What changed in this filing

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Item 1A. Risk Factors

2022-03-11 compared with 2021-02-26 · 179 added, 115 removed, 363 unchanged (45% of the section changed)

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

Risk Factors Summary

The following is a summary of the principal risks that could adversely affect our business, operations and financial results:

Risks Related to Our Business and Industry

• Our quarterly revenue and operating results are unpredictable and may fluctuate significantly quarter to quarter.

• The continuing COVID-19 pandemic may have a material adverse impact on our business, financial position and results of operations.

• Failure to compete successfully could impair our ability to increase revenues and/or remain profitable.

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

• Consolidation in the telecommunications industry could harm our business.

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

• Exposure to the credit risk of some of our customers and to credit exposures in fragile financial markets could result in material losses.

• Disruptions to relationships with distributors, resellers, system integrators and other channel partners could adversely affect our revenues.

• Failure to align our strategic plan with our customers' investments, or failure of products and services to meet customers' demands, could impact our revenues.

• Failure of our products to interoperate with our customers' existing networks could result in customer losses.

• Delay in the anticipated shift to more virtualized networks, or failure for customers to adopt our new products and services focused on virtualized networks, could reduce our revenues.

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

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

• We rely on contract manufacturers.

• We rely on single or limited sources for supply of some components of our products.

• Failure to correctly estimate future requirements for end-of-life products purchased from third parties could harm our operating results or business.

• Products may have errors or defects that we find only after full deployment.

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

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

• Future investments, mergers or acquisitions could be difficult to integrate, disrupt our business, dilute shareholder value and harm our financial condition.

• Failure to hire and retain key personnel could negatively impact our ability to meet our business objectives and impair future growth.

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

Risks Related to Our International Operations

• Worldwide efforts to contain capital spending and global economic conditions and uncertainties may have a material adverse impact on our business.

• Growing tensions between Russia and Ukraine could materially impact our sales to customers in that region.

• Conditions in Israel may materially and adversely affect our business.

• Risks associated with our international operations could impair our ability to grow our international revenue.

• Increases in tariffs, trade restrictions or taxes on our products could have an adverse impact on our operations.

• Fluctuations in currency exchange rates could negatively impact our financial results and cash flows.

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

Risks Related to Intellectual Property

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

• Failure to obtain necessary licenses or ongoing maintenance and support of third-party technology at acceptable prices on acceptable terms, or at all, it could harm our operating results or business.

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

Risks Related to Regulation

• Data privacy issues, including evolving laws, regulations and associated compliance, may adversely impact our business and financial results.

• Failure to comply with the Foreign Corrupt Practices Act ("FCPA") or the U.K.

Bribery Act ("UKBA") could subject us to significant civil or criminal penalties.

• Governmental export and import controls could subject us to liability, require a license from the U.S.

government or impair our ability to compete in international markets.

• Changes in governmental regulation, especially with respect to the telecommunications industry, could harm our operating results and future prospects.

Risks Related to Our Indebtedness and Accounting Matters

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

• The value of the securities received in connection with the sale of our Kandy Communications Business is volatile and can significantly impact our financial results.

• Impairment of our goodwill or intangible assets may require us to record a significant charge to earnings.

• Failure to maintain appropriate internal controls in the future may adversely affect our stock price and our business.

General Risk Factors

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

• Our stock price has been and may continue to be volatile.

• We are party to a stockholders' agreement with certain stockholders which provides such stockholders with certain rights that may differ from the rights of our other stockholders.

• Delaware law and our charter documents contain provisions that could discourage or prevent a potential takeover.

For a more complete discussion of the material risks facing our business, see below.

Risks Related to our Business and Industry

Our quarterly revenue and operating results are unpredictable and may fluctuate significantly from quarter to quarter, which could adversely affect our business, results of operations and the trading price of our common stock.

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It can be difficult for us to predict the timing of receipt of major customer orders, and we are unable to control their timing decisions.

In the past, we have experienced significant variability in the spending patterns and purchasing practices of our large customers on a quarterly and annual basis, and we expect that this variability will continue.

