What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-07-29 compared with 2024-05-15 · 229 added, 137 removed, 219 unchanged (63% of the section changed)

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

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

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

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

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Financial Results

We reported a loss from operations of $13.5 million and $35.2 million for the three months ended March 31, 2024 and 2023, respectively.

Our revenue was $179.7 million and $186.2 million in the three months ended March 31, 2024 and 2023, respectively.

Our gross profit and gross margin were $92.0 million and 51.2%, respectively, in the three months ended March 31, 2024, and $81.4 million and 43.7%, respectively, in the three months ended March 31, 2023.

The lower revenue in the three months ended March 31, 2024 compared to 2023 is due to $12.8 million of lower Cloud and Edge sales, primarily to U.S.

Service Providers, partially offset by $6.3 million of higher IP Optical sales in Europe, the Middle East and Africa ("the EMEA region").

Revenue from our Cloud and Edge segment was $101.7 million and $114.5 million in the three months ended March 31, 2024 and 2023, respectively.

Gross profit and gross margin for this segment were $64.4 million and 63.4% , respectively, in the three months ended March 31, 2024, and $66.1 million and 57.7%, respectively, in the three months ended March 31, 2023.

Revenue from our IP Optical Networks segment was $78.0 million and $71.7 million in the three months ended March 31, 2024 and 2023, respectively.

Gross profit and gross margin for this segment were $27.5 million and 35.3% , respectively, in the three months ended March 31, 2024, and $15.3 million and 21.4%, respectively, in the three months ended March 31, 2023.

Our operating expenses were $105.4 million and $116.6 million in the three months ended March 31, 2024 and 2023, respectively.

We reported a loss from operations of $1.9 million and $6.6 million for the three months ended June 30, 2024 and 2023, respectively.

We reported a loss from operations of $15.4 million and $41.8 million for the six months ended June 30, 2024 and 2023, respectively.

Our revenue was $192.6 million and $210.6 million in the three months ended June 30, 2024 and 2023, respectively.

Our gross profit and gross margin were $97.9 million and 50.8%, respectively, in the three months ended June 30, 2024, and $101.5 million and 48.2%, respectively, in the three months ended June 30, 2023.

The lower revenue in the three months ended June 30, 2024 compared to 2023 is due to $14.7 million of lower Cloud and Edge sales, primarily to enterprise customers and $3.3 million of lower IP Optical Networks sales.

Our revenue was $372.3 million and $396.8 million in the six months ended June 30, 2024 and 2023, respectively.

Our gross profit and gross margin were $189.8 million and 51.0%, respectively, in the six months ended June 30, 2024, and $182.9 million and 46.1%, respectively, in the six months ended June 30, 2023.

The lower revenue in the six months ended June 30, 2024 compared to 2023 is due to $27.5 million of lower Cloud and Edge sales, primarily to U.S.

service providers, partially offset by $3.0 million of higher IP Optical Networks sales.

Revenue from our Cloud and Edge segment was $110.6 million and $125.3 million in the three months ended June 30, 2024 and 2023, respectively.

Gross profit and gross margin for this segment were $70.4 million and 63.7% , respectively, in the three months ended June 30, 2024, and $79.3 million and 63.3%, respectively, in the three months ended June 30, 2023.

Revenue from our Cloud and Edge segment was $212.2 million and $239.7 million in the six months ended June 30, 2024 and 2023, respectively.

Gross profit and gross margin for this segment were $134.9 million and 63.6%, respectively, in the six months ended June 30, 2024, and $145.4 million and 60.7%, respectively, in the six months ended June 30, 2023.

Revenue from our IP Optical Networks segment was $82.1 million and $85.4 million in the three months ended June 30, 2024 and 2023, respectively.

Gross profit and gross margin for this segment were $27.4 million and 33.4% , respectively, in the three months ended June 30, 2024, and $22.1 million and 25.9%, respectively, in the three months ended June 30, 2023.

Revenue from our IP Optical Networks segment was $160.1 million and $157.0 million in the six months ended June 30, 2024 and 2023, respectively.

Gross profit and gross margin for this segment were $55.0 million and 34.3%, respectively, in the six months ended June 30, 2024, and $37.5 million and 23.9%, respectively, in the six months ended June 30, 2023.

Our operating expenses were $99.8 million and $108.1 million in the three months ended June 30, 2024 and 2023, respectively, and $205.2 million and $224.7 million in the six months ended June 30, 2024 and 2023, respectively.

The decreased operating expenses are primarily related to lower research and development ("R&D") and restructuring related expenses.

Operating expenses for the three months ended March 31, 2024 included $6.7 million of amortization of acquired intangible assets, and $3.1 million of restructuring and related expense.

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

We recorded stock-based compensation expense of $4.5 million and $5.8 million in the three months ended March 31, 2024 and 2023, respectively.

Operating expenses for the three months ended June 30, 2024 included $6.5 million of amortization of acquired intangible assets, and $1.9 million of restructuring and related expense.

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

Operating expenses for the six months ended June 30, 2024 included $13.2 million of amortization of acquired intangible assets, and $5.0 million of restructuring and related expense.

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

We recorded stock-based compensation expense of $3.5 million and $6.1 million in the three months ended June 30, 2024 and 2023, respectively, and $8.0 million and $12.0 million in the six months ended June 30, 2024 and 2023, respectively.

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

See "Results of Operations" in this MD&A for a discussion of the changes in our revenue and expenses for the three months ended March 31, 2024 compared to the three months ended March 31, 2023.

See "Results of Operations" in this MD&A for a discussion of the changes in our revenue and expenses for the three and six months ended June 30, 2024 compared to the three and six months ended June 30, 2023.

Restructuring and Cost Reduction Initiatives

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

We recorded restructuring and related expense of $1.6 million and $5.7 million in the three months ended March 31, 2024 and 2023, respectively, in connection with the 2023 Restructuring Plan for severance related costs.

We recorded restructuring and related expense of $0.4 million and $2.0 million in the three and six months ended June 30, 2024, in connection with the 2023 Restructuring Plan for severance related costs.

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

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

In connection with the 2022 Restructuring Plan, we recorded restructuring and related expense of $1.4 million and $1.2 million in the three months ended March 31, 2024 and 2023, respectively.

The amount for the three months ended March 31, 2024 was related to variable and other facilities-related costs.

The amount for the three months ended March 31, 2023 was comprised of $1.0 million for variable and other facilities-related costs and $0.2 million for accelerated amortization of lease assets no longer being used with no ability or intent to sublease.

In connection with the 2022 Restructuring Plan, we recorded restructuring and related expense of $1.6 million and $3.0 million in the three and six months ended June 30, 2024, respectively.

The amount for both the three and six months ended June 30, 2024 was related to variable and other facilities-related costs.

We anticipate that we will record approximately $3 million of expense in the remainder of 2024 related to the 2022 Restructuring Plan.

For facilities that are part of a restructuring plan, for which we have no intent or ability to enter into a sublease, we recognize accelerated rent amortization over the period from the date that we commence the plan to fully or partially vacate a facility through the final vacate date.

We did not record accelerated rent amortization in the three months ended March 31, 2024.

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

We did not record accelerated rent amortization in the three and six months ended June 30, 2024 .

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

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

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

There were no significant changes to our critical accounting policies from January 1, 2024 through March 31, 2024.

There were no significant changes to our critical accounting policies from January 1, 2024 through June 30, 2024.

For a further discussion of our critical accounting policies and estimates, please refer to our Annual Report on Form 10-K for the year ended December 31, 2023.

Results of Operations

Three months ended March 31, 2024 and 2023

Revenue for the three months ended March 31, 2024 and 2023 was as follows (in thousands, except percentages):

Three months ended Decrease

Three and six months ended June 30, 2024 and 2023

Revenue for the three and six months ended June 30, 2024 and 2023 was as follows (in thousands, except percentages):

Three months ended Increase/(decrease)

from prior year

2024 March 31,

2024 June 30,

Product $ 99,133 $ 117,347 $ (18,214) (15.5) %

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Total revenue $ 192,620 $ 210,618 $ (17,998) (8.5) %

Segment revenue for the three months ended March 31, 2024 and 2023 was as follows (in thousands):

Three months ended March 31, 2024 Three months ended March 31, 2023

Six months ended

from prior year

2024 June 30,

Product $ 186,743 $ 210,665 $ (23,922) (11.4) %

Service 185,541 186,112 (571) (0.3) %

Total revenue $ 372,284 $ 396,777 $ (24,493) (6.2) %

Segment revenue for the three and six months ended June 30, 2024 and 2023 was as follows (in thousands):

Three months ended June 30, 2024 Three months ended June 30, 2023

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

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Total revenue $ 110,555 $ 82,065 $ 192,620 $ 125,256 $ 85,362 $ 210,618

The decrease in our product revenue in the three months ended March 31, 2024 compared to the three months ended March 31, 2023 was the result of $11 million of lower sales of our Cloud and Edge products, partially offset by $5 million of higher sales of our IP Optical Networks products .

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

Service Providers, partially offset by increased sales to Enterprise customers, including U.S.

Federal agencies to support voice network modernization.

The increase in revenue from the sale of IP Optical Networks products was primarily attributable to higher sales in Israel and Eastern Europe following the introduction of new products and capabilities, including support for Long Haul Optical Transport, 5G Cell Site Routers, and a new series of IP Routers.

Revenue from sales to enterprise customers was 43% and 29% of our product revenue in the three months ended March 31, 2024 and 2023, respectively.

Six months ended June 30, 2024 Six months ended June 30, 2023

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

Product $ 71,099 $ 115,644 $ 186,743 $ 95,191 $ 115,474 $ 210,665

Service 141,125 44,416 185,541 144,545 41,567 186,112

Total revenue $ 212,224 $ 160,060 $ 372,284 $ 239,736 $ 157,041 $ 396,777

The decrease in our product revenue in the three months ended June 30, 2024 compared to the three months ended June 30, 2023 was the result of $13 million of lower sales of our Cloud and Edge products and $5 million of lower sales of our IP Optical Networks products .

The decrease in our product revenue in the six months ended June 30, 2024 compared to the six months ended June 30, 2023 was due to $24 million of lower sales of our Cloud and Edge products, partially offset by slightly higher sales of our IP Optical Networks products.

The decrease in revenue from the sale of Cloud and Edge products in the three months ended June 30, 2024 was attributable to $8 million of lower sales to enterprise customers, including a slight delay in sales to a U.S.

Federal agency to support voice network modernization that is now expected in the third quarter of 2024, and $4 million of lower sales to U.S.

service providers.

The decrease in revenue from the sale of IP Optical Networks products in the three months ended June 30, 2024 was attributable to $14 million of lower sales to service providers, partially offset by $9 million of higher sales to enterprise customers.

The slight increase in revenue from the sale of IP Optical Networks products in the six months ended June 30, 2024 was attributable to $17 million of higher sales to enterprise customers, offset by just under $17 million of lower sales to service providers.

Revenue from sales to enterprise customers was 38% and 32% of our product revenue in the three months ended June 30, 2024 and 2023, respectively.

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

Revenue from sales to enterprise customers was 41% and 31% in the six months ended June 30, 2024 and 2023, respectively.

The increase in enterprise sales reflects stronger sales of our products to customers in the government sector.

Revenue from indirect sales through our channel partner program was 52% and 38% of our product revenue in the three months ended March 31, 2024 and 2023, respectively.

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

Revenue from indirect sales through our channel partner program was 32% of our product revenue in both the three months

ended June 30, 2024 and 2023 and 41% and 35% of our product revenue in the six months ended June 30, 2024 and 2023, respectively.

The increase in channel sales in the six months ended June 30, 2024 reflects stronger IP Optical Networks deployments through systems integrators as well as sell-thru our service provider channel partners in Eastern Europe.

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

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

Service revenue for the three months ended March 31, 2024 and 2023 was comprised of the following (in thousands, except percentages):

Service revenue for the three and six months ended June 30, 2024 and 2023 was comprised of the following (in thousands, except percentages):

Three months ended Increase/(decrease)

from prior year

2024 March 31,

2024 June 30,

Maintenance $ 67,520 $ 69,628 $ (2,108) (3.0) %

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$ 93,487 $ 93,271 $ 216 0.2 %

Segment service revenue for the three months ended March 31, 2024 and 2023 was comprised of the following (in thousands):

Three months ended March 31, 2024 Three months ended March 31, 2023

Six months ended Increase/(decrease)

from prior year

2024 June 30,

Maintenance $ 135,901 $ 140,216 $ (4,315) (3.1) %

Professional services 49,640 45,896 3,744 8.2 %

$ 185,541 $ 186,112 $ (571) (0.3) %

Segment service revenue for the three and six months ended June 30, 2024 and 2023 was comprised of the following (in thousands):

Three months ended June 30, 2024 Three months ended June 30, 2023

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

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Total service revenue $ 70,969 $ 22,518 $ 93,487 $ 72,904 $ 20,367 $ 93,271

Maintenance revenue was 3.1% lower in the three months ended March 31, 2024 compared to the three months ended March 31, 2023 primarily due to modestly lower renewal rates with several Cloud & Edge customers and the timing of renewals in the IP Optical Networks segment.

Professional services revenue was higher in the three months ended March 31, 2024 compared to the same period in 2023 by 6.4% primarily due to growing sales of IP Optical Networks services in the EMEA region.

The following customer contributed 10% or more of our revenue in the three months ended March 31, 2024 and 2023:

Three months ended

Customer March 31,

2024 March 31,

Six months ended June 30, 2024 Six months ended June 30, 2023

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

Maintenance $ 105,859 $ 30,042 $ 135,901 $ 109,844 $ 30,372 $ 140,216

Professional services 35,266 14,374 49,640 34,701 11,195 45,896

Total service revenue $ 141,125 $ 44,416 $ 185,541 $ 144,545 $ 41,567 $ 186,112

Maintenance revenue was lower in the three and six months ended June 30, 2024 compared to the three and six months ended June 30, 2023 primarily due to modestly lower renewal rates from decommissioning some older legacy equipment with several Cloud & Edge customers and the timing of renewals in the IP Optical Networks segment .

Professional services revenue was higher in the three and six months ended June 30, 2024 compared to the same periods in 2023 primarily due to growing sales of IP Optical Networks services in the EMEA region.

The following customer contributed 10% or more of our revenue in the three and six months ended June 30, 2024 and 2023:

Three months ended Six months ended

Customer June 30,

2024 June 30,

2023 June 30,

2024 June 30,

Verizon Communications Inc.

* Less than 10% of total revenue.

Revenue from customers domiciled outside the United States was 60% and 56% in the three months ended March 31, 2024 and 2023, respectively.

12% 11% 11% 11%

Revenue from customers domiciled outside the United States was 58% and 53% in the three months ended June 30, 2024 and 2023, respectively, and 59% and 54% of revenue in the six months ended June 30, 2024 and 2023, respectively.

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

Our deferred product revenue was $11 million and $17 million at March 31, 2024 and December 31, 2023, respectively.

Our deferred service revenue was $114 million and $116 million at March 31, 2024 and December 31, 2023, respectively.

Our deferred product revenue was $10 million and $17 million at June 30, 2024 and December 31, 2023, respectively.

Our deferred service revenue was $106 million and $116 million at June 30, 2024 and December 31, 2023, respectively.

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

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

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

We expect that our total revenue in 2024 will increase compared to our 2023 revenue primarily due to a stronger second half in both business segments, particularly with increased purchases from Verizon as part of a voice modernization project.

From a regional perspective, we anticipate continued IP Optical Networks revenue growth in 2024 from North America, Europe, the Middle East and Africa, offset by lower revenue in Eastern Europe due to additional trade restrictions with this region .

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

Federal agencies, offsetting lower spending from U.S.

Service Providers in the first half of 2024.

Federal agencies, along with U.S.

service provider spending that was lower in the first half of 2024, but is expected to rebound in the second half of the year .

Cost of Revenue/Gross Margin.

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

Our cost of revenue, gross profit and gross margin for the three months ended March 31, 2024 and 2023 were as follows (in thousands, except percentages):

Three months ended Increase (decrease)

Our cost of revenue, gross profit and gross margin for the three and six months ended June 30, 2024 and 2023 were as follows (in thousands, except percentages):

Three months ended Decrease

from prior year

2024 March 31,

2024 June 30,

Cost of revenue:

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Gross margin 50.8 % 48.2 %

Our segment cost of revenue, gross profit and gross margin for the three months ended March 31, 2024 and 2023 were as follows (in thousands, except percentages):

Three months ended March 31, 2024 Three months ended March 31, 2023

Six months ended Increase (decrease)

from prior year

2024 June 30,

Cost of revenue:

Product $ 100,639 $ 129,990 (29,351) (22.6) %

Service 68,740 69,087 (347) (0.5) %

Amortization of acquired technology 13,083 14,828 (1,745) (11.8) %

Total cost of revenue $ 182,462 $ 213,905 (31,443) (14.7) %

Gross profit $ 189,822 $ 182,872 $ 6,950 3.8 %

Gross margin 51.0 % 46.1 %

Our segment cost of revenue, gross profit and gross margin for the three and six months ended June 30, 2024 and 2023 were as follows (in thousands, except percentages):

Three months ended June 30, 2024 Three months ended June 30, 2023

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

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Gross margin 63.7 % 33.4 % 50.8 % 63.3 % 25.9 % 48.2 %

Our gross margin was higher with an 8% increase overall in the three months ended March 31, 2024 compared to the three months ended March 31, 2023, with higher margins in both of our segments.

Our IP Optical Networks segment's g ross margin increased by 14% primarily attributable to higher sales volume, favorable customer and product mix, lower product costs, and improved absorption of fixed costs from higher sales.

Our Cloud and Edge segment's gross margin increased by 6% primarily due to favorable product mix and lower amortization of acquired technology costs .

We believe that our IP Optical Networks segment gross margin will approximately maintain current levels for the remainder of 2024.

Our overall corporate gross margin may decrease in 2024 compared to 2023 as a result of higher expected sales from IP Optical Networks, which has lower margins due to the higher hardware content in its products and higher production costs.

Six months ended June 30, 2024 Six months ended June 30, 2023

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

Product $ 27,182 $ 73,457 $ 100,639 $ 40,276 $ 89,714 $ 129,990

Service 45,709 23,031 68,740 46,928 22,159 69,087

Amortization of acquired technology 4,462 8,621 13,083 7,125 7,703 14,828

Total cost of revenue $ 77,353 $ 105,109 $ 182,462 $ 94,329 $ 119,576 $ 213,905

Gross profit $ 134,871 $ 54,951 $ 189,822 $ 145,407 $ 37,465 $ 182,872

Gross margin 63.6 % 34.3 % 51.0 % 60.7 % 23.9 % 46.1 %

Our gross margin was higher with a 3% increase overall in the three months ended June 30, 2024 compared to the three months ended June 30, 2023, due to an 8% increase in our IP Optical Networks segment and a slight increase in our Cloud & Edge segment.

Our gross margin increased 5% in the six months ended June 30, 2024 compared to the same period in 2023 due to a 10% increase in our IP Optical Networks segment and a 3% increase in our Cloud & Edge segment.

The higher margins in our IP Optical Networks segment were primarily attributable to favorable customer and product mix along with lower material, labor and royalty costs.

Our Cloud and Edge segment's gross margin for the six months ended June 30, 2024 increased primarily due to favorable product mix and lower amortization of acquired technology costs.

We believe that our IP Optical Networks segment gross margin will maintain approximate current levels dependent on customer and product mix for the remainder of 2024.

Our overall corporate gross margin in 2024 is expected to be very similar compared to 2023 with the Cloud & Edge revenue growing in the second half of the year, which has higher margins due to the higher software content in its products.

Research and Development.

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

R&D expenses for the three months ended March 31, 2024 and 2023 were as follows (in thousands, except percentages):

R&D expenses for the three and six months ended June 30, 2024 and 2023 were as follows (in thousands, except percentages):

from prior year

2024 March 31,

2024 June 30,

Three months ended $ 43,489 $ 47,776 $ (4,287) (9.0) %

The decrease in our R&D expenses in the three months ended March 31, 2024 compared to the three months ended March 31, 2023 was primarily attributable to lower expenses in our IP Optical Networks segment.

Six months ended $ 89,252 $ 99,080 $ (9,828) (9.9) %

The decrease in our R&D expenses in the three and six months ended June 30, 2024 compared to the three and six months ended June 30, 2023 was attributable to lower expenses in both of our segments.

However, our IP Optical Networks segment contributed the most to the improvement by decreasing costs by $3 million and $8 million in the three and six months ended June 30, 2024, respectively .

The reduced expenses are a combination of lower employee headcount and outside subcontractors resulting from the cost savings implemented in the 2023 Restructuring Plan.

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

SDN management and orchestration platform.

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

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

We believe that our R&D expenses will remain consistent for the rest of 2024 and will be lower than 2023 overall, with reduced investment in both segments in areas such as sustaining engineering, as well as a full year benefit from the cost savings implemented in the 2023 Restructuring Plan.

We believe that our R&D expenses will increase slightly in the second half of 2024 primarily due to annual employee compensation adjustments.

However, we do expect that 2024 R&D expenses will be lower than 2023 overall, with reduced investment in both segments in areas such as sustaining engineering, as well as a full year benefit from the cost savings implemented in the 2023 Restructuring Plan.

Sales and Marketing Expenses.

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

Sales and marketing expenses for the three months ended March 31, 2024 and 2023 were as follows (in thousands, except percentages):

Sales and marketing expenses for the three and six months ended June 30, 2024 and 2023 were as follows (in thousands, except percentages):

from prior year

2024 March 31,

2024 June 30,

Three months ended $ 32,984 $ 33,905 $ (921) (2.7) %

The decrease in sales and marketing expenses in 2024 as compared to 2023 is primarily a result of a global sales organization realignment that reduced management layers, as well as reduced investment in under-performing regions.

In the three months ended March 31, 2024 compared to the three months ended March 31, 2023, we achieved an equal reduction of expenses in both of our operating segments.

Six months ended $ 67,700 $ 69,304 $ (1,604) (2.3) %

The decrease in sales and marketing expenses in 2024 as compared to 2023 is primarily a result of the global sales organization realignment that reduced management layers, as well as reduced investment in under-performing regions, with essentially equal reductions in both of our operating segments.

We believe that our sales and marketing expenses in 2024 will be similar to 2023 as we continue to benefit from the realigned global sales structure.

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

General and administrative expenses for the three months ended March 31, 2024 and 2023 were as follows (in thousands, except percentages):

General and administrative expenses for the three and six months ended June 30, 2024 and 2023 were as follows (in thousands, except percentages):

from prior year

2024 March 31,

2024 June 30,

Three months ended $ 14,901 $ 14,346 $ 555 3.9 %

The increase in general and administrative expenses in the three months ended March 31, 2024 compared to the three months ended March 31, 2023 was primarily attributable to higher stock-based and other incentive compensation.

Six months ended $ 30,092 $ 28,391 $ 1,701 6.0 %

The increase in general and administrative expenses in the three and six months ended June 30, 2024 compared to the three and six months ended June 30, 2023 was primarily attributable to higher legal fees related to certain specific legal matters.

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

Amortization of Acquired Intangible Assets included in Operating expenses.

Amortization of acquired intangible assets included in Operating expenses ("Opex Amortization") for the three months ended March 31, 2024 and 2023 was as follows (in thousands, except percentages):

Amortization of acquired intangible assets included in Operating expenses ("Opex Amortization") for the three and six months ended June 30, 2024 and 2023 was as follows (in thousands, except percentages):

Decrease from prior year

2024 March 31,

2024 June 30,

Three months ended $ 6,508 $ 7,260 $ (752) (10.4) %

Opex Amortization was lower for the three months ended March 31, 2024 compared to the three months ended March 31, 2023.

Six months ended $ 13,214 $ 14,524 $ (1,310) (9.0) %

Opex Amortization was lower for the three and six months ended June 30, 2024 compared to the three and six months ended June 30, 2023.

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

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

We recorded no such expenses in the three months ended March 31, 2024 compared to $1.6 million of such expenses recorded in the three months ended March 31, 2023.

We recorded no such expenses in the three and six months ended June 30, 2024 compared to $0.5 million and $2.1 million of such expenses recorded in the three and six months ended June 30, 2023, respectively.

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

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

We recorded restructuring and related expense of $3.1 million and $6.9 million in the three months ended March 31, 2024 and 2023, respectively.

We recorded restructuring and related expense of $1.9 million and $4.3 million in the three months ended June 30, 2024 and 2023, respectively, and $5.0 million and $11.2 million in the six months ended June 30, 2024 and 2023, respectively.

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

Interest Expense, Net.

Interest expense and interest income for the three months ended March 31, 2024 and 2023 were as follows (in thousands, except percentages):

Three months ended Increase (decrease) from prior year

2024 March 31,

Interest expense and interest income for the three and six months ended June 30, 2024 and 2023 were as follows (in thousands, except percentages):

Three months ended Decrease from prior year

June 30, 2024 June 30, 2023 $ %

Interest income $ 48 $ 57 $ (9) (15.8) %

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Interest expense, net $ (3,879) $ (6,766) $ (2,887) (42.7) %

Six months ended Increase (decrease) from prior year

June 30, 2024 June 30, 2023 $ %

Interest income $ 154 $ 116 $ 38 32.8 %

Interest expense (10,020) (13,304) $ (3,284) (24.7) %

Interest expense, net $ (9,866) $ (13,188) $ (3,322) (25.2) %

Our Interest income was nominal in 2024 and 2023.

Interest expense in the three months ended March 31, 2024 and 2023 was primarily comprised of interest and amortization of debt issuance costs related to the 2020 Credit Facility (as defined below).

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

See Note 10 to our condensed consolidated financial statements for a discussion of the sale of our interest rate

Our i nterest expense in the three and six months ended June 30, 2024 and 2023 primarily represents interest, amortization of debt issuance costs and original issue discount, and the amortization of gains in accumulated other comprehensive (loss) income from the sales of our interest rate swap.

Interest expense in the three and six months ended June 30, 2024 was lower than the three and six months ended June 30, 2023 primarily due to write offs related to the refinancing of the 2020 Credit Facility with a portion of the proceeds from the 2024 Credit Facility (both defined below) on June 21, 2024.

The write offs related to the refinancing consisted of the remaining unamortized gains in accumulated other comprehensive (loss) income from the sales of our interest rate swap totaling $4.9 million, partially offset by the write off of debt issuance costs from the 2020 Credit Facility totaling $2.0 million.

Our interest expense for the six months ended June 30, 2023 benefited from our interest rate swap that fixed our interest rate at 0.904% and was sold in March 2023.

See Note 10 to our condensed consolidated financial statements for a discussion of the sale of our interest rate swap.

Other (Expense) Income, Net .

We recorded other expense, net of $7.5 million and other income, net of $4.8 million in the three months ended March 31, 2024 and 2023, respectively.

Other expense in the three months ended March 31, 2024 was primarily comprised of the $3.5 million fair value adjustment of our Preferred Stock and Warrants, including dividends on the Preferred Stock, and foreign currency exchange losses of $1.1 million.

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

We recorded other expense, net of $9.5 million and $2.7 million in the three months ended June 30, 2024 and 2023, respectively.

We recorded other expense, net of $17.0 million and other income, net of $2.1 million in the six months ended June 30, 2024 and 2023, respectively .

Other expense in the three months ended June 30, 2024 was primarily comprised of the fair value adjustment, call premium and accrued dividends related to our Preferred Stock that we redeemed on June 25, 2024.

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

Other expense in the six months ended June 30, 2024 was primarily comprised of $5.7 million of fair value adjustments, $2.7 million of accrued dividends and the $1.8 million call premium on our Preferred Stock that we redeemed on June 25, 2024, and foreign currency exchange losses

of $2.0 million.

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

Income Taxes.

We recorded income tax provisions of $3.4 million and $1.5 million in the three months ended March 31, 2024 and 2023, respectively.

We recorded income tax provisions of $1.5 million and $5.4 million in the three months ended June 30, 2024 and 2023, respectively, and $4.9 million and $6.9 million in the six months ended June 30, 2024 and 2023, respectively.

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

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

Three months ended

2024 March 31,

Six months ended

2024 June 30,

Net loss $ (47,177) $ (59,784) $ 12,607

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Net cash used in investing activities $ (5,876) $ (4,091) $ (1,785)

Net cash used in financing activities $ (5,843) $ (30,119) $ 24,276

We had cash and cash equivalents aggregating $31 million and $27 million at March 31, 2024 and December 31, 2023, respectively.

Net cash provided by (used in) financing activities $ 43,456 $ (36,705) $ 80,161

We had cash, cash equivalents, and restricted cash aggregating $67 million and $27 million at June 30, 2024 and December 31, 2023, respectively.

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

subsidiaries aggregating $18 million and $16 million at March 31, 2024 and December 31, 2023, respectively.

subsidiaries aggregating $23 million and $16 million at June 30, 2024 and December 31, 2023, respectively.

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

subsidiaries as of March 31, 2024, we do not believe that the amounts of potential withholding taxes that would arise from the repatriation would have a material effect on our liquidity.

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

as the borrower ("Borrower"), Citizens Bank, N.A.

("Citizens"), Santander Bank, N.A., and others as lenders, ("Lenders").

For additional details regarding the terms of the 2020 Credit Facility, see Note 9 to our condensed consolidated financial statements.

subsidiaries as of June 30, 2024, we do not believe that the amounts of potential withholding taxes that would arise from the repatriation would have a material effect on our liquidity.

On June 21 , 2024, we entered into a Senior Secured Credit Facilities Agreement (the “2024 Credit Facility” and “2024 Credit Agreement”) as guarantor, with our wholly-owned subsidiary, Ribbon Communications Operating Company, Inc., as the borrower (“Borrower”), HPS Investment Partners, LLC ("HPS"), as administrative agent, and HPS and WhiteHorse Capital Management, LLC ("WhiteHorse" and, together with HPS, the "Lenders"), pursuant to which the Lenders have provided us with a $385 million senior secured credit facility comprised of (i) a $350 million term loan (the “2024 Term Loan”) and (ii) a $35 million revolving credit facility (the “2024 Revolver”), including a $20 million sublimit for letters of credit.

The proceeds received from the 2024 Term Loan were used to (a) repay 100% of the amounts outstanding under the 2020 Credit Facility, (b)

redeem in full the Preferred Stock and (c) pay fees and expenses related to the 2024 Credit Facility.

Any excess proceeds are expected to be used by us for working capital and other general corporate purposes.

The 2024 Term Loan and the 2024 Revolver bear interest, at the Borrower's option, at either the Alternate Base Rate (“ABR”) or Term Secured Overnight Financing Rate ("SOFR") with an Applicable Margin for each (all as defined in the 2024 Credit Agreement).

Margins for the first six months are 5.25% per annum for ABR Loans and 6.25% per annum for SOFR Loans.

Thereafter, margins vary based on our Consolidated Net Leverage Ratio, ranging from 4.75% to 5.25% per annum for ABR Loans and 5.75% to 6.25% per annum for SOFR Loans.

The 2024 Term Loan and the 2024 Revolver will both mature on June 21, 2029.

The 2024 Term Loan is to be repaid in equal quarterly installments:

approximately $0.9 million beginning with the third quarter of 2024 through the second quarter of 2025;

approximately $2.2 million beginning with the third quarter of 2025 and ending with the second quarter of 2027;

and approximately $4.4 million quarterly thereafter, with the remaining principal balance of approximately $298.4 million due on the maturity date of June 21, 2029.

In connection with the establishment of the 2024 Credit Facility, $7.7 million of original issue discount was withheld by the Lenders and we incurred $6.1 million of debt issuance costs for a total of $13.8 million that is being amortized to Interest expense, net over the term of the agreement.

Our previous credit facility was the Senior Secured Credit Facilities Credit Agreement (as amended, the "2020 Credit Facility"), which we entered into on March 3, 2020, by and among us, as a guarantor, Ribbon Communications Operating Company, Inc., as the borrower (the "Borrower"), Citizens Bank, N.A., Santander Bank, N.A., and others as lenders, ("Lenders").

For additional details regarding the terms of the 2024 Credit Facility and 2020 Credit Facility, see Note 9 to our condensed consolidated financial statements.

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

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

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

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

Q uarterly principal payments are required 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.

At March 31, 2024, we had an outstanding balance under the 2020 Term Loan of $230.4 million at an average interest rate of 9.9% , and $3 million of letters of credit outstanding with an interest rate of 4.5%.

The Company's interest rates under our 2020 Term Loan for the three months ended March 31, 2023 benefited from a hedge instrument that was in place, specifically a fixed rate swap, which was sold in March 2023 (see Note 10).

We were in compliance with all covenants of the 2020 Credit Facility at both March 31, 2024 and December 31, 2023, including the current Consolidated Net Leverage Ratio calculation that considers our debt to include Preferred Stock.

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

At March 31, 2024, we had $9.7 million 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 $7.0 million of bank guarantees and performance and bid bonds (collectively, the "Other Guarantees") under various uncommitted facilities.

At December 31, 2023, we had $7.9 million of Guarantees, comprised of $2.7 million of Letters of Credit and $5.2 million of Other Guarantees.

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

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

Q uarterly principal payments were required on the 2020 Term Loan aggregating approximately $5.0 million per quarter through March 31, 2024, and if the refinancing had not occurred, $10.0 million would have been required in each of the three quarters thereafter, with the remaining and final payment due on the maturity date in March 2025.

At June 30, 2024, we had an outstanding balance under the 2024 Term Loan of $350.0 million at an average interest rate of 11.6% , with no revolver balance and no letters of credit outstanding under our 2024 Credit Facility.

Our interest rates under our 2020 Term Loan for the six months ended June 30, 2023 benefited from a hedge instrument that was in place, specifically a fixed rate swap, which was sold in March 2023 (see Note 10).

We were in compliance with all covenants of the 2024 Credit Facility and 2020 Credit Facility at both June 30, 2024 and December 31, 2023, respectively, including the Consolidated Net Leverage Ratio calculation under the 2020 Credit Facility that considered our debt to include Preferred Stock.

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

At June 30, 2024, we had $9.5 million of letters of credit, bank guarantees, and surety bonds outstanding (collectively, "Guarantees") under various uncommitted facilities and no letters of credit outstanding under the 2024 Credit Facility.

At December 31, 2023, we had Guarantees aggregating $7.9 million, comprised of $2.7 million of letters of credit under the 2020 Credit Facility and $5.2

million of Other Guarantees.

At June 30, 2024 and December 31, 2023, we had cash collateral of $2.9 million and $0.1 million, respectively, supporting the Guarantees, which are reported in Restricted cash in our condensed consolidated balance sheets.

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

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

The gain in accumulated other comprehensive (loss) income related to the $60 million notional amount sold of $3.1 million is being released into earnings on a straight line basis over the remaining term of the 2020 Credit Facility as a decrease to interest expense, the amortization of which totaled $0.2 million and $0.3 million for the three months ended March 31, 2024 and 2023, respectively.

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

counterparty, reducing the notional amount to $170 million.

The gain in accumulated other comprehensive (loss) income related to the $60 million notional amount sold of $3.1 million was 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 $0.4 million and $0.5 million for the six months ended June 30, 2024 and 2023, respectively.

The remaining unamortized gain in accumulated other comprehensive (loss) income of approximately $0.5 million was written off to interest expense in conjunction with the refinancing of the 2020 Credit Facility on June 21, 2024.

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

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

The portion of the gain in accumulated other comprehensive (loss) income related to our remaining term loan debt balance totaled $12.0 million and is being released into earnings on a straight line basis over the remaining term of the 2020 Credit Facility as a decrease to interest expense beginning in the second quarter of 2023, the amortization of which was $1.6 million for the three months ended March 31, 2024 .

The portion of the gain in accumulated other comprehensive (loss) income related to our remaining term loan debt balance totaled $12.0 million and was being released into earnings on a straight line basis over the remaining term of the 2020 Credit Facility as a decrease to interest expense beginning in the second quarter of 2023, the amortization of which was $3.0 million and $1.6 million for the six months ended June 30, 2024 and 2023, respectively.

The remaining unamortized gain in accumulated other comprehensive (loss) income of $ 4.4 million was written off to interest expense in conjunction with the refinancing of the 2020 Credit Facility on June 21, 2024.

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

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

During the three months ended March 31, 2023, such a derivative was used to hedge the variable cash flows associated with the outstanding borrowings under the 2020 Credit Facility and the Company accounted for this derivative as an effective hedge until the final portion of the swap was sold on March 27, 2023.

During the six months ended June 30, 2023, such a derivative was used to hedge the variable cash flows associated with the outstanding borrowings under the 2020 Credit Facility and the Company 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 would be recognized directly in earnings.

However, we recorded no hedge ineffectiveness over the life of our swap.

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

During the six months ended June 30, 2023, we recorded $7.3 million of Other expense, net due to the sale of our swap.

Cash Flows from Operating Activities

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

Our operating activities provided cash of $13.1 million in the three months ended March 31, 2024 , primarily resulting from lower accounts receivable and other operating assets, and certain non-cash expenses such as amortization of intangible assets and stock-based compensation.

These amounts were partially offset by our net loss and lower accounts payable, accrued expenses and other long-term liabilities, lower deferred revenue, higher inventory and certain non-cash items such as deferred income taxes.

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

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

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

Our operating activities provided cash of $3.3 million in the six months ended June 30, 2024.

This included a $6.7 million one time payment of accumulated dividends as a result of our redemption of our Preferred Stock liability on June 25, 2024.

Cash provided by operating activities was also affected by lower accounts receivable and other operating assets, certain non-

cash expenses such as amortization of intangible assets and stock-based compensation, and the increase in the fair value of our Preferred Stock liability.

These amounts were partially offset by our net loss and lower accounts payable, deferred revenue and accrued expenses and other long-term liabilities, higher inventory, and certain non-cash items such as amortization of an accumulated other comprehensive gain related to our interest rate swap and deferred income taxes.

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

Cash provided by operating activities in the six months ended June 30, 2023 was $8.6 million, primarily resulting from higher product revenue in our IP Optical Networks segment and lower operating expenses company-wide due to our various cost saving initiatives.

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

Cash Flows from Investing Activities

Our investing activities used $2.7 million and $2.4 million of cash in the three months ended March 31, 2024 and 2023, respectively, to purchase property and equipment and software licenses.

Our investing activities used $5.9 million and $4.1 million of cash in the six months ended June 30, 2024 and 2023, respectively, to purchase property and equipment.

Cash Flows from Financing Activities

Our financing activities used $5.8 million of cash in the three months ended March 31, 2024, primarily due to $5.0 million of principal payments on our term debt and $0.8 million for the payment of tax withholding related to the net share settlements of restricted stock awards upon vesting.

In addition, we had $15.0 million of borrowings and $15.0 million of principal payments under our 2020 Revolving Credit Facility.

Our financing activities used $30.1 million of cash in the three months ended March 31, 2023, primarily due to $80.0 million of principal payments, including a $75.0 million prepayment in connection with the Sixth Amendment to the 2020

Credit Facility, $1.6 million of debt issuance costs also paid in connection with the Sixth Amendment, and $1.9 million for the payment of tax withholding obligations related to the net share settlements of restricted stock awards upon vesting.

Our financing activities provided $43.5 million of cash in the six months ended June 30, 2024.

We received $342.3 million of proceeds from the issuance of term debt related to the 2024 Credit Fac ility, net of $7.7 million of original issue discount, t hat was established on June 21, 2024 to refinance the 2020 Credit Facility.

Also, we had $44.1 million of both borrowings and principal payments under the 2020 Revolving Credit Facility.

In conjunction with the establishment of the 2024 Credit Facility, we repaid the 2020 Term Debt amounting to $235.4 million, redeemed all of the outstanding Preferred Stock totaling $56.9 million, a nd paid $4.0 million in debt issuance c osts.

In addition, we paid $2.6 million of tax obligations related to the vesting of stock awards and units.

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

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

The rate at which we consume cash is dependent on the cash needs of our future operations, including our contractual obligations at March 31, 2024, primarily comprised of our debt principal and interest obligations as described above, and our operating lease and purchase obligations.

Our operating lease obligations totaled $61.2 million at March 31, 2024, with payments aggregating $13.9 million in the remainder of 2024, $10.8 million in 2025, $9.0 million in 2026 and $27.5 million thereafter.

Estimated payments for purchase obligations for the full year 2024 aggregate approximately $ 101 million .

The rate at which we consume cash is dependent upon the cash needs of our future operations, including our contractual obligations at June 30, 2024, primarily comprised of our debt principal and interest obligations as described above, and our operating lease and purchase obligations.

Our operating lease obligations totaled $56.6 million at June 30, 2024, with payments to be made aggregating $9.1 million in the remainder of 2024, $10.9 million in 2025, $9.1 million in 2026 and $27.5 million thereafter.

Estimated payments for purchase obligations for the full year 2024 total approximately $ 101 million .

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

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

However, we do not have sufficient cash on hand or available liquidity to repay the $200.4 million due on March 3, 2025, the maturity date of our 2020 Credit Facility.

In response to these conditions, management's plans include refinancing the 2020 Credit Facility.

We have entered into a binding commitment letter (the "Commitment Letter") to refinance the 2020 Credit Facility.

See Note 20 - Subsequent Event to our condensed consolidated financial statements.

The refinance contemplated by the Commitment Letter is expected to close no later than June 30, 2024.

However, because the credit facility contemplated by the Commitment Letter has not yet been finalized, it cannot be deemed to be within our control.

As a result, such plans cannot be deemed probable and do not alleviate the substantial doubt raised about our ability to continue as a going concern.

As of March 31, 2024, we did not have sufficient cash on hand or available liquidity to repay the $200.4 million due on March 3, 2025, the maturity date of the 2020 Credit Facility.

Therefore, substantial doubt was raised about our ability to continue as a going concern.

In response to these conditions, management's plans included refinancing the 2020 Credit Facility and we entered into a binding commitment letter (the "Commitment Letter") on May 15, 2024 for such refinancing.

The refinancing contemplated by the Commitment Letter closed on June 21, 2024, establishing the 2024 Credit Facility, the proceeds of which, among other things, were used to repay all amounts outstanding under the 2020 Credit Facility.

As a result, there is no longer substantial doubt about our ability to continue as a going concern.

Based on our current expectations, we believe that our current cash and available borrowings under the 2024 Credit Facility will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least twelve months from the date of issuance of these financial statements.

Recent Accounting Pronouncements

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

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

Improvements to Income Tax Disclosures (“ASU 2023-09”), which increases the disclosure requirements around rate

reconciliation information and certain types of income taxes companies are required to pay.

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

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis