What changed in this filing

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Item 1. Financial Statements

2023-07-27 compared with 2023-04-28 · 302 added, 205 removed, 682 unchanged (43% of the section changed)

6 unchanged sentences

Cash and cash equivalents $ 34,646 $ 67,262

Restricted cash 176 161

Accounts receivable, net 253,045 267,244

20 unchanged sentences

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);

10,000,000 shares authorized, 55,000 shares issued and outstanding at June 30, 2023 ($ 56,650 liquidation preference);

none issued and outstanding at December 31, 2022

8 unchanged sentences

240,000,000 shares authorized;

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

170,958,400 shares issued and outstanding at June 30, 2023;

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

8 unchanged sentences

(in thousands, except per share data)

Three months ended

2023 March 31,

Three months ended Six months ended

2023 June 30,

2022 June 30,

2023 June 30,

Product $ 117,347 $ 112,667 $ 210,665 $ 194,657

17 unchanged sentences

Interest expense, net ( 6,766 ) ( 4,602 ) ( 13,188 ) ( 8,603 )

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

Other (expense) income, net ( 2,688 ) ( 10,228 ) 2,084 ( 39,028 )

Loss before income taxes ( 16,076 ) ( 22,069 ) ( 52,915 ) ( 93,924 )

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

Income tax provision ( 5,403 ) ( 8,111 ) ( 6,869 ) ( 6,231 )

Net loss $ ( 21,479 ) $ ( 30,180 ) $ ( 59,784 ) $ ( 100,155 )

9 unchanged sentences

(in thousands)

Three months ended

2023 March 31,

Three months ended Six months ended

2023 June 30,

2022 June 30,

2023 June 30,

Net loss $ ( 21,479 ) $ ( 30,180 ) $ ( 59,784 ) $ ( 100,155 )

1 unchanged sentence

Unrealized gain (loss) on interest rate swap, net of reclassifications and amortization into earnings ( 1,322 ) 4,053 ( 7,222 ) 19,522

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

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

Foreign currency translation adjustments ( 434 ) ( 322 ) ( 585 ) ( 1,013 )

Employee retirement benefits — ( 884 ) — ( 884 )

Other comprehensive income (loss), net of tax ( 1,756 ) 2,847 ( 12,906 ) 17,625

4 unchanged sentences

(in thousands, except shares)

Three months ended March 31, 2023

Three months ended June 30, 2023

Additional other Total

Common stock paid-in Accumulated comprehensive stockholders'

Shares Amount capital deficit income equity

Balance at January 1, 2023 168,324,995 $ 17 $ 1,941,569 $ ( 1,453,744 ) $ 30,585 $ 518,427

Shares Amount capital deficit (loss) income equity

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

Exercise of stock options 344 1 1

5 unchanged sentences

Net loss ( 21,479 ) ( 21,479 )

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

Balance at June 30, 2023 170,958,400 $ 17 $ 1,950,079 $ ( 1,513,528 ) $ 17,679 $ 454,247

Six months ended June 30, 2023

Additional other Total

7 unchanged sentences

Stock-based compensation expense 11,964 11,964

Other comprehensive loss ( 12,906 ) ( 12,906 )

Net loss ( 59,784 ) ( 59,784 )

Balance at June 30, 2023 170,958,400 $ 17 $ 1,950,079 $ ( 1,513,528 ) $ 17,679 $ 454,247

See notes to the unaudited condensed consolidated financial statements.

RIBBON COMMUNICATIONS INC.

