9 unchanged sentences
In addition, our software solutions secure cloud-based delivery of unified communications ("UC") solutions - both for service providers transforming to a cloud-based network and for enterprises using cloud-based UC - and support the increasing demand on network infrastructure created by ongoing IP traffic growth and the projected demand related to increased traffic from 5G applications and devices.
−Removed: We sell our products and solutions through both direct sales and indirect channels, leveraging the reach and local presence of resellers, and provide ongoing support to its customers through a global services team with experience in design, deployment and maintenance of some of the world's largest software IP networks.
+Added: We sell our products and solutions through both direct sales and indirect channels, leveraging the reach and local presence of resellers, and provide ongoing support to our customers through a global services team with experience in design, deployment and maintenance of some of the world's largest software IP networks.
Impact of COVID-19 on Our Business
8 unchanged sentences
Such volatility may also adversely impact our ability to access capital markets if and when we would be required to do so.
−Removed: The degree to which the COVID-19 pandemic ultimately impacts our business, financial position and results of operations will depend on future developments beyond our control, including the severity of the pandemic, the frequency and duration of future waves of infection, the extent of actions to contain or treat the virus, how quickly and to what extent normal economic and operating conditions can resume, and the severity and duration of the global economic downturn that results from the pandemic.
+Added: The degree to which the COVID-19 pandemic ultimately impacts our business, financial position and results of operations will depend on future developments beyond our control, including the severity of the pandemic, the frequency and duration of future waves of infection, the effectiveness and timing of any vaccines, the extent of actions to contain or treat the virus, how quickly and to what extent normal economic and operating conditions can resume, and the severity and duration of the global economic downturn that results from the pandemic.
As a response to the ongoing COVID-19 pandemic, we have implemented plans to manage our costs.
−Removed: As part of that plan, we have implemented a temporary wage reduction of 10% to 50% applicable to the base salary of most of our employees.
+Added: As part of that plan, we implemented a temporary wage reduction of 10% to 50% applicable to the base salary of most of our employees, which salary reduction has now ended.
We have significantly limited the addition of new employees and third-party contracted services, eliminated all travel except where necessary to meet customer or regulatory needs, and acted to limit discretionary spending.
−Removed: To the extent the business disruption continues for an extended period, additional cost management actions will be considered.
+Added: To the extent the business disruption continues for an extended period, additional cost management actions will be
Any future asset impairment charges, increases in the allowance for doubtful accounts or restructuring charges could be more likely and will be dependent on the severity and duration of this crisis.
4 unchanged sentences
On March 3, 2020 ("ECI Merger Date"), we completed the merger transaction with ECI in accordance with the terms of the Agreement and Plan of Merger, dated as of November 14, 2019, by and among Ribbon, an indirect wholly-owned subsidiary of Ribbon ("Merger Sub"), Ribbon Communications Israel Ltd., ECI, and ECI Holding (Hungary) kft, pursuant to which Merger Sub merged with and into ECI, with ECI surviving such merger as a wholly-owned subsidiary of Ribbon (the "ECI Merger").
−Removed: Prior to the ECI Merger Date, ECI was a privately-held global provider of end-to-end packet-optical transport and SDN/NFV solutions for service providers, enterprises and data center operators.
+Added: Prior to the ECI Merger Date, a privately-held global provider of end-to-end packet-optical transport and software-defined networking ("SDN") and network function virtualization ("NFV") solutions for service providers, enterprises and data center operators.
Ribbon believes the ECI Merger positions the Company for growth and enhances its competitive strengths by expanding its product portfolio beyond solutions primarily supporting voice applications to include data applications and optical networking.
1 unchanged sentence
In addition, ECI shareholders received $33.4 million from the sale of certain of ECI's real estate assets.
−Removed: Cash Consideration was financed through cash on hand and committed debt financing consisting of a new $400 million term loan facility (the "2020 Term Loan") and new $100 million revolving credit facility (together, the "2020 Credit Facility"), which was undrawn at the ECI Merger Date.
+Added: 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 our condensed consolidated financial statements for the periods subsequent to the ECI Merger Date.
7 unchanged sentences
The Anova Acquisition has been accounted for as a business combination and the financial results of Anova have been included in our condensed consolidated financial statements for the periods subsequent to the Anova Acquisition Date.
+Added: Proposed Sale of Kandy Communications Business
+Added: On August 5, 2020, we announced our entry into a definitive agreement (the "Kandy Agreement") with American Virtual Cloud Technologies, Inc.
+Added: ("AVCTechnologies") to sell our cloud-based enterprise services business (the "Kandy Communications Business").
+Added: 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, one of our subsidiaries.
+Added: AVCTechnologies has agreed to pay us 13 million shares of AVCTechnologies
+Added: common stock, subject to certain adjustments, as consideration for the transaction.
+Added: The transaction is subject to receipt of the approval of AVCTechnologies' shareholders for the issuance of the shares to us, AVCTechnologies' completion of necessary financing, approval of the lenders under the our 2020 Credit Agreement and other customary closing conditions.
Financial Overview
Financial Results
−Removed: We reported income from operations of $2 million for the three months ended June 30, 2020 and a loss from operations of $7 million for the three months ended June 30, 2019.
−Removed: We reported losses from operations of $27 million and $43 million for the six months ended June 30, 2020 and 2019, respectively.
−Removed: Our revenue was $210 million and $145 million in the three months ended June 30, 2020 and 2019, respectively, and
−Removed: $368 million and $264 million in the six months ended June 30, 2020 and 2019, respectively.
−Removed: Our gross profit was $112 million and $81 million in the three months ended June 30, 2020 and 2019, respectively.
−Removed: Our gross profit as a percentage of revenue ("total gross margin") was 53% and 55% in the three months ended June 30, 2020 and 2019, respectively.
−Removed: Our gross profit was $194 million and $137 million in the six months ended June 30, 2020 and 2019, respectively.
−Removed: Our total gross margin was 53% and 52% in the six months ended June 30, 2020 and 2019, respectively.
−Removed: Our operating expenses were $111 million and $88 million in the three months ended June 30, 2020 and 2019, respectively.
−Removed: Operating expenses for the three months ended June 30, 2020 included $1 million of acquisition- and integration-related expense and $5 million of restructuring and related expense.
−Removed: Operating expenses for the three months ended June 30, 2019 included $2 million of acquisition- and integration-related expense and $9 million of restructuring and related expense.
−Removed: Our operating expenses were $221 million and $181 million in the six months ended June 30, 2020 and 2019, respectively.
−Removed: Operating expenses for the six months ended June 30, 2020 included $13 million of acquisition- and integration-related expense and $7 million of restructuring and related expense.
−Removed: Operating expenses for the six months ended June 30, 2019 included $5 million of acquisition- and integration-related expense and $14 million of restructuring and related expense.
−Removed: We recorded stock-based compensation expense of $3 million and $2 million in the three months ended June 30, 2020 and 2019, respectively, and $6 million in both the six months ended June 30, 2020 and 2019.
+Added: We reported income from operations of $12 million and $3 million for the three months ended September 30, 2020 and 2019, respectively.
+Added: We reported losses from operations of $15 million and $41 million for the nine months ended September 30, 2020 and 2019, respectively.
+Added: Our revenue was $231 million and $138 million in the three months ended September 30, 2020 and 2019, respectively, and $600 million and $402 million in the nine months ended September 30, 2020 and 2019, respectively.
+Added: Our gross profit was $123 million and $79 million in the three months ended September 30, 2020 and 2019, respectively.
+Added: Our gross profit as a percentage of revenue ("total gross margin") was 53% and 57% in the three months ended September 30, 2020 and 2019, respectively.
+Added: Our gross profit was $317 million and $216 million in the nine months ended September 30, 2020 and 2019, respectively.
+Added: Our total gross margin was 53% and 54% in the nine months ended September 30, 2020 and 2019, respectively.
+Added: Our operating expenses were $111 million and $76 million in the three months ended September 30, 2020 and 2019, respectively.
+Added: Operating expenses for the three months ended September 30, 2020 included $1 million of acquisition- and integration-related expense and $3 million of restructuring and related expense.
+Added: Operating expenses for the three months ended September 30, 2019 included $2 million of acquisition- and integration-related expense and $2 million of restructuring and related expense.
+Added: Our operating expenses were $332 million and $257 million in the nine months ended September 30, 2020 and 2019, respectively.
+Added: Operating expenses for the nine months ended September 30, 2020 included $15 million of acquisition- and integration-related expense and $11 million of restructuring and related expense.
+Added: Operating expenses for the nine months ended September 30, 2019 included $7 million of acquisition- and integration-related expense and $16 million of restructuring and related expense.
+Added: We recorded stock-based compensation expense of $4 million and $2 million in the three months ended September 30, 2020 and 2019, respectively, and $10 million and $8 million in the nine months ended September 30, 2020 and 2019, respectively.
These amounts are included as components of both Cost of revenue and Operating expenses in our condensed consolidated statements of operations.
−Removed: See "Results of Operations" in this MD&A for a discussion of the changes in our revenue and expenses for the three and six months ended June 30, 2020 compared to the three and six months ended June 30, 2019.
+Added: See "Results of Operations" in this MD&A for a discussion of the changes in our revenue and expenses for the three and nine months ended September 30, 2020 compared to the three and nine months ended September 30, 2019.
Restructuring and Cost Reduction Initiatives
In 2020, we implemented a restructuring plan to eliminate certain positions and redundant facilities, primarily in connection with the ECI Merger, to further streamline our global footprint and improve our operations (the "2020 Restructuring Initiative").
−Removed: The 2020 Restructuring Initiative includes facility consolidations and a reduction in workforce.
+Added: The 2020 Restructuring Initiative includes facility consolidations and a reduction in workforce, including three former executives of ECI for whom severance aggregating $1 million was recorded in the three months ended March 31, 2020.
In connection with this initiative, we expect to eliminate duplicate functions arising from the ECI Merger and support our efforts to integrate the two companies.
−Removed: In connection with the 2020 Restructuring Initiative, we recorded restructuring and related expense of $4.7 million and $5.8 million in the three and six months ended June 30, 2020, respectively for severance and related costs for approximately 75 employees.
−Removed: The amount recorded in the three months ended March 31, 2020 represents severance for three former executives of ECI.
+Added: In connection with the 2020 Restructuring Initiative, we recorded restructuring and related expense of $3 million and $9 million in the three and nine months ended September 30, 2020, respectively.
+Added: The amount recorded in the three months ended September 30, 2020 was comprised of $2 million for severance and related costs and $1 million for facilities, primarily in the United Kingdom.
+Added: The amount recorded in the nine months ended September 30, 2020 was comprised of $8 million for severance and related costs for approximately 125 employees and the aforementioned $1 million for facilities.
We expect these amounts will be paid by the end of 2021.
2 unchanged sentences
The 2019 Restructuring Initiative includes facility consolidations, refinement of our research and development activities, and a reduction in workforce.
−Removed: In connection with this initiative, we expect to reduce our focus on hardware and appliance-based development over time and to increase our development focus on software virtualization, functional simplicity and important customer requirements.
+Added: In connection with this
+Added: initiative, we expect to reduce our focus on hardware and appliance-based development over time and to increase our development focus on software virtualization, functional simplicity and important customer requirements.
The facility consolidations under the 2019 Restructuring Initiative (the "Facilities Initiative") include a consolidation of our North Texas sites into a single campus, housing engineering, customer training and support, and administrative functions, as well as a reduction or elimination of certain excess and duplicative facilities worldwide.
2 unchanged sentences
We expect that the actions under the Facilities Initiative will be completed by the end of 2020.
−Removed: In connection with the 2019 Restructuring Initiative, we recorded restructuring and related expense of $1 million and $2 million in the three and six months ended June 30, 2020, respectively.
+Added: In connection with the 2019 Restructuring Initiative, we recorded restructuring and related expense of $0.4 million and $2 million in the three and nine months ended September 30, 2020, respectively.
The amount recorded in the three-month period was primarily related to restructured facilities.
−Removed: The amount recorded in the six-month period was comprised of $1 million for severance and related costs for five employees and $1 million related to facilities.
+Added: The amount recorded in the nine-month period was comprised of $1 million for severance and related costs for five employees and $1 million related to facilities.
+Added: 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.
We expect to record nominal additional restructuring and related expense, if any, related to severance and related costs under the 2019 Restructuring Initiative.
−Removed: We recorded restructuring and related expense of $6 million in both the three and six months ended June 30, 2019 for severance and related costs for approximately 110 employees.
+Added: We recorded restructuring and related expense of $2 million and $8 million in the three and nine months ended September 30, 2019, respectively.
+Added: The amount recorded in the three months ended September 30, 2019 was comprised of $1 million for severance and related costs for approximately 20 employees and $1 million for variable and other facilities-related costs.
+Added: The amount recorded in the nine months ended September 30, 2019 was comprised of $7 million for severance and related costs for approximately 130 employees and $1 million for variable and other facilities-related costs.
+Added: We expect to record nominal additional restructuring and related expense, if any, related to severance and related costs under the 2019 Restructuring Initiative.
Accelerated rent amortization is recognized from the date that we commence the plan to fully or partially vacate a facility, for which there is no intent or ability to enter into a sublease, through the final vacate date.
−Removed: We recorded $0.1 million of accelerated rent amortization in the six months ended June 30, 2020 and had previously recorded $4 million of accelerated
−Removed: rent amortization in 2019 as components of restructuring and related expense.
−Removed: The accelerated rent amortization recorded in connection with the 2019 Restructuring Initiative reduced our Operating lease right-of-use assets in our condensed consolidated balance sheets at June 30, 2020 and December 31, 2019.
+Added: We recorded nominal expense for accelerated rent amortization in the nine months ended September 30, 2020.
+Added: We recorded $1 million and $4 million of accelerated rent amortization in the three and nine months ended September 30, 2019, respectively.
+Added: These amounts are included as components of Restructuring and related expense.
+Added: The accelerated rent amortization recorded in connection with the 2019 Restructuring Initiative reduced our Operating lease right-of-use assets in our condensed consolidated balance sheets at September 30, 2020 and December 31, 2019.
We continue to evaluate our properties included in the Facilities Initiative for accelerated amortization and/or right-of-use asset impairment.
1 unchanged sentence
In connection with the Sonus-GENBAND merger (the "GENBAND Merger") in 2017, we 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").
−Removed: We recorded a nominal credit to restructuring and related expense 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.
−Removed: In connection with the Merger Restructuring Initiative, we recorded restructuring and related expense of $5 million in the six months ended June 30, 2019, the majority of which was recorded in the first quarter of 2019.
+Added: In connection with the Merger Restructuring Initiative, we recorded restructuring and related expense of $5 million in the nine months ended September 30, 2019, the majority of which was recorded in the first quarter of 2019.
Virtually all of this expense was for severance and related costs for approximately 40 employees.
−Removed: As of June 30, 2020, the GENBAND Merger Restructuring Initiative was complete.
+Added: The GENBAND Merger Restructuring Initiative was completed in the second quarter of 2019.
Critical Accounting Policies and Estimates
5 unchanged sentences
If actual results differ significantly from management's estimates and projections, there could be a material effect on our condensed consolidated financial statements.
−Removed: There were no significant changes to our critical accounting policies from December 31, 2019 through June 30, 2020 with the exception of warranty accruals.
+Added: There were no significant changes to our critical accounting policies from December 31, 2019 through September 30, 2020 with the exception of warranty accruals.
For a further discussion of our other critical accounting policies and estimates, please refer to our Annual Report on Form 10-K for the year ended December 31, 2019.
1 unchanged sentence
We record warranty liabilities for estimated costs of fulfilling our obligations under standard limited hardware and software warranties at the time of sale.
−Removed: The liability for standard warranties is included in Accrued expenses and other and Other non-current liabilities in our condensed consolidated balance sheet at June 30, 2020.
+Added: The liability for standard warranties is included in Accrued expenses and
+Added: other and Other non-current liabilities in our 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.
4 unchanged sentences
Results of Operations
−Removed: Three and six months ended June 30, 2020 and 2019
−Removed: Revenue for the three and six months ended June 30, 2020 and 2019 was as follows (in thousands, except percentages):
+Added: Three and nine months ended September 30, 2020 and 2019
+Added: Revenue for the three and nine months ended September 30, 2020 and 2019 was as follows (in thousands, except percentages):
Three months ended Increase
from prior year
−Removed: 2020 June 30,
+Added: September 30,
+Added: 2020 September 30,
Product $ 128,926 $ 61,152 $ 67,774 110.8 %
1 unchanged sentence
Total revenue $ 231,118 $ 137,653 $ 93,465 67.9 %
−Removed: Six months ended Increase
+Added: Nine months ended Increase
from prior year
−Removed: 2020 June 30,
+Added: September 30,
+Added: 2020 September 30,
Product $ 325,687 $ 180,691 $ 144,996 80.2 %
7 unchanged sentences
In addition, with the recent acquisition of ECI, our revenue includes additional product and software revenue from our end-to-end packet optical transport, SDN and NFV solutions for the period since the ECI Merger Date.
−Removed: The increase in product revenue in the three months ended June 30, 2020 compared to the three months ended June 30, 2019 was primarily due to the inclusion of $48 million of product revenue from ECI in the current year quarter.
−Removed: The increase in product revenue in the six months ended June 30, 2020 compared to the six months ended June 30, 2019 was due to the inclusion of $70 million of product revenue from ECI in the current year-to-date period from the ECI Merger Date, coupled with $7 million of higher sales of organic Ribbon products, comprised of $22 million of higher revenue from sales of software licenses and subscriptions, partially offset by $15 million of lower revenue from software with attached appliances.
−Removed: Revenue from indirect sales through our channel partner program was approximately 27% and 40% of our product revenue in the three months ended June 30, 2020 and 2019, respectively, and 31% and 40% of our product revenue in the six months ended June 30, 2020 and 2019, respectively.
−Removed: Our product revenue from sales to enterprise customers was approximately 30% and 21% of our product revenue in the three months ended June 30, 2020 and 2019, respectively and approximately 32% and 25% of our product revenue in the six months ended June 30, 2020 and 2019, respectively.
+Added: The increase in product revenue in the three months ended September 30, 2020 compared to the three months ended September 30, 2019 was primarily due to the inclusion of $54 million of product revenue from ECI in the current year quarter, coupled with $14 million of higher revenue from sales of organic Ribbon products, comprised of $21 million of higher revenue from software licenses and subscriptions, partially offset by $7 million of lower revenue from software with attached appliances.
+Added: The increase in product revenue in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 was primarily due to the inclusion of $124 million of product revenue from ECI in the current year-to-date period from the ECI Merger Date, coupled with $20 million of higher sales of organic Ribbon products, comprised of $42 million of higher revenue from sales of software licenses and subscriptions, partially offset by $22 million of lower revenue from software with attached appliances.
+Added: Revenue from indirect sales through our channel partner program was 28% and 35% of our product revenue in the three months ended September 30, 2020 and 2019, respectively, and 30% and 38% of our product revenue in the nine months ended September 30, 2020 and 2019, respectively.
+Added: Our product revenue from sales to enterprise customers was 29% of our product revenue in each of the three months ended September 30, 2020 and 2019, and 31% and 26% of our product revenue in the nine months ended September 30, 2020 and 2019, respectively.
These sales were made both through our direct sales team and indirect sales channel partners.
−Removed: The increase in revenue from sales to enterprise customers as a percentage of product revenue in both the three and six months ended June 30, 2020 compared to the three and six months ended June 30, 2019 was primarily attributable to the inclusion of revenue from sales of packet optical products for the period since the ECI Merger Date, of which more than half was from sales to enterprises.
The timing of the completion of customer projects and revenue recognition criteria satisfaction may cause our product revenue to fluctuate from one period to the next.
Service revenue is primarily comprised of appliance and software maintenance and support (“maintenance revenue”) and network design, installation and other professional services (“professional services revenue”).
−Removed: Service revenue for the three and six months ended June 30, 2020 and 2019 was comprised of the following (in thousands, except percentages):
+Added: Service revenue for the three and nine months ended September 30, 2020 and 2019 was comprised of the following (in thousands, except percentages):
Three months ended Increase
from prior year
−Removed: 2020 June 30,
+Added: September 30,
+Added: 2020 September 30,
Maintenance $ 73,642 $ 58,901 $ 14,741 25.0 %
1 unchanged sentence
$ 102,192 $ 76,501 $ 25,691 33.6 %
−Removed: Six months ended Increase
+Added: Nine months ended Increase
from prior year
−Removed: 2020 June 30,
+Added: September 30,
+Added: 2020 September 30,
Maintenance $ 203,333 $ 173,031 $ 30,302 17.5 %
1 unchanged sentence
$ 273,906 $ 221,311 $ 52,595 23.8 %
−Removed: The increase in both maintenance revenue and professional services revenue in the three and six months ended June 30, 2020 compared to the three and six months ended June 30, 2019 was primarily due to the inclusion of revenue from ECI since the ECI Merger Date in the current year periods.
−Removed: Maintenance revenue attributable to ECI was $11 million in the three months ended June 30, 2020 and $16 million in the six months ended June 30, 2020.
−Removed: Professional services revenue attributable to ECI was $4 million in the three months ended June 30, 2020 and $7 million in the six months ended June 30, 2020.
−Removed: The following customer contributed 10% or more of our revenue in the three and six months ended June 30, 2020 and 2019:
−Removed: Three months ended Six months ended
−Removed: Customer June 30,
−Removed: 2020 June 30,
−Removed: 2019 June 30,
−Removed: 2020 June 30,
+Added: The increase in both maintenance revenue and professional services revenue in the three and nine months ended September 30, 2020 compared to the three and nine months ended September 30, 2019 was primarily due to the inclusion of revenue from ECI in the current year periods.
+Added: Maintenance revenue attributable to ECI was $16 million in the three months ended September 30, 2020 and $32 million in the nine months ended September 30, 2020.
+Added: Professional services revenue attributable to ECI was $8 million in the three months ended September 30, 2020 and $15 million in the nine months ended September 30, 2020.
+Added: The following customers contributed 10% or more of our revenue in the three and nine months ended September 30, 2020 and 2019:
+Added: Three months ended Nine months ended
+Added: Customer September 30,
+Added: 2020 September 30,
+Added: 2019 September 30,
+Added: 2020 September 30,
Verizon Communications Inc.
16% 15% 15% 17%
−Removed: Revenue earned from customers domiciled outside the United States was 52% and 42% of revenue in the three months ended June 30, 2020 and 2019, respectively, and 51% and 42% of revenue in the six months ended June 30, 2020 and 2019, respectively.
+Added: * Represents less than 10% of total revenue.
+Added: Revenue from customers domiciled outside the United States was 55% and 36% of revenue in the three months ended September 30, 2020 and 2019, respectively, and 52% and 40% of revenue in the nine months ended September 30, 2020 and 2019, respectively.
Due to the timing of project completions, we expect that the domestic and international components as a percentage of revenue may fluctuate from quarter to quarter and year to year.
In addition, as a result of the ECI Merger, we expect that the domestic and international revenue as a percentage of revenue in future periods will change, as virtually all of ECI's revenue has historically been recognized from customers outside the United States.
−Removed: Our deferred product revenue was $10 million and $5 million at June 30, 2020 and December 31, 2019, respectively.
−Removed: Our deferred service revenue was $120 million and $116 million at June 30, 2020 and December 31, 2019, respectively.
−Removed: Our deferred revenue balance may fluctuate because of the timing of revenue recognition, customer payments, maintenance contract renewals, contractual billing rights and maintenance revenue deferrals included in multiple element arrangements.
+Added: Our deferred product revenue was $14 million and $5 million at September 30, 2020 and December 31, 2019, respectively.
+Added: Our deferred service revenue was $101 million and $116 million at September 30, 2020 and December 31, 2019, respectively.
+Added: Our deferred revenue balance may fluctuate because of the timing of revenue recognition, customer payments,
+Added: maintenance contract renewals, contractual billing rights and maintenance revenue deferrals included in multiple element arrangements.
We expect that our total revenue in 2020 will increase compared to 2019, primarily due to the ECI Merger.
3 unchanged sentences
Our cost of revenue consists primarily of amounts paid to third-party manufacturers for purchased materials and services, royalties, inventory valuation adjustments, warranty costs, and manufacturing and services personnel and related costs.
−Removed: Our cost of revenue and gross margins for the three and six months ended June 30, 2020 and 2019 were as follows (in thousands, except percentages):
+Added: Our cost of revenue and gross margins for the three and nine months ended September 30, 2020 and 2019 were as follows (in thousands, except percentages):
Three months ended Increase
from prior year
−Removed: 2020 June 30,
+Added: September 30,
+Added: 2020 September 30,
Cost of revenue
5 unchanged sentences
Total gross margin 53.4 % 57.3 %
−Removed: Six months ended Increase
+Added: Nine months ended Increase
from prior year
−Removed: 2020 June 30,
+Added: September 30,
+Added: 2020 September 30,
Cost of revenue
5 unchanged sentences
Total gross margin 52.9 % 53.8 %
−Removed: Our product gross margins on sales of our organic Ribbon products were 59% in the three months ended June 30, 2020, compared to 49% in the three months ended June 30, 2019, and 53% in the six months ended June 30, 2020, compared to 42% in the six months ended June 30, 2019.
+Added: Our product gross margins on sales of our organic Ribbon products were 56% in the three months ended September 30, 2020, compared to 49% in the three months ended September 30, 2019, and 54% in the nine months ended September 30, 2020, compared to 44% in the nine months ended September 30, 2019.
These increases were primarily attributable to higher software sales, coupled with lower fixed costs, compared to the same prior year periods.
Our lower fixed costs reflect our recent cost reduction and restructuring initiatives, including the temporary wage reduction, and lower amortization of intangible assets from acquisitions completed in prior years.
−Removed: These increases were offset by lower gross margins on ECI's products due in part to delays in customer orders resulting from the COVID-19 pandemic, coupled with higher amortization of intangible assets arising from the ECI Merger.
−Removed: Our purchases of materials and components were $36 million and $19 million in the three months ended June 30, 2020 and 2019, respectively, and $61 million and $36 million in the six months ended June 30, 2020 and 2019, respectively.
+Added: These increases were offset by the inclusion of sales of ECI's product revenue in the current year periods, coupled with amortization of intangible assets arising from the ECI Merger.
+Added: Our purchases of materials and components were $42 million and $15 million in the three months ended September 30, 2020 and 2019, respectively, and $103 million and $52 million in the nine months ended September 30, 2020 and 2019, respectively.
These increases were primarily due to the inclusion of ECI's products.
Our material purchases may vary in the future, dependent upon the volume and mix of hardware and software sales, both in absolute terms and as a percentage of revenue.
−Removed: Our organic Ribbon service gross margins increased in both the three and six months ended June 30, 2020 compared to the same prior year periods, primarily due to our recent cost reduction and restructuring initiatives.
−Removed: These increases were offset by the lower margins on ECI's service revenue, primarily due to delays in maintenance contract renewals with certain customers due to the COVID-19 pandemic.
−Removed: Overall, we believe that our total gross margin will decrease in 2020 compared to 2019, primarily due to the addition of ECI's product sales that include higher hardware content, offsetting gross margin improvements in other product lines.
+Added: Our organic Ribbon service gross margins increased in both the three and nine months ended September 30, 2020 compared to the same prior year periods, primarily due to our recent cost reduction and restructuring initiatives.
+Added: These increases were offset by the inclusion of ECI's service revenue in the current year periods.
+Added: Overall, we believe that our total gross margin will decrease in 2020 compared to 2019, primarily due to the addition of
+Added: ECI's product sales that include higher hardware content, offsetting gross margin improvements in other product lines.
Research and Development Expenses.
Research and development expenses consist primarily of salaries and related personnel expenses and prototype costs for the design, development, testing and enhancement of our products.
−Removed: Research and development expenses for the three and six months ended June 30, 2020 and 2019 were as follows (in thousands, except percentages):
+Added: Research and development expenses for the three and nine months ended September 30, 2020 and 2019 were as follows (in thousands, except percentages):
from prior year
−Removed: 2020 June 30,
+Added: September 30,
+Added: 2020 September 30,
Three months ended $ 49,113 $ 34,222 $ 14,891 43.5 %
−Removed: Six months ended $ 94,091 $ 71,234 $ 22,857 32.1 %
−Removed: The increase in research and development expenses in the three months ended June 30, 2020 compared to the three months ended June 30, 2019 was primarily attributable to $18 million of ECI's research and development expenses included in the current year quarter, principally employee- and infrastructure-related costs.
−Removed: The increase in research and development expenses in the six months ended June 30, 2020 compared to the six months ended June 30, 2019 was primarily attributable to $24 million of ECI's research and development expenses included in the current year-to-date period for the period since the ECI Merger Date, principally employee- and infrastructure-related costs.
−Removed: These increases were partially offset by lower costs related to organic Ribbon's historical cost reduction and restructuring initiatives.
+Added: Nine months ended $ 143,204 $ 105,456 $ 37,748 35.8 %
+Added: The increase in research and development expenses in the three months ended September 30, 2020 compared to the three months ended September 30, 2019 was primarily attributable to $18 million of ECI's research and development expenses included in the current year quarter, principally employee- and infrastructure-related costs.
+Added: The increase in research and development expenses in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 was primarily attributable to $42 million of ECI's research and development expenses included in the current year-to-date period for the period since the ECI Merger Date, principally employee- and infrastructure-related costs.
+Added: These increases were partially offset by lower costs related to organic Ribbon's historical cost reduction and restructuring initiatives, including the temporary wage reduction, coupled with lower travel and related costs in connection with the ongoing pandemic.
Some aspects of our research and development efforts require significant short-term expenditures, the timing of which may cause significant variability in our expenses.
We believe that rapid technological innovation is critical to our long-term success, and we are tailoring our investments to meet the requirements of our customers and market.
−Removed: We believe that our
−Removed: research and development expenses in 2020 will increase, primarily due to the inclusion of expenses related to Packet Optical Networks.
+Added: We believe that our research and development expenses for 2020 will increase, primarily due to the inclusion of expenses related to Packet Optical Networks.
Sales and Marketing Expenses.
Sales and marketing expenses primarily consist of salaries and related personnel costs, commissions, travel and entertainment expenses, promotions, customer trial and evaluations inventory and other marketing and sales support expenses.
−Removed: Sales and marketing expenses for the three and six months ended June 30, 2020 and 2019 were as follows (in thousands, except percentages):
+Added: Sales and marketing expenses for the three and nine months ended September 30, 2020 and 2019 were as follows (in thousands, except percentages):
from prior year
−Removed: 2020 June 30,
+Added: September 30,
+Added: 2020 September 30,
Three months ended $ 41,604 $ 28,227 $ 13,377 47.4 %
−Removed: Six months ended $ 73,968 $ 58,952 $ 15,016 25.5 %
−Removed: The increase in sales and marketing expenses in the three months ended June 30, 2020 compared to the three months ended June 30, 2019 was primarily attributable to $12 million of ECI's sales and marketing expenses included in the current year period, which primarily consisted of employee-related costs.
−Removed: The increase in sales and marketing expenses in the six months ended June 30, 2020 compared to the six months ended June 30, 2019 was primarily attributable to $17 million of ECI sales and marketing expenses included in the year-to-date period since the ECI's Merger Date, which primarily consisted of employee- and infrastructure-related expenses.
−Removed: These increases were partially offset by lower costs related to organic Ribbon's historical cost reduction and restructuring initiatives.
+Added: Nine months ended $ 115,572 $ 87,179 $ 28,393 32.6 %
+Added: The increase in sales and marketing expenses in the three months ended September 30, 2020 compared to the three months ended September 30, 2019 was primarily attributable to $12 million of ECI's sales and marketing expenses included in the current year period, which primarily consisted of employee- and infrastructure-related costs.
+Added: The increase in sales and marketing expenses in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 was primarily attributable to $29 million of ECI sales and marketing expenses included in the year-to-date period since the ECI's Merger Date, which principally consisted of employee- and infrastructure-related expenses, partially offset by lower costs related to organic Ribbon's historical cost reduction and restructuring initiatives, including the temporary wage reduction, coupled with lower travel and related costs in connection with the ongoing pandemic.
We believe that our sales and marketing expenses will increase in 2020 compared to 2019, primarily due to the inclusion of expenses related to ECI.
1 unchanged sentence
General and administrative expenses consist primarily of salaries and related personnel costs for executive and administrative personnel, and audit, legal and other professional fees.
−Removed: General and administrative expenses for the six months ended June 30, 2020 and 2019 were as follows (in thousands, except percentages):
+Added: General and administrative expenses for the three and nine months ended September 30, 2020 and 2019 were as follows (in thousands, except percentages):
from prior year
−Removed: 2020 June 30,
+Added: September 30,
+Added: 2020 September 30,
Three months ended $ 16,021 $ 9,673 $ 6,348 65.6 %
−Removed: Six months ended $ 32,299 $ 31,160 $ 1,139 3.7 %
−Removed: The increase in general and administrative expenses in the three months ended June 30, 2020 compared to the three months ended June 30, 2019 was primarily attributable to $4 million of ECI general and administrative expenses included in the current year quarter, which primarily consisted of employee-related costs.
−Removed: These expenses were partially offset by $2 million of lower litigation expenses in the three months ended June 30, 2020.
−Removed: The increase in the six months ended June 30, 2020 compared to the six months ended June 30, 2019 was primarily attributable to $6 million of ECI general and administrative expenses included in the current year-to-date period since the ECI Merger Date, which primarily consisted of employee-related expenses.
−Removed: These expenses were partially offset by $5 million of lower litigation and settlement expenses in the current year-to-date period compared to the six months ended June 30, 2019.
+Added: Nine months ended $ 48,320 $ 40,833 $ 7,487 18.3 %
+Added: The increase in general and administrative expenses in the three months ended September 30, 2020 compared to the three months ended September 30, 2019 was primarily attributable to $5 million of ECI general and administrative expenses included in the current year quarter, coupled with $1 million of higher organic Ribbon expenses, which amounts were principally employee-related costs.
+Added: The increase in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 was primarily attributable to $12 million of ECI general and administrative expenses included in the current year-to-date period since the ECI Merger Date that were principally employee-related expenses.
+Added: These expenses were partially offset by $4 million of lower litigation and settlement expenses in the current year-to-date period compared to the nine months ended September 30, 2019 as well as the temporary wage reduction and lower travel and related costs in connection with the ongoing pandemic.
We believe that our general and administrative expenses will increase in 2020 compared to 2019, primarily due to the ECI Merger.
3 unchanged sentences
Integration-related expenses represent incremental costs related to combining the Company's systems and processes with those of acquired businesses, such as third-party consulting and other third-party services.
−Removed: We recorded acquisition- and integration-related expenses of $1 million and $13 million in the three and six months ended June 30, 2020, respectively, virtually all of which was for professional fees primarily in connection with the ECI Merger.
−Removed: We recorded acquisition- and integration-related expense of $2 million and $5 million in the three and six months ended June 30, 2019, respectively.
−Removed: The amount recorded in the three months ended June 30, 2019 was primarily comprised of integration-related expense.
−Removed: The amount recorded in the six months ended June 30, 2019 was comprised of $2 million of acquisition-related expense for professional and services fees primarily related to the Anova Acquisition and $3 million of integration-related expense.
+Added: We recorded acquisition- and integration-related expenses of $1 million and $15 million in the three and nine months ended September 30, 2020, respectively, primarily in connection with the ECI Merger.
+Added: We recorded acquisition- and integration-related expense of $2 million and $7 million in the three and nine months ended September 30, 2019, respectively.
+Added: The amount recorded in the three months ended September 30, 2020 primarily related to professional and services fees in connection with the proposed sale of our Kandy Communications Business.
+Added: The amount recorded in the nine months ended September 30, 2020 was comprised of $14 million of acquisition-related expense, and $1 million of integration-related expense principally related to the ECI Merger.
+Added: The amount recorded in the three months ended September 30, 2019 was comprised of $1 million of integration-related expense and $1 million of acquisition-related expense for professional and services fees.
+Added: The amount recorded in the nine months ended September 30, 2019 was comprised of $4 million of integration-related expense and $3 million of acquisition-related expense for professional and services fees.
+Added: The acquisition-related expense in both the three and nine month periods ended September 30, 2019 was primarily related to the Anova Acquisition.
Restructuring and Related Expense.
1 unchanged sentence
Please see the additional discussion of our restructuring initiatives in the "Restructuring and Cost Reduction Initiatives" section of the Overview of this MD&A.
−Removed: We recorded restructuring and related expense of $5 million and $7 million in the three and six months ended June 30, 2020, respectively.
−Removed: We recorded restructuring and related expense of $9 million and $14 million in the three and six months ended June 30, 2019, respectively.
+Added: We recorded restructuring and related expense of $3 million and $11 million in the three and nine months ended September 30, 2020, respectively.
+Added: We recorded restructuring and related expense of $2 million and $16 million in the three and nine months ended September 30, 2019, respectively.
Although we have eliminated positions as part of our restructuring initiatives, we continue to hire in certain areas that we believe are important to our future growth.
1 unchanged sentence
Interest Expense, Net.
−Removed: Interest income and interest expense for the three and six months ended June 30, 2020 and 2019 were as follows (in thousands, except percentages):
−Removed: Three months ended Increase
+Added: Interest income and interest expense for the three and nine months ended September 30, 2020 and 2019 were as follows (in thousands, except percentages):
+Added: Three months ended Increase (decrease)
from prior year
−Removed: 2020 June 30,
+Added: September 30,
+Added: 2020 September 30,
Interest income $ 35 $ 271 $ (236) (87.1) %
1 unchanged sentence
$ (6,854) $ (726) $ 6,128 844.1 %
−Removed: Six months ended Increase
+Added: Nine months ended Increase
from prior year
−Removed: 2020 June 30,
+Added: September 30,
+Added: 2020 September 30,
Interest income $ 451 $ 313 $ 138 44.1 %
1 unchanged sentence
$ (15,649) $ (3,352) $ 12,297 366.9 %
−Removed: Interest income in the three and six months ended June 30, 2020 primarily represents interest earned on the outstanding note receivable from Metaswitch.
−Removed: Interest expense in the three and six months ended June 30, 2020 was comprised of interest and debt issuance costs in connection with the 2020 Credit Facility, interest on other borrowings and finance leases, and interest expense recorded in connection with the factoring of certain accounts receivable.
−Removed: Interest expense in the six months ended June 30, 2020 also included the write-off of debt issuance costs in connection with the retirement of the 2019 Credit Facility.
−Removed: Interest income in the three months ended June 30, 2019 was nominal and consisted of interest earned on our cash equivalents.
−Removed: Interest expense in the three months ended June 30, 2019 primarily related to revolver and term borrowings under the 2019 Credit Facility.
−Removed: Interest expense in the six months ended June 30, 2019 primarily related to borrowings under the 2019 Credit Facility and the promissory note issued to certain of GENBAND's equity holders in connection with the GENBAND Merger.
−Removed: The higher interest expense in both the three and six months ended June 30, 2020 compared to the same prior year periods was primarily due to higher outstanding borrowings.
−Removed: The increase in interest income in both the three and six months ended June 30, 2020 compared to the same prior year periods was due to the interest earned on the note receivable from Metaswitch.
+Added: Interest income in the three and nine months ended September 30, 2020 primarily represents interest earned on the outstanding note receivable from Metaswitch.
+Added: Interest expense in the three and nine months ended September 30, 2020 was comprised of interest and debt issuance costs in connection with the 2020 Credit Agreement, interest on other borrowings and finance leases, and interest expense recorded in connection with the factoring of certain accounts receivable.
+Added: Interest expense in the three months ended September 30, 2020 also included the write-off of debt issuance costs arising from the amendment of the 2020 Credit Agreement.
+Added: Interest expense in the nine months ended September 30, 2020 included the write-off of debt issuance costs in connection with the retirement of the 2019 Credit Facility as well as the aforementioned write-off of debt issuance costs related to the amendment of the 2020 Credit Agreement.
+Added: Interest income in the three and nine months ended September 30, 2019 primarily represented interest earned on the outstanding note receivable from Metaswitch.
+Added: Interest expense in the three months ended September 30, 2019 primarily related to revolver and term borrowings under the 2019 Credit Facility (as defined below).
+Added: Interest expense in the nine months ended September 30, 2019 primarily related to outstanding borrowings under the 2019 Credit Facility and the promissory note issued to certain of GENBAND's equity holders in connection with the GENBAND Merger.
+Added: The higher interest expense in both the three and nine months ended September 30, 2020 compared to the same prior year periods was primarily due to higher outstanding borrowings.
+Added: The increase in interest income in the nine months ended September 30, 2020 compared to the same prior year period was due to the interest earned on the note receivable from Metaswitch.
Income Taxes.
−Removed: We recorded provisions for income taxes of $2 million and $6 million in the six months ended June 30, 2020 and 2019, respectively.
+Added: We recorded provisions for income taxes of $1 million and $6 million in the nine months ended September 30, 2020 and 2019, respectively.
These amounts reflect our estimates of the effective rates expected to be applicable for the respective full fiscal years, adjusted for any discrete events, which are recorded in the period that they occur.
+Added: 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 our Ireland operations due to our expectation that it is more likely than not that our Ireland operations will continue to be profitable.
These estimates are reevaluated each quarter based on our estimated tax rate for the full fiscal year.
−Removed: The estimated effective tax rate includes the
−Removed: impact of valuation allowances in various jurisdictions.
+Added: The estimated effective tax rate includes the impact of valuation allowances in various jurisdictions.
Off-Balance Sheet Arrangements
1 unchanged sentence
Contractual Obligations
−Removed: On March 3, 2020, we entered into a Senior Secured Credit Facilities Credit Agreement (the "2020 Credit Agreement").
+Added: On March 3, 2020, we entered into a Senior Secured Credit Facilities Credit Agreement (as amended, the "2020 Credit Agreement").
The proceeds of the 2020 Credit Agreement were used, in part, to pay off in full all obligations of the Company under the 2019 Credit Facility.
−Removed: See "Liquidity and Capital Resources" in this MD&A for a description of the terms and conditions of the 2020 Credit Agreement.
−Removed: At June 30, 2020, we had an outstanding 2020 Term Loan Facility balance of $397.5 million at an average interest rate of 3.9%.
−Removed: The 2020 Revolving Credit Facility did not have any outstanding borrowings at June 30, 2020 but had $5.2 million of letters of credit outstanding at an interest rate of 3.0%.
+Added: On August 18, 2020, we entered into a First Amendment to the 2020 Credit Agreement.
The principal and interest payments for the 2020 Credit Agreement long-term debt are included in the table below.
−Removed: In connection with the ECI Merger, we assumed certain contractual obligations related to operating leases, future purchases, employee postretirement defined benefit plans and uncertain tax positions, and which are included in the table below.
−Removed: Our related and assumed contractual obligations at June 30, 2020 consisted of the following (in millions):
+Added: In connection with the ECI Merger, we assumed certain contractual obligations related to operating leases, future purchases, employee postretirement defined benefit plans and uncertain tax positions, which are included in the table below.
+Added: Our related and assumed contractual obligations at September 30, 2020 consisted of the following (in millions):
Payments due by period
7 unchanged sentences
$ 555.1 $ 96.2 $ 79.3 $ 368.6 $ 11.0
−Removed: __________________________________
−Removed: * Debt obligations - principal represents the outstanding balances on our 2020 Credit Facility of $397.5 million and short-term loans aggregating $2.4 million at June 30, 2020, representing the outstanding term loan principal.
+Added: * Debt obligations - principal represents the outstanding balances on our credit facilities under the 2020 Credit Agreement of $395.3 million, representing the outstanding principal under the term loans, and short-term uncommitted loan of $0.7 million at September 30, 2020.
** This liability is not subject to fixed payment terms and the amount and timing of payments, if any, that we will make related to this liability are not known.
2 unchanged sentences
Our condensed consolidated statements of cash flows are summarized as follows (in millions):
−Removed: Six months ended
−Removed: 2020 June 30,
+Added: Nine months ended
+Added: September 30,
+Added: 2020 September 30,
Net (loss) income $ (35.2) $ 20.3 $ (55.5)
2 unchanged sentences
Net cash provided by operating activities $ 65.2 $ 22.6 $ 42.6
−Removed: Net cash (used in) provided by investing activities $ (318.2) $ 1.1 $ (319.3)
+Added: Net cash used in investing activities $ (322.0) $ (1.3) $ (320.7)
Net cash provided by (used in) financing activities $ 323.0 $ (24.7) $ 347.7
−Removed: Our cash, cash equivalents and restricted cash aggregated $94 million at June 30, 2020.
+Added: Our cash, cash equivalents and restricted cash aggregated $111 million at September 30, 2020.
We had cash of $45 million at December 31, 2019.
−Removed: We had cash and restricted cash aggregating $45 million at June 30, 2020 and cash aggregating $12 million at December 31, 2019 held by our non-U.S.
+Added: These amounts included cash and restricted cash aggregating $47 million at September 30, 2020 and cash aggregating $12 million at December 31, 2019 held by our non-U.S.
subsidiaries.
If we elected to repatriate all excess funds held by our non-U.S.
−Removed: subsidiaries as of June 30, 2020, we do not believe that the amounts of potential withholding taxes that would arise from the repatriation would have a material effect on our liquidity.
+Added: subsidiaries as of September 30, 2020, we do not believe that the amounts of potential withholding taxes that would arise from the repatriation would have a material effect on our liquidity.
On April 29, 2019, we, as guarantor, and Ribbon Communications Operating Company, Inc., as borrower, entered into a syndicated, amended and restated credit facility (the "2019 Credit Facility") with SVB, as lead agent.
4 unchanged sentences
The base rate and the LIBOR rate were each subject to a zero percent floor.
−Removed: On March 3, 2020, we entered into a Senior Secured Credit Facilities Credit Agreement (the "2020 Credit Agreement"), by and among us, 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.
+Added: On March 3, 2020, we entered into the 2020 Credit Agreement, by and among us, as a guarantor, Ribbon Communications Operating Company, Inc., as the borrower ("Borrower"), Citizens Bank, N.A.
+Added: ("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.
−Removed: 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").
+Added: 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.
−Removed: The 2020 Credit Facility is scheduled to mature in March 2025.
−Removed: 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.
−Removed: 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").
−Removed: 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.
+Added: Under the 2020 Credit Agreement, we were 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.
+Added: 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").
+Added: The 2020 Credit Agreement 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.
The 2020 Credit Agreement requires periodic interest payments until maturity.
−Removed: 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.
−Removed: 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 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").
−Removed: The Applicable Margin varies depending on our Consolidated Net Leverage Ratio (as defined in the 2020 Credit Agreement).
−Removed: 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).
−Removed: We were in compliance with all covenants of the 2020 Credit Facility at June 30, 2020.
In addition, the 2020 Credit Agreement contains various covenants that, among other restrictions, limit our and our subsidiaries’ ability to incur or assume indebtedness;
12 unchanged sentences
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.
−Removed: 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.
−Removed: In addition, if any event of default exists under the 2020 Credit Agreement, the lenders may commence foreclosure or other actions against the collateral.
−Removed: At June 30, 2020, we had an outstanding 2020 Term Loan Facility balance of $397.5 million at an average interest rate of 3.9%.
−Removed: The 2020 Revolving Credit Facility did not have any outstanding borrowings at June 30, 2020 but had $5.2 million of letters of credit outstanding at an interest rate of 3.0%.
+Added: If any other event of default exists under the 2020 Credit Agreement, the lenders can 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.
+Added: In addition, if any event of default exists under the 2020 Credit Agreement, the lenders can commence foreclosure or other actions against the collateral.
+Added: On August 18, 2020 (the "First Amendment Effective Date"), we entered into the First Amendment to the 2020 Credit Agreement.
+Added: Pursuant to an assignment and assumption agreement entered into by Citizens and certain affiliates of Whitehorse Capital on the First Amendment Effective 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.
+Added: 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").
+Added: The Term A Loan and amounts under the 2020 Revolving Credit Facility mature in March 2025.
+Added: 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").
+Added: The Applicable Margin varies depending on our Consolidated Net
+Added: Leverage Ratio (as defined in the 2020 Credit Agreement).
+Added: The base rate and the LIBOR rate are each subject to a zero percent floor.
+Added: We are required to make quarterly principal payments on the Term A Loan aggregating approximately $10 million in the first year, $16 million 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.
+Added: 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.
+Added: The First Amendment did not change the terms applied to the Term A Loan or the Revolving Credit Facility under the 2020 Credit Agreement.
+Added: 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 2020 Credit Agreement) 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.
+Added: 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 First Amendment) occurring prior to the six month anniversary of the First Amendment Effective Date.
+Added: We are 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 due on the maturity date.
+Added: 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.
+Added: 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 prior to the First Amendment.
+Added: 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.
+Added: We were in compliance with all covenants of the 2020 Credit Agreement at September 30, 2020.
+Added: At September 30, 2020, we had an outstanding Term A Loan balance of $320.5 million at an average interest rate of 3.4%, and the Term B Loan had an outstanding balance of $74.8 million at average interest rate of 8.40%.
+Added: 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%.
We are exposed to financial market risk related to foreign currency fluctuations and changes in interest rates.
4 unchanged sentences
We do not hold or issue derivative financial instruments for trading or speculative purposes.
−Removed: As a result of exposure to interest rate movements, during March 2020, we entered into an interest rate swap arrangement, which effectively converted our $400 million term loan with its variable-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.
−Removed: The notional amount of this swap as of June 30, 2020 was $400 million, and the swap matures on March 3, 2025, the same date the 2020 Credit Facility matures.
−Removed: Our objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements.
−Removed: To accomplish this objective, we are using an interest rate swap as part of its interest rate risk management strategy.
+Added: As a result of exposure to interest rate movements, during March 2020, we entered into an interest rate swap arrangement, which effectively converted our $400 million term loan with its variable interest rate based upon one-month LIBOR to an aggregate fixed rate of 0.904%, plus a leverage-based margin as defined in the 2020 Credit Agreement.
+Added: The notional amount of this swap as of September 30, 2020 was $400 million, and the swap matures on March 3, 2025, the same date the Term A Loan and 2020 Revolving Credit Facility mature.
+Added: Our objectives in using interest rate derivatives are to add stability to interest expense and to manage our exposure to interest rate movements.
+Added: To accomplish this objective, we are using an interest rate swap as part of our interest rate risk management strategy.
Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.
The effective portion of changes in the fair value of derivatives designated and 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.
−Removed: 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.
−Removed: ineffective portion of the change in fair value of the derivative would be recognized directly in earnings.
−Removed: However, during the three and six months ended June 30, 2020, we recorded no hedge ineffectiveness.
+Added: During the three and nine months ended September 30, 2020, such a derivative was used to hedge the variable cash flows associated with the 2020 Credit Agreement.
+Added: Any ineffective portion of the change in fair value of the derivative would be recognized directly in earnings.
+Added: However, during the three and nine months ended September 30, 2020, we recorded no hedge ineffectiveness.
Amounts reported in accumulated other comprehensive (loss) income related to our derivative will be reclassified to interest expense as interest is accrued on our variable-rate debt.
−Removed: Based upon projected forward rates, we estimate as of June 30, 2020 that $3.1 million may be reclassified as an increase to interest expense over the next 12 months.
−Removed: We had two outstanding uncommitted and unsecured short-term loans aggregating $2.4 million which we use for financing exports in China, one with China Zheshang Bank and the other with Bank of Communications Hangzhou Branch.
−Removed: These short term loans were all entered into in March 2020 and expired in July 2020.
−Removed: At June 30, 2020, these short-term loans had a weighted average interest rate of 4.27%.
−Removed: 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.
+Added: Based upon projected forward rates, we estimate as of September 30, 2020 that $3.1 million may be reclassified as an increase to interest expense over the next 12 months.
+Added: In July 2020, we entered into 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.
+Added: At September 30, 2020 the interest rate on this loan was 4.0% and it expires in November 2020.
We use letters of credit, performance and bid bonds in the course of its business.
−Removed: As of June 30, 2020, we 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.
−Removed: At June 30, 2020, we had cash collateral of $4.4 million supporting the Guarantees under our uncommitted facilities.
−Removed: This cash collateral is included in Restricted cash in our condensed consolidated balance sheet at June 30, 2020.
+Added: As of September 30, 2020, we 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.
+Added: At September 30, 2020, we had cash collateral of $2.9 million supporting the Guarantees under our uncommitted facilities.
+Added: This cash collateral is included in Restricted cash in our condensed consolidated balance sheet at September 30, 2020.
In connection with the GENBAND Merger, on October 27, 2017, we issued a promissory note for approximately $23 million to certain of GENBAND's equity holders (the "Promissory Note").
−Removed: The Promissory Note did not amortize and the principal thereon was payable in full on the third anniversary of its execution.
−Removed: 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.
−Removed: Interest that was not paid on the interest payment date increased the principal amount of the Promissory Note.
On April 29, 2019, concurrently with the closing of the 2019 Credit Facility as discussed above, we repaid in full all outstanding amounts under the Promissory Note, totaling $24.7 million and comprised of $22.5 million of principal plus $2.2 million of interest converted to principal.
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This program does not obligate us to acquire any particular amount of common stock and the program may be extended, modified, suspended or discontinued at any time at the Board's discretion.
−Removed: No shares were repurchased under this program during the three and six months ended June 30, 2020.
−Removed: At June 30, 2020, there was $70.5 million available for the repurchase of shares under the repurchase program.
−Removed: Our operating activities provided $37 million and $29 million of cash in the six months ended June 30, 2020 and 2019, respectively.
−Removed: Cash provided by operating activities in the six months ended June 30, 2020 was primarily the result of lower accounts receivable, other operating assets and inventory, higher accrued expenses and other long-term liabilities, and our non-cash operating activities.
−Removed: These amounts were partially offset by our net loss and lower accounts payable.
+Added: During the nine months ended September 30, 2019, we repurchased and retired 1.0 million shares of our common stock for a total purchase price of $4.5 million, including transaction fees.
+Added: No shares were repurchased under this program during the three and nine months ended September 30, 2020.
+Added: At September 30, 2020, there was $70.5 million available for the repurchase of shares under the repurchase program.
+Added: Our operating activities provided $65 million and $23 million of cash in the nine months ended September 30, 2020 and 2019, respectively.
+Added: Cash provided by operating activities in the nine months ended September 30, 2020 was primarily the result of lower accounts receivable, other operating assets and inventory, higher accrued expenses and other long-term liabilities, and our non-cash operating activities.
+Added: These amounts were partially offset by our net loss and lower accounts payable and deferred revenue.
Our lower accounts receivable primarily reflected typical mid-year seasonality.
−Removed: The decrease in other operating assets was primarily due to the scheduled payment received from Metaswitch in connection with the 2019 litigation settlement.
+Added: The decrease in other operating assets was primarily due to the scheduled payments received from Metaswitch in connection with the 2019 litigation settlement and subsequent supplemental agreement to accelerate the payment of amounts outstanding.
The increase in accrued expenses and other long-term liabilities was primarily due to the derivative liability we recorded in connection with our interest rate swap, which we entered into in the first quarter of 2020.
−Removed: Cash provided by operating activities in the six months ended June 30, 2019 was primarily the result of our net income, lower accounts receivable and inventory, and our non-cash operating expenses.
−Removed: These amounts were partially offset by higher other operating assets, lower accounts payable, accrued expenses and other long-term liabilities, and deferred revenue, coupled with the reduction in the deferred consideration owed in connection with our acquisition of Edgewater Networks, Inc.
+Added: Cash provided by operating activities in the nine months ended September 30, 2019 was primarily the result of our net income, lower accounts receivable and inventory, and our non-cash operating expenses.
+Added: These amounts were partially offset by higher other operating assets and lower accounts payable, accrued expenses and other long-term liabilities, and deferred revenue balances, coupled with the reduction in the deferred consideration owed in connection with our acquisition of Edgewater Networks, Inc.
The increase in other operating assets was primarily due to the note receivable arising from the litigation settlement with Metaswitch.
−Removed: The decrease in accrued expenses and other long-term liabilities was primarily related to employee compensation and related costs, including payments in connection with our company-wide cash bonus program, and lower deferred purchase consideration.
+Added: The decrease in accrued expenses and other long-term liabilities was primarily related to employee compensation and related costs and lower deferred purchase consideration.
+Added: During the second quarter of 2019, we received $37 million of cash from Metaswitch, which represents the first payment in accordance with the litigation settlement agreement.
Our lower accounts receivable primarily reflected typical mid-year seasonality.
−Removed: Our investing activities used $318 million of cash in the six months ended June 30, 2020, comprised of $347 million of cash paid as cash consideration for ECI and $15 million of investments in property and equipment.
+Added: Our investing activities used $322 million of cash in the nine months ended September 30, 2020, comprised of $347 million of cash paid as cash consideration for ECI and $19 million of investments in property and equipment.
These amounts were partially offset by $43 million of cash proceeds from the sale of land in connection with the Merger.
−Removed: Our investing activities provided $1 million of cash in the six months ended June 30, 2019, comprised of $7 million of maturities of marketable securities, partially offset by $6 million of investments in property and equipment.
−Removed: Our financing activities provided $331 million of cash in the six months ended June 30, 2020, primarily due to $403 million of proceeds from term debt, which was comprised of $400 million of proceeds from the 2020 Credit Facility and $3 million of proceeds from short-term loans in China for the financing of certain export activities.
−Removed: These proceeds were partially offset by the repayment of amounts outstanding under the 2019 Credit Facility aggregating $57 million at the time we entered into the 2020 Credit Facility, $11 million for the payment of debt issuance costs in connection with the 2020 Credit Facility, principal payments aggregating $4 million related to the 2020 Credit Facility and the short-term loans in China, and $1 million in the aggregate for the payment of tax withholding obligations related to the net share settlement of restricted stock awards upon vesting and principal payments of finance leases.
−Removed: We both borrowed and repaid less than $1 million under our revolving line of credit such that we did not have any outstanding revolving borrowings at June 30, 2020.
−Removed: Our financing activities used $23 million of cash in the six months ended June 30, 2019.
−Removed: We repaid outstanding borrowings of $112 million under the 2019 Credit Facility, $25 million on the Promissory Note and $22 million to the selling Edgewater shareholders for the outstanding deferred purchase consideration.
−Removed: We spent slightly under $5 million to repurchase and retire shares of our common stock on the open market and used $1 million to pay withholding obligations related to the net share settlement of restricted stock awards upon vesting.
−Removed: Our borrowings under the 2019 Credit Facility totaled $142 million, comprised of $92 million of borrowings under the revolving line of credit and $50 million of long-term debt.
−Removed: Cash proceeds from the sale of our common stock under our Amended and Restated Employee Stock Purchase Plan and from option exercises totaled slightly less than $1 million.
−Removed: Based on our current expectations, we believe our current cash and available borrowings under the 2020 Credit Facility will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least twelve months.
+Added: Our investing activities used $1 million of cash in the nine months ended September 30, 2019, comprised of $8 million of investments in property and equipment, partially offset by $7 million of maturities of marketable securities.
+Added: Our financing activities provided $323 million of cash in the nine months ended September 30, 2020, primarily due to $479 million of proceeds from term debt, which was comprised of $400 million of proceeds from the 2020 Credit Agreement, $75 million from Term Loan B under the Amended 2020 Credit Facility and $4 million of proceeds from short-term loans in China for the financing of certain export activities.
+Added: These proceeds were partially offset by the repayment of the $75 million of debt that was extinguished in connection with the First Amendment, the repayment of $57 million outstanding under the 2019 Credit Facility (comprised of $8 million under the revolving credit facility and $49 million of long-term debt), the payment of $14 million of debt issuance costs in connection with the 2020 Credit Agreement and the First Amendment, the repayment of principal aggregating $8 million related to the 2020 Credit Agreement and short-term loans in China, and the payment of $1 million each of tax withholding obligations related to the net share settlement of restricted stock awards upon vesting and principal payments of finance leases.
+Added: We both borrowed and repaid less than $1 million under our revolving line of credit such that we did not have any outstanding revolving borrowings at September 30, 2020.
+Added: Our financing activities used $25 million of cash in the nine months ended September 30, 2019.
+Added: We repaid outstanding borrowings of $131 million under the 2019 Credit Facility, comprised of $130 million for borrowings under the revolving line of credit and $1 million for borrowings under the term loan.
+Added: We also repaid $25 million on the note to certain of the former GENBAND equity holders and the deferred purchase consideration of $22 million to the selling Edgewater shareholders.
+Added: We spent $5 million to repurchase and retire shares of our common stock on the open market and used $1 million to pay withholding obligations related to the net share settlement of restricted stock awards upon vesting.
+Added: Our borrowings under the 2019 Credit Facility totaled $159 million, comprised of $109 million of borrowings under the revolving line of credit and $50 million of term loan debt under the 2019 Credit Facility.
+Added: Cash proceeds from the sale of our common stock under our Amended and Restated Employee Stock Purchase Plan and from option exercises totaled $1 million.
+Added: Based on our current expectations, we believe our current cash and available borrowings under the 2020 Credit Agreement will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least twelve months.
We further believe that our financial resources, along with managing discretionary expenses, will allow us to manage the anticipated impact of COVID-19 on our business operations.
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Consequently, we will continue to evaluate our financial position in light of future developments, particularly those relating to COVID-19.
−Removed: However, it is difficult to predict future liquidity requirements with certainty, and our cash and available borrowings under the 2020 Credit Facility may not be sufficient to meet our future needs, which would require us to refinance our debt and/or obtain additional financing.
+Added: However, it is difficult to predict future liquidity requirements with certainty, and our cash and available borrowings under the 2020 Credit Agreement may not be sufficient to meet our future needs, which would require us to refinance our debt and/or obtain additional financing.
We may not be able to refinance our debt or obtain additional financing on favorable terms or at all.
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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.
−Removed: ASU 2018-15 amends ASC 350, Intangibles - Goodwill and Other (“ASC 350”) to include
−Removed: 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.
+Added: 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):
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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.