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~~June 30, ~~2020~~2021
☐						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.)

~~4 Technology Park Drive, Westford, Massachusetts 01886~~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 ~~October 26, 2020,~~July 22, 2021, there were ~~145,396,631~~148,114,436 shares of the registrant's common stock, $0.0001 par value per share, outstanding.

RIBBON COMMUNICATIONS INC.

FORM 10-Q

QUARTERLY PERIOD ENDED ~~SEPTEMBER~~JUNE 30, ~~2020~~2021

TABLE OF CONTENTS


Item	Item		Page	Item		Page
		Cautionary Note Regarding Forward-Looking Statements	3		Cautionary Note Regarding Forward-Looking Statements	3

PART I FINANCIAL INFORMATION	PART I FINANCIAL INFORMATION			PART I FINANCIAL INFORMATION
1.	1.	Financial Statements		1.	Financial Statements
		Condensed Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019 (unaudited)	4		Condensed Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020 (unaudited)	4
		Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2020 and 2019 (unaudited)	5		Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2021 and 2020 (unaudited)	5
		Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2020 and 2019 (unaudited)	6		Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2021 and 2020 (unaudited)	6
		Condensed Consolidated Statements of Stockholders' Equity for the Three and Nine Months September 30, 2020 and 2019 (unaudited)	7		Condensed Consolidated Statements of Stockholders' Equity for the Three and Six Months Ended June 30, 2021 and 2020 (unaudited)	7
		Condensed Consolidated Statements of Cash Flows for the Nine Months September 30, 2020 and 2019 (unaudited)	9		Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2021 and 2020 (unaudited)	9
		Notes to Condensed Consolidated Financial Statements (unaudited)	11		Notes to Condensed Consolidated Financial Statements (unaudited)	11
2.	2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	43	2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	42
3.	3.	Quantitative and Qualitative Disclosures About Market Risk	58	3.	Quantitative and Qualitative Disclosures About Market Risk	56
4.	4.	Controls and Procedures	58	4.	Controls and Procedures	57

PART II OTHER INFORMATION	PART II OTHER INFORMATION			PART II OTHER INFORMATION
1.	1.	Legal Proceedings	59	1.	Legal Proceedings	57
1A.		Risk Factors	59

2.	2.	Unregistered Sales of Equity Securities and Use of Proceeds	64	2.	Unregistered Sales of Equity Securities and Use of Proceeds	58
5.	5.	Other Information	64	5.	Other Information	58
6.	6.	Exhibits	65	6.	Exhibits	59
		Signatures	66		Signatures	59

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, expected impacts of the ongoing COVID-19 pandemic, beliefs about our ~~market capitalization,~~ business strategy, ~~statements about~~expected benefits from our acquisition of ECI Telecom Group Ltd. ("ECI) and the ~~potential impact~~sale of our Kandy Communications business, availability of components for the ~~merger and acquisition transactions described herein,~~manufacturing of our products, plans and objectives of management for future operations, plans for future cost reductions, ~~changes to our operating segments,~~ if any, restructuring activities, and plans for future product offerings, development 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, risks related to the ongoing COVID-19 pandemic on the global economy and financial markets as well as on the Company, our customers and suppliers, which may impact our sales, gross margin, customer demand and our ability to supply our products to our customers; ~~risks that the businesses of ECI Telecom Group Ltd. ("ECI") will not be integrated successfully or that the combined companies will not realize estimated cost savings;~~ failure to realize anticipated benefits of ~~the merger with~~our acquisition of ECI; ~~satisfaction of the closing conditions for the sale of the Kandy Communications Business on a timely basis or at all;~~ failure to achieve the expected benefits from the sale of ~~the~~our Kandy Communications ~~Business;~~business; supply chain disruptions resulting from component availability and/or geopolitical instabilities and disputes; unpredictable fluctuations in quarterly revenue and operating results; 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; ~~consolidation in the telecommunications industry;~~ credit risks; the timing of customer purchasing decisions and our recognition of revenues; economic conditions; ~~our ability to recruit and retain key personnel;~~ the impact of restructuring and cost-containment activities; litigation; market acceptance of our products and services; 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" of this Quarterly Report on Form 10-Q 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, ~~2019 as updated by Part II, Item 1A. "Risk Factors" of this Quarterly Reports on Form 10-Q. Also, any~~2020. 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.

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, 2020		December 31, 2019			June 30, 2021		December 31, 2020
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	103,698	$	44,643	Cash and cash equivalents	$	112,155	$	128,428
Restricted cash	Restricted cash	7,198		0		Restricted cash	2,646		7,269

Accounts receivable, net	Accounts receivable, net	207,813		192,706		Accounts receivable, net	219,867		237,738
Inventory	Inventory	50,974		14,800		Inventory	46,556		45,750

Other current assets	Other current assets	33,159		27,146		Other current assets	31,739		28,461
Total current assets	Total current assets	402,842		279,295		Total current assets	412,963		447,646
Property and equipment, net	Property and equipment, net	48,432		28,976		Property and equipment, net	49,287		48,888
Intangible assets, net	Intangible assets, net	432,914		213,366		Intangible assets, net	384,352		417,356
Goodwill	Goodwill	416,892		224,896		Goodwill	416,892		416,892

Investments						Investments	106,012		115,183
Deferred income taxes	Deferred income taxes	8,750		4,959		Deferred income taxes	10,915		10,651
Operating lease right-of-use assets	Operating lease right-of-use assets	61,648		36,654		Operating lease right-of-use assets	57,869		69,757
Other assets	Other assets	34,600		26,762		Other assets	20,698		20,892
		$	1,406,078	$	814,908		$	1,458,988	$	1,547,265
Liabilities and Stockholders' Equity	Liabilities and Stockholders' Equity					Liabilities and Stockholders' Equity
Current liabilities:	Current liabilities:					Current liabilities:
Current portion of term debt	Current portion of term debt	$	13,909	$	2,500	Current portion of term debt	$	20,058	$	15,531
Revolving credit facility		0		8,000

Accounts payable	Accounts payable	60,784		31,412		Accounts payable	57,939		63,387
Accrued expenses and other	Accrued expenses and other	133,875		56,700		Accrued expenses and other	89,762		134,865
Operating lease liabilities	Operating lease liabilities	17,757		7,719		Operating lease liabilities	17,974		17,023
Deferred revenue	Deferred revenue	93,447		100,406		Deferred revenue	101,471		96,824

Total current liabilities	Total current liabilities	319,772		206,737		Total current liabilities	287,204		327,630
Long-term debt, net of current	Long-term debt, net of current	373,026		45,995		Long-term debt, net of current	359,333		369,035

Operating lease liabilities, net of current	Operating lease liabilities, net of current	51,328		37,202		Operating lease liabilities, net of current	62,615		72,614
Deferred revenue, net of current	Deferred revenue, net of current	21,285		20,482		Deferred revenue, net of current	22,036		26,010
Deferred income taxes	Deferred income taxes	17,532		4,648		Deferred income taxes	17,993		16,842

Other long-term liabilities	Other long-term liabilities	67,694		16,589		Other long-term liabilities	40,526		48,281
Total liabilities	Total liabilities	850,637		331,653		Total liabilities	789,707		860,412
Commitments and contingencies (Note 19)	Commitments and contingencies (Note 19)					Commitments and contingencies (Note 19)	0		0
Stockholders' equity:	Stockholders' equity:					Stockholders' equity:
Preferred stock, $0.01 par value per share; 10,000,000 shares authorized, NaN issued and outstanding	Preferred stock, $0.01 par value per share; 10,000,000 shares authorized, NaN issued and outstanding	0		0		Preferred stock, $0.01 par value per share; 10,000,000 shares authorized, NaN issued and outstanding	0		0
Common stock, $0.0001 par value per share; 240,000,000 shares authorized; 145,226,884 shares issued and outstanding at September 30, 2020; 110,471,995 shares issued and outstanding at December 31, 2019		15		11
Common stock, $0.0001 par value per share; 240,000,000 shares authorized; 148,057,301 shares issued and outstanding at June 30, 2021; 145,425,248 shares issued and outstanding at December 31, 2020						Common stock, $0.0001 par value per share; 240,000,000 shares authorized; 148,057,301 shares issued and outstanding at June 30, 2021; 145,425,248 shares issued and outstanding at December 31, 2020	15		15
Additional paid-in capital	Additional paid-in capital	1,866,961		1,747,784		Additional paid-in capital	1,868,066		1,870,256
Accumulated deficit	Accumulated deficit	(1,302,236)		(1,267,067)		Accumulated deficit	(1,199,922)		(1,178,476)
Accumulated other comprehensive (loss) income		(9,299)		2,527
Accumulated other comprehensive income (loss)						Accumulated other comprehensive income (loss)	1,122		(4,942)
Total stockholders' equity	Total stockholders' equity	555,441		483,255		Total stockholders' equity	669,281		686,853
		$	1,406,078	$	814,908		$	1,458,988	$	1,547,265

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				Nine months ended					Three months ended				Six months ended
		September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019			June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020
Revenue:	Revenue:									Revenue:
Product	Product	$	128,926	$	61,152	$	325,687	$	180,691	Product	$	113,129	$	120,862	$	211,018	$	196,761
Service	Service	102,192		76,501		273,906		221,311		Service	98,081		89,631		192,964		171,714
Total revenue	Total revenue	231,118		137,653		599,593		402,002		Total revenue	211,210		210,493		403,982		368,475
Cost of revenue:	Cost of revenue:									Cost of revenue:
Product	Product	70,188		31,476		176,650		101,056		Product	46,641		50,579		91,086		86,558
Service	Service	37,619		27,300		105,745		84,807		Service	36,142		36,647		73,922		68,126
Total cost of revenue	Total cost of revenue	107,807		58,776		282,395		185,863		Total cost of revenue	82,783		87,226		165,008		154,684
Gross profit	Gross profit	123,311		78,877		317,198		216,139		Gross profit	128,427		123,267		238,974		213,791
Operating expenses:	Operating expenses:									Operating expenses:
Research and development	Research and development	49,113		34,222		143,204		105,456		Research and development	46,797		51,796		94,207		94,091
Sales and marketing	Sales and marketing	41,604		28,227		115,572		87,179		Sales and marketing	34,881		33,898		72,099		64,869
General and administrative	General and administrative	16,021		9,673		48,320		40,833		General and administrative	12,734		15,094		28,287		32,299
Acquisition- and integration-related		1,366		1,697		14,607		6,861
Amortization of acquired intangible assets										Amortization of acquired intangible assets	17,181		14,669		33,004		29,003
Acquisition-, disposal- and integration-related										Acquisition-, disposal- and integration-related	1,052		857		2,249		13,241
Restructuring and related	Restructuring and related	3,290		2,372		10,726		16,448		Restructuring and related	2,830		5,361		8,780		7,436
Total operating expenses	Total operating expenses	111,394		76,191		332,429		256,777		Total operating expenses	115,475		121,675		238,626		240,939
Income (loss) from operations	Income (loss) from operations	11,917		2,686		(15,231)		(40,638)		Income (loss) from operations	12,952		1,592		348		(27,148)
Interest expense, net	Interest expense, net	(6,854)		(726)		(15,649)		(3,352)		Interest expense, net	(3,048)		(5,400)		(8,867)		(8,795)
Other income (expense), net	Other income (expense), net	407		(507)		(2,844)		70,128		Other income (expense), net	17,180		(2,407)		(8,268)		(3,251)
Income (loss) before income taxes	Income (loss) before income taxes	5,470		1,453		(33,724)		26,138		Income (loss) before income taxes	27,084		(6,215)		(16,787)		(39,194)
Income tax benefit (provision)		782		197		(1,445)		(5,850)
Income tax provision										Income tax provision	(3,843)		(2,036)		(4,659)		(2,227)
Net income (loss)	Net income (loss)	$	6,252	$	1,650	$	(35,169)	$	20,288	Net income (loss)	$	23,241	$	(8,251)	$	(21,446)	$	(41,421)
Earnings (loss) per share
Earnings (loss) per share:										Earnings (loss) per share:
Basic	Basic	$	0.04	$	0.01	$	(0.26)	$	0.19	Basic	$	0.16	$	(0.06)	$	(0.15)	$	(0.31)
Diluted	Diluted	$	0.04	$	0.01	$	(0.26)	$	0.18	Diluted	$	0.15	$	(0.06)	$	(0.15)	$	(0.31)
Weighted average shares used to compute earnings (loss) per share:	Weighted average shares used to compute earnings (loss) per share:									Weighted average shares used to compute earnings (loss) per share:
Basic	Basic	144,948		110,080		136,837		109,523		Basic	147,467		144,483		146,706		132,737
Diluted	Diluted	151,680		110,756		136,837		110,100		Diluted	154,160		144,483		146,706		132,737

See notes to the unaudited condensed consolidated financial statements.

RIBBON COMMUNICATIONS INC.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(in thousands)

(unaudited)

Three months ended Nine months ended
September 30,
2020 September 30,
2019 September 30,
2020 September 30,
2019
Net income (loss) $ 6,252 $ 1,650 $ (35,169) $ 20,288
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on interest rate swap 640 0 (12,857) 0
Foreign currency translation adjustments 184 270 1,031 326
Unrealized gain on available-for sale marketable securities, net of reclassification adjustments for realized amounts 0 0 0 590
Other comprehensive income (loss), net of tax 824 270 (11,826) 916
Comprehensive income (loss) $ 7,076 $ 1,920 $ (46,995) $ 21,204


	Three months ended				Six months ended
	June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020
Net income (loss)	$	23,241	$	(8,251)	$	(21,446)	$	(41,421)
Other comprehensive (loss) income, net of tax:
Unrealized (loss) gain on interest rate swap	(205)		(3,970)		6,464		(13,497)
Foreign currency translation adjustments	(447)		70		(400)		847



Other comprehensive (loss) income, net of tax	(652)		(3,900)		6,064		(12,650)
Comprehensive income (loss), net of tax	$	22,589	$	(12,151)	$	(15,382)	$	(54,071)

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 September 30, 2020
Three months ended June 30, 2021													Three months ended June 30, 2021
		Common stock												Common stock
		Shares	Amount		Additional paid-in capital		Accumulated deficit		Accumulated other comprehensive (loss) income		Total stockholders' equity			Shares	Amount		Additional paid-in capital		Accumulated deficit		Accumulated other comprehensive income (loss)		Total stockholders' equity
Balance at July 1, 2020		144,856,764	$	14	$	1,863,374	$	(1,308,488)	$	(10,123)	$	544,777
Balance at April 1, 2021													Balance at April 1, 2021	147,358,590	$	15	$	1,864,107	$	(1,223,163)	$	1,774	$	642,733

Exercise of stock options	Exercise of stock options	2,926			6						6		Exercise of stock options	213									—
Vesting of restricted stock awards and units	Vesting of restricted stock awards and units	454,178	1								1		Vesting of restricted stock awards and units	802,576									—
Vesting of performance-based stock units		7,886									0

Shares of restricted stock returned to the Company under net share settlements to satisfy tax withholding obligations	Shares of restricted stock returned to the Company under net share settlements to satisfy tax withholding obligations	(94,870)			(388)						(388)		Shares of restricted stock returned to the Company under net share settlements to satisfy tax withholding obligations	(104,078)			(831)						(831)

Stock-based compensation expense	Stock-based compensation expense				3,969						3,969		Stock-based compensation expense				4,790						4,790
Other comprehensive income									824		824
Other comprehensive loss													Other comprehensive loss								(652)		(652)
Net income	Net income						6,252				6,252		Net income						23,241				23,241
Balance at September 30, 2020		145,226,884	$	15	$	1,866,961	$	(1,302,236)	$	(9,299)	$	555,441
Balance at June 30, 2021													Balance at June 30, 2021	148,057,301	$	15	$	1,868,066	$	(1,199,922)	$	1,122	$	669,281


Six months ended June 30, 2021													Six months ended June 30, 2021
														Common stock
														Shares	Amount		Additional paid-in capital		Accumulated deficit		Accumulated other comprehensive (loss) income		Total stockholders' equity
Nine months ended September 30, 2020
		Common stock
		Shares	Amount		Additional paid-in capital		Accumulated deficit		Accumulated other comprehensive (loss) income		Total stockholders' equity
Balance at January 1, 2020		110,471,995	$	11	$	1,747,784	$	(1,267,067)	$	2,527	$	483,255
Balance at January 1, 2021													Balance at January 1, 2021	145,425,248	$	15	$	1,870,256	$	(1,178,476)	$	(4,942)	$	686,853

Exercise of stock options	Exercise of stock options	16,128			29						29		Exercise of stock options	13,602			24						24
Vesting of restricted stock awards and units	Vesting of restricted stock awards and units	1,971,730	1								1		Vesting of restricted stock awards and units	2,465,204									—
Vesting of performance-based stock units	Vesting of performance-based stock units	323,752									0		Vesting of performance-based stock units	1,525,681									—
Shares of restricted stock returned to the Company under net share settlements to satisfy tax withholding obligations	Shares of restricted stock returned to the Company under net share settlements to satisfy tax withholding obligations	(373,272)			(1,196)						(1,196)		Shares of restricted stock returned to the Company under net share settlements to satisfy tax withholding obligations	(1,372,434)			(12,064)						(12,064)
Shares issued as consideration in connection with the acquisition of ECI Telecom Group Ltd.		32,500,000	3		108,547						108,550
Shares issued as consideration in connection with the acquisition of Anova Data, Inc.		316,551			1,630						1,630

Stock-based compensation expense	Stock-based compensation expense				10,167						10,167		Stock-based compensation expense				9,850						9,850
Other comprehensive loss									(11,826)		(11,826)
Other comprehensive income													Other comprehensive income								6,064		6,064
Net loss	Net loss						(35,169)				(35,169)		Net loss						(21,446)				(21,446)
Balance at September 30, 2020		145,226,884	$	15	$	1,866,961	$	(1,302,236)	$	(9,299)	$	555,441
Balance at June 30, 2021													Balance at June 30, 2021	148,057,301	$	15	$	1,868,066	$	(1,199,922)	$	1,122	$	669,281

RIBBON COMMUNICATIONS INC.

Condensed Consolidated Statements of Stockholders' Equity (continued)

(in thousands, except shares)

(unaudited)

Three months ended September 30, 2019
Common stock
Shares Amount Additional paid-in capital Accumulated deficit Accumulated other comprehensive (loss) income Total stockholders' equity
Balance at July 1, 2019 110,007,237 $ 11 $ 1,740,563 $ (1,118,354) $ 4,349 $ 626,569
Exercise of stock options 19,009 43 43
Vesting of restricted stock awards and units 130,580 0
Shares of restricted stock returned to the Company under net share settlements to satisfy tax withholding obligations (501) (2) (2)
Stock-based compensation expense 2,485 2,485
Other comprehensive income 270 270
Net income 1,650 1,650
Balance at September 30, 2019 110,156,325 $ 11 $ 1,743,089 $ (1,116,704) $ 4,619 $ 631,015



Three months ended June 30, 2020
	Common stock
	Shares	Amount		Additional paid-in capital		Accumulated deficit		Accumulated other comprehensive (loss) income		Total stockholders' equity
Balance at April 1, 2020	144,351,304	$	14	$	1,860,150	$	(1,300,237)	$	(6,223)	$	553,704


Exercise of stock options	10,188			18						18
Vesting of restricted stock awards and units	500,570									—

Shares of restricted stock returned to the Company under net share settlements to satisfy tax withholding obligations	(5,298)			(16)						(16)






Stock-based compensation expense				3,222						3,222
Other comprehensive loss								(3,900)		(3,900)
Net loss						(8,251)				(8,251)
Balance at June 30, 2020	144,856,764	$	14	$	1,863,374	$	(1,308,488)	$	(10,123)	$	544,777

Nine months ended September 30, 2019
Common stock
Shares Amount Additional paid-in capital Accumulated deficit Accumulated other comprehensive (loss) income Total stockholders' equity
Balance at January 1, 2019 106,815,636 $ 11 $ 1,723,576 $ (1,136,992) $ 3,703 $ 590,298
Issuance of common stock in connection with employee stock purchase plan 139,390 506 506
Exercise of stock options 126,015 233 233
Vesting of restricted stock awards and units 1,296,966 0
Vesting of performance-based stock units 9,466 0
Shares of restricted stock returned to the Company under net share settlements to satisfy tax withholding obligations (204,027) (1,082) (1,082)
Shares issued as consideration in connection with the acquisition of Anova Data, Inc. 2,948,793 15,186 15,186
Reclassification of liability to equity for bonuses converted to stock 1,052 1,052
Repurchase and retirement of common stock (975,914) (4,536) (4,536)
Stock-based compensation expense 8,154 8,154
Other comprehensive income 916 916
Net income 20,288 20,288
Balance at September 30, 2019 110,156,325 $ 11 $ 1,743,089 $ (1,116,704) $ 4,619 $ 631,015


Six months ended June 30, 2020
	Common stock
	Shares	Amount		Additional paid-in capital		Accumulated deficit		Accumulated other comprehensive income (loss)		Total stockholders' equity
Balance at January 1, 2020	110,471,995	$	11	$	1,747,784	$	(1,267,067)	$	2,527	$	483,255


Exercise of stock options	13,202			23						23
Vesting of restricted stock awards and units	1,517,552									—
Vesting of performance-based stock units	315,866									—
Shares of restricted stock returned to the Company under net share settlements to satisfy tax withholding obligations	(278,402)			(808)						(808)
Shares issued as consideration in connection with the acquisition of ECI Telecom Group Ltd.	32,500,000	3		108,547						108,550
Shares issued as consideration in connection with the acquisition of Anova Data, Inc.	316,551			1,630						1,630




Stock-based compensation expense				6,198						6,198
Other comprehensive loss								(12,650)		(12,650)
Net loss						(41,421)				(41,421)
Balance at June 30, 2020	144,856,764	$	14	$	1,863,374	$	(1,308,488)	$	(10,123)	$	544,777

See notes to the unaudited condensed consolidated financial statements.

RIBBON COMMUNICATIONS INC.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)


		Nine months ended					Six months ended
		September 30, 2020		September 30, 2019			June 30, 2021		June 30, 2020
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net (loss) income		$	(35,169)	$	20,288
Adjustments to reconcile net (loss) income to cash flows provided by operating activities:
Net loss						Net loss	$	(21,446)	$	(41,421)
Adjustments to reconcile net loss to cash flows provided by operating activities:						Adjustments to reconcile net loss to cash flows provided by operating activities:
Depreciation and amortization of property and equipment	Depreciation and amortization of property and equipment	12,754		8,824		Depreciation and amortization of property and equipment	8,475		8,260
Amortization of intangible assets	Amortization of intangible assets	45,352		36,829		Amortization of intangible assets	33,004		29,003
Amortization of debt issuance costs	Amortization of debt issuance costs	4,915		268		Amortization of debt issuance costs	3,684		2,554
Stock-based compensation	Stock-based compensation	10,167		8,154		Stock-based compensation	9,850		6,198

Deferred income taxes	Deferred income taxes	(2,455)		4,559		Deferred income taxes	918		97
Gain on sale of business						Gain on sale of business	(2,772)		0
Decrease in fair value of investments						Decrease in fair value of investments	9,171		0
Reduction in deferred purchase consideration	Reduction in deferred purchase consideration	(69)		(8,124)		Reduction in deferred purchase consideration	0		(69)
Foreign currency exchange losses	Foreign currency exchange losses	3,162		1,042		Foreign currency exchange losses	2,013		3,463

Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Accounts receivable	Accounts receivable	42,489		25,598		Accounts receivable	17,360		45,422
Inventory	Inventory	6,285		8,387		Inventory	(1,527)		773
Other operating assets	Other operating assets	36,416		(20,510)		Other operating assets	9,874		14,282
Accounts payable	Accounts payable	(54,489)		(20,260)		Accounts payable	(3,508)		(41,515)
Accrued expenses and other long-term liabilities	Accrued expenses and other long-term liabilities	10,143		(21,535)		Accrued expenses and other long-term liabilities	(57,739)		9,111

Deferred revenue	Deferred revenue	(14,253)		(20,889)		Deferred revenue	673		554
Net cash provided by operating activities	Net cash provided by operating activities	65,248		22,631		Net cash provided by operating activities	8,030		36,712
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Purchases of property and equipment	Purchases of property and equipment	(18,685)		(8,594)		Purchases of property and equipment	(10,570)		(14,891)
Business acquisitions, net of cash acquired	Business acquisitions, net of cash acquired	(346,852)		0		Business acquisitions, net of cash acquired	0		(346,852)
Proceeds from sale of business						Proceeds from sale of business	2,944		0

Maturities of marketable securities		0		7,295

Proceeds from the sale of fixed assets	Proceeds from the sale of fixed assets	43,500		0		Proceeds from the sale of fixed assets	0		43,500

Net cash used in investing activities	Net cash used in investing activities	(322,037)		(1,299)		Net cash used in investing activities	(7,626)		(318,243)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Borrowings under revolving line of credit	Borrowings under revolving line of credit	615		109,000		Borrowings under revolving line of credit	0		615
Principal payments on revolving line of credit	Principal payments on revolving line of credit	(8,615)		(130,000)		Principal payments on revolving line of credit	0		(8,615)
Proceeds from issuance of term debt	Proceeds from issuance of term debt	478,500		50,000		Proceeds from issuance of term debt	74,625		403,500
Principal payment of debt, related party		0		(24,716)
Principal payments of long-term debt		(131,279)		(625)
Payment of deferred purchase consideration		0		(21,876)

Principal payments of term debt						Principal payments of term debt	(82,147)		(52,400)

Principal payments of finance leases	Principal payments of finance leases	(971)		(698)		Principal payments of finance leases	(507)		(668)
Payment of debt issuance costs	Payment of debt issuance costs	(14,065)		(891)		Payment of debt issuance costs	(789)		(10,573)
Proceeds from the sale of common stock in connection with employee stock purchase plan		0		506

Proceeds from the exercise of stock options	Proceeds from the exercise of stock options	29		233		Proceeds from the exercise of stock options	24		23
Payment of tax withholding obligations related to net share settlements of restricted stock awards	Payment of tax withholding obligations related to net share settlements of restricted stock awards	(1,196)		(1,082)		Payment of tax withholding obligations related to net share settlements of restricted stock awards	(12,064)		(808)
Repurchase of common stock		0		(4,536)

Net cash provided by (used in) financing activities		323,018		(24,685)

Net cash (used in) provided by financing activities						Net cash (used in) provided by financing activities	(20,858)		331,074
Effect of exchange rate changes on cash, cash equivalents and restricted cash	Effect of exchange rate changes on cash, cash equivalents and restricted cash	24		56		Effect of exchange rate changes on cash, cash equivalents and restricted cash	(442)		(142)
Net increase (decrease) in cash, cash equivalents and restricted cash		66,253		(3,297)
Cash and cash equivalents, beginning of year		44,643		43,694
Net (decrease) increase in cash, cash equivalents and restricted cash						Net (decrease) increase in cash, cash equivalents and restricted cash	(20,896)		49,401
Cash, cash equivalents and restricted cash, beginning of year						Cash, cash equivalents and restricted cash, beginning of year	135,697		44,643
Cash, cash equivalents and restricted cash, end of period	Cash, cash equivalents and restricted cash, end of period	$	110,896	$	40,397	Cash, cash equivalents and restricted cash, end of period	$	114,801	$	94,044

RIBBON COMMUNICATIONS INC.

Condensed Consolidated Statements of Cash Flows (continued)

(in thousands)

(unaudited)


		Nine months ended					Six months ended
		September 30, 2020		September 30, 2019			June 30, 2021		June 30, 2020
Supplemental disclosure of cash flow information:	Supplemental disclosure of cash flow information:					Supplemental disclosure of cash flow information:
Interest paid	Interest paid	$	10,845	$	3,649	Interest paid	$	8,009	$	6,275
Income taxes paid	Income taxes paid	$	6,652	$	3,527	Income taxes paid	$	9,818	$	4,014
Income tax refunds received	Income tax refunds received	$	196	$	291	Income tax refunds received	$	974	$	196

Supplemental disclosure of non-cash investing activities:	Supplemental disclosure of non-cash investing activities:					Supplemental disclosure of non-cash investing activities:
Capital expenditures incurred, but not yet paid	Capital expenditures incurred, but not yet paid	$	4,111	$	560	Capital expenditures incurred, but not yet paid	$	2,090	$	3,522
Property and equipment acquired under finance leases		$	0	$	150

Acquisition purchase consideration - deferred payments		$	1,630	$	1,700

Common stock issued as purchase consideration	Common stock issued as purchase consideration	$	108,550	$	15,186	Common stock issued as purchase consideration	$	0	$	110,180

Supplemental disclosure of non-cash financing activities:	Supplemental disclosure of non-cash financing activities:					Supplemental disclosure of non-cash financing activities:
Total fair value of restricted stock awards, restricted stock units and performance-based stock units		$	5,551	$	6,765
Total fair value of restricted stock awards, restricted stock units and performance-based stock units on date vested						Total fair value of restricted stock awards, restricted stock units and performance-based stock units on date vested	$	33,410	$	5,165

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 next generation software solutions to telecommunications, wireless and cable service providers and enterprises of all sizes across industry verticals. With the March 3, 2020 completion of the merger with ECI Telecom Group Ltd ("ECI"), Ribbon now also provides optical and packet networking products and software-defined solutionscommunications technology to service providers and ~~critical infrastructure sectors like~~enterprises. The Company provides a broad range of software and high-performance hardware products, solutions and services that enable the secure delivery of data and voice communications for residential consumers and for small, medium, and large enterprises and industry verticals such as finance, education, government, utilities ~~government~~ and ~~defense. With~~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 ~~1,000 customers~~NaN countries around the globe, including some of the largest telecommunications service providers, enterprises and utilities in the world, Ribbon enables its customers to evolve and modernize their communications networks and packet optical networking infrastructures through software and hardware. By securing and enabling reliable and scalable Internet Protocol ("IP") and packet optical networks and applications, Ribbon helps its customers adopt the next generation of software-, cloud- and edge-based technologies to drive new, incremental revenue, while protecting their existing revenue streams. Ribbon's software solutions provide a secure way for its customers to connect and leverage multivendor, multiprotocol communications systems and applications across their networks and the cloud in a rapidly changing ecosystem of IP-enabled devices, such as smartphones and tablets. In addition, Ribbon's software solutions secure cloud-based delivery of unified communications ("UC") solutions - both for service providers transforming to a cloud-based network and for enterprises using cloud-based UC - and support the increasing demand on network infrastructure created by ongoing IP traffic growth and the projected demand related to increased traffic from 5G applications and devices. Ribbon sells its products and solutions through both direct sales and indirect channels, leveraging the reach and local presence of resellers, and provides ongoing support to its customers through a global services team with experience in design, deployment and maintenance of some of the world's largest software IP networks.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").

On December 1, 2020 (the "Kandy Sale Date"), American Virtual Cloud Technologies, Inc. ("AVCT") completed the purchase of the Company's cloud-based enterprise service business (the "Kandy Communications Business") and accordingly, the revenue and expenses of the Kandy Communications Business are excluded from the Company's condensed consolidated financial statements for the three and six months ended June 30, 2021.

On March 3, 2020 (the "ECI ~~Merger~~Acquisition Date"), a subsidiary of the Company merged (the "ECI Acquisition") with ECI ~~(the "ECI Merger"~~Telecom Group Ltd ("ECI"). The financial results of ECI are included in the Company's condensed consolidated financial statements for the ~~periods~~period subsequent to the ECI ~~Merger Date.~~

On February 28, 2019 (the "Anova Acquisition Date"), the Company acquired the business and technology assets of Anova Data, Inc. ("Anova"). The financial results of Anova are included in the Company's condensed consolidated financial statements for the periods subsequent to the Anova Acquisition Date.

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, ~~2019~~2020 (the "Annual Report"), which was filed with the SEC on February ~~28,~~26, 2021.

Operating Segments

The Company's chief operating decision maker (the "CODM") is its President and Chief Executive Officer. Effective in the fourth quarter of 2020 and in connection with the ECI Acquisition, the CODM began to assess the Company's performance based on the performance of 2 separate organizations within Ribbon: the Cloud and Edge segment ("Cloud and Edge") and the IP Optical Networks segment ("IP Optical Networks"). Financial information for the IP Optical Networks segment included in the Company's financial results for the six months ended June 30, 2020 is for the period subsequent to the ECI Acquisition Date through June 30, 2020.

Reclassifications

In the fourth quarter of 2020, the Company reclassified amounts recorded for amortization of acquired intangible assets in prior presentations from Cost of revenue - product and Sales and marketing to a separate line included in operating expenses in the condensed consolidated statements of operations, as management believes this presentation enhances the comparability of the Company's financial statements with industry peers. These reclassifications also did not impact the condensed consolidated balance sheets or statements of cash flows for any historical periods. The Company did not reclassify depreciation of property and equipment related to production activities from cost of revenue to other accounts.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

These reclassifications for the three and six months ended June 30, 2020 were as follows (in thousands):


	Three months ended June 30, 2020			Six months ended June 30, 2020
		Prior presentation		Amounts reclassified		Revised presentation		Prior presentation		Amounts reclassified		Revised presentation
Product revenue		$	120,862	0		$	120,862	$	196,761	0		$	196,761
Service revenue		89,631		0		89,631		171,714		0		171,714
Total revenue		210,493		0		210,493		368,475		0		368,475
Cost of revenue - product		61,529		(10,950)		50,579		106,462		(19,904)		86,558
Cost of revenue - service		36,647		0		36,647		68,126		0		68,126
Total cost of revenue		98,176		(10,950)		87,226		174,588		(19,904)		154,684
Total gross profit		112,317		10,950		123,267		193,887		19,904		213,791
Research and development		51,796		0		51,796		94,091		0		94,091
Sales and marketing		37,617		(3,719)		33,898		73,968		(9,099)		64,869
General and administrative		15,094		0		15,094		32,299		0		32,299
Amortization of acquired intangible assets		0		14,669		14,669		0		29,003		29,003

Acquisition-, disposal- and integration-related		857		0		857		13,241		0		13,241
Restructuring and related		5,361		0		5,361		7,436		0		7,436
Total operating expenses		110,725		10,950		121,675		221,035		19,904		240,939
Income (loss) from operations		$	1,592	$	0	$	1,592	$	(27,148)	$	0	$	(27,148)

Certain reclassifications, not affecting previously reported net loss, have been made to the previously issued financial statements to conform to the current period presentation.

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 nine months ended September 30, 2020, with the exception of policies on transfers of financial assets, warranty costs, and research and development grants. Additionally, effective in 2020, the Company changed its annual goodwill impairment testing date from November 30 to October 1. The Company does not expect this change to have a material impact on its condensed consolidated financial statements.

~~Transfers of Financial Assets~~. The Company's ECI subsidiary 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

~~RIBBON COMMUNICATIONS INC.~~

~~Notes to Condensed Consolidated Financial Statements (Continued)~~

~~(unaudited)~~

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. During the three months ended ~~September~~June 30, 2020, the Company received $35.3 million of cash from the sale of certain accounts receivable and recorded $0.3 million of interest expense in connection with these transactions. During the nine months ended September 30, 2020, the Company received $81.1 million of cash from the sale of certain accounts receivable and recorded $0.7 million of interest expense in connection with these transactions.

~~Warranty~~. The Company records warranty liabilities for estimated costs of fulfilling its obligations under standard limited hardware and software warranties at the time of sale. The liability for standard warranties is included in Accrued expenses and other and Other non-current liabilities in the condensed consolidated balance sheet at September 30, 2020. The specific warranty terms and conditions vary depending upon the country in which the Company does business, but generally includes material costs, technical support, labor and associated overhead over a period ranging from ~~one~~ to three years. The Company's liability for product warranties was $15.2 million, of which $6.7 million was current and included in Accrued expenses and other and $8.5 million was long-term and included in Other long-term liabilities in the Company's condensed consolidated balance sheet at September 30, 2020. The Company did not have a warranty accrual at December 31, 2019.

~~Research and Development Grants~~. The Company records grants received from the Office of the Innovation Authority of the Israeli Ministry of Economics (the "IIA") as a reduction to research and development expense. Royalties payable to the IIA are recognized pursuant to sales of related products and are classified as Cost of revenue.2021.

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.

~~Reclassifications~~

~~Certain reclassifications, not affecting previously reported net loss, have been made~~RIBBON COMMUNICATIONS INC.

Notes to ~~the previously issued financial statements to conform to the current period presentation.~~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.

At ~~September~~June 30, ~~2020,~~2021, the Company had ~~$7.2~~$2.6 million of restricted cash, ~~comprised of $4.3 million restricted in connection with a tax payment on certain fixed assets formerly held by ECI that were sold in connection with the ECI Merger, and $2.9 million~~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.

12At December 31, 2020, the Company had $7.3 million of restricted cash, comprised of $4.6 million restricted in connection with a tax payment on certain fixed assets formerly held by ECI that were sold in connection with the ECI Acquisition, and $2.7 million of 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.

~~RIBBON COMMUNICATIONS INC.~~Transfers of Financial Assets

~~Notes~~

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 ~~Condensed Consolidated Financial Statements (Continued)~~

~~(unaudited)~~

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. During the three and six months ended June 30, 2021, the Company received $32.1 million and $63.2 million, respectively, of cash from the sale of certain accounts receivable and recorded $0.2 million and $0.4 million, respectively, of interest expense in connection with these transactions. During the three and six months ended June 30, 2020, the Company received $30.7 million and $45.8 million, respectively, of cash from the sale of certain accounts receivable and recorded $0.3 million and $0.4 million, respectively, of interest expense in connection with these transactions.

Fair Value of Financial Instruments and Fair Value Hierarchy

The carrying amounts of the Company's financial instruments approximate their fair values and include cash equivalents, accounts receivable, borrowings under a revolving credit facility, accounts payable and long-term debt.

~~Operating Segments~~

The Company currently operates in a single segment, as the chief operating decision maker makes decisions and assesses performance at the company level. The Company's chief operating decision maker is its President and Chief Executive Officer, who began his employment with the Company effective March 1, 2020. With the acquisition of ECI, the Company's chief operating decision maker is currently assessing the appropriate separate discrete financial information he will utilize for making decisions and assessing performance.

~~Fair Value Hierarchy~~

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

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).

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.

~~Recent Accounting Pronouncements~~

The Financial Accounting Standards Board ("FASB") has issued the following accounting pronouncements, all of which became effective for the Company in 2020 and none of which had a material impact on the Company's condensed consolidated financial statements:

~~In March 2020, the FASB issued Accounting Standards Update ("ASU") 2020-04,~~ ~~Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting~~ ("ASU 2020-04"), which provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria that reference LIBOR or another reference rate expected to be discontinued.

~~In March 2020, the FASB issued ASU 2020-03,~~ ~~Codification Improvements to Financial Instruments~~ ("ASU 2020-03"), which makes narrow-scope amendments related to topics regarding fair value option disclosures, applicability of the portfolio exception in Accounting Standards Codification ("ASC") 820 to nonfinancial items, disclosures for depository and lending institutions, cross reference to guidance in ASC 470-50 on line of credit or revolving debt arrangements, cross reference to net asset value practical expedient in ASC 820-10, interaction between ASC 842 and ASC 326 and between ASC 326 and ASC 860-20.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

~~(“CCA”) that is a service contract. ASU 2018-15 amends ASC 350,~~ ~~Intangibles - Goodwill and Other~~ (“ASC 350”) to include in its scope implementation costs of a CCA that is a service contract and clarifies that a customer should apply the guidance in ASC 350-40 to determine which implementation costs should be capitalized in such a CCA.

~~In August 2018, the FASB issued ASU 2018-14,~~ ~~Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans~~ ~~(“ASU 2018-14”), which amends ASC 715,~~ ~~Compensation - Retirement Benefits, to add, remove and clarify disclosure requirements related to defined benefit pension and other postretirement plans.~~

~~In August 2018, the FASB issued ASU 2018-13,~~ ~~Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement~~ ~~(“ASU 2018-13”), which changes the fair value measurement requirements of ASC 820,~~ ~~Fair Value Measurement.~~

~~In June 2016, the FASB issued ASU 2016-13,~~ ~~Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments~~ ("ASU 2016-13"), which adds an impairment model that is based on expected losses rather than incurred losses. Under ASU 2016-13, an entity recognizes as an allowance its estimate of expected credit losses, which the FASB believes will result in more timely recognition of such losses. In April and May 2019, the FASB issued ASU 2019-04, ~~Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments~~ ~~("ASU 2019-04") and ASU 2019-05~~ ~~Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief~~ ("ASU 2019-05"), respectively. ASU 2019-04 provides transition relief for entities adopting ASU 2016-13 and ASU 2019-05 clarifies certain aspects of the accounting for credit losses, hedging activities and financial instruments in connection with the adoption of ASU 2016-13.Recent Accounting Pronouncements

The ~~FASB has~~Financial Accounting Standards Board ("FASB") issued the following accounting pronouncement which ~~becomes~~became effective for the Company in 2021, and which ~~the Company does~~did not ~~believe will~~ have a material impact on its condensed consolidated financial ~~statements upon adoption:~~statements:

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes ("ASU 2019-12"), which modifies ASC 740 to simplify the accounting for income taxes. ASU 2019-12 addresses the accounting for hybrid tax regimes, tax basis step-up in goodwill obtained in a transaction that is not a business combination, separate financial statements of legal entities not subject to tax, intraperiod tax allocation exception to incremental approach, ownership changes in investments - changes from a subsidiary to an equity method investment, ownership changes in investments - changes from an equity method investment to a subsidiary, interim period accounting for enacted changes in tax law and year-to-date loss limitation in interim period tax accounting.

The FASB issued the following accounting pronouncement, which the Company does not believe will have a material impact on its condensed consolidated financial statements upon adoption:

In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope ("ASU 2021-01"), which refines the scope of Accounting Standards Codification 848, Reference Rate Reform ("ASC 848") 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.

(2) ~~BUSINESS ACQUISITIONS~~

ECI ACQUISITION

On the ECI ~~Merger~~Acquisition Date, Ribbon completed its previously announced merger transaction with ECI in accordance with the terms of the Agreement and Plan of Merger, dated as of November 14, 2019, by and among Ribbon, ECI, an indirect wholly-owned subsidiary of Ribbon ("Merger Sub"), Ribbon Communications Israel Ltd. and ECI Holding (Hungary) kft, pursuant to which Merger Sub merged with and into ECI, with ECI surviving such merger as a wholly-owned subsidiary of Ribbon. Prior to the ECI ~~Merger~~Acquisition Date, ECI was a privately-held global provider of end-to-end packet-optical transport and software-defined networking ("SDN") and network function virtualization ("NFV") solutions for service providers, enterprises and data center operators. Ribbon believes the ECI Merger positions the Company for growth and enhances its competitive strengths by expanding its product portfolio beyond solutions primarily supporting voice applications to include data applications and optical networking.

As consideration for the ECI ~~Merger,~~Acquisition, Ribbon issued the ECI shareholders and certain others 32.5 million shares of Ribbon common stock with a fair value of $108.6 million (the "Stock Consideration") and paid $322.5 million of cash (the "Cash Consideration"), comprised of $183.3 million to repay ECI's outstanding debt, including both principal and interest, and $139.2 million paid to ECI's selling ~~shareholders (the "Cash Consideration").~~shareholders. In addition, ECI shareholders received $33.4 million from the sale of

~~RIBBON COMMUNICATIONS INC.~~

~~Notes to Condensed Consolidated Financial Statements (Continued)~~

~~(unaudited)~~

certain of ECI's real estate assets. Cash Consideration was financed through cash on hand and committed debt financing consisting of a new $400 million term loan facility and new $100 million revolving credit facility, which was undrawn at the ECI ~~Merger~~Acquisition Date.

The ECI ~~Merger~~Acquisition has been accounted for as a business combination and the financial results of ECI have been included in the Company's condensed consolidated financial statements for the periods subsequent to the ECI ~~Merger.~~Acquisition. The Company's financial results for the three months ended ~~September~~June 30, 2020 ~~include $77.6~~included $63.6 million of revenue and ~~$11.2~~$17.1 million of net loss attributable to ECI. The Company's financial results for the ~~nine~~six months ended ~~September~~June 30, 2020 ~~include $171.1~~included $93.6 million of revenue and ~~$31.9~~$20.4 million of net loss attributable to ECI for the ~~periods~~period subsequent to the ECI ~~Merger.~~Acquisition.

~~As of September 30, 2020,~~The Company finalized the valuation of acquired assets, identifiable intangible assets and certain assumed liabilities ~~was preliminary. The Company is continuing~~in the process of investigating the facts and circumstances existing as of the ECI Merger Date, including certain assets acquired and liabilities assumed, as well as estimated future cash flows, in order to finalize its valuation. During the secondfourth quarter of 2020, the Company recorded changes to the initial preliminary purchase price allocation. The primary adjustments recorded in the period since the ECI Merger Date included reductions of $10.4 million and $7.0 million to current and noncurrent inventory, respectively, and increases to identifiable intangible assets aggregating $11.0 million, comprised of $3.0 million to in-process research and development, $5.0 million to developed technology, $2.0 million to customer relationships and $1.0 million to trade names. These adjustments, as well as other immaterial adjustments to other balance sheet accounts, resulted in a net increase to goodwill of $2.5 million. The preliminary allocation of purchase consideration to the fair value of assets acquired and liabilities assumed includes a noncurrent asset of $5.7 million that represents an indemnification receivable from ECI's selling shareholders for certain liabilities for uncertain tax positions in accordance with the Agreement and Plan of Merger. The Company expects to finalize the valuation of the assets acquired and liabilities assumed by the first quarter of 2021.

2020. A summary of the ~~preliminary~~ allocation of the purchase consideration for ECI is as follows (in thousands):

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)


Fair value of consideration transferred:
Cash consideration:
Repayment of ECI outstanding debt obligations	$	183,266


Cash paid to selling shareholders	139,244
Payment to selling shareholders from sale of ECI real estate assets	33,400
Less cash and restricted cash acquired	(9,058)
Net cash consideration	346,852

Fair value of Ribbon stock issued	108,550

Fair value of total consideration	$	455,402

Fair value of assets acquired and liabilities assumed:
Current assets, net of cash and restricted cash acquired	$	120,203
Property and equipment	54,913
Intangible assets:
In-process research and development	34,000
Developed technology	111,900
Customer relationships	116,000
Trade names	3,000
Goodwill	191,996


Other noncurrent assets	~~50,716~~37,528

Deferred revenue	(4,369)
Other current liabilities	(146,618)

Deferred revenue, net of current	(3,726)
Deferred tax liability	(13,308)
Other long-term liabilities	~~(59,305)~~(46,117)
	$	455,402

~~RIBBON COMMUNICATIONS INC.~~

~~Notes to Condensed Consolidated Financial Statements (Continued)~~

~~(unaudited)~~

~~The Company is still evaluating the fair value of acquired assets and assumed liabilities, and such values are subject to change.~~ The valuation of the acquired intangible assets is inherently subjective and relies on significant unobservable inputs. The Company used an income approach to value the acquired in-process research and development, developed technology, customer relationships and trade name intangible assets. The Company is still evaluating the forecast, and the value of these intangible assets could change materially as the Company finalizes the forecast and other inputs used to determine their fair values. The valuation for each of these intangible assets was based on estimated projections of expected cash flows to be generated by the assets, discounted to the present value at discount rates commensurate with perceived risk. The valuation assumptions take into consideration the Company's estimates of customer attrition, technology obsolescence and revenue growth projections. The Company is amortizing the identifiable intangible assets arising from the ECI ~~Merger~~Acquisition in relation to the expected cash flows from the individual intangible assets over their respective useful lives, which have a weighted average life of 12.38 years (see Note 6). Goodwill results from assets that are not separately identifiable as part of the transaction and is not deductible for tax purposes.

Pro Forma Results

The following unaudited pro forma information presents the condensed combined results of operations of Ribbon and ECI for the three and ~~nine~~six months ended ~~September~~June 30, 2020 ~~and 2019~~ as if the ECI ~~Merger~~Acquisition had been completed on January 1, 2019, with adjustments to give effect to pro forma events that are directly attributable to the ECI ~~Merger.~~Acquisition. These pro forma adjustments include an increase in research and development expense related to the conformance of ECI's cost capitalization policy to Ribbon's, additional amortization expense for the acquired identifiable intangible assets, a decrease in historical ECI interest expense reflecting the extinguishment of certain of ECI's debt as a result of the ECI ~~Merger,~~Acquisition, and an increase in interest expense reflecting the new debt entered into by the Company in connection with the ECI ~~Merger.~~Acquisition. Pro forma adjustments also include the elimination of acquisition-, disposal- and integration-related ~~costs~~expenses directly attributable to the acquisition from the three and ~~nine~~six months ended ~~September~~June 30, 2020 and inclusion of such costs in the ~~three and nine months ended September 30, 2019, respectively.~~comparable prior year periods.

The unaudited pro forma results do not reflect any operating efficiencies or potential cost savings that may result from the consolidation of the operations of Ribbon and ECI. Accordingly, these unaudited pro forma results are presented for illustrative

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

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

Three months ended Nine months ended
September 30,
2020 September 30,
2019 September 30,
2020 September 30,
2019
Revenue $ 231,118 $ 232,926 $ 624,800 $ 673,774
Net income (loss) $ 7,036 $ (4,795) $ (41,345) $ (31,023)
Diluted earnings (loss) per share $ 0.05 $ (0.03) $ (0.29) $ (0.22)


			4
	Three months ended			Six months ended
	June 30, 2020			June 30, 2020
Revenue	$	210,493		$	393,682
Net loss	$	(9,252)		$	(48,381)
Loss per share	$	(0.06)		$	(0.33)

~~Anova Data, Inc.~~

On the Anova Acquisition Date, the Company acquired the business and technology assets of Anova, a private company headquartered in Westford, Massachusetts that provides advanced analytics solutions (the "Anova Acquisition"). The Anova Acquisition was completed in accordance with the terms and conditions of an asset purchase agreement, dated as of January 31, 2019 (the "Anova Asset Purchase Agreement"). As consideration for the Anova Acquisition, Ribbon issued 2.9 million shares of Ribbon common stock with a fair value of $15.2 million to Anova's sellers and equity holders on the Anova Acquisition Date and held back an additional 330,000 shares with a fair value of $1.7 million (the "Anova Deferred Consideration")Acquisition-, of which 316,551 shares were issued after post-closing adjustments on March 4, 2020. The Anova Deferred Consideration was included as a component of Accrued expenses and other in the Company's condensed consolidated balance sheet at December 31, 2019.

The Anova Acquisition was accounted for as a business combination and the financial results of Anova have been included in the Company's condensed consolidated financial statements for the periods subsequent to the Anova Acquisition Date. The results for the three and nine months ended September 30, 2019 were not significant to the Company's condensed

~~RIBBON COMMUNICATIONS INC.~~

~~Notes to Condensed Consolidated Financial Statements (Continued)~~

~~(unaudited)~~

consolidated financial statements and accordingly, the Company has not provided pro forma financial information. The Company finalized the valuation of the assets acquired and liabilities assumed in the fourth quarter of 2019. The purchase consideration aggregating $16.9 million was allocated to $11.2 million of identifiable intangible assets with a weighted average life of 6.25 years (see Note 6) and working capital items aggregating $0.1 million of net assets acquired. The remaining unallocated amount of $5.5 million was recorded as goodwill. The goodwill is deductible for tax purposes.

~~Acquisition-~~Disposal- and Integration-Related Expenses

~~Acquisition- and integration-related~~Acquisition-related expenses include those expenses related to acquisitions that would otherwise not have been incurred by the Company, including professional and services fees, such as legal, audit, consulting, paying agent and other fees. ~~These amounts include costs~~Disposal-related expenses are professional and services fees related to ~~prior acquisitions, as well as nominal amounts related to acquisitive activities.~~disposals of subsidiaries or portions of the business. Integration-related expenses represent incremental costs related to combining the Company and its business acquisitions, such as third-party consulting and other third-party services related to merging the previously separate companies' systems and processes. The acquisition-related ~~costs~~expenses in the three and six months ended ~~September 30, 2020 primarily related to the proposed sale of the Kandy Communications Business. The acquisition-related costs in the nine months ended September~~June 30, 2020 primarily related to the ECI ~~Merger.~~Acquisition. The ~~acquisition-related costs~~disposal-related expenses in the ~~three and nine~~six months ended ~~September~~June 30, ~~2019 primarily related~~2021 relate to the ~~Anova Acquisition.~~Kandy Sale (as defined below).

The Company's acquisition-, disposal- and integration-related expenses for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 were as follows (in thousands):


		Three months ended				Nine months ended					Three months ended				Six months ended
		September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019			June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020
Professional and services fees (acquisition-related)	Professional and services fees (acquisition-related)	$	1,003	$	743	$	14,017	$	2,569	Professional and services fees (acquisition-related)	$	143	$	640	$	143	$	13,014

Professional and services fees (disposal-related)										Professional and services fees (disposal-related)	0		0		241		0
Integration-related expenses	Integration-related expenses	363		954		590		4,292		Integration-related expenses	909		217		1,865		227
		$	1,366	$	1,697	$	14,607	$	6,861		$	1,052	$	857	$	2,249	$	13,241

(3) ~~PROPOSED~~ SALE OF KANDY COMMUNICATIONS BUSINESS

Kandy Communications Business

On August 5, 2020, the Company announced that it had entered into a definitive agreement ~~(the~~(as amended, the "Kandy Purchase Agreement") with ~~American Virtual Cloud Technologies, Inc. ("AVCTechnologies")~~AVCT to sell the ~~Company's cloud-based enterprise services business (the "Kandy~~Kandy Communications ~~Business").~~Business. Under the Kandy Purchase Agreement, ~~AVCTechnologies will~~AVCT agreed to purchase the assets and assume certain liabilities associated with the Kandy Communications Business, as well as all of the outstanding interests in Kandy Communications LLC, a subsidiary of the ~~Company. AVCTechnologies has agreed to pay~~Company (the "Kandy Sale").

On December 1, 2020, the Company 13completed the Kandy Sale. The assets acquired and liabilities assumed by AVCT in connection with the Kandy Sale were primarily comprised of accounts receivable, property and equipment, trade accounts payable and employee-related accruals. As consideration, AVCT paid Ribbon $45.0 million, ~~shares of AVCTechnologies common stock,~~ subject to certain adjustments, in the form of units of AVCT's securities (the "AVCT Units"), with each AVCT Unit consisting of: $1,000 in principal amount of AVCT’s Series A-1 convertible debentures (the “Debentures”); and (ii) 1 warrant to purchase 100 shares of AVCT common stock, $0.0001 par value (the “Warrants”), as consideration for the ~~transaction.~~Kandy Sale. The ~~transaction~~Company received 43,778 AVCT Units as consideration on the Kandy Sale Date.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

together with accrued and unpaid interest thereon, is due and payable on the earlier of the May 1, 2023 maturity date or the occurrence of a Change in Control as defined in the Kandy Purchase Agreement. Each Debenture is convertible, in whole or in part, at any time at the Company's option into that number of shares of AVCT common stock, calculated by dividing the principal amount being converted, together with all accrued and unpaid interest thereon, by the applicable conversion price, initially $3.45. The Debentures are subject to mandatory redemption if the AVCT stock price is at or above $6.00 per share for 40 trading days in any 60 consecutive trading day period, subject to the satisfaction of certain other conditions. The conversion price is subject to ~~receipt~~customary adjustments including, but not limited to, stock dividends, stock splits and reclassifications. At the Company's option, up to $5.0 million of the ~~approval~~Debentures may be redeemed by AVCT at par in the event AVCT raises at least $50.0 million in its offering of ~~AVCTechnologies' shareholders~~AVCT Units. As of February 19, 2021, the stock price had traded above $6.00 for 40 days within a 60 consecutive trading day period, and accordingly, the ~~issuance~~Debentures will be converted to shares of AVCT common stock upon the completion of customary regulatory filings by AVCT.

The Warrants are independent of the Debentures and entitle the Company to purchase 4,377,800 shares of AVCT common stock at an exercise price of $0.01 per share. The Warrants expire on December 1, 2025, and were immediately exercisable on the Kandy Sale Date.

The Company had not redeemed any of the Debentures or exercised any of the Warrants as of June 30, 2021. The Company was also subject to a lock-up provision which limited the Company's ability to sell any shares of AVCT common stock underlying the Debentures and the Warrants prior to June 1, 2021, except in certain transactions.

The Company determined that the AVCT Units had a fair value of $84.9 million at the Kandy Sale Date, comprised of the Debentures with a fair value of $66.3 million and the Warrants with a fair value of $18.6 million. The value of the net assets sold to AVCT totaled $1.3 million, resulting in a gain on the sale of $83.6 million.

The Company had previously calculated the fair value of the Debentures using a Lattice-based valuation approach, which utilizes a binomial tree to model the different paths the price of AVCT's common stock might take over the Debentures' life by using assumptions regarding the stock price volatility and risk-free interest rate. These results were then used to calculate the fair value of the Debentures at each measurement date. The Company had previously used the Black-Scholes valuation model for estimating the fair value of the Warrants at each measurement date. The fair value of the Warrants was affected by AVCT's stock price as well as valuation assumptions, including the volatility of AVCT's stock price, expected term of the option, risk-free interest rate and expected dividends. Both the Lattice and Black-Scholes valuation models are based on available market data, giving consideration to all of the rights and obligations of each instrument and precluding the use of "blockage" discounts or premiums in determining the fair value of a large block of financial instruments. Upon the expiration of the lock-up period, the Company began to value the Debentures at each measurement date by multiplying the closing stock price of AVCT common stock by the number of shares upon conversion of the Debentures and Warrants.

The Company is calculating the fair value of the Debentures and Warrants at each quarter-end and recording any adjustments to the ~~Company, AVCTechnologies' completion of necessary financing, approval~~fair values in Other income (expense), net. At June 30, 2021 and December 31, 2020, the aggregate fair value of the ~~lenders under~~Debentures and Warrants was $106.0 million and $115.2 million, respectively. The Company recorded a gain of $12.1 million in the three months ended June 30, 2021 and a loss of $11.8 million in the six months ended June 30, 2021 arising from the change in the fair value of the Debentures and Warrants. These amounts are included as components of Other income (expense), net, in its condensed consolidated statements of operations. The Company recorded $1.2 million and $2.7 million of interest income in the three and six months ended June 30, 2021, which was added to the principal of the Debentures, and which is included in Interest expense, net, in the condensed consolidated statements of operations. The fair values of the Debentures and Warrants are reported as Investments in the Company's condensed consolidated balance sheets at June 30, 2021 and December 31, 2020 ~~Credit Facility~~ and ~~other customary closing conditions.~~are classified as Level 2 fair value measurements within the fair value hierarchy (see Note 1).

(4) 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.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

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

Three months ended Nine months ended
September 30,
2020 September 30,
2019 September 30,
2020 September 30,
2019
Weighted average shares outstanding—basic 144,948 110,080 136,837 109,523
Potential dilutive common shares 6,732 676 0 577
Weighted average shares outstanding—diluted 151,680 110,756 136,837 110,100


	Three months ended		Six months ended
	June 30, 2021	June 30, 2020	June 30, 2021	June 30, 2020
Weighted average shares outstanding - basic	147,467	144,483	146,706	132,737
Potential dilutive common shares	6,693	0	0	0
Weighted average shares outstanding - diluted	154,160	144,483	146,706	132,737

Options to purchase the Company's common stock aggregating ~~0.2~~0.1 million ~~shares~~ have not been included in the computation of diluted earnings per share for the three months ended ~~September~~June 30, ~~2020~~2021 because their effect would have been antidilutive. Options to purchase the Company's common stock and unvested ~~shares of~~ restricted and performance-based stock awards and stock units aggregating ~~13.5~~12.1 million shares have not been included in the computation of diluted loss per share for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 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 ~~0.3~~13.7 million shares have not been included in the computation of diluted ~~earnings~~loss per share for ~~both~~ the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 because their effect would have been antidilutive.

(5) INVENTORY

Inventory at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020 consisted of the following (in thousands):


		September 30, 2020		December 31, 2019			June 30, 2021		December 31, 2020

On-hand final assemblies and finished goods inventories	On-hand final assemblies and finished goods inventories	$	53,433	$	13,283	On-hand final assemblies and finished goods inventories	$	49,725	$	46,921
Deferred cost of goods sold	Deferred cost of goods sold	2,855		2,441		Deferred cost of goods sold	1,752		1,165
		56,288		15,724			51,477		48,086
Less noncurrent portion (included in other assets)	Less noncurrent portion (included in other assets)	(5,314)		(924)		Less noncurrent portion (included in other assets)	(4,921)		(2,336)
Current portion	Current portion	$	50,974	$	14,800	Current portion	$	46,556	$	45,750

(6) INTANGIBLE ASSETS AND GOODWILL

The Company's intangible assets at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020 consisted of the following (in thousands):


September 30, 2020		Weighted average amortization period (years)	Cost		Accumulated amortization		Net carrying value
June 30, 2021									June 30, 2021	Weighted average amortization period (years)	Cost		Accumulated amortization		Net carrying value
In-process research and development	In-process research and development	*	$	39,600	$	0	$	39,600	In-process research and development	*	$	34,000	$	0	$	34,000

Developed technology	Developed technology	7.95	300,780		132,307		168,473		Developed technology	7.93	306,380		162,811		143,569
Customer relationships	Customer relationships	11.86	268,140		46,231		221,909		Customer relationships	11.86	268,140		63,222		204,918
Trade names	Trade names	3.88	5,000		2,068		2,932		Trade names	3.88	5,000		3,135		1,865

Internal use software	Internal use software	3.00	730		730		0		Internal use software	3.00	730		730		0
		9.10	$	614,250	$	181,336	$	432,914		9.17	$	614,250	$	229,898	$	384,352

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)


December 31, 2019		Weighted average amortization period (years)	Cost		Accumulated amortization		Net carrying value
December 31, 2020									December 31, 2020	Weighted average amortization period (years)	Cost		Accumulated amortization		Net carrying value
In-process research and development	In-process research and development	*	$	5,600	$	0	$	5,600	In-process research and development	*	$	34,000	$	0	$	34,000

Developed technology	Developed technology	6.79	188,880		100,760		88,120		Developed technology	7.93	306,380		143,050		163,330
Customer relationships	Customer relationships	9.46	152,140		33,350		118,790		Customer relationships	11.86	268,140		50,627		217,513
Trade names	Trade names	5.20	2,000		1,144		856		Trade names	3.88	5,000		2,487		2,513

Internal use software	Internal use software	3.00	730		730		0		Internal use software	3.00	730		730		0
		7.82	$	349,350	$	135,984	$	213,366		9.17	$	614,250	$	196,894	$	417,356

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

~~Amortization expense for intangible assets for the three and nine months ended September 30, 2020 and 2019 was as follows (in thousands):~~

Three months ended Nine months ended Statement of operations classification
September 30,
2020 September 30,
2019 September 30,
2020 September 30,
2019
Developed technology $ 11,643 $ 9,522 $ 31,547 $ 29,259 Cost of revenue - product
Customer relationships 4,313 2,608 12,881 7,145 Sales and marketing
Trade names 393 130 924 425 Sales and marketing
$ 16,349 $ 12,260 $ 45,352 $ 36,829

Estimated future amortization expense for the Company's intangible assets at ~~September~~June 30, ~~2020~~2021 was as follows (in thousands):


Years ending December 31,	Years ending December 31,			Years ending December 31,
Remainder of 2020		$	15,619
2021		66,689
Remainder of 2021				Remainder of 2021	$	33,621
2022	2022	59,700		2022	60,449
2023	2023	52,306		2023	53,966
2024	2024	44,098		2024	46,899
2025	2025	36,999		2025	40,338
2026				2026	36,489
Thereafter	Thereafter	157,503		Thereafter	112,590
		$	432,914		$	384,352

There were no changes to the carrying value of the Company's goodwill in the six months ended June 30, 2021. The changes in the carrying value of the Company's goodwill in the ~~nine~~six months ended ~~September~~June 30, 2020 ~~and 2019~~ were as follows (in thousands):


	Cloud and Edge		IP Optical Networks		Total




Balance at January 1, 2020*	$	224,896	$	0	$	224,896
Acquisition of ECI	0		191,996		191,996
Balance at June 30, 2020	$	224,896	$	191,996	$	416,892

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

The components of goodwill at June 30, 2021 and 2020 were as follows (in thousands):


	Cloud and Edge		IP Optical Networks		Total
Balance at June 30, 2021
Goodwill	$	392,302	$	191,996	$	584,298
Accumulated impairment losses	(167,406)		0		(167,406)
	$	224,896	$	191,996	$	416,892
Balance at June 30, 2020
Goodwill	$	392,302	$	191,996	$	584,298
Accumulated impairment losses	(167,406)		0		(167,406)
	$	224,896	$	191,996	$	416,892

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

Balance at January 1 2020 2019
  Goodwill $ 392,302 $ 386,761
  Accumulated impairment losses (167,406) (3,106)
224,896 383,655
Acquisition of ECI 191,996 0
Acquisition of Anova 0 5,541
Balance at September 30 $ 416,892 $ 389,196
Balance at September 30
  Goodwill $ 584,298 $ 392,302
  Accumulated impairment losses (167,406) (3,106)
$ 416,892 $ 389,196

(7) ACCRUED EXPENSES AND OTHER

Accrued expenses at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020 consisted of the following (in thousands):


		September 30, 2020		December 31, 2019			June 30, 2021		December 31, 2020
Employee compensation and related costs	Employee compensation and related costs	$	55,589	$	27,166	Employee compensation and related costs	$	40,208	$	66,039
Professional fees		14,368		13,331

Other	Other	63,918		16,203		Other	49,554		68,826
		$	133,875	$	56,700		$	89,762	$	134,865

(8) WARRANTY ACCRUALS

The changes in the Company's accrual balance in the six months ended June 30, 2021 were as follows (in thousands):






Balance at January 1, 2021	$	14,855

Current period provisions	605
Settlements	(2,761)
Balance at June 30, 2021	$	12,699

Of the amounts recorded at June 30, 2021 and December 31, 2020, $5.8 million and $6.5 million, respectively, were current and included as components of Accrued expenses and other, and $6.9 million and $8.4 million, respectively, were long-term and included as components of Other long-term liabilities in the Company's condensed consolidated balance sheets.

(9) RESTRUCTURING AND FACILITIES CONSOLIDATION INITIATIVES

The Company recorded restructuring and related expense aggregating $3.3 million and $2.4 million in the three months ended September 30, 2020 and 2019, respectively, and $10.7 million and $16.4 million in the nine months ended September 30, 2020 and 2019, respectively. Restructuring and related expense includes both restructuring expense ~~(primarily~~for severance and related ~~costs),~~costs and facilities-related costs, primarily comprised 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.

~~The components of~~ Restructuring and related expense for the three and ~~nine~~six months ended ~~September~~June 30, 2021 and 2020 ~~and 2019 were as follows~~was comprised of the following (in thousands):


		Three months ended				Nine months ended					Three months ended				Six months ended
		September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019			June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020
Severance and related costs	Severance and related costs	$	1,789	$	719	$	8,276	$	11,619	Severance and related costs	$	1,926	$	4,716	$	2,595	$	6,487
Variable and other facilities-related costs	Variable and other facilities-related costs	1,501		$	1,052	2,380		1,370		Variable and other facilities-related costs	904		$	645	2,817		879
Accelerated amortization of lease assets due to cease-use	Accelerated amortization of lease assets due to cease-use	0		$	601	70		3,459		Accelerated amortization of lease assets due to cease-use	0		$	0	3,368		70
		$	3,290	$	2,372	$	10,726	$	16,448		$	2,830	$	5,361	$	8,780	$	7,436

Accelerated Rent Amortization

Accelerated rent amortization is recognized from the date that the Company commences the plan to fully or partially vacate

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

a facility, for which there is no intent or ability to enter into a sublease, through the final vacate date. The accelerated rent amortization recorded in connection with the Facilities Initiative reduced the value of the Company's Operating lease right-of-use assets recorded in the Company's condensed consolidated balance sheets at June 30, 2021 and December 31, 2020, respectively. The liability for the total lease payments for each respective facility is included as a component of Operating lease liabilities in the Company's condensed consolidated balance sheets, both current and noncurrent (see Note 17). The Company may incur additional future expense if it is unable to sublease other locations included in its restructuring initiatives.

2020 Restructuring Initiative

In 2020, the Company implemented a restructuring plan to eliminate certain positions and redundant facilities, primarily in connection with the ECI ~~Merger~~Acquisition, to further streamline the Company's global footprint and improve its operations (the "2020 Restructuring Initiative"). The 2020 Restructuring Initiative includes facility consolidations and a reduction in workforce, including 3 former executives of ECI for whom severance aggregating $1.1 million was recorded in the three months ended March 31, 2020. In connection with this initiative, the Company expects to eliminate duplicate functions arising from the ECI ~~Merger~~Acquisition and support its efforts to integrate the two companies.

The Company recorded restructuring and related expense of ~~$2.9~~$1.9 million and ~~$8.7~~$4.7 million in connection with the 2020 Restructuring Initiative in the three ~~and nine~~ months ended ~~September~~June 30, 2021 and 2020, respectively, ~~for severance~~ and ~~related costs.~~ $2.3 million and $5.8 million in the six months ended June 30, 2021 and 2020, respectively.

The amount recorded in the ~~nine~~three months ended ~~September~~June 30, ~~2020~~2021 was comprised of $1.9 million for severance and related costs for approximately ~~125~~15 employees ~~including 3 former executives~~and nominal expense for variable costs related to restructured facilities. The amount recorded in the six months ended June 30, 2021 was comprised of ~~ECI.~~$2.6 million for severance and related costs for approximately 25 employees and $0.4 million of expense for variable costs related to restructured facilities, offset by a credit of $0.7 million for changes in estimate to previously recorded facilities-related amounts. The amount recorded in the six months ended June 30, 2020 represents severance and related costs for approximately 75 employees, of which $4.7 million was recorded in the three months ended June 30, 2020 and $1.1 million was recorded in the three months ended March 31, 2020. The Company expects ~~these amounts~~the amount accrued for severance at June 30, 2021 will be ~~fully~~ paid in 2021. The Company expects that it will record additional restructuring and related expense approximating $6$2 million under the 2020 Restructuring Initiative in the aggregate for severance and planned facility consolidations. A summary of the 2020 Restructuring Initiative accrual activity for severance and related costs for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 is as follows (in thousands):


		Balance at January 1, 2020		Initiatives charged to expense		Cash payments		Balance at September 30, 2020			Balance at January 1, 2021		Initiatives charged to expense		Adjustments for changes in estimate		Cash payments		Balance at June 30, 2021
Severance	Severance	$	0	$	7,691	$	(3,375)	$	4,316	Severance	$	5,237	$	2,595	$	0	$	(4,178)	$	3,654
Facilities	Facilities	0		999		(79)		920		Facilities	1,256		382		(670)		(949)		19
		$	0	$	8,690	$	(3,454)	$	5,236		$	6,493	$	2,977	$	(670)	$	(5,127)	$	3,673

2019 Restructuring and Facilities Consolidation Initiative

In June 2019, the Company implemented a restructuring plan to further streamline the Company's global footprint, improve its operations and enhance its customer delivery (the "2019 Restructuring Initiative"). The 2019 Restructuring Initiative includes facility consolidations, refinement of the Company's research and development activities, and a reduction in workforce. In connection with this initiative, the Company expects to reduce its focus on hardware and appliance-based development over time and to increase its development focus on software virtualization, functional simplicity and important customer requirements. The facility consolidations under the 2019 Restructuring Initiative (the ~~"2019 Facilities~~"Facilities Initiative") include a consolidation of the Company's North Texas sites into a single campus, housing engineering, customer training and support, and administrative functions, as well as a reduction or elimination of certain excess and duplicative facilities worldwide. In addition, the Company ~~intends to~~is substantially ~~consolidate~~consolidating its global software laboratories and server farms into two lower cost North American sites. The Company continues to evaluate its properties included in the Facilities Initiative for accelerated amortization and/or right-of-use asset impairment. The Company expects that the actions under the ~~2019~~ Facilities Initiative will be completed ~~by the end of 2020.~~in 2021.

In connection with the 2019 Restructuring Initiative, the Company recorded restructuring and related expense of ~~$0.4~~$0.9 million and ~~$2.1~~$0.7 million ~~in the three and nine months ended September 30, 2020, respectively, and $1.8 million and $7.8 million in the three and nine months ended September 30, 2019, respectively. The amount recorded~~ in the three months ended ~~September~~June 30, 2021 and 2020, ~~was primarily related to facility consolidations. The amount recorded in the nine months ended September 30, 2020 was comprised of $0.6~~respectively, and $6.5 million for severance and related costs for approximately 5 employees and $1.5 million related to facility consolidations. These amounts include nominal credits to restructuring and related expense in the three and nine months ended September 30, 2020, representing changes in estimate for both severance and related expenses and variable facilities-related expenses. The amount recorded in the three months ended September 30, 2019 was comprised of $0.7 million for severance and related costs for approximately 20 employees and $1.7 million ~~for variable and other facilities-related costs, including accelerated rent amortization. The amount recorded~~ in the ~~nine~~six months ended ~~September~~June 30, ~~2019 was comprised of $6.5 million for severance~~2021 and ~~related costs for approximately 130 employees and $4.7 million for variable and~~2020, respectively.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

The amount recorded in the three months ended June 30, 2021 related to variable facilities costs. Of the amount recorded in the six months ended June 30, 2021, $3.4 million was for accelerated amortization of lease assets and $3.1 million related to variable and other facilities-related costs ~~including accelerated rent amortization.~~in connection with facility consolidations. The amount recorded in the three months ended June 30, 2020 primarily related to facility consolidations. The amount recorded in the six months ended June 30, 2020 was comprised of $0.7 million for severance and related costs for 5 employees and $1.0 million related to facility consolidations. As of June 30, 2021, the amounts accrued for severance and related costs had been paid in full. The Company ~~expects to~~estimates that it will record nominal, if any, additional restructuring and related expense ~~if any, related to severance and related costs under the 2019 Restructuring Initiative.~~in connection with this initiative.

A summary of the 2019 Restructuring Initiative accrual activity for ~~severance and related costs for~~ the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 is as follows (in thousands):


		Balance at January 1, 2020		Initiatives charged to expense		Adjustments for changes in estimate		Reclassify accelerated amortization to operating lease liabilities		Cash payments		Balance at September 30, 2020			Balance at January 1, 2021		Initiatives charged to expense		Reclassify accelerated amortization to operating lease liabilities		Cash payments		Balance at June 30, 2021
Severance	Severance	$	2,110	$	723	$	(80)	$	0	$	(2,234)	$	519	Severance	$	173	$	0	$	0	$	(173)	$	0
Facilities	Facilities	991		1,473		(22)		(70)		(1,573)		799		Facilities	766		6,473		(3,368)		(1,943)		1,928
		$	3,101	$	2,196	$	(102)	$	(70)	$	(3,807)	$	1,318		$	939	$	6,473	$	(3,368)	$	(2,116)	$	1,928

~~Accelerated Rent Amortization~~

Accelerated rent amortization 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. The accelerated rent amortization recorded in connection with the Facilities Initiative reduced the value of the Company's Operating lease right-of-use assets recorded in the Company's condensed consolidated balance sheets at September 30, 2020 and December 31, 2019, respectively. The liability for the total lease payments for each respective facility is included as a component of Operating lease liabilities in the Company's condensed consolidated balance sheets, both current and noncurrent (see Note 18). The Company may incur additional future expense if it is unable to sublease other locations included in its restructuring initiatives.

~~GENBAND Merger Restructuring Initiative~~

In connection with the merger in 2017 between Sonus Networks, Inc. and GENBAND (the "GENBAND Merger"), the Company implemented a restructuring plan in the fourth quarter of 2017 to eliminate certain redundant positions and facilities within the combined companies (the "GENBAND Merger Restructuring Initiative"). The Company recorded a credit to restructuring and related expense of $0.1 million in the nine months ended September 30, 2020, representing a change in estimate to the total severance and related costs required to complete the activities under this initiative. In connection with this initiative, the Company recorded restructuring expense of $5.2 million in the nine months ended September 30, 2019, virtually all of which was for severance and related costs for approximately 40 employees. As of September 30, 2020, the GENBAND Merger Restructuring Initiative was complete.

~~A summary of the GENBAND Merger Restructuring Initiative accrual activity for the nine months ended September 30, 2020 is as follows (in thousands):~~

Balance at
January 1,
2020 Adjustments for changes in estimate Cash
payments Balance at
September 30,
2020
Severance $ 409 $ (58) $ (351) $ 0

Balance Sheet Classification

The current portions of accrued restructuring are included as a component of Accrued expenses and the long-term portions of accrued restructuring are included as a component of Other long-term liabilities in the condensed consolidated balance sheets. The long-term portions of accrued restructuring relate to facilities and totaled ~~$0.8~~$1.9 million at ~~September~~June 30, ~~2020~~2021 and ~~$0.9~~$0.8 million at December 31, ~~2019.~~

~~RIBBON COMMUNICATIONS INC.~~

~~Notes to Condensed Consolidated Financial Statements (Continued)~~

~~(unaudited)~~

~~(9) WARRANTY ACCRUALS~~

~~The changes in the Company's accrual balance in the nine months ended September 30, 2020 were as follows (in thousands):~~






~~Balance at January 1, 2020~~	$	0
~~Assumed liability in connection with ECI Merger~~	~~16,251~~
~~Current period provisions~~	~~3,127~~
~~Settlements~~	~~(4,164)~~
~~Balance at September 30, 2020~~	$	~~15,214~~

Of the amount recorded at September 30, 2020, $6.7 million was current and included as a component of Accrued expenses and other and $8.5 million was long-term and included as a component of Other long-term liabilities in the Company's condensed consolidated balance sheet. The Company did not have a warranty accrual during the nine months ended September 30, 2019.2020.

(10) DEBT

~~2019~~2020 Credit Facility

On April 29, 2019, the Company entered into a syndicated, amended and restated Credit Facility (the "2019 Credit Facility"). The 2019 Credit Facility provided for a $50 million term loan facility that was advanced in full on April 29, 2019 and a $100 million revolving line of credit. The 2019 Credit Facility also included procedures for additional financial institutions to become syndicate lenders, or for any existing lender to increase its commitment under either the term loan facility or the revolving loan facility, subject to an aggregate increase of $75 million for incremental commitments under the 2019 Credit Facility. The 2019 Credit Facility was scheduled to mature in April 2024. At December 31, 2019, the Company had an outstanding term loan debt balance of $48.8 million and an outstanding revolving line of credit balance of $8 million with a combined average interest rate of 3.30%, and $5.4 million of outstanding letters of credit at an interest rate of 1.50%.

The indebtedness and other obligations under the 2019 Credit Facility were unconditionally guaranteed on a senior secured basis by the Company and each other material U.S. domestic subsidiary of the Company (collectively, the “Guarantors”). The 2019 Credit Facility was secured by first-priority liens on substantially all of the assets of the Borrower and the Guarantors, including the Company.

The 2019 Credit Facility required periodic interest payments on any outstanding borrowings under the facility. The Borrower could prepay all revolving loans under the 2019 Credit Facility at any time without premium or penalty (other than customary LIBOR breakage costs), subject to certain notice requirements.

Revolving loans under the 2019 Credit Facility bore interest at the Borrower’s option at either the Eurodollar (LIBOR) rate plus a margin ranging from 1.50% to 3.00% per year or the base rate (the highest of the Federal Funds rate plus 0.50%, or the prime rate announced from time to time in The Wall Street Journal) plus a margin ranging from 0.50% to 2.00% per year (such margins being referred to as the “Applicable Margin”). The Applicable Margin varied depending on the Company’s consolidated leverage ratio (as defined in the 2019 Credit Facility). The base rate and the LIBOR rate were each subject to a 0 percent floor.

The 2019 Credit Facility required compliance with certain financial covenants, including a minimum consolidated quick ratio, minimum consolidated fixed charge coverage ratio and maximum consolidated leverage ratio, all of which were defined in the 2019 Credit Facility and tested on a quarterly basis. The Company was in compliance with all covenants of the 2019 Credit Facility at December 31, 2019.

In addition, the 2019 Credit Facility contained various covenants that, among other restrictions, limited the Company’s and its subsidiaries’ ability to enter into certain types of transactions, including, but not limited to: incurring or assuming

~~RIBBON COMMUNICATIONS INC.~~

~~Notes to Condensed Consolidated Financial Statements (Continued)~~

~~(unaudited)~~

indebtedness; granting or assuming liens; making acquisitions or engaging in mergers; making dividend and certain other restricted payments; making investments; selling or otherwise transferring assets; engaging in transactions with affiliates; entering into sale and leaseback transactions; entering into burdensome agreements; changing the nature of its business; modifying its organizational documents; and amending or making prepayments on certain junior debt.

The 2019 Credit Facility contained events of default that are customary for a secured credit facility. If an event of default relating to bankruptcy or other insolvency events with respect to a borrower occurred, all obligations under the 2019 Credit Facility would immediately become due and payable. If any other event of default existed under the 2019 Credit Facility, the lenders could accelerate the maturity of the obligations outstanding under the 2019 Credit Facility and exercise other rights and remedies, including charging a default rate of interest equal to 2.00% per year above the rate that would otherwise be applicable. In addition, if any event of default existed under the New Credit Facility, the lenders could commence foreclosure or other actions against the collateral.

If any default existed under the 2019 Credit Facility, or if the Borrower was unable to make any of the representations and warranties as stated in the 2019 Credit Facility at the applicable time, the Borrower would be unable to borrow funds or have letters of credit issued under the 2019 Credit Facility, which, depending on the circumstances prevailing at that time, could have had a material adverse effect on the Borrower’s liquidity and working capital.

~~2020 Credit Agreement~~

On March 3, 2020, the Company entered into a Senior Secured Credit Facilities Credit Agreement (as amended, the "2020 Credit ~~Agreement"~~Facility"), by and among the Company, as a guarantor, Ribbon Communications Operating Company, Inc., as the borrower ("Borrower"), Citizens Bank, N.A. ("Citizens"), as administrative agent, a lender, issuing lender, swingline lender, joint lead arranger and bookrunner, Santander Bank, N.A., as a lender, joint lead arranger and bookrunner, and the other lenders party thereto (each, together with Citizens Bank, N.A. and Santander Bank, N.A., referred to individually as a "Lender", and collectively, the "Lenders"). The proceeds of the 2020 Credit ~~Agreement~~Facility were used, in part, to pay off in full all obligations of the Company under ~~the 2019~~its prior credit facility (the "2019 Credit ~~Facility.~~Facility").

The 2020 Credit ~~Agreement~~Facility provides for $500 million of commitments from the lenders to the Borrower, comprised of $400 million in term loans (the "2020 Term Loan Facility") and a $100 million facility available for revolving loans (the "2020 Revolving Credit Facility"). Under the 2020 Revolving Credit Facility, a $30 million sublimit is available for letters of credit and a $20 million sublimit is available for swingline loans. Under the 2020 Credit ~~Agreement,~~Facility, the Company was originally required to make quarterly principal payments aggregating approximately $10 million in the first year, $20 million per year for the following three years, and $30 million in the last year, with the remaining balance due on the maturity date. The 2020 Credit Facility also requires periodic interest payments until maturity.

The indebtedness and other obligations under the 2020 Credit ~~Agreement~~Facility are unconditionally guaranteed on a senior secured basis by the Company, Edgewater Networks, Inc., a wholly-owned subsidiary of the Company, and ~~Genband~~GENBAND Inc., a wholly-owned subsidiary of the Company (together, the "Guarantors"). The facilities under the 2020 Credit ~~Agreement~~Facility are 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 Agreement requires periodic interest payments until maturity.~~RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

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

In addition, the 2020 Credit ~~Agreement~~Facility contains various covenants that, among other restrictions, limit the Company’s and its subsidiaries’ ability to incur or assume indebtedness; grant or assume liens; make acquisitions or engage in mergers; sell, transfer, assign or convey assets; repurchase equity and make dividend and certain other restricted payments; make investments; engage in transactions with affiliates; enter into sale and leaseback transactions; enter into burdensome agreements; change the nature of its business; modify their organizational documents; and amend or make prepayments on certain junior debt.

~~RIBBON COMMUNICATIONS INC.~~

~~Notes to Condensed Consolidated Financial Statements (Continued)~~

~~(unaudited)~~

The 2020 Credit ~~Agreement~~Facility contains events of default that are customary for a secured credit facility. If an event of default relating to bankruptcy or other insolvency events with respect to the Company or any of its subsidiaries occurs, all obligations under the 2020 Credit ~~Agreement~~Facility will immediately become due and payable. If any other event of default occurs under the 2020 Credit ~~Agreement,~~Facility, the lenders may accelerate the maturity of the obligations outstanding under the Credit ~~Agreement~~Facility and exercise other rights and remedies, including charging a default rate of interest equal to 2.00% per year above the rate that would otherwise be applicable. In addition, if any event of default exists under the 2020 Credit ~~Agreement,~~Facility, the lenders can commence foreclosure or other actions against the collateral.

On August 18, 2020 (the "First Amendment Effective Date"), the ~~Borrowers~~Borrower entered into a First Amendment to the 2020 Credit ~~Agreement~~Facility (the "First Amendment"). Pursuant to an assignment and assumption agreement entered into by Citizens and certain affiliates of Whitehorse Capital on the First Amendment Effective Date (collectively, "HIG Whitehorse"), and consented to by Citizens and the Borrower, $75 million of the 2020 Term Loan Facility, designated as the Term B Loan (the "Term B Loan"), was assigned from Citizens to HIG ~~Whitehorse as of August 18, 2020.~~Whitehorse. The remaining $325 million of the 2020 Term Loan Facility that was not assigned to HIG Whitehorse was deemed the Term A Loan (the "Term A Loan" and, together with the Term B Loan, the "Amended 2020 Term Loan Facility").

The Term A Loan and the 2020 Revolving Credit Facility mature in March 2025. The Term A Loan and 2020 Revolving Credit Facility bear interest at the Borrower's option at either the LIBOR rate plus a margin ranging from 1.50% to 3.50% per year, or the base rate (the highest of the Federal Funds Effective Rate (as defined in the 2020 Credit ~~Agreement)~~Facility) plus 0.50%, or the prime rate announced from time to time in The Wall Street Journal) plus a margin ranging from 0.50% to 2.50% per year (the "Applicable Margin"). The Applicable Margin varies depending on the Company's Consolidated Net Leverage Ratio (as defined in the 2020 Credit Agreement). The base rate and the LIBOR rate are each subject to a 0 percent floor. The Company iswas required to make quarterly principal payments on the Term A Loan aggregating approximately $10 million in the first year, $16 million per year in each of the next two years, $20 million in the fourth year and $16 million in the last year, with the final payment approximating $244 million due on the maturity date. The Borrower ~~can~~could prepay all amounts under the Term A Loan and the 2020 Revolving Credit Facility at any time without premium or penalty (other than customary LIBOR breakage costs), subject to certain notice requirements.

The Term B Loan iswas scheduled to mature in March 2026 and ~~bears~~bore interest, at the Borrower's option, at either the LIBOR rate plus a margin of 7.50% per year, or the base rate (the highest of the Federal Funds Effective Rate (as defined in the First Amendment) plus 0.50%, or the prime rate announced from time to time in The Wall Street Journal, plus a margin of 6.50% per year. The Term B Loan ~~has~~had a lower rate of amortization than the Term A Loan and iswas subject to a 1.0% premium if voluntarily repaid in connection with a repricing transaction (as defined in the 2020 Credit ~~Agreement)~~Facility) occurring prior to the six month anniversary of the First Amendment Effective Date. The Company iswas required to make quarterly principal payments totaling approximately $1 million in the first year and $8 million in the aggregate over the next four and a half years, with the final payment approximating $66 million.

The First Amendment reduced the Borrower's ability to incur new tranches of term loans, or increases in commitments under the Amended 2020 Term Loan Facility or the 2020 Revolving Credit Facility. Specifically, such indebtedness ~~can~~could be incurred up to an aggregate dollar amount equal to 75% of the Company's Consolidated Adjusted EBITDA (as defined in the 2020 Credit ~~Agreement)~~Facility), reduced from 100% prior to the First Amendment, as of the most recently ended fiscal quarter for which financial statements ~~have~~had been delivered to the lenders, plus additional amounts, so long as the Borrower's Consolidated Net Leverage Ratio (as defined in the 2020 Credit Agreement) ~~does~~did not exceed 2.25:1.00, reduced from 2.75:1.00 under the 2020

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

Credit Agreement. The First Amendment also reduced the amount of Unrestricted Cash (as defined in the 2020 Credit Agreement) used in calculating the Borrower's Consolidated Net Leverage Ratio from $25 million to $10 million.

~~The Company was~~On December 1, 2020, the Borrower entered into a Second Amendment to the 2020 Credit Facility to obtain consent for an equity exchange with AVCT in ~~compliance~~connection with ~~all covenants~~the Kandy Sale, as well as to amend certain other provisions of the 2020 Credit ~~Agreement at September 30, 2020.~~Facility.

At ~~September 30,~~December 31, 2020, the Company had an outstanding Term A Loan balance of ~~$320.5~~$318.5 million at an average interest rate of 3.4%, and an outstanding Term B Loan balance of ~~$74.8~~$74.6 million at an average interest rate of ~~8.40%~~8.4%. The 2020 Revolving Credit Facility did not have an outstanding balance but had ~~$5.3~~$5.6 million of letters of credit outstanding with an interest rate of 2.5%.

~~RIBBON COMMUNICATIONS INC.~~

~~Notes~~On March 3, 2021 (the "Third Amendment Effective Date"), the Company, the Borrower and certain of its subsidiaries entered into a Third Amendment to ~~Condensed Consolidated Financial Statements (Continued)~~

~~(unaudited)~~

~~Short-Term~~Credit Agreement (the "Third Amendment"), which further amended the 2020 Credit Facility. The Third Amendment provided for an incremental term loan facility to the Borrower in the original principal amount of $74.6 million, the proceeds of which were used on the Third Amendment Effective Date to consummate an open market purchase of all outstanding amounts under the Term B Loan. Upon the consummation of the open market purchase, the Term B Loans were assigned to the Borrower and immediately cancelled, such that the outstanding amount under the Term A Loan and incremental term loan facility were combined and held by the Lenders (the "2020 Term Loan") with the same terms as the Term A Loan. The Company wrote off $2.5 million of capitalized debt issuance costs in connection with the Third Amendment, which is included in Interest expense, net, in the Company's condensed consolidated statement of operations for the six months ended June 30, 2021. The Company is required to make quarterly principal payments on the 2020 Term Loan aggregating approximately $20 million per year in the first three years and $30 million in the fourth year, with the final payment approximating $300 million due on the maturity date.

~~In July~~The Third Amendment increased the Borrower's ability to incur new incremental revolving commitments or term loans. Such indebtedness can be incurred up to an aggregate dollar limit equal to 100% of the Company's Consolidated Adjusted EBITDA (as defined in the 2020 Credit Facility) as of the most recently ended fiscal quarter for which financial statements have been delivered to the Lenders, plus additional amounts, so long as the Borrower's Consolidated Net Leverage Ratio (as defined in the Credit Agreement) does not exceed 2.75:1.00, increased from 2.25:1.00 under the First Amendment. The Third Amendment also increased the amount of Unrestricted Cash (as defined in the 2020 Credit Facility) used in calculating the Borrower's Consolidated Net Leverage Ratio from $10.0 million to $25.0 million.

At June 30, 2021, the Company ~~entered~~had an outstanding 2020 Term Loan balance of $385.5 million at an average interest rate of 3.40% and $6.4 million of letters of credit outstanding with an interest rate of 2.50%.

The Company was in compliance with all covenants of the 2020 Credit Facility at both June 30, 2021 and December 31, 2020.

Short-Term Loans

From time to time, the Company enters into an uncommitted and unsecured short-term ~~loan in the amount of $0.7 million with Bank of Communications Hangzhou Branch in order~~loans to finance exports in China. ~~At September~~The Company did not have any such short-term loans outstanding at June 30, ~~2020 the interest rate on this loan was 4.0%~~2021 and ~~it expires in November~~December 31, 2020.

Letters of Credit and Performance and Bid Bonds

The Company uses letters of credit, performance and bid bonds in the course of its business. At ~~September~~June 30, ~~2020,~~2021, the Company had ~~$30.3 million of letters of credit,~~ bank guarantees, performance and bid bonds ~~outstanding~~under various uncommitted facilities (collectively, the "Guarantees")~~, comprised of the $5.3~~ aggregating $24.9 million and $6.4 million of letters of credit under the 2020 Credit ~~Agreement described above,~~Facility (the "Letters of Credit"). At December 31, 2020, the Company had Guarantees aggregating $27.0 million and ~~$25.0~~$5.6 million of ~~Guarantees under various uncommitted facilities.~~Letters of Credit. At ~~September~~June 30, 2021 and December 31, 2020, the Company had cash collateral of ~~$2.9~~$2.6 million and $2.7 million, respectively, supporting the Guarantees, ~~under its uncommitted facilities,~~ which isare included in Restricted cash in the condensed consolidated balance ~~sheet at September 30, 2020.~~sheets.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

(11) 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 has entered into a derivative financial instrument. Management's objective is to reduce, where it is deemed appropriate to do so, fluctuations in earnings and cash flows associated with changes in interest rates. 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 ~~Amended~~ 2020 Term Loan Facility had an outstanding ~~balance~~balances of ~~$395.3~~$385.5 million and $393.1 million at ~~September~~June 30, ~~2020.~~2021 and December 31, 2020, respectively. The 2020 Revolving Credit Facility was undrawn at ~~September~~both June 30, 2021 and December 31, 2020. ~~The credit facilities~~Borrowings under the 2020 Credit ~~Agreement~~Facility have variable interest rates based on LIBOR (see Note 10). 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 ~~Agreement. The Term A Loan continues to have a leverage-based margin and the Term B Loan has a fixed margin as defined in the 2020 Credit Agreement.~~Facility. The notional amount of this swap at ~~September~~June 30, ~~2020~~2021 was $400 million, and the swap matures on March 3, 2025, the same date the ~~Term A Loan~~2020 Credit Facility matures.

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company is using an interest rate swap as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

~~RIBBON COMMUNICATIONS INC.~~

~~Notes to Condensed Consolidated Financial Statements (Continued)~~

~~(unaudited)~~

The effective portion of changes in the fair value of designated derivatives that qualify as cash flow hedges is recorded in accumulated other comprehensive income (loss) ~~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 ~~nine~~six months ended ~~September~~June 30, 2021 and 2020, such a derivative was used to hedge the variable cash flows associated with the ~~credit facilities~~outstanding borrowings under the 2020 Credit ~~Agreement~~Facility and the Company has accounted for this derivative as an effective hedge. Any ineffective portion of the change in the fair value of the derivative would be recognized directly in earnings.

Amounts reported in accumulated other comprehensive income (loss) ~~income~~ related to the Company's derivative ~~will be~~are reclassified to interest expense as interest is accrued on the Company’s variable-rate debt. Based upon projected forward rates, the Company estimates as of ~~September~~June 30, ~~2020~~2021 that ~~$3.1~~$3.2 million may be reclassified as an increase to interest expense over the next twelve months.

The impact of the Company’s derivative financial instrument on its condensed consolidated statement of comprehensive income (loss) for the three and ~~nine~~six months ended ~~September~~June 30, 2021 and 2020 was as follows (in thousands):

Three months ended Nine months ended
September 30,
2020 September 30,
2020
Loss recognized in other comprehensive loss on derivative (effective portion) $ (121) $ (13,778)
Amount reclassified from accumulated other comprehensive loss to interest expense (effective portion) $ 761 $ 921

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)



	Three months ended				Six months ended
	June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020
Gain (loss) recognized in other comprehensive income (loss) on derivative (effective portion)	$	(1,015)	$	(4,320)	$	4,875	$	(13,657)
Amount reclassified from accumulated other comprehensive income (loss) to interest expense (effective portion)	810		350		1,589		160
	$	(205)	$	(3,970)	$	6,464	(13,497)

The fair values and locations in the condensed consolidated balance ~~sheet~~sheets at ~~September~~June 30, 2021 and December 31, 2020 of the Company's derivative liability designated as a hedging instrument were as follows (in thousands):

~~Balance sheet location~~

~~Interest rate derivative - liability derivative~~

~~Accrued expenses and other~~

~~3,075~~

~~Interest rate derivative - liability derivative~~

~~Other long-term liabilities~~

~~9,782~~


	Balance sheet location	June 30, 2021		December 31, 2020
Interest rate derivative - liability derivative	Accrued expenses and other	$	3,172	$	3,157
Interest rate derivative - liability derivative	Other long-term liabilities	$	1,312	$	7,791

The Company has classified the interest rate derivative aggregating ~~$12.9~~$4.5 million and $10.9 million at ~~September~~June 30, 2021 and December 31, 2020, respectively, as a Level 2 fair value ~~measurement~~measurements within the fair value hierarchy (see Note 1).

(12) REVENUE RECOGNITION

~~The Company accounts for revenue in accordance with ASC 606,~~ ~~Revenue from Contracts with Customers~~ ~~("ASC 606"), which it adopted on January 1, 2018 using the modified retrospective method.~~

The Company derives ~~revenues~~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 ~~generally~~ allocate the transaction price to each performance obligation on a relative standalone selling price basis. The ~~best evidence of a standalone selling price is~~Company utilizes the observable price of ~~a good or service~~goods and services when ~~the entity sells that good or service~~they are sold separately ~~in similar circumstances and~~ to similar ~~customers. If the good or service is not sold separately, an entity must~~customers in order to estimate ~~the~~ standalone selling ~~price by using an approach that maximizes the use of observable inputs. Acceptable estimation methods include but are~~

~~RIBBON COMMUNICATIONS INC.~~

~~Notes to Condensed Consolidated Financial Statements (Continued)~~

~~(unaudited)~~

not limited to: (1) adjusted market assessment; (2) expected cost plus a margin; and (3) a residual approach (when the standalone selling price is not directly observable and is either highly variable or uncertain).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. ~~The product~~Product revenue is typically recognized upon transfer of control or when the software is made available for download, as this is the point ~~that~~ 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 ~~does not~~begins to recognize software revenue related to the renewal of subscription software licenses ~~earlier than~~at the ~~beginning~~start of the subscription period. ~~Hardware product is generally sold with software to provide the customer solution.~~

~~Services revenue includes revenue from customer support and other professional services.~~ The Company offers warranties on its products. Certain of the Company's warranties are considered to be assurance-type in nature, ~~and do not cover anything beyond~~ ensuring ~~that~~ the product is functioning as intended. ~~Based on the guidance in ASC 606, assurance-type~~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 ~~typically~~ allow and has no history of accepting ~~material~~ product returns.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

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 related to the support.~~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

~~Appliances~~Hardware

When control of the ~~appliance~~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.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

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 ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 was disaggregated as follows:



Three months ended June 30, 2021	Product revenue		Service revenue (maintenance)		Service revenue (professional services)		Total revenue
United States	$	56,128	$	32,816	$	11,590	$	100,534


Europe, Middle East and Africa	31,309		20,739		7,741		59,789

Asia Pacific	19,045		10,837		3,868		33,750
Other	6,647		8,045		2,445		17,137
	$	113,129	$	72,437	$	25,644	$	211,210



Three months ended June 30, 2020	Product revenue		Service revenue (maintenance)		Service revenue (professional services)		Total revenue
United States	$	57,112	$	33,651	$	10,844	$	101,607


Europe, Middle East and Africa	35,801		19,512		4,772		60,085

Asia Pacific	21,854		7,023		3,956		32,833
Other	6,095		8,437		1,436		15,968
	$	120,862	$	68,623	$	21,008	$	210,493


Six months ended June 30, 2021	Product revenue		Service revenue (maintenance)		Service revenue (professional services)		Total revenue
United States	$	92,940	$	64,422	$	22,752	$	180,114


Europe, Middle East and Africa	59,517		40,394		14,651		114,562

Asia Pacific	44,627		20,585		9,671		74,883
Other	13,934		15,741		4,748		34,423
	$	211,018	$	141,142	$	51,822	$	403,982

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

Three months ended September 30, 2020 Product revenue Service revenue (maintenance) Service revenue (professional services) Total revenue
United States $ 57,503 $ 33,275 $ 14,072 $ 104,850
Europe, Middle East and Africa 41,265 19,720 7,133 68,118
Asia Pacific 22,233 12,208 5,183 39,624
Other 7,925 8,439 2,162 18,526
$ 128,926 $ 73,642 $ 28,550 $ 231,118

Three months ended September 30, 2019 Product revenue Service revenue (maintenance) Service revenue (professional services) Total revenue
United States $ 44,701 $ 32,709 $ 10,113 $ 87,523
Europe, Middle East and Africa 7,346 10,899 2,635 20,880
Asia Pacific 5,517 7,123 3,219 15,859
Other 3,588 8,170 1,633 13,391
$ 61,152 $ 58,901 $ 17,600 $ 137,653

Nine months ended September 30, 2020 Product revenue Service revenue (maintenance) Service revenue (professional services) Total revenue
United States $ 150,980 $ 98,392 $ 35,482 $ 284,854
Europe, Middle East and Africa 97,431 54,042 15,920 167,393
Asia Pacific 59,030 26,742 14,017 99,789
Other 18,246 24,157 5,154 47,557
$ 325,687 $ 203,333 $ 70,573 $ 599,593


Nine months ended September 30, 2019		Product revenue		Service revenue (maintenance)		Service revenue (professional services)		Total revenue
Six months ended June 30, 2020										Six months ended June 30, 2020	Product revenue		Service revenue (maintenance)		Service revenue (professional services)		Total revenue
United States	United States	$	114,525	$	99,281	$	26,919	$	240,725	United States	$	93,477	$	65,117	$	21,410	$	180,004

Europe, Middle East and Africa	Europe, Middle East and Africa	32,215		31,016		8,699		71,930		Europe, Middle East and Africa	56,166		34,322		8,787		99,275

Asia Pacific	Asia Pacific	23,217		20,272		7,747		51,236		Asia Pacific	36,797		14,534		8,834		60,165
Other	Other	10,734		22,462		4,915		38,111		Other	10,321		15,718		2,992		29,031
		$	180,691	$	173,031	$	48,280	$	402,002		$	196,761	$	129,691	$	42,023	$	368,475

The Company's product revenue from indirect sales through its channel partner program and from its direct sales program for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 was as follows (in thousands):


		Three months ended				Nine months ended					Three months ended				Six months ended
		September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019			June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020
Indirect sales through channel partner program	Indirect sales through channel partner program	$	36,586	$	21,537	$	97,839	$	69,380	Indirect sales through channel partner program	$	27,114	$	32,649	$	47,277	$	61,253
Direct sales	Direct sales	92,340		39,615		227,848		111,311		Direct sales	86,015		88,213		163,741		135,508
		$	128,926	$	61,152	$	325,687	$	180,691		$	113,129	$	120,862	$	211,018	$	196,761

The Company's product revenue from sales to enterprise customers and from sales to service provider customers for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 was as follows (in thousands):


	Three months ended				Six months ended
	June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020
Sales to enterprise customers	$	24,522	$	35,950	$	47,190	$	63,231
Sales to service provider customers	88,607		84,912		163,828		133,530
	$	113,129	$	120,862	$	211,018	$	196,761

The Company's product revenue and service revenue components by segment for the three and six months ended June 30, 2021 and 2020 was as follows (in thousands):

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

Three months ended Nine months ended
September 30,
2020 September 30,
2019 September 30,
2020 September 30,
2019
Sales to enterprise customers $ 36,937 $ 17,458 $ 100,168 $ 47,295
Sales to service provider customers 91,989 43,694 225,519 133,396
$ 128,926 $ 61,152 $ 325,687 $ 180,691


	Three months ended				Six months ended
	June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020
Product revenue
Cloud and Edge	$	64,361	$	72,310	$	114,513	$	126,520
IP Optical Networks	48,768		48,552		96,505		70,241
Total product revenue	$	113,129	$	120,862	$	211,018	$	196,761

Service revenue
Maintenance
Cloud and Edge	$	57,986	$	57,853	$	112,659	$	113,409
IP Optical Networks	14,451		10,770		28,483		16,282
Total maintenance revenue	72,437		68,623		141,142		129,691
Professional services
Cloud and Edge	19,074		16,744		39,671		35,009
IP Optical Networks	6,570		4,264		12,151		7,014
Total professional services revenue	25,644		21,008		51,822		42,023
Total service revenue	$	98,081	$	89,631	$	192,964	$	171,714

Revenue Contract Balances

The timing of revenue recognition, billings and cash collections results in billed accounts receivable; unbilled receivables, which are contract assets; and customer advances and deposits, which are contract liabilities, in the Company's condensed consolidated balance sheets. Amounts are billed as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals or upon achievement of contractual milestones. Completion of services and billing may occur subsequent to revenue recognition, resulting in contract assets. The Company may receive advances or deposits from its customers before revenue is recognized, resulting in contract liabilities that are classified as deferred revenue. These assets and liabilities are reported in the Company's condensed consolidated balance sheets on a contract-by-contract basis as of the end of each reporting period. Changes in the contract asset and liability balances during the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 were not materially impacted by any factors other than billing and revenue recognition. Nearly all of the Company's deferred revenue balance is related to services revenue, primarily customer support contracts. Unbilled receivables stem primarily from engagements where services have been performed; however, billing cannot occur until services are completed.

In some arrangements, the Company allows customers to pay for term-based software licenses and products over the term of the software license. The Company also sells SaaS-based software under subscription arrangements, with payment terms over the term of the SaaS agreement. Amounts recognized as revenue in excess of amounts billed are recorded as unbilled receivables. Unbilled receivables that are anticipated to be invoiced in the next twelve months are included in Accounts receivable on the Company's condensed consolidated balance sheets. The changes in the Company's accounts receivable, unbilled receivables and deferred revenue balances for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 were as follows (in thousands):

Accounts receivable Unbilled accounts receivable Deferred revenue (current) Deferred revenue (long-term)
Balance at January 1, 2020 $ 168,502 $ 24,204 $ 100,406 $ 20,482
Increase (decrease), net (14,990) 30,097 (6,959) 803
Balance at September 30, 2020 $ 153,512 54,301 $ 93,447 $ 21,285


	Accounts receivable		Unbilled accounts receivable		Deferred revenue (current)		Deferred revenue (long-term)
Balance at January 1, 2021	$	179,331	$	58,407	$	96,824	$	26,010
Increase (decrease), net	(16,223)		(1,648)		4,647		(3,974)
Balance at June 30, 2021	$	163,108	$	56,759	$	101,471	$	22,036

The Company recognized approximately ~~$86~~$60 million of revenue in the ~~nine~~six months ended ~~September~~June 30, 2021 that was recorded as deferred revenue at December 31, 2020 and approximately $69 million of revenue in the six months ended June 30, 2020 that was recorded as deferred revenue at December 31, ~~2019 and approximately $80 million of revenue in the nine months ended September 30, 2019 that was recorded as deferred revenue at December 31, 2018.~~2019. Of the Company's deferred revenue reported as long-term in its condensed consolidated balance sheet at ~~September~~June 30, ~~2020,~~2021, the Company expects that approximately $7$12 million will be ~~recognized as revenue in 2021, approximately $8 million will be~~

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

recognized as revenue in 2022, ~~and~~ approximately $6 million will be recognized as revenue in 2023 and approximately $4 million will be recognized as revenue in 2024 and beyond.

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

Deferred Commissions Cost

Sales commissions earned by the Company's employees are considered incremental and recoverable costs of obtaining a contract with a customer. Expense related to commission payments has been deferred on our condensed consolidated balance sheet and is being amortized over the expected life of the customer contract, which averages five years. The current and ~~long-~~long-term portions of deferred commission expense are included as components of Other current assets and Other assets, respectively. At both June 30, 2021 and December 31, 2020, the Company had $4.1 million of deferred sales commissions capitalized.

(13) OPERATING SEGMENT INFORMATION

The Company has 2 reportable segments, which are intended to align with the manner in which the business is managed: Cloud and Edge, and IP Optical Networks.

The Cloud and Edge segment provides secure and reliable software and hardware products, solutions and services for enabling Voice over Internet Protocol ("VoIP") communications, Voice over Long-Term Evolution ("VoLTE") and Voice Over 5G ("VoNR") communications and Unified Communications and Collaboration ("UC&C") within service provider and enterprise networks and from the cloud. The Cloud and Edge products are increasingly software-centric and cloud-native for deployment on private, public or hybrid cloud infrastructures, in data centers, on enterprise premises and within service provider networks. Ribbon's Cloud and Edge product portfolio consists of our Session Border Controller ("SBC") products and our Network Transformation ("NTR") products.

The IP Optical Networks segment provides high-performance, secure and reliable hardware and software products solutions for IP networking, switching, routing and optical transport designed to support and enable technologies like 5G, distributed cloud computing and corresponding applications by delivering ultra-low cost-per-bit transport and multi-service flexibility. The IP Optical Networks portfolio offers multiple solutions, including 5G-native solutions for mobile backhaul, metro and edge aggregation, core networking, data center interconnect, legacy NTR and transport solutions for wholesale carriers. This portfolio is offered to service provider, enterprise and industry verticals with critical transport network infrastructures including utilities, government, defense, transportation, and education and research Information for the IP Optical Networks segment for the six months ended June 30, 2020 includes the financial results of this segment for the period subsequent to the ECI Acquisition Date.

The Company has not provided segment asset information as such information is not provided to the CODM and accordingly, asset information is not used in assessing segment performance. Please see Note 6 for information regarding the allocation of goodwill between segments. Segment revenue and expenses included in the tables below represent direct revenue and expenses attributable to each segment for revenue, adjusted gross profit, and the research and development expense component of adjusted EBITDA. The Company's sales, marketing, and general and administrative functions support both segments and accordingly, these costs are allocated to both segments.

The CODM utilizes revenue, adjusted gross profit and adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) to measure and assess each segment's performance. The Company calculates adjusted EBITDA by excluding from income (loss) from operations: depreciation; amortization of acquired intangible assets; stock-based compensation; certain litigation costs; acquisition-, disposal- and integration-related expense; and restructuring and related expense. These adjusted measures may also exclude other items in future periods that the Company believes are not part of the Company's core business. Adjusted gross profit and adjusted EBITDA are not financial measures determined in accordance with U.S. GAAP and may not be comparable to similarly titled measures used by other companies and should not be considered a substitute for income (loss)

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

~~term portions~~from operations or gross profit or other results reported in accordance with U.S. GAAP. See below for a reconciliation of ~~deferred commission~~adjusted gross profit to gross profit and adjusted EBITDA to income (loss) from operations, as those are the most directly comparable U.S. GAAP measures.

The tables below provide information regarding revenue, adjusted gross profit, adjusted EBITDA and depreciation expense ~~are included as components~~by reportable segment for the three and six months ended June 30, 2021 and 2020 (in thousands):


	Three months ended				Six months ended
	June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020
Segment revenue:
Cloud and Edge	$	141,421	$	146,907	$	266,843	$	274,938
IP Optical Networks	69,789		63,586		137,139		93,537
Revenue	$	211,210	$	210,493	$	403,982	$	368,475



	Three months ended				Six months ended
	June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020
Segment adjusted gross profit:
Cloud and Edge	$	95,837	$	98,779	$	180,172	$	177,714
IP Optical Networks	33,152		24,686		59,626		36,432
Total segment adjusted gross profit	128,989		123,465		239,798		214,146
Stock-based compensation expense	(562)		(198)		(824)		(355)

Gross profit	$	128,427	$	123,267	$	238,974	$	213,791


	Three months ended				Six months ended
	June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020
Segment adjusted EBITDA:
Cloud and Edge	$	43,536	$	37,497	$	71,866	$	47,236
IP Optical Networks	(482)		(7,947)		(9,160)		(8,145)
Total segment adjusted EBITDA	43,054		29,550		62,706		39,091
Depreciation	(4,249)		(4,786)		(8,475)		(8,260)
Amortization of intangible assets	(17,181)		(14,669)		(33,004)		(29,003)
Stock-based compensation	(4,790)		(3,222)		(9,850)		(6,198)

Litigation costs	0		937		0		(2,101)



Acquisition-, disposal- and integration-related expense	(1,052)		(857)		(2,249)		(13,241)
Restructuring and related expense	(2,830)		(5,361)		(8,780)		(7,436)
Income (loss) from operations	12,952		1,592		$	348	$	(27,148)

Segment depreciation expense:
Cloud and Edge	$	3,142	$	2,984	$	6,279	$	5,977
IP Optical Networks	1,107		1,802		2,196		2,283
Depreciation expense	$	4,249	$	4,786	$	8,475	$	8,260

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

(14) MAJOR CUSTOMERS

The following customer contributed 10% or more of ~~Other current assets~~the Company's revenue in the three and ~~Other assets, respectively.~~ six months ended June 30, 2021 and 2020:

Three months ended

Six months ended

June 30,
2021

June 30,
2020

June 30,
2021

June 30,
2020

Verizon Communications Inc.

17%

15%

16%

14%

At ~~both September~~June 30, ~~2020 and~~2021, one customer accounted for 10% or more of the Company's accounts receivable balance, representing approximately 17% of total accounts receivable. At December 31, ~~2019,~~2020, one customer accounted for 10% or more of the Company's accounts receivable balance, representing approximately 12% of total accounts receivable. The Company performs ongoing credit evaluations of its customers and generally does not require collateral on accounts receivable, although in some instances the Company ~~had $3.6 million~~may require letters of ~~deferred sales commissions capitalized.~~credit to support customer outstanding accounts receivable balances. The Company maintains an allowance for doubtful accounts and such losses have been within management's expectations.

~~(13)~~(15) COMMON STOCK REPURCHASES

In the second quarter of 2019, the Company's Board of Directors (the "Board") approved a stock repurchase program (the "Repurchase Program") pursuant to which the Company ~~may~~could repurchase up to $75 million of ~~the Company's~~its common stock prior to April 18, 2021. Repurchases under the Repurchase Program may be made in the open market, in privately negotiated transactions or otherwise, with the amount and timing of repurchases depending on market conditions and corporate discretion. The Repurchase Program does not obligate the Company to acquire any particular amount of common stock and may be extended, modified, suspended or discontinued at any time at the Board's discretion. The stock repurchases are being funded using the Company's working capital. During the nine months ended September 30, 2019, the Company spent $4.5 million, including transaction fees, to repurchase and retire 1.0 million shares of its common stock under the Repurchase Program. The Company did not repurchase any common stock during the three and ~~nine~~six months ended ~~September~~June 30, 2021 or 2020. The Repurchase Program expired on April 18, 2021. At ~~September 30,~~December 31, 2020, the Company had $70.5 million remaining under the Repurchase Program for future ~~repurchases, subject to the terms of the 2020 Credit Agreement.~~repurchases.

~~(14)~~(16) STOCK-BASED COMPENSATION PLANS

2019 Stock Incentive Plan

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

2007 Plan

The Company's 2007 Plan provided for the award of stock options, SARs, RSAs, PSAs, RSUs, PSUs and other stock-based awards to employees, officers, non-employee directors, consultants and advisors of the Company and its subsidiaries. On and following June 5, 2019, with the exception of shares underlying awards outstanding as of that date, no additional shares may be granted under the 2007 Plan.

Assumed Stock Plans

In connection with the acquisition of Edgewater Networks, Inc. in August 2018, the Company assumed Edgewater's Amended and Restated 2002 Stock Option Plan (the "Edgewater Plan") to the extent of the shares underlying the options outstanding under the Edgewater Plan as of the Edgewater Acquisition Date (the "Edgewater Options"). The Edgewater Options were converted to Ribbon stock options (the "Ribbon Replacement Options") which are vesting under the same schedules as the respective Edgewater Options.

In connection with the Company's acquisitions of Performance Technologies Inc. ("PT") in 2014, and Network Equipment

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

Technologies, Inc. ("NET") in 2012, the Company assumed their stock plans (collectively, the "Assumed Plans"). Any outstanding awards under the Assumed Plans that in the future expire, terminate, are cancelled or surrendered, or are repurchased by the Company will be returned to the 2019 Plan. Accordingly, no additional shares may be granted under the Assumed Plans.

~~RIBBON COMMUNICATIONS INC.~~

~~Notes to Condensed Consolidated Financial Statements (Continued)~~

~~(unaudited)~~

Executive Equity Arrangements

Inducement Awards

In connection with his appointment as President and Chief Executive Office of Ribbon, and as an inducement for Bruce McClelland's ("Mr. McClelland") commencement of employment, the Company awarded Mr. McClelland sign-on equity grants, comprised of ~~an RSU grant~~462,963 RSUs and a PSU grant with both market and service conditions (the "Inducement PSUs") on March 16, 2020. ~~Subject~~The RSUs vested and were released to Mr. ~~McClelland's continued employment, 462,963 RSUs are eligible to vest~~McClelland on ~~the earlier of~~ March 16, 2021 or the date of the consummation of a change in control of the Company and, upon vesting, will be settled in shares of Ribbon's common stock. The RSUs had a fair market value of $1.0 million on the date of grant.2021. Subject to Mr. McClelland's continued employment, the Inducement PSUs are eligible to vest and be settled in up to 4,750,000 shares of Ribbon common stock upon the achievement of specified share price thresholds on or prior to September 1, 2024. The first share price threshold for Mr. McClelland’s Inducement PSUs was achieved on February 26, 2021, and accordingly 1,333,333 shares were released to him. These ~~grants~~releases are ~~reported~~included in the applicable tables below.

~~Other~~ Performance-Based Stock Grants

In addition to granting ~~RSAs and~~ RSUs to its executives and certain of its employees, the Company also grants PSUs to certain of its executives, including the Inducement PSUs granted to Mr. McClelland as described above.

In 2021, 2020 ~~PSU Grants. From June 2020 through September 2020,~~and 2019, the Company granted certain of its executives ~~an aggregate of 823,369 PSUs,~~(the "2021 PSUs", "2020 PSUs" and "2019 PSUs", respectively), of which ~~494,020 PSUs~~60% of each executive's PSU grant had both performance and service conditions (the ~~"2020 Performance~~"Performance PSUs") and ~~329,349~~40% had both market and service conditions (the ~~"2020 Market~~"Market PSUs").

Each executive's ~~2020~~ Performance PSU grant is comprised of 3 consecutive fiscal year performance periods ~~from 2020 through 2022~~beginning in the year of grant (each, a ~~"fiscal year performance period"~~"Fiscal Year Performance Period"), with one-third of the ~~2020~~ Performance PSUs attributable to each ~~fiscal year performance period.~~Fiscal Year Performance Period. The number of shares that will be vest for each Fiscal Year Performance Period, if any, ~~for each fiscal year performance period~~ will be based on the achievement of certain metrics related to the Company's financial performance for the applicable year on a standalone basis (each, a ~~"fiscal year~~"Fiscal Year Performance Condition"). The Company's achievement of the goals for each Fiscal Year Performance Condition (and the number of shares of Company common stock to vest as a result thereof) are being measured on a linear sliding scale in relation to specific threshold, target and stretch performance ~~condition"). During~~conditions, with any shares earned vesting in the ~~second~~first quarter of ~~2020,~~the fiscal year following the third Performance Period of the grant, pending each executive's continued employment with the Company ~~determined~~through that the grant date criteria for the 2020 fiscal year performance period had been met, and recorded the applicable stock-based compensation expense. The grant date criteria for the 2021 and 2022 fiscal year performance periods had not been met as of September 30, 2020, and accordingly, no expense has been recorded for the 2020 Performance PSUs underlying these fiscal year performance periods.date. The number of shares of common stock tounderlying the Performance PSUs that can be ~~achieved upon vesting of the 2020 Performance PSUs~~earned will in no event exceed 200% of the ~~total 2020~~ Performance PSUs. Shares subject to the ~~2020~~ Performance PSUs that fail to be earned will be forfeited.

The ~~2020~~ Market PSUs have ~~one~~1 three-year performance period, ~~which will end~~beginning January 1 in the year of grant and ending on December 31, ~~2022~~three years thereafter (the ~~"20-22 Market~~"Market Performance Period"). The number of shares subject to the ~~2020~~ Market PSUs that will vest, if any, ~~on June 15, 2023,~~ will be dependent upon the Company's total shareholder return ("TSR") compared with the TSR of the companies included in ~~the Nasdaq Telecommunications Index~~a custom index for the ~~same 20-22~~applicable Market Performance Period, measured by the Compensation Committee after the ~~20-22~~ Market Performance Period ~~ends. The~~ends, with any shares ~~determined to be~~ earned ~~will vest on June 15, 2023,~~vesting in the first quarter of the fiscal year following the respective Market Performance Period, pending each executive's continued employment with the Company through that date. The number of shares of common stock tounderlying the Market PSUs that can be ~~achieved upon vesting of the 2020 Market PSUs~~earned will in no event exceed 200% of the ~~2020~~ Market PSUs. Shares subject to the ~~2020~~ Market PSUs that fail to be earned will be forfeited.

In addition, in connection with his appointment as Executive Vice President and General Manager, Packet Optical Networking, the Company granted Sam Bucci 133,333 PSUs (the "Bucci Stock Price PSUs") with both market and service conditions. Subject to Mr. Bucci's continued employment, the Bucci Stock Price PSUs ~~are~~were eligible to vest and be settled in shares of Ribbon's common stock upon the achievement of a specific share price threshold on or prior to January 31, 2022.

~~2019 PSU Grants. In March~~ The share price threshold for Mr. Bucci’s Stock Price PSUs was achieved on February 12, 2021, and ~~April 2019,~~ the Company granted certain of its executives an aggregate of 872,073 PSUs, of which 523,244 PSUs had both performance and service conditions (the "2019 Performance PSUs") and 348,829 PSUs had both market and service conditions (the "2019 Market PSUs").

~~Each executive's 2019 Performance PSU grant~~shares were released to him. This release is ~~comprised of 3 consecutive fiscal year performance periods from~~included in the applicable table below.

3334

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

2019 through 2021 (each, a "fiscal year performance period"), with one-third of the 2019 Performance PSUs attributable to each fiscal year performance period. The number of shares that will vest, if any, for each fiscal year performance period will be based on the achievement of certain metrics related to the Company's financial performance for the applicable year on a standalone basis (each, a "fiscal year performance condition"). In the third quarter of 2019, the Company adjusted the 2019 Performance PSU fiscal 2019 goals to reflect the changes to the Company's calculation of certain metrics. There was no incremental expense in connection with this modification. In March 2020, the Compensation Committee determined that the 2019 fiscal year performance conditions had been satisfied at the 30.493% level. The Company's achievement of the 2019 fiscal year performance conditions (and the number of shares of Company common stock to vest as a result thereof) was measured on a linear sliding scale in relation to specific threshold, target and stretch performance conditions. During the second quarter of 2020, the Company determined that the grant date criteria for the 2020 fiscal year performance period had been met, and recorded the applicable stock-based compensation expense. The grant date criteria for the 2021 fiscal year performance period had not been met as of September 30, 2020, and accordingly, no expense has been recorded for the 2019 Performance PSUs underlying the 2020 fiscal year performance period. The number of shares of common stock to be achieved upon vesting of the 2019 Performance PSUs will in no event exceed 200% of the 2019 Performance PSUs. Shares subject to the 2019 Performance PSUs that fail to be earned will be forfeited.

The 2019 Market PSUs have one three-year performance period which will end on December 31, 2021 (the "19-21 Market Performance Period"). The number of shares subject to the Market PSUs that will vest, if any, on March 15, 2022, will be dependent upon the Company's TSR compared with the TSR of the companies included in the Nasdaq Telecommunications Index for the same 19-21 Market Performance Period, measured by the Compensation Committee after the 19-21 Market Performance Period ends. The shares determined to be earned will vest on March 15, 2022, pending each executive's continued employment with the Company through that date. The number of shares of common stock to be achieved upon vesting of the 2019 Market PSUs will in no event exceed 200% of the 2019 Market PSUs. Shares subject to the 2019 Market PSUs that fail to be earned will be forfeited.

In connection with the separation of two executives from the Company, certain of the 2019 Performance PSUs were accelerated and released in accordance with their employment agreements in the three months ended September 30, 2020, with the potential for a portion of the 2020 Performance PSUs and Market PSUs aggregating approximately 43,000 shares to be released to these former executives on a pro rata basis subject to the Company's achievement for the performance periods through their respective separation dates.

~~2018 PSU Grant~~. In May 2018, the Company granted Franklin Hobbs, the Company's former President and Chief Executive Officer ("Mr. Hobbs"), 195,000 PSUs with both performance and service conditions (the "2018 PSUs"). Of the 195,000 2018 PSUs, one-half of such PSUs were eligible to vest based on the achievement of two separate metrics related to the Company's 2018 financial performance (the "2018 Performance Conditions"). The Company's achievement of the 2018 Performance Conditions (and the number of shares of Company common stock to be received upon vesting as a result thereof) were measured on a linear sliding scale in relation to specific threshold, target and stretch performance conditions. The number of shares of common stock to be received upon vesting of the 2018 PSUs would in no event exceed 150% of the 2018 PSUs. The Compensation Committee determined that the performance metrics for all of the 2018 PSUs had been achieved at the 150% level, for a total of 292,500 shares eligible to be issued. In connection with Mr. Hobbs' separation from the Company effective December 31, 2019, the vesting schedule for the 2018 Shares earned was accelerated and the shares were released on January 30, 2020.

Accounting for Performance PSUs. Once the grant date criteria have been met for a Fiscal Year Performance Period, the Company records stock-based compensation expense for the respective underlying Performance PSUs based on its assessment of the probability that each performance condition will be achieved and the level, if any, of such achievement. The Compensation Committee determines the number of shares earned, if any, after the Company's financial results for each Fiscal Year Performance Period are finalized. Upon the determination by the Compensation Committee of the number of shares that will be received upon vesting of the Performance PSUs, such number of shares becomes fixed and the unamortized expense is recorded through the remainder of the service period, generally three years from the date of grant, at which time the total Performance PSUs earned, if any, will vest, pending each executive's continued employment with the Company through that date.

Accounting for Market PSUs. PSUs that include a market condition require the use of a Monte Carlo simulation

~~RIBBON COMMUNICATIONS INC.~~

~~Notes to Condensed Consolidated Financial Statements (Continued)~~

~~(unaudited)~~

approach to model future stock price movements based upon the risk-free rate of return, the date of return, the volatility of each entity and the pair-wise covariance between each entity. These results are then used to calculate the grant date fair values of the respective PSUs. The Company is required to record expense for the PSUs with market conditions through their respective final vesting dates, regardless of the number of shares that are ultimately earned.

At ~~September 30, 2020,~~March 31, 2021, the calculation of the grant date fair ~~values~~value of the ~~2020~~ Market PSUs granted on ~~September~~March 15, ~~2020 and the Bucci Stock Price PSUs~~2021 had not been completed. The Company used a grant date fair value of $4.24, the closing stock price on the date of grant, to calculate expense attributable to the three months ended September 30, 2020 for the 2020 Market PSUs granted on September 15, 2020 and the Bucci Stock Price PSUs, and is also using this stock price for these PSUs in the table below. The Company expects that the Monte Carlo valuation work and finalization of the grant date fair value of the 2020 Market PSUs granted on September 15, 2020 and the Bucci Stock Price PSUs will occur in the fourth quarter of 2020. At that time, the Company will record a cumulative adjustment to expense and adjust the grant date fair value of these PSUs for subsequent reporting. The Company does not expect the cumulative adjustment to expense will have a material impact on its consolidated financial statements.

At June 30, 2020, the calculation of the grant date fair value of the 2020 Market PSUs granted prior to September 15, 2020 had not been completed. The Company used a grant date fair value of $4.37, the closing stock price on the date of grant, to calculate expense attributable to the three months ended June 30, 2020 for the 2020 Market PSUs. During the third quarter of 2020, the Monte Carlo valuation of these PSUs was completed and accordingly, the grant date fair value of these PSUs was finalized as of September 30, 2020. The Company recorded a cumulative adjustment to expense to account for the change in fair value of these PSUs, which adjustment did not have a material impact on its consolidated financial statements.

~~At March 31, 2020, the calculation of the grant date fair value of the Inducement PSUs had not been completed. The Company used a grant date fair value of $2.16,~~$8.65, the closing stock price on the date of grant, to calculate expense attributable to the three months ended March 31, ~~2020~~2021 for ~~the Inducement~~these Market PSUs. During the ~~second quarter of 2020,~~three months ended June 30, 2021, the Company completed the Monte Carlo valuation of ~~the Inducement~~these Market PSUs ~~was completed~~ and ~~accordingly,~~calculated that the grant date fair value of ~~the Inducement PSUs~~each Market PSU was ~~finalized as of June 30, 2020.~~$13.67. The Company recorded a cumulative adjustment to expense to account for the change in grant date fair value in the second quarter of ~~the Inducement PSUs, which~~2021. The change in grant date fair value and related cumulative adjustment did not have a material impact on its consolidated financial statements.

Employee Bonus Program

Effective in 2021, the Company added an equity component to its cash bonus program for eligible employees, under which RSUs with a grant date fair value equal to 50% of each employee's target cash bonus were granted to each such employee (the "Bonus RSUs"). Correspondingly, cash target bonuses for eligible employees were reduced by 50%. The Company implemented this program to expand the opportunities for stock ownership more broadly throughout the Company. The Bonus RSU grants are included in the applicable table below.

Stock Options

The activity related to the Company's outstanding stock options for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 was as follows:

Number of
Shares Weighted
Average
Exercise Price Weighted
Average
Remaining
Contractual Term
(years) Aggregate
Intrinsic Value
(in thousands)
Outstanding at January 1, 2020 297,124 $ 11.55
Granted 0 $ 0
Exercised (16,128) $ 1.77
Forfeited (6,055) $ 2.78
Expired (41,717) $ 15.78
Outstanding at September 30, 2020 233,224 $ 11.70 4.10 $ 157
Vested or expected to vest at September 30, 2020 232,800 $ 11.71 4.10 $ 157
Exercisable at September 30, 2020 224,173 $ 12.09 4.00 $ 140


	Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)	Aggregate Intrinsic Value (in thousands)
Outstanding at January 1, 2021	207,710	$	12.69



Exercised	(13,602)	$	1.76

Expired	(3,386)	$	17.04
Outstanding at June 30, 2021	190,722	$	13.40	3.11	$	240
Vested or expected to vest at June 30, 2021	190,709	$	13.40	3.11	$	240
Exercisable at June 30, 2021	189,978	$	13.44	3.10	$	236

~~Additional information regarding~~The total intrinsic value of options exercised was nominal in the ~~Company's stock options for the nine~~three months ended ~~September~~June 30, ~~2020 was as follows (in thousands):~~2021 and $0.1 million in the six months ended June 30, 2021. The Company received nominal cash from option exercises in the three months ended June 30, 2021 and approximately $24,000 in the six months ended June 30, 2021.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

Three months ended Nine months ended
September 30,
2020 September 30,
2020
Total intrinsic value of stock options exercised $ 7 $ 36
Cash received from the exercise of stock options $ 6 $ 29

Restricted Stock Awards and Units

The activity related to the Company's RSAs for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 was as follows:

Shares Weighted
Average
Grant Date
Fair Value
Unvested balance at January 1, 2020 487,976 $ 6.87
Granted 0 $ 0
Vested (304,441) $ 6.80
Forfeited (27,484) $ 6.97
Unvested balance at September 30, 2020 156,051 $ 7.00


	Shares	Weighted Average Grant Date Fair Value
Unvested balance at January 1, 2021	86,983	$	7.04


Vested	(86,983)	$	7.04

Unvested balance at June 30, 2021	0	$	0

The activity related to the Company's RSUs for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 was as follows:


		Shares	Weighted Average Grant Date Fair Value			Shares	Weighted Average Grant Date Fair Value
Unvested balance at January 1, 2020		2,790,060	$	5.11
Unvested balance at January 1, 2021					Unvested balance at January 1, 2021	6,531,110	$	3.32
Granted	Granted	6,486,016	$	2.93	Granted	3,087,947	$	8.57

Vested	Vested	(1,667,289)	$	4.75	Vested	(2,378,221)	$	3.19
Forfeited	Forfeited	(677,124)	$	3.69	Forfeited	(458,054)	$	4.18
Unvested balance at September 30, 2020		6,931,663	$	3.30
Unvested balance at June 30, 2021					Unvested balance at June 30, 2021	6,782,782	$	5.70

The total grant date fair value of shares of restricted stock granted under RSAs and RSUs that vested during the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 was ~~$10.0~~$8.2 million.

Performance-Based Stock Units

The activity related to the Company's PSUs for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 was as follows:


		Shares	Weighted Average Grant Date Fair Value			Shares	Weighted Average Grant Date Fair Value
Unvested balance at January 1, 2020		1,067,073	$	5.94
Unvested balance at January 1, 2021					Unvested balance at January 1, 2021	6,035,931	$	1.56
Granted	Granted	5,804,202	$	1.44	Granted	672,121	$	10.22
Vested	Vested	(323,752)	$	5.52	Vested	(1,525,681)	$	0.98
Forfeited	Forfeited	(377,753)	$	5.22	Forfeited	(91,005)	$	4.29
Unvested balance at September 30, 2020		6,169,770	$	1.67
Unvested balance at June 30, 2021					Unvested balance at June 30, 2021	5,091,366	$	2.99

The total grant date fair value of shares of restricted stock granted under PSUs that vested during the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 was ~~$1.8~~$1.5 million.

~~RIBBON COMMUNICATIONS INC.~~

~~Notes to Condensed Consolidated Financial Statements (Continued)~~

~~(unaudited)~~

~~Employee Stock Purchase Plan~~

The Company's Amended and Restated 2000 Employee Stock Purchase Plan ("ESPP") was designed to provide eligible employees of the Company and its participating subsidiaries an opportunity to purchase common stock of the Company through accumulated payroll deductions. The ESPP provided for six-month offering periods with the purchase price of the stock equal to 85% of the lesser of the closing market price on the first or last day of the offering period. The maximum number of shares of common stock an employee could purchase during each offering period was 500, subject to certain adjustments pursuant to the ESPP. The last purchase under the ESPP purchase period was made on November 28, 2019, and the ESPP expired on May 20, 2020.

Stock-Based Compensation

The condensed consolidated statements of operations include stock-based compensation for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 as follows (in thousands):

Three months ended Nine months ended
September 30,
2020 September 30,
2019 September 30,
2020 September 30,
2019
Product cost of revenue $ 57 $ 26 $ 123 $ 62
Service cost of revenue 204 124 493 367
Research and development 868 521 2,164 1,359
Sales and marketing 1,189 721 2,952 2,265
General and administrative 1,651 1,093 4,435 4,101
$ 3,969 $ 2,485 $ 10,167 $ 8,154

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)


	Three months ended				Six months ended
	June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020
Product cost of revenue	$	93	$	39	$	120	$	66
Service cost of revenue	469		159		704		289
Research and development	1,160		738		1,787		1,296
Sales and marketing	1,752		1,011		3,626		1,763
General and administrative	1,316		1,275		3,613		2,784
	$	4,790	$	3,222	$	9,850	$	6,198

There was an income tax benefit of $1.3 million for stock-based compensation in the six months ended June 30, 2021; however, there was 0 income tax benefit ~~for employee stock-based compensation expense for~~in the ~~nine~~six months ended ~~September~~June 30, 2020 ~~or 2019~~ due to the valuation allowance recorded.

At ~~September~~June 30, ~~2020,~~2021, there was ~~$23.0~~$34.6 million, net of expected forfeitures, of unrecognized stock-based compensation expense related to unvested stock options, stock awards and stock units. This expense is expected to be recognized over a weighted average period of approximately two ~~years, six months.~~

~~(15) MAJOR CUSTOMERS~~

~~The following customers contributed 10% or more of the Company's revenue in the three and nine months ended September 30, 2020 and 2019:~~

Three months ended Nine months ended
September 30,
2020 September 30,
2019 September 30,
2020 September 30,
2019
Verizon Communications Inc. 16% 15% 15% 17%
AT&T Inc. * 16% * 12%

* Represents less than 10% of total revenue.

At September 30, 2020, one customer accounted for 10% or more of the Company's accounts receivable balance, representing approximately 15% of total accounts receivable. At December 31, 2019, one customer accounted for 10% or more of the Company's accounts receivable balance, representing approximately 22% of total accounts receivable. The Company performs ongoing credit evaluations of its customers and generally does not require collateral on accounts receivable, although in some instances the Company may require letters of credit to support customer outstanding accounts receivable balances. The Company maintains an allowance for doubtful accounts and such losses have been within management's expectations.

~~RIBBON COMMUNICATIONS INC.~~

~~Notes to Condensed Consolidated Financial Statements (Continued)~~

~~(unaudited)~~

~~(16) RELATED PARTY TRANSACTIONS~~

As a portion of the consideration for the GENBAND Merger, on October 27, 2017, the Company issued a Promissory Note for $22.5 million to certain of GENBAND's equity holders who, following the GENBAND Merger, owned greater than 5 percent of the Company's outstanding shares. On April 29, 2019, the Company repaid in full all outstanding amounts under the Promissory Note, aggregating $24.7 million. The Company did not incur any early termination penalties in connection with this repayment.years.

(17) ~~INCOME TAXES~~

The Company's income tax provisions for the nine months ended September 30, 2020 and 2019 reflect the Company's estimates of the effective rates expected to be applicable for the respective full years, adjusted for any discrete events, which are recorded in the period that they occur. The amount recorded for the three months ended September 30, 2020 includes a $4 million benefit from the release of a valuation allowance related to the Company's Ireland operations due to the Company's expectation that it is more likely than not that its Ireland operations will continue to be profitable. These estimates are reevaluated each quarter based on the Company's estimated tax expense for the full year. The estimated effective tax rate includes the impact of valuation allowances in various jurisdictions.

The Company continues to evaluate the impact of various COVID-19 relief packages offered by various countries, including the Coronavirus Aid, Relief, and Economic Security ("CARES") Act, which was enacted into law in the U.S. on March 27, 2020. At this time, the Company does not anticipate any material tax impacts.

~~(18)~~ LEASES

The Company has operating and finance leases for corporate offices, research and development facilities, and certain equipment. Operating leases are reported separately in the Company's condensed consolidated balance sheets. Assets acquired under finance leases are included in Property and equipment, net, in the condensed consolidated balance sheets.

The Company determines if an arrangement is a lease at inception. A contract is determined to contain a lease component if the arrangement provides the Company with a right to control the use of an identified asset. Lease agreements may include lease and non-lease components. In such instances for all classes of underlying assets, the Company does not separate lease and non-lease components but rather, accounts for the entire arrangement under leasing guidance. Leases with an initial term of 12 months or less are not recorded on the balance sheet and lease expense for these leases is recognized on a straight-line basis over the lease term.

Right-of-use assets and lease liabilities are initially measured based on the present value of the future minimum fixed lease payments (i.e., fixed payments in the lease contract) over the lease term at the commencement date. As the Company's existing leases do not have a readily determinable implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of future minimum fixed lease payments. The Company calculates its incremental borrowing rate to reflect the interest rate that it would have to pay to borrow on a collateralized basis an amount equal to the lease payments in a similar economic environment over a similar term and considers its historical borrowing activities and market data from entities with comparable credit ratings in this determination. The measurement of the right-of-use asset also includes any lease payments made prior to the commencement date (excluding any lease incentives) and initial direct costs incurred. The Company assessed its right-of-use assets for impairment as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020 and determined no impairment has occurred.

Lease terms may include options to extend or terminate the lease and the Company incorporates such options in the lease term when it has the unilateral right to make such an election and it is reasonably certain that the Company will exercise that option. In making this determination, the Company considers its prior renewal and termination history and planned usage of the assets under lease, incorporating expected market conditions.

~~RIBBON COMMUNICATIONS INC.~~

~~Notes to Condensed Consolidated Financial Statements (Continued)~~

~~(unaudited)~~

For operating leases, lease expense for minimum fixed lease payments is recognized on a straight-line basis over the lease term. The expense for finance leases includes both interest and amortization expense components, with the interest component calculated based on the effective interest method and the amortization component calculated based on straight-line amortization of the right-of-use asset over the lease term. Lease contracts may contain variable lease costs, such as common area maintenance, utilities and tax reimbursements that vary over the term of the contract. Variable lease costs are not included in minimum fixed lease payments and as a result, are excluded from the measurement of the right-of-use assets and lease

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

liabilities. The Company expenses all variable lease costs as incurred.

In connection with the 2019 Restructuring Initiative, certain lease assets related to facilities ~~will be~~are being partially or fully vacated as the Company consolidates its facilities. The Company has no plans to enter into sublease agreements for certain facilities. The Company ceased use of these facilities in the first quarter of 2021, the first and fourth quarters of 2020 and the third quarter of 2019. Accordingly, the Company accelerated the amortization of the associated lease assets through the planned cease-use date of each facility, resulting in additional amortization expense of $3.4 million and $0.1 million in the ~~nine~~six months ended ~~September~~June 30, 2021 and 2020, respectively. The Company also recorded expense of $1.4 million in the aggregate in the six months ended June 30, 2021 for all estimated future variable lease costs related to these facilities. The Company recorded a nominal credit for all estimated future variable lease costs in the six months ended June 30, 2020. The Company did not record additional amortization expense or estimated future variable lease costs in the three months ended ~~September~~June 30, 2021 or 2020. ~~The Company previously recorded $3.7 million of additional~~

All accelerated amortization ~~expense in the year ended December 31, 2019, including $0.6 million~~ and ~~$3.5 million in the three and nine months ended September 30, 2019, respectively. The Company recorded $1.0 million in the aggregate in the year ended December 31, 2019 for estimated~~accrual of future variable ~~lease costs. All of these amounts~~costs were recorded as Restructuring and related expense in the Company's condensed consolidated statements of operations. At ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the Company had accruals of ~~$0.8~~$1.9 million and ~~$0.9~~$0.8 million, respectively, for all future anticipated variable lease costs related to these facilities. The Company may incur additional future expense if it is unable to sublease other locations included in the Facilities Initiative.

The Company leases its corporate offices and other facilities under operating leases, which expire at various times through 2029. The Company's corporate headquarters is located in a leased facility in Westford, Massachusetts under a lease that expires in August 2028. The Company's finance leases primarily consist of equipment.

~~At September 30,~~2032. In December 2020, the Company ~~had 107,800 square feet of building space in North Dallas, Texas under construction as part of the Facilities Initiative. The Company's~~began relocating from its former leased Plano, Texas facility ~~will be vacated upon completion of~~to its recently completed leased facility, also located in Plano, Texas, which became the ~~construction of the North Dallas, Texas site. At that time, employees will relocate~~Company's corporate headquarters. The Company's relocation to the new ~~site as part of the Facilities Initiative. The construction of the new North Dallas, Texas site is expected to be~~corporate headquarters was completed in ~~2020.~~the first quarter of 2021.

The Company's right-of-use lease assets and lease liabilities at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020 were as follows (in thousands):


		Classification	September 30, 2020		December 31, 2019			Classification	June 30, 2021		December 31, 2020
Assets
Assets:							Assets:
Operating lease assets	Operating lease assets	Operating lease right-of-use assets	$	61,648	$	36,654	Operating lease assets	Operating lease right-of-use assets	$	57,869	$	69,757
Finance lease assets*	Finance lease assets*	Property and equipment, net	1,472		2,420		Finance lease assets*	Property and equipment, net	574		983
Total leased assets	Total leased assets		$	63,120	$	39,074	Total leased assets		$	58,443	$	70,740

Liabilities
Current
Liabilities:							Liabilities:
Current:							Current:
Operating	Operating	Operating lease liabilities	$	17,757	$	7,719	Operating	Operating lease liabilities	$	17,974	$	17,023
Finance	Finance	Accrued expenses and other	1,229		1,005		Finance	Accrued expenses and other	709		902
Noncurrent
Noncurrent:							Noncurrent:
Operating	Operating	Operating lease liabilities, net of current	51,328		37,202		Operating	Operating lease liabilities, net of current	62,615		72,614
Finance	Finance	Other long-term liabilities	868		2,144		Finance	Other long-term liabilities	253		568
Total lease liabilities	Total lease liabilities		$	71,182	$	48,070	Total lease liabilities		$	81,551	$	91,107

* Finance lease assets were recorded net of accumulated depreciation of ~~$2.2~~$2.3 million and ~~$2.0~~$1.9 million at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively.

The components of lease expense for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 were as follows (in thousands):

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)


	Three months ended				Six months ended
	June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020

Operating lease cost*	$	5,194	$	5,217	$	14,031	$	8,561
Finance lease cost:
Amortization of leased assets	180		319		409		638
Interest on lease liabilities	20		47		46		102
Short-term lease cost	3,270		5,629		6,562		11,124
Variable lease costs (costs excluded from minimum fixed lease payments)**	500		635		2,658		1,272
Sublease income	(199)		(320)		(475)		(564)
Net lease cost	$	8,965	$	11,527	$	23,231	$	21,133

* Operating lease costs for the six months ended June 30, 2021 included $3.4 million of accelerated amortization for certain assets partially or fully vacated in 2021 with no intent or ability to sublease. Operating lease costs for the six months ended June 30, 2020 included $0.1 million of accelerated amortization for certain assets partially or fully vacated in 2020 with no ability to sublease. The Company did not record accelerated amortization in the three months ended June 30, 2021 or 2020.

** Variable lease costs for the six months ended June 30, 2021 included accruals of $1.4 million for all future estimated variable expenses related to certain assets partially or fully vacated in 2021 with no intent or ability to sublease. NaN such variable costs were accrued in the three months ended June 30, 2021 or in the three and six months ended June 30, 2020.

Cash flow information related to the Company's leases for the six months ended June 30, 2021 and 2020 was as follows (in thousands):


	Six months ended
		June 30, 2021		June 30, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases		$	10,997	$	7,844
Operating cash flows for finance leases		$	46	$	102
Financing cash flows for finance leases		$	507	$	668

Other information related to the Company's leases as of June 30, 2021 and December 31, 2020 was as follows:


	June 30, 2021		December 31, 2020
Weighted average remaining lease term (years):
Operating leases	6.49		6.59
Finance leases	1.35		1.70
Weighted average discount rate:
Operating leases	5.71	%	5.67	%
Finance leases	5.09	%	6.15	%

Future minimum fixed lease payments under noncancelable leases at June 30, 2021 were as follows (in thousands):

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

~~thousands):~~

Three months ended Nine months ended
September 30,
2020 September 30,
2019 September 30,
2020 September 30,
2019
Operating lease cost* $ 5,350 $ 2,988 $ 13,911 $ 11,063
Finance lease cost
  Amortization of leased assets 291 244 929 732
  Interest on lease liabilities 39 90 141 210
Short-term lease cost 4,821 4,777 15,945 14,183
Variable lease costs (costs excluded from minimum fixed lease payments)** 697 1,727 1,969 2,932
Sublease income (307) 0 (871) 0
    Net lease cost $ 10,891 $ 9,826 $ 32,024 $ 29,120

* Operating lease cost for the nine months ended September 30, 2020 included $0.1 million of accelerated amortization for certain assets partially or fully vacated in 2020 with no intent or ability to sublease. The Company did not record accelerated amortization in the three months ended September 30, 2020. Operating lease cost for the three and nine months ended September 30, 2019 included $0.6 million and $3.5 million, respectively, of accelerated amortization for certain assets that were partially or fully vacated in 2019 with no possibility of sublease.

** Variable lease costs for the three and nine months ended September 30, 2019 included $0.9 million and $1.0 million, respectively, accrued for all future estimated variable expenses related to certain assets partially or fully vacated in 2019 with no intent or ability to sublease. No such variable lease costs were accrued in the three and nine months ended September 30, 2020.

~~Cash flow information related to the Company's leases for the nine months ended September 30, 2020 and 2019 was as follows (in thousands):~~

Nine months ended
September 30,
2020 September 30,
2019
Cash paid for amounts included in the measurement of lease liabilities
  Operating cash flows for operating leases $ 13,933 $ 7,850
  Operating cash flows for finance leases $ 141 $ 210
  Financing cash flows for finance leases $ 971 $ 698


	June 30, 2021
	Operating		Finance
	leases		leases
Remainder of 2021	$	11,326	$	422
2022	20,323		511
2023	17,530		63
2024	9,704		0
2025	7,791		0
2026 and beyond	31,353		0
Total lease payments	98,027		996
Less: interest	(17,438)		(35)
Present value of lease liabilities	$	80,589	$	961

~~Other information related to the Company's leases as of September 30, 2020 and December 31, 2019 was as follows:~~

September 30,
2020 December 31,
2019
Weighted average remaining lease term (years)
  Operating leases 4.98 6.73
  Finance leases 1.88 2.35
Weighted average discount rate
  Operating leases 5.55 % 6.50 %
  Finance leases 6.65 % 7.54 %
(18) INCOME TAXES

~~Future minimum fixed lease payments under noncancelable leases at September~~The Company's income tax provisions for the six months ended June 30, 2021 and 2020 ~~and December 31, 2019 were as follows (in thousands):~~

~~RIBBON COMMUNICATIONS INC.~~

~~Notes~~reflect the Company's estimates of the effective rates expected to ~~Condensed Consolidated Financial Statements (Continued)~~

~~(unaudited)~~

September 30, 2020
Operating Finance
leases leases
Remainder of 2020 $ 5,186 $ 355
2021 20,048 1,189
2022 16,699 593
2023 13,999 73
2024 7,416 0
2025 and beyond 16,796 0
  Total lease payments 80,144 2,210
  Less: interest (11,059) (113)
    Present value of lease liabilities $ 69,085 $ 2,097
be applicable for the respective full years, adjusted for any discrete events, which are recorded in the period that they occur. These estimates are reevaluated each quarter based on the Company's estimated tax expense for the full year. The estimated effective tax rate includes the impact of valuation allowances in various jurisdictions.

December 31, 2019
Operating Finance
leases leases
2020 $ 10,290 $ 1,644
2021 9,468 1,159
2022 7,665 581
2023 7,067 0
2024 5,303 0
2025 and beyond 15,738 0
  Total lease payments 55,531 3,384
  Less: interest (10,610) (235)
    Present value of lease liabilities $ 44,921 $ 3,149
The Company intends to continue to maintain a full valuation allowance on its deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of the allowance. However, given its current earnings and anticipated future earnings, the Company believes there is a reasonable possibility that within the next 12 months, sufficient positive evidence may become available to reach a conclusion that a significant portion of the U.S. valuation allowance will no longer be needed. Release of the valuation allowance would result in the recognition of certain deferred tax assets and a decrease in income tax expense for the period in which the release is recorded. However, the exact timing and amount, of the valuation allowance release, if any, are subject to change on the basis of the level of profitability that the Company is able to actually achieve.

(19) COMMITMENTS AND CONTINGENCIES

~~Litigation Settlement~~

As previously disclosed, the Company was involved in 6 lawsuits (together, the "Lawsuits") with Metaswitch Networks Ltd., Metaswitch Networks Corp. and Metaswitch Inc. (collectively, "Metaswitch"). In 5 of the Lawsuits, the Company was the plaintiff and, in 3 of those 5 lawsuits, the Company was also a counterclaim defendant. In the sixth case, the Company was the defendant.

On April 22, 2019, the Company and Metaswitch agreed to a binding mediator's proposal that resolved the 6 Lawsuits between the Company and Metaswitch (the "Lawsuits"). The Company and Metaswitch signed a Settlement and Cross-License Agreement on May 29, 2019 (the "Royalty Agreement"). Pursuant to the terms of the Royalty Agreement, Metaswitch agreed to pay the Company an aggregate amount of $63.0 million, which included cash payments of $37.5 million during the second quarter of 2019 and $25.5 million payable in 3 installments annually, beginning June 26, 2020, with such installment payments accruing interest at a rate of 4% per year. As part of the Royalty Agreement, the Company and Metaswitch (i) have released the other from all claims and liabilities; (ii) have licensed each party's existing patent portfolio to the other party; and (iii) have requested the applicable courts to dismiss the Lawsuits.

~~The Company received $37.5 million of aggregate payments from Metaswitch in the second quarter of 2019 and $9.5 million in the second quarter of 2020.~~

On July 6, 2020, the Company and Metaswitch signed a First Supplemental Agreement to the Settlement and Cross-License Agreement (the "Supplemental Agreement") under which Metaswitch could elect to repay the outstanding amounts under the Royalty Agreement early in exchange for a reduction of $0.25 million to the outstanding principal, from $17.0 million to $16.75 million, and the payment of no further interest by Metaswitch effective June 26, 2020. The Company recorded the reduction to the outstanding principal as a reduction to interest income. On July 14, 2020, Metaswitch paid the Company the

~~RIBBON COMMUNICATIONS INC.~~

~~Notes to Condensed Consolidated Financial Statements (Continued)~~

~~(unaudited)~~

remaining outstanding balance of $16.75 million. At December 31, 2019, the Company had notes receivable for future payments of $25.5 million, comprised of $8.5 million in Other current assets and $17.0 million in Other assets in the condensed consolidated balance sheet.

~~Contingencies~~

Liabilities for Royalty Payments to the IIA. Prior to the ECI ~~Merger,~~Acquisition, ECI had received research and development grants from the ~~IIA.~~Office of the Innovation Authority of the Israeli Ministry of Economics (the "IIA"). The Company assumed ECI's contract with the IIA, which requires the Company to pay royalties to the IIA on proceeds from the sale of products which the Israeli government has supported by way of research and development grants. The royalties for grants prior to 2017 were calculated at the rates of 1.3% to 5.0% of the aggregated proceeds from the sale of such products developed at certain of the Company's R&D centers, up to an amount not exceeding 100% of such grants plus interest at LIBOR. Effective for grants approved in 2017 and subsequently, interest was calculated at the higher of LIBOR plus 1.5% to 2.75%. At ~~September~~June 30, ~~2020,~~2021, the Company's maximum possible future royalties commitment, including ~~$7.6~~$3.9 million of unpaid royalties accrued, ~~at September 30, 2020,~~ was ~~$54.6~~$36.8 million, including interest of ~~$2.5~~$1.9 million, based on estimates of future product sales, grants received from the IIA ~~and~~ not yet repaid, and management's estimation of products still to be sold.

Research and Development Grants. The Company records grants received from the IIA as a reduction to research and development expense. Royalties payable to the IIA are recognized pursuant to sales of related products and are classified as Cost of revenue. The Company does not anticipate receiving material grants from the IIA in the foreseeable future.

Litigation. On November 8, 2018, Ron Miller, a purported stockholder of the Company, filed a Class Action Complaint (the "Miller Complaint") in the United States District Court for the District of Massachusetts (the "Massachusetts District Court") against the Company and ~~three~~3 of its former officers (collectively, the "Defendants"), claiming to represent a class of purchasers of Sonus common stock during the period from January 8, 2015 through March 24, 2015 and alleging violations of the federal securities laws. Similar to a previous complaint entitled Sousa et al. vs. Sonus Networks, Inc. et al., which was

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

dismissed with prejudice by an order dated June 6, 2017, the Miller Complaint claims that the Defendants made misleading forward-looking statements concerning Sonus' expected fiscal first quarter of 2015 financial performance, which statements were also the subject of an August 7, 2018 Securities and Exchange Commission Cease and Desist Order, whose findings the Company neither admitted nor denied. The Miller plaintiffs are seeking monetary damages.

After the Miller Complaint was filed, several parties filed and briefed motions seeking to be selected by the Massachusetts District Court to serve as a Lead Plaintiff in the action. On June 21, 2019, the Massachusetts District Court appointed a group as Lead Plaintiffs and the Lead Plaintiffs filed an amended complaint on July 19, 2019. On August 30, 2019, the Defendants filed a motion to dismiss the Miller Complaint and, on October 4, 2019, the Lead Plaintiffs filed an opposition to the motion to dismiss. There was an oral argument on the motion to dismiss on February 12, 2020.

In addition, the Company is often a party to disputes and legal proceedings that it considers routine and incidental to its business. Management does not expect the results of any of these actions to have a material effect on the Company's business or condensed consolidated financial statements.

4241

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of the financial condition and results of operations of Ribbon Communications Inc. should be read in conjunction with the condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, which was filed with the U.S. Securities and Exchange Commission on February ~~28, 2020.~~26, 2021.

Overview

We are a leading global provider of next generation software solutions to telecommunications, wireless and cable service providers and enterprises of all sizes across industry verticals. With the March 3, 2020 completion of the merger with ECI Telecom Group Ltd ("ECI"), we now also provide optical and packet networking products and software-defined solutionscommunications technology to service providers and ~~critical infrastructure sectors like~~enterprises. We provide a broad range of software and high-performance hardware products, solutions and services that enable the secure delivery of data and voice communications for residential consumers and for small, medium and large enterprises and industry verticals such as finance, education, government, utilities ~~government~~ and ~~defense. With~~transportation. Our mission is to create a recognized global technology leader providing increasingly cloud-centric solutions that enable the secure exchange of information, with unparalleled scale, performance and elasticity. Headquartered in Plano, Texas, we have a global presence with research and development and/or sales and support locations in over ~~1,000 customers~~thirty-five countries around the globe, including some of the largest telecommunications service providers, enterprises and utilities in the world, we enable our customers to evolve and modernize their communications networks and packet optical networking infrastructures through software and hardware. By securing and enabling reliable and scalable Internet Protocol ("IP") and packet optical networks, we help our customers adopt the next generation of software-, cloud- and edge-based technologies to drive new, incremental revenue, while protecting their existing revenue streams. Our software solutions provide a secure way for our customers to connect and leverage multivendor, multiprotocol communications systems and applications across their networks and the cloud, in a rapidly changing ecosystem of IP-enabled devices, such as smartphones and tablets. In addition, our software solutions secure cloud-based delivery of unified communications ("UC") solutions - both for service providers transforming to a cloud-based network and for enterprises using cloud-based UC - and support the increasing demand on network infrastructure created by ongoing IP traffic growth and the projected demand related to increased traffic from 5G applications and devices. We sell our products and solutions through both direct sales and indirect channels, leveraging the reach and local presence of resellers, and provide ongoing support to our customers through a global services team with experience in design, deployment and maintenance of some of the world's largest software IP networks.world.

Impact of COVID-19 on Our Business

In 2020, a novel strain of the coronavirus (COVID-19) was declared by the World Health Organization to be a global pandemic. The COVID-19 pandemic has had a negative effect on the global economy, disrupting the various manufacturing, commodity and financial markets and increasing volatility, and has impeded global supply chains, including that of our ~~recently acquired subsidiary, ECI.~~IP Optical Networks operating segment. Continued dampened global economic conditions as a result of the COVID-19 pandemic, especially in areas where a vaccine rollout is slower, such as Australia and India, may cause our customers to restrict spending or delay purchases for an indeterminate period of time and consequently cause our revenues to decline. In addition, our ability to deliver our solutions as agreed upon with our customers depends on the ability of our global contract manufacturers, vendors, licensors and other business partners to deliver products or perform services we have procured from them. While, to date, we have not experienced material issues, if the ~~continuing~~ongoing COVID-19 pandemic impairs the ability of our business partners to support us on a timely basis, or negatively impacts the demand for our customers' other products and services, our ability to perform our customer contracts as well as the demand for our solutions may suffer. In addition, disruptions from the COVID-19 pandemic could include, and with respect to ~~ECI~~our IP Optical Networks operating segment have included, disruption of logistics necessary to import, export and deliver our solutions. The COVID-19 pandemic ~~has also limited~~continues to limit in some locations, including India, the ability of our ~~associates~~employees to perform their work due to illness caused by the pandemic or local, state or federal orders requiring ~~associates~~employees to remain at home. Concerns over the economic impact of the COVID-19 pandemic have also caused extreme volatility in financial and other capital markets which has and may continue to adversely impact our stock price. Such volatility may also adversely impact our ability to access capital markets if and when we would be required to do so. The degree to which the COVID-19 pandemic ultimately impacts our business, financial position and results of operations will depend on future developments beyond our control, including the ~~severity~~effectiveness and timing of ~~the pandemic,~~any vaccines, the frequency and duration of future waves of infection, the effectiveness and timing of any vaccines, the extent of actions to contain or treat the virus, how quickly and to what extent normal economic and operating conditions can resume, and the severity and duration of the global economic downturn that results from the pandemic.

As a response to the ongoing COVID-19 pandemic, we have ~~implemented~~continued to implement plans to manage our costs. ~~As part of that plan, we implemented a temporary wage reduction of 10% to 50% applicable to the base salary of most of our employees, which salary reduction has now ended.~~ We have significantly ~~limited the addition of new employees~~reduced travel, marketing and ~~third-party contracted services, eliminated all travel~~other discretionary expenses except where necessary to meet customer or regulatory needs and acted to limit discretionary spending. To the extent the business disruption continues for an extended period, additional cost management actions will be

considered. Any future asset impairment charges, increases in the allowance for doubtful accounts or restructuring charges could be more likely and will be dependent on the severity and duration of this crisis.

~~Presentation~~Reclassification of Amortization of Acquired Intangible Assets

~~The term "organic Ribbon" as used~~In 2020, we reclassified amounts recorded for amortization of acquired intangible assets in prior presentations from Cost of revenue - product and Sales and marketing to a separate line included in operating expenses in our consolidated statements of operations. Our management believes this ~~Management's Discussion and Analysis~~presentation enhances the comparability of ~~Financial Condition and Results~~our financial statements to industry peers. These reclassifications did not impact our operating income (loss), net income (loss) or earnings (loss) per share for any historical periods. These reclassifications also did not impact our consolidated balance sheets or consolidated statements of ~~Operations ("MD&A") refers to the business and/or financial results, as the context dictates, of Ribbon excluding the recently acquired ECI business.~~cash flows.

~~Unless otherwise noted, all financial~~This reclassification resulted in reductions in the three and six months ended June 30, 2020 to Cost of revenue - product of $10.9 million and $19.9 million, respectively, and reductions to Sales and marketing of $3.7 million and $9.1 million, respectively, which amounts ~~excluding tabular information,~~were reclassified to Amortization of acquired intangible assets. The reduction to Cost of revenue -

product in ~~this MD&A are rounded~~the three months ended June 30, 2020 increased our product gross profit as a percentage of product revenue ("product gross margin") and our total gross profit as a percentage of revenue ("total gross margin) by approximately nine percentage points and five percentage points, respectively. The reduction to Cost of revenue - product in the ~~nearest million dollar amount,~~six months ended June 30, 2020 increased our product gross margin and ~~all percentages, excluding tabular information, are rounded to the nearest~~total gross margin by approximately ten percentage ~~point.~~points and five percentage points, respectively.

~~Business Acquisitions~~

Acquisition of ECI Telecom Group ~~Ltd~~Ltd.

On March 3, 2020 ~~("ECI Merger~~(the "ECI Acquisition Date"), we completed the ~~merger transaction with~~acquisition of ECI in accordance with the terms of the Agreement and Plan of Merger, dated as of November 14, 2019, by and among Ribbon, an indirect wholly-owned subsidiary of Ribbon ("Merger Sub"), Ribbon Communications Israel Ltd., ECI, and ECI Holding (Hungary) kft, pursuant to which Merger Sub merged with and into ECI, with ECI surviving such merger as a wholly-owned subsidiary of Ribbon (the "ECI ~~Merger"~~Acquisition"). Prior to the ECI ~~Merger~~Acquisition Date, ECI was a privately-held global provider of end-to-end packet-optical transport and software-defined networking ("SDN") and network function virtualization ("NFV") solutions for service providers, enterprises and data center operators. Ribbon believes the ECI ~~Merger~~Acquisition positions the Company for growth and enhances its competitive strengths by expanding its product portfolio beyond solutions primarily supporting voice applications to include data applications and optical networking.

As consideration for the ECI ~~Merger,~~Acquisition, we issued the ECI shareholders and certain others 32.5 million shares of Ribbon common stock with a fair value of $108.6 million (the "Stock Consideration") and paid $322.5 million of cash, comprised of $183.3 million to repay ECI's outstanding debt, including both principal and interest, and $139.2 million paid to ECI's selling shareholders (the "Cash Consideration"). In addition, ECI shareholders received $33.4 million from the sale of certain of ECI's real estate assets. Cash Consideration was financed through cash on hand and committed debt financing consisting of a new $400 million term loan facility and new $100 million revolving credit facility, which was undrawn at the ECI ~~Merger~~Acquisition Date. The ECI ~~Merger~~Acquisition has been accounted for as a business combination and the financial results of ECI have been included in our ~~condensed~~ consolidated financial statements for the periods subsequent to the ECI ~~Merger Date.~~

~~Anova Data, Inc.~~

On February 28, 2019 (the "Anova Acquisition Date"), we acquired the business and technology assets of Anova Data, Inc. ("Anova"), a private company headquartered in Westford, Massachusetts (the "Anova Acquisition"). Anova is a provider of advanced analytics solutions and its next generation products provide a cloud-native, streaming analytics platform for network and subscriber optimization and monetization. The Company believes that the Anova Acquisition will reinforce and extend Ribbon's strategy to expand into network optimization, security and data monetization via big data analytics and machine learning.

As consideration for the Anova Acquisition, we issued 2.9 million shares of our common stock with a fair value of $15.2 million to Anova's sellers and equity holders on the Anova Acquisition Date and held back an additional 330,000 shares of our common stock with a fair value of $1.7 million (the "Deferred Purchase Consideration"), of which 316,551 shares were issued after post-closing adjustments on March 4, 2020. The Deferred Purchase Consideration was included as a component of Accrued expenses and other in our condensed consolidated balance sheet at December 31, 2019. The Anova Acquisition has been accounted for as a business combination and the financial results of Anova have been included in our condensed consolidated financial statements for the periods subsequent to the Anova Acquisition Date.

~~Proposed~~ Sale of Kandy Communications Business

On ~~August 5,~~December 1, 2020 ~~we announced our entry into a definitive agreement~~ (the "Kandy ~~Agreement"~~Sale Date") ~~with~~, we completed the sale of our Kandy Communications Business to American Virtual Cloud Technologies, Inc. ("~~AVCTechnologies") to sell our cloud-based enterprise services business (the "Kandy Communications Business"~~AVCT"). ~~Under the Kandy Agreement, AVCTechnologies will purchase~~AVCT purchased the assets and ~~assume~~assumed certain liabilities associated with the Kandy Communications Business, as well as all of the outstanding interests in Kandy Communications LLC, a subsidiary of the Company (the "Kandy Sale"). The assets acquired and liabilities assumed by AVCT in connection with the Kandy Sale were primarily comprised of accounts receivable, property and equipment, trade accounts payable and employee-related accruals.

As consideration, AVCT paid us $45.0 million, subject to certain adjustments, in the form of units of AVCT's securities (the "AVCT Units"), with each AVCT Unit consisting of: $1,000 in principal amount of AVCT’s Series A-1 convertible debentures (the “Debentures”); and (ii) one ~~of our subsidiaries. AVCTechnologies has agreed~~warrant to ~~pay us 13 million~~purchase 100 shares of ~~AVCTechnologies~~AVCT common stock, $0.0001 par value (the “Warrants”), as consideration for the Kandy Sale. We received 43,778 AVCT Units as consideration on the Kandy Sale Date.

The Debentures bear interest at a rate of 10% per annum, which is being added to the principal amount of the Debentures, except upon maturity, in which case accrued and unpaid interest is payable in cash. The entire principal of each Debenture, together with accrued and unpaid interest thereon, is due and payable on the earlier of the May 1, 2023 maturity date or the occurrence of a Change in Control as defined in the definitive purchase agreement, as amended (the "Amended Kandy Agreement"). Each Debenture is convertible, in whole or in part, at any time at our option into that number of shares of AVCT common stock, calculated by dividing the principal amount being converted, together with all accrued and unpaid interest thereon, by the applicable conversion price, initially $3.45. The Debentures are subject to mandatory redemption if the AVCT stock price is at or above $6.00 per share for 40 trading days in any 60 consecutive trading day period, subject to the satisfaction of certain other conditions. The conversion price is subject to customary adjustments including, but not limited to, stock dividends, stock splits and reclassifications. At the Company's option, up to $5.0 million of the Debentures may be redeemed by AVCT at par in the event AVCT raises at least $50.0 million in its offering of AVCT Units. As of February 19, 2021, the stock price had traded above $6.00 for 40 days within a 60 consecutive trading day period, and accordingly, the Debentures will be converted to shares of AVCT common stock upon the completion of customary regulatory filings by AVCT. Upon the expiration of the lock-up period, we began to value the Debentures at each measurement date by multiplying the closing stock price of AVCT common stock by the number of shares upon conversion of the Debentures.

4443

The Warrants are independent of the Debentures and entitle us to purchase 4,377,800 shares of AVCT common stock at an exercise price of $0.01 per share. The Warrants expire on December 1, 2025, and were immediately exercisable on the Kandy Sale Date.

We had not redeemed any of the Debentures or exercised any of the Warrants as of June 30, 2021. We were also subject to a lock-up provision which limited our ability to sell any shares of AVCT common stock underlying the Debentures and the Warrants prior to June 1, 2021, except in certain transactions.

We determined that the AVCT Units had a fair value of $84.9 million at the Kandy Sale Date, comprised of the Debentures with a fair value of $66.3 million and the Warrants with a fair value of $18.6 million. The value of the net assets sold to AVCT totaled $1.3 million, resulting in a gain on the sale of $83.6 million.

We are calculating the fair value of the Debentures and Warrants at each quarter-end and recording any adjustments to the fair values in Other income (expense), net. At June 30, 2021 and December 31, 2020, the aggregate fair value of the Debentures and Warrants was $106.0 million and $115.2 million, respectively. We recorded a gain of $12.1 million in the three months ended June 30, 2021and a loss of $11.8 million in the six months ended June 30, 2021 arising from the change in the fair value of the Debentures and Warrants, and which is included as ~~consideration~~a component of Other income (expense), net, in our condensed consolidated statements of operations. We recorded $1.2 million and $2.7 million of interest income in the three and six months ended June 30, 2021, respectively, which was added to the principal of the Debentures, and which is included in Interest expense, net, in our condensed consolidated statements of operations. The fair values of the Debentures and Warrants are reported as Investments in our condensed consolidated balance sheets at June 30, 2021 and December 31, 2020.

Operating Segments

Effective in the fourth quarter of 2020 and in connection with the ECI Acquisition, our CODM began to assess our performance based on the performance of two separate organizations within Ribbon: the Cloud and Edge operating segment ("Cloud and Edge") and the IP Optical Networks operating segment ("IP Optical Networks"). Amounts attributable to IP Optical Networks in the six months ended June 30, 2020 are for the ~~transaction. The transaction is subject~~period subsequent to ~~receipt of~~ the ~~approval of AVCTechnologies' shareholders for the issuance of the shares~~ECI Acquisition Date. For additional details regarding our operating segments, see Note 13 - Operating Segment Information to ~~us, AVCTechnologies' completion of necessary financing, approval of the lenders under the~~ our ~~2020 Credit Agreement and other customary closing conditions.~~condensed consolidated financial statements.

Financial Overview

Financial Results

We reported income from operations of ~~$12~~$13.0 million and $3$1.6 million for the three months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively. We reported ~~losses~~income from operations of ~~$15 million and $41~~$0.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019, respectively.~~a loss from operations of $27.1 million for the six months ended June 30, 2020.

Our revenue was ~~$231~~$211.2 million and ~~$138~~$210.5 million in the three months ended ~~September~~June 30, 2021 and 2020, respectively. Our total gross profit and ~~2019, respectively, and $600~~total gross margin were $128.4 million and ~~$402~~60.8%, respectively, in the three months ended June 30, 2021, and $123.3 million and 58.6%, respectively, in the three months ended June 30, 2020. Our revenue was $404.0 million and $368.5 million in the ~~nine~~six months ended ~~September~~June 30, 2021 and 2020, respectively. Our total gross profit and ~~2019, respectively.~~total gross margin were $239.0 million and 59.2%, respectively, in the six months ended June 30, 2021, and $213.8 million and 58.0%, respectively, in the six months ended June 30, 2020.

~~Our~~Revenue from our Cloud and Edge segment was $141.4 million and $146.9 million in the three months and ended June 30, 2021 and 2020, respectively. Total gross profit ~~was $123~~and total gross margin for this segment were $95.5 million and ~~$79~~67.5% respectively, in the three months ended June 30, 2021, and $98.6 million and 67.1% in the three months ended June 30, 2020. Revenue from our Cloud and Edge segment was $266.8 million and $274.9 million in the six months ended June 30, 2021 and 2020, respectively. Total gross profit and total gross margin for this segment were $179.6 million and 67.3% respectively, in the six months ended June 30, 2021, and $177.4 million and 64.5% in the six months ended June 30, 2020.

Revenue from our IP Optical Networks segment was $69.8 million and $63.6 million in the three months ended ~~September~~June 30, 2021 and 2020, ~~and 2019,~~ respectively. ~~Our~~Total gross profit ~~as a percentage of revenue ("~~and total gross ~~margin") was 53%~~margin for this segment were $33.0 million and ~~57%~~47.2% respectively, in the three months ended ~~September~~June 30, ~~2020~~2021, and ~~2019, respectively. Our gross profit was $317~~$24.7 million and ~~$216~~38.8% in the three months ended June 30, 2020. Revenue from our IP Optical Networks segment was $137.1 million and $93.5 million in the ~~nine~~six months ended ~~September~~June 30, 2021 and 2020, ~~and 2019,~~ respectively. ~~Our~~Total gross profit and total gross margin ~~was 53%~~for this segment were $59.3 million and ~~54%~~43.3% respectively, in the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021, and ~~2019, respectively.~~$36.4 million and 38.9% in the six months ended June 30, 2020.

Our operating expenses were ~~$111~~$115.5 million and ~~$76~~$121.7 million in the three months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively. Operating expenses for the three months ended ~~September~~June 30, ~~2020~~2021 included $1$17.2 million of amortization of acquired intangible assets, $1.1 million of acquisition-, disposal- and integration-related expense and $3$2.8 million of restructuring and related expense. Operating expenses for the three months ended ~~September~~June 30, ~~2019~~2020 included $2$14.7 million of amortization of acquired intangible assets, $0.9 million of acquisition-, disposal- and integration-related expense and $2$5.4 million of restructuring and related expense.

Our operating expenses were ~~$332~~$238.6 million and ~~$257~~$240.9 million in the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020 respectively. Operating expenses for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 included ~~$15~~$33.0 million of amortization of acquired intangible assets, $2.2 million of acquisition-, disposal- and integration-related expense and ~~$11~~$8.8 million of restructuring and related expense. ~~Operating~~Our operating expenses for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 included $7$29.0 million of amortization of acquired intangible assets, $13.2 million of acquisition-, disposal- and integration-related expense and ~~$16~~$7.4 million of restructuring and related expense.

We recorded stock-based compensation expense of $4$4.8 million and $2$3.2 million in the three months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively, and ~~$10~~$9.9 million and $8$6.2 million in the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively. These amounts are included as components of both Cost of revenue and Operating expenses in our condensed consolidated statements of operations.

See "Results of Operations" in this Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A&A") for a discussion of the changes in our revenue and expenses for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 compared to the three and ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2020.

Restructuring and Cost Reduction Initiatives

2020 Restructuring Initiative. In 2020, we implemented a restructuring plan to eliminate certain positions and redundant facilities, primarily in connection with the ECI ~~Merger,~~Acquisition, to further streamline our global footprint and improve our operations (the "2020 Restructuring Initiative"). The 2020 Restructuring Initiative includes facility consolidations and a reduction in workforce, including three former executives of ECI for whom severance aggregating $1 million was recorded in the three months ended March 31, 2020. In connection with this initiative, we expect to eliminate duplicate functions arising from the ECI ~~Merger~~Acquisition and support our efforts to integrate the two companies. In

We recorded restructuring and related expense of $1.9 million and $4.7 million in connection with the 2020 Restructuring Initiative ~~we recorded restructuring~~in the three months ended June 30, 2021 and ~~related expense of $3~~2020, respectively, and $2.3 million and $9$5.8 million in the ~~three and nine~~six months ended ~~September~~June 30, 2021 and 2020, respectively.

The amount recorded in the three months ended ~~September~~June 30, ~~2020~~2021 was comprised of ~~$2 million for severance and related costs and $1 million for facilities, primarily in the United Kingdom. The amount recorded in the nine months ended September 30, 2020 was comprised of $8~~$1.9 million for severance and related costs for approximately ~~125~~15 employees and nominal expense for variable costs related to restructured facilities. The amount recorded in the ~~aforementioned $1~~six months June 30, 2021 was comprised of $2.6 million of severance and related costs for approximately 25 employees and $0.4 million for ~~facilities.~~variable costs related to restructured facilities, offset by a credit of $0.7 million for changes in estimate to previously recorded facilities-related amounts. The amount recorded in the six months ended June 30, 2020, of which $4.7 million was recorded in the three months ended June 30, 2020 and $1.1 million was recorded in the three months ended March 31, 2020, represents severance and related costs for approximately 75 employees. We expect ~~these amounts~~that the amount accrued for severance at June 30, 2021 will be paid ~~by the end of~~in 2021. We expect tothat we will record additional restructuring and related expense approximating $6$2 million under the 2020 Restructuring Initiative in the aggregate for severance and planned facility consolidations.

2019 Restructuring Initiative. In June 2019, we implemented a restructuring plan to further streamline our global footprint, improve our operations and enhance our customer delivery (the "2019 Restructuring Initiative"). The 2019 Restructuring Initiative includes facility consolidations, refinement of our research and development activities, and a reduction in workforce. In connection with this

initiative, we expect to reduce our focus on hardware and ~~appliance-based~~hardware-based development over time and to increase our development focus on software virtualization, functional simplicity and important customer requirements. The facility consolidations under the 2019 Restructuring Initiative (the "Facilities Initiative") include a consolidation of our North Texas sites into a single campus, housing engineering, customer training and support, and administrative functions, as well as a reduction or elimination of certain excess and duplicative facilities worldwide. In addition, we ~~intend to~~are substantially ~~consolidate~~consolidating our global software laboratories and server farms into two lower cost North American sites. We continue to evaluate our properties included in the Facilities Initiative for accelerated amortization and/or right-of-use asset impairment. We expect that the actions under the Facilities Initiative will be completed ~~by the end of 2020.~~in 2021.

In connection with the 2019 Restructuring Initiative, we recorded restructuring and related expense of ~~$0.4~~$0.9 million and $2$0.7 million in the three ~~and nine~~ months ended ~~September~~June 30, 2021 and 2020, respectively, and $6.5 million and $1.7 million in the six months ended June 30, 2021 and 2020, respectively.

The amount recorded in the ~~three-month period was primarily~~three months ended June 30, 2021 related to ~~restructured facilities.~~variable facilities costs. Of the amount recorded in the six months ended June 30, 2021, $3.4 million was for accelerated amortization of lease assets and $3.1 million related to variable and other facilities-related costs in connection with facility consolidations. The amount recorded in the ~~nine-month period~~three months ended June 30, 2020 primarily related to facility consolidations. The amount recorded in the six months ended June 30, 2020 was comprised of $1$0.7 million for severance and related costs for five employees and $1$1.0 million related to ~~facilities. These~~facility consolidations. As of June 30, 2021, the amounts ~~include~~accrued for severance and related costs had been paid in full. We estimate that we will record nominal, ~~credits to~~if any, additional restructuring and related expense in the three and nine months ended September 30, 2020, representing changes in estimate for both severance and related expenses and variable facilities-related expenses. We expect to record nominal additional restructuring and related expense, if any, related to severance and related costs under the 2019 Restructuring Initiative. We recorded restructuring and related expense of $2 million and $8 million in the three and nine months ended September 30, 2019, respectively. The amount recorded in the three months ended September 30, 2019 was comprised of $1 million for severance and related costs for approximately 20 employees and $1 million for variable and other facilities-related costs. The amount recorded in the nine months ended September 30, 2019 was comprised of $7 million for severance and related costs for approximately 130 employees and $1 million for variable and other facilities-related costs. We expect to record nominal additional restructuring and related expense, if any, related to severance and related costs under the 2019 Restructuring Initiative.connection with this initiative.

Accelerated Rent Amortization. Accelerated rent amortization is recognized from the date that we commence 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. We recorded ~~nominal expense~~$3.4 million and $0.1 million for accelerated rent amortization in the ~~nine~~six months ended ~~September~~June 30, ~~2020. We recorded $1 million~~2021 and ~~$4 million of accelerated rent amortization~~2020, respectively, in ~~the three and nine months ended September 30,~~connection with our 2019 ~~respectively.~~Restructuring Initiative. These amounts are included as components of Restructuring and related expense. The accelerated rent amortization recorded in connection with the 2019 Restructuring Initiative reduced our Operating lease right-of-use assets in our condensed consolidated balance sheets at September 30, 2020 and December 31, 2019. We continue to evaluate our properties included in the Facilities Initiative for accelerated amortization and/or right-of-use asset impairment. We may incur additional future expense if we are unable to sublease other locations included in the Facilities Initiative.

In connection with the Sonus-GENBAND merger (the "GENBAND Merger") in 2017, we implemented a restructuring plan in the fourth quarter of 2017 to eliminate certain redundant positions and facilities within the combined companies (the "GENBAND Merger Restructuring Initiative"). In connection with the Merger Restructuring Initiative, we recorded restructuring and related expense of $5 million in the nine months ended September 30, 2019, the majority of which was recorded in the first quarter of 2019. Virtually all of this expense was for severance and related costs for approximately 40 employees. The GENBAND Merger Restructuring Initiative was completed in the second quarter of 2019.

Critical Accounting Policies and Estimates

Management's discussion and analysis of financial condition and results of operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We base our estimates and judgments on historical experience, knowledge of current conditions and beliefs of what could occur in the future given available information. We consider the following accounting policies to be both those most important to the portrayal of our financial condition and those that require the most subjective judgment: revenue recognition, the valuation of inventory, the valuation of the Debentures and Warrants received as consideration in connection with the Kandy Sale, warranty accruals, loss contingencies and reserves, stock-based compensation, business combinations, goodwill and intangible assets, accounting for leases, and accounting for income taxes. If actual results differ significantly from management's estimates and projections, there could be a material effect on our condensed consolidated financial statements. There were no significant changes to our critical accounting policies from ~~December 31, 2019~~January 1, 2021 through ~~September~~June 30, ~~2020 with the exception of warranty accruals.~~2021. For a further discussion of our other critical accounting policies and estimates, please refer to our Annual Report on Form 10-K for the year ended December 31, ~~2019.~~

~~Warranty Accruals.~~ We record warranty liabilities for estimated costs of fulfilling our obligations under standard limited hardware and software warranties at the time of sale. The liability for standard warranties is included in Accrued expenses and

~~other and Other non-current liabilities in our condensed consolidated balance sheet at September 30,~~ 2020. The specific warranty terms and conditions vary depending upon the country in which the Company does business, but generally includes material costs, technical support, labor and associated overhead over a period ranging from one to three years. We provide for the estimated costs to fulfill customer warranty obligations for certain of our products upon recognition of the related revenue. Estimated warranty costs include estimates for material costs, technical support, labor and associated overhead. Warranty is included as a component of Cost of revenue in our condensed consolidated statements of operations, and is determined based on actual warranty cost experience, estimates of component failure rates and our management's industry experience. Our sales contracts do not permit the right of return of the product by the customer after the product has been accepted.

Results of Operations

Three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020

Revenue. Revenue for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 was as follows (in thousands, except percentages):


		Three months ended				Increase from prior year					Three months ended				Increase (decrease) from prior year
		September 30, 2020		September 30, 2019		$		%			June 30, 2021		June 30, 2020		$		%
Product	Product	$	128,926	$	61,152	$	67,774	110.8	%	Product	$	113,129	$	120,862	$	(7,733)	(6.4)	%
Service	Service	102,192		76,501		25,691		33.6	%	Service	98,081		89,631		8,450		9.4	%
Total revenue	Total revenue	$	231,118	$	137,653	$	93,465	67.9	%	Total revenue	$	211,210	$	210,493	$	717	0.3	%

Nine months ended Increase
from prior year
September 30,
2020 September 30,
2019 $ %
Product $ 325,687 $ 180,691 $ 144,996 80.2 %
Service 273,906 221,311 52,595 23.8 %
Total revenue $ 599,593 $ 402,002 $ 197,591 49.2 %



	Six months ended				Increase from prior year
	June 30, 2021		June 30, 2020		$		%
Product	$	211,018	$	196,761	$	14,257	7.2	%
Service	192,964		171,714		21,250		12.4	%
Total revenue	$	403,982	$	368,475	$	35,507	9.6	%

~~Our product~~Segment revenue is generated from sales of software with attached appliances, software licenses and software subscription fees. Certain of our products may be included in more than one of our solutions (i.e., session control solutions, network transformation solutions, and applications and security solutions), depending upon the configuration of the individual customer solutions sold. Our software with attached appliances and software license revenues are primarily comprised of our media gateway, call controller, signaling, virtual mobile core and management (i.e., analytics, assurance, billing, etc.) products. Our software subscription fees revenue is primarily comprised of sales of our UC-related (i.e., application server, media server, etc.), Kandy Cloud and Ribbon Analytics products. Each of our solutions portfolios addresses both the service provider and enterprise markets and are sold through both our direct sales program and from indirect sales through our channel partner program. In addition, with the recent acquisition of ECI, our revenue includes additional product and software revenue from our end-to-end packet optical transport, SDN and NFV solutions for the ~~period since the ECI Merger Date.~~three and six months ended June 30, 2021 and 2020 was as follows (in thousands):


	Three months ended June 30, 2021						Three months ended June 30, 2020
	Cloud and Edge		IP Optical Networks		Total		Cloud and Edge		IP Optical Networks		Total
Product	$	64,361	$	48,768	$	113,129	$	72,310	$	48,552	$	120,862
Service	77,060		21,021		98,081		74,597		15,034		89,631
Total revenue	$	141,421	$	69,789	$	211,210	$	146,907	$	63,586	$	210,493


	Six months ended June 30, 2021						Six months ended June 30, 2020
	Cloud and Edge		IP Optical Networks		Total		Cloud and Edge		IP Optical Networks		Total
Product	$	114,513	$	96,505	$	211,018	$	126,520	$	70,241	$	196,761
Service	152,330		40,634		192,964		148,418		23,296		171,714
Total revenue	$	266,843	$	137,139	$	403,982	$	274,938	$	93,537	$	368,475

The ~~increase~~decrease in our product revenue in the three months ended ~~September~~June 30, ~~2020~~2021 compared to the three months ended ~~September~~June 30, ~~2019~~2020 was primarily the result of lower sales of our Cloud and Edge SBC products and the loss of revenue due to the ~~inclusion of $54 million of product revenue from ECI in the current year quarter, coupled with $14 million of~~Kandy Sale, partially offset by higher revenue from sales of ~~organic Ribbon products, comprised of $21 million of higher~~certain Cloud and Edge software applications. Product revenue ~~from software licenses and subscriptions, partially offset by $7 million of lower revenue from software with attached appliances.~~ for our IP Optical Networks segment was essentially flat in the three months ended June 30, 2021 compared to the three months ended June 30, 2020.

The increase in our product revenue in the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 was primarily ~~due~~attributable to the inclusion of ~~$124 million~~a full half-year of ~~product~~ revenue from ~~ECI~~our IP Optical Networks segment, compared to four months of revenue in the ~~current year-to-date period from the ECI Merger Date, coupled with $20 million of higher~~six months ended June 30, 2020. This increase was partially offset by lower sales of ~~organic Ribbon~~our Cloud and Edge SBC products ~~comprised~~and the loss of ~~$42 million of~~revenue due to the Kandy Sale, partially offset by higher revenue from sales of certain Cloud and Edge software ~~licenses and subscriptions, partially offset by $22 million of lower revenue from software with attached appliances.~~applications.

Revenue from indirect sales through our channel partner program was ~~28%~~approximately 24% and ~~35%~~27% of our product revenue in the three months ended ~~September~~June 30, 2021 and 2020, respectively. Revenue from indirect sales through our channel partner program was approximately 22% and ~~2019, respectively, and 30% and 38%~~31% of our product revenue in the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively.

~~Our product revenue~~Revenue from sales to enterprise customers was ~~29% of our product revenue in each of the three months ended September 30, 2020~~approximately 22% and ~~2019, and 31% and 26%~~30% of our product revenue in the ~~nine~~three months ended ~~September~~June 30, 2021 and 2020, respectively. Revenue from sales to enterprise customers was approximately 22% and ~~2019,~~32% of our product revenue in the six months ended June 30, 2021 and 2020, respectively. These sales were made through both ~~through~~ our direct sales team and indirect sales channel partners.

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

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

Service revenue for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 was comprised of the following (in thousands, except percentages):

Three months ended Increase
from prior year
September 30,
2020 September 30,
2019 $ %
Maintenance $ 73,642 $ 58,901 $ 14,741 25.0 %
Professional services 28,550 17,600 10,950 62.2 %
$ 102,192 $ 76,501 $ 25,691 33.6 %


	Three months ended				Increase from prior year
	June 30, 2021		June 30, 2020		$		%
Maintenance	$	72,437	$	68,623	$	3,814	5.6	%
Professional services	25,644		21,008		4,636		22.1	%
	$	98,081	$	89,631	$	8,450	9.4	%


		Nine months ended				Increase from prior year					Six months ended				Increase from prior year
		September 30, 2020		September 30, 2019		$		%			June 30, 2021		June 30, 2020		$		%
Maintenance	Maintenance	$	203,333	$	173,031	$	30,302	17.5	%	Maintenance	$	141,142	$	129,691	$	11,451	8.8	%
Professional services	Professional services	70,573		48,280		22,293		46.2	%	Professional services	51,822		42,023		9,799		23.3	%
		$	273,906	$	221,311	$	52,595	23.8	%		$	192,964	$	171,714	$	21,250	12.4	%

Segment service revenue for the three and six months ended June 30, 2021 and 2020 was comprised of the following (in thousands):


	Three months ended June 30, 2021						Three months ended June 30, 2020
	Cloud and Edge		IP Optical Networks		Total		Cloud and Edge		IP Optical Networks		Total
Maintenance	$	57,986	$	14,451	$	72,437	$	57,853	$	10,770	$	68,623
Professional services	19,074		6,570		25,644		16,744		4,264		21,008
Total service revenue	$	77,060	$	21,021	$	98,081	$	74,597	$	15,034	$	89,631


	Six months ended June 30, 2021						Six months ended June 30, 2020
	Cloud and Edge		IP Optical Networks		Total		Cloud and Edge		IP Optical Networks		Total
Maintenance	$	112,659	$	28,483	$	141,142	$	113,409	$	16,282	$	129,691
Professional services	39,671		12,151		51,822		35,009		7,014		42,023
Total service revenue	$	152,330	$	40,634	$	192,964	$	148,418	$	23,296	$	171,714

The increase in ~~both~~ maintenance revenue in the three months ended June 30, 2021 compared to the three months ended June 30, 2020 was primarily attributable to approximately $4 million of higher revenue from our IP Optical Networks segment. The increase in maintenance revenue in the six months ended June 30, 2021 compared to the six months ended June 30, 2020 was primarily due to approximately $12 million of higher revenue from our IP Optical Networks segment, partially offset by approximately $1 million of lower revenue from our Cloud and Edge segment. The increase in IP Optical Networks maintenance revenue in the six months ended June 30, 2021 was partially attributable to the inclusion of a full half-year of revenue in the current year period, compared to four months of revenue in the prior year period.

The increase in professional services revenue in the three ~~and nine~~ months ended ~~September~~June 30, ~~2020~~2021 compared to the three ~~and nine~~ months ended ~~September~~June 30, ~~2019~~2020 was ~~primarily due~~equally attributable to Cloud and Edge and IP Optical Networks segments, each of which accounted for approximately $2 million of higher revenue in the current year quarter compared to the same prior year quarter. The increase in professional services revenue in the six months ended June 30, 2021 compared to the six months ended June 30, 2020 was attributable to approximately $5 million from each of our segments. The increase in IP Optical Networks professional services revenue in the six months ended June 30, 2021 was partially attributable to the inclusion of a full half-year of revenue ~~from ECI~~ in the current year ~~periods. Maintenance~~period, compared to four months of revenue ~~attributable to ECI was $16 million~~ in the three months ended September 30, 2020 and $32 million in the nine months ended September 30, 2020. Professional services revenue attributable to ECI was $8 million in the three months ended September 30, 2020 and $15 million in the nine months ended September 30, 2020.prior year period.

The following ~~customers~~customer contributed 10% or more of our revenue in the three and ~~nine months~~six month periods ended ~~September~~June 30, ~~2020 and 2019:~~2021

Three months ended Nine months ended
Customer September 30,
2020 September 30,
2019 September 30,
2020 September 30,
2019
Verizon Communications Inc. 16% 15% 15% 17%
AT&T Inc. * 16% * 12%

* Represents less than 10% of total revenue.and 2020:

Three months ended

Six months ended

Customer

June 30,
2021

June 30,
2020

June 30,
2021

June 30,
2020

Verizon Communications Inc.

17%

15%

16%

14%

Revenue from customers domiciled outside the United States was approximately 52% of revenue in both the three months ended June 30, 2021 and 2020, and approximately 55% and ~~36%~~51% of revenue in the ~~three~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019, respectively, and 52% and 40% of revenue in the nine months ended September 30,~~ 2020, ~~and 2019,~~ respectively. Due to the timing of project completions, we expect that the domestic and international components as a percentage of revenue may fluctuate from quarter to quarter and year to year. In addition, as a result of the ECI Merger, we expect that the domestic and international revenue as a percentage of revenue in future periods will change, as virtually all of ECI's revenue has historically been recognized from customers outside the United States.

Our deferred product revenue was ~~$14~~approximately $7 million and $5$8 million at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. Our deferred service revenue was ~~$101~~approximately $117 million and ~~$116~~$115 million at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. Our deferred revenue balance may fluctuate because of the timing of revenue recognition, customer payments,

maintenance contract renewals, contractual billing rights and maintenance revenue deferrals included in multiple element arrangements.

We expect that our total revenue in ~~2020~~2021 will increase compared to 2019, primarily due to the ECI Merger. At this time, we are unable to determine the full impact the COVID-19 pandemic may have on our total revenue; however, we expect that our total revenue will be lower in 2020 ~~compared to the sum~~as a result of ~~the respective Ribbon~~both increased customer spend and ~~ECI revenues for the 2019 fiscal year.~~continued cross-selling opportunities.

Cost of Revenue/Gross Margin. Our cost of revenue consists primarily of amounts paid to third-party manufacturers for purchased materials and services, royalties, inventory valuation adjustments, warranty costs, and manufacturing and services personnel and related costs. Our cost of revenue and gross margins for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 were as follows (in thousands, except percentages):


		Three months ended						Increase from prior year					Three months ended						Decrease from prior year
		September 30, 2020			September 30, 2019			$		%			June 30, 2021			June 30, 2020			$		%
Cost of revenue	Cost of revenue											Cost of revenue
Product	Product	$	70,188		$	31,476		$	38,712	123.0	%	Product	$	46,641		$	50,579		$	(3,938)	(7.8)	%
Service	Service	37,619			27,300			10,319		37.8	%	Service	36,142			36,647			(505)		(1.4)	%
Total cost of revenue	Total cost of revenue	$	107,807		$	58,776		$	49,031	83.4	%	Total cost of revenue	$	82,783		$	87,226		$	(4,443)	(5.1)	%
Gross margin	Gross margin											Gross margin
Product	Product	45.6		%	48.5		%					Product	58.8		%	58.2		%
Service	Service	63.2		%	64.3		%					Service	63.2		%	59.1		%
Total gross margin	Total gross margin	53.4		%	57.3		%					Total gross margin	60.8		%	58.6		%

Nine months ended Increase
from prior year
September 30,
2020 September 30,
2019 $ %
Cost of revenue
Product $ 176,650 $ 101,056 $ 75,594 74.8 %
Service 105,745 84,807 20,938 24.7 %
Total cost of revenue $ 282,395 $ 185,863 $ 96,532 51.9 %
Gross margin
Product 45.8 % 44.1 %
Service 61.4 % 61.7 %
Total gross margin 52.9 % 53.8 %



	Six months ended						Increase from prior year
	June 30, 2021			June 30, 2020			$		%
Cost of revenue
Product	$	91,086		$	86,558		$	4,528	5.2	%
Service	73,922			68,126			5,796		8.5	%
Total cost of revenue	$	165,008		$	154,684		$	10,324	6.7	%
Gross margin
Product	56.8		%	56.0		%
Service	61.7		%	60.3		%
Total gross margin	59.2		%	58.0		%

Our segment cost of revenue and gross margins for the three and six months ended June 30, 2021 and 2020 were as follows (in thousands, except percentages):


	Three months ended June 30, 2021						Three months ended June 30, 2020
	Cloud and Edge		IP Optical Networks		Total		Cloud and Edge		IP Optical Networks		Total
Product	$	19,112	$	27,529	$	46,641	$	21,714	$	28,865	$	50,579
Service	26,846		9,296		36,142		26,602		10,045		36,647
Total cost of revenue	$	45,958	$	36,825	$	82,783	$	48,316	$	38,910	$	87,226




Product	70.3	%	43.6	%	58.8	%	70.0	%	40.5	%	58.2	%
Service	65.2	%	55.8	%	63.2	%	64.3	%	33.2	%	59.1	%
Total gross margin	67.5	%	47.2	%	60.8	%	67.1	%	38.8	%	58.6	%


	Six months ended June 30, 2021						Six months ended June 30, 2020
	Cloud and Edge		IP Optical Networks		Total		Cloud and Edge		IP Optical Networks		Total
Product	$	32,533	$	58,553	$	91,086	$	43,251	$	43,307	$	86,558
Service	54,685		19,237		73,922		54,318		13,808		68,126
Total cost of revenue	$	87,218	$	77,790	$	165,008	$	97,569	$	57,115	$	154,684




Product	71.6	%	39.3	%	56.8	%	65.8	%	38.3	%	56.0	%
Service	64.1	%	52.7	%	61.7	%	63.4	%	40.7	%	60.3	%
Total gross margin	67.3	%	43.3	%	59.2	%	64.5	%	38.9	%	58.0	%

Our product gross ~~margins on sales of our organic Ribbon products were 56%~~margin increased in the three months ended ~~September~~June 30, ~~2020,~~2021 compared to ~~49% in~~ the three months ended ~~September 30, 2019, and 54% in the nine months ended September~~June 30, 2020, ~~compared~~primarily due to ~~44%~~margin improvement in ~~the nine months ended September 30, 2019. These increases were~~our IP Optical Networks segment. The increase in product gross margin of our IP Optical Networks segment was primarily attributable to ~~higher software sales, coupled with lower fixed costs,~~customer geography and product mix. The increase in our product gross margin in the six months ended June 30, 2021 compared to the six months ended June 30, 2020 was primarily due to margin improvement in our Cloud and Edge segment. This increase was primarily attributable to the impact of the Kandy Sale and, to a lesser extent, customer and product mix. We also had margin improvement in our IP Optical Networks segment in the six months ended June 30, 2021 compared to the same prior year ~~periods.~~period from the ECI Acquisition Date to June 30, 2020.

The increase in our service gross margin in both the three and six months ended June 30, 2021 compared to the three and six months ended June 30, 2020 was primarily due to margin improvement in both of our segments. Our Cloud and Edge segment's margin improvement was primarily due to lower fixed costs, ~~reflect~~while the margin improvement in our ~~recent cost reduction and restructuring initiatives, including~~IP Optical Networks segments was primarily attributable to the ~~temporary wage reduction, and lower amortization of intangible assets from acquisitions completed in prior years. These increases were offset by the inclusion of sales of ECI's product~~segment's higher revenue in the current year periods ~~coupled with amortization of intangible assets arising from the ECI Merger.~~against its fixed cost base.

Our purchases of materials and components were $42 million and $15 million in the three months ended September 30, 2020 and 2019, respectively, and $103 million and $52 million in the nine months ended September 30, 2020 and 2019, respectively. These increases were primarily due to the inclusion of ECI's products. Our material purchases may vary in the future, dependent upon the volume and mix of hardware and software sales, both in absolute terms and as a percentage of revenue.

Our organic Ribbon service gross margins increased in both the three and nine months ended September 30, 2020 compared to the same prior year periods, primarily due to our recent cost reduction and restructuring initiatives. These increases were offset by the inclusion of ECI's service revenue in the current year periods.

~~Overall, we~~We believe that our total gross margin will decrease slightly in ~~2020~~2021 compared to ~~2019,~~2020, primarily due to ~~the addition of~~

~~ECI's product~~higher expected sales ~~that include~~from IP Optical Networks, which have historically lower margins due to the higher hardware content ~~offsetting gross margin improvements~~ in ~~other product lines.~~their products.

Research and Development Expenses. Research and development expenses consist primarily of salaries and related personnel expenses and prototype costs for the design, development, testing, and enhancement of our products. Research and development expenses for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 were as follows (in thousands, except percentages):


						Increase from prior year									Increase (decrease) from prior year
		September 30, 2020		September 30, 2019		$		%			June 30, 2021		June 30, 2020		$		%
Three months ended	Three months ended	$	49,113	$	34,222	$	14,891	43.5	%	Three months ended	$	46,797	$	51,796	$	(4,999)	(9.7)	%
Nine months ended		$	143,204	$	105,456	$	37,748	35.8	%
Six months ended										Six months ended	$	94,207	$	94,091	$	116	0.1	%

The ~~increase~~decrease in research and development expenses in the three months ended ~~September~~June 30, ~~2020~~2021 compared to the three months ended ~~September~~June 30, ~~2019~~2020 was primarily attributable to ~~$18~~approximately $6 million of ~~ECI's~~lower expenses in our Cloud and Edge segment,

all primarily employee-related and product development costs, partially offset by approximately $1 million of higher expenses in our IP Optical Networks segment, primarily for infrastructure-related and product development costs.

Our research and development expenses ~~included~~were essentially flat in the ~~current year quarter, principally employee- and infrastructure-related costs. The increase in research and development expenses in the nine~~six months ended ~~September~~June 30, ~~2020~~2021 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2019 was primarily attributable~~2020, with lower expenses in our Cloud and Edge segment related to ~~$42 million~~the sale of ~~ECI's research and development expenses included in the current year-to-date period for the period since the ECI Merger Date, principally employee- and infrastructure-related costs.~~Kandy. These ~~increases~~reductions were partially offset by ~~lower costs related~~higher expenses in our IP Optical Networks segment, primarily due to ~~organic Ribbon's historical cost reduction~~the inclusion of a half-year of IP Optical Networks expense compared to only four months of expense in the prior year period, principally for employee- and ~~restructuring initiatives, including the temporary wage reduction, coupled with lower travel~~infrastructure-related and ~~related costs in connection with the ongoing pandemic.~~product development costs.

Some aspects of our research and development efforts require significant short-term expenditures, the timing of which may cause significant variability in our expenses. We believe that rapid technological innovation is critical to our long-term success, and we are tailoring our investments to meet the requirements of our customers and market. We believe that our research and development ~~expenses for 2020~~expense in 2021 will increase compared to 2020, primarily due to incremental investment in our IP Optical Networks segment to address the ~~inclusion of expenses related to Packet Optical Networks.~~global market opportunity.

Sales and Marketing Expenses. Sales and marketing expenses primarily consist of salaries and related personnel costs, commissions, travel and entertainment expenses, promotions, customer trial and evaluations inventory, and other marketing and sales support expenses. Sales and marketing expenses for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 were as follows (in thousands, except percentages):


						Increase from prior year									Increase from prior year
		September 30, 2020		September 30, 2019		$		%			June 30, 2021		June 30, 2020		$		%
Three months ended	Three months ended	$	41,604	$	28,227	$	13,377	47.4	%	Three months ended	$	34,881	$	33,898	$	983	2.9	%
Nine months ended		$	115,572	$	87,179	$	28,393	32.6	%
Six months ended										Six months ended	$	72,099	$	64,869	$	7,230	11.1	%

The increase in sales and marketing expenses in the three months ended ~~September~~June 30, ~~2020~~2021 compared to the three months ended ~~September~~June 30, ~~2019~~2020 was primarily attributable to ~~$12~~approximately $2 million of ~~ECI's sales~~higher expenses in our IP Optical Networks segment, primarily for employee-related costs, partially offset by approximately $1 million of lower expense in our Cloud and ~~marketing expenses included in the current year period, which~~Edge segment, primarily ~~consisted of employee- and infrastructure-related~~for employee-related costs.

The increase in sales and marketing expenses in the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 was primarily attributable to ~~$29~~the inclusion of a full half-year of IP Optical Networks expense, compared to only four months of expense in the prior year period, which added approximately $11 million ~~of ECI~~in sales and marketing expenses, ~~included in the year-to-date period since the ECI's Merger Date, which~~ principally ~~consisted of~~ employee- and infrastructure-related ~~expenses,~~costs. This increase was partially offset by approximately $4 million of lower ~~costs related to organic Ribbon's historical cost reduction~~expenses in our Cloud and ~~restructuring initiatives, including the temporary wage reduction, coupled with lower travel~~Edge segment, primarily employee-related and ~~related costs in connection with the ongoing pandemic.~~marketing costs.

We believe that our sales and marketing expenses will increase modestly in ~~2020~~2021 compared ~~to 2019,~~with 2020, primarily due to ~~the inclusion of~~higher employee-related expenses ~~related~~and higher costs, assuming COVID-19 restrictions continue to ~~ECI.~~ease.

General and Administrative Expenses. General and administrative expenses consist primarily of salaries and related personnel costs for executive and administrative personnel, and audit, legal and other professional fees. General and administrative expenses for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 were as follows (in thousands, except percentages):


						Increase from prior year									Decrease from prior year
		September 30, 2020		September 30, 2019		$		%			June 30, 2021		June 30, 2020		$		%
Three months ended	Three months ended	$	16,021	$	9,673	$	6,348	65.6	%	Three months ended	$	12,734	$	15,094	$	(2,360)	(15.6)	%
Nine months ended		$	48,320	$	40,833	$	7,487	18.3	%
Six months ended										Six months ended	$	28,287	$	32,299	$	(4,012)	(12.4)	%

The ~~increase~~decrease in general and administrative expenses in the three months ended ~~September~~June 30, ~~2020~~2021 compared to the three months ended ~~September~~June 30, ~~2019~~2020 was primarily attributable to $5approximately $2 million of ~~ECI~~lower professional fees and approximately $1 million of lower employee-related expenses. The reduction in professional fees in the three months ended June 30, 2021 was attributable to both of our segments, while the reduction in employee-related expenses was attributable to our IP Optical Networks segment.

The decrease in general and administrative expenses ~~included~~in the six months ended June 30, 2021 compared to the six months ended June 30, 2020 was primarily attributable to the absence in the current year ~~quarter,~~period of approximately $2 million of litigation-related expense in our Cloud and Edge segment, coupled with approximately $2 million of lower professional fees (i.e., consulting, legal and audit fees) and approximately $1 million of ~~higher organic Ribbon expenses, which amounts were principally employee-related costs. The increase~~net reductions in ~~the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 was primarily attributable to $12 million of ECI general~~other Cloud and ~~administrative expenses included in the current year-to-date period since the ECI Merger Date that were principally employee-related~~Edge expenses. These ~~expenses~~reductions were partially offset by $4approximately $1 million of ~~lower litigation and settlement expenses in the current year-to-date period compared to the nine months ended September 30, 2019 as well as the temporary wage reduction and lower travel and related~~IP Optical Networks expense, principally for employee-related costs ~~in connection with the ongoing pandemic.~~

We believe that our general and administrative expenses in 2021 will be consistent with our 2020 levels and decline in future years as we realize additional integration synergies.

Amortization of Acquired Intangible Assets. Amortization of acquired intangible assets for the three and months ended June 30, 2021 and 2020 was as follows (in thousands, except percentages):


					Increase from prior year
	June 30, 2021		June 30, 2020		$		%
Three months ended	$	17,181	$	14,669	$	2,512	17.1	%
Six months ended	$	33,004	$	29,003	$	4,001	13.8	%

The increase in ~~2020~~amortization of acquired intangible assets in both the three and six months ended June 30, 2021 compared to ~~2019,~~the same prior year periods was primarily due to the ~~ECI Merger.~~recognition of such expense in relation to expected future cash flows; accordingly, amortization of intangible assets is not recorded on a straight-line basis, coupled with the inclusion of amortization expense for the full half-year in 2021, compared to four months of expense in the same prior year period.

Acquisition-, Disposal- and Integration-Related Expenses. Acquisition-, disposal- and integration-related expenses include those expenses related to acquisitions that we would otherwise not have incurred. ~~Acquisition-related~~Acquisition- and disposal-related expenses include professional and services fees, such as legal, audit, consulting, paying agent and other ~~fees, and expenses related to cash payments to certain former executives of acquired businesses in connection with their employment agreements.~~fees. Integration-related expenses represent incremental costs related to combining ~~the Company's~~our systems and processes with those of acquired businesses, such as third-party consulting and other third-party services.

~~We recorded~~Our acquisition-, disposal- and integration-related expenses ~~of $1 million~~for the three and ~~$15 million~~six months ended June 30, 2021 and 2020 were as follows (in thousands):



	Three months ended				Six months ended
	June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020
Professional and services fees (acquisition-related)	$	143	$	640	$	143	$	13,014

Professional and services fees (disposal-related)	—		—		241		—
Integration-related expenses	909		217		1,865		227
	$	1,052	$	857	$	2,249	$	13,241

Our acquisition-related expenses in the three and ~~nine~~six months ended September 30, 2020, respectively, primarily in connection with the ECI Merger. We recorded acquisition- and integration-related expense of $2 million and $7 million in the three and nine months ended September 30, 2019, respectively.

~~The amount recorded in the three months ended September~~June 30, 2020 primarily related to professional and services fees in connection with the proposed sale of our Kandy Communications Business. The amount recorded in the nine months ended September 30, 2020 was comprised of $14 million of acquisition-related expense, and $1 million of integration-related expense principally relatedrelate to the ECI ~~Merger.~~

Acquisition. The ~~amount recorded~~disposal-related expenses in the ~~three~~six months ended ~~September~~June 30, ~~2019 was comprised of $1 million of~~2021 relate to the Kandy Sale. Acquisition-, disposal- and integration-related ~~expense and $1 million of acquisition-related expense for professional and services fees. The amount recorded~~expenses are reported separately in the ~~nine months ended September 30, 2019 was comprised~~condensed consolidated statements of $4 million of integration-related expense and $3 million of acquisition-related expense for professional and services fees. The acquisition-related expense in both the three and nine month periods ended September 30, 2019 was primarily related to the Anova Acquisition.operations.

Restructuring and Related Expense. We have been committed to streamlining our operations and reducing operating costs by closing and consolidating certain facilities and reducing our worldwide workforce. Please see the additional discussion of our restructuring initiatives in the "Restructuring and Cost Reduction Initiatives" section of the Overview of this MD&A.

We recorded restructuring and related expense of $3$2.8 million and ~~$11~~$8.8 million in the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, respectively. We recorded restructuring and related expense of $2$5.4 million and ~~$16~~$7.4 million in the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, respectively.

Although we have eliminated positions as part of our restructuring initiatives, we continue to hire in certain areas that we believe are important to our future growth. Restructuring and related expense is reported separately in the condensed consolidated statements of operations.

Interest Expense, Net. Interest income and interest expense for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 were as follows (in thousands, except percentages):


	Three months ended				Increase decrease) from prior year
	June 30, 2021		June 30, 2020		$		%
Interest income	$	1,259	$	98	$	1,161	1,184.7	%
Interest expense	(4,307)		(5,498)		(1,191)		(21.7)	%
	$	(3,048)	$	(5,400)	$	(2,352)	(43.6)	%


		Three months ended				Increase (decrease) from prior year					Six months ended				Increase from prior year
		September 30, 2020		September 30, 2019		$		%			June 30, 2021		June 30, 2020		$		%
Interest income	Interest income	$	35	$	271	$	(236)	(87.1)	%	Interest income	$	2,744	$	416	$	2,328	559.6	%
Interest expense	Interest expense	(6,889)		(997)		5,892		591.0	%	Interest expense	(11,611)		(9,211)		2,400		26.1	%
		$	(6,854)	$	(726)	$	6,128	844.1	%		$	(8,867)	$	(8,795)	$	72	0.8	%

Nine months ended Increase
from prior year
September 30,
2020 September 30,
2019 $ %
Interest income $ 451 $ 313 $ 138 44.1 %
Interest expense (16,100) (3,665) 12,435 339.3 %
$ (15,649) $ (3,352) $ 12,297 366.9 %

Interest income in both the three and six months ended June 30, 2021 was primarily due to the paid-in-kind interest on the Debentures, which was recorded as an increase to the fair value of the Debentures. Interest expense in the three and six months ended June 30, 2021 was comprised of interest and debt issuance costs in connection with the 2020 Credit Facility (as defined below), including the write-off of $2.5 million of capitalized debt insurance costs in connection with the Third Amendment (as defined below), coupled with interest on finance leases.

Interest income in the three and ~~nine~~six months ended ~~September~~June 30, 2020 primarily represents interest earned on the outstanding note receivable arising from ~~Metaswitch.~~litigation that was settled in 2019. Interest expense in the three and ~~nine~~six months ended ~~September~~June 30, 2020 was comprised of interest and debt issuance costs in connection with the 2020 Credit ~~Agreement,~~Facility, interest on other borrowings and finance leases, and interest expense recorded in connection with the factoring of certain accounts receivable. Interest expense in the ~~three~~six months ended ~~September~~June 30, 2020 also ~~included the write-off of debt issuance costs arising from the amendment of the 2020 Credit Agreement. Interest expense in the nine months ended September 30, 2020~~ included the write-off of debt issuance costs in connection with the retirement of the 2019 Credit ~~Facility as well as the aforementioned write-off of debt issuance costs related to the amendment of the 2020 Credit Agreement.~~

Interest income in the three and nine months ended September 30, 2019 primarily represented interest earned on the outstanding note receivable from Metaswitch. Interest expense in the three months ended September 30, 2019 primarily related to revolver and term borrowings under the 2019 Credit Facility (as defined below). Interest expense in the nine months ended September 30, 2019 primarily related to outstanding borrowings under the 2019 Credit Facility and the promissory note issued to certain of GENBAND's equity holders in connection with the GENBAND Merger.

The higher interest expense in both the three and nine months ended September 30, 2020 compared to the same prior year periods was primarily due to higher outstanding borrowings. The increase in interest income in the nine months ended September 30, 2020 compared to the same prior year period was due to the interest earned on the note receivable from Metaswitch.Facility.

Income Taxes. We recorded provisions for income taxes of $1$4.7 million and $6$2.2 million in the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively. These amounts reflect our estimates of the effective rates expected to be applicable for the respective full fiscal years, adjusted for any discrete events, which are recorded in the period that they occur. The amount recorded for the three months ended September 30, 2020 includes a $4 million benefit from the release of a valuation allowance related to our Ireland operations due to our expectation that it is more likely than not that our Ireland operations will continue to be profitable. These estimates are reevaluated each quarter based on our estimated tax rate for the full fiscal year. The estimated effective tax rate includes the impact of valuation allowances in various jurisdictions.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial position, changes in financial position, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

~~Contractual Obligations~~

On March 3, 2020, we entered into a Senior Secured Credit Facilities Credit Agreement (as amended, the "2020 Credit Agreement"). The proceeds of the 2020 Credit Agreement were used, in part, to pay off in full all obligations of the Company under the 2019 Credit Facility. On August 18, 2020, we entered into a First Amendment to the 2020 Credit Agreement. The principal and interest payments for the 2020 Credit Agreement long-term debt are included in the table below.

In connection with the ECI Merger, we assumed certain contractual obligations related to operating leases, future purchases, employee postretirement defined benefit plans and uncertain tax positions, which are included in the table below.

~~Our related and assumed contractual obligations at September 30, 2020 consisted of the following (in millions):~~

Payments due by period
Total Less than 1 year 1-3 years 3-5 years More than 5 years
Operating lease obligations $ 25.6 $ 9.8 $ 13.0 $ 2.4 $ 0.4
Purchase obligations 44.9 43.7 1.0 0.2 —
Debt obligations - principal * 396.0 13.9 36.3 345.8 —
Debt obligations - interest 65.8 15.5 29.0 20.2 1.1
Employee postretirement defined benefit plans 9.5 — — — 9.5
Uncertain tax positions ** 13.3 13.3 — — —
$ 555.1 $ 96.2 $ 79.3 $ 368.6 $ 11.0

* Debt obligations - principal represents the outstanding balances on our credit facilities under the 2020 Credit Agreement of $395.3 million, representing the outstanding principal under the term loans, and short-term uncommitted loan of $0.7 million at September 30, 2020.

** This liability is not subject to fixed payment terms and the amount and timing of payments, if any, that we will make related to this liability are not known.

Except for the material changes above in connection with the 2020 Credit Agreement and the ECI Merger, there have been no material changes, outside of the ordinary course of business, to our contractual obligations as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019.

Liquidity and Capital Resources

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


		Nine months ended							Six months ended
		September 30, 2020		September 30, 2019		Change			June 30, 2021		June 30, 2020		Change
Net (loss) income		$	(35.2)	$	20.3	$	(55.5)
Adjustments to reconcile net (loss) income to cash flows provided by operating activities		73.8		51.5		22.3
Net loss								Net loss	$	(21,446)	$	(41,421)	$	19,975
Adjustments to reconcile net loss to cash flows provided by operating activities								Adjustments to reconcile net loss to cash flows provided by operating activities	64,343		49,506		14,837
Changes in operating assets and liabilities	Changes in operating assets and liabilities	26.6		(49.2)		75.8		Changes in operating assets and liabilities	(34,867)		28,627		(63,494)
Net cash provided by operating activities	Net cash provided by operating activities	$	65.2	$	22.6	$	42.6	Net cash provided by operating activities	$	8,030	$	36,712	$	(28,682)
Net cash used in investing activities	Net cash used in investing activities	$	(322.0)	$	(1.3)	$	(320.7)	Net cash used in investing activities	$	(7,626)	$	(318,243)	$	310,617
Net cash provided by (used in) financing activities		$	323.0	$	(24.7)	$	347.7
Net cash (used in) provided by financing activities								Net cash (used in) provided by financing activities	$	(20,858)	$	331,074	$	(351,932)

Our cash ~~cash equivalents~~ and restricted cash aggregated ~~$111~~approximately $115 million at ~~September~~June 30, ~~2020. We had cash of $45~~2021and $136 million at December 31, ~~2019.~~2020. These amounts included cash and restricted cash aggregating ~~$47~~approximately $32 million at ~~September~~June 30, ~~2020~~2021 and ~~cash aggregating $12~~$46 million at December 31, ~~2019~~2020 held by our non-U.S. subsidiaries. If we elected to repatriate all excess funds held by our non-U.S. subsidiaries as of ~~September~~June 30, ~~2020,~~2021, we do not believe that the amounts of potential withholding taxes that would arise from the repatriation would have a material effect on our liquidity.

~~On April 29, 2019, we, as guarantor, and Ribbon Communications Operating Company, Inc., as borrower, entered into a syndicated,~~We currently maintain the Senior Secured Credit Facilities Credit Agreement (as amended, ~~and restated credit facility (the "2019~~the "2020 Credit Facility") with SVB, as lead agent. The 2019 Credit Facility provided for a $50 million term loan facility that was advanced in full on April 29, 2019, and a $100 million revolving line of credit. At December 31, 2019, we had an outstanding term loan debt balance of $49 million and an outstanding revolving line of credit balance of $8 million with a combined average interest rate of 3.30%, ~~and $5 million of outstanding letters of credit at an interest rate of 1.50%.~~

Revolving loans under the 2019 Credit Facility bore interest at our option at either the Eurodollar ("LIBOR") rate plus a margin ranging from 1.50% to 3.00% per year or the base rate (the highest of the Federal Funds rate plus 0.50%, or the prime rate announced from time to time in The Wall Street Journal) plus a margin ranging from 0.50% to 2.00% per year (such margins being referred to as the “Applicable Margin”). The Applicable Margin varied depending on our consolidated leverage ratio (as defined in the 2019 Credit Facility). The base rate and the LIBOR rate were each subject to a zero percent floor.

~~On March 3, 2020, we entered into the 2020 Credit Agreement,~~ by and among us, as a guarantor, Ribbon Communications Operating Company, Inc., as the borrower ("Borrower"), Citizens Bank, N.A. ("Citizens"), as administrative agent, a lender, issuing lender, swingline lender, joint lead arranger and bookrunner, Santander Bank, N.A., as a lender, joint lead arranger and bookrunner, and the other lenders party thereto (each, together with Citizens Bank, N.A. and Santander Bank, N.A., referred to individually as a "Lender", and collectively, the "Lenders"). ~~The proceeds~~For additional details regarding the terms of ~~the Credit Agreement were used, in part, to pay off in full all obligations of the Company under the 2019 Credit Facility.~~

The 2020 Credit Agreement provides for $500 million of commitments from the lenders to the Borrower, comprised of $400 million in term loans (the "2020 Term Loan Facility") and a $100 million facility available for revolving loans (the "2020 Revolving Credit Facility"). Under the 2020 Revolving Credit Facility, a $30 million sublimit is available for letters of credit and a $20 million sublimit is available for swingline loans. Under the 2020 Credit ~~Agreement, we were originally required~~Facility, see Note 10 to make quarterly principal payments aggregating approximately $10 million in the first year, $20 million per year for the following three years and $30 million in the last year, with the remaining balance due on the maturity date.

The indebtedness and other obligations under the 2020 Credit Agreement are 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 Agreement is 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 Agreement requires periodic interest payments until maturity.~~

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

In addition, the 2020 Credit Agreement contains various covenants that, among other restrictions, limit our and our subsidiaries’ ability to incur or assume indebtedness; grant or assume liens; make acquisitions or engage in mergers; sell, transfer, assign or convey assets; repurchase equity and make dividend and certain other restricted payments; make investments; engage in transactions with affiliates; enter into sale and leaseback transactions; enter into burdensome agreements; change the nature of its business; modify their organizational documents; or amend or make prepayments on certain junior debt.

The 2020 Credit Agreement contains events of default that are customary for a secured credit facility. If an event of default relating to bankruptcy or other insolvency events with respect to the Company or any of its subsidiaries occurs, all obligations under the 2020 Credit Agreement will immediately become due and payable. If any other event of default exists under the 2020 Credit Agreement, the lenders can accelerate the maturity of the obligations outstanding under the Credit Agreement and exercise other rights and remedies, including charging a default rate of interest equal to 2.00% per year above the rate that would otherwise be applicable. In addition, if any event of default exists under the 2020 Credit Agreement, the lenders can commence foreclosure or other actions against the collateral.statements.

On ~~August 18, 2020~~March 3, 2021 (the ~~"First~~"Third Amendment Effective Date"), we entered into ~~the First~~a Third Amendment to Credit Agreement (the "Third Amendment"), which further amended the 2020 Credit ~~Agreement. Pursuant~~Facility. The Third Amendment provided for an incremental term loan facility to ~~an assignment and assumption agreement entered into by Citizens and certain affiliates~~us in the original principal amount of ~~Whitehorse Capital~~$74.6 million, the proceeds of which were used on the ~~First~~Third Amendment Effective Date ~~(collectively, "HIG Whitehorse"), and consented~~ to ~~by Citizens and the Borrower, $75 million~~consummate an open market purchase of ~~the 2020 Term Loan Facility, designated as~~all outstanding amounts under the Term B ~~Loan (the "Term B Loan") was assigned from Citizens to HIG Whitehorse. The remaining $325 million~~Loan. Upon the consummation of the ~~2020~~open market purchase, the Term ~~Loan Facility that was not~~B Loans were assigned to ~~HIG Whitehorse was deemed~~the Borrower and immediately canceled, such that the outstanding amount under the Term A Loan and incremental term loan facility were combined and held by the Lenders (the ~~"Term A~~"2020 Term Loan" ~~and, together with the Term B Loan, the "Amended 2020 Term Loan Facility"~~).

The Term A Loan and amounts under the 2020 Revolving Credit Facility mature in March 2025. The Term A Loan and 2020 Revolving Credit Facility bear interest at the Borrower's option at either the LIBOR rate plus a margin ranging from 1.50% to 3.50% per year, or the base rate (the highest of the Federal Funds Effective Rate (as defined in the 2020 Credit Agreement) plus 0.50%, or the prime rate announced from time to time in The Wall Street Journal) plus a margin ranging from 0.50% to 2.50% per year (the "Applicable Margin"). The Applicable Margin varies depending on our Consolidated Net

~~Leverage Ratio (as defined in the 2020 Credit Agreement). The base rate and the LIBOR rate are each subject to a zero percent floor.~~ We are required to make quarterly principal payments on the 2020 Term A Loan aggregating approximately ~~$10~~$20 million per year in the first three years and $30 million in the ~~first year, $16 million in each of the next two years, $20 million in the~~ fourth ~~year and $16 million in the last~~ year, with the final payment approximating $244 million due on the maturity date. The Borrower can prepay all amounts under the Term A Loan and the 2020 Revolving Credit Facility at any time without premium or penalty (other than customary LIBOR breakage costs), subject to certain notice requirements. The First Amendment did not change the terms applied to the Term A Loan or the Revolving Credit Facility under the 2020 Credit Agreement.

The Term B Loan is scheduled to mature in March 2026 and bears interest, at the Borrower's option, at either the LIBOR rate plus a margin of 7.50% per year, or the base rate (the highest of the Federal Funds Effective Rate (as defined in the 2020 Credit Agreement) plus 0.50%, or the prime rate announced from time to time in The Wall Street Journal, plus a margin of 6.50% per year. The Term B Loan has a lower rate of amortization than the Term A Loan and is subject to a 1.0% premium if voluntarily repaid in connection with a repricing transaction (as defined in the First Amendment) occurring prior to the six month anniversary of the First Amendment Effective Date. We are required to make quarterly principal payments totaling approximately $1 million in the first year and $8 million in the aggregate over the next four and a half years, with the final payment approximating $66$300 million due on the maturity date.

~~The First Amendment reduced the Borrower's ability to incur new tranches of term loans, or increases in commitments under the Amended~~At June 30, 2021, we had an outstanding 2020 Term Loan ~~Facility or the 2020 Revolving Credit Facility. Specifically, such indebtedness can be incurred up to~~balance of $385.5 million at an ~~aggregate dollar amount equal to 75%~~average interest rate of ~~the Company's Consolidated Adjusted EBITDA (as defined in the 2020 Credit Agreement), reduced from 100% prior to the First Amendment, as~~3.40% and $6.4 million of the most recently ended fiscal quarter for which financial statements have been delivered to the lenders, plus additional amounts, so long as the Borrower's Consolidated Net Leverage Ratio (as defined in the 2020 Credit Agreement) does not exceed 2.25:1.00, reduced from 2.75:1.00 prior to the First Amendment. The First Amendment also reduced the amountletters of ~~Unrestricted Cash (as defined in the 2020 Credit Agreement) used in calculating the Borrower's Consolidated Net Leverage Ratio from $25 million to $10 million.~~

credit outstanding with an interest rate of 2.50%. We were in compliance with all covenants of the 2020 Credit ~~Agreement~~Facility at ~~September~~both June 30, ~~2020.~~

~~At September 30, 2020, we had an outstanding Term A Loan balance of $320.5 million at an average interest rate of 3.4%,~~2021 and the Term B Loan had an outstanding balance of $74.8 million at average interest rate of 8.40%. The 2020 Revolving Credit Facility did not have an outstanding balance but had $5.3 million of letters of credit outstanding with an interest rate of 2.5%.December 31, 2020.

We are exposed to financial market risk related to foreign currency fluctuations and changes in interest rates. These exposures are actively monitored by management. To manage the volatility related to the exposure to changes in interest rates, we have entered into a derivative financial instrument. Management's objective is to reduce, where it is deemed appropriate to do so, fluctuations in earnings and cash flows associated with changes in interest rates. Our policies and practices are to use derivative financial instruments only to the extent necessary to manage exposures. We do not hold or issue derivative financial instruments for trading or speculative purposes.

As a result of exposure to interest rate movements, during March 2020, we entered into an interest rate swap arrangement, which effectively converted our $400 million term loan with its variable interest rate based upon one-month LIBOR to an aggregate fixed rate of 0.904%, plus a leverage-based margin as defined in the 2020 Credit ~~Agreement.~~Facility. The notional amount of this swap as of ~~September~~June 30, ~~2020~~2021 was $400 million, and the swap matures on March 3, 2025, the same date the ~~Term A Loan and~~ 2020 ~~Revolving~~ Credit Facility ~~mature.~~matures.

Our objectives in using interest rate derivatives are to add stability to interest expense and to manage our exposure to interest rate movements. To accomplish this objective, we are using an interest rate swap as part of our interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income (loss) ~~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 ~~nine~~six months ended ~~September~~June 30, 2021 and 2020, such a derivative was used to hedge the variable cash flows associated with the 2020 Credit ~~Agreement.~~Facility. Any ineffective portion of the change in fair value of the derivative would be recognized directly in earnings. However, during the three and ~~nine~~six months ended ~~September~~June 30, 2021 and 2020, we recorded no hedge ineffectiveness.

Amounts reported in accumulated other comprehensive income (loss) ~~income~~ related to our derivative will be reclassified to interest expense as interest is accrued on our variable-rate debt. Based upon projected forward rates, we estimate as of ~~September~~June 30, ~~2020~~2021 that ~~$3.1~~$3.2 million may be reclassified as an increase to interest expense over the next 12 months.

~~In July 2020,~~

From time to time, we ~~entered~~enter into uncommitted and unsecured short-term ~~loan in the amount of $0.7 million with Bank of Communications Hangzhou Branch in order~~loans to finance exports in China. ~~At September~~We did not have any such short-term loans outstanding at June 30, ~~2020 the interest rate on this loan was 4.0%~~2021 and ~~it expires in November~~December 31, 2020.

We use letters of credit, performance and bid bonds in the course of ~~its~~our business. ~~As of September~~At June 30, ~~2020,~~2021, we had ~~$30.3 million of letters of credit,~~ bank guarantees, performance and bid bonds ~~outstanding~~under various uncommitted facilities (collectively, the "Guarantees")~~, comprised of the $5.3~~ aggregating $24.9 million, and $6.4 million of letters of credit under the 2020 Credit ~~Agreement described above,~~Facility (the "Letters of Credit"). At December 31, 2020, we had Guarantees aggregating $27.0 million and ~~$25.0~~$5.6 million of ~~Guarantees under various uncommitted facilities.~~Letters of Credit. At ~~September~~June 30, 2021 and December 31, 2020, we had cash collateral of ~~$2.9~~$2.6 million and $2.7 million, respectively, supporting the Guarantees, ~~under our uncommitted facilities. This cash collateral is~~which are included in Restricted cash in our condensed consolidated balance ~~sheet at September 30, 2020.~~

In connection with the GENBAND Merger, on October 27, 2017, we issued a promissory note for approximately $23 million to certain of GENBAND's equity holders (the "Promissory Note"). On April 29, 2019, concurrently with the closing of the 2019 Credit Facility as discussed above, we repaid in full all outstanding amounts under the Promissory Note, totaling $24.7 million and comprised of $22.5 million of principal plus $2.2 million of interest converted to principal. We did not incur any early termination penalties in connection with this repayment.sheets.

In the second quarter of 2019, our Board of Directors (the "Board") approved a stock repurchase program pursuant to which we ~~may~~could repurchase up to $75 million of the Company's common stock prior to April 18, 2021. Repurchases under the program ~~may~~could be made in the open market, in privately negotiated transactions or otherwise, with the amount and timing of repurchases depending on the market conditions and corporate discretion. This program ~~does~~did not obligate us to acquire any particular amount of common stock and the program ~~may be~~could have been extended, modified, suspended or discontinued at any time at the Board's discretion. ~~During~~We did not repurchase any shares during the ~~nine~~six months ended ~~September~~June 30, ~~2019, we repurchased and retired 1.0 million shares of our common stock for a total purchase price of $4.5 million, including transaction fees. No shares were repurchased under this program during~~2021 or the ~~three and nine months~~year ended ~~September 30,~~December 31, 2020. At ~~September 30,~~December 31, 2020, ~~there was~~we had $70.5 million ~~available for the repurchase of shares~~remaining under the ~~repurchase program.~~Repurchase Program for future repurchases. The Repurchase Program expired on April 18, 2021.

Cash Flows from Operating Activities

Our operating activities provided ~~$65~~$8.0 million and ~~$23~~$36.7 million of cash in the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively.

Cash provided by operating activities in the ~~nine~~six months ended ~~September~~June 30, 2021 was primarily the result of lower accounts receivable and other operating assets, and slightly higher deferred revenue, coupled with our non-cash operating activities. These amounts were partially offset by our net loss, lower accrued expenses and other long-term liabilities, lower accounts payable and higher inventory. Our lower accounts receivable reflected typical mid-year seasonality. The decrease in accrued expenses and other long-term liabilities was primarily due to the cash payments related to our employee cash bonus program, facilities, professional fees and royalties.

Cash provided by operating activities in the six months ended June 30, 2020 was primarily the result of lower accounts receivable, other operating assets and inventory, higher accrued expenses and other long-term liabilities, and our non-cash operating activities. These amounts were partially offset by our net loss and lower accounts ~~payable and deferred revenue.~~payable. Our lower accounts receivable primarily reflected typical mid-year seasonality. The decrease in other operating assets was primarily due to the scheduled ~~payments~~payment received ~~from Metaswitch~~ in connection with ~~the 2019~~a litigation settlement ~~and subsequent supplemental agreement to accelerate the payment of amounts outstanding.~~in 2019. The increase in accrued expenses and other long-term liabilities was primarily due to the derivative liability we recorded in connection with our interest rate swap, which we entered into in the first quarter of 2020.

Cash provided by operating activities in the nine months ended September 30, 2019 was primarily the result of our net income, lower accounts receivable and inventory, and our non-cash operating expenses. These amounts were partially offset by higher other operating assets and lower accounts payable, accrued expenses and other long-term liabilities, and deferred revenue balances, coupled with the reduction in the deferred consideration owed in connection with our acquisition of Edgewater Networks, Inc. The increase in other operating assets was primarily due to the note receivable arisingFlows from the litigation settlement with Metaswitch. The decrease in accrued expenses and other long-term liabilities was primarily related to employee compensation and related costs and lower deferred purchase consideration. During the second quarter of 2019, we received $37 million of cash from Metaswitch, which represents the first payment in accordance with the litigation settlement agreement. Our lower accounts receivable primarily reflected typical mid-year seasonality.Investing Activities

Our investing activities used ~~$322~~$7.6 million of cash in the ~~nine~~six months ended ~~September~~June 30, 2021, comprised of $10.6 million to purchase property and equipment, partially offset by $2.9 million of proceeds from the sale of our QualiTech business, which operates compliance testing laboratories in Israel for reliability and standardization testing for the high-tech industry, including testing in medical equipment, military equipment and vehicles.

Our investing activities used $318.2 million of cash in the six months ended June 30, 2020, comprised of ~~$347~~$346.9 million of cash paid as cash consideration for ECI and ~~$19~~$14.9 million of investments in property and equipment. These amounts were partially offset by ~~$43~~$43.5 million of cash proceeds from the sale of land in connection with the ~~Merger.~~ECI Acquisition.

Our investing activities used $1 million of cash in the nine months ended September 30, 2019, comprised of $8 million of investments in property and equipment, partially offset by $7 million of maturities of marketable securities.

Cash Flows from Financing Activities

Our financing activities ~~provided $323~~used $20.9 million of cash in the ~~nine~~six months ended ~~September~~June 30, ~~2020, primarily due to $479 million of proceeds from term debt, which was comprised of $400~~2021. We received $74.6 million of proceeds from the 2020 Credit Agreement, $75 million from Term Loan B under the Amended 2020 Credit Facility and $4 million of proceeds from short-term loans in China for the financing of certain export activities. These proceeds were partially offset by the repayment of the $75 million of debt that was extinguishedincremental loan obtained in connection with the ~~First~~Third Amendment, ~~the repayment~~which amount was used to consummate an open market purchase of ~~$57 million~~all outstanding amounts under the ~~2019 Credit Facility (comprised of $8~~Term B Loan. In addition, we used $12.1 million ~~under~~for the ~~revolving credit facility and $49 million of long-term debt), the~~ payment of $14 million of debt issuance costs in connection with the 2020 Credit Agreement and the First Amendment, the repayment of principal aggregating $8 million related to the 2020 Credit Agreement and short-term loans in China, and the payment of $1 million each of tax withholding obligations related to the net share settlement of restricted stock awards upon vesting, and $82.1 million of principal payments of term debt, including the $74.6 million payoff of the Term B Loan in connection with the Third Amendment, $0.8 million of payments of debt issuance costs and $0.5 million for principal payments of finance leases. ~~We both borrowed and repaid less than $1 million under our revolving line of credit such that we did not have any outstanding revolving borrowings at September 30, 2020.~~

Our financing activities ~~used $25~~provided $331.1 million of cash in the ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2020, primarily due to $403.5 million of proceeds from term debt, which was comprised of $400.0 million of proceeds from the 2020 Credit Facility and $3.5 million of proceeds from short-term loans in China for the financing of certain export activities. We ~~repaid~~also recorded $0.6 million of borrowings under the 2020 Credit Facility. These proceeds were partially offset by the repayment of amounts outstanding ~~borrowings of $131 million~~ under the 2019 Credit Facility ~~comprised of $130~~aggregating $56.7 million at the time we entered into the 2020 Credit Facility, $10.6 million for ~~borrowings under~~ the ~~revolving line~~payment of ~~credit and $1~~debt issuance costs in connection with the 2020 Credit Facility, $0.8 million for ~~borrowings under~~ the ~~term loan. We also repaid $25 million on the note to certain~~payment of the former GENBAND equity holders and the deferred purchase consideration of $22 million to the selling Edgewater shareholders. We spent $5 million to repurchase and retire shares of our common stock on the open market and used $1 million to paytax withholding obligations related to the net share settlement of restricted stock awards upon ~~vesting. Our borrowings under the 2019 Credit Facility totaled $159~~vesting and $0.7 million ~~comprised~~for principal payments of $109 million of borrowings under the revolving line of credit and $50 million of term loan debt under the 2019 Credit Facility. Cash proceeds from the sale of our common stock under our Amended and Restated Employee Stock Purchase Plan and from option exercises totaled $1 million.finance leases.

Based on our current expectations, we believe our current cash and available borrowings under the 2020 Credit ~~Agreement~~Facility will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least twelve months. The rate at which we consume cash is dependent on the cash needs of our future operations. We anticipate devoting substantial capital resources to continue our research and development efforts, to maintain our sales, support and marketing, to complete acquisition-related integration activities and for other general corporate activities. We further believe that our financial resources, along with managing discretionary expenses, will allow us to manage the anticipated impact of the COVID-19 pandemic on our business operations. Looking ahead, we have developed contingency plans to reduce costs further if the situation ~~deteriorates further.~~continues to deteriorate. The challenges posed by the COVID-19 pandemic on our business ~~are evolving~~continue to evolve rapidly. Consequently, we ~~will~~ continue to evaluate our financial position in light of future developments, particularly those relating to ~~COVID-19.~~the COVID-19 pandemic. However, it is difficult to predict future liquidity requirements with certainty, and our cash and available borrowings under the 2020 Credit ~~Agreement~~Facility may not be sufficient to meet our future needs, which would require us to refinance our debt and/or obtain additional financing. We may not be able to refinance our debt or obtain additional financing on favorable terms or at all.

Recent Accounting Pronouncements

The Financial Accounting Standards Board ("FASB") ~~has~~ issued the following accounting ~~pronouncements, all of~~pronouncement which became effective for us in ~~2020~~2021, and ~~none of~~ which ~~had~~did not have a material impact on our condensed consolidated financial statements:

~~In March 2020, the FASB issued Accounting Standard Updates ("ASU") 2020-04,~~ ~~Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting~~ ("ASU 2020-04"), which provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria that reference LIBOR or another reference rate expected to be discontinued.

~~In August 2018, the FASB issued ASU 2018-15,~~ ~~Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract~~ ~~(“ASU 2018-15”), which provides guidance on implementation costs incurred in a cloud computing arrangement (“CCA”) that is a service contract. ASU 2018-15 amends ASC 350,~~ ~~Intangibles - Goodwill and Other~~ (“ASC 350”) to include in its scope implementation costs of a CCA that is a service contract and clarifies that a customer should apply the guidance in ASC 350-40 to determine which implementation costs should be capitalized in such a CCA.

The FASB has issued the following accounting pronouncement which becomes effective for us in 2021, which we do not believe will have a material impact on our condensed consolidated financial statements upon adoption:

The FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes ("ASU 2019-12"), which modifies ASC 740 to simplify the accounting for income taxes. ASU 2019-12 addresses the accounting for hybrid tax regimes, tax basis step-up in goodwill obtained in a transaction that is not a business combination, separate financial statements of legal entities not subject to tax, intraperiod tax allocation exception to incremental approach, ownership changes in investments - changes from a subsidiary to an equity method investment, ownership changes in investments - changes from an equity method investment to a subsidiary, interim period accounting for enacted changes in tax law and year-to-date loss limitation in interim period tax accounting.

The FASB issued the following accounting pronouncement, which we do not believe will have a material impact on our condensed consolidated financial statements upon adoption:

In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope ("ASU 2021-01"), which refines the scope of Accounting Standards Codification 848, Reference Rate Reform ("ASC 848") 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 us prospectively in any period through December 31, 2022 that a modification is made to the terms of the derivatives affected by the discounting transition.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to financial market risk related to foreign currency fluctuations and changes in interest rates. Except as presented below, there have been no material changes in market risk from the information provided in Item 7A. Quantitative and Qualitative Disclosures About Market Risk of our Annual Report on Form 10-K, for the year ended December 31, ~~2019.~~2020.

To manage the volatility related to the exposure to changes in interest rates, we have entered into a derivative financial instrument. Our objective is to reduce, where it is deemed appropriate to do so, fluctuations in earnings and cash flows

associated with changes in interest rates. Our policies and practices are to use derivative financial instruments only to the extent necessary to manage exposures. We do not hold or issue derivative financial instruments for trading or speculative purposes.

Amounts reported in accumulated other comprehensive income (loss) ~~income~~ related to our derivative will be reclassified to interest expense as interest is accrued on our variable-rate debt. The fair value of our derivative was a liability of ~~$12.9~~$4.5 million at ~~September~~June 30, ~~2020.~~2021. Based upon projected forward rates, we estimate as of ~~September~~June 30, ~~2020~~2021 that ~~$3.1~~$3.2 million may be reclassified as an increase to interest expense over the next twelve months.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

Evaluation of Disclosure Controls and Procedures. Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of ~~September~~June 30, ~~2020.~~2021.

Changes in Internal Control over Financial Reporting. There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended ~~September~~June 30, ~~2020~~2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II OTHER INFORMATION

Item 1. Legal Proceedings

~~On November 8, 2018, Ron Miller, a purported stockholder of ours, filed a Class Action Complaint (the "Miller Complaint")~~We are subject to legal proceedings and claims that have not been fully resolved and that have arisen in the ~~United States District Court for the District~~ordinary course of Massachusetts (the "Massachusetts District Court") against us and three of our former officers, Raymond P. Dolan, Mark T. Greenquist and Michael Swade (collectively, the "Defendants"), claiming to represent a class of purchasers of Sonus common stock during the period from January 8, 2015 through March 24, 2015 and alleging violations of the federal securities laws. Similar to a previous complaint entitled Sousa et al. vs. Sonus Networks, Inc. et al., which was dismissed with prejudice by an order dated June 6, 2017, the Miller Complaint claims that the Defendants made misleading forward-looking statements concerning Sonus' expected fiscal first quarter of 2015 financial performance, which statements were also the subject of an August 7, 2018 Securities and Exchange Commission Cease and Desist Order, whose findings we neither admitted nor denied. The Miller plaintiffs are seeking monetary damages.

After the Miller Complaint was filed, several parties filed and briefed motions seeking to be selected by the Massachusetts District Court to serve as a Lead Plaintiff in the action. On June 21, 2019, the Massachusetts District Court appointed a group as Lead Plaintiffs and the Lead Plaintiffs filed an amended complaint on July 19, 2019. On August 30, 2019, the Defendants filed a motion to dismiss the Miller Complaint and, on October 4, 2019, the Lead Plaintiffs filed an opposition to the motion to dismiss. The Defendants filed a reply to such opposition on November 1, 2019. There was an oral argument on the motion to dismiss on February 12, 2020.

~~In addition, we are often a party to disputes and~~business. Our material legal proceedings ~~that we consider routine and incidental to our business. Management does not expect the results of any of these actions to have a material effect on our business or consolidated financial statements.~~

~~Item 1A. Risk Factors~~

Our business faces significant risks and uncertainties, which may have a material adverse effect on our business prospects, financial condition and results of operations, and you should carefully consider them. There have been no material changes in the nine months ended September 30, 2020 to the risk factorsas described in Part I, Item ~~1A.~~1 of ~~our Annual Report on~~this Form ~~10-K for~~10-Q in the ~~year ended December 31, 2019, with~~Notes to Condensed Consolidated Financial Statements in Note 19, "Commitments and Contingencies," under the ~~exception of the risk factors below.~~

~~Risks Related to the ECI Telecom Group Ltd. Merger~~

~~Combining Ribbon and ECI may be more difficult, costly or time-consuming than expected and the anticipated benefits and cost savings of the ECI Merger may not be realized.~~

On March 3, 2020, we completed our previously announced merger transaction with ECI in accordance with the terms of the Agreement and Plan of Merger, dated as of November 14, 2019, by and among Ribbon, ECI, an indirect wholly-owned subsidiary of Ribbon ("Merger Sub"), Ribbon Communications Israel Ltd., ECI and ECI Holding (Hungary) kft, pursuant to which Merger Sub merged with and into ECI, with ECI surviving such merger as a wholly-owned subsidiary of Ribbon (the "Merger").heading "Litigation."

The ~~success~~outcome of litigation is inherently uncertain. If one or more legal matters were resolved against the ~~ECI Merger, including anticipated benefits~~Company in a reporting period for amounts above management's expectations, our financial condition and ~~cost savings, will depend, in part, on our ability to successfully combine and integrate~~operating results for that reporting period could be materially adversely affected. We settled certain matters during the ~~businesses. It is possible~~fourth quarter of 2020 that ~~the integration process could result~~did not individually or in the loss of key employees, higher than expected costs, diversion of management attention, the disruption of our ongoing businesses or inconsistencies in standards, controls, procedures and policies that adversely affect the combined company’s ability to maintain relationships with customers, vendors and employees or to achieve the anticipated benefits and cost savings of the ECI Merger.

We have incurred and will incur additional transaction fees, including legal, regulatory and other costs associated with closing the transaction, as well as expenses relating to formulating and implementing integration plans, including facilities and systems consolidation costs and employment-related costs. We continue to assess the magnitude of these costs, and additional

unanticipated costs may be incurred in the ECI Merger and the integration of the two companies’ businesses. While we expect that the elimination of duplicative costs as well as the realization of other efficiencies related to the integration of the businesses should allow us to offset integration-related costs over time, this net benefit may not be achieved in the near term or at all. As part of the integration process, we may also attempt to divest certain assets of the combined company, which may not be possible on favorable terms, or at all, or if successful, may change the profile of the combined company. If we experience difficulties with the integration process, the anticipated benefits of the ECI Merger may not be realized fully or at all, or may take longer to realize than anticipated. The actual cost savings of the ECI Merger could be less than expected.

~~Risks Related to the COVID-19 Pandemic~~

~~The COVID-19 pandemic and resulting deteriorations in global economic conditions may~~aggregate have a material ~~adverse~~ impact on our ~~business,~~ financial ~~position and~~condition or results of operations.

Concerns over the economic impact of COVID-19 pandemic have also caused extreme volatility in financial and other capital markets which has and may continue to adversely impact our stock price. Such volatility may also adversely impact our ability to access capital markets if and when we would be required to do so.

Actions taken globally in response to the COVID-19 pandemic have created significant dislocation in demand and pricing for oil, which has subsequently impacted a variety of currencies around the world. These fluctuations in the relative value of currencies could have a significant impact on demand for our products and the net sales price and profitability.

The degree to which the COVID-19 pandemic ultimately impacts our business, financial position and results of operations will depend on future developments beyond our control, including the severity of the pandemic, including the frequency and duration of future waves of infection; the effectiveness and timing of any vaccines, the extent of actions to contain or treat the virus; how quickly and to what extent normal economic and operating conditions can resume; the health of and the effect on our workforce, particularly if members of our workforce are quarantined as a result of exposure, worker absenteeism as a result of illness or other factors, social distancing measures including work from home measures and other travel, health-related, business, government or other restrictions in connection with pandemics or disease outbreaks; and the severity and duration of the global economic downturn that results from the pandemic.

~~Risks Related to our Business and Industry~~

~~The terms of our credit agreement could adversely affect our operating flexibility and pose risks of default, which would negatively impact our liquidity and operations.~~

The terms of our credit agreement could adversely affect our operating flexibility and pose risks of default which would negatively impact our liquidity and operations. In addition, we may not be able to refinance our debt or obtain additional financing on favorable terms, or at all.

Our Senior Secured Credit Facility Credit Agreement entered into on March 3, 2020 (as amended on August 18, 2020, the “2020 Credit Agreement”) provides $500 million of commitments, comprised of a $325 million term A loan (the “Term A Loan”), a $75 million term B loan (the “Term B Loan”), a $100 million revolving facility (the “2020 Revolving Credit Facility”), a $30 million sublimit that is available for letters of credit and a $20 million sublimit that is available for swingline loans. The Term A Loan and the 2020 Revolving Credit Facility are scheduled to mature in March 2025. The Term B Loan is

scheduled to mature in March 2026. Provisions in the 2020 Credit Agreement impose limitations on our ability to, among other things, incur additional indebtedness, create liens, make acquisitions or engage in mergers, enter into transactions with affiliates, dispose of assets, make certain investments and amend or repay certain junior debt.

In addition, we are required to meet certain financial covenants customary for financings of this type. Our failure to comply with these covenants may result in the declaration of an event of default, which could cause us to be unable to borrow under the credit facility or result in the acceleration of the maturity of indebtedness outstanding under the credit facility at such time. If the maturity of our indebtedness is accelerated, we may not have sufficient funds available for repayment or we may not have the ability to borrow or obtain sufficient funds to replace the accelerated indebtedness on terms acceptable to us, or at all.

The United Kingdom's Financial Conduct Authority, which regulates the London Inter-bank Offered Rate ("LIBOR"), has announced that it intends to stop encouraging or requiring banks to submit LIBOR rates after 2021, and it is unclear if LIBOR will cease to exist or if new methods of calculating LIBOR will evolve. We have the option under our current credit facility to determine our interest rate that includes either the LIBOR rate or the base rate. If LIBOR ceases to exist or the methods of calculating LIBOR change from their current form, we may no longer have the ability to elect the LIBOR rate option under our current credit facility, and our current or future indebtedness may be adversely affected. This could impact our interest costs and our ability to borrow additional funds under our current credit facility.

If we are prevented from borrowing or if we are unable to extend, renew or replace the credit facilities under the 2020 Credit Agreement by the maturity dates, on favorable terms, or at all, this could have a material adverse effect on our liquidity and cause our business, operations and financial condition to suffer. In addition, we may not have sufficient funds available for repayment or we may not have the ability to borrow or obtain sufficient funds to replace the indebtedness on terms acceptable to us, or at all.

We cannot be sure that our current cash and available borrowings under our 2020 Credit Agreement will be sufficient to meet our future needs. If we are unable to generate sufficient cash flows in the future, and if availability under our current facility is not sufficient to support our operations, we may need to refinance our debt or obtain additional financing. We may not be able to refinance our debt or obtain additional financing on favorable terms or at all.

~~Risks Related to ECI~~

~~If the market for 5G network solutions and Cloud-based applications does not evolve in the way the Company anticipates, it may not be able to realize a key part of its business strategy~~.

A material part of the Company’s research and development is invested in developing networking products and solutions to deliver major new features supported by the 5G standards, and a key part of the Company’s growth strategy depends on its ability to gain market share for these networking products and solutions. Deployment of wide-scale commercial 5G networks will occur at a variety of different timing depending on the unique attributes and priorities of each region, communication service provider, and government regulatory environment, if at all. For these reasons, the development of the market for the Company’s 5G networking products and solutions may be mis-timed with the market opportunity, and any significant delays could have a materially adverse effect on the Company’s growth strategy.

In addition, part of the Company’s growth strategy involves taking advantage of the shift towards Cloud-based applications and services. The Cloud-based service delivery paradigm continues to evolve and grow, and is beginning to include a new Mobile Edge Computing (MEC) approach that shifts the workload to the edge of the mobile network to take advantage of the speeds and reduce latency of the new 5G network. The pace at which these new architectures are adopted are difficult to predict and will have a direct impact on our growth. While it is expected that 5G will help accelerate the demand for and use of Cloud-based and MEC applications, this will only be known once 5G is widely implemented. If the market for 5G products and solutions or Cloud-based applications, or the impact of 5G on the demand for Cloud-based applications, does not evolve in the way the Company anticipates, or if customers do not adopt the Company’s 5G networking products and solutions or its Cloud-based applications, a key part of the Company’s growth strategy may not materialize which could have a material adverse effect on the Company’s business, results of operations, financial condition, cash flows and prospects.

The Israel Innovation Authority (IIA) government grants received by the Company's ECI subsidiary for research and development expenditures have been significantly reduced in the last few years and may be reduced further or eliminated due to government budget cuts or reallocation of the government’s resources. These grants also place certain limitations on the Company’s ability to manufacture products and transfer or license know-how outside of Israel and require the Company to satisfy specified conditions.

The Company currently receives grants from the Government of Israel through the IIA for the financing of a portion of the Company’s research and development expenditures in Israel pursuant to the Encouragement of Research, Development and Technological Innovation in the Industry Law 5744-1984 (together with its predecessor legislation, the “Innovation Law”). In the last few years these grants have been substantially reduced, as a result of changes in the policy of the IIA. The IIA may reallocate or further reduce or eliminate these grants in the future, which could require the Company to directly fund a larger portion of research and development in Israel, reducing the overall profitability of the Company.

The Company is required to repay the grants received from the IIA in the form of royalties paid on proceeds from the sale of products that were developed using this funding and services associated with such products. The royalties are payable in an amount of up to 100% of the U.S. dollar-linked value of the amount of the grant (which may be increased under certain circumstances) (referred to as the “royalty ceiling”) plus interest at the rate of 12-month LIBOR on the date that the grant application is made. The Company’s royalty rates are generally between 1.3% and 5% of the proceeds from the sale of relevant products and services.

The terms of the IIA grants generally require that products developed with grants be manufactured in Israel, unless approval for transferring such manufacturing outside Israel is received from the IIA, however, such approval is not required for the transfer of manufacturing outside Israel of up to 10% of the manufacturing. Such approval may be provided by the IIA in connection with the approval of the grant application itself (as the Company has requested in its grant applications since 2013), in which case the royalty repayment rate is increased by 1% with respect to any such approved percentage. If manufacturing of IIA-funded products is transferred outside Israel (subject to IIA approval) in excess of the percentage approved by the IIA in connection with the grant approval, then the repayment rate is increased by 1% and the royalty repayment amount with respect to such products may be increased to up to three times the amount of the grants received (plus interest at the rate of 12-month LIBOR on the date that the grant application is made).

IIA prior approval is also required for the sale, licensing, distribution or other transfer (referred to as a transfer) of know-how created, in whole or in part, in connection with an IIA-funded project to a third party outside Israel. If such IIA approval is received and the know-how is transferred outside Israel, a redemption fee is typically required to be paid to the IIA, which is calculated according to a formula provided under the Innovation Law, up to a maximum redemption fee of no more than either (i) three times (if certain prescribed research and development activities are retained in Israel); or (ii) six times the amount of the grants received (plus accrued interest) for the applicable know-how being transferred, subject to the deduction of royalties previously paid to the IIA. If the IIA implements additional or more stringent restrictions on transfer of manufacturing activities and transfer of funded know-how outside Israel under the Innovation Law, it could have a material adverse effect on the Company’s business, results of operations, financial condition, cash flows and prospects.

~~Risks Relating to our International Operations~~

~~Conditions in Israel may materially and adversely affect the Company’s business.~~

ECI Telecom Ltd., is organized under Israeli law, and a material number of the Company’s employees are located in Israel. Accordingly, political, economic and military conditions in Israel may directly affect the Company’s business. Since Israel was established in 1948, a number of armed conflicts have occurred between Israel and its neighboring countries. In recent years, these have included hostilities between Israel and Hezbollah in Lebanon and Hamas in the Gaza Strip, both of which resulted in rockets being fired into Israel, causing casualties and disruption of economic activities. Popular uprisings in various countries in the Middle East and North Africa are affecting the political stability of those countries and have led to a decline in the regional security situation. Such instability may also lead to deterioration in the political and trade relationships that exist between Israel and these countries. Any armed conflicts, terrorist activities or political instability involving Palestinian entities or other countries in the region could adversely affect the Company’s business, results of operations, financial condition, cash flows and prospects. Although the Israeli Government currently covers the reinstatement value of direct damages that are caused by terrorist attacks or acts of war, the Company cannot assure prospective investors that this coverage will be maintained or will be adequate in the event the Company submits a claim.

A number of countries, principally in the Middle East, still restrict doing business with Israel and Israeli companies, and additional countries may impose restrictions on doing business with Israel and Israeli companies if hostilities in Israel or political instability in the region continue or increase. In addition, there have been increased efforts by activists to cause companies and consumers to boycott Israeli goods based on Israeli Government policies. Such actions, particularly if they become more widespread, may adversely impact the Company’s ability to sell its products. Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its present trading partners, or significant downturn in the economic or financial condition of Israel, could have a material adverse effect on the Company’s business, results of operations, financial condition, cash flows and prospects.

The Company’s operations could also be disrupted by the absence for significant periods of one or more of its executive officers, key employees or a significant number of other employees because of military service. Some of the Company’s employees in Israel are obliged to perform military reserve duty, which generally accumulates over a period of three years from several days to up to a maximum of 84 days (and up to 108 days, in special circumstances specified under applicable law) and, in certain emergency circumstances, employees may be called to immediate and unlimited active duty. In response to increases in terrorist activity, there have been periods of significant call-ups of military reservists and it is possible that there will be similar large-scale military reserve duty call-ups in the future.

~~Any of these circumstances could have a material adverse effect on the Company’s business, results of operations, financial condition, cash flows and prospects.~~

~~Impact of Assessment of Adjusted Gross Revenue dues in India.~~

A dispute has arisen in India between the large telecommunications service providers and the Department of Telecommunications (“DoT”) regarding how to compute the Adjusted Gross Revenue (“AGR”) due from the former to the DoT. The service providers claim that AGR should only comprise of revenue accrued from core services. The DoT has argued that AGR includes all revenues (before discounts) from both telecommunications and non-telecommunications services. The Supreme Court of India recently issued a judgment accepting the position of the DoT, requiring private telecommunications service providers to pay out the higher sums towards license fee and spectrum usage fee, plus interest and penalties, which are dependent on the value of their AGR. The sums that the telecommunications operators owe the Indian government include substantial back charges, interest and penalties, which operators have ten years to pay, with the first 10% due March 31, 2021. The telecommunications service providers are still assessing the impact of this decision and the impact it may have on their capital investments in India.

~~Worldwide efforts to contain capital spending and global economic conditions and uncertainties in the geopolitical environment have been and may continue to be materially adverse to our business.~~

One factor that significantly affects our operating results is the impact of economic conditions on the willingness of our current and potential customers to make capital investments. Given the uncertainty regarding global economic conditions and uncertainties in the geopolitical environment, we believe that customers have tried to maintain or improve profitability through cost control and constrained capital spending, which places additional pressure on IT departments to demonstrate acceptable return on investment. Some of our customers have canceled or delayed, and current and prospective customers may continue to cancel and delay, spending on the development or roll-out of capital and technology projects with us due to economic uncertainty and, consequently, our results of operations have been, and may continue to be, adversely affected. In addition, current uncertain worldwide economic and political environments make it increasingly difficult for us, our customers and our suppliers to accurately forecast future product demand, which could result in an inability to satisfy demand for our products and a loss of market share. Our revenue is likely to decline in such circumstances, which may result in erosion of our profit margins and significant losses.

Moreover, economic conditions worldwide may contribute to slowdowns in the communications and networking industries, as well as to specific segments and markets in which we operate, particularly the wireline sector, resulting in, among other things:

•~~reduced demand for our products and services as a result of our customers choosing to refrain from building capital-intensive networks;~~

•~~increased price competition for our products, not only from our competitors, but also as a consequence of customers disposing of unutilized product;~~

•~~risk of excess and obsolete inventories;~~

•~~excess facilities and manufacturing capacity; and/or~~

•~~higher overhead costs as a percentage of revenue and higher interest expense.~~

Continuing turmoil in the geopolitical environment in many parts of the world, as well as changes implemented by the current U.S. presidential administration, may continue to put pressure on global economic conditions which in turn, could materially adversely affect our operating results. For example, following recent border clashes with China, India has enacted bans on the import of some goods manufactured in China. While the current import bans do not include our products, if India expands the bans to include the products we sell in India that are currently manufactured in China, we may be required to find new manufacturing locations for such products, which could impact our ability to sell such products or timely deliver the products, and could result in lower or lost sales in India. The need to move manufacturing of such products could also negatively impact the margin earned on the sale of such products.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides information with respect to the shares of common stock repurchased by us for the periods indicated:

Period Total Number
of Shares
Purchased (1) Average
Price Paid
per Share Total Number of
Shares Purchased
as Part of
Publicly
Announced Plans
or Programs (2) Approximate Dollar
Value of Shares that May
Yet be Purchased Under
the Plans or Programs (3)
July 1, 2020 to July 31, 2020 — $ — — $ 70,463,973
August 1, 2020 to August 31, 2020 390 $ 4.78 — $ 70,463,973
September 1, 2020 to September 30, 2020 94,480 $ 4.07 — $ 70,463,973
Total 94,870 $ 4.07 — $ 70,463,973


Period	Total Number of Shares Purchased (1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)	Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs (3)
April 1, 2021 to April 30, 2021	4,047	$	8.45	—	$	70,463,973
May 1, 2021 to May 31, 2021	1,770	$	6.97	—	$	—
June 1, 2021 to June 30, 2021	98,261	$	7.98	—	$	—
Total	104,078	$	7.98	—	$	—

(1) Upon vesting of restricted stock awards, certain of our employees surrender to us a portion of the newly vested shares of common stock to satisfy the tax withholding obligations that arise in connection with such vesting. During the ~~third~~second quarter of ~~2020, 94,870~~2021, 104,078 shares of restricted stock were returned to us by employees to satisfy tax withholding obligations arising in connection with vesting of restricted stock, which shares are included in this column.

(2) On May 2, 2019, we announced a stock repurchase program, under which our Board of Directors ~~has~~ authorized the repurchase of up to $75 million of our common stock from time to time on the open market or in privately negotiated transactions prior to April 18, 2021 (the "Repurchase Program"). We did not repurchase any shares of our common stock under the program during the ~~third~~second quarter of 2020. At September 30, 2020, we had $70.5 million remaining under the Repurchase Program for future repurchases. The timing and amount of any shares repurchased will be determined by our management based on its evaluation of market conditions and other factors. We may elect to implement a 10b5-1 repurchase program, which would permit shares to be repurchased when we might otherwise be precluded from doing so under insider trading laws.2021. The Repurchase Program ~~may be suspended or discontinued at any time. The Repurchase Program is being funded using our working capital.~~expired on April 18, 2021.

(3) Represents amounts available for repurchases under the Repurchase Program.

Item 5. Other Information

None.

6458

Item 6. Exhibits


Exhibit No.		Description
2.1		Agreement and Plan of Merger, dated as of November 14, 2019, by and among the Registrant, Ribbon Communications Israel Ltd., Eclipse Communications Ltd., ECI Telecom Group Ltd. and ECI Holding (Hungary) Korlátolt ~~Felelõ~~Felelősségûgű Tá~~rsasá~~rság (incorporated by reference to Exhibit 2.1 to the Registrant's Current Report on Form 8-K, filed November 14, 2019 with the SEC).
2.2		Amended and Restated Purchase Agreement, dated ~~August 5,~~December 1, 2020, ~~by and~~ among Ribbon Communications Inc., Ribbon Communications Operating Company, Inc., Ribbon Communications International Limited and American Virtual Cloud Technologies, Inc. (incorporated by reference to Exhibit 2.1 to the Registrant's Current Report on Form 8-K, filed ~~August~~December 7, 2020 with the SEC).
3.1		Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.2 to the Registrant's Current Report on Form 8-K12B, filed October 30, 2017 with the SEC).
3.2		Certificate of Amendment of the Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrant's Current Report on Form 8-K, filed November 28, 2017 with the SEC).
3.3		Amended and Restated By-Laws of the Registrant (incorporated by reference to Exhibit 3.3 to the Registrant's Annual Report on Form 10-K, filed March 8, 2018 ~~with the SEC).~~
~~10.1~~		Voting Agreement, dated August 5, 2020, by and among Ribbon Communications Inc., Ribbon Communications Operating Company, Inc., Ribbon Communications International Limited and Pensare Sponsor Group, LLC (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K, filed August 7, 2020 with the SEC).
~~10.2~~		Voting Agreement, dated August 5, 2020, by and among Ribbon Communications Inc., Ribbon Communications Operating Company, Inc., Ribbon Communications International Limited and Stratos Management Systems Holdings, LLC (incorporated by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K, filed August 7, 2020 with the SEC).
~~10.3~~		First Amendment to Credit Agreement, dated August 18, 2020, among Ribbon Communications Operating Company, Inc. as the borrower and Citizens Bank, N.A., as administrative agent (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K, filed August 24, 2020 with the SEC).
31.1	*	Certificate of Ribbon Communications Inc. Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	*	Certificate of Ribbon Communications Inc. Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	#	Certificate of Ribbon Communications Inc. Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	#	Certificate of Ribbon Communications Inc. Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	*	Inline XBRL Instance Document
101.SCH	*	Inline XBRL Taxonomy Extension Schema
101.CAL	*	Inline XBRL Taxonomy Extension Calculation Linkbase
101.DEF	*	Inline XBRL Taxonomy Extension Definition Linkbase
101.LAB	*	Inline XBRL Taxonomy Extension Label Linkbase
101.PRE	*	Inline XBRL Taxonomy Extension Presentation Linkbase
104	*	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

* Filed herewith.

# Furnished herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


Date: ~~October 30, 2020~~July 29, 2021			RIBBON COMMUNICATIONS INC.


By:			/s/ Miguel A. Lopez
			Miguel A. Lopez Executive Vice President and Chief Financial Officer (Principal Financial Officer)

6659



Three months ended September 30, 2019
	Common stock
	Shares	Amount		Additional paid-in capital		Accumulated deficit		Accumulated other comprehensive (loss) income		Total stockholders' equity
Balance at July 1, 2019	110,007,237	$	11	$	1,740,563	$	(1,118,354)	$	4,349	$	626,569


Exercise of stock options	19,009			43						43
Vesting of restricted stock awards and units	130,580									0

Shares of restricted stock returned to the Company under net share settlements to satisfy tax withholding obligations	(501)			(2)						(2)





Stock-based compensation expense				2,485						2,485
Other comprehensive income								270		270
Net income						1,650				1,650
Balance at September 30, 2019	110,156,325	$	11	$	1,743,089	$	(1,116,704)	$	4,619	$	631,015


	Three months ended				Nine months ended				Statement of operations classification
	September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019


Developed technology	$	11,643	$	9,522	$	31,547	$	29,259	Cost of revenue - product
Customer relationships	4,313		2,608		12,881		7,145		Sales and marketing
Trade names	393		130		924		425		Sales and marketing


	$	16,349	$	12,260	$	45,352	$	36,829



Balance at January 1	2020		2019
Goodwill	$	392,302	$	386,761
Accumulated impairment losses	(167,406)		(3,106)
	224,896		383,655
Acquisition of ECI	191,996		0
Acquisition of Anova	0		5,541






Balance at September 30	$	416,892	$	389,196

Balance at September 30
Goodwill	$	584,298	$	392,302
Accumulated impairment losses	(167,406)		(3,106)
	$	416,892	$	389,196


	Payments due by period
	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years

Operating lease obligations	$	25.6	$	9.8	$	13.0	$	2.4	$	0.4
Purchase obligations	44.9		43.7		1.0		0.2		—

Debt obligations - principal *	396.0		13.9		36.3		345.8		—
Debt obligations - interest	65.8		15.5		29.0		20.2		1.1
Employee postretirement defined benefit plans	9.5		—		—		—		9.5
Uncertain tax positions **	13.3		13.3		—		—		—


	$	555.1	$	96.2	$	79.3	$	368.6	$	11.0