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Item 1A. Risk Factors

2021-02-26 compared with 2020-02-28 · 276 added, 503 removed, 202 unchanged (79% of the section changed)

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Other events that we do not currently anticipate or that we currently deem immaterial may also affect our business, prospects, financial condition and results of operations.

Risks Related to the Proposed ECI Telecom Group Ltd.

Completion of the pending ECI Merger is subject to conditions and may not be consummated on the terms or timeline currently contemplated, if at all.

On November 14, 2019, we entered into the ECI Merger Agreement with ECI and ECI Holding (Hungary) kft, among others, pursuant to which Merger Sub will merge with and into ECI, with ECI surviving such merger as a wholly-owned subsidiary of Ribbon.

Our obligations to complete the ECI Merger are subject to the satisfaction or waiver of certain conditions, including (i) the approval of the ECI Merger by ECI’s shareholders and the approval of the issuance of our common stock as partial consideration in the ECI Merger by our stockholders, (ii) the receipt of all required antitrust and foreign investment approvals and clearances, and (iii) the absence of any injunctions being entered into or law being adopted that would make the ECI Merger illegal.

The failure to satisfy all of the required conditions could delay the completion of the ECI Merger by a significant period of time or prevent the ECI Merger from occurring.

Any delay in completing the ECI Merger could cause us to not realize some or all of the benefits that we expect to achieve if the ECI Merger is successfully completed within the expected time frame, cause us to incur unexpected costs, and adversely impact our business.

We have incurred, and will continue to incur, significant costs, expenses and fees for professional services and other transaction costs in connection with the proposed ECI Merger, and these fees and costs are payable by us regardless of whether the ECI Merger is consummated.

Management has also spent significant time and resources working on the ECI Merger.

If the ECI Merger Agreement is terminated under certain circumstances specified in the ECI Merger Agreement, we may be required to pay ECI a termination fee of $19,500,000 if all conditions to the ECI Merger are satisfied and the Company fails to consummate the ECI Merger due to a failure to obtain debt financing to support payment of the cash portion of the ECI Merger consideration.

Additionally, we may be required to pay ECI a termination fee of $13,625,000 and expense reimbursement up to $2,275,000 if ECI terminates the ECI Merger Agreement due to a change in the recommendation of, or failure to affirm the recommendation by, our Board of Directors or following the termination of the ECI Merger Agreement in certain circumstances if we enter into a definitive agreement in respect of another acquisition proposal (or consummate such a transaction).

Although our stockholders have approved the Share Issuance, the equityholders of ECI have approved the ECI Merger and the U.S.

Federal Trade Commission granted early termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, there can be no assurance that the other conditions to closing the ECI Merger will be satisfied or waived, including one outstanding regulatory approval.

For these and other reasons, the ECI Merger may not be completed on the terms or timeline contemplated, if at all.

Combining Ribbon and ECI may be more difficult, costly or time-consuming than expected and the anticipated benefits and cost savings of the pending ECI Merger may not be realized.

We are operating and, until the completion of the ECI Merger, will continue to operate independently of ECI.

The success of the ECI Merger, including anticipated benefits and cost savings, will depend, in part, on our ability to successfully combine and integrate the businesses.

It is possible that the pendency of the ECI Merger and/or the integration process could result in the loss of key employees, higher than expected costs, diversion of management attention, the disruption of our ongoing businesses or inconsistencies in standards, controls, procedures and policies that adversely affect the combined company’s ability to maintain relationships with customers, vendors and employees or to achieve the anticipated benefits and cost savings of the ECI Merger.

We have incurred and will incur additional transaction fees, including legal, regulatory and other costs associated with closing the transaction, as well as expenses relating to formulating and implementing integration plans, including facilities and systems consolidation costs and employment-related costs.

We continue to assess the magnitude of these costs, and additional unanticipated costs may be incurred in the ECI Merger and the integration of the two companies’ businesses.

While we expect that the elimination of duplicative costs as well as the realization of other efficiencies related to the integration of the businesses should allow us to offset integration-related costs over time, this net benefit may not be achieved in the near term or at all.

As part of the integration process, we may also attempt to divest certain assets of the combined company, which may not be possible on favorable terms, or at all, or if successful, may change the profile of the combined company.

If we experience difficulties with the integration process, the anticipated benefits of the ECI Merger may not be realized fully or at all, or may take longer to realize than anticipated.

The actual cost savings of the ECI Merger could be less than expected.

The announcement and pendency of the ECI Merger may adversely affect our business, financial condition and results of operations.

Uncertainty about the effect of the pending ECI Merger on our employees, clients, and other parties may have an adverse effect on our business, financial condition and results of operation regardless of whether the ECI Merger is completed.

These risks to our business include the following, all of which may be exacerbated by a delay in the completion of the ECI Merger:

(i) the impairment of our ability to attract, retain, and motivate our employees, including key personnel;

(ii) the diversion of significant management time and resources from day-to-day operations towards the completion of the pending ECI Merger;

(iii) difficulties maintaining relationships with clients, suppliers, and other business partners;

(iv) delays or deferments of certain business decisions by our clients, suppliers, and other business partners;

(v) the inability to pursue alternative business opportunities, engage in certain financing transactions or make appropriate changes to our business;

(vi) litigation relating to the pending ECI Merger and the costs related thereto;

and (vii) the incurrence of significant costs, expenses, and fees for professional services and other transaction costs in connection with the pending ECI Merger.

Risks Related to our Business and Industry

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Our revenue and operating results may vary significantly from quarter to quarter due to a number of factors, many of which are outside of our control and any of which may cause our stock price to fluctuate.

The primary factors that may affect our revenue and operating results include, but are not limited to, the following:

consolidation within the telecommunications industry, including acquisitions of or by our customers;

general economic conditions in our markets, both domestic and international, as well as the level of discretionary IT spending;

competitive conditions in our markets, including the effects of new entrants, consolidation, technological innovation and substantial price discounting;

fluctuation in demand for our products and services, and the timing and size of customer orders;

fluctuations in foreign exchange rates;

cancellation or deferral of existing customer orders or the renegotiation of existing contractual commitments;

mix of product configurations sold;

length and variability of the sales cycle for our products;

application of complex revenue recognition accounting rules to our customer arrangements;

timing of revenue recognition;

changes in our pricing policies, the pricing policies of our competitors and the prices of the components of our products;

market acceptance of new products, product enhancements and services that we offer;

the quality and level of our execution of our business strategy and operating plan, and the effectiveness of our sales and marketing programs;

new product announcements, introductions and enhancements by us or our competitors, which could result in deferrals of customer orders;

our ability to develop, introduce, ship and successfully deliver new products and product enhancements that meet customer requirements in a timely manner;

our reliance on contract manufacturers for the production and shipment of our appliance products;

our or our contract manufacturers' ability to obtain sufficient supplies of sole or limited source components or materials;

our ability to attain and maintain production volumes and quality levels for our products;

variability and unpredictability in the rate of growth in the markets in which we compete;

costs related to mergers, acquisitions and divestitures;

corporate restructurings.

Equipment purchases by communications service providers and enterprises continue to be unpredictable.

Material factors that may affect our revenue and operating results include those discussed below under “Risks Related to our Business and Industry.”

Equipment purchases by CSPs and enterprises continue to be unpredictable.

As with other telecommunications product suppliers, we typically recognize a portion of our revenue in a given quarter from sales booked and shipped in the last weeks of that quarter.

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Any such revenue shortfall would, therefore, have a significant effect on our operating results for that quarter.

We have incurred net losses and may incur additional net losses.

We incurred net losses in fiscal years 2019, 2018 and 2017.

We may incur additional net losses in future quarters and years.

Our revenue may not grow, and we may never generate sufficient revenue to sustain profitability.

Any failure by us to achieve, sustain or increase profitability on a consistent basis could cause the value of our common stock to decline.

The COVID-19 pandemic and resulting deterioration in global economic conditions may have a material adverse impact on our business, financial position and results of operations.

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 Telecom Group Ltd.

Dampened global economic conditions and higher unemployment as a result of the COVID-19 pandemic may cause our customers to restrict spending or delay purchases for an indeterminate period of time.

In addition, our ability to deliver our solutions as agreed 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.

If the 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 has included the temporary closures of some of our facilities, as well as those of our contract manufacturers, vendors and suppliers, the inability to obtain key components of our products, the disruption of logistics necessary to import, export and deliver our solutions, limitations on the ability of our customers to perform or make timely payments, and/or workforce disruptions due to illness, quarantines, government actions, facility closures, partial work permits limiting the capacity of production facilities, or other restrictions.

Actions taken globally in response to the COVID-19 pandemic have created significant dislocation in demand and pricing for oil, which has subsequently impacted a variety of currencies around the world.

These fluctuations in the relative value of currencies could have a significant impact on demand for our products and the net sales price and profitability.

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, including 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;

the health of and the effect on our workforce, particularly if members of our workforce are quarantined as a result of exposure, worker absenteeism as a result of illness or other factors, social distancing measures including work from home measures and other travel, health-related, business, government or other restrictions in connection with pandemics or disease outbreaks;

and the severity and duration of the global economic downturn that results from the pandemic.

If we fail to compete successfully against telecommunications equipment and networking companies, our ability to increase our revenue and achieve profitability will be impaired.

Competition in the telecommunications market is intense.

The market is shifting from a market dominated by a few large incumbent telecommunications equipment companies, such as Ericsson LM Telephone Company, Huawei Technologies Co.

The market is shifting from an ecosystem dominated by a few large incumbent telecommunications equipment companies, such as Ericsson LM Telephone Company, Huawei Technologies Co.

and Nokia Corporation, to a market with competitors that are characterized by network virtualization, migration to the cloud, and open interfaces.

We believe this shift creates opportunities for us, as well as our direct competitors in telecommunications and networking, including:

Within the network transformation space, mid-size vendors of networking and telecommunications equipment and specialty vendors, including AudioCodes Ltd., Dialogic Inc., Mavenir Systems, Inc., Metaswitch Networks Ltd., Oracle Corporation (Session Border Controller), and ADTRAN, Inc.;

Within the enterprise and cloud solutions space, 8x8, Inc., Avaya Inc., Bandwidth Inc., Cisco Inc.

(with Broadsoft, Inc.), Mitel Networks Corporation (with ShoreTel, Inc.), Plivo Inc., RingCentral, Inc., Twilio Inc., Telestax Inc., Fuze, Inc., Genesys and Vonage Holdings Corp.

(with Nexmo, Inc.

and Tokbox Inc.);

Within the audio and video security and analytics space, SecureLogix Corporation, RedShift Networks Corporation, Empirix Inc.

and Oracle Corporation.

We believe this shift creates opportunities for us, as well as our direct competitors in telecommunications and networking.

The shift also creates opportunities for new entrants, including some that may currently be our strategic partners, that could become competitors in the industry.

" Business – Competition ".

Mergers among any of these or other competitors could strengthen their ability to compete against us, and additional competitors with significant financial resources entering our markets could further intensify competition.

Many of our current and potential competitors have significantly greater selling and marketing, technical, manufacturing, financial and other resources than we have.

Further, some of our competitors sell significant amounts of other products to our

current and prospective customers and have the ability to offer lower prices to win business.

Our competitors' broad product portfolios, coupled with already existing relationships, may cause our customers to buy our competitors' products or harm our ability to attract new customers.

To compete effectively, we must deliver innovative products that:

provide extremely high reliability and quality;

To compete effectively, we must deliver innovative products that provide extremely high reliability and quality;

deploy and scale easily and efficiently;

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meet price competition from low cost equipment providers;

offer solutions that are timely for the market and support where the industry is heading.

and offer solutions that are timely for the market and support where the industry is heading.

Many of our current and potential competitors have significantly greater selling and marketing, technical, manufacturing, financial and other resources than we have.

Further, some of our competitors sell significant amounts of other products to our current and prospective customers and have the ability to offer lower prices to win business.

Our competitors' broad product portfolios, coupled with already existing relationships, may cause our customers to buy our competitors' products or harm our ability to attract new customers.

If we are unable to compete successfully against our current and future competitors, we could experience price reductions, order cancellations and loss of customers and revenue, and our operating results could be adversely affected.

We will not be successful if we do not grow our customer base or if we are unable to generate recurring business from our existing customers.

Our future success is dependent on growing our base of customers and expanding our recurring revenue from our existing customers.

We rely on certain key customers, and our future success will depend on our ability to generate recurring business from our existing customers and to attract additional customers beyond our current customer base.

One customer, Verizon Communications Inc., contributed approximately 17% of our revenue in each of the years ended December 31, 2019, 2018 and 2017.

In addition, AT&T Inc., contributed 12% of our revenue in 2019.

Our top five customers contributed approximately 40% of our revenue in 2019, approximately 38% of our revenue in 2018 and approximately 41% of our revenue in 2017.

Factors that may affect our ability to grow our customer base include but are not limited to the following:

economic conditions that discourage potential new customers from making the capital investments required to adopt new technologies;

One customer, Verizon Communications Inc., contributed approximately 15% of our revenue in the year ended December 31, 2020.

Our top five customers contributed approximately 34% of our revenue in 2020.

Factors that may affect our ability to grow our customer base include, but are not limited to, economic conditions that discourage potential new customers from making the capital investments required to adopt new technologies;

deterioration in the general financial condition of service providers and enterprises, or their ability to raise capital or access lending sources;

new product introductions by our competitors;

the success of our channel partner program.

Due to the nature of certain of our product offerings, the per-order revenue from orders placed by the majority of our new customers is generally lower than the per-order revenue generated from our historical customer orders.

If we are unable to expand our customer base, we will be forced to rely on generating recurring revenue from existing customers, which may not be successful.

We expect that, for the foreseeable future, the majority of our revenue will continue to depend on sales of our products to a limited number of existing customers or sales to customers with lower per-order revenue than those generated from our historical sales.

Factors that may affect our ability to generate recurring revenue from our existing customers include but are not limited to the following:

customer willingness to implement our products;

pricing pressures due to the commoditization of our products;

the timing of industry transitions to new network technologies;

acquisitions of or by our customers;

delays or difficulties that we may incur in completing the development and introduction of our planned products or product enhancements;

failure of our products to perform as expected;

difficulties we may incur in meeting customers' delivery requirements or with software development, appliance design, manufacturing or marketing of our products and/or services.

The loss of any significant customer, or any substantial reduction in purchase orders or deferral of purchasing decisions from these customers, could materially adversely affect our results of operations and financial condition.

Third parties may terminate or alter existing contracts or relationships with us.

Third parties, including customers, suppliers, vendors, landlords, licensors and other business partners, with whom we have relationships, may terminate or otherwise reduce the scope of their relationship with us.

Any such disruptions could cause us to suffer a loss of potential future revenue and/or lose rights that are material to our business.

and the success of our channel partner program.

If we are unable to expand our customer base, the loss of any significant customer, or any substantial reduction in purchase orders or deferral of purchasing decisions from these customers, could materially adversely affect our results of operations and financial condition.

Consolidation in the telecommunications industry could harm our business.

The telecommunications industry, including many of our customers, has experienced consolidation, including, in the carrier space:

the pending merger between T-Mobile US, Inc.

and Sprint Corporation (anticipated to close in early 2020);

the acquisition of Blue Face Ltd.

by Comcast Corporation in January 2020;

the active network sharing partnership between Vodafone Group Plc and Telecom Italia Group in July 2019;

the acquisition of Hawaiian Telecom, Inc.

by Cincinnati Bell Inc.

in July 2018;

the acquisition of Level 3 Communications Inc.

by CenturyLink Inc.

in November 2017;

the acquisition of XO Communications, LLC by Verizon Communications Inc.

in February 2017.

Further, consolidation has occurred in the vendor space, including:

the closing of a strategic partnership between RingCentral, Inc.

and Avaya Holdings Corp.

in October 2019;

the acquisition of Spoken Communications Inc.

by Avaya Holdings Corp.

in March 2018;

the acquisition of Broadsoft, Inc.

The telecommunications industry, including many of our customers, has experienced consolidation, including, in the carrier space, the merger between T-Mobile US, Inc.

and Sprint Corporation (April 2020) and the acquisition of Blue Face Ltd.

by Comcast Corporation (January 2020).

Further, consolidation has also occurred in the telecommunications supplier and vendor space, including the proposed acquisition of Acacia Communications, Inc.

by Cisco Systems, Inc.

in February 2018;

the acquisition of ShoreTel Inc.

by Mitel Networks Corporation in September 2017.

(closing expected in the first quarter of 2021) and the closing of a strategic partnership between RingCentral, Inc.

and Avaya Holdings Corp.

(October 2019).

We expect this trend to continue.

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Restructuring activities could adversely affect our ability to execute our business strategy.

We recorded net restructuring expense of $42.8 million in the aggregate in 2019, 2018 and 2017, comprised of $35.3 million for severance and related costs and $7.5 million related to facilities, including $3.7 million for accelerated amortization of lease assets.

We expect to record nominal, if any, additional restructuring expense in 2020 in connection with our current initiatives.

However, we may record additional restructuring expense in the future in connection with new restructuring initiatives, if any.

Our current restructuring and any future restructuring, should it become necessary for us to continue to restructure our business due to worldwide market conditions or other factors that reduce the demand for our products and services, could adversely affect our ability to execute our business strategy in a number of ways, including through:

loss of key employees;

We recorded net restructuring expense of $16.2 million in 2020, comprised of $12.0 million for severance and related costs and $4.2 million related to facilities, including $0.6 million for accelerated amortization of lease assets.

We may record additional restructuring expense in 2021 or in the future in connection with new restructuring initiatives, if any.

Our current restructuring and any future restructuring, should it become necessary for us to further restructure our business due to market conditions or other factors that reduce the demand for our products and services, could adversely affect our ability to execute our business strategy in a number of ways, including through loss of key employees;

diversion of management's attention from normal daily operations of the business;

diminished ability to respond to customer requirements related to both products and services;

decrease in cash and profits related to severance payments and facility termination costs;

disruption of our engineering and manufacturing processes, which could adversely affect our ability to introduce new products and to deliver products both on a timely basis and in accordance with the highest quality standards;

reduced ability to execute effectively internal administrative processes, including the implementation of key information technology programs.

and/or reduced ability to execute effectively internal administrative processes, including the implementation of key information technology programs.

There can be no assurance that any restructuring actions we have taken in the past, or may take in the future, will improve our financial condition or results of operations.

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Most of our sales are on an open credit basis, with typical payment terms of 30 to 90 days.

We evaluate and monitor individual customer payment capability in granting such open credit arrangements, seeking to limit such open credit to amounts we

believe our customers can pay and maintain reserves that we believe are adequate to cover exposure to doubtful accounts.

However, there can be no assurance that our open credit customers will pay the amounts they owe to us or that the reserves we maintain will be adequate to cover such credit exposure.

Our sales derived through our distributors, in particular, represent sources of increased credit risk as distributors tend to have more limited financial resources than other resellers and end-user customers.

In our IP Optical Networks segment, some payment terms may be as long as 180 days or, in limited circumstances, even longer.

We evaluate and monitor individual customer payment capability in granting such open credit arrangements and maintain reserves that we believe are adequate to cover exposure for doubtful accounts.

However, there can be no assurance that our open credit customers will pay the amounts they owe us or that the reserves we maintain will be adequate to cover such credit exposure.

Our sales derived through distributors, in particular, represent sources of increased credit risk as distributors tend to have more limited financial resources than other resellers and end-user customers.

Our customers' failure to pay and/or our failure to maintain sufficient reserves could have a material adverse effect on our results of operations and financial condition.

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Disruptions to, or our failure to effectively develop relationships with and manage, distributors, resellers, system integrators and other channel partners, and the processes and procedures that support them, could adversely affect our ability to generate revenue from the sale of our products and services.

We continue to enhance our sales strategy, which we expect will include more partner sales engagements to resell our products and services through authorized distributors, VARs, system integrators and other channel partners.

We continue to enhance our sales strategy, which we expect will include more partner sales engagements to resell our products and services through authorized distributors, value-added resellers ("VARs"), system integrators and other channel partners.

Our future success is dependent upon establishing and maintaining successful relationships with a variety of distributors, VARs, system integrators and other channel partners.

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In these instances, the purchase and sale of our products are dependent on the channel partners, who typically control the timing, prioritization and implementation of projects.

Project delays, changes in priority or solution re-design decisions by the systems integrator can adversely affect our product sales.

If we fail to maintain relationships with our distribution, VAR and systems integration partners, fail to develop new relationships with other partners in new markets, fail to manage, train or provide incentives to our existing partners effectively, or if these partners are not successful in their sales efforts, sales of our products and services may decrease and our operating results could suffer.

or if these partners are not successful in their sales efforts, sales of our products and services may decrease and our operating results could suffer.

Moreover, if we do not have adequate personnel, experience and resources to manage the relationships with our partners and to fulfill our responsibilities under such arrangements, any such shortcomings could have a material adverse impact on our business and results of operations.

In addition, we recognize some of our revenue based on a drop-ship model using information provided by our partners.

If those partners provide us with inaccurate or untimely information, the amount or timing of our revenue could be adversely affected.

We may also be impacted by financial failure of our partners, which could result in our inability to collect accounts receivable in full, and thereby materially adversely affect our results of operations and financial condition.

If our strategic plan, including our research and development of innovative new products and the improvement of existing products, is not aligned with our customers’ investments in the evolution of their networks, or if our products and services do not meet customers’ demands, customers may not buy our products or use our services.

Success in our industry requires large investments in technology and creates exposure to rapid technological and market changes.

We spend a significant amount of time, money and resources both developing new technology, products and solutions and acquiring new businesses or business assets.

Our strategic plan includes a significant shift in our investments from mature technologies that previously generated significant revenue for us toward certain next-generation technologies, as well as working with channel partners to sell our products.

We spend a significant amount of time, money and resources both developing new technology, products and solutions and acquiring new businesses or business assets to help keep up with rapid technology and market changes.

Our strategic plan includes a continued shift in our investments from mature technologies that previously generated significant revenue for us toward certain next-generation technologies.

Our choices of specific technologies to pursue, and those to de-emphasize, may prove to be inconsistent with our customers' investment spending.

Moreover, if we invest in the development of technologies, products and solutions that do not function as expected, are not adopted by the industry, are not ready in time, are not accepted by our customers as quickly as anticipated or at all, mature more quickly than we anticipated or are not successful in the marketplace, our sales and earnings may suffer and, as a result, our stock price could decline.

In order for us to be successful, our technologies, products and solutions must be accepted by relevant standardization bodies and by the industry as a whole.

To achieve market acceptance for our products, we must effectively anticipate, and adapt in a timely manner to, customer requirements and offer products and services that meet changing customer demands.

Prospective customers may require product features and capabilities that our current products do not have.

The introduction of new or enhanced products also requires that we carefully manage the transition from older products in order to minimize disruption in customer ordering patterns and ensure that adequate supplies of new products can be delivered to meet anticipated customer

If we fail to develop products and offer services that satisfy customer requirements or if we fail to effectively manage the transition from older products, our ability to create or increase demand for our products and services could be seriously harmed, we may lose current and prospective customers and our results of operations and financial condition could be materially adversely affected.

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If the architectural shift does not occur, if it does not occur at the pace we predict, or if the products and services we have developed are not attractive to our customers after such shift takes place, our revenue could decline.

We believe the telecommunications industry is in the early stages of transitioning to the virtualization of networks, and we are developing products and services that we believe will be attractive to our customers and potential customers who make that shift.

We believe the telecommunications industry remains in the early stages of transitioning to the virtualization of networks.

While we anticipate that the industry shift to a software-centric cloud-based architecture is likely to happen, fundamental changes like this often take time to accelerate.

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These longer decision cycles and reduced expenditures may negatively impact our revenue or make it difficult for us to accurately predict our revenue, either of which could materially adversely affect our results of operations and cause our stock price to decline.

Virtualization of our product portfolio could slow our revenue growth.

Virtualization of our product portfolio could slow our revenue growth as we move away from appliance products and increasingly focus on software-based products.

Historically, we have produced highly complex products that incorporate appliances with embedded software components.

As we virtualize our product portfolio, we expect our margins to improve due to decreased costs tied to production and sales of our appliance products, including costs related to our reliance on third-party contract manufacturers, interruptions or delays in the supply of appliance components from such third-party sources, and existing appliance support services.

While we expect our margins to improve as a result of such reductions in cost, our revenue may decline as a result of the decreases in sales of appliance products, many of which have generated higher revenue on a per-unit basis than certain of our software products.

Virtualization of our product portfolio to increasingly focus on software-based products could also adversely impact our revenue growth.

As we virtualize our product portfolio, we expect our margins to improve due to decreased costs tied to production and sales of our appliance products, however, our revenue may decline as a result of the decreases in sales of appliance products, many of which have generated higher revenue on a per-unit basis than certain of our software products.

The market for some of our products depends on the availability and demand for other vendors' products.

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In these cases, demand for our products is dependent upon the availability, demand for, and sales of the other vendors' products, as well as the degree to which our products successfully interoperate with the other vendors' products and add value to the solution being provided to the customer.

If the other vendors change the design of their products, delay the issuance of new releases, fail to adequately market their products, or are otherwise unsuccessful in building a market for their products, the demand for our products will be adversely affected, which could adversely affect our business, results of operations and financial condition.

If the other vendors change the design of their products, delay the issuance of new releases, fail to adequately market their products, or are otherwise unsuccessful in building a market for their

products, the demand for our products will be adversely affected, which could adversely affect our business, results of operations and financial condition.

Failure by our strategic partners or by us in integrating products provided by our strategic partners could harm our business.

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We rely on these strategic partners in the timely and successful deployment of our solutions to our customers.

If the products provided by these partners have defects or do not operate as expected, if the services provided by these partners are not completed in a timely manner, if our partners have organizational or supply issues, or if we do not effectively integrate and support products supplied by these strategic partners, then we may have difficulty with the deployment of our solutions that may result in:

loss of, or delay in, revenue;

increased service, support and warranty costs and a diversion of development resources;

network performance penalties.

In addition to cooperating with our strategic partners on specific customer projects, we also may compete in some areas with these same partners.

If these strategic partners fail to perform or choose not to cooperate with us on certain projects, in addition to the effects described above, we could experience:

loss of customers and market share;

failure to attract new customers or achieve market acceptance for our products.

Our large customers have substantial negotiating leverage, and they may require that we agree to terms and conditions that may have an adverse effect on our business.

Large communications service providers have substantial purchasing power and leverage in negotiating contractual arrangements with us.

These customers may, among other things, require us to develop additional features, require penalties for failure to deliver such features, require us to partner with a certain reseller before purchasing our products and/or seek discounted product and/or service pricing.

As we sell more products to this class of customer, we may be required to agree to terms and conditions that are less favorable to us, which may affect the timing of revenue recognition, amount of deferred revenue or product and service margins and may adversely affect our financial position and cash flows in certain reporting periods.

We depend upon contract manufacturers.

and/or network performance penalties.

In addition to cooperating with our strategic partners, such as Microsoft, on specific customer projects, we also may compete in some areas with these same partners.

If these strategic partners fail to perform or choose not to cooperate with us on certain projects, in addition to the effects described above, we could experience loss of customers and market share, or fail to attract new customers.

If our contract manufacturers fail to perform, or if we change or consolidate manufacturers, we may fail to meet the demands of our customers and damage our customer relationships, which could materially adversely affect our business.

We rely upon two large global contract manufacturers to assemble our products according to our specifications and to fulfill orders on a timely basis.

We currently rely on two large global contract manufacturers to assemble our products according to our specifications and to fulfill orders on a timely basis.

Reliance on a third-party manufacturer involves a number of risks, including a lack of control over the manufacturing process, inventory management and the potential absence or unavailability of adequate capacity.

As we do not have the internal manufacturing capabilities to meet our customers' demands, any difficulties or failures to perform by our contract manufacturers could cause delays in customer product shipments, which could negatively affect our relationships with customers and result in delayed revenue.

As we do not have the internal manufacturing capabilities, any difficulties or failures to perform by our contract manufacturers could cause delays in customer product shipments, which could negatively affect our relationships with customers and result in delayed revenue.

In addition, any future changes to or consolidations of our current contract manufacturers could lead to material shortages or delays in the supply of our products.

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We and our contract manufacturers rely on single or limited sources for supply of some components of our products and if we fail to adequately predict our manufacturing requirements or if our supply of any of these components is disrupted, we will be unable to ship our products in a timely manner, or at all.

We and our contract manufacturers currently purchase several key components of our products, including commercial digital signal processors, from single or limited sources.

We and our contract manufacturers currently purchase several key components of our products.

Depending upon the component, there may or may not be alternative sources of substitutes.

We purchase these components on a purchase order basis.

If we overestimate our component and finished goods requirements, we could have excess inventory, which would increase our costs.

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In the event of a disruption or delay in supply or our inability to obtain components, we may not be able to develop an alternate source in a timely manner or at favorable prices, or at all.

While we regularly monitor our inventory of

supplies, a failure to find acceptable alternative sources could hurt our ability to deliver high-quality products to our customers and negatively affect our operating margins.

Reliance on our suppliers exposes us to potential supplier production difficulties, quality variations and unforeseen price increases.

Our customers rely upon our ability to meet committed delivery dates, and any disruption in the supply of key components would seriously adversely affect our ability to meet these dates and could result in loss of customers, harm to our ability to attract new customers, or legal action by our customers.

Defense-expedite rated orders from the U.S.

federal government, which by law receive priority, can also interrupt scheduled shipments to our other customers.

While we regularly monitor our inventory of supplies, a failure to find acceptable alternative sources could hurt our ability to deliver high-quality products to our customers and negatively affect our operating margins.

Reliance on our suppliers also exposes us to potential quality variations and unforeseen price increases.

Any disruption in the supply of key components would seriously adversely affect our ability to meet committed delivery dates and could result in loss of customers, harm to our ability to attract new customers, or legal action.

Additionally, any unforeseen increases in the prices of components could reduce our profitability or force us to increase our prices, which could result in a loss of customers or harm our ability to attract new customers and could have a material adverse effect on our results of operations.

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Because of these and other factors, there are risks of excess or inadequate inventory that could negatively affect our expenses and results of operations.

If we are unable to obtain necessary licenses or on-going maintenance and support of third-party technology at acceptable prices, on acceptable terms, or at all, it could harm our operating results or business.

We have incorporated third-party licensed technology, including open source software, into our current products.

From time to time, we may be required to license additional technology from third parties to develop new products or product enhancements.

Third-party licenses and on-going maintenance and support may not be available or continue to be available to us on commercially reasonable terms or may be available to us but only at significantly escalated pricing.

Additionally, we may not be able to replace the functionality provided by third-party software currently offered with our products if that software becomes obsolete, defective or incompatible with future versions of our products or is not adequately maintained or updated.

If we are unable to maintain or re-license any third-party licenses required in our current products or obtain any new third-party licenses to develop new products and product enhancements, or in the case of any defects in these third-party software products, we could be required to obtain substitute technology of lower quality or performance standards or at greater cost, and we may be delayed or prevented from making these products or enhancements, any of which could seriously harm our sales and the competitiveness of our products unless and until we can secure an alternative source.

Such alternate sources may not provide us with the same functionality as that currently provided to us.

The appliance products that we purchase from our third-party vendors have life cycles, and some of those products have reached the end of their life cycles.

If we are unable to correctly estimate future requirements for these products, it could harm our operating results or business.

If we are unable to correctly estimate future requirements for appliance products that we purchase from our third-party vendors have reached the end of their life cycles, it could harm our operating results or business.

Some of the appliance products that we purchase from our third-party vendors have reached the end of their life cycles.

It may be difficult for us to maintain appropriate levels of the discontinued appliances to adequately ensure that we do not have a shortage or surplus of inventory of these products.

If we do not correctly forecast the demand for such appliances, we could have excess inventory and may need to write off the costs related to such purchases.

The write-off of surplus inventory could materially adversely affect our operating results.

If we do not correctly forecast the demand for such appliances, we could have excess inventory and may need to write off the costs related to such purchases and such write-offs could materially adversely affect our operating results.

However, if we underestimate our forecast and our customers place orders to purchase more products than are available, we may not have sufficient inventory to support their needs.

If we are unable to provide our customers with enough of these products, it could make it difficult to retain certain customers, which could have a material and adverse effect on our business.

Because our larger scale products are sophisticated and designed to be deployed in complex networks around the world, they may have errors or defects that we find only after full deployment.

These defects, and any failure to establish a support infrastructure and maintain required support levels, could seriously harm our business.

Our products may have errors or defects that we find only after full deployment.

Our larger scale products are sophisticated and are designed to be deployed in large and complex networks around the world.

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Some of our customers may discover errors or defects in the software or appliances, or the products may not operate as expected only after full deployment.

As we continue to expand our distribution channel through distributors and resellers, we will need to rely on and support their service and support organizations.

If we are unable to fix errors or other performance problems that may be identified after full deployment of our products, we could experience:

loss of, or delay in, revenue or increased expense;

loss of customers and market share;

failure to attract new customers or achieve market acceptance for our products;

increased service, support and warranty costs and a diversion of development resources;

costly and time-consuming legal actions by our customers.

Our customers expect us to establish a support infrastructure and maintain demanding support standards to ensure that their networks maintain high levels of availability and performance.

To continue to support our customers with these larger scale products, our support organization will need to provide service and support at a high level throughout the world.

If we are unable to provide the expected level of support and service to our customers, we could experience:

loss of customers and market share;

failure to attract new customers in new markets and geographies;

increased service, support and warranty costs and a diversion of development resources;

network performance penalties.

Any errors or defects in our products, and any failure to establish a support infrastructure and maintain required support levels, could materially adversely affect our business and results of operations.

Disruptions to, or our failure to effectively develop, manage and maintain our government customer relationships could adversely affect our ability to generate revenue from the sales of our products to these customers.

As we continue to expand our distribution channel through distributors and resellers, we will need to rely on and support their service and support organizations.

If we, or our distributors and resellers, are unable to fix errors or other performance problems that may be identified after full deployment of our products, or provide the expected level of support and service to our customers, we could experience increased service, support and warranty costs and a diversion of development resources, loss of customers, network performance penalties and/or legal actions by our customers, which could materially adversely affect our business and results of operations.

Disruptions to, or our failure to effectively develop, manage and maintain our government customer relationships could adversely affect our ability to generate revenue from these customers.

Further, such government sales are subject to potential delays and cutbacks, may require specific testing efforts, or impose significant compliance obligations.

A portion of our total revenue from product sales comes from contracts with U.S.

federal government agencies, none of which currently contemplates long-term purchase commitments.

federal government agencies and other foreign countries.

Disruptions to or our failure to effectively develop, manage and maintain our government customer relationships could adversely affect our ability to generate revenue from the sales to such customers.

Governments routinely investigate and audit government contractors’ administrative processes, and any unfavorable audit could result in the government refusing to continue buying our products and services, a reduction of revenue or fines or civil or criminal liability if the audit uncovers improper or illegal activities, which could materially adversely impact our operating results.

Furthermore, a majority of our government sales involve products that have or will soon reach the end of their life cycles, and such government sales for these older products have declined substantially in recent periods.

Sales of our newer products to governmental agencies for broad deployment may not develop quickly, if at all, or be sufficient to offset future declines in sales of these legacy products.

Additionally, spending by government customers fluctuates based on budget allocations and the timely passage of the annual federal budget.

Among the factors that could impact federal government spending and which would reduce our federal government contracting and subcontracting business are a significant decline in, or reapportioning of, spending by the federal government, changes as a result of the current presidential administration, changes, delays or cancellations of federal government programs or requirements, the adoption of new laws or regulations that affect companies that provide services to the federal government, federal government shutdowns or other delays in the government appropriations process, changes in the political climate, including with regard to the funding for products we provide, delays in the payment of our invoices by government payment offices, and general economic conditions.

The loss or significant curtailment of any government contracts or subcontracts, whether due to our performance or due to interruptions or changes in governmental funding for such contracts or subcontracts, could have a material adverse effect on our business, results of operations and financial condition.

Factors that could impact federal government spending on our products and services include a significant decline in, or reapportioning of, spending by the federal government, changes as a result of the current presidential administration, changes, delays or cancellations of federal government programs or requirements, the adoption of new laws or regulations, federal government shutdowns or other delays in the government appropriations process, changes in the political climate and general economic conditions.

The loss or significant curtailment of any government contracts or subcontracts, whether due to our performance or due to interruptions or changes in governmental funding, could have a material adverse effect on our business, results of operations and financial condition.

Further, sales to government customers may require specific testing efforts or impose significant compliance or certification obligations.

For example, the Department of Defense ("DOD") has issued specific requirements for IP networking products for features and interoperability.

In order for a vendor's product to be used to connect to the DOD network, that product must pass a series of significant tests and be certified by the Joint Interoperability Test Command (“JITC”).

Certain of our products are already certified by JITC.

However, if we are unable to obtain JITC certification as needed, our DOD sales, and hence our revenue and results of operations, may suffer.

If we fail to realize the anticipated benefits from any recent acquisitions, such as our acquisition of Edgewater Networks, Inc.

("Edgewater") in August 2018 (the "Edgewater Acquisition") and Anova Data, Inc.

(“Anova”) in February 2019 (the “Anova Acquisition”), on a timely basis, or at all, our business and financial condition may be adversely affected.

We may fail to realize the anticipated benefits from any recent acquisitions, including the Edgewater Acquisition and the Anova Acquisition, on a timely basis, or at all, for a variety of reasons, including but not limited to the following:

problems or delays in assimilating or transitioning to us the acquired assets, operations, systems, processes, controls, technologies, products or personnel;

loss of acquired customer accounts;

unanticipated costs associated with the acquisitions;

failure to identify in the due diligence process or assess the magnitude of certain liabilities we assumed in the acquisitions, which could result in unexpected litigation or regulatory exposure, unfavorable accounting treatment, unexpected increases in taxes due, significant issues with product quality or development or other adverse effects on our business or results of operations;

multiple or overlapping product lines as a result of the acquisitions that are offered, priced and supported differently, which could cause customer confusion and delays;

higher than anticipated costs in continuing support and development of acquired products and services;

diversion of management’s attention from our core business and the challenges of managing larger and more widespread operations from the acquisitions;

adverse effects on existing business relationships of any of the acquired businesses with their respective suppliers, licensors, contract manufacturers, customers, distributors, resellers and industry experts;

significant impairment, exit and/or restructuring charges if the products or technologies acquired in the acquisitions do not meet our sales expectations or are unsuccessful;

insufficient revenue to offset increased expenses associated with the acquisitions;

risks associated with entering markets in which we have no or limited prior experience;

potential loss of the employees we acquired in the acquisitions or our own employees;

failure to properly integrate internal controls and financial systems of the combined companies.

If we are unable to successfully manage these issues, the anticipated benefits and efficiencies of our recent acquisitions may not be realized fully or at all, or may take longer to realize than expected, and our ability to compete and our results of operations may be adversely affected.

In order for our products to be used to connect to the DOD network, that product must pass a series of significant tests and be certified by the Joint Interoperability Test Command (“JITC”).

While certain of our products are certified by JITC, if we are unable to obtain future JITC certification as needed, our DOD sales and results of operations, may suffer.

Combining ECI, or future companies, may be more difficult, costly or time-consuming than expected and the anticipated benefits and cost savings of the ECI Acquisition, or future mergers may not be realized.

We have a history of significant mergers and acquisitions, including, most recently, the ECI Acquisition.

The success of the ECI Acquisition, and any future merger or acquisition, including anticipated benefits and cost savings, will depend, in part, on our ability to successfully combine and integrate the businesses.

It is possible that the integration process could result in the loss of key employees, higher than expected costs, diversion of management attention, the disruption of our ongoing businesses or inconsistencies in standards, controls, procedures and policies that adversely affect the combined company’s ability to maintain relationships with customers, vendors and employees or to achieve the anticipated benefits and cost savings of the ECI Acquisition or any future merger or acquisition.

We have incurred and will incur additional transaction fees, including legal, regulatory and other costs associated with closing the ECI Acquisition as well as expenses relating to formulating and implementing integration plans, including facilities and systems consolidation costs and employment-related costs.

We continue to assess the magnitude of these costs, and additional unanticipated costs may be incurred in the ECI Acquisition and the integration of the two companies’ businesses, or in future acquisitions.

If we experience difficulties with the integration process, the anticipated benefits of the ECI Acquisition, or any future acquisition, may not be realized fully or at all, or may take longer to realize than anticipated.

The actual cost savings of the ECI Acquisition could also be less than expected.

Any future investments, mergers or acquisitions we make or enter into, as applicable, could be difficult to integrate, disrupt our business, dilute shareholder value and seriously harm our financial condition.

Other than with respect to the ECI Merger, we are not currently a party to any material pending merger or acquisition agreements.

However, we may merge with or acquire additional businesses, products or technologies in the future.

We have a history of significant acquisitions, including the recent ECI Acquisition, and we may merge with or acquire additional businesses, products or technologies in the future.

No assurance can be given that any future merger or acquisition will be successful or will not materially adversely affect our business, operating results or financial condition.

We continue to review opportunities to merge with or acquire other businesses or technologies that would add to our existing product line, complement and enhance our current products, expand the breadth of our product and service offerings, enhance our technical capabilities or otherwise offer growth opportunities.

If we enter into a merger or make acquisitions in the future, we could, among other things:

issue stock that would dilute existing stockholders' percentage ownership;

incur debt or assume liabilities;

significantly reduce our cash;

incur significant impairment charges related to the write-off of goodwill and intangible assets;

If we enter into a merger or make acquisitions in the future, we could, among other things issue stock that would dilute existing stockholders' percentage ownership;

incur significant debt or assume significant liabilities;

materially reduce our cash;

incur significant amortization expenses related to intangible assets;

incur large and immediate write-offs for in-process research and development and stock-based compensation.

and/or incur large and immediate write-offs for in-process research and development and stock-based compensation.

Mergers and acquisitions are inherently risky and subject to many factors outside of our control.

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Any failure to hire, assimilate in a timely manner and retain key qualified personnel, particularly engineering and sales personnel, could impair our growth and make it difficult to meet key objectives, such as timely and effective product introductions.

The challenge of retaining key employees could be increasingly difficult due to strong industry competition.

In addition, our ability to attract and retain key employees could be adversely impacted if we do not have a sufficient number of shares available under the Amended and Restated Stock Incentive Plan to issue to our employees, or if our stockholders do not approve requested share

increases or a new equity incentive plan.

In addition, our ability to attract and retain key employees could be adversely impacted if we do not have a sufficient number of shares available under the Amended and Restated 2019 Stock Incentive Plan to issue to our employees.

We may not be able to locate suitable employees for any key employee who leaves or offer employment to potential replacements on reasonable terms.

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The loss of the services of any of our executive officers or key employees could delay the development and introduction of, and negatively impact our ability to sell, our products and achieve our business objectives.

The terms of our credit agreement could adversely affect our operating flexibility and pose risks of default or springing maturity, which would negatively impact our liquidity and operations.

In addition, we may not be able to refinance our debt or obtain additional financing on favorable terms, or at all.

Our credit facility with Silicon Valley Bank includes $100 million of commitments, the full amount of which is available for revolving loans plus a $50 million term loan, a $15 million sublimit that is available for letters of credit and a $15 million sublimit that is available for swingline loans.

The senior secured credit facility is scheduled to mature in April 2024.

The credit agreement includes procedures for additional financial institutions to become lenders, or for any existing lender to increase its commitment under the facility, subject to an available increase of $75 million for all incremental commitments under the credit agreement, without amendment.

Provisions in the credit agreement impose limitations on our ability to, among other things, incur additional indebtedness, create liens, make acquisitions or engage in mergers, enter into transactions with affiliates, dispose of assets, make certain investments and amend or repay certain junior debt.

In addition, we are required to meet certain financial covenants customary for financings of this type.

Our failure to comply with these covenants may result in the declaration of an event of default, which could cause us to be unable to borrow under the credit facility or result in the acceleration of the maturity of indebtedness outstanding under the credit facility at such time.

If the maturity of our indebtedness is accelerated, we may not have sufficient funds available for repayment or we may not have the ability to borrow or obtain sufficient funds to replace the accelerated indebtedness on terms acceptable to us, or at all.

The United Kingdom's Financial Conduct Authority, which regulates the London Inter-bank Offered Rate ("LIBOR"), has announced that it intends to stop encouraging or requiring banks to submit LIBOR rates after 2021, and it is unclear if LIBOR will cease to exist or if new methods of calculating LIBOR will evolve.

We have the option under our current credit facility and expect to have the option under our new credit facility to determine our interest rate that includes either the LIBOR rate or the base rate.

If LIBOR ceases to exist or the methods of calculating LIBOR change from their current form, we may no longer have the ability to elect the LIBOR rate option under our current credit facility, and our current or future indebtedness may be adversely affected.

This could impact our interest costs and our ability to borrow additional funds under our current credit facility or our new credit facility.

We had $56.8 million of borrowings outstanding at a weighted average interest rate of 3.30% under the credit facility as of December 31, 2019.

In addition, we had $5.4 million of letters of credit outstanding at an interest rate of 1.50% under the credit facility as of December 31, 2019.

If we are prevented from borrowing or if we are unable to extend, renew or replace the credit facility by the maturity date of April 2024, on favorable terms, or at all, this could have a material adverse effect on our liquidity and cause our business, operations and financial condition to suffer.

If the credit facility is subjected to the early springing maturity, we may not have sufficient funds available for repayment or we may not have the ability to borrow or obtain sufficient funds to replace the indebtedness on terms acceptable to us, or at all.

We intend to fund the cash consideration relating to the proposed ECI Merger with proceeds received from a new credit facility that we expect to enter into with Citizens Bank, N.A.

and Santander Bank, N.A., as joint arrangers and bookrunners, in connection with the closing of the ECI Merger (the "2020 Credit Facility").

Such cash consideration is expected to be financed through cash on hand and committed debt financing consisting of the new $400 million term loan facility portion of the 2020 Credit Facility.

The 2020 Credit Facility is expected to retire our existing credit facility.

In addition, we cannot be sure that our current cash and available borrowings under our existing credit facility or our 2020 Credit Facility, as applicable, will be sufficient to meet our future needs.

If we are unable to generate sufficient cash flows in the future, and if availability under our current facility is not sufficient to support our operations, we may need to refinance our

debt or obtain additional financing.

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

Litigation and government investigations could result in significant legal expenses and settlement payments, fines or damage awards.

From time to time, we are subject to litigation regarding intellectual property rights or other claims.

We have also been named as a defendant in securities class action and stockholder derivative lawsuits.

We are generally obliged, to the extent permitted by law, to indemnify our current and former directors and officers who are named as defendants in these lawsuits.

Defending against litigation may require significant attention and resources of management.

Regardless of the outcome, such litigation could result in significant legal expenses.

At this time, it is not possible to predict the outcome of the ongoing lawsuits, including whether or not any proceedings will continue, and when or how these matters will be resolved or whether we will ultimately receive, and in what sum, amounts previously awarded as a result of these proceedings.

Regardless of whether we are ultimately successful in these lawsuits, we will likely elect to continue to incur substantial legal fees in connection with these matters.

We have also been subject to employment claims in connection with employee terminations and may be subject to additional claims in the future.

In addition, companies in our industry whose employees accept positions with us may claim that we have engaged in unfair hiring practices.

These claims may result in material litigation.

We could incur substantial costs defending ourselves or our employees against these claims, regardless of their merits.

Further, defending ourselves from these types of claims could divert our management's attention from our operations.

The quantity and cost of employment claims may rise as a result of our increasing international expansion and the proposed ECI Merger.

In addition, we are from time to time subject to investigations by the government.

For example, we fully cooperated with an SEC inquiry regarding the development and issuance of Sonus' first quarter 2015 revenue and earnings guidance.

We reached an agreement with the SEC in principle to resolve this matter and on August 7, 2018, the SEC's Division of Enforcement issued a Cease and Desist Order (the "Order").

As part of the Order, the findings of which we neither admitted nor denied, we agreed to pay a $1.9 million civil penalty and agreed not to violate the securities laws in the future.

There is no assurance that we will not be subject to similar investigations by the SEC or other government agencies in the future.

If the defenses we claim in our material litigation matters are ultimately unsuccessful, or if we are unable to achieve a favorable settlement with an adverse party or a government agency, we could be liable for large settlement payments, damage awards or fines that could have a material adverse effect on our business and results of operations.

A breach of the security of our information systems or those of our third-party providers could adversely affect our operating results.

We rely upon our information systems and, in certain circumstances, those of our third-party providers, such as vendors, consultants and contract manufacturers, to protect our sensitive or proprietary information and information of or about our customers, to develop and provide our products and services to customers, and to otherwise operate our business.

Our information systems and those of our third-party providers are vulnerable to threats such as computer hacking, cyber-terrorism or other unauthorized activity that may result in third party access to or modification, corruption or deletion of our or our customers' sensitive or proprietary information or other disruptions to our business.

Such cyberattacks and other cyber incidents are occurring more frequently, are constantly evolving, are becoming more sophisticated and can take many forms.

While we believe that we leverage best-in-class detection and prevention systems and services and that we focus on continuous improvement based upon the latest attack vectors in the industry, we cannot guarantee that there will never be any information technology system failures, including a breach of our or our third-party providers' data security measures through a cyberattack, other cyber incident or otherwise, or the theft or loss of laptops, other mobile devices or electronic records used to back up our systems or our third-party providers' systems, which could result in a disclosure of customer, employee, or our information or otherwise disrupt our ability to function in the normal course of business by potentially causing, among other things, delays in the fulfillment or cancellation of customer orders or disruptions in the manufacture or shipment of products or delivery of services, any of which could have a material adverse effect on our operating results.

Additionally, the compromise of our information systems or the information systems of our third party providers and our customers could be compromised, which could lead to unauthorized tampering with our products.

Unauthorized tampering may result in, among other things, the disruption of our customers' businesses, errors or defects occurring in the software due to such unauthorized tampering, and our products not operating as expected after such unauthorized tampering.

These types of security breaches could also create exposure to lawsuits, regulatory investigations, and increased legal liability.

As a provider of secure RTC solutions, the reputational harm of any actual or perceived breach, compromise, defect or error relating to the

security of our information systems and the products and services we provide may result in substantial harm to our reputation, even if the legal or regulatory impact is minimal.

In addition, the costs to remediate any cyberattack could be significant.

Such consequences could be exacerbated if we or our third-party providers are unable to adequately recover critical systems in a timely manner following a systems failure.

Our insurance coverage may be insufficient to cover all losses related to cyberattacks.

Risks associated with data privacy issues, including evolving laws, regulations and associated compliance efforts, may adversely impact our business and financial results.

Legislation in various countries around the world with regard to cybersecurity, privacy and data protection is rapidly expanding and creating a complex compliance environment.

We are subject to many privacy and data protection laws and regulations in the U.S.

and around the world, some of which place restrictions on our ability to process personal data across our business.

In particular, the General Data Protection Regulation (the “GDPR”), which became effective in May 2018, has caused more stringent data protection requirements in the European Union.

The GDPR imposes onerous accountability obligations requiring data controllers and processors to maintain a record of their data processing and implement policies as part of its mandated privacy governance framework.

It also requires data controllers to be transparent and disclose to data subjects how their personal information is to be used;

imposes limitations on retention of personal data;

introduces mandatory data breach notification requirements;

and sets higher standards for data controllers to demonstrate that they have obtained valid consent for certain data processing activities.

We are subject to the supervision of local data protection authorities in those E.U.

jurisdictions where we are established or otherwise subject to the GDPR.

Certain breaches of the GDPR requirements could result in substantial fines, which can be up to four percent of worldwide revenue or 20 million Euros, whichever is greater.

In addition to the foregoing, a breach of the GDPR could result in regulatory investigations, reputational damage, orders to cease/change our use of data, enforcement notices, as well potential civil claims including class action type litigation where individuals suffered harm.

Similarly, California has enacted the California Consumer Privacy Act, or CCPA, which took effect on January 1, 2020.

The CCPA creates individual privacy rights for California consumers and increases the privacy and security obligations of entities handling certain personal data.

The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches that is expected to increase data breach litigation.

The CCPA may increase our compliance costs and potential liability.

Many similar laws have been proposed at the federal level and in other states.

Any liability from our failure to comply with the requirements of these laws could adversely affect our financial condition.

We have invested, and continue to invest, human and technology resources in our GDPR compliance efforts and our data privacy compliance efforts in general.

These compliance efforts may be time-intensive and costly.

Despite those efforts, there is a risk that we may be subject to fines and penalties, litigation and reputational harm if we fail to protect the privacy of third party data or comply with the GDPR or other applicable regimes.

Worldwide efforts to contain capital spending and global economic conditions and uncertainties in the geopolitical environment have been and may continue to be materially adverse to our business.

One factor that significantly affects our operating results is the impact of economic conditions on the willingness of our current and potential customers to make capital investments.

Given the general uncertainty regarding global economic conditions and uncertainties in the geopolitical environment, we believe that customers have tried to maintain or improve profitability through cost control and constrained capital spending, which places additional pressure on IT departments to demonstrate acceptable return on investment.

Some of our customers have canceled or delayed, and current and prospective customers may continue to cancel and delay, spending on the development or roll-out of capital and technology projects with us due to economic uncertainty and, consequently, our results of operations have been, and may continue to be, adversely affected.

In addition, current uncertain worldwide economic and political environments make it increasingly difficult for us, our customers and our suppliers to accurately forecast future product demand, which could result in an inability to satisfy demand for our products and a loss of market share.

Our revenue is likely to decline in such circumstances, which may result in erosion of our profit margins and significant losses.

reduced demand for our products and services as a result of our customers choosing to refrain from building capital intensive networks;

increased price competition for our products, not only from our competitors, but also as a consequence of customers disposing of unutilized products;

risk of excess and obsolete inventories;

excess facilities and manufacturing capacity;

higher overhead costs as a percentage of revenue and higher interest expense.

Continuing turmoil in the geopolitical environment in many parts of the world, as well as changes implemented by the current U.S.

presidential administration, may continue to put pressure on global economic conditions which, in turn, could materially adversely affect our operating results.

If there is increased spending by service providers to invest in the rollout of 5G networks and services, such investment could negatively impact decisions by service providers to invest in markets in which Ribbon offers its products and solutions.

As service providers continue to invest in 5G networks and services, such increased expenditures in the 5G networks and services could negatively impact their investment on other non-5G related offerings and services in which Ribbon participates.

Accordingly, our operating results could suffer.

Man-made problems, such as terrorism, and natural catastrophic events may disrupt our operations and harm our operating results.

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Events such as work stoppages or widespread blackouts could have similar negative impacts.

Such disruptions or uncertainties could result in delays or cancellations of customer orders or the manufacture or shipment of our products and have a material adverse effect on our business and results of operations.

Natural catastrophic events, such as earthquakes, fires, floods, tornadoes, or pandemics (such as the coronavirus outbreak) may also affect our or our customers' operations.

Such disruptions or uncertainties could result in delays or

cancellations of customer orders or the manufacture or shipment of our products and have a material adverse effect on our business and results of operations.

Natural catastrophic events, such as earthquakes, fires, floods, tornadoes, or pandemics (such as the COVID-19 pandemic) may also affect our or our customers' operations.

For example, we have offices located in the San Jose area of Northern California;

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A significant natural disaster, such as wildfires, earthquakes or floods, could have a material adverse effect on our business in these locations.

If we fail to maintain appropriate internal controls in the future, we may not be able to report our financial results accurately, which may adversely affect our stock price and our business.

Section 404 of the Sarbanes-Oxley Act of 2002 and the related regulations require our management to report on, and our independent registered public accounting firm to attest to, the effectiveness of our internal control over financial reporting.

We have committed and will be required to continue to commit significant financial and managerial resources in order to comply with these requirements.

Further, we are required to integrate Edgewater, Anova and other acquired businesses into our system of disclosure controls and procedures and internal control over financial reporting.

As may be the case with other companies we acquire, prior to the Edgewater and Anova Acquisitions, neither Edgewater nor Anova was required to implement or maintain the disclosure controls and procedures or internal control over financial reporting that are required of public companies.

We cannot provide assurance as to the effectiveness of those integrations.

Internal control over financial reporting has inherent limitations, including human error, the possibility that controls could be circumvented or become inadequate because of changed conditions, and fraud.

If we are unable to maintain effective internal controls, we may not have adequate, accurate or timely financial information, and we may be unable to meet our reporting obligations as a publicly traded company or comply with the requirements of the SEC or the Sarbanes-Oxley Act of 2002.

This could result in a restatement of our financial statements, the imposition of sanctions, or investigation by regulatory authorities, and could cause investors to lose confidence in our reported financial information.

Any such consequence or other negative effect of our inability to meet our reporting requirements or comply with legal and regulatory requirements, as well as any disclosure of an accounting, reporting or control issue, could adversely affect the trading price of our common stock and our business.

Changes to existing accounting pronouncements or taxation rules or practices may cause adverse fluctuations in our reported results of operations or affect how we conduct our business.

A change in accounting pronouncements or taxation rules or practices can have a significant effect on our reported results and may affect our reporting of transactions completed before the change is effective.

New accounting pronouncements, taxation rules and varying interpretations of accounting pronouncements or taxation rules have occurred in the past and may occur in the future.

For example, we were required to adopt the new revenue recognition standard in 2018 and have adopted the new lease accounting standard effective January 1, 2019.

Any change to existing or any adoption of new accounting pronouncements or

taxation rules, or the need for us to modify a current tax position may adversely affect our reported financial results or the way we conduct our business.

If our goodwill or intangible assets become impaired, we may be required to record a significant charge to earnings.

Under generally accepted accounting principles, we review our intangible assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable.

Our intangible assets increased by approximately $11 million as a result of the Anova Acquisition in 2019, by approximately $57 million in 2018 as a result of the Edgewater Acquisition and by approximately $237 million in 2017 as a result of the Merger.

Goodwill, which increased by approximately $6 million as a result of the Anova Acquisition in 2019, by approximately $48 million in 2018 as a result of the Edgewater Acquisition and by approximately $286 million in 2017 as a result of the Merger, is tested for impairment at least annually.

Based on the results of our 2019 annual impairment test, we determined that our carrying value exceeded our fair value and accordingly, we recorded a goodwill impairment charge of $164.3 million, which had a material impact on both our net loss and loss per share for the year ended December 31, 2019.

Factors that may be considered a change in circumstances indicating that the carrying value of our goodwill or intangible assets may not be recoverable include significant underperformance relative to plan or long-term projections, strategic changes in business strategy, significant negative industry or economic trends, significant change in circumstances relative to a large customer, significant decline in our stock price for a sustained period and decline in our market capitalization to below net book value.

Any additional material impairment of goodwill or intangible assets could adversely affect our results of operations.

Risks Relating to our Intellectual Property

Our business could be jeopardized if we are unable to protect our intellectual property.

Additionally, in some jurisdictions, our rights may not be as strong as we currently enjoy in the United States.

We rely on a combination of security countermeasures within our deployed products, as well as patent, copyright, trademark and trade secret laws and contractual restrictions on disclosure to protect our intellectual property rights.

Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy or otherwise misappropriate our products or technology.

Monitoring unauthorized use of our products is difficult and we cannot be certain that the steps we have taken will prevent unauthorized use of our technology, particularly in foreign countries where the laws may not protect our proprietary rights as fully as in the United States.

The legal systems of many foreign countries do not protect or honor intellectual property rights to the same extent as the legal system of the United States.

It may be very difficult, time-consuming and costly for us to attempt to enforce our intellectual property rights, especially in these foreign jurisdictions.

If competitors are able to use our technology, our ability to compete effectively could be harmed, which could have a material adverse effect on our business.

Claims that our current or future products infringe or misappropriate the proprietary rights of others could adversely affect our ability to sell those products and cause us to incur additional costs.

Substantial litigation over intellectual property rights exists in the telecommunications industry.

We expect that we could be increasingly subject to third-party infringement claims as our revenue increases, the number of competitors grows and/or the functionality of products and technology in different industry segments overlaps.

Third parties may currently have, or may eventually be issued, patents on which our current or future products or technologies may allegedly infringe.

For example, we and our customers have received inquiries from intellectual property owners and may become subject to claims that we or our customers allegedly infringe the intellectual property rights of third parties.

If a third party asserts that our products infringe upon their proprietary rights, we may be forced either to defend ourselves, our customers or contract manufacturers in litigation or to license their patents or other intellectual property for substantial royalty payments.

These claims and any resulting licensing arrangement or lawsuit could subject us to significant royalty payments or liability for damages and invalidation of our proprietary rights.

Any potential intellectual property litigation also could force us to do one or more of the following:

delay shipments of, or stop selling, incorporating or using our products that use the challenged intellectual property;

obtain from the owner of the infringed intellectual property right a license to sell or use the relevant technology, which license may not be available at acceptable prices, on acceptable terms, or at all;

redesign those products that use any allegedly infringing technology, if feasible.

Patent litigation, regardless of its outcome, will likely result in the expenditure of significant financial resources and the diversion of management’s time and resources.

In addition, patent litigation may cause negative publicity and adversely impact our ability to gain prospective customers.

If a third party's claim of infringement against us in a particular patent litigation is successful, and we could not develop non-infringing technology or license the infringed or similar technology on a timely and cost-effective basis, our revenue may decrease substantially, and we could be exposed to significant liability.

A court could

enter orders that temporarily, preliminarily or permanently enjoin us or our customers from making, using, selling, offering to sell or importing our current or future products, or could enter an order mandating that we undertake certain remedial activities.

In addition, costs relating to indemnification provisions in our product agreements may be significant.

At this time, it is not possible to predict the outcome of our ongoing lawsuits over intellectual property rights, including whether or not any proceedings will continue and when or how these matters will be resolved.

Risks Relating to our International Operations

We may face risks associated with our international expansion that could impair our ability to grow our international revenue.

If we fail to manage the operational and financial risks associated with our international operations, it could have a material adverse effect on our business and results of operations.

Risks Related to our International Operations

Worldwide efforts to contain capital spending and global economic conditions and uncertainties in the geopolitical environment have been and may continue to be materially adverse to our business.

A factor that significantly affects our operating results is the impact of economic conditions on the willingness of our current and potential customers to make capital investments.

Given the general uncertainty regarding global economic conditions and other factors, we believe that customers have tried to maintain or improve profitability through cost control and constrained capital spending, which places additional pressure on IT departments to demonstrate acceptable return on investment.

Our revenue is likely to decline in such circumstances, which may result in erosion of our profit margins and significant losses.

Moreover, economic conditions worldwide may contribute to slowdowns in the communications and networking industries, as well as to specific segments and markets in which we operate, particularly the wireline sector, resulting in, among other things, reduced demand for our products and services as a result of our customers choosing to refrain from building capital intensive networks;

increased price competition for our products, not only from our competitors, but also as a consequence of customers disposing of unutilized products;

and risk of excess and obsolete inventories.

Continuing turmoil in the geopolitical environment in many parts of the world may continue to put pressure on global economic conditions which in turn, could materially adversely affect our operating results.

For example, following recent border clashes with China, India has enacted bans on the import of some goods manufactured in China.

While the current import bans do not include our products, if India expands the bans to include the products we sell in India that are currently manufactured in China, we may be required to find new manufacturing locations for such products.

While we have developed plans to relocate our manufacturing sites if needed, the timing required for relocation, or if we are not successful in relocating, could impact our ability to sell such products or timely deliver the products, and could result in lower or lost sales in India.

The need to move manufacturing of such products could also negatively impact the margin earned on the sale of such products.

Conditions in Israel may materially and adversely affect the Company’s business.

Following the ECI Acquisition, we have a significant number of employees located in Israel.

As a result, political, economic and military conditions in Israel may directly affect the Company’s business.

In recent years, there have been hostilities between Israel and Hezbollah in Lebanon and Hamas in the Gaza Strip, both of which resulted in rockets being fired into Israel, causing casualties and disruption of economic activities.

Popular uprisings in various countries in the Middle East and North Africa over the last few years has also affected the political stability of those countries and have led to a decline in the regional security situation.

Such instability may also lead to deterioration in the political and trade relationships that exist between Israel and these countries.

Any armed conflicts, terrorist activities or political instability involving Israel or other countries in the region could adversely affect the Company’s business, results of operations, financial condition, cash flows and prospects.

Although the Israeli Government currently covers the reinstatement value of direct damages that are caused by terrorist attacks or acts of war, the Company cannot ensure shareholders that this coverage will be maintained or will be adequate in the event the Company submits a claim.

A number of countries, principally in the Middle East, still restrict doing business with Israel and Israeli companies, and additional countries may impose restrictions on doing business with Israel and Israeli companies if hostilities in Israel or political instability in the region continue or increase.

In addition, there have been increased efforts by activists to cause companies and consumers to boycott Israeli goods based on Israeli Government policies.

Such actions, particularly if they become more widespread, may adversely impact the Company’s ability to sell its products.

The Company’s operations could also be disrupted by the absence for significant periods of one or more of its key employees or a significant number of other employees because of military service.

Some of the Company’s employees in Israel are obliged to perform military reserve duty, which generally accumulates over a period of three years from several days to up to a

maximum of 84 days (and up to 108 days, in special circumstances specified under applicable law) and, in certain emergency circumstances, employees may be called to immediate and unlimited active duty.

In response to increases in terrorist activity, there have been periods of significant call-ups of military reservists and it is possible that there will be similar large-scale military reserve duty call-ups in the future.

Any of these circumstances could have a material adverse effect on the Company’s business, results of operations, financial condition, cash flows and prospects.

The Assessment of Adjusted Gross Revenue payments in India could have a material adverse effect on our sales in India.

A dispute between large telecommunications service providers and the Indian Department of Telecommunications ("DoT") regarding how to compute the Adjusted Gross Revenue (“AGR”) due from large telecommunications service providers was recently resolved by the Supreme Court of India.

The Supreme Court of India recently issued a judgment accepting the position of the DoT, requiring private telecommunications service providers to pay out higher sums towards license fee and spectrum usage fee, plus interest and penalties, which are dependent on the value of their AGR.

The sums that the telecommunications service providers owe the Indian government include substantial back charges, interest and penalties, which service providers have ten years to pay, with the first 10% due March 31, 2021.

The telecommunications service providers are still assessing the impact of this decision.

Given the large amounts owed, it is possible that the required payments may delay, or potentially could significantly reduce, the telecommunications' service providers' capital investments in India which could have a material adverse effect on our sales in India.

We may face risks associated with our international operations that could impair our ability to grow our international revenue.

We have expanded, and expect to continue to expand, our operations in international and emerging markets.

International operations are a significant part of our business, and such operations will continue to require significant management attention and financial resources to successfully develop direct and indirect international sales and support channels.

International operations are a significant part of our business, accounting for approximately 55% of total revenues in 2020.

We expect such operations to continue to require significant management attention and financial resources to successfully grow.

In addition, our international operations are subject to other inherent risks, including:

reliance on channel partners;

greater difficulty collecting accounts receivable and longer collection cycles;

• greater reliance on channel partners;

• difficulties collecting accounts receivable and longer collection cycles;

• difficulties and costs of staffing and managing international operations;

impacts of differing technical standards outside the United States;

• impacts of differing technical standards;

• compliance with international trade, customs and export control regulations;

reduced protection for intellectual property rights in some countries;

• foreign government regulations limiting or prohibiting potential sales or increasing the cost of doing business in such markets, including adverse tax policies, tariffs, customs regulations, trade protection measures, export quotas and qualifications to transact business;

differing regulatory requirements, including tax laws, data privacy laws and labor regulations;

challenging pricing environments in highly competitive new markets;

• foreign currency exchange controls, restrictions on repatriation of cash and changes in currency exchange rates;

management communication and integration problems related to entering new markets with different languages, cultures and political systems;

potential exposure to liability or damage of reputation resulting from a higher incidence of corruption or unethical business practices in some countries;

greater risk of a failure of employees to comply with both U.S.

and foreign laws, including antitrust regulations, the U.S.

Foreign Corrupt Practices Act (“FCPA”) and any trade regulations ensuring fair trade practices;

higher or more variable network service provider fees outside of the United States;

• any need to adapt and localize our products for specific countries;

• our ability to effectively price our products in competitive international markets;

potentially adverse tax consequences;

• political, social and economic instability, including as a result of the fragility of global financial markets, health pandemics or epidemics and/or acts of war or terrorism.

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The commerce we conduct in the international marketplace makes us subject to tariffs, trade restrictions and other taxes when the raw materials or components we purchase, and the products we ship, cross international borders.

Import tariffs and/or other mandates imposed by the current presidential administration have and could in the future lead to retaliatory actions by affected countries, resulting in “trade wars,” and could significantly increase the prices on raw materials, the manufacturing of our equipment, and/or increased costs for goods imported into the United States, all of which are critical to our business.

Any such tariffs could reduce customer demand for our products if our customers have to pay increased prices for our products as a result of such tariffs.

Import tariffs and/or other mandates recently imposed by the United States have and could in the future

lead to retaliatory actions by affected countries, including China, resulting in “trade wars,” and could significantly increase the prices on raw materials, the manufacturing of our equipment, and/or increased costs for goods imported into the United States, all of which are critical to our business.

While we have developed plans to adjust manufacturing locations, if necessary, to avoid tariffs or other restrictions, any such tariffs could reduce customer demand for our products if our customers have to pay increased prices for our products as a result of such tariffs.

In addition, tariff increases may have a similar impact on other suppliers and certain other customers, which could increase the negative impact on our operating results or future cash flows.

Although we have not experienced a significant resulting increase in our manufacturing costs, if we were to do so, this eventually could make our products less competitive than those of our competitors whose imports are not subject to these tariffs.

In addition, the U.S.

administration has threatened to impose tariffs on all products imported from both Mexico and China.

If this were to occur, we may not be able to mitigate the impacts of these tariffs and our business, results of operations and financial position could be materially adversely affected.

Products we sell into certain foreign markets could also become subject to similar retaliatory tariffs, making the products we sell uncompetitive to similar products not subject to such import tariffs.

Further changes in U.S.

trade policies, tariffs, taxes, export restrictions or other trade barriers, or restrictions on raw materials or components, may limit our ability to manufacture products, increase our manufacturing costs, decrease our profit margins, reduce the competitiveness of our products, or inhibit our ability to sell products or purchase raw materials or components, which could have a material adverse effect on our business, results of operations and financial condition.

We are exposed to fluctuations in currency exchange rates that could negatively impact our financial results and cash flows.

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There is no guarantee that our financial results will not be adversely affected by currency exchange rate fluctuations.

Our business and operations in the United Kingdom are exposed to potential disruptions and uncertainty relating to Brexit.

Following a national referendum and enactment of legislation by the government of the United Kingdom, the United Kingdom withdrew from the European Union ("Brexit") on January 31, 2020 and entered into a transition period during which it will continue its ongoing and complex negotiations with the European Union relating to the future trading relationship between the parties.

Significant political and economic uncertainty remains about whether the terms of the relationship will differ materially from the terms before withdrawal, as well as about the possibility that a so-called "no deal" separation will occur if negotiations are not completed by the end of the transition period.

These developments in turn may inhibit our sales, mobility of our personnel, and our access to capital.

If the United Kingdom and the European Union are unable to negotiate acceptable terms or if other Member States pursue withdrawal, barrier-free access between the United Kingdom and other Member States or among the European economic area overall could be diminished or eliminated.

Additionally, political instability in the European Union as a result of Brexit may result in a material negative effect on credit markets and foreign direct investments in the European Union and United Kingdom.

Our use and reliance upon research and development resources in global locations may expose us to unanticipated costs and/or liabilities.

We have research and development offices in various global locations.

Our development efforts and other operations in these locations could involve significant risks, including:

difficulty hiring and retaining appropriate engineering and management resources due to intense competition for such resources and resulting wage inflation;

We have research and development offices in various global locations, including the United States, Canada, India and China.

Our development efforts and other operations in these locations could involve significant risks, including, among others, difficulty hiring and retaining appropriate engineering and management resources due to intense competition for such resources and resulting wage inflation;

knowledge transfer related to our technology and resulting exposure to misappropriation of intellectual property or information that is proprietary to us, our customers and other third parties;

heightened exposure to changes in economic, security and global political conditions;

fluctuations in currency exchange rates and tax compliance.

and heightened exposure to changes in economic, security and global political conditions.

Difficulties resulting from the factors noted above and other risks related to our global operations could increase our expenses, impair our development efforts, harm our competitive position and damage our reputation.

Risks Relating to Legislation and Government Regulation

Risks Related to Intellectual Property

Our business could be jeopardized if we are unable to protect our intellectual property.

Additionally, in some jurisdictions, our rights may not be as strong as those we currently enjoy in the United States.