Condensed Consolidated Statements of Stockholders' Equity

(in thousands, except shares)

Three months ended June 30, 2022

Additional other Total

Common stock paid-in Accumulated comprehensive stockholders'

Shares Amount capital deficit income equity

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

Vesting of restricted stock awards and units 396,148 —

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

Stock-based compensation expense 4,399 4,399

Other comprehensive income 2,847 2,847

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

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

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

Six months ended June 30, 2022

Additional other Total

Common stock paid-in Accumulated comprehensive stockholders'

Shares Amount capital deficit income equity

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

Exercise of stock options 355 —

Vesting of restricted stock awards and units 2,007,138 —

Vesting of performance-based stock units 175,751 —

Shares of restricted stock returned to the Company under net share settlements to satisfy tax withholding obligations ( 618,768 ) ( 1,946 ) ( 1,946 )

Stock-based compensation expense 8,654 8,654

Other comprehensive income 17,625 17,625

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

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

See notes to the unaudited condensed consolidated financial statements.

2 unchanged sentences

(in thousands)

Three months ended

2023 March 31,

Six months ended

2023 June 30,

Cash flows from operating activities:

Net loss $ ( 59,784 ) $ ( 100,155 )

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

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

Depreciation and amortization of property and equipment 7,059 7,773

1 unchanged sentence

Amortization of debt issuance costs 1,793 1,078

Amortization of accumulated other comprehensive gain related to interest rate swap ( 2,062 ) —

Stock-based compensation 11,964 8,654

2 unchanged sentences

Gain on sale of swap ( 7,301 ) —

Change in fair value of warrant liability ( 1,318 ) —

Change in fair value of preferred stock liability 1,456 —

Dividends accrued on preferred stock liability 1,272 —

Foreign currency exchange losses ( 1,080 ) ( 1,048 )

6 unchanged sentences

Deferred revenue 767 ( 3,692 )

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

Net cash provided by (used in) operating activities 8,574 ( 24,387 )

Cash flows from investing activities:

2 unchanged sentences

Cash flows from financing activities:

Borrowings under revolving line of credit 30,000 20,000

Principal payments on revolving line of credit ( 30,000 ) ( 20,000 )

Principal payments of term debt ( 85,029 ) ( 35,029 )

5 unchanged sentences

Net cash used in financing activities ( 36,705 ) ( 38,362 )

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

Net decrease in cash, cash equivalents and restricted cash ( 21,228 ) ( 11,020 )

Cash, cash equivalents and restricted cash, beginning of year 67,262 106,485

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

Effect of exchange rate changes on cash and cash equivalents ( 394 ) 1,043

Net decrease in cash and cash equivalents ( 32,616 ) ( 68,221 )

Cash and cash equivalents, beginning of year 67,262 106,485

Cash and cash equivalents, end of period $ 34,646 $ 38,264

RIBBON COMMUNICATIONS INC.

Condensed Consolidated Statements of Cash Flows (continued)

(in thousands)

Six months ended

2023 June 30,

Supplemental disclosure of cash flow information:

20 unchanged sentences

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

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

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, as amended (the "Annual Report"), which was filed with the SEC on March 31, 2023 .

Private Placement Offering

7 unchanged sentences

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

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

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

1 unchanged sentence

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.

These liabilities are remeasured to fair value at each reporting date using the same valuation methodology applied upon issuance.

RIBBON COMMUNICATIONS INC.

1 unchanged sentence

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.

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

Principles of Consolidation

7 unchanged sentences

Actual results could differ from those estimates.

Restricted Cash

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

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

2 unchanged sentences

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 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.

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.

Factoring of accounts receivable and associated fees for the three and six months ended June 30, 2023 and 2022 were as follows (in thousands):

Three months ended Six months ended

2023 June 30,

2022 June 30,

2023 June 30,

Accounts receivable sold 27,266 22,747 48,327 40,714

Less factoring fees ( 815 ) ( 323 ) ( 1,270 ) ( 476 )

Net cash proceeds 26,451 22,424 47,057 40,238

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

Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”), which eliminates the accounting guidance on troubled debt restructurings 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

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

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.

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.

10 unchanged sentences

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

Three months ended

2023 March 31,

Three months ended Six months ended

2023 June 30,

2022 June 30,

2023 June 30,

Weighted average shares outstanding - basic 170,103 150,190 169,326 149,681

1 unchanged sentence

Weighted average shares outstanding - diluted 170,103 150,190 169,326 149,681

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.

Options to purchase the Company's common stock and unvested restricted and performance-based stock units aggregating 14.1 million shares and 15.4 million shares were excluded from the computation of diluted loss per share for the three and six months ended June 30, 2023 and 2022, respectively, because their effect would have been antidilutive.

As of June 30, 2023, the potential number of dilutive shares from the Warrants totaled 4,858,090 shares.

However, there was no impact on weighted average shares outstanding from these Warrants for the three and six months ended June 30, 2023 as the average share price of the Company's common stock in each period was below the exercise price of $ 3.77 per share and their effect would have been antidilutive.

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

RIBBON COMMUNICATIONS INC.

1 unchanged sentence

(3) INVENTORY

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

Inventory at June 30, 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 March 31, 2023 and December 31, 2022 consisted of the following (in thousands):

March 31, 2023 Weighted average amortization period

The Company's intangible assets at June 30, 2023 and December 31, 2022 consisted of the following (in thousands):

June 30, 2023 Weighted average amortization period

(years) Cost Accumulated

15 unchanged sentences

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

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

Estimated future amortization expense for the Company's intangible assets at June 30, 2023 was as follows (in thousands):

Years ending December 31,

1 unchanged sentence

Thereafter 46,822

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

There were no changes to the carrying value of the Company's goodwill in the six months ended June 30, 2023 and 2022.

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):

The components of goodwill at June 30, 2023 and 2022 were as follows (in thousands):

Cloud and Edge IP Optical Networks Total

Balance at March 31, 2023

Balance at June 30, 2023

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

1 unchanged sentence

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

Balance at March 31, 2022

Balance at June 30, 2022

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

11 unchanged sentences

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 perpetual license granted by AVCT is classified as Intangible assets, net in the Company's condensed consolidated balance sheet as of June 30, 2023 and December 31, 2022 in the amount of $ 3.2 million and $ 3.9 million, respectively.

The Company had no investment in AVCT as of June 30, 2023 or December 31, 2022 due to the settlement agreement entered into on August 29, 2022.

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

The 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.

Ribbon's term debt balance as of June 30, 2023 and December 31, 2022 of $ 245.4 million and $ 330.4 million, respectively, had a fair value of approximately $ 246.7 million and $ 323.0 million, respectively.

Our Preferred Stock and Warrants liabilities had a combined fair value of $ 54.8 million as of June 30, 2023, including cumulative dividends on the Preferred Stock of $ 1.3 million.

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.

9 unchanged sentences

(6) ACCRUED EXPENSES AND OTHER

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

Accrued expenses at June 30, 2023 and December 31, 2022 consisted of the following (in thousands):

2023 December 31,

5 unchanged sentences

(7) WARRANTY ACCRUALS

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

The changes in the Company's accrual balance in the six months ended June 30, 2023 were as follows (in thousands):

Balance at January 1, 2023 $ 11,857

1 unchanged sentence

Settlements ( 2,781 )

Balance at March 31, 2023 $ 11,749

Balance at June 30, 2023 $ 11,767

(8) RESTRUCTURING AND FACILITIES CONSOLIDATION INITIATIVES

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.

The Company recorded restructuring and related expense aggregating $ 4.3 million and $ 2.9 million in the three months ended June 30, 2023 and 2022, respectively, and $ 11.2 million and $ 7.7 million in the six months ended June 30, 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.

4 unchanged sentences

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).

Accelerated amortization of lease assets that are included as a component of restructuring and related expense are excluded 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 June 30, 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,

Restructuring and related expense for the three and six months ended June 30, 2023 and 2022 was comprised of the following (in thousands):

Three months ended Six months ended

2023 June 30,

2022 June 30,

2023 June 30,

Severance and related costs $ 2,843 $ 859 $ 8,551 $ 4,981

6 unchanged sentences

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):

The Company recorded restructuring and related expense of $ 2.8 million and $ 8.5 million in the three and six months ended June 30, 2023, respectively, in connection with the 2023 Restructuring Plan entirely for severance related costs.