We have experienced significant variability in the spending patterns and purchasing practices of our customers on a quarterly and annual basis, and we expect that this variability will continue.

Consequently, our quarterly operating results are difficult to predict, even in the short term, and a delay in an anticipated sale past the end of a particular quarter may negatively impact our results of operations for that quarter, or in some cases, that year.

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

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

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

In 2020, a novel strain of the coronavirus (COVID-19) was declared by the World Health Organization to be a global pandemic.

The COVID-19 pandemic has had a negative effect on the global economy, disrupting the various manufacturing, commodity and financial markets and increasing volatility, and has impeded global supply chains, including that of our recently acquired subsidiary, ECI Telecom Group Ltd.

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

Continuing economic uncertainties as a result of the COVID-19 pandemic may cause our customers to restrict spending or delay purchases for an indeterminate period of time.

Travel restrictions imposed as a result of the pandemic have also made it more difficult to meet with existing and potential customers.

In addition, our ability to deliver our solutions as agreed with our customers depends on the ability of our global contract manufacturers, vendors, licensors, and other business partners to deliver products or perform services we have procured from them.

If the COVID-19 pandemic impairs the ability of our business partners to support us on a timely basis, or negatively impacts the demand for our customers’ other products and services, our ability to perform our customer contracts as well as the demand for our solutions may suffer.

In addition, disruptions from the COVID-19 pandemic has included the temporary closures of some of our facilities, as well as those of our contract manufacturers, vendors and suppliers, the inability to obtain key components of our products, the disruption of logistics necessary to import, export and deliver our solutions, limitations on the ability of our customers to perform or make timely payments, and/or workforce disruptions due to illness, quarantines, government actions, facility closures, partial work permits limiting the capacity of production facilities, or other restrictions.

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

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

The degree to which the COVID-19 pandemic ultimately impacts our business, financial position and results of operations will depend on future developments beyond our control, including the severity of the pandemic, including the frequency and duration of future waves of infection;

the effectiveness and timing of any vaccines, the extent of actions to contain or treat the virus;

how quickly and to what extent normal economic and operating conditions can resume;

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

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

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

When the COVID-19 pandemic impairs the ability of our business partners to support us on a timely basis, or negatively impacts the demand for our customers’ other products and services, our ability to perform our customer contracts as well as the demand for our solutions may suffer.

In addition, disruptions from the COVID-19 pandemic has included the temporary closures of some of our facilities, as well as those of our contract manufacturers, vendors and suppliers.

This workforce disruption has caused, in some cases, the inability to obtain key components of our products, the disruption of logistics necessary to import, export and deliver our solutions.

Future waves and new variants of COVID-19, for which current vaccines may not be as effective or effective at all, could materially impact our business, financial position and results of operations, the degree to which will depend on future developments beyond our control.

This includes the continued effect of COVID-19 on economic conditions, as well as workforce disruptions due to illness or compliance with local health and safety measures.

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

Competition in the telecommunications market is intense.

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interoperate with existing network infrastructures and multivendor solutions;

provide effective network management;

are accompanied by comprehensive customer support and professional services;

provide effective network management, as well as comprehensive customer support and professional services;

provide a cost-effective and space-efficient solution for enterprises and service providers;

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by Comcast Corporation (January 2020).

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

Further, consolidation has also occurred in the telecommunications supplier and vendor space, including the proposed combination of ADTRAN, Inc.

and ADVA (expected to be completed in 2022), the acquisition of Acacia Communications, Inc.

by Cisco Systems, Inc.

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

(March 2021) and the closing of a strategic partnership between RingCentral, Inc.

and Avaya Holdings Corp.

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

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

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

We recorded net restructuring expense of $11.7 million and $16.2 million in 2021 and 2020, respectively, including severance and related costs, facilities restructuring and accelerated amortization of lease assets.

In 2022, we expect to record additional restructuring expense of approximately $20 million as we look to further streamline operations and consolidate our global footprint to reflect, among other things, a greater percentage of our workforce working from home on a go-forward basis.

