What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-04-28 compared with 2022-10-28 · 339 added, 554 removed, 548 unchanged (62% of the section changed)

3 unchanged sentences

(in thousands, except share and per share data)

September 30,

2023 December 31,

9 unchanged sentences

Goodwill 300,892 300,892

Investments — 43,931

Deferred income taxes 65,902 53,649

11 unchanged sentences

Long-term debt, net of current 225,764 306,270

Warrant liability 5,496 —

Preferred stock liability, $ 0.01 par value per share;

10,000,000 shares authorized, 55,000 shares issued and outstanding at March 31, 2023 ($ 56,650 liquidation preference);

none issued and outstanding at December 31, 2022

Operating lease liabilities, net of current 43,367 46,183

5 unchanged sentences

Stockholders' equity:

Preferred stock, $ 0.01 par value per share;

10,000,000 shares authorized, none issued and outstanding

Common stock, $ 0.0001 par value per share;

240,000,000 shares authorized;

168,093,446 shares issued and outstanding at September 30, 2022;

169,229,979 shares issued and outstanding at March 31, 2023;

168,324,995 shares issued and outstanding at December 31, 2022

8 unchanged sentences

(in thousands, except per share data)

Three months ended Nine months ended

September 30,

2022 September 30,

2021 September 30,

2022 September 30,

Three months ended

2023 March 31,

Product $ 93,318 $ 81,990

15 unchanged sentences

Total operating expenses 116,591 117,109

(Loss) income from operations ( 3,296 ) 1,992 ( 49,589 ) 2,340

Loss from operations ( 35,189 ) ( 39,054 )

Interest expense, net ( 6,422 ) ( 4,001 )

Other expense, net ( 3,732 ) ( 57,702 ) ( 42,760 ) ( 65,970 )

Other income (expense), net 4,772 ( 28,800 )

Loss before income taxes ( 36,839 ) ( 71,855 )

Income tax provision ( 6,122 ) ( 752 ) ( 12,353 ) ( 5,411 )

Income tax (provision) benefit ( 1,466 ) 1,880

Net loss $ ( 38,305 ) $ ( 69,975 )

9 unchanged sentences

(in thousands)

Three months ended Nine months ended

September 30,

2022 September 30,

2021 September 30,

2022 September 30,

Three months ended

2023 March 31,

Net loss $ ( 38,305 ) $ ( 69,975 )

Other comprehensive income (loss), net of tax:

Unrealized gain on interest rate swap 1,726 860 21,248 7,324

Unrealized gain (loss) on interest rate swap, net of reclassifications and amortization into earnings ( 5,900 ) 15,469

Reclassification of (gain) loss to other income upon sale of interest rate swap ( 5,099 ) —

Foreign currency translation adjustments ( 151 ) ( 691 )

Employee retirement benefits 142 — ( 742 ) —

Other comprehensive income, net of tax 1,724 1,053 19,349 7,117

Other comprehensive income (loss), net of tax ( 11,150 ) 14,778

Comprehensive loss, net of tax $ ( 49,455 ) $ ( 55,197 )

3 unchanged sentences

(in thousands, except shares)

Three months ended September 30, 2022

Additional other Total

Common stock paid-in Accumulated comprehensive stockholders'

Shares Amount capital deficit income equity

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

Exercise of stock options 353 1 1

Vesting of restricted stock units 800,999 —

Vesting of performance-based stock units 3,433 —

Shares of restricted stock returned to the Company under net share settlements to satisfy tax withholding obligations ( 242,434 ) ( 738 ) ( 738 )

Common stock issued in equity offering 17,071,311 2 52,065 52,067

Issuance costs related to equity offering ( 1,654 ) ( 1,654 )

Stock-based compensation expense 4,841 4,841

Other comprehensive income 1,724 1,724

Net loss ( 18,416 ) ( 18,416 )

Balance at September 30, 2022 168,093,446 $ 17 $ 1,936,457 $ ( 1,474,232 ) $ 26,927 $ 489,169

Nine months ended September 30, 2022

Three months ended March 31, 2023

Additional other Total

3 unchanged sentences

Exercise of stock options 573 1 1

Vesting of restricted stock units 2,808,137 —

Vesting of performance-based stock units 179,184 —

Shares of restricted stock returned to the Company under net share settlements to satisfy tax withholding obligations ( 861,202 ) ( 2,684 ) ( 2,684 )

Common stock issued in equity offering 17,071,311 2 52,065 52,067

Issuance costs related to equity offering ( 1,654 ) ( 1,654 )

Stock-based compensation expense 13,495 13,495

Other comprehensive income 19,349 19,349

Net loss ( 118,571 ) ( 118,571 )

Balance at September 30, 2022 168,093,446 $ 17 $ 1,936,457 $ ( 1,474,232 ) $ 26,927 $ 489,169

See notes to the unaudited condensed consolidated financial statements.

RIBBON COMMUNICATIONS INC.

Condensed Consolidated Statements of Stockholders' Equity

(in thousands, except shares)

Three months ended September 30, 2021

Additional other Total

Common stock paid-in Accumulated comprehensive stockholders'

Shares Amount capital deficit income equity

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

Exercise of stock options 213 —

Vesting of restricted stock awards and units 1,020,277 —

Vesting of performance-based stock units 381,071 —

Shares of restricted stock returned to the Company under net share settlements to satisfy tax withholding obligations ( 496,937 ) ( 1,893 ) ( 1,893 )

Stock-based compensation expense 5,848 5,848

Other comprehensive income 1,053 1,053

Other comprehensive loss ( 11,150 ) ( 11,150 )

Net loss ( 38,305 ) ( 38,305 )

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

Nine months ended September 30, 2021

Balance at March 31, 2023 169,229,979 $ 17 $ 1,945,525 $ ( 1,492,049 ) $ 19,435 $ 472,928

Three months ended March 31, 2022

Additional other Total

9 unchanged sentences

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

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

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

See notes to the unaudited condensed consolidated financial statements.

2 unchanged sentences

(in thousands)

Nine months ended

September 30,

2022 September 30,

Three months ended

2023 March 31,

Cash flows from operating activities:

Net loss $ ( 38,305 ) $ ( 69,975 )

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

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

Depreciation and amortization of property and equipment 3,510 3,885

3 unchanged sentences

Deferred income taxes ( 6,048 ) ( 6,773 )

Gain on sale of business — ( 2,772 )

Decrease in fair value of investments — 27,027

Gain on sale of swap ( 7,301 ) —

Foreign currency exchange losses ( 2,185 ) 1,105

6 unchanged sentences

Deferred revenue 6,924 ( 1,342 )

Net cash (used in) provided by operating activities ( 42,462 ) 7,899

Net cash provided by operating activities 11,133 15,030

Cash flows from investing activities:

Purchases of property and equipment ( 2,413 ) ( 3,471 )

Purchases of software licenses ( 3,300 ) —

Proceeds from sale of business — 2,944

Net cash used in investing activities ( 2,413 ) ( 3,471 )

Cash flows from financing activities:

Borrowings under revolving line of credit 58,625 —

Principal payments on revolving line of credit ( 58,625 ) —

Proceeds from issuance of term debt — 74,625

Principal payments of term debt ( 80,015 ) ( 20,015 )

1 unchanged sentence

Payment of debt issuance costs ( 1,562 ) ( 370 )

Proceeds from equity offering 52,067 —

Payment of equity offering issuance costs ( 1,654 ) —

Proceeds from issuance of preferred stock and warrant liabilities 53,350 —

Proceeds from the exercise of stock options 1 —

Payment of tax withholding obligations related to net share settlements of restricted stock awards ( 1,893 ) ( 1,812 )

Net cash provided by (used in) financing activities 6,207 ( 28,017 )

Net cash used in financing activities ( 30,119 ) ( 22,395 )

Effect of exchange rate changes on cash, cash equivalents and restricted cash 171 ( 184 )

2 unchanged sentences

Cash, cash equivalents and restricted cash, end of period $ 46,034 $ 95,465

RIBBON COMMUNICATIONS INC.

Condensed Consolidated Statements of Cash Flows (continued)

(in thousands)

Nine months ended

September 30,

2022 September 30,

Supplemental disclosure of cash flow information:

4 unchanged sentences

Capital expenditures incurred, but not yet paid $ 1,579 $ 2,420

Software license acquired through investment disposal $ 1,886 $ —

Inventory transfers to property and equipment $ 656 $ 621

Supplemental disclosure of non-cash financing activities:

6 unchanged sentences

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

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

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

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

The Company is headquartered in Plano, Texas, and has a global presence with research and development or sales and support locations in over thirty-five countries around the world.

The Company is headquartered in Plano, Texas, and has a global presence with research and development, or sales and support locations in over thirty countries around the world.

Basis of Presentation

3 unchanged sentences

The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2022 (the "Annual Report"), which was filed with the SEC on March 31, 2023 .

Equity Offering

On August 12, 2022, the Company entered into a Securities Purchase Agreement with certain investors for the sale (the "Equity Offering") in a private placement by the Company of 17,071,311 shares (the "Shares") of the Company’s 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, before deducting offering expenses paid by the Company of approximately $ 1.7 million.

The Company intends 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”).

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.

Private Placement Offering

On March 28 , 2023, the Company issued 55,000 shares of newly designated Series A Preferred Stock (the "Preferred Stock") to investors in a private placement offering at a price of $ 970 per share, along with 4.9 million warrants (the "Warrants") to purchase shares of the Company's common stock, par value $ 0.0001 per share (the "Private Placement"), at the exercise price of $ 3.77 per share.

The proceeds from the Private Placement were approximately $ 53.4 million, including approximately $ 10 million from existing related party stockholders (See Note 11).

Operating Segments

2 unchanged sentences

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

Reclassifications

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

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

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

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

This reclassification for the three and nine months ended September 30, 2021 was as follows

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(in thousands):

Three months ended September 30, 2021 Nine months ended September 30, 2021

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

Product revenue $ 111,726 $ 111,726 $ 322,744 $ 322,744

Service revenue 98,672 98,672 291,636 291,636

Total revenue 210,398 — 210,398 614,380 — 614,380

Cost of revenue - product 53,494 53,494 144,580 144,580

Cost of revenue - service 36,576 36,576 110,498 110,498

Amortization of acquired technology — 9,674 9,674 — 29,435 29,435

Total cost of revenue 90,070 9,674 99,744 255,078 29,435 284,513

Total gross profit 120,328 ( 9,674 ) 110,654 359,302 ( 29,435 ) 329,867

Research and development 49,132 49,132 143,339 143,339

Sales and marketing 36,113 36,113 108,212 108,212

General and administrative 12,148 12,148 40,435 40,435

Amortization of acquired intangible assets 17,221 ( 9,674 ) 7,547 50,225 ( 29,435 ) 20,790

Acquisition-, disposal- and integration-related 1,955 1,955 4,204 4,204

Restructuring and related 1,767 1,767 10,547 10,547

Total operating expenses 118,336 ( 9,674 ) 108,662 356,962 ( 29,435 ) 327,527

Income from operations $ 1,992 $ — $ 1,992 $ 2,340 $ — $ 2,340

Significant Accounting Policies

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

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

There were no material changes to the significant accounting policies during the three months ended March 31, 2023, except for the addition of the accounting policy below for the Preferred Stock and Warrants issued in the Private Placement on March 28, 2023.

Preferred Stock and Warrants

The Company accounts for the Preferred Stock and Warrants as liability-classified instruments based on an assessment of their specific terms in accordance with ASC Topic 480, Distinguishing Liabilities from Equity .

The fair value option was elected for the Preferred Stock, as the Company considers fair value to best reflect the expected future economic value.

These liabilities will be remeasured to fair value at each reporting date using the same valuation methodology as originally applied upon issuance.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

The value of the Preferred Stock is calculated using the Black-Derman-Toy (BDT) stochastic yield lattice model to capture the optimal timing of repayment, increasing dividend rate and other features, and the value of the Warrants is calculated using the Black Scholes Pricing Model.

Changes in the fair value of the Preferred Stock and Warrants will be reported as Other income (expense), net in the Company's condensed consolidated statements of operations.

Principles of Consolidation

3 unchanged sentences

The preparation of financial statements in conformity with GAAP requires Ribbon to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods.

Significant estimates and judgments relied upon in preparing these condensed consolidated financial statements include accounting for business combinations, revenue recognition for multiple element arrangements, inventory valuations, assumptions used to determine the fair value of stock-based compensation, intangible asset and goodwill valuations, including impairments, legal contingencies and recoverability of Ribbon's net deferred tax assets and the related valuation allowances.

Significant estimates and judgments relied upon in preparing these condensed consolidated financial statements include accounting for business combinations, revenue recognition for multiple element arrangements, inventory valuations, assumptions used to determine the fair value of stock-based compensation and the Preferred Stock and Warrants , intangible asset and goodwill valuations, including impairments, legal contingencies and recoverability of Ribbon's net deferred tax assets and the related valuation allowances.

Ribbon regularly assesses these estimates and records changes in estimates in the period in which they become known.

1 unchanged sentence

Actual results could differ from those estimates.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

Restricted Cash

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

The Company had $ 0.3 million and $ 2.6 million of restricted cash as of September 30, 2022 and December 31, 2021, respectively, representing restricted short-term bank deposits pledged to secure certain performance and financial bonds as security for the Company's obligations under tenders, contracts and to one of its main subcontractors.

The Company had $ 0.2 million of restricted cash as of March 31, 2023 and December 31, 2022 representing restricted short-term bank deposits pledged to secure certain performance and financial bonds as security for the Company's obligations under tenders, and contracts.

Transfers of Financial Assets

The Company maintains customer receivables factoring agreements with a number of financial institutions, primarily for IP Optical Networks sales outside of the United States .

The Company's IP Optical Networks segment maintains customer receivables factoring agreements with a number of financial institutions.

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

The Company maintains credit insurance policies from major insurance providers or obtains letters of credit from the customers for a majority of its factored trade receivables.

The Company accounts for the factoring of its financial assets as a sale of the assets and records the factoring fees, when incurred, as a component of interest expense in the condensed consolidated statements of operations, and the proceeds from the sales of receivables are included in cash from operating activities in the condensed consolidated statements of cash flows.

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

Three months ended Nine months ended

September 30,

2022 September 30,

2021 September 30,

2022 September 30,

Accounts receivable sold $ 16,926 $ 24,961 $ 57,640 $ 88,608

Less factoring fees ( 281 ) $ ( 169 ) ( 757 ) ( 570 )

Net cash proceeds $ 16,645 $ 24,792 $ 56,883 $ 88,038

Going Concern

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

In the second quarter of 2022, although the Company was in compliance with its financial covenants, it projected that it may not maintain compliance with its financial covenants under the 2020 Credit Facility, as amended (as defined in Note 9), for the quarter ended September 30, 2022 due to the impact of market conditions, including supply chain disruptions, higher costs, and other geopolitical instabilities and disputes.

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

Under the terms of the existing credit agreement (see Note 9), the Company is allowed, subject to certain limitations, to use a portion of the capital raised in the Equity Offering in the calculation of the covenant ratios for the quarter in which the Equity Offering was completed (quarter ended September 30, 2022) and for future calculation of the covenant ratios for which the third quarter of 2022 is included in the trailing twelve month period.

As a result, the Company currently projects that it will remain in compliance with its financial covenants for at least one year from the date the condensed consolidated financial statements are issued.

The Company accounts for the factoring of its financial assets as a sale of the assets and records the factoring fees, when incurred, as a component of interest expense in the consolidated statements of operations, and the proceeds from the sales of receivables are included in cash from operating activities in the consolidated statements of cash flows.

During the three months ended March 31, 2023, the Company received $ 21.1 million of cash from the sale of certain accounts receivable and recorded $ 0.5 million of interest expense in connection with these transactions.

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

Recent Accounting Pronouncements

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

Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”), which eliminates the

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

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

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

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

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 was effective for the Company January 1, 2023.

The adoption of ASU 2022-02 did not have a material impact on the Company's consolidated financial statements.

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

2 unchanged sentences

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.

ASU 2021-08 was 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):

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

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

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

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

(2) EARNINGS (LOSS) PER SHARE

1 unchanged sentence

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

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

Three months ended Nine months ended

September 30,

2022 September 30,

2021 September 30,

2022 September 30,

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

Three months ended

2023 March 31,

Weighted average shares outstanding - basic 168,541 149,167

1 unchanged sentence

Weighted average shares outstanding - diluted 168,541 149,167

Options to purchase the Company's common stock and unvested restricted and performance-based stock units aggregating 14.4 million shares have not been included in the computation of loss per share for the three and nine months ended September 30, 2022 because their effect would have been antidilutive.

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

Options to purchase the Company's common stock and unvested restricted and performance-based stock units aggregating 11.9 million shares and 8.4 million shares were excluded from the computation of diluted loss per share for the three months ended March 31, 2023 and 2022, respectively, because their effect would have been antidilutive.

The potential effect from the Warrants issued on March 28, 2023 on weighted average shares outstanding for the calculation of diluted earnings (loss) per share was de minimis for the three months ended March 31, 2023.

Dividends payable on the Preferred Stock will not be an adjustment to net income (loss) used for the calculation of diluted earnings (loss) per share as the dividends will be included in the fair value adjustment of the Preferred Stock which will be reflected each reporting period in Other income (expense), net.

RIBBON COMMUNICATIONS INC.

1 unchanged sentence

(3) INVENTORY

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

September 30,

Inventory at March 31, 2023 and December 31, 2022 consisted of the following (in thousands):

2023 December 31,

5 unchanged sentences

(4) INTANGIBLE ASSETS AND GOODWILL

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

September 30, 2022 Weighted average amortization period

The Company's intangible assets at March 31, 2023 and December 31, 2022 consisted of the following (in thousands):

March 31, 2023 Weighted average amortization period

(years) Cost Accumulated

1 unchanged sentence

carrying value

In-process research and development * $ 34,000 $ — $ 34,000

Developed technology 7.84 $ 340,380 $ 219,471 $ 120,909

7 unchanged sentences

carrying value

In-process research and development * $ 34,000 $ — $ 34,000

Developed technology 7.84 $ 340,380 $ 212,448 $ 127,932

1 unchanged sentence

Trade names 3.88 5,000 4,658 342

Internal use software 3.00 730 730 —

Software licenses 3.00 5,186 487 4,699

9.51 $ 618,706 $ 323,978 $ 294,728

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

Estimated future amortization expense for the Company's intangible assets at September 30, 2022 was as follows (in

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

Estimated future amortization expense for the Company's intangible assets at March 31, 2023 was as follows (in thousands):

Years ending December 31,

1 unchanged sentence

Thereafter 46,822

On August 29, 2022, the Company acquired perpetual software licenses from American Virtual Cloud Technologies, Inc.

("AVCT") for $ 4.4 million (see Note 5).

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

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

There were no changes to the carrying value of the Company's goodwill in the three months ended March 31, 2023 and

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

The components of goodwill at March 31, 2023 and 2022 were as follows (in thousands):

Cloud and Edge IP Optical Networks Total

Balance at September 30, 2022

Balance at March 31, 2023

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

1 unchanged sentence

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

Balance at September 30, 2021

Balance at March 31, 2022

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

2 unchanged sentences

(5) INVESTMENTS AND FAIR VALUE HIERARCHY

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

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

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

The Company received debentures (the "Debentures") and warrants (the "AVCT Warrants") as sale consideration in connection with the sale of its Kandy Communications business on December 1, 2020 to American Virtual Cloud Technologies, Inc.

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

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

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

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

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

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

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

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.

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 AVCT 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 condensed consolidated balance sheet as of September 30, 2022 in the amount of $ 4.4 million.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

The fair value of the AVCT Investment, which was reported as an Investment in the Company's condensed consolidated balance sheet, was $ 43.9 million December 31, 2021.

The Company had no investment in AVCT as of September 30, 2022 due to the settlement agreement entered into on August 29, 2022.

The Company recorded losses of $ 1.9 million and $ 41.3 million in the three and nine months ended September 30, 2022, respectively, representing the change in the fair value of the AVCT Investment.

The Company recorded losses of $ 56.5 million and $ 68.3 million in the three and nine months ended September 30, 2021, respectively, representing the change in the fair value of the AVCT Investment, which was partially offset by the paid-in-kind interest income described above.

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

The Company evaluated the nature of the AVCT Investment at December 31, 2021, and determined that it represented an equity interest on a diluted basis of approximately 15 %.

The Company determined that it was not the primary beneficiary of AVCT as it did not have the power to direct the activities that most significantly impact the AVCT Investment's economic performance, and therefore concluded that the Company had neither significant influence nor a controlling interest arising from the AVCT Investment that would require consolidation as of December 31, 2021.

The carrying amounts of the Company's financial instruments approximate their fair values and include cash equivalents, accounts receivable, and accounts payable.

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

The perpetual license granted by AVCT is classified as Intangible assets, net in the Company's condensed consolidated balance sheet as of March 31, 2023 and December 31, 2022 in the amount of $ 3.5 million and $ 3.9 million, respectively.

The Company had no investment in AVCT as of March 31, 2023 or December 31, 2022 due to the settlement agreement entered into on August 29, 2022.

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

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

Ribbon's term debt balance as of March 31, 2023 and December 31, 2022 of $ 250.4 million and $ 330.4 million, respectively, had a fair value of approximately $ 247.3 million and $ 323.0 million, respectively.

Our Preferred Stock and Warrants liabilities had a combined fair value of $ 53.4 million upon issuance on March 28, 2023 and will be marked to fair value at each subsequent reporting date.

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

3 unchanged sentences

The fair value hierarchy is as follows:

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

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

2 unchanged sentences

(6) ACCRUED EXPENSES AND OTHER

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

September 30,

Accrued expenses at March 31, 2023 and December 31, 2022 consisted of the following (in thousands):

2023 December 31,

1 unchanged sentence

Professional fees 20,400 17,195

Taxes payable 16,678 8,152

Other 37,504 33,929

$ 102,000 $ 85,270

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(7) WARRANTY ACCRUALS

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

The changes in the Company's accrual balance in the three months ended March 31, 2023 were as follows (in thousands):

Balance at January 1, 2023 $ 11,857

1 unchanged sentence

Settlements ( 1,494 )

Balance at September 30, 2022 $ 12,772

Balance at March 31, 2023 $ 11,749

(8) RESTRUCTURING AND FACILITIES CONSOLIDATION INITIATIVES

The Company recorded restructuring and related expense aggregating $ 1.3 million and $ 1.8 million in the three months ended September 30, 2022 and 2021, respectively, and $ 9.0 million and $ 10.5 million in the nine months ended September 30, 2022 and 2021, respectively.

The Company recorded restructuring and related expense aggregating $ 6.9 million and $ 4.8 million in the three months ended March 31, 2023 and 2022, respectively.

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

2 unchanged sentences

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

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

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

Three months ended Nine months ended

September 30,

2022 September 30,

2021 September 30,

2022 September 30,

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

Accelerated amortization of lease assets is recognized from the date that the Company commences the plan to fully or partially vacate a facility, for which there is no intent or ability to enter into a sublease, through the final vacate date.

Accelerated amortization of lease assets that are included as a component of restructuring and related expense are excluded

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

from the restructuring accrual activity tables below, as the liability for lease payments for these facilities is included as a component of current and noncurrent Operating lease liabilities in the Company's condensed consolidated balance sheets at March 31, 2023 and December 31, 2022 (see Note 16).

The Company may incur additional future expense if it is unable to sublease other locations included in the Company's facilities consolidation initiatives.

Restructuring and related expense for the three months ended March 31, 2023 and 2022 was comprised of the following (in thousands):

Three months ended

2023 March 31,

Severance and related costs $ 5,708 $ 4,122

2 unchanged sentences

$ 6,937 $ 4,814

Accelerated Rent Amortization

Accelerated rent amortization of lease assets is recognized from the date that the Company commences the plan to fully or partially vacate a facility, for which there is no intent or ability to enter into a sublease, through the final vacate date.

The liability for the total lease payments for each respective facility is included as a component of Operating lease liabilities in the Company's condensed consolidated balance sheets, both current and noncurrent (see Note 15).

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

2023 Restructuring Plan

1 unchanged sentence

The 2023 Restructuring Plan is expected to include, among other things, charges related to a consolidation of facilities and a workforce reduction.

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

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

The Company recorded restructuring and related expense of $ 5.7 million in the three months ended March 31, 2023 in connection with the 2023 Restructuring Plan entirely for severance related costs.

A summary of the 2023 Restructuring Plan accrual activity for the three months ended March 31, 2023 is as follows (in thousands):

2023 Initiatives

payments Net transfer to operating lease accounts Balance at

March 31, 2023

Severance $ — $ 5,708 $ ( 2,540 ) $ — $ 3,168

2022 Restructuring Plan

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

The 2022 Restructuring Plan 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.

The Company recorded restructuring and related expense of $ 1.2 million and $ 4.2 million in the three months ended March 31, 2023 and 2022, respectively, in connection with the 2022 Restructuring Plan.

The amount for the three months ended March 31, 2023 was comprised of $ 1.0 million for variable and other facilities-related costs, and $ 0.2 million for accelerated amortization of lease assets no longer being used with no ability or intent to sublease.

The amount for the three months ended March 31, 2022 was for severance and related costs for approximately 50 employees.

A summary of the 2022 Restructuring Plan accrual activity for the three months ended March 31, 2023 is as follows (in thousands):

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

consultation requirements.

The Company recorded restructuring and related expense of $ 1.3 million and $ 8.3 million in the three and nine months ended September 30, 2022, respectively, in connection with the 2022 Restructuring Plan.

The amount for the three months ended September 30, 2022 was comprised of $ 1.0 million for variable and other facilities-related costs, $ 0.6 million for accelerated amortization of lease assets no longer being used with no ability or intent to sublease, and $( 0.3 ) million for adjustments to severance and related costs.

The amount for the nine months ended September 30, 2022 was comprised of $ 4.7 million for severance and related costs for approximately 60 employees, $ 2.0 million for variable and other facilities-related costs and $ 1.6 million for accelerated amortization of lease assets no longer being used with no ability or intent to sublease.

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

2023 Initiatives

payments Net transfer to operating lease accounts Balance at

September 30,

March 31, 2023

Severance $ 1,164 $ — $ ( 353 ) $ — $ 811

Variable and other facilities-related costs 890 1,006 ( 1,114 ) — 782

Accelerated amortization of lease assets due to cease-use — 1,620 — ( 1,620 ) —

Facilities - Accel Amort — 223 — ( 223 ) —

$ 2,054 $ 1,229 $ ( 1,467 ) $ ( 223 ) $ 1,593

Balance Sheet Classification

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

The long-term portions of accrued restructuring relate to facilities totaled $ 2.2 million at September 30, 2022 and $ 1.6 million at December 31, 2021.

The current portions of accrued restructuring were $ 4.1 million and $ 1.3 million at March 31, 2023 and December 31, 2022, respectively, and are included as components of Accrued expenses in the consolidated balance sheets.

The long-term portions of accrued restructuring are included as components of Other long-term liabilities in the consolidated balance sheets.

The long-term portions of accrued restructuring were $ 1.9 million and $ 2.0 million at March 31, 2023 and December 31, 2022, respectively.

2020 Credit Facility

On March 3, 2020, the Company entered into a Senior Secured Credit Facilities Credit Agreement (as amended, the "2020 Credit Facility"), by and among the Company, 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").

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

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

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, the Company was 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 2020 Credit Facility also requires periodic interest payments until maturity.

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-

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

owned subsidiary of the Company (together, the "Guarantors").

The facilities under the 2020 Credit Facility are secured by first-priority liens on substantially all of the assets of the Borrower and the Guarantors, including substantially all of the assets of the Company.

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

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

The 2020 Credit Facility originally provided 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 was originally available for letters of credit and a $ 20 million sublimit is available for swingline loans.

The 2020 Credit Facility is secured by first-priority liens on substantially all of the assets of the Borrower and the Guarantors , including substantially all of the assets of the Company.

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

The 2020 Credit Facility permits the Company to use proceeds from the sale of equity securities, subject to certain limitations, in the calculation of the minimum Consolidated Fixed Charge Coverage Ratio and maximum Consolidated Net Leverage Ratio for the quarter in which such equity sale occurs, and for future calculations of the covenant ratios where such quarter is included.

In addition, the 2020 Credit Facility contains various covenants that, among other restrictions, limit the Company’s and its 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;

and 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 occurs under the 2020 Credit Facility, the lenders may accelerate the maturity of the obligations outstanding under the 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 Date"), the Borrower entered into a First Amendment to the 2020 Credit Facility (the "First Amendment").

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

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

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

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

On August 18, 2020, the Company 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 originally bore 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 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 the Company's Consolidated Net Leverage Ratio (as defined in the 2020 Credit Facility).

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

The Company was required to make quarterly principal payments on the Term A Loan aggregating approximately $ 10 million in the first year, $ 16 million per year 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 could 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 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 First Amendment) 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 2020 Credit Facility) occurring prior to the six-month anniversary of the First Amendment Effective Date.

The Company was 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.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

The First Amendment reduced the Borrower's ability to incur new tranches of term loans, or increases in commitments under the Amended 2020 Term Loan Facility or the 2020 Revolving Credit Facility.

Specifically, such indebtedness could be incurred up to an aggregate dollar amount equal to 75 % of the Company's Consolidated Adjusted EBITDA (as defined in the 2020 Credit Facility), reduced from 100 % prior to the First Amendment, as of the most recently ended fiscal quarter for which financial statements had been delivered to the lenders, plus additional amounts, so long as the Borrower's Consolidated Net Leverage Ratio (as defined in the 2020 Credit Agreement) did not exceed 2.25 :1.00, reduced from 2.75 :1.00 under the 2020 Credit Facility.

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

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

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

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

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

The Company wrote off $ 2.5 million of capitalized debt issuance costs in connection with the Third Amendment, which is included in Interest expense, net, in the Company's condensed consolidated statement of operations for the nine months ended September 30, 2021.

The Company was required to make quarterly principal payments on the 2020 Term Loan aggregating approximately $ 20 million per year in the first three years and $ 30 million in the fourth year, with the final payment approximating $ 300 million due on the maturity date.

The Third Amendment increased the Borrower's ability to incur new incremental revolving commitments or term loans.

Such indebtedness can be incurred up to an aggregate dollar limit equal to 100 % of the Company's Consolidated Adjusted EBITDA (as defined in the 2020 Credit Facility) as of the most recently ended fiscal quarter for which financial statements have been delivered to the Lenders, plus additional amounts, so long as the Borrower's Consolidated Net Leverage Ratio (as defined in the Credit Agreement) does not exceed 2.75 :1.00, increased from 2.25 :1.00 under the First Amendment.

The Third Amendment also increased the amount of Unrestricted Cash (as defined in the 2020 Credit Facility) used in calculating the Borrower's Consolidated Net Leverage Ratio from $ 10.0 million to $ 25.0 million.

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

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

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

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

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

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

In addition, the Fifth Amendment allows the Company to incur junior secured or unsecured debt in an amount no less than $ 50 million, subject

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

On March 3, 2021, the Company entered into the Third Amendment to the 2020 Credit Facility which provided for an incremental term loan facility in the 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.

The Company wrote off $ 2.5 million of capitalized debt issuance costs in connection with the Third Amendment.

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

On June 30, 2022, the Company 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, the 1st and 2nd quarters of 2023 declining to 3.25 :1.00, and in all subsequent quarters the ratio was to 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 was to be fixed at 1.25 :1.00.

In addition, the Fifth Amendment increased the maximum rate at which loans were to bear interest if the Company's Consolidated Net Leverage Ratio for any quarter was greater than 4.50 :1.00.

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

The Fifth Amendment also allows the Company to incur junior secured or unsecured debt in an amount no less than $ 50 million, subject to certain conditions, including the requirement that 50 % of the aggregate amount of such incurred debt (net of certain costs, fees and other amounts) must be applied to prepay the 2020 Credit Facility, and compliance with certain leverage ratio-based covenant exceptions.

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

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

On March 24, 2023, the Company entered into the Sixth Amendment to the 2020 Credit Facility (the “Sixth Amendment”) effective March 30, 2023.

The Sixth Amendment, among other things, increased the Maximum Consolidated Net Leverage Ratio (as defined in the 2020 Credit Facility), with the first, second and third quarters of 2023 increasing to 4.50 :1.00.

In the fourth quarter of 2023 and the first quarter of 2024, the Maximum Consolidated Net Leverage Ratio declines to 4.25 :1.00 and 4.00 :1.00, respectively.

In all subsequent quarters, the Maximum Consolidated Senior Net Leverage Ratio will be fixed at 3.00 :1.00 and the Maximum Consolidated Net Leverage Ratio will be fixed at 4.00 :1.00 .

Also, the Sixth Amendment reduced the minimum Consolidated Fixed Charge Coverage Ratio (as defined in the 2020 Credit Facility) to 1.10 :1.00 through the first quarter of 2024 and in all subsequent quarters the ratio will be fixed at 1.25 :1.00.

The Sixth Amendment reduced the maximum borrowings allowed under the 2020 Revolving Credit Facility from $ 100 million to $ 75 million and the sublimit available for letters of credit was reduced from $ 30 million to $ 20 million.

In addition, the Sixth Amendment replaced LIBOR with the Secured Overnight Financing Rate, or SOFR, as the alternative rate that may be used by the Company for calculating interest owed under the 2020 Credit Facility with the margin now fixed at 4.5 %.

In conjunction with the Sixth Amendment, the Company made a $ 75 million prepayment that was applied to the final payment due upon maturity in March 2025 of approximately $ 200.3 million.

The $ 75 million prepayment was almost entirely funded with the net proceeds from the Private Placement and the sales of our interest rate swap.

Debt issuance costs associated with the Sixth Amendment totaled $ 1.7 million and will be amortized on a straight line basis over the remaining life of the 2020 Credit Facility to Interest expense, net.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

to certain conditions, including the requirement that 50 % of the aggregate amount of such incurred debt (net of certain costs, fees and other amounts) must be applied to prepay the Senior Secured Credit Facilities, and compliance with certain leverage ratio-based covenant exceptions.

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

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

At September 30, 2022, the Company had an outstanding balance under the 2020 Term Loan of $ 335.5 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, the Company had an outstanding 2020 Term Loan balance of $ 375.5 million at an average interest rate of 3.4 % and $ 4.3 million of letters of credit outstanding with an interest rate of 2.5 %.

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

At March 31, 2023, the Company had an outstanding balance under the 2020 Term Loan of $ 250.4 million with an average interest rate of 5.7 % and $ 3.0 million of letters of credit outstanding with an interest rate of 4.5 %.

At December 31, 2022, the Company 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 %.

The Company's interest rates under our 2020 Term Loan for the three months ended March 31, 2023 and 2022 benefited from a hedge instrument that was in place, specifically a fixed rate swap, which was sold in March 2023 (see Note 10).

As a result of the fixed rate swap sold in March 2023, the ongoing interest rate will be based upon SOFR plus a fixed margin of 4.5 %.

The Company was in compliance with all covenants of the 2020 Credit Facility at both March 31, 2023 and December 31, 2022.

Letters of Credit and Performance and Bid Bonds

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

At September 30, 2022, the Company had letters of credit, bank guarantees, and performance and bid bonds outstanding (collectively, "Guarantees") aggregating $ 9.5 million , comprised of the $ 3.3 million of letters of credit under the 2020 Credit Facility described above (the "Letters of Credit") and $ 6.3 million of bank guarantees and performance and bid bonds (collectively, the "Other Guarantees") under various uncommitted facilities.

At March 31, 2023, the Company had $ 7.2 million of letters of credit, bank guarantees, and performance and bid bonds outstanding (collectively, "Guarantees") , comprised of the $ 3.0 million of letters of credit under the 2020 Credit Facility described above (the "Letters of Credit") and $ 4.2 million of bank guarantees and performance and bid bonds (collectively, the "Other Guarantees") under various uncommitted facilities.

At December 31, 2022, the Company had Guarantees aggregating $ 8.3 million, comprised of the $ 3.3 million of Letters of Credit noted above and $ 5.0 million of Other Guarantees.

At September 30, 2022 and December 31, 2021, the Company had cash collateral of $ 0.3 million and $ 2.6 million, respectively, supporting the Guarantees, which is reported as Restricted cash in the condensed consolidated balance sheets.

At both March 31, 2023 and December 31, 2022, the Company had cash collateral of $ 0.2 million supporting the Guarantees, which is reported as Restricted cash in the condensed consolidated balance sheets .

(10) DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

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These exposures are actively monitored by management.

To manage the volatility related to the exposure to changes in interest rates, the Company has entered into a derivative financial instrument.

Management's objective is to reduce, where it is deemed appropriate to do so, fluctuations in earnings and cash flows associated with changes in interest rates.

To manage the volatility related to the exposure to changes in interest rates, the Company entered into a derivative financial instrument.

Management's objective has been to reduce, where it is deemed appropriate to do so, fluctuations in earnings and cash flows associated with changes in interest rates.

Ribbon's policies and practices are to use derivative financial instruments only to the extent necessary to manage exposures.

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Cash Flow Hedge of Interest Rate Risk

The 2020 Term Loan Facility had outstanding balances of $ 335.5 million and $ 375.5 million at September 30, 2022 and December 31, 2021, respectively.

The 2020 Revolving Credit Facility was undrawn at both September 30, 2022 and December 31, 2021.

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

As a result of exposure to interest rate movements, during March 2020, the Company entered into an interest rate swap arrangement, which

The 2020 Term Loan Facility had outstanding balances of $ 250.4 million and $ 330.4 million at March 31, 2023 and December 31, 2022, respectively.

The 2020 Revolving Credit Facility was undrawn at both March 31, 2023 and December 31, 2022.

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

As a result of exposure to interest rate movements, during March 2020, the Company entered into an interest rate swap arrangement, which effectively converted its $ 400 million term loan with its variable interest rate based upon one-month LIBOR to an aggregate fixed rate of 0.904 %, plus a leverage-based margin as defined in the 2020 Credit Facility.

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

On August 16, 2022 the Company sold another

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

effectively converted its $ 400 million term loan with its variable interest rate based upon one-month LIBOR to an aggregate fixed rate of 0.904 %, plus a leverage-based margin as defined in the 2020 Credit Facility.

On August 16, 2022 the Company sold another $ 30 million of the notional amount of its interest rate swap back to its 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 $ 0.2 million for the three and nine months ended September 30, 2022.

The notional amount of this swap at September 30, 2022 was $ 340 million, and the swap matures on March 3, 2025, the same date the 2020 Credit Facility matures.

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

To accomplish this objective, the Company is using an interest rate swap as part of its interest rate risk management strategy.

$ 30 million of the notional amount of its interest rate swap back to its counterparty for $ 1.6 million, reducing the notional amount to $ 340 million, which approximated the current level of our term loan debt then 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 $ 0.3 million for the three months ended March 31, 2023.

On March 24 , 2023, the Company received $ 9.4 million, consisting of $ 0.4 million of interest and $ 9.0 million for the sale of $ 170 million of its $ 340 million notional amount interest rate swap back to its counterparty, reducing the notional amount to $ 170 million.

On March 27 , 2023, the Company received $ 9.8 million, consisting of $ 0.4 million of interest and $ 9.4 million for the sale of the remaining $ 170 million of its interest rate swap back to its counterparty.

The portion of the gain in accumulated other comprehensive (loss) income related to the term loan debt prepaid on the date of the final sale of our swap totaled $ 7.3 million and was released into earnings immediately as Other income (expense), net.

The portion of the gain in accumulated other comprehensive (loss) income related to our remaining term loan debt balance totaled $ 12.0 million and will be released into earnings on a straight line basis over the remaining term of the 2020 Credit Facility as a decrease to interest expense beginning in the second quarter of 2023.

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

To accomplish this objective, the Company has used an interest rate swap as part of its interest rate risk management strategy.

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

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

During the three and nine months ended September 30, 2022 and 2021, such a derivative was used to hedge the variable cash flows associated with the outstanding borrowings under the 2020 Credit Facility and the Company has accounted for this derivative as an effective hedge.

Any ineffective portion of the change in the fair value of the derivative would be recognized directly in earnings.

During the three months ended March 31, 2023 and 2022, such a derivative was used to hedge the variable cash flows associated with the outstanding borrowings under the 2020 Credit Facility and the Company has accounted for this derivative as an effective hedge until the final portion of the swap was sold on March 27, 2023.

Any ineffective portion of the change in the fair value of the derivative was recognized directly in earnings.

During the three months ended March 31, 2023, we recorded $ 7.3 million of Other (expense) income, net due to hedge ineffectiveness upon the sale of our swap.

There was no hedge ineffectiveness during the three months ended March 31, 2022.

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

Based upon projected forward rates, the Company estimates as of September 30, 2022 that $ 11 million may be reclassified as a decrease to interest expense over the next twelve months.

The impact of the Company’s derivative financial instrument on its condensed consolidated statements of comprehensive (loss) income for the three and nine months ended September 30, 2022 and 2021 was as follows, net of tax (in thousands):

Three months ended Nine months ended

September 30,

2022 September 30,

2021 September 30,

2022 September 30,

Gain recognized in other comprehensive income (loss) on derivative, net of tax $ 3,056 $ 30 $ 21,685 $ 4,905

The impact of the Company’s derivative financial instrument on its condensed consolidated statements of comprehensive (loss) income for the three months ended March 31, 2023 and 2022 was as follows, net of tax (in thousands):

Three months ended

2023 March 31,

Gain (loss) recognized in other comprehensive income (loss) on derivative, net of tax $ ( 2,715 ) $ 14,713

Amount reclassified from accumulated other comprehensive income (loss) to other income upon sale of swap, net of tax ( 5,099 ) —

Amount reclassified from accumulated other comprehensive income (loss) to interest expense ( 3,185 ) 756

$ ( 10,999 ) $ 15,469

The fair values and locations in the condensed consolidated balance sheets at September 30, 2022 and December 31, 2021 of the Company's derivative assets (liabilities) designated as a hedging instrument were as follows (in thousands):

Balance sheet location September 30,

2022 December 31,

The Company had no derivative assets or liabilities at March 31, 2023.

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

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

Balance sheet location December 31,

Interest rate derivative - asset derivative Other current assets $ 13,212

Interest rate derivative - asset derivative Other assets 12,216

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

$ 26,283 $ 1,811

The Company has classified the interest rate derivative aggregating $ 25.4 million at December 31, 2022, as Level 2 fair value measurements within the fair value hierarchy (see Note 5).

(11) PREFERRED STOCK AND WARRANTS

On March 28, 2023, the Company issued 55,000 shares of Preferred Stock to investors in the Private Placement at a price of $ 970 per share, along with 4,858,090 Warrants with an exercise price of $ 3.77 per share.

The fair value option was elected for the Preferred Stock, as the Company considers fair value to best reflect the expected future economic value.

These liabilities will be remeasured to fair value at each subsequent reporting date using the same valuation methodology as originally applied with updated input assumptions.

The value of the Preferred Stock as of the issuance date was calculated using the Black-Derman-Toy (BDT) stochastic yield lattice model to capture the optimal timing of repayment, increasing dividend rate and other features and the value of the Warrants as of the issuance date was calculated using the Black Scholes Pricing Model.

Changes in the fair value of the Preferred Stock and Warrants will be reported as Other income (expense), net in the Company's condensed consolidated statements of operations.

The fair value of the Preferred Stock and Warrants were determined using Level 3 input and the key inputs into the models utilized were as follows as of March 31, 2023:

Preferred Stock (BDT)

Face value per share $ 1,000

Interest payments per year 4

Dividend rate - year 1 (paid in-kind) 9.25 %

Dividend rate - year 2 (paid in-kind or cash at Company's choice) 9.75 %

Dividend rate - thereafter (paid in cash) 12.00 %

Yield volatility 25.0 %

Time to maturity (in years) 2.5

Warrants (Black Scholes)

Stock price $ 3.42

Strike price $ 3.77

Risk-free rate 3.67 %

Volatility 40.4 %

Dividend yield 0.0 %

Time to expiration (years) 4.0

The Preferred Stock is subordinate to Company indebtedness and senior to the Company’s common stock or other equity.

Holders of the Preferred Stock are entitled to cumulative dividends that accrue quarterly through the September 30, 2025

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

The Company has classified the interest rate derivative aggregating $ 26.3 million and $ 1.8 million at September 30, 2022 and December 31, 2021, respectively, as Level 2 fair value measurements within the fair value hierarchy (see Note 5).

maturity date.

Dividends are payable in-kind during the first year at a rate of 9.25 %.

At the Company’s option, the dividends are payable in-kind or in cash during the second year at a rate of 9.75 %.

Dividends thereafter are payable in cash at a rate of 12.00 %.

The proceeds from the Preferred Stock issuance were approximately $ 53.4 million, including $ 10.0 million from existing related party stockholders.

Offering costs paid by the Company of approximately $ 3.5 million were recorded in Other income (expense), net in our condensed consolidated statement of operations in the three months ended March 31, 2023.

The net proceeds from the Private Placement were used for the repayment of debt.

The Preferred Stock is redeemable on or after the first and second anniversaries of the closing date at a rate of 103 % and 102 %, respectively.

The Warrants are immediately exercisable and fully earned and upon an event such a merger, consolidation, asset sale or similar change of control, the Warrants may be exercised and the holders may vote the underlying shares of common stock.

In connection with the Private Placement, the Company provided the investors with certain registration rights relating to the Preferred Stock, the Warrants and the shares of the Company’s common stock underlying the Warrants, that require the Company to file a registration statement on Form S-3 with the SEC within 30 days following the closing date of the Private Placement.

(12) REVENUE RECOGNITION

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

The Company generally uses the input method to measure progress for its contracts because it believes such method best depicts the transfer of assets to the customer, which occurs as the Company incurs costs for the contracts.

The Company generally uses the input method to measure progress for its contracts

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

because it believes such method best depicts the transfer of assets to the customer, which occurs as the Company incurs costs for the contracts.

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

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The related revenue is typically recognized as the training services are performed.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

The Company's typical performance obligations include the following:

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Deferred revenue is a contract liability representing amounts collected from or invoiced to customers in excess of revenue recognized.

This results primarily from the billing of annual customer support agreements where the revenue is recognized over the term of the agreement.

This results primarily from the billing of annual customer support agreements where the revenue is recognized

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

over the term of the agreement.

The value of deferred revenue will increase or decrease based on the timing of recognition of revenue.

1 unchanged sentence

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

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

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

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

United States $ 42,373 $ 32,980 $ 11,684 $ 87,037

Europe, Middle East and Africa 42,454 20,022 7,147 69,623

Asia Pacific 19,077 11,382 3,186 33,645

Other 7,248 7,605 1,969 16,822

$ 111,152 $ 71,989 $ 23,986 $ 207,127

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

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

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

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

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

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

Nine months ended September 30, 2022 Product revenue Service revenue (maintenance) Service revenue (professional services) Total revenue

The Company's revenue for the three months ended March 31, 2023 and 2022 was disaggregated as follows:

Three months ended March 31, 2023 Product revenue Service revenue (maintenance) Service revenue (professional services) Total revenue

United States $ 38,067 $ 33,073 $ 10,853 $ 81,993

3 unchanged sentences

$ 93,318 $ 70,588 $ 22,253 $ 186,159

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

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

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

3 unchanged sentences

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

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

Three months ended Nine months ended

September 30,

2022 September 30,

2021 September 30,

2022 September 30,

The Company's product revenue from indirect sales through its channel partner program and from its direct sales program for the three months ended March 31, 2023 and 2022 was as follows (in thousands):

Three months ended

2023 March 31,

Indirect sales through channel partner program $ 35,914 $ 23,500

1 unchanged sentence

$ 93,318 $ 81,990

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

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

Three months ended Nine months ended

September 30,

2022 September 30,

2021 September 30,

2022 September 30,

The Company's product revenue from sales to enterprise customers and from sales to service provider customers for the three months ended March 31, 2023 and 2022 was as follows (in thousands):

Three months ended

2023 March 31,

Sales to enterprise customers $ 27,412 $ 22,083

1 unchanged sentence

$ 93,318 $ 81,990

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

Three months ended Nine months ended

September 30,

2022 September 30,

2021 September 30,

2022 September 30,

The Company's product revenue and service revenue components by segment for the three months ended March 31, 2023 and 2022 were as follows (in thousands):

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

Three months ended

2023 March 31,

Product revenue:

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

Changes in the contract asset and liability balances during the three months ended September 30, 2022 were not materially impacted by any factors other than billing and revenue recognition.

Changes in the contract asset and liability balances during the three months ended March 31, 2023 were not materially impacted by any factors other than billing and revenue recognition.

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

5 unchanged sentences

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

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

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

The changes in the Company's accounts receivable, unbilled receivables and deferred revenue balances for the three months ended March 31, 2023 were as follows (in thousands):

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

1 unchanged sentence

Increase (decrease), net ( 4,228 ) ( 7,870 ) 7,822 ( 898 )

Balance at September 30, 2022 $ 145,531 $ 92,303 $ 90,139 $ 22,185

The Company recognized approximately $ 85 million of revenue in the nine months ended September 30, 2022 that was recorded as deferred revenue at December 31, 2021 and approximately $ 81 million of revenue in the nine months ended September 30, 2021 that was recorded as deferred revenue at December 31, 2020.

Of the Company's deferred revenue reported as long-term in its condensed consolidated balance sheet at September 30, 2022, the Company expects that approximately $ 4 million will be recognized as revenue in 2023, approximately $ 10 million will be recognized as revenue in 2024 and approximately $ 8 million will be recognized as revenue in 2025 and beyond.

Balance at March 31, 2023 $ 166,741 $ 88,405 $ 121,761 $ 18,356

The Company recognized approximately $ 30 million of revenue in the three months ended March 31, 2023 that was recorded as deferred revenue at December 31, 2022 and approximately $ 45 million of revenue in the three months ended March 31, 2022 that was recorded as deferred revenue at December 31, 2021.

Of the Company's deferred revenue reported as long-term in its condensed consolidated balance sheet at March 31, 2023, the Company expects that approximately $ 10 million will be recognized as revenue in 2024, approximately $ 7 million will be recognized as revenue in 2025 and approximately $ 1 million will be recognized as revenue in 2026 and beyond.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

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

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

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

At both March 31, 2023 and December 31, 2022, the Company had $ 3.6 million of deferred sales commissions capitalized.

(13) OPERATING SEGMENT INFORMATION

11 unchanged sentences

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

amortization of acquired technology and stock-based

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

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

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

Adjusted gross profit is not a financial measure determined in accordance with U.S.

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GAAP measure.

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

Three months ended Nine months ended

September 30,

2022 September 30,

2021 September 30,

2022 September 30,

The tables below provide information regarding revenue, adjusted gross profit, and depreciation expense by reportable segment for the three months ended March 31, 2023 and 2022 (in thousands):

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

Three months ended

2023 March 31,

Segment revenue:

2 unchanged sentences

Revenue $ 186,159 $ 173,198

Three months ended Nine months ended

September 30,

2022 September 30,

2021 September 30,

2022 September 30,

Three months ended

2023 March 31,

Segment adjusted gross profit:

5 unchanged sentences

Gross profit $ 81,402 $ 78,055

Three months ended Nine months ended

September 30,

2022 September 30,

2021 September 30,

2022 September 30,

Three months ended

2023 March 31,

Segment depreciation expense:

3 unchanged sentences

(14) MAJOR CUSTOMERS

The following customers contributed 10% or more of the Company's revenue in the three and nine months ended September 30, 2022 and 2021:

Three months ended Nine months ended

September 30,

2022 September 30,

2021 September 30,

2022 September 30,

The following customer contributed 10% or more of the Company's revenue in the three months ended March 31, 2023 and 2022:

Three months ended

2023 March 31,

Verizon Communications Inc.

13 % 18 % 16 % 17 %

AT&T 10 % * * *

* Less than 10% of total revenue.

At September 30, 2022, no customer accounted for 10% or more of the Company's accounts receivable balance.

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

The Company performs ongoing credit evaluations of its customers and

At March 31, 2023 and December 31, 2022, no customer accounted for 10% or more of the Company's accounts receivable balance.

The Company performs ongoing credit evaluations of its customers and generally does not require collateral on accounts receivable.

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

(15) STOCK-BASED COMPENSATION PLANS

The Company grants stock-based compensation to employees, officers and non-employee directors, as well as consultants and advisors of the Company and its subsidiaries under its Amended and Restated 2019 Incentive Award Plan (the "2019 Plan") which provides for the award of stock options, stock appreciation rights ("SARs"), restricted stock awards ("RSAs"), performance-based stock awards ("PSAs"), restricted stock units ("RSUs"), performance-based stock units ("PSUs") and other

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

generally does not require collateral on accounts receivable, although in some instances the Company may require letters of credit to support customer outstanding accounts receivable balances.

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

(14) STOCK-BASED COMPENSATION PLANS

2019 Stock Incentive Plan

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

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

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

Assumed Stock Plans

In connection with the acquisition of Edgewater Networks, Inc.

in August 2018, the Company assumed Edgewater's Amended and Restated 2002 Stock Option Plan (the "Edgewater Plan") to the extent of the shares underlying the options outstanding under the Edgewater Plan as of the Edgewater Acquisition Date (the "Edgewater Options").

The Edgewater Options were converted to Ribbon stock options (the "Ribbon Replacement Options") which are vesting under the same schedules as the respective Edgewater Options.

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

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

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

Any outstanding awards under the Assumed Plans that in the future expire, terminate, are cancelled or surrendered, or are repurchased by the Company will be returned to the 2019 Plan.

Accordingly, no additional shares may be granted under the Assumed Plans.

stock- or cash-based awards.

Executive Equity Arrangements

Inducement Awards

In connection with his appointment as President and Chief Executive Office of Ribbon, and as an inducement for Bruce McClelland's ("Mr.

McClelland") commencement of employment, the Company awarded Mr.

McClelland sign-on equity grants, comprised of 462,963 RSUs and a PSU grant with both market and service conditions (the "Inducement PSUs") on March 16, 2020.

The RSUs vested and were released to Mr.

McClelland on March 16, 2021.

Subject to Mr.

McClelland's continued employment, the Inducement PSUs are eligible to vest and be settled in up to 4,750,000 shares of Ribbon common stock upon the achievement of specified share price thresholds on or prior to September 1, 2024.

The first share price threshold for Mr.

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

In connection with his appointment as President and Chief Executive Officer of Ribbon on March 16, 2020, the Company awarded Bruce McClelland sign-on equity grants, comprised of RSUs and a PSU grant with both market and service conditions (the "Inducement PSUs").

Performance-Based Stock Grants

In addition to granting RSUs to its executives and certain of its employees, the Company also grants PSUs to certain of its executives, including the Inducement PSUs granted to Mr.

McClelland as described above.

Each year, beginning in 2019 and continuing through 2022, the Company has granted certain of its executives (the "2022 PSUs", "2021 PSUs", "2020 PSUs" and "2019 PSUs", respectively), of which 60 % of each executive's PSU grant had both performance and service conditions (the "Performance PSUs") and 40 % had both market and service conditions (the "Market

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

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

these releases are included in the table below.

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

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

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

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

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

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

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

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

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

Accounting for Performance PSUs.

Once the grant date criteria have been met for a Fiscal Year Performance Period, the Company records stock-based compensation expense for the respective underlying Performance PSUs based on its assessment of the probability that each 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 the Company's financial results for each Fiscal Year Performance Period are finalized.

Upon the determination by the Compensation Committee of the number of shares that will be received upon vesting of the Performance PSUs, such number of shares becomes fixed and the unamortized expense is recorded through the remainder of the service period, generally three years from the date of grant, at which time the total Performance PSUs earned, if any, will vest, pending each executive's continued employment with the Company through that date.

Accounting for Market PSUs .

PSUs that include a market condition require the use of a Monte Carlo simulation approach to model future stock price movements based upon the risk-free rate of return, the date 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 respective PSUs.

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

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

Stock Options

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

Shares Weighted

Exercise Price Weighted

Contractual Term

(years) Aggregate

Intrinsic Value

(in thousands)

Outstanding at January 1, 2022 184,169 $ 13.25

Exercised ( 708 ) $ 1.77

Expired ( 11,609 ) $ 16.39

Outstanding at September 30, 2022 171,852 $ 13.09 1.90 $ 15

Vested or expected to vest at September 30, 2022 171,852 $ 13.09 1.90 $ 15

Exercisable at September 30, 2022 171,852 $ 13.09 1.90 $ 15

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

In addition to granting RSAs and RSUs to its executives and certain of its employees, the Company also grants PSUs to certain of its executives and certain other employees.

Vesting periods for RSAs, RSUs, and PSUs granted range from one to three years.

PSUs granted consist of 60 % that have both performance and service conditions (the "Performance PSUs") and 40 % that have both market and service conditions (the "Market PSUs").

Each Performance PSU is comprised of three consecutive fiscal year performance periods beginning in the year of grant, with one-third of the Performance PSUs attributable to each fiscal year performance period.

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

The number of shares of common stock underlying the PSUs that can be earned will not exceed 200 % of the Performance or Market PSUs.

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

Restricted Stock Units

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

The activity related to the Company's RSUs for the three months ended March 31, 2023 was as follows:

Shares Weighted

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Forfeited ( 399,136 ) $ 4.05

Unvested balance at September 30, 2022 7,560,971 $ 4.06

The total grant date fair value of shares of restricted stock underlying RSUs that vested during the nine months ended September 30, 2022 was $ 16.8 million.

Unvested balance at March 31, 2023 7,084,315 $ 3.74

The total grant date fair value of shares of restricted stock underlying RSUs that vested during the three months ended March 31, 2023 was $ 5.1 million.

Performance-Based Stock Units

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

The activity related to the Company's PSUs for the three months ended March 31, 2023 was as follows:

Shares Weighted

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Forfeited ( 1,667,550 ) $ 3.93

Unvested balance at September 30, 2022 6,653,503 $ 2.52

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

Unvested balance at March 31, 2023 4,632,035 $ 1.66

The total grant date fair value of shares of restricted stock underlying PSUs that vested during the three months ended March 31, 2023 was $ 2.1 million.

RIBBON COMMUNICATIONS INC.

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Stock-Based Compensation

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

Three months ended Nine months ended

September 30, 2022 September 30,

2021 September 30, 2022 September 30,

The condensed consolidated statements of operations include stock-based compensation for the three months ended March 31, 2023 and 2022 as follows (in thousands):

Three months ended

2023 March 31,

Product cost of revenue $ 149 $ 99

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$ 5,848 $ 4,255

At September 30, 2022, there was $ 26.7 million, net of expected forfeitures, of unrecognized stock-based compensation expense related to unvested stock options and stock units.

At March 31, 2023, there was $ 19.7 million, net of expected forfeitures, of unrecognized stock-based compensation expense related to unvested RSUs and PSUs.

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

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

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

Operating leases are reported separately in the Company's condensed consolidated balance sheets.

Assets acquired under finance leases are included in Property and equipment, net, in the condensed consolidated balance sheets.

Assets acquired under finance leases, if any, are included in Property and equipment, net, in the condensed consolidated balance sheets.

The Company determines if an arrangement is a lease at inception.

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

The Company assessed its right-of-use assets for impairment as of September 30, 2022 and December 31, 2021 and determined no impairment has occurred.

The Company assessed its right-of-use assets for impairment as of March 31, 2023 and December 31, 2022 and determined no impairment has occurred.

Lease terms may include options to extend or terminate the lease and the Company incorporates such options in the lease term when it has the unilateral right to make such an election and it is reasonably certain that the Company will exercise that option.

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

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.

Lease contracts may contain variable lease costs, such as common area maintenance, utilities and tax reimbursements that vary over the term of the contract.

Variable lease costs are not included in

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

minimum fixed lease payments and as a result, are excluded from the measurement of the right-of-use assets and lease liabilities.

of the right-of-use asset over the lease term.

Lease contracts may contain variable lease costs, such as common area maintenance, utilities and tax reimbursements that vary over the term of the contract.

Variable lease costs are not included in minimum fixed lease payments and as a result, are excluded from the measurement of the right-of-use assets and lease liabilities.

The Company expenses all variable lease costs as incurred.

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

Accordingly, the Company accelerated the amortization of those lease assets through the planned cease-use date of each facility, resulting in additional amortization expense of $ 0.6 million and $ 1.6 million in the three and nine months ended September 30, 2022, respectively.

The Company also recorded expense of $ 0.7 million and $ 1.0 million in the three and nine months ended September 30, 2022, respectively, for all estimated future variable lease costs related to those facilities.

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

The Company did no t record estimated future variable lease costs in the three or nine months ended September 30, 2022 related to the 2020 Restructuring Plan.

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

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

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

Accordingly, the Company accelerated the amortization of the associated lease assets through the planned cease-use date of each facility, resulting in additional amortization expense of $ 3.4 million in the nine months ended September 30, 2021.

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

The Company did no t record expense for accelerated amortization or estimated future variable lease costs in connection with the 2019 Restructuring Plan in the three months ended September 30, 2021.

The Company did no t record expense for accelerated amortization or estimated future variable lease costs in connection with the 2019 Restructuring Plan in the three or nine months ended September 30, 2022.

Accordingly, the Company accelerated the amortization of those lease assets through the planned cease-use date of each facility, resulting in additional amortization expense of $ 0.2 million in the three months ended March 31, 2023.

The Company did no t record estimated future variable lease costs related to those facilities.

No accelerated amortization for lease assets or charges for related variable lease costs were recorded in the three months ended March 31, 2022 related to any of the Company's Restructuring Plans.

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

At September 30, 2022 and December 31, 2021, the Company had accruals of $ 2.2 million and $ 1.6 million, respectively, for all future anticipated variable lease costs related to these facilities.

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

At March 31, 2023 and December 31, 2022, the Company had accruals of $ 1.8 million and $ 2.0 million, respectively, for all future anticipated variable lease costs related to these facilities.

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

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

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

Classification September 30,

The Company's right-of-use lease assets and lease liabilities at March 31, 2023 and December 31, 2022 were as follows (in thousands):

Classification March 31,

2023 December 31,

Operating lease assets Operating lease right-of-use assets $ 43,378 $ 44,888

Finance lease assets* Property and equipment, net 43 287

Total leased assets $ 48,122 $ 53,434

Operating Operating lease liabilities $ 15,617 $ 17,403

Finance Accrued expenses and other 159 503

Operating Operating lease liabilities, net of current 49,137 55,196

Finance Other long-term liabilities 4 64

Total lease liabilities $ 64,917 $ 73,166

* Finance lease assets were recorded net of accumulated depreciation of $ 1.2 million and $ 1.8 million at September 30, 2022 and December 31, 2021, respectively.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

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

Three months ended Nine months ended

September 30,

2022 September 30,

2021 September 30,

2022 September 30,

Current Operating Operating lease liabilities $ 14,973 $ 15,416

Non-Current Operating Operating lease liabilities, net of current 43,367 46,183

Total Operating lease liabilities $ 58,340 $ 61,599

The components of lease expense for the three months ended March 31, 2023 and 2022 were as follows (in thousands):

Three months ended

2023 March 31,

Operating lease cost* $ 4,760 $ 4,630

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Net lease cost $ 8,559 $ 8,782

* Operating lease costs for the three and nine months ended September 30, 2022 included $ 0.6 million and $ 1.6 million, respectively, of accelerated amortization for certain assets partially or fully vacated with no intent or ability to sublease.

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

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

** Variable lease costs for the three and nine months ended September 30, 2022 included accruals of $ 0.7 million and $ 1.0 million, respectively, for future estimated variable expenses related to certain assets partially or fully vacated with no intent or ability to sublease.

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

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

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

Nine months ended

September 30,

2022 September 30,

* Operating lease costs for the three months ended March 31, 2023 included $ 0.2 million of accelerated amortization for certain assets partially or fully vacated with no intent or ability to sublease.

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

** No variable lease costs were accrued in the three months ended March 31, 2023 or 2022 for future estimated variable expenses related to certain assets partially or fully vacated with no intent or ability to sublease.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

Cash flow information related to the Company's leases for the three months ended March 31, 2023 and 2022 was as follows (in thousands):

Three months ended

2023 March 31,

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

2 unchanged sentences

Financing cash flows for finance leases $ — $ 198

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

September 30,

Other information related to the Company's leases as of March 31, 2023 and December 31, 2022 was as follows:

2023 December 31,

1 unchanged sentence

Operating leases 5.66 5.90

Finance leases 0.42 1.00

Weighted average discount rate:

Operating leases 5.87 % 5.79 %

Finance leases 3.20 % 4.15 %

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

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

Operating Finance

leases leases

Future minimum fixed lease payments under noncancelable leases at March 31, 2023 were as follows (in thousands):

Remainder of 2023 $ 13,802

2023 18,301 66

2024 15,375 —

2027 and beyond 24,165 —

Total lease payments 69,725

2 unchanged sentences

(17) INCOME TAXES

The Company's income tax provisions for the nine months ended September 30, 2022 and 2021 reflect the Company's estimates of the effective rates expected to be applicable for the respective full years, adjusted for any discrete events, which are recorded in the period that they occur.

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

The Company recorded an income tax provision of $ 1.5 million and an income tax benefit of $ 1.9 million in the three months ended March 31, 2023 and 2022, respectively.

These amounts reflect the Company's estimates of the effective rates expected to be applicable for the respective full years, adjusted for any discrete events, which are recorded in the period in which they occur.

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

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

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

During the three months ended September 30, 2022, the Company recognized a tax benefit of $ 6.8 M related to the release of a valuation allowance on the capital loss deferred tax asset related to its investment in AVCT.

The Company generated a capital loss from the cancellation of the AVCT Debenture Shares and Warrants, which it concluded will be carried back to offset capital gains recognized in a prior tax year.

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

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

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

(18) RELATED PARTIES

The Company recognized revenue in the three months ended March 31, 2023 and 2022 of $ 0.8 million and $ 0.4 million , respectively, from its largest stockholder.

Additionally, as discussed in Note 11, certain related party stockholders participated in the Private Placement on March 28, 2023.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

19) COMMITMENTS AND CONTINGENCIES

Liabilities for Royalty Payments to the IIA

Prior to the ECI Acquisition, ECI had received research and development grants from the Office of the Innovation Authority of the Israeli Ministry of Economics (the "IIA").

Prior to the Company's acquisition of ECI Telecom Group Ltd.

("ECI"), ECI had received research and development grants from the Office of the Innovation Authority of the Israeli Ministry of Economics (the "IIA").

The Company assumed ECI's contract with the IIA, which requires the Company to pay royalties to the IIA on proceeds from the sale of products which the Israeli government has supported by way of research and development grants.

1 unchanged sentence

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

At September 30, 2022, the Company's maximum possible future royalties commitment, including $ 4.6 million of unpaid royalties accrued, was $ 31.0 million , including interest of $ 1.5 million , based on estimates of future product sales, grants received from the IIA not yet repaid, and management's estimation of products still to be sold.

Research and Development Grants

The Company records grants received from the IIA as a reduction to research and development expense.

Royalties payable to the IIA are recognized pursuant to sales of related products and are classified as Cost of revenue.

The Company does not anticipate receiving material grants from the IIA in the foreseeable future.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

At March 31, 2023, the Company's maximum possible future royalties commitment, including $ 5.6 million of unpaid royalties accrued, was $ 28.6 million , including interest of $ 2.0 million , based on estimates of future product sales, grants received from the IIA not yet repaid, and management's estimation of products still to be sold.

The Company is often a party to disputes and legal proceedings that it considers routine and incidental to its business, including those described below.

13 unchanged sentences

There was an oral argument on the motion to dismiss on February 12, 2020, and on October 20, 2022 the court denied the motion to dismiss.

No schedule has been set by the court for this matter.

Discovery and class certification determination are on-going.

Charter Complaint.

1 unchanged sentence

and Ribbon Communications Operating Company, Inc.) alleging breach of contract with respect to indemnification obligations purportedly owed to Charter in connection with Charter’s legal dispute with Sprint Communications Company L.P., which was settled by Charter in March 2022.

One complaint was filed in the Supreme Court of the State of New York, New York County;

the other was filed by Charter as well as co-Plaintiffs Charter Communications Holding Company, LLC and Bright House Networks, LLC, in the Superior Court of the State of Delaware in and for New Castle County.

In both suits, Charter is seeking monetary damages.

We have not yet filed an answer to Charter’s complaints, and no schedule has been set by either court.

One complaint was filed in the Supreme Court of the State of New York, in New York County;

the second complaint was filed by Charter as well as co-plaintiffs Charter Communications Holding Company, LLC and Bright House Networks, LLC, in the Superior Court of the State of Delaware in and for New Castle County.

In both complaints, Charter is seeking monetary damages.

The Company filed its answer to the first complaint file in New York on December 7, 2022 and to the second complaint filed in Delaware on January 9, 2023.

Discovery is on-going and the court in the Delaware complaint has set a preliminary trial date of January 2025.

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

What changed 10-Q

Item 1. Financial Statements