Ribbon Communications Inc. 10-Q

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion of the financial condition and results of operations of Ribbon Communications Inc. should be read in conjunction with the condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2019, which was filed with the U.S. Securities and Exchange Commission on February 28, 2020. Overview We are 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"), we now also provide optical and packet networking products and software-defined solutions to service providers and critical infrastructure sectors like utilities, government and defense. With over 1,000 customers around the globe, including some of the largest telecommunications service providers, enterprises and utilities in the world, we enable our customers to evolve and modernize their communications networks and packet optical networking infrastructures through software and hardware. By securing and enabling reliable and scalable Internet Protocol ("IP") and packet optical networks, we help our customers adopt the next generation of software-, cloud- and edge-based technologies to drive new, incremental revenue, while protecting their existing revenue streams. Our software solutions provide a secure way for our customers to connect and leverage multivendor, multiprotocol communications systems and applications across their networks and the cloud, in a rapidly changing ecosystem of IP-enabled devices, such as smartphones and tablets. 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. 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 In 2020, a novel strain of the coronavirus (COVID-19) was declared by the World Health Organization to be a global pandemic. The COVID-19 pandemic has had a negative effect on the global economy, disrupting the various manufacturing, commodity and financial markets and increasing volatility, and has impeded global supply chains, including that of our recently acquired subsidiary, ECI. Continued dampened global economic conditions as a result of the COVID-19 pandemic may cause our customers to restrict spending or delay purchases for an indeterminate period of time and consequently cause our revenues to decline. In addition, our ability to deliver our solutions as agreed upon with our customers depends on the ability of our global contract manufacturers, vendors, licensors and other business partners to deliver products or perform services we have procured from them. While, to date, we have not experienced material issues, if the continuing COVID-19 pandemic impairs the ability of our business partners to support us on a timely basis, or negatively impacts the demand for our customers' other products and services, our ability to perform our customer contracts as well as the demand for our solutions may suffer. In addition, disruptions from the COVID-19 pandemic could include, and with respect to ECI have included, disruption of logistics necessary to import, export and deliver our solutions. The COVID-19 pandemic has also limited the ability of our associates to perform their work due to illness caused by the pandemic or local, state or federal orders requiring associates to remain at home. Concerns over the economic impact of the COVID-19 pandemic have also caused extreme volatility in financial and other capital markets which has and may continue to adversely impact our stock price. Such volatility may also adversely impact our ability to access capital markets if and when we would be required to do so. 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. 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. To the extent the business disruption continues for an extended period, additional cost management actions will be 43 considered. 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. Presentation The term "organic Ribbon" as used in this Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") refers to the business and/or financial results, as the context dictates, of Ribbon excluding the recently acquired ECI business. Unless otherwise noted, all financial amounts, excluding tabular information, in this MD&A are rounded to the nearest million dollar amount, and all percentages, excluding tabular information, are rounded to the nearest percentage point. Business Acquisitions ECI Telecom Group Ltd 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"). 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. As consideration for the ECI Merger, we 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 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. Anova Data, Inc. On February 28, 2019 (the "Anova Acquisition Date"), we acquired the business and technology assets of Anova Data, Inc. ("Anova"), a private company headquartered in Westford, Massachusetts (the "Anova Acquisition"). Anova is a provider of advanced analytics solutions and its next generation products provide a cloud-native, streaming analytics platform for network and subscriber optimization and monetization. The Company believes that the Anova Acquisition will reinforce and extend Ribbon's strategy to expand into network optimization, security and data monetization via big data analytics and machine learning. As consideration for the Anova Acquisition, we issued 2.9 million shares of our common stock with a fair value of $15.2 million to Anova's sellers and equity holders on the Anova Acquisition Date and held back an additional 330,000 shares of our common stock with a fair value of $1.7 million (the "Deferred Purchase Consideration"), of which 316,551 shares were issued after post-closing adjustments on March 4, 2020. The Deferred Purchase Consideration was included as a component of Accrued expenses and other in our condensed consolidated balance sheet at December 31, 2019. 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. Proposed Sale of Kandy Communications Business On August 5, 2020, we announced our entry into a definitive agreement (the "Kandy Agreement") with American Virtual Cloud Technologies, Inc. ("AVCTechnologies") to sell our 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, one of our subsidiaries. AVCTechnologies has agreed to pay us 13 million shares of AVCTechnologies 44 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 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 We reported income from operations of $12 million and $3 million for the three months ended September 30, 2020 and 2019, respectively. We reported losses from operations of $15 million and $41 million for the nine months ended September 30, 2020 and 2019, respectively. 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. Our gross profit was $123 million and $79 million in the three months ended September 30, 2020 and 2019, respectively. 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. Our gross profit was $317 million and $216 million in the nine months ended September 30, 2020 and 2019, respectively. Our total gross margin was 53% and 54% in the nine months ended September 30, 2020 and 2019, respectively. Our operating expenses were $111 million and $76 million in the three months ended September 30, 2020 and 2019, respectively. 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. 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. Our operating expenses were $332 million and $257 million in the nine months ended September 30, 2020 and 2019, respectively. 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. 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. 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. 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"). 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. 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. 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. 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. We expect to record additional restructuring and related expense approximating $6 million in the aggregate for severance and planned facility consolidations. In June 2019, we implemented a restructuring plan to further streamline our global footprint, improve our operations and enhance our customer delivery (the "2019 Restructuring Initiative"). The 2019 Restructuring Initiative includes facility consolidations, refinement of our research and development activities, and a reduction in workforce. In connection with this 45 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. In addition, we intend to substantially consolidate our global software laboratories and server farms into two lower cost North American sites. We continue to evaluate our properties included in the Facilities Initiative for accelerated amortization and/or right-of-use asset impairment. We expect that the actions under the Facilities Initiative will be completed by the end of 2020. 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. 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. 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. We recorded restructuring and related expense of $2 million and $8 million in the three and nine months ended September 30, 2019, respectively. 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. 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. 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. We recorded nominal expense for accelerated rent amortization in the nine months ended September 30, 2020. We recorded $1 million and $4 million of accelerated rent amortization in the three and nine months ended September 30, 2019, respectively. These amounts are included as components of Restructuring and related expense. 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. We may incur additional future expense if we are unable to sublease other locations included in the Facilities Initiative. 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"). 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. The GENBAND Merger Restructuring Initiative was completed in the second quarter of 2019. Critical Accounting Policies and Estimates Management's discussion and analysis of financial condition and results of operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We base our estimates and judgments on historical experience, knowledge of current conditions and beliefs of what could occur in the future given available information. We consider the following accounting policies to be both those most important to the portrayal of our financial condition and those that require the most subjective judgment: revenue recognition, valuation of inventory, warranty accruals, loss contingencies and reserves, stock-based compensation, business combinations, goodwill and intangible assets, accounting for leases and accounting for income taxes. If actual results differ significantly from management's estimates and projections, there could be a material effect on our condensed consolidated financial statements. 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. Warranty Accruals. We record warranty liabilities for estimated costs of fulfilling our obligations under standard limited hardware and software warranties at the time of sale. The liability for standard warranties is included in Accrued expenses and 46 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. We provide for the estimated costs to fulfill customer warranty obligations for certain of our products upon recognition of the related revenue. Estimated warranty costs include estimates for material costs, technical support, labor and associated overhead. Warranty is included as a component of Cost of revenue in our condensed consolidated statements of operations, and is determined based on actual warranty cost experience, estimates of component failure rates and our management's industry experience. Our sales contracts do not permit the right of return of the product by the customer after the product has been accepted. Results of Operations Three and nine months ended September 30, 2020 and 2019 Revenue. 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 September 30, 2020 September 30, 2019 $ % Product $ 128,926 $ 61,152 $ 67,774 110.8 % Service 102,192 76,501 25,691 33.6 % Total revenue $ 231,118 $ 137,653 $ 93,465 67.9 % Nine months ended Increase from prior year September 30, 2020 September 30, 2019 $ % Product $ 325,687 $ 180,691 $ 144,996 80.2 % Service 273,906 221,311 52,595 23.8 % Total revenue $ 599,593 $ 402,002 $ 197,591 49.2 % Our product revenue is generated from sales of software with attached appliances, software licenses and software subscription fees. Certain of our products may be included in more than one of our solutions (i.e., session control solutions, network transformation solutions, and applications and security solutions), depending upon the configuration of the individual customer solutions sold. Our software with attached appliances and software license revenues are primarily comprised of our media gateway, call controller, signaling, virtual mobile core and management (i.e., analytics, assurance, billing, etc.) products. Our software subscription fees revenue is primarily comprised of sales of our UC-related (i.e., application server, media server, etc.), Kandy Cloud and Ribbon Analytics products. Each of our solutions portfolios addresses both the service provider and enterprise markets and are sold through both our direct sales program and from indirect sales through our channel partner program. 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. 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. 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. 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. 47 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. 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”). 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 September 30, 2020 September 30, 2019 $ % Maintenance $ 73,642 $ 58,901 $ 14,741 25.0 % Professional services 28,550 17,600 10,950 62.2 % $ 102,192 $ 76,501 $ 25,691 33.6 % Nine months ended Increase from prior year September 30, 2020 September 30, 2019 $ % Maintenance $ 203,333 $ 173,031 $ 30,302 17.5 % Professional services 70,573 48,280 22,293 46.2 % $ 273,906 $ 221,311 $ 52,595 23.8 % 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. 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. 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. The following customers contributed 10% or more of our revenue in the three and nine months ended September 30, 2020 and 2019: Three months ended Nine months ended Customer September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019 Verizon Communications Inc. 16% 15% 15% 17% AT&T Inc. * 16% * 12% * Represents less than 10% of total revenue. 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. Our deferred product revenue was $14 million and $5 million at September 30, 2020 and December 31, 2019, respectively. Our deferred service revenue was $101 million and $116 million at September 30, 2020 and December 31, 2019, respectively. Our deferred revenue balance may fluctuate because of the timing of revenue recognition, customer payments, 48 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. At this time, we are unable to determine the full impact the COVID-19 pandemic may have on our total revenue; however, we expect that our total revenue will be lower in 2020 compared to the sum of the respective Ribbon and ECI revenues for the 2019 fiscal year. Cost of Revenue/Gross Margin. 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. 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 September 30, 2020 September 30, 2019 $ % Cost of revenue Product $ 70,188 $ 31,476 $ 38,712 123.0 % Service 37,619 27,300 10,319 37.8 % Total cost of revenue $ 107,807 $ 58,776 $ 49,031 83.4 % Gross margin Product 45.6 % 48.5 % Service 63.2 % 64.3 % Total gross margin 53.4 % 57.3 % Nine months ended Increase from prior year September 30, 2020 September 30, 2019 $ % Cost of revenue Product $ 176,650 $ 101,056 $ 75,594 74.8 % Service 105,745 84,807 20,938 24.7 % Total cost of revenue $ 282,395 $ 185,863 $ 96,532 51.9 % Gross margin Product 45.8 % 44.1 % Service 61.4 % 61.7 % Total gross margin 52.9 % 53.8 % 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. 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. 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. 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. These increases were offset by the inclusion of ECI's service revenue in the current year periods. Overall, we believe that our total gross margin will decrease in 2020 compared to 2019, primarily due to the addition of 49 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. Research and development expenses for the three and nine months ended September 30, 2020 and 2019 were as follows (in thousands, except percentages): Increase from prior year September 30, 2020 September 30, 2019 $ % Three months ended $ 49,113 $ 34,222 $ 14,891 43.5 % Nine months ended $ 143,204 $ 105,456 $ 37,748 35.8 % 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. 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. 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. 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. Sales and marketing expenses for the three and nine months ended September 30, 2020 and 2019 were as follows (in thousands, except percentages): Increase from prior year September 30, 2020 September 30, 2019 $ % Three months ended $ 41,604 $ 28,227 $ 13,377 47.4 % Nine months ended $ 115,572 $ 87,179 $ 28,393 32.6 % 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. 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. General and Administrative Expenses. General and administrative expenses consist primarily of salaries and related personnel costs for executive and administrative personnel, and audit, legal and other professional fees. General and administrative expenses for the three and nine months ended September 30, 2020 and 2019 were as follows (in thousands, except percentages): 50 Increase from prior year September 30, 2020 September 30, 2019 $ % Three months ended $ 16,021 $ 9,673 $ 6,348 65.6 % Nine months ended $ 48,320 $ 40,833 $ 7,487 18.3 % 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. 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. 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. Acquisition- and Integration-Related Expenses. Acquisition- and integration-related expenses include those expenses related to acquisitions that we would otherwise not have incurred. Acquisition-related expenses include professional and services fees, such as legal, audit, consulting, paying agent and other fees, and expenses related to cash payments to certain former executives of acquired businesses in connection with their employment agreements. 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. 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. We recorded acquisition- and integration-related expense of $2 million and $7 million in the three and nine months ended September 30, 2019, respectively. 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. 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. 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. 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. 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. We have been committed to streamlining operations and reducing operating costs by closing and consolidating certain facilities and reducing our worldwide workforce. Please see the additional discussion of our restructuring initiatives in the "Restructuring and Cost Reduction Initiatives" section of the Overview of this MD&A. We recorded restructuring and related expense of $3 million and $11 million in the three and nine months ended September 30, 2020, respectively. 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. Restructuring and related expense is reported separately in the condensed consolidated statements of operations. Interest Expense, Net. Interest income and interest expense for the three and nine months ended September 30, 2020 and 2019 were as follows (in thousands, except percentages): 51 Three months ended Increase (decrease) from prior year September 30, 2020 September 30, 2019 $ % Interest income $ 35 $ 271 $ (236) (87.1) % Interest expense (6,889) (997) 5,892 591.0 % $ (6,854) $ (726) $ 6,128 844.1 % Nine months ended Increase from prior year September 30, 2020 September 30, 2019 $ % Interest income $ 451 $ 313 $ 138 44.1 % Interest expense (16,100) (3,665) 12,435 339.3 % $ (15,649) $ (3,352) $ 12,297 366.9 % Interest income in the three and nine months ended September 30, 2020 primarily represents interest earned on the outstanding note receivable from Metaswitch. 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. 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. 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. Interest income in the three and nine months ended September 30, 2019 primarily represented interest earned on the outstanding note receivable from Metaswitch. 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). 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. 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. 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. 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. 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. The estimated effective tax rate includes the impact of valuation allowances in various jurisdictions. Off-Balance Sheet Arrangements We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial position, changes in financial position, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. Contractual Obligations 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. 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. 52 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. Our related and assumed contractual obligations at September 30, 2020 consisted of the following (in millions): Payments due by period Total Less than 1 year 1-3 years 3-5 years More than 5 years Operating lease obligations $ 25.6 $ 9.8 $ 13.0 $ 2.4 $ 0.4 Purchase obligations 44.9 43.7 1.0 0.2 — Debt obligations - principal * 396.0 13.9 36.3 345.8 — Debt obligations - interest 65.8 15.5 29.0 20.2 1.1 Employee postretirement defined benefit plans 9.5 — — — 9.5 Uncertain tax positions ** 13.3 13.3 — — — $ 555.1 $ 96.2 $ 79.3 $ 368.6 $ 11.0 * 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. Except for the material changes above in connection with the 2020 Credit Agreement and the ECI Merger, there have been no material changes, outside of the ordinary course of business, to our contractual obligations as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019. Liquidity and Capital Resources Our condensed consolidated statements of cash flows are summarized as follows (in millions): Nine months ended September 30, 2020 September 30, 2019 Change Net (loss) income $ (35.2) $ 20.3 $ (55.5) Adjustments to reconcile net (loss) income to cash flows provided by operating activities 73.8 51.5 22.3 Changes in operating assets and liabilities 26.6 (49.2) 75.8 Net cash provided by operating activities $ 65.2 $ 22.6 $ 42.6 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 Our cash, cash equivalents and restricted cash aggregated $111 million at September 30, 2020. We had cash of $45 million at December 31, 2019. 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. 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. The 2019 Credit Facility provided for a $50 million term loan facility that was advanced in full on April 29, 2019, and a $100 million revolving line of credit. At December 31, 2019, we had an outstanding term loan debt balance of $49 million and an outstanding revolving line of credit balance of $8 million with a combined average interest rate of 3.30%, and $5 million of outstanding letters of credit at an interest rate of 1.50%. 53 Revolving loans under the 2019 Credit Facility bore interest at our option at either the Eurodollar ("LIBOR") rate plus a margin ranging from 1.50% to 3.00% per year or the base rate (the highest of the Federal Funds rate 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 2.00% per year (such margins being referred to as the “Applicable Margin”). The Applicable Margin varied depending on our consolidated leverage ratio (as defined in the 2019 Credit Facility). The base rate and the LIBOR rate were each subject to a zero percent floor. 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. ("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 $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. 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. 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 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. 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). In addition, the 2020 Credit Agreement contains various covenants that, among other restrictions, limit our and our subsidiaries’ ability to incur or assume indebtedness; grant or assume liens; make acquisitions or engage in mergers; sell, transfer, assign or convey assets; repurchase equity and make dividend and certain other restricted payments; make investments; engage in transactions with affiliates; enter into sale and leaseback transactions; enter into burdensome agreements; change the nature of its business; modify their organizational documents; or amend or make prepayments on certain junior debt. 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 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. 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"), we entered into the First Amendment to the 2020 Credit Agreement. 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. 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 amounts under 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 our Consolidated Net 54 Leverage Ratio (as defined in the 2020 Credit Agreement). The base rate and the LIBOR rate are each subject to a zero percent floor. 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. 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 First Amendment did not change the terms applied to the Term A Loan or the Revolving Credit Facility under the 2020 Credit Agreement. 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. 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. 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. 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 prior to the First Amendment. 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. We were in compliance with all covenants of the 2020 Credit Agreement at September 30, 2020. 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%. 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. These exposures are actively monitored by management. To manage the volatility related to the exposure to changes in interest rates, we have entered into a derivative financial instrument. Management's objective is to reduce, where it is deemed appropriate to do so, fluctuations in earnings and cash flows associated with changes in interest rates. Our policies and practices are to use derivative financial instruments only to the extent necessary to manage exposures. We do not hold or issue derivative financial instruments for trading or speculative purposes. 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. 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. Our objectives in using interest rate derivatives are to add stability to interest expense and to manage our exposure to interest rate movements. 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. 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. Any ineffective portion of the change in fair value of the derivative would be recognized directly in earnings. However, during the three and nine months ended September 30, 2020, we recorded no hedge ineffectiveness. 55 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. 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. 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. 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. 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. At September 30, 2020, we had cash collateral of $2.9 million supporting the Guarantees under our uncommitted facilities. 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"). 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. We did not incur any early termination penalties in connection with this repayment. In the second quarter of 2019, our Board of Directors (the "Board") approved a stock repurchase program pursuant to which we may repurchase up to $75 million of the Company's common stock prior to April 18, 2021. Repurchases under the program may be made in the open market, in privately negotiated transactions or otherwise, with the amount and timing of repurchases depending on the market conditions and corporate discretion. 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. 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. No shares were repurchased under this program during the three and nine months ended September 30, 2020. At September 30, 2020, there was $70.5 million available for the repurchase of shares under the repurchase program. Our operating activities provided $65 million and $23 million of cash in the nine months ended September 30, 2020 and 2019, respectively. 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. 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. 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. 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. 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. The decrease in accrued expenses and other long-term liabilities was primarily related to employee compensation and related costs and lower deferred purchase consideration. 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. 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. 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. 56 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. 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. 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. Our financing activities used $25 million of cash in the nine months ended September 30, 2019. 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. 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. 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. 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. 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. 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. Looking ahead, we have developed contingency plans to reduce costs further if the situation deteriorates further. The challenges posed by COVID-19 on our business are evolving rapidly. Consequently, we will continue to evaluate our financial position in light of future developments, particularly those relating to COVID-19. 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. Recent Accounting Pronouncements The Financial Accounting Standards Board ("FASB") has issued the following accounting pronouncements, all of which became effective for us in 2020 and none of which had a material impact on our condensed consolidated financial statements: In March 2020, the FASB issued Accounting Standard Updates ("ASU") 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting ("ASU 2020-04"), which provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria that reference LIBOR or another reference rate expected to be discontinued. In March 2020, the FASB issued ASU 2020-03, Codification Improvements to Financial Instruments ("ASU 2020-03"), which makes narrow-scope amendments related to topics regarding fair value option disclosures, applicability of the portfolio exception in Accounting Standards Codification ("ASC") 820 to nonfinancial items, disclosures for depository and lending institutions, cross reference to guidance in ASC 470-50 on line of credit or revolving debt arrangements, cross reference to net asset value practical expedient in ASC 820-10, interaction between ASC 842 and ASC 326 and between ASC 326 and ASC 860-20. 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 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. 57 In August 2018, the FASB issued ASU 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans (“ASU 2018-14”), which amends ASC 715, Compensation - Retirement Benefits , to add, remove and clarify disclosure requirements related to defined benefit pension and other postretirement plans. In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which changes the fair value measurement requirements of ASC 820, Fair Value Measurement. In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"), which adds an impairment model that is based on expected losses rather than incurred losses. Under ASU 2016-13, an entity recognizes as an allowance its estimate of expected credit losses, which the FASB believes will result in more timely recognition of such losses. In April and May 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments ("ASU 2019-04") and ASU 2019-05 Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief ("ASU 2019-05"), respectively. ASU 2019-04 provides transition relief for entities adopting ASU 2016-13 and ASU 2019-05 clarifies certain aspects of the accounting for credit losses, hedging activities and financial instruments in connection with the adoption of ASU 2016-13. The FASB has issued the following accounting pronouncement which becomes effective for us in 2021, which we do not believe will have a material impact on our condensed consolidated financial statements upon adoption: The FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes ("ASU 2019-12"), which modifies ASC 740 to simplify the accounting for income taxes. ASU 2019-12 addresses the accounting for hybrid tax regimes, tax basis step-up in goodwill obtained in a transaction that is not a business combination, separate financial statements of legal entities not subject to tax, intraperiod tax allocation exception to incremental approach, ownership changes in investments - changes from a subsidiary to an equity method investment, ownership changes in investments - changes from an equity method investment to a subsidiary, interim period accounting for enacted changes in tax law and year-to-date loss limitation in interim period tax accounting.