A summary of the 2023 Restructuring Plan accrual activity for the six months ended June 30, 2023 is as follows (in thousands):

2023 Initiatives

payments Net transfer to operating lease accounts Balance at

March 31, 2023

June 30, 2023

Severance $ — $ 8,551 $ ( 6,042 ) $ — $ 2,509

3 unchanged sentences

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

The Company recorded restructuring and related expense of $ 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):

The Company recorded restructuring and related expense of $ 1.5 million and $ 2.7 million in the three and six months ended June 30, 2023, respectively, in connection with the 2022 Restructuring Plan.

The amount for the three months ended June 30, 2023 was comprised of $ 1.1 million for facilities-related costs, and $ 0.4 million for accelerated amortization of lease assets no longer being used with no ability or intent to sublease.

The amount for the six months ended June 30, 2023 was comprised of $ 2.1 million for facilities-related costs and $ 0.6 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 six months ended June 30, 2023 is as follows (in thousands):

RIBBON COMMUNICATIONS INC.

2 unchanged sentences

payments Net transfer to operating lease accounts Balance at

March 31, 2023

June 30, 2023

Severance $ 1,164 $ — $ ( 843 ) $ — $ 321

Variable and other facilities-related costs 890 2,131 ( 2,388 ) — 633

Facilities - Accel Amort — 223 — ( 223 ) —

Accelerated amortization of lease assets due to cease-use — 562 — ( 562 ) —

$ 2,054 $ 2,693 $ ( 3,231 ) $ ( 562 ) $ 954

Balance Sheet Classification

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.

The current portions of accrued restructuring were $ 3.3 million and $ 1.3 million at June 30, 2023 and December 31, 2022, respectively, and are included as components of Accrued expenses in the condensed consolidated balance sheets.

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

The long-term portions of accrued restructuring were $ 1.3 million and $ 2.0 million at June 30, 2023 and December 31, 2022, respectively.

2020 Credit Facility

10 unchanged sentences

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

RIBBON COMMUNICATIONS INC.

21 unchanged sentences

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.

Debt issuance costs associated with the Sixth Amendment totaled $ 1.7 million and are being 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)

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 June 30, 2023, the Company had an outstanding balance under the 2020 Term Loan of $ 245.4 million with an average interest rate of 9.6 % 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.

The Company's interest rates under our 2020 Term Loan for the six months ended June 30, 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 is 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 June 30, 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 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 June 30, 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 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

1 unchanged sentence

These exposures are actively monitored by management.

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

To manage the volatility related to the exposure to changes in interest rates, the Company may enter into derivative financial instruments.

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.

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Cash Flow Hedge of Interest Rate Risk

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.

The 2020 Term Loan Facility had outstanding balances of $ 245.4 million and $ 330.4 million at June 30, 2023 and December 31, 2022, respectively.

The 2020 Revolving Credit Facility was undrawn at both June 30, 2023 and December 31, 2022.

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

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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

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 approximated the current level of our term loan debt then outstanding.

The gain in accumulated

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

$ 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.

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 and $ 0.5 million for the three and six months ended June 30, 2023, respectively.

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.

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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 portion of the gain in accumulated other comprehensive (loss) income related to our remaining term loan debt balance was $ 12.0 million and 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 $ 1.6 million for the three months ended June 30, 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.

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 related 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 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.

During the six months ended June 30, 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.

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,

The impact of the Company’s derivative financial instrument on its condensed consolidated statements of comprehensive (loss) income for the three and six months ended June 30, 2023 and 2022 was as follows, net of tax (in thousands):

Three months ended Six months ended

2023 June 30,

2022 June 30,

2023 June 30,

Gain (loss) recognized in other comprehensive income (loss) on derivative, net of tax $ — $ 3,916 $ ( 2,715 ) $ 18,629

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$ ( 1,322 ) $ 4,053 $ ( 12,321 ) $ 19,522

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

The Company had no derivative assets or liabilities at June 30, 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):

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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:

These liabilities are remeasured to fair value at each reporting date using the same valuation methodology applied upon issuance using current input assumptions.

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 are reported as Other income (expense), net in the Company's condensed consolidated statements of operations.

The fair value of the Preferred Stock and Warrants are determined using Level 3 input and the key inputs into the models utilized were as follows as of June 30, 2023:

Preferred Stock (BDT)

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

Dividend rate - thereafter (paid in cash) 12.00 %

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Time to expiration (years) 3.8

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)

maturity date.

The changes in the Company's Preferred Stock and Warrant liabilities in the three months ended June 30, 2023 were as follows (in thousands):

Preferred stock liability

Balance at March 31, 2023 $ 47,854

Cumulative dividends 1,272

Fair value change 1,456

Balance at June 30, 2023 $ 50,582

Warrant liability

Balance at March 31, 2023 $ 5,496

Fair value change $ ( 1,318 )

Balance at June 30, 2023 $ 4,178

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 maturity date.

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

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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.

The Warrants are immediately exercisable and upon an event such as 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 required 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.

The registration requirement was completed on May 19, 2023.

(12) REVENUE RECOGNITION

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The software and hardware are delivered before related services are provided and are functional without professional services or customer support.

The Company has concluded that its software licenses are functional intellectual property that are distinct, as the user can benefit from the software on its own.

The Company has

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

concluded that its software licenses are functional intellectual property that are distinct, as the user can benefit from the software on its own.

Product revenue is typically recognized upon transfer of control or when the software is made available for download, as this is the point the user of the software can direct the use of, and obtain substantially all of the remaining benefits from, the functional intellectual property.

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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

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.

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.

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

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

over the term of the agreement.

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

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

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

The Company's revenue for the three 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

The Company's revenue for the three and six months ended June

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

30, 2023 and 2022 was disaggregated as follows:

Three months ended June 30, 2023 Product revenue Service revenue (maintenance) Service revenue (professional services) Total revenue

United States $ 53,545 $ 33,890 $ 11,842 $ 99,277

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$ 117,347 $ 69,628 $ 23,643 $ 210,618

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

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

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

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

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,

Six months ended June 30, 2023 Product revenue Service revenue (maintenance) Service revenue (professional services) Total revenue

United States $ 91,612 $ 66,963 $ 22,695 $ 181,270

Europe, Middle East and Africa 56,266 38,125 14,254 108,645

Asia Pacific 57,425 19,536 5,413 82,374

Other 5,362 15,592 3,534 24,488

$ 210,665 $ 140,216 $ 45,896 $ 396,777

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

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

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

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

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

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

The Company's product revenue from indirect sales through its channel partner program and from its direct sales program for the three and six months ended June 30, 2023 and 2022 was as follows (in thousands):

Three months ended Six months ended

2023 June 30,

2022 June 30,

2023 June 30,

Indirect sales through channel partner program $ 37,590 $ 28,453 $ 73,504 $ 51,953

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$ 117,347 $ 112,667 $ 210,665 $ 194,657

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,

The Company's product revenue from sales to enterprise customers and from sales to service provider customers for the three and six months ended June 30, 2023 and 2022 was as follows (in thousands):

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

Three months ended Six months ended

2023 June 30,

2022 June 30,

2023 June 30,

Sales to enterprise customers $ 37,707 $ 22,837 $ 65,119 $ 44,920

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$ 117,347 $ 112,667 $ 210,665 $ 194,657

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,

The Company's product revenue and service revenue components by segment for the three and six months ended June 30, 2023 and 2022, respectively were as follows (in thousands):

Three months ended Six months ended

2023 June 30,

2022 June 30,

2023 June 30,

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 March 31, 2023 were not materially impacted by any factors other than billing and revenue recognition.

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

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

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

The changes in the Company's accounts receivable, unbilled receivables and deferred revenue balances for the six months ended June 30, 2023 were as follows (in thousands):

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

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

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Increase (decrease), net ( 10,245 ) ( 3,954 ) ( 24 ) 791

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)

Balance at June 30, 2023 $ 160,724 $ 92,321 $ 113,915 $ 20,045

The Company recognized approximately $ 71 million of revenue in the six months ended June 30, 2023 that was recorded as deferred revenue at December 31, 2022 and approximately $ 66 million of revenue in the six months ended June 30, 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 June 30, 2023, the Company expects that approximately $ 8 million will be recognized as revenue in 2024, approximately $ 9 million will be recognized as revenue in 2025 and approximately $ 3 million will be recognized as revenue in 2026 and beyond.

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

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

At both June 30, 2023 and December 31, 2022, the Company had $ 3.6 million of deferred sales commissions capitalized.

(13) OPERATING SEGMENT INFORMATION

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

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

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

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

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

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

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.

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 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,

The tables below provide information regarding revenue, adjusted gross profit, and depreciation expense by reportable segment for the three and six months ended June 30, 2023 and 2022 (in thousands):

Three months ended Six months ended

2023 June 30,

2022 June 30,

2023 June 30,

Segment revenue:

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Revenue $ 210,618 $ 205,796 $ 396,777 $ 378,994

Three months ended

2023 March 31,

Three months ended Six months ended

2023 June 30,

2022 June 30,

2023 June 30,

Segment adjusted gross profit:

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Gross profit $ 101,470 $ 104,550 $ 182,872 $ 182,605

Three months ended

2023 March 31,

Three months ended Six months ended

2023 June 30,

2022 June 30,

2023 June 30,

Segment depreciation expense:

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(14) MAJOR CUSTOMERS

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,

The following customer contributed 10% or more of the Company's revenue in the three and six months ended June 30, 2023 and 2022:

Three months ended Six months ended

2023 June 30,

2022 June 30,

2023 June 30,

Verizon Communications Inc.

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

11 % 20 % 11 % 17 %

At June 30, 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)

stock- or cash-based awards.

(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, as amended which provides for the award of stock options, stock appreciation rights, restricted stock awards ("RSAs"), performance-based stock awards, restricted stock units ("RSUs"), performance-based stock units ("PSUs") and other stock- or cash-based awards.

Executive Equity Arrangements

Inducement Awards

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

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Restricted Stock Units

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

The activity related to the Company's RSUs for the six months ended June 30, 2023 was as follows:

Shares Weighted

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Forfeited ( 543,546 ) $ 4.08

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.

Unvested balance at June 30, 2023 7,642,167 $ 3.50

The total grant date fair value of shares of restricted stock underlying RSUs that vested during the six months ended June 30, 2023 was $ 12.5 million.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

Performance-Based Stock Units

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

The activity related to the Company's PSUs for the six months ended June 30, 2023 was as follows:

Shares Weighted

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Forfeited ( 1,690,057 ) $ 4.05

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.

Notes to Condensed Consolidated Financial Statements (Continued)

Unvested balance at June 30, 2023 6,328,111 $ 2.08

The total grant date fair value of shares of restricted stock underlying PSUs that vested during the six months ended June 30, 2023 was $ 2.6 million.

Stock-Based Compensation

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,

The condensed consolidated statements of operations include stock-based compensation for the three and six months ended June 30, 2023 and 2022 as follows (in thousands):

Three months ended Six months ended

June 30, 2023 June 30,

2022 June 30, 2023 June 30,

Product cost of revenue $ 115 $ 107 $ 264 $ 206

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$ 6,116 $ 4,399 $ 11,964 $ 8,654

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.

At June 30, 2023, there was $ 26.3 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 .

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

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

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

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

information available at the commencement date in determining the present value of future minimum fixed lease payments.

The Company calculates its incremental borrowing rate to reflect the interest rate that it would have to pay to borrow on a collateralized basis an amount equal to the lease payments in a similar economic environment over a similar term and considers its historical borrowing activities and market data from entities with comparable credit ratings in this determination.

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

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

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

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

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.

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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.

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.

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 $ 0.4 million and $ 0.6 million, respectively, in the three and six months ended June 30, 2023 and $ 1.0 million in both the three and six months ended June 30, 2022.

No variable lease costs were accrued in the three and six months ended June 30, 2023 for future estimated variable expenses related to assets partially or fully vacated with no intent or ability to sublease.

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

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

At March 31, 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.

At June 30, 2023 and December 31, 2022, the Company had accruals of $ 1.7 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 March 31, 2023 and December 31, 2022 were as follows (in thousands):

Classification March 31,

The Company's right-of-use lease assets and lease liabilities at June 30, 2023 and December 31, 2022 were as follows (in thousands):

Classification June 30,

2023 December 31,

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Total Operating lease liabilities $ 57,167 $ 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,

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

The components of lease expense for the three and six months ended June 30, 2023 and 2022 were as follows (in thousands):

Three months ended Six months ended

2023 June 30,

2022 June 30,

2023 June 30,

Operating lease cost* $ 4,737 $ 5,538 $ 9,497 $ 10,168

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Net lease cost $ 8,911 $ 9,339 $ 17,470 $ 18,121

* 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,

* Operating lease costs for the three and six months ended June 30, 2023 included $ 0.4 million and $ 0.6 million, respectively, of accelerated amortization for certain assets partially or fully vacated with no intent or ability to sublease.

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

** No variable lease costs were accrued in the three and six months ended June 30, 2023 for future estimated variable expenses related to certain assets partially or fully vacated with no intent or ability to sublease.

Cash flow information related to the Company's leases for the six months ended June 30, 2023 and 2022 was as follows (in thousands):

Six months ended

2023 June 30,

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

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Financing cash flows for finance leases $ — $ 341

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

Other information related to the Company's leases as of June 30, 2023 and December 31, 2022 was as follows:

2023 December 31,

3 unchanged sentences

Operating leases 6.05 % 5.79 %

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

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

Future minimum fixed lease payments under noncancelable leases at June 30, 2023 were as follows (in thousands):

Remainder of 2023 $ 9,469

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(17) INCOME TAXES

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.

The Company recorded income tax provisions of $ 6.9 million and $ 6.2 million in the six months ended June 30, 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.

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

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

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(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)

The Company recognized revenue from its largest stockholder of $ 5.0 million and $ 0.7 million in the three months ended June 30, 2023 and 2022, respectively, and $ 5.8 million and $ 1.1 million in the six months ended June 30, 2023 and 2022 , respectively.

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

(19) COMMITMENTS AND CONTINGENCIES

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

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.

At June 30, 2023, the Company's maximum possible future royalties commitment, including $ 3.8 million of unpaid royalties accrued, was $ 24.9 million , including interest of $ 1.2 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.

The Company believes that it has meritorious defenses to the allegations made in the pending cases and intends to vigorously defend these lawsuits;

however, the Company is unable currently to forecast the ultimate outcome of these or similar matters.

however, the Company is unable currently to forecast the ultimate

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

outcome of these or similar matters.

Since it is difficult to predict the outcome of legal proceedings, it is possible that the ultimate outcomes could materially and adversely affect the Company’s business, financial position, results of operations or cash flows.

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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.

Discovery and class certification determination are on-going.

In June 2023, the Defendants agreed to a settlement in principle with the named plaintiffs.

The proposed settlement remains subject to approval by the court and the effected stockholders.

If approved, the proposed settlement would provide a release of all claims asserted in the litigation to all Defendants, who continue to deny liability, and the proposed settlement amount is expected to be fully paid by the Company's Directors and Officers liability insurance.

Charter Complaint.

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

What changed 10-Q

Item 1. Financial Statements