.

Based on our current expectations, we believe our current cash balances and available borrowings under the 2024 Credit Facility will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least twelve months from the date of issuance of these financial statements.

Recent Accounting Pronouncements

In December 2023, the Financial Accounting Standards Board (the "FASB") issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures (“ASU 2023-09”), which increases the disclosure requirements around rate reconciliation information and certain types of income taxes companies are required to pay.

ASU 2023-09 will be effective for us beginning in 2025, with early adoption permitted.

We are currently evaluating the impact of this accounting standard update on our consolidated financial statements and related disclosures.

In November 2024, the Financial Accounting Standards Board (the "FASB") issued ASU 2024-03, Income Statement, Reporting Comprehensive Income:

Expense Disaggregation Disclosures (Subtopic 220-40) (“ASU 2024-03”), which requires disaggregation of certain expense captions into specified categories in disclosures within the footnotes to the financial statements.

The objective of this standard is to provide investors with information to better understand a public entity’s performance and prospects for future cash flows, and to compare their performance over time with that of other entities.

ASU 2024-03 will be effective for us beginning with our 2027 annual financial statements and interim financial statements thereafter, with early adoption permitted.

The adoption of ASU 2024-03 will require us to provide new footnote disclosure about the types of expenses that are included in certain captions on our Statements of Operations, such as Cost of revenue, Research and development, Sales and marketing, and General and administrative.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures (“ASU 2023-09”), which increases the disclosure requirements around rate reconciliation information and certain types of

income taxes companies are required to pay.

ASU 2023-09 will be effective for us beginning with our 2025 annual financial statements, with early adoption permitted.

We expect the adoption of the standard will require certain additional income tax disclosures.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which improves reportable segment disclosure requirements, including enhancement of the disclosures of significant segment expenses and interim disclosure requirements to enable investors to better understand an entity’s overall performance and assess potential future cash flows.

ASU 2023-07 will be effective for us annually beginning in 2024 and on an interim basis beginning in 2025, with early adoption permitted.

We are currently evaluating the impact of this accounting standard update on our consolidated financial statements and related disclosures.

In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements:

Codification Amendments in Response to the SEC's disclosure Update and Simplification Initiative (“ASU 2023-06”), which amends the disclosure or presentation requirements related to various subtopics in the FASB Accounting Standards Codification.

This ASU was issued in response to and to align GAAP with the SEC's August 2018 final rule that updates and simplifies disclosure requirements.

The effective date for us for each amendment will be the date on which the SEC's removal of that related disclosure requirement becomes effective, with early adoption prohibited.

We are currently evaluating the impact of this accounting standard update on our consolidated financial statements and related disclosures.

On February 1, 2023, the FASB staff noted that they believe that the Pillar 2 tax, established by the OECD and intended to apply for tax years beginning in 2024, would be an alternative minimum tax and therefore deferred tax assets would not need to be recognized related to this parallel taxing system.

On February 2, 2023, the OECD issued administrative guidance providing transition and safe harbor rules around the implementation of the Pillar 2 global minimum tax.

This transition safe harbor will apply to fiscal years beginning on or before December 31, 2025 and ending before December 31, 2026.

We are closely monitoring developments and evaluating the impacts these new rules will have on our tax rate, including eligibility to qualify for these safe

harbor rules.

Based upon preliminary calculations for calendar year 2024, we anticipate that we will meet the safe harbors in most jurisdictions, and any remaining top-up tax should be immaterial.

In March 2022, the Financial Accounting Standards Board (the "FASB") issued ASU 2022-02, Financial Instruments – Credit Losses (Topic 326):

Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”), which eliminates the accounting guidance on troubled debt restructurings for creditors in ASC 310, Receivables (Topic 310) , and requires entities to provide disclosures about current period gross write-offs by year of origination.

Also, ASU 2022-02 updates the requirements related to accounting for credit losses under ASC 326, Financial Instruments – Credit Losses (Topic 326) , and adds enhanced disclosures for creditors with respect to loan refinancings and restructurings for borrowers experiencing financial difficulty.

ASU 2022-02 became effective for us January 1, 2023.

The adoption of ASU 2022-02 did not have a material impact on our consolidated financial statements upon adoption.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers ("ASU 2021-08"), which amends ASC 805, Business Combinations (Topic 805) , to add contract assets and contract liabilities to the list of exceptions to the recognition and measurement principles that apply to business combinations and to require that an acquiring entity recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 606, Revenue from Contracts with Customers (Topic 606) ("ASC 606").

Under current GAAP, an acquirer generally recognizes such items at fair value on the acquisition date.

While primarily related to contract assets and contract liabilities that were accounted for by the acquiree in accordance with ASC 606, ASU 2021-08 also applies to contract assets and contract liabilities from other contracts to which the provisions of ASC 606 apply, such as contract liabilities from the sale of nonfinancial assets within the scope of ASU 2017-05, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20) .

ASU 2021-08 was effective for us January 1, 2023.

We believe the adoption of ASU 2021-08 could have a material impact on our consolidated financial statements for periods including and subsequent to significant business acquisitions.

ASU 2023-07 became effective for us beginning with this Annual Report on Form 10-K which includes the required additional segment disclosures.

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What changed 10-K

Item 7. Management’s Discussion and Analysis