Press Release

Ribbon Communications Inc. Releases Fourth Quarter 2018 Financial Results

February 20, 2019
GAAP Revenue was $167 Million and Non-GAAP Revenue was $173 Million for the Fourth Quarter 2018

WESTFORD, Mass., Feb. 20, 2019 /PRNewswire/ -- Ribbon Communications Inc. (Nasdaq: RBBN), a global leader in secure and intelligent cloud communications, today announced its financial results for the fourth quarter 2018.

(PRNewsfoto/Ribbon Communications)

"Ribbon Communications delivered a very successful 2018, exceeding our strategic and financial objectives for the year.  During 2018, we extended our leadership in virtualized software solutions and expanded our addressable enterprise market.  We further completed a major milestone to integrate our business, thereby reducing our cost structure and significantly improving our profitability," said Fritz Hobbs, President and Chief Executive Officer of Ribbon Communications.  "We are excited to enter 2019 with a strong software product line-up, numerous new market opportunities and a robust financial profile."

Fourth Quarter 2018 Financial Highlights1,2,3

  • GAAP total revenue was $167 million, compared with $152 million in the third quarter of 2018 and $146 million in the comparable period a year ago.
  • Non-GAAP total revenue was $173 million, compared with $159 million in the third quarter of 2018 and $169 million in the comparable period a year ago.
  • GAAP net loss was $2 million, compared with $10 million in the third quarter of 2018 and $16 million in the comparable period a year ago.
  • Non-GAAP net income was $28 million, compared with $23 million in the third quarter of 2018 and $23 million in the comparable period a year ago.
  • GAAP loss per share was $0.02, compared with $0.10 in the third quarter of 2018 and $0.18 in the comparable period a year ago.
  • Non-GAAP diluted earnings per share was $0.26, compared with $0.21 in the third quarter of 2018 and $0.27 in the comparable period a year ago.
  • Non-GAAP Adjusted EBITDA was $34 million, compared with $29 million in the third quarter of 2018 and $28 million in the comparable period a year ago.
  • Cash and investments were $51 million at December 31, 2018, compared with $43 million at the end of the third quarter of 2018 and $83 million at fiscal year-end 2017.

FY 2018 Financial Highlights1,2,3

  • GAAP total revenue was $578 million, compared to $330 million in 2017.
  • Non-GAAP total revenue was $612 million, compared to $353 million in 2017.
  • GAAP net loss was $77 million, compared to $35 million in 2017.
  • GAAP loss per share was $0.74, compared to $0.60 in 2017.
  • Non-GAAP diluted earnings per share was $0.58, compared to $0.51 in 2017.
  • Non-GAAP Adjusted EBITDA was $84 million, compared to $41 million in 2017.

"Fourth quarter non-GAAP Revenue was $173 million and Adjusted EBITDA was $34 million, which represented a growth of 9 percent and 18 percent, respectively, compared with the third quarter of 2018. Full year 2018 non-GAAP Revenue grew to $612 million and Adjusted EBITDA increased to $84 million," said Daryl E. Raiford, Chief Financial Officer of Ribbon Communications.  "For 2019, we expect Adjusted EBITDA to be between $100 million and $110 million, or approximately 25 percent growth from 2018.3  Looking to 2019, we are confident that we have the products, market position, expansive global reach and proven team and we believe we can capture share in both our service provider and enterprise markets."

Fourth Quarter 2018 Customer and Company Highlights

  • Transformation footprint at a large U.S.-based service provider grew to enable web-scale performance and high mobile traffic, using our SBC virtualized session software solution on its mobile VoLTE network. Additionally, such provider modernized its legacy network elements with our network transformation software solutions.
  • Large deployment of an SBC session software solution at a Tier one U.S.-based service provider to handle the growth of IP-to-IP traffic and the conversion of TDM customers to IP in support of integration and product rationalization following its acquisition of another large service provider.
  • Major North American MSO purchased additional session software capacity to expand its geographic footprint for interconnect, supporting the collapse of three disparate networks onto a common infrastructure that is fully based on Ribbon software solutions.
  • Major e-commerce provider in Japan deployed a combination of Ribbon network transformation solutions in support of its mobile network build-out.
  • British Telecom Global Services, a large GENBAND SBC customer, deployed Ribbon session software solutions, which provide security and routing functions, for evolution of SIP-based conferencing services.

 1  The Sonus-GENBAND merger occurred on October 27, 2017.  The consolidated financial results included in this press release represent the consolidated financial results of Sonus Networks, Inc. prior to October 27, 2017, and the consolidated financial results of Ribbon Communications on and after such date.  The financial results of GENBAND are included in Ribbon Communications' consolidated financial results beginning October 27, 2017.
 2  The acquisition of Edgewater Networks Inc. was completed on August 3, 2018.  The financial results of Edgewater Networks are included in Ribbon Communications' consolidated financial results beginning August 3, 2018.
3  Please see the reconciliation of non-GAAP and GAAP financial measures and additional information about non-GAAP measures in the press release appendix.

Upcoming First Quarter 2019 Investor Conference Schedule

Ribbon is pleased to meet its customers and other interested parties at MWC Barcelona (formerly Mobile World Congress) in Barcelona, Spain on February 25 through 28, 2019.  In addition:

  • February 21, 2019Non-Deal Roadshow, hosted by National Securities, New York, New York
  • March 6, 2019Non-Deal Roadshow, hosted by Northland Capital Markets, St. Louis, Missouri

Conference Call Details and Replay Information
Ribbon Communications will offer a live, listen-only webcast of the conference call to discuss its financial results for the fourth quarter ended December 31, 2018 on February 20, 2019, via the investor section of its website at http://investors.ribboncommunications.com/press-and-events/events-and-presentations, where a replay will also be available shortly following the conference call.

Date:  February 20, 2019
Time:  4:30 p.m. (ET)
Dial-in number:  888-221-6224  - International callers:  +1-303-223-4367

A telephone playback of the call will be available following the conference call until March 6, 2019 and can be accessed by calling 800-633-8284 or +1-402-977-9140 for international callers.  The reservation number for the replay is 21914807.

About Ribbon Communications
Ribbon Communications is a software company with two decades of leadership in real-time communications. Built on world-class technology and intellectual property, the company delivers intelligent, secure, embedded real-time communications for today's world.  The company's software  transforms fixed, mobile and enterprise networks from legacy environments to secure IP and cloud-based architectures, enabling highly productive communications for consumers and businesses.  With a global footprint, Ribbon's innovative, market-leading software portfolio empowers service providers and enterprises with rapid service creation in a fully virtualized environment.  The company's Kandy Cloud real-time communications software platform delivers a comprehensive set of advanced embedded and unified (CPaaS and UCaaS) communications capabilities that enables this transformation.  To learn more, visit ribboncommunications.com.

Important Information Regarding Forward-Looking Statements
The information in this release 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 release, including without limitation statements made by our chief executive officer and our chief financial officer regarding our anticipated financial performance, the future results of operations, financial position, integration efforts and opportunities for the Company, business strategy, strategic position, and plans and objectives of management for future operations are forward-looking statements.  Without limiting the foregoing, the words "believes", "estimates", "expects", "expectations", "intends", "may", 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 difficult to predict.  Our actual results may differ materially from those contemplated in these forward-looking statements due to various risks, uncertainties and other important factors, including our ability to realize benefits from acquisitions that we have completed; the effects of disruption from the acquisitions we have completed as well as pending acquisitions, making it more difficult to maintain relationships with employees, customers or business partners; the timing of customer purchasing decisions and our recognition of revenues; economic conditions; our ability to recruit and retain key personnel; difficulties supporting our strategic focus on channel sales; difficulties retaining and expanding our customer base; difficulties leveraging market opportunities; the impact of restructuring and cost-containment activities; litigation; actions taken by significant stockholders; difficulties providing solutions that meet the needs of customers; market acceptance of our products and services; rapid technological and market change; our ability to protect our intellectual property rights; our ability to maintain partner, reseller, distribution and vendor support and supply relationships; higher risks in international operations and markets; the impact of increased competition; increases in tariffs, trade restrictions or taxes on our products; currency fluctuations; changes in the market price of our common stock; and/or failure or circumvention of our controls and procedures.  For further information regarding risks and uncertainties associated with Ribbon Communications' business, please refer to the "Risk Factors" section of Ribbon Communications' most recent annual and quarterly reports filed with the SEC.  Any forward-looking statements represent Ribbon Communications' views only as of the date on which such statement is made and should not be relied upon as representing Ribbon Communications' views as of any subsequent date.  While Ribbon Communications may elect to update forward-looking statements at some point, Ribbon Communications specifically disclaims any obligation to do so.

Discussion of Non-GAAP Financial Measures
Ribbon Communications management uses several different financial measures, both GAAP and non-GAAP, in analyzing and assessing the overall performance of the business, making operating decisions, planning and forecasting future periods, and determining payments under compensation programs.  Our annual financial plan is prepared both on a GAAP and non-GAAP basis, and the non-GAAP annual financial plan is approved by our board of directors.  Continuous budgeting and forecasting for revenue and expenses are conducted on a non-GAAP basis (in addition to GAAP) and actual results on a non-GAAP basis are assessed against the annual financial plan.  We consider the use of non-GAAP financial measures helpful in assessing the core performance of our continuing operations and when planning and forecasting future periods.  By continuing operations, we mean the ongoing results of the business adjusted for acquisition-related revenue as a result of purchase accounting and the related cost of revenue, the impact of the new revenue standard, and excluding certain expenses and credits, including, but not limited to stock-based compensation, amortization and impairment of intangible assets, acquisition-related facilities adjustments, settlement expense, certain litigation costs, cancelled debt offering costs, merger integration costs, acquisition- and integration-related expense, restructuring, the gains on the sales of intangible assets and tax benefits arising from purchase accounting and tax reform.  While our management uses non-GAAP financial measures as a tool to enhance their understanding of certain aspects of our financial performance, our management does not consider these measures to be a substitute for, or superior to, GAAP measures.  In addition, our presentations of these measures may not be comparable to similarly titled measures used by other companies.  These non-GAAP financial measures should not be considered alternatives for, or in isolation from, the financial information prepared and presented in accordance with GAAP.

Investors are cautioned that there are material limitations associated with the use of non-GAAP financial measures as an analytical tool.  In particular, many of the adjustments to Ribbon's financial measures reflect the exclusion of items that are recurring and will be reflected in our financial results for the foreseeable future.

Acquisition-Related Revenue and Cost of Revenue; Impact of New Revenue Standard
We provide the supplementary non-GAAP financial measures, non-GAAP Product revenue, non-GAAP Service revenue and non-GAAP Total revenue, which include revenue related to the acquisitions of GENBAND and Edgewater that we would have recognized but for the purchase accounting treatment of these transactions.  We also include eliminated revenue resulting from our adoption in 2018 of the new revenue recognition standard.  Because GAAP accounting requires the elimination of this revenue, as well as the impact on future revenue of our adoption in 2018 of the new revenue standard, GAAP results alone do not fully capture all of our economic activities.  These non-GAAP adjustments are intended to reflect the full amounts of such revenue and the related cost of revenue.  We include these adjustments to allow for more complete comparisons to the financial results of our historical operations, forward-looking guidance and the financial results of peer companies.  We believe these adjustments are useful to management and investors as a measure of the ongoing performance of the business.  These adjustments do not accelerate revenue, but instead include revenue (and the related cost of revenue) that would have been recognized in our 2017 and 2018 results, but for the purchase accounting and new revenue standard adjustments required by GAAP.

Stock-Based Compensation
Stock-based compensation expense is different from other forms of compensation, as it is a non-cash expense.  For example, a cash salary generally has a fixed and unvarying cash cost.  In contrast, the expense associated with an equity-based award is generally unrelated to the amount of cash ultimately received by the employee, and the cost to us is based on a stock-based compensation valuation methodology, subjective assumptions and the variety of award types, all of which may vary over time.  We evaluate performance without these measures because stock-based compensation expense is influenced by the Company's stock price and other factors such as volatility and interest rates that are beyond our control.  The expense related to stock-based awards is generally not controllable in the short-term and can vary significantly based on the timing, size and nature of awards granted.  As such, we do not include such charges in our operating plans, and we believe that presenting non-GAAP operating results that exclude stock-based compensation provides investors with visibility and insight into our management's method of analysis and the Company's core operating performance.  It is reasonable to expect that stock-based compensation will continue in future periods.

Amortization of Intangible Assets
We exclude the amortization of acquired intangible assets from non-GAAP expense and income measures.  These amortization amounts are inconsistent in frequency and amount and are significantly impacted by the timing and size of acquisitions.  Although we exclude amortization of acquired intangible assets from our non-GAAP expenses, we believe that it is important for investors to understand that intangible assets contribute to revenue generation.  We believe that excluding the non-cash amortization of intangible assets facilitates the comparison of our financial results to our historical operating results and to other companies in our industry as if the acquired intangible assets had been developed internally rather than acquired.  Amortization of intangible assets that relate to past acquisitions will recur in future periods until such intangible assets have been fully amortized. 

Impairment of Intangible Assets
In the fourth quarter of 2017, we discontinued our ongoing development of certain intangible assets that we had previously acquired, as we had determined that there were no alternative uses of the technology within either our existing or future product lines.  As a result, we recorded an impairment charge of $5.5 million to write down the carrying value of the assets to zero.  Had we developed those intangible assets internally and made the decision to discontinue their ongoing development, we would have ceased work on such development projects and eliminated the related future costs.  Because we do not capitalize these costs, there would have been no asset to write off.  As a result, we believe that excluding non-cash impairment charges from our non-GAAP operating results as if these impaired intangible assets had been developed internally rather than acquired facilitates a comparison to our historical operating results and to other companies in our industry.

Acquisition-Related Facilities Adjustments
GAAP accounting requires that the deferred rent liability of an acquired company be written off as part of purchase accounting and that the combined company's rent expense on a straight-line basis begin as of the acquisition date.  As a result, we recorded more rent expense than would have been recognized but for the purchase accounting treatment of GENBAND's assumed deferred rent liability.  We include this adjustment, which relates to the acquisition of GENBAND, to allow for more complete comparisons to the financial results of our historical operations, forward-looking guidance and the financial results of peer companies.  We believe these adjustments provide an indication of the rent expense that would have been recognized, but for the purchase accounting in connection with the acquisition of GENBAND.

Settlement Expense
In the first quarter of 2018, we recorded $1.7 million of expense related to settlements, comprised of $1.4 million for the settlement of litigation in connection with our acquisition of Taqua LLC and $0.3 million of patent litigation settlement expense.  In the third quarter of 2017, we recorded $1.6 million of expense related to potential fines in connection with the then-ongoing SEC investigation, which we paid to the SEC, along with an additional $0.3 million recorded in the fourth quarter of 2017, in the third quarter of 2018.  These amounts are included as components of general and administrative expense.  We believe that such settlement costs are not part of our core business or ongoing operations, are unplanned and generally not within our control.  Accordingly, we believe that excluding costs such as the SEC potential fines and patent litigation settlement expense facilitates the comparison of our financial results to our historical operating results and to other companies in our industry.

Litigation Costs
In connection with certain ongoing litigation between GENBAND, as plaintiff, and one of its competitors, we have incurred litigation costs beginning in the fourth quarter of 2017.  In March 2018, we filed litigation on behalf of Sonus against the same competitor asserting additional intellectual property infringement.  We expect to incur significant future litigation costs related to these matters.  These costs are included as a component of general and administrative expense.  We believe that such costs are not part of our core business or ongoing operations, are unplanned and generally not within our control.  Accordingly, we believe that excluding the litigation costs related to this specific legal matter facilitates the comparison of our financial results to our historical operating results and to other companies in our industry.

Cancelled Debt Offering Costs
In November 2018, we announced that we intended to offer, subject to market conditions and other factors, $150 million aggregate principal amount of convertible senior notes due 2023 in a private offering to qualified institutional buyers.  We expected to grant the initial purchasers a 30-day option to purchase up to an additional $25 million aggregate principal amount of such notes, solely to cover over-allotments, if any.  On the same day as our announcement, we decided not to proceed with this offering, as we believed that then-current market conditions were not conducive for an offering on terms that would be in the best interests of our stockholders.  In connection with this offering, we incurred $1.0 million of expense.  We do not consider these debt offering costs to be related to the continuing operations of the Company.  We believe that excluding these cancelled debt offering costs facilitates the comparison of our financial results to our historical operating results and to other companies in our industry.

Merger Integration Costs
We consider certain merger integration costs to be unpredictable and dependent on a significant number of factors that may be outside of our control.  These amounts represent costs related to the Sonus-GENBAND merger initially recorded as a component of General and administrative expense in the third quarter of 2017.  In the fourth quarter of 2017, we reclassified these merger integration costs, aggregating $0.2 million, to Acquisition- and integration-related expense.  We do not consider these merger integration costs to be related to the continuing operations of the combined business or the Company.  We believe that excluding merger integration costs facilitates the comparison of our financial results to our historical operating results and to other companies in our industry.

Acquisition- and Integration-Related Expense
We consider certain acquisition- and integration-related costs to be unrelated to the organic continuing operations of our acquired businesses and the Company and they are generally not relevant to assessing or estimating the long-term performance of the acquired assets.  In addition, the size, complexity and/or volume of an acquisition, which often drives the magnitude of acquisition- and integration-related costs, may not be indicative of future acquisition- and integration-related costs.  By excluding these acquisition- and integration-related costs from our non-GAAP measures, management is better able to evaluate our ability to utilize our existing assets and estimate the long-term value that acquired assets will generate for us.  We exclude certain acquisition- and integration-related costs to allow more accurate comparisons of our financial results to our historical operations, forward-looking guidance and the financial results of less acquisitive peer companies.  In addition, we believe that providing supplemental non-GAAP measures that exclude these items allows management and investors to consider the ongoing operations of the business both with and without such expenses.

Restructuring
We have recorded restructuring expense to streamline operations and reduce operating costs by closing and consolidating certain facilities and reducing our worldwide workforce.  We review our restructuring accruals regularly and record adjustments (both expense and credits) to these estimates as required.  We believe that excluding restructuring expense and credits facilitates the comparison of our financial results to our historical operating results and to other companies in our industry, as there are no future revenue streams or other benefits associated with these costs.

Gain on the Sale of Intangible Asset
In the second quarter of 2017, we sold an intangible asset that we had acquired in connection with a previous acquisition.  This amount is included as a component of other income, net.  We believe that such gains are not part of our core business or ongoing operations, we had not used the intangible asset in connection with revenue-producing activities and would not have used it as such in the future.  Accordingly, we believe that excluding from our results the other income arising from this sale facilitates the comparison of our financial results to our historical results and to other companies in our industry.

Tax Benefits Arising from Purchase Accounting and Tax Reform
In the third quarter of 2018, we reduced our valuation allowance in connection with our acquisition of Edgewater, resulting in an income tax benefit of $0.8 million.  In the fourth quarter of 2018, we recorded an adjustment to that amount, resulting in income tax expense of $0.1 million for a net tax benefit of $0.7 million related to this acquisition.  In the fourth quarter of 2017, we reduced our valuation allowance in connection with the GENBAND transaction, resulting in an income tax benefit of $16.4 million.  In addition, we recognized an income tax benefit of $4.8 million related to the Tax Cut and Jobs Act of 2017.  We believe that such benefits are not part of our core business or ongoing operations, as they are either the result of acquisitions or new tax legislation, neither of which relates to our revenue-producing activities.  Accordingly, we believe that excluding the net benefits arising from these adjustments to our income tax provision facilitates the comparison of our financial results to our historical results and to other companies in our industry.

Adjusted EBITDA
We use Adjusted EBITDA as a supplemental measure to review and assess our performance.  We calculate Adjusted EBITDA by excluding from net income (loss): interest income (expense), net; income tax benefit (provision); depreciation; and amortization of intangible assets.  In addition, we exclude from net income (loss):  adjustments to revenue and cost of revenue related to revenue reductions resulting from purchase accounting and adoption of the new revenue standard; stock-based compensation expense; settlement expense; certain litigation costs; merger integration costs; acquisition-related facilities adjustments; acquisition- and integration-related expense; restructuring; and other income, net.  In general, we add back the expenses that we consider to be non-cash and/or not part of our ongoing operations.  Adjusted EBITDA is a non-GAAP financial measure that is used by our investing community for comparative and valuation purposes.  We disclose this metric to support and facilitate our dialogue with research analysts and investors.  Other companies may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.

We believe that providing non-GAAP information to investors, in addition to the GAAP presentation, will allow investors to view the financial results in the way management views them.  We further believe that providing this information helps investors to better understand our core financial and operating performance and evaluate the efficacy of the methodology and information used by our management to evaluate and measure such performance.

Investor Relations
Monica Gould
+1 (212) 871-3927
IR@rbbn.com  

US Press
Dennis Watson
+1 (214) 695-2214
dwatson@rbbn.com

International Press
Catherine Berthier
+1 (646) 741-1974
cberthier@rbbn.com 

Analyst Relations
Michael Cooper
+1 (708) 383-3387
mcooper@rbbn.com 

 

RIBBON COMMUNICATIONS INC.

Consolidated Statements of Operations

(in thousands, except percentages and per share amounts)

(unaudited)























Three months ended





December 31,


September 30,


December 31,





2018


2018


2017

Revenue:







Product

$             87,077


$             77,283


$             82,814


Service

79,819


75,185


63,398



Total revenue

166,896


152,468


146,212










Cost of revenue:







Product

40,002


38,891


41,502


Service

31,180


31,343


27,911



Total cost of revenue

71,182


70,234


69,413










Gross profit

95,714


82,234


76,799










Gross margin:







Product

54.1%


49.7%


49.9%


Service

60.9%


58.3%


56.0%



Total gross margin

57.3%


53.9%


52.5%










Operating expenses:







Research and development

36,406


34,403


40,410


Sales and marketing

34,124


31,488


35,553


General and administrative

19,465


15,942


19,649


Acquisition- and integration-related

2,689


5,570


8,485


Restructuring

1,853


2,397


8,365



Total operating expenses

94,537


89,800


112,462










Income (loss) from operations

1,177


(7,566)


(35,663)

Interest expense, net

(1,476)


(1,420)


(509)

Other (expense) income, net

(714)


(1,254)


697










Loss before income taxes

(1,013)


(10,240)


(35,475)

Income tax (provision) benefit

(813)


82


19,761










Net loss


$             (1,826)


$           (10,158)


$           (15,714)










Loss per share:







Basic


$               (0.02)


$               (0.10)


$               (0.18)


Diluted

$               (0.02)


$               (0.10)


$               (0.18)










Shares used to compute loss per share:







Basic


106,607


104,918


86,567


Diluted

106,607


104,918


86,567

 

RIBBON COMMUNICATIONS INC.

Consolidated Statements of Operations

(in thousands, except percentages and per share amounts)

(unaudited)



















Year ended





December 31,


December 31,





2018


2017

Revenue:





Product

$           279,014


$           181,119


Service

298,891


148,823



Total revenue

577,905


329,942








Cost of revenue:





Product

142,185


70,250


Service

127,388


58,196



Total cost of revenue

269,573


128,446








Gross profit

308,332


201,496








Gross margin:





Product

49.0%


61.2%


Service

57.4%


60.9%



Total gross margin

53.4%


61.1%








Operating expenses:





Research and development

145,462


101,481


Sales and marketing

128,276


83,403


General and administrative

66,036


47,642


Acquisition- and integration-related

16,951


14,763


Restructuring

17,015


9,436



Total operating expenses

373,740


256,725








Loss from operations

(65,408)


(55,229)

Interest (expense) income, net

(4,230)


263

Other (expense) income, net

(3,772)


1,274








Loss before income taxes

(73,410)


(53,692)

Income tax (provision) benefit

(3,400)


18,440








Net loss


$           (76,810)


$           (35,252)








Loss per share:





Basic


$               (0.74)


$               (0.60)


Diluted

$               (0.74)


$               (0.60)








Shares used to compute loss per share:





Basic


103,916


58,822


Diluted

103,916


58,822

 

 

RIBBON COMMUNICATIONS INC.

Consolidated Balance Sheets

(in thousands)

(unaudited)



















December 31,


December 31,





2018


2017

Assets




Current assets:





Cash and cash equivalents

$           43,694


$           57,073


Marketable securities

7,284


17,224


Accounts receivable, net

187,853


165,156


Inventory

22,602


21,303


Other current assets

17,002


21,463



Total current assets

278,435


282,219








Property and equipment, net

27,042


24,780

Intangible assets, net

251,391


244,414

Goodwill


383,655


335,716

Investments

-


9,031

Deferred income taxes

9,152


8,434

Other assets

7,484


6,289





$         957,159


$         910,883








Liabilities and Stockholders' Equity




Current liabilities:





Revolving credit facility

$           55,000


$           20,000


Accounts payable

45,304


45,851


Accrued expenses and other

84,263


76,380


Deferred revenue

105,087


100,571



Total current liabilities

289,654


242,802








Long-term debt, related party

24,100


22,500

Deferred revenue, net of current

17,572


14,184

Deferred income taxes

4,738


2,787

Other long-term liabilities

30,797


13,189




Total liabilities

366,861


295,462








Commitments and contingencies











Stockholders' equity:





Common stock

11


10


Additional paid-in capital

1,723,576


1,684,768


Accumulated deficit

(1,136,992)


(1,072,426)


Accumulated other comprehensive income

3,703


3,069




Total stockholders' equity

590,298


615,421





$         957,159


$         910,883

 

RIBBON COMMUNICATIONS INC.

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)






















Year ended






 December 31, 


 December 31, 






2018


2017

Cash flows from operating activities:





Net loss


$          (76,810)


$          (35,252)


Adjustments to reconcile net loss to cash flows (used in) provided by operating activities:





Depreciation and amortization of property and equipment

11,200


8,486



Amortization of intangible assets

49,723


17,112



Stock-based compensation

11,072


25,657



Impairment of intangible assets

-


5,471



Deferred income taxes

513


(20,361)



Other


4,611


(1,340)



Changes in operating assets and liabilities:







Accounts receivable

(13,017)


(30,759)




Inventory

993


5,786




Other operating assets

5,036


269




Accounts payable

(6,057)


13,415




Accrued expenses and other long-term liabilities

(13,422)


(4,263)




Deferred revenue

16,563


23,859





Net cash (used in) provided by operating activities

(9,595)


8,080









Cash flows from investing activities:





Purchases of property and equipment

(7,907)


(3,999)


Business acquisitions, net of cash acquired

(46,389)


(42,951)


Purchases of marketable securities

-


(28,731)


Sale/maturities of marketable securities

18,919


96,112


Proceeds from the sale of intangible assets

-


576





Net cash (used in) provided by investing activities

(35,377)


21,007









Cash flows from financing activities:





Borrowings under revolving line of credit

197,500


15,500


Principal payments on revolving line of credit

(162,500)


(13,500)


Principal payments of capital lease obligations

(652)


(99)


Payment of debt issuance costs

(624)


(731)


Proceeds from the sale of common stock in connection with employee purchase plan

-


1,252


Proceeds from the exercise of stock options

73


617


Payment of tax withholding obligations related to net share settlements of restricted stock awards

(2,024)


(7,523)





Net cash provided by (used in) financing activities

31,773


(4,484)









Effect of exchange rate changes on cash and cash equivalents

(180)


547









Net (decrease) increase in cash and cash equivalents

(13,379)


25,150

Cash and cash equivalents, beginning of year

57,073


31,923

Cash and cash equivalents, end of period

$            43,694


$            57,073









 

 

RIBBON COMMUNICATIONS INC.

Supplemental Information

(in thousands)

(unaudited)



















The following tables provide the details of stock-based compensation, amortization of intangible assets, impairment of intangible assets, acquisition-related facilities adjustments, settlement expense, litigation costs, cancelled debt offering costs and merger integration costs included as components of other line items in the Company's Consolidated Statements of Operations and the line items in which these amounts are reported.  














 Three months ended 





December 31,


September 30,


December 31,





2018


2018


2017

Stock-based compensation







Cost of revenue - product

$                  23


$                    21


$                  253


Cost of revenue - service

81


65


671



Cost of revenue

104


86


924











Research and development expense

433


313


3,687


Sales and marketing expense

991


585


3,195


General and administrative expense

2,123


1,532


6,464



Operating expense

3,547


2,430


13,346













Total stock-based compensation

$               3,651


$               2,516


$             14,270



















Amortization of intangible assets







Cost of revenue - product

$               9,521


$             10,593


$               8,119











Sales and marketing expense

2,481


2,855


2,148



Operating expense

2,481


2,855


2,148













Total amortization of intangible assets

$             12,002


$             13,448


$             10,267



















Impairment of intangible assets







Cost of revenue - product

$                      -


$                      -


$               5,471



















Acquisition-related facilities adjustments







Cost of revenue - product

$                    20


$                    20


$                      -


Cost of revenue - service

60


60


-



Cost of revenue

80


80


-











Research and development expense

99


98


-


Sales and marketing expense

46


45


-


General and administrative expense

27


28


-



Operating expense

172


171


-













Total acquisition-related facilities adjustments

$                  252


$                  251


$                      -



















Settlement expense







General and administrative expense

$                      -


$                      -


$                  300



















Litigation costs







General and administrative expense

$               1,961


$               3,147


$                  373



















Cancelled debt offering costs







General and administrative expense

$               1,003


$                      -


$                      -



















Merger integration costs (A)







General and administrative expense

$                      -


$                      -


$                (178)



















(A)  Represents the reclassification of the amount recorded in Q3 2017  to "Acquisition- and integration-related expense."

 

RIBBON COMMUNICATIONS INC.

Supplemental Information

(in thousands)

(unaudited)















The following tables provide the details of stock-based compensation, amortization of intangible assets, impairment of intangible assets, acquisition-related facilities adjustments, settlement expense, litigation costs, cancelled debt offering costs and gains on the sale of intangible assets included as components of other line items in the Company's Consolidated Statements of Operations and the line items in which these amounts are reported.  












 Year ended 





December 31,


December 31,





2018


2017

Stock-based compensation





Cost of revenue - product

$                  114


$                  514


Cost of revenue - service

345


1,448



Cost of revenue

459


1,962









Research and development expense

1,797


7,337


Sales and marketing expense

2,935


4,885


General and administrative expense

5,881


11,473



Operating expense

10,613


23,695











Total stock-based compensation

$             11,072


$             25,657















Amortization of intangible assets





Cost of revenue - product

$             38,976


$             12,887









Sales and marketing expense

10,747


4,225



Operating expense

10,747


4,225











Total amortization of intangible assets

$             49,723


$             17,112















Impairment of intangible assets





Cost of revenue - product

$                      -


$               5,471















Acquisition-related facilities adjustments





Cost of revenue - product

$                    77


$                      -


Cost of revenue - service

232


-



Cost of revenue

309


-









Research and development expense

377


-


Sales and marketing expense

174


-


General and administrative expense

106


-



Operating expense

657


-











Total acquisition-related facilities adjustment

$                  966


$                      -















Settlement expense





General and administrative expense

$               1,730


$               1,900















Litigation costs





General and administrative expense

$               7,682


$                  373















Cancelled debt offering costs





General and administrative expense

$               1,003


$                      -















Gain on the sale of intangible asset





Other (expense) income, net

$                      -


$                  576

 

RIBBON COMMUNICATIONS INC.

Reconciliation of Non-GAAP and GAAP Financial Measures

(in thousands, except percentages)

(unaudited)














Three months ended


December 31,


September 30,


December 31,


2018


2018


2017







GAAP Product revenue

$            87,077


$              77,283


$            82,814

Acquisition-related revenue adjustment

1,629


2,178


3,230

Adjustment for new revenue standard

1,529


1,778


-

Non-GAAP Product revenue

$            90,235


$              81,239


$            86,044







GAAP Service revenue

$            79,819


$              75,185


$            63,398

Acquisition-related revenue adjustment

2,984


1,885


20,050

Adjustment for new revenue standard

374


400


-

Non-GAAP Service revenue

$            83,177


$              77,470


$            83,448







GAAP Total revenue

$          166,896


$            152,468


$          146,212

Acquisition-related revenue adjustment

4,613


4,063


23,280

Adjustment for new revenue standard

1,903


2,178


-

Non-GAAP Total revenue

$          173,412


$            158,709


$          169,492







GAAP Gross margin - product

54.1%


49.7%


49.9%

Acquisition-related revenue adjustment

0.8%


1.0%


1.9%

Acquisition-related cost of revenue adjustment

0.0%


0.0%


-1.4%

Adjustment for new revenue standard

0.8%


0.8%


0.0%

Adjustment to cost of revenue for new revenue standard

0.0%


0.0%


0.0%

Stock-based compensation

*


*


0.3%

Amortization of intangible assets

10.6%


13.7%


9.4%

Impairment of intangible assets

0.0%


0.0%


6.4%

Acquisition-related facilities adjustment

*


*


0.0%

Non-GAAP Gross margin - product

66.3%


65.2%


66.5%







GAAP Gross margin - service

60.9%


58.3%


56.0%

Acquisition-related revenue adjustment

1.4%


1.0%


10.5%

Acquisition-related cost of revenue adjustment

0.0%


0.0%


-11.0%

Adjustment for new revenue standard

0.2%


0.2%


0.0%

Adjustment to cost of revenue for new revenue standard

0.0%


0.0%


0.0%

Stock-based compensation

0.1%


0.1%


0.8%

Acquisition-related facilities adjustment

0.1%


0.1%


0.0%

Non-GAAP Gross margin - service

62.7%


59.7%


56.3%







GAAP Total gross margin

57.3%


53.9%


52.5%

Acquisition-related revenue adjustment

1.1%


1.0%


6.6%

Acquisition-related cost of revenue adjustment

0.0%


0.0%


-6.1%

Adjustment for new revenue standard

0.5%


0.5%


0.0%

Adjustment to cost of revenue for new revenue standard

0.0%


0.0%


0.0%

Stock-based compensation

0.1%


0.1%


0.5%

Amortization of intangible assets

5.5%


6.9%


4.8%

Impairment of intangible assets

0.0%


0.0%


3.2%

Acquisition-related facilities adjustment

*


0.1%


0.0%

Non-GAAP Total gross margin

64.5%


62.5%


61.5%







GAAP Total gross profit

$            95,714


$              82,234


$            76,799

Acquisition-related revenue adjustment

4,613


4,063


23,280

Acquisition-related cost of revenue adjustment

-


-


(10,364)

Adjustment for new revenue standard

1,903


2,178


-

Adjustment to cost of revenue for new revenue standard

-


-


-

Stock-based compensation

104


86


924

Amortization of intangible assets

9,521


10,593


8,119

Impairment of intangible assets

-


-


5,471

Acquisition-related facilities adjustment

80


80


-

Non-GAAP Total gross profit

$          111,935


$              99,234


$          104,229







GAAP Research and development expense

$            36,406


$              34,403


$            40,410

Stock-based compensation

(433)


(313)


(3,687)

Acquisition-related facilities adjustment

(99)


(98)


-

Non-GAAP Research and development expense

$            35,874


$              33,992


$            36,723







GAAP Sales and marketing expense

$            34,124


$              31,488


$            35,553

Stock-based compensation

(991)


(585)


(3,195)

Amortization of intangible assets

(2,481)


(2,855)


(2,148)

Acquisition-related facilities adjustment

(46)


(45)


-

Non-GAAP Sales and marketing expense

$            30,606


$              28,003


$            30,210







  *  Less than 0.1% impact on gross margin.






 

RIBBON COMMUNICATIONS INC.

Reconciliation of Non-GAAP and GAAP Financial Measures

(in thousands, except percentages)

(unaudited)














Three months ended


December 31,


September 30,


December 31,


2018


2018


2017







GAAP General and administrative expense

$          19,465


$           15,942


$          19,649

Stock-based compensation

(2,123)


(1,532)


(6,464)

Acquisition-related facilities adjustment

(27)


(28)


-

Settlement expense

-


-


(300)

Litigation costs

(1,961)


(3,147)


(373)

Cancelled debt offering cost

(1,003)


-


-

Merger integration costs (A)

-


-


178

Non-GAAP General and administrative expense

$          14,351


$           11,235


$          12,690







GAAP Operating expenses

$          94,537


$           89,800


$        112,462

Stock-based compensation

(3,547)


(2,430)


(13,346)

Amortization of intangible assets

(2,481)


(2,855)


(2,148)

Acquisition-related facilities adjustment

(172)


(171)


-

Settlement expense

-


-


(300)

Litigation costs

(1,961)


(3,147)


(373)

Cancelled debt offering costs

(1,003)


-


-

Merger integration costs (A)

-


-


178

Acquisition- and integration-related expense

(2,689)


(5,570)


(8,485)

Restructuring

(1,853)


(2,397)


(8,365)

Non-GAAP Operating expenses

$          80,831


$           73,230


$          79,623







GAAP Income (loss) from operations

$            1,177


$           (7,566)


$         (35,663)

Acquisition-related revenue adjustment

4,613


4,063


23,280

Acquisition-related cost of revenue adjustment

-


-


(10,364)

Adjustment for new revenue standard

1,903


2,178


-

Adjustment to cost of revenue for new revenue standard

-


-


-

Stock-based compensation

3,651


2,516


14,270

Amortization of intangible assets

12,002


13,448


10,267

Impairment of intangible assets

-


-


5,471

Acquisition-related facilities adjustment

252


251


-

Settlement expense

-


-


300

Litigation costs

1,961


3,147


373

Cancelled debt offering costs

1,003


-


-

Merger integration costs (A)

-


-


(178)

Acquisition- and integration-related expense

2,689


5,570


8,485

Restructuring

1,853


2,397


8,365

Non-GAAP Income from operations

$          31,104


$           26,004


$          24,606







GAAP Income (loss) from operations as a percentage of revenue

0.7%


-5.0%


-24.4%

Acquisition-related revenue adjustment

2.6%


2.7%


17.1%

Acquisition-related cost of revenue adjustment

0.0%


0.0%


-6.1%

Adjustment for new revenue standard

1.1%


1.4%


0.0%

Adjustment to cost of revenue for new revenue standard

0.0%


0.0%


0.0%

Stock-based compensation

2.1%


1.6%


8.4%

Amortization of intangible assets

6.9%


8.5%


6.1%

Impairment of intangible assets

0.0%


0.0%


3.2%

Acquisition-related facilities adjustment

0.1%


0.2%


0.0%

Settlement expense

0.0%


0.0%


0.2%

Litigation costs

1.1%


2.0%


0.2%

Cancelled debt offering costs

0.6%


0.0%


0.0%

Merger integration costs (A)

0.0%


0.0%


-0.1%

Acquisition- and integration-related expense

1.6%


3.5%


5.0%

Restructuring

1.1%


1.5%


4.9%

Non-GAAP Income from operations as a percentage of revenue

17.9%


16.4%


14.5%







(A)  Represents the reclassification of the amount recorded in Q3 2017  to "Acquisition- and integration-related expense."



 

RIBBON COMMUNICATIONS INC.

Reconciliation of Non-GAAP and GAAP Financial Measures

(in thousands, except per share amounts)

(unaudited)














Three months ended


December 31,


September 30,


December 31,


2018


2018


2017







GAAP Net loss

$             (1,826)


$           (10,158)


$           (15,714)

Acquisition-related revenue adjustment

4,613


4,063


23,280

Acquisition-related cost of revenue adjustment

-


-


(10,364)

Adjustment for new revenue standard

1,903


2,178


-

Adjustment to cost of revenue for new revenue standard

-


-


-

Stock-based compensation

3,651


2,516


14,270

Amortization of intangible assets

12,002


13,448


10,267

Impairment of intangible assets

-


-


5,471

Acquisition-related facilities adjustment

252


251


-

Settlement expense

-


-


300

Litigation costs

1,961


3,147


373

Cancelled debt offering costs

1,003


-


-

Merger integration costs (A)

-


-


(178)

Acquisition- and integration-related expense

2,689


5,570


8,485

Restructuring

1,853


2,397


8,365

Tax benefits arising from purchase accounting and tax reform

123


(841)


(21,155)

Non-GAAP Net income

$             28,224


$             22,571


$             23,400







Earnings (loss) per share






GAAP Loss per share

$               (0.02)


$               (0.10)


$               (0.18)

Acquisition-related revenue adjustment

0.04


0.04


0.27

Acquisition-related cost of revenue adjustment

-


-


(0.12)

Adjustment for new revenue standard

0.02


0.02


-

Adjustment to cost of revenue for new revenue standard

-


-


-

Stock-based compensation

0.03


0.02


0.16

Amortization of intangible assets

0.11


0.14


0.12

Impairment of intangible assets

-


-


0.06

Acquisition-related facilities adjustment

 * 


 * 


-

Settlement expense

-


-


 * 

Litigation costs

0.02


0.03


 * 

Cancelled debt offering costs

0.01


-


-

Merger integration costs (A)

-


-


 * 

Acquisition- and integration-related expense

0.03


0.05


0.10

Restructuring

0.02


0.02


0.10

Tax benefits arising from purchase accounting and tax reform

 * 


(0.01)


(0.24)

Non-GAAP Diluted earnings per share

$                 0.26


$                 0.21


$                 0.27







Shares used to compute diluted earnings per share or (loss) per share






  GAAP Shares used to compute loss per share

106,607


104,918


86,567

  Non-GAAP Shares used to compute diluted earnings per share

107,363


105,726


87,207







Adjusted EBITDA:






GAAP Net loss

$             (1,826)


$           (10,158)


$           (15,714)

Interest expense, net

1,476


1,420


509

Income tax provision (benefit)

813


(82)


(19,761)

Depreciation

2,930


2,952


3,231

Amortization of intangible assets

12,002


13,448


10,267

Impairment of intangible assets

-


-


5,471

Acquisition-related revenue adjustment

4,613


4,063


23,280

Acquisition-related cost of revenue adjustment

-


-


(10,364)

Adjustment for new revenue standard

1,903


2,178


-

Adjustment to cost of revenue for new revenue standard

-


-


-

Stock-based compensation

3,651


2,516


14,270

Acquisition-related facilities adjustment

252


251



Settlement expense

-


-


300

Litigation costs

1,961


3,147


373

Cancelled debt offering costs

1,003




-

Merger integration costs (A)

-


-


(178)

Acquisition- and integration-related expense

2,689


5,570


8,485

Restructuring

1,853


2,397


8,365

Other expense (income), net

714


1,254


(697)

Non-GAAP Adjusted EBITDA

$             34,034


$             28,956


$             27,837







*  Less than $0.01 impact on earnings (loss) per share












(A)  Represents the reclassification of the amount recorded in Q3 2017  to "Acquisition- and integration-related expense."



 

RIBBON COMMUNICATIONS INC.

Reconciliation of Non-GAAP and GAAP Financial Measures

(in thousands, except percentages)

(unaudited)










Year ended


December 31,


December 31,


2018


2017





GAAP Product revenue

$           279,014


$           181,119

Acquisition-related revenue adjustment

11,047


3,230

Adjustment for new revenue standard

8,284


-

Non-GAAP Product revenue

$           298,345


$           184,349





GAAP Service revenue

$           298,891


$           148,823

Acquisition-related revenue adjustment

13,035


20,050

Adjustment for new revenue standard

1,761


-

Non-GAAP Service revenue

$           313,687


$           168,873





GAAP Total revenue

$           577,905


$           329,942

Acquisition-related revenue adjustment

24,082


23,280

Adjustment for new revenue standard

10,045


-

Non-GAAP Total revenue

$           612,032


$           353,222





GAAP Gross margin - product

49.0%


61.2%

Acquisition-related revenue adjustment

1.9%


0.6%

Acquisition-related cost of revenue adjustment

0.0%


-0.6%

Adjustment for new revenue standard

1.4%


0.0%

Adjustment to cost of revenue for new revenue standard

*


0.0%

Stock-based compensation

*


0.3%

Amortization of intangible assets

13.1%


7.0%

Impairment of intangible assets

0.0%


3.0%

Acquisition-related facilities adjustment

*


0.0%

Non-GAAP Gross margin - product

65.4%


71.5%





GAAP Gross margin - service

57.4%


60.9%

Acquisition-related revenue adjustment

1.7%


4.6%

Acquisition-related cost of revenue adjustment

-0.6%


-5.4%

Adjustment for new revenue standard

0.2%


0.0%

Adjustment to cost of revenue for new revenue standard

*


0.0%

Stock-based compensation

0.1%


0.9%

Acquisition-related facilities adjustment

0.1%


0.0%

Non-GAAP Gross margin - service

58.9%


61.0%





GAAP Total gross margin

53.4%


61.1%

Acquisition-related revenue adjustment

1.7%


2.6%

Acquisition-related cost of revenue adjustment

-0.3%


-2.9%

Adjustment for new revenue standard

0.7%


0.0%

Adjustment to cost of revenue for new revenue standard

*


0.0%

Stock-based compensation

0.1%


0.6%

Amortization of intangible assets

6.4%


3.6%

Impairment of intangible assets

0.0%


1.5%

Acquisition-related facilities adjustment

0.1%


0.0%

Non-GAAP Total gross margin

62.1%


66.5%





GAAP Total gross profit

$           308,332


$           201,496

Acquisition-related revenue adjustment

24,082


23,280

Acquisition-related cost of revenue adjustment

(1,977)


(10,364)

Adjustment for new revenue standard

10,045


-

Adjustment to cost of revenue for new revenue standard

(110)


-

Stock-based compensation

459


1,962

Amortization of intangible assets

38,976


12,887

Impairment of intangible assets

-


5,471

Acquisition-related facilities adjustment

309


-

Non-GAAP Total gross profit

$           380,116


$           234,732





GAAP Research and development expense

$           145,462


$           101,481

Stock-based compensation

(1,797)


(7,337)

Acquisition-related facilities adjustment

(377)


-

Non-GAAP Research and development expense

$           143,288


$             94,144





GAAP Sales and marketing expense

$           128,276


$             83,403

Stock-based compensation

(2,935)


(4,885)

Amortization of intangible assets

(10,747)


(4,225)

Acquisition-related facilities adjustment

(174)


-

Non-GAAP Sales and marketing