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Item 7. Management’s Discussion and Analysis

2023-03-31 compared with 2022-03-11 · 204 added, 238 removed, 437 unchanged (50% of the section changed)

Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our financial statements and the related notes included in Item 8, "Financial Statements and Supplementary Data” in this Annual Report on Form 10-K.

This discussion contains forward-looking statements that reflect our plans, estimates and beliefs and involve risks and uncertainties.

Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors including, but not limited to, those disclosed in Item 1A, “Risk Factors”, elsewhere in this Annual Report on Form 10-K, in other documents filed with the SEC and otherwise publicly disclosed.

Please refer to “Cautionary Note Regarding Forward-Looking Statements” above for additional information.

For a complete description of our business and other important information, please refer to Item 1 of Part I of this Annual Report on Form 10-K.

We are a leading global provider of communications technology to service providers and enterprises.

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Our 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.

Headquartered in Plano, Texas, we have a global presence with research and development and/or sales and support locations in over thirty-five countries around the world.

Impact of COVID-19 on Our Business

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

The COVID-19 pandemic has had a negative effect on the global economy, disrupting the various manufacturing, commodity and financial markets and increasing volatility, and has impeded global supply chains, including that of our IP Optical Networks operating segment.

Continued dampened global economic conditions as a result of the COVID-19 pandemic, particularly in areas experiencing slower vaccine rollout, such as Australia and India, may cause our customers to restrict spending or delay purchases for an indeterminate period of time and consequently cause our revenues to decline.

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

While, to date, we have not experienced material issues, if the ongoing COVID-19 pandemic impairs the ability of our business partners to support us on a timely basis, or negatively impacts the demand for our customers' other products and services, our ability to perform our customer contracts as well as the demand for our solutions may suffer.

In addition, disruptions from the COVID-19 pandemic could include, and with respect to our IP Optical Networks operating segment have included, disruption of logistics necessary to import, export and deliver our solutions.

The COVID-19 pandemic continues to limit in some locations, including India, the ability of our employees to perform their work due to illness caused by the pandemic or local, state or federal orders requiring employees to remain at home.

The degree to which the COVID-19 pandemic ultimately impacts our business, financial position and results of operations will depend on future developments beyond our control, including the effectiveness and timing of any vaccines, the frequency and duration of future waves of infection, the effectiveness and timing of any vaccines, the extent of actions to contain or treat the virus, how quickly and to what extent normal economic and operating conditions can resume, and the severity and duration of the global economic downturn that results from the pandemic.

As a response to the ongoing COVID-19 pandemic, we have continued to implement plans to manage our costs.

We have significantly reduced travel and marketing expenses except where necessary to meet customer or regulatory needs and acted to limit discretionary spending.

To the extent the business disruption continues for an extended period, additional cost management actions will be considered.

Any future asset impairment charges, increases in the allowance for doubtful accounts or restructuring charges could be more likely and will be dependent on the severity and duration of this crisis.

Unless otherwise noted, all financial amounts, excluding tabular information, in this MD&A are rounded to the nearest million dollar amount, and all percentages, excluding tabular information, are rounded to the nearest percentage point.

Reclassifications

In 2021, we 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 Total cost of revenue under the caption "Amortization of acquired technology" in the consolidated statements of operations.

Our management believes this presentation aids in the comparability of our financial statements to industry peers.

These reclassifications did not impact our operating income (loss), net income (loss) or earnings (loss) per share for any historical periods.

These reclassifications also did not impact our consolidated balance sheets or consolidated statements of cash flows.

These reclassifications resulted in $42.3 million recorded to Amortization of acquired technology within Total cost of revenue and a $42.3 million decrease to Amortization of acquired intangible assets within Total operating expenses in the year ended December 31, 2020.

The increase to Total cost of revenue decreased our gross profit as a percentage of revenue ("gross margin") by approximately five percentage points.

These reclassifications resulted in $37.6 million recorded to Amortization of acquired technology within Total cost of revenue and a $37.6 million decrease to Amortization of acquired intangible assets within Total operating expenses in the year ended December 31, 2019.

The increase to Total cost of revenue decreased our gross margin by approximately seven percentage points.

New Restructuring Initiative

Headquartered in Plano, Texas, we have a global presence with research and development and/or sales and support locations in over thirty countries around the world.

Key Trends and Economic Factors Affecting Ribbon

COVID-19 and Supplier Disruptions .

The ongoing COVID-19 pandemic has had a negative effect on the global economy, disrupting the various manufacturing, commodity and financial markets and increasing volatility, and has impeded global supply chains.

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

The Ongoing Military Conflict in Ukraine.

The uncertainty resulting from the military conflict in Ukraine and the threat for expansion of the conflict has resulted in some of our customers delaying purchases from us.

Further, the U.S.

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

These sanctions currently prohibit our ability to sell certain products and services.

The sanctions continue to evolve and further changes in the current sanctions could further limit our ability to sell products and services to customers in Russia and, our ability to collect on outstanding accounts receivable from such customers.

If we are further limited in our ability to sell products and services to Russia and other countries for an extended period, it could have a material impact on our financial results.

Inflation and Interest Rates .

We continue to see near-term impacts on our business due to inflation, including ongoing global price pressures, driving up energy prices, component costs, freight premiums, and other operating costs above normal rates.

Although headline inflation in the United States and Europe appears to have peaked, as gasoline and natural gas prices recede from the latest spike, core inflation (excluding food and energy prices) remains elevated and is a source of continued cost pressure on businesses and households.

Interest rates have increased significantly as central banks in developed countries attempt to subdue inflation while government deficits and debt remain at high levels in many global markets.

Accordingly, the eventual implications of higher government deficits and debt, tighter monetary policy, and potentially higher long-term interest rates may drive a higher cost of capital for our business.

Continued uncertain global economic conditions, including as a result of the ongoing COVID-19 pandemic, the ongoing military conflict in Ukraine and the high inflationary and rising interest environment, may cause our customers to restrict spending or delay purchases for an indeterminate period of time and consequently cause our revenues to decline.

Further, such factors may negatively impact our operating costs resulting in a reduction in net income.

The degree to which the ongoing COVID-19 pandemic, the ongoing military conflict in Ukraine and the high inflationary and rising interest rate environment impacts our future business, financial position and results of operations will depend on developments beyond our control, including the duration of the global economic downturn that has resulted from these factors.

Unless otherwise noted, all financial amounts, excluding tabular information, in this Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") are rounded to the nearest million dollar amount, and all

percentages, excluding tabular information, are rounded to the nearest percentage point.

Equity Offering

On August 12, 2022, we entered into a Securities Purchase Agreement with certain investors for the sale (the "Equity Offering") in a private placement by us of 17,071,311 shares (the "Shares") of our common stock, par value $0.0001 per share, at a price of $3.05 per share.

The aggregate gross proceeds from the Equity Offering were approximately $52.1 million, including $10 million from existing related party shareholders, before deducting offering expenses paid by us of approximately $1.7 million.

We intend to continue to use the net proceeds from the Equity Offering to fund general corporate purposes, including capital expenditures, working capital and repayment of debt.

The original issuance of the Shares in the Equity Offering was exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”) pursuant to Section 4(a)(2) or Regulation D promulgated thereunder.

The Company subsequently filed a registration statement on Form S-3 (the “Registration Statement”) with the SEC registering the Shares, which Registration Statement was declared effective by the SEC on September 23, 2022.

2022 Restructuring Initiative

On February 14, 2022, our 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 potential positions eliminated in countries outside the United States will be subject to local law and consultation requirements.

We currently expect to record approximately $20 million of restructuring and related expense associated with the 2022 Restructuring Plan, including approximately $6 million related to employee severance arrangements and approximately $14 million related to the facilities consolidation.

We expect that the 2022 Restructuring Plan will be substantially completed in 2022.

The 2022 Restructuring Plan includes, 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.

We recorded approximately $10.2 million of restructuring and related expense in 2022 associated with the 2022 Restructuring Plan, including approximately $5.3 million related to employee severance arrangements and approximately $ 4.9 million related to the facilities consolidation, including $1.6 million of net expense related to the accelerated amortization of leased assets.

We anticipate that we will record future expense aggregating approximately $8 million in connection with the 2022 Restructuring Plan which will be completed by the end of 2023.

Business Acquisitions

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

Anova Data, Inc.

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

("Anova"), a private company headquartered in Westford, Massachusetts (the "Anova Acquisition").

Anova is a provider of advanced analytics solutions and its next generation products provide a cloud-native, streaming analytics platform for network and subscriber optimization and monetization.

The Company believes that the Anova Acquisition will reinforce and extend Ribbon's strategy to expand into network optimization, security and data monetization via big data analytics and machine learning.

As consideration for the Anova Acquisition, we issued 2.9 million shares of our common stock with a fair value of $15.2 million to Anova's sellers and equity holders on the Anova Acquisition Date and held back an additional 330,000 shares of our common stock with a fair value of $1.7 million (the "Deferred Purchase Consideration"), of which 316,551 shares were issued

after post-closing adjustments on March 4, 2020.

The Deferred Purchase Consideration was included as a component of Accrued expenses and other in our consolidated balance sheet at December 31, 2019.

The Anova Acquisition has been accounted for as a business combination and the financial results of Anova have been included in our consolidated financial statements for the periods subsequent to the Anova Acquisition Date.

Sale of Kandy Communications Business and Investment in AVCT

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This amount is included as a component of Other (expense) income, net, in our consolidated statement of operations.

We recorded $3.5 million of interest income in the year ended December 31, 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 our consolidated statement of operations.

We recorded $3.5 million of interest income in the year ended December 31, 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 our consolidated statement of operations.

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

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Accordingly, we determined that we are not the primary beneficiary of AVCT as we do not have the power to direct the activities that most significantly impact the AVCT Investment's economic performance and therefore concluded that we had neither significant influence nor a controlling interest arising from the AVCT Investment.

On August 29, 2022, the Company and AVCT entered into a settlement agreement which provided for, amongst other things, the cancellation of the Company's investment in the Debenture Shares and the Warrants with an aggregate fair value of $2.6 million.

Pursuant to the settlement agreements, the Company and AVCT also entered into a Wind Down Agreement, pursuant to which a Reseller Agreement between the parties, as previously amended, was terminated, and the Company was granted a non-exclusive perpetual license to use and modify certain intellectual property owned by AVCT comprising WebRTC gateway technology that is integrated with Ribbon’s SBCs and Application Servers.

As consideration, the Company paid AVCT $2.5 million in cash, the Debenture Shares were redeemed and canceled, and the Warrants were terminated and canceled.

The perpetual license granted by AVCT is classified as Intangible assets, net in the Company's consolidated balance sheet as of December 31, 2022 in the amount of $3.9 million.

Litigation Settlement

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Our chief operating decision maker (the "CODM") is our president and chief executive officer.

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

Effective in the fourth quarter of 2020 and in connection with the ECI Acquisition, our CODM began to assess our performance based on the performance of two separate lines of business within Ribbon:

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

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Financial Results

We reported a loss from operations of $117.8 million for 2021 and income from operations of $1.7 million for 2020.

We reported a net loss of $177.2 million for 2021 and net income of $88.6 million for 2020.

We reported a loss from operations of $48.3 million for 2022 and $117.8 million for 2021.

We reported a net loss of $98.1 million for 2022 and $177.2 million for 2021.

Our revenue was $819.8 million in 2022, comprised of $508.2 million attributable to Cloud and Edge and $311.6 million attributable to IP Optical Networks.

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Our operating expenses were $449.3 million in 2022 and $562.5 million in 2021.

Our 2021 operating expenses included $116.0 million for the impairment of goodwill, $28.3 million of amortization of acquired intangible assets, $7.6 million of acquisition-, disposal- and integration-related expense, and $11.7 million of restructuring and related expense.

Our 2022 operating expenses included $29.6 million of amortization of acquired intangible assets, $6.3 million of acquisition-, disposal- and integration-related expense, and $10.8 million of restructuring and related expense.

We recorded stock-based compensation expense of $18.7 million in 2022 and $19.4 million in 2021.

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Restructuring and Cost Reduction Initiatives

In February 2022, our Board of Directors approved 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 includes, 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.

In connection with this initiative, we recorded restructuring and related expense of $10.2 million in 2022, comprised of $3.3 million for variable and other facilities-related costs, $1.6 million for accelerated amortization of lease assets no longer being used with no ability or intent to sublease, and $5.3 million for severance and related costs for approximately 70 employees.

We anticipate that the 2022 Restructuring Plan will be completed by the end of 2023 and we will record future related expense of approximately $8 million.

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

In connection with this initiative, we have eliminated duplicate functions arising from the ECI Acquisition in support of our efforts to integrate the two companies.

In connection with the 2020 Restructuring Initiative, we recorded restructuring and related expense of $4.7 million and $14.0 million in 2021 and 2020, respectively.

In connection with this initiative, we eliminated duplicate functions arising from the ECI Acquisition in support of our efforts to integrate the two companies.

In connection with the 2020 Restructuring Initiative, we recorded a nominal amount of restructuring and related expense in 2022 and $4.7 million of such expense in 2021.

The 2021 amount was comprised of $4.6 million for severance and related costs for approximately 60 employees and $0.1 million for variable and other facilities-related costs.

The 2020 amount was comprised of $11.5 million for severance and related costs for approximately 190 employees, $2.0 million for variable and other facilities-related costs, and $0.5 million for accelerated amortization of lease assets.

We expect these amounts will be fully paid in 2022.

We expect to record additional restructuring and related expense approximating $1 million under the 2020 Restructuring Initiative in the aggregate for severance and planned facility consolidations.

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

All amounts will be fully paid in 2023.

We expect to record nominal if any future restructuring and related expense under the 2020 Restructuring Initiative.

In 2019, we implemented a restructuring plan to streamline our global footprint, improve our operations and enhance our customer delivery (the "2019 Restructuring Initiative").

The 2019 Restructuring Initiative includes facility consolidations, refinement of our research and development activities, and a reduction in workforce.

The facility consolidations under the 2019 Restructuring Initiative (the "Facilities Initiative") include a consolidation of our 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, we intend to substantially consolidate our global software laboratories and server farms into two lower cost North American sites.

The facility consolidations under the 2019 Restructuring Initiative (the "Facilities Initiative") included a consolidation of our 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 Facilities initiative included consolidating our global software laboratories and server farms into two lower cost North American sites.

We continue to evaluate our properties included in the Facilities Initiative for accelerated amortization and/or right-of-use asset impairment.

We expect that the actions under the Facilities Initiative will be completed in 2023.

In connection with the 2019 Restructuring Initiative, we recorded restructuring and related expense of $7.0 million and $2.3 million in 2021 and 2020, respectively.

The amount recorded in 2021 was comprised of $5.7 million for variable and other facilities-related costs and $1.3 million of net expense for accelerated amortization of lease assets.

We expect that the actions under the Facilities Initiative will be substantially completed in 2023.

In connection with the 2019 Restructuring Initiative, we recorded restructuring and related expense of $0.7 million in 2022 comprised entirely of facilities related expense.

We recorded restructuring and related expense of $7.0 million in 2021,

comprised of $5.7 million for variable and other facilities-related costs and $1.3 million of net expense for accelerated amortization of lease assets.

The amount for accelerated amortization of lease assets was comprised of $3.4 million of expense and $2.1 million of income related to a lease modification for one of our restructured lease facilities.

The amount recorded in 2020 was comprised of $0.5 million for severance and related costs for approximately 5 employees, $1.7 million for variable and other facilities-related costs and $0.1 million for accelerated amortization of lease assets.

The amount accrued for severance and related costs was paid in 2021.

We estimate that we will record nominal, if any, future expense related to this initiative.

Accelerated rent amortization is recognized from the date that we commence 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.

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Critical Accounting Policies and Estimates

Management's discussion and analysis of the financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America.

This MD&A is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America.

The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities.

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The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis.

SSPs are typically estimated based on observable transactions when these services are sold on a standalone basis.

SSPs are typically estimated using all observable transactions, including when products and services are sold on a standalone basis.

The software licenses typically provide a perpetual right to use our software.

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Our professional services include consulting, technical support, resident engineer services, design services and installation services.

Because control transfers over time, revenue is recognized based on progress toward completion of the performance obligation.

Because control transfers over time, revenue is recognized based on progress toward completion of the performance

The method to measure progress toward completion requires judgment and is based on the nature of the products or services to be provided.

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

Under the cost-to-cost measure of progress,

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

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

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

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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.

Since the Debenture Conversion Date, the Company is valuing 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 is holding at each measurement date.

Since the Debenture Conversion Date, 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 was holding at each

measurement date.

Adjustments to the fair values of the AVCT Units (prior to the Debenture Conversion Date) and AVCT Investment (subsequent to the Debenture Conversion Date) are included in Other (expense) income, net.

The fair values of the AVCT Investment and the AVCT Units are reported as Investments in our consolidated balance sheets at December 31, 2021 and 2020, respectively.

On August 29, 2022, we entered into a settlement agreement with AVCT which provided for, amongst other things, the cancellation of our investment in the Debenture Shares and the Warrants.

Pursuant to the settlement agreement, we also entered into a Wind Down Agreement with AVCT, pursuant to which a Reseller Agreement between the parties, as previously amended, was terminated, and the Company was granted a non-exclusive perpetual license to use and modify certain intellectual property owned by AVCT comprising WebRTC gateway technology that is integrated with Ribbon’s SBCs and Application Servers.

The perpetual license granted by AVCT is classified as Intangible assets, net in our consolidated balance sheet as of December 31, 2022.

The fair value of the AVCT Investment was reported as an Investment in our consolidated balance sheet at December 31, 2021.

We had no investment in AVCT as of December 31, 2022 due to the settlement agreement entered into on August 29, 2022.

Warranty Accruals.

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The fair value of restricted stock awards, restricted stock units and performance-based awards is based upon our stock price on the grant date.

We grant performance-based stock units, some of which include a market condition, to certain of our executives.

We grant performance-based stock units, some of which include a market condition, to certain of our executives and certain other employees.

We use a Monte Carlo simulation approach to model future stock price movements based upon the risk-free rate of return, the volatility of each entity, and the pair-wise covariance between each entity.

These results are then used to calculate the grant date fair values of the performance-based stock units.

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

We are required to record expense through the respective final vesting dates regardless of the number of shares that are ultimately earned.

Once the grant date criteria have been met for a fiscal year performance period, we record stock-based compensation expense based on our assessment of the probability that the respective performance condition will be achieved and the level, if any, of such achievement.

The Compensation Committee determines the number of shares earned, if any, after our financial results for each fiscal year performance period are finalized.

Upon determination by the Compensation Committee of the number of shares that will be received upon vesting, such number of shares becomes fixed and the unamortized expense is recorded through the remainder of the service period, at which time any performance-based stock units earned will vest pending each executive's continued employment with us through that date.

The amount of stock-based compensation expense recorded in any period for unvested awards requires estimates of the amount of stock-based awards that are expected to be forfeited prior to vesting, as well as assumptions regarding the probability that performance-based stock awards without market conditions will be earned.

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We must make assumptions about future control premiums, market comparables, cash flows, operating plans, discount rates and other factors to determine recoverability.

Prior to 2020, our annual test for impairment of goodwill was completed as of November 30.

Effective in 2020, we changed our annual goodwill impairment test date from November 30 to October 1.

This change did not have a material impact on our consolidated financial statements.

Our annual testing for impairment of goodwill is completed as of October 1.

As described above, effective in the fourth quarter of 2020, we determined that we had two operating segments:

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For the purpose of testing goodwill for impairment, all goodwill is assigned to a reporting unit, which may be either an operating segment or a portion of an operating segment.

We determined that the goodwill assigned to the Cloud and Edge reporting unit was $224.9 million and the goodwill assigned to the IP Optical Networks reporting unit was $192.0 million.

We perform a fair value analysis using both an Income and Market approach, which encompasses a discounted cash flow analysis and a guideline public company analysis using selected multiples.

For our annual impairment testing, we perform a fair value analysis using both an Income and Market approach, which encompasses a discounted cash flow analysis and a guideline public company analysis using selected multiples.

We assess each valuation methodology based upon the relevance and availability of the data at the time the valuation is performed and the methodologies are weighted appropriately.

Based on the results of our recently completed impairment test, we determined that the carrying value of our IP Optical Networks segment exceeded its fair value.

We determined that the amount of the impairment was $116.0 million, and recorded an impairment charge in the fourth quarter of 2021.

The impairment charge is reported separately in our consolidated statement of operations for the year ended December 31, 2021.

We determined that there was no impairment of our Cloud and Edge segment.

Upon completion of our 2020 annual test for goodwill impairment, we determined that there was no impairment of goodwill for either of our reporting units.

We previously operated as a single operating segment with one reporting unit and consequently we evaluated goodwill for impairment based on an evaluation of the fair value of the Company as a whole.

Based on the results of our 2019 annual impairment test, we determined that our carrying value exceeded our fair value.

We performed a fair value analysis using both an income and market approach as described above.

We determined that the amount of the impairment was $164.3 million and recorded an impairment charge in the fourth quarter of 2019.

The impairment charge is reported separately in our consolidated statement of operations for the year ended December 31, 2019.

Based upon the completion of our 2022 annual test for goodwill impairment, we determined that there was no impairment of goodwill for either of our reporting units.

The results of our 2021 impairment test determined that the carrying value of our IP Optical Networks segment exceeded its fair value.

The amount of the impairment was $116.0 million, was recorded in the fourth quarter of 2021 and is reported separately in our consolidated statement of operations for the year ended December 31, 2021.

We determined that there was no impairment of our Cloud and Edge segment in 2021.

We account for our leases in accordance with Accounting Standards Codification ("ASC") 842, Leases ("ASC 842").

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Operating leases are reported separately in our consolidated balance sheets at December 31, 2022 and 2021.

Assets acquired under finance leases are included in Property and equipment, net, in our consolidated balance sheets at December 31, 2021 and 2020.

Assets acquired under finance leases are included in Property and equipment, net, in our consolidated balance sheet at December 31, 2021.

We had no finance leases at December 31, 2022.

We determine if an arrangement is a lease at inception.

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Leases with an initial term of 12 months or less are not recorded on the balance sheet and lease expense for these leases is recognized on a straight-line basis over the lease term.

For operating leases, lease expense for minimum fixed lease payments is recognized on a straight-line basis over the lease term.

For operating leases, lease expense for minimum fixed lease payments is recognized on a straight-line basis over the lease

The expense for finance leases includes both interest and amortization expense components, with the interest component calculated based on the effective interest method and the amortization component calculated based on straight-line amortization of the right-of-use asset over the lease term.

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Accounting for Income Taxes.

Our provision for income taxes is comprised of a current and a deferred portion.

The current income tax provision is calculated as the estimated taxes payable or refundable on tax returns for 2021.

We provide for deferred income taxes resulting from temporary differences between financial and taxable income.

Such differences arise primarily from tax net operating loss ("NOL") and credit carryforwards, depreciation, deferred revenue, stock-based compensation expense, accruals and reserves.

We assess the recoverability of any tax assets recorded on the balance sheet and provide any necessary valuation allowances as required.

In evaluating our ability to recover our deferred tax assets, we consider all available positive and negative evidence, including our past operating results, the existence of cumulative income in the most recent years, changes in the business in which we operate and our forecast of future taxable income.

In determining future taxable income, we make assumptions, including the amount of state, federal and international pre-tax operating income, the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies.

Our provision for income taxes is comprised of both current taxes and deferred taxes.

The current income tax provision is generally calculated as the estimated taxes payable or refundable on tax returns to be filed for the year ended December 31, 2022.

We provide for deferred income taxes based on temporary differences between financial and taxable income, net operating loss carryforwards, tax credit carryforwards and any required valuation allowances..

We assess the recoverability of all deferred tax assets recorded on the balance sheet and provide any necessary valuation allowances as required.

In evaluating our ability to realize our deferred tax assets, we consider all available positive and negative evidence, including our past operating results, the existence of cumulative income in the most recent years, changes in our business operations, and our forecast of future taxable income.

In determining future taxable income, we make assumptions, including the amount of state, federal and international pre-tax income, the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies.

These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates we are using to manage our underlying businesses.

Such assessment is completed on a jurisdiction-by-jurisdiction basis.

In 2021, we released a portion of the valuation allowances of $28 million on U.S.

federal attributes, including certain U.S.

federal net operating loss carryforwards.

Thus, at December 31, 2021, we had valuation allowances of $472 million to offset deferred tax assets of $598 million.

These remaining valuation allowances primarily relate to our U.S.

and Israel operations.

In the event we determine it is more likely than not that we will be able to use a deferred tax asset in the future in excess of its net carrying value, the valuation allowance would be reduced, thereby increasing net earnings and increasing equity in the period such determination is made.

We have recorded net deferred tax assets in some of our other international subsidiaries.

These amounts could change in future periods based upon our operating results and changes in tax law.

We have provided for income taxes on the undistributed earnings of our non-U.S.

subsidiaries as of December 31, 2021, excluding Ireland and Israel.

These subsidiaries, excluding Ireland and Israel, are cost-plus or limited risk distributors that are not anticipated to need to use excess funds locally.

Accordingly, we are required to recognize and book deferred taxes for 2021.

The deferred taxes are booked on the entire outside basis differences related to the foreign subsidiaries, the largest of these differences being undistributed earnings.

subsidiaries as of December 31, 2022, excluding Ireland and Israel, which are indefinitely reinvested.

Accordingly, we are required to recognize deferred taxes for 2022 on the outside basis differences related to the foreign subsidiaries, the largest of these differences being undistributed earnings.

We assess all material positions taken in any income tax return, including all significant uncertain positions, in all tax years that are still subject to assessment or challenge by relevant taxing authorities.

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Revenue for the years ended December 31, 2022 and 2021 was as follows (in thousands, except percentages):

December 31, Increase (decrease)

December 31, Decrease

from prior year

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Total revenue $ 508,137 $ 311,623 $ 819,760 $ 556,656 $ 288,301 $ 844,957

The decrease in our product revenue in 2021 compared to 2020 was primarily the result of $35 million of lower sales of our Cloud and Edge SBC products, coupled with the loss of $11 million of revenue due to the Kandy Sale.

Supply chain and logistics issues, especially in the fourth quarter of 2021, impacted our ability to deliver products, accounting for $10 million of these lower sales and delaying these sales until 2022.

These decreases were partially offset by $18 million of higher sales of

our Cloud and Edge network transformation products and $12 million of IP Optical Networks products.

The increase in revenue from the sale of IP Optical Networks products was attributable to a full year of revenue included in 2021, compared to ten months of revenue in 2020.

The decrease in our product revenue in 2022 compared to 2021 was primarily the result of $ 32 million of lower sales of our Cloud and Edge SBC and NTR products.

The decline in sales was primarily a result of lower spending from our North

American Service Provider customers, offset by increased sales to Enterprise customers.

These decreases were partially offset by $ 22 million of higher sales of our IP Optical Networks products.

The increase in revenue from the sale of IP Optical Networks products was attributable to sales improving across almost all regions and multiple new customer wins.

In 2022, 28% of our product revenue was attributable to sales to enterprise customers, compared to 25% in 2021.

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Total service revenue $ 292,367 $ 84,713 $ 377,080 $ 308,086 $ 83,829 $ 391,915

Total service revenue from our Cloud and Edge segment was relatively flat in 2021 compared to 2020.

Service revenue from our IP Optical Networks segment increased by $16 million in 2021 compared to 2020.

IP Optical Networks maintenance revenue and professional services revenue increased by $12 million and $4 million, respectively, in 2021 and 2020.

This increase is primarily attributable to the inclusion of a full year of revenue in 2021, compared to 10 months of revenue in 2020.

Total service revenue from our Cloud and Edge segment was 5.1% lower in 2022 compared to 2021 due to declines in both maintenance and professional services fees.

The decline in professional services revenue is directly related to lower product sales and the associated attached service activity.

The lower maintenance revenue reflects decommissioning of older equipment and reduced support needs with several customers.

Service revenue from our IP Optical Networks segment increased by 1.1% in 2022 compared to 2021, primarily due to higher maintenance fees from the growing installed base of product.

The following customer contributed 10% or more of our revenue in the years ended December 31, 2022 and 2021:

Verizon Communications Inc.

Revenue earned from customers domiciled outside the United States was 56% of revenue in 2021 and 55% of revenue in 2020.

Revenue earned from customers domiciled outside the United States was 57% of total revenue in both 2022 and 2021.

Due to the timing of project completions, we expect that the domestic and international components as a percentage of our revenue may fluctuate from quarter to quarter and year to year.

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Our deferred revenue balance may fluctuate as a result of the timing of revenue recognition, customer payments, maintenance contract renewals, contractual billing rights and maintenance revenue deferrals included in multiple element arrangements.

We expect that our total revenue in 2022 will increase modestly compared to our 2021 total revenue as our strategy to grow our IP Optical market share in North America gains momentum and capital spending in India and Israel increases.

We expect that our total revenue in 2023 will increase modestly compared to our 2022 total revenue as our strategy to grow our IP Optical market share gains momentum.

The primary source of revenue growth in 2022 was in our IP Routing portfolio, which we anticipate will continue in 2023 with the addition of several new products.

Cost of Revenue/Gross Margin.

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Gross margin 61.1 % 29.1 % 48.9 % 61.7 % 35.1 % 52.6 %

Our gross margin decreased by one percentage point in 2021 compared to 2020.

This decrease was primarily the result of higher component costs, expedite and production fees, and logistics expenses (collectively, "production costs") in both of our segments, coupled with product and customer mix, which decreased our gross margin by approximately two percentage points in the aggregate.

This decrease was partially offset by the absence of costs related to our Kandy products as a result of the Kandy Sale, which increased our gross margin by approximately one percentage point.

The increase in our Cloud and Edge segment gross margin in 2021 compared to 2020 was primarily attributable to the absence of Kandy costs in the current year, partially offset by the aforementioned higher production costs in 2021.

The decrease in our IP Optical segment gross margin in 2021 compared to 2020 was primarily attributable to the aforementioned higher production costs, partially offset by lower installation costs.

We believe that our gross margin may decrease in 2022 compared to 2021 as a result of higher expected sales from IP Optical Networks, which has lower margins due to the higher hardware content in their products, and higher production costs resulting from ongoing worldwide supply chain issues.

Our gross margin decreased by four percentage points in 2022 compared to 2021.

This decrease was primarily the result of lower margins in our IP Optical Networks segment, and lower sales of higher margin Cloud and Edge products.

Higher supply chain costs (including higher component costs, and higher freight and logistics expenses) and increased service expense were the primary contributors to the lower IP Optical Networks gross margin.

We believe that our gross margin will increase slightly in 2023 compared to 2022 primarily due to increased margins in our IP Optical Networks segment, driven by higher volume, product and customer mix, and lower supply chain costs.

Research and Development.

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$ 203,676 $ 194,948 $ 8,728 4.5 %

Our research and development expenses were virtually flat in 2021 compared to 2020.

Lower costs in our Cloud and Edge segment aggregated $25 million, primarily employee-related and product development costs, including the impact of the Kandy sale.

These decreases were virtually offset by higher costs in our IP Optical Networks segment, primarily employee-related, product development and infrastructure -related expenses.

These higher costs were primarily attributable to the inclusion of a full year of expenses in the current year, compared to ten months of expense in 2020, coupled with increased investment in our IP Optical Networks segment's product development.

The increase in our research and development expenses in 2022 compared to 2021 was primarily attributable to approximately $17 million of higher expenses in our IP Optical Networks segment, partially offset by approximately $8 million of lower expenses in our Cloud and Edge segment.

The increased expense also includes higher employee costs as a result of inflationary pressures.

The increased investment in IP Optical Networks R&D is focused on significantly expanding our portfolio of IP Routing solutions, adding additional features to our Optical Transport portfolio, and investment in a next generation SDN management and orchestration platform.

Some aspects of our R&D efforts require significant short-term expenditures, the timing of which may cause significant variability in our expenses.

We believe that rapid technological innovation is critical to our long-term success, and we are tailoring our investments to meet the requirements of our customers and market.

We believe that our R&D expenses in 2022 will increase modestly compared to 2021, primarily due to our incremental investment in critical growth areas, partially offset by cost savings from the 2022 Restructuring Initiative.

We believe that our R&D expenses in 2023 will decrease compared to 2022, with reduced investment in both segments in areas such as element management and sustaining engineering.

Sales and Marketing.

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Sales and marketing expenses for the years ended December 31, 2022 and 2021 were as follows (in thousands, except percentages):

December 31, Increase

December 31, Decrease

from prior year

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$ 147,766 $ 150,279 $ (2,513) (1.7) %

The increase in sales and marketing expenses in 2021 compared to 2020 was primarily attributable to $7 million of higher employee-related expenses, $2 million of higher consulting fees, $1 million of higher infrastructure-related costs, and $1 million of net increases in other sales and marketing expenses.

At the segment level, our IP Optical Networks segment sales and market expenses increased by $15 million in 2021, partially offset by $4 million of lower Cloud and Edge segment expenses.

The increase in IP Optical Networks segment expense is primarily attributable to the inclusion of a full year of expense in the current year, compared to ten months of expense in 2020, principally employee-related, consulting and infrastructure-related costs.

The decrease in Cloud and Edge segment expense was primarily attributable to lower employee-related expenses resulting from the Kandy Sale.

We believe that our sales and marketing expenses 2022 will be consistent with 2021 levels.

The decrease in sales and marketing expenses in 2022 compared to 2021 was primarily attributable to the reduced investment in under-performing regions and lower marketing expenses.

We believe that our sales and marketing expenses will be lower in 2023 compared to 2022 as we gain efficiencies from creating a combined Global sales force, and continued reduced investment in under-performing regions.

General and Administrative.

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$ 51,053 $ 53,661 $ (2,608) (4.9) %

The decrease in general and administrative expenses in the 2021 compared to 2020 was primarily attributable to $5 million of lower infrastructure-related expenses, $2 million each of lower employee- and litigation-related expenses, and $1 million of

net decreases in other general and administrative expenses.

At the segment level, our Cloud and Edge segment expenses decreased by $8 million, while our IP Optical Networks segment expenses decreased by $2 million.

The decrease in Cloud and Edge segment expenses was primarily attributable to lower infrastructure-related expense, the absence of approximately $2 million of litigation-related expense in the current year, and lower employee-related expenses and professional (i.e., consulting, legal and audit) fees.

Lower infrastructure- and employee-related expenses for our IP Optical Networks segment were partially offset by higher general and administrative expenses resulting from the inclusion of a full year of expense in the current year, compared to ten months of expense in 2020.

We believe that our general and administrative expenses in 2022 will decrease slightly compared to our 2021 levels, primarily due to cost savings from the 2022 Restructuring Initiative.

The decrease in general and administrative expenses in 2022 compared to 2021 was attributable to lower employee-related expenses due to cost saving initiatives, partially offset by slightly higher professional fees.

We believe that our general and administrative expenses in 2023 will increase slightly compared to our 2022 levels, primarily due to higher employee costs and as a result of inflation.

Amortization of Acquired Intangible Assets included in Operating expenses.

Amortization of acquired intangible assets included in Operating expenses for the years ended December 31, 2021 and 2020 was as follows (in thousands, except percentages):

Amortization of acquired intangible assets included in Operating expenses ("Opex Amortization") for the years ended December 31, 2022 and 2021 was as follows (in thousands, except percentages):

December 31, Increase

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$ 29,646 $ 28,283 $ 1,363 4.8 %

The increase in amortization of acquired intangible assets included in operating expenses was primarily due to the inclusion of amortization expense related to the ECI Acquisition for a full year, compared to ten months of expense in 2020, coupled with the scheduled recognition of such expense in relation to expected future cash flows, as the amortization of such intangible assets is not recorded on a straight-line basis.

The increase in Opex Amortization in 2022 compared to 2021 was primarily due to higher expense related to customer lists recorded in connection with the ECI Acquisition.

Opex Amortization is not recorded on a straight-line basis;

rather, it is recorded in relation to expected future cash flow.

Accordingly, such expense may vary from one period to the next.

Impairment of Goodwill .

Our annual testing for impairment of goodwill is completed as of October 1.

Based on the results of our recently completed impairment test, we determined that the carrying value of our IP Optical Networks segment exceeded its fair value, and recorded an impairment charge of $116.0 million in the fourth quarter of 2021.

We determined that there was no impairment of our Cloud and Edge segment.

Our annual test for impairment in 2020 did not result in an impairment for either of our two reporting units.

Based on the results of our 2022 impairment test, we determined that there was no impairment of our Cloud and Edge or IP Optical Networks segments.

Our annual test for impairment in 2021 resulted in an impairment charge of $116.0 million for our IP Optical Networks segment, with no impairment of our Cloud and Edge segment.

Impairment of goodwill is reported separately in the consolidated statements of operations.

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Acquisition- and disposal-related expenses include professional and services fees, such as legal, audit, consulting, paying agent and other fees.

Integration-related expenses represent incremental costs related to combining the Company's systems and processes with those of acquired businesses, such as third-party consulting and other third-party services.

Integration-related expenses represent incremental costs related to combining our systems and processes with those of acquired businesses, such as third-party consulting and other third-party services.

Acquisition-, disposal- and integration-related expenses are reported separately in the consolidated statements of operations.

We recorded $7.6 million of acquisition-, disposal- and integration-related expenses in 2021, comprised of $7.1 million of integration-related expenses, $0.3 million of disposal-related expenses an $0.2 million of acquisition-related expenses.

We recorded $6.3 million of acquisition-, disposal- and integration-related expenses in 2022, primarily related to integration-related expenses.

We recorded $7.6 million of acquisition-, disposal- and integration-related expenses in 2021, comprised of $7.1 million of acquisition-related expenses, $0.3 million of disposal-related expenses and $0.2 million of integration-related expenses.

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We have been committed to streamlining operations and reducing operating costs by closing and consolidating certain facilities and reducing our worldwide workforce.

Please see the additional discussion of our restructuring initiatives in the "Restructuring and Cost Reduction Initiatives" section of the Overview of this Management's Discussion and Analysis of Financial Condition and Results of Operations.

Please see the additional discussion of our restructuring initiatives in the "Restructuring and Cost Reduction Initiatives" section of the Overview of this MD&A.

Restructuring and related expense is reported separately in the consolidated statements of operations.

We recorded restructuring and related expense of $10.8 million in 2022, comprised of $ 5.3 million for severance and related costs, and $ 5.5 million for variable and other facilities-related costs, including $ 1.6 million of net expense for the accelerated amortization of lease assets.

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

We recorded $11.7 million of restructuring and related expense in 2021, comprised of $4.6 million for severance and related costs, and $7.1 million for variable and other facilities-related costs, including $1.3 million of net expense for the accelerated amortization of lease assets.

Although we have eliminated positions as part of our restructuring initiatives, we continue to hire in certain areas that we believe are important to our future growth.

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Interest expense (20,012) (19,564) $ 448 2.3 %

$ (15,831) $ (21,042) $ 5,211 (24.8) %

Interest expense, net $ (19,780) $ (15,831) $ (3,949) 24.9 %

Interest income was nominal in 2022.

Interest expense in 2022 was primarily comprised of $ 16.0 million of interest on our outstanding term debt, $2.3 million in the aggregate related to amortization of debt issuance costs in connection with the 2020 Credit Facility (as defined below) and $1.7 million primarily related to factoring certain accounts receivable .

Interest income in 2021 primarily represents paid-in-kind interest on the Debentures prior to the Debenture Conversion Date, which was recorded as an increase to the fair value of the Debentures.

Interest expense in 2021 was primarily comprised of $13.8 million of interest on our outstanding term debt and $4.8 million in the aggregate related to amortization of debt issuance costs in connection with the 2020 Credit Facility (as defined below), including the write-off of $2.5 million of capitalized debt issuance costs in connection with the Third Amendment (as defined below), and interest expense in connection with the factoring of certain accounts receivable.

Interest income in 2020 primarily represents interest earned on the outstanding note receivable from Metaswitch, which was paid in full in the third quarter of 2020.

Interest expense in 2020 was primarily comprised of $14.4 million of interest on our outstanding term debt, and $4.2 million in the aggregate related to amortization of debt issuance costs, interest on other borrowings and finance leases, and interest expense in connection with the factoring of certain accounts receivable.

Interest expense in 2020 also included the write-off of $2.9 million of debt issuance costs in connection with the amendment of the 2020 Credit Facility and the retirement of the 2019 Credit Facility (as defined below).

capitalized debt issuance costs in connection with the Third Amendment (as defined below), and interest expense in connection with the factoring of certain accounts receivable.

Other (Expense) Income, Net .

We recorded other expense, net, aggregating $74.5 million in 2021, primarily comprised of $74.8 million of losses resulting from the change in fair value of the AVCT Units for the period from January 1, 2021 to the Debenture Conversion Date and the AVCT Investment for the period from the Debenture Conversion Date to December 31, 2021.

We recorded other expense, net, aggregating $44.5 million in 2022, primarily comprised of $41.3 million of losses resulting from the change in the fair value of the AVCT Investment.

We recorded other expense, net of $74.5 million in 2021, primarily comprised of $74.8 million of losses resulting from the change in fair value of the AVCT Units for the period from January 1, 2021 to the Debenture Conversion Date and the AVCT Investment for the period from the Debenture Conversion Date to December 31, 2021.

This loss was partially offset by a gain of $2.8 million on the sale of our QualiTech business, which operates compliance testing laboratories in Israel for reliability and standardization testing for the high-tech industry, including testing in medical equipment, military equipment and vehicles ("QualiTech").

We recorded $112.7 million of net other income in 2020, primarily in connection with the Kandy Sale, which was comprised of $83.6 million from the gain on the sale, and $30.3 million related to the increase in the fair value of the AVCT Units from the Kandy Sale Date through December 31, 2020.

Income Tax Benefit (Provision).

We recorded an income tax benefit of $31.0 million in 2021 and an income tax provision of $4.7 million in 2020.

Income Taxes.

We recorded an income tax benefit of $14.5 million and $31.0 million in 2022 and 2021, respectively.

The decrease in the tax benefit from 2021 to 2022 is a result of changes in the jurisdictional mix of pre-tax book income between those jurisdictions that have a valuation allowance and those that do not.

The benefit recorded in 2021 was primarily the result of the release of part of the valuation allowance against deferred tax assets in the U.S.

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subsidiaries due to legal entity restructuring activities.

The provision recorded in 2020 was primarily the result of the gain from the Kandy Sale and foreign operations.

During 2022 and 2021, we performed an analysis to determine if, based on all available evidence, we considered it more likely than not that some portion or all of the recorded deferred tax assets will not be realized in a future period.

As a result of our evaluations, in 2021, we released a portion of the valuation allowance on U.S.

federal net operating loss carryforwards of $28 million.

As a result, for the U.S.

As a result of our evaluations, in 2022, for the U.S.

deferred tax assets, we concluded that deferred tax assets are generally realizable, with the exception of certain federal and state net operating loss carryforwards, as well as certain tax credits, that are not anticipated to be utilized.

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deferred tax assets of $25.5 million.

As a result of our evaluations for Israel, we maintained a valuation against our deferred tax assets in Israel.

As a result of our evaluations for Israel, we maintained a full valuation allowance against our net deferred tax assets in Israel.

Years Ended December 31, 2021 and 2020

For a comparison of our results of operations for the fiscal years ended December 31, 2021 and 2020, see "Part II, Item 7.

MD&A" of our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 11, 2022.

Liquidity and Capital Resources

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Net (loss) income $ (98,083) $ (177,185) $ 79,102

Adjustments to reconcile net (loss) income to cash flows provided by operating activities 251,655 (17,903) 269,558

Adjustments to reconcile net (loss) income to cash flows (used in) provided by operating activities 122,052 251,655 (129,603)

Changes in operating assets and liabilities (50,333) (55,288) 4,955

Net cash provided by operating activities $ 19,182 $ 101,564 $ (82,382)

Net cash (used in) provided by operating activities $ (26,364) $ 19,182 $ (45,546)

Net cash used in investing activities $ (12,136) $ (14,188) $ 2,052

Net cash (used in) provided by financing activities $ (33,683) $ 319,303 $ (352,986)

Net cash provided by (used in) financing activities $ 931 $ (33,683) $ 34,614

We had cash and restricted cash aggregating $67.3 million and $106.5 million at December 31, 2022 and 2021, respectively.

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

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

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

("Citizens"), Santander Bank, N.A., and others as lenders, ("Lenders").

For additional details regarding the terms of the 2020 Credit Facility, see Note 14 to our consolidated financial statements.

The proceeds from the 2020 Credit Facility were used, in part, to pay off in full all obligations of the Company under the 2019 Credit Facility.

proceeds from the 2020 Credit Facility were used, in part, to pay off in full all obligations of the Company under the 2019 Credit Facility.

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

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

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

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

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

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

grant or assume liens;

make acquisitions or engage in mergers;

sell, transfer, assign or convey assets;

repurchase equity and make dividend and certain other restricted payments;

make investments;

engage in transactions with affiliates;

enter into sale and leaseback transactions;

enter into burdensome agreements;

change the nature of its business;

modify their organizational documents;

or amend or make prepayments on certain junior debt.

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

If an event of default relating to bankruptcy or other insolvency events with respect to the Company or any of its subsidiaries occurs, all obligations

under the 2020 Credit Facility will immediately become due and payable.

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

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

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

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

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

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

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

On August 18, 2020, we entered into the First Amendment to the 2020 Credit Facility in which $75 million of the 2020 Term Loan Facility was assigned from Citizens to a new lender and designated as the Term B Loan.

The remaining $325 million of the 2020 Term Loan Facility was deemed the Term A Loan.

The Term A Loan and the 2020 Revolving Credit Facility mature in March 2025 and bore an interest rate, at the Borrower's option, pf either the LIBOR rate plus a margin ranging from 1.50% to 3.50% per year, or the base rate plus 0.50%, or the prime rate plus a margin ranging from 0.50% to 2.50% per year (the "Applicable Margin").

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

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

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

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

The First Amendment did not change the terms applied to the Term A Loan or the Revolving Credit Facility under the 2020 Credit Facility.

The Term B Loan was scheduled to mature in March 2026 and bore interest, at the Borrower's option, at either the LIBOR rate plus a margin of 7.50% per year, or the base rate (the highest of the Federal Funds Effective Rate (as defined in the 2020 Credit Facility) plus 0.50%, or the prime rate announced from time to time in The Wall Street Journal, plus a margin of 6.50% per year.

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

We were required to make quarterly principal payments totaling approximately $1 million in the first year and $8 million in the aggregate over the next four and a half years, with the final payment approximating $66 million due on the maturity date.

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.

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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, we 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 amend certain provisions of the 2020 Credit Facility.

At December 31, 2020, we had an outstanding Term A Loan balance of $318.5 million at an average interest rate of 3.4%, and the Term B Loan had an outstanding balance of $74.6 million at average interest rate of 8.40%.

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"), we 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 us in the original principal amount of $74.6 million, the proceeds of which were used on the Third Amendment Effective Date to consummate an open market purchase of all outstanding amounts under the Term B Loan.

Upon the consummation of the open market purchase, the Term B Loans were assigned to the Borrower and immediately canceled, 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").

We are 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.

On March 10, 2022, we 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, we made a $15.0 million prepayment that was applied to the final payment due on the maturity date.

At December 31, 2021, we 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%.

On December 1, 2020, we entered into the 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, we entered into the Third Amendment to the 2020 Credit Facility which provided for an incremental term loan facility to us in the original principal amount of $74.6 million, the proceeds of which were used to consummate an open market purchase of all outstanding amounts under the Term B Loan, resulting in the assignment and immediate cancellation of the Term B Loan, 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.

We wrote off $2.5 million of capitalized debt issuance costs in connection with the Third Amendment, which is included in Interest expense, net, in our consolidated statement of operations for the year ended December 31, 2021.

On March 10, 2022, we entered into the Fourth Amendment to the 2020 Credit Facility to increase the Maximum Consolidated Net Leverage Ratio (as defined in the 2020 Credit Facility) and in conjunction we made a $15.0 million prepayment that was applied to the final payment due on the maturity date.

On June 30, 2022, we entered into the 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) for 2022, with the fourth quarter of 2022 increased to 4.75:1.00.

In the 1st and 2nd quarters of 2023, the Maximum Consolidated Net Leverage Ratio allowed declines to 3.25:1.00 and in all subsequent quarters the ratio will be fixed at 3.00:1.00.

Also, the Fifth Amendment reduced the

minimum Consolidated Fixed Charge Coverage Ratio (as defined in the 2020 Credit Facility) in 2022, with the fourth quarter of 2022 reduced to 1.10:1.00 and in all subsequent quarters the ratio will be fixed at 1.25:1.00.

In addition, the Fifth Amendment increased the maximum rate at which loans bear interest if our Consolidated Net Leverage Ratio for any quarter is greater than 4.50:1.00.

Specifically, loans incurred bear interest, at our option, at either LIBOR plus a margin ranging from 1.50% to 4.50% per year, or the base rate plus 0.50%, or the prime rate plus a margin ranging from 0.50% to 3.50% per year.

In addition, the Fifth Amendment allows us 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 2020 Credit Facility, and compliance with certain leverage ratio-based covenant exceptions.

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

Subsequent to the Fifth Amendment, we are 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 December 31, 2022, we had an outstanding balance under the 2020 Term Loan of $330.4 million at an average interest rate of 5.4% and $3.3 million of letters of credit outstanding with an interest rate of 4.5%.

At December 31, 2021, we had an outstanding balance under the 2020 Term Loan 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%.

We were in compliance with all covenants of the 2020 Credit Facility at both December 31, 2022 and 2021 .

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As a result of exposure to interest rate movements, during March 2020, we entered into an interest rate swap arrangement, which effectively converted our $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 as of December 31, 2021 was $400 million, and the swap matures on March 3, 2025, the same date the 2020 Credit Facility matures.

On July 22, 2022, we sold $30 million of the notional amount of our interest rate swap back to our counterparty for $1.5 million, reducing the notional amount of this swap to $370 million.

On August 16, 2022, we sold another $30 million of the notional amount of our interest rate swap back to our counterparty for $1.6 million, reducing the notional amount to $340 million, which approximates the current level of our term loan debt outstanding.

The gain in accumulated other comprehensive (loss) income related to the $60 million notional amount sold of $3.1 million is being released into earnings on a straight line basis over the remaining term of the 2020 Credit Facility as a decrease to interest expense, the amortization of which totaled $0.5 million for the year ended December 31, 2022.

The notional amount of this swap as of December 31, 2022 and 2021 was $340 million and $400 million, respectively, and the swap matures on March 3, 2025, the same date the 2020 Credit Facility matures.

Our objectives in using interest rate derivatives are to add stability to interest expense and to manage our exposure to interest rate movements.

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

Based upon projected forward rates, we estimate as of December 31, 2021 that $2.1 million may be reclassified as an increase to interest expense over the next 12 months.

Based upon projected forward rates, we estimate as of December 31, 2022 that $13.2 million may be reclassified as an decrease to interest expense over the next 12 months.

We use letters of credit, performance and bid bonds in the course of our business.

At December 31, 2021, we had $30.1 million of letters of credit, bank guarantees, performance and bid bonds outstanding (collectively, the "Guarantees"), comprised of the $4.3 million of letters of credit under the 2020 Credit Facility described above (the "Letters of Credit") and $25.8 million of bank guarantees and performance and bid bonds under various uncommitted facilities (collectively, the "Other Guarantees").

At December 31, 2020, we had $32.6 million of Guarantees, comprised of $5.6 million of Letters of Credit and $27.0 million of Other Guarantees.

At December 31, 2021 and 2020, we had cash collateral of $2.6 million and $2.7 million, respectively, supporting the Guarantees under our uncommitted facilities.

This cash collateral is included in Restricted cash in our consolidated balance sheets at December 31, 2021 and 2020.

Our IP Optical Networks segment maintains customer receivables factoring agreements with a number of financial institutions.

At December 31, 2022, we had $8.3 million of letters of credit, bank guarantees, performance and bid bonds outstanding (collectively, the "Guarantees"), comprised of the $3.3 million of letters of credit under the 2020 Credit Facility described above (the "Letters of Credit") and $5.0 million

of bank guarantees and performance and bid bonds (collectively, the "Other Guarantees") under various uncommitted facilities.

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

At December 31, 2022 and 2021, we had cash collateral of $0.2 million and $2.6 million, respectively, supporting the Guarantees, which are reported in Restricted cash in the consolidated balance sheets.

We maintain customer receivables factoring agreements with a number of financial institutions.

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

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During the year ended December 31, 2021, we received $118.5 million of cash from the sale of certain accounts receivable and recorded $0.8 million of interest expense in connection with these transactions.

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

The Company did not 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.

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial position, changes in financial position, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources.

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Our primary uses of cash from operating activities have been for personnel costs and investment in our research and development and in our sales and marketing, and general and administrative departments.

Our operating activities used $26 million of cash in 2022, primarily resulting from our net loss, lower accrued expenses and other long-term liabilities, and higher inventory.

The decrease in accrued expenses and other long-term liabilities was primarily due to employee-related cash payments and payments related to facilities, professional fees and royalties.

These amounts were partially offset by certain non-cash expenses, such as amortization of intangible assets, the decrease in the fair value of the AVCT Investment, stock-based compensation, as well as depreciation and amortization of property and equipment.

Our operating activities provided $19 million of cash in 2021, primarily the result of higher accounts payable and deferred revenue, and lower other operating assets, coupled with our non-cash operating expenses such as the impairment of goodwill, the decrease in the fair value of the AVCT Investment, amortization of intangible assets, stock-based compensation and depreciation.

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The decrease in accrued expenses and other long-term liabilities was primarily due to employee-related cash payments and payments related to facilities, professional fees and royalties

Our operating activities provided $102 million of cash in 2020, primarily the result of our net income, lower other operating assets, inventory and accounts receivable, higher accrued expenses and other long-term liabilities, and our non-cash operating income and expenses such as the gain on the Kandy Sale, amortization of intangible assets, stock-based compensation, depreciation, and amortization of debt issuance costs.

These amounts were partially offset by lower accounts payable and deferred revenue.

The decrease in other operating assets was primarily due to the payments received from Metaswitch aggregating $26 million in connection with the 2019 litigation settlement and subsequent supplemental agreement to accelerate the payment of amounts outstanding.

The increase in accrued expenses and other long-term liabilities was primarily due to the derivative liability we recorded in connection with our interest rate swap, which we entered into in the first quarter of 2020.

Cash Flows from Investing Activities

Our investing activities used $12 million and $14 million of cash in 2022 and 2021, respectively.

Our 2022 investing activities were comprised of $10 million paid for purchases of property and equipment, and $3 million paid for purchases of software licenses, partially offset by $1 million of proceeds from the sale of business.

Our 2021 investing activities were comprised of $17 million paid for purchases of property and equipment, partially offset by $3 million of proceeds from the sale of QualiTech.

Our 2020 investing activities were comprised of $347 million of cash paid as cash consideration for ECI and $26 million paid for purchases of property and equipment, partially offset by $43 million of cash proceeds from the sale of land in connection with the ECI Acquisition.

Cash Flows from Financing Activities

Our financing activities provided $1 million of cash in 2022, primarily due to $50 million of net proceeds from the Equity Offering, partially offset by $45 million of principal payments on the 2020 Credit Facility, including the voluntary $15 million incremental principal payment in connection with the Fourth Amendment and voluntary $10.0 million incremental principal payment in connection with the Fifth Amendment, and $3 million for the payment of tax withholding obligations related to the net share settlements of restricted stock awards upon vesting.

Payments of debt issuance costs and principal payments of finance leases together totaled approximately $2 million.

Our financing activities used $34 million of cash in 2021.

We received $75 million of proceeds from the incremental loan obtained in connection with the Third Amendment, which amount was used to consummate an open market purchase of all outstanding amounts under the Term B Loan.

We used $92 million for principal payments of term debt, including the $75 million payoff of the Term B Loan in connection with the Third Amendment, $14 million for the payment of tax withholding obligations related to the net share settlement of restricted stock awards upon vesting, and $1 million each for principal payments of finance leases and payments of debt issuance costs.

Our financing activities provided $319 million of cash in 2020, primarily due to $479 million of proceeds from term debt, which was comprised of $400 million from the 2020 Credit Facility, $75 million from the Term B Loan under the Amended 2020 Credit Facility (concurrent with the repayment of the same amount of original debt under the 2020 Credit Facility as noted below) and $4 million of proceeds from short-term loans in China for the financing of certain export activities.

These proceeds were partially offset by the repayment of the $75 million of debt that was extinguished in connection with the First Amendment, the repayment of $57 million outstanding under the 2019 Credit Facility (comprised of $8 million under the revolving credit facility and $49 million of long-term debt), the payment of $14 million of debt issuance costs in connection with the 2020 Credit Facility and the First Amendment, and the repayment of principal aggregating $10 million related to the

2020 Credit Facility and short-term loans in China.

We also paid $2 million for withholding obligations related to the net share settlement of restricted stock awards upon vesting and $1 million for principal payments on finance leases.

We used $92 million for principal payments of term debt, including the $75 million payoff of the Term B Loan in connection with the Third Amendment, $14 million for the payment of tax withholding

obligations related to the net share settlement of restricted stock awards upon vesting, and $1 million each for principal payments of finance leases and payments of debt issuance costs.

Under the 2020 Credit Facility, we are required to maintain compliance with certain financial covenants.

As of December 31, 2022, we were in compliance with our financial covenants.

Based on our current expectations, we believe our current cash and available borrowings under the 2020 Credit Facility, will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least twelve months.

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We further believe that our financial resources, along with managing discretionary expenses, will allow us to manage the ongoing impact of the COVID-19 pandemic on our business operations.

Looking ahead, we have developed contingency plans to reduce costs further if the situation continues to deteriorate.

The challenges posed by the COVID-19 pandemic on our business continue to evolve rapidly.

Consequently, we continue to evaluate our financial position in light of future developments, particularly those relating to the COVID-19 pandemic.

Looking ahead, we have developed contingency plans to reduce costs further if the situation deteriorates.

However, it is difficult to predict future liquidity requirements with certainty, and our cash and available borrowings under the 2020 Credit Facility may not be sufficient to meet our future needs, which would require us to refinance our debt and/or obtain additional financing.

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Recent Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes ("ASU 2019-12"), which modifies Accounting Standards Codification ("ASC") 740, Income Taxes (Topic 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 adoption of ASU 2019-12 did not have a material impact on our consolidated financial statements upon adoption.

In March 2022, the Financial Accounting Standards Board (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.

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):

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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.

We believe that the adoption of ASU 2021-08 could have a material impact on our consolidated financial statements for periods including and subsequent to significant business acquisitions.

ASU 2021-08 is effective for the Company January 1, 2023.

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):

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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.

We do not believe the adoption of ASU 2021-01 will have a material impact on our consolidated financial statements.

In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848):

Deferral of the Sunset Date of Topic 848 ("ASU 2022-06") which extends the date through which companies can utilize optional expedients and exceptions allowed in Topic 848 from December 31, 2022 to December 31, 2024.

The adoption of ASU 2021-01 and ASU 2022-06 did not have a material impact on the Company's consolidated financial statements.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis