What changed in this filing

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Item 1. Financial Statements

2022-05-10 compared with 2021-10-28 · 301 added, 588 removed, 634 unchanged (58% of the section changed)

3 unchanged sentences

(in thousands, except share and per share data)

September 30,

2022 December 31,

34 unchanged sentences

240,000,000 shares authorized;

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

150,111,958 shares issued and outstanding at March 31, 2022;

148,895,308 shares issued and outstanding at December 31, 2021

1 unchanged sentence

Accumulated deficit ( 1,425,636 ) ( 1,355,661 )

Accumulated other comprehensive income (loss) 2,175 ( 4,942 )

Accumulated other comprehensive income 22,356 7,578

Total stockholders' equity 474,412 527,166

4 unchanged sentences

(in thousands, except per share data)

Three months ended Nine months ended

September 30,

2021 September 30,

2020 September 30,

2021 September 30,

Three months ended

2022 March 31,

Product $ 81,990 $ 97,889

4 unchanged sentences

Service 35,667 37,780

Amortization of acquired technology 8,267 10,061

Total cost of revenue 95,143 92,286

8 unchanged sentences

Total operating expenses 117,109 113,090

Income (loss) from operations 1,992 11,917 2,340 ( 15,231 )

Loss from operations ( 39,054 ) ( 12,604 )

Interest expense, net ( 4,001 ) ( 5,819 )

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

Other expense, net ( 28,800 ) ( 25,448 )

Loss before income taxes ( 71,855 ) ( 43,871 )

Income tax benefit (provision) 1,880 ( 816 )

Net loss $ ( 69,975 ) $ ( 44,687 )

Loss per share:

Basic $ ( 0.47 ) $ ( 0.31 )

Diluted $ ( 0.47 ) $ ( 0.31 )

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

Weighted average shares used to compute loss per share:

Basic 149,167 145,936

2 unchanged sentences

RIBBON COMMUNICATIONS INC.

Condensed Consolidated Statements of Comprehensive Income (Loss)

Condensed Consolidated Statements of Comprehensive Loss

(in thousands)

Three months ended Nine months ended

September 30,

2021 September 30,

2020 September 30,

2021 September 30,

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

Three months ended

2022 March 31,

Net loss $ ( 69,975 ) $ ( 44,687 )

Other comprehensive income (loss), net of tax:

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

Unrealized gain on interest rate swap 15,469 6,669

Foreign currency translation adjustments ( 691 ) 47

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 )

Other comprehensive income, net of tax 14,778 6,716

Comprehensive loss, net of tax $ ( 55,197 ) $ ( 37,971 )

See notes to the unaudited condensed consolidated financial statements.

2 unchanged sentences

(in thousands, except shares)

Three months ended September 30, 2021

Three months ended March 31, 2022

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 —

Vesting of restricted stock awards and units 855,440 —

Shares of restricted stock returned to the Company under net share settlements to satisfy tax withholding obligations ( 299,125 ) ( 1,916 ) ( 1,916 )

Stock-based compensation expense 4,561 4,561

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

Balance at January 1, 2022 148,895,308 $ 15 $ 1,875,234 $ ( 1,355,661 ) $ 7,578 $ 527,166

Exercise of stock options 355 —

Vesting of restricted stock awards and units 3,320,644 —

Vesting of restricted stock units 1,610,990 —

Vesting of performance-based stock units 175,751 —

3 unchanged sentences

Net loss ( 69,975 ) ( 69,975 )

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

RIBBON COMMUNICATIONS INC.

Condensed Consolidated Statements of Stockholders' Equity (continued)

(in thousands, except shares)

Three months ended September 30, 2020

Balance at March 31, 2022 150,111,958 $ 15 $ 1,877,677 $ ( 1,425,636 ) $ 22,356 $ 474,412

Three months ended March 31, 2021

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

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

Exercise of stock options 2,926 6 6

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

Vesting of performance-based stock units 7,886 —

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

Stock-based compensation expense 3,969 3,969

Other comprehensive income 824 824

Net income 6,252 6,252

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

Nine months ended September 30, 2020

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

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

3 unchanged sentences

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

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

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

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

316,551 1,630 1,630

Stock-based compensation expense 5,060 5,060

Other comprehensive loss ( 11,826 ) ( 11,826 )

Other comprehensive income 6,716 6,716

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

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

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

See notes to the unaudited condensed consolidated financial statements.

2 unchanged sentences

(in thousands)

Nine months ended

September 30,

2021 September 30,

Three months ended

2022 March 31,

Cash flows from operating activities:

Net loss $ ( 69,975 ) $ ( 44,687 )

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

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

Depreciation and amortization of property and equipment 3,885 4,226

3 unchanged sentences

Deferred income taxes ( 6,773 ) 293

Gain on sale of business ( 2,772 ) —

Decrease in fair value of investments 27,027 22,441

Reduction in deferred purchase consideration — ( 69 )

Foreign currency exchange losses 1,105 1,716

6 unchanged sentences

Deferred revenue ( 1,342 ) 2,323

Net cash provided by operating activities 7,899 65,248

Net cash provided by (used in) operating activities 15,030 ( 6,212 )

Cash flows from investing activities:

Purchases of property and equipment ( 3,471 ) ( 5,357 )

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

Proceeds from sale of business 2,944 —

Proceeds from the sale of fixed assets — 43,500

Net cash used in investing activities ( 3,471 ) ( 5,357 )

Cash flows from financing activities:

Borrowings under revolving line of credit — 615

Principal payments on revolving line of credit — ( 8,615 )

Proceeds from issuance of term debt — 74,625

4 unchanged sentences

Payment of tax withholding obligations related to net share settlements of restricted stock awards ( 1,812 ) ( 11,233 )

Net cash (used in) provided by financing activities ( 28,017 ) 323,018

Net cash used in financing activities ( 22,395 ) ( 14,777 )

Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 184 ) ( 464 )

Net (decrease) increase in cash, cash equivalents and restricted cash ( 31,942 ) 66,253

Net decrease in cash, cash equivalents and restricted cash ( 11,020 ) ( 26,810 )

Cash, cash equivalents and restricted cash, beginning of year 106,485 135,697

Cash, cash equivalents and restricted cash, end of period $ 95,465 $ 108,887

RIBBON COMMUNICATIONS INC.

Condensed Consolidated Statements of Cash Flows (continued)

(in thousands)

Nine months ended

September 30,

2021 September 30,

Supplemental disclosure of cash flow information:

4 unchanged sentences

Capital expenditures incurred, but not yet paid $ 2,420 $ 3,059

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

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

Supplemental disclosure of non-cash financing activities:

6 unchanged sentences

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

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

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

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

3 unchanged sentences

Securities and Exchange Commission ("SEC").

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").

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

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

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

The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2021 (the "Annual Report"), which was filed with the SEC on March 11, 2022.

Operating Segments

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

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

The CODM assesses the Company's performance based on the performance of two separate organizations within Ribbon:

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

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

Reclassifications

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

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

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

In the fourth quarter of 2021, the Company reclassified amounts recorded for amortization of certain acquired intangible assets in prior presentations from Total operating expenses under the caption "Amortization of acquired intangible assets" to Cost of revenue under the caption "Amortization of acquired technology" in the condensed consolidated statements of operations.

The Company's management believes this presentation aids in the comparability of its financial statements to industry peers.

This reclassification did not impact the condensed consolidated balance sheets or statements of cash flows for any historical periods.

The Company reports depreciation of property and equipment related to production activities as components of Cost of revenue.

This reclassification for the three months ended March 31, 2021 was as follows (in thousands):

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

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

Three months ended March 31, 2021

Prior presentation Amounts reclassified Revised presentation

Product revenue $ 97,889 $ 97,889

3 unchanged sentences

Cost of revenue - service 37,780 37,780

Amortization of acquired technology — 10,061 10,061

Total cost of revenue 82,225 10,061 92,286

7 unchanged sentences

Total operating expenses 123,151 ( 10,061 ) 113,090

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

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.

Loss from operations $ ( 12,604 ) $ — $ ( 12,604 )

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 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).

There were no material changes to the significant accounting policies during the three months ended March 31, 2022.

Principles of Consolidation

7 unchanged sentences

Actual results could differ from those estimates.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

Restricted Cash

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

At September 30, 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.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

At both March 31, 2022 and December 31, 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.

Transfers of Financial Assets

3 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 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

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

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

As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability.

The three-tier fair value hierarchy is based on the level of independent, objective evidence surrounding the inputs used to measure fair value.

A financial instrument's categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

The fair value hierarchy is as follows:

Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

Level 2 applies to assets or liabilities for which there are inputs that are directly or indirectly observable in the marketplace, such as quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets).

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

During the three months ended March 31, 2022, the Company received $ 18.0 million of cash from the sale of certain accounts receivable and recorded $ 0.2 million of interest expense in connection with these transactions.

During the three months ended March 31, 2021, the Company received $ 31.3 million of cash from the sale of certain accounts receivable and recorded $ 0.2 million of interest expense in connection with these transactions.

Going Concern Assessment and Management Plans

The accompanying condensed consolidated financial statements are prepared in accordance with GAAP applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

Under the 2020 Credit Facility (as defined in Note 9), the Company is required to maintain compliance with certain financial covenants (see Note 9).

As of March 31, 2022, the Company was in compliance with its financial covenants.

Due to the impact of market conditions on its forecast, including supply chain disruptions, higher costs, and other geopolitical instabilities and disputes, the Company projects it may not maintain compliance with its financial covenants under the 2020 Credit Facility, as amended, for the quarters ended June 30, 2022 and September 30, 2022.

Failure to remain in compliance would be an event of default that would permit the Lenders (as defined in Note 9) to accelerate the maturity of the 2020 Credit Facility.

As of the date of the issuance of these condensed consolidated financial statements, the Company currently does not have sufficient cash on hand or available liquidity to repay the outstanding balance of $ 355.5 million as of March 31, 2022, in the event the debt is accelerated.

Management's plans to avoid any potential event of default include raising additional cash that would allow the Company to pay down debt in order to remain in compliance with its financial covenants.

The Company has or is in the process of obtaining agreements with certain vendors and with certain lending institutions that allow the Company to factor additional trade receivables.

In addition, the Company has to ability to sell its derivative financial instrument and its investment in equity securities, which had an aggregate fair market value of $ 34 million as of March 31, 2022.

Lastly, the Company would evaluate the timing of its capital spending and extension of its payment terms with vendors as needed.

In addition to the above plans, the Company has entered into discussions with its Lenders to seek a further amendment to the 2020 Credit Facility to adjust the covenants, and believes the likelihood of completion is reasonably likely.

However, an amendment has not been finalized and is not within the Company's control.

The Company believes its plans are probable of being successfully implemented, which will result in adequate cash to allow the Company to pay down debt to meet its financial covenant requirements.

Recent Accounting Pronouncements

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers ("ASU 2021-08"), which amends ASC 805, Business Combinations (Topic 805) , to add contract assets and contract liabilities to the list of exceptions to the recognition and measurement principles that apply to business combinations and to require that an acquiring entity recognize and measure contract assets and contract

RIBBON COMMUNICATIONS INC.

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

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

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

Simplifying the Accounting for Income Taxes ("ASU 2019-12"), which modifies ASC 740 to simplify the accounting for income taxes.

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

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

liabilities acquired in a business combination in accordance with ASC 606, Revenue from Contracts with Customers (Topic 606) ("ASC 606").

Under current GAAP, an acquirer generally recognizes such items at fair value on the acquisition date.

While primarily related to contract assets and contract liabilities that were accounted for by the acquiree in accordance with ASC 606, ASU 2021-08 also applies to contract assets and contract liabilities from other contracts to which the provisions of ASC 606 apply, such as contract liabilities from the sale of nonfinancial assets within the scope of ASU 2017-05, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20) .

ASU 2021-08 is effective for the Company January 1, 2023, with early adoption permitted.

The Company believes that the adoption of ASU 2021-08 could have a material impact on its consolidated financial statements for periods including and subsequent to significant business acquisitions.

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

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

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

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

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

(2) 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.

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

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

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

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

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

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

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:

Cash consideration:

Repayment of ECI outstanding debt obligations $ 183,266

Cash paid to selling shareholders 139,244

Payment to selling shareholders from sale of ECI real estate assets 33,400

Less cash and restricted cash acquired ( 9,058 )

Net cash consideration 346,852

Fair value of Ribbon stock issued 108,550

Fair value of total consideration $ 455,402

Fair value of assets acquired and liabilities assumed:

Current assets, net of cash and restricted cash acquired $ 120,203

Property and equipment 54,913

Intangible assets:

In-process research and development 34,000

Developed technology 111,900

Customer relationships 116,000

Trade names 3,000

Goodwill 191,996

Other noncurrent assets 37,528

Deferred revenue ( 4,369 )

Other current liabilities ( 146,618 )

Deferred revenue, net of current ( 3,726 )

Deferred tax liability ( 13,308 )

Other long-term liabilities ( 46,117 )

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

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

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

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

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

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

Pro Forma Results

The following unaudited pro forma information presents the condensed combined results of operations of Ribbon and ECI for the three and nine months ended September 30, 2020 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)

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

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

Acquisition-, Disposal- and Integration-Related Expenses

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

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

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

The 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

Professional and services fees (disposal-related) — — 241 —

Integration-related expenses 1,942 363 3,807 590

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

(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.

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

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

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

As 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”);

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

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

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 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 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.

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.

The adoption of ASU 2021-01 did not have a material impact on the Company's consolidated financial statements.

(2) EARNINGS (LOSS) PER SHARE

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

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

Three months ended Nine months ended

September 30,

2021 September 30,

2020 September 30,

2021 September 30,

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

Three months ended

2022 March 31,

Weighted average shares outstanding - basic 149,167 145,936

1 unchanged sentence

Weighted average shares outstanding - diluted 149,167 145,936

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.

Options to purchase the Company's common stock and unvested restricted and performance-based stock units aggregating 8.4 million shares and 12.8 million shares have not been included in the computation of diluted earnings per share for the three months ended March 31, 2022 and 2021, respectively, because their effect would have been antidilutive.

(3) INVENTORY

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

September 30,

Inventory at March 31, 2022 and December 31, 2021 consisted of the following (in thousands):

2022 December 31,

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(4) INTANGIBLE ASSETS AND GOODWILL

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

The Company's intangible assets at March 31, 2022 and December 31, 2021 consisted of the following (in thousands):

March 31, 2022 Weighted average amortization period

(years) Cost Accumulated

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* 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 September 30, 2021 was as follows (in thousands):

Estimated future amortization expense for the Company's intangible assets at March 31, 2022 was as follows (in thousands):

Years ending December 31,

1 unchanged sentence

Thereafter 80,955

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):

There were no changes to the carrying value of the Company's goodwill in the three months ended March 31, 2022 or

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

Cloud and Edge IP Optical Networks Total

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

Acquisition of ECI — 191,996 191,996

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 September 30, 2021 and 2020 were as follows (in thousands):

The components of goodwill at March 31, 2022 and March 31, 2021 were as follows (in thousands):

Cloud and Edge IP Optical Networks Total

Balance at September 30, 2021

Balance at March 31, 2022

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

1 unchanged sentence

$ 224,896 $ 75,996 $ 300,892

Balance at September 30, 2020

Balance at March 31, 2021

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

1 unchanged sentence

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

(5) INVESTMENTS AND FAIR VALUE HIERARCHY

The Company received debentures and warrants as sale consideration in connection with the sale of its Kandy Communications Business on December 1, 2020 to American Virtual Cloud Technologies, Inc.

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

The Company recorded $ 1.5 million of interest income in the three months ended March 31, 2021, which was added to the principal amount of the Debentures, and which is included in Interest expense, net, in the condensed consolidated statement of operations.

On September 8, 2021 (the "Debenture Conversion Date"), the debentures were converted into 13,700,421 shares of AVCT common stock (the "Debenture Shares").

The warrants entitle the Company to purchase 4,377,800 shares of AVCT common stock at an exercise price of $ 0.01 per share, and expire on December 1, 2025 (the "Warrants").

The Company had not exercised any of the Warrants as of March 31, 2022.

The Company's investment in AVCT (the "AVCT Investment") is comprised of the debentures and Warrants for periods prior to the Debenture Conversion Date and the Debenture Shares and Warrants for periods subsequent to the Debenture Conversion Date.

The Company is recording the AVCT Investment at fair value, with changes in fair value recorded as a component of Other expense, net, in the condensed consolidated statements of operations.

The fair values of the AVCT Investment, which are reported as Investments in the Company's condensed consolidated balance sheets, were $ 16.9 million and $ 43.9 million at March 31, 2022 and December 31, 2021, respectively.

The Company recorded a loss of $ 27.0 million in the three months ended March 31, 2022, representing the change in the fair value of the AVCT Investment.

The Company recorded a loss of $ 23.9 million in the three months ended March 31, 2021 representing the change in the fair value of the AVCT Investment, which was partially offset by the paid-in-kind interest income described above.

The AVCT Investment is classified as a Level 1 fair value measurement at both March 31, 2022 and December 31, 2021.

The Company evaluated the nature of its investment in AVCT at March 31, 2022 and December 31, 2021, and determined that it represented an equity interest on a diluted basis of approximately 10 % and 15 %, respectively.

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 it had neither significant influence nor a controlling interest arising from the AVCT Investment that would require consolidation as of March 31, 2022 or December 31, 2021.

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

As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability.

The three-tier fair value hierarchy is based on the level of independent, objective evidence surrounding the inputs used to measure fair value.

A financial instrument's categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

The fair value hierarchy is as follows:

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

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

(6) ACCRUED EXPENSES AND OTHER

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

September 30,

Accrued expenses at March 31, 2022 and December 31, 2021 consisted of the following (in thousands):

2022 December 31,

Employee compensation and related costs $ 33,317 $ 38,040

Professional fees 17,451 14,365

Other 43,816 48,347

1 unchanged sentence

(7) WARRANTY ACCRUALS

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

The changes in the Company's accrual balance in the three months ended March 31, 2022 were as follows (in thousands):

Balance at January 1, 2022 $ 13,120

1 unchanged sentence

Settlements ( 1,393 )

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.

Balance at March 31, 2022 $ 13,252

(8) 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

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

accelerated rent amortization expense.

The Company recorded restructuring and related expense aggregating $ 4.8 million and $ 6.0 million in the three months ended March 31, 2022 and 2021, respectively.

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

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.

1 unchanged sentence

The accelerated amortization is recorded as a component of Restructuring and related expense in the Company's condensed consolidated statements of operations.

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 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,

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 records a liability for the estimated future variable lease costs.

Restructuring and related expense for the three months ended March 31, 2022 and 2021 was comprised of the following (in thousands):

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

Three months ended

2022 March 31,

Severance and related costs $ 4,122 $ 669

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 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 September 30, 2021 and December 31, 2020, respectively.

Accelerated rent amortization of lease assets 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 15).

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

2020 Restructuring Initiative

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

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

The Company recorded restructuring and related expense of $ 0.6 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 nine months ended September 30, 2021 is as follows (in thousands):

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

2021 Initiatives

expense Adjustments for changes in estimate Cash

payments Balance at

September 30,

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

Facilities 1,256 473 ( 670 ) ( 1,059 ) —

$ 6,493 $ 3,549 $ ( 670 ) $ ( 6,980 ) $ 2,392

2019 Restructuring and Facilities Consolidation Initiative

In June 2019, the Company implemented a restructuring plan to further streamline the Company's global footprint, improve its operations and enhance its customer delivery (the "2019 Restructuring Initiative").

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

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

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

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

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

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 nine months ended September 30, 2021 is as follows (in thousands):

2022 Restructuring Plan

On February 14, 2022, the Company's Board of Directors approved a strategic restructuring program (the "2022 Restructuring Plan") to streamline the Company's operations in order to support the Company's investment in critical growth areas.

The 2022 Restructuring Plan is expected to include, among other things, charges related to a consolidation of facilities and a workforce reduction.

Any positions eliminated in countries outside the United States are subject to local law and consultation requirements.

The Company recorded restructuring and related expense of $ 4.2 million for severance and related costs for approximately 50 employees in connection with the 2022 Restructuring Plan in the three months ended March 31, 2022.

A summary of the 2022 Restructuring Plan accrual activity for the three months ended March 31, 2022 is as follows (in thousands):

2022 Initiatives

expense Reclassify accelerated amortization to operating lease liabilities Cash

payments Balance at

September 30,

Severance $ — $ 4,179 $ ( 365 ) $ 3,814

Facilities 766 7,668 ( 3,368 ) ( 3,301 ) 1,765

$ 939 $ 7,668 $ ( 3,368 ) $ ( 3,474 ) $ 1,765

2020 and 2019 Restructuring Plans

In 2020, the Company implemented a restructuring plan to eliminate certain positions and redundant facilities, primarily in connection with the Company's acquisition of ECI Telecom Group Ltd.

in 2020 (the "ECI Acquisition"), to streamline the Company's global footprint and improve its operations (the "2020 Restructuring Plan").

The 2020 Restructuring Plan included facility consolidations and a reduction in workforce to eliminate functions arising from the ECI Acquisition and support its efforts to integrate the two companies.

At March 31, 2022, the 2020 Restructuring Plan had a remaining accrual of $ 0.8 million for severance costs that are expected to be paid out over the next year.

In June 2019, the Company implemented a restructuring plan to streamline the Company's global footprint, improve its operations and enhance its customer delivery (the "2019 Restructuring Plan").

The 2019 Restructuring Plan included facility consolidates, refinement of the Company's research and development activities, and a reduction in workforce.

At March 31, 2022, the 2019 Restructuring Plan had a remaining accrual of $ 1.4 million for facility costs that remain in the plan and which will be paid out over the various lease terms, which range from one to six years .

Balance Sheet Classification

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

The long-term portions of accrued restructuring 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)

The long-term portions of accrued restructuring relate to facilities and totaled $ 1.4 million at March 31, 2022 and $ 1.6 million at December 31, 2021.

2020 Credit Facility

2 unchanged sentences

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

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

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

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

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

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

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

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

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

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

The remaining $ 325 million of the 2020 Term Loan Facility

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

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

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

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

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

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

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

5 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 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.

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

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

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

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

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

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

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

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

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

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

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

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

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.

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 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 September 30, 2021 and December 31, 2020.

On March 10, 2022, the Borrowers entered into a Fourth Amendment to the 2020 Credit Facility (the "Fourth Amendment") to increase the Maximum Consolidated Net Leverage Ratio (as defined in the 2020 Credit Facility) to 4.25 :1.00 for the first quarter of 2022 and 4.50 :1.00 for the second quarter of 2022, with reductions in subsequent quarters through the third quarter of 2023, when the ratio will be fixed at 3.00 :1.00.

In connection with the Fourth Amendment, the Company made a $ 15.0 million prepayment that was applied to the final payment due on the maturity date.

Subsequent to the Fourth Amendment, the Company is required to make quarterly principal payments on the 2020 Term Loan aggregating approximately $ 20 million per year for the next two years and $ 30 million in the following year, with the final payment approximating $ 285 million due on the maturity date.

At March 31, 2022, the Company had an outstanding 2020 Term Loan balance of $ 355.5 million at an average interest rate of 3.4 % and $ 4.4 million of letters of credit outstanding with an interest rate of 2.5 %.

At December 31, 2021, the Company had an outstanding 2020 Term Loan balance of $ 375.5 million at an average interest rate of 3.4 % and $ 4.3 million of letters of credit outstanding with an interest rate of 2.5 %.

The Company was in compliance with all covenants of the 2020 Credit Facility at both March 31, 2022 and December 31, 2021.

Letters of Credit and Performance and Bid Bonds

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

At September 30, 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 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.

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

At March 31, 2022, the Company had letters of credit, bank guarantees, and performance and bid bonds outstanding (collectively, "Guarantees") aggregating $ 30.7 million, comprised of the $ 4.4 million of letters of credit under the 2020 Credit Facility described above (the "Letters of Credit") and $ 26.3 million of bank guarantees and performance and bid bonds (collectively, the "Other Guarantees") under various uncommitted facilities.

At December 31, 2021, the Company had Guarantees aggregating $ 30.1 million, comprised of the $ 4.3 million of Letters of Credit noted above and $ 25.8 million of Other Guarantees.

At both March 31, 2022 and December 31, 2021, the Company had cash collateral of $ 2.6 million, supporting the Guarantees, which is reported as Restricted cash in the condensed consolidated balance sheets.

(10) DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

12 unchanged sentences

The Company may enter into derivative contracts that are intended to economically hedge certain of its risk even though hedge accounting does not apply or the Company elects not to apply hedge accounting.

Cash Flow Hedge of Interest Rate Risk

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

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.

Cash Flow Hedge of Interest Rate Risk

The 2020 Term Loan Facility had outstanding balances of $ 355.5 million and $ 375.5 million at March 31, 2022 and December 31, 2021, respectively.

The 2020 Revolving Credit Facility was undrawn at both March 31, 2022 and December 31, 2021.

Borrowings under the 2020 Credit Facility have variable interest rates based on LIBOR (see Note 9).

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 March 31, 2022 was $ 400 million, and the swap matures on March 3, 2025, the same date the 2020 Credit Facility matures.

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

1 unchanged sentence

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

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

During the three 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.

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 in the condensed consolidated balance sheet and is subsequently reclassified into earnings in the period that the hedged forecasted transactions affect earnings.

During the three months ended March 31, 2022 and 2021, 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 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 )

Amount reclassified from accumulated other comprehensive income (loss) to interest expense (effective portion) 830 761 2,419 921

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

Based upon projected forward rates, the Company estimates as of March 31, 2022 that $ 2.7 million may be reclassified as a decrease to interest expense over the next twelve months.

The impact of the Company’s derivative financial instrument on its condensed consolidated statements of comprehensive loss for the three months ended March 31, 2022 and 2021 was as follows (in thousands):

Three months ended

2022 March 31,

Gain recognized in other comprehensive income (loss) on derivative (effective portion) $ 14,713 $ 5,889

Amount reclassified from accumulated other comprehensive income to interest expense (effective portion) 756 780

$ 15,469 $ 6,669

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,

The fair values and locations in the condensed consolidated balance sheets at March 31, 2022 and December 31, 2021 of the Company's derivative assets (liabilities) designated as a hedging instrument were as follows (in thousands):

Balance sheet location March 31,

2022 December 31,

Interest rate derivative - asset derivative Other current assets $ 2,695 $ —

Interest rate derivative - asset derivative Other assets 14,585 3,865

Interest rate derivative - liability derivative Accrued expenses and other — ( 2,054 )

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

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).

$ 17,280 $ 1,811

The Company has classified the interest rate derivative aggregating $ 17.3 million and $ 1.8 million at March 31, 2022 and December 31, 2021, respectively, as Level 2 fair value measurements within the fair value hierarchy (see Note 5).

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(11) REVENUE RECOGNITION

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

Software and hardware are also

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

sold on a standalone basis.

Software and hardware are also sold on a standalone basis.

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

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

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

The Company's revenue for the three months ended March 31, 2022 and 2021 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

Europe, Middle East and Africa 32,234 19,290 7,971 59,495

Asia Pacific 26,087 10,618 4,215 40,920

Other 6,271 8,371 2,052 16,694

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

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

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

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

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

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

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

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

Three months ended March 31, 2022 Product revenue Service revenue (maintenance) Service revenue (professional services) Total revenue

United States $ 31,940 $ 33,064 $ 10,645 $ 75,649

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$ 81,990 $ 68,605 $ 22,603 $ 173,198

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

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

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

3 unchanged sentences

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

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,

The Company's product revenue from indirect sales through its channel partner program and from its direct sales program for the three months ended March 31, 2022 and 2021 was as follows (in thousands):

Three months ended

2022 March 31,

Indirect sales through channel partner program $ 23,500 $ 20,163

1 unchanged sentence

$ 81,990 $ 97,889

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,

The Company's product revenue from sales to enterprise customers and from sales to service provider customers for the three months ended March 31, 2022 and 2021 was as follows (in thousands):

Three months ended

2022 March 31,

Sales to enterprise customers $ 22,083 $ 22,668

1 unchanged sentence

$ 81,990 $ 97,889

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,

The Company's product revenue and service revenue components by segment for the three months ended March 31, 2022 and 2021 were as follows (in thousands):

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

Three months ended

2022 March 31,

Product revenue:

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

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

Changes in the contract asset and liability balances during the three months ended March 31, 2022 were not materially impacted by any factors other than billing and revenue recognition.

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

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

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

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

The changes in the Company's accounts receivable, unbilled receivables and deferred revenue balances for the three months ended March 31, 2022 were as follows (in thousands):

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

1 unchanged sentence

Increase (decrease), net ( 67,879 ) 5,926 ( 35 ) ( 1,307 )

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.

Balance at March 31, 2022 $ 141,093 $ 79,871 $ 109,084 $ 19,312

The Company recognized approximately $ 45 million of revenue in the three months ended March 31, 2022 that was recorded as deferred revenue at December 31, 2021 and approximately $ 42 million of revenue in the three months ended March 31, 2021 that was recorded as deferred revenue at December 31, 2020.

Of the Company's deferred revenue reported as long-term in its condensed consolidated balance sheet at March 31, 2022, the Company expects that approximately $ 10 million will be recognized as revenue in 2023, approximately $ 6 million will be recognized as revenue in 2024 and approximately $ 3 million will be recognized as revenue in 2025 and beyond.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

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

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

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

At both March 31, 2022 and December 31, 2021, the Company had $ 3.8 million of deferred sales commissions capitalized.

(12) OPERATING SEGMENT INFORMATION

3 unchanged sentences

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

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

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

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

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

The IP Optical Networks segment provides high-performance, secure solutions for IP networking and optical transport, supporting wireless networks including 5G, metro and edge aggregation, core networking, data center interconnect, legacy transformation 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 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

Segment revenue and expenses included in the tables below represent direct revenue and expense attributable to each segment.

Please see Note 4 for information regarding the allocation of goodwill between segments.

The CODM utilizes revenue and adjusted gross profit to measure and assess each segment's performance.

The Company calculates adjusted gross profit by excluding from cost of revenue:

amortization of acquired technology and stock-based compensation, and may also exclude other items in future periods that the Company believes are not part of the Company's core business.

Adjusted gross profit is not a financial measure 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 gross profit or other results reported in accordance with U.S.

See below for a reconciliation of adjusted gross profit to gross profit, which is the most directly comparable U.S.

GAAP measure.

The tables below provide information regarding revenue, adjusted gross profit, and depreciation expense by reportable segment for the three months ended March 31, 2022 and 2021 (in thousands):

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.

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

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

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

depreciation;

amortization of acquired intangible assets;

stock-based compensation;

certain litigation costs;

acquisition-, disposal- and integration-related expense;

and restructuring and related expense.

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

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

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

Three months ended

2022 March 31,

Segment revenue:

2 unchanged sentences

Revenue $ 173,198 $ 192,772

Three months ended Nine months ended

September 30,

2021 September 30,

2020 September 30,

2021 September 30,

Three months ended

2022 March 31,

Segment adjusted gross profit:

3 unchanged sentences

Stock-based compensation expense ( 580 ) ( 262 )

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

Amortization of acquired technology ( 8,267 ) ( 10,061 )

Gross profit $ 78,055 $ 100,486

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:

Cloud and Edge $ 44,945 $ 41,921 $ 116,811 $ 89,157

IP Optical Networks ( 13,240 ) 1,464 ( 22,400 ) ( 6,681 )

Total segment adjusted EBITDA 31,705 43,385 94,411 82,476

Depreciation ( 4,209 ) ( 4,494 ) ( 12,684 ) ( 12,754 )

Amortization of intangible assets ( 17,221 ) ( 16,349 ) ( 50,225 ) ( 45,352 )

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 )

Acquisition-, disposal- and integration-related expense ( 1,955 ) ( 1,366 ) ( 4,204 ) ( 14,607 )

Restructuring and related expense ( 1,767 ) ( 3,290 ) ( 10,547 ) ( 10,726 )

Income (loss) from operations 1,992 11,917 $ 2,340 $ ( 15,231 )

Three months ended

2022 March 31,

Segment depreciation expense:

3 unchanged sentences

(13) MAJOR CUSTOMERS

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,

The following customer contributed 10% or more of the Company's revenue in the three months ended March 31, 2022 and 2021:

Three months ended

2022 March 31,

Verizon Communications Inc.

18 % 16 % 17 % 15 %

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 March 31, 2022, no customer accounted for 10% or more of the Company's accounts receivable balance.

At December 31, 2021, one customer accounted for 10% or more of the Company's accounts receivable balance, representing approximately 15 % of total accounts receivable.

1 unchanged sentence

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

(15) COMMON STOCK REPURCHASES

In the second quarter of 2019, the 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 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)

(14) STOCK-BASED COMPENSATION PLANS

2019 Stock Incentive Plan

The Company's Amended and Restated 2019 Incentive Award Plan (the "2019 Plan") provides for the award of options to purchase the Company's common stock ("stock options"), stock appreciation rights ("SARs"), restricted stock awards ("RSAs"), performance-based stock awards ("PSAs"), restricted stock units ("RSUs"), performance-based stock units ("PSUs") and other stock- or cash-based awards.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

performance-based stock awards ("PSAs"), restricted stock units ("RSUs"), performance-based stock units ("PSUs") and other stock- or cash-based awards.

Awards can be granted under the 2019 Plan to the Company's employees, officers and non-employee directors, as well as consultants and advisors of the Company and its subsidiaries.

The Company's 2007 Plan provided for the award of stock options, SARs, RSAs, PSAs, RSUs, PSUs and other stock-based awards to employees, officers, non-employee directors, consultants and advisors of the Company and its subsidiaries.

On and following June 5, 2019, with the exception of shares underlying awards outstanding as of that date, no additional shares may be granted under the 2007 Plan.

Assumed Stock Plans

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

These releases are included in the applicable tables below.

Performance-Based Stock Grants

2 unchanged sentences

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

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 2019 PSUs earned were released on March 15, 2022;

these releases are included in the table below.

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

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

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

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

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

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

In addition, in connection with his appointment as Executive Vice President and General Manager, Packet Optical Networking, the Company granted Sam Bucci 133,333 PSUs (the "Bucci Stock Price PSUs") with both market and service conditions.

Subject to Mr.

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

The share price threshold for Mr.

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

This release is included in the applicable table below.

Accounting for Performance PSUs.

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

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

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

During the three months ended June 30, 2021, the Company completed the Monte Carlo valuation of these Market PSUs and calculated that the grant date fair value of each Market PSU was $ 13.67 .

The Company recorded a cumulative adjustment to expense to account for the change in grant date fair value in the second quarter of 2021.

The change in grant date fair value and related cumulative adjustment did not have a material impact on its consolidated financial statements.

Employee Bonus Program

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

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 %.

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

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

Stock Options

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

The activity related to the Company's outstanding stock options for the three months ended March 31, 2022 was as follows:

Shares Weighted

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Expired ( 3,470 ) $ 15.62

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 nine months ended September 30, 2021 was as follows:

Shares Weighted

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

Vested ( 86,983 ) $ 7.04

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:

Outstanding at March 31, 2022 180,344 $ 13.23 2.35 $ 50

Vested or expected to vest at March 31, 2022 180,344 $ 13.23 2.35 $ 50

Exercisable at March 31, 2022 180,344 $ 13.23 2.35 $ 50

Both the total intrinsic value of options exercised and cash received in connection with those exercises was nominal in the three months ended March 31, 2022.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

Restricted Stock Units

The activity related to the Company's RSUs for the three months ended March 31, 2022 was as follows:

Shares Weighted

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Forfeited ( 138,550 ) $ 6.44

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)

Unvested balance at March 31, 2022 3,711,148 $ 6.05

The total grant date fair value of shares of restricted stock underlying RSUs that vested during the three months ended March 31, 2022 was $ 10.3 million.

Performance-Based Stock Units

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

The activity related to the Company's PSUs for the three months ended March 31, 2022 was as follows:

Shares Weighted

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Forfeited ( 283,258 ) $ 7.95

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.

Unvested balance at March 31, 2022 4,547,092 $ 2.31

The total grant date fair value of shares of restricted stock underlying PSUs that vested during the three months ended March 31, 2022 was $ 0.9 million.

Stock-Based Compensation

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,

The condensed consolidated statements of operations include stock-based compensation for the three months ended March 31, 2022 and 2021 as follows (in thousands):

Three months ended

2022 March 31,

Product cost of revenue $ 99 $ 27

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$ 4,255 $ 5,060

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.

At March 31, 2022, there was $ 21.1 million, net of expected forfeitures, of unrecognized stock-based compensation expense related to unvested stock options and stock units.

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

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

The Company has operating and finance leases for corporate offices, research and development facilities, and certain equipment.

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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

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.

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.

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 September 30, 2021 and December 31, 2020 and determined no impairment has occurred.

The Company assessed its right-of-use assets for impairment as of March 31, 2022 and December 31, 2021 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.

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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.

As of March 31, 2022, the Company had not recorded accelerated amortization of lease assets or accrued variable lease costs in connection with the 2022 Restructuring Plan.

In connection with the 2019 Restructuring Plan, certain lease assets related to facilities are being partially or fully vacated as the Company consolidates its facilities.

The Company has no plans to enter into sublease agreements for certain facilities.

The Company ceased use of these facilities in the first quarter of 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 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.

The Company also recorded expense of $ 1.4 million in the three months ended March 31, 2021 for all estimated future variable lease costs related to these facilities.

The Company did not record expense for accelerated amortization or estimated future variable lease costs in connection with the 2019 Restructuring Plan in the three months ended March 31, 2022.

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.

At March 31, 2022 and December 31, 2021, the Company had accruals of $ 1.4 million and $ 1.6 million, respectively, for all future anticipated variable lease costs related to these facilities.

The Company may incur additional future expense if it is unable to sublease other locations included in the Facilities Initiative.

The Company leases its corporate offices and other facilities under operating leases, which expire at various times through 2032.

In December 2020, the Company began relocating from its former leased Plano, Texas facility to its recently completed leased facility, also located in Plano, Texas, which became the Company's corporate headquarters.

The Company's relocation to the new corporate headquarters was completed in the first quarter of 2021.

The Company's right-of-use lease assets and lease liabilities at 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,

The Company leases its corporate offices and other facilities under operating leases, which expire at various times through 2032.

The Company's right-of-use lease assets and lease liabilities at March 31, 2022 and December 31, 2021 were as follows (in thousands):

Classification March 31,

2022 December 31,

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Total lease liabilities $ 68,619 $ 73,166

* 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,

* Finance lease assets were recorded net of accumulated depreciation of $ 1.9 million and $ 1.8 million at March 31, 2022 and December 31, 2021, respectively.

The components of lease expense for the three months ended March 31, 2022 and 2021 were as follows (in thousands):

Three months ended

2022 March 31,

Operating lease cost* $ 4,630 $ 8,837

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Net lease cost $ 8,782 $ 14,266

* 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,

* Operating lease costs for the three months ended March 31, 2021 included $ 3.4 million of accelerated amortization for certain assets partially or fully vacated in 2021 with no intent or ability to sublease.

No such accelerated amortization was recorded in the three months ended March 31, 2022.

** Variable lease costs for the three months ended March 31, 2021 included an accrual of $ 1.4 million for all future estimated variable expenses related to certain assets partially or fully vacated with no intent or ability to sublease.

No such variable costs were accrued in the three months ended March 31, 2022.

Cash flow information related to the Company's leases for the three months ended March 31, 2022 and 2021 was as follows (in thousands):

Three months ended

2022 March 31,

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

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Financing cash flows for finance leases $ 198 $ 272

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

September 30,

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

Other information related to the Company's leases as of March 31, 2022 and December 31, 2021 was as follows:

2022 December 31,

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Finance leases 3.74 % 4.15 %

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

September 30, 2021

Future minimum fixed lease payments under noncancelable leases at March 31, 2022 were as follows (in thousands):

March 31, 2022

Operating Finance

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(16) INCOME TAXES

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.

The Company's income tax provisions for the three months ended March 31, 2022 and 2021 reflect the Company's estimates of the effective rates expected to be applicable for the respective full years, adjusted for any discrete events, which are recorded in the period that they occur.

These estimates are reevaluated each quarter based on the Company's estimated tax expense for the full year.

The estimated effective tax rate includes the impact of valuation allowances in various jurisdictions.

The Company intends to continue to maintain a full valuation allowance on its deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of the allowance.

However, given its current earnings and anticipated future earnings, the Company believes there is a reasonable possibility that within the next 12 months, sufficient positive evidence may become available to reach a conclusion that a significant portion of the U.S.

valuation allowance will no longer be needed.

Release of the valuation allowance would result in the recognition of certain deferred tax assets and a decrease in income tax expense for the period in which the release is recorded.

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)

The Company intends to continue to maintain a valuation allowance on its deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of the respective allowances.

Beginning in 2022, the Tax Cuts and Jobs Act of 2017 (the "TCJA") eliminates the option to deduct research and development expenditures currently and requires taxpayers to amortize them over five years pursuant to IRC Section 174.

Although Congress is considering legislation that would defer the amortization requirement to later years, the Company has no assurance that the provision will be repealed or otherwise modified.

If this provision of the TCJA is not repealed or otherwise modified, it will materially reduce the Company's operating cash flows in 2022.

(17) COMMITMENTS AND CONTINGENCIES

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The royalties for grants prior to 2017 were calculated at the rates of 1.3 % to 5.0 % of the aggregated proceeds from the sale of such products developed at certain of the Company's R&D centers, up to an amount not exceeding 100 % of such grants plus interest at LIBOR.

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

At September 30, 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.

Effective for grants approved in 2017 and subsequently, interest

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

was calculated at the higher of LIBOR plus 1.5 % to 2.75 %.

At March 31, 2022, the Company's maximum possible future royalties commitment, including $ 4.7 million of unpaid royalties accrued, was $ 33.3 million, including interest of $ 2.0 million, based on estimates of future product sales, grants received from the IIA not yet repaid, and management's estimation of products still to be sold.

Research and Development Grants

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On August 30, 2019, the Defendants filed a motion to dismiss the Miller Complaint and, on October 4, 2019, the Lead Plaintiffs filed an opposition to the motion to dismiss.

There was an oral argument on the motion to dismiss on February 12, 2020.

There was an oral argument on the motion to dismiss on February 12, 2020, but to date, the court has not ruled on the motion.

In addition, the Company is often a party to disputes and legal proceedings that it considers routine and incidental to its business.

1 unchanged sentence

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