What changed in this filing

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Item 1. Financial Statements

2022-07-28 compared with 2022-05-10 · 322 added, 229 removed, 706 unchanged (44% of the section changed)

39 unchanged sentences

240,000,000 shares authorized;

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

150,459,784 shares issued and outstanding at June 30, 2022;

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

8 unchanged sentences

(in thousands, except per share data)

Three months ended

2022 March 31,

Three months ended Six months ended

2022 June 30,

2021 June 30,

2022 June 30,

Product $ 112,667 $ 113,129 $ 194,657 $ 211,018

15 unchanged sentences

Total operating expenses 111,789 105,775 228,898 218,865

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

(Loss) income from operations ( 7,239 ) 12,952 ( 46,293 ) 348

Interest expense, net ( 4,602 ) ( 3,048 ) ( 8,603 ) ( 8,867 )

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:

Other (expense) income, net ( 10,228 ) 17,180 ( 39,028 ) ( 8,268 )

(Loss) income before income taxes ( 22,069 ) 27,084 ( 93,924 ) ( 16,787 )

Income tax provision ( 8,111 ) ( 3,843 ) ( 6,231 ) ( 4,659 )

Net (loss) income $ ( 30,180 ) $ 23,241 $ ( 100,155 ) $ ( 21,446 )

(Loss) earnings per share:

Basic $ ( 0.20 ) $ 0.16 $ ( 0.67 ) $ ( 0.15 )

Diluted $ ( 0.20 ) $ 0.15 $ ( 0.67 ) $ ( 0.15 )

Weighted average shares used to compute loss per share:

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

Basic 150,190 147,467 149,681 146,706

2 unchanged sentences

RIBBON COMMUNICATIONS INC.

Condensed Consolidated Statements of Comprehensive Loss

Condensed Consolidated Statements of Comprehensive (Loss) Income

(in thousands)

Three months ended

2022 March 31,

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

Three months ended Six months ended

2022 June 30,

2021 June 30,

2022 June 30,

Net (loss) income $ ( 30,180 ) $ 23,241 $ ( 100,155 ) $ ( 21,446 )

Other comprehensive income (loss), net of tax:

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

Unrealized gain (loss) on interest rate swap 4,053 ( 205 ) 19,522 6,464

Foreign currency translation adjustments ( 322 ) ( 447 ) ( 1,013 ) ( 400 )

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

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

Employee retirement benefits ( 884 ) — ( 884 ) —

Other comprehensive income (loss), net of tax 2,847 ( 652 ) 17,625 6,064

Comprehensive (loss) income, net of tax $ ( 27,333 ) $ 22,589 $ ( 82,530 ) $ ( 15,382 )

See notes to the unaudited condensed consolidated financial statements.

2 unchanged sentences

(in thousands, except shares)

Three months ended March 31, 2022

Three months ended June 30, 2022

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

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

Vesting of restricted stock units 396,148 —

Shares of restricted stock returned to the Company under net share settlements to satisfy tax withholding obligations ( 48,322 ) ( 134 ) ( 134 )

Stock-based compensation expense 4,399 4,399

Other comprehensive income 2,847 2,847

Net loss ( 30,180 ) ( 30,180 )

Balance at June 30, 2022 150,459,784 $ 15 $ 1,881,942 $ ( 1,455,816 ) $ 25,203 $ 451,344

Six months ended June 30, 2022

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

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

6 unchanged sentences

Net loss ( 100,155 ) ( 100,155 )

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

Balance at June 30, 2022 150,459,784 $ 15 $ 1,881,942 $ ( 1,455,816 ) $ 25,203 $ 451,344

See notes to the unaudited condensed consolidated financial statements.

RIBBON COMMUNICATIONS INC.

Condensed Consolidated Statements of Stockholders' Equity

(in thousands, except shares)

Three months ended June 30, 2021

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

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

Exercise of stock options 213 —

Vesting of restricted stock awards and units 802,576 —

Shares of restricted stock returned to the Company under net share settlements to satisfy tax withholding obligations ( 104,078 ) ( 831 ) ( 831 )

Stock-based compensation expense 4,790 4,790

Other comprehensive loss ( 652 ) ( 652 )

Net income 23,241 23,241

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

Six months ended June 30, 2021

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

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

6 unchanged sentences

Net loss ( 21,446 ) ( 21,446 )

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

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

See notes to the unaudited condensed consolidated financial statements.

