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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    For the transition period from to
Commission File Number 001-38267
RIBBON COMMUNICATIONS INC.
(Exact name of Registrant as specified in its charter)
Delaware82-1669692
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification No.)

6500 Chase Oaks Boulevard, Suite 100, Plano, Texas 75023
(Address of principal executive offices) (Zip code)
(978614-8100
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.0001RBBNThe Nasdaq Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x    No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x    No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filerNon-accelerated filer
Smaller reporting companyEmerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act) o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐    No x
As of October 21, 2022, there were 168,123,073 shares of the registrant's common stock, $0.0001 par value per share, outstanding.



RIBBON COMMUNICATIONS INC.
FORM 10-Q
QUARTERLY PERIOD ENDED SEPTEMBER 30, 2022
TABLE OF CONTENTS
ItemPage
PART I FINANCIAL INFORMATION
1.
PART II OTHER INFORMATION



Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, which are subject to a number of risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future expenses, results of operations and financial position, integration activities, capital structure, credit facility compliance, restructuring activities, expected impacts from the war in Ukraine and the financial sanctions imposed in connection therewith, expected impacts of the ongoing COVID-19 pandemic, beliefs about our business strategy, availability of components for the manufacturing of our products, expected benefits from our acquisition of ECI Telecom Group Ltd. ("ECI"), ongoing litigation, plans and objectives of management for future operations and manufacturing are forward-looking statements. Without limiting the foregoing, the words "anticipates", "believes", "could", "estimates", "expects", "intends", "may", "plans", "seeks" and other similar language, whether in the negative or affirmative, are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are unknown and/or difficult to predict and that may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements. Such risks and uncertainties include, but are not limited to, supply chain disruptions resulting from component availability and/or geopolitical instabilities and disputes (including those related to the war in Ukraine); litigation; risks related to the ongoing COVID-19 pandemic on the global economy and financial markets as well as us, our customers and suppliers, which may impact our sales, gross margin, customer demand and our ability to supply our products to our customers; failure to realize anticipated benefits of our acquisition of ECI; unpredictable fluctuations in quarterly revenue and operating results; the impact on fluctuations of our EBITDA on compliance under our credit facility; risks related to cybersecurity and data intrusion; failure to compete successfully against telecommunications equipment and networking companies; failure to grow our customer base or generate recurring business from our existing customers; credit risks; the timing of customer purchasing decisions and our recognition of revenues; macroeconomic conditions, including inflation; the impact of restructuring and cost-containment activities; rapid technological and market change; our ability to protect our intellectual property rights and obtain necessary licenses; our ability to maintain partner, reseller, distribution and vendor support and supply relationships; the potential for defects in our products; risks related to the terms of our credit agreement; higher risks in international operations and markets; increases in tariffs, trade restrictions or taxes on our products; currency fluctuations; and/or failure or circumvention of our controls and procedures. We therefore caution you against relying on any of these forward-looking statements.

Additional important factors that could cause actual results to differ materially from those in these forward-looking statements are also discussed in Part I, Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Part I, Item 1A and Part II, Item 7A, "Risk Factors" and "Quantitative and Qualitative Disclosures About Market Risk," respectively, of our Annual Report on Form 10-K for the year ended December 31, 2021. Any forward-looking statement made by us in this Quarterly Report on Form 10-Q speaks only as of the date on which this Quarterly Report on Form 10-Q was first filed. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise.


3


PART I FINANCIAL INFORMATION

Item 1. Financial Statements
RIBBON COMMUNICATIONS INC.
Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)
(unaudited)
September 30,
2022
December 31,
2021
Assets
Current assets:
Cash and cash equivalents$55,670 $103,915 
Restricted cash265 2,570 
Accounts receivable, net237,834 282,917 
Inventory70,286 54,043 
Other current assets58,344 37,545 
Total current assets422,399 480,990 
Property and equipment, net46,166 47,685 
Intangible assets, net309,697 350,730 
Goodwill300,892 300,892 
Investments 43,931 
Deferred income taxes57,273 47,287 
Operating lease right-of-use assets48,079 53,147 
Other assets40,129 23,075 
$1,224,635 $1,347,737 
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of term debt$20,058 $20,058 
Accounts payable73,018 97,121 
Accrued expenses and other99,261 100,752 
Operating lease liabilities15,617 17,403 
Deferred revenue90,139 109,119 
Total current liabilities298,093 344,453 
Long-term debt, net of current310,770 350,217 
Operating lease liabilities, net of current49,137 55,196 
Deferred revenue, net of current22,185 20,619 
Deferred income taxes11,679 8,116 
Other long-term liabilities43,602 41,970 
Total liabilities735,466 820,571 
Commitments and contingencies (Note 17)
Stockholders' equity:
Preferred stock, $0.01 par value per share; 10,000,000 shares authorized, none issued and outstanding
  
Common stock, $0.0001 par value per share; 240,000,000 shares authorized; 168,093,446 shares issued and outstanding at September 30, 2022; 148,895,308 shares issued and outstanding at December 31, 2021
17 15 
Additional paid-in capital1,936,457 1,875,234 
Accumulated deficit(1,474,232)(1,355,661)
Accumulated other comprehensive income26,927 7,578 
Total stockholders' equity489,169 527,166 
$1,224,635 $1,347,737 

See notes to the unaudited condensed consolidated financial statements.

4


RIBBON COMMUNICATIONS INC.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)

 Three months endedNine months ended
 September 30,
2022
September 30,
2021
September 30,
2022
September 30,
2021
Revenue:
Product$111,152 $111,726 $305,809 $322,744 
Service95,975 98,672 280,312 291,636 
Total revenue207,127 210,398 586,121 614,380 
Cost of revenue:
Product59,866 53,494 169,226 144,580 
Service35,175 36,576 106,049 110,498 
Amortization of acquired technology7,768 9,674 23,923 29,435 
Total cost of revenue102,809 99,744 299,198 284,513 
Gross profit104,318 110,654 286,923 329,867 
Operating expenses:
Research and development49,366 49,132 153,159 143,339 
Sales and marketing36,365 36,113 109,827 108,212 
General and administrative12,118 12,148 37,881 40,435 
Amortization of acquired intangible assets7,508 7,547 22,296 20,790 
Acquisition-, disposal- and integration-related988 1,955 4,372 4,204 
Restructuring and related1,269 1,767 8,977 10,547 
Total operating expenses107,614 108,662 336,512 327,527 
(Loss) income from operations(3,296)1,992 (49,589)2,340 
Interest expense, net(5,266)(2,969)(13,869)(11,836)
Other expense, net(3,732)(57,702)(42,760)(65,970)
Loss before income taxes(12,294)(58,679)(106,218)(75,466)
Income tax provision(6,122)(752)(12,353)(5,411)
Net loss$(18,416)$(59,431)$(118,571)$(80,877)
Loss per share:
Basic$(0.12)$(0.40)$(0.78)$(0.55)
Diluted$(0.12)$(0.40)$(0.78)$(0.55)
Weighted average shares used to compute loss per share:
Basic158,921 148,184 152,795 147,204 
Diluted158,921 148,184 152,795 147,204 

See notes to the unaudited condensed consolidated financial statements.

5


RIBBON COMMUNICATIONS INC.
Condensed Consolidated Statements of Comprehensive Loss
(in thousands)
(unaudited)


Three months endedNine months ended
September 30,
2022
September 30,
2021
September 30,
2022
September 30,
2021
Net loss$(18,416)$(59,431)$(118,571)$(80,877)
Other comprehensive income (loss), net of tax:
Unrealized gain on interest rate swap1,726 860 21,248 7,324 
Foreign currency translation adjustments(144)193 (1,157)(207)
Employee retirement benefits142  (742) 
Other comprehensive income, net of tax1,724 1,053 19,349 7,117 
Comprehensive loss, net of tax$(16,692)$(58,378)$(99,222)$(73,760)

See notes to the unaudited condensed consolidated financial statements.


6


RIBBON COMMUNICATIONS INC.
Condensed Consolidated Statements of Stockholders' Equity
(in thousands, except shares)
(unaudited)

Three months ended September 30, 2022
Accumulated
AdditionalotherTotal
Common stockpaid-inAccumulatedcomprehensivestockholders'
SharesAmountcapitaldeficitincomeequity
Balance at July 1, 2022150,459,784 $15 $1,881,942 $(1,455,816)$25,203 $451,344 
Exercise of stock options353 1 1 
Vesting of restricted stock units800,999 — 
Vesting of performance-based stock units3,433 — 
Shares of restricted stock returned to the Company under net share settlements to satisfy tax withholding obligations(242,434)(738)(738)
Common stock issued in equity offering17,071,311 2 52,065 52,067 
Issuance costs related to equity offering(1,654)(1,654)
Stock-based compensation expense4,841 4,841 
Other comprehensive income1,724 1,724 
Net loss(18,416)(18,416)
Balance at September 30, 2022168,093,446 $17 $1,936,457 $(1,474,232)$26,927 $489,169 


Nine months ended September 30, 2022
Accumulated
AdditionalotherTotal
Common stockpaid-inAccumulatedcomprehensivestockholders'
SharesAmountcapitaldeficitincomeequity
Balance at January 1, 2022148,895,308 $15 $1,875,234 $(1,355,661)$7,578 $527,166 
Exercise of stock options708 1 1 
Vesting of restricted stock units2,808,137 — 
Vesting of performance-based stock units179,184 — 
Shares of restricted stock returned to the Company under net share settlements to satisfy tax withholding obligations(861,202)(2,684)(2,684)
Common stock issued in equity offering17,071,311 2 52,065 52,067 
Issuance costs related to equity offering(1,654)(1,654)
Stock-based compensation expense13,495 13,495 
Other comprehensive income19,349 19,349 
Net loss(118,571)(118,571)
Balance at September 30, 2022168,093,446 $17 $1,936,457 $(1,474,232)$26,927 $489,169 

See notes to the unaudited condensed consolidated financial statements.
7


RIBBON COMMUNICATIONS INC.
Condensed Consolidated Statements of Stockholders' Equity
(in thousands, except shares)
(unaudited)

Three months ended September 30, 2021
Accumulated
AdditionalotherTotal
Common stockpaid-inAccumulatedcomprehensivestockholders'
SharesAmountcapitaldeficitincomeequity
Balance at July 1, 2021148,057,301 $15 $1,868,066 $(1,199,922)$1,122 $669,281 
Exercise of stock options213 — 
Vesting of restricted stock awards and units855,440 — 
Shares of restricted stock returned to the Company under net share settlements to satisfy tax withholding obligations(299,125)(1,916)(1,916)
Stock-based compensation expense4,561 4,561 
Other comprehensive income1,053 1,053 
Net loss(59,431)(59,431)
Balance at September 30, 2021148,613,829 $15 $1,870,711 $(1,259,353)$2,175 $613,548 


Nine months ended September 30, 2021
Accumulated
AdditionalotherTotal
Common stockpaid-inAccumulatedcomprehensivestockholders'
SharesAmountcapitaldeficit(loss) incomeequity
Balance at January 1, 2021145,425,248 $15 $1,870,256 $(1,178,476)$(4,942)$686,853 
Exercise of stock options13,815 24 24 
Vesting of restricted stock awards and units3,320,644 — 
Vesting of performance-based stock units1,525,681 — 
Shares of restricted stock returned to the Company under net share settlements to satisfy tax withholding obligations(1,671,559)(13,980)(13,980)
Stock-based compensation expense14,411 14,411 
Other comprehensive income7,117 7,117 
Net loss(80,877)(80,877)
Balance at September 30, 2021148,613,829 $15 $1,870,711 $(1,259,353)$2,175 $613,548 

See notes to the unaudited condensed consolidated financial statements.

8



RIBBON COMMUNICATIONS INC.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Nine months ended
September 30,
2022
September 30,
2021
Cash flows from operating activities:
Net loss$(118,571)$(80,877)
Adjustments to reconcile net loss to cash flows (used in) provided by operating activities:
Depreciation and amortization of property and equipment11,688 12,684 
Amortization of intangible assets46,219 50,225 
Amortization of debt issuance costs1,697 4,227 
Stock-based compensation13,495 14,411 
Deferred income taxes(19,071)(3,295)
Gain on sale of business (2,772)
Decrease in fair value of investments41,291 64,745 
Foreign currency exchange losses830 3,235 
Changes in operating assets and liabilities:
Accounts receivable44,604 1,892 
Inventory(24,002)253 
Other operating assets6,066 11,303 
Accounts payable(22,311)2,194 
Accrued expenses and other long-term liabilities(6,983)(58,661)
Deferred revenue(17,414)(11,665)
Net cash (used in) provided by operating activities(42,462)7,899 
Cash flows from investing activities:
Purchases of property and equipment(9,744)(14,279)
Purchases of software licenses(3,300) 
Proceeds from sale of business 2,944 
Net cash used in investing activities(13,044)(11,335)
Cash flows from financing activities:
Borrowings under revolving line of credit58,625  
Principal payments on revolving line of credit(58,625) 
Proceeds from issuance of term debt 74,625 
Principal payments of term debt(40,044)(87,161)
Principal payments of finance leases(433)(736)
Payment of debt issuance costs(1,046)(789)
Proceeds from equity offering52,067  
Payment of equity offering issuance costs(1,654) 
Proceeds from the exercise of stock options1 24 
Payment of tax withholding obligations related to net share settlements of restricted stock awards(2,684)(13,980)
Net cash provided by (used in) financing activities6,207 (28,017)
Effect of exchange rate changes on cash, cash equivalents and restricted cash(1,251)(489)
Net decrease in cash, cash equivalents and restricted cash(50,550)(31,942)
Cash, cash equivalents and restricted cash, beginning of year106,485 135,697 
Cash, cash equivalents and restricted cash, end of period$55,935 $103,755 
9



RIBBON COMMUNICATIONS INC.
Condensed Consolidated Statements of Cash Flows (continued)
(in thousands)
(unaudited)

Nine months ended
September 30,
2022
September 30,
2021
Supplemental disclosure of cash flow information:
Interest paid$13,179 $11,410 
Income taxes paid$14,653 $11,944 
Income tax refunds received$643 $983 
Supplemental disclosure of non-cash investing activities:
  Capital expenditures incurred, but not yet paid$989 $1,807 
Software license acquired through investment disposal$1,886 $ 
Supplemental disclosure of non-cash financing activities:
Total fair value of restricted stock awards, restricted stock units and performance-based stock units on date vested$9,092 $38,879 

See notes to the unaudited condensed consolidated financial statements.

10


RIBBON COMMUNICATIONS INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)

(1) BASIS OF PRESENTATION

Business

Ribbon Communications Inc. ("Ribbon" or the "Company") is a leading global provider of communications technology to service providers and enterprises. The Company provides 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 consumer and for small, medium and large enterprises, and industry verticals such as finance, education, government, utilities and transportation. Ribbon's 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. The Company is headquartered in Plano, Texas, and has a global presence with research and development or sales and support locations in over thirty-five countries around the world.

Basis of Presentation

In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting only of normal recurring items, necessary for their fair presentation with accounting principles generally accepted in the United States of America ("GAAP") and with the rules and regulations of the U.S. Securities and Exchange Commission ("SEC").

Interim results are not necessarily indicative of results for a full year or any future interim period. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2021 (the "Annual Report"), which was filed with the SEC on March 11, 2022.

Equity Offering

On August 12, 2022, the Company entered into a Securities Purchase Agreement with certain investors for the sale (the "Equity Offering") in a private placement by the Company of 17,071,311 shares (the "Shares") of the Company’s common stock, par value $0.0001 per share, at a price of $3.05 per share. The aggregate gross proceeds from the Equity Offering were approximately $52.1 million, before deducting offering expenses paid by the Company of approximately $1.7 million. The Company intends to use the net proceeds from the Equity Offering to fund general corporate purposes, including capital expenditures, working capital and repayment of debt.

The original issuance of the Shares in the Equity Offering was exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”). The Company subsequently filed a registration statement on Form S-3 (the “Registration Statement”) with the SEC registering the Shares, which Registration Statement was declared effective by the SEC on September 23, 2022.

Operating Segments

The Company's chief operating decision maker (the "CODM") is its President and Chief Executive Officer. The CODM assesses the Company's performance based on the performance of two separate organizations within Ribbon: the Cloud and Edge segment ("Cloud and Edge") and the IP Optical Networks segment ("IP Optical Networks").

Reclassifications

In the fourth quarter of 2021, the Company reclassified amounts recorded for amortization of certain acquired intangible assets in prior presentations from Total operating expenses under the caption "Amortization of acquired intangible assets" to Cost of revenue under the caption "Amortization of acquired technology" in the condensed consolidated statements of operations. The Company's management believes this presentation aids in the comparability of its financial statements to industry peers. This reclassification did not impact the condensed consolidated balance sheets or statements of cash flows for any historical periods. The Company reports depreciation of property and equipment related to production activities as components of Cost of revenue. This reclassification for the three and nine months ended September 30, 2021 was as follows
11


RIBBON COMMUNICATIONS INC.
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)
(in thousands):

Three months ended September 30, 2021Nine months ended September 30, 2021
Prior presentationAmounts reclassifiedRevised presentationPrior presentationAmounts reclassifiedRevised presentation
Product revenue$111,726 $111,726 $322,744 $322,744 
Service revenue98,672 98,672 291,636 291,636 
  Total revenue210,398  210,398 614,380  614,380 
Cost of revenue - product53,494 53,494 144,580 144,580 
Cost of revenue - service36,576 36,576 110,498 110,498 
Amortization of acquired technology 9,674 9,674  29,435 29,435 
  Total cost of revenue90,070 9,674 99,744 255,078 29,435 284,513 
    Total gross profit120,328 (9,674)110,654 359,302 (29,435)329,867 
Research and development49,132 49,132 143,339 143,339 
Sales and marketing36,113 36,113 108,212 108,212 
General and administrative12,148 12,148 40,435 40,435 
Amortization of acquired intangible assets17,221 (9,674)7,547 50,225 (29,435)20,790 
Acquisition-, disposal- and integration-related1,955 1,955 4,204 4,204 
Restructuring and related1,767 1,767 10,547 10,547 
  Total operating expenses118,336 (9,674)108,662 356,962 (29,435)327,527 
Income from operations$1,992 $ $1,992 $2,340 $ $2,340 

Significant Accounting Policies

The Company's significant accounting policies are disclosed in Note 2 to the Consolidated Financial Statements included in the Annual Report. There were no material changes to the significant accounting policies during the three months ended September 30, 2022.

Principles of Consolidation

The condensed consolidated financial statements include the accounts of Ribbon and its wholly-owned subsidiaries. Intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates and Judgments

The preparation of financial statements in conformity with GAAP requires Ribbon to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Significant estimates and judgments relied upon in preparing these condensed consolidated financial statements include accounting for business combinations, revenue recognition for multiple element arrangements, inventory valuations, assumptions used to determine the fair value of stock-based compensation, intangible asset and goodwill valuations, including impairments, legal contingencies and recoverability of Ribbon's net deferred tax assets and the related valuation allowances. Ribbon regularly assesses these estimates and records changes in estimates in the period in which they become known. Ribbon bases its estimates on historical experience and various other assumptions that it believes to be reasonable under the circumstances. Actual results could differ from those estimates.

12


RIBBON COMMUNICATIONS INC.
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)
Restricted Cash

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

The Company had $0.3 million and $2.6 million of restricted cash as of September 30, 2022 and December 31, 2021, respectively, representing restricted short-term bank deposits pledged to secure certain performance and financial bonds as security for the Company's obligations under tenders, contracts and to one of its main subcontractors.

Transfers of Financial Assets

The Company maintains customer receivables factoring agreements with a number of financial institutions, primarily for IP Optical Networks sales outside of the United States. Under the terms of these agreements, the Company may transfer receivables to the financial institutions, on a non-recourse basis, provided that the financial institutions approve the receivables in advance. The Company maintains credit insurance policies from major insurance providers or obtains letters of credit from the customers for a majority of its factored trade receivables. The Company accounts for the factoring of its financial assets as a sale of the assets and records the factoring fees, when incurred, as a component of interest expense in the condensed consolidated statements of operations, and the proceeds from the sales of receivables are included in cash from operating activities in the condensed consolidated statements of cash flows.

Information regarding the Company's factoring of its financial assets for the three and nine months ended September 30, 2022 and 2021 is as follows (in thousands):
Three months endedNine months ended
September 30,
2022
September 30,
2021
September 30,
2022
September 30,
2021
Accounts receivable sold$16,926 $24,961 $57,640 $88,608 
Less factoring fees(281)$(169)(757)(570)
Net cash proceeds$16,645 $24,792 $56,883 $88,038 

Going Concern

The accompanying condensed consolidated financial statements are prepared in accordance with GAAP applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

In the second quarter of 2022, although the Company was in compliance with its financial covenants, it projected that it may not maintain compliance with its financial covenants under the 2020 Credit Facility, as amended (as defined in Note 9), for the quarter ended September 30, 2022 due to the impact of market conditions, including supply chain disruptions, higher costs, and other geopolitical instabilities and disputes. Failure to remain in compliance would be an event of default that would permit the Lenders (as defined in Note 9) to accelerate the maturity of the 2020 Credit Facility.

Under the terms of the existing credit agreement (see Note 9), the Company is allowed, subject to certain limitations, to use a portion of the capital raised in the Equity Offering in the calculation of the covenant ratios for the quarter in which the Equity Offering was completed (quarter ended September 30, 2022) and for future calculation of the covenant ratios for which the third quarter of 2022 is included in the trailing twelve month period. As a result, the Company currently projects that it will remain in compliance with its financial covenants for at least one year from the date the condensed consolidated financial statements are issued.

Recent Accounting Pronouncements

In March 2022, the Financial Accounting Standards Board (the "FASB") issued ASU 2022-02, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”), which eliminates the accounting guidance on troubled debt restructurings ("TDRs") for creditors in ASC 310, Receivables (Topic 310), and requires entities to provide disclosures about current period gross write-offs by year of origination. Also, ASU 2022-02 updates the
13


RIBBON COMMUNICATIONS INC.
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)
requirements related to accounting for credit losses under ASC 326, Financial Instruments – Credit Losses (Topic 326), and adds enhanced disclosures for creditors with respect to loan refinancings and restructurings for borrowers experiencing financial difficulty. ASU 2022-02 is effective for the Company January 1, 2023, with early adoption permitted. The Company believes that the adoption of ASU 2022-02 will not have a material impact on its consolidated financial statements upon adoption.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers ("ASU 2021-08"), which amends ASC 805, Business Combinations (Topic 805), to add contract assets and contract liabilities to the list of exceptions to the recognition and measurement principles that apply to business combinations and to require that an acquiring entity recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 606, Revenue from Contracts with Customers (Topic 606) ("ASC 606"). Under current GAAP, an acquirer generally recognizes such items at fair value on the acquisition date. While primarily related to contract assets and contract liabilities that were accounted for by the acquiree in accordance with ASC 606, ASU 2021-08 also applies to contract assets and contract liabilities from other contracts to which the provisions of ASC 606 apply, such as contract liabilities from the sale of nonfinancial assets within the scope of ASU 2017-05, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20). ASU 2021-08 is effective for the Company January 1, 2023, with early adoption permitted. The Company believes that the adoption of ASU 2021-08 could have a material impact on its consolidated financial statements for periods including and subsequent to significant business acquisitions.

In January 2021 the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope ("ASU 2021-01"), which refines the scope of ASC 848, Reference Rate Reform, and clarifies some of its guidance as part of the FASB's monitoring of global reference rate reform activities. ASU 2021-01 permits entities to elect certain optional expedients and exceptions when accounting for derivative contracts and certain hedging relationships affected by changes in the interest rates used for discounting cash flows, for computing variation margin settlements, and for calculating price alignment interest in connection with reference rate reform activities under way in global financial markets (the "discounting transition"). ASU 2021-01 is effective for the Company prospectively in any period through December 31, 2022 that a modification is made to the terms of the derivatives affected by the discounting transition. The adoption of ASU 2021-01 did not have a material impact on the Company's consolidated financial statements.


(2) EARNINGS (LOSS) PER SHARE

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

The calculations of shares used to compute diluted earnings (loss) per share were as follows (in thousands):
 Three months endedNine months ended
 September 30,
2022
September 30,
2021
September 30,
2022
September 30,
2021
Weighted average shares outstanding - basic158,921 148,184 152,795 147,204 
Potential dilutive common shares    
Weighted average shares outstanding - diluted158,921 148,184 152,795 147,204 


Options to purchase the Company's common stock and unvested restricted and performance-based stock units aggregating 14.4 million shares have not been included in the computation of loss per share for the three and nine months ended September 30, 2022 because their effect would have been antidilutive. Options to purchase the Company's common stock and unvested restricted and performance-based stock awards and stock units aggregating 10.9 million shares have not been included in the computation of diluted loss per share for the three and nine months ended September 30, 2021 because their effect would have been antidilutive.
14


RIBBON COMMUNICATIONS INC.
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)


(3) INVENTORY

Inventory at September 30, 2022 and December 31, 2021 consisted of the following (in thousands):
 September 30,
2022
December 31,
2021
On-hand final assemblies and finished goods inventories$77,244 $57,360 
Deferred cost of goods sold3,887 1,474 
81,131 58,834 
Less noncurrent portion (included in other assets)(10,845)(4,791)
Current portion$70,286 $54,043 


(4) INTANGIBLE ASSETS AND GOODWILL

The Company's intangible assets at September 30, 2022 and December 31, 2021 consisted of the following (in thousands):
September 30, 2022Weighted average amortization period
(years)
CostAccumulated
amortization
Net
carrying value
In-process research and development*$34,000 $ $34,000 
Developed technology7.93306,380 205,194 101,186 
Customer relationships11.86268,140 99,245 168,895 
Trade names3.885,000 4,448 552 
Software licenses3.005,186 122 5,064 
9.12$618,706 $309,009 $309,697