What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-02-28 compared with 2023-03-31 · 413 added, 550 removed, 1138 unchanged (46% of the section changed)

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Report of Independent Registered Public Accounting Firm (PCAOB ID No.

Consolidated Balance Sheets as of December 31, 202 2 an d 20 21

Consolidated Balance Sheets as of December 31, 202 3 and 202 2

Consolidated Statements of Operations for the years ended December 31, 202 3 , 202 2 and 202 1

Consolidated Statements of Comprehensive (Loss) Income for the years ended December 31, 2022, 2021 and 2020

Consolidated Statements of Comprehensive Loss for the years ended December 31, 202 3 , 202 2 and 202 1

Consolidated Statements of Stockholders' Equity for the years ended December 31, 202 3 , 202 2 and 202 1

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In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 31 2023, expressed an unqualified opinion on the Company's internal control over financial reporting.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 28, 2024, expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

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With the assistance of our data analytics specialists, we evaluated the estimated standalone selling price analyses prepared by the Company, including testing the underlying detail of customer arrangements and the mathematical accuracy of the calculations.

Goodwill – IP Optical Networks Reporting Unit – Refer to Notes 2 and 10 to the financial statements

Goodwill – Cloud and Edge and IP Optical Networks Reporting Units – Refer to Notes 2 and 10 to the financial statements

Critical Audit Matter Description

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Changes in these assumptions could have a significant impact on either the fair value, the amount of any goodwill impairment charge, or both.

The goodwill balance was $301 million as of December 31, 2022, of which $76 million was allocated to the IP Optical Networks Reporting Unit (“IP Optical”).

Given the significant judgments made by management to estimate the fair value of IP Optical, performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to the selection of the discount rate and forecasts of future revenue and profit margin required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.

The goodwill balance was $301 million as of December 31, 2023, of which $225 million was allocated to the Cloud and Edge Reporting unit and $76 million was allocated to the IP Optical Networks Reporting Unit (“IP Optical”).

Given the significant judgments made by management to estimate the fair value of the Cloud and Edge and IP Optical Reporting Units, performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to the selection of the discount rate and forecasts of future revenue and profit margin required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the discount rate and forecasts of future revenue and profit margin, used by management to estimate the fair value of IP Optical, included the following, among others:

• We tested the effectiveness of controls over management’s goodwill impairment evaluation, including those over the determination of the fair value of IP Optical, such as controls related to management’s selection of the discount rate and forecasts of future revenue and profit margin.

Our audit procedures related to the discount rate and forecasts of future revenue and profit margin, used by management to estimate the fair value of the Cloud and Edge Reporting Unit and IP Optical Reporting Unit, included the following, among others:

We tested the effectiveness of controls over management’s goodwill impairment evaluation, including those over the determination of the fair value of the Cloud and Edge Reporting Unit and IP Optical Reporting Unit, such as controls related to management’s selection of the discount rate and forecasts of future revenue and profit margin.

We evaluated management’s ability to accurately forecast future revenues and profit margin by comparing actual results to management’s historical forecasts.

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Dallas, Texas

March 31, 2023

February 28, 2024

We have served as the Company's auditor since 2005.

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Cash and cash equivalents $ 26,630 $ 67,262

Restricted cash 161 2,570

Accounts receivable, net 268,421 267,244

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Goodwill 300,892 300,892

Investments — 43,931

Deferred income taxes 69,761 53,649

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Long-term debt, net of current 197,482 306,270

Warrant liability 5,295 —

Preferred stock liability, $ 0.01 par value per share;

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

none issued and outstanding at December 31, 2022

Operating lease liabilities, net of current 38,711 46,183

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Stockholders' equity:

Preferred stock, $ 0.01 par value;

10,000,000 shares authorized;

none issued and outstanding

Common stock, 240,000,000 shares authorized, $ 0.0001 par value, 172,083,667 shares issued and outstanding at December 31, 2023;

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Total operating expenses 432,368 449,260 562,456

(Loss) income from operations ( 48,324 ) ( 117,796 ) 1,669

Loss from operations ( 24,285 ) ( 48,324 ) ( 117,796 )

Interest expense, net ( 27,320 ) ( 19,780 ) ( 15,831 )

Other (expense) income, net ( 44,495 ) ( 74,516 ) 112,690

(Loss) income before income taxes ( 112,599 ) ( 208,143 ) 93,317

Income tax benefit (provision) 14,516 30,958 ( 4,726 )

Net (loss) income $ ( 98,083 ) $ ( 177,185 ) $ 88,591

(Loss) earnings per share:

Other expense, net ( 3,768 ) ( 44,495 ) ( 74,516 )

Loss before income taxes ( 55,373 ) ( 112,599 ) ( 208,143 )

Income tax (provision) benefit ( 10,833 ) 14,516 30,958

Net loss $ ( 66,206 ) $ ( 98,083 ) $ ( 177,185 )

Loss per share:

Basic $ ( 0.39 ) $ ( 0.63 ) $ ( 1.20 )

Diluted $ ( 0.39 ) $ ( 0.63 ) $ ( 1.20 )

Shares used to compute (loss) earnings per share:

Shares used to compute loss per share:

Basic 170,408 156,668 147,575

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RIBBON COMMUNICATIONS INC.

Consolidated Statements of Comprehensive (Loss) Income

Consolidated Statements of Comprehensive Loss

(in thousands)

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2023 2022 2021

Net (loss) income $ ( 98,083 ) $ ( 177,185 ) $ 88,591

Net loss $ ( 66,206 ) $ ( 98,083 ) $ ( 177,185 )

Other comprehensive income (loss), net of tax:

Unrealized gain (loss) on interest rate swap, net of reclassifications and amortization into earnings ( 10,015 ) 19,321 12,759

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

Foreign currency translation adjustments ( 506 ) ( 792 ) ( 239 )

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Other comprehensive income (loss), net of tax ( 16,798 ) 23,007 12,520

Comprehensive (loss) income, net of tax $ ( 75,076 ) $ ( 164,665 ) $ 81,122

Comprehensive loss, net of tax $ ( 83,004 ) $ ( 75,076 ) $ ( 164,665 )

See notes to the consolidated financial statements.

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Shares of restricted stock returned to the Company under net share settlements to satisfy tax withholding obligations ( 1,754,963 ) ( 14,464 ) ( 14,464 )

Shares issued as consideration in connection with the acquisition of ECI Telecom Group Ltd.

32,500,000 3 108,547 108,550

Shares issued as consideration in connection with acquisition of Anova Data, Inc.

316,551 1,630 1,630

Stock-based compensation expense 19,418 19,418

Other comprehensive loss ( 7,469 ) ( 7,469 )

Net income 88,591 88,591

Other comprehensive income 12,520 12,520

Net loss ( 177,185 ) ( 177,185 )

Balances, December 31, 2021 148,895,308 15 1,875,234 ( 1,355,661 ) 7,578 527,166

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Shares of restricted stock returned to the Company under net share settlements to satisfy tax withholding obligations ( 897,059 ) ( 2,784 ) ( 2,784 )

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

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

Stock-based compensation expense 18,707 18,707

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Shares of restricted stock returned to the Company under net share settlements to satisfy tax withholding obligations ( 1,470,953 ) ( 4,481 ) ( 4,481 )

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

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

Stock-based compensation expense 21,806 21,806

Other comprehensive income 23,007 23,007

Other comprehensive loss ( 16,798 ) ( 16,798 )

Net loss ( 66,206 ) ( 66,206 )

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Cash flows from operating activities:

Net (loss) income $ ( 98,083 ) $ ( 177,185 ) $ 88,591

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

Net loss $ ( 66,206 ) $ ( 98,083 ) $ ( 177,185 )

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

Depreciation and amortization of property and equipment 14,105 15,295 16,962

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Amortization of debt issuance costs 3,241 2,308 4,763

Amortization of accumulated other comprehensive gain related to interest rate swap ( 5,575 ) — —

Stock-based compensation 21,806 18,707 19,418

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Gain on sale of business — ( 62 ) ( 2,772 )

Decrease (increase) in fair value of investments 41,291 71,252 ( 30,296 )

Reduction to deferred purchase consideration — — ( 70 )

Decrease in fair value of investments — 41,291 71,252

Gain on sale of swap ( 7,301 ) — —

Change in fair value of warrant liability ( 201 ) — —

Change in fair value of preferred stock liability 1,548 — —

Dividends accrued on preferred stock liability 3,935 — —

Foreign currency exchange losses ( 44 ) 1,576 5,002

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Deferred revenue ( 593 ) 3,455 6,904

Net cash (used in) provided by operating activities ( 26,364 ) 19,182 101,564

Net cash provided by (used in) operating activities 17,087 ( 26,364 ) 19,182

Cash flows from investing activities:

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Purchases of software licenses ( 100 ) ( 3,300 ) —

Business acquisitions, net of cash acquired — — ( 346,852 )

Proceeds from sale of business — 1,418 2,944

Proceeds from the sale of fixed assets — — 43,500

Net cash used in investing activities ( 9,481 ) ( 12,136 ) ( 14,188 )

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

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

Proceeds from the exercise of stock options 15 1 24

Payment of tax withholding obligations related to net share settlements of restricted stock awards ( 4,481 ) ( 2,784 ) ( 14,464 )

Net cash provided by (used in) financing activities 931 ( 33,683 ) 319,303

Net cash (used in) provided by financing activities ( 47,859 ) 931 ( 33,683 )

Effect of exchange rate changes on cash and cash equivalents ( 379 ) ( 1,654 ) ( 523 )

Net (decrease) increase in cash and cash equivalents ( 39,223 ) ( 29,212 ) 91,054

Cash, cash equivalents and restricted cash, beginning of year 106,485 135,697 44,643

Net decrease in cash and cash equivalents ( 40,632 ) ( 39,223 ) ( 29,212 )

Cash and cash equivalents, beginning of year 67,262 106,485 135,697

Cash and cash equivalents, end of year $ 26,630 $ 67,262 $ 106,485

RIBBON COMMUNICATIONS INC.

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2023 2022 2021

Cash, cash equivalents and restricted cash, end of year $ 67,262 $ 106,485 $ 135,697

Supplemental disclosure of cash flow information:

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

Business acquisition purchase consideration - common stock issued $ — $ — $ 108,550

Business acquisition purchase consideration - deferred payments $ — $ — $ 1,630

Supplemental disclosure of non-cash financing activities:

Total fair value of restricted stock awards, restricted stock units, performance-based stock awards and performance-based stock units on date vested $ 9,858 $ 40,751 $ 7,927

Total fair value of restricted stock awards, restricted stock units, and performance-based stock units on date vested $ 15,571 $ 9,858 $ 40,751

See notes to the consolidated financial statements.

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The consolidated financial statements have been prepared in United States dollars, in accordance with accounting principles generally accepted in the United States ("GAAP").

On December 1, 2020 (the "Kandy Sale Date"), American Virtual Cloud Technologies, Inc.

("AVCT") completed the purchase of the Company's cloud-based enterprise service business (the "Kandy Communications Business").

The revenue and expenses of the Kandy Communications Business are excluded from the Company's consolidated financial statements for the period subsequent to the Kandy Sale Date.

On March 3, 2020 (the "ECI Acquisition Date"), the Company merged with ECI Telecom Group Ltd ("ECI") (the "ECI Acquisition").

The financial results of ECI are included in the Company's consolidated financial statements for the period subsequent to the ECI Acquisition Date.

Private Placement Offering

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

The proceeds from the Private Placement were approximately $ 53.4 million, including approximately $ 10 million from existing related party stockholders (See Note 16).

Equity Offering

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The aggregate gross proceeds from the Equity Offering were approximately $ 52.1 million, including $ 10.0 million from existing related party shareholders, before deducting offering expenses paid by the Company of approximately $ 1.7 million.

The Company intends 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”).

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.

Operating Segments

The Company's chief operating decision maker (the "CODM") is its president and chief executive officer.

The CODM assesses the Company's performance based on the performance of two separate organizations within Ribbon:

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

Significant Accounting Policies

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All intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates and Judgments

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

Significant estimates and

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

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

Use of Estimates and Judgments

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

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

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The Company begins to recognize software revenue related to the renewal of subscription software licenses at the start of the subscription period.

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

The Company offers warranties on its products.

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The Company does not allow and has no history of accepting product returns.

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

Services revenue includes revenue from customer support and other professional services.

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

Operating Segments

The Company's chief operating decision maker (the "CODM") is its president and chief executive officer.

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

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

Preferred Stock and Warrants

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

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

These liabilities 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.

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

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

Financial Instruments

The carrying amounts of Ribbon's financial instruments that approximate their fair values include accounts receivable, equity securities and convertible warrants received as sale consideration, accounts payable and borrowings under a revolving credit facility.

Ribbon's term debt balance as of December 31, 2022 of $ 330.4 million had a fair value of approximately $ 323.0 million.

The carrying amounts of the Company's cash equivalents, accounts receivable, accounts payable and borrowings under a revolving credit facility in the Consolidated Balance Sheets approximates fair value due to the immediate or short-term nature of these financial instruments.

Ribbon's term debt balance as of December 31, 2023 and 2022 of $ 235.4 million and $ 330.4 million, respectively, had a fair value of approximately $ 235.1 million and $ 323.0 million , respectively.

Our Preferred Stock and Warrants liabilities as of December 31, 2023 had a combined fair value of $ 58.6 million , including cumulative dividends on the Preferred Stock of $ 3.9 million .

Financial instruments with remaining maturities or that are due within one year from the balance sheet date are classified as current.

Financial instruments with maturities or that are payable more than one year from the balance sheet date are classified as noncurrent.

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

Fair Value Option - Investment in AVCT

The Company received debentures and warrants as sale consideration in connection with the sale of the Kandy Communications Business.

On September 8, 2021 (the "Debenture Conversion Date"), the debentures were converted into 13,700,421 shares of AVCT common stock (the "Debenture Shares") (see Note 4 for a discussion of the valuation of the debentures, warrants and Debenture Shares).

The Company received debentures (the "Debentures") and warrants (the "AVCT Warrants") as sale consideration in connection with its 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 13,700,421 shares of AVCT common stock (the "Debenture Shares").

In connection with the conversion of the Debentures to the Debenture Shares, the Company 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, the Company 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, 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.

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

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.

Restricted Cash

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

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

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

See Note 4 for a discussion of the valuation of the Debentures, AVCT warrants and Debenture Shares.

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

See Note 4 for a description of the settlement agreement with AVCT.

Transfers of Financial Assets

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

During the year ended December 31, 2022, the Company 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, the Company 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.

Factoring of accounts receivable and associated fees for the years ended December 31, 2023 and 2022 were as follows (in thousands):

Accounts receivable sold $ 106,705 $ 74,523

Less factoring fees ( 2,736 ) ( 1,085 )

Net cash proceeds $ 103,969 $ 73,438

Foreign Currency Translation

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Revenue and expense items are translated at average rates of exchange prevailing during each period.

Translation adjustments for these subsidiaries are included in Other expense (income), net.

Translation adjustments for these subsidiaries are included in Other expense, net.

Realized and unrealized foreign currency exchange gains and losses arising from transactions denominated in currencies other than the subsidiary's functional currency are reflected in earnings.

The Company records its foreign currency gains (losses) as a component of Other (expense) income, net.

The Company recognized net foreign currency losses of $ 1.6 million, $ 5.0 million and $ 3.0 million for the years ended December 31, 2022, 2021 and 2020, respectively.

Inventory is recorded at the lower of cost or market value using the first-in, first-out convention.

The Company reduces the carrying value of inventory for those items that are potentially excess, obsolete or slow-moving based on changes in customer

The Company records its foreign currency gains (losses) as a component of Other expense, net.

The Company recognized net foreign currency losses of less than $ 0.1 million, $ 1.6 million and $ 5.0 million for the years ended December 31, 2023, 2022 and 2021, respectively.

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

demand, technology developments or other economic factors.

Inventory is recorded at the lower of cost or market value using the first-in, first-out convention.

The Company reduces the carrying value of inventory for those items that are potentially excess, obsolete or slow-moving based on changes in customer demand, technology developments or other economic factors.

Ribbon writes down evaluation equipment (equipment at customer sites for testing and evaluation) at the time of shipment to its customers, as it is probable that the inventory value will not be realized.

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Leasehold improvements are amortized over the lesser of the lease term or five years .

When an asset is sold or retired, the cost and related accumulated depreciation or amortization are eliminated, and the resulting gain or loss, if any, is recognized in (Loss) income from operations in the consolidated statement of operations.

When an asset is sold or retired, the cost and related accumulated depreciation or amortization are eliminated, and the resulting gain or loss, if any, is recognized in Loss from operations in the consolidated statement of operations.

The Company reviews property and equipment for impairment in the same manner as intangible assets discussed below.

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The Company's annual test for impairment of goodwill is completed as of October 1.

As described above, effective in the fourth quarter of 2020, the Company determined that it has 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.

The Company's reporting units are its operating segments.

The Company performs 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.

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

The Company's reporting units are its two operating segments, Cloud and Edge and IP Optical Networks.

The Company performs 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.

The Company assesses 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 the Company's consolidated statements of operations.

Stock-Based Compensation

The Company's stock-based compensation cost is measured at the grant date based on the fair value of the award and is

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

recognized as expense over the requisite service period, which generally represents the vesting period, and includes an estimate of the awards that will be forfeited.

Stock-Based Compensation

The Company's stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service period, which generally represents the vesting period, and includes an estimate of the awards that will be forfeited.

The Company uses the Black-Scholes valuation model for estimating the fair value of stock options on the grant date.

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Concentration of Risk

The financial instruments that potentially subject Ribbon to concentrations of credit risk are cash, restricted cash and accounts receivable.

The Company's cash equivalents and investments were managed by one financial institution at December 31, 2022.

The financial instruments that potentially subject Ribbon to concentrations of credit risk are cash and accounts receivable.

The Company's cash equivalents were managed by one financial institution at December 31, 2023 .

Historically, the Company has not experienced significant losses due to such bank depository concentration.

The Company's investments at December 31, 2021 consisted of securities of AVCT (see Note 4).

Certain components and software licenses from third parties used in Ribbon's products are procured from single sources of supply.

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The Company accounts for its leases in accordance with Accounting Standards Codification ("ASC") 842, Leases ("ASC 842") (see Note 21).

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

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

Operating leases are reported separately in the Company's consolidated balance sheets at December 31, 2023 and 2022.

The Company has no finance leases as of December 31, 2022.

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

The Company has no finance leases as of December 31, 2023 or 2022.

The Company determines 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 term.

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

Lease expense for minimum fixed lease payments is recognized on a straight-line basis over the lease term.

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

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

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The Company recognizes retirement benefit assets or liabilities in the consolidated balance sheets reflecting the funded status of pension and other retirement benefit plans.

Retirement benefit assets and liabilities are adjusted for the difference between the benefit obligations and the plan assets at fair value (measured at year-end), with the offset recorded directly to stockholders' equity through accumulated other comprehensive income (loss), net of tax.

The amount recorded in stockholders' equity represents the after-tax unamortized actuarial gains or losses, unamortized transition obligations and unamortized prior service costs.

Recent Accounting Pronouncements

In March 2022, the Financial Accounting Standards Board (the "FASB") issued ASU 2022-02, Financial Instruments – Credit Losses (Topic 326):

Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”), which eliminates the accounting guidance on troubled debt restructurings ("TDRs") for creditors in ASC 310, Receivables (Topic 310) , and requires entities to provide disclosures about current period gross write-offs by year of origination.

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 the Company beginning in 2025, with early adoption permitted.

The Company is currently evaluating the impact of this accounting standard update on its 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 the Company annually beginning in 2024 and on an interim basis beginning in 2025, with early adoption permitted.

The Company is currently evaluating the impact of this accounting standard update on its 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 the Company for each amendment will be the date on which the SEC's removal of that related disclosure requirement becomes effective, with early adoption prohibited.

The Company is currently evaluating the impact of this accounting standard update on its 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.

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.

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 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 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 was effective for

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

the Company January 1, 2023.

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

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

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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.

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

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

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

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

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

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.

(3) BUSINESS ACQUISITIONS

On the ECI Acquisition Date, Ribbon completed its merger transaction with ECI in accordance with the terms of the Agreement and Plan of Merger, dated as of November 14, 2019, by and among Ribbon, ECI, an indirect wholly-owned

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

subsidiary of Ribbon ("Merger Sub"), Ribbon Communications Israel Ltd.

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.

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.

As consideration for ECI, Ribbon 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 (the "Cash Consideration"), 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.

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 $ 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 the Company's consolidated financial statements for the period subsequent to the ECI Acquisition.

The Company's financial results for the year ended December 31, 2020 included $ 260.5 million of revenue and $ 52.9 million of net loss attributable to ECI.

The Company finalized the valuation of acquired assets, identifiable intangible assets and certain assumed liabilities in the fourth quarter of 2020.

A summary of the allocation of the purchase consideration for ECI is as follows (in thousands):

Fair value of consideration transferred:

Cash consideration:

Repayment of ECI outstanding debt obligations $ 183,266

Cash paid to selling shareholders 139,244

Payment to selling shareholders from sale of ECI real estate assets 33,400

Less cash and restricted cash acquired ( 9,058 )

Net cash consideration 346,852

Fair value of Ribbon stock issued 108,550

Fair value of total consideration $ 455,402

Fair value of assets acquired and liabilities assumed:

Current assets, net of cash and restricted cash acquired $ 120,203

Property and equipment 54,913

Intangible assets:

In-process research and development 34,000

Developed technology 111,900

Customer relationships 116,000

Trade names 3,000

Goodwill 191,996

Other noncurrent assets 37,528

Deferred revenue ( 4,369 )

Other current liabilities ( 146,618 )

Deferred revenue, net of current ( 3,726 )

Deferred tax liability ( 13,308 )

Other long-term liabilities ( 46,117 )

The valuation of the acquired intangible assets is inherently subjective and relies on significant unobservable inputs.

The Company used an income approach to value the acquired in-process research and development, developed technology, customer relationships and trade name intangible assets.

The valuation for each of these intangible assets was based on estimated projections of expected cash flows to be generated by the assets, discounted to the present value at discount rates

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

commensurate with perceived risk.

The valuation assumptions take into consideration the Company's estimates of customer attrition, technology obsolescence and revenue growth projections.

The Company is amortizing the identifiable intangible assets arising from the ECI Acquisition in relation to the expected cash flows from the individual intangible assets over their respective useful lives, which have a weighted average life of 12.38 years (see Note 10).

Goodwill results from assets that are not separately identifiable as part of the transaction and is not deductible for tax purposes.

Pro Forma Results

The following unaudited pro forma information presents the combined results of operations of Ribbon and ECI for the years ended December 31, 2020 as if the ECI Acquisition had been completed on January 1, 2019, with adjustments to give effect to pro forma events that are directly attributable to the ECI Acquisition.

These pro forma adjustments include an increase in research and development expense related to the conformance of ECI's cost capitalization policy to Ribbon's, additional amortization expense for the acquired identifiable intangible assets, a decrease in historical ECI interest expense reflecting the extinguishment of certain of ECI's debt as a result of the ECI Acquisition, and an increase in interest expense reflecting the new debt entered into by the Company in connection with the ECI Acquisition.

Pro forma adjustments also include the elimination of acquisition- and integration-related costs directly attributable to the acquisition from the year ended December 31, 2020.

The unaudited pro forma results do not reflect any operating efficiencies or potential cost savings that may result from the consolidation of the operations of Ribbon and ECI.

Accordingly, these unaudited pro forma results are presented for illustrative purposes and are not intended to represent or be indicative of the actual results of operations of the combined company that would have been achieved had the ECI Acquisition occurred at January 1, 2019 , nor are they intended to represent or be indicative of future results of operations (in thousands, except per share amounts):

Year ended December 31,

Revenue $ 869,002

Net income $ 97,036

Diluted earnings per share $ 0.65

On March 3, 2020, Ribbon completed its merger transaction with ECI Telecom Group Ltd ("ECI") in accordance with the terms of the Agreement and Plan of Merger, dated as of November 14, 2019 (the "ECI Acquisition").

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

The ECI Acquisition was accounted for as a business combination and the financial results of ECI are included in the Company's consolidated financial statements.

Costs related to the integration of the Company and ECI are included in the Acquisition-, disposal- and integration-related expenses in the table below.

Acquisition-, Disposal- and Integration-Related Expenses

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The disposal-related expenses in the year ended December 31, 2021 relate to the Kandy Sale (as defined below).

The acquisition-related professional and services fees recorded in the year ended December 31, 2020 primarily related to the ECI Acquisition and the disposal-related expenses related to the Company's sale of the Kandy Communications Business.

The integration-related expenses in the years ended December 31, 2023, 2022 and 2021 relate to the ECI Acquisition.

The components of Acquisition-, disposal- and integration-related expenses incurred in the years ended December 31, 2023, 2022 and 2021 were as follows (in thousands):

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

Year ended December 31,

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$ 4,476 $ 6,286 $ 7,632

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

(4) SALE OF KANDY COMMUNICATIONS BUSINESS

On August 5, 2020, the Company announced that it had entered into a definitive agreement (the "Kandy Purchase Agreement") with American Virtual Cloud Technologies, Inc.

("AVCT") to sell the Kandy Communications Business.

Under the Kandy Purchase Agreement, AVCT would purchase the assets and assume certain liabilities associated with the Kandy Communications Business, as well as all of the outstanding interests in Kandy Communications LLC, a subsidiary of the Company (the "Kandy Sale").

On December 1, 2020, the Company completed 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 Ribbon $ 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:

(i) $ 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”).

The Company received 43,778 AVCT Units as sale consideration on the Kandy Sale Date (the "Kandy Sale Consideration").

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

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 Kandy Purchase Agreement.

Each Debenture was convertible, in whole or in part, at any time at the Company's 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, initially $ 3.45 .

The Company completed the Kandy Sale on December 1, 2020 (the "Kandy Sale Date").

As consideration, AVCT paid Ribbon $ 45.0 million, subject to certain adjustments, in the form of Debentures and AVCT Warrants (collectively the "AVCT Units").

The Company received 43,778 AVCT Units as sale consideration.

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

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 entitled the Company to purchase 4,377,800 shares of AVCT common stock at an exercise price of $ 0.01 per share.

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

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

The Company was also subject to a lock-up provision which limited the Company's 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.

The Company 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.

The gain on the Kandy Sale is included as a component of Other (expense) income , net, in the consolidated statement of operations for the year ended December 31, 2020.

The Company 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.

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

The fair value of the Warrants is 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

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

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.

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

At December 31, 2021, the fair value of the AVCT Investment was $ 43.9 million.

The Company recorded a loss of $ 74.8 million in the year ended December 31, 2021 arising from the change in the fair value of the AVCT Investment, and recorded a gain of $ 30.3 million in the year ended December 31, 2020 arising from the change in the fair value of the AVCT Units.

These amounts are included as components of Other (expense) income, net, in the Company's consolidated statements of operations.

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

The Company calculated the fair value of the Debentures at each measurement date 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.

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

The fair value of the AVCT 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.

The Company recorded a loss of $ 74.8 million in the year ended December 31, 2021 arising from the change in the fair value of the AVCT Investment.

This loss was included as a component of Other expense net, in the Company's consolidated statements of operations.

The Company recorded $ 3.5 million of interest income in the year ended December 31, 2021, 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 the consolidated statement of operations.

The fair value of the AVCT Investment at December 31, 2021 is reported as Investments in the Company's consolidated balance sheets.

The AVCT Investment is classified as a Level 1 fair value measurement at December 31, 2021 (see Note 6).

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

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

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.

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

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

Pursuant to the settlement agreement, 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 AVCT 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, 2023 and 2022 in the amount of $ 2.4 million and $ 3.9 million, respectively.

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

The Company recorded losses of $ 41.3 million in the year ended December 31, 2022, representing the change in the fair value of the AVCT Investment.

The results of the Kandy Communications Business are excluded from the Company's consolidated results for the period subsequent to the Kandy Sale Date.

The results of the Kandy Communications Business are excluded from the Company's consolidated results for all periods subsequent to the Kandy Sale Date.

(5) EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of shares outstanding during the period.

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

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

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

period unless the effect is antidilutive.

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

Year ended December 31,

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Weighted average shares outstanding—diluted 170,408 156,668 147,575

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

Options to purchase the Company's common stock and unvested restricted and performance-based stock units aggregating 14.5 million shares and 10.6 million shares were excluded from the computation of diluted loss per share for the years ended December 31, 2022 and 2021, respectively, because their effect would have been antidilutive.

Options to purchase the Company's common stock aggregating 0.2 million shares were excluded from the computation of diluted earnings per share for the year ended December 31, 2020 because their effect would have been antidilutive.

(6) INVESTMENTS AND FAIR VALUE HIERARCHY

The Company's policy and historical practice has been to invest in debt instruments, primarily U.S.

government-backed, municipal and corporate obligations, which management believes to be high quality (investment grade) credit instruments.

At December 31, 2021, the Company's investments were comprised of the AVCT Investment (see Note 4).

On a quarterly basis, the Company reviews its investments, if any, to determine if there have been any events that could create a credit impairment.

Options to purchase the Company's common stock and unvested restricted and performance-based stock units aggregating 13.5 million shares , 14.5 million shares, and 10.6 million shares were excluded from the computation of diluted loss per share for the years ended December 31, 2023, 2022 and 2021, respectively, because their effect would have been antidilutive.

As of December 31, 2023, the potential number of dilutive shares from the Warrants totaled 4.9 million shares.

However, there was no impact on weighted average shares outstanding from these Warrants for the year ended December 31, 2023 as the average share price of the Company's common stock was below the exercise price of $ 3.77 per share and their effect would have been antidilutive.

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

(6) FAIR VALUE HIERARCHY

Fair Value Hierarchy

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

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

The Company had no assets or liabilities fair valued using Level 1 input at December 31, 2023 or 2022.

Level 2 applies to assets or liabilities for which there are inputs that are directly or indirectly observable in the marketplace, such as quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets).

At December 31, 2023, the Company determined the fair value of its defined benefit plans' assets using Level 2 input.

At December 31, 2022, the Company determined the fair value of its interest rate swap and its defined benefit plans' assets using Level 2 input.

Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

The classification of each asset or liability fair value measurement within the fair value hierarchy is determined based on the lowest level input that is significant to the fair value measurement in its entirety.

Market activity is presumed to be orderly in the absence of evidence of forced or disorderly sales, although such sales may still be indicative of fair value.

Applicable accounting guidance precludes the use of blockage factors or liquidity adjustments due to the quantity of securities held by an entity.

At December 31, 2023, the fair value of the Company's Preferred Stock and Warrants were determined using Level 3 input.

The Company had no assets or liabilities fair valued using Level 3 input at December 31, 2023 or 2022.

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

(7) ACCOUNTS RECEIVABLE, NET

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The Company's allowance for doubtful accounts activity was as follows (in thousands):

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

Year ended December 31, Balance at

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During each of these years, the Company disposed of certain property and equipment that was fully depreciated at the time of disposal, which resulted in reductions in both Cost and Accumulated depreciation.

Property and equipment under finance leases included in the amounts above were as follows (in thousands):

Cost $ — $ 2,050

Less accumulated depreciation — ( 1,763 )

Property and equipment under finance leases, net $ — $ 287

RIBBON COMMUNICATIONS INC.

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carrying value

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

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

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Trade names 3.88 5,000 4,658 342

Internal use software 3.00 730 730 —

Software licenses 3.00 5,186 487 4,699

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

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

In the fourth quarter of 2022, the Company reclassified an in-process research and development intangible asset to developed technology, as the associated products and features related to 5G technology became generally available.

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

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Thereafter 46,824

Goodwill is recorded when the consideration for an acquisition exceeds the fair value of net tangible and identifiable

Goodwill is recorded when the consideration for an acquisition exceeds the fair value of net tangible and identifiable intangible assets acquired.

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.

The Company's reporting units are its two operating segments, Cloud and Edge and IP Optical Networks.

Annual testing for impairment of goodwill is completed as of October 1.

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

intangible assets acquired.

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.

The Company determined in the fourth quarter of 2020 that it had two operating segments:

Cloud and Edge, and IP Optical Networks, at which time it was determined that the goodwill assigned to these two segments was $ 224.9 million and $ 192.0 million, respectively.

The Company's reporting units are its operating segments.

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

Upon completion of the 2022 annual test for goodwill impairment, the Company determined that there was no impairment of goodwill in either of its reporting units.

Based on the results of the 2021 impairment test, the Company determined that the carrying value of its IP Optical Networks segment exceeded its fair value and the amount of the impairment was $ 116.0 million.

This impairment charge was recorded in the fourth quarter of 2021 and is reported separately in the Company's consolidated statement of operations.

In the 2021 impairment test, the Company determined that there was no impairment of its Cloud and Edge segment.

The changes in the carrying value of the Company's goodwill in the years ended December 31, 2022 and 2021 were as follows (in thousands):

Cloud and Edge IP Optical Networks Total

Balance at January 1, 2021 (1)

$ 224,896 $ 191,996 $ 416,892

Impairment of goodwill — ( 116,000 ) ( 116,000 )

Balance at December 31, 2021 (1)(2)

224,896 75,996 300,892

Activity — — —

Balance at December 31, 2022 (1)(2)

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

(1) Balance is presented net of accumulated impairment losses of $ 167.4 million for the Cloud and Edge segment.

(2) Balance is presented net of an impairment loss of $ 116.0 million for the IP Optical Networks segment.

Upon completion of the 2023 and 2022 annual tests for goodwill impairment, the Company determined that there was no impairment of goodwill in either of its reporting units.

There was no change in the carrying value of the Company's goodwill in the years ended December 31, 2022 and 2023.

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

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Professional fees 19,702 17,195

Taxes payable 8,383 8,152

Other 29,920 33,929

$ 91,687 $ 85,270

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

(12) WARRANTY

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The Company recorded restructuring and related expense aggregating $ 16.2 million, $ 10.8 million and $ 11.7 million in the years ended December 31, 2023, 2022 and 2021, respectively.

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

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

For restructuring events that involve lease assets and liabilities, the Company applies lease reassessment and modification guidance and evaluates the right-of-use assets for potential impairment.

1 unchanged sentence

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

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

Related variable lease expenses will continue to be expensed

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

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

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

8 unchanged sentences

$ 16,209 $ 10,833 $ 11,653

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

Accelerated Rent Amortization

The liability for the total lease payments for each respective facility is included as a component of Operating lease liabilities in the Company's consolidated balance sheets at December 31, 2022 and 2021, both current and noncurrent (see Note 20).

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

2023 Restructuring Plan

On February 22, 2023, the Company's Board of Directors approved a strategic restructuring program (the "2023 Restructuring Plan") to streamline the Company's operations in order to support the Company's investment in critical growth areas.

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

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

The Company recorded restructuring and related expense of $10.2 million in connection with the 2022 Restructuring Initiative in the year ended December 31, 2022.

The amount for the year ended December 31, 2022 was comprised of $ 5.3 million for severance and related costs for approximately 70 employees, $ 3.3 million for variable and other facilities-related costs and $ 1.6 million for accelerated amortization of lease assets no longer being used with no ability or intent to sublease.

The Company estimates that it will record approximately $ 8.0 million of future expense under the 2022 Restructuring Plan.

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.

The Company recorded restructuring and related expense of $ 9.9 million in 2023 in connection with the 2023 Restructuring Plan entirely for severance related costs.

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

2 unchanged sentences

Severance $ — $ 9,875 $ ( 9,204 ) $ — $ 671

Variable and other facilities-related costs — 3,299 ( 2,409 ) — 890

Accelerated amortization of lease assets due to cease-use — 1,611 — ( 1,611 ) —

$ — $ 10,197 $ ( 6,532 ) $ ( 1,611 ) $ 2,054

2020 Restructuring Initiative

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

The 2020 Restructuring Initiative includes facility consolidations and a reduction in workforce.

In connection with this initiative, the Company is eliminating functions arising from the ECI Acquisition and supporting its efforts to integrate the two companies.

The Company recorded restructuring and related expense of less than $ 0.1 million and $ 4.7 million in connection with the 2020 Restructuring Initiative in the years ended December 31, 2022 and 2021 , respectively.

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.

The Company expects these amounts will be fully paid in 2023.

The Company estimates that it will record nominal, if any, future expense under the 2020 Restructuring Initiative.

Summaries of the 2020 Restructuring Initiative accrual activity for the years ended December 31, 2022 and 2021 are as follows (in thousands):

The Company estimates that it will record nominal future expense under the 2023 Restructuring Plan.

2022 Restructuring Plan

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

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

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

The Company recorded restructuring and related expense of $ 6.3 million and $ 10.2 million in connection with the 2022 Restructuring Initiative in the years ended December 31, 2023 and 2022, respectively.

The amount for the year ended December 31, 2023 was 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.

The Company estimates that it will record approximately $ 5 million of expense in 2024 under the 2022 Restructuring Plan.

A summary of the 2022 Restructuring Plan accrual activity for the years ended December 31, 2023 and 2022 are as follows (in thousands):

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

Year ended December 31, 2022 Balance at

2023 Initiatives

expense Adjustments for changes in estimate Cash

payments Balance at

Severance $ 1,895 $ — $ ( 57 ) $ ( 1,782 ) 56

Facilities 60 34 — ( 94 ) —

$ 1,955 $ 34 $ ( 57 ) $ ( 1,876 ) $ 56

Year ended December 31, 2021 Balance at

2021 Initiatives

expense Adjustments for changes in estimate Cash

payments Balance at

Severance $ 5,237 $ 4,618 $ — $ ( 7,960 ) 1,895

Facilities 1,256 742 ( 670 ) ( 1,268 ) 60

$ 6,493 $ 5,360 $ ( 670 ) $ ( 9,228 ) $ 1,955

2019 Restructuring and Facilities Consolidation Initiative

In June 2019, the Company implemented a restructuring plan to further streamline the Company's global footprint, improve its operations and enhance its customer delivery (the "2019 Restructuring Initiative").

The 2019 Restructuring Initiative includes facility consolidations, refinement of the Company's research and development activities, and a reduction in workforce.

The facility consolidations under the 2019 Restructuring Initiative (the "Facilities Initiative") include a consolidation of the Company's North Texas sites into a single campus, housing engineering, customer training and support, and administrative functions, as well as a reduction or elimination of certain excess and duplicative facilities worldwide.

In addition, the Company is substantially consolidating its global software laboratories and server farms into two lower cost North American sites.

The Company continues to evaluate its properties included in the Facilities Initiative for accelerated amortization and/or right-of-use asset impairment.

The Company expects that the actions under the Facilities Initiative will be completed in 2023.

In connection with the 2019 Restructuring Initiative, the Company recorded restructuring and related expense of $ 0.7 million, $ 7.0 million, and $ 2.3 million in the years ended December 31, 2022, 2021 and 2020, respectively.

The amount recorded in 2022 was for facilities related costs.

The amount recorded in 2021 was 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 includes income of $ 2.1 million related to a lease modification for one of the Company's restructured facilities.

The amount recorded in 2020 was comprised of $ 0.5 million for severance and related costs for approximately 5 employees, $ 1.7 million for variable and other facilities-related costs and $ 0.1 million for accelerated amortization of lease assets.

The Company estimates that it will record nominal, if any, future expense under the 2019 Restructuring Initiative.

Summaries of the 2019 Restructuring Initiative accrual activity for the years ended December 31, 2022 and 2021 are as follows (in thousands):

Year ended December 31, 2022 Balance at

2022 Initiatives

expense Net transfer to operating lease liability accounts Cash

payments Balance at

payments Net transfer to operating lease accounts Balance at

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

Facilities 1,594 658 — ( 1,004 ) 1,248

Variable and other facilities-related costs 890 5,326 ( 5,748 ) — 468

Accelerated amortization of lease assets due to cease-use — 1,008 — ( 1,008 ) —

$ 2,054 $ 6,334 $ ( 6,912 ) $ ( 1,008 ) $ 468

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

Year ended December 31, 2021 Balance at

2022 Initiatives

expense Adjustments for changes in estimate Net transfer to operating lease liability accounts Cash

payments Balance at

payments Net transfer to operating lease accounts Balance at

Severance $ — $ 5,287 $ ( 4,123 ) $ — $ 1,164

Facilities 766 9,006 ( 2,043 ) ( 1,325 ) ( 4,810 ) 1,594

Variable and other facilities-related costs — 3,299 ( 2,409 ) — 890

Accelerated amortization of lease assets due to cease-use — 1,611 — ( 1,611 ) —

$ — $ 10,197 $ ( 6,532 ) $ ( 1,611 ) $ 2,054

4 unchanged sentences

2020 Credit Facility

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

Revolving loans under the 2019 Credit Facility bore interest at the Borrower’s option at either the Eurodollar (LIBOR) rate plus a margin ranging from 1.50 % to 3.00 % per year or the base rate plus a margin ranging from 0.50 % to 2.00 % per year.

The 2019 Credit Facility was superseded by the 2020 Credit Facility, which was entered into on March 3, 2020, and which is discussed below.

2020 Credit Facility

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

1 unchanged sentence

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

The 2020 Credit Facility 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 submit is available for swingline loans.

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

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

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

1 unchanged sentence

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

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

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

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

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

plus a margin ranging from 0.50 % to 2.50 % per year (the "Applicable Margin").

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

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

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

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

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

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

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

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

1 unchanged sentence

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

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

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

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

On June 30, 2022, the Company entered into the Fifth Amendment to the 2020 Credit Facility (the "Fifth Amendment") to increase the Maximum Consolidated Net Leverage Ratio (as defined in the 2020 Credit Facility) for 2022, with the fourth quarter of 2022 increased to 4.75 :1.00, the first and second quarters of 2023 declining to 3.25 :1.00, and in all subsequent quarters the ratio was to be fixed at 3.00 :1.00.

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

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

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

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

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

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

At December 31, 2021, the Company had an outstanding balance under the 2020 Term Loan of $ 375.5 million at an average interest rate of 3.4 % and $ 4.3 million of letters of credit outstanding with an interest rate of 2.5 %.

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

Letters of Credit and Performance and Bid Bonds

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

At December 31, 2022, the Company had $ 8.3 million of letters of credit, bank guarantees, and performance and bid bonds outstanding (collectively, "Guarantees"), comprised of the $ 3.3 million of letters of credit under the 2020 Credit Agreement 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, the Company had Guarantees aggregating $ 30.1 million, comprised of the $ 4.3 million of Letters of Credit and $ 25.8 million of Other Guarantees.

At December 31, 2022 and 2021 , the Company

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

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

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

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

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.

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 the Company for calculating interest owed under the 2020 Credit Facility, with the margin now fixed at 4.5 %.

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

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

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

The Company's interest rates under the 2020 Term Loan b enefited from a hedge instrument that was in place, specifically a fixed rate swap, until the instrument was sold in March 2023 (see Note 15).

As a result of the sale of the fixed rate swap, the ongoing interest rate is now based upon U.S.

dollar SOFR, plus a fixed margin of 4.5 %.

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

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

2023 December 31,

Current portion of Term Debt $ 35,102 $ 20,058

Long-term Debt, net of Current:

Long-term Debt, net of Current (Face Amount) $ 200,293 $ 310,395

Unamortized Debt Issuance Costs - Contra-Liability ( 2,811 ) ( 4,125 )

Long-term Debt, net of Current $ 197,482 $ 306,270

Total Face Amount of Borrowings $ 235,395 $ 330,453

Unamortized Debt Issuance Costs:

Other Assets $ 557 $ 798

Long-Term Debt - Contra Liability 2,811 4,125

Total Unamortized Debt Issuance Costs $ 3,368 $ 4,923

Letters of Credit Outstanding $ 2,711 $ 3,272

Remaining Borrowing Capacity $ 72,289 $ 96,728

Average Interest Rates:

Term Loan 10.0 % 5.4 %

Letters of Credit 4.5 % 4.5 %

The Company's debt maturities as of December 31, 2023 were as follows:

Years ending December 31,

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

Letters of Credit and Performance and Bid Bonds

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

At December 31, 2023, the Company had $ 7.9 million of letters of credit, bank guarantees, and performance and bid bonds outstanding (collectively, "Guarantees"), comprised of the $ 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") under various uncommitted facilities.

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

(15) DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

1 unchanged sentence

These exposures are actively monitored by management.

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

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

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

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

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

10 unchanged sentences

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

Borrowings under the 2020 Credit Agreement have variable interest rates based on LIBOR (see Note 14).

Borrowings under the 2020 Credit Facility have variable interest rates based on LIBOR or SOFR (see Note 14).

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

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

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

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

The notional amount of this swap at December 31, 2022 and 2021 was $ 340 million and $ 400 million, respectively.

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

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

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

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

The effective portion of changes in the fair value of designated derivatives that qualify as cash flow hedges is recorded in accumulated other comprehensive income (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 credit facilities under the 2020 Credit Facility,

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

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 and $ 0.5 million for the years ended December 31, 2023 and 2022.

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

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

The portion of the gain in Accumulated other comprehensive income related to the term loan debt prepaid on the date of the final sale of our swap totaled

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

and the Company has accounted for this derivative as an effective hedge.

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

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

Based upon projected forward rates, the Company estimates that as of December 31, 2022, $ 13.2 million may be reclassified as a decrease to interest expense over the next twelve months.

The impact of the Company’s derivative financial instrument on its consolidated statement of comprehensive income (loss) for the years ended December 31, 2022 and 2021 was as follows, net of tax (in thousands):

$ 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 was $ 12.0 million and is being released into earnings on a straight-line basis over the remaining term of the 2020 Credit Facility as a decrease to interest expense, the amortization of which totaled $ 4.7 million for the year ended December 31, 2023.

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

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

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 credit facilities under the 2020 Credit Facility, and the Company has accounted for this derivative as an effective hedge until the final portion of the swap was sold on March 27, 2023.

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

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

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

Year ended December 31,

Gain recognized in other comprehensive income (loss) on interest rate swap, net of tax $ 22,456 $ 9,505

Amount reclassified from accumulated other comprehensive income (loss) to interest expense ( 3,135 ) 3,254

Gain (loss) recognized in other comprehensive income (loss) on swap, net of tax $ ( 2,715 ) $ 22,456

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

Amount reclassified from accumulated other comprehensive income to interest expense ( 7,300 ) ( 3,135 )

Unrealized gain (loss) on interest rate swap, net of reclassifications and amortization $ ( 15,114 ) $ 19,321

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

Balance sheet location 2022 2021

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

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

Balance sheet location December 31, 2022

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

Interest rate derivative - asset derivative Other assets 12,216

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

Interest rate derivative - liability derivative Other long-term liabilities — —

$ 25,428 $ 1,811

The Company has classified the interest rate derivative net asset of $ 25.4 million and $ 1.8 million at December 31, 2022 and 2021 , respectively, as Level 2 fair value measurements within the fair value hierarchy (see Note 6).

The Company classified its interest rate derivative aggregating $ 25.4 million at December 31, 2022 , as Level 2 fair value measurements within the fair value hierarchy (see Note 6).

(16) PREFERRED STOCK AND WARRANTS

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

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

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

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

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

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

The Company determined the fair value of the Preferred Stock and Warrants using Level 3 input.

The key assumptions input into the models utilized were as follows as of December 31, 2023:

Preferred Stock (BDT)

Face value per share $ 1,000

Interest payments per year 4

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

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

Dividend rate - thereafter (paid in cash) 12.00 %

Yield volatility 25.0 %

Time to maturity (in years) 1.8

Warrants (Black-Scholes)

Stock price $ 2.90

Strike price $ 3.77

Risk-free rate 3.95 %

Volatility 60.5 %

Dividend yield 0.0 %

Time to expiration (years) 3.2

The changes in the Company's Preferred Stock and Warrant liabilities for the year ended December 31, 2023 were as follows (in thousands):

Preferred stock liability

Balance at January 1, 2023 $ —

Issued 47,854

Cumulative dividends 3,935

Fair value change 1,548

Balance at December 31,2023 $ 53,337

Warrant liability

Balance at January 1, 2023 $ —

Fair value change ( 201 )

Balance at December 31,2023 $ 5,295

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

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

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

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

Dividends thereafter are payable in cash at a rate of

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

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

Offering costs paid by the Company of approximately $ 3.5 million were recorded in Other expense, net in the year ended December 31, 2023.

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

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

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

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

The registration requirement was completed on May 19, 2023.

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

(17) REVENUE RECOGNITION

59 unchanged sentences

$ 445,150 $ 442,680 $ 453,042

The Company's product revenue and service revenue components by segment for the years ended December 31, 2022, 2021 and 2020 was as follows (in thousands):

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

The Company's product revenue and service revenue components by segment for the years ended December 31, 2023, 2022 and 2021 was as follows (in thousands):

Year ended December 31,

36 unchanged sentences

Balance at December 31, 2022 $ 170,969 $ 96,275 $ 113,939 $ 19,254

The Company recognized approximately $ 103 million of revenue in the year ended December 31, 2022 that was recorded as deferred revenue at December 31, 2021 and approximately $ 94 million of revenue in the year ended December 31, 2021 that was recorded as deferred revenue at December 31, 2020.

Of the Company's deferred revenue reported as long-term in its

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

consolidated balance sheet at December 31, 2022, the Company expects that approximately $ 12 million will be recognized as revenue in 2024, approximately $ 5 million will be recognized as revenue in 2025 and approximately $ 2 million will be recognized as revenue in 2026 and beyond.

The Company recognized approximately $ 108 million of revenue in the year ended December 31, 2023 that was recorded as deferred revenue at December 31, 2022 and approximately $ 103 million of revenue in the year ended December 31, 2022 that was recorded as deferred revenue at December 31, 2021.

Of the Company's deferred revenue reported as long-term in its consolidated balance sheet at December 31, 2023, the Company expects that approximately $ 13 million will be recognized as revenue in 2025, approximately $ 4 million will be recognized as revenue in 2026 and approximately $ 2 million will be recognized as revenue in 2027 and beyond.

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

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

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

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

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

27 unchanged sentences

Amortization of acquired technology ( 28,290 ) ( 31,542 ) ( 38,343 )

Acquisition-related inventory and facilities adjustments — — ( 2,000 )

Gross profit $ 408,083 $ 400,936 $ 444,660

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11 % 15 % 16 %

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

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

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

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

1 unchanged sentence

(20) STOCK-BASED COMPENSATION PLANS

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

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

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

the 2019 Plan by 10.0 million shares.

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

Executive Equity Arrangements

Inducement Awards

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

The Company estimates as of December 31, 2023 that the market conditions surrounding the PSUs granted will not be met by

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

the expiration date of September 1, 2024.

Performance-Based Stock Grants

24 unchanged sentences

The total grant date fair value of restricted stock underlying PSUs that vested was $ 2.6 million in the year ended December 31, 2023, $ 0.9 million in the year ended December 31, 2022 and $ 1.7 million in the year ended December 31, 2021.

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

Stock-Based Compensation

The consolidated statements of operations included stock-based compensation for the years ended December 31, 2023, 2022 and 2021 as follows (in thousands):

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

Year ended December 31,

6 unchanged sentences

$ 21,806 $ 18,707 $ 19,418

There was an income tax benefit for employee stock-based compensation expense for the years ended December 31, 2022, 2021 and 2020.

At December 31, 2023, there was $ 17.9 million , net of expected forfeitures, of unrecognized stock-based compensation expense related to unvested RSUs and PSUs.

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

This expense is expected to be recognized over a weighted average period of approximately 1.4 years.

The Company issues authorized and unissued shares under its equity plans and at December 31, 2023, there were 3,959,285 total shares of common stock reserved for that purpose with 105,495 of those shares authorized only for issuance of shares upon exercise of stock options.

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

Operating leases are reported separately in the Company's consolidated balance sheet at December 31, 2022 and 2021 .

Assets acquired under finance leases are included in Property and equipment, net, in the consolidated balance sheets at December 31, 2022 and 2021 .

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

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

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

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

7 unchanged sentences

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

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

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

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

1 unchanged sentence

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

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

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

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

2 unchanged sentences

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

Accordingly, the Company accelerated the amortization of those lease assets through the planned cease-use date of each facility, resulting in additional amortization expense of $ 1.6 million in the year ended December 31, 2022.

The Company also recorded expense of $ 1.0 million in the year ended December 31, 2022 for all estimated future variable lease costs related to those facilities.

In connection with the 2020 Restructuring Plan, the Company accelerated amortization totaling $ 0.8 million in the year ended December 31, 2021 for leased facilities that were vacated in 2021 as part of the consolidation of certain sites following the ECI Acquisition.

The Company did not record estimated future variable lease costs in the year ended December 31, 2021 related to the 2020 Restructuring Plan.

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

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

$ 1.0 million and $ 1.6 million in the years ended December 31, 2023 and 2022, respectively.

No variable lease costs were accrued in the year ended December 31, 2023 for future estimated variable expenses related to assets partially or fully vacated with no intent or ability to sublease.

Variable lease costs for the year ended December 31, 2022 included accruals of $ 1.0 million for all estimated future variable lease costs related to those facilities.

The Company did not record any accelerated amortization or estimated future variable lease costs in the year ended December 31, 2023 or 2022 related to the 2020 Restructuring Plan.

In connection with the 2019 Restructuring Initiative, certain lease assets related to facilities are being partially or fully vacated as the Company consolidates its facilities.

The Company has no plans to enter into sublease agreements for certain facilities.

The Company accelerated amortization of $ 3.4 million and $ 0.6 million in the years ended December 31, 2021 and 2020, respectively, for leased facilities that were vacated in the respective years.

The Company also recorded liabilities aggregating $ 1.4 million in the year ended December 31, 2021 for all future estimated variable lease costs related to these facilities.

The Company did not record liabilities for future estimated variable lease costs in the year ended December 31, 2020.

The Company did not accelerate amortization or record liabilities for future estimated variable lease costs in the year ended December 31, 2022.

The Company accelerated amortization totaling $ 0.8 million in the year ended December 31, 2021 for certain leased facilities that were vacated in 2021 as part of the consolidation of certain sites following the ECI Acquisition.

The Company did not record estimated future variable lease costs in the year ended December 31, 2021 related to the 2020 Restructuring Plan.

In connection with the 2019 Restructuring Initiative, certain leased facilities were partially or fully vacated as the Company consolidated its facilities, with no plans to enter into sublease agreements for certain of those facilities.

The Company did not accelerate amortization or record liabilities for future estimated variable lease costs in the years ended December 31, 2023 or 2022.

In the year ended December 31, 2021, the Company accelerated amortization of $ 3.4 million for certain leased facilities that were vacated in those years and recorded liabilities aggregating $ 1.4 million for all future estimated variable lease costs related to those facilities.

All incremental accelerated amortization and accrual for all estimated future variable lease costs are included in Restructuring and related expense in the Company's consolidated statements of operations for the years ended December 31, 2023, 2022 and 2021.

6 unchanged sentences

Operating lease assets Operating lease right-of-use assets $ 39,783 $ 44,888

Finance lease assets* Property and equipment, net — 287

Total leased assets $ 44,888 $ 53,434

Operating Operating lease liabilities $ 15,416 $ 17,403

Finance Accrued expenses and other — 503

Operating Operating lease liabilities, net of current 46,183 55,196

Finance Other long-term liabilities — 64

Current Operating Operating lease liabilities $ 15,739 $ 15,416

Non-Current Operating Operating lease liabilities, net of current 38,711 46,183

Total lease liabilities $ 54,450 $ 61,599

The components of lease expense for the years ended December 31, 2023, 2022 and 2021 were as follows (in thousands):

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

* Finance lease assets were fully depreciated at December 31, 2022 and were recorded net of accumulated depreciation of $ 1.8 million at December 31, 2021.

The components of lease expense for the years ended December 31, 2022, 2021 and 2020 were as follows (in thousands):

Year ended December 31,

22 unchanged sentences

Operating leases 5.50 5.90

Finance leases — 1.00

Weighted average discount rate:

Operating leases 6.34 % 5.79 %

Finance leases — 4.15 %

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

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

December 31, 2022

Operating Finance

leases leases

2024 $ 18,542

2024 15,380 —

2029 and beyond 13,181

2 unchanged sentences

Present value of lease liabilities $ 54,450

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

(22) EMPLOYEE DEFINED CONTRIBUTION PLANS

9 unchanged sentences

defined benefit plans reflect the different economic environments within the various countries.

In the year ended December 31, 2020, the Company assumed ECI's defined benefit plans in connection with the ECI Acquisition.

These plans exist in several international locations where severance pay is either required by law for voluntary or involuntary terminations or upon reaching a statutory retirement age.

The Company adopted ECI's policy to fund notional accounts each month in the name of each employee to satisfy not only the severance amounts required by the applicable laws and regulations in certain countries, but also to satisfy severance for other types of terminations not necessarily required by law, but paid in accordance with company policy.

Benefits funded and paid under these plans are based upon years of service and the employees' current compensation.

At the ECI Acquisition Date, ECI accounted for these plans under the shutdown approach allowed under ASC 715, Compensation - Retirement Benefits (Topic 715) ("ASC 715") .

Beginning December 31, 2020, in order to be consistent with the accounting methodology utilized for Ribbon's other defined benefit plans, the Company began to account for the ECI assumed plans using the actuarial cost approach, which is also allowed under ASC 715 for these types of plans.

The range of assumptions that are utilized for these plans reflects the different economic environments within each country where such severance indemnities are required.

The Company expanded its actuarial valuation of defined benefit plans beginning with the year ended December 31, 2021 to include the severance plan for employees in India that are unaffiliated with the 2020 acquisition of ECI, thereby increasing the projected benefit obligation by $ 1.5 million as of December 31, 2021.

In addition, the Company aligned the benefits for all employees in India in the year 2021 for consistency, including those employees assumed in the ECI Acquisition in 2020.

This benefit alignment was considered a plan amendment for those former ECI employees, resulting in the establishment of a $( 3.8 ) million prior service credit in the year ended December 31, 2021.

In 2020, regulatory changes occurred in the Netherlands that changed the Company's defined benefit pension plan there from a participating plan to a non-participating plan.

This plan amendment triggered settlement accounting, resulting in a gain

A reconciliation of the changes in the benefit obligations and fair value of the assets of the defined benefit plans for the years ended December 31, 2023 and 2022, the funded status of the plans, and the amounts recognized in the consolidated balance sheets as of December 31, 2023 and 2022 were as follows (in thousands):

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

of $ 1.6 million, which is included in Other (expense) income, net, in the Company's consolidated statement of operations for the year ended December 31, 2020.

Prior to the amendment, the Company's Netherlands pension plan provided defined benefit accruals which were financed by insurance contracts that had a profit sharing feature.

The pension benefits accrued were subject to future increases based on final earnings at the end of employment (the final average earnings formula).

With the amendment in 2020, the final average earnings formula was frozen and the insurance contracts were converted to fully paid contracts.

Following the amendment, pension accruals are now based upon a new formula that only considers current earnings (the career earnings formula) with the benefits still financed through insurance contracts.

Ribbon has no further liability for pension benefits earned prior to the amendment as they are fully paid contracts.

In addition, the insurance contract for the new benefit accruals has no profit sharing feature.

Therefore, Ribbon has no current or future obligation to pay pension benefits promised in the Netherlands beyond the payment of premiums to the insurance company.

A reconciliation of the changes in the benefit obligations and fair value of the assets of the defined benefit plans for the years ended December 31, 2022 and 2021, the funded status of the plans, and the amounts recognized in the consolidated balance sheets as of December 31, 2022 and 2021 were as follows (in thousands):

Year ended December 31,

26 unchanged sentences

Net amount recognized $ ( 7,160 ) $ ( 6,628 )

The decrease in the underfunded status of the Company's defined benefit plans at December 31, 2022 compared to December 31, 2021 was primarily the result of the increase in the discount rates in the various countries, partially offset by continued benefit accruals.

The source of the projected benefit obligation ("PBO") actuarial (gain) loss differed in each country.

However, in aggregate, the effect of discount rate changes in 2022 represented the most significant contributor to the PBO actuarial (gain) loss.

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

The increase in the underfunded status of the Company's defined benefit plans at December 31, 2023 compared to December 31, 2022 was primarily the result of significant lump sum payments in Israel of $ 1.8 million.

Plans with underfunded or non-funded accumulated benefit obligations at December 31, 2023 and 2022 were as follows (in thousands):

6 unchanged sentences

Aggregate fair value of plan assets $ 10,971 $ 12,359

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

Net periodic benefit costs for the years ended December 31, 2023, 2022 and 2021 were as follows (in thousands):

7 unchanged sentences

Amortization of prior service cost ( 320 ) ( 320 ) —

Amortization of net loss 275 81 20

Amortization of net (gain) loss ( 165 ) 275 81

Net periodic benefit costs $ 622 $ 2,415 $ 1,611

5 unchanged sentences

2023 2022 2021

Net (gain) loss $ ( 4,666 ) $ 4,201 $ ( 503 )

Net loss (gain) $ 22 $ ( 4,666 ) $ 4,201

Prior service (credit) cost — — ( 3,801 )

1 unchanged sentence

Amortization of prior service credit (cost) 320 320 —

Settlement (charge) credit ( 808 ) — ( 1,557 )

Settlement credit (charge) 417 ( 808 ) —

Total recognized in other comprehensive income (loss) $ 924 $ ( 5,429 ) $ 319

The Company defers all actuarial gains and losses resulting from variances between actual results and economic estimates or actuarial assumptions.

The unrecognized actuarial gains and losses are recorded as unrealized pension actuarial gains (losses) in the Company's consolidated balance sheets as a component of Accumulated other comprehensive income (loss).

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

These unrecognized gains and losses are amortized as a component of net periodic benefit cost when the net gains and losses exceed 10 % of the greater of the market value of plan assets or the projected benefit obligation at the beginning of the year.

3 unchanged sentences

The principal weighted average assumptions used to determine net period benefit cost for the years ended December 31, 2023, 2022 and 2021 were as follows:

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

Year ended December 31,

8 unchanged sentences

The fair value of these contracts is derived from the insurance companies' assessment of the minimum value of the benefits provided by the insurance contracts.

The methodology used to value these plan assets has always assumed that the value of the plan assets equals the guaranteed insured benefits.

The methodology used to value these plan assets has historically assumed that the value of the plan assets equals the guaranteed insured benefits.

For consistency, the same discount rate used in the valuation of the benefit obligations is used to place a value on the plan assets.

2 unchanged sentences

Due to the plan amendment in 2020 that changed the benefit structure of the Netherlands plan, the Company no longer has any obligation related to this plan beyond the payment of insurance premiums.

Therefore, there is no projected benefit obligation and no plan assets in the Netherlands as of December 31, 2022, 2021 or 2020.

Therefore, there is no projected benefit obligation and no plan assets in the Netherlands.

The Company classifies the fair value of its plan assets as Level 2 in the fair value hierarchy as discussed in Note 6.

During the years ended December 31, 2022 and 2021, employees in Switzerland made contributions to their pension plan aggregating $ 39,000 and $ 23,000 , respectively.

During the years ended December 31, 2023 and 2022, employees in Switzerland made contributions aggregating $ 39,000 each year.

Employee contributions to this plan are based on a fixed 5 % of the relevant pensionable earnings.

2 unchanged sentences

The Company expects to contribute $ 1.5 million to all of its defined benefit plans in 2024.

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

(24) INCOME TAXES

The components of (loss) income from continuing operations before income taxes consisted of the following (in thousands):

The components of loss from continuing operations before income taxes consisted of the following (in thousands):

Year ended December 31,

2023 2022 2021

(Loss) income before income taxes:

Loss before income taxes:

United States $ ( 5,363 ) $ ( 84,784 ) $ ( 29,985 )

1 unchanged sentence

$ ( 55,373 ) $ ( 112,599 ) $ ( 208,143 )

The (benefit) provision for income taxes from continuing operations consisted of the following (in thousands):

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

The provision (benefit) for income taxes from continuing operations consisted of the following (in thousands):

Year ended December 31,

2023 2022 2021

(Benefit) provision for income taxes:

Provision (benefit) for income taxes:

Federal $ 9,927 $ ( 3,582 ) $ 5,033

36 unchanged sentences

Lease liabilities 12,009 12,829

Mark-to-market investments — 1,714

Other temporary differences 440 1,324

16 unchanged sentences

state NOLs of $ 38.4 million .

In addition, the Company had $ 1.6 billion of Israel NOLs through the ECI Acquisition.

In addition, the Company had $ 1.6 billion of Israel NOLs.

federal NOL carryforwards expire between 2024 and 2037 .

19 unchanged sentences

The Company believes these NOLs are fully realizable.

As a result of the ECI Acquisition, the Company has $ 41.9 million of U.S.

As a result of the ECI Acquisition in 2020, the Company has $ 23.5 million of U.S.

federal NOLs remaining as of December 31, 2023 with an annual section 382 limitation of $ 1.1 million .

27 unchanged sentences

Management believes that an adequate provision has been recorded for any adjustments that may result from tax examinations.

Under the Tax Cuts and Jobs Act of 2017, research and development costs are no longer fully deductible and are required to be capitalized and amortized for U.S.

tax purposes effective January 1, 2022.

The mandatory capitalization requirement increases our deferred tax assets and cash tax liabilities.

(25) RELATED PARTIES

The Company recognized revenue from its largest stockholder of $ 12.8 million , $ 6.6 million and $ 4.5 million in the years ended December 31, 2023, 2022 and 2021, respectively.

Additionally, as discussed in Note 16, certain related party

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

On August 16, 2022, Congress passed the Inflation Reduction Act of 2022 which introduced the 15% corporate alternative minimum tax on book income and a 1% excise tax on stock repurchases which are both effective January 1, 2023.

We do not currently anticipate these new laws to have a material effect on the Company's financial position in the near term.

A change in tax laws is one of many factors that impact the Company’s effective tax rate.

and other jurisdictions where the Company does business have had an extended focus on issues related to the taxation of multinational corporations.

As a result, the tax laws in the U.S.

and other countries in which the Company does business could change, and any such changes could adversely impact our effective tax rate, financial condition and results of operations.

The Organization for Economic Co-operation and Development ("OECD"), an international association of 38 countries including the United States, has proposed changes to numerous long-standing tax principles (e.g.

Pillar 1 and Pillar 2).

These proposals, if finalized and adopted by the associated countries, will likely increase tax uncertainty and may adversely affect our provision for income taxes.

(24) RELATED PARTIES

The Company recognized revenue in the years ended December 31, 2022, 2021 and 2020 of $ 6.6 million, $ 4.5 million and $ 3.3 million, respectively, from its largest shareholder.

Additionally, as discussed in Note 2, certain related party shareholders participated in the Equity Offering on August 12, 2022.

stockholders participated in the Private Placement.

(26) COMMITMENTS AND CONTINGENCIES

Litigation Settlement

As previously disclosed, the Company was involved in six lawsuits (together, the "Lawsuits") with Metaswitch Networks Ltd., Metaswitch Networks Corp.

and Metaswitch Inc.

(collectively, "Metaswitch").

In five of the Lawsuits, the Company was the plaintiff, and in three of those five lawsuits, the Company was also a counterclaim defendant.

In the sixth case, the Company was the defendant.

On April 22, 2019, the Company and Metaswitch agreed to a binding mediator's proposal that resolved the six Lawsuits between the Company and Metaswitch (the "Lawsuits").

The Company 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 the Company 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, the Company and Metaswitch (i) have released the other from all claims and liabilities;

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

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

The $ 63.0 million gain from the settlement is included in Other (expense) income, net, in the Company's consolidated statement of operations for the year ended December 31, 2019, and had 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 the consolidated balance sheet.

The Company 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, the Company 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.

The Company recorded the reduction to the outstanding principal as a reduction to interest income.

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

Contingencies

1 unchanged sentence

Prior to the ECI Acquisition, ECI had received research and development grants from the IIA.

The Company assumed

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

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

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

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

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

At December 31, 2022, the Company's maximum possible future royalties commitment, including $ 3.8 million of unpaid royalties accrued at December 31, 2022, was $ 28.4 million, including interest of $ 1.4 million, based on estimates of future product sales, grants received from the IIA and not yet repaid, and management's estimation of products still to be sold.

At December 31, 2023, the Company's maximum possible future royalties commitment, including $ 1.3 million of unpaid royalties accrued, was $ 20.4 million, including interest of $ 0.9 million, based on estimates of future product sales, grants received from the IIA and not yet repaid, and management's estimation of products still to be sold.

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

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

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

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

Accordingly, with respect to these proceedings, the Company is currently unable to reasonably estimate the possible loss or range of possible loss.

Miller Complaint.

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

Discovery and class certification determination are on-going.

Charter Complaints.

On September 19, 2022, Charter Communications Operating, LLC (“Charter”) filed two complaints against two of the Company’s subsidiaries (Sonus Networks, Inc.

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

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

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

If approved, the proposed settlement would provide a release of all claims asserted in the litigation to all Defendants, who continue to deny liability.

The proposed $ 4.5 million settlement amount was deposited into escrow in the fourth quarter of 2023 by the provider of the Company's Directors and Officers liability insurance policy.

Charter Complaint.

On September 19, 2022, Charter Communications Operating, LLC (“Charter”) filed two complaints against two of our subsidiaries (Sonus Networks, Inc.

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

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

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

In both suits, Charter is seeking monetary damages.

The Company filed its answer in the New York Case on December 7, 2022 and in the Delaware case on January 9, 2023.

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

In addition, the Company is often a party to disputes and legal proceedings that it considers routine and incidental to its business.

Management does not expect the results of any of these actions to have a material effect on the Company's business or consolidated financial statements.

(26) SUBSEQUENT EVENTS

2023 Restructuring

On February 22, 2023 , the Company's Board of Directors approved a strategic restructuring program (the "2023 Restructuring Plan") to streamline the Company's operations in order to support the Company's investment in critical growth areas.

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

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

The Company currently expects to record approximately $ 10 million of restructuring and related expense associated with the 2023 Restructuring Plan, almost entirely related to employee severance arrangements.

The Company expects the 2023 Restructuring Plan will be substantially completed in 2023 .

One complaint was filed in the

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

Issuance of Preferred Stock and Warrants, Sale of Interest Rate Swap, and Amendment of the 2020 Credit Facility

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

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

On March 24 , 2023, the Company sold $ 170 million of its $ 340 million notional amount interest rate swap back to its counterparty for $ 9.4 million, reducing the notional amount to $ 170 million.

On March 27 , 2023, the Company sold the remaining $ 170 million of its interest rate swap back to its counterparty for $ 9.8 million.

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

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

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

The Sixth Amendment reduced the maximum borrowings allowed under the 2020 Revolving Credit Facility from $ 100 million to $ 75 million.

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

In conjunction with the Sixth Amendment, the Company made a $ 75 million prepayment that was applied to the final payment due on the maturity date.

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

Supreme Court of the State of New York, in New York County;

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

In both complaints, Charter is seeking monetary damages.

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

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

WideOpenWest Complaint.

On August 9, 2023, WideOpenWest, Inc.

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

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

In the complaint, WOW is seeking monetary damages.

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

Discovery is on-going and the court has set a preliminary trial date of December 2024.

(27) QUARTERLY RESULTS (UNAUDITED)

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Diluted 168,541 170,103 171,190 172,990

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

Quarter Second

14 unchanged sentences

Diluted 149,167 150,190 158,921 172,213

RIBBON COMMUNICATIONS INC.

Notes to Consolidated Financial Statements (Continued)

__________________________________

(1) Reflects the increases to Cost of revenue arising from the reclassification of amortization of acquired technology from amortization of acquired intangible assets within operating expenses in 2021 of $ 10.1 million in the first quarter, $ 9.7 million in the second quarter and $ 9.7 million in the third quarter.

See Note 2 for a discussion of the reclassification.

(1) (Loss) earnings per share is calculated independently for each of the quarters presented;

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data