2 unchanged sentences

(in thousands)

Three months ended

2022 March 31,

Six months ended

2022 June 30,

Cash flows from operating activities:

Net loss $ ( 100,155 ) $ ( 21,446 )

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

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

Depreciation and amortization of property and equipment 7,773 8,475

3 unchanged sentences

Deferred income taxes ( 9,900 ) 918

Gain on sale of business — ( 2,772 )

Decrease in fair value of investments 39,411 9,171

Foreign currency exchange losses 1,105 1,716

Foreign currency exchange (gains) losses ( 1,048 ) 2,013

Changes in operating assets and liabilities:

5 unchanged sentences

Deferred revenue ( 3,692 ) 673

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

Net cash (used in) provided by operating activities ( 24,387 ) 8,030

Cash flows from investing activities:

Purchases of property and equipment ( 6,515 ) ( 10,570 )

Proceeds from sale of business — 2,944

Net cash used in investing activities ( 6,515 ) ( 7,626 )

Cash flows from financing activities:

Borrowings under revolving line of credit 20,000 —

Principal payments on revolving line of credit ( 20,000 ) —

Proceeds from issuance of term debt 74,625

40 unchanged sentences

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):

This reclassification for the three and six months ended June 30, 2021 was as follows (in thousands):

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

Three months ended March 31, 2021

Prior presentation Amounts reclassified Revised presentation

Three months ended June 30, 2021 Six months ended June 30, 2021

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

Product revenue $ 113,129 $ 113,129 $ 211,018 $ 211,018

13 unchanged sentences

Total operating expenses 115,475 ( 9,700 ) 105,775 238,626 ( 19,761 ) 218,865

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

Income from operations $ 12,952 $ — $ 12,952 $ 348 $ — $ 348

Significant Accounting Policies

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

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

There were no material changes to the significant accounting policies during the three months ended June 30, 2022.

Principles of Consolidation

7 unchanged sentences

Actual results could differ from those estimates.

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.

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.

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.

The Company had $ 2.0 million and $ 2.6 million of restricted cash as of June 30, 2022 and December 31, 2021, respectively, 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 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.

Information regarding the Company's factoring of its financial assets for the three and six months ended June 30, 2022 and 2021 is as follows (in thousands):

Three months ended Six months ended

2022 June 30,

2021 June 30,

2022 June 30,

Accounts receivable sold $ 22,747 $ 32,329 $ 40,714 $ 63,647

Less factoring fees ( 323 ) $ ( 192 ) ( 476 ) ( 401 )

Net cash proceeds $ 22,424 $ 32,137 $ 40,238 $ 63,246

Going Concern Assessment and Management Plans

1 unchanged sentence

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.

As of June 30, 2022, the Company was in compliance with its financial covenants.

Due to the impact of market conditions, 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 quarter ended 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.

As of the date of the issuance of these condensed consolidated financial statements, the Company does not have sufficient cash on hand or available liquidity to repay the outstanding balance of $ 340.5 million as of June 30, 2022 in the event the debt was accelerated.

Management 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.

In addition, the Company has the ability to sell its derivative financial instrument, which had an aggregate fair market value of $ 21 million as of June 30, 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

The Company believes its plans are probable of being successfully implemented, which along with its available cash on hand and liquidity from the factoring of receivables, will result in adequate cash to allow the Company to pay down debt to meet its financial covenant requirements.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

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

Recent Accounting Pronouncements

In March 2022, the FASB issued ASU 2022-02, Financial Instruments – Credit Losses (Topic 326):

Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”), which eliminates the accounting guidance on troubled debt restructurings (TDRs) for creditors in ASC 310, Receivables (Topic 310) , and requires entities to provide disclosures about current period gross write-offs by year of origination.

Also, ASU 2022-02 updates the requirements related to accounting for credit losses under ASC 326, Financial Instruments – Credit Losses (Topic 326) , and adds enhanced disclosures for creditors with respect to loan refinancings and restructurings for borrowers experiencing financial difficulty.

ASU 2022-02 is effective for the Company January 1, 2023, with early adoption permitted.

The Company believes that the adoption of ASU 2022-02 will not have a material impact on its consolidated financial statements upon adoption.

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

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

10 unchanged sentences

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 loss per share were as follows (in thousands):

Three months ended

2022 March 31,

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

Three months ended Six months ended

2022 June 30,

2021 June 30,

2022 June 30,

Weighted average shares outstanding - basic 150,190 147,467 149,681 146,706

1 unchanged sentence

Weighted average shares outstanding - diluted 150,190 154,160 149,681 146,706

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.

Options to purchase the Company's common stock and unvested restricted and performance-based stock units aggregating

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

15.4 million shares have not been included in the computation of loss per share for the three and six months ended June 30, 2022 because their effect would have been antidilutive.

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

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

(3) INVENTORY

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

Inventory at June 30, 2022 and December 31, 2021 consisted of the following (in thousands):

2022 December 31,

4 unchanged sentences

Current portion $ 64,648 $ 54,043

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(4) INTANGIBLE ASSETS AND GOODWILL

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

The Company's intangible assets at June 30, 2022 and December 31, 2021 consisted of the following (in thousands):

June 30, 2022 Weighted average amortization period

(years) Cost Accumulated

18 unchanged sentences

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

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

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

Estimated future amortization expense for the Company's intangible assets at June 30, 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 three months ended March 31, 2022 or

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

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

There were no changes to the carrying value of the Company's goodwill in the six months ended June 30, 2022 and 2021.

The components of goodwill at June 30, 2022 and 2021 were as follows (in thousands):

Cloud and Edge IP Optical Networks Total

Balance at March 31, 2022

Balance at June 30, 2022

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

1 unchanged sentence

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

Balance at March 31, 2021

Balance at June 30, 2021

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

4 unchanged sentences

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.

The Company recorded $ 1.2 million and $ 2.7 million of interest income in the three and six months ended June 30, 2021, which was added to the principal 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 had not exercised any of the Warrants as of June 30, 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.

The Company is recording the AVCT Investment at fair value, with changes in fair value recorded as a component of Other (expense) income, 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 $ 4.5 million and $ 43.9 million at June 30, 2022 and December 31, 2021, respectively.

The Company recorded losses of $ 12.4 million and $ 39.4 million in the three and six months ended June 30, 2022, respectively, representing the change in the fair value of the AVCT Investment.

The Company recorded a gain of $ 12.1 million and a loss of $ 11.8 million in the three and six months ended June 30, 2021, respectively, representing the change in the fair value of the AVCT Investment, which loss 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 June 30, 2022 and December 31, 2021.

The Company evaluated the nature of its investment in AVCT at June 30, 2022 and December 31, 2021, and determined that it represented an equity interest on a diluted basis of approximately 9 % and 15 %, respectively.

The Company determined

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

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 June 30, 2022 or December 31, 2021.

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.

4 unchanged sentences

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.

2 unchanged sentences

(6) ACCRUED EXPENSES AND OTHER

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

Accrued expenses at June 30, 2022 and December 31, 2021 consisted of the following (in thousands):

2022 December 31,

4 unchanged sentences

(7) WARRANTY ACCRUALS

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

The changes in the Company's accrual balance in the six months ended June 30, 2022 were as follows (in thousands):

Balance at January 1, 2022 $ 13,120

1 unchanged sentence

Settlements ( 2,838 )

Balance at March 31, 2022 $ 13,252

Balance at June 30, 2022 $ 12,958

(8) RESTRUCTURING AND FACILITIES CONSOLIDATION INITIATIVES

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.

The Company recorded restructuring and related expense aggregating $ 2.9 million and $ 2.8 million in the three months ended June 30, 2022 and 2021, respectively, and $ 7.7 million and $ 8.8 million in the six months ended June 30, 2022 and 2021, respectively.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

amortization expense.

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

2 unchanged sentences

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

Restructuring and related expense for the three and six months ended June 30, 2022 and 2021 was comprised of the following (in thousands):

Three months ended Six months ended

2022 June 30,

2021 June 30,

2022 June 30,

Severance and related costs $ 859 $ 1,926 $ 4,981 $ 2,595

10 unchanged sentences

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):

The Company recorded restructuring and related expense of $ 2.9 million and $ 7.1 million in the three and six months ended June 30, 2022, respectively, in connection with the 2022 Restructuring Plan.

The amount for the three months ended June 30, 2022 was comprised of $ 1.1 million for variable and other facilities-related costs, $ 1.0 million for accelerated amortization of lease assets no longer being used with no ability or intent to sublease, and $ 0.8 million for severance and related costs for approximately 10 employees.

The amount for the six months ended June 30, 2022 was comprised of $ 5.0 million for severance and related costs for approximately 60 employees, $ 1.1 million for variable and other facilities-related costs and $ 1.0 million for accelerated amortization of lease assets no longer being used with no ability or intent to sublease.

A summary of the 2022 Restructuring Plan accrual activity for the six months ended June 30, 2022 is as follows (in thousands):

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

2022 Initiatives

payments Balance at

payments Net transfer to operating lease liability accounts

exchange Balance at

Severance $ — $ 5,037 $ ( 1,810 ) $ — $ 3,227

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 .

Variable and other facilities-related costs — 1,072 ( 728 ) — 344

Accelerated amortization of lease assets due to cease-use — 963 — ( 963 ) —

$ — $ 7,072 $ ( 2,538 ) $ ( 963 ) $ 3,571

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

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.

The long-term portions of accrued restructuring relate to facilities and totaled $ 1.7 million at June 30, 2022 and $ 1.6 million at December 31, 2021.

2020 Credit Facility

16 unchanged sentences

make investments;

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

engage in transactions with affiliates;

10 unchanged sentences

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

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

10 unchanged sentences

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 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.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

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.

1 unchanged sentence

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

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

The Company 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 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)

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.

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.

On March 10, 2022, the Borrower 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 %.

Subsequent to the Fourth Amendment, the Company was 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.

On June 30, 2022, the Borrower entered into a Fifth Amendment to the 2020 Credit Facility (the "Fifth Amendment") to increase the Maximum Consolidated Net Leverage Ratio (as defined in the 2020 Credit Facility) to 5.25 :1.00 for the second quarter of 2022, 5.00 :1.00 for the third quarter of 2022, and 4.75 :1.00 for the fourth quarter of 2022.

Also, the Fifth Amendment reduced the minimum Consolidated Fixed Charge Coverage Ratio (as defined in the 2020 Credit Facility) to 1.10 :1.00 for the second, third and fourth quarters of 2022 and increased the maximum rate at which loans bear interest if the Company's Consolidated Net Leverage Ratio for any quarter is greater than 4.50 :1.00.

Specifically, pursuant to the Fifth Amendment, loans incurred under the Senior Secured Credit Facilities bear interest, at the Borrower’s option, at either LIBOR plus a margin ranging from 1.50 % to 4.50 % per year, or the base rate (the highest of the Federal Funds Effective Rate (as defined in the Credit Agreement) plus 0.50 %, or the prime rate announced from time to time in The Wall Street Journal) plus a margin ranging from 0.50 % to 3.50 % per year (such margins being referred to as the “Applicable Margin”).

In addition, the Fifth Amendment allows the Company to incur junior secured or unsecured debt in an amount no less than $ 50 million, subject to certain conditions, including the requirement that 50 % of the aggregate amount of such incurred debt (net of certain costs, fees and other amounts) must be applied to prepay the Senior Secured Credit Facilities, and compliance with certain leverage ratio-based covenant exceptions.

In connection with the Fifth Amendment, the Company made a $ 10.0 million voluntary prepayment that was applied to the final payment due on the maturity date.

Subsequent to the Fifth Amendment, the Company is required to make quarterly principal payments on the 2020 Term Loan aggregating approximately $ 5.0 million per quarter through March 31, 2024 and $ 10.0 million in each of the three quarters thereafter, with the final payment approximating $ 275 million due on the maturity date in March 2025.

At June 30, 2022, the Company had an outstanding balance under the 2020 Term Loan of $ 340.5 million at an average interest rate of 4.4 % and $ 4.3 million of letters of credit outstanding with an interest rate of 3.5 %.

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.

The Company was in compliance with all covenants of the 2020 Credit Facility at both June 30, 2022 and December 31, 2021.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

Letters of Credit and Performance and Bid Bonds

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 June 30, 2022, the Company had letters of credit, bank guarantees, and performance and bid bonds outstanding (collectively, "Guarantees") aggregating $ 25.4 million , comprised of the $ 4.3 million of letters of credit under the 2020 Credit Facility described above (the "Letters of Credit") and $ 21.1 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.

At June 30, 2022 and December 31, 2021, the Company had cash collateral of $ 2.0 million and $ 2.6 million, respectively, 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.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

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.

The 2020 Term Loan Facility had outstanding balances of $ 340.5 million and $ 375.5 million at June 30, 2022 and December 31, 2021, respectively.

The 2020 Revolving Credit Facility was undrawn at both J une 30, 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 notional amount of this swap at June 30, 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.

2 unchanged sentences

The effective portion of changes in the fair value of designated derivatives that qualify as cash flow hedges is recorded in accumulated other comprehensive income 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.

During the three and six months ended June 30, 2022 and 2021, such a derivative was used to hedge the variable cash flows associated with the outstanding borrowings under

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

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 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

Based upon projected forward rates, the Company estimates as of June 30, 2022 that $ 8.0 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) income for the three and six months ended June 30, 2022 and 2021 was as follows (in thousands):

Three months ended Six months ended

2022 June 30,

2021 June 30,

2022 June 30,

Gain (loss) recognized in other comprehensive income (loss) on derivative (effective portion) $ 3,916 $ ( 1,015 ) $ 18,629 $ 4,875

Amount reclassified from accumulated other comprehensive income (loss) to interest expense (effective portion) 137 810 893 1,589

$ 4,053 $ ( 205 ) $ 19,522 $ 6,464

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,

The fair values and locations in the condensed consolidated balance sheets at June 30, 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 June 30,

2022 December 31,

3 unchanged sentences

$ 21,333 $ 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).

The Company has classified the interest rate derivative aggregating $ 21.3 million and $ 1.8 million at June 30, 2022 and December 31, 2021, respectively, as Level 2 fair value measurements within the fair value hierarchy (see Note 5).

RIBBON COMMUNICATIONS INC.

66 unchanged sentences

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

The Company's revenue for the three months ended March 31, 2022 and 2021 was disaggregated as follows:

The Company's revenue for the three and six months ended June 30, 2022 and 2021 was disaggregated as follows:

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

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

Three months ended June 30, 2022 Product revenue Service revenue (maintenance) Service revenue (professional services) Total revenue

United States $ 53,743 $ 33,046 $ 11,360 $ 98,149

3 unchanged sentences

$ 112,667 $ 69,458 $ 23,671 $ 205,796

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

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

United States $ 56,128 $ 32,816 $ 11,590 $ 100,534

3 unchanged sentences

$ 113,129 $ 72,437 $ 25,644 $ 211,210

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,

Six months ended June 30, 2022 Product revenue Service revenue (maintenance) Service revenue (professional services) Total revenue

United States $ 85,683 $ 66,110 $ 22,005 $ 173,798

Europe, Middle East and Africa 52,938 36,442 13,356 102,736

Asia Pacific 45,394 19,796 7,605 72,795

Other 10,642 15,715 3,308 29,665

$ 194,657 $ 138,063 $ 46,274 $ 378,994

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

United States $ 92,940 $ 64,422 $ 22,752 $ 180,114

Europe, Middle East and Africa 59,517 40,394 14,651 114,562

Asia Pacific 44,627 20,585 9,671 74,883

Other 13,934 15,741 4,748 34,423

$ 211,018 $ 141,142 $ 51,822 $ 403,982

The Company's product revenue from indirect sales through its channel partner program and from its direct sales program for the three and six months ended June 30, 2022 and 2021 was as follows (in thousands):

Three months ended Six months ended

2022 June 30,

2021 June 30,

2022 June 30,

Indirect sales through channel partner program $ 28,453 $ 27,114 $ 51,953 $ 47,277

1 unchanged sentence

$ 112,667 $ 113,129 $ 194,657 $ 211,018

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,

The Company's product revenue from sales to enterprise customers and from sales to service provider customers for the three and six months ended June 30, 2022 and 2021 was as follows (in thousands):

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

Three months ended Six months ended

2022 June 30,

2021 June 30,

2022 June 30,

Sales to enterprise customers $ 22,837 $ 24,522 $ 44,920 $ 47,190

1 unchanged sentence

$ 112,667 $ 113,129 $ 194,657 $ 211,018

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,

The Company's product revenue and service revenue components by segment for the three and six months ended June 30, 2022 and 2021 were as follows (in thousands):

Three months ended Six months ended

2022 June 30,

2021 June 30,

2022 June 30,

Product revenue:

19 unchanged sentences

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

Changes in the contract asset and liability balances during the three months ended March 31, 2022 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 June 30, 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.

5 unchanged sentences

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

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

The changes in the Company's accounts receivable, unbilled receivables and deferred revenue balances for the six months ended June 30, 2022 were as follows (in thousands):

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

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

1 unchanged sentence

Increase (decrease), net ( 35,994 ) 11,193 ( 2,656 ) ( 1,035 )

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)

Balance at June 30, 2022 $ 172,978 $ 85,138 $ 106,463 $ 19,584

The Company recognized approximately $ 66 million of revenue in the six months ended June 30, 2022 that was recorded as deferred revenue at December 31, 2021 and approximately $ 60 million of revenue in the six months ended June 30, 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 June 30, 2022, the Company expects that approximately $ 8 million will be recognized as revenue in 2023, approximately $ 9 million will be recognized as revenue in 2024 and approximately $ 3 million will be recognized as revenue in 2025 and beyond.

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

3 unchanged sentences

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

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

At both June 30, 2022 and December 31, 2021, the Company had $ 3.8 million of deferred sales commissions capitalized.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(12) OPERATING SEGMENT INFORMATION

16 unchanged sentences

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)

Three months ended

2022 March 31,

The tables below provide information regarding revenue, adjusted gross profit, and depreciation expense by reportable segment for the three and six months ended June 30, 2022 and 2021 (in thousands):

Three months ended Six months ended

2022 June 30,

2021 June 30,

2022 June 30,

Segment revenue:

2 unchanged sentences

Revenue $ 205,796 $ 211,210 $ 378,994 $ 403,982

Three months ended

2022 March 31,

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

Three months ended Six months ended

2022 June 30,

2021 June 30,

2022 June 30,

Segment adjusted gross profit:

5 unchanged sentences

Gross profit $ 104,550 $ 118,727 $ 182,605 $ 219,213

Three months ended

2022 March 31,

Three months ended Six months ended

2022 June 30,

2021 June 30,

2022 June 30,

Segment depreciation expense:

3 unchanged sentences

(13) MAJOR CUSTOMERS

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,

The following customer contributed 10% or more of the Company's revenue in the three and six months ended June 30, 2022 and 2021:

Three months ended Six months ended

2022 June 30,

2021 June 30,

2022 June 30,

Verizon Communications Inc.

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

20 % 17 % 17 % 16 %

At June 30, 2022, one customer accounted for 10% or more of the Company's accounts receivable balance, representing approximately 17 % of total accounts receivable.

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.

3 unchanged sentences

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.

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.

At the Company's annual meeting of stockholders held on May 25, 2022, the Company's stockholders approved an amendment to the 2019 Plan to increase the number of shares of the Company's common stock authorized for issuance under the 2019 Plan by 10.0 million shares.

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.

Assumed Stock Plans

21 unchanged sentences

McClelland as described above.

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 year, beginning in 2019 and continuing through 2022, the Company has granted certain of its executives (the "2022 PSUs", "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").

The 2019 PSUs earned were released on March 15, 2022;

1 unchanged sentence

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

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

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

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

1 unchanged sentence

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

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

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

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").

following the respective Market Performance Period, pending each executive's continued employment with the Company through that date.

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

9 unchanged sentences

Stock Options

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

The activity related to the Company's outstanding stock options for the six months ended June 30, 2022 was as follows:

Shares Weighted

7 unchanged sentences

Expired ( 7,804 ) $ 17.00

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)

Outstanding at June 30, 2022 176,010 $ 13.11 2.13 $ 48

Vested or expected to vest at June 30, 2022 176,010 $ 13.11 2.13 $ 48

Exercisable at June 30, 2022 176,010 $ 13.11 2.13 $ 48

Both the total intrinsic value of options exercised and cash received in connection with those exercises was nominal in the three and six months ended June 30, 2022.

Restricted Stock Units

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

The activity related to the Company's RSUs for the six months ended June 30, 2022 was as follows:

Shares Weighted

3 unchanged sentences

Forfeited ( 449,298 ) $ 5.13

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.

Unvested balance at June 30, 2022 8,535,908 $ 4.23

The total grant date fair value of shares of restricted stock underlying RSUs that vested during the six months ended June 30, 2022 was $ 12.5 million.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

Performance-Based Stock Units

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

The activity related to the Company's PSUs for the six months ended June 30, 2022 was as follows:

Shares Weighted

3 unchanged sentences

Forfeited ( 365,530 ) $ 7.81

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.

Unvested balance at June 30, 2022 6,674,668 $ 2.19

The total grant date fair value of shares of restricted stock underlying PSUs that vested during the six months ended June 30, 2022 was $ 0.9 million.

Stock-Based Compensation

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,

The condensed consolidated statements of operations include stock-based compensation for the three and six months ended June 30, 2022 and 2021 as follows (in thousands):

Three months ended Six months ended

2022 June 30,

2021 June 30,

2022 June 30,

Product cost of revenue $ 107 $ 93 $ 206 $ 120

4 unchanged sentences

$ 4,399 $ 4,790 $ 8,654 $ 9,850

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.

At June 30, 2022, there was $ 31.2 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.

7 unchanged sentences

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

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

As the Company's existing leases do not have a readily determinable implicit rate, the Company uses its incremental borrowing rate based on the

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

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 March 31, 2022 and December 31, 2021 and determined no impairment has occurred.

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

5 unchanged sentences

The Company expenses all variable lease costs as incurred.

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 in the three months ended March 31, 2021.

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.

Certain leased facilities are being partially or fully vacated as part of the 2022 Restructuring Plan and for some of those facilities, the Company has no plans to enter into sublease agreements.

Accordingly, the Company accelerated the amortization of those lease assets through the planned cease-use date of each facility, resulting in additional amortization expense of $ 1.0 million in the three and six months ended June 30, 2022.

The Company also recorded expense of $ 0.3 million in the three and six months ended June 30, 2022 for all estimated future variable lease costs related to those facilities.

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

The Company had no plans to enter into sublease agreements for some of those facilities.

The Company ceased use of those facilities in the first quarter of 2021, the first and fourth quarters of 2020, and the third quarter of 2019.

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

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 or six months ended June 30, 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 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.

At June 30, 2022 and December 31, 2021, the Company had accruals of $ 1.7 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.

The Company's right-of-use lease assets and lease liabilities at June 30, 2022 and December 31, 2021 were as follows (in thousands):

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

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,

Classification June 30,

2022 December 31,

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Total lease liabilities $ 64,384 $ 73,166

* 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,

* Finance lease assets were recorded net of accumulated depreciation of $ 1.1 million and $ 1.8 million at June 30, 2022 and December 31, 2021, respectively.

The components of lease expense for the three and six months ended June 30, 2022 and 2021 were as follows (in thousands):

Three months ended Six months ended

2022 June 30,

2021 June 30,

2022 June 30,

Operating lease cost* $ 5,538 $ 5,194 $ 10,168 $ 14,031

6 unchanged sentences

Net lease cost $ 9,339 $ 8,965 $ 18,121 $ 23,231

* 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,

* Operating lease costs for the three and six months ended June 30, 2022 included $ 1.0 million of accelerated amortization for certain assets partially or fully vacated with no intent or ability to sublease.

Operating lease costs for the six months ended June 30, 2021 included $ 3.4 million of accelerated amortization for certain assets partially or fully vacated with no intent or ability to sublease.

No such accelerated amortization was recorded in the three months ended June 30, 2021.

** Variable lease costs for the three and six months ended June 30, 2022 included accruals of $ 0.3 million for all future estimated variable expenses related to certain assets partially or fully vacated with no intent or ability to sublease.

Variable lease costs for the six months ended June 30, 2021 included accruals of $ 1.4 million for all future estimated variable expenses related to certain assets partially or fully vacated with no intent or ability to sublease.

No such variable costs were accrued in the three months ended June 30, 2021.

Cash flow information related to the Company's leases for the six months ended June 30, 2022 and 2021 was as follows (in thousands):

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

Six months ended

2022 June 30,

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

2 unchanged sentences

Financing cash flows for finance leases $ 341 $ 507

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:

Other information related to the Company's leases as of June 30, 2022 and December 31, 2021 was as follows:

2022 December 31,

5 unchanged sentences

Finance leases 3.20 % 4.15 %

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

March 31, 2022

Future minimum fixed lease payments under noncancelable leases at June 30, 2022 were as follows (in thousands):

Operating Finance

8 unchanged sentences

(16) INCOME TAXES

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.

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

1 unchanged sentence

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.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(17) COMMITMENTS AND CONTINGENCIES

3 unchanged sentences

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

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.

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

At June 30, 2022, the Company's maximum possible future royalties commitment, including $ 4.1 million of unpaid royalties accrued, was $ 31.3 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

14 unchanged sentences

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

What changed 10-Q

Item 1. Financial Statements