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

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

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

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

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

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

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

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

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

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

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

Our strategic plan

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

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

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Many of our customers will require that our products be designed to interface with their existing networks, each of which may have different specifications.

Issues caused by an unanticipated lack of interoperability may result in significant warranty, support and repair costs, divert the attention of our engineering personnel from our appliance and software development efforts and cause significant customer relations problems.

Issues caused by an unanticipated lack of interoperability may result in significant warranty, support and repair costs, divert the attention of our engineering personnel from our hardware and software development efforts and cause significant customer relations problems.

If our products do not interoperate with those of our customers' networks, installations could be delayed or orders for our products could be canceled, which would seriously harm our gross margins and result in loss of revenue or customers.

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

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

Virtualization of our product portfolio, particularly in our Cloud and Edge segment, to increasingly focus on software-based products could also adversely impact our revenue growth.

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

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

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

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

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

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

Our solutions include the integration of products supplied by strategic partners, who offer complementary products and services.

Our solutions include the integration of products supplied by strategic partners.

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

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

then we may have difficulty with the deployment of our solutions that may result in loss of, or delay in, revenue;

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

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

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

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

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

These risks are amplified by the current supply chain disruptions being experienced globally.

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

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

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

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

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

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

If we underestimate our requirements, we may not have an adequate supply, which could interrupt manufacturing of our products and result in delays in shipments and revenue.

Additionally, if any of our contract manufacturers underestimates our requirements, it may not have an adequate supply, which could interrupt manufacturing of our products and result in delays in shipments and revenue.

If we or our contract manufacturers underestimate our requirements, we may not have an adequate supply, which could interrupt manufacturing of our products and result in delays in shipments and revenue.

If any of our sole or limited source suppliers experiences capacity constraints, work stoppages or other reductions or disruptions in output, it may not be able to meet, or may choose not to meet, our delivery schedules.

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

For example, in the fourth quarter of 2021, we estimate that higher component costs, expedite and production fees and logistics expenses resulting from the global supply chain disruption reduced our gross margin by approximately 220 basis points.

Our customer contracts also generally allow customers to reschedule delivery dates or cancel orders within certain time frames before shipment without penalty and outside those times frames with a penalty.

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

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

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

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

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

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

It may be difficult for us to maintain appropriate levels of the discontinued appliances to adequately ensure that we do not have a

shortage or surplus of inventory of these products.

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

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

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

Many of our products are sophisticated and are designed to be deployed in large and complex networks around the world.

Because of the nature of our products, they can only be fully tested when substantially deployed in these networks.

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

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

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

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

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

federal government agencies and other foreign countries.

A portion of our total revenue from product sales comes from contracts with government agencies in the U.S.

and other foreign countries.

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

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

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

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

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

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

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

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

For example, the U.S.

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

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

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

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

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

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

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

Additional unanticipated costs may be incurred in the ECI Acquisition and the integration of the two companies’ businesses, or in future acquisitions.

While we expect that the elimination of duplicative

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

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

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

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

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

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

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

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

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

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

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

Therefore, we cannot be certain that we would be successful in overcoming problems in connection with our past or future acquisitions.

Our inability to do so could significantly harm our business, revenue, and results of operations.

Failure to hire and retain key personnel, or the loss of any of our executive officers, could negatively impact our ability to meet our business objectives and impair our future growth.

Failure to hire and retain key personnel could negatively impact our ability to meet our business objectives and impair our future growth.

Our business depends upon highly skilled technical, managerial, engineering, sales, marketing and customer support personnel.

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

Such disruptions or uncertainties could result in delays or

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

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

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

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

If these or other sanctions are enacted, they may limit our ability to provide products and services in an important country or region for our business.

The military action between Russia and Ukraine, and the sanctions imposed as a result, could materially impact our sales to customers in that region.

For 2021, approximately 6% of our sales was to customers in Russia, Ukraine and surrounding countries.

In February 2022, Russia commenced military action in Ukraine, and the uncertainty resulting from this military action and the threat for expansion of the conflict has resulted in some of our customers delaying purchases from us and is expected to result in additional delays or reductions in sales to customers in the impacted region.

Further, the U.S.

and other European countries have imposed sanctions against Russia in connection with the conflict.

While these sanctions are in place, we believe they will severely limit, if not prohibit, our ability to sell our products and services to customers in Russia and, if expanded, could impact our ability to collect on outstanding accounts receivable from such customers.

If the military action continues and the sanctions remain in place for an extended period, it could have a material impact on our financial results.

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

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

We have a significant number of employees located in Israel.

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

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

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

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

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

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

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

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

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

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

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

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

Such actions, particularly if they become more widespread, may adversely impact our ability to sell our products.

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

Some of our employees in Israel are obliged to perform military reserve duty, which generally accumulates over a period of three years from several days to up to a maximum of 84 days (and

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

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

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

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

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

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

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

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

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

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

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

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Increases in tariffs, trade restrictions or taxes on our products, as well as other risks of international operations, could have an adverse impact on our operations.

We manufacture certain of our appliance products and purchase a portion of our raw materials and components from suppliers in Mexico, China and other foreign countries.

We manufacture certain of our appliance products and purchase a portion of our raw materials and components from suppliers in Mexico, Malaysia, China and other foreign countries.

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

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

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

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

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

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An increase in the value of the U.S.

dollar could increase the real cost to our customers of our products in those markets outside the United States where we often sell in dollars, and a weakened U.S.

dollar could increase the real cost to

our customers of our products in those markets outside the United States where we often sell in dollars, and a weakened U.S.

dollar could increase the cost of local operating expenses and procurement of raw materials from sources outside the United States.

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

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

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

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

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

For example, we are aware of a third party gaining unauthorized access to a portion of our network in the first quarter of 2021, although we do not believe they were able to obtain any material internal or customer data or otherwise disrupt our information systems before the intrusion was detected and remediated.

systems before the intrusion was detected and remediated.

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

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

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

For example, the General Data Protection Regulation (the “GDPR”) has caused more stringent data protection requirements in the European Union.

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

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

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

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

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

The CCPA may increase our compliance costs and potential liability.

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

Similarly, California and other states have enacted privacy laws that purport to create individual privacy rights for consumers and increase the privacy and security obligations of entities handling certain personal data.

These laws also provide for civil penalties for violations, as well as a private right of action for data breaches that is expected to increase data breach litigation.

These laws may increase our compliance costs and potential liability.

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

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

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

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

These compliance efforts may be time-intensive and costly.

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

Failure to comply with the Foreign Corrupt Practices Act or the U.K.

Bribery Act could subject us to significant civil or criminal penalties.

Failure to comply with the FCPA or the UKBA could subject us to significant civil or criminal penalties.

We earn a significant portion of our total revenue from international sales generated through our foreign direct and indirect operations.

As a result, we are subject to the FCPA, and the U.K.

Bribery Act of 2010 (the "UKBA"), which prohibit bribery in the conduct of business.

As a result, we are subject to the FCPA and the UKBA, which prohibit bribery in the conduct of business.

The FCPA generally prohibits U.S.

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Under the FCPA and the UKBA, U.S.

companies, their subsidiaries, employees, senior officers and/or directors may be held liable for actions taken by strategic or local partners or representatives.

companies, their subsidiaries, employees, senior officers and/or directors may be held liable for actions taken by strategic or

local partners or representatives.

In addition, the U.S.

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Under these laws and regulations, we are responsible for obtaining all necessary licenses or other approvals, if required, for exports.

If we were to fail to comply with existing or future export licensing, customs regulations, economic sanctions and other laws, we could be subject to substantial civil and criminal penalties, including fines for the Company and incarceration for responsible employees and managers, and the possible loss of export or import privileges.

If we were to fail to comply with existing or future export licensing, customs regulations, economic sanctions and other laws, we could be subject to substantial civil and criminal penalties, including fines and incarceration for responsible employees and managers, and the possible loss of export or import privileges.

Similarly, various countries regulate the import of certain encryption technology and have enacted laws that could limit our ability to distribute our products or our customers' ability to implement our products in those countries.

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Changes in import/export regulations could also lead to delays in new product introductions or limit our ability to sell existing or future products in certain locations, which could adversely impact our business.

Export control laws and economic sanctions prohibit the shipment of certain products to embargoed or sanctioned countries, governments and persons.

Export control laws and economic sanctions prohibit the shipment of certain products to embargoed or sanctioned countries, governments and persons, including Russia as a result of its military action against Ukraine.

We cannot assure that a violation of these regulations will not occur, whether knowingly or inadvertently.

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

Our Senior Secured Credit Facility Credit Agreement, as amended, provides $500 million of commitments, comprised of a $325 million term A loan (the “Term A Loan”), a $75 million term B loan (the “Term B Loan”), and a $100 million revolving

facility (the “2020 Revolving Credit Facility” and, together with the Term A Loan and Term B Loan, the "2020 Credit Facility").

Our Senior Secured Credit Facilities Credit Agreement, as amended, provides $500 million of commitments, comprised of a $400 million term loan (the “2020 Loan Facility”) and a $100 million revolving facility (the “2020 Revolving Credit Facility” and, together with the 2020 Loan Facility, the "2020 Credit Facility").

Terms in the 2020 Credit Facility impose limitations on our ability to, among other things, incur additional indebtedness, create liens, make acquisitions or engage in mergers, enter into transactions with affiliates, dispose of assets, make certain investments and amend or repay certain junior debt.

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

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

Our failure to comply with these covenants may result in the declaration of an event of default, which could cause us to be unable to borrow under the credit facility or result in the acceleration of the maturity of indebtedness outstanding under the 2020 Credit Facility at such time.

In addition, we are required to meet certain financial covenants customer for financings of this type, including a minimum Consolidated Fixed Charge Coverage Ratio and a maximum Consolidated Net Leverage Ratio (each as defined in the 2020 Credit Agreement) which are tested on a quarterly basis.

The maximum Consolidated Net Leverage Ratio covenant uses our EBITDA (calculated in accordance with the 2020 Credit Agreement) for the last 12 months (as of the testing date) to determine compliance.

While we remain in compliance with this covenant, sequential decreases in our EBITDA over the 12-month period compared to previous 12-month periods used for the calculation, as we experienced in the second half of 2021 and that may continue into the first quarter of 2022, could impact our ability to continue to satisfy this requirement in future periods if we are unable to obtain a waiver or further amendment to the terms of the covenant, or otherwise reduce our debt.

Our failure to comply with these covenants may result in the declaration of an event of default, which could cause us to be unable to borrow

under the credit facility or result in the acceleration of the maturity of indebtedness outstanding under the 2020 Credit Facility at such time.

If we are prevented from borrowing or if we are unable to extend, renew or replace the credit facilities under the 2020 Credit Facility by the maturity dates, on favorable terms, or at all, this could have a material adverse effect on our liquidity and cause our business, operations and financial condition to suffer.

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

The value of the securities received in connection with the sale of our cloud-based enterprise communications service is based on the ongoing operations of the acquiring company and is volatile.

Quarterly fluctuations in price can significantly impact our financial results.

In connection with our sale of the Kandy Communications Business to AVCT, we received 43,778 units of AVCT securities (the "AVCT Units"), with each AVCT Unit consisting of (1) $1,000 in principal amount of AVCT's Series A-1 convertible debentures (the "Debentures");

and (ii) one warrant to purchase 100 shares of AVCT common stock, $0.0001 par value (the "Warrants.

In the third quarter of 2021, the Debentures were converted, pursuant to their terms, into shares of AVCT common stock (the "AVCT Shares").

Since AVCT's common stock is publicly traded on NASDAQ, under U.S.

GAAP ("GAAP"), we elected the fair value option to record our investment in AVCT, under which we value the AVCT Shares on our balance sheet based on the trading price of the AVCT common stock.

Such trading price is also used to value the Warrants on an if-converted basis.

We are also required under GAAP to revalue and mark to market the value of the AVCT Shares and Warrants on a quarterly basis, with any changes in value reflected in our statements of operations and, therefore, impacting our earnings.

