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Item 7. Management’s Discussion and Analysis

2024-02-28 compared with 2023-03-31 · 219 added, 283 removed, 358 unchanged (58% of the section changed)

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

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.

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

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

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

We are headquartered in Plano, Texas, and have a global presence with research and development or sales and support locations in over thirty countries around the world.

Key Trends and Economic Factors Affecting Ribbon

COVID-19 and Supplier Disruptions .

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

Supplier Disruptions.

Ongoing uncertainty in the global economy due to inflation, the wars in Israel and Ukraine, national security concerns and other factors, continue to disrupt various manufacturing, commodity and financial markets, increase volatility, and impede global supply chains.

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

The Ongoing Military Conflict in Ukraine.

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

Continued uncertain global economic conditions, may cause our customers to restrict spending or delay purchases for an indeterminate period of time and consequently cause our revenues to decline.

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

The degree to which the ongoing wars in Israel and Ukraine and the inflationary and high 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 Wars in Israel and Ukraine .

The uncertainty resulting from the wars in Israel and Ukraine and the threat for expansion of one or both of these wars could result in some of our customers delaying purchases from us.

As a result of safety concerns, we may close our offices in Israel from time to time.

Although our employees in these offices have the ability to work remotely and business continuity plans are in place to address any medium- or long-term disruptions that could result from the closure of these offices, the office closures and general effects of employees operating in a region at war could have a negative impact on our operations.

Further, a number of our employees in Israel are members of the military reserves and subject to immediate call-up in response to the war in Israel.

Following the terrorist attacks in Israel in October 2023, a number of our employees have been activated for military duty and we expect that additional employees will also be activated if the war in Israel continues.

While we have business continuity plans in place to address the military call-ups, it could affect the timing of projects in the short-term as the work is shifted to other team members both inside and outside of Israel.

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 war in Ukraine.

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

Although headline inflation in the United States and Europe appears to have reached 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.

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

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

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

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

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

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

Equity Offering

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

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

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

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

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

2022 Restructuring Initiative

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

The 2022 Restructuring Plan includes, among other things, charges related to a consolidation of facilities and a workforce reduction.

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

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

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

Business Acquisitions

ECI Telecom Group Ltd .

On March 3, 2020 (the "ECI Acquisition Date"), we completed the acquisition of ECI Telecom Group Ltd.

("ECI") in accordance with the terms of the Agreement and Plan of Merger, dated as of November 14, 2019, by and among Ribbon, an indirect wholly-owned subsidiary of Ribbon ("Merger Sub"), Ribbon Communications Israel Ltd., ECI, and ECI Holding (Hungary) Kft, pursuant to which Merger Sub merged with and into ECI, with ECI surviving such merger as a wholly-owned subsidiary of Ribbon (the "ECI Acquisition").

Prior to the ECI Acquisition Date, ECI was a privately-held global provider of end-to-end packet-optical transport and software-defined networking ("SDN") and network function virtualization ("NFV") solutions for service providers, enterprises and data center operators.

Ribbon believes the ECI Acquisition positions the Company for growth and enhances its competitive strengths by expanding its product portfolio beyond solutions primarily supporting voice applications to include data applications and optical networking.

As consideration for the ECI Acquisition, we issued the ECI shareholders and certain others 32.5 million shares of Ribbon common stock with a fair value of $108.6 million (the "Stock Consideration") and paid $322.5 million of cash, comprised of $183.3 million to repay ECI's outstanding debt, including both principal and interest, and $139.2 million paid to ECI's selling shareholders (the "Cash Consideration").

In addition, ECI shareholders received $33.4 million from the sale of certain of ECI's real estate assets.

Cash Consideration was financed through cash on hand and committed debt financing consisting of a new $400 million term loan facility and new $100 million revolving credit facility, which was undrawn at the ECI Acquisition Date.

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

Sale of Kandy Communications Business and Investment in AVCT

On December 1, 2020 (the "Kandy Sale Date"), we completed the sale of our Kandy Communications Business to American Virtual Cloud Technologies, Inc.

AVCT purchased the assets and assumed certain liabilities associated with the Kandy Communications Business, as well as all of the outstanding interests in Kandy Communications LLC, our subsidiary (the "Kandy Sale").

The assets acquired and liabilities assumed by AVCT in connection with the Kandy Sale were primarily comprised of accounts receivable, property and equipment, trade accounts payable and employee-related accruals.

As consideration, AVCT paid us $45.0 million, subject to certain adjustments, in the form of units of AVCT's securities (the "AVCT Units"), with each AVCT Unit consisting of:

$1,000 in principal amount of AVCT’s Series A-1 convertible debentures (the “Debentures”);

and (ii) one warrant to purchase 100 shares of AVCT common stock, $0.0001 par value (the “Warrants”), as consideration for the Kandy Sale.

We received 43,778 AVCT Units as consideration on the Kandy Sale Date.

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

The entire principal amount of each Debenture, together with accrued and unpaid interest thereon, was due and payable on the earlier of the May 1, 2023 maturity date or the occurrence of a Change in Control as defined in the definitive purchase agreement, as amended (the "Amended Kandy Agreement").

Each Debenture was convertible, in whole or in part, at any time at our option into that number of shares of AVCT common stock, calculated by dividing the principal amount being converted, together with all accrued and unpaid interest thereon, by the applicable conversion price, which initially per share was $3.45.

The Debentures were subject to mandatory conversion if the AVCT stock price was at or above $6.00 per share for 40 trading days in any 60 consecutive trading day period, subject to the satisfaction of certain other conditions.

The conversion price was subject to customary adjustments including, but not limited to, stock dividends, stock splits and reclassifications.

As of February 19, 2021, the stock price had traded above $6.00 for 40 days within a 60 consecutive trading day period, and accordingly, on September 8, 2021 (the "Debenture Conversion Date") upon the completion of customary regulatory filings by AVCT, the Debentures were converted into 13,700,421 shares of AVCT common stock (the "Debenture Shares").

The Warrants were independent of the Debentures and entitle us to purchase 4,377,800 shares of AVCT common stock at an exercise price of $0.01 per share.

The Warrants were immediately exercisable on the Kandy Sale Date and expire on December 1, 2025.

We had not exercised any of the Warrants as of December 31, 2021.

We were also subject to a lock-up provision which limited our ability to sell any shares of the AVCT common stock underlying the AVCT Units prior to June 1, 2021 (the "Lock-Up Period"), except in certain transactions.

We determined that the AVCT Units had a fair value of $84.9 million at the Kandy Sale Date, comprised of the Debentures with a fair value of $66.3 million and the Warrants with a fair value of $18.6 million.

The value of the net assets sold to AVCT totaled $1.3 million, resulting in a gain on the sale of $83.6 million.

We calculated the fair value of the Debentures using a Lattice-based valuation approach, which utilizes a binomial tree to model the different paths the price of AVCT's common stock might take over the Debentures' life by using assumptions regarding the stock price volatility and risk-free interest rate.

These results were then used to calculate the fair value of the Debentures at each measurement date prior to the Debenture Conversion Date.

We used the Black-Scholes valuation model for estimating the fair value of the Warrants at each measurement date.

The fair value of the Warrants was affected by AVCT's stock price as well as valuation assumptions, including the volatility of AVCT's stock price, expected term of the option, risk-free interest rate and expected dividends.

Both the Lattice and Black-Scholes valuation models are based on available market data, giving consideration to all of the rights and obligations of each instrument and precluding the use of "blockage" discounts or premiums in determining the fair value of a large block of financial instruments.

After the expiration of the Lock-Up Period and prior to the Debenture Conversion Date, we valued the AVCT Units at each measurement date by multiplying the closing stock price of AVCT common stock by the number of shares upon conversion of the Debentures and Warrants.

At December 31, 2021, we valued the Debenture Shares and Warrants (the "AVCT Investment") by multiplying the closing stock price of AVCT common stock by the number of Debenture Shares and Warrants we held.

At December 31, 2021, the fair value of the AVCT Investment was $43.9 million, comprised of $33.3 million for the Debenture Shares and $10.6 million for the Warrants.

We recorded a loss of $74.8 million in the year ended December 31, 2021 arising from the change in their aggregate fair value.

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

We recorded $3.5 million of interest income in the year ended December 31, 2021, respectively, which was added to the principal amount of the Debentures prior to the Debenture Conversion Date, and which is included in Interest expense, net, in our consolidated statement of operations.

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

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

The AVCT Investment is classified as a Level 1 fair value measurement at December 31, 2021 and the AVCT Units are classified as Level 2 fair value measurements within the fair value hierarchy at December 31, 2020.

We evaluated the nature of our investment in AVCT for the period from the Debenture Conversion Date through December 31, 2021 and determined that it represented an approximate 15% equity interest in AVCT on a diluted basis.

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

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

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

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

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

Litigation Settlement

On April 22, 2019, we and Metaswitch Networks Ltd., Metaswitch Networks Corp and Metaswitch Inc.

(collectively, "Metaswitch") agreed to a binding mediator's proposal that resolves the six previously disclosed lawsuits between the Company and Metaswitch (the "Lawsuits").

We and Metaswitch signed a Settlement and Cross-License Agreement on May 29, 2019 (the "Royalty Agreement").

Pursuant to the terms of the Royalty Agreement, Metaswitch agreed to pay us an aggregate amount of $63.0 million, which included cash payments of $37.5 million during the second quarter of 2019 and $25.5 million payable in three installments annually, beginning June 26, 2020, with such installment payments accruing interest at a rate of 4% per year.

As part of the Royalty Agreement, we and Metaswitch have (i) released the other from all claims and liabilities;

(ii) licensed each party's existing patent portfolio to the other party;

and (iii) requested the applicable courts to dismiss the Lawsuits.

We received $37.5 million of aggregate payments from Metaswitch in the second quarter of 2019 and recorded notes receivable for future payments of $25.5 million, comprised of $8.5 million in Other current assets and $17.0 million in Other assets in our consolidated balance sheet at December 31, 2019.

We recorded the $63.0 million gain in Other (expense) income, net, in our consolidated statement of operations for the year ended December 31, 2019.

We received $37.5 million of aggregate payments from Metaswitch in the second quarter of 2019 and $9.5 million, including $1.0 million of interest, in the second quarter of 2020.

On July 6, 2020, we and Metaswitch signed a First Supplemental Agreement to the Settlement and Cross-License Agreement (the "Supplemental Agreement") under which Metaswitch could elect to repay the outstanding amounts under the Royalty Agreement early in exchange for a reduction of $0.25 million to the outstanding principal, from $17.0 million to $16.75 million, and the payment of no further interest by Metaswitch effective June 26, 2020.

We recorded the reduction to the outstanding principal as a reduction to interest income.

On July 14, 2020, Metaswitch paid us the remaining outstanding balance of $16.75 million.

Private Placement

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

The proceeds from the Private Placement were approximately $53.4 million, including approximately $10 million from existing related party stockholders.

For additional detail on the Private Placement, see Note 16 - Preferred Stock and Warrants to our consolidated financial statements.

2023 Restructuring Plan

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

The 2023 Restructuring Plan include s, 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.

We recorded restructuring and related expense of $ 9.9 million in the year ended December 31, 2023 in connection with the 2023 Restructuring Plan for severance related costs.

We anticipate that we will record nominal future expense for severance in connection with the 2023 Restructuring Plan.

Operating Segments

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

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

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

We previously operated in a single segment, as our CODM made decisions and assessed performance at the company level, and for periods prior to the ECI Acquisition, there are no financial results for IP Optical Networks to report.

Our Cloud and Edge operating segment provides secure and reliable software and hardware products, solutions and services for Voice over Internet Protocol ("VoIP") communications, Voice over Long-Term Evolution ("VoLTE") and Voice Over 5G ("VoNR") communications, and Unified Communications and Collaboration ("UC&C") services to both service provider and enterprise customers.

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

Our Cloud and Edge product portfolio consists of our Session Border Controller ("SBC") products and our Network Transformation ("NTR") products.

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

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.

Our CODM assesses our performance based on the performance of two separate organizations within Ribbon, the Cloud and Edge operating segment ("Cloud and Edge") and the IP Optical Networks operating segment ("IP Optical Networks").

For additional details regarding our operating segments, see Note 18 - Operating Segment Information to our consolidated financial statements.

Financial Overview

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Our 2023 operating expenses included $28.6 million of amortization of acquired intangible assets, $4.5 million of acquisition-, disposal- and integration-related expense, and $16.2 million of restructuring and related expense.

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

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

We recorded stock-based compensation expense of $21.8 million in 2023 and $18.7 million in 2022.

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Restructuring and Cost Reduction Initiatives

In February 2022, our Board of Directors approved the 2022 Restructuring Plan to streamline the Company's operations in order to support the Company's investment in critical growth areas.

In February 2023, our Board of Directors approved the 2023 Restructuring Plan to streamline our operations in order to support our investment in critical growth areas.

The 2023 Restructuring Plan includes, 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.

We recorded restructuring and related expense of $9.9 million in 2023 in connection with the 2023 Restructuring Plan for severance related costs for approximately 200 employees.

We anticipate that we will record nominal future expense for severance in connection with the 2023 Restructuring Plan.

In February 2022, our Board of Directors approved the 2022 Restructuring Plan to streamline our operations in order to support our investment in critical growth areas.

The 2022 Restructuring Plan includes, among other things, charges related to a consolidation of facilities and a workforce reduction.

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

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

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

In connection with the 2022 Restructuring Plan, we recorded restructuring and related expense of $6.3 million in 2023, comprised of $5.3 million for variable and other facilities-related costs and $1.0 million for accelerated amortization of lease assets no longer being used with no ability or intent to sublease.

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

We anticipate that we will expense $5 million in 2024 related to the 2022 Restructuring Plan.

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

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

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

In connection with the 2020 Restructuring Initiative, we eliminated duplicate functions arising from the ECI Acquisition in support of our efforts to integrate the two companies.

In connection with the 2020 Restructuring Initiative, we recorded no expense in 2023, a nominal amount of restructuring and related expense in 2022 and $4.7 million of such expense in 2021.

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

All amounts will be fully paid in 2024.

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

We do not expect to record any future restructuring and related expense under the 2020 Restructuring Initiative.

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

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We expect that the actions under the Facilities Initiative will be substantially completed in 2024.

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

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

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

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

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

In connection with the 2019 Restructuring Initiative, we recorded no restructuring and related expense in 2023, $0.7 million in 2022 comprised entirely of facilities related expense and $7.0 million of such expense in 2021, comprised of $5.7 million for variable and other facilities-related costs and $1.3 million of net expense for accelerated amortization of lease assets.

The amount of $1.3 million for accelerated amortization of lease assets was comprised of $3.4 million of expense, partially offset by $2.1 million of income related to a lease modification for one of our restructured lease facilities.

The amount initially accrued for severance and related costs under this 2019 Restructuring Initiative was paid in 2021.

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 $1.6 million and $3.4 million of expense for accelerated rent amortization in the years ended December 31, 2022 and 2021, respectively.

These amounts are included as components of Restructuring and related expense, and reduced our Operating lease right-of-use assets in our consolidated balance sheets at December 31, 2022 and 2021.

We recorded $1.0 million, $1.6 million and $3.4 million of expense for accelerated rent amortization in the years ended December 31, 2023, 2022 and 2021, respectively.

These amounts are included as components of Restructuring and related expense in our statements of operations, reducing our Operating lease right-of-use assets in our consolidated balance sheets at the end of each respective year.

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

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

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

The preparation of these financial statements requires us to make

estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities.

We base our estimates and judgments on historical experience, knowledge of current conditions and beliefs of what could occur in the future given available information.

We consider the following accounting policies to be both those most important to the portrayal of our financial condition and those that require the most subjective judgment.

The significant accounting policies that we believe are the most critical include revenue recognition, the valuation of inventory, debentures and warrants received as sale consideration, warranty accruals, loss contingencies and reserves, stock-based compensation, the Preferred Stock and Warrants, business combinations, goodwill and intangible assets, accounting for leases, and accounting for income taxes.

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

The significant accounting policies that we believe are the most critical include revenue recognition, the valuation of inventory, debentures and warrants received as sale consideration, warranty accruals, loss contingencies and reserves, stock-based compensation, business combinations, goodwill and intangible assets and accounting for income taxes.

Revenue Recognition .

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

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

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

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

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We typically have more than one SSP for individual products and services due to the stratification of those products and services by customers and circumstances.

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

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

Valuation of Inventory.

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Investments .

We received Debentures and Warrants (collectively, the "AVCT Units") as consideration in connection with the Kandy Sale, which we accounted for in accordance with Accounting Standards Codification ("ASC") 820, Fair Value Measurement ("ASC 820").

We were subject to a lock-up provision which limited our ability to sell any shares of the AVCT common stock underlying the Debentures and the Warrants prior to June 1, 2021 (the "Lock-Up Period"), except in certain transactions.

We received debentures (the "Debentures") and warrants (the "AVCT Warrants") as sale consideration in connection with our December 1, 2020 sale of the Kandy Communications Business to American Virtual Cloud Technologies, Inc.

("AVCT") (the "Kandy Sale").

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

These results were then used to calculate the fair value of the Debentures at each measurement date.

We used the Black-Scholes valuation model for estimating the fair value of the Warrants at each measurement date.

Both the Lattice and Black-Scholes valuation models were based on available market data, giving consideration to all of the rights and obligations of each instrument and precluding the use of "blockage" discounts or premiums in determining the fair value of a large block of financial instruments.

After the expiration of the Lock-Up Period and prior to the Debenture Conversion Date, the Company valued the AVCT Units at each measurement date by multiplying the closing stock price of AVCT common stock by the number of shares upon conversion of the Debentures and Warrants.

Since the Debenture Conversion Date, the Company valued the Debenture Shares and Warrants by multiplying the closing stock price of AVCT common stock by the number of Debenture Shares and Warrants (collectively, the "AVCT Investment") it was holding at each

measurement date.

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

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

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

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

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

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

In connection with the conversion of the Debentures to the Debenture Shares, we elected to use the fair value option to account for its equity investment in AVCT as permitted under Accounting Standards Codification ("ASC") 825, Financial Instruments ("ASC 825"), which then refers to ASC 820, Fair Value Measurement ("ASC 820") to provide the fair value framework for valuing such investments.

In accordance with ASC 820, we recorded the investment in AVCT at fair value, with changes in fair value recorded as a component of Other (expense) income, net, in the consolidated statements of operations.

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

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

The perpetual license granted by AVCT is classified as Intangible assets, net in our consolidated balance sheets.

Warranty Accruals.

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

Preferred Stock and Warrants.

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

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

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

The Preferred Stock is considered to be debt for our Consolidated Net Leverage Ratio covenant calculation required under our 2020 Credit Facility.

Business Combinations.

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If these comparisons indicate that an asset is not recoverable, we will recognize an impairment loss for the amount by which the carrying value of the asset exceeds the related estimated fair value.

We perform a fair value analysis for each reporting unit using both an income and market approach, which encompasses a discounted cash flow analysis and a guideline public company analysis using selected multiples.

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

Any impairment charges are reported separately in our consolidated statements of operations.

Judgment is required in determining whether an event has occurred that may impair the value of goodwill, identifiable intangible assets or other long-lived assets.

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

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

Cloud and Edge, and IP Optical Networks.

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

Our reporting units are our two operating segments, Cloud and Edge and IP Optical Networks.

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

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

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

Based upon the completion of our 2023 and 2022 annual test for goodwill impairment, we determined that there was no impairment of goodwill for either of our reporting units.

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

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

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

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

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

We have operating and finance leases for corporate offices, research and development facilities, and certain equipment.

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

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

We had no finance leases at December 31, 2022.

We have operating leases for corporate offices, and research and development facilities and historically had finance leases for certain equipment.

Operating leases are reported separately in our consolidated balance sheets.

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

We determine if an arrangement is a lease at inception.

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

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

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

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

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Revenue for the years ended December 31, 2023 and 2022 was as follows (in thousands, except percentages):

December 31, Decrease

December 31, Increase

from prior year

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Total revenue $ 477,647 $ 348,692 $ 826,339 $ 508,137 $ 311,623 $ 819,760

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

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

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

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

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

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

The increase in our product revenue in 2023 compared to 2022 was primarily the result of $ 33 million of higher sales of our IP Optical Networks products, offset by $31 million of lower sales of our Cloud and Edge products.

The increase in revenue from the sale of IP Optical Networks products was primarily attributable to higher sales in India and the U.S.

markets following the introduction of new products and capabilities, including support for Long Haul Optical Transport, 5G Cell Site Routers, and a new series of IP Routers.

The decrease in revenue from the sale of Cloud and Edge products was primarily attributable to lower sales to U.S.

Tier One service providers, partially offset by increased sales to Enterprise customers, including U.S.

Federal agencies to support voice network modernization.

Revenue from sales to enterprise customers was 32% and 28% of our product revenue in 2023 and 2022, respectively.

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

In 2022, 30% of our product revenue was from indirect sales through our channel partner program, compared to 26% in 2021.

Revenue from indirect sales through our channel partner program was 35% and 30% of our product revenue in 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.

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

December 31, Increase

December 31, Increase (decrease)

from prior year

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Total service revenue $ 292,918 $ 88,271 $ 381,189 $ 292,367 $ 84,713 $ 377,080

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

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

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

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

Total service revenue from our Cloud and Edge segment was slightly higher in 2023 compared to 2022 due to a $3 million increase in professional services revenue and a decline in maintenance revenue.

The increase in professional services revenue is related to the timing and completion of certain projects to both service providers and enterprise customers.

The lower maintenance revenue reflects decommissioning of older equipment with several customers.

Service revenue from our IP Optical Networks segment increased by 4.2% in 2023 compared to 2022, primarily due to an increase in projects driven by higher product sales.

The following customer contributed 10% or more of our revenue in the years ended December 31, 2023 and 2022:

Verizon Communications Inc.

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

Revenue earned from customers domiciled outside the United States was 58% and 57% of total revenue in 2023 and 2022, respectively.

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

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

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

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

We expect that our total revenue in 2024 will increase compared to our 2023 total revenue as our IP Optical sales continue to grow.

From a regional perspective, we anticipate continued IP Optical revenue growth in 2024 from North America, Europe, the Middle East and Africa, and Central and Latin America.

In the Cloud & Edge segment, we anticipate continued growth in Enterprise including U.S.

Federal agencies, offsetting lower spending from U.S.

service providers.

Cost of Revenue/Gross Margin.

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Gross margin 62.8 % 31.0 % 49.4 % 61.1 % 29.1 % 48.9 %

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

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

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

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

Our gross margin was slightly higher with a 0.5 percentage point increase in 2023 compared to 2022.

This increase was the result of higher margins in both of our segments.

The higher margin in our IP Optical segment was due to higher sales volume, favorable mix, lower product costs and royalties, and improved absorption of fixed costs from higher sales.

The higher margin in our Cloud and Edge segment was primarily attributable to favorable product mix and lower product costs, including lower amortization of acquired technology costs.

We believe that our IP Optical Networks segment gross margin will improve in 2024 compared to 2023.

Our overall consolidated gross margin may decrease in 2024 as a result of higher expected sales from IP Optical Networks, which has lower margins due to the higher hardware content in its products and higher production costs.

Research and Development.

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.

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

December 31, Increase

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

December 31, Decrease

from prior year

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$ 190,660 $ 203,676 $ (13,016) (6.4) %

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

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

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

The decrease in our research and development expenses in 2023 compared to 2022 was primarily attributable to approximately $8 million of lower expenses in our IP Optical Networks segment and approximately $5 million of lower expenses in our Cloud and Edge segment.

The reduced expenses are a combination of lower employee headcount and outside subcontractors.

Our IP Optical Networks R&D investment is focused on significantly expanding our portfolio of IP Routing solutions, adding additional features and capabilities 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.

We believe that our R&D expenses will continue to decrease modestly in 2024, with reduced investment in both segments in areas such as sustaining engineering, as well as a full year benefit of the cost savings implemented in the 2023 Restructuring Plan.

Sales and Marketing.

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$ 137,460 $ 147,766 $ (10,306) (7.0) %

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

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

The decrease in sales and marketing expenses in 2023 compared to 2022 was 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 year 2023 compared to 2022, this resulted in a reduction of expenses of approximately $7 million in our IP Optical Networks segment and approximately $3 million in our Cloud & Edge segment.

We believe that our sales and marketing expenses will be modestly lower in 2024 compared to 2023 as we continue to benefit from the realigned global sales structure and continue to implement additional efficiencies.

General and Administrative.

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

December 31, Decrease

December 31, Increase

from prior year

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$ 54,962 $ 51,053 $ 3,909 7.7 %

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

The increase in general and administrative expenses in 2023 compared to 2022 was primarily attributable to higher stock-based and other incentive compensation.

We believe that our general and administrative expenses in 2024 will increase slightly compared to our 2023 levels, primarily due to higher employee costs and as a result of inflation.

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

December 31, Increase

December 31, Decrease

from prior year

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$ 28,601 $ 29,646 $ (1,045) (3.5) %

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

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

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

Opex Amortization was lower in 2023 compared to 2022 due to our method of amortization.

We record our amortization in relation to expected future cash flows rather than on a straight-line basis.

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

Impairment of Goodwill .

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

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

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

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

Acquisition-, Disposal- and Integration-Related.

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

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

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

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

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

The acquisition-related expenses primarily related to the ECI Acquisition and, to a lesser extent, other acquisition-related activities.

The disposal-related expenses related to the Kandy Sale.

The integration-related expenses related to our ongoing integration activities, primarily related to the ECI Acquisition.

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.

We recorded $4.5 million of acquisition-, disposal- and integration-related expenses in 2023 compared to $6.3 million in 2022.

These costs were related to integration following the ECI Acquisition and included license fees for systems in the process of being retired.

Restructuring and Related.

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

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

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

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

We recorded restructuring and related expense of $16.2 million in 2023, comprised of $9.9 million for severance and related costs, and $6.3 million for variable and other facilities-related costs, including $1.0 million of net expense for the accelerated amortization of lease assets.

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Interest expense and interest income for the years ended December 31, 2023 and 2022 were as follows (in millions, except percentages):

December 31, Increase (decrease)

December 31, Increase

from prior year

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Interest income was nominal in 2023.

Interest expense in 2023 was primarily comprised of costs related to the 2020 Credit Facility (as defined below), consisting of $25.5 million of interest on our term loan and revolver, $3.2 million of amortization of debt issuance costs, $0.5 million of which related to the March 2023 Sixth Amendment to the 2020 Credit Facility.

We also incurred $4.3 million of fees related to factoring certain accounts receivable.

Our interest expense, amortization of debt issuance costs, and factoring fees were partially offset by $5.6 million of amortization of gains in Accumulated other comprehensive income from the sales of our interest rate swap.

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

See Note 14 to our consolidated financial statements.

Interest income was nominal in 2022.

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

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

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

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

Other (Expense) Income, Net .

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

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

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

We recorded other expense, net, aggregating $3.8 million in 2023, primarily comprised of the $5.3 million fair value adjustment of our Preferred Stock and Warrants, including dividends on the Preferred Stock, and $3.5 million of costs incurred in the Private Placement, partially offset by the gain of $7.3 million recognized from Accumulated other comprehensive income in connection with the sale of our interest rate swap .

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

Income Taxes.

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

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

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

and a reduction in the deferred taxes on the undistributed earnings of non-U.S.

subsidiaries due to legal entity restructuring activities.

We recorded an income tax provision of $10.8 million and income tax benefit of $14.5 million in 2023 and 2022, respectively.

The change from a tax benefit in 2022 to a tax provision in 2023 is a result of changes in the jurisdictional mix of pre-tax book income between those jurisdictions that have a valuation allowance and those that do not.

During 2023 and 2022, we performed an analysis to determine if, based on all available evidence, we considered it more likely than not that some portion or all of the recorded deferred tax assets will not be realized in a future period.

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

The Organization for Economic Cooperation and Development (the "OECD") Pillar 2 global minimum tax rules are

intended to apply for tax years beginning in 2024.

On February 1, 2023, the FASB staff noted that they believe that the Pillar 2 tax would be an alternative minimum tax and therefore deferred tax assets would not need to be recognized related to this parallel taxing system.

On February 2, 2023, the OECD issued administrative guidance providing transition and safe harbor rules around the implementation of the Pillar 2 global minimum tax.

Under an additional transitional safe harbor released July 17, 2023, the undertaxed profits rule top-up tax will not be applied by any constituent entity's jurisdiction of residence with respect to income earned by a company's ultimate parent entity in its jurisdiction of residence, if the ultimate parent entity's jurisdiction has a corporate tax rate of at least 20%.

This transition safe harbor will apply to fiscal years beginning on or before December 31, 2025 and ending before December 31, 2026.

We are closely monitoring developments and evaluating the impacts these new rules will have on our tax rate, including eligibility to qualify for these safe harbor rules and do not expect Pillar 2 to have a significant impact on our financial statements.

Years Ended December 31, 2022 and 2021

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MD&A" of our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 31, 2023.

Off-Balance Sheet Arrangements

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

Liquidity and Capital Resources

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2023 2022 Change

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

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

Net loss $ (66,206) $ (98,083) $ 31,877

Adjustments to reconcile net loss to cash flows used in operating activities 79,209 122,052 (42,843)

Changes in operating assets and liabilities 4,084 (50,333) 54,417

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

Net cash provided by (used in) operating activities $ 17,087 $ (26,364) $ 43,451

Net cash used in investing activities $ (9,481) $ (12,136) $ 2,655

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

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

Net cash (used in) provided by financing activities $ (47,859) $ 931 $ (48,790)

We had cash and cash equivalents aggregating $27 million and $67 million at December 31, 2023 and 2022, respectively.

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

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subsidiaries as of December 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.

On April 29, 2019, we, as guarantor, and Ribbon Communications Operating Company, Inc., as borrower, entered into a syndicated, amended and restated credit facility (the "2019 Credit Facility"), which replaced our previous credit facility, which we had entered into in 2018.

The 2019 Credit Facility provided for a $50 million term loan facility that was advanced in full on April 29, 2019, and a $100 million revolving line of credit.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

On March 3, 2021, we entered into the Third Amendment to the 2020 Credit Facility which provided for an incremental term loan facility to us in the original principal amount of $74.6 million, the proceeds of which were used to consummate an open market purchase of all outstanding amounts under the Term B Loan, resulting in the assignment and immediate cancellation of the Term B Loan, such that the outstanding amount under the Term A Loan and incremental term loan facility were combined and held by the Lenders (the "2020 Term Loan") with the same terms as the Term A Loan.

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

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

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

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

Also, the Fifth Amendment reduced the

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

In the first and second quarters of 2023, the Maximum Consolidated Net Leverage Ratio allowed declined to 3.25:1.00 and in all subsequent quarters the ratio will be fixed at 3.00:1.00.

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

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

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

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

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

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

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

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

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

The Sixth Amendment, among other things, increased the Maximum Consolidated Net Leverage Ratio (as defined in the 2020 Credit Facility), with the first, second and third quarters of 2023 increasing to 4.50:1.00 and then decreasing to 4.25:1.00 and 4.00:1.00 in the fourth quarter of 2023 and the first quarter of 2024, respectively.

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

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

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

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

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

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

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

At December 31, 2023, we had an outstanding balance under the 2020 Term Loan of $235.4 million at an average interest rate of 10.0% and $2.7 million of letters of credit outstanding with an interest rate of 4.5%.

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

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

Our interest rates under our 2020 Term Loan benefited from a hedge instrument that was in place, specifically a fixed rate swap, until the instrument was sold in March 2023 (see Note 15).

We were in compliance with all covenants of the 2020 Credit Facility at both December 31, 2023 and 2022 , including the current Consolidated Net Leverage Ratio calculation that considers our debt to include Preferred Stock.

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

At December 31, 2023, we had $7.9 million of letters of credit, bank guarantees, and performance and bid bonds outstanding (collectively, "Guarantees"), comprised of $2.7 million of letters of credit under the 2020 Credit Facility described above (the "Letters of Credit") and $5.2 million of bank guarantees and performance and bid bonds (collectively, the "Other Guarantees").

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

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 have entered into a derivative financial instrument.

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

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

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

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

The swap was to mature on March 3, 2025, the same date the 2020 Credit Facility matures.

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

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

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

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

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

To accomplish this objective, we are using 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 is recorded in accumulated other comprehensive income (loss) in the consolidated balance sheet and is subsequently reclassified into earnings in the period that the hedged forecasted transactions affect earnings.

During the years ended December 31, 2022 and 2021, 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 would be recognized directly in earnings.

The gain in Accumulated other comprehensive 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 $0.9 million for the year ended December 31, 2023.

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

2023, we received $9.8 million, consisting of $0.4 million of interest and $9.4 million for the sale of the remaining $170 million of our interest rate swap back to our counterparty.

The portion of the gain in Accumulated other comprehensive 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 expense, net.

The portion of the gain in Accumulated other comprehensive 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 $4.7 million for the year ended December 31, 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 an agreement 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 consolidated balance sheet and is subsequently reclassified into earnings in the period that the hedged forecasted transactions affect earnings.

During the years ended December 31, 2023 and 2022, such a derivative was used to hedge the variable cash flows associated with the outstanding borrowings under the 2020 Credit Facility and we have 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 fair value of the derivative was recognized directly in earnings.

However, during the years ended December 31, 2023, 2022 and 2021, we recorded no hedge ineffectiveness.

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

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

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

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

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

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

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

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

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

During the year ended December 31, 2022, we received $73.4 million of cash from the sale of certain accounts receivable and recorded $1.1 million of interest expense in connection with these transactions.

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

In the year ended December 31, 2023, we recorded $7.3 million of Other expense, net due to the sale of our interest rate swap arrangement .

Cash Flows from Operating Activities

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

Our operating activities provided $17 million of cash in 2023, primarily resulting from our net loss, which was more than offset by certain non-cash expenses, such as amortization of intangible assets, stock-based compensation, depreciation and amortization of property and equipment, amortization of debt issuance costs and the change in the fair value of our preferred stock and warrant liabilities, including dividends on our preferred stock, partially offset by deferred income taxes and the gain on the sale of our interest rate swap.

Also, the changes in our operating assets and liabilities provided operating cash, including lower other operating assets and accounts receivable, partially offset by lower accrued expenses and other long-term liabilities, higher inventory, and lower accounts payable.

Higher product revenue in our IP Optical Networks segment and lower operating expenses company-wide due to our various cost saving initiatives, including lower employee and facilities expenses, have all positively affected our operating cash flow in 2023.

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

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

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

These amounts were partially offset by our net loss and a non-cash gain arising from the reversal of portions of our deferred tax asset, coupled with lower accrued expenses and other long-term liabilities and higher accounts receivable and inventory.

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

Cash Flows from Investing Activities

Our investing activities used $9 million and $12 million of cash in 2023 and 2022, respectively.

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

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

Our 2023 investing activities were used to purchase property and equipment and software licenses.

Cash Flows from Financing Activities

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

Our financing activities used $48 million of cash in 2023, primarily due to $95 million of principal payments on our term debt, including a $75 million prepayment in connection with the Sixth Amendment to the 2020 Credit Facility, $2 million of debt issuance costs also paid in connection with the Sixth Amendment, and $4 million for the payment of tax withholding

related to the net share settlements of restricted stock awards upon vesting.

In addition, we received $53 million of proceeds from the issuance of the Preferred Stock and Warrants in the Private Placement.

Our financing activities provided $1 million of cash in 2022, primarily due to $50 million of net proceeds from the private placement by us of 17,071,311 shares of our common stock, par value $0.0001 per share, at a price of $3.05 per share on August 12, 2022 (the "Equity Offering"), partially offset by $45 million of principal payments on the 2020 Credit Facility, including the voluntary $15 million incremental principal payment in connection with the Fourth Amendment and voluntary $10 million incremental principal payment in connection with the Fifth Amendment, and $3 million for the payment of tax withholding obligations related to the net share settlements of restricted stock awards upon vesting.

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

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

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

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

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

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

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

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

Based on our current expectations, we believe our current cash balance, the cash generated from our operations, and borrowings available 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 from the date of issuance of these financial statements.

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

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Our purchase obligations totaled $114 million at December 31, 2023, with estimated payments aggregating $101 million in 2024 and $13 million thereafter.

We anticipate devoting substantial capital resources to continue our research and development efforts, to maintain our sales, support and marketing, to complete acquisition-related integration activities and for other general corporate activities.

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

We anticipate devoting substantial capital resources to continue our research and development efforts, to maintain our sales, support and marketing, and for other general corporate activities.

We further believe that our financial resources, along with managing discretionary expenses, will allow us to manage the ongoing impact of inflation and the supply chain disruptions on our business operations.

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

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Recent Accounting Pronouncements

In December 2023, the Financial Accounting Standards Board (the "FASB") issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures (“ASU 2023-09”), which increases the disclosure requirements around rate reconciliation information and certain types of income taxes companies are required to pay.

ASU 2023-09 will be effective for us beginning in 2025, with early adoption permitted.

We are currently evaluating the impact of this accounting standard update on our consolidated financial statements and related disclosures.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which improves reportable segment disclosure requirements, including enhancement of the disclosures of significant segment expenses and interim disclosure requirements, to enable investors to better understand an entity's overall performance and assess potential future cash flows.

ASU 2023-07 will be effective for us annually beginning in 2024 and on an interim basis beginning in 2025, with early adoption permitted.

We are currently evaluating the impact of this accounting standard update on our consolidated financial statements and related disclosures.

In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements:

Codification Amendments in Response to the SEC's disclosure Update and Simplification Initiative (“ASU 2023-06”), which amends the disclosure or presentation requirements related to various subtopics in the FASB Accounting Standards Codification.

This ASU was issued in response to and to align GAAP with the SEC's August 2018 final rule that updates and simplifies disclosure requirements.

The effective date for us for each amendment will be the date on which the SEC's removal of that related disclosure requirement becomes effective, with early adoption prohibited.

We are currently evaluating the impact of this accounting standard update on our consolidated financial statements and related disclosures.

On February 1, 2023, the FASB staff noted that they believe that the Pillar 2 tax, established by the OECD and intended to apply for tax years beginning in 2024, would be an alternative minimum tax and therefore deferred tax assets would not need to be recognized related to this parallel taxing system.

On February 2, 2023, the OECD issued administrative guidance providing transition and safe harbor rules around the implementation of the Pillar 2 global minimum tax.

This transition safe harbor will apply to fiscal years beginning on or before December 31, 2025 and ending before December 31, 2026.

We are closely monitoring developments and evaluating the impacts these new rules will have on our tax rate, including eligibility to qualify for these safe

harbor rules.

Based upon preliminary calculations for calendar year 2024, we anticipate that we will meet the safe harbors in most jurisdictions, and any remaining top-up tax should be immaterial.

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.

ASU 2022-02 is effective for the Company January 1, 2023.

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

ASU 2022-02 became effective for us January 1, 2023.

The adoption of ASU 2022-02 did not have a material impact on our consolidated financial statements upon adoption.

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

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While primarily related to contract assets and contract liabilities that were accounted for by the acquiree in accordance with ASC 606, ASU 2021-08 also applies to contract assets and contract liabilities from other contracts to which the provisions of ASC 606 apply, such as contract liabilities from the sale of nonfinancial assets within the scope of ASU 2017-05, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20) .

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

The Company believes that the adoption of ASU 2021-08 could have a material impact on its consolidated financial statements for periods including and subsequent to significant business acquisitions.

In January 2021 the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848):

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

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

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

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

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

ASU 2021-08 was effective for us January 1, 2023.

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

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

What changed 10-K

Item 7. Management’s Discussion and Analysis