Ribbon Communications Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion of the financial condition and results of operations of Ribbon Communications Inc. should be read in conjunction with the condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2024, which was filed with the U.S. Securities and Exchange Commission on February 27, 2025. Overview We are a leading global provider of communications technology to service providers and enterprises. We provide a broad range of software and high-performance hardware products, network solutions, and services that enable the secure delivery of data and voice communications, and high-bandwidth networking and connectivity for residential consumers and for small, medium, and large enterprises and industry verticals such as finance, education, government, utilities, and transportation. Our mission is to create a recognized global technology leader providing cloud-centric solutions that enable the secure exchange of information, with unparalleled scale, performance and elasticity. We are headquartered in Plano, Texas, and have a global presence with research and development or sales and support locations in over thirty countries around the world. Key Trends and Economic Factors Affecting Ribbon Supplier Disruptions. Ongoing uncertainty in the global economy due to proposed and enacted tariffs and trade restrictions, inflation, the wars in Israel and Ukraine, national security concerns and other factors, continue to disrupt various manufacturing, commodity and financial markets, increase volatility, and impede global supply chains. Our ability to deliver our solutions as agreed upon with our customers depends in part on the ability of our global contract manufacturers, vendors, licensors and other business partners to deliver products or perform services we have procured from them. Continued uncertain global economic conditions may cause our customers to restrict spending or delay purchases for an indeterminate period of time and consequently cause our revenues to decline. Further, such factors may negatively impact our operating costs resulting in a reduction in net income. The degree to which the ongoing wars in Israel and Ukraine, the inflationary and high interest rate environment and tariffs impacts our future business, financial position and results of operations will depend on developments beyond our control. The Ongoing Wars in Israel and Ukraine . The uncertainty resulting from the wars in Israel and Ukraine, and the threat for expansion of one or both of these wars, could result in some of our customers delaying purchases from us. Further, a number of our employees in Israel are members of the military reserves and subject to immediate call-up in response to the war in Israel. Following the terrorist attacks in Israel in October 2023, a number of our employees have been activated for military duty and we expect that additional employees will also be activated if the war in Israel continues. While we have business continuity plans in place to address the military call-ups, it could affect the timing of projects in the short-term as the work is shifted to other team members both inside and outside of Israel. The U.S. 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 hardware products in Russia or provide any replacement parts in Russia. 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, our ability to collect on outstanding accounts receivable from such customers, and our ability to repatriate funds. If we are further limited in our ability to sell products and services to Russia and other countries for an extended period, it could have a material impact on our financial results. Inflation and Interest Rates. We continue to see near-term impacts on our business due to inflation, including ongoing global price pressures resulting in higher energy prices, component costs, freight premiums, and other operating costs above normal rates. Although headline inflation in the United States and Europe appears to be easing, core 36 Table of Contents inflation (excluding food and energy prices) remains elevated and is a source of continued cost pressure on businesses and households. Interest rates remain high as central banks in developed countries attempt to subdue inflation while government deficits and debt remain at high levels in many global markets. However, since its peak in 2024, the Federal Reserve lowered the federal funds rate to its current target range of 4.25% to 4.50% as a result of indicators that inflation had made progress toward the Federal Reserve’s objective and labor market conditions had generally eased. Yet, the economic outlook remains uncertain, and the implications of current and future tariffs, higher government deficits and debt, tighter monetary policy, and potentially higher long-term interest rates may drive a higher cost of capital for our business. Presentation Unless otherwise noted, all financial amounts, excluding tabular information, in this Management’s Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") are rounded to the nearest million dollar amount, and all percentages, excluding tabular information, are rounded to the nearest percentage point. Operating Segments Our Chief Operating Decision Maker (“CODM”) assesses our performance based on the performance of two separate organizations within Ribbon: the Cloud and Edge operating segment ("Cloud and Edge") and the IP Optical Networks operating segment ("IP Optical Networks"). For additional details regarding our operating segments, see Note 13 - Operating Segment Information to our condensed consolidated financial statements. Financial Overview Financial Results We reported loss from operations of $19.6 million and $13.5 million for the three months ended March 31, 2025 and 2024, respectively. Our revenue was $181.3 million and $179.7 million in the three months ended March 31, 2025 and 2024, respectively. Our gross profit and gross margin were $82.4 million and 45.4%, respectively, in the three months ended March 31, 2025, and $92.0 million and 51.2%, respectively, in the three months ended March 31, 2024. The higher revenue in the three months ended March 31, 2025 compared to 2024 is due to $5.9 million of higher overall Cloud and Edge revenue, partially offset by $4.3 million of lower IP Optical Networks sales. The higher Cloud and Edge revenue was attributable to $8.0 million of higher sales of professional services, primarily to U.S. service providers, partially offset by $2.4 million of lower maintenance revenue. The lower IP Optical Networks revenue was led by fewer sales into Eastern Europe, which were partially offset by growth in India and Southeastern Asia. Revenue from our Cloud and Edge segment was $107.6 million and $101.7 million in the three months ended March 31, 2025 and 2024, respectively. Gross profit and gross margin for this segment were $66.1 million and 61.5%, respectively, in the three months ended March 31, 2025, and $64.4 million and 63.4%, respectively, in the three months ended March 31, 2024. Revenue from our IP Optical Networks segment was $73.7 million and $78.0 million in the three months ended March 31, 2025 and 2024, respectively. Gross profit and gross margin for this segment were $16.2 million and 22.0%, respectively, in the three months ended March 31, 2025, and $27.5 million and 35.3%, respectively, in the three months ended March 31, 2024. Our operating expenses were $102.0 million and $105.4 million in the three months ended March 31, 2025 and 2024, respectively. The decreased operating expenses in the three months ended March 31, 2025 compared to 2024 are primarily related to lower sales and marketing, and research and development (“R&D”) expenses, partially offset by higher restructuring related expenses. Operating expenses for the three months ended March 31, 2025 included $6.2 million of amortization of acquired intangible assets, and $5.3 million of restructuring and related expense. Operating 37 Table of Contents 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. We recorded stock-based compensation expense of $4.3 million and $4.5 million in the three months ended March 31, 2025 and 2024, 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 three months ended March 31, 2025 compared to three months ended March 31, 2024. Restructuring and Cost Reduction Initiatives During the first quarter of 2025, our President and CEO approved a strategic restructuring program (the "2025 Restructuring Plan") that consists of workforce reductions in certain of our operating locations to correspond with current sales levels in those areas. Any potential positions eliminated in countries outside the United States are subject to local law and consultation requirements. In connection with the 2025 Restructuring Plan, we recorded restructuring and related expense of $2.4 million in the three months ended March 31, 2025. We anticipate that we will record nominal future expense in connection with the 2025 Restructuring Plan. In February 2023, our Board of Directors approved a strategic restructuring program (the "2023 Restructuring Plan") to streamline our operations in order to support our investment in critical growth areas. The 2023 Restructuring Plan 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. In connection with the 2023 Restructuring Plan, we recorded restructuring and related expense for severance related costs of $0.1 million and $1.6 million in the three months ended March 31, 2025 and 2024, respectively. We anticipate that we will record nominal future expense for severance in connection with the 2023 Restructuring Plan. In February 2022, our Board of Directors approved a strategic restructuring program (the "2022 Restructuring Plan") to streamline our operations in order to support our investment in critical growth areas. The 2022 Restructuring Plan includes, among other things, charges related to a consolidation of facilities and a workforce reduction. Any positions eliminated in countries outside the United States are subject to local law and consultation requirements. In connection with the 2022 Restructuring Plan, we recorded restructuring and related expense of $3.1 million and $1.4 million in the three months ended March 31, 2025 and 2024, respectively, for variable and other facilities-related costs. We anticipate that we will record approximately $2 million of expense in the remainder of 2025 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, 2025 or 2024. We continue to evaluate our properties included in our restructuring plans for accelerated amortization and/or right-of-use asset impairment. We may incur additional expense in the future if we are unable to sublease other locations included in these initiatives. Critical Accounting Policies and Estimates This MD&A is based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We base our estimates and judgments on historical experience, knowledge of current conditions and beliefs of what could occur in the future given available information. We consider certain accounting policies to be both those most important to the portrayal of our financial condition and those that require the most subjective judgment. The significant accounting policies that we believe are the most critical include revenue recognition, the valuation of inventory, warranty accruals, loss contingencies and reserves, stock-based compensation, the Preferred Stock and Warrants, business combinations, goodwill and intangible assets, 38 Table of Contents accounting for leases, and accounting for income taxes. If actual results differ significantly from management’s estimates and projections, there could be a material effect on our condensed consolidated financial statements. There were no significant changes to our critical accounting policies from January 1, 2025 through March 31, 2025. 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, 2024. Results of Operations Three months ended March 31, 2025 and 2024 Revenue. Revenue for the three months ended March 31, 2025 and 2024 was as follows (in thousands, except percentages): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Increase/(decrease) ​ ​ Three months ended ​ from prior year ​ ​ ​ March 31, ​ March 31, ​ ​ ​ ​ ​ ​ ​ 2025 2024 $ % Product ​ $ 81,991 ​ $ 87,610 ​ $ (5,619) ​ (6.4) % Service ​ 99,288 ​ 92,054 ​ 7,234 ​ 7.9 % Total revenue ​ $ 181,279 ​ $ 179,664 ​ $ 1,615 ​ 0.9 % ​ Segment revenue for the three months ended March 31, 2025 and 2024 was as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended March 31, 2025 Three months ended March 31, 2024 ​ ​ Cloud and ​ IP Optical ​ ​ ​ ​ Cloud and ​ IP Optical ​ ​ ​ ​ Edge Networks Total Edge Networks Total Product ​ $ 31,861 ​ $ 50,130 ​ $ 81,991 ​ $ 31,513 ​ $ 56,097 ​ $ 87,610 Service ​ 75,730 ​ 23,558 ​ 99,288 ​ 70,156 ​ 21,898 ​ 92,054 Total revenue ​ $ 107,591 ​ $ 73,688 ​ $ 181,279 ​ $ 101,669 ​ $ 77,995 ​ $ 179,664 ​ The decrease in our product revenue in the three months ended March 31, 2025 compared to the three months ended March 31, 2024 was the result of $6 million of lower sales of our IP Optical Networks products, partially offset by a slight increase in sales of Cloud and Edge products. The decrease in revenue from the sale of IP Optical products was primarily attributable to lower sales in Eastern Europe, partially offset by higher sales in India. Revenue from sales to enterprise customers was 28% and 43% of our product revenue in the three months ended March 31, 2025 and 2024, respectively. These sales were made through both our direct sales team and indirect sales channel partners. The decrease in enterprise sales reflects lower sales of our products to Federal agencies and other enterprise customers. Revenue from indirect sales through our channel partner program was 28% and 52% of our product revenue in the three months ended March 31, 2025 and 2024, respectively. The decrease in channel sales in the three months ended March 31, 2025 reflects lower sales of products to Federal agencies and other enterprise customers. 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 software and hardware maintenance and support (“maintenance revenue”) and network design, installation and other professional services (“professional services revenue”). ​ 39 Table of Contents Service revenue for the three months ended March 31, 2025 and 2024 was comprised of the following (in thousands, except percentages): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Increase/(decrease) ​ ​ ​ Three months ended ​ from prior year ​ ​ ​ March 31, ​ March 31, ​ ​ ​ ​ ​ ​ ​ 2025 2024 $ % Maintenance ​ $ 66,422 ​ $ 68,381 ​ $ (1,959) ​ (2.9) % Professional services ​ 32,866 ​ 23,673 ​ 9,193 ​ 38.8 % Total service revenue ​ $ 99,288 ​ $ 92,054 ​ $ 7,234 ​ 7.9 % ​ Segment service revenue for the three months ended March 31, 2025 and 2024 was comprised of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended March 31, 2025 Three months ended March 31, 2024 ​ ​ Cloud and ​ IP Optical ​ ​ ​ ​ Cloud and ​ IP Optical ​ ​ ​ ​ ​ Edge Networks Total Edge Networks Total Maintenance ​ $ 50,768 ​ $ 15,654 ​ $ 66,422 ​ $ 53,196 ​ $ 15,185 ​ $ 68,381 Professional services ​ 24,962 ​ 7,904 ​ 32,866 ​ 16,960 ​ 6,713 ​ 23,673 Total service revenue ​ $ 75,730 ​ $ 23,558 ​ $ 99,288 ​ $ 70,156 ​ $ 21,898 ​ $ 92,054 ​ Total service revenue was $7 million higher in the three months ended March 31, 2025 compared to the same period in 2024 due to increased revenue in both of our segments. Total service revenue increased by $5 million and $2 million in our Cloud and Edge and IP Optical Networks segments, respectively. Maintenance revenue was $2 million lower in the three months ended March 31, 2025 compared to the three months ended March 31, 2024 primarily due to modestly lower renewal rates from decommissioning some older legacy equipment with several Cloud & Edge customers. Professional services revenue was $9 million higher in the three months ended March 31, 2025 compared to the same period in 2024, with increases of $8 million and $1 million in our Cloud and Edge and IP Optical Networks segments, respectively. The higher revenue in Cloud and Edge is due to growth in services to U.S. service providers, primarily for voice modernization projects with Verizon. Our IP Optical Networks segment experienced growth of sales of services primarily in the region of Europe, the Middle East and Africa ( “EMEA”). The following customer contributed 10% or more of our revenue in the three months ended March 31, 2025 and 2024: ​ ​ ​ ​ ​ ​ Three months ended ​ March 31, ​ March 31, ​ Customer 2025 2024 Verizon Communications Inc. 15 % * ​ * Less than 10% of total revenue. ​ ​ ​ ​ ​ Revenue earned from customers domiciled outside the United States was 54% and 60% in the three months ended March 31, 2025 and 2024, respectively. Our U.S. revenue is increasing due to higher sales into the U.S. market from both of our segments. Due to the timing of project completions, we expect that the domestic and international components as a percentage of our revenue may fluctuate from quarter to quarter and year to year. Our deferred product revenue was $14 million at March 31, 2025 and December 31, 2024. Our deferred service revenue was $126 million at March 31, 2025 and December 31, 2024. 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. 40 Table of Contents We expect that our total revenue in 2025 will increase compared to our revenue in 2024 due to the growth in the Cloud & Edge segment, particularly with the increased purchases from Verizon as part of a voice modernization project, as well as growth in IP Optical segment sales. From a regional perspective, we anticipate continued IP Optical revenue growth in 2025 from North America, and EMEA, offset by lower revenue in Eastern Europe due to additional trade restrictions. In the Cloud & Edge segment, we expect continued revenue growth from enterprise customers, as well as higher U.S. service provider spending. 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, 2025 and 2024 were as follows (in thousands, except percentages): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Increase/(decrease) ​ Three months ended ​ from prior year ​ ​ ​ March 31, March 31, ​ ​ ​ ​ ​ 2025 ​ 2024 $ % ​ Cost of revenue: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Product ​ $ 57,893 ​ $ 45,794 ​ ​ 12,099 ​ 26.4 % Service ​ 35,628 ​ 35,364 ​ 264 ​ 0.7 % Amortization of acquired technology ​ 5,388 ​ 6,551 ​ (1,163) ​ (17.8) % Total cost of revenue ​ $ 98,909 ​ $ 87,709 ​ 11,200 ​ 12.8 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross profit ​ $ 82,370 ​ $ 91,955 ​ $ (9,585) ​ (10.4) % Gross margin ​ ​ 45.4 % ​ 51.2 % ​ ​ ​ ​ ​ ​ Our segment cost of revenue, gross profit and gross margin for the three months ended March 31, 2025 and 2024 were as follows (in thousands, except percentages): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended March 31, 2025 Three months ended March 31, 2024 ​ ​ Cloud and IP Optical ​ ​ ​ Cloud and IP Optical ​ ​ ​ ​ ​ Edge ​ Networks ​ Total ​ Edge ​ Networks ​ Total Product ​ $ 15,663 ​ $ 42,230 ​ $ 57,893 ​ $ 11,408 ​ $ 34,386 ​ $ 45,794 Service ​ 24,854 ​ 10,774 ​ 35,628 ​ 23,604 ​ 11,760 ​ 35,364 ​ Amortization of acquired technology ​ 948 ​ 4,440 ​ 5,388 ​ 2,227 ​ 4,324 ​ 6,551 ​ Total cost of revenue ​ $ 41,465 ​ $ 57,444 ​ $ 98,909 ​ $ 37,239 ​ $ 50,470 ​ $ 87,709 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross profit ​ $ 66,126 ​ $ 16,244 ​ $ 82,370 ​ $ 64,430 ​ $ 27,525 ​ $ 91,955 ​ Gross margin ​ 61.5 % 22.0 % 45.4 % 63.4 % 35.3 % 51.2 % ​ Our gross margin was lower with a 6% decrease overall in the three months ended March 31, 2025 compared to the three months ended March 31, 2024. This decrease was the result of lower margins in both of our segments. The lower margin in the three months ended March 31, 2025 in our IP Optical segment was due to regional mix primarily related to lower sales in Eastern Europe and higher sales in India. The lower margin in our Cloud and Edge segment was primarily attributable to product mix on sales to service providers and enterprise customers, as well as the effect of higher sales of hardware products and professional services, both of which contribute lower gross margins than our software products. We anticipate a return to more typical margins in the second quarter of 2025, but expect our overall consolidated gross margin to decrease slightly for the full year 2025 compared to 2024 due to higher expected sales in our IP Optical segment, which has lower margins due to the higher hardware content in its products, as well as the higher mix of professional services revenue in our Cloud and Edge segment, which generates lower gross margins than product sales. 41 Table of Contents 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, 2025 and 2024 were as follows (in thousands, except percentages): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Decrease ​ ​ March 31, ​ March 31, ​ from prior year ​ 2025 2024 $ % Three months ended ​ $ 43,568 ​ $ 45,763 ​ $ (2,195) ​ (4.8) % ​ The decrease in our R&D expenses in the three months ended March 31, 2025 compared to the three months ended March 31, 2024 was equally attributable to lower R&D expenses in both of our segments. The reduced R&D expenses are primarily due to lower employee headcount and outside subcontractors. Our IP Optical Networks R&D investment is focused on significantly expanding our portfolio of IP Routing solutions, adding additional features and capabilities to our Optical Transport portfolio, and supporting features in our next generation SDN management and orchestration platform. Some aspects of our R&D efforts require significant short-term expenditures, the timing of which may cause 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 increase modestly in 2025 primarily due to higher employee and consulting costs related to modifying certain legacy products and certain of our cloud native solutions. 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, 2025 and 2024 were as follows (in thousands, except percentages): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Decrease ​ ​ March 31, ​ March 31, ​ from prior year ​ 2025 2024 $ % Three months ended ​ $ 31,788 ​ $ 34,716 ​ $ (2,928) ​ (8.4) % ​ The decrease in sales and marketing expenses in 2025 as compared to 2024 was primarily due to lower employee related costs and agent commissions, partially offset by higher travel expenses. We believe our sales and marketing expenses will be relatively flat in 2025 as compared to 2024. General and Administrative Expenses. 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, 2025 and 2024 were as follows (in thousands, except percentages): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Decrease ​ ​ March 31, ​ March 31, ​ from prior year ​ ​ 2025 2024 $ % ​ Three months ended ​ $ 15,128 ​ $ 15,191 ​ $ (63) ​ (0.4) % ​ General and administrative expenses in the three months ended March 31, 2025 were relatively flat compared to the three months ended March 31, 2024. We believe that our general and administrative expenses in 2025 will decrease compared to our 2024 levels, primarily due to lower litigation expenses, partially offset by higher employee costs related to annual merit increases. 42 Table of Contents 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, 2025 and 2024 was as follows (in thousands, except percentages): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Decrease ​ ​ March 31, ​ March 31, ​ from prior year ​ ​ 2025 2024 $ % Three months ended ​ $ 6,155 ​ $ 6,706 ​ $ (551) ​ (8.2) % ​ Opex Amortization was lower for the three months ended March 31, 2025 compared to the three months ended March 31, 2024. We record our amortization in relation to expected future cash flows rather than on a straight-line basis. Accordingly, such expense may vary from one period to the next. Restructuring and Related. We have been committed to streamlining our operations and reducing operating costs by closing and consolidating certain facilities and reducing our worldwide workforce. Please see the additional discussion of our restructuring initiatives in the "Restructuring and Cost Reduction Initiatives" section of the Overview of this MD&A. We recorded restructuring and related expense of $5.3 million and $3.1 million in the three months ended March 31, 2025 and 2024, 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, 2025 and 2024 were as follows (in thousands, except percentages): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Increase ​ ​ Three months ended ​ from prior year ​ ​ March 31, 2025 March 31, 2024 $ % Interest income ​ $ 258 ​ $ 106 ​ $ 152 ​ 143.4 % Interest expense ​ (10,758) ​ (6,093) ​ $ 4,665 ​ 76.6 % Interest expense, net ​ $ (10,500) ​ $ (5,987) ​ $ 4,513 ​ 75.4 % ​ We had nominal interest income in 2025 and 2024. Our interest expense in the three months ended March 31, 2025 and 2024 primarily represents interest and amortization of debt issuance costs and original issue discount. Our interest expense in the three months ended March 31, 2024 primarily represents interest, amortization of debt issuance costs, and the amortization of gains in accumulated other comprehensive (loss) income (“AOCI”) from the sales of our interest rate swap. Interest expense in the three months ended March 31, 2025 was higher than the three months ended March 31, 2024 primarily due to higher margins under our 2024 Term Loan compared to our 2020 Term Loan, both as defined below, as well as the lack of amortization of gains in AOCI in 2025 from the sales of our interest rate swap. These gains were fully written off upon the refinancing of the 2020 Term Loan on June 21, 2024. Other (Expense) Income, Net . We recorded other income, net of $3.1 million, and other expense, net of $7.5 million in the three months ended March 31, 2025 and 2024, respectively. Other income in the three months ended March 31, 2025 was primarily comprised of $1.7 million of the fair value adjustment of our Warrants, and foreign currency exchange gains of $1.3 million. 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. Income Taxes. We recorded income tax benefits (provisions) of $0.8 million and $(3.4) million in the three months ended March 31, 2025 and 2024, respectively. For the three months ended March 31, 2025, the tax benefit included a release of an uncertain tax position of $3.7 million (inclusive of accrued penalties and interest) that was effectively settled upon closure of an audit during the quarter. 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. These estimates are reevaluated each quarter based on our estimated tax rate for the full year. The estimated effective tax rate includes the impact of valuation allowances in various jurisdictions. We intend to continue to maintain 43 Table of Contents a valuation allowance on our deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of the respective allowances. In October 2021, the Organization for Economic Co-operation and Development (the "OECD") announced the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting, which agreed to a two-pillar solution to address tax challenges arising from digitalization of the economy. In December 2021, the OECD released Pillar Two Model Rules defining the global minimum tax rules, which contemplate a minimum tax rate of 15% (“Pillar Two”). In addition, the OECD issued administrative guidance providing transition and safe harbor rules that could delay the impact of the minimum tax directive. Certain countries in which we operate have enacted legislation consistent with the OECD model rules effective beginning in 2024. We considered the applicable tax laws in relevant jurisdictions and concluded there was no material effect on our tax provision for the three months ended March 31, 2025. We will continue to evaluate the potential effect of Pillar Two rules on our future reporting periods, but we do not expect Pillar Two to have a significant impact on our results of operations, financial position, or cash flows. Off-Balance Sheet Arrangements We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial position, changes in financial position, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. Liquidity and Capital Resources Our condensed consolidated statements of cash flows are summarized as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended ​ ​ ​ March 31, ​ March 31, ​ ​ ​ ​ ​ 2025 2024 Change Net loss ​ $ (26,227) ​ $ (30,361) ​ $ 4,134 ​ Adjustments to reconcile net loss to cash flows (used in) provided by operating activities ​ 12,320 ​ 22,156 ​ (9,836) Changes in operating assets and liabilities ​ 10,372 ​ 21,305 ​ (10,933) Net cash (used in) provided by operating activities ​ $ (3,535) ​ $ 13,100 ​ $ (16,635) ​ Net cash used in investing activities ​ $ (12,149) ​ $ (2,663) ​ $ (9,486) ​ Net cash used in financing activities ​ $ (1,812) ​ $ (5,843) ​ $ 4,031 ​ ​ We had cash, cash equivalents, and restricted cash aggregating $74 million and $90 million at March 31, 2025 and December 31, 2024, respectively. We had cash held by our non-U.S. subsidiaries aggregating $18 million at March 31, 2025 and December 31, 2024. If we elect to repatriate all of the funds held by our non-U.S. subsidiaries as of March 31, 2025, 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 Credit Agreement (the “2024 Credit Facility” or “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 provided us with a $385 million Credit Agreement 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. Excess proceeds are being 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 44 Table of Contents in the 2024 Credit Facility). Margins for the first six months were 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 being 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 $6.3 million of debt issuance costs for a total of $14.0 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, ("2020 Credit Facility 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. We entered into the Sixth Amendment to the 2020 Credit Facility (the “Sixth Amendment”) effective March 30, 2023. Among other things, the Sixth Amendment reduced the maximum borrowings allowed under the 2020 Revolving Credit Facility from $100 million to $75 million and the sublimit available for letters of credit was reduced from $30 million to $20 million. Also, the Sixth Amendment replaced LIBOR with the SOFR as the alternative rate available to us for calculating interest owed under the 2020 Credit Facility with the margin fixed at 4.5%. In conjunction with the Sixth Amendment, we made a $75 million prepayment to our 2020 Credit Facility funded almost entirely from 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 were being amortized on a straight-line basis over the remaining life of the 2020 Credit Facility to Interest expense, net and were written off in conjunction with the early extinguishment of the 2020 Credit Facility on June 21, 2024. Quarterly 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 March 31, 2025, we had an outstanding balance under the 2024 Term Loan of $347.4 million at an average interest rate of 10.6%, with no revolver balance and no letters of credit outstanding under our 2024 Credit Facility. We were in compliance with all covenants of the 2024 Credit Facility at both March 31, 2025 and December 31, 2024. In the course of our business, we use letters of credit, bank guarantees, and surety bonds (collectively, "Guarantees"). We had $10.9 million of Guarantees under various uncommitted facilities as of both March 31, 2025 and December 31, 2024. We had no letters of credit outstanding under the 2024 Credit Facility as of March 31, 2025 or December 31, 2024. At March 31, 2025 and December 31, 2024, we had cash collateral of $2.6 million and $2.7 million supporting the Guarantees, respectively, which are reported as 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. These exposures are actively monitored by management. To manage the volatility related to the exposure to changes in interest rates, we may enter into a derivative financial instrument. Management’s objective has been to reduce, where it is deemed appropriate to do so, fluctuations in earnings and cash flows associated with changes in interest rates. Our policies and practices are to use derivative financial instruments only to the extent necessary to manage exposures. We do not hold or issue derivative financial instruments for trading or speculative purposes. As a result of exposure to interest rate movements, we entered into an interest rate swap arrangement in March 2020 which effectively converted our $400 million term loan with its variable interest rate based upon one-month LIBOR to an aggregate fixed rate of 0.904%, plus a leverage-based margin as defined in the 2020 Credit Facility. 45 Table of Contents In two separate transactions during 2022, we sold a total of $60 million of the notional amount of our interest rate swap back to our counterparty for $3.1 million, reducing the notional amount of this swap to $340 million. The gain in Accumulated other comprehensive (loss) income related to these sales totaled $3.1 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, the amortization of which totaled $0.2 million in the three months ended March 31, 2024. 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. In two separate transactions in 2023, we received a total of $19.2 million, consisting of $0.8 million of interest and $18.4 million for the sale of the remaining $340 million notional amount of our swap. 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 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 $1.6 million for the three months ended March 31, 2024. 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. To accomplish these objectives, we have used an interest rate swap as part of our interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for making fixed-rate payments over the life of an agreement without exchange of the underlying notional amount. The effective portion of changes in the fair value of designated derivatives that qualify as cash flow hedges is recorded in Accumulated other comprehensive income in the condensed consolidated balance sheet and is subsequently reclassified into earnings in the period that the hedged forecasted transactions affect earnings. 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. We had no derivative assets or liabilities at March 31, 2025 or December 31, 2024. Cash Flows from Operating Activities Our primary source of cash from operating activities has been from cash collections from our customers. We expect cash flows from operating activities to be affected by increases and decreases in sales volumes and timing of collections, and by purchases and shipments of inventory. 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. We used $3.5 million of cash for operating activities in the three months ended March 31, 2025, largely driven by the payment of variable employee compensation and primarily as a result of our net loss adjusted for non-cash expenses, lower accrued expenses and other long-term liabilities, lower accounts payable, and higher other operating assets and inventory. These amounts were partially offset by lower accounts receivable. Our net loss is adjusted for non-cash expenses such as amortization of intangible assets, stock-based compensation, the decrease in the fair value of our Warrant liability and deferred income tax expense. Cash provided by operating activities in the three months ended March 31, 2024 of $13.1 million was primarily a result of 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, continued to positively affect our operating cash flow. 46 Table of Contents Cash Flows from Investing Activities Our investing activities used $12.1 million and $2.7 million of cash to purchase property and equipment and software licenses in the three months ended March 31, 2025 and 2024, respectively. The increase is primarily due to our build out of a new facility in Israel. Cash Flows from Financing Activities Our financing activities used $1.8 million of cash in the three months ended March 31, 2025. We paid $0.9 million in principal payments on our 2024 Term Debt. In addition, we paid $0.9 million of tax obligations related to the vesting of stock awards and units. 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. The rate at which we consume cash is dependent upon the cash needs of our future operations, including our contractual obligations at March 31, 2025, primarily comprised of our debt principal and interest obligations as described above, and our operating lease and purchase obligations. Our operating lease obligations totaled $100.7 million at March 31, 2025, with payments to be made aggregating $12.3 million in the remainder of 2025, $16.0 million in 2026, $14.8 million in 2027 and $57.6 million thereafter. Estimated payments for purchase obligations for the full year 2025 total approximately $96.2 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. We believe that our financial resources, along with managing discretionary expenses, will allow us to manage the ongoing impact of inflation on our business operations. Looking ahead, we have developed contingency plans to reduce costs further if the situation deteriorates. Based on our current expectations, we believe that our current cash balances 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 November 2024, the Financial Accounting Standards Board (the "FASB") issued ASU 2024-03, Income Statement, Reporting Comprehensive Income: Expense Disaggregation Disclosures (Subtopic 220-40) (“ASU 2024-03”), which requires disaggregation of certain expense captions into specified categories in disclosures within the footnotes to the financial statements. The objective of this standard is to provide investors with information to better understand a public entity’s performance and prospects for future cash flows, and to compare its performance over time with that of other entities. ASU 2024-03 will be effective for us beginning with our 2027 annual financial statements and interim financial statements thereafter, with early adoption permitted. The adoption of ASU 2024-03 will require us to provide new footnote disclosure about the types of expenses that are included in certain captions on our Statements of Operations, such as Cost of revenue, Research and development, Sales and marketing, and General and administrative. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”), which increases the disclosure requirements around rate reconciliation information and certain types of income taxes companies are required to pay. ASU 2023-09 will be effective for us beginning with our 2025 annual financial statements, with early adoption permitted. We expect the adoption of the standard will require certain additional income tax disclosure. ​ ​ 47 Table of Contents Item 3. Quantitative and Qualitative Disclosures About Market Risk We are exposed to market risk related to changes in interest rates and foreign currency exchange rates. There have been no material changes in market risk from the information provided in Item 7A. Quantitative and Qualitative Disclosures About Market Risk of our Annual Report on Form 10-K, for the year ended December 31, 2024.