AVCT's stock price on NASDAQ has been volatile, with the closing price ranging from $0.85 to $9.26 during the year ended December 31, 2021.

As a result, our financial statements may reflect significant swings in the value of the AVCT Shares and Warrants held on our balance sheet, which could have a material impact on our financial results, even though such changes in value would not reflect our current operating business.

We continue to rely on AVCT for the provision of products and services to a number of customers we jointly share.

AVCT reported that as of September 30, 2021 (the last period for which AVCT has reported financial results as of the date of this Annual Report on Form 10-K), AVCT's current liabilities exceeded its current assets by $26.6 million.

AVCT has announced a number of initiatives designed to increase its liquidity, including a proposed sale of its Computex business, and AVCT believes that cash from continuing operations, taken together with these initiatives, will be sufficient to continue to fund its operations.

However, if such activities are not successful, AVCT may be required to take other actions that could materially negatively affect the value of our investment in AVCT.

Disruptions in AVCT's operations could also result in claims by our customers for failure to satisfy contractual service requirements and/or require us to find alternative solutions in order to satisfy our customer obligations.

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

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Goodwill is tested annually for impairment and, along with our intangible assets, is also reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable.

Based on the results of our recently completed impairment test, we determined that the carrying value of our IP Optical Networks segment exceeded its fair value and accordingly, we recorded a goodwill impairment charge of $116.0 million, which had a material impact on both our net loss and loss per share for the year ended December 31, 2021.

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

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

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

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

The value of the securities received in connection with the sale of our cloud-based enterprise communications service is volatile and quarterly fluctuations in price could significantly impact our financial results.

In connection with our sale of our cloud-based enterprise communications services business (the "Kandy Communications Business") to American Virtual Cloud Technologies Inc.

(“AVCT”), we received 43,778 securities “units” from AVCT, with each unit consisting of (i) $1,000 in principal amount of AVCT’s Series A-1 convertible debentures (the “Debentures”);

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

Since AVCT’s common stock underlying the Debentures and the Warrants is publicly traded on NASDAQ, under GAAP, we are required to value the Debentures on our balance sheet based on the trading price of the AVCT common stock and assumptions regarding the stock price volatility and risk-free interest rates.

Such trading price is also used in the valuation method we use for the Warrants.

We are also required under GAAP to revalue and mark-to-market the value of the Debentures and the Warrants on a quarterly basis, with any changes in value reflected on our income statement and, therefore, impacting our GAAP earnings for such period.

AVCT’s stock price on NASDAQ has been volatile, with the closing price ranging from $1.54 to $11.25 during the fiscal year ended December 31, 2020.

As a result, our financial statements may reflect significant swings in the value of the Debentures and Warrants held on our balance sheet, which could have a material impact on our financial results, even though such changes in value would not reflect our current operating business.

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

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

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

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

As may be the case with other companies we acquire, prior to the ECI Acquisition, ECI was not required to implement or maintain the disclosure controls and procedures or internal control over financial reporting that are required of public companies.

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

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

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

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

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

General Risk Factors

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

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

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

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

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

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

Our stock price has been and may continue to be volatile.

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These and other factors affecting global economic conditions or financial markets may materially adversely affect the market price of our common stock in the future.

Furthermore, brokerage firms often do not permit stocks trading below $5.00 per share to be sold short, but often permit short-selling of shares which are traded at higher prices.

As a result, to the extent our per-share trading price remains consistently above $5.00, investors may short our stock, which could increase the volatility of our stock price.

We entered into a stockholders’ agreement with certain stockholders which provides such stockholders with certain rights that may differ from the rights of our other stockholders.

We are party to a stockholders’ agreement with certain stockholders which provides such stockholders with certain rights that may differ from the rights of our other stockholders.

In connection with the ECI Acquisition, we entered into a First Amended and Restated Stockholders Agreement (the “Stockholders Agreement”) with JPMC Heritage Parent LLC, Heritage PE (OEP) III, L.P.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors