What changed in this filing

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Item 1. Financial Statements

2020-10-30 compared with 2020-08-06 · 357 added, 307 removed, 903 unchanged (42% of the section changed)

3 unchanged sentences

(in thousands, except share and per share data)

September 30,

2020 December 31,

34 unchanged sentences

240,000,000 shares authorized;

144,856,764 shares issued and outstanding at June 30, 2020;

145,226,884 shares issued and outstanding at September 30, 2020;

110,471,995 shares issued and outstanding at December 31, 2019

8 unchanged sentences

(in thousands, except per share data)

Three months ended Six months ended

2020 June 30,

2019 June 30,

2020 June 30,

Three months ended Nine months ended

September 30,

2020 September 30,

2019 September 30,

2020 September 30,

Product $ 128,926 $ 61,152 $ 325,687 $ 180,691

15 unchanged sentences

Interest expense, net ( 6,854 ) ( 726 ) ( 15,649 ) ( 3,352 )

Other (expense) income, net ( 2,407 ) 62,861 ( 3,251 ) 70,635

(Loss) income before income taxes ( 6,215 ) 54,503 ( 39,194 ) 24,685

Income tax provision ( 2,036 ) ( 5,033 ) ( 2,227 ) ( 6,047 )

Net (loss) income $ ( 8,251 ) $ 49,470 $ ( 41,421 ) $ 18,638

(Loss) earnings per share:

Other income (expense), net 407 ( 507 ) ( 2,844 ) 70,128

Income (loss) before income taxes 5,470 1,453 ( 33,724 ) 26,138

Income tax benefit (provision) 782 197 ( 1,445 ) ( 5,850 )

Net income (loss) $ 6,252 $ 1,650 $ ( 35,169 ) $ 20,288

Earnings (loss) per share

Basic $ 0.04 $ 0.01 $ ( 0.26 ) $ 0.19

Diluted $ 0.04 $ 0.01 $ ( 0.26 ) $ 0.18

Weighted average shares used to compute (loss) earnings per share:

Weighted average shares used to compute earnings (loss) per share:

Basic 144,948 110,080 136,837 109,523

4 unchanged sentences

(in thousands)

Three months ended Six months ended

2020 June 30,

2019 June 30,

2020 June 30,

Net (loss) income $ ( 8,251 ) $ 49,470 $ ( 41,421 ) $ 18,638

Other comprehensive (loss) income, net of tax:

Unrealized loss on interest rate swap ( 3,970 ) — ( 13,497 ) —

Three months ended Nine months ended

September 30,

2020 September 30,

2019 September 30,

2020 September 30,

Net income (loss) $ 6,252 $ 1,650 $ ( 35,169 ) $ 20,288

Other comprehensive income (loss), net of tax:

Unrealized gain (loss) on interest rate swap 640 — ( 12,857 ) —

Foreign currency translation adjustments 184 270 1,031 326

Unrealized gain on available-for sale marketable securities, net of reclassification adjustments for realized amounts — — — 590

Employee retirement benefits — ( 32 ) — —

Other comprehensive (loss) income, net of tax ( 3,900 ) 609 ( 12,650 ) 646

Comprehensive (loss) income $ ( 12,151 ) $ 50,079 $ ( 54,071 ) $ 19,284

Other comprehensive income (loss), net of tax 824 270 ( 11,826 ) 916

Comprehensive income (loss) $ 7,076 $ 1,920 $ ( 46,995 ) $ 21,204

See notes to the unaudited condensed consolidated financial statements.

2 unchanged sentences

(in thousands, except shares)

Three months ended June 30, 2020

Three months ended September 30, 2020

Shares Amount Additional paid-in capital Accumulated deficit Accumulated other comprehensive (loss) income Total stockholders' equity

Balance at April 1, 2020 144,351,304 $ 14 $ 1,860,150 $ ( 1,300,237 ) $ ( 6,223 ) $ 553,704

Balance at July 1, 2020 144,856,764 $ 14 $ 1,863,374 $ ( 1,308,488 ) $ ( 10,123 ) $ 544,777

Exercise of stock options 2,926 6 6

Vesting of restricted stock awards and units 454,178 1 1

Vesting of performance-based stock units 7,886 —

Shares of restricted stock returned to the Company under net share settlements to satisfy tax withholding obligations ( 94,870 ) ( 388 ) ( 388 )

Stock-based compensation expense 3,969 3,969

Other comprehensive loss ( 3,900 ) ( 3,900 )

Net loss ( 8,251 ) ( 8,251 )

Balance at June 30, 2020 144,856,764 $ 14 $ 1,863,374 $ ( 1,308,488 ) $ ( 10,123 ) $ 544,777

Six months ended June 30, 2020

Other comprehensive income 824 824

Net income 6,252 6,252

Balance at September 30, 2020 145,226,884 $ 15 $ 1,866,961 $ ( 1,302,236 ) $ ( 9,299 ) $ 555,441

Nine months ended September 30, 2020

Shares Amount Additional paid-in capital Accumulated deficit Accumulated other comprehensive (loss) income Total stockholders' equity

11 unchanged sentences

Net loss ( 35,169 ) ( 35,169 )

Balance at June 30, 2020 144,856,764 $ 14 $ 1,863,374 $ ( 1,308,488 ) $ ( 10,123 ) $ 544,777

Balance at September 30, 2020 145,226,884 $ 15 $ 1,866,961 $ ( 1,302,236 ) $ ( 9,299 ) $ 555,441

RIBBON COMMUNICATIONS INC.

1 unchanged sentence

(in thousands, except shares)

Three months ended June 30, 2019

Three months ended September 30, 2019

Shares Amount Additional paid-in capital Accumulated deficit Accumulated other comprehensive (loss) income Total stockholders' equity

Balance at April 1, 2019 110,487,634 $ 11 $ 1,743,136 $ ( 1,167,824 ) $ 3,740 $ 579,063

Issuance of common stock in connection with employee stock purchase plan 139,390 506 506

Balance at July 1, 2019 110,007,237 $ 11 $ 1,740,563 $ ( 1,118,354 ) $ 4,349 $ 626,569

Exercise of stock options 19,009 43 43

1 unchanged sentence

Shares of restricted stock returned to the Company under net share settlements to satisfy tax withholding obligations ( 501 ) ( 2 ) ( 2 )

Repurchase and retirement of common stock ( 975,914 ) ( 4,536 ) ( 4,536 )

Stock-based compensation expense 2,485 2,485

1 unchanged sentence

Net income 1,650 1,650

Balance at June 30, 2019 110,007,237 $ 11 $ 1,740,563 $ ( 1,118,354 ) $ 4,349 $ 626,569

Six months ended June 30, 2019

Balance at September 30, 2019 110,156,325 $ 11 $ 1,743,089 $ ( 1,116,704 ) $ 4,619 $ 631,015

Nine months ended September 30, 2019

Shares Amount Additional paid-in capital Accumulated deficit Accumulated other comprehensive (loss) income Total stockholders' equity

12 unchanged sentences

Net income 20,288 20,288

Balance at June 30, 2019 110,007,237 $ 11 $ 1,740,563 $ ( 1,118,354 ) $ 4,349 $ 626,569

Balance at September 30, 2019 110,156,325 $ 11 $ 1,743,089 $ ( 1,116,704 ) $ 4,619 $ 631,015

See notes to the unaudited condensed consolidated financial statements.

2 unchanged sentences

(in thousands)

Six months ended

2020 June 30,

Nine months ended

September 30,

2020 September 30,

Cash flows from operating activities:

21 unchanged sentences

Proceeds from the sale of fixed assets 43,500 —

Net cash (used in) provided by investing activities ( 318,243 ) 1,142

Net cash used in investing activities ( 322,037 ) ( 1,299 )

Cash flows from financing activities:

13 unchanged sentences

Effect of exchange rate changes on cash, cash equivalents and restricted cash 24 56

Net increase in cash, cash equivalents and restricted cash 49,401 7,492

Net increase (decrease) in cash, cash equivalents and restricted cash 66,253 ( 3,297 )

Cash and cash equivalents, beginning of year 44,643 43,694

3 unchanged sentences

(in thousands)

Six months ended

2020 June 30,

Nine months ended

September 30,

2020 September 30,

Supplemental disclosure of cash flow information:

4 unchanged sentences

Capital expenditures incurred, but not yet paid $ 4,111 $ 560

Property and equipment acquired under finance leases $ — $ 150

Acquisition purchase consideration - deferred payments $ 1,630 $ 1,700

Shares of common stock issued as purchase consideration $ 110,180 $ 15,186

Common stock issued as purchase consideration $ 108,550 $ 15,186

Supplemental disclosure of non-cash financing activities:

4 unchanged sentences

(1) BASIS OF PRESENTATION

Ribbon is a leading provider of next generation software solutions to telecommunications, wireless and cable service providers and enterprises of all sizes across industry verticals.

Ribbon Communications Inc.

("Ribbon" or the "Company") is a leading provider of next generation software solutions to telecommunications, wireless and cable service providers and enterprises of all sizes across industry verticals.

With the March 3, 2020 completion of the merger with ECI Telecom Group Ltd ("ECI"), Ribbon now also provides optical and packet networking products and software-defined solutions to service providers and critical infrastructure sectors like utilities, government and defense.

15 unchanged sentences

The Company's significant accounting policies are disclosed in Note 2 to the Consolidated Financial Statements included in the Annual Report.

There were no material changes to the significant accounting policies during the six months ended June 30, 2020, with the exception of policies on transfers of financial assets, warranty costs, and research and development grants:

There were no material changes to the significant accounting policies during the nine months ended September 30, 2020, with the exception of policies on transfers of financial assets, warranty costs, and research and development grants.

Additionally, effective in 2020, the Company changed its annual goodwill impairment testing date from November 30 to October 1.

The Company does not expect this change to have a material impact on its condensed consolidated financial statements.

Transfers of Financial Assets .

The Company's ECI subsidiary maintains customer receivables factoring agreements with a number of financial institutions.

Under the terms of these agreements, the Company may transfer receivables to the financial institutions, on a non-recourse basis, provided that the financial institutions approve the receivables in advance.

The Company maintains credit insurance policies from major insurance providers or obtains letters of credit from the customers for a majority of its factored trade receivables.

The Company accounts for the factoring of its financial assets as a sale of the assets and

Under the terms of these agreements, the Company may transfer receivables to the financial

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

records the factoring fees, when incurred, as a component of interest expense in the condensed consolidated statements of operations and the proceeds from the sales of receivables are included in cash from operating activities in the condensed consolidated statements of cash flows.

During the three months ended June 30, 2020, the Company received $ 30.7 million of cash from the sale of certain accounts receivable and recorded $ 0.3 million of interest expense in connection with these transactions.

During the six months ended June 30, 2020, the Company received $ 45.8 million of cash from the sale of certain accounts receivable and recorded $ 0.4 million of interest expense in connection with these transactions.

institutions, on a non-recourse basis, provided that the financial institutions approve the receivables in advance.

The Company maintains credit insurance policies from major insurance providers or obtains letters of credit from the customers for a majority of its factored trade receivables.

The Company accounts for the factoring of its financial assets as a sale of the assets and records the factoring fees, when incurred, as a component of interest expense in the condensed consolidated statements of operations and the proceeds from the sales of receivables are included in cash from operating activities in the condensed consolidated statements of cash flows.

During the three months ended September 30, 2020, the Company received $ 35.3 million of cash from the sale of certain accounts receivable and recorded $ 0.3 million of interest expense in connection with these transactions.

During the nine months ended September 30, 2020, the Company received $ 81.1 million of cash from the sale of certain accounts receivable and recorded $ 0.7 million of interest expense in connection with these transactions.

The Company records warranty liabilities for estimated costs of fulfilling its obligations under standard limited hardware and software warranties at the time of sale.

The liability for standard warranties is included in Accrued expenses and other and Other non-current liabilities in the condensed consolidated balance sheet at June 30, 2020.

The liability for standard warranties is included in Accrued expenses and other and Other non-current liabilities in the condensed consolidated balance sheet at September 30, 2020.

The specific warranty terms and conditions vary depending upon the country in which the Company does business, but generally includes material costs, technical support, labor and associated overhead over a period ranging from one to three years .

The Company's liability for product warranties was $ 15.1 million, of which $ 6.4 million was current and included in Accrued expenses and other and $ 8.7 million was long-term and included in Other long-term liabilities in the Company's condensed consolidated balance sheet at June 30, 2020.

The Company's liability for product warranties was $ 15.2 million, of which $ 6.7 million was current and included in Accrued expenses and other and $ 8.5 million was long-term and included in Other long-term liabilities in the Company's condensed consolidated balance sheet at September 30, 2020.

The Company did not have a warranty accrual at December 31, 2019.

15 unchanged sentences

The Company classifies as restricted cash all cash pledged as collateral to secure long-term obligations and all cash whose use is otherwise limited by contractual provisions.

At June 30, 2020, the Company had $ 13.1 million of restricted cash, comprised of $ 8.4 million restricted in connection with a tax payment on certain fixed assets formerly held by ECI that were sold in connection with the ECI Merger, and $ 4.7 million restricted short-term bank deposits pledged to secure certain performance and financial bonds as security for the Company's obligations under tenders, contracts and to one of its main subcontractors.

At September 30, 2020, the Company had $ 7.2 million of restricted cash, comprised of $ 4.3 million restricted in connection with a tax payment on certain fixed assets formerly held by ECI that were sold in connection with the ECI Merger, and $ 2.9 million restricted short-term bank deposits pledged to secure certain performance and financial bonds as security for the Company's obligations under tenders, contracts and to one of its main subcontractors.

RIBBON COMMUNICATIONS INC.

21 unchanged sentences

In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40):

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018-15”), which provides guidance on implementation costs incurred in a cloud computing arrangement (“CCA”) that is a service contract.

ASU 2018-15 amends ASC 350, Intangibles - Goodwill and Other (“ASC 350”) to include

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

in its scope implementation costs of a CCA that is a service contract and clarifies that a customer should apply the guidance in ASC 350-40 to determine which implementation costs should be capitalized in such a CCA.

(“CCA”) that is a service contract.

ASU 2018-15 amends ASC 350, Intangibles - Goodwill and Other (“ASC 350”) to include in its scope implementation costs of a CCA that is a service contract and clarifies that a customer should apply the guidance in ASC 350-40 to determine which implementation costs should be capitalized in such a CCA.

In August 2018, the FASB issued ASU 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20):

18 unchanged sentences

As consideration for the ECI Merger, Ribbon issued the ECI shareholders and certain others 32.5 million shares of Ribbon common stock with a fair value of $ 108.6 million (the "Stock Consideration") and paid $ 322.5 million of cash, comprised of $ 183.3 million to repay ECI's outstanding debt, including both principal and interest, and $ 139.2 million paid to ECI's selling shareholders (the "Cash Consideration").

In addition, ECI shareholders received $ 33.4 million from the sale of certain of ECI's real estate assets.

Cash Consideration was financed through cash on hand and committed debt financing

In addition, ECI shareholders received $ 33.4 million from the sale of

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

consisting of a new $ 400 million term loan facility (the "2020 Term Loan") and new $ 100 million revolving credit facility (together with the 2020 Term Loan, the "2020 Credit Facility"), which was undrawn at the ECI Merger Date.

certain of ECI's real estate assets.

Cash Consideration was financed through cash on hand and committed debt financing consisting of a new $ 400 million term loan facility and new $ 100 million revolving credit facility, which was undrawn at the ECI Merger Date.

The ECI Merger has been accounted for as a business combination and the financial results of ECI have been included in the Company's condensed consolidated financial statements for the periods subsequent to the ECI Merger.

The Company's financial results for the three months ended June 30, 2020 include $ 63.6 million of revenue and $ 17.1 million of net loss attributable to ECI.

The Company's financial results for the six months ended June 30, 2020 include $ 93.6 million of revenue and $ 20.4 million of net loss attributable to ECI for the periods subsequent to the ECI Merger.

As of June 30, 2020, the valuation of acquired assets, identifiable intangible assets and certain assumed liabilities was preliminary.

The Company's financial results for the three months ended September 30, 2020 include $ 77.6 million of revenue and $ 11.2 million of net loss attributable to ECI.

The Company's financial results for the nine months ended September 30, 2020 include $ 171.1 million of revenue and $ 31.9 million of net loss attributable to ECI for the periods subsequent to the ECI Merger.

As of September 30, 2020, the valuation of acquired assets, identifiable intangible assets and certain assumed liabilities was preliminary.

The Company is continuing the process of investigating the facts and circumstances existing as of the ECI Merger Date, including certain assets acquired and liabilities assumed, as well as estimated future cash flows, in order to finalize its valuation.

During the three months ended June 30, 2020, the Company recorded changes to the initial preliminary purchase price allocation.

The primary adjustments recorded in the second quarter of 2020 included reductions of $ 10.4 million and $ 7.0 million to current and noncurrent inventory, respectively, and increases to identifiable intangible assets aggregating $ 11.0 million, comprised of $ 3.0 million to in-process research and development, $ 5.0 million to developed technology, $ 2.0 million to customer relationships and $ 1.0 million to trade names.

During the second quarter of 2020, the Company recorded changes to the initial preliminary purchase price allocation.

The primary adjustments recorded in the period since the ECI Merger Date included reductions of $ 10.4 million and $ 7.0 million to current and noncurrent inventory, respectively, and increases to identifiable intangible assets aggregating $ 11.0 million, comprised of $ 3.0 million to in-process research and development, $ 5.0 million to developed technology, $ 2.0 million to customer relationships and $ 1.0 million to trade names.

These adjustments, as well as other immaterial adjustments to other balance sheet accounts, resulted in a net increase to goodwill of $ 2.5 million.

37 unchanged sentences

Pro Forma Results

The following unaudited pro forma information presents the condensed combined results of operations of Ribbon and ECI for the three and six months ended June 30, 2020 and 2019 as if the ECI Merger had been completed on January 1, 2019, with adjustments to give effect to pro forma events that are directly attributable to the ECI Merger.

The following unaudited pro forma information presents the condensed combined results of operations of Ribbon and ECI for the three and nine months ended September 30, 2020 and 2019 as if the ECI Merger had been completed on January 1, 2019, with adjustments to give effect to pro forma events that are directly attributable to the ECI Merger.

These pro forma adjustments include an increase in research and development expense related to the conformance of ECI's cost capitalization policy to Ribbon's, additional amortization expense for the acquired identifiable intangible assets, a decrease in historical ECI interest expense reflecting the extinguishment of certain of ECI's debt as a result of the ECI Merger, and an increase in interest expense reflecting the new debt entered into by the Company in connection with the ECI Merger.

Pro forma adjustments also include the elimination of acquisition- and integration-related costs directly attributable to the acquisition from the three and six months ended June 30, 2020 and inclusion of such costs in the three and six months ended June 30, 2019, respectively.

Pro forma adjustments also include the elimination of acquisition- and integration-related costs directly attributable to the acquisition from the three and nine months ended September 30, 2020 and inclusion of such costs in the three and nine months ended September 30, 2019, respectively.

The unaudited pro forma results do not reflect any operating efficiencies or potential cost savings that may result from the consolidation of the operations of Ribbon and ECI.

Accordingly, these unaudited pro forma results are presented for illustrative purposes and are not intended to represent or be indicative of the actual results of operations of the combined company that would have been achieved had the ECI Merger occurred at January 1, 2019, nor are they intended to represent or be indicative of future results of operations (in thousands, except per share amounts):

Three months ended Six months ended

2020 June 30,

2019 June 30,

2020 June 30,

Three months ended Nine months ended

September 30,

2020 September 30,

2019 September 30,

2020 September 30,

Revenue $ 231,118 $ 232,926 $ 624,800 $ 673,774

Net (loss) income $ ( 9,252 ) $ 37,471 $ ( 48,381 ) $ ( 26,228 )

(Loss) diluted earnings per share $ ( 0.06 ) $ 0.26 $ ( 0.33 ) $ ( 0.18 )

Net income (loss) $ 7,036 $ ( 4,795 ) $ ( 41,345 ) $ ( 31,023 )

Diluted earnings (loss) per share $ 0.05 $ ( 0.03 ) $ ( 0.29 ) $ ( 0.22 )

Anova Data, Inc.

4 unchanged sentences

The Anova Acquisition was accounted for as a business combination and the financial results of Anova have been included in the Company's condensed consolidated financial statements for the periods subsequent to the Anova Acquisition Date.

The results for the three and six months ended June 30, 2019 were not significant to the Company's condensed consolidated financial statements and accordingly, the Company has not provided pro forma financial information.

The results for the three and nine months ended September 30, 2019 were not significant to the Company's condensed

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

Company finalized the valuation of the assets acquired and liabilities assumed in the fourth quarter of 2019.

consolidated financial statements and accordingly, the Company has not provided pro forma financial information.

The Company finalized the valuation of the assets acquired and liabilities assumed in the fourth quarter of 2019.

The purchase consideration aggregating $ 16.9 million was allocated to $ 11.2 million of identifiable intangible assets with a weighted average life of 6.25 years (see Note 6) and working capital items aggregating $ 0.1 million of net assets acquired.

5 unchanged sentences

Integration-related expenses represent incremental costs related to combining the Company and its business acquisitions, such as third-party consulting and other third-party services related to merging previously separate companies' systems and processes.

The acquisition-related costs in both the three and six months ended June 30, 2020 primarily related to the ECI Merger;

the acquisition-related costs in the three and six months ended June 30, 2019 primarily related to the Anova Acquisition.

The Company's acquisition- and integration-related expenses for the three and six months ended June 30, 2020 and 2019 were as follows (in thousands):

Three months ended Six months ended

2020 June 30,

2019 June 30,

2020 June 30,

The acquisition-related costs in the three months ended September 30, 2020 primarily related to the proposed sale of the Kandy Communications Business.

The acquisition-related costs in the nine months ended September 30, 2020 primarily related to the ECI Merger.

The acquisition-related costs in the three and nine months ended September 30, 2019 primarily related to the Anova Acquisition.

The Company's acquisition- and integration-related expenses for the three and nine months ended September 30, 2020 and 2019 were as follows (in thousands):

Three months ended Nine months ended

September 30,

2020 September 30,

2019 September 30,

2020 September 30,

Professional and services fees (acquisition-related) $ 1,003 $ 743 $ 14,017 $ 2,569

1 unchanged sentence

$ 1,366 $ 1,697 $ 14,607 $ 6,861

(3) PROPOSED SALE OF KANDY COMMUNICATIONS BUSINESS

On August 5, 2020, the Company announced that it had entered into a definitive agreement (the "Kandy Agreement") with American Virtual Cloud Technologies, Inc.

("AVCTechnologies") to sell the Company's cloud-based enterprise services business (the "Kandy Communications Business").

Under the Kandy Agreement, AVCTechnologies will purchase the assets and assume certain liabilities associated with the Kandy Communications Business, as well as all of the outstanding interests in Kandy Communications LLC, a subsidiary of the Company.

AVCTechnologies has agreed to pay the Company 13 million shares of AVCTechnologies common stock, subject to certain adjustments, as consideration for the transaction.

The transaction is subject to receipt of the approval of AVCTechnologies' shareholders for the issuance of the shares to the Company, AVCTechnologies' completion of necessary financing, approval of the lenders under the Company's 2020 Credit Facility and other customary closing conditions.

(4) EARNINGS (LOSS) PER SHARE

1 unchanged sentence

For periods in which the Company reports net income, diluted net earnings per share is determined by using the weighted average number of common and dilutive common equivalent shares outstanding during the period unless the effect is antidilutive.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

The calculations of shares used to compute earnings (loss) per share were as follows (in thousands):

Three months ended Six months ended

2020 June 30,

2019 June 30,

2020 June 30,

Three months ended Nine months ended

September 30,

2020 September 30,

2019 September 30,

2020 September 30,

Weighted average shares outstanding—basic 144,948 110,080 136,837 109,523

1 unchanged sentence

Weighted average shares outstanding—diluted 151,680 110,756 136,837 110,100

Options to purchase the Company's common stock and unvested shares of restricted and performance-based stock and stock units aggregating 13.7 million shares have not been included in the computation of diluted loss per share for the three and six months ended June 30, 2020 because their effect would have been antidilutive.

Options to purchase the Company's common stock aggregating 0.3 million shares and 0.4 million shares have not been included in the computation of diluted earnings per share for the three and six months ended June 30, 2019, respectively, because their effect would have been antidilutive.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

Options to purchase the Company's common stock aggregating 0.2 million shares have not been included in the computation of diluted earnings per share for the three months ended September 30, 2020 because their effect would have been antidilutive.

Options to purchase the Company's common stock and unvested shares of restricted and performance-based stock and stock units aggregating 13.5 million shares have not been included in the computation of diluted loss per share for the nine months ended September 30, 2020 because their effect would have been antidilutive.

Options to purchase the Company's common stock aggregating 0.3 million shares have not been included in the computation of diluted earnings per share for both the three and nine months ended September 30, 2019 because their effect would have been antidilutive.

(5) INVENTORY

Inventory at June 30, 2020 and December 31, 2019 consisted of the following (in thousands):

Inventory at September 30, 2020 and December 31, 2019 consisted of the following (in thousands):

September 30,

2020 December 31,

5 unchanged sentences

(6) INTANGIBLE ASSETS AND GOODWILL

The Company's intangible assets at June 30, 2020 and December 31, 2019 consisted of the following (in thousands):

June 30, 2020 Weighted average amortization period

The Company's intangible assets at September 30, 2020 and December 31, 2019 consisted of the following (in thousands):

September 30, 2020 Weighted average amortization period

(years) Cost Accumulated

7 unchanged sentences

9.10 $ 614,250 $ 181,336 $ 432,914

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

December 31, 2019 Weighted average amortization period

9 unchanged sentences

* An in-process research and development intangible asset has an indefinite life until the product is generally available, at which time such asset is typically reclassified to developed technology.

Amortization expense for intangible assets for the three and six months ended June 30, 2020 and 2019 was as follows (in thousands):

Three months ended Six months ended Statement of operations classification

2020 June 30,

2019 June 30,

2020 June 30,

Amortization expense for intangible assets for the three and nine months ended September 30, 2020 and 2019 was as follows (in thousands):

Three months ended Nine months ended Statement of operations classification

September 30,

2020 September 30,

2019 September 30,

2020 September 30,

Developed technology $ 11,643 $ 9,522 $ 31,547 $ 29,259 Cost of revenue - product

2 unchanged sentences

$ 16,349 $ 12,260 $ 45,352 $ 36,829

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

Estimated future amortization expense for the Company's intangible assets at June 30, 2020 was as follows (in thousands):

Estimated future amortization expense for the Company's intangible assets at September 30, 2020 was as follows (in thousands):

Years ending December 31,

1 unchanged sentence

Thereafter 157,503

The changes in the carrying value of the Company's goodwill in the six months ended June 30, 2020 and 2019 were as follows (in thousands):

The changes in the carrying value of the Company's goodwill in the nine months ended September 30, 2020 and 2019 were as follows (in thousands):

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

Balance at January 1 2020 2019

4 unchanged sentences

Acquisition of Anova — 5,541

Balance at June 30 $ 416,892 $ 389,196

Balance at June 30

Balance at September 30 $ 416,892 $ 389,196

Balance at September 30

Goodwill $ 584,298 $ 392,302

2 unchanged sentences

(7) ACCRUED EXPENSES

Accrued expenses at June 30, 2020 and December 31, 2019 consisted of the following (in thousands):

Accrued expenses at September 30, 2020 and December 31, 2019 consisted of the following (in thousands):

September 30,

2020 December 31,

1 unchanged sentence

Professional fees 14,368 13,331

Taxes payable 15,781 842

Other 63,918 16,203

1 unchanged sentence

(8) RESTRUCTURING AND FACILITIES CONSOLIDATION INITIATIVES

The Company recorded restructuring and related expense aggregating $ 5.4 million and $ 9.1 million in the three months ended June 30, 2020 and 2019, respectively, and $ 7.4 million and $ 14.1 million in the six months ended June 30, 2020 and 2019, respectively.

The Company recorded restructuring and related expense aggregating $ 3.3 million and $ 2.4 million in the three months ended September 30, 2020 and 2019, respectively, and $ 10.7 million and $ 16.4 million in the nine months ended September 30, 2020 and 2019, respectively.

Restructuring and related expense includes both restructuring expense (primarily severance and related costs), estimated future variable lease costs for vacated properties with no intent or ability of sublease, and accelerated rent amortization expense.

For restructuring events that involve lease assets and liabilities, the Company applies lease reassessment and modification guidance and evaluates the right-of-use assets for potential impairment.

If the Company plans to exit all or distinct portions of a facility and does not have the ability or intent to sublease, the Company will accelerate the amortization of

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

each of those lease components through the vacate date.

If the Company plans to exit all or distinct portions of a facility and does not have the ability or intent to sublease, the Company will accelerate the amortization of each of those lease components through the vacate date.

The accelerated amortization is recorded as a component of Restructuring and related expense in the Company's condensed consolidated statements of operations.

Related variable lease expenses will continue to be expensed as incurred through the vacate date, at which time the Company will reassess the liability balance to ensure it appropriately reflects the remaining liability associated with the premises and record a liability for the estimated future variable lease costs.

The components of Restructuring and related expense for the three and six months ended June 30, 2020 and 2019 were as follows (in thousands):

Three months ended Six months ended

2020 June 30,

2019 June 30,

2020 June 30,

The components of Restructuring and related expense for the three and nine months ended September 30, 2020 and 2019 were as follows (in thousands):

Three months ended Nine months ended

September 30,

2020 September 30,

2019 September 30,

2020 September 30,

Severance and related costs $ 1,789 $ 719 $ 8,276 $ 11,619

2 unchanged sentences

$ 3,290 $ 2,372 $ 10,726 $ 16,448

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

2020 Restructuring Initiative

2 unchanged sentences

In connection with this initiative, the Company expects to eliminate duplicate functions arising from the ECI Merger and support its efforts to integrate the two companies.

The Company recorded restructuring and related expense of $ 4.7 million and $ 5.8 million in connection with the 2020 Restructuring Initiative in the three and six months ended June 30, 2020, respectively, for severance and related costs for approximately 75 employees, including three former executives of ECI (the "former executives").

The amount recorded in the three months ended March 31, 2020 represents severance and related costs for the former executives.

The Company recorded restructuring and related expense of $ 2.9 million and $ 8.7 million in connection with the 2020 Restructuring Initiative in the three and nine months ended September 30, 2020, respectively, for severance and related costs.

The amount recorded in the nine months ended September 30, 2020 was for severance and related costs for approximately 125 employees, including three former executives of ECI.

The Company expects these amounts will be fully paid in 2021.

The Company expects that it will record additional restructuring and related expense approximating $ 6 million under the 2020 Restructuring Initiative in the aggregate for severance and planned facility consolidations.

A summary of the 2020 Restructuring Initiative accrual activity for severance and related costs for the six months ended June 30, 2020 is as follows (in thousands):

A summary of the 2020 Restructuring Initiative accrual activity for severance and related costs for the nine months ended September 30, 2020 is as follows (in thousands):

2020 Initiatives

payments Balance at

September 30,

Severance $ — $ 7,691 $ ( 3,375 ) $ 4,316

Facilities — 999 ( 79 ) 920

$ — $ 8,690 $ ( 3,454 ) $ 5,236

2019 Restructuring and Facilities Consolidation Initiative

3 unchanged sentences

The facility consolidations under the 2019 Restructuring Initiative (the "2019 Facilities Initiative") include a consolidation of the Company's 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 Company intends to substantially consolidate its global software laboratories and server farms into

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

two lower cost North American sites.

In addition, the Company intends to substantially consolidate its global software laboratories and server farms into two lower cost North American sites.

The Company continues to evaluate its properties included in the Facilities Initiative for accelerated amortization and/or right-of-use asset impairment.

The Company expects that the actions under the 2019 Facilities Initiative will be completed by the end of 2020.

In connection with the 2019 Restructuring Initiative, the Company recorded restructuring and related expense of $ 0.7 million and $ 1.7 million in the three and six months ended June 30, 2020, respectively, and $ 5.8 million in both the three and six months ended June 30, 2019.

The amount recorded in the three months ended June 30, 2020 was primarily related to facility consolidations.

The amount recorded in the six months ended June 30, 2020 was comprised of $ 0.7 million for severance and related costs for five employees and $ 1.0 million related to facility consolidations.

The amount recorded in the three and six months ended June 30, 2019 was for severance and related costs for approximately 110 employees.

In connection with the 2019 Restructuring Initiative, the Company recorded restructuring and related expense of $ 0.4 million and $ 2.1 million in the three and nine months ended September 30, 2020, respectively, and $ 1.8 million and $ 7.8 million in the three and nine months ended September 30, 2019, respectively.

The amount recorded in the three months ended September 30, 2020 was primarily related to facility consolidations.

The amount recorded in the nine months ended September 30, 2020 was comprised of $ 0.6 million for severance and related costs for approximately 5 employees and $ 1.5 million related to facility consolidations.

These amounts include nominal credits to restructuring and related expense in the three and nine months ended September 30, 2020, representing changes in estimate for both severance and related expenses and variable facilities-related expenses.

The amount recorded in the three months ended September 30, 2019 was comprised of $ 0.7 million for severance and related costs for approximately 20 employees and $ 1.7 million for variable and other facilities-related costs, including accelerated rent amortization.

The amount recorded in the nine months ended September 30, 2019 was comprised of $ 6.5 million for severance and related costs for approximately 130 employees and $ 4.7 million for variable and

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

other facilities-related costs, including accelerated rent amortization.

The Company expects to record nominal additional restructuring and related expense, if any, related to severance and related costs under the 2019 Restructuring Initiative.

A summary of the 2019 Restructuring Initiative accrual activity for severance and related costs for the six months ended June 30, 2020 is as follows (in thousands):

A summary of the 2019 Restructuring Initiative accrual activity for severance and related costs for the nine months ended September 30, 2020 is as follows (in thousands):

2020 Initiatives

1 unchanged sentence

payments Balance at

September 30,

Severance $ 2,110 $ 723 $ ( 80 ) $ — $ ( 2,234 ) $ 519

3 unchanged sentences

Accelerated rent amortization is recognized from the date that the Company commences 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.

The accelerated rent amortization recorded in connection with the Facilities Initiative reduced the value of the Company's Operating lease right-of-use assets recorded in the Company's condensed consolidated balance sheets at June 30, 2020 and December 31, 2019, respectively.

The liability for the total lease payments for each respective facility is included as a component of Operating lease liabilities in the Company's condensed consolidated balance sheets, both current and noncurrent (see Note 18).

3 unchanged sentences

and GENBAND (the "GENBAND Merger"), the Company implemented a restructuring plan in the fourth quarter of 2017 to eliminate certain redundant positions and facilities within the combined companies (the "GENBAND Merger Restructuring Initiative").

The Company recorded a credit to restructuring and related expense of $ 0.1 million in both the three and six months ended June 30, 2020, representing a change in estimate to the total severance and related costs required to complete the activities under this initiative.

In connection with this initiative, the Company recorded restructuring expense of $ 5.2 million in the six months ended June 30, 2019, comprised of $ 0.3 million in the three months ended June 30, 2019 and $ 4.9 million in the three months ended March 31, 2019, virtually all of which was for severance and related costs for approximately 40 employees.

As of June 30, 2020, the GENBAND Merger Restructuring Initiative was complete.

A summary of the GENBAND Merger Restructuring Initiative accrual activity for the six months ended June 30, 2020 is as follows (in thousands):

The Company recorded a credit to restructuring and related expense of $ 0.1 million in the nine months ended September 30, 2020, representing a change in estimate to the total severance and related costs required to complete the activities under this initiative.

In connection with this initiative, the Company recorded restructuring expense of $ 5.2 million in the nine months ended September 30, 2019, virtually all of which was for severance and related costs for approximately 40 employees.

As of September 30, 2020, the GENBAND Merger Restructuring Initiative was complete.

A summary of the GENBAND Merger Restructuring Initiative accrual activity for the nine months ended September 30, 2020 is as follows (in thousands):

2020 Adjustments for changes in estimate Cash

payments Balance at

September 30,

Severance $ 409 $ ( 58 ) $ ( 351 ) $ —

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

Balance Sheet Classification

The current portions of accrued restructuring are included as a component of Accrued expenses and the long-term portions of accrued restructuring are included as a component of Other long-term liabilities in the condensed consolidated balance sheets.

The long-term portions of accrued restructuring totaled $ 0.8 million at June 30, 2020 and $ 0.9 million at December 31, 2019.

The long-term portions of accrued restructuring totaled $ 0.8 million at September 30, 2020 and $ 0.9 million at December 31, 2019.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(9) WARRANTY ACCRUALS

The changes in the Company's accrual balance in the six months ended June 30, 2020 were as follows (in thousands):

The changes in the Company's accrual balance in the nine months ended September 30, 2020 were as follows (in thousands):

Balance at January 1, 2020 $ —

2 unchanged sentences

Settlements ( 4,164 )

Balance at June 30, 2020 $ 15,091

Of the amount recorded at June 30, 2020, $ 6.4 million was current and included as a component of Accrued expenses and other and $ 8.7 million was long-term and included as a component of Other long-term liabilities in the Company's condensed consolidated balance sheet.

The Company did not have a warranty accrual during the six months ended June 30, 2019.

Balance at September 30, 2020 $ 15,214

Of the amount recorded at September 30, 2020, $ 6.7 million was current and included as a component of Accrued expenses and other and $ 8.5 million was long-term and included as a component of Other long-term liabilities in the Company's condensed consolidated balance sheet.

The Company did not have a warranty accrual during the nine months ended September 30, 2019.

2019 Credit Facility

12 unchanged sentences

The base rate and the LIBOR rate were each subject to a zero percent floor.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

The 2019 Credit Facility required compliance with certain financial covenants, including a minimum consolidated quick ratio, minimum consolidated fixed charge coverage ratio and maximum consolidated leverage ratio, all of which were defined in the 2019 Credit Facility and tested on a quarterly basis.

1 unchanged sentence

In addition, the 2019 Credit Facility contained various covenants that, among other restrictions, limited the Company’s and its subsidiaries’ ability to enter into certain types of transactions, including, but not limited to:

incurring or assuming indebtedness;

incurring or assuming

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

indebtedness;

granting or assuming liens;

14 unchanged sentences

If any default existed under the 2019 Credit Facility, or if the Borrower was unable to make any of the representations and warranties as stated in the 2019 Credit Facility at the applicable time, the Borrower would be unable to borrow funds or have letters of credit issued under the 2019 Credit Facility, which, depending on the circumstances prevailing at that time, could have had a material adverse effect on the Borrower’s liquidity and working capital.

2020 Credit Facility

On March 3, 2020, the Company entered into a Senior Secured Credit Facilities Credit Agreement (the "2020 Credit Agreement"), by and among the Company, as a guarantor, Ribbon Communications Operating Company, Inc., as the borrower ("Borrower"), Citizens Bank, N.A., as administrative agent, a lender, issuing lender, swingline lender, joint lead arranger and bookrunner, Santander Bank, N.A., as a lender, joint lead arranger and bookrunner, and the other lenders party thereto (each, together with Citizens Bank, N.A.

2020 Credit Agreement

On March 3, 2020, the Company entered into a Senior Secured Credit Facilities Credit Agreement (as amended, the "2020 Credit Agreement"), by and among the Company, as a guarantor, Ribbon Communications Operating Company, Inc., as the borrower ("Borrower"), Citizens Bank, N.A.

("Citizens"), as administrative agent, a lender, issuing lender, swingline lender, joint lead arranger and bookrunner, Santander Bank, N.A., as a lender, joint lead arranger and bookrunner, and the other lenders party thereto (each, together with Citizens Bank, N.A.

and Santander Bank, N.A., referred to individually as a "Lender", and collectively, the "Lenders").

The proceeds of the Credit Agreement were used, in part, to pay off in full all obligations of the Company under the 2019 Credit Facility.

The 2020 Credit Agreement provides for $ 500 million of commitments from the lenders to the Borrower, comprised of a $ 400 million term loan (the "2020 Term Loan Facility") and a $ 100 million facility available for revolving loans (the "2020 Revolving Credit Facility" and together with the 2020 Term Loan Facility, the "2020 Credit Facility").

The 2020 Credit Agreement provides for $ 500 million of commitments from the lenders to the Borrower, comprised of $ 400 million in term loans (the "2020 Term Loan Facility") and a $ 100 million facility available for revolving loans (the "2020 Revolving Credit Facility").

Under the 2020 Revolving Credit Facility, a $ 30 million sublimit is available for letters of credit and a $ 20 million sublimit is available for swingline loans.

The 2020 Credit Facility is scheduled to mature in March 2025.

Under the 2020 Credit Agreement, the Company is required to make quarterly principal payments aggregating $ 10 million in the first year, $ 20 million per year for the following three years, and $ 30 million in the last year, with a $ 300 million final payment due on the maturity date.

The 2020 Credit Agreement includes procedures for additional financial institutions to become lenders thereunder, or for any existing lender to fund one or more new tranches of term loans, or increase its commitment under the 2020 Term Loan Facility or the 2020 Revolving Credit Facility, subject, in each case, to an aggregate dollar limit equal to 100 % of the Company's Consolidated Adjusted EBITDA (as defined in the 2020 Credit Agreement) as of the most recently ended quarter for which financial statements have been delivered to the lenders, plus additional amounts, so long as the Borrower's Consolidated Net Leverage Ratio (as defined in the 2020 Credit Agreement) does not exceed 2.75 :1.00.

The indebtedness and other obligations under the 2020 Credit Facility are unconditionally guaranteed on a senior secured basis by the Company, Edgewater Networks, Inc., a wholly-owned subsidiary of the Company, and Genband Inc., a wholly-owned subsidiary of the Company (together, the "Guarantors").

The 2020 Credit Facility is secured by first-priority liens on substantially all of the assets of the Borrower and the Guarantors, including substantially all of the assets of the Company.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

Under the 2020 Credit Agreement, the Company was originally required to make quarterly principal payments aggregating approximately $ 10 million in the first year, $ 20 million per year for the following three years, and $ 30 million in the last year, with the remaining balance due on the maturity date.

The indebtedness and other obligations under the 2020 Credit Agreement are unconditionally guaranteed on a senior secured basis by the Company, Edgewater Networks, Inc., a wholly-owned subsidiary of the Company, and Genband Inc., a wholly-owned subsidiary of the Company (together, the "Guarantors").

The facilities under the 2020 Credit Agreement are secured by first-priority liens on substantially all of the assets of the Borrower and the Guarantors, including substantially all of the assets of the Company.

The 2020 Credit Agreement requires periodic interest payments until maturity.

The Borrower may prepay all loans under the 2020 Credit Agreement at any time without premium or penalty (other than customary LIBOR breakage costs), subject to certain notice requirements.

Loans incurred under the 2020 Credit Facility bear interest at the Borrower's option at either the LIBOR rate plus a margin ranging from 1.50 % to 3.50 % per year, or the base rate (the highest of the Federal Funds Effective Rate (as defined in the Credit Agreement) plus 0.5 %, or the prime rate announced from time to time in The Wall Street Journal) plus a margin ranging from 0.50 % to 2.50 % per year (the "Applicable Margin").

The Applicable Margin varies depending on the Company's Consolidated Net Leverage Ratio (as defined in the 2020 Credit Agreement).

The base rate and the LIBOR rate are each subject to a zero percent floor.

The 2020 Credit Agreement requires compliance with certain financial covenants, including a minimum Consolidated Fixed Charge Coverage Ratio and a maximum Consolidated Net Leverage Ratio (each as defined in the 2020 Credit Agreement, and each tested on a quarterly basis).

The Company was in compliance with all covenants of the 2020 Credit Agreement at June 30, 2020.

In addition, the 2020 Credit Agreement contains various covenants that, among other restrictions, limit the Company’s and its subsidiaries’ ability to incur or assume indebtedness;

10 unchanged sentences

and amend or make prepayments on certain junior debt.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

The 2020 Credit Agreement contains events of default that are customary for a secured credit facility.

If an event of default relating to bankruptcy or other insolvency events with respect to the Company or any of its subsidiaries occurs, all obligations under the 2020 Credit Agreement will immediately become due and payable.

If any other event of default exists under the 2020 Credit Agreement, the lenders may accelerate the maturity of the obligations outstanding under the Credit Agreement and exercise other rights and remedies, including charging a default rate of interest equal to 2.00 % per year above the rate that would otherwise be applicable.

In addition, if any event of default exists under the 2020 Credit Agreement, the lenders may commence foreclosure or other actions against the collateral.

At June 30, 2020, the Company had an outstanding 2020 Term Loan Facility balance of $ 397.5 million at an average interest rate of 3.9 %.

If any other event of default occurs under the 2020 Credit Agreement, the lenders may accelerate the maturity of the obligations outstanding under the Credit Agreement and exercise other rights and remedies, including charging a default rate of interest equal to 2.00 % per year above the rate that would otherwise be applicable.

In addition, if any event of default exists under the 2020 Credit Agreement, the lenders can commence foreclosure or other actions against the collateral.

On August 18, 2020 (the "First Amendment Effective Date"), the Borrowers entered into a First Amendment to the 2020 Credit Agreement (the "First Amendment").

Pursuant to an assignment and assumption agreement entered into by Citizens and certain affiliates of Whitehorse Capital on the First Amendment Date (collectively, "HIG Whitehorse"), and consented to by Citizens and the Borrower, $ 75 million of the 2020 Term Loan Facility, designated as the Term B Loan (the "Term B Loan"), was assigned from Citizens to HIG Whitehorse as of August 18, 2020.

The remaining $ 325 million of the 2020 Term Loan Facility that was not assigned to HIG Whitehorse was deemed the Term A Loan (the "Term A Loan" and, together with the Term B Loan, the "Amended 2020 Term Loan Facility").

The Term A Loan and the 2020 Revolving Credit Facility mature in March 2025.

The Term A Loan and 2020 Revolving Credit Facility bear interest at the Borrower's option at either the LIBOR rate plus a margin ranging from 1.50 % to 3.50 % per year, or the base rate (the highest of the Federal Funds Effective Rate (as defined in the 2020 Credit Agreement) plus 0.50 %, or the prime rate announced from time to time in The Wall Street Journal) plus a margin ranging from 0.50 % to 2.50 % per year (the "Applicable Margin").

The Applicable Margin varies depending on the Company's Consolidated Net Leverage Ratio (as defined in the 2020 Credit Agreement).

The base rate and the LIBOR rate are each subject to a zero percent floor.

The Company is required to make quarterly principal payments on the Term A Loan aggregating approximately $ 10 million in the first year, $ 16 million per year in each of the next two years, $ 20 million in the fourth year and $ 16 million in the last year, with the final payment approximating $ 244 million due on the maturity date.

The Borrower can prepay all amounts under the Term A Loan and the 2020 Revolving Credit Facility at any time without premium or penalty (other than customary LIBOR breakage costs), subject to certain notice requirements.

The Term B Loan is scheduled to mature in March 2026 and bears interest, at the Borrower's option, at either the LIBOR rate plus a margin of 7.50 % per year, or the base rate (the highest of the Federal Funds Effective Rate (as defined in the First Amendment) plus 0.50 %, or the prime rate announced from time to time in The Wall Street Journal, plus a margin of 6.50 % per year.

The Term B Loan has a lower rate of amortization than the Term A Loan and is subject to a 1.0 % premium if voluntarily repaid in connection with a repricing transaction (as defined in the 2020 Credit Agreement) occurring prior to the six month anniversary of the First Amendment Effective Date.

The Company is required to make quarterly principal payments totaling approximately $ 1 million in the first year and $ 8 million in the aggregate over the next four and a half years, with the final payment approximating $ 66 million.

The First Amendment reduced the Borrower's ability to incur new tranches of term loans, or increases in commitments under the Amended 2020 Term Loan Facility or the 2020 Revolving Credit Facility.

Specifically, such indebtedness can be incurred up to an aggregate dollar amount equal to 75 % of the Company's Consolidated Adjusted EBITDA (as defined in the 2020 Credit Agreement), reduced from 100 % prior to the First Amendment, as of the most recently ended fiscal quarter for which financial statements have been delivered to the lenders, plus additional amounts, so long as the Borrower's Consolidated Net Leverage Ratio (as defined in the 2020 Credit Agreement) does not exceed 2.25 :1.00, reduced from 2.75 :1.00 under the 2020 Credit Agreement.

The First Amendment also reduced the amount of Unrestricted Cash (as defined in the 2020 Credit Agreement) used in calculating the Borrower's Consolidated Net Leverage Ratio from $ 25 million to $ 10 million.

The Company was in compliance with all covenants of the 2020 Credit Agreement at September 30, 2020.

At September 30, 2020, the Company had an outstanding Term A Loan balance of $ 320.5 million at an average interest rate of 3.4 %, and an outstanding Term B Loan balance of $ 74.8 million at an average interest rate of 8.40 %.

The 2020 Revolving Credit Facility did not have an outstanding balance but had $ 5.3 million of letters of credit outstanding with an interest rate of 2.5 %.

Short-Term Loans

The Company had two outstanding uncommitted and unsecured short-term loans aggregating $ 2.4 million which it uses for financing exports in China, one with China Zheshang Bank and one with Bank of Communications Hangzhou Branch.

These short term loans were all entered into in March 2020 and expired in July 2020.

At June 30, 2020, these short-term loans had a weighted average interest rate of 4.27 %.

Both of these loans were repaid in July 2020, and we re-entered into one of them, in the amount of $ 0.7 million, on July 17, 2020.

Letters of Credit and Performance and Bid Bonds

The Company uses letters of credit, performance and bid bonds in the course of its business.

As of June 30, 2020, the Company had $ 33.2 million of letters of credit, bank guarantees, performance and bid bonds outstanding (collectively, "Guarantees"), comprised of the $ 5.2 million of letters of credit under the 2020 Credit Agreement described above, and $ 28.0 million of Guarantees under various uncommitted facilities.

At June 30, 2020, the Company had cash collateral of $ 4.4 million supporting the Guarantees under its uncommitted facilities, which is included in Restricted cash in the condensed consolidated balance sheet at June 30, 2020.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

Short-Term Loan

In July 2020, the Company entered into an uncommitted and unsecured short-term loan in the amount of $ 0.7 million with Bank of Communications Hangzhou Branch in order to finance exports in China.

At September 30, 2020 the interest rate on this loan was 4.0 % and it expires in November 2020.

Letters of Credit and Performance and Bid Bonds

The Company uses letters of credit, performance and bid bonds in the course of its business.

At September 30, 2020, the Company had $ 30.3 million of letters of credit, bank guarantees, performance and bid bonds outstanding (collectively, "Guarantees"), comprised of the $ 5.3 million of letters of credit under the 2020 Credit Agreement described above, and $ 25.0 million of Guarantees under various uncommitted facilities.

At September 30, 2020, the Company had cash collateral of $ 2.9 million supporting the Guarantees under its uncommitted facilities, which is included in Restricted cash in the condensed consolidated balance sheet at September 30, 2020.

(11) DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

13 unchanged sentences

Cash Flow Hedge of Interest Rate Risk

The 2020 Credit Facility is comprised of the 2020 Term Loan Facility and the 2020 Revolving Credit Facility.

The 2020 Term Loan Facility had an outstanding balance of $ 397.5 million at June 30, 2020.

The 2020 Revolving Credit Facility was undrawn at June 30, 2020.

The 2020 Credit Facility has variable interest rates based on LIBOR (see Note 9).

As a result of exposure to interest rate movements, during March 2020, the Company entered into an interest rate swap arrangement, which effectively converted its $ 400 million term loan with its variable-rate interest 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 notional amount of this swap at June 30, 2020 was $ 400 million, and the Swap matures on March 3, 2025, the same date the 2020 Credit Facility matures.

The Amended 2020 Term Loan Facility had an outstanding balance of $ 395.3 million at September 30, 2020.

The 2020 Revolving Credit Facility was undrawn at September 30, 2020.

The credit facilities under the 2020 Credit Agreement have variable interest rates based on LIBOR (see Note 10).

As a result of exposure to interest rate movements, during March 2020, the Company entered into an interest rate swap arrangement, which effectively converted its $ 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 Agreement.

The Term A Loan continues to have a leverage-based margin and the Term B Loan has a fixed margin as defined in the 2020 Credit Agreement.

The notional amount of this swap at September 30, 2020 was $ 400 million, and the swap matures on March 3, 2025, the same date the Term A Loan matures.

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements.

1 unchanged sentence

Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

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

During the three and six months ended June 30, 2020, such a derivative was used to hedge the variable cash flows associated with the 2020 Credit Facility and the Company has accounted for this derivative as an effective hedge.

During the three and nine months ended September 30, 2020, such a derivative was used to hedge the variable cash flows associated with the credit facilities under the 2020 Credit Agreement and the Company has accounted for this derivative as an effective hedge.

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

Amounts reported in accumulated other comprehensive (loss) income related to the Company's derivative will be reclassified to interest expense as interest is accrued on the Company’s variable-rate debt.

Based upon projected forward rates, the Company estimates as of June 30, 2020 that $ 3.1 million may be reclassified as an increase to interest expense over the next twelve months.

The impact of the Company’s derivative financial instrument on its condensed consolidated statement of comprehensive income (loss) for the three and six months ended June 30, 2020 was as follows (in thousands):

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

Three months ended Six months ended

2020 June 30,

Based upon projected forward rates, the Company estimates as of September 30, 2020 that $ 3.1 million may be reclassified as an increase to interest expense over the next twelve months.

The impact of the Company’s derivative financial instrument on its condensed consolidated statement of comprehensive income (loss) for the three and nine months ended September 30, 2020 was as follows (in thousands):

Three months ended Nine months ended

September 30,

2020 September 30,

Loss recognized in other comprehensive loss on derivative (effective portion) $ ( 121 ) $ ( 13,778 )

Amount reclassified from accumulated other comprehensive loss to interest expense (effective portion) $ 761 $ 921

The fair values and locations in the condensed consolidated balance sheet at June 30, 2020 of the Company's derivative liability designated as a hedging instrument were as follows (in thousands):

The fair values and locations in the condensed consolidated balance sheet at September 30, 2020 of the Company's derivative liability designated as a hedging instrument were as follows (in thousands):

Balance sheet location

1 unchanged sentence

Interest rate derivative - liability derivative Other long-term liabilities $ 9,782

The Company has classified the interest rate derivative aggregating $ 13.5 million at June 30, 2020 as a Level 2 within the fair value hierarchy (see Note 1).

The Company has classified the interest rate derivative aggregating $ 12.9 million at September 30, 2020 as a Level 2 fair value measurement within the fair value hierarchy (see Note 1).

(12) REVENUE RECOGNITION

10 unchanged sentences

If the good or service is not sold separately, an entity must estimate the standalone selling price by using an approach that maximizes the use of observable inputs.

Acceptable estimation methods include but are not limited to:

Acceptable estimation methods include but are

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

not limited to:

(1) adjusted market assessment;

9 unchanged sentences

Hardware product is generally sold with software to provide the customer solution.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

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

46 unchanged sentences

The Company disaggregates its revenue from contracts with customers based on the nature of the products and services and the geographic regions in which each customer is domiciled.

The Company's revenue for the three and six months ended June 30, 2020 and 2019 was disaggregated as follows:

The Company's revenue for the three and nine months ended September 30, 2020 and 2019 was disaggregated as follows:

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

Three months ended June 30, 2020 Product revenue Service revenue (maintenance) Service revenue (professional services) Total revenue

Three months ended September 30, 2020 Product revenue Service revenue (maintenance) Service revenue (professional services) Total revenue

United States $ 57,503 $ 33,275 $ 14,072 $ 104,850

3 unchanged sentences

$ 128,926 $ 73,642 $ 28,550 $ 231,118

Three months ended June 30, 2019 Product revenue Service revenue (maintenance) Service revenue (professional services) Total revenue

Three months ended September 30, 2019 Product revenue Service revenue (maintenance) Service revenue (professional services) Total revenue

United States $ 44,701 $ 32,709 $ 10,113 $ 87,523

3 unchanged sentences

$ 61,152 $ 58,901 $ 17,600 $ 137,653

Six months ended June 30, 2020 Product revenue Service revenue (maintenance) Service revenue (professional services) Total revenue

Nine months ended September 30, 2020 Product revenue Service revenue (maintenance) Service revenue (professional services) Total revenue

United States $ 150,980 $ 98,392 $ 35,482 $ 284,854

3 unchanged sentences

$ 325,687 $ 203,333 $ 70,573 $ 599,593

Six months ended June 30, 2019 Product revenue Service revenue (maintenance) Service revenue (professional services) Total revenue

Nine months ended September 30, 2019 Product revenue Service revenue (maintenance) Service revenue (professional services) Total revenue

United States $ 114,525 $ 99,281 $ 26,919 $ 240,725

3 unchanged sentences

$ 180,691 $ 173,031 $ 48,280 $ 402,002

The Company's product revenue from indirect sales through its channel partner program and from its direct sales program for the three and six months ended June 30, 2020 and 2019 was as follows (in thousands):

Three months ended Six months ended

2020 June 30,

2019 June 30,

2020 June 30,

The Company's product revenue from indirect sales through its channel partner program and from its direct sales program for the three and nine months ended September 30, 2020 and 2019 was as follows (in thousands):

Three months ended Nine months ended

September 30,

2020 September 30,

2019 September 30,

2020 September 30,

Indirect sales through channel partner program $ 36,586 $ 21,537 $ 97,839 $ 69,380

1 unchanged sentence

$ 128,926 $ 61,152 $ 325,687 $ 180,691

The Company's product revenue from sales to enterprise customers and from sales to service provider customers for the three and six months ended June 30, 2020 and 2019 was as follows (in thousands):

The Company's product revenue from sales to enterprise customers and from sales to service provider customers for the three and nine months ended September 30, 2020 and 2019 was as follows (in thousands):

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

Three months ended Six months ended

2020 June 30,

2019 June 30,

2020 June 30,

Three months ended Nine months ended

September 30,

2020 September 30,

2019 September 30,

2020 September 30,

Sales to enterprise customers $ 36,937 $ 17,458 $ 100,168 $ 47,295

9 unchanged sentences

These assets and liabilities are reported in the Company's condensed consolidated balance sheets on a contract-by-contract basis as of the end of each reporting period.

Changes in the contract asset and liability balances during the six months ended June 30, 2020 were not materially impacted by any factors other than billing and revenue recognition.

Changes in the contract asset and liability balances during the nine months ended September 30, 2020 were not materially impacted by any factors other than billing and revenue recognition.

Nearly all of the Company's deferred revenue balance is related to services revenue, primarily customer support contracts.

5 unchanged sentences

Unbilled receivables that are anticipated to be invoiced in the next twelve months are included in Accounts receivable on the Company's condensed consolidated balance sheets.

The changes in the Company's accounts receivable, unbilled receivables and deferred revenue balances for the six months ended June 30, 2020 were as follows (in thousands):

The changes in the Company's accounts receivable, unbilled receivables and deferred revenue balances for the nine months ended September 30, 2020 were as follows (in thousands):

Accounts receivable Unbilled accounts receivable Deferred revenue (current) Deferred revenue (long-term)

1 unchanged sentence

Increase (decrease), net ( 14,990 ) 30,097 ( 6,959 ) 803

Balance at June 30, 2020 $ 163,281 41,320 $ 105,694 $ 23,844

The Company recognized approximately $ 69 million of revenue in the six months ended June 30, 2020 that was recorded as deferred revenue at December 31, 2019 and approximately $ 63 million of revenue in the six months ended June 30, 2019 that was recorded as deferred revenue at December 31, 2018.

Of the Company's deferred revenue reported as long-term in its condensed consolidated balance sheet at June 30, 2020, the Company expects that approximately $ 8 million will be recognized as revenue in 2021, approximately $ 9 million will be recognized as revenue in 2022 and approximately $ 7 million will be recognized as revenue in 2023 and beyond.

Balance at September 30, 2020 $ 153,512 54,301 $ 93,447 $ 21,285

The Company recognized approximately $ 86 million of revenue in the nine months ended September 30, 2020 that was recorded as deferred revenue at December 31, 2019 and approximately $ 80 million of revenue in the nine months ended September 30, 2019 that was recorded as deferred revenue at December 31, 2018.

Of the Company's deferred revenue reported as long-term in its condensed consolidated balance sheet at September 30, 2020, the Company expects that approximately $ 7 million will be recognized as revenue in 2021, approximately $ 8 million will be recognized as revenue in 2022 and approximately $ 6 million will be recognized as revenue in 2023 and beyond.

All freight-related customer invoicing is recorded as revenue, while the shipping and handling costs that occur after control of the promised goods or services transfer to the customer are reported as fulfillment costs, a component of Cost of revenue - product in the Company's condensed consolidated statements of operations.

6 unchanged sentences

term portions of deferred commission expense are included as components of Other current assets and Other assets, respectively.

At both June 30, 2020 and December 31, 2019, the Company had $ 3.6 million of deferred sales commissions capitalized.

At both September 30, 2020 and December 31, 2019, the Company had $ 3.6 million of deferred sales commissions capitalized.

(13) COMMON STOCK REPURCHASES

3 unchanged sentences

The stock repurchases are being funded using the Company's working capital.

During the six months ended June 30, 2019, the Company spent $ 4.5 million, including transaction fees, to repurchase and retire 1.0 million shares of its common stock under the Repurchase Program.

The Company did not repurchase any stock during the six months ended June 30, 2020.

At June 30, 2020, the Company had $ 70.5 million remaining under the Repurchase Program for future repurchases.

During the nine months ended September 30, 2019, the Company spent $ 4.5 million, including transaction fees, to repurchase and retire 1.0 million shares of its common stock under the Repurchase Program.

The Company did not repurchase any common stock during the three and nine months ended September 30, 2020.

At September 30, 2020, the Company had $ 70.5 million remaining under the Repurchase Program for future repurchases, subject to the terms of the 2020 Credit Agreement.

(14) STOCK-BASED COMPENSATION PLANS

30 unchanged sentences

2020 PSU Grants .

In June 2020, the Company granted certain of its executives an aggregate of 623,575 PSUs, of which 374,143 PSUs had both performance and service conditions (the "2020 Performance PSUs") and 249,432 had both market and service conditions (the "2020 Market PSUs").

From June 2020 through September 2020, the Company granted certain of its executives an aggregate of 823,369 PSUs, of which 494,020 PSUs had both performance and service conditions (the "2020 Performance PSUs") and 329,349 had both market and service conditions (the "2020 Market PSUs").

Each executive's 2020 Performance PSU grant is comprised of three consecutive fiscal year performance periods from 2020 through 2022 (each, a "fiscal year performance period"), with one-third of the 2020 Performance PSUs attributable to each fiscal year performance period.

The number of shares that will vest, if any, for each fiscal year performance period will be based on the achievement of certain metrics related to the Company's financial performance for the applicable year on a standalone basis (each, a "fiscal year performance condition").

As of June 30, 2020, the Company determined that the grant date criteria for the 2020 fiscal year performance period had been met, and recorded the applicable stock-based compensation expense.

The grant date criteria for the 2021 and 2022 fiscal year performance periods had not been met as of June 30, 2020, and accordingly, no expense has been recorded for the 2020 Performance PSUs underlying these fiscal year performance periods.

During the second quarter of 2020, the Company determined that the grant date criteria for the 2020 fiscal year performance period had been met, and recorded the applicable stock-based compensation expense.

The grant date criteria for the 2021 and 2022 fiscal year performance periods had not been met as of September 30, 2020, and accordingly, no expense has been recorded for the 2020 Performance PSUs underlying these fiscal year performance periods.

The number of shares of common stock to be achieved upon vesting of the 2020 Performance PSUs will in no event exceed 200 % of the total 2020 Performance PSUs.

5 unchanged sentences

Shares subject to the 2020 Market PSUs that fail to be earned will be forfeited.

In addition, in connection with his appointment as Executive Vice President and General Manager, Packet Optical Networking, the Company granted Sam Bucci 133,333 PSUs (the "Bucci Stock Price PSUs") with both market and service conditions.

Subject to Mr.

Bucci's continued employment, the Bucci Stock Price PSUs are eligible to vest and be settled in shares of Ribbon's common stock upon the achievement of a specific share price threshold on or prior to January 31, 2022.

2019 PSU Grants .

In March and April 2019, the Company granted certain of its executives an aggregate of 872,073 PSUs, of which 523,244 PSUs had both performance and service conditions (the "2019 Performance PSUs") and 348,829 PSUs had both market and service conditions (the "2019 Market PSUs").

Each executive's 2019 Performance PSU grant is comprised of three consecutive fiscal year performance periods from 2019 through 2021 (each, a "fiscal year performance period"), with one-third of the 2019 Performance PSUs attributable to each fiscal year performance period.

In the third quarter of 2019, the Company adjusted the 2019 Performance PSU fiscal 2019 goals to reflect the changes to the Company's calculation of certain metrics.

Each executive's 2019 Performance PSU grant is comprised of three consecutive fiscal year performance periods from

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

incremental expense in connection with this modification.

2019 through 2021 (each, a "fiscal year performance period"), with one-third of the 2019 Performance PSUs attributable to each fiscal year performance period.

In the third quarter of 2019, the Company adjusted the 2019 Performance PSU fiscal 2019 goals to reflect the changes to the Company's calculation of certain metrics.

There was no incremental expense in connection with this modification.

In March 2020, the Compensation Committee determined that the 2019 fiscal year performance conditions had been satisfied at the 30.493 % level.

The Company's achievement of the 2019 fiscal year performance conditions (and the number of shares of Company common stock to vest as a result thereof) was measured on a linear sliding scale in relation to specific threshold, target and stretch performance conditions.

As of June 30, 2020, the Company determined that the grant date criteria for the 2020 fiscal year performance period had been met, and recorded the applicable stock-based compensation expense.

The grant date criteria for the 2021 fiscal year performance period had not been met as of June 30, 2020, and accordingly, no expense has been recorded for the 2019 Performance PSUs underlying the 2020 fiscal year performance period.

The grant date criteria for the 2021 fiscal year performance period had not been met as of September 30, 2020, and accordingly, no expense has been recorded for the 2019 Performance PSUs underlying the 2020 fiscal year performance period.

The number of shares of common stock to be achieved upon vesting of the 2019 Performance PSUs will in no event exceed 200 % of the 2019 Performance PSUs.

5 unchanged sentences

Shares subject to the 2019 Market PSUs that fail to be earned will be forfeited.

In connection with the separation of two executives from the Company, certain of the 2019 Performance PSUs were accelerated and released in accordance with their employment agreements in the three months ended September 30, 2020, with the potential for a portion of the 2020 Performance PSUs and Market PSUs aggregating approximately 43,000 shares to be released to these former executives on a pro rata basis subject to the Company's achievement for the performance periods through their respective separation dates.

2018 PSU Grant .

12 unchanged sentences

Accounting for Market PSUs .

PSUs that include a market condition require the use of a Monte Carlo simulation approach to model future stock price movements based upon the risk-free rate of return, the date of return, the volatility of each entity and the pair-wise covariance between each entity.

PSUs that include a market condition require the use of a Monte Carlo simulation

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

approach to model future stock price movements based upon the risk-free rate of return, the date of return, the volatility of each entity and the pair-wise covariance between each entity.

These results are then used to calculate the grant date fair values of the respective PSUs.

The Company is required to record expense for the PSUs with market conditions through their respective final vesting dates, regardless of the number of shares that are ultimately earned.

At June 30, 2020, the calculation of the grant date fair value of the 2020 Market PSUs had not been completed.

The Company used a grant date fair value of $ 4.37 , the closing stock price on the date of grant, to calculate expense attributable to the three months ended June 30, 2020 for the 2020 Market PSUs.

The Company is also using this stock price for 2020 Market PSU activity included in the PSU table below.

The Company expects that the Monte Carlo valuation work and finalization of the grant date fair value of the 2020 Market PSUs will occur in the third quarter of 2020.

At that time, the Company will record a cumulative adjustment to expense and adjust the grant date fair value of the 2020 Market PSUs for subsequent reporting.

At September 30, 2020, the calculation of the grant date fair values of the 2020 Market PSUs granted on September 15, 2020 and the Bucci Stock Price PSUs had not been completed.

The Company used a grant date fair value of $ 4.24 , the closing stock price on the date of grant, to calculate expense attributable to the three months ended September 30, 2020 for the 2020 Market PSUs granted on September 15, 2020 and the Bucci Stock Price PSUs, and is also using this stock price for these PSUs in the table below.

The Company expects that the Monte Carlo valuation work and finalization of the grant date fair value of the 2020 Market PSUs granted on September 15, 2020 and the Bucci Stock Price PSUs will occur in the fourth quarter of 2020.

At that time, the Company will record a cumulative adjustment to expense and adjust the grant date fair value of these PSUs for subsequent reporting.

The Company does not expect the cumulative adjustment to expense will have a material impact on its consolidated financial statements.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

At June 30, 2020, the calculation of the grant date fair value of the 2020 Market PSUs granted prior to September 15, 2020 had not been completed.

The Company used a grant date fair value of $ 4.37 , the closing stock price on the date of grant, to calculate expense attributable to the three months ended June 30, 2020 for the 2020 Market PSUs.

During the third quarter of 2020, the Monte Carlo valuation of these PSUs was completed and accordingly, the grant date fair value of these PSUs was finalized as of September 30, 2020.

The Company recorded a cumulative adjustment to expense to account for the change in fair value of these PSUs, which adjustment did not have a material impact on its consolidated financial statements.

At March 31, 2020, the calculation of the grant date fair value of the Inducement PSUs had not been completed.

3 unchanged sentences

Stock Options

The activity related to the Company's outstanding stock options for the six months ended June 30, 2020 was as follows:

The activity related to the Company's outstanding stock options for the nine months ended September 30, 2020 was as follows:

Shares Weighted

9 unchanged sentences

Expired ( 41,717 ) $ 15.78

Outstanding at June 30, 2020 267,640 $ 11.97 4.27 $ 172

Vested or expected to vest at June 30, 2020 266,771 $ 12.01 3.86 $ 171

Exercisable at June 30, 2020 251,837 $ 12.60 4.08 $ 141

Additional information regarding the Company's stock options for the six months ended June 30, 2020 was as follows (in thousands):

Three months ended Six months ended

2020 June 30,

Weighted average grant date fair value of stock options granted

Outstanding at September 30, 2020 233,224 $ 11.70 4.10 $ 157

Vested or expected to vest at September 30, 2020 232,800 $ 11.71 4.10 $ 157

Exercisable at September 30, 2020 224,173 $ 12.09 4.00 $ 140

Additional information regarding the Company's stock options for the nine months ended September 30, 2020 was as follows (in thousands):

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

Three months ended Nine months ended

September 30,

2020 September 30,

Total intrinsic value of stock options exercised $ 7 $ 36

1 unchanged sentence

Restricted Stock Awards and Units

The activity related to the Company's RSAs for the six months ended June 30, 2020 was as follows:

The activity related to the Company's RSAs for the nine months ended September 30, 2020 was as follows:

Shares Weighted

3 unchanged sentences

Forfeited ( 27,484 ) $ 6.97

Unvested balance at June 30, 2020 292,923 $ 6.87

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

The activity related to the Company's RSUs for the six months ended June 30, 2020 was as follows:

Unvested balance at September 30, 2020 156,051 $ 7.00

The activity related to the Company's RSUs for the nine months ended September 30, 2020 was as follows:

Shares Weighted

3 unchanged sentences

Forfeited ( 677,124 ) $ 3.69

Unvested balance at June 30, 2020 7,269,989 $ 3.30

The total grant date fair value of shares of restricted stock granted under RSAs and RSUs that vested during the six months ended June 30, 2020 was $ 7.6 million.

Unvested balance at September 30, 2020 6,931,663 $ 3.30

The total grant date fair value of shares of restricted stock granted under RSAs and RSUs that vested during the nine months ended September 30, 2020 was $ 10.0 million.

Performance-Based Stock Units

The activity related to the Company's PSUs for the six months ended June 30, 2020 was as follows:

The activity related to the Company's PSUs for the nine months ended September 30, 2020 was as follows:

Shares Weighted

3 unchanged sentences

Forfeited ( 377,753 ) $ 5.22

Unvested balance at June 30, 2020 5,862,505 $ 1.40

The total grant date fair value of shares of restricted stock granted under PSUs that vested during the six months ended June 30, 2020 was $ 1.7 million.

Unvested balance at September 30, 2020 6,169,770 $ 1.67

The total grant date fair value of shares of restricted stock granted under PSUs that vested during the nine months ended September 30, 2020 was $ 1.8 million.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

Employee Stock Purchase Plan

4 unchanged sentences

Stock-Based Compensation

The condensed consolidated statements of operations include stock-based compensation for the three and six months ended June 30, 2020 and 2019 as follows (in thousands):

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

Three months ended Six months ended

2020 June 30,

2019 June 30,

2020 June 30,

The condensed consolidated statements of operations include stock-based compensation for the three and nine months ended September 30, 2020 and 2019 as follows (in thousands):

Three months ended Nine months ended

September 30,

2020 September 30,

2019 September 30,

2020 September 30,

Product cost of revenue $ 57 $ 26 $ 123 $ 62

4 unchanged sentences

$ 3,969 $ 2,485 $ 10,167 $ 8,154

There was no income tax benefit for employee stock-based compensation expense for the six months ended June 30, 2020 or 2019 due to the valuation allowance recorded.

At June 30, 2020, there was $ 24.1 million, net of expected forfeitures, of unrecognized stock-based compensation expense related to unvested stock options, stock awards and stock units.

This expense is expected to be recognized over a weighted average period of approximately three years .

There was no income tax benefit for employee stock-based compensation expense for the nine months ended September 30, 2020 or 2019 due to the valuation allowance recorded.

At September 30, 2020, there was $ 23.0 million, net of expected forfeitures, of unrecognized stock-based compensation expense related to unvested stock options, stock awards and stock units.

This expense is expected to be recognized over a weighted average period of approximately two years, six months .

(15) MAJOR CUSTOMERS

The following customer contributed 10% or more of the Company's revenue in the three and six months ended June 30, 2020 and 2019:

Three months ended Six months ended

2020 June 30,

2019 June 30,

2020 June 30,

The following customers contributed 10% or more of the Company's revenue in the three and nine months ended September 30, 2020 and 2019:

Three months ended Nine months ended

September 30,

2020 September 30,

2019 September 30,

2020 September 30,

Verizon Communications Inc.

16 % 15 % 15 % 17 %

At June 30, 2020, there were two customers that each accounted for 10% or more of the Company's accounts receivable balance, representing approximately 26 % in the aggregate of total accounts receivable.

* 16 % * 12 %

* Represents less than 10% of total revenue.

At September 30, 2020, one customer accounted for 10% or more of the Company's accounts receivable balance, representing approximately 15 % of total accounts receivable.

At December 31, 2019, one customer accounted for 10% or more of the Company's accounts receivable balance, representing approximately 22 % of total accounts receivable.

1 unchanged sentence

The Company maintains an allowance for doubtful accounts and such losses have been within management's expectations.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(16) RELATED PARTY TRANSACTIONS

As a portion of the consideration for the GENBAND Merger, on October 27, 2017, the Company issued a Promissory Note for $ 22.5 million to certain of GENBAND's equity holders who, following the GENBAND Merger, owned greater than five percent of the Company's outstanding shares.

As described in Note 9, the Promissory Note did not amortize and the principal thereon was payable in full on the third anniversary of its execution.

Interest on the Promissory Note was payable quarterly in arrears and accrued at a rate of 7.5 % per year for the first six months after issuance, and thereafter at a rate of 10 % per year.

The failure to make any payment under the Promissory Note when due and, with respect to payment of any interest, the continuation of such failure for a period of thirty days thereafter, constituted an event of default under the Promissory Note.

If an event of default occurred under the Promissory Note, the payees could declare the entire balance of the Promissory Note due and payable (including principal and accrued and unpaid interest) within five business days of the payees' notification to the Company of such acceleration.

On April 29, 2019, the Company repaid in full all outstanding amounts under the Promissory Note, aggregating $ 24.7 million.

The Company did not incur any early termination penalties in connection with this repayment.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(17) INCOME TAXES

The Company's income tax provisions for the six months ended June 30, 2020 and 2019 reflect the Company's estimates of the effective rates expected to be applicable for the respective full years, adjusted for any discrete events, which are recorded in the period that they occur.

The Company's income tax provisions for the nine months ended September 30, 2020 and 2019 reflect the Company's estimates of the effective rates expected to be applicable for the respective full years, adjusted for any discrete events, which are recorded in the period that they occur.

The amount recorded for the three months ended September 30, 2020 includes a $ 4 million benefit from the release of a valuation allowance related to the Company's Ireland operations due to the Company's expectation that it is more likely than not that its Ireland operations will continue to be profitable.

These estimates are reevaluated each quarter based on the Company's estimated tax expense for the full year.

The estimated effective tax rate includes the impact of valuation allowances in various jurisdictions.

The Company continues to evaluate the impact of various COVID-19 relief packages offered by various countries, including the Coronavirus Aid, Relief, and Economic Security ("CARES") Act, which was enacted into law on March 27, 2020.

on March 27, 2020.

At this time, the Company does not anticipate any material tax impacts.

11 unchanged sentences

The measurement of the right-of-use asset also includes any lease payments made prior to the commencement date (excluding any lease incentives) and initial direct costs incurred.

The Company assessed its right-of-use assets for impairment as of June 30, 2020 and December 31, 2019 and determined no impairment has occurred.

The Company assessed its right-of-use assets for impairment as of September 30, 2020 and December 31, 2019 and determined no impairment has occurred.

Lease terms may include options to extend or terminate the lease and the Company incorporates such options in the lease term when it has the unilateral right to make such an election and it is reasonably certain that the Company will exercise that option.

In making this determination, the Company considers its prior renewal and termination history and planned usage of the assets under lease, incorporating expected market conditions.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

For operating leases, lease expense for minimum fixed lease payments is recognized on a straight-line basis over the lease term.

6 unchanged sentences

The Company ceased use of these facilities in the first quarter of 2020 and the third quarter of 2019.

Accordingly, the Company accelerated the amortization of the associated lease assets through the planned cease-use date of each facility, resulting in additional amortization expense of $ 0.1 million in the six months ended June 30, 2020.

The Company did not

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

record additional amortization expense in the three months ended June 30, 2020.

The Company previously recorded $ 3.7 million of additional amortization expense in the year ended December 31, 2019, including $ 2.9 million recorded in both the three and six months ended June 30, 2019.

The Company did not record expense for estimated future variable lease costs in the three and six months ended June 30, 2020 and 2019.

The Company did not record additional amortization expense in the three months ended September 30, 2020.

The Company previously recorded $ 3.7 million of additional amortization expense in the year ended December 31, 2019, including $ 0.6 million and $ 3.5 million in the three and nine months ended September 30, 2019, respectively.

The Company recorded $ 1.0 million in the aggregate in the year ended December 31, 2019 for estimated future variable lease costs.

All of these amounts were recorded as Restructuring and related expense in the Company's condensed consolidated statements of operations.

At June 30, 2020 and December 31, 2019, the Company had accruals of $ 0.8 million and $ 0.9 million, respectively, for all future anticipated variable lease costs related to these facilities.

At September 30, 2020 and December 31, 2019, the Company had accruals of $ 0.8 million and $ 0.9 million, respectively, for all future anticipated variable lease costs related to these facilities.

The Company may incur additional future expense if it is unable to sublease other locations included in the Facilities Initiative.

2 unchanged sentences

The Company's finance leases primarily consist of equipment.

At June 30, 2020, the Company had 107,800 square feet of building space in North Dallas, Texas under construction as part of the Facilities Initiative.

At September 30, 2020, the Company had 107,800 square feet of building space in North Dallas, Texas under construction as part of the Facilities Initiative.

The Company's leased Plano, Texas facility will be vacated upon completion of the construction of the North Dallas, Texas site.

1 unchanged sentence

The construction of the new North Dallas, Texas site is expected to be completed in 2020.

The Company's right-of-use lease assets and lease liabilities at June 30, 2020 and December 31, 2019 were as follows (in thousands):

Classification June 30,

The Company's right-of-use lease assets and lease liabilities at September 30, 2020 and December 31, 2019 were as follows (in thousands):

Classification September 30,

2020 December 31,

7 unchanged sentences

Total lease liabilities $ 71,182 $ 48,070

* Finance lease assets were recorded net of accumulated depreciation of $ 2.6 million and $ 2.0 million at June 30, 2020 and December 31, 2019, respectively.

The components of lease expense for the three and six months ended June 30, 2020 and 2019 were as follows (in thousands):

* Finance lease assets were recorded net of accumulated depreciation of $ 2.2 million and $ 2.0 million at September 30, 2020 and December 31, 2019, respectively.

The components of lease expense for the three and nine months ended September 30, 2020 and 2019 were as follows (in

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

Three months ended Six months ended

2020 June 30,

2019 June 30,

2020 June 30,

Three months ended Nine months ended

September 30,

2020 September 30,

2019 September 30,

2020 September 30,

Operating lease cost* $ 5,350 $ 2,988 $ 13,911 $ 11,063

6 unchanged sentences

Net lease cost $ 10,891 $ 9,826 $ 32,024 $ 29,120

* Operating lease cost for the six months ended June 30, 2020 included $ 0.1 million of accelerated amortization for certain assets partially or fully vacated in 2020 with no intent or ability to sublease.

The Company did not record accelerated amortization in the three months ended June 30, 2020.

Operating lease cost for both the three and six months ended June 30, 2019 included $ 2.9 million of accelerated amortization for certain assets that were partially or fully vacated in 2019 with no possibility of sublease.

Cash flow information related to the Company's leases for the six months ended June 30, 2020 and 2019 was as follows (in thousands):

Six months ended

2020 June 30,

* Operating lease cost for the nine months ended September 30, 2020 included $ 0.1 million of accelerated amortization for certain assets partially or fully vacated in 2020 with no intent or ability to sublease.

The Company did not record accelerated amortization in the three months ended September 30, 2020.

Operating lease cost for the three and nine months ended September 30, 2019 included $ 0.6 million and $ 3.5 million, respectively, of accelerated amortization for certain assets that were partially or fully vacated in 2019 with no possibility of sublease.

** Variable lease costs for the three and nine months ended September 30, 2019 included $ 0.9 million and $ 1.0 million, respectively, accrued for all future estimated variable expenses related to certain assets partially or fully vacated in 2019 with no intent or ability to sublease.

No such variable lease costs were accrued in the three and nine months ended September 30, 2020.

Cash flow information related to the Company's leases for the nine months ended September 30, 2020 and 2019 was as follows (in thousands):

Nine months ended

September 30,

2020 September 30,

Cash paid for amounts included in the measurement of lease liabilities

2 unchanged sentences

Financing cash flows for finance leases $ 971 $ 698

Other information related to the Company's leases as of June 30, 2020 and December 31, 2019 was as follows:

Other information related to the Company's leases as of September 30, 2020 and December 31, 2019 was as follows:

September 30,

2020 December 31,

5 unchanged sentences

Finance leases 6.65 % 7.54 %

Future minimum fixed lease payments under noncancelable leases at June 30, 2020 and December 31, 2019 were as follows (in thousands):

Future minimum fixed lease payments under noncancelable leases at September 30, 2020 and December 31, 2019 were as follows (in thousands):

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

June 30, 2020

September 30, 2020

Operating Finance

34 unchanged sentences

The Company recorded the reduction to the outstanding principal as a reduction to interest income.

At June 30, 2020, the outstanding notes receivable

On July 14, 2020, Metaswitch paid the Company the

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

balance of $ 16.75 million was included as a component of Other current assets in the condensed consolidated balance sheet.

remaining outstanding balance of $ 16.75 million.

At December 31, 2019, the Company had notes receivable for future payments of $ 25.5 million, comprised of $ 8.5 million in Other current assets and $ 17.0 million in Other assets in the condensed consolidated balance sheet.

On July 14, 2020, Metaswitch paid the Company the remaining outstanding balance of $ 16.75 million.

Contingencies

4 unchanged sentences

Effective for grants approved in 2017 and subsequently, interest was calculated at the higher of LIBOR plus 1.5 % to 2.75 %.

At June 30, 2020, the Company's maximum possible future royalties commitment, including $ 9.3 million of unpaid royalties accrued at June 30, 2020, was $ 56.2 million, including interest of $ 2.4 million, based on estimates of future product sales, grants received from the IIA and not yet repaid, and management's estimation of products still to be sold.

At September 30, 2020, the Company's maximum possible future royalties commitment, including $ 7.6 million of unpaid royalties accrued at September 30, 2020, was $ 54.6 million, including interest of $ 2.5 million, based on estimates of future product sales, grants received from the IIA and not yet repaid, and management's estimation of products still to be sold.

On November 8, 2018, Ron Miller, a purported stockholder of the Company, filed a Class Action Complaint (the "Miller Complaint") in the United States District Court for the District of Massachusetts (the "Massachusetts District Court") against the Company and three of its former officers (collectively, the "Defendants"), claiming to represent a class of purchasers of Sonus common stock during the period from January 8, 2015 through March 24, 2015 and alleging violations of the federal securities laws.

9 unchanged sentences

Management does not expect the results of any of these actions to have a material effect on the Company's business or condensed consolidated financial statements.

(19) SUBSEQUENT EVENT

On August 5, 2020, the Company announced that it has entered into a definitive agreement (the "Kandy Agreement") with American Virtual Cloud Technologies, Inc.

("AVCTechnologies") to sell the Company's cloud-based enterprise services business (the "Kandy Communications Business").

The Company will receive 13 million shares of AVCTechnologies common stock, subject to certain adjustments, as consideration for the transaction.

The transaction is expected to close in the second half of 2020 and is subject to receipt of the approval of AVCTechnologies' shareholders for the issuance of the shares to the Company, AVCTechnologies' completion of necessary financing, approval of the lenders under the Company's 2020 Credit Facility and other customary closing conditions.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements