What changed in this filing

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Item 1. Financial Statements

2021-04-30 compared with 2020-10-30 · 516 added, 678 removed, 582 unchanged (67% of the section changed)

3 unchanged sentences

(in thousands, except share and per share data)

September 30,

2021 December 31,

9 unchanged sentences

Goodwill 416,892 416,892

Investments 92,742 115,183

Deferred income taxes 10,832 10,651

5 unchanged sentences

Current portion of term debt $ 20,058 $ 15,531

Revolving credit facility — 8,000

Accounts payable 58,549 63,387

15 unchanged sentences

240,000,000 shares authorized;

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

147,358,590 shares issued and outstanding at March 31, 2021;

145,425,248 shares issued and outstanding at December 31, 2020

1 unchanged sentence

Accumulated deficit ( 1,223,163 ) ( 1,178,476 )

Accumulated other comprehensive (loss) income ( 9,299 ) 2,527

Accumulated other comprehensive income (loss) 1,774 ( 4,942 )

Total stockholders' equity 642,733 686,853

4 unchanged sentences

(in thousands, except per share data)

Three months ended Nine months ended

September 30,

2020 September 30,

2019 September 30,

2020 September 30,

Three months ended

2021 March 31,

Product $ 97,889 $ 75,899

10 unchanged sentences

General and administrative 15,553 17,205

Acquisition- and integration-related 1,366 1,697 14,607 6,861

Amortization of acquired intangible assets 15,823 14,334

Acquisition-, disposal- and integration-related 1,197 12,384

Restructuring and related 5,950 2,075

Total operating expenses 123,151 119,264

Income (loss) from operations 11,917 2,686 ( 15,231 ) ( 40,638 )

Loss from operations ( 12,604 ) ( 28,740 )

Interest expense, net ( 5,819 ) ( 3,395 )

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

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

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

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

Earnings (loss) per share

Other expense, net ( 25,448 ) ( 844 )

Loss before income taxes ( 43,871 ) ( 32,979 )

Income tax provision ( 816 ) ( 191 )

Net loss $ ( 44,687 ) $ ( 33,170 )

Loss per share:

Basic $ ( 0.31 ) $ ( 0.27 )

Diluted $ ( 0.31 ) $ ( 0.27 )

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

Weighted average shares used to compute loss per share:

Basic 145,936 120,992

2 unchanged sentences

RIBBON COMMUNICATIONS INC.

Condensed Consolidated Statements of Comprehensive Income (Loss)

Condensed Consolidated Statements of Comprehensive Loss

(in thousands)

Three months ended Nine months ended

September 30,

2020 September 30,

2019 September 30,

2020 September 30,

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

Three months ended

2021 March 31,

Net loss $ ( 44,687 ) $ ( 33,170 )

Other comprehensive income (loss), net of tax:

1 unchanged sentence

Foreign currency translation adjustments 47 777

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

Other comprehensive income (loss), net of tax 6,716 ( 8,750 )

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

Comprehensive loss, net of tax $ ( 37,971 ) $ ( 41,920 )

See notes to the unaudited condensed consolidated financial statements.

2 unchanged sentences

(in thousands, except shares)

Three months ended September 30, 2020

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

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

Exercise of stock options 2,926 6 6

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

Vesting of performance-based stock units 7,886 —

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

Stock-based compensation expense 3,969 3,969

Other comprehensive income 824 824

Net income 6,252 6,252

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

Nine months ended September 30, 2020

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

Three months ended March 31, 2021

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

Balance at January 1, 2021 145,425,248 $ 15 $ 1,870,256 $ ( 1,178,476 ) $ ( 4,942 ) $ 686,853

3 unchanged sentences

Shares of restricted stock returned to the Company under net share settlements to satisfy tax withholding obligations ( 1,268,356 ) ( 11,233 ) ( 11,233 )

Shares issued as consideration in connection with the acquisition of ECI Telecom Group Ltd.

32,500,000 3 108,547 108,550

Shares issued as consideration in connection with the acquisition of Anova Data, Inc.

316,551 1,630 1,630

Stock-based compensation expense 5,060 5,060

1 unchanged sentence

Net loss ( 44,687 ) ( 44,687 )

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

Balance at March 31, 2021 147,358,590 $ 15 $ 1,864,107 $ ( 1,223,163 ) $ 1,774 $ 642,733

RIBBON COMMUNICATIONS INC.

1 unchanged sentence

(in thousands, except shares)

Three months ended September 30, 2019

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

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

Exercise of stock options 19,009 43 43

Vesting of restricted stock awards and units 130,580 —

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

Stock-based compensation expense 2,485 2,485

Other comprehensive income 270 270

Net income 1,650 1,650

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

Nine months ended September 30, 2019

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

Three months ended March 31, 2020

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

Balance at January 1, 2020 110,471,995 $ 11 $ 1,747,784 $ ( 1,267,067 ) $ 2,527 $ 483,255

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

Exercise of stock options 3,014 5 5

2 unchanged sentences

Shares of restricted stock returned to the Company under net share settlements to satisfy tax withholding obligations ( 273,104 ) ( 792 ) ( 792 )

Shares issued as consideration in connection with the acquisition of ECI Telecom Group Ltd.

32,500,000 3 108,547 108,550

Shares issued as consideration in connection with the acquisition of Anova Data, Inc.

316,551 1,630 1,630

Reclassification of liability to equity for bonuses converted to stock 1,052 1,052

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

Stock-based compensation expense 2,976 2,976

Other comprehensive income 916 916

Net income 20,288 20,288

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

Other comprehensive loss ( 8,750 ) ( 8,750 )

Net loss ( 33,170 ) ( 33,170 )

Balance at March 31, 2020 144,351,304 $ 14 $ 1,860,150 $ ( 1,300,237 ) $ ( 6,223 ) $ 553,704

See notes to the unaudited condensed consolidated financial statements.

2 unchanged sentences

(in thousands)

Nine months ended

September 30,

2020 September 30,

Three months ended

2021 March 31,

Cash flows from operating activities:

Net (loss) income $ ( 35,169 ) $ 20,288

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

Net loss $ ( 44,687 ) $ ( 33,170 )

Adjustments to reconcile net loss to cash flows (used in) provided by operating activities:

Depreciation and amortization of property and equipment 4,226 3,474

3 unchanged sentences

Deferred income taxes 293 ( 99 )

Decrease in fair value of investments 22,441 —

Reduction in deferred purchase consideration — ( 69 )

7 unchanged sentences

Deferred revenue 2,323 4,351

Net cash provided by operating activities 65,248 22,631

Net cash (used in) provided by operating activities ( 6,212 ) 39,932

Cash flows from investing activities:

1 unchanged sentence

Business acquisitions, net of cash acquired — ( 346,852 )

Maturities of marketable securities — 7,295

Proceeds from the sale of fixed assets — 43,500

1 unchanged sentence

Cash flows from financing activities:

Borrowings under revolving line of credit 615 109,000

Principal payments on revolving line of credit — ( 8,000 )

Proceeds from issuance of term debt 74,625 403,500

Principal payment of debt, related party — ( 24,716 )

Principal payments of long-term debt ( 131,279 ) ( 625 )

Payment of deferred purchase consideration — ( 21,876 )

Principal payments of term debt ( 77,132 ) ( 48,750 )

Principal payments of finance leases ( 272 ) ( 338 )

Payment of debt issuance costs ( 789 ) ( 10,573 )

Proceeds from the sale of common stock in connection with employee stock purchase plan — 506

Proceeds from the exercise of stock options 24 5

Payment of tax withholding obligations related to net share settlements of restricted stock awards ( 11,233 ) ( 792 )

Repurchase of common stock — ( 4,536 )

Net cash provided by (used in) financing activities 323,018 ( 24,685 )

Net cash (used in) provided by financing activities ( 14,777 ) 335,052

Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 464 ) ( 190 )

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

Net (decrease) increase in cash, cash equivalents and restricted cash ( 26,810 ) 65,425

Cash and cash equivalents, beginning of year 135,697 44,643

Cash, cash equivalents and restricted cash, end of period $ 108,887 $ 110,068

RIBBON COMMUNICATIONS INC.

Condensed Consolidated Statements of Cash Flows (continued)

(in thousands)

Nine months ended

September 30,

2020 September 30,

Supplemental disclosure of cash flow information:

4 unchanged sentences

Capital expenditures incurred, but not yet paid $ 3,059 $ 6,300

Property and equipment acquired under finance leases $ — $ 150

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

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

Acquisition purchase consideration - assumed equity awards $ — $ 110,180

Supplemental disclosure of non-cash financing activities:

Total fair value of restricted stock awards, restricted stock units and performance-based stock units $ 5,551 $ 6,765

Total fair value of restricted stock awards, restricted stock units and performance-based stock units on date vested $ 28,182 $ 3,182

See notes to the unaudited condensed consolidated financial statements.

3 unchanged sentences

Ribbon Communications Inc.

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

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

With over 1,000 customers around the globe, including some of the largest telecommunications service providers, enterprises and utilities in the world, Ribbon enables its customers to evolve and modernize their communications networks and packet optical networking infrastructures through software and hardware.

By securing and enabling reliable and scalable Internet Protocol ("IP") and packet optical networks and applications, Ribbon helps its customers adopt the next generation of software-, cloud- and edge-based technologies to drive new, incremental revenue, while protecting their existing revenue streams.

Ribbon's software solutions provide a secure way for its customers to connect and leverage multivendor, multiprotocol communications systems and applications across their networks and the cloud in a rapidly changing ecosystem of IP-enabled devices, such as smartphones and tablets.

In addition, Ribbon's software solutions secure cloud-based delivery of unified communications ("UC") solutions - both for service providers transforming to a cloud-based network and for enterprises using cloud-based UC - and support the increasing demand on network infrastructure created by ongoing IP traffic growth and the projected demand related to increased traffic from 5G applications and devices.

Ribbon sells its products and solutions through both direct sales and indirect channels, leveraging the reach and local presence of resellers, and provides ongoing support to its customers through a global services team with experience in design, deployment and maintenance of some of the world's largest software IP networks.

("Ribbon" or the "Company") is a leading global provider of communications technology to service providers and enterprises.

The Company provides a broad range of software and high-performance hardware products, solutions and services that enable the secure delivery of data and voice communications for residential consumers and for small, medium, and large enterprises and industry verticals such as finance, education, government, utilities and transportation.

Ribbon's mission is to create a recognized global technology leader providing cloud-centric solutions that enable the secure exchange of information, with unparalleled scale, performance and elasticity.

The Company is headquartered in Plano, Texas, and has a global presence with research and development, or sales and support locations in over thirty-five countries around the world.

Basis of Presentation

1 unchanged sentence

Securities and Exchange Commission ("SEC").

On March 3, 2020 (the "ECI Merger Date"), the Company merged with ECI (the "ECI Merger").

The financial results of ECI are included in the Company's condensed consolidated financial statements for the periods subsequent to the ECI Merger Date.

On February 28, 2019 (the "Anova Acquisition Date"), the Company acquired the business and technology assets of Anova Data, Inc.

The financial results of Anova are included in the Company's condensed consolidated financial statements for the periods subsequent to the Anova Acquisition Date.

On December 1, 2020 (the "Kandy Sale Date"), American Virtual Cloud Technologies, Inc.

("AVCT") completed the purchase of the Company's cloud-based enterprise service business (the "Kandy Communications Business") and accordingly, the revenue and expenses of the Kandy Communications Business are excluded from the Company's condensed consolidated financial statements for the three months ended March 31, 2021.

On March 3, 2020 (the "ECI Acquisition Date"), a subsidiary of the Company merged with ECI Telecom Group Ltd ("ECI") (the "ECI Acquisition").

The financial results of ECI are included in the Company's condensed consolidated financial statements for the period subsequent to the ECI Acquisition Date.

Interim results are not necessarily indicative of results for a full year or any future interim period.

The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2020 (the "Annual Report"), which was filed with the SEC on February 26, 2021.

Significant Accounting Policies

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

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

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

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

Transfers of Financial Assets .

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

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

Operating Segments

The Company's chief operating decision maker (the "CODM") is its President and Chief Executive Officer.

Effective in the fourth quarter of 2020 and in connection with the ECI Acquisition, the CODM began to assess the Company's performance based on the performance of two separate organizations within Ribbon:

the Cloud and Edge segment ("Cloud and Edge") and the IP Optical Networks segment ("IP Optical Networks").

Financial information for the IP Optical Networks segment included in the Company's financial results for the three months ended March 31, 2020 is for the period subsequent to the ECI Acquisition Date through March 31, 2020.

Reclassifications

In the fourth quarter of 2020, the Company reclassified amounts recorded for amortization of acquired intangible assets in prior presentations from Cost of revenue - product and Sales and marketing to a separate line included in operating expenses in the condensed consolidated statements of operations, as management believes this presentation enhances the comparability of the Company's financial statements with industry peers.

These reclassifications also did not impact the condensed consolidated balance sheets or statements of cash flows for any historical periods.

The Company did not reclassify depreciation of property and equipment related to production activities from cost of revenue to other accounts.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

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

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

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

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

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

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

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

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

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

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

Research and Development Grants .

The Company records grants received from the Office of the Innovation Authority of the Israeli Ministry of Economics (the "IIA") as a reduction to research and development expense.

Royalties payable to the IIA are recognized pursuant to sales of related products and are classified as Cost of revenue.

These reclassifications for the three months ended March 31, 2020 were as follows (in thousands):

Three months ended March 31, 2020

Prior presentation Amounts reclassified Revised presentation

Product revenue $ 75,899 $ — $ 75,899

Service revenue 82,083 — 82,083

Total revenue 157,982 — 157,982

Cost of revenue - product 44,933 ( 8,954 ) 35,979

Cost of revenue - service 31,479 — 31,479

Total cost of revenue 76,412 ( 8,954 ) 67,458

Total gross profit 81,570 8,954 90,524

Research and development 42,295 — 42,295

Sales and marketing 36,351 ( 5,380 ) 30,971

General and administrative 17,205 — 17,205

Amortization of acquired intangible assets — 14,334 14,334

Acquisition-, disposal- and integration-related 12,384 — 12,384

Restructuring and related 2,075 — 2,075

Total operating expenses 110,310 8,954 119,264

Operating loss $ ( 28,740 ) $ — $ ( 28,740 )

Certain reclassifications, not affecting previously reported net loss, have been made to the previously issued financial statements to conform to the current period presentation.

Significant Accounting Policies

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

There were no material changes to the significant accounting policies during the three months ended March 31, 2021.

Principles of Consolidation

7 unchanged sentences

Actual results could differ from those estimates.

Reclassifications

Certain reclassifications, not affecting previously reported net loss, have been made to the previously issued financial statements to conform to the current period presentation.

Restricted Cash

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

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

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

Fair Value of Financial Instruments

Restricted Cash

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

At March 31, 2021, the Company had $ 2.7 million of restricted cash, representing restricted short-term bank deposits pledged to secure certain performance and financial bonds as security for the Company's obligations under tenders, contracts and to one of its main subcontractors.

At December 31, 2020, the Company had $ 7.3 million of restricted cash, comprised of $ 4.6 million restricted in connection with a tax payment on certain fixed assets formerly held by ECI that were sold in connection with the ECI Acquisition, and $ 2.7 million of restricted short-term bank deposits pledged to secure certain performance and financial bonds as security for the Company's obligations under tenders, contracts and to one of its main subcontractors.

Transfers of Financial Assets

The Company maintains customer receivables factoring agreements with a number of financial institutions primarily for IP Optical Networks sales outside of the United States.

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

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

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

During the three months ended March 31, 2021, the Company received $ 31.1 million of cash from the sale of certain accounts receivable and recorded $ 0.2 million of interest expense in connection with these transactions.

During the three months ended March 31, 2020, the Company received $ 15.1 million of cash from the sale of certain accounts receivable and recorded $ 0.1 million of interest expense in connection with these transactions.

Fair Value of Financial Instruments and Fair Value Hierarchy

The carrying amounts of the Company's financial instruments approximate their fair values and include cash equivalents, accounts receivable, borrowings under a revolving credit facility, accounts payable and long-term debt.

Operating Segments

The Company currently operates in a single segment, as the chief operating decision maker makes decisions and assesses performance at the company level.

The Company's chief operating decision maker is its President and Chief Executive Officer, who began his employment with the Company effective March 1, 2020.

With the acquisition of ECI, the Company's chief operating decision maker is currently assessing the appropriate separate discrete financial information he will utilize for making decisions and assessing performance.

Fair Value Hierarchy

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.

6 unchanged sentences

Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

Recent Accounting Pronouncements

The Financial Accounting Standards Board ("FASB") has issued the following accounting pronouncements, all of which became effective for the Company in 2020 and none of which had a material impact on the Company's condensed consolidated financial statements:

In March 2020, the FASB issued Accounting Standards Update ("ASU") 2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting ("ASU 2020-04"), which provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria that reference LIBOR or another reference rate expected to be discontinued.

In March 2020, the FASB issued ASU 2020-03, Codification Improvements to Financial Instruments ("ASU 2020-03"), which makes narrow-scope amendments related to topics regarding fair value option disclosures, applicability of the portfolio exception in Accounting Standards Codification ("ASC") 820 to nonfinancial items, disclosures for depository and lending institutions, cross reference to guidance in ASC 470-50 on line of credit or revolving debt arrangements, cross reference to net asset value practical expedient in ASC 820-10, interaction between ASC 842 and ASC 326 and between ASC 326 and ASC 860-20.

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

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

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(“CCA”) that is a service contract.

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

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

Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans (“ASU 2018-14”), which amends ASC 715, Compensation - Retirement Benefits , to add, remove and clarify disclosure requirements related to defined benefit pension and other postretirement plans.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820):

Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which changes the fair value measurement requirements of ASC 820, Fair Value Measurement.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"), which adds an impairment model that is based on expected losses rather than incurred losses.

Under ASU 2016-13, an entity recognizes as an allowance its estimate of expected credit losses, which the FASB believes will result in more timely recognition of such losses.

In April and May 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments ("ASU 2019-04") and ASU 2019-05 Financial Instruments - Credit Losses (Topic 326):

Targeted Transition Relief ("ASU 2019-05"), respectively.

ASU 2019-04 provides transition relief for entities adopting ASU 2016-13 and ASU 2019-05 clarifies certain aspects of the accounting for credit losses, hedging activities and financial instruments in connection with the adoption of ASU 2016-13.

The FASB has issued the following accounting pronouncement which becomes effective for the Company in 2021, which the Company does not believe will have a material impact on its condensed consolidated financial statements upon adoption:

Recent Accounting Pronouncements

The Financial Accounting Standards Board ("FASB") issued the following accounting pronouncement which became effective for the Company in 2021, and which did not have a material impact on its condensed consolidated financial statements:

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740):

1 unchanged sentence

ASU 2019-12 addresses the accounting for hybrid tax regimes, tax basis step-up in goodwill obtained in a transaction that is not a business combination, separate financial statements of legal entities not subject to tax, intraperiod tax allocation exception to incremental approach, ownership changes in investments - changes from a subsidiary to an equity method investment, ownership changes in investments - changes from an equity method investment to a subsidiary, interim period accounting for enacted changes in tax law and year-to-date loss limitation in interim period tax accounting.

(2) BUSINESS ACQUISITIONS

On the ECI Merger Date, Ribbon completed its previously announced merger transaction with ECI in accordance with the terms of the Agreement and Plan of Merger, dated as of November 14, 2019, by and among Ribbon, ECI, an indirect wholly-owned subsidiary of Ribbon ("Merger Sub"), Ribbon Communications Israel Ltd.

The FASB issued the following accounting pronouncement, which the Company does not believe will have a material impact on its condensed consolidated financial statements upon adoption:

In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848):

Scope ("ASU 2021-01"), which refines the scope of Accounting Standards Codification 848, Reference Rate Reform ("ASC 848") and clarifies some of its guidance as part of the FASB's monitoring of global reference rate reform activities.

ASU 2021-01 permits entities to elect certain optional expedients and exceptions when accounting for derivative contracts and certain hedging relationships affected by changes in the interest rates used for discounting cash flows, for computing variation margin settlements, and for calculating price alignment interest in connection with reference rate reform activities under way in global financial markets (the "discounting transition").

ASU 2021-01 is effective for the Company prospectively in any period through December 31, 2022 that a modification is made to the terms of the derivatives affected by the discounting transition.

(2) ACQUISITION OF ECI

On the ECI Acquisition Date, Ribbon completed its previously announced merger transaction with ECI in accordance with the terms of the Agreement and Plan of Merger, dated as of November 14, 2019, by and among Ribbon, ECI, an indirect wholly-owned subsidiary of Ribbon ("Merger Sub"), Ribbon Communications Israel Ltd.

and ECI Holding (Hungary) kft, pursuant to which Merger Sub merged with and into ECI, with ECI surviving such merger as a wholly-owned subsidiary of Ribbon.

Prior to the ECI Merger Date, ECI was a privately-held global provider of end-to-end packet-optical transport and software-defined networking ("SDN") and network function virtualization ("NFV") solutions for service providers, enterprises and data center operators.

Ribbon believes the ECI Merger positions the Company for growth and enhances its competitive strengths by expanding its product portfolio beyond solutions primarily supporting voice applications to include data applications and optical networking.

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

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

Prior to the ECI Acquisition Date, ECI was a privately-held global provider of end-to-end packet-optical transport and software-defined networking ("SDN") and network function virtualization ("NFV") solutions for service providers, enterprises and data center operators.

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

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

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

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

The Company's financial results for the three months ended March 31, 2020 include $ 30.0 million of revenue and $ 3.3 million of net loss attributable to ECI.

The Company finalized the valuation of acquired assets, identifiable intangible assets and certain assumed liabilities in the fourth quarter of 2020.

A summary of the allocation of the purchase consideration for ECI is as follows (in thousands):

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

certain of ECI's real estate assets.

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

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

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

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

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

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

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

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

The preliminary allocation of purchase consideration to the fair value of assets acquired and liabilities assumed includes a noncurrent asset of $ 5.7 million that represents an indemnification receivable from ECI's selling shareholders for certain liabilities for uncertain tax positions in accordance with the Agreement and Plan of Merger.

The Company expects to finalize the valuation of the assets acquired and liabilities assumed by the first quarter of 2021.

A summary of the preliminary allocation of the purchase consideration for ECI is as follows (in thousands):

Fair value of consideration transferred:

22 unchanged sentences

Other long-term liabilities ( 46,117 )

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

The Company is still evaluating the fair value of acquired assets and assumed liabilities, and such values are subject to change.

The valuation of the acquired intangible assets is inherently subjective and relies on significant unobservable inputs.

The Company used an income approach to value the acquired in-process research and development, developed technology, customer relationships and trade name intangible assets.

The Company is still evaluating the forecast, and the value of these intangible assets could change materially as the Company finalizes the forecast and other inputs used to determine their fair values.

The valuation for each of these intangible assets was based on estimated projections of expected cash flows to be generated by the assets, discounted to the present value at discount rates commensurate with perceived risk.

The valuation assumptions take into consideration the Company's estimates of customer attrition, technology obsolescence and revenue growth projections.

The Company is amortizing the identifiable intangible assets arising from the ECI Merger in relation to the expected cash flows from the individual intangible assets over their respective useful lives, which have a weighted average life of 12.38 years (see Note 6).

The Company is amortizing the identifiable intangible assets arising from the ECI Acquisition in relation to the expected cash flows from the individual intangible assets over their respective useful lives, which have a weighted average life of 12.38 years (see Note 6).

Goodwill results from assets that are not separately identifiable as part of the transaction and is not deductible for tax purposes.

Pro Forma Results

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

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

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

The following unaudited pro forma information presents the condensed combined results of operations of Ribbon and ECI for the three months ended March 31, 2020 as if the ECI Acquisition had been completed on January 1, 2019, with adjustments to give effect to pro forma events that are directly attributable to the ECI Acquisition.

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

Pro forma adjustments also include the elimination of acquisition-, disposal- and integration-related expenses directly attributable to the acquisition from the three months ended March 31, 2020 and inclusion of such costs in the same prior year period.

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

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

Three months ended Nine months ended

September 30,

2020 September 30,

2019 September 30,

2020 September 30,

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

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

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

Anova Data, Inc.

On the Anova Acquisition Date, the Company acquired the business and technology assets of Anova, a private company headquartered in Westford, Massachusetts that provides advanced analytics solutions (the "Anova Acquisition").

The Anova Acquisition was completed in accordance with the terms and conditions of an asset purchase agreement, dated as of January 31, 2019 (the "Anova Asset Purchase Agreement").

As consideration for the Anova Acquisition, Ribbon issued 2.9 million shares of Ribbon common stock with a fair value of $ 15.2 million to Anova's sellers and equity holders on the Anova Acquisition Date and held back an additional 330,000 shares with a fair value of $ 1.7 million (the "Anova Deferred Consideration"), of which 316,551 shares were issued after post-closing adjustments on March 4, 2020.

The Anova Deferred Consideration was included as a component of Accrued expenses and other in the Company's condensed consolidated balance sheet at December 31, 2019.

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

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

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

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

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

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

The remaining unallocated amount of $ 5.5 million was recorded as goodwill.

The goodwill is deductible for tax purposes.

Acquisition- and Integration-Related Expenses

Acquisition- and integration-related expenses include those expenses related to acquisitions that would otherwise not have been incurred by the Company, including professional and services fees such as legal, audit, consulting, paying agent and other fees.

These amounts include costs related to prior acquisitions, as well as nominal amounts related to acquisitive activities.

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

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

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

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

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

Three months ended Nine months ended

September 30,

2020 September 30,

2019 September 30,

2020 September 30,

would have been achieved had the ECI Acquisition occurred at January 1, 2019, nor are they intended to represent or be indicative of future results of operations (in thousands, except per share amounts):

Revenue $ 183,189

Net loss $ ( 39,129 )

Loss per share $ ( 0.25 )

Acquisition-, Disposal- and Integration-Related Expenses

Acquisition-related expenses include those expenses related to acquisitions that would otherwise not have been incurred by the Company, including professional and services fees, such as legal, audit, consulting, paying agent and other fees.

Disposal-related expenses are professional and services fees related to disposals of subsidiaries or portions of the business.

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

The disposal-related expenses in the three months ended March 31, 2021 relate to the Kandy Sale (as defined below).

The acquisition-related expenses in the three months ended March 31, 2020 primarily relate to the ECI Acquisition.

The Company's acquisition-, disposal- and integration-related expenses for the three months ended March 31, 2021 and 2020 were as follows (in thousands):

Three months ended

2021 March 31,

Professional and services fees (acquisition-related) $ — $ 12,374

Professional and services fees (disposal-related) 241 —

Integration-related expenses 956 10

$ 1,197 $ 12,384

(3) PROPOSED SALE OF KANDY COMMUNICATIONS BUSINESS

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

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

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

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

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

(3) SALE OF KANDY COMMUNICATIONS BUSINESS

On August 5, 2020, the Company announced that it had entered into a definitive agreement (as amended, the "Kandy Purchase Agreement") with AVCT to sell the Kandy Communications Business.

Under the Kandy Purchase Agreement, AVCT agreed to purchase the assets and assume certain liabilities associated with the Kandy Communications Business, as well as all of the outstanding interests in Kandy Communications LLC, a subsidiary of the Company (the "Kandy Sale").

On December 1, 2020, the Company completed the Kandy Sale.

The assets acquired and liabilities assumed by AVCT in connection with the Kandy Sale were primarily comprised of accounts receivable, property and equipment, trade accounts payable and employee-related accruals.

As sale consideration, AVCT paid Ribbon $ 45.0 million, subject to certain adjustments, in the form of units of AVCT's securities (the "AVCT Units"), with each AVCT Unit consisting of:

$ 1,000 in principal amount of AVCT’s Series A-1 convertible debentures (the “Debentures”);

and (ii) one warrant to purchase 100 shares of AVCT common stock, $ 0.0001 par value (the “Warrants”), as consideration for the Kandy Sale.

The Company received 43,778 AVCT Units as sale consideration on the Kandy Sale Date.

The Debentures bear interest at a rate of 10 % per annum, which will be added to the principal amount of the Debentures, except upon maturity, in which case accrued and unpaid interest is payable in cash.

The entire principal of each Debenture, together with accrued and unpaid interest thereon, is due and payable on the earlier of the May 1, 2023 maturity date or the occurrence of a Change in Control as defined in the Kandy Purchase Agreement.

Each Debenture is convertible, in whole or in part, at any time at the Company's option into that number of shares of AVCT common stock, calculated by dividing the principal amount being converted, together with all accrued and unpaid interest thereon, by the applicable conversion price, initially $ 3.45 .

The Debentures are subject to mandatory redemption if the AVCT stock price is at or above $ 6.00 per share for 40 trading days in any 60 consecutive trading day period, subject to the satisfaction of certain other conditions.

The conversion

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

price is subject to customary adjustments including, but not limited to, stock dividends, stock splits and reclassifications.

At the Company's option, up to $ 5.0 million of the Debentures may be redeemed by AVCT at par in the event AVCT raises at least $ 50.0 million in its offering of AVCT Units.

As of February 19, 2021, the stock price had traded above $ 6.00 for 40 days within a 60 consecutive trading day period, and accordingly, the Debentures will be converted to shares of AVCT common stock upon the completion of customary regulatory filings by AVCT.

The Warrants are independent of the Debentures and entitle the Company to purchase 4,377,800 shares of AVCT common stock at an exercise price of $ 0.01 per share.

The Warrants expire on December 1, 2025, and were immediately exercisable on the Kandy Sale Date.

The Company had not redeemed any of the Debentures or exercised any of the Warrants as of March 31, 2021.

The Company is also subject to a lock-up provision which limits the Company's ability to sell any shares of AVCT common stock underlying the Debentures and the Warrants prior to June 1, 2021, except in certain transactions.

The Company determined that the AVCT Units had a fair value of $ 84.9 million at the Kandy Sale Date, comprised of the Debentures with a fair value of $ 66.3 million and the Warrants with a fair value of $ 18.6 million.

The value of the net assets sold to AVCT totaled $ 1.3 million, resulting in a gain on the sale of $ 83.6 million.

The Company calculated the fair value of the Debentures using a Lattice-based valuation approach, which utilizes a binomial tree to model the different paths the price of AVCT's common stock might take over the Debentures' life by using assumptions regarding the stock price volatility and risk-free interest rate.

These results are then used to calculate the fair value of the Debentures at each measurement date.

The Company uses the Black-Scholes valuation model for estimating the fair value of the Warrants at each measurement date.

The fair value of the Warrants is affected by AVCT's stock price as well as valuation assumptions, including the volatility of AVCT's stock price, expected term of the option, risk-free interest rate and expected dividends.

Both the Lattice and Black-Scholes valuation models are based on available market data, giving consideration to all of the rights and obligations of each instrument and precluding the use of "blockage" discounts or premiums in determining the fair value of a large block of financial instruments.

The Company is calculating the fair value of the Debentures and Warrants at each quarter-end and recording any adjustments to the fair values in Other expense, net.

At March 31, 2021 and December 31, 2020, the aggregate fair value of the Debentures and Warrants was $ 92.7 million and $ 115.2 million, respectively.

The Company recorded the loss of $ 23.9 million arising from the decrease in the fair value of the Debentures and Warrants from January 1, 2021 to March 31, 2021 in Other expense, net, in its condensed consolidated statement of operations for the three months ended March 31, 2021.

The loss was partially offset by $ 1.5 million of interest which was added to the principal of the Debentures.

The interest is included in Interest (expense) income, net, in the condensed consolidated statement of operations for the three months ended March 31, 2021.

The fair values of the Debentures and Warrants are reported as Investments in the Company's condensed consolidated balance sheets at March 31, 2021 and December 31, 2020 and are classified as Level 2 fair value measurements within the fair value hierarchy (see Note 1).

(4) EARNINGS (LOSS) PER SHARE

1 unchanged sentence

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

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

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

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

Three months ended Nine months ended

September 30,

2020 September 30,

2019 September 30,

2020 September 30,

Three months ended

2021 March 31,

Weighted average shares outstanding - basic 145,936 120,992

1 unchanged sentence

Weighted average shares outstanding - diluted 145,936 120,992

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

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

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

Options to purchase the Company's common stock and unvested shares of restricted and performance-based stock and stock units aggregating 12.8 million shares and 11.7 million shares have not been included in the computation of diluted loss per share for the three months ended March 31, 2021 and 2020, respectively, because their effect would have been antidilutive.

(5) INVENTORY

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

September 30,

Inventory at March 31, 2021 and December 31, 2020 consisted of the following (in thousands):

2021 December 31,

5 unchanged sentences

(6) INTANGIBLE ASSETS AND GOODWILL

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

September 30, 2020 Weighted average amortization period

The Company's intangible assets at March 31, 2021 and December 31, 2020 consisted of the following (in thousands):

March 31, 2021 Weighted average amortization period

(years) Cost Accumulated

7 unchanged sentences

9.17 $ 614,250 $ 212,717 $ 401,533

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

December 31, 2020 Weighted average amortization period

9 unchanged sentences

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

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

Three months ended Nine months ended Statement of operations classification

September 30,

2020 September 30,

2019 September 30,

2020 September 30,

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

Customer relationships 4,313 2,608 12,881 7,145 Sales and marketing

Trade names 393 130 924 425 Sales and marketing

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

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

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

Estimated future amortization expense for the Company's intangible assets at March 31, 2021 was as follows (in thousands):

Years ending December 31,

1 unchanged sentence

Thereafter 124,095

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

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

There were no changes to the carrying value of the Company's goodwill in the three months ended March 31, 2021.

The changes in the carrying value of the Company's goodwill in the three months ended March 31, 2020 were as follows (in thousands):

Cloud and Edge IP Optical Networks Total

Balance at January 1, 2020* $ 224,896 $ — $ 224,896

Acquisition of ECI — 189,493 189,493

Balance at March 31, 2020 $ 224,896 $ 189,493 $ 414,389

(1) Balance is presented net of accumulated impairment losses of $ 167.4 million for the Cloud and Edge segment.

The components of goodwill at March 31, 2021 and 2020 were as follows (in thousands):

Cloud and Edge IP Optical Networks Total

Balance at March 31, 2021

Goodwill $ 392,302 $ 191,996 $ 584,298

1 unchanged sentence

$ 224,896 $ 191,996 $ 416,892

Acquisition of ECI 191,996 —

Acquisition of Anova — 5,541

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

Balance at September 30

Balance at March 31, 2020

Goodwill $ 392,302 $ 189,493 $ 581,795

1 unchanged sentence

$ 224,896 $ 189,493 $ 414,389

(7) ACCRUED EXPENSES

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

September 30,

(7) ACCRUED EXPENSES AND OTHER

Accrued expenses at March 31, 2021 and December 31, 2020 consisted of the following (in thousands):

2021 December 31,

Employee compensation and related costs $ 41,128 $ 66,039

Professional fees 14,368 13,331

Other 57,057 68,826

$ 98,185 $ 134,865

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(8) WARRANTY ACCRUALS

The changes in the Company's accrual balance in the three months ended March 31, 2021 were as follows (in thousands):

Balance at January 1, 2021 $ 14,855

Current period provisions 478

Settlements ( 1,456 )

Balance at March 31, 2021 $ 13,877

Of the amounts recorded at March 31, 2021 and December 31, 2020, $ 5.7 million and $ 6.5 million, respectively, were current and included as components of Accrued expenses and other, and $ 8.2 million and $ 8.4 million, respectively, were long-term and included as components of Other long-term liabilities in the Company's condensed consolidated balance sheets.

(9) RESTRUCTURING AND FACILITIES CONSOLIDATION INITIATIVES

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

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

The Company recorded restructuring and related expense aggregating $ 6.0 million and $ 2.1 million in the three months ended March 31, 2021 and 2020, respectively.

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

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

2 unchanged sentences

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

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

Three months ended Nine months ended

September 30,

2020 September 30,

2019 September 30,

2020 September 30,

The components of Restructuring and related expense for the three months ended March 31, 2021 and 2020 were as follows (in thousands):

Three months ended

2021 March 31,

Severance and related costs $ 669 $ 1,771

2 unchanged sentences

$ 5,950 $ 2,075

Accelerated Rent Amortization

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

The accelerated rent amortization recorded in connection with the Facilities Initiative reduced the value of the Company's Operating lease right-of-use assets recorded in the Company's condensed consolidated balance sheets at March 31, 2021 and December 31, 2020, respectively.

The liability for the total lease payments for each respective facility is included as a component of Operating lease liabilities in the Company's condensed consolidated balance sheets, both current and noncurrent (see Note 17).

The Company may incur additional future expense if it is unable to sublease other locations included in its restructuring initiatives.

RIBBON COMMUNICATIONS INC.

1 unchanged sentence

2020 Restructuring Initiative

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

The 2020 Restructuring Initiative includes facility consolidations and a reduction in workforce, including three former executives of ECI for whom severance aggregating $ 1.1 million was recorded in the three months ended March 31, 2020.

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

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

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

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

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

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

The Company recorded restructuring and related expense of $ 0.4 million and $ 1.1 million in connection with the 2020 Restructuring Initiative in the three months ended March 31, 2021 and 2020, respectively.

The amount recorded in the three months ended March 31, 2021 was comprised of $ 0.7 million for severance and related costs for approximately 10 employees and $ 0.4 million of expense for variable costs related to restructured facilities, offset by a credit of $ 0.7 million for changes in estimate related to amounts previously recorded.

The amount recorded in the three months ended March 31, 2020 was for severance for three former executives of ECI.

The Company expects the amounts related to severance will be paid in 2021.

The Company expects that it will record additional restructuring and related expense approximating $ 4 million under the 2020 Restructuring Initiative in the aggregate for severance and planned facility consolidations.

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

A summary of the 2020 Restructuring Initiative accrual activity for severance and related costs for the three months ended March 31, 2021 is as follows (in thousands):

2021 Initiatives

expense Adjustments for changes in estimate Cash

payments Balance at

September 30,

Severance $ 5,237 $ 669 $ — $ ( 2,116 ) $ 3,790

4 unchanged sentences

The 2019 Restructuring Initiative includes facility consolidations, refinement of the Company's research and development activities, and a reduction in workforce.

In connection with this initiative, the Company expects to reduce its focus on hardware and appliance-based development over time and to increase its development focus on software virtualization, functional simplicity and important customer requirements.

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

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

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

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

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

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

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

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

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

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

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

The Company expects that the actions under the Facilities Initiative will be completed in 2021.

In connection with the 2019 Restructuring Initiative, the Company recorded restructuring and related expense of $ 5.6 million and $ 1.0 million in the three months ended March 31, 2021 and 2020, respectively.

The amount recorded in the three months ended March 31, 2021 related to facilities, including $ 3.4 million of accelerated amortization of lease assets.

The amount recorded in the three months ended March 31, 2020 was comprised of $ 0.7 million for severance and related costs for five employees and $ 0.3 million related to facilities.

The Company expects that the entire amount accrued for severance and related costs will be paid in 2021.

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

A summary of the 2019 Restructuring Initiative accrual activity for the three months ended March 31, 2021 is as follows (in thousands):

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

other facilities-related costs, including accelerated rent amortization.

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

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

2021 Initiatives

expense Adjustments for changes in estimate Reclassify accelerated amortization to operating lease liabilities Cash

expense Reclassify accelerated amortization to operating lease liabilities Cash

payments Balance at

September 30,

Severance $ 173 $ — $ — $ ( 173 ) $ —

1 unchanged sentence

$ 939 $ 5,584 $ ( 3,368 ) $ ( 1,087 ) $ 2,068

Accelerated Rent Amortization

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

The Company may incur additional future expense if it is unable to sublease other locations included in its restructuring initiatives.

GENBAND Merger Restructuring Initiative

In connection with the merger in 2017 between Sonus Networks, Inc.

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

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

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

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

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

2020 Adjustments for changes in estimate Cash

payments Balance at

September 30,

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

Balance Sheet Classification

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

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

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(9) WARRANTY ACCRUALS

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

Balance at January 1, 2020 $ —

Assumed liability in connection with ECI Merger 16,251

Current period provisions 3,127

Settlements ( 4,164 )

Balance at September 30, 2020 $ 15,214

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

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

The long-term portions of accrued restructuring relate to facilities and totaled $ 2.1 million at March 31, 2021 and $ 0.8 million at December 31, 2020.

2020 Credit Facility

On April 29, 2019, the Company entered into a syndicated, amended and restated Credit Facility (the "2019 Credit Facility").

The 2019 Credit Facility provided for a $ 50 million term loan facility that was advanced in full on April 29, 2019 and a $ 100 million revolving line of credit.

The 2019 Credit Facility also included procedures for additional financial institutions to become syndicate lenders, or for any existing lender to increase its commitment under either the term loan facility or the revolving loan facility, subject to an aggregate increase of $ 75 million for incremental commitments under the 2019 Credit Facility.

The 2019 Credit Facility was scheduled to mature in April 2024.

At December 31, 2019, the Company had an outstanding term loan debt balance of $ 48.8 million and an outstanding revolving line of credit balance of $ 8 million with a combined average interest rate of 3.30 %, and $ 5.4 million of outstanding letters of credit at an interest rate of 1.50 %.

The indebtedness and other obligations under the 2019 Credit Facility were unconditionally guaranteed on a senior secured basis by the Company and each other material U.S.

domestic subsidiary of the Company (collectively, the “Guarantors”).

The 2019 Credit Facility was secured by first-priority liens on substantially all of the assets of the Borrower and the Guarantors, including the Company.

The 2019 Credit Facility required periodic interest payments on any outstanding borrowings under the facility.

The Borrower could prepay all revolving loans under the 2019 Credit Facility at any time without premium or penalty (other than customary LIBOR breakage costs), subject to certain notice requirements.

Revolving loans under the 2019 Credit Facility bore interest at the Borrower’s option at either the Eurodollar (LIBOR) rate plus a margin ranging from 1.50 % to 3.00 % per year or the base rate (the highest of the Federal Funds rate plus 0.50 %, or the prime rate announced from time to time in The Wall Street Journal) plus a margin ranging from 0.50 % to 2.00 % per year (such margins being referred to as the “Applicable Margin”).

The Applicable Margin varied depending on the Company’s consolidated leverage ratio (as defined in the 2019 Credit Facility).

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

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

The Company was in compliance with all covenants of the 2019 Credit Facility at December 31, 2019.

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

incurring or assuming

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

indebtedness;

granting or assuming liens;

making acquisitions or engaging in mergers;

making dividend and certain other restricted payments;

making investments;

selling or otherwise transferring assets;

engaging in transactions with affiliates;

entering into sale and leaseback transactions;

entering into burdensome agreements;

changing the nature of its business;

modifying its organizational documents;

and amending or making prepayments on certain junior debt.

The 2019 Credit Facility contained events of default that are customary for a secured credit facility.

If an event of default relating to bankruptcy or other insolvency events with respect to a borrower occurred, all obligations under the 2019 Credit Facility would immediately become due and payable.

If any other event of default existed under the 2019 Credit Facility, the lenders could accelerate the maturity of the obligations outstanding under the 2019 Credit Facility and exercise other rights and remedies, including charging a default rate of interest equal to 2.00 % per year above the rate that would otherwise be applicable.

In addition, if any event of default existed under the New Credit Facility, the lenders could commence foreclosure or other actions against the collateral.

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

2020 Credit Agreement

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

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

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

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

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

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

The proceeds of the 2020 Credit Facility were used, in part, to pay off in full all obligations of the Company under its prior credit facility (the "2019 Credit Facility").

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

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

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

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

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

The 2020 Credit Agreement requires periodic interest payments until maturity.

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

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

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

The 2020 Credit Facility also requires periodic interest payments until maturity.

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

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

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

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

grant or assume liens;

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Notes to Condensed Consolidated Financial Statements (Continued)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

On December 1, 2020, the Borrower entered into a Second Amendment to the 2020 Credit Facility to obtain consent for an equity exchange with AVCT in connection with the Kandy Sale, as well as to amend certain other provisions of the 2020 Credit Facility.

At December 31, 2020, the Company had an outstanding Term A Loan balance of $ 318.5 million at an average interest rate of 3.4 %, and an outstanding Term B Loan balance of $ 74.6 million at an average interest rate of 8.4 %.

The 2020 Revolving Credit Facility did not have an outstanding balance but had $ 5.6 million of letters of credit outstanding with an interest rate of 2.5 %.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements (Continued)

On March 3, 2021 (the "Third Amendment Effective Date"), the Company, the Borrower and certain of its subsidiaries entered into a Third Amendment to Credit Agreement (the "Third Amendment"), which further amends the 2020 Credit Facility.

The Third Amendment provided for an incremental term loan facility to the Borrower in the original principal amount of $ 74.6 million, the proceeds of which were used on the Third Amendment Effective Date to consummate an open market purchase of all outstanding amounts under the Term B Loan.

Upon the consummation of the open market purchase, the Term B Loans were assigned to the Borrower and immediately cancelled, such that the outstanding amount under the Term A Loan and incremental term loan facility were combined and held by the Lenders (the "2020 Term Loan") with the same terms as the Term A Loan.

The Company wrote off $ 2.5 million of capitalized debt issuance costs in connection with the Third Amendment, which is included in Interest expense, net, in the Company's condensed consolidated statement of operations for the three months ended March 31, 2021.

The Company is required to make quarterly principal payments on the 2020 Term Loan aggregating approximately $ 20 million per year in the first three years and $ 30 million in the fourth year, with the final payment approximating $ 300 million due on the maturity date.

The Third Amendment increased the Borrower's ability to incur new incremental revolving commitments or term loans.

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

The Third Amendment also increased the amount of Unrestricted Cash (as defined in the 2020 Credit Facility) used in calculating the Borrower's Consolidated Net Leverage Ratio from $ 10.0 million to $ 25.0 million.

At March 31, 2021, the Company had an outstanding 2020 Term Loan balance of $ 390.6 million at an average interest rate of 3.40 % and $ 6.4 million of letters of credit outstanding with an interest rate of 2.50 %.

The Company was in compliance with all covenants of the 2020 Credit Facility at both March 31, 2021 and December 31, 2020.

Short-Term Loan

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

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

From time to time, the Company enters into uncommitted and unsecured short-term loans to finance exports in China.

The Company did not have any such short-term loans outstanding at March 31, 2021 and December 31, 2020.

Letters of Credit and Performance and Bid Bonds

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

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

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

At March 31, 2021, the Company had bank guarantees, performance and bid bonds under various uncommitted facilities (collectively, the "Guarantees") aggregating $ 26.9 million and $ 6.4 million of letters of credit under the 2020 Credit Facility (the "Letters of Credit").

At December 31, 2020, the Company had Guarantees aggregating $ 27.0 million and $ 5.6 million of Letters of Credit.

At both March 31, 2021 and December 31, 2020, the Company had cash collateral of $ 2.7 million supporting the Guarantees, which are included in Restricted cash in the condensed consolidated balance sheets.

(11) DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

6 unchanged sentences

The Company records derivatives on the balance sheet at fair value.

The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting.

The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting.

Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a specific risk, such as interest rate risk, are considered fair value hedges.

4 unchanged sentences

Cash Flow Hedge of Interest Rate Risk

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

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

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

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

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

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

The 2020 Term Loan Facility had outstanding balances of $ 390.6 million and $ 393.1 million at March 31, 2021 and December 31, 2020, respectively.

The 2020 Revolving Credit Facility was undrawn at both March 31, 2021 and December 31, 2020.

Borrowings under the 2020 Credit Facility have variable interest rates based on LIBOR (see Note 10).

The notional amount of this swap at March 31, 2021 was $ 400 million, and the swap matures on March 3, 2025, the same date the 2020 Credit Facility matures.

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

1 unchanged sentence

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

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

During the three months ended March 31, 2021 and 2020, such a derivative was used to hedge the variable cash flows associated with the outstanding borrowings under the 2020 Credit Facility and the Company has accounted for this derivative as an effective hedge.

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

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

Based upon projected forward rates, the Company estimates as of March 31, 2021 that $ 3.1 million may be reclassified as an increase to interest expense over the next twelve months.

The impact of the Company’s derivative financial instrument on its condensed consolidated statement of comprehensive income (loss) for the three months ended March 31, 2021 and 2020 was as follows (in thousands):

Three months ended

2021 March 31,

Gain (loss) recognized in other comprehensive loss on derivative (effective portion) $ 5,889 $ ( 9,337 )

Amount reclassified to (from) accumulated other comprehensive income (loss) to interest expense (effective portion) 780 ( 190 )

$ 6,669 ( 9,527 )

The fair values and locations in the condensed consolidated balance sheets at March 31, 2021 and December 31, 2020 of the Company's derivative liability designated as a hedging instrument were as follows (in thousands):

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

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

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

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

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

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

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

Three months ended Nine months ended

September 30,

2020 September 30,

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

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

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

Balance sheet location

Balance sheet location March 31,

2021 December 31,

Interest rate derivative - liability derivative Accrued expenses and other $ 3,119 $ 3,157

Interest rate derivative - liability derivative Other long-term liabilities $ 1,160 $ 7,791

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

The Company has classified the interest rate derivative aggregating $ 4.3 million and $ 10.9 million at March 31, 2021 and December 31, 2020, respectively, as Level 2 fair value measurements within the fair value hierarchy (see Note 1).

(12) REVENUE RECOGNITION

The Company accounts for revenue in accordance with ASC 606, Revenue from Contracts with Customers ("ASC 606"), which it adopted on January 1, 2018 using the modified retrospective method.

The Company derives revenues from two primary sources:

The Company derives revenue from two primary sources:

products and services.

4 unchanged sentences

For these contracts, the Company accounts for individual performance obligations separately if they are considered distinct.

When an arrangement contains more than one performance obligation, the Company will generally allocate the transaction price to each performance obligation on a relative standalone selling price basis.

The best evidence of a standalone selling price is the observable price of a good or service when the entity sells that good or service separately in similar circumstances and to similar customers.

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

Acceptable estimation methods include but are

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

not limited to:

(1) adjusted market assessment;

(2) expected cost plus a margin;

and (3) a residual approach (when the standalone selling price is not directly observable and is either highly variable or uncertain).

When an arrangement contains more than one performance obligation, the Company will allocate the transaction price to each performance obligation on a relative standalone selling price basis.

The Company utilizes the observable price of goods and services when they are sold separately to similar customers in order to estimate standalone selling price.

The Company's software licenses typically provide a perpetual right to use the Company's software.

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The Company has concluded that its software licenses are functional intellectual property that are distinct, as the user can benefit from the software on its own.

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

The Company does not recognize software revenue related to the renewal of subscription software licenses earlier than the beginning of the subscription period.

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

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

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

The Company begins to recognize software revenue related to the renewal of subscription software licenses at the start of the subscription period.

The Company offers warranties on its products.

Certain of the Company's warranties are considered to be assurance-type in nature and do not cover anything beyond ensuring that the product is functioning as intended.

Based on the guidance in ASC 606, assurance-type warranties do not represent separate performance obligations.

Certain of the Company's warranties are considered to be assurance-type in nature, ensuring the product is functioning as intended.

Assurance-type warranties do not represent separate performance obligations.

The Company also sells separately-priced maintenance service contracts which qualify as service-type warranties and represent separate performance obligations.

The Company does not typically allow and has no history of accepting material product returns.

The Company does not allow and has no history of accepting product returns.

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

Customer support includes software updates on a when-and-if-available basis, telephone support, integrated web-based support and bug fixes or patches.

The Company sells its customer support contracts at a percentage of list or net product price related to the support.

The Company sells its customer support contracts at a percentage of list or net product price.

Customer support revenue is recognized ratably over the term of the customer support agreement, which is typically one year .

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The Company generally uses the input method to measure progress for its contracts because it believes such method best depicts the transfer of assets to the customer, which occurs as the Company incurs costs for the contracts.

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

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

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

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

When the measure of progress is based upon expended labor, progress toward completion is measured as the ratio of labor time expended to date versus the total

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

estimated labor time required to complete the performance obligation.

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

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

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The related revenue is typically recognized as the training services are performed.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

The Company's typical performance obligations include the following:

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Software licenses (subscription) Upon activation of hosted site (over time) Generally, within 30 days of invoicing

Appliances When control of the appliance passes to the customer;

Hardware When control of the hardware passes to the customer;

typically, upon delivery (point in time) Generally, within 30 days of invoicing

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The value of deferred revenue will increase or decrease based on the timing of recognition of revenue.

Disaggregation of Revenue

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

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

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

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

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

Europe, Middle East and Africa 41,265 19,720 7,133 68,118

Asia Pacific 22,233 12,208 5,183 39,624

Other 7,925 8,439 2,162 18,526

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

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

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

Europe, Middle East and Africa 7,346 10,899 2,635 20,880

Asia Pacific 5,517 7,123 3,219 15,859

Other 3,588 8,170 1,633 13,391

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

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

Disaggregation of Revenue

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

The Company's revenue for the three months ended March 31, 2021 and 2020 was disaggregated as follows:

Three months ended March 31, 2021 Product revenue Service revenue (maintenance) Service revenue (professional services) Total revenue

United States $ 36,812 $ 31,606 $ 11,162 $ 79,580

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$ 97,889 $ 68,705 $ 26,178 $ 192,772

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

Three months ended March 31, 2020 Product revenue Service revenue (maintenance) Service revenue (professional services) Total revenue

United States $ 36,365 $ 31,466 $ 10,566 $ 78,397

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$ 75,899 $ 61,068 $ 21,015 $ 157,982

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

Three months ended Nine months ended

September 30,

2020 September 30,

2019 September 30,

2020 September 30,

The Company's product revenue from indirect sales through its channel partner program and from its direct sales program for the three months ended March 31, 2021 and 2020 was as follows (in thousands):

Three months ended

2021 March 31,

Indirect sales through channel partner program $ 20,163 $ 28,604

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$ 97,889 $ 75,899

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

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

Three months ended Nine months ended

September 30,

2020 September 30,

2019 September 30,

2020 September 30,

The Company's product revenue from sales to enterprise customers and from sales to service provider customers for the three months ended March 31, 2021 and 2020 was as follows (in thousands):

Three months ended

2021 March 31,

Sales to enterprise customers $ 22,668 $ 27,281

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$ 97,889 $ 75,899

The Company's product revenue and service revenue components by segment for the three months ended March 31, 2021 and 2020 was as follows (in thousands):

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

Three months ended

2021 March 31,

Product revenue

Cloud and Edge $ 50,152 $ 54,210

IP Optical Networks 47,737 21,689

Total product revenue $ 97,889 $ 75,899

Service revenue

Cloud and Edge $ 54,673 $ 55,556

IP Optical Networks 14,032 5,512

Total maintenance revenue 68,705 61,068

Professional services

Cloud and Edge 20,597 18,265

IP Optical Networks 5,581 2,750

Total professional services revenue 26,178 21,015

Total service revenue $ 94,883 $ 82,083

Revenue Contract Balances

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

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

Changes in the contract asset and liability balances during the three months ended March 31, 2021 were not materially impacted by any factors other than billing and revenue recognition.

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

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

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

The changes in the Company's accounts receivable, unbilled receivables and deferred revenue balances for the three months ended March 31, 2021 were as follows (in thousands):

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

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Increase (decrease), net ( 27,719 ) ( 856 ) 5,279 ( 2,956 )

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

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

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

Balance at March 31, 2021 $ 151,612 57,551 $ 102,103 $ 23,054

The Company recognized approximately $ 42 million of revenue in the months ended March 31, 2021 that was recorded as deferred revenue at December 31, 2020 and approximately $ 41 million of revenue in the three months ended March 31, 2020 that was recorded as deferred revenue at December 31, 2019.

Of the Company's deferred revenue reported as long-term in its condensed consolidated balance sheet at March 31, 2021, the Company expects that approximately $ 11 million will be

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

recognized as revenue in 2022, approximately $ 8 million will be recognized as revenue in 2023 and approximately $ 4 million will be recognized as revenue in 2024 and beyond.

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

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Expense related to commission payments has been deferred on our condensed consolidated balance sheet and is being amortized over the expected life of the customer contract, which averages five years .

The current and long-

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

At both March 31, 2021 and December 31, 2020, the Company had $ 4.1 million of deferred sales commissions capitalized.

(13) OPERATING SEGMENT INFORMATION

The Company has two reportable segments, which are intended to align with the manner in which the business is managed:

Cloud and Edge, and IP Optical Networks.

The Cloud and Edge segment provides secure and reliable software and hardware products, solutions and services for enabling Voice over Internet Protocol ("VoIP") communications, Voice over Long-Term Evolution ("VoLTE") and Voice Over 5G ("VoNR") communications and Unified Communications and Collaboration ("UC&C") within service provider and enterprise networks and from the cloud.

The Cloud and Edge products are increasingly software-centric and cloud-native for deployment on private, public or hybrid cloud infrastructures, in data centers, on enterprise premises and within service provider networks.

Ribbon's Cloud and Edge product portfolio consists of our Session Border Controller ("SBC") products and our Network Transformation ("NTR") products.

The IP Optical Networks segment provides high-performance, secure and reliable hardware and software products solutions for IP networking, switching, routing and optical transport designed to support and enable technologies like 5G, distributed cloud computing and corresponding applications by delivering ultra-low cost-per-bit transport and multi-service flexibility.

The IP Optical Networks portfolio offers multiple solutions, including 5G-native solutions for mobile backhaul, metro and edge aggregation, core networking, data center interconnect, legacy NTR and transport solutions for wholesale carriers.

This portfolio is offered to service provider, enterprise and industry verticals with critical transport network infrastructures including utilities, government, defense, transportation, and education and research Information for the IP Optical Networks segment for the three months ended March 31, 2020 includes the financial results of this segment for the period subsequent to the ECI Acquisition Date.

The Company has not provided segment asset information as such information is not provided to the CODM and accordingly, asset information is not used in assessing segment performance.

Please see Note 6 for information regarding the allocation of goodwill between segments.

Segment revenue and expenses included in the tables below represent direct revenue and expenses attributable to each segment for revenue, adjusted gross profit, and the research and development expense component of adjusted EBITDA.

The Company's sales, marketing, and general and administrative functions support both segments and accordingly, these costs are allocated to both segments.

The CODM utilizes revenue, adjusted gross profit and adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) to measure and assess each segment's performance.

The Company calculates adjusted EBITDA by excluding from income (loss) from operations:

depreciation;

amortization of acquired intangible assets;

stock-based compensation;

certain litigation costs;

acquisition-, disposal- and integration-related expense;

and restructuring and related expense.

These adjusted measures may also exclude other items in future periods that the Company believes are not part of the Company's core business.

Adjusted gross profit and adjusted EBITDA are not financial measures determined in accordance with U.S.

GAAP and may not be comparable to similarly titled measures used by other companies and should not be considered a substitute for income (loss)

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

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

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

from operations or gross profit or other results reported in accordance with U.S.

See below for a reconciliation of adjusted gross profit to gross profit and adjusted EBITDA to income (loss) from operations, as those are the most directly comparable U.S.

GAAP measures.

The tables below provide net sales, adjusted gross profit, adjusted EBITDA and depreciation expense by reportable segment for the three months ended March 31, 2021 and 2020 (in thousands):

Three months ended

2021 March 31,

Segment revenue:

Cloud and Edge $ 125,422 $ 128,031

IP Optical Networks 67,350 29,951

Revenue $ 192,772 $ 157,982

Three months ended

2021 March 31,

Segment adjusted gross profit:

Cloud and Edge $ 84,335 $ 78,935

IP Optical Networks 26,474 11,746

Total segment adjusted gross profit 110,809 90,681

Stock-based compensation expense ( 262 ) ( 157 )

Gross profit $ 110,547 $ 90,524

Three months ended

2021 March 31,

Segment adjusted EBITDA:

Cloud and Edge $ 28,330 $ 9,739

IP Optical Networks ( 8,678 ) ( 198 )

Total segment adjusted EBITDA 19,652 9,541

Depreciation ( 4,226 ) ( 3,474 )

Amortization of intangible assets ( 15,823 ) ( 14,334 )

Stock-based compensation ( 5,060 ) ( 2,976 )

Litigation costs — ( 3,038 )

Acquisition-, disposal- and integration-related expense ( 1,197 ) ( 12,384 )

Restructuring and related expense ( 5,950 ) ( 2,075 )

Loss from operations $ ( 12,604 ) $ ( 28,740 )

Segment depreciation expense:

Cloud and Edge $ 3,137 $ 2,993

IP Optical Networks 1,089 481

Depreciation expense $ 4,226 $ 3,474

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(14) MAJOR CUSTOMERS

The following customers contributed 10% or more of the Company's revenue in the three months ended March 31, 2021 and 2020:

Three months ended

2021 March 31,

Verizon Communications Inc.

* Represents less than 10% of total revenue.

At March 31, 2021, one customer accounted for 10% or more of the Company's accounts receivable balance, representing approximately 16 % of total accounts receivable.

At December 31, 2020, one customer accounted for 10% or more of the Company's accounts receivable balance, representing approximately 12 % of total accounts receivable.

The Company performs ongoing credit evaluations of its customers and generally does not require collateral on accounts receivable, although in some instances the Company may require letters of credit to support customer outstanding accounts receivable balances.

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

(15) COMMON STOCK REPURCHASES

In the second quarter of 2019, the Board approved a stock repurchase program (the "Repurchase Program") pursuant to which the Company may repurchase up to $ 75 million of the Company's common stock prior to April 18, 2021.

Repurchases under the Repurchase Program may be made in the open market, in privately negotiated transactions or otherwise, with the amount and timing of repurchases depending on market conditions and corporate discretion.

The Repurchase Program does not obligate the Company to acquire any particular amount of common stock and may be extended, modified, suspended or discontinued at any time at the Board's discretion.

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

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

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

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

In the second quarter of 2019, the Company's Board of Directors (the "Board") approved a stock repurchase program (the "Repurchase Program") pursuant to which the Company could repurchase up to $ 75 million of its common stock prior to April 18, 2021.

The Company did not repurchase any common stock during the three months ended March 31, 2021 or 2020.

At both March 31, 2020 and December 31, 2020, the Company had $ 70.5 million remaining under the Repurchase Program for future repurchases.

The Repurchase Program expired on April 18, 2021.

(16) STOCK-BASED COMPENSATION PLANS

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in August 2018, the Company assumed Edgewater's Amended and Restated 2002 Stock Option Plan (the "Edgewater Plan") to the extent of the shares underlying the options outstanding under the Edgewater Plan as of the Edgewater Acquisition Date (the "Edgewater Options").

The Edgewater Options were converted to Ribbon stock options (the "Ribbon Replacement Options") which are vesting under the same schedules as the respective Edgewater Options.

The Edgewater Options were converted to Ribbon stock options (the "Ribbon Replacement Options") which are vesting under the same

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

schedules as the respective Edgewater Options.

In connection with the Company's acquisitions of Performance Technologies Inc.

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Accordingly, no additional shares may be granted under the Assumed Plans.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

Executive Equity Arrangements

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McClelland") commencement of employment, the Company awarded Mr.

McClelland sign-on equity grants, comprised of an RSU grant and a PSU grant with both market and service conditions (the "Inducement PSUs") on March 16, 2020.

Subject to Mr.

McClelland's continued employment, 462,963 RSUs are eligible to vest on the earlier of March 16, 2021 or the date of the consummation of a change in control of the Company and, upon vesting, will be settled in shares of Ribbon's common stock.

The RSUs had a fair market value of $ 1.0 million on the date of grant.

McClelland sign-on equity grants, comprised of 462,963 RSUs and a PSU grant with both market and service conditions (the "Inducement PSUs") on March 16, 2020.

The RSUs vested and were released to Mr.

McClelland on March 16, 2021.

Subject to Mr.

McClelland's continued employment, the PSUs are eligible to vest and be settled in up to 4,750,000 shares of Ribbon common stock upon the achievement of specified share price thresholds on or prior to September 1, 2024.

These grants are reported in the applicable tables below.

Other Performance-Based Stock Grants

In addition to granting RSAs and RSUs to its executives and certain of its employees, the Company also grants PSUs to certain of its executives, including the Inducement PSUs granted to Mr.

McClelland's continued employment, the Inducement PSUs are eligible to vest and be settled in up to 4,750,000 shares of Ribbon common stock upon the achievement of specified share price thresholds on or prior to September 1, 2024.

The first share price threshold for Mr.

McClelland’s Inducement PSUs was achieved on February 26, 2021, and accordingly 1,333,333 shares were released to him.

These releases are included in the applicable tables below.

Performance-Based Stock Grants

In addition to granting RSUs to its executives and certain of its employees, the Company also grants PSUs to certain of its executives, including the Inducement PSUs granted to Mr.

McClelland as described above.

2020 PSU Grants .

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

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

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

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

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

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

In 2021, 2020 and 2019, the Company granted certain of its executives (the "2021 PSUs", "2020 PSUs" and "2019 PSUs", respectively), of which 60 % of each executive's PSU grant had both performance and service conditions (the "Performance PSUs") and 40 % had both market and service conditions (the "Market PSUs").

Each executive's Performance PSU grant is comprised of three consecutive fiscal year performance periods beginning in the year of grant (each, a "Fiscal Year Performance Period"), with one-third of the Performance PSUs attributable to each Fiscal Year Performance Period.

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

The Company's achievement of the goals for each Fiscal Year Performance Condition (and the number of shares of Company common stock to vest as a result thereof) are being measured on a linear sliding scale in relation to specific threshold, target and stretch performance conditions, with any shares earned vesting in the first quarter of the fiscal year following the third Performance Period of the grant, pending each executive's continued employment with the Company through that date.

The number of shares of common stock underlying the Performance PSUs that can be earned will in no event exceed 200 % of the Performance PSUs.

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

The 2020 Market PSUs have one three-year performance period which will end on December 31, 2022 (the "20-22 Market Performance Period").

The number of shares subject to the 2020 Market PSUs that will vest, if any, on June 15, 2023, will be dependent upon the Company's total shareholder return ("TSR") compared with the TSR of the companies included in the Nasdaq Telecommunications Index for the same 20-22 Market Performance Period, measured by the Compensation Committee after the 20-22 Market Performance Period ends.

The shares determined to be earned will vest on June 15, 2023, pending each executive's continued employment with the Company through that date.

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

The Market PSUs have one three-year performance period, beginning January 1 in the year of grant and ending on December 31, three years thereafter (the "Market Performance Period").

The number of shares subject to the Market PSUs that will vest, if any, will be dependent upon the Company's total shareholder return ("TSR") compared with the TSR of the companies included in a custom index for the applicable Market Performance Period, measured by the Compensation Committee after the Market Performance Period ends, with any shares earned vesting in the first quarter of the fiscal year following the respective Market Performance Period, pending each executive's continued employment with the Company through that date.

The number of shares of common stock underlying the Market PSUs that can be earned will in no event exceed 200 % of the Market PSUs.

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

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Subject to Mr.

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

2019 PSU Grants .

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

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

Bucci's continued employment, the Bucci Stock Price PSUs were eligible to vest and be settled in

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

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

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

There was no incremental expense in connection with this modification.

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

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

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

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

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

The 2019 Market PSUs have one three-year performance period which will end on December 31, 2021 (the "19-21 Market Performance Period").

The number of shares subject to the Market PSUs that will vest, if any, on March 15, 2022, will be dependent upon the Company's TSR compared with the TSR of the companies included in the Nasdaq Telecommunications Index for the same 19-21 Market Performance Period, measured by the Compensation Committee after the 19-21 Market Performance Period ends.

The shares determined to be earned will vest on March 15, 2022, pending each executive's continued employment with the Company through that date.

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

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

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

2018 PSU Grant .

In May 2018, the Company granted Franklin Hobbs, the Company's former President and Chief Executive Officer ("Mr.

Hobbs"), 195,000 PSUs with both performance and service conditions (the "2018 PSUs").

Of the 195,000 2018 PSUs, one-half of such PSUs were eligible to vest based on the achievement of two separate metrics related to the Company's 2018 financial performance (the "2018 Performance Conditions").

The Company's achievement of the 2018 Performance Conditions (and the number of shares of Company common stock to be received upon vesting as a result thereof) were measured on a linear sliding scale in relation to specific threshold, target and stretch performance conditions.

The number of shares of common stock to be received upon vesting of the 2018 PSUs would in no event exceed 150 % of the 2018 PSUs.

The Compensation Committee determined that the performance metrics for all of the 2018 PSUs had been achieved at the 150 % level, for a total of 292,500 shares eligible to be issued.

In connection with Mr.

Hobbs' separation from the Company effective December 31, 2019, the vesting schedule for the 2018 Shares earned was accelerated and the shares were released on January 30, 2020.

shares of Ribbon's common stock upon the achievement of a specific share price threshold on or prior to January 31, 2022.

The share price threshold for Mr.

Bucci’s Stock Price PSUs was achieved on February 12, 2021, and the shares were released to him.

This release is included in the applicable table below.

Accounting for Performance PSUs.

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Accounting for Market PSUs .

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

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The Company used a grant date fair value of $ 2.16 , the closing stock price on the date of grant, to calculate expense attributable to the three months ended March 31, 2020 for the Inducement PSUs.

During the second quarter of 2020, the Monte Carlo valuation of the Inducement PSUs was completed and accordingly, the grant date fair value of the Inducement PSUs was finalized as of June 30, 2020.

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

At March 31, 2021, the calculation of the grant date fair value of the Market PSUs granted on March 15, 2021 had not been completed.

The Company used a grant date fair value of $ 8.65 , the closing stock price on the date of grant, to calculate expense attributable to the three months ended March 31, 2021 for these Market PSUs.

The Company expects to complete the Monte Carlo valuation of these Market PSUs and will record a cumulative adjustment to expense to account for the change in grant date fair value, if any, in the second quarter of 2021.

The Company does not expect any such adjustment to have a material impact on its consolidated financial statements.

Employee Bonus Program

Effective in 2021, the Company added an equity component to its cash bonus program for eligible employees, under which RSUs with a grant date fair value equal to 50 % of each employee's target cash bonus were granted to each such employee (the "Bonus RSUs").

Correspondingly, cash target bonuses for eligible employees were reduced by 50 %.

The Company implemented this program to expand the opportunities for stock ownership more broadly throughout the Company.

The Bonus RSU grants are included in the applicable table below.

Stock Options

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

The activity related to the Company's outstanding stock options for the three months ended March 31, 2021 was as follows:

Shares Weighted

5 unchanged sentences

Outstanding at January 1, 2021 207,710 $ 12.69

Granted — $ —

Exercised ( 13,389 ) $ 1.76

Forfeited ( 6,055 ) $ 2.78

Expired ( 41,717 ) $ 15.78

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

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

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

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

Outstanding at March 31, 2021 194,321 $ 13.44 3.31 $ 267

Vested or expected to vest at March 31, 2021 194,253 $ 13.45 3.31 $ 266

Exercisable at March 31, 2021 191,930 $ 13.59 3.27 $ 252

The total intrinsic value of options exercised was $ 0.1 million for the three months ended March 31, 2021.

The Company received cash from option exercises of $ 24,000 in the three months ended March 31, 2021.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

Three months ended Nine months ended

September 30,

2020 September 30,

Total intrinsic value of stock options exercised $ 7 $ 36

Cash received from the exercise of stock options $ 6 $ 29

Restricted Stock Awards and Units

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

The activity related to the Company's RSAs for the three months ended March 31, 2021 was as follows:

Shares Weighted

Unvested balance at January 1, 2021 86,983 $ 7.04

Granted — $ —

Vested ( 86,983 ) $ 7.04

Forfeited ( 27,484 ) $ 6.97

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

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

Unvested balance at March 31, 2021 — $ —

The activity related to the Company's RSUs for the three months ended March 31, 2021 was as follows:

Shares Weighted

3 unchanged sentences

Forfeited ( 372,984 ) $ 3.68

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

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

Unvested balance at March 31, 2021 7,467,483 $ 5.49

The total grant date fair value of shares of restricted stock granted under RSAs and RSUs that vested during the three months ended March 31, 2021 was $ 4.7 million.

Performance-Based Stock Units

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

The activity related to the Company's PSUs for the three months ended March 31, 2021 was as follows:

Shares Weighted

3 unchanged sentences

Forfeited ( 57,480 ) $ 5.12

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

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

Unvested balance at March 31, 2021 5,094,891 $ 2.40

The total grant date fair value of shares of restricted stock granted under PSUs that vested during the three months ended March 31, 2021 was $ 1.5 million.

Stock-Based Compensation

The condensed consolidated statements of operations include stock-based compensation for the three months ended March 31, 2021 and 2020 as follows (in thousands):

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

Employee Stock Purchase Plan

The Company's Amended and Restated 2000 Employee Stock Purchase Plan ("ESPP") was designed to provide eligible employees of the Company and its participating subsidiaries an opportunity to purchase common stock of the Company through accumulated payroll deductions.

The ESPP provided for six-month offering periods with the purchase price of the stock equal to 85 % of the lesser of the closing market price on the first or last day of the offering period.

The maximum number of shares of common stock an employee could purchase during each offering period was 500 , subject to certain adjustments pursuant to the ESPP.

The last purchase under the ESPP purchase period was made on November 28, 2019, and the ESPP expired on May 20, 2020.

Stock-Based Compensation

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

Three months ended Nine months ended

September 30,

2020 September 30,

2019 September 30,

2020 September 30,

Three months ended

2021 March 31,

Product cost of revenue $ 27 $ 27

4 unchanged sentences

$ 5,060 $ 2,976

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

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

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

(15) MAJOR CUSTOMERS

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

Three months ended Nine months ended

September 30,

2020 September 30,

2019 September 30,

2020 September 30,

Verizon Communications Inc.

16 % 15 % 15 % 17 %

* 16 % * 12 %

* Represents less than 10% of total revenue.

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

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

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

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(16) RELATED PARTY TRANSACTIONS

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

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

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

(17) INCOME TAXES

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

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

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

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

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

on March 27, 2020.

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

There was a nominal income tax benefit for stock-based compensation in the three months ended March 31, 2021;

however, there was no income tax benefit in the three months ended March 31, 2020 due to the valuation allowance recorded.

At March 31, 2021, there was $ 36.4 million, net of expected forfeitures, of unrecognized stock-based compensation expense related to unvested stock options, stock awards and stock units.

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

The Company has operating and finance leases for corporate offices, research and development facilities, and certain equipment.

10 unchanged sentences

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

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

The Company assessed its right-of-use assets for impairment as of March 31, 2021 and December 31, 2020 and determined no impairment has occurred.

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

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

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

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

1 unchanged sentence

Lease contracts may contain variable lease costs, such as common area maintenance, utilities and tax reimbursements that vary over the term of the contract.

Variable lease costs are not included in minimum fixed lease payments and as a result, are excluded from the measurement of the right-of-use assets and lease liabilities.

Variable lease costs are not included in minimum fixed lease payments and as a result, are excluded from the measurement of the right-of-use assets and lease

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

The Company expenses all variable lease costs as incurred.

In connection with the 2019 Restructuring Initiative, certain lease assets related to facilities will be partially or fully vacated as the Company consolidates its facilities.

In connection with the 2019 Restructuring Initiative, certain lease assets related to facilities are being partially or fully vacated as the Company consolidates its facilities.

The Company has no plans to enter into sublease agreements for certain facilities.

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

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

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

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

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

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

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

The Company ceased use of these facilities in the first quarter of 2021, the first and fourth quarters of 2020 and the third quarter of 2019.

Accordingly, the Company accelerated the amortization of the associated lease assets through the planned cease-use date of each facility, resulting in additional amortization expense of $ 3.4 million and $ 0.1 million in the three months ended March 31, 2021 and 2020, respectively.

The Company also recorded expense of $ 1.4 million in the aggregate in the three months ended March 31, 2021 for all estimated future variable lease costs related to these facilities.

The Company recorded nominal expense for all estimated future variable lease costs in the three months ended March 31, 2020.

All accelerated amortization and accrual of future variable costs were recorded as Restructuring and related expense in the Company's condensed consolidated statements of operations.

At March 31, 2021 and December 31, 2020, the Company had accruals of $ 2.1 million and $ 0.8 million, respectively, for all future anticipated variable lease costs related to these facilities.

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

The Company leases its corporate offices and other facilities under operating leases, which expire at various times through 2032.

The Company's corporate headquarters is located in a leased facility in Westford, Massachusetts under a lease that expires in August 2028.

The Company's finance leases primarily consist of equipment.

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

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

At that time, employees will relocate to the new site as part of the Facilities Initiative.

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

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

Classification September 30,

In December 2020, the Company began relocating from its former leased Plano, Texas facility to its recently completed leased facility, also located in Plano, Texas, which became the Company's corporate headquarters.

The Company's relocation to the new corporate headquarters was completed in the first quarter of 2021.

The Company's right-of-use lease assets and lease liabilities at March 31, 2021 and December 31, 2020 were as follows (in thousands):

Classification March 31,

2021 December 31,

7 unchanged sentences

Total lease liabilities $ 86,945 $ 91,107

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

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

* Finance lease assets were recorded net of accumulated depreciation of $ 2.2 million and $ 1.9 million at March 31, 2021 and December 31, 2020, respectively.

The components of lease expense for the three months ended March 31, 2021 and 2020 were as follows (in thousands):

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

Three months ended Nine months ended

September 30,

2020 September 30,

2019 September 30,

2020 September 30,

Three months ended

2021 March 31,

Operating lease cost* $ 8,837 $ 3,344

6 unchanged sentences

Net lease cost $ 14,266 $ 9,878

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

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

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

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

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

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

Nine months ended

September 30,

2020 September 30,

* Operating lease cost for the three months ended March 31, 2021 included $ 3.4 million of accelerated amortization for certain assets partially or fully vacated in 2021 with no intent or ability to sublease.

Operating lease cost for the three months ended March 31, 2020 included $ 0.1 million of accelerated amortization for certain assets partially or fully vacated in 2020 with no ability to sublease.

** Variable lease costs for the three months ended March 31, 2021 included an accrual of $ 1.4 million for all future estimated variable expenses related to certain assets partially or fully vacated in 2021 with no intent or ability to sublease.

No such variable costs were accrued in the three months ended March 31, 2020.

Cash flow information related to the Company's leases for the three months ended March 31, 2021 and 2020 was as follows (in thousands):

Three months ended

2021 March 31,

Cash paid for amounts included in the measurement of lease liabilities

2 unchanged sentences

Financing cash flows for finance leases $ 272 $ 338

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

September 30,

Other information related to the Company's leases as of March 31, 2021 and December 31, 2020 was as follows:

2021 December 31,

5 unchanged sentences

Finance leases 5.74 % 6.15 %

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

Future minimum fixed lease payments under noncancelable leases at March 31, 2021 were as follows (in thousands):

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

September 30, 2020

March 31, 2021

Operating Finance

8 unchanged sentences

Present value of lease liabilities $ 85,727 $ 1,218

December 31, 2019

Operating Finance

leases leases

2020 $ 10,290 $ 1,644

2021 9,468 1,159

2022 7,665 581

2025 and beyond 15,738 —

Total lease payments 55,531 3,384

interest ( 10,610 ) ( 235 )

Present value of lease liabilities $ 44,921 $ 3,149

(18) INCOME TAXES

The Company's income tax provisions for the three months ended March 31, 2021 and 2020 reflect the Company's estimates of the effective rates expected to be applicable for the respective full years, adjusted for any discrete events, which are recorded in the period that they occur.

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

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

(19) COMMITMENTS AND CONTINGENCIES

Litigation Settlement

As previously disclosed, the Company was involved in six lawsuits (together, the "Lawsuits") with Metaswitch Networks Ltd., Metaswitch Networks Corp.

and Metaswitch Inc.

(collectively, "Metaswitch").

In five of the Lawsuits, the Company was the plaintiff and, in three of those five lawsuits, the Company was also a counterclaim defendant.

In the sixth case, the Company was the defendant.

On April 22, 2019, the Company and Metaswitch agreed to a binding mediator's proposal that resolved the six Lawsuits between the Company and Metaswitch (the "Lawsuits").

The Company and Metaswitch signed a Settlement and Cross-License Agreement on May 29, 2019 (the "Royalty Agreement").

Pursuant to the terms of the Royalty Agreement, Metaswitch agreed to pay the Company an aggregate amount of $ 63.0 million, which included cash payments of $ 37.5 million during the second quarter of 2019 and $ 25.5 million payable in three installments annually, beginning June 26, 2020, with such installment payments accruing interest at a rate of 4 % per year.

As part of the Royalty Agreement, the Company and Metaswitch (i) have released the other from all claims and liabilities;

(ii) have licensed each party's existing patent portfolio to the other party;

and (iii) have requested the applicable courts to dismiss the Lawsuits.

The Company received $ 37.5 million of aggregate payments from Metaswitch in the second quarter of 2019 and $ 9.5 million in the second quarter of 2020.

On July 6, 2020, the Company and Metaswitch signed a First Supplemental Agreement to the Settlement and Cross-License Agreement (the "Supplemental Agreement") under which Metaswitch could elect to repay the outstanding amounts under the Royalty Agreement early in exchange for a reduction of $ 0.25 million to the outstanding principal, from $ 17.0 million to $ 16.75 million, and the payment of no further interest by Metaswitch effective June 26, 2020.

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

On July 14, 2020, Metaswitch paid the Company the

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

remaining outstanding balance of $ 16.75 million.

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

Contingencies

Liabilities for Royalty Payments to the IIA .

Prior to the ECI Merger, ECI had received research and development grants from the IIA.

Prior to the ECI Acquisition, ECI had received research and development grants from the Office of the Innovation Authority of the Israeli Ministry of Economics (the "IIA").

The Company assumed ECI's contract with the IIA, which requires the Company to pay royalties to the IIA on proceeds from the sale of products which the Israeli government has supported by way of research and development grants.

1 unchanged sentence

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

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

At March 31, 2021, the Company's maximum possible future royalties commitment, including $ 5.2 million of unpaid royalties accrued, was $ 42.0 million, including interest of $ 2.0 million, based on estimates of future product sales, grants received from the IIA not yet repaid, and management's estimation of products still to be sold.

Research and Development Grants .

The Company records grants received from the IIA as a reduction to research and development expense.

Royalties payable to the IIA are recognized pursuant to sales of related products and are classified as Cost of revenue.

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

5 unchanged sentences

On June 21, 2019, the Massachusetts District Court appointed a group as Lead Plaintiffs and the Lead Plaintiffs filed an amended complaint on July 19, 2019.

On August 30, 2019, the Defendants filed a motion to dismiss the Miller Complaint and, on October 4, 2019, the Lead Plaintiffs filed an opposition to the motion to dismiss.

On August 30, 2019, the Defendants

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

filed a motion to dismiss the Miller Complaint and, on October 4, 2019, the Lead Plaintiffs filed an opposition to the motion to dismiss.

There was an oral argument on the motion to dismiss on February 12, 2020.

2 unchanged sentences

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

What changed 10-Q

Item 1. Financial Statements