What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-10-26 compared with 2023-07-27 · 299 added, 236 removed, 748 unchanged (42% of the section changed)

3 unchanged sentences

(in thousands, except share and per share data)

September 30,

2023 December 31,

15 unchanged sentences

Current portion of term debt $ 30,087 $ 20,058

Revolving credit facility 10,000 —

Accounts payable 73,873 95,810

6 unchanged sentences

Preferred stock liability, $ 0.01 par value per share;

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

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

none issued and outstanding at December 31, 2022

8 unchanged sentences

240,000,000 shares authorized;

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

171,417,372 shares issued and outstanding at September 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 Six months ended

2023 June 30,

2022 June 30,

2023 June 30,

Three months ended Nine months ended

September 30,

2023 September 30,

2022 September 30,

2023 September 30,

Product $ 108,501 $ 111,152 $ 319,166 $ 305,809

15 unchanged sentences

Total operating expenses 102,647 107,614 327,330 336,512

Loss from operations ( 6,622 ) ( 7,239 ) ( 41,811 ) ( 46,293 )

Income (loss) from operations 856 ( 3,296 ) ( 40,955 ) ( 49,589 )

Interest expense, net ( 7,143 ) ( 5,266 ) ( 20,331 ) ( 13,869 )

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

Other expense, net ( 2,620 ) ( 3,732 ) ( 536 ) ( 42,760 )

Loss before income taxes ( 8,907 ) ( 12,294 ) ( 61,822 ) ( 106,218 )

11 unchanged sentences

(in thousands)

Three months ended Six months ended

2023 June 30,

2022 June 30,

2023 June 30,

Three months ended Nine months ended

September 30,

2023 September 30,

2022 September 30,

2023 September 30,

Net loss $ ( 13,501 ) $ ( 18,416 ) $ ( 73,285 ) $ ( 118,571 )

1 unchanged sentence

Unrealized gain (loss) on interest rate swap, net of reclassifications and amortization into earnings ( 1,322 ) 1,726 ( 8,544 ) 21,248

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

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

Foreign currency translation adjustments ( 3 ) ( 144 ) ( 588 ) ( 1,157 )

6 unchanged sentences

(in thousands, except shares)

Three months ended June 30, 2023

Three months ended September 30, 2023

Additional other Total

1 unchanged sentence

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

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

Exercise of stock options 6,899 13 13

5 unchanged sentences

Net loss ( 13,501 ) ( 13,501 )

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

Balance at September 30, 2023 171,417,372 $ 17 $ 1,954,586 $ ( 1,527,029 ) $ 16,354 $ 443,928

Nine months ended September 30, 2023

Additional other Total

9 unchanged sentences

Net loss ( 73,285 ) ( 73,285 )

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

Balance at September 30, 2023 171,417,372 $ 17 $ 1,954,586 $ ( 1,527,029 ) $ 16,354 $ 443,928

See notes to the unaudited condensed consolidated financial statements.

2 unchanged sentences

(in thousands, except shares)

Three months ended June 30, 2022

Three months ended September 30, 2022

Additional other Total

1 unchanged sentence

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 —

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

Exercise of stock options 353 1 1

Vesting of restricted stock units 800,999 —

Vesting of performance-based stock units 3,433 —

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

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

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

Stock-based compensation expense 4,841 4,841

1 unchanged sentence

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

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

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

Nine months ended September 30, 2022

Additional other Total

3 unchanged sentences

Exercise of stock options 708 1 1

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

Vesting of restricted stock units 2,808,137 —

Vesting of performance-based stock units 179,184 —

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

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

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

Stock-based compensation expense 13,495 13,495

1 unchanged sentence

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

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

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

See notes to the unaudited condensed consolidated financial statements.

2 unchanged sentences

(in thousands)

Six months ended

2023 June 30,

Nine months ended

September 30,

2023 September 30,

Cash flows from operating activities:

Net loss $ ( 73,285 ) $ ( 118,571 )

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

Adjustments to reconcile net loss to cash flows used in operating activities:

Depreciation and amortization of property and equipment 10,603 11,688

17 unchanged sentences

Deferred revenue ( 7,793 ) ( 17,414 )

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

Net cash used in operating activities ( 3,052 ) ( 42,462 )

Cash flows from investing activities:

Purchases of property and equipment ( 6,620 ) ( 9,744 )

Purchases of software licenses — ( 3,300 )

Net cash used in investing activities ( 6,620 ) ( 13,044 )

5 unchanged sentences

Payment of debt issuance costs ( 1,572 ) ( 1,046 )

Proceeds from equity offering — 52,067

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

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

Proceeds from the exercise of stock options 15 1

Payment of tax withholding obligations related to net share settlements of restricted stock awards ( 3,456 ) ( 1,946 )

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

Payment of tax withholding related to net share settlements of restricted stock awards ( 3,912 ) ( 2,684 )

Net cash (used in) provided by financing activities ( 32,163 ) 6,207

Effect of exchange rate changes on cash and cash equivalents ( 926 ) ( 1,251 )

5 unchanged sentences

(in thousands)

Six months ended

2023 June 30,

Nine months ended

September 30,

2023 September 30,

Supplemental disclosure of cash flow information:

4 unchanged sentences

Capital expenditures incurred, but not yet paid $ 2,505 $ 989

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

Inventory transfers to property and equipment $ 1,524 $ 1,705

24 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 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.

There were no material changes to the significant accounting policies during the nine months ended September 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

5 unchanged sentences

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.

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

Principles of Consolidation

12 unchanged sentences

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

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,

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

Three months ended Nine months ended

September 30,

2023 September 30,

2022 September 30,

2023 September 30,

Accounts receivable sold 24,701 16,926 73,028 57,640

20 unchanged sentences

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

Three months ended Six months ended

2023 June 30,

2022 June 30,

2023 June 30,

Three months ended Nine months ended

September 30,

2023 September 30,

2022 September 30,

2023 September 30,

Weighted average shares outstanding - basic 171,190 158,921 169,955 152,795

1 unchanged sentence

Weighted average shares outstanding - diluted 171,190 158,921 169,955 152,795

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.

Options to purchase the Company's common stock and unvested restricted and performance-based stock units aggregating 14.4 million shares were excluded from the computation of diluted loss per share for the three and nine months ended September 30, 2023 and 2022, because their effect would have been antidilutive.

As of September 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 nine months ended September 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.

RIBBON COMMUNICATIONS INC.

1 unchanged sentence

(3) INVENTORY

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

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

September 30,

2023 December 31,

5 unchanged sentences

(4) INTANGIBLE ASSETS AND GOODWILL

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

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

September 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 June 30, 2023 was as follows (in thousands):

Estimated future amortization expense for the Company's intangible assets at September 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 six months ended June 30, 2023 and 2022.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

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

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

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

Cloud and Edge IP Optical Networks Total

Balance at June 30, 2023

Balance at September 30, 2023

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

1 unchanged sentence

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

Balance at June 30, 2022

Balance at September 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 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 perpetual license granted by AVCT is classified as Intangible assets, net in the Company's condensed consolidated balance sheet as of September 30, 2023 and December 31, 2022 in the amount of $ 2.8 million and $ 3.9 million, respectively.

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

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

The 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 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.

Ribbon's term debt balance as of September 30, 2023 and December 31, 2022 of $ 240.4 million and $ 330.4 million, respectively, had a fair value of approximately $ 239.5 million and $ 323.0 million, respectively.

Our Preferred Stock and Warrants liabilities had a combined fair value of $ 54.9 million as of September 30, 2023, including cumulative dividends on the Preferred Stock of $ 2.6 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.

2 unchanged sentences

A financial instrument's categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

The fair value hierarchy is as follows:

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

value hierarchy is as follows:

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

2 unchanged sentences

(6) ACCRUED EXPENSES AND OTHER

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

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

September 30,

2023 December 31,

5 unchanged sentences

(7) WARRANTY ACCRUALS

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

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

Balance at January 1, 2023 $ 11,857

1 unchanged sentence

Settlements ( 4,070 )

Balance at June 30, 2023 $ 11,767

Balance at September 30, 2023 $ 11,994

(8) RESTRUCTURING AND FACILITIES CONSOLIDATION INITIATIVES

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.

The Company recorded restructuring and related expense aggregating $ 2.7 million and $ 1.3 million in the three months ended September 30, 2023 and 2022, respectively, and $ 13.9 million and $ 9.0 million in the nine months ended September 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.

3 unchanged sentences

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

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

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

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 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,

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

Three months ended Nine months ended

September 30,

2023 September 30,

2022 September 30,

2023 September 30,

Severance and related costs $ 804 $ ( 358 ) $ 9,355 $ 4,623

4 unchanged sentences

On February 22, 2023, the Company's 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 is expected to include, among other things, charges related to a workforce reduction.

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 $ 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):

The Company recorded restructuring and related expense of $ 0.9 million and $ 9.4 million in the three and nine months ended September 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 nine months ended September 30, 2023 is as follows (in thousands):

2023 Initiatives

payments Net transfer to operating lease accounts Balance at

June 30, 2023

September 30, 2023

Severance $ — $ 9,355 $ ( 7,994 ) $ — $ 1,361

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 $ 1.5 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):

The Company recorded restructuring and related expense of $ 1.9 million and $ 4.6 million in the three and nine months ended September 30, 2023, respectively, in connection with the 2022 Restructuring Plan.

The amount for the three months ended September 30, 2023 was comprised of $ 1.7 million for 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 nine months ended September 30, 2023 was comprised of $ 3.8 million for facilities-related costs and $ 0.8 million for accelerated amortization of lease assets no longer being used with no ability or intent to sublease.

A summary of the 2022 Restructuring Plan accrual activity for the nine months ended September 30, 2023 is as follows (in thousands):

RIBBON COMMUNICATIONS INC.

2 unchanged sentences

payments Net transfer to operating lease accounts Balance at

June 30, 2023

September 30, 2023

Severance $ 1,164 $ — $ ( 1,010 ) $ — $ 154

3 unchanged sentences

Balance Sheet Classification

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 current portions of accrued restructuring were $ 2.0 million and $ 1.3 million at September 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.

The long-term portions of accrued restructuring were $ 1.2 million and $ 2.0 million at September 30, 2023 and December 31, 2022, respectively.

2020 Credit Facility

31 unchanged sentences

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

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

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

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

3 unchanged sentences

Notes to Condensed Consolidated Financial Statements (Continued)

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 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's interest rates under the 2020 Term Loan fo r the nine months ended September 30, 2023 and 2022 b enefited 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 U.S.

dollar SOFR plus a fixed margin of 4.5 %.

The Company was in compliance with all covenants of the 2020 Credit Facility at both September 30, 2023 and December 31, 2022, including the current Consolidated Net Leverage Ratio calculation that considers the Company's debt to include Preferred Stock.

The Company had the following outstanding borrowings, unamortized debt issuance costs, letters of credit, interest rates, and remaining borrowing capacity under the 2020 Credit Facility as of September 30, 2023 and December 31, 2022:

September 30,

2023 December 31,

Revolving Credit Facility $ 10,000 $ —

Current portion of Term Debt $ 30,087 $ 20,058

Long-term Debt, net of Current:

Long-term Debt, net of Current (Face Amount) $ 210,323 $ 310,395

Unamortized Debt Issuance Costs - Contra-Liability ( 3,415 ) ( 4,125 )

Long-term Debt, net of Current $ 206,908 $ 306,270

Total Face Amount of Borrowings $ 250,410 $ 330,453

Unamortized Debt Issuance Costs:

Other Assets $ 677 $ 798

Long-Term Debt - Contra Liability 3,415 4,125

Total Unamortized Debt Issuance Costs $ 4,092 $ 4,923

Letters of Credit Outstanding $ 2,985 $ 3,272

Remaining Borrowing Capacity $ 62,015 $ 96,728

Average Interest Rates:

Revolving Credit Facility 9.9 % -

Term Loan 9.9 % 5.4 %

Letters of Credit 4.5 % 4.5 %

The Company's debt maturities as of September 30, 2023 were as follows:

Years ending December 31,

Remainder of 2023 $ 15,015

Letters of Credit and Other Guarantees

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

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 September 30, 2023, the Company had $ 6.7 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 $ 3.7 million of bank guarantees and performance and bid bonds (collectively, the "Other Guarantees") under

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

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.

14 unchanged sentences

Cash Flow Hedge of Interest Rate Risk

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.

The 2020 Term Loan Facility had outstanding balances of $ 240.4 million and $ 330.4 million at September 30, 2023 and December 31, 2022, respectively.

The 2020 Revolving Credit Facility had an outstanding balance of $ 10.0 million at September 30, 2023 and was undrawn at December 31, 2022.

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

2 unchanged sentences

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)

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.

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 $ 0.7 million for the three and nine months ended September 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.

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

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

The portion of the gain in accumulated other comprehensive (loss) income related to our remaining term loan debt balance 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.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

amortization of which totaled $ 1.5 million and $ 3.1 million for the three and nine months ended September 30, 2023, respectively.

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.

2 unchanged sentences

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

During the 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.

During the nine months ended September 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.

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 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,

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

Three months ended Nine months ended

September 30,

2023 September 30,

2022 September 30,

2023 September 30,

Gain (loss) recognized in other comprehensive income (loss) on derivative, net of tax $ — $ 3,056 $ ( 2,715 ) $ 21,685

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

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

Amount reclassified from accumulated other comprehensive income (loss) to interest expense ( 1,322 ) ( 1,330 ) ( 5,829 ) ( 437 )

$ ( 1,322 ) $ 1,726 $ ( 13,643 ) $ 21,248

The Company had no derivative assets or liabilities at June 30, 2023.

The Company had no derivative assets or liabilities at September 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):

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

Balance sheet location December 31,

1 unchanged sentence

Interest rate derivative - asset derivative Other assets 12,216

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

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

(11) PREFERRED STOCK AND WARRANTS

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

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

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

2 unchanged sentences

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:

Changes in the fair value of the Preferred Stock and Warrants are reported as Other 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 September 30, 2023:

Preferred Stock (BDT)

13 unchanged sentences

Time to expiration (years) 3.5

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

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

The changes in the Company's Preferred Stock and Warrant liabilities from issuance in March 2023 through September 30, 2023 were as follows (in thousands):

Preferred stock liability

2 unchanged sentences

Fair value change ( 572 )

Balance at June 30, 2023 $ 50,582

Balance at September 30, 2023 $ 49,855

Warrant liability

1 unchanged sentence

Fair value change ( 444 )

Balance at June 30, 2023 $ 4,178

Balance at September 30, 2023 $ 5,052

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

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

4 unchanged sentences

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

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

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

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

17 unchanged sentences

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

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.

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.

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.

9 unchanged sentences

Customer support revenue is recognized ratably over the term of the customer support agreement, which is typically one year .

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

The Company's professional services include consulting, technical support, resident engineer services, design services and installation services.

9 unchanged sentences

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:

19 unchanged sentences

In these instances, the Company may use information such as the size of the customer and geographic region in determining the SSP.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

Deferred Revenue

4 unchanged sentences

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

The Company's revenue for the three 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

The Company's revenue for the three and nine months ended September 30, 2023 and 2022 was disaggregated as follows:

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

United States $ 40,162 $ 33,454 $ 12,440 $ 86,056

3 unchanged sentences

$ 108,501 $ 69,272 $ 25,388 $ 203,161

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

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

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

3 unchanged sentences

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

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

Nine months ended September 30, 2023 Product revenue Service revenue (maintenance) Service revenue (professional services) Total revenue

United States $ 131,774 $ 100,417 $ 35,135 $ 267,326

3 unchanged sentences

$ 319,166 $ 209,488 $ 71,284 $ 599,938

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

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

United States $ 128,056 $ 99,090 $ 33,689 $ 260,835

3 unchanged sentences

$ 305,809 $ 210,052 $ 70,260 $ 586,121

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,

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

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

Three months ended Nine months ended

September 30,

2023 September 30,

2022 September 30,

2023 September 30,

Indirect sales through channel partner program $ 35,950 $ 34,382 $ 109,454 $ 86,335

1 unchanged sentence

$ 108,501 $ 111,152 $ 319,166 $ 305,809

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,

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

Three months ended Nine months ended

September 30,

2023 September 30,

2022 September 30,

2023 September 30,

Sales to enterprise customers $ 32,044 $ 33,136 $ 97,163 $ 78,056

1 unchanged sentence

$ 108,501 $ 111,152 $ 319,166 $ 305,809

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,

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

Three months ended Nine months ended

September 30,

2023 September 30,

2022 September 30,

2023 September 30,

Product revenue:

19 unchanged sentences

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

Changes in the contract asset and liability balances during the three months ended June 30, 2023 were not materially impacted by any factors other than billing and revenue recognition.

Changes in the contract asset and liability balances during the nine months ended September 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.

1 unchanged sentence

however, billing cannot occur until services are completed.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

In some arrangements, the Company allows customers to pay for term-based software licenses and products over the term of the software license.

2 unchanged sentences

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

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

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

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

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

1 unchanged sentence

Increase (decrease), net ( 15,120 ) ( 9,941 ) ( 6,403 ) ( 1,389 )

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.

Balance at September 30, 2023 $ 155,849 $ 86,334 $ 107,536 $ 17,865

The Company recognized approximately $ 92 million of revenue in the nine months ended September 30, 2023 that was recorded as deferred revenue at December 31, 2022 and approximately $ 85 million of revenue in the nine months ended September 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 September 30, 2023, the Company expects that approximately $ 4 million will be recognized as revenue in 2024, approximately $ 9 million will be recognized as revenue in 2025 and approximately $ 5 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.

3 unchanged sentences

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

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

The Company had capitalized deferred sales commissions of $ 3.4 million and $ 3.6 million as of September 30, 2023 and December 31, 2022, respectively.

(13) OPERATING SEGMENT INFORMATION

6 unchanged sentences

This portfolio is offered to service provider, enterprise and industry verticals with critical transport network infrastructures including utilities, government, defense, transportation, and education and research.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

The Company has not provided segment asset information as such information is not provided to the CODM and accordingly, asset information is not used in assessing segment performance.

3 unchanged sentences

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

amortization of acquired technology and stock-based

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

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

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

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

2 unchanged sentences

GAAP measure.

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,

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

Three months ended Nine months ended

September 30,

2023 September 30,

2022 September 30,

2023 September 30,

Segment revenue:

2 unchanged sentences

Revenue $ 203,161 $ 207,127 $ 599,938 $ 586,121

Three months ended Six months ended

2023 June 30,

2022 June 30,

2023 June 30,

Three months ended Nine months ended

September 30,

2023 September 30,

2022 September 30,

2023 September 30,

Segment adjusted gross profit:

5 unchanged sentences

Gross profit $ 103,503 $ 104,318 $ 286,375 $ 286,923

Three months ended Six months ended

2023 June 30,

2022 June 30,

2023 June 30,

Three months ended Nine months ended

September 30,

2023 September 30,

2022 September 30,

2023 September 30,

Segment depreciation expense:

2 unchanged sentences

Depreciation expense $ 3,544 $ 3,915 $ 10,603 $ 11,688

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(14) MAJOR CUSTOMERS

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,

The following customers contributed 10% or more of the Company's revenue in the three and nine months ended September 30, 2023 and 2022:

Three months ended Nine months ended

September 30,

2023 September 30,

2022 September 30,

2023 September 30,

Verizon Communications Inc.

11 % 13 % 11 % 16 %

At June 30, 2023 and December 31, 2022, no customer accounted for 10% or more of the Company's accounts receivable balance.

AT&T * 10 % * *

* Less than 10% of total revenue.

At September 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.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(15) STOCK-BASED COMPENSATION PLANS

11 unchanged sentences

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

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

Restricted Stock Units

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

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

Shares Weighted

3 unchanged sentences

Forfeited ( 623,602 ) $ 4.05

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)

Unvested balance at September 30, 2023 7,951,595 $ 3.19

The total grant date fair value of shares of restricted stock underlying RSUs that vested during the nine months ended September 30, 2023 was $ 16.5 million.

Performance-Based Stock Units

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

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

Shares Weighted

3 unchanged sentences

Forfeited ( 1,706,133 ) $ 4.05

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.

Unvested balance at September 30, 2023 6,366,501 $ 2.09

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

Stock-Based Compensation

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,

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

Three months ended Nine months ended

September 30, 2023 September 30,

2022 September 30, 2023 September 30,

Product cost of revenue $ 121 $ 133 $ 385 $ 339

4 unchanged sentences

$ 4,950 $ 4,841 $ 16,914 $ 13,495

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.

At September 30, 2023, there was $ 22.7 million, net of expected forfeitures, of unrecognized stock-based compensation expense related to unvested RSUs and PSUs.

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

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

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

7 unchanged sentences

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

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

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.

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.

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 June 30, 2023 and December 31, 2022 and determined no impairment has occurred.

The Company assessed its right-of-use assets for impairment as of September 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.

6 unchanged sentences

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

Accordingly, the Company accelerated the amortization of those lease assets through the planned cease-use date of each facility, resulting in additional amortization expense of $ 0.4 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.

Accordingly, the Company accelerated the amortization of those lease assets through the planned cease-use date of each facility, resulting in additional amortization expense of $ 0.2 million and $ 0.8 million, respectively, in the three and nine months ended September 30, 2023 and $ 0.6 million and $ 1.6 million in the three and nine months ended September 30, 2022, respectively.

No variable lease costs were accrued in the three and nine months ended September 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 nine months ended September 30, 2022 included accruals of $ 0.7 million and $ 1.0 million, respectively, 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 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.

At September 30, 2023 and December 31, 2022, the Company had accruals of $ 1.6 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

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,

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

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

Classification September 30,

2023 December 31,

3 unchanged sentences

Total Operating lease liabilities $ 53,183 $ 61,599

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,

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

Three months ended Nine months ended

September 30,

2023 September 30,

2022 September 30,

2023 September 30,

Operating lease cost* $ 4,708 $ 5,233 $ 14,205 $ 15,401

6 unchanged sentences

Net lease cost $ 8,699 $ 9,831 $ 26,169 $ 27,952

* 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,

* Operating lease costs for the three and nine months ended September 30, 2023 included $ 0.2 million and $ 0.8 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 nine months ended September 30, 2022 included $ 0.6 million and $ 1.6 million, respectively, of accelerated amortization for certain assets partially or fully vacated with no intent or ability to sublease.

** No variable lease costs were accrued in the three and nine months ended September 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 nine months ended September 30, 2023 and 2022 was as follows (in thousands):

Nine months ended

September 30,

2023 September 30,

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

2 unchanged sentences

Financing cash flows for finance leases $ — $ 433

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

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

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

September 30,

2023 December 31,

3 unchanged sentences

Operating leases 6.19 % 5.79 %

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):

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

Remainder of 2023 $ 4,682

3 unchanged sentences

(17) INCOME TAXES

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.

The Company recorded income tax provisions of $ 11.5 million and $ 12.4 million in the nine months ended September 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.

3 unchanged sentences

(18) RELATED PARTIES

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.

The Company recognized revenue from its largest stockholder of $ 1.3 million and $ 0.6 million in the three months ended September 30, 2023 and 2022, respectively, and $ 7.1 million and $ 1.7 million in the nine months ended September 30, 2023 and 2022 , respectively.

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

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

The royalties for grants prior to 2017 were calculated at the rates of 1.3 % to 5.0 % of the aggregated proceeds from the sale of such products developed at certain of the Company's R&D centers, up to an amount not exceeding 100 % of such grants plus interest at LIBOR.

The royalties for grants prior to 2017 were calculated at the rates of 1.3 % to 5.0 % of the aggregated proceeds from the sale of such products developed at certain of the

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

Company's R&D centers, up to an amount not exceeding 100 % of such grants plus interest at LIBOR.

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

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.

At September 30, 2023, the Company's maximum possible future royalties commitment, including $ 1.8 million of unpaid royalties accrued, was $ 21.6 million , including interest of $ 0.9 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

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

outcome of these or similar matters.

however, the Company is unable currently to forecast the ultimate 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.

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.

In June 2023, the Defendants agreed to a settlement in principle with the named plaintiffs, and the settlement was preliminarily approved by the court on October 18, 2023.

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

The court has set April 24, 2024 as the hearing date for final approval of the proposed settlement.

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 $ 4.5 million settlement amount is expected to be fully paid by the Company's Directors and Officers liability insurance.

Charter Complaint.

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

WideOpenWest Complaint.

On August 9, 2023, WideOpenWest, Inc.

and WideOpenWest Finance, LLC (collectively, “WOW”) filed a complaint against Ribbon alleging breach of contract with respect to indemnification obligations purportedly owed to WOW in connection with WOW’s legal dispute with Sprint Communications Company L.P., which was settled by WOW in the second quarter of 2023.

The complaint was filed in the 429th Judicial District of the District Court of the State of Texas, in Collin County, Texas and has since been transferred to the 493rd Judicial District Court in Collin County.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

complaint, WOW is seeking monetary damages.

The Company filed its answer to the complaint on October 5, 2023.

Discovery is on-going and no trial date has been set at this time.

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