Ribbon Communications Inc. [RBBN] Filings

10-Q 1 rbbn-20240630.htm 10-Q rbbn-20240630

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 June 30, 2024
☐						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)


Delaware						82-1669692
(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)

(978) 614-8100

(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 class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.0001	RBBN	The 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 filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging 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 July 22, 2024, there were 174,526,596 shares of the registrant's common stock, $0.0001 par value per share, outstanding.

RIBBON COMMUNICATIONS INC.

FORM 10-Q

QUARTERLY PERIOD ENDED JUNE 30, 2024

TABLE OF CONTENTS


Item		Page
	Cautionary Note Regarding Forward-Looking Statements	3


PART I FINANCIAL INFORMATION
1.	Financial Statements
	Condensed Consolidated Balance Sheets as of June 30, 2024 and December 31, 2023 (unaudited)	4
	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2024 and 2023 (unaudited)	5
	Condensed Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended June 30, 2024 and 2023 (unaudited)	6
	Condensed Consolidated Statements of Stockholders' Equity for the Three and Six Months Ended June 30, 2024 and 2023 (unaudited)	7
	Condensed Consolidated Statements of Cash Flows for the S ix Months Ended June 30, 2024 and 2023 (unaudited)	9
	Notes to Condensed Consolidated Financial Statements (unaudited)	11
2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	36
3.	Quantitative and Qualitative Disclosures About Market Risk	50
4.	Controls and Procedures	50

PART II OTHER INFORMATION
1.	Legal Proceedings	51
1A.	Risk Factors	51
2.	Unregistered Sales of Equity Securities and Use of Proceeds	51
5.	Other Information	51
6.	Exhibits	52
	Signatures	53

Cautionary Note Regarding Forward-Looking Statements

This report 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 report, including statements regarding expected impacts from the war in Ukraine and the financial sanctions and trade restrictions imposed in connection therewith, our future expenses and restructuring activities, results of operations and financial position, capital structure, impacts from the war in Israel, beliefs about our business strategy, availability of components for the manufacturing of our products, 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, unpredictable fluctuations in quarterly revenue and operating results; the impact of restructuring and cost-containment activities; increases in tariffs, trade restrictions or taxes on our products; supply chain disruptions resulting from component availability and/or geopolitical instabilities and disputes (including those related to the wars in Israel and Ukraine); the closure, on a temporary basis, of our offices or those of our contract manufacturer in Israel as a result of the war and the impact of military call-ups of our employees in Israel; material litigation; the impact of fluctuations in interest rates; material cybersecurity and data intrusion incidents, including any security breaches resulting in the theft, transfer, or unauthorized disclosure of customer, employee, or company information; our ability to comply with applicable domestic and foreign information security and privacy laws, regulations and technology platform rules or other obligations related to data privacy and security; 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; our ability to adapt to rapid technological and market changes; our ability to generate positive returns on our research and development; 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; currency fluctuations; unanticipated adverse changes in legal, regulatory or tax laws; future accounting pronouncements or changes in our accounting policies; 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, 2023. Any forward-looking statement made by us in this Quarterly Report on Form 10-Q speaks only as of the date on which this report 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.

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

RIBBON COMMUNICATIONS INC.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

(unaudited)


	June 30, 2024		December 31, 2023
Assets
Current assets:
Cash and cash equivalents	$	64,558	$	26,494
Restricted cash	2,850		136
Accounts receivable, net	210,954		268,421
Inventory	79,216		77,521
Other current assets	46,576		46,146
Total current assets	404,154		418,718
Property and equipment, net	40,824		41,820
Intangible assets, net	212,052		238,087
Goodwill	300,892		300,892
Deferred income taxes	78,067		69,761
Operating lease right-of-use assets	33,901		39,783
Other assets	35,562		35,092
	$	1,105,452	$	1,144,153
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of term debt	$	3,500	$	35,102

Accounts payable	64,333		85,164
Accrued expenses and other	92,847		91,687
Operating lease liabilities	12,347		15,739
Deferred revenue	99,547		113,381
Total current liabilities	272,574		341,073
Long-term debt, net of current	333,979		197,482
Warrant liability	6,170		5,295
Preferred stock liability, $0.01 par value per share; 10,000,000 shares authorized, none issued and outstanding at June 30, 2024; 55,000 shares issued and outstanding at December 31, 2023 ($56,650 liquidation preference)	—		53,337
Operating lease liabilities, net of current	34,858		38,711
Deferred revenue, net of current	16,632		19,218
Deferred income taxes	5,616		5,616
Other long-term liabilities	30,601		30,658
Total liabilities	700,430		691,390
Commitments and contingencies (Note 19)
Stockholders' equity:
Common stock, $0.0001 par value per share; 240,000,000 shares authorized; 174,437,242 shares issued and outstanding at June 30, 2024; 172,083,667 shares issued and outstanding at December 31, 2023	17		17
Additional paid-in capital	1,964,304		1,958,909
Accumulated deficit	(1,567,127)		(1,519,950)
Accumulated other comprehensive income	7,828		13,787
Total stockholders' equity	405,022		452,763
	$	1,105,452	$	1,144,153

See notes to the unaudited condensed consolidated financial statements.

RIBBON COMMUNICATIONS INC.

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

(unaudited)


	Three months ended				Six months ended
	June 30, 2024		June 30, 2023		June 30, 2024		June 30, 2023
Revenue:
Product	$	99,133	$	117,347	$	186,743	$	210,665
Service	93,487		93,271		185,541		186,112
Total revenue	192,620		210,618		372,284		396,777
Cost of revenue:
Product	54,845		67,927		100,639		129,990
Service	33,376		33,782		68,740		69,087
Amortization of acquired technology	6,532		7,439		13,083		14,828
Total cost of revenue	94,753		109,148		182,462		213,905
Gross profit	97,867		101,470		189,822		182,872
Operating expenses:
Research and development	43,489		47,776		89,252		99,080
Sales and marketing	32,984		33,905		67,700		69,304
General and administrative	14,901		14,346		30,092		28,391
Amortization of acquired intangible assets	6,508		7,260		13,214		14,524
Acquisition-, disposal- and integration-related	—		498		—		2,140
Restructuring and related	1,920		4,307		4,985		11,244
Total operating expenses	99,802		108,092		205,243		224,683
Loss from operations	(1,935)		(6,622)		(15,421)		(41,811)
Interest expense, net	(3,879)		(6,766)		(9,866)		(13,188)
Other (expense) income, net	(9,503)		(2,688)		(17,016)		2,084
Loss before income taxes	(15,317)		(16,076)		(42,303)		(52,915)
Income tax provision	(1,499)		(5,403)		(4,874)		(6,869)
Net loss	$	(16,816)	$	(21,479)	$	(47,177)	$	(59,784)
Loss per share:
Basic	$	(0.10)	$	(0.13)	$	(0.27)	$	(0.35)
Diluted	$	(0.10)	$	(0.13)	$	(0.27)	$	(0.35)
Weighted average shares used to compute loss per share:
Basic	173,793		170,103		173,110		169,326
Diluted	173,793		170,103		173,110		169,326

See notes to the unaudited condensed consolidated financial statements.

RIBBON COMMUNICATIONS INC.

Condensed Consolidated Statements of Comprehensive Loss

(in thousands)

(unaudited)


	Three months ended				Six months ended
	June 30, 2024		June 30, 2023		June 30, 2024		June 30, 2023
Net loss	$	(16,816)	$	(21,479)	$	(47,177)	$	(59,784)
Other comprehensive income (loss), net of tax:
Unrealized loss on interest rate swap, net of reclassifications and amortization into earnings	(4,698)		(1,322)		(6,019)		(7,222)
Reclassification of gain to other income (expense), net upon sale of interest rate swap	—		—		—		(5,099)
Foreign currency translation adjustments	176		(434)		60		(585)

Other comprehensive loss, net of tax	(4,522)		(1,756)		(5,959)		(12,906)
Comprehensive loss, net of tax	$	(21,338)	$	(23,235)	$	(53,136)	$	(72,690)

See notes to the unaudited condensed consolidated financial statements.

RIBBON COMMUNICATIONS INC.

Condensed Consolidated Statements of Stockholders' Equity

(in thousands, except shares)

(unaudited)



Three months ended June 30, 2024
								Accumulated
				Additional				other		Total
	Common stock			paid-in		Accumulated		comprehensive		stockholders'
	Shares	Amount		capital		deficit		(loss) income		equity
Balances, April 1, 2024	172,714,429	$	17	$	1,962,602	$	(1,550,311)	$	12,350	$	424,658

Vesting of restricted stock awards and units	2,138,848									—
Vesting of performance-based stock units	257,390									—
Shares of restricted stock returned to the Company under net share settlements to satisfy tax withholding obligations	(673,425)			(1,792)						(1,792)
Stock-based compensation expense				3,494						3,494
Other comprehensive loss								(4,522)		(4,522)
Net loss						(16,816)				(16,816)
Balances, June 30, 2024	174,437,242	$	17	$	1,964,304	$	(1,567,127)	$	7,828	$	405,022



Six months ended June 30, 2024
								Accumulated
				Additional				other		Total
	Common stock			paid-in		Accumulated		comprehensive		stockholders'
	Shares	Amount		capital		deficit		(loss) income		equity
Balances, January 1, 2024	172,083,667	$	17	$	1,958,909	$	(1,519,950)	$	13,787	$	452,763
Exercise of stock options	8,624			17						17
Vesting of restricted stock awards and units	3,027,037									—
Vesting of performance-based stock units	288,672									—
Shares of restricted stock returned to the Company under net share settlements to satisfy tax withholding obligations	(970,758)			(2,638)						(2,638)
Stock-based compensation expense				8,016						8,016
Other comprehensive loss								(5,959)		(5,959)
Net loss						(47,177)				(47,177)
Balances, June 30, 2024	174,437,242	$	17	$	1,964,304	$	(1,567,127)	$	7,828	$	405,022

See notes to the unaudited condensed consolidated financial statements.

RIBBON COMMUNICATIONS INC.

Condensed Consolidated Statements of Stockholders' Equity

(in thousands, except shares)

(unaudited)


Three months ended June 30, 2023
								Accumulated
				Additional				other		Total
	Common stock			paid-in		Accumulated		comprehensive		stockholders'
	Shares	Amount		capital		deficit		(loss) income		equity
Balances, April 1, 2023	169,229,979	$	17	$	1,945,525	$	(1,492,049)	$	19,435	$	472,928
Exercise of stock options	344			1						1
Vesting of restricted stock awards and units	2,294,295									—

Shares of restricted stock returned to the Company under net share settlements to satisfy tax withholding obligations	(566,218)			(1,563)						(1,563)


Stock-based compensation expense				6,116						6,116
Other comprehensive loss								(1,756)		(1,756)
Net loss						(21,479)				(21,479)
Balances, June 30, 2023	170,958,400	$	17	$	1,950,079	$	(1,513,528)	$	17,679	$	454,247



Six months ended June 30, 2023
								Accumulated
				Additional				other		Total
	Common stock			paid-in		Accumulated		comprehensive		stockholders'
	Shares	Amount		capital		deficit		(loss) income		equity
Balances, January 1, 2023	168,324,995	$	17	$	1,941,569	$	(1,453,744)	$	30,585	$	518,427
Exercise of stock options	917			2						2
Vesting of restricted stock awards and units	3,314,572									—
Vesting of performance-based stock units	381,071									—
Shares of restricted stock returned to the Company under net share settlements to satisfy tax withholding obligations	(1,063,155)			(3,456)						(3,456)


Stock-based compensation expense				11,964						11,964
Other comprehensive loss								(12,906)		(12,906)
Net loss						(59,784)				(59,784)
Balances, June 30, 2023	170,958,400	$	17	$	1,950,079	$	(1,513,528)	$	17,679	$	454,247

See notes to the unaudited condensed consolidated financial statements.

RIBBON COMMUNICATIONS INC.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)


	Six months ended
	June 30, 2024		June 30, 2023
Cash flows from operating activities:
Net loss	$	(47,177)	$	(59,784)
Adjustments to reconcile net loss to cash flows provided by operating activities:
Depreciation and amortization of property and equipment	6,770		7,059
Amortization of intangible assets	26,297		29,352
Amortization of debt issuance costs and original issue discount	3,445		1,793
Amortization of accumulated other comprehensive gain related to interest rate swap	(8,196)		(2,062)
Stock-based compensation	8,016		11,964
Deferred income taxes	(8,104)		(6,946)
Gain on sale of swap	—		(7,301)
Change in fair value of warrant liability	875		(1,318)
Change in fair value of preferred stock liability	8,091		1,456
Dividends accrued on preferred stock liability	2,743		1,272
Payment of dividends accrued on preferred stock liability	(6,686)		—
Foreign currency exchange losses (gains)	2,023		(1,080)
Changes in operating assets and liabilities:
Accounts receivable	56,146		21,534
Inventory	(4,405)		(2,221)
Other operating assets	8,854		13,486
Accounts payable	(20,541)		(1,740)
Accrued expenses and other long-term liabilities	(8,407)		2,343
Deferred revenue	(16,422)		767
Net cash provided by operating activities	3,322		8,574
Cash flows from investing activities:
Purchases of property and equipment	(5,613)		(4,091)
Purchases of software licenses	(263)		—

Net cash used in investing activities	(5,876)		(4,091)
Cash flows from financing activities:
Borrowings under revolving line of credit	44,106		30,000
Principal payments on revolving line of credit	(44,106)		(30,000)
Proceeds from issuance of term debt	342,300		—
Principal payments of term debt	(235,395)		(85,029)

Payment of debt issuance costs	(3,978)		(1,572)
Proceeds from issuance of preferred stock and warrant liabilities	—		53,350
Payment of preferred stock liability	(56,850)		—
Proceeds from the exercise of stock options	17		2
Payment of tax obligations related to vested stock awards and units	(2,638)		(3,456)
Net cash provided by (used in) financing activities	43,456		(36,705)
Effect of exchange rate changes on cash and cash equivalents	(124)		(394)
Net increase (decrease) in cash and cash equivalents	40,778		(32,616)
Cash, cash equivalents and restricted cash, beginning of year	26,630		67,262
Cash, cash equivalents and restricted cash, end of period	$	67,408	$	34,646

RIBBON COMMUNICATIONS INC.

Condensed Consolidated Statements of Cash Flows (continued)

(in thousands)

(unaudited)


	Six months ended
	June 30, 2024		June 30, 2023

Supplemental disclosure of cash flow information:
Interest paid	$	12,222	$	11,617
Income taxes paid	$	9,664	$	6,945
Income tax refunds received	$	991	$	430
Supplemental disclosure of non-cash investing activities:
Capital expenditures incurred, but not yet paid	$	1,786	$	2,150

Inventory transfers to property and equipment	$	954	$	963
Supplemental disclosure of non-cash financing activities:
Fair value of vested restricted and performance-based stock grants	$	9,095	$	11,724

See notes to the unaudited condensed consolidated financial statements.

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 consumers 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 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, 2023, as amended (the "Annual Report"), which was filed with the SEC on February 28, 2024.

Operating Segments

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

Significant Accounting Policies

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 six months ended June 30, 2024.

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 management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Significant estimates and judgments relied upon in preparing these condensed consolidated financial statements include revenue recognition for multiple element arrangements, inventory valuations, assumptions used to determine the fair value of stock-based compensation and the Preferred Stock and Warrants, intangible asset and goodwill valuations, including impairments, warranty accruals, legal contingencies and recoverability of Ribbon's net deferred tax assets and the related valuation allowances. Ribbon regularly assesses these estimates and records changes in estimates in the period in which they become known. Ribbon bases its

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

estimates on historical experience and various other assumptions that it believes to be reasonable under the circumstances. Actual results could differ from those estimates.

Restricted Cash

The Company classifies as restricted cash all cash pledged as collateral to secure long-term obligations and all cash otherwise limited in use by contractual provisions. At June 30, 2024 and December 31, 2023, the Company had $2.9 million and $0.1 million of restricted cash, respectively, representing restricted short-term bank deposits pledged to secure certain guarantees and surety bonds as security for the Company's obligations under tenders, and contracts.

Transfers of Financial Assets

The Company's IP Optical Networks segment maintains customer receivables factoring agreements with a number of financial institutions. 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.

Factoring of accounts receivable and associated fees for the three and six months ended June 30, 2024 and 2023 were as follows (in thousands):


	Three months ended		Six months ended
	June 30, 2024	June 30, 2023	June 30, 2024	June 30, 2023
Accounts receivable sold	25,970	27,266	46,962	48,327
Less factoring fees	(543)	(815)	(934)	(1,270)
Net cash proceeds	25,427	26,451	46,028	47,057

Going Concern Assessment

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 Company's condensed consolidated financial statements for the period ended March 31, 2024, substantial doubt was raised about the Company's ability to continue as a going concern due to the lack of sufficient cash on hand or available liquidity to repay its obligations under the 2020 Credit Facility (as defined in Note 9) that was scheduled to mature on March 3, 2025. In response to these conditions, management's plans included refinancing the 2020 Credit Facility and the Company entered into a binding commitment letter for such refinancing on May 15, 2024.

The refinancing contemplated by the binding commitment letter closed on June 21, 2024. See Note 9 for a description of the 2024 Senior Secured Credit Facilities Credit Agreement, the proceeds of which were used to, among other things, repay all amounts outstanding under the 2020 Credit Facility. As a result, there is no longer substantial doubt about the ability of the Company to continue as a going concern.

Recent Accounting Pronouncements

In December 2023, the Financial Accounting Standards Board (the "FASB") issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”), which increases the disclosure requirements around rate reconciliation information and certain types of income taxes companies are required to pay. ASU 2023-09 will be effective for

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

the Company beginning in 2025, with early adoption permitted. The Company is currently evaluating the impact of this accounting standard update on its consolidated financial statements and related disclosures.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which improves reportable segment disclosure requirements, including enhancement of the disclosures of significant segment expenses and interim disclosure requirements, to enable investors to better understand an entity's overall performance and assess potential future cash flows. ASU 2023-07 will be effective for the Company annually beginning in 2024 and on an interim basis beginning in 2025, with early adoption permitted. The Company is currently evaluating the impact of this accounting standard update on its consolidated financial statements and related disclosures.

In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC's disclosure Update and Simplification Initiative (“ASU 2023-06”), which amends the disclosure or presentation requirements related to various subtopics in the FASB Accounting Standards Codification. This ASU was issued in response to, and to align GAAP with, the SEC's August 2018 final rule that updates and simplifies disclosure requirements. The effective date for the Company for each amendment will be the date on which the SEC's removal of that related disclosure requirement becomes effective, with early adoption prohibited. The Company is currently evaluating the impact of this accounting standard update on its consolidated financial statements and related disclosures.

On February 1, 2023, the FASB staff noted that they believe that the Pillar 2 tax, established by the OECD and intended to apply for tax years beginning in 2024, would be an alternative minimum tax and therefore deferred tax assets would not need to be recognized related to this parallel taxing system. On February 2, 2023, the OECD issued administrative guidance providing transition and safe harbor rules around the implementation of the Pillar 2 global minimum tax. Under an additional transitional safe harbor released July 17, 2023, the undertaxed profits rule top-up tax will not be applied by any constituent entity's jurisdiction of residence with respect to income earned by a company's ultimate parent entity in its jurisdiction of residence, if the ultimate parent entity's jurisdiction has a corporate tax rate of at least 20%. This transition safe harbor will apply to fiscal years beginning on or before December 31, 2025 and ending before December 31, 2026. The Company is closely monitoring developments and evaluating the impacts these new rules will have on its tax rate, including eligibility to qualify for these safe harbor rules. Based upon preliminary calculations for calendar year 2024, the Company anticipates that it will meet the safe harbors in most jurisdictions, and any remaining top-up tax should be immaterial.

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


	Three months ended		Six months ended
	June 30, 2024	June 30, 2023	June 30, 2024	June 30, 2023
Weighted average shares outstanding - basic	173,793	170,103	173,110	169,326
Potential dilutive common shares	—	—	—	—
Weighted average shares outstanding - diluted	173,793	170,103	173,110	169,326

Options to purchase the Company's common stock and unvested restricted and performance-based stock units aggregating 11.9 million and 14.1 million shares were excluded from the computation of diluted loss per share for the three and six months ended June 30, 2024 and 2023, respectively, because their effect would have been antidilutive.

On March 28, 2023, the Company issued 55,000 shares of newly designated Series A Preferred Stock (the "Preferred Stock") to investors in a private placement offering at a price of $970 per share, along with 4.9 million warrants (the

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

"Warrants") to purchase shares of the Company's common stock, par value $0.0001 per share (the "Private Placement"), at the exercise price of $3.77 per share. The proceeds from the Private Placement were approximately $53.4 million, including approximately $10 million from existing related party stockholders (See Note 11).

On June 25, 2024, the Company redeemed the Preferred Stock with a portion of the proceeds from the refinancing of the 2020 Credit Facility at a rate of 103% for a total of approximately $63.5 million. The Warrants remain outstanding and without modification. See Note 9 for a description of the refinancing of the 2020 Credit Facility.

As of June 30, 2024 and 2023, the potential number of dilutive shares from the Warrants totaled 4.9 million shares. However, there was no impact on weighted average shares outstanding from these Warrants for the three and six months ended June 30, 2024 and 2023 as the average share price of the Company's common stock was below the exercise price of $3.77 per share and their effect would have been antidilutive.

Dividends accrued on the Preferred Stock were not an adjustment to net income (loss) used for the calculation of diluted earnings (loss) per share as these dividends were included in the fair value adjustment of the Preferred Stock which was reflected in Other (expense) income, net until the redemption of the Preferred Stock on June 25, 2024.

(3) INVENTORY

Inventory at June 30, 2024 and December 31, 2023 consisted of the following (in thousands):


	June 30, 2024		December 31, 2023

On-hand final assemblies and finished goods inventories	$	97,266	$	93,077
Deferred cost of goods sold	2,530		3,269
	99,796		96,346
Less noncurrent portion (included in Other assets)	(20,580)		(18,825)
Current portion	$	79,216	$	77,521

(4) INTANGIBLE ASSETS AND GOODWILL

The Company's intangible assets at June 30, 2024 and December 31, 2023 consisted of the following (in thousands):


June 30, 2024	Weighted average amortization period (years)	Cost		Accumulated amortization		Net carrying value
Developed technology	7.84	$	340,380	$	251,232	$	89,148
Customer relationships	11.86	268,140		147,904		120,236
Trade names	3.88	5,000		4,954		46
Software licenses	3.00	5,698		3,076		2,622
	9.50	$	619,218	$	407,166	$	212,052

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)


December 31, 2023	Weighted average amortization period (years)	Cost		Accumulated amortization		Net carrying value
Developed technology	7.84	$	340,380	$	239,066	$	101,314
Customer relationships	11.86	268,140		134,743		133,397
Trade names	3.88	5,000		4,901		99

Software licenses	3.00	5,436		2,159		3,277
	9.51	$	618,956	$	380,869	$	238,087

Estimated future amortization expense for the Company's intangible assets at June 30, 2024 was as follows (in thousands):


Years ending December 31,
Remainder of 2024	$	24,558
2025	44,176
2026	39,126
2027	33,969
2028	23,400
2029	18,379
Thereafter	28,444
	$	212,052

There were no changes to the carrying value of the Company's goodwill in the six months ended June 30, 2024 and 2023. The components of goodwill at both June 30, 2024 and 2023 were as follows (in thousands):


	Cloud and Edge		IP Optical Networks		Total

Goodwill	$	392,302	$	191,996	$	584,298
Accumulated impairment losses	(167,406)		(116,000)		(283,406)
	$	224,896	$	75,996	$	300,892

(5) FAIR VALUE HIERARCHY

The carrying amounts of the Company's cash equivalents, accounts receivable, accounts payable and borrowings under a revolving credit facility in the condensed consolidated balance sheets approximates fair value due to the immediate or short-term nature of these financial instruments. Ribbon's term debt balance as of June 30, 2024 and December 31, 2023 of $350.0 million and $235.4 million, respectively, had a fair value of approximately $350.0 million and $235.1 million, respectively. Our Warrant liability had a fair value of $6.2 million and $5.3 million as of June 30, 2024 and December 31, 2023, respectively. Our Preferred Stock had a fair value of $53.3 million as of December 31, 2023 and was fully redeemed on June 25, 2024.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. The three-tier fair value hierarchy is based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument's categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The fair value hierarchy is as follows:

Level 1. Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities. The Company had no assets or liabilities fair valued using Level 1 input at June 30, 2024 or December 31, 2023.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

Level 2. Level 2 applies to assets or liabilities for which there are inputs that are directly or indirectly observable in the marketplace, such as quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets). At December 31, 2023, the Company determined the fair value of its defined benefit plans' assets using Level 2 input. There were no significant changes to the Company's defined benefit plans' assets during the six months ended June 30, 2024 that required the calculation of their fair value as of June 30, 2024.

Level 3. Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities. Level 3 input was used to determine the fair value of the Company's Warrants at June 30, 2024 and the fair value of the Company's Preferred Stock and Warrants at December 31, 2023.

(6) ACCRUED EXPENSES AND OTHER

Accrued expenses at June 30, 2024 and December 31, 2023 consisted of the following (in thousands):


	June 30, 2024		December 31, 2023
Employee compensation and related costs	$	34,467	$	33,682
Professional fees	22,007		19,702

Taxes payable	5,126		8,383
Other	31,247		29,920
	$	92,847	$	91,687

(7) WARRANTY ACCRUALS

The changes in the Company's accrual balance in the six months ended June 30, 2024 were as follows (in thousands):






Balance at January 1, 2024	$	12,243

Current period provisions	2,824
Settlements	(2,628)
Balance at June 30, 2024	$	12,439

(8) RESTRUCTURING AND FACILITIES CONSOLIDATION INITIATIVES

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

For restructuring events that involve lease assets and liabilities, the Company applies lease reassessment and modification guidance and evaluates the right-of-use assets for potential impairment. If the Company plans to exit all or distinct portions of a facility and does not have the ability or intent to sublease, the Company will accelerate the amortization of each of those lease components through the vacate date. The accelerated amortization is recorded as a component of Restructuring and related expense in the Company's condensed consolidated statements of operations. Related variable lease expenses will continue to be expensed as incurred through the vacate date, at which time the Company will reassess the liability balance to ensure it appropriately reflects the remaining liability associated with the premises and record a liability for the estimated future variable lease costs.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

Accelerated amortization of lease assets is recognized from the date that the Company commences the plan to fully or partially vacate a facility, for which there is no intent or ability to enter into a sublease, through the final vacate date. Accelerated amortization of lease assets that are included as a component of restructuring and related expense are excluded from the restructuring accrual activity tables below, as the liability for lease payments for these facilities is included as a component of current and noncurrent Operating lease liabilities in the Company's condensed consolidated balance sheets at June 30, 2024 and December 31, 2023 (see Note 16). The Company may incur additional future expense if it is unable to sublease other locations included in the Company's facilities consolidation initiatives.

Restructuring and related expense for the three and six months ended June 30, 2024 and 2023 was comprised of the following (in thousands):



	Three months ended				Six months ended
	June 30, 2024		June 30, 2023		June 30, 2024		June 30, 2023
Severance and related costs	$	359	$	2,843	$	1,975	$	8,551
Variable and other facilities-related costs	1,561		$	1,125	3,010		2,131
Accelerated amortization of lease assets due to cease-use	—		$	339	—		562
	$	1,920	$	4,307	$	4,985	$	11,244

2023 Restructuring Plan

On February 22, 2023, the Company's Board of Directors approved a strategic restructuring program (the "2023 Restructuring Plan") to streamline the Company's operations in order to support the Company's investment in critical growth areas. The 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, the Company recorded restructuring and related expense of $0.4 million and $2.0 million in the three and six months ended June 30, 2024, respectively, consisting entirely of severance related costs. A summary of the 2023 Restructuring Plan accrual activity for the six months ended June 30, 2024 is as follows (in thousands):


	Balance at January 1, 2024		Initiatives charged to expense		Cash payments		Net transfer to operating lease accounts		Balance at June 30, 2024
Severance	$	671	$	1,975	$	(1,852)	$	—	$	794

2022 Restructuring Plan

On February 14, 2022, the Company's Board of Directors approved a strategic restructuring program (the "2022 Restructuring Plan") to streamline the Company's operations in order to support the Company's investment in critical growth areas. The 2022 Restructuring Plan includes, among other things, charges related to a consolidation of facilities and a workforce reduction. Any positions eliminated in countries outside the United States are subject to local law and consultation requirements.

The Company recorded restructuring and related expense of $1.6 million and $3.0 million in the three and six months ended June 30, 2024, respectively, in connection with the 2022 Restructuring Plan for variable and other facilities-related costs. A summary of the 2022 Restructuring Plan accrual activity for the six months ended June 30, 2024 is as follows (in thousands):


	Balance at January 1, 2024		Initiatives charged to expense	Cash payments	Balance at June 30, 2024

Variable and other facilities-related costs	$	468	3,010	(3,086)	$	392

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

Balance Sheet Classification

The current portions of accrued restructuring were $1.1 million at both June 30, 2024 and December 31, 2023 and are included as components of Accrued expenses in the condensed consolidated balance sheets. The long-term portions of accrued restructuring are included as components of Other long-term liabilities in the condensed consolidated balance sheets. The long-term portions of accrued restructuring were $1.0 million and $1.1 million at June 30, 2024 and December 31, 2023, respectively.

(9) DEBT

2024 Credit Facility

On June 21, 2024, the Company entered into a Senior Secured Credit Facilities Credit Agreement (the “2024 Credit Facility” and “2024 Credit Agreement”) as guarantor, with the Company’s wholly-owned subsidiary, Ribbon Communications Operating Company, Inc., as the borrower (the “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 the Company 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 the Company 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 the Company’s 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 the Company 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.

The 2024 Credit Facility requires compliance with a Maximum Consolidated Net Leverage Ratio (the "Financial Covenant"), as defined in the 2024 Credit Facility and tested on a quarterly basis. The Company was in compliance with the Financial Covenant as of June 30, 2024.

The indebtedness and other obligations under the 2024 Credit Facility are irrevocably and unconditionally guaranteed on a joint and several basis by the Company and its subsidiaries (together, the "Guarantors"). The 2024 Credit Facility is secured on a first-priority basis by a lien on substantially all assets of the Borrower and the Guarantors.

2020 Credit Facility

On June 21, 2024, the Company used the proceeds from the 2024 Credit Facility to, among other things, repay all amounts outstanding under its Senior Secured Credit Facilities Credit Agreement, dated March 3, 2020 (as amended, the "2020 Credit Facility"), by and among the Company, 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"). The Company wrote off $2.0 million of debt issuance costs in conjunction with the early extinguishment of the 2020 Credit Facility.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

The 2020 Credit Facility had a maturity date of March 2025 and originally provided for $500 million of commitments from the Lenders to the Borrower, comprised of $400 million in term loans (the "2020 Term Loan Facility") and a $100 million facility available for revolving loans (the "2020 Revolving Credit Facility"). Under the 2020 Revolving Credit Facility, a $30 million sublimit was originally available for letters of credit and a $20 million sublimit was available for swingline loans.

The indebtedness and other obligations under the 2020 Credit Facility were unconditionally guaranteed on a senior secured basis by the Company, Edgewater Networks, Inc., a wholly-owned subsidiary of the Company, and GENBAND Inc., a wholly-owned subsidiary of the Company (together, the "Guarantors"). The 2020 Credit Facility was secured by first-priority liens on substantially all of the assets of the Borrower and the Guarantors, including substantially all of the assets of the Company.

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

On March 24, 2023, the Company entered into the Sixth Amendment to the 2020 Credit Facility (the “Sixth Amendment”) effective March 30, 2023. The Sixth Amendment, among other things, increased the Maximum Consolidated Net Leverage Ratio (as defined in the 2020 Credit Facility), for the first, second and third quarters of 2023 to 4.50:1.00. In the fourth quarter of 2023 and the first quarter of 2024, the Maximum Consolidated Net Leverage Ratio declined to 4.25:1.00 and 4.00:1.00, respectively. Also, the Sixth Amendment reduced the minimum Consolidated Fixed Charge Coverage Ratio (as defined in the 2020 Credit Facility) to 1.10:1.00 through the first quarter of 2024. The Sixth Amendment reduced the maximum borrowings allowed under the 2020 Revolving Credit Facility from $100 million to $75 million and the sublimit available for letters of credit was reduced from $30 million to $20 million. In addition, the Sixth Amendment replaced LIBOR with SOFR as the alternative rate available to the Company for calculating interest owed under the 2020 Credit Facility with the margin fixed at 4.5%. In conjunction with the Sixth Amendment, the Company made a $75 million prepayment that was applied to the final payment due upon maturity in March 2025. 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 were being amortized on a straight-line basis over the remaining life of the 2020 Credit Facility and were written off in conjunction with the early extinguishment of the 2020 Credit Facility on June 21, 2024.

The Company's interest rates under the 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). As a result of the fixed rate swap sold in March 2023, the ongoing interest rate was based upon U.S. dollar SOFR plus a fixed margin of 4.5%. The Company was in compliance with all covenants of the 2020 Credit Facility at December 31, 2023, including the current Consolidated Net Leverage Ratio calculation that considered the Company's debt to include Preferred Stock.

The Company had the following outstanding borrowings, unamortized debt issuance costs and original issue discount, letters of credit, interest rates, and remaining borrowing capacity under the 2024 Credit Facility and the 2020 Credit Facility as of June 30, 2024 and December 31, 2023, respectively:

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)


	June 30, 2024			December 31, 2023


Current portion of Term Debt	$	3,500		$	35,102

Long-term Debt, net of Current:
Long-term Debt, net of Current (Face Amount)	$	346,500		$	200,293
Original Issue Discount	(6,961)			—
Unamortized Debt Issuance Costs - Contra-Liability	(5,560)			(2,811)
Long-term Debt, net of Current	$	333,979		$	197,482

Total Face Amount of Borrowings	$	350,000		$	235,395

Unamortized Original Issue Discount and Debt Issuance Costs:
Other Assets	1,238			557
Long-Term Debt - Contra Liability	12,521			2,811
Total Unamortized Original Issue Discount and Debt Issuance Costs	$	13,759		$	3,368

Letters of Credit Outstanding	$	—		$	2,711

Remaining Borrowing Capacity	$	35,000		$	72,289

Average Interest Rates:

Term Loan	11.6		%	10.0		%
Letters of Credit	—		%	4.5		%

The Company's debt maturities as of June 30, 2024 were as follows:


Years ending December 31,
Remainder of 2024	$	1,750
2025	6,125
2026	8,750
2027	13,125
2028	17,500
2029	302,750

	$	350,000

Letters of Credit and Other Guarantees

The Company uses letters of credit, bank guarantees, and surety bonds in the course of its business. At June 30, 2024, the Company 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, the Company had Guarantees aggregating $7.9 million, comprised of the $2.7 million of letters of credit under the 2020 Credit Facility described above and $5.2 million of Other Guarantees. At June 30, 2024 and December 31, 2023, the Company had cash collateral of $2.9 million and $0.1 million, respectively, supporting the Guarantees, which are reported in Restricted cash in the Company's condensed consolidated balance sheets.

(10) DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The Company is 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, the Company may enter into derivative financial instruments. Management's objective has been to reduce, where it is

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

deemed appropriate to do so, fluctuations in earnings and cash flows associated with changes in interest rates. Ribbon's policies and practices are to use derivative financial instruments only to the extent necessary to manage exposures. Ribbon does not hold or issue derivative financial instruments for trading or speculative purposes.

The Company records derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a specific risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Derivatives may also be designated as hedges of the foreign currency exposure of a net investment in a foreign operation. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge, or the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company may enter into derivative contracts that are intended to economically hedge certain of its risk even though hedge accounting does not apply or the Company elects not to apply hedge accounting.

Cash Flow Hedge of Interest Rate Risk

The 2024 Term Loan Facility and the 2020 Term Loan Facility had outstanding balances of $350.0 million and $235.4 million at June 30, 2024 and December 31, 2023, respectively. The 2024 Revolving Credit Facility and the 2020 Revolving Credit Facility were undrawn at June 30, 2024 and December 31, 2023, respectively. Borrowings under the 2024 Credit Facility and the 2020 Credit Facility have variable interest rates based on SOFR (see Note 9). As a result of exposure to interest rate movements, during March 2020, the Company entered into an interest rate swap arrangement, which effectively converted its $400 million term loan with its variable interest rate based upon one-month LIBOR to an aggregate fixed rate of 0.904%, plus a leverage-based margin as defined in the 2020 Credit Facility.

On July 22, 2022, the Company sold $30 million of the notional amount of its interest rate swap back to its counterparty for $1.5 million, reducing the notional amount of this swap to $370 million. On August 16, 2022 the Company sold another $30 million of the notional amount of its interest rate swap back to its counterparty for $1.6 million, reducing the notional amount to $340 million, which approximated the current level of our 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 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 until it was refinanced on June 21, 2024, the amortization of which totaled $0.2 million and $0.4 million for the three and six months ended June 30, 2024, respectively, and $0.2 million and $0.5 million for the three and six months ended June 30, 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. See Note 9 for a description of the refinancing.

On March 24, 2023, the Company received $9.4 million, consisting of $0.4 million of interest and $9.0 million for the sale of $170 million of its $340 million notional amount interest rate swap back to its counterparty, reducing the notional amount to $170 million. On March 27, 2023, the Company received $9.8 million, consisting of $0.4 million of interest and $9.4 million for the sale of the remaining $170 million of its interest rate swap back to its counterparty. The portion of the gain in accumulated other comprehensive (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 was $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 until it was refinanced on June 21, 2024, the amortization of which totaled $1.4 million and $3.0 million for the three and six months ended June 30, 2024, respectively, and $1.6 million for both the three and six months ended June 30, 2023. 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. See Note 9 for a description of the refinancing.

The Company’s objectives in using interest rate derivatives have been to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company has used an interest rate swap as part of its

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

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

The effective portion of changes in the fair value of designated derivatives that qualify as cash flow hedges is recorded in accumulated other comprehensive income 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 and 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 have been recognized directly in earnings. However, there was no hedge ineffectiveness recorded over the life of the swap.

Amounts reported in accumulated other comprehensive income related to the Company's derivative are reclassified to interest expense as interest is accrued on the Company’s variable-rate debt. The impact of the Company’s derivative financial instrument on its condensed consolidated statements of comprehensive (loss) income for the three and six months ended June 30, 2024 and 2023 was as follows, net of tax (in thousands):



	Three months ended				Six months ended
	June 30, 2024		June 30, 2023		June 30, 2024		June 30, 2023
Gain (loss) recognized in other comprehensive income (loss) on swap, net of tax	$	—	$	—	$	—	$	(2,715)
Amount reclassified from accumulated other comprehensive income to other expense, net upon sale of swap, net of tax	—		—		—		(5,099)
Amount reclassified from accumulated other comprehensive income to interest expense	(4,698)		(1,322)		(6,019)		(4,507)
Unrealized gain (loss) on interest rate swap, net of reclassifications and amortization	$	(4,698)	$	(1,322)	$	(6,019)	$	(12,321)

The Company had no derivative assets or liabilities at June 30, 2024 or December 31, 2023.

(11) PREFERRED STOCK AND WARRANTS

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

The Company accounted for the Preferred Stock until it was redeemed and continues to account for the Warrants as liability-classified instruments based on an assessment of their specific terms in accordance with ASC Topic 480, Distinguishing Liabilities from Equity. The fair value option was elected for the Preferred Stock, as the Company considered fair value to best reflect its expected future economic value. These liabilities are remeasured to fair value at each reporting date using the same valuation methodology applied upon issuance using current input assumptions.

The value of the Preferred Stock was calculated quarterly through March 31, 2024 using the Black-Derman-Toy (BDT) stochastic yield lattice model to capture the optimal timing of repayment, increasing dividend rate and other features and the value of the Warrants is calculated quarterly using the Black-Scholes Pricing Model.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

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

The Company determined the fair value of the Warrants using Level 3 input. The key assumptions into the model utilized was as follows as of June 30, 2024:


			Warrants (Black-Scholes)
Stock price			$3.29
Strike price			$3.77
Risk-free rate			4.52%
Volatility			61.5%
Dividend yield			0.0%
Time to expiration (years)			2.8
Fair value of Warrant per share			$1.27

The changes in the Company's Preferred Stock and Warrant liabilities for the six months ended June 30, 2024 were as follows (in thousands):


	Preferred stock liability
Balance at January 1, 2024	$	53,337
Payable in-kind dividends	2,743
Reversal of fair value adjustments	5,605
Call premium (3%)	1,851
Redemption (June 25, 2024)	$	(63,536)
Balance at June 30, 2024	$	—


	Warrant liability
Balance at January 1, 2024	$	5,295
Fair value change	875


Balance at June 30, 2024	$	6,170

The Preferred Stock, redeemed on June 25, 2024, was subordinate to the Company's indebtedness and senior to the Company’s common stock or other equity. Holders of the Preferred Stock were entitled to cumulative dividends that accrued quarterly. Dividends were payable in-kind during the first year at a rate of 9.25%. At the Company’s option, the dividends were payable in-kind or in cash during the second year at a rate of 9.75%. Dividends thereafter were to be payable in cash at a rate of 12.00%. The proceeds from the Preferred Stock issuance were approximately $53.4 million, including $10.0 million from existing related party stockholders. Offering costs paid by the Company of approximately $3.5 million were recorded in Other expense, net in the year ended December 31, 2023. The net proceeds from the Private Placement were used for the repayment of debt. The Preferred Stock was redeemable on or after the first and second anniversaries of the closing date at a rate of 103% and 102%, respectively.

The Warrants, which expire March 30, 2027, are immediately exercisable and upon an event such as a merger, consolidation, asset sale or similar change of control, may be exercised and the holders may vote the underlying shares of common stock. In connection with the Private Placement, the Company provided the investors with certain registration rights relating to the Preferred Stock, the Warrants and the shares of the Company’s common stock underlying the Warrants, that

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

required the Company to file a registration statement on Form S-3 with the SEC within 30 days following the closing date of the Private Placement. The registration requirement was completed on May 19, 2023.

(12) REVENUE RECOGNITION

The Company derives revenue from two primary sources: products and services. Product revenue includes the Company's hardware and software that function together to deliver the products' essential functionality. Software and hardware are also sold on a standalone basis. Services include customer support (software updates, upgrades and technical support), consulting, design services, installation services and training. Generally, contracts with customers contain multiple performance obligations, consisting of products and services. For these contracts, the Company accounts for individual performance obligations separately if they are considered distinct.

When an arrangement contains more than one performance obligation, the Company will allocate the transaction price to each performance obligation on a relative standalone selling price basis. The Company utilizes the observable price of goods and services when they are sold separately to similar customers in order to estimate standalone selling price.

The Company's software licenses typically provide a perpetual right to use the Company's software. The Company also sells term-based software licenses that expire and Software-as-a-Service ("SaaS")-based software which are referred to as subscription arrangements. The Company does not customize its software nor are installation services required, as the customer has a right to utilize internal resources or a third-party service company. The software and hardware are delivered before related services are provided and are functional without professional services or customer support. The Company has concluded that its software licenses are functional intellectual property that are distinct, as the user can benefit from the software on its own. Product revenue is typically recognized upon transfer of control or when the software is made available for download, as this is the point the user of the software can direct the use of, and obtain substantially all of the remaining benefits from, the functional intellectual property. The Company begins to recognize software revenue related to the renewal of subscription software licenses at the start of the subscription period.

The Company offers warranties on its products. Certain of the Company's warranties are considered to be assurance-type in nature, ensuring the product is functioning as intended. Assurance-type warranties do not represent separate performance obligations. The Company also sells separately-priced maintenance service contracts which qualify as service-type warranties and represent separate performance obligations. The Company does not allow and has no history of accepting product returns.

Services revenue includes revenue from customer support and other professional services. Customer support includes software updates on a when-and-if-available basis, telephone support, integrated web-based support and bug fixes or patches. The Company sells its customer support contracts at a percentage of list or net product price. Customer support revenue is recognized ratably over the term of the customer support agreement, which is typically one year.

The Company's professional services include consulting, technical support, resident engineer services, design services and installation services. Because control transfers over time, revenue is recognized based on progress toward completion of the performance obligation. The method to measure progress toward completion requires judgment and is based on the nature of the products or services to be provided. The Company generally uses the input method to measure progress for its contracts because it believes such method best depicts the transfer of assets to the customer, which occurs as the Company incurs costs for the contracts. However, in some instances, the Company uses the output method because it best depicts the transfer of asset to the customer. Under the cost-to-cost measure of progress, the progress toward completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. When the measure of progress is based upon expended labor, progress toward completion is measured as the ratio of labor time expended to date versus the total estimated labor time required to complete the performance obligation. Revenue is recorded proportionally as costs are incurred or as labor is expended. Costs to fulfill these obligations include internal labor as well as subcontractor costs.

Customer training includes courses offered by the Company. The related revenue is typically recognized as the training services are performed.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

The Company's typical performance obligations include the following:

Performance Obligation

When Performance Obligation is Typically Satisfied

When Payment is Typically Due

Software and Product Revenue

Software licenses (perpetual or term)

Upon transfer of control; typically, when made available for download (point in time)

Generally, within 30 days of invoicing except for term licenses, which may be paid for over time

Software licenses (subscription)

Upon activation of hosted site (over time)

Generally, within 30 days of invoicing

Hardware

When control of the hardware passes to the customer; typically, upon delivery (point in time)

Generally, within 30 days of invoicing

Software upgrades

Upon transfer of control; typically, when made available for download (point in time)

Generally, within 30 days of invoicing

Customer Support Revenue

Customer support

Ratably over the course of the support contract (over time)

Generally, within 30 days of invoicing

Professional Services

Other professional services (excluding training services)

As work is performed (over time)

Generally, within 30 days of invoicing (upon completion of services)

Training

When the class is taught (point in time)

Generally, within 30 days of services being performed

Significant Judgments

The Company's contracts with customers often include promises to transfer multiple products and services to the customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment.

Judgment is required to determine the standalone selling price ("SSP") for each distinct performance obligation. The Company typically has more than one SSP for individual products and services due to the stratification of those products and services by customers and circumstances. In these instances, the Company may use information such as the size of the customer and geographic region in determining the SSP.

Deferred Revenue

Deferred revenue is a contract liability representing amounts collected from or invoiced to customers in excess of revenue recognized. This results primarily from the billing of annual customer support agreements where the revenue is recognized over the term of the agreement. The value of deferred revenue will increase or decrease based on the timing of recognition of revenue.

Disaggregation of Revenue

The Company disaggregates its revenue from contracts with customers based on the nature of the products and services and the geographic regions in which each customer is domiciled. The Company's revenue for the three and six months ended June

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

30, 2024 and 2023 was disaggregated as follows:



Three months ended June 30, 2024	Product revenue		Service revenue (maintenance)		Service revenue (professional services)		Total revenue
United States	$	35,368	$	32,639	$	13,462	$	81,469
Europe, Middle East and Africa	33,239		17,491		8,188		58,918
Asia Pacific	26,081		9,759		2,597		38,437
Other	4,445		7,631		1,720		13,796
	$	99,133	$	67,520	$	25,967	$	192,620



Three months ended June 30, 2023	Product revenue		Service revenue (maintenance)		Service revenue (professional services)		Total revenue
United States	$	53,545	$	33,890	$	11,842	$	99,277
Europe, Middle East and Africa	28,831		17,998		7,679		54,508
Asia Pacific	31,810		10,164		2,269		44,243
Other	3,161		7,576		1,853		12,590
	$	117,347	$	69,628	$	23,643	$	210,618


Six months ended June 30, 2024	Product revenue		Service revenue (maintenance)		Service revenue (professional services)		Total revenue
United States	$	61,975	$	65,486	$	25,122	$	152,583
Europe, Middle East and Africa	74,928		35,187		15,886		126,001
Asia Pacific	42,714		20,000		5,524		68,238
Other	7,126		15,228		3,108		25,462
	$	186,743	$	135,901	$	49,640	$	372,284


Six months ended June 30, 2023	Product revenue		Service revenue (maintenance)		Service revenue (professional services)		Total revenue
United States	$	91,612	$	66,963	$	22,695	$	181,270
Europe, Middle East and Africa	56,266		38,125		14,254		108,645
Asia Pacific	57,425		19,536		5,413		82,374
Other	5,362		15,592		3,534		24,488
	$	210,665	$	140,216	$	45,896	$	396,777

The Company's product revenue from indirect sales through its channel partner program and from its direct sales program for the three and six months ended June 30, 2024 and 2023 was as follows (in thousands):


	Three months ended				Six months ended
	June 30, 2024		June 30, 2023		June 30, 2024		June 30, 2023
Indirect sales through channel partner program	$	31,282	$	37,590	$	76,957	$	73,504
Direct sales	67,851		79,757		109,786		137,161
	$	99,133	$	117,347	$	186,743	$	210,665

The Company's product revenue from sales to enterprise customers and from sales to service provider customers for the three and six months ended June 30, 2024 and 2023 was as follows (in thousands):

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)


	Three months ended				Six months ended
	June 30, 2024		June 30, 2023		June 30, 2024		June 30, 2023
Sales to enterprise customers	$	38,040	$	37,707	$	75,910	$	65,119