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Item 2. Management’s Discussion and Analysis

2023-07-27 compared with 2023-04-28 · 200 added, 130 removed, 213 unchanged (61% of the section changed)

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

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

Our mission is to create a recognized global technology leader providing solutions that enable the secure exchange of information, with unparalleled scale, performance and elasticity.

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

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

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

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

The Ongoing Military Conflict in Ukraine.

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Further, the U.S.

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

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

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

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

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

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

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

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

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

Although headline inflation in the United States and Europe appears to be nearing a peak, core inflation (excluding food and energy prices) remains elevated and is a source of continued cost pressure on businesses and households.

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

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Financial Results

We reported losses from operations of $35.2 million and $39.1 million for the three months ended March 31, 2023 and 2022, respectively.

Our revenue was $186.2 million and $173.2 million in the three months ended March 31, 2023 and 2022, respectively.

Our gross profit and gross margin were $81.4 million and 43.7%, respectively, in the three months ended March 31, 2023, and $78.1 million and 45.1%, respectively, in the three months ended March 31, 2022.

The higher revenue in the three months of 2023 compared to 2022 is due to $8.3 million of higher IP Optical sales and $4.7 million of higher Cloud and Edge product sales.

Revenue from our Cloud and Edge segment was $114.5 million and $109.8 million in the three months ended March 31, 2023 and 2022, respectively.

Gross profit and gross margin for this segment were $66.1 million and 57.7% , respectively, in the three months ended March 31, 2023, and $62.7 million and 57.1%, respectively, in the three months ended March 31, 2022.

Revenue from our IP Optical Networks segment was $71.7 million and $63.4 million in the three months ended March 31, 2023 and 2022, respectively.

Gross profit and gross margin for this segment were $15.3 million and 21.4% , respectively, in the three months ended March 31, 2023, and $15.3 million and 24.2%, respectively, in the three months ended March 31, 2022.

Our operating expenses were $116.6 million and $117.1 million in the three months ended March 31, 2023 and 2022, respectively.

The slightly decreased operating expenses are primarily related to lower sales and marketing and R&D expenses, partially offset by higher restructuring and related expense and higher general and administrative expense.

Operating expenses for the three months ended March 31, 2023 included $7.3 million of amortization of acquired intangible assets, $1.6 million of acquisition-, disposal- and integration-related expense, and $6.9 million of restructuring and related expense.

Operating expenses for the three months ended March 31, 2022 included $7.3 million of amortization of acquired intangible assets, $1.8 million of acquisition-, disposal- and integration-related expense, and $4.8 million of restructuring and related expense.

We recorded stock-based compensation expense of $5.8 million and $4.3 million in the three months ended March 31, 2023 and 2022, respectively.

We reported losses from operations of $6.6 million and $7.2 million for the three months ended June 30, 2023 and 2022, respectively.

We reported losses from operations of $41.8 million and $46.3 million for the six months ended June 30, 2023 and 2022, respectively.

Our revenue was $210.6 million and $205.8 million in the three months ended June 30, 2023 and 2022, respectively.

Our gross profit and gross margin were $101.5 million and 48.2%, respectively, in the three months ended June 30, 2023, and $104.6 million and 50.8%, respectively, in the three months ended June 30, 2022.

The higher revenue in the three months of 2023 compared to 2022 is due to $16.6 million of higher IP Optical sales, partially offset by $11.8 million of lower Cloud and Edge product sales.

Our revenue was $396.8 million and $379.0 million in the six months ended June 30, 2023 and 2022, respectively.

Our gross profit and gross margin were $182.9 million and 46.1%, respectively, in the six months ended June 30, 2023, and $182.6 million and 48.2%, respectively, in the six months ended June 30, 2022.

The higher revenue in the six months of 2023 compared to 2022 is due to $24.9 million of higher IP Optical sales, partially offset by $7.1 million of lower Cloud and Edge product sales.

Revenue from our Cloud and Edge segment was $125.3 million and $137.1 million in the three months ended June 30, 2023 and 2022, respectively.

Gross profit and gross margin for this segment were $79.3 million and 63.3% , respectively, in the three months ended June 30, 2023, and $88.3 million and 64.4%, respectively, in the three months ended June 30, 2022.

Revenue from our Cloud and Edge segment was $239.7 million and $246.9 million in the six months ended June 30, 2023 and 2022, respectively.

Gross profit and gross margin for this segment were $145.4 million and 60.7%, respectively, in the six months ended June 30, 2023, and $151.0 million and 61.2%, respectively, in the six months ended June 30, 2022.

Revenue from our IP Optical Networks segment was $85.4 million and $68.7 million in the three months ended June 30, 2023 and 2022, respectively.

Gross profit and gross margin for this segment were $22.1 million and 25.9% , respectively, in the three months ended June 30, 2023, and $16.3 million and 23.7%, respectively, in the three months ended June 30, 2022.

Revenue from our IP Optical Networks segment was $157.0 million and $132.1 million in the six months ended June 30, 2023 and 2022, respectively.

Gross profit and gross margin for this segment were $37.5 million and 23.9%, respectively, in the six months ended June 30, 2023, and $31.6 million and 23.9%, respectively, in the six months ended June 30, 2022

Our operating expenses were $108.1 million and $111.8 million in the three months ended June 30, 2023 and 2022, respectively.

The decreased operating expenses are primarily related to lower R&D and sales and marketing expenses, partially offset by higher restructuring and related expense and higher general and administrative expense.

Operating expenses for the three months ended June 30, 2023 included $7.3 million of amortization of acquired intangible assets, $0.5 million of acquisition-, disposal- and integration-related expense, and $4.3 million of restructuring and related expense.

Operating expenses for the three months ended June 30, 2022 included $7.5 million of amortization of acquired intangible assets, $1.5 million of acquisition-, disposal- and integration-related expense, and $2.9 million of restructuring and related expense.

Operating expenses for the six months ended June 30, 2023 included $14.5 million of amortization of acquired intangible assets, $2.1 million of acquisition-, disposal- and integration-related expense, and $11.2 million of restructuring and related expense.

Operating expenses for the six months ended June 30, 2022 included $14.8 million of amortization of acquired intangible assets, $3.4 million of acquisition-, disposal- and integration-related expense, and $7.7 million of restructuring and related expense.

We recorded stock-based compensation expense of $6.1 million and $4.4 million in the three months ended June 30, 2023 and 2022, respectively, and $12.0 million and $8.7 million in the six months ended June 30, 2023 and 2022, respectively.

These amounts are included as components of both Cost of revenue and Operating expenses in our condensed consolidated statements of operations.

See "Results of Operations" in this MD&A for a discussion of the changes in our revenue and expenses for the three months ended March 31, 2023 compared to the three months ended March 31, 2022.

See "Results of Operations" in this MD&A for a discussion of the changes in our revenue and expenses for the three and six months ended June 30, 2023 compared to the three and six months ended June 30, 2022.

Restructuring and Cost Reduction Initiatives

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In February 2023, our Board of Directors approved a strategic restructuring program (the "2023 Restructuring Plan") to streamline the Company's operations in order to support the Company's investment in critical growth areas.

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

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

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

We recorded restructuring and related expense of $5.7 million in the three months ended March 31, 2023 in connection

with the 2023 Restructuring Plan.

The amount for the three months ended March 31, 2023 was comprised entirely of severance and related costs.

We 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, comprised entirely of severance and related costs.

We anticipate that we will record future expense for severance of approximately $2 million in connection with the 2023 Restructuring Plan.

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

We 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 comprised of $4.2 million for severance and related costs for approximately 50 employees.

We 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 variable and other 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 variable and other facilities-related costs and $0.6 million for accelerated amortization of lease assets no longer being used with no ability or intent to sublease.

We anticipate that we will record future expense for severance and facility consolidations aggregating approximately $5 million in connection with the 2022 Restructuring Plan.

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

We recorded $0.2 million and for accelerated rent amortization in the three months ended March 31, 2023.

We did not record accelerated rent amortization in the three months ended March 31, 2022.

We recorded $0.4 million and $0.6 million for accelerated rent amortization in the three and six months ended June 30, 2023 .

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

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If actual results differ significantly from management's estimates and projections, there could be a material effect on our condensed consolidated financial statements.

There was one significant change to our critical accounting policies during the three months ended March 31, 2023 with the addition of a policy for accounting for our Preferred Stock and Warrants that were issued in the Private Placement on March 28, 2023 as follows:

There was one significant change to our critical accounting policies during the six months ended June 30, 2023 with the addition of a policy for accounting for our Preferred Stock and Warrants that were issued in the Private Placement on March 28, 2023 as follows:

Preferred Stock and Warrants

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The fair value option was elected for the Preferred Stock, as we consider 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.

For further discussion of our critical accounting policies and estimates, please refer to our Annual Report on Form 10-K for the year ended December 31, 2022.

Results of Operations

Three months ended March 31, 2023 and 2022

Revenue for the three months ended March 31, 2023 and 2022 was as follows (in thousands, except percentages):

Three and six months ended June 30, 2023 and 2022

Revenue for the three and six months ended June 30, 2023 and 2022 was as follows (in thousands, except percentages):

Three months ended Increase

from prior year

2023 March 31,

2023 June 30,

Product $ 117,347 $ 112,667 $ 4,680 4.2 %

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Total revenue $ 210,618 $ 205,796 $ 4,822 2.3 %

Segment revenue for the three months ended March 31, 2023 and 2022 was as follows (in thousands):

Three months ended March 31, 2023 Three months ended March 31, 2022

Six months ended

from prior year

2023 June 30,

Product $ 210,665 $ 194,657 $ 16,008 8.2 %

Service 186,112 184,337 1,775 1.0 %

Total revenue $ 396,777 $ 378,994 $ 17,783 4.7 %

Segment revenue for the three and six months ended June 30, 2023 and 2022 was as follows (in thousands):

Three months ended June 30, 2023 Three months ended June 30, 2022

Cloud and Edge IP Optical Networks Total Cloud and Edge IP Optical Networks Total

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Total revenue $ 125,256 $ 85,362 $ 210,618 $ 137,080 $ 68,716 $ 205,796

The increase in our product revenue in the three months ended March 31, 2023 compared to the three months ended March 31, 2022 was the result of $6 million of higher sales of our IP Optical Networks products and $5 million of higher sales of our Cloud and Edge products .

Six months ended June 30, 2023 Six months ended June 30, 2022

Cloud and Edge IP Optical Networks Total Cloud and Edge IP Optical Networks Total

Product $ 95,191 $ 115,474 $ 210,665 $ 101,760 $ 92,897 $ 194,657

Service 144,545 41,567 186,112 145,126 39,211 184,337

Total revenue $ 239,736 $ 157,041 $ 396,777 $ 246,886 $ 132,108 $ 378,994

The increase in our product revenue in the three months ended June 30, 2023 compared to the three months ended June 30, 2022 was the result of $16 million of higher sales of our IP Optical Networks products, partially offset by $11 million of lower sales of our Cloud and Edge products .

The increase in our product revenue in the six months ended June 30, 2023 compared to the six months ended June 30, 2022 was due to $23 million of higher sales of our IP Optical Networks products, partially offset by $6 million of lower sales of our Cloud and Edge products.

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

The increase in revenue from the sale of Cloud and Edge products was primarily attributable to higher sales to enterprise customers of our SBC products.

Revenue from sales to enterprise customers was 29% and 27% of our product revenue in the three months ended March 31, 2023 and 2022, respectively.

The decrease in revenue from the sale of Cloud and Edge products was primarily attributable to a substantial network transformation project in June 2022 that did not recur, partially offset by increased sales in the Federal and Enterprise verticals.

Revenue from sales to enterprise customers was 32% and 20% of our product revenue in the three months ended June 30, 2023 and 2022, respectively.

These sales were made through both our direct sales team and indirect sales channel partners.

Cloud and Edge sales to Enterprise customers in the first three months of 2023 increased approximately 62% compared with the same period of 2022.

Revenue from indirect sales through our channel partner program was 38% and 29% of our product revenue in the three months ended March 31, 2023 and 2022, respectively.

The increase in channel sales reflects stronger deployments through systems integrators as well as sell-thru our Service Provider channel partners.

Revenue from sales to enterprise customers was 31% and 23% of our product revenue in the six months ended June 30, 2023 and 2022, respectively.

Our sales to Enterprise customers in the three and six months ended June 30, 2023 increased by 65% and 45%, respectively, compared to the same periods in 2022.

Revenue from indirect sales through our channel partner program was 32% and 25% of our product revenue in the three months ended June 30, 2023 and 2022, respectively and 35% and 27% of our product revenue in the six months ended June 30, 2023 and 2022, respectively.

The increase in channel sales reflects stronger deployments through systems integrators as well as sell-through from our Service Provider channel partners.

The timing of the completion of customer projects and revenue recognition criteria satisfaction may cause our product revenue to fluctuate from one period to the next.

Service revenue is primarily comprised of hardware and software maintenance and support (“maintenance revenue”) and network design, installation and other professional services (“professional services revenue”).

Service revenue for the three months ended March 31, 2023 and 2022 was comprised of the following (in thousands, except percentages):

Service revenue for the three and six months ended June 30, 2023 and 2022 was comprised of the following (in thousands, except percentages):

Three months ended Increase/(Decrease)

from prior year

2023 March 31,

2023 June 30,

Maintenance $ 69,628 $ 69,458 $ 170 0.2 %

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$ 93,271 $ 93,129 $ 142 0.2 %

Segment service revenue for the three months ended March 31, 2023 and 2022 was comprised of the following (in thousands):

Three months ended March 31, 2023 Three months ended March 31, 2022

Six months ended Increase/(Decrease)

from prior year

2023 June 30,

Maintenance $ 140,216 $ 138,063 $ 2,153 1.6 %

Professional services 45,896 46,274 (378) (0.8) %

$ 186,112 $ 184,337 $ 1,775 1.0 %

Segment service revenue for the three and six months ended June 30, 2023 and 2022 was comprised of the following (in thousands):

Three months ended June 30, 2023 Three months ended June 30, 2022

Cloud and Edge IP Optical Networks Total Cloud and Edge IP Optical Networks Total

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Total service revenue $ 72,904 $ 20,367 $ 93,271 $ 72,955 $ 20,174 $ 93,129

The 2.9% increase in maintenance revenue in the three months ended March 31, 2023 compared to the three months ended March 31, 2022 was primarily due to higher IP Optical Network segment maintenance fees from the growing installed base of product.

Professional services revenue was relatively flat in the three months ended March 31, 2023 compared to the three months ended March 31, 2022 for both of our segments.

The following customers contributed 10% or more of our revenue in the three month periods ended March 31, 2023 and 2022:

Three months ended

Customer March 31,

2023 March 31,

Six months ended June 30, 2023 Six months ended June 30, 2022

Cloud and Edge IP Optical Networks Total Cloud and Edge IP Optical Networks Total

Maintenance $ 109,844 $ 30,372 $ 140,216 $ 110,209 $ 27,854 $ 138,063

Professional services 34,701 11,195 45,896 34,917 11,357 46,274

Total service revenue $ 144,545 $ 41,567 $ 186,112 $ 145,126 $ 39,211 $ 184,337

Maintenance revenue was relatively flat in the three months ended June 30, 2023 compared to the three months ended June 30, 2022.

The 1.6% increase in maintenance revenue in the six months ended June 30, 2023 compared to the six months ended June 30, 2022 was primarily due to higher IP Optical Network segment maintenance fees from the growing installed base of product and the timing of renewals .

Professional services revenue was relatively flat in the three months ended June 30, 2023 compared to the three months ended June 30, 2022 for both of our segments.

Professional services revenue was slightly lower in the six months ended June 30, 2023 compared to the six months ended June 30, 2022 for both of our segments.

The following customers contributed 10% or more of our revenue in the three and six months ended June 30, 2023 and 2022 and 2022:

Three months ended Six months ended

Customer June 30,

2023 June 30,

2022 June 30,

2023 June 30,

Verizon Communications Inc.

Revenue from customers domiciled outside the United States was approximately 56% in both the three months ended March 31, 2023 and 2022.

11% 20% 11% 17%

Revenue from customers domiciled outside the United States was 53% and 52% in the three months ended June 30, 2023 and 2022, respectively, and 54% of revenue in both the six months ended June 30, 2023 and 2022.

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

Our deferred product revenue was $26 million and $29 million at March 31, 2023 and December 31, 2022, respectively.

Our deferred service revenue was $114 million and $104 million at March 31, 2023 and December 31, 2022, respectively.

Our deferred product revenue was $18 million and $29 million at June 30, 2023 and December 31, 2022, respectively.

Our deferred service revenue was $116 million and $104 million at June 30, 2023 and December 31, 2022, respectively.

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

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

The primary source of revenue growth in 2023 is anticipated to come from the addition of several new products in our IP Routing portfolio.

We expect that our total revenue will increase modestly for 2023 compared to 2022 primarily due to the growth in our IP Optical sales, up 19% in the first half of 2023 versus the first half of 2022.

From a regional perspective, we anticipate IP Optical revenue growth in 2023 from India, Japan, Europe, and North America including the US Rural operators.

In the Cloud & Edge segment, we anticipate growth in Enterprise including US Federal agencies, offsetting lower spending from US Service Providers.

Cost of Revenue/Gross Margin.

Our cost of revenue consists primarily of amounts paid to third-party manufacturers for purchased materials and services, royalties, amortization of acquired technology, inventory valuation adjustments, warranty costs, and manufacturing and services personnel and related costs.

Our cost of revenue, gross profit and gross margin for the three months ended March 31, 2023 and 2022 were as follows (in thousands, except percentages):

Our cost of revenue, gross profit and gross margin for the three and six months ended June 30, 2023 and 2022 were as follows (in thousands, except percentages):

Three months ended Increase (decrease)

from prior year

2023 March 31,

2023 June 30,

Cost of revenue:

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Gross margin 48.2 % 50.8 %

Our segment cost of revenue, gross profit and gross margin for the three months ended March 31, 2023 and 2022 were as follows (in thousands, except percentages):

Three months ended March 31, 2023 Three months ended March 31, 2022

Six months ended Increase (decrease)

from prior year

2023 June 30,

Cost of revenue:

Product $ 129,990 $ 109,360 20,630 18.9 %

Service 69,087 70,874 (1,787) (2.5) %

Amortization of acquired technology 14,828 16,155 (1,327) (8.2) %

Total cost of revenue $ 213,905 $ 196,389 17,516 8.9 %

Gross profit $ 182,872 $ 182,605 $ 267 0.1 %

Gross margin 46.1 % 48.2 %

Our segment cost of revenue, gross profit and gross margin for the three and six months ended June 30, 2023 and 2022 were as follows (in thousands, except percentages):

Three months ended June 30, 2023 Three months ended June 30, 2022

Cloud and Edge IP Optical Networks Total Cloud and Edge IP Optical Networks Total

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Gross margin 63.3 % 25.9 % 48.2 % 64.4 % 23.7 % 50.8 %

Our gross margin decreased by one percentage point in the three months ended March 31, 2023 compared to the three months ended March 31, 2022, primarily due to lower margins in our IP Optical Networks segment, partially offset by slightly higher margins in our Cloud and Edge segment.

The decrease in gross margin of approximately three percentage points in our IP Optical Networks segment was primarily attributable to the impact of ramping up several new products, customer mix, and higher supply chain costs.

Six months ended June 30, 2023 Six months ended June 30, 2022

Cloud and Edge IP Optical Networks Total Cloud and Edge IP Optical Networks Total

Product $ 40,276 $ 89,714 $ 129,990 $ 36,036 $ 73,324 $ 109,360

Service 46,928 22,159 69,087 49,932 20,942 70,874

Amortization of acquired technology 7,125 7,703 14,828 9,936 6,219 16,155

Total cost of revenue $ 94,329 $ 119,576 $ 213,905 $ 95,904 $ 100,485 $ 196,389

Gross profit $ 145,407 $ 37,465 $ 182,872 $ 150,982 $ 31,623 $ 182,605

Gross margin 60.7 % 23.9 % 46.1 % 61.2 % 23.9 % 48.2 %

Our gross margin decreased by three and two percentage points in the three and six months ended June 30, 2023 compared to the three and six months ended June 30, 2022, respectively.

The decline was primarily due to the shift in the mix of sales, with higher IP Optical revenue and lower Cloud & Edge sales in 2023 as compared to the same periods in 2022.

The lower margins in our Cloud and Edge segment, and higher margins in our IP Optical Networks segment, also contributed to the variation in margin year over year.

The decrease in gross margins in our Cloud and Edge segment were primarily attributable to lower product volume and absorption of fixed costs.

The two percentage point increase in the gross margin in the quarterly comparison for our IP Optical segment was due to higher volumes and customer mix, as well as lower supply chain costs.

We believe that our IP Optical Networks segment gross margin will improve over the remaining quarters of 2023.

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Research and development ("R&D") expenses consist primarily of salaries and related personnel expenses and prototype costs for the design, development, testing, and enhancement of our products.

R&D expenses for the three months ended March 31, 2023 and 2022 were as follows (in thousands, except percentages):

R&D expenses for the three and six months ended June 30, 2023 and 2022 were as follows (in thousands, except percentages):

from prior year

2023 March 31,

2023 June 30,

Three months ended $ 47,776 $ 51,103 $ (3,327) (6.5) %

The slight decrease in our R&D expenses in the three months ended March 31, 2023 compared to the three months ended March 31, 2022 was attributable to approximately $2 million of lower expenses in our Cloud and Edge segment, partially offset by approximately $1 million of higher expenses in our IP Optical Networks segment.

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

Six months ended $ 99,080 $ 103,793 $ (4,713) (4.5) %

The decrease in our R&D expenses in the three months ended June 30, 2023 compared to the three months ended June 30, 2022 was attributable to lower expenses in both of our segments by approximately $2 million in IP Optical Networks and approximately $1 million in Cloud and Edge.

The reduced expenses are a combination of lower employee headcount and outside subcontractors, as well as benefits from the strengthening US dollar against the Israeli Shekel and other currencies.

The decrease in our R&D expenses in the six months ended June 30, 2023 compared to the six months ended June 30, 2022 was attributable to lower expenses in both of our segments by approximately $3 million in Cloud and Edge and approximately $1 million of in IP Optical Networks.

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

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

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

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

We believe that our R&D expenses in 2023 will continue to decrease compared to 2022, with reduced investment in both segments in areas such as element management and sustaining engineering, as well as cost savings from the 2023 and 2022 Restructuring Plans.

Sales and Marketing Expenses.

Sales and marketing expenses consist primarily of salaries and related personnel costs, commissions, travel and entertainment expenses, promotions, customer trial and evaluations inventory and other marketing and sales support expenses.

Sales and marketing expenses for the three months ended March 31, 2023 and 2022 were as follows (in thousands, except percentages):

Sales and marketing expenses for the three and six months ended June 30, 2023 and 2022 were as follows (in thousands, except percentages):

from prior year

2023 March 31,

2023 June 30,

Three months ended $ 33,905 $ 35,843 $ (1,938) (5.4) %

The decrease in sales and marketing expenses in the three months ended March 31, 2023 compared to the three months ended March 31, 2022 was primarily a result of a global sales organization re-alignment that reduced management layers as well as lower investment in under-performing regions, resulting in a reduction of expenses of approximately $1 million in each of our two segments.

Six months ended $ 69,304 $ 73,462 $ (4,158) (5.7) %

The decrease in sales and marketing expenses in 2023 as compared to 2022 is primarily a result of a global sales organization re-alignment that reduced management layers, as well as reduced investment in under-performing regions.

In the three months ended June 30, 2023 compared to the three months ended June 30, 2022, this resulted in a reduction of expenses of approximately $1 million in each of our two segments.

In the six months ended June 30, 2023 compared to the six months ended June 30, 2022, this resulted in a reduction of expenses of approximately $3 million in our IP Optical Networks segment and approximately $1 million in our Cloud & Edge segment.

We believe that our sales and marketing expenses will be lower in 2023 compared to 2022 as we benefit from the re-aligned global sales structure and continue to implement additional efficiencies.

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General and administrative expenses consist primarily of salaries and related personnel costs for executive and administrative personnel, and audit, legal and other professional fees.

General and administrative expenses for the three months ended March 31, 2023 and 2022 were as follows (in thousands, except percentages):

General and administrative expenses for the three and six months ended June 30, 2023 and 2022 were as follows (in thousands, except percentages):

from prior year

2023 March 31,

2023 June 30,

Three months ended $ 14,346 $ 12,901 $ 1,445 11.2 %

The increase in general and administrative expenses in the three months ended March 31, 2023 compared to the three months ended March 31, 2022 was primarily attributable to higher stock-based compensation and professional fees, with equally higher costs in each of our two segments.

Six months ended $ 28,391 $ 25,763 $ 2,628 10.2 %

The increase in general and administrative expenses in the three and six months ended June 30, 2023 compared to the three and six months ended June 30, 2022 was primarily attributable to higher stock-based compensation .

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

Amortization of Acquired Intangible Assets included in Operating expenses.

Amortization of acquired intangible assets included in Operating expenses ("Opex Amortization") for the three months ended March 31, 2023 and 2022 was as follows (in thousands, except percentages):

Amortization of acquired intangible assets included in Operating expenses ("Opex Amortization") for the three and six months ended June 30, 2023 and 2022 was as follows (in thousands, except percentages):

Decrease from prior year

2023 March 31,

2023 June 30,

Three months ended $ 7,260 $ 7,513 $ (253) (3.4) %

Opex Amortization was flat for the three months ended March 31, 2023 compared to the three months ended March 31, 2022.

Six months ended $ 14,524 $ 14,788 $ (264) (1.8) %

Opex Amortization was lower for the three and six months ended June 30, 2023 compared to the three and six months ended June 30, 2022.

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

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

Our acquisition-, disposal- and integration-related expenses were $1.6 million and $1.8 million in the three months ended March 31, 2023 and 2022, respectively.

The amounts for the three months ended March 31, 2023 and 2022 primarily related to integration-related expenses.

Our acquisition-, disposal- and integration-related expenses were $0.5 million and $1.5 million in the three months ended June 30, 2023 and 2022, respectively and $2.1 million and $3.4 million in the six months ended June 30, 2023 and 2022, respectively.

The amounts for the three and six months ended June 30, 2023 and 2022 primarily related to integration-related expenses.

Restructuring and Related.

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

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

We recorded restructuring and related expense of $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.

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

Interest Expense, Net.

Interest income and interest expense for the three months ended March 31, 2023 and 2022 were as follows (in thousands, except percentages):

Three months ended Increase from prior year

2023 March 31,

Interest income and interest expense for the three and six months ended June 30, 2023 and 2022 were as follows (in thousands, except percentages):

Three months ended Increase (decrease) from prior year

2023 June 30,

Interest income $ 57 $ 59 $ (2) (3.4) %

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Interest expense, net $ (6,766) $ (4,602) $ 2,164 47.0 %

Interest expense in the three months ended March 31, 2023 and 2022 represents interest and amortization of debt issuance costs in connection with the 2020 Credit Facility (as defined below).

The increase in Interest expense in the three months ended March 31, 2023 compared to the three months ended March 31, 2022 of $2.4 million was primarily due to $1.4 million of higher margin costs on our 2020 Term Loan, the write off of $0.5 million of debt issuance costs in conjunction with the Sixth Amendment to the 2020 Credit Facility that was effective March 30, 2023, and $0.4 of higher costs in 2023 for factoring certain accounts receivable.

Our interest expense for the three months ended March 31, 2023 and 2022 benefited from our interest rate swap, which was sold in March 2023.

Six months ended Increase from prior year

2023 June 30,

Interest income $ 116 $ 98 $ 18 18.4 %

Interest expense (13,304) (8,701) 4,603 52.9 %

Interest expense, net $ (13,188) $ (8,603) $ 4,585 53.3 %

Interest expense in the three and six months ended June 30, 2023 and 2022 primarily represents interest and amortization of debt issuance costs in connection with the 2020 Credit Facility (as defined below).

The increase in Interest expense in the three and six months ended June 30, 2023 compared to the three and six months ended June 30, 2022 was primarily due to higher margin costs on our 2020 Term Loan, higher costs in 2023 for factoring certain accounts receivable, and the write off of debt issuance costs in conjunction with the March 2023 Sixth Amendment to the 2020 Credit Facility, partially offset by the amortization of t he gains in accumulated other comprehensive (loss) income from the sales of our interest rate swap.

Our interest expense for the three and six months ended June 30, 2023 and 2022 benefited from our interest rate swap, which was sold in March 2023.

See Note 10 to our condensed consolidated financial statements.

Other (Expense) Income, Net .

We recorded other income, net of $4.8 million and other expense, net of $28.8 million in the three months ended March 31, 2023 and 2022, respectively.

Other income in the three months ended March 31, 2023 was primarily attributable to the gain of $7.3 million recognized from Accumulated other comprehensive income in connection with the sale of our interest rate swap, partially offset by $3.5 million of costs incurred in the Private Placement.

The primary component of the loss in the three months ended March 31, 2022 was the $27.0 million decline in the fair value of the AVCT Investment which was cancelled in a settlement agreement in August 2022.

We recorded other expense, net of $2.7 million and $10.2 million in the three months ended June 30, 2023 and 2022, respectively.

We recorded other income, net of $2.1 million and other expense, net of $39.0 million in the six months ended June 30, 2023 and 2022, respectively .

Other expense in the three months ended June 30, 2023 was primarily attributable to the change in the fair value of our Preferred Stock and Warrants, including dividends on the Preferred Stock.

Other income in the six months ended June 30, 2023 was primarily comprised of the gain of $7.3 million recognized from Accumulated other comprehensive income in connection with the sale of our interest rate swap, partially offset by $3.5 million of costs incurred in the Private Placement.

The primary component of other expense in the three and six months ended June 30, 2022 was the decline of $12.4 million and $39.4 million, respectively, in the fair value of the AVCT Investment which was cancelled in a settlement agreement in August 2022.

Income Taxes.

We 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 our estimates of the effective rates expected to be applicable for the respective full fiscal years, adjusted for any discrete events, which are recorded in the period in which they occur.

We recorded income tax provision of $5.4 million and $8.1 million in the three months ended June 30, 2023 and 2022, respectively and $6.9 million and $6.2 million in the six months ended June 30, 2023 and 2022, respectively.

These estimates are reevaluated each quarter based on our estimated tax rate for the full year.

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Our condensed consolidated statements of cash flows are summarized as follows (in thousands):

Three months ended

2023 March 31,

Six months ended

2023 June 30,

Net loss $ (59,784) $ (100,155) $ 40,371

Adjustments to reconcile net loss to cash flows provided by operating activities 9,542 45,568 (36,026)

Adjustments to reconcile net loss to cash flows provided by (used in) operating activities 34,189 76,911 (42,722)

Changes in operating assets and liabilities 34,169 (1,143) 35,312

Net cash provided by operating activities $ 11,133 $ 15,030 $ (3,897)

Net cash provided by (used in) operating activities $ 8,574 $ (24,387) $ 32,961

Net cash used in investing activities $ (4,091) $ (6,515) $ 2,424

Net cash used in financing activities $ (36,705) $ (38,362) $ 1,657

We had cash and restricted cash aggregating $46 million and $67 million at March 31, 2023 and December 31, 2022, respectively.

We had cash and cash equivalents aggregating $35 million and $67 million at June 30, 2023 and December 31, 2022, respectively.

We had cash held by our non-U.S.

subsidiaries aggregating $35 million and $15 million at March 31, 2023 and December 31, 2022, respectively.

subsidiaries aggregating $25 million and $15 million at June 30, 2023 and December 31, 2022, respectively.

If we elect to repatriate all of the funds held by our non-U.S.

subsidiaries as of March 31, 2023, we do not believe that the amounts of potential withholding taxes that would arise from the repatriation would have a material effect on our liquidity.

subsidiaries as of June 30, 2023, we do not believe that the amounts of potential withholding taxes that would arise from the repatriation would have a material effect on our liquidity.

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

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

On June 30, 2022, we entered into the Fifth Amendment to the 2020 Credit Facility (the "Fifth Amendment") to increase the Maximum Consolidated Net Leverage Ratio (as defined in the 2020 Credit Facility) for 2022, with the fourth quarter of 2022 increased to 4.75:1.00.

2022 increased to 4.75:1.00.

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

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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.

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%.

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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.

At March 31, 2023, we had an outstanding balance under the 2020 Term Loan of $250.4 million at an average interest rate of 5.7% and $3.0 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).

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

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.

At June 30, 2023, we had an outstanding balance under the 2020 Term Loan of $245.4 million at an average interest rate of 9.6% and $3.0 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 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).

We were in compliance with all covenants of the 2020 Credit Facility at both June 30, 2023 and December 31, 2022.

We are exposed to financial market risk related to foreign currency fluctuations and changes in interest rates.

These exposures are actively monitored by management.

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

To manage the volatility related to the exposure to changes in interest rates, we may enter 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.

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On August 16, 2022, we sold another $30 million of the notional amount of our interest rate swap back to our counterparty for $1.6 million, reducing the notional amount to $340 million , which approximated the 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.

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 and $0.5 million for the three and six months ended June 30, 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 our paid term loan debt 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 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 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 was $1.6 million for the three months ended June 30, 2023 .

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

To accomplish this objective, we have used an interest rate swap as part of our 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 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 derivatives designated and that qualify as cash flow hedges are recorded in accumulated other comprehensive income in the condensed consolidated balance sheet and are 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 2020 Credit Facility.

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

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

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

Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for 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 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 six months ended June 30, 2023, we recorded $7.3 million of Other income (expense), net due to the sale of our swap.

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

At March 31, 2023, we had $7.2 million 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, we had $8.3 million of Guarantees, comprised of $3.3 million of Letters of Credit 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 our condensed consolidated balance sheets.

At June 30, 2023, we had $7.2 million 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, we had $8.3 million of Guarantees, comprised of $3.3 million of Letters of Credit and $5.0 million of Other Guarantees.

Cash Flows from Operating Activities

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

Cash provided by operating activities in the three months ended March 31, 2023 was $11.1 million, primarily resulting from lower accounts receivable and other operating assets, higher accrued expenses and other long term liabilities, higher deferred revenue, and certain non-cash expenses such as amortization of intangible assets, and stock-based compensation.

These amounts were partially offset by our net loss and lower accounts payable, higher inventory and certain non-cash items such as deferred income taxes and the gain on sale of our interest rate swap.

Our operating activities provided $15.0 million in the three months ended March 31, 2022, primarily resulting from lower accounts receivable and certain non-cash expenses, such as the decrease in the fair value of the AVCT Investment, amortization of intangible assets, stock-based compensation, depreciation and amortization of property and equipment, and foreign currency losses.

These amounts were partially offset by our net loss, higher inventory, lower accrued expenses and other long-term liabilities, and a non-cash adjustment for deferred income taxes.

Our operating activities provided cash of $8.6 million in the six months ended June 30, 2023, primarily as a result of higher product revenue in our IP Optical Networks segment and lower operating expenses company-wide due to our various cost saving initiatives.

Collections of accounts receivable and lower employee and facilities expenses have all positively affected our operating cash flow in 2023.

Cash used in operating activities in the six months ended June 30, 2022 was $24.4 million, primarily resulting from our net loss, higher inventory, and lower accrued expenses and deferred revenue.

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

Cash Flows from Investing Activities

Our investing activities used $2.4 million and $3.5 million of cash in the three months ended March 31, 2023 and 2022, respectively, to purchase property and equipment.

Our investing activities used $4.1 million and $6.5 million of cash in the six months ended June 30, 2023 and 2022, respectively, to purchase property and equipment.

Cash Flows from Financing Activities

Our financing activities used $30.1 million of cash in the three months ended March 31, 2023, primarily due to $80.0 million of principal payments, including a $75.0 million prepayment in connection with the Sixth Amendment to the 2020 Credit Facility, $1.6 million of debt issuance costs also paid in connection with the Sixth Amendment, and $1.9 million for the payment of tax withholding obligations related to the net share settlements of restricted stock awards upon vesting.

Our financing activities used $36.7 million of cash in the six months ended June 30, 2023, primarily due to $85.0 million of principal payments on our term debt, including a $75.0 million prepayment in connection with the Sixth Amendment to the 2020 Credit Facility, $1.6 million of debt issuance costs also paid in connection with the Sixth Amendment, and $3.5 million for the payment of tax withholding obligations related to the net share settlements of restricted stock awards upon vesting.

In addition, we received $53.4 million of proceeds from the issuance of the Preferred Stock and Warrants in the Private Placement.

Our financing activities used $22.4 million of cash in the three months ended March 31, 2022, primarily due to $20.0 million of principal payments on the 2020 Credit Facility, including the $15.0 million incremental principal payment in connection with the Fourth Amendment, and $1.8 million for the payment of tax withholding obligations related to the net share settlement of restricted stock awards upon vesting.

Our financing activities used $38.4 million of cash in the six months ended June 30, 2022, primarily due to $35.0 million of principal payments on the 2020 Credit Facility, including the voluntary $15.0 million incremental principal payment in connection with the Fourth Amendment, the voluntary $10.0 million incremental principal payment in connection with the Fifth Amendment and $1.9 million for the payment of tax withholding obligations related to the net share settlement of restricted stock awards upon vesting.

Payments of debt issuance costs and principal payments of finance leases totaled less than $1.4 million.

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

As of March 31, 2023, we were in compliance with our financial covenants.

As of June 30, 2023, we were in compliance with our financial covenants.

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

The rate at which we consume cash is dependent on the cash needs of our future operations, including our contractual obligations at March 31, 2023, primarily comprised of our debt principal and interest obligations as described above, and our operating lease and purchase obligations.

Our operating lease obligations totaled $69.7 million at March 31, 2023, with payments aggregating $13.8 million in the remainder of 2023, $15.5 million in 2024, $8.6 million in 2025 and $31.9 million thereafter.

The rate at which we consume cash is dependent on the cash needs of our future operations, including our contractual obligations at June 30, 2023, primarily comprised of our debt principal and interest obligations as described above, and our operating lease and purchase obligations.

Our operating lease obligations totaled $68.1 million at June 30, 2023, with payments aggregating $9.5 million in the remainder of 2023, $17.1 million in 2024, $9.1 million in 2025 and $32.5 million thereafter.

Estimated payments for purchase obligations for the full year 2023 aggregate approximately $143 m illion.

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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.

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 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.

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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 2. Management’s Discussion and Analysis