What changed in this filing

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Item 1. Financial Statements

2021-10-28 compared with 2021-07-29 · 360 added, 325 removed, 862 unchanged (44% of the section changed)

3 unchanged sentences

(in thousands, except share and per share data)

September 30,

2021 December 31,

34 unchanged sentences

240,000,000 shares authorized;

148,057,301 shares issued and outstanding at June 30, 2021;

148,613,829 shares issued and outstanding at September 30, 2021;

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

8 unchanged sentences

(in thousands, except per share data)

Three months ended Six months ended

2021 June 30,

2020 June 30,

2021 June 30,

Three months ended Nine months ended

September 30,

2021 September 30,

2020 September 30,

2021 September 30,

Product $ 111,726 $ 128,926 $ 322,744 $ 325,687

16 unchanged sentences

Interest expense, net ( 2,969 ) ( 6,854 ) ( 11,836 ) ( 15,649 )

Other income (expense), net 17,180 ( 2,407 ) ( 8,268 ) ( 3,251 )

Income (loss) before income taxes 27,084 ( 6,215 ) ( 16,787 ) ( 39,194 )

Income tax provision ( 3,843 ) ( 2,036 ) ( 4,659 ) ( 2,227 )

Net income (loss) $ 23,241 $ ( 8,251 ) $ ( 21,446 ) $ ( 41,421 )

Earnings (loss) per share:

Other (expense) income, net ( 57,702 ) 407 ( 65,970 ) ( 2,844 )

(Loss) income before income taxes ( 58,679 ) 5,470 ( 75,466 ) ( 33,724 )

Income tax (provision) benefit ( 752 ) 782 ( 5,411 ) ( 1,445 )

Net (loss) income $ ( 59,431 ) $ 6,252 $ ( 80,877 ) $ ( 35,169 )

(Loss) earnings per share

Basic $ ( 0.40 ) $ 0.04 $ ( 0.55 ) $ ( 0.26 )

Diluted $ ( 0.40 ) $ 0.04 $ ( 0.55 ) $ ( 0.26 )

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

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

Basic 148,184 144,948 147,204 136,837

4 unchanged sentences

(in thousands)

Three months ended Six months ended

2021 June 30,

2020 June 30,

2021 June 30,

Net income (loss) $ 23,241 $ ( 8,251 ) $ ( 21,446 ) $ ( 41,421 )

Other comprehensive (loss) income, net of tax:

Unrealized (loss) gain on interest rate swap ( 205 ) ( 3,970 ) 6,464 ( 13,497 )

Three months ended Nine months ended

September 30,

2021 September 30,

2020 September 30,

2021 September 30,

Net (loss) income $ ( 59,431 ) $ 6,252 $ ( 80,877 ) $ ( 35,169 )

Other comprehensive income (loss), net of tax:

Unrealized gain (loss) on interest rate swap 860 640 7,324 ( 12,857 )

Foreign currency translation adjustments 193 184 ( 207 ) 1,031

Other comprehensive (loss) income, net of tax ( 652 ) ( 3,900 ) 6,064 ( 12,650 )

Comprehensive income (loss), net of tax $ 22,589 $ ( 12,151 ) $ ( 15,382 ) $ ( 54,071 )

Other comprehensive income (loss), net of tax 1,053 824 7,117 ( 11,826 )

Comprehensive (loss) income, net of tax $ ( 58,378 ) $ 7,076 $ ( 73,760 ) $ ( 46,995 )

See notes to the unaudited condensed consolidated financial statements.

2 unchanged sentences

(in thousands, except shares)

Three months ended June 30, 2021

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

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

Three months ended September 30, 2021

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

Balance at July 1, 2021 148,057,301 $ 15 $ 1,868,066 $ ( 1,199,922 ) $ 1,122 $ 669,281

Exercise of stock options 213 —

2 unchanged sentences

Stock-based compensation expense 4,561 4,561

Other comprehensive loss ( 652 ) ( 652 )

Net income 23,241 23,241

Balance at June 30, 2021 148,057,301 $ 15 $ 1,868,066 $ ( 1,199,922 ) $ 1,122 $ 669,281

Six months ended June 30, 2021

Other comprehensive income 1,053 1,053

Net loss ( 59,431 ) ( 59,431 )

Balance at September 30, 2021 148,613,829 $ 15 $ 1,870,711 $ ( 1,259,353 ) $ 2,175 $ 613,548

Nine months ended September 30, 2021

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

7 unchanged sentences

Net loss ( 80,877 ) ( 80,877 )

Balance at June 30, 2021 148,057,301 $ 15 $ 1,868,066 $ ( 1,199,922 ) $ 1,122 $ 669,281

Balance at September 30, 2021 148,613,829 $ 15 $ 1,870,711 $ ( 1,259,353 ) $ 2,175 $ 613,548

RIBBON COMMUNICATIONS INC.

1 unchanged sentence

(in thousands, except shares)

Three months ended June 30, 2020

Three months ended September 30, 2020

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

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

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

Exercise of stock options 2,926 6 6

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

Vesting of performance-based stock units 7,886 —

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

Stock-based compensation expense 3,969 3,969

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

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

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

Six months ended June 30, 2020

Other comprehensive income 824 824

Net income 6,252 6,252

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

Nine months ended September 30, 2020

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

11 unchanged sentences

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

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

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

See notes to the unaudited condensed consolidated financial statements.

2 unchanged sentences

(in thousands)

Six months ended

2021 June 30,

Nine months ended

September 30,

2021 September 30,

Cash flows from operating activities:

41 unchanged sentences

(in thousands)

Six months ended

2021 June 30,

Nine months ended

September 30,

2021 September 30,

Supplemental disclosure of cash flow information:

4 unchanged sentences

Capital expenditures incurred, but not yet paid $ 1,807 $ 4,111

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

Common stock issued as purchase consideration $ — $ 108,550

13 unchanged sentences

Securities and Exchange Commission ("SEC").

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 and six months ended June 30, 2021.

On December 1, 2020 (the "Kandy Sale Date"), the Company completed the sale of its cloud-based enterprise service business (the "Kandy Communications Business") to AVCT and, accordingly, the revenue and expenses of the Kandy Communications Business are excluded from the Company's condensed consolidated financial statements for the three and nine months ended September 30, 2021.

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

6 unchanged sentences

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 six months ended June 30, 2020 is for the period subsequent to the ECI Acquisition Date through June 30, 2020.

Financial information for the IP Optical Networks segment included in the Company's financial results for the nine months ended September 30, 2020 is for the period subsequent to the ECI Acquisition Date through September 30, 2020.

Reclassifications

4 unchanged sentences

Notes to Condensed Consolidated Financial Statements (Continued)

These reclassifications for the three and six months ended June 30, 2020 were as follows (in thousands):

Three months ended June 30, 2020 Six months ended June 30, 2020

These reclassifications for the three and nine months ended September 30, 2020 were as follows (in thousands):

Three months ended September 30, 2020 Nine months ended September 30, 2020

Prior presentation Amounts reclassified Revised presentation Prior presentation Amounts reclassified Revised presentation

14 unchanged sentences

Income (loss) from operations $ 11,917 $ — $ 11,917 $ ( 15,231 ) $ — $ ( 15,231 )

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

Certain reclassifications, not affecting previously reported net income (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 June 30, 2021.

There were no material changes to the significant accounting policies during the three months ended September 30, 2021 with the exception of the Company's election to account for its equity investment in AVCT using the fair value option in connection with the September 8, 2021 conversion of the debentures received by the Company as consideration for the sale of its Kandy Communications Business (the "Debentures Conversion") (see Note 3).

Principles of Consolidation

11 unchanged sentences

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

At June 30, 2021, the Company had $ 2.6 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 September 30, 2021, the Company had $ 2.5 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.

4 unchanged sentences

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 and six months ended June 30, 2021, the Company received $ 32.1 million and $ 63.2 million, respectively, of cash from the sale of certain accounts receivable and recorded $ 0.2 million and $ 0.4 million, respectively, of interest expense in connection with these transactions.

During the three and six months ended June 30, 2020, the Company received $ 30.7 million and $ 45.8 million, respectively, of cash from the sale of certain accounts receivable and recorded $ 0.3 million and $ 0.4 million, respectively, of interest expense in connection with these transactions.

During the three and nine months ended September 30, 2021, the Company received $ 24.8 million and $ 88.0 million, respectively, of cash from the sale of certain accounts receivable and recorded $ 0.2 million and $ 0.6 million, respectively, of interest expense in connection with these transactions.

During the three and nine months ended September 30, 2020, the Company received $ 35.3 million and $ 81.1 million, respectively, of cash from the sale of certain accounts receivable and recorded $ 0.3 million and $ 0.7 million, respectively, of interest expense in connection with these transactions.

Fair Value of Financial Instruments and Fair Value Hierarchy

10 unchanged sentences

Notes to Condensed Consolidated Financial Statements (Continued)

Fair Value Option - Investment in AVCT

In connection with the Debentures Conversion, the Company elected to use the fair value option to account for its equity investment in AVCT as permitted under Accounting Standards Codification ("ASC") 825, Financial Instruments ("ASC 825").

ASC 820, Fair Value Measurement ("ASC 820") provides the fair value framework for valuing such investments.

In accordance with ASC 820, the Company is recording the investment in AVCT at fair value, with changes in fair value recorded as a component of Other (expense) income, net, in the condensed consolidated statements of operations.

Recent Accounting Pronouncements

8 unchanged sentences

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) ECI ACQUISITION

(2) BUSINESS ACQUISITION

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.

4 unchanged sentences

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 June 30, 2020 included $ 63.6 million of revenue and $ 17.1 million of net loss attributable to ECI.

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

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):

The ECI Acquisition has been accounted for as a business combination and the financial results of ECI have been included

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

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 September 30, 2020 included $ 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 included $ 171.1 million of revenue and $ 31.9 million of net loss attributable to ECI for the period subsequent to the ECI Acquisition.

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):

Fair value of consideration transferred:

29 unchanged sentences

Pro Forma Results

The following unaudited pro forma information presents the condensed combined results of operations of Ribbon and ECI for the three and six months ended June 30, 2020 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 and six months ended June 30, 2020 and inclusion of such costs in the comparable prior year periods.

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

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 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 COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

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 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):

Three months ended Six months ended

2020 June 30,

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 and nine months ended September 30, 2020 and inclusion of such costs in the comparable prior year periods.

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 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):

Three months ended Nine months ended

September 30,

2020 September 30,

Revenue $ 231,118 $ 624,800

Net loss $ ( 9,252 ) $ ( 48,381 )

Loss per share $ ( 0.06 ) $ ( 0.33 )

Net income (loss) $ 7,036 $ ( 41,345 )

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

Acquisition-, Disposal- and Integration-Related Expenses

2 unchanged sentences

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

The acquisition-related expenses in the three and six months ended June 30, 2020 primarily related to the ECI Acquisition.

The disposal-related expenses in the six months ended June 30, 2021 relate to the Kandy Sale (as defined below).

The Company's acquisition-, disposal- and integration-related expenses for the three and six months ended June 30, 2021 and 2020 were as follows (in thousands):

Three months ended Six months ended

2021 June 30,

2020 June 30,

2021 June 30,

The acquisition-related expenses in the three and nine months ended September 30, 2020 primarily related to the ECI Acquisition.

The disposal-related expenses in the nine months ended September 30, 2021 relate to the Kandy Sale (as defined below).

The Company's acquisition-, disposal- and integration-related expenses for the three and nine months ended September 30, 2021 and 2020 were as follows (in thousands):

Three months ended Nine months ended

September 30,

2021 September 30,

2020 September 30,

2021 September 30,

Professional and services fees (acquisition-related) $ 13 $ 1,003 $ 156 $ 14,017

2 unchanged sentences

$ 1,955 $ 1,366 $ 4,204 $ 14,607

(3) SALE OF KANDY COMMUNICATIONS BUSINESS

Kandy Communications Business

(3) SALE OF KANDY COMMUNICATIONS BUSINESS AND INVESTMENT IN AVCT

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.

2 unchanged sentences

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 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:

As consideration, AVCT paid Ribbon $ 45.0 million, subject to certain adjustments, in

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

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”);

1 unchanged sentence

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

The Debentures bear interest at a rate of 10 % per annum, which is being 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,

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

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 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 Debentures bore interest at a rate of 10 % per annum, which was added to the principal amount of the Debentures.

The entire principal amount of each Debenture, together with accrued and unpaid interest thereon, was 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 was 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, which initially was $ 3.45 per share.

The Debentures were subject to mandatory conversion if the AVCT stock price was 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 price was subject to customary adjustments including, but not limited to, stock dividends, stock splits and reclassifications.

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, on September 8, 2021 (the "Debenture Conversion Date"), upon the completion of customary regulatory filings by AVCT, the Debentures were converted into 13,700,421 shares of AVCT common stock (the "Debenture Shares").

The Warrants were 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 June 30, 2021.

The Company was also subject to a lock-up provision which limited 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 had not exercised any of the Warrants as of September 30, 2021.

The Company was also subject to a lock-up provision which limited the Company's ability to sell any shares of the AVCT common stock underlying the Debentures and the Warrants prior to June 1, 2021 (the "Lock-Up Period"), 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 had previously 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 were then used to calculate the fair value of the Debentures at each measurement date.

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

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 were then used to calculate the fair value of the Debentures at each measurement date prior to the Debenture Conversion Date.

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

The fair value of the Warrants was 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.

Upon the expiration of the lock-up period, the Company began to value the Debentures at each measurement date by multiplying the closing stock price of AVCT common stock by the number of shares upon conversion of the Debentures and Warrants.

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 income (expense), net.

At June 30, 2021 and December 31, 2020, the aggregate fair value of the Debentures and Warrants was $ 106.0 million and $ 115.2 million, respectively.

The Company recorded a gain of $ 12.1 million in the three months ended June 30, 2021 and a loss of $ 11.8 million in the six months ended June 30, 2021 arising from the change in the fair value of the Debentures and Warrants.

These amounts are included as components of Other income (expense), net, in its condensed consolidated statements of operations.

The Company recorded $ 1.2 million and $ 2.7 million of interest income in the three and six months ended June 30, 2021, which was added to the principal of the Debentures, and which is included in Interest expense, net, in the condensed consolidated statements of operations.

The fair values of the Debentures and Warrants are reported as Investments in the Company's condensed consolidated balance sheets at June 30, 2021 and December 31, 2020 and are classified as Level 2 fair value measurements within the fair value hierarchy (see Note 1).

After the expiration of the Lock-Up Period and prior to the Debenture Conversion Date, the Company valued the AVCT Units at each measurement date by multiplying the closing stock price of AVCT common stock by the number of shares upon conversion of the Debentures and Warrants.

At September 30, 2021, the Company valued the Debenture Shares and Warrants by multiplying the closing stock price of AVCT common stock by the number of Debenture Shares and Warrants (collectively, the "AVCT Investment") it held.

At September 30, 2021, the aggregate fair value of the AVCT Investment was $ 50.4 million, comprised of $ 38.2 million for the Debenture Shares and $ 12.2 million for the Warrants.

At December 31, 2020, the aggregate fair value of the AVCT Units was $ 115.2 million.

The Company recorded losses of $ 56.5 million and $ 68.3 million in the three and nine months ended September 30, 2021, respectively, arising from the change in the aggregate fair value of the AVCT Investment.

These amounts are included as components of Other income (expense), net, in the Company's condensed consolidated statements of operations.

The Company recorded $ 0.9 million and $ 3.6 million of interest income in the three and nine months ended September 30, 2021, respectively, which was added to the principal amount of the Debentures prior to the Debenture Conversion Date, and which is included in Interest expense, net, in the condensed consolidated statements of operations.

The fair value of the AVCT Investment at September 30, 2021 and the fair values of the Debentures and Warrants at December 31, 2021 are reported as Investments in the Company's condensed consolidated balance sheets.

The AVCT Investment is classified as a Level 1 fair value measurement at September 30, 2021 and the Debentures and Warrants are classified as Level 2 fair value measurements within the fair value hierarchy at December 31, 2020 (see Note 1).

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

The Company evaluated the nature of its investment in AVCT for the period from the Debenture Conversion Date to September 30, 2021 and determined that it represented an approximate 25 % equity interest in AVCT.

The Company determined that it is not the primary beneficiary of AVCT as it does not have the power to direct the activities that most significantly impact the AVCT Investment's economic performance and therefore concluded that, although it did have significant influence arising from the AVCT Investment, it did not have a controlling financial interest that would require consolidation as of September 30, 2021.

(4) EARNINGS (LOSS) PER SHARE

1 unchanged sentence

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

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

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

Three months ended Six months ended

2021 June 30,

2020 June 30,

2021 June 30,

Three months ended Nine months ended

September 30,

2021 September 30,

2020 September 30,

2021 September 30,

Weighted average shares outstanding - basic 148,184 144,948 147,204 136,837

1 unchanged sentence

Weighted average shares outstanding - diluted 148,184 151,680 147,204 136,837

Options to purchase the Company's common stock aggregating 0.1 million have not been included in the computation of diluted earnings per share for the three months ended June 30, 2021 because their effect would have been antidilutive.

Options to purchase the Company's common stock and unvested restricted and performance-based stock awards and stock units aggregating 12.1 million shares have not been included in the computation of diluted loss per share for the six months ended June 30, 2021 because their effect would have been antidilutive.

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

Options to purchase the Company's common stock and unvested restricted and performance-based stock units aggregating 10.9 million shares have not been included in the computation of diluted earnings per share for the three and nine months ended September 30, 2021 because their effect would have been antidilutive.

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 have not been included in the computation of diluted loss per share for the nine months ended September 30, 2020 because their effective would have been antidilutive.

(5) INVENTORY

Inventory at June 30, 2021 and December 31, 2020 consisted of the following (in thousands):

Inventory at September 30, 2021 and December 31, 2020 consisted of the following (in thousands):

September 30,

2021 December 31,

4 unchanged sentences

Current portion $ 44,789 $ 45,750

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(6) INTANGIBLE ASSETS AND GOODWILL

The Company's intangible assets at June 30, 2021 and December 31, 2020 consisted of the following (in thousands):

June 30, 2021 Weighted average amortization period

The Company's intangible assets at September 30, 2021 and December 31, 2020 consisted of the following (in thousands):

September 30, 2021 Weighted average amortization period

(years) Cost Accumulated

7 unchanged sentences

9.17 $ 614,250 $ 247,119 $ 367,131

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.

Estimated future amortization expense for the Company's intangible assets at June 30, 2021 was as follows (in thousands):

Estimated future amortization expense for the Company's intangible assets at September 30, 2021 was as follows (in thousands):

Years ending December 31,

1 unchanged sentence

Thereafter 112,589

There were no changes to the carrying value of the Company's goodwill in the six months ended June 30, 2021.

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

There were no changes to the carrying value of the Company's goodwill in the nine months ended September 30, 2021.

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

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

Cloud and Edge IP Optical Networks Total

1 unchanged sentence

Acquisition of ECI — 191,996 191,996

Balance at June 30, 2020 $ 224,896 $ 191,996 $ 416,892

Balance at September 30, 2020 $ 224,896 $ 191,996 $ 416,892

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

The components of goodwill at June 30, 2021 and 2020 were as follows (in thousands):

The components of goodwill at September 30, 2021 and 2020 were as follows (in thousands):

Cloud and Edge IP Optical Networks Total

Balance at June 30, 2021

Balance at September 30, 2021

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

1 unchanged sentence

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

Balance at June 30, 2020

Balance at September 30, 2020

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

1 unchanged sentence

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

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(7) ACCRUED EXPENSES AND OTHER

Accrued expenses at June 30, 2021 and December 31, 2020 consisted of the following (in thousands):

Accrued expenses at September 30, 2021 and December 31, 2020 consisted of the following (in thousands):

September 30,

2021 December 31,

3 unchanged sentences

(8) WARRANTY ACCRUALS

The changes in the Company's accrual balance in the six months ended June 30, 2021 were as follows (in thousands):

The changes in the Company's accrual balance in the nine months ended September 30, 2021 were as follows (in thousands):

Balance at January 1, 2021 $ 14,855

1 unchanged sentence

Settlements ( 4,095 )

Balance at June 30, 2021 $ 12,699

Of the amounts recorded at June 30, 2021 and December 31, 2020, $ 5.8 million and $ 6.5 million, respectively, were current and included as components of Accrued expenses and other, and $ 6.9 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.

Balance at September 30, 2021 $ 12,685

Of the amounts recorded at September 30, 2021 and December 31, 2020, $ 5.8 million and $ 6.5 million, respectively, were current and included as components of Accrued expenses and other, and $ 6.9 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

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.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

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.

Restructuring and related expense for the three and six months ended June 30, 2021 and 2020 was comprised of the following (in thousands):

Three months ended Six months ended

2021 June 30,

2020 June 30,

2021 June 30,

Restructuring and related expense for the three and nine months ended September 30, 2021 and 2020 was comprised of the following (in thousands):

Three months ended Nine months ended

September 30,

2021 September 30,

2020 September 30,

2021 September 30,

Severance and related costs $ 481 $ 1,789 $ 3,076 $ 8,276

3 unchanged sentences

Accelerated Rent Amortization

Accelerated rent amortization is recognized from the date that the Company commences the plan to fully or partially vacate

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

a facility, for which there is no intent or ability to enter into a sublease, through the final vacate date.

The accelerated rent amortization recorded in connection with the Facilities Initiative reduced the value of the Company's Operating lease right-of-use assets recorded in the Company's condensed consolidated balance sheets at June 30, 2021 and December 31, 2020, respectively.

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 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).

3 unchanged sentences

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 $ 1.9 million and $ 4.7 million in connection with the 2020 Restructuring Initiative in the three months ended June 30, 2021 and 2020, respectively, and $ 2.3 million and $ 5.8 million in the six months ended June 30, 2021 and 2020, respectively.

The amount recorded in the three months ended June 30, 2021 was comprised of $ 1.9 million for severance and related costs for approximately 15 employees and nominal expense for variable costs related to restructured facilities.

The amount recorded in the six months ended June 30, 2021 was comprised of $ 2.6 million for severance and related costs for approximately 25 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 to previously recorded facilities-related amounts.

The amount recorded in the six months ended June 30, 2020 represents severance and related costs for approximately 75 employees, of which $ 4.7 million was recorded in the three months ended June 30, 2020 and $ 1.1 million was recorded in the three months ended March 31, 2020.

The Company expects the amount accrued for severance at June 30, 2021 will be paid in 2021.

The Company recorded restructuring and related expense of $ 0.6 million and $ 2.9 million in connection with the 2020 Restructuring Initiative in the three months ended September 30, 2021 and 2020, respectively, and $ 2.9 million and $ 8.7 million in the nine months ended September 30, 2021 and 2020, respectively.

The amount recorded in the three months ended September 30, 2021 was comprised of $ 0.5 million for severance and related costs for approximately 10 employees and $ 0.1 million for costs related to restructured facilities.

The amount recorded in the nine months ended September 30, 2021 was comprised of $ 3.1 million for severance and related costs for approximately 30 employees and $ 0.5 million of expense for variable and other costs related to restructured facilities, offset by a credit of $ 0.7 million for changes in estimate to previously recorded facilities-related amounts.

The amount recorded in the nine months ended September 30, 2020 represents severance and related costs for approximately 125 employees.

The Company expects the amount accrued for severance at September 30, 2021 will be paid in 2021.

The Company expects that it will record additional restructuring and related expense approximating $ 1 million under the 2020 Restructuring Initiative in the aggregate for severance and planned facility consolidations.

A summary of the 2020 Restructuring Initiative accrual activity for severance and related costs for the six months ended June 30, 2021 is as follows (in thousands):

A summary of the 2020 Restructuring Initiative accrual activity for severance and related costs for the nine months ended September 30, 2021 is as follows (in thousands):

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

2021 Initiatives

1 unchanged sentence

payments Balance at

September 30,

Severance $ 5,237 $ 3,076 $ — $ ( 5,921 ) $ 2,392

8 unchanged sentences

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 $ 0.9 million and $ 0.7 million in the three months ended June 30, 2021 and 2020, respectively, and $ 6.5 million and $ 1.7 million in the six months ended June 30, 2021 and 2020, respectively.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

The amount recorded in the three months ended June 30, 2021 related to variable facilities costs.

Of the amount recorded in the six months ended June 30, 2021, $ 3.4 million was for accelerated amortization of lease assets and $ 3.1 million related to variable and other facilities-related costs in connection with facility consolidations.

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

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

As of June 30, 2021, the amounts accrued for severance and related costs had been paid in full.

In connection with the 2019 Restructuring Initiative, the Company recorded restructuring and related expense of $ 1.2 million and $ 0.4 million in the three months ended September 30, 2021 and 2020, respectively, and $ 7.7 million and $ 2.1 million in the nine months ended September 30, 2021 and 2020, respectively.

The amount recorded in the three months ended September 30, 2021 was for facilities-related costs.

Of the amount recorded in the nine months ended September 30, 2021, $ 3.4 million was for accelerated amortization of lease assets and $ 4.3 million related to variable and other facilities-related costs in connection with facility consolidations.

The amount recorded in the three months ended September 30, 2020 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 five 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 facilities-related expenses.

The Company estimates that it will record nominal, if any, additional restructuring and related expense in connection with this initiative.

A summary of the 2019 Restructuring Initiative accrual activity for the six months ended June 30, 2021 is as follows (in thousands):

A summary of the 2019 Restructuring Initiative accrual activity for the nine months ended September 30, 2021 is as follows (in thousands):

2021 Initiatives

1 unchanged sentence

payments Balance at

September 30,

Severance $ 173 $ — $ — $ ( 173 ) $ —

3 unchanged sentences

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 relate to facilities and totaled $ 1.9 million at June 30, 2021 and $ 0.8 million at December 31, 2020.

The long-term portions of accrued restructuring relate to facilities and totaled $ 1.8 million at September 30, 2021 and $ 0.8 million at December 31, 2020.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

2020 Credit Facility

9 unchanged sentences

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.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

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).

18 unchanged sentences

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").

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

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

8 unchanged sentences

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 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

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

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.

5 unchanged sentences

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 six months ended June 30, 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.

Such indebtedness can be incurred up to an aggregate dollar limit equal to 100 % of the Company's Consolidated Adjusted

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

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 June 30, 2021, the Company had an outstanding 2020 Term Loan balance of $ 385.5 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 June 30, 2021 and December 31, 2020.

At September 30, 2021, the Company had an outstanding 2020 Term Loan balance of $ 380.5 million at an average interest rate of 2.90 % and $ 5.9 million of letters of credit outstanding with an interest rate of 2.00 %.

The Company was in compliance with all covenants of the 2020 Credit Facility at both September 30, 2021 and December 31, 2020.

Short-Term Loans

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 June 30, 2021 and December 31, 2020.

The Company did not have any such short-term loans outstanding at September 30, 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 June 30, 2021, the Company had bank guarantees, performance and bid bonds under various uncommitted facilities (collectively, the "Guarantees") aggregating $ 24.9 million and $ 6.4 million of letters of credit under the 2020 Credit Facility (the "Letters of Credit").

At September 30, 2021, the Company had bank guarantees, performance and bid bonds under various uncommitted facilities (collectively, the "Guarantees") aggregating $ 24.8 million, and $ 5.9 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 June 30, 2021 and December 31, 2020, the Company had cash collateral of $ 2.6 million and $ 2.7 million, respectively, supporting the Guarantees, which are included in Restricted cash in the condensed consolidated balance sheets.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

At September 30, 2021 and December 31, 2020, the Company had cash collateral of $ 2.5 million and $ 2.7 million, respectively, supporting the Guarantees, which are included in Restricted cash in the condensed consolidated balance sheets.

(11) DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

13 unchanged sentences

Cash Flow Hedge of Interest Rate Risk

The 2020 Term Loan Facility had outstanding balances of $ 385.5 million and $ 393.1 million at June 30, 2021 and December 31, 2020, respectively.

The 2020 Revolving Credit Facility was undrawn at both June 30, 2021 and December 31, 2020.

The 2020 Term Loan Facility had outstanding balances of $ 380.5 million and $ 393.1 million at September 30, 2021 and December 31, 2020, respectively.

The 2020 Revolving Credit Facility was undrawn at both September 30, 2021 and December 31, 2020.

Borrowings under the 2020 Credit Facility 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 Facility.

The notional amount of this swap at June 30, 2021 was $ 400 million, and the swap matures on March 3, 2025, the same date the 2020 Credit Facility matures.

As a result of

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

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 Facility.

The notional amount of this swap at September 30, 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.

2 unchanged sentences

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 and six months ended June 30, 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.

During the three and nine months ended September 30, 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 June 30, 2021 that $ 3.2 million may be reclassified as an increase to interest expense over the next twelve months.

The impact of the Company’s derivative financial instrument on its condensed consolidated statement of comprehensive income (loss) for the three and six months ended June 30, 2021 and 2020 was as follows (in thousands):

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

Three months ended Six months ended

2021 June 30,

2020 June 30,

2021 June 30,

Based upon projected forward rates, the Company estimates as of September 30, 2021 that $ 3.2 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, 2021 and 2020 was as follows (in thousands):

Three months ended Nine months ended

September 30,

2021 September 30,

2020 September 30,

2021 September 30,

Gain (loss) recognized in other comprehensive income (loss) on derivative (effective portion) $ 30 $ ( 121 ) $ 4,905 $ ( 13,778 )

1 unchanged sentence

$ 860 $ 640 $ 7,324 ( 12,857 )

The fair values and locations in the condensed consolidated balance sheets at June 30, 2021 and December 31, 2020 of the Company's derivative liability designated as a hedging instrument were as follows (in thousands):

Balance sheet location June 30,

The fair values and locations in the condensed consolidated balance sheets at September 30, 2021 and December 31, 2020 of the Company's derivative liability designated as a hedging instrument were as follows (in thousands):

Balance sheet location September 30,

2021 December 31,

1 unchanged sentence

Interest rate derivative - liability derivative Other long-term liabilities $ 399 $ 7,791

The Company has classified the interest rate derivative aggregating $ 4.5 million and $ 10.9 million at June 30, 2021 and December 31, 2020, respectively, as Level 2 fair value measurements within the fair value hierarchy (see Note 1).

The Company has classified the interest rate derivative aggregating $ 3.6 million and $ 10.9 million at September 30, 2021 and December 31, 2020, respectively, as Level 2 fair value measurements within the fair value hierarchy (see Note 1).

(12) REVENUE RECOGNITION

2 unchanged sentences

Product revenue includes the Company's hardware and software that function together to deliver the products' essential functionality.

Software and hardware are also sold on a standalone basis.

Software and hardware are also

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

sold on a standalone basis.

Services include customer support (software updates, upgrades and technical support), consulting, design services, installation services and training.

15 unchanged sentences

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

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

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

13 unchanged sentences

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:

16 unchanged sentences

Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

Judgment is required to determine the standalone selling price ("SSP") for each distinct performance obligation.

7 unchanged sentences

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

The Company's revenue for the three and six months ended June 30, 2021 and 2020 was disaggregated as follows:

Three months ended June 30, 2021 Product revenue Service revenue (maintenance) Service revenue (professional services) Total revenue

The Company's revenue for the three and nine months ended September 30, 2021 and 2020 was disaggregated as follows:

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

Three months ended September 30, 2021 Product revenue Service revenue (maintenance) Service revenue (professional services) Total revenue

United States $ 47,134 $ 33,391 $ 12,764 $ 93,289

3 unchanged sentences

$ 111,726 $ 71,670 $ 27,002 $ 210,398

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

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

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

3 unchanged sentences

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

Six months ended June 30, 2021 Product revenue Service revenue (maintenance) Service revenue (professional services) Total revenue

Nine months ended September 30, 2021 Product revenue Service revenue (maintenance) Service revenue (professional services) Total revenue

United States $ 140,074 $ 97,813 $ 35,516 $ 273,403

3 unchanged sentences

$ 322,744 $ 212,812 $ 78,824 $ 614,380

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

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

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

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

3 unchanged sentences

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

The Company's product revenue from indirect sales through its channel partner program and from its direct sales program for the three and six months ended June 30, 2021 and 2020 was as follows (in thousands):

Three months ended Six months ended

2021 June 30,

2020 June 30,

2021 June 30,

The Company's product revenue from indirect sales through its channel partner program and from its direct sales program for the three and nine months ended September 30, 2021 and 2020 was as follows (in thousands):

Three months ended Nine months ended

September 30,

2021 September 30,

2020 September 30,

2021 September 30,

Indirect sales through channel partner program $ 25,214 $ 36,586 $ 72,491 $ 97,839

1 unchanged sentence

$ 111,726 $ 128,926 $ 322,744 $ 325,687

The Company's product revenue from sales to enterprise customers and from sales to service provider customers for the three and six months ended June 30, 2021 and 2020 was as follows (in thousands):

Three months ended Six months ended

2021 June 30,

2020 June 30,

2021 June 30,

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, 2021 and 2020 was as follows (in thousands):

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

Three months ended Nine months ended

September 30,

2021 September 30,

2020 September 30,

2021 September 30,

Sales to enterprise customers $ 20,034 $ 36,937 $ 67,225 $ 100,168

1 unchanged sentence

$ 111,726 $ 128,926 $ 322,744 $ 325,687

The Company's product revenue and service revenue components by segment for the three and six months ended June 30, 2021 and 2020 was as follows (in thousands):

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

Three months ended Six months ended

2021 June 30,

2020 June 30,

2021 June 30,

The Company's product revenue and service revenue components by segment for the three and nine months ended September 30, 2021 and 2020 was as follows (in thousands):

Three months ended Nine months ended

September 30,

2021 September 30,

2020 September 30,

2021 September 30,

Product revenue

19 unchanged sentences

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

Changes in the contract asset and liability balances during the six months ended June 30, 2021 were not materially impacted by any factors other than billing and revenue recognition.

Changes in the contract asset and liability balances during the nine months ended September 30, 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.

5 unchanged sentences

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

The changes in the Company's accounts receivable, unbilled receivables and deferred revenue balances for the six months ended June 30, 2021 were as follows (in thousands):

The changes in the Company's accounts receivable, unbilled receivables and deferred revenue balances for the nine months ended September 30, 2021 were as follows (in thousands):

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

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

1 unchanged sentence

Increase (decrease), net ( 17,507 ) 15,479 ( 7,271 ) ( 4,392 )

Balance at June 30, 2021 $ 163,108 $ 56,759 $ 101,471 $ 22,036

The Company recognized approximately $ 60 million of revenue in the six months ended June 30, 2021 that was recorded as deferred revenue at December 31, 2020 and approximately $ 69 million of revenue in the six months ended June 30, 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 June 30, 2021, the Company expects that approximately $ 12 million will be

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

recognized as revenue in 2022, approximately $ 6 million will be recognized as revenue in 2023 and approximately $ 4 million will be recognized as revenue in 2024 and beyond.

Balance at September 30, 2021 $ 161,824 $ 73,886 $ 89,553 $ 21,618

The Company recognized approximately $ 81 million of revenue in the nine months ended September 30, 2021 that was recorded as deferred revenue at December 31, 2020 and approximately $ 86 million of revenue in the nine months ended September 30, 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 September 30, 2021, the Company expects that approximately $ 4 million will be recognized as revenue in 2022, approximately $ 10 million will be recognized as revenue in 2023 and approximately $ 8 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.

3 unchanged sentences

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

At both June 30, 2021 and December 31, 2020, the Company had $ 4.1 million of deferred sales commissions capitalized.

At both September 30, 2021 and December 31, 2020, the Company had $ 4.1 million of deferred sales commissions capitalized.

(13) OPERATING SEGMENT INFORMATION

6 unchanged sentences

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 six months ended June 30, 2020 includes the financial results of this segment for the period subsequent to the ECI Acquisition Date.

Information for the IP Optical Networks segment for the nine months ended September 30, 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.

Please see Note 6 for information regarding the

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

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.

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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)

from operations or gross profit or other results reported 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) 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 information regarding revenue, adjusted gross profit, adjusted EBITDA and depreciation expense by reportable segment for the three and six months ended June 30, 2021 and 2020 (in thousands):

Three months ended Six months ended

2021 June 30,

2020 June 30,

2021 June 30,

The tables below provide information regarding revenue, adjusted gross profit, adjusted EBITDA and depreciation expense by reportable segment for the three and nine months ended September 30, 2021 and 2020 (in thousands):

Three months ended Nine months ended

September 30,

2021 September 30,

2020 September 30,

2021 September 30,

Segment revenue:

2 unchanged sentences

Revenue $ 210,398 $ 231,118 $ 614,380 $ 599,593

Three months ended Six months ended

2021 June 30,

2020 June 30,

2021 June 30,

Three months ended Nine months ended

September 30,

2021 September 30,

2020 September 30,

2021 September 30,

Segment adjusted gross profit:

3 unchanged sentences

Stock-based compensation expense ( 588 ) ( 261 ) ( 1,412 ) ( 616 )

Acquisition-related inventory and facilities adjustments — ( 2,000 ) — ( 2,000 )

Gross profit $ 120,328 $ 134,954 $ 359,302 $ 348,745

Three months ended Six months ended

2021 June 30,

2020 June 30,

2021 June 30,

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

Three months ended Nine months ended

September 30,

2021 September 30,

2020 September 30,

2021 September 30,

Segment adjusted EBITDA:

5 unchanged sentences

Stock-based compensation ( 4,561 ) ( 3,969 ) ( 14,411 ) ( 10,167 )

Acquisition-related inventory and facilities adjustments — ( 2,000 ) — ( 2,000 )

Litigation costs — — — ( 2,101 )

6 unchanged sentences

Depreciation expense $ 4,209 $ 4,494 $ 12,684 $ 12,754

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(14) MAJOR CUSTOMERS

The following customer contributed 10% or more of the Company's revenue in the three and six months ended June 30, 2021 and 2020:

Three months ended Six months ended

2021 June 30,

2020 June 30,

2021 June 30,

The following customer contributed 10% or more of the Company's revenue in the three and nine months ended September 30, 2021 and 2020:

Three months ended Nine months ended

September 30,

2021 September 30,

2020 September 30,

2021 September 30,

Verizon Communications Inc.

18 % 16 % 17 % 15 %

At June 30, 2021, one customer accounted for 10% or more of the Company's accounts receivable balance, representing approximately 17 % of total accounts receivable.

At September 30, 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.

3 unchanged sentences

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 and six months ended June 30, 2021 or 2020.

The Repurchase Program expired on April 18, 2021.

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

The Company did no t repurchase any common stock in the year ended December 31, 2020 or in the period from January 1, 2021 though the expiration of the Repurchase Program on April 18, 2021, and had $ 70.5 million remaining for future repurchases upon the expiration of the Repurchase Program.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(16) STOCK-BASED COMPENSATION PLANS

9 unchanged sentences

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

("PT") in 2014, and Network Equipment

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

Technologies, Inc.

("PT") in 2014, and Network Equipment Technologies, Inc.

("NET") in 2012, the Company assumed their stock plans (collectively, the "Assumed Plans").

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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.

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

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

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").

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This release is included in the applicable table below.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

Accounting for Performance PSUs.

12 unchanged sentences

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").

Effective in 2021, the Company added an equity component to its cash bonus program for eligible employees, under which

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

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 %.

2 unchanged sentences

Stock Options

The activity related to the Company's outstanding stock options for the six months ended June 30, 2021 was as follows:

The activity related to the Company's outstanding stock options for the nine months ended September 30, 2021 was as follows:

Shares Weighted

7 unchanged sentences

Expired ( 3,686 ) $ 17.13

Outstanding at June 30, 2021 190,722 $ 13.40 3.11 $ 240

Vested or expected to vest at June 30, 2021 190,709 $ 13.40 3.11 $ 240

Exercisable at June 30, 2021 189,978 $ 13.44 3.10 $ 236

The total intrinsic value of options exercised was nominal in the three months ended June 30, 2021 and $ 0.1 million in the six months ended June 30, 2021.

The Company received nominal cash from option exercises in the three months ended June 30, 2021 and approximately $ 24,000 in the six months ended June 30, 2021.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

Outstanding at September 30, 2021 190,209 $ 13.40 2.79 $ 171

Vested or expected to vest at September 30, 2021 190,206 $ 13.40 2.79 $ 171

Exercisable at September 30, 2021 190,121 $ 13.41 2.79 $ 171

The total intrinsic value of options exercised was nominal in the three months ended September 30, 2021 and $ 0.1 million in the nine months ended September 30, 2021.

The Company received nominal cash from option exercises in the three months ended September 30, 2021 and approximately $ 24,000 in the nine months ended September 30, 2021.

Restricted Stock Awards and Units

The activity related to the Company's RSAs for the six months ended June 30, 2021 was as follows:

The activity related to the Company's RSAs for the nine months ended September 30, 2021 was as follows:

Shares Weighted

1 unchanged sentence

Vested ( 86,983 ) $ 7.04

Unvested balance at June 30, 2021 — $ —

The activity related to the Company's RSUs for the six months ended June 30, 2021 was as follows:

Unvested balance at September 30, 2021 — $ —

The activity related to the Company's RSUs for the nine months ended September 30, 2021 was as follows:

Shares Weighted

3 unchanged sentences

Forfeited ( 692,672 ) $ 4.53

Unvested balance at June 30, 2021 6,782,782 $ 5.70

The total grant date fair value of shares of restricted stock granted under RSAs and RSUs that vested during the six months ended June 30, 2021 was $ 8.2 million.

Unvested balance at September 30, 2021 5,714,574 $ 6.07

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, 2021 was $ 11.1 million.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

Performance-Based Stock Units

The activity related to the Company's PSUs for the six months ended June 30, 2021 was as follows:

The activity related to the Company's PSUs for the nine months ended September 30, 2021 was as follows:

Shares Weighted

3 unchanged sentences

Forfeited ( 193,318 ) $ 5.89

Unvested balance at June 30, 2021 5,091,366 $ 2.99

The total grant date fair value of shares of restricted stock granted under PSUs that vested during the six months ended June 30, 2021 was $ 1.5 million.

Unvested balance at September 30, 2021 4,989,053 $ 2.90

The total grant date fair value of shares of restricted stock granted under PSUs that vested during the nine months ended September 30, 2021 was $ 1.5 million.

Stock-Based Compensation

The condensed consolidated statements of operations include stock-based compensation for the three and six months ended June 30, 2021 and 2020 as follows (in thousands):

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

Three months ended Six months ended

2021 June 30,

2020 June 30,

2021 June 30,

The condensed consolidated statements of operations include stock-based compensation for the three and nine months ended September 30, 2021 and 2020 as follows (in thousands):

Three months ended Nine months ended

September 30,

2021 September 30,

2020 September 30,

2021 September 30,

Product cost of revenue $ 96 $ 57 $ 216 $ 123

4 unchanged sentences

$ 4,561 $ 3,969 $ 14,411 $ 10,167

There was an income tax benefit of $ 1.3 million for stock-based compensation in the six months ended June 30, 2021;

however, there was no income tax benefit in the six months ended June 30, 2020 due to the valuation allowance recorded.

At June 30, 2021, there was $ 34.6 million, net of expected forfeitures, of unrecognized stock-based compensation expense related to unvested stock options, stock awards and stock units.

At September 30, 2021, there was $ 29.3 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 .

8 unchanged sentences

Right-of-use assets and lease liabilities are initially measured based on the present value of the future minimum fixed lease payments (i.e., fixed payments in the lease contract) over the lease term at the commencement date.

As the Company's existing leases do not have a readily determinable implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of future minimum fixed lease payments.

As the Company's existing

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

leases do not have a readily determinable implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of future minimum fixed lease payments.

The Company calculates its incremental borrowing rate to reflect the interest rate that it would have to pay to borrow on a collateralized basis an amount equal to the lease payments in a similar economic environment over a similar term and considers its historical borrowing activities and market data from entities with comparable credit ratings in this determination.

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

The Company assessed its right-of-use assets for impairment as of June 30, 2021 and December 31, 2020 and determined no impairment has occurred.

The Company assessed its right-of-use assets for impairment as of September 30, 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.

3 unchanged sentences

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

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

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.

The Company expenses all variable lease costs as incurred.

In connection with the 2020 Restructuring Initiative, the Company accelerated amortization totaling $ 0.2 million and $ 0.6 million in the three and nine months ended September 30, 2021, respectively, for leased facilities that were vacated in 2021 as part of the consolidation of certain sites following the ECI Acquisition.

The Company did not record estimated future variable lease costs in the three or nine months ended September 30, 2021 related to the 2020 Restructuring Initiative.

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.

1 unchanged sentence

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 six months ended June 30, 2021 and 2020, respectively.

The Company also recorded expense of $ 1.4 million in the aggregate in the six months ended June 30, 2021 for all estimated future variable lease costs related to these facilities.

The Company recorded a nominal credit for all estimated future variable lease costs in the six months ended June 30, 2020.

The Company did not record additional amortization expense or estimated future variable lease costs in the three months ended June 30, 2021 or 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 June 30, 2021 and December 31, 2020, the Company had accruals of $ 1.9 million and $ 0.8 million, respectively, for all future anticipated variable lease costs related to these facilities.

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 nine months ended September 30, 2021 and 2020, respectively.

The Company also recorded expense of $ 1.4 million in the aggregate in the nine months ended September 30, 2021 for all estimated future variable lease costs related to these facilities.

The Company did not record additional amortization expense or estimated future variable lease costs in the three months ended September 30, 2021 or 2020 related to the 2019 Restructuring Initiative.

All accelerated amortization and accrual of future variable costs are recorded as Restructuring and related expense in the Company's condensed consolidated statements of operations.

At September 30, 2021 and December 31, 2020, the Company had accruals of $ 1.8 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.

2 unchanged sentences

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 June 30, 2021 and December 31, 2020 were as follows (in thousands):

Classification June 30,

The Company's right-of-use lease assets and lease liabilities at September 30, 2021 and December 31, 2020 were as follows (in thousands):

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

Classification September 30,

2021 December 31,

7 unchanged sentences

Total lease liabilities $ 77,190 $ 91,107

* Finance lease assets were recorded net of accumulated depreciation of $ 2.3 million and $ 1.9 million at June 30, 2021 and December 31, 2020, respectively.

The components of lease expense for the three and six months ended June 30, 2021 and 2020 were as follows (in thousands):

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

Three months ended Six months ended

2021 June 30,

2020 June 30,

2021 June 30,

* Finance lease assets were recorded net of accumulated depreciation of $ 1.6 million and $ 1.9 million at September 30, 2021 and December 31, 2020, respectively.

The components of lease expense for the three and nine months ended September 30, 2021 and 2020 were as follows (in thousands):

Three months ended Nine months ended

September 30,

2021 September 30,

2020 September 30,

2021 September 30,

Operating lease cost* $ 4,996 $ 5,350 $ 19,027 $ 13,911

6 unchanged sentences

Net lease cost $ 8,572 $ 10,891 $ 31,803 $ 32,024

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

The Company did not record accelerated amortization in the three months ended June 30, 2021 or 2020.

** Variable lease costs for the six months ended June 30, 2021 included accruals 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 June 30, 2021 or in the three and six months ended June 30, 2020.

Cash flow information related to the Company's leases for the six months ended June 30, 2021 and 2020 was as follows (in thousands):

Six months ended

2021 June 30,

* Operating lease costs for the three and nine months ended September 30, 2021 included $ 0.6 million and $ 4.0 million, respectively, of accelerated amortization for certain assets partially or fully vacated in 2021 with no intent or ability to sublease.

Operating lease costs 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 ability to sublease.

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

** Variable lease costs for the nine months ended September 30, 2021 included accruals 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 September 30, 2021 or 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, 2021 and 2020 was as follows (in thousands):

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

Nine months ended

September 30,

2021 September 30,

Cash paid for amounts included in the measurement of lease liabilities:

2 unchanged sentences

Financing cash flows for finance leases $ 736 $ 971

Other information related to the Company's leases as of June 30, 2021 and December 31, 2020 was as follows:

Other information related to the Company's leases as of September 30, 2021 and December 31, 2020 was as follows:

September 30,

2021 December 31,

5 unchanged sentences

Finance leases 4.36 % 6.15 %

Future minimum fixed lease payments under noncancelable leases at June 30, 2021 were as follows (in thousands):

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

June 30, 2021

Future minimum fixed lease payments under noncancelable leases at September 30, 2021 were as follows (in thousands):

September 30, 2021

Operating Finance

8 unchanged sentences

(18) INCOME TAXES

The Company's income tax provisions for the six months ended June 30, 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.

The Company's income tax provisions for the nine months ended September 30, 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.

5 unchanged sentences

However, the exact timing and amount, of the valuation allowance release, if any, are subject to change on the basis of the level of profitability that the Company is able to actually achieve.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(19) COMMITMENTS AND CONTINGENCIES

4 unchanged sentences

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

At June 30, 2021, the Company's maximum possible future royalties commitment, including $ 3.9 million of unpaid royalties accrued, was $ 36.8 million, including interest of $ 1.9 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.

At September 30, 2021, the Company's maximum possible future royalties commitment, including $ 4.3 million of unpaid royalties accrued, was $ 35.9 million, including interest of $ 1.9 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 .

5 unchanged sentences

Sonus Networks, Inc.

et al., which was

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

dismissed with prejudice by an order dated June 6, 2017, the Miller Complaint claims that the Defendants made misleading forward-looking statements concerning Sonus' expected fiscal first quarter of 2015 financial performance, which statements were also the subject of an August 7, 2018 Securities and Exchange Commission Cease and Desist Order, whose findings the Company neither admitted nor denied.

et al., which was dismissed with prejudice by an order dated June 6, 2017, the Miller Complaint claims that the Defendants made misleading forward-looking statements concerning Sonus' expected fiscal first quarter of 2015 financial performance, which statements were also the subject of an August 7, 2018 Securities and Exchange Commission Cease and Desist Order, whose findings the Company neither admitted nor denied.

The Miller plaintiffs are seeking monetary damages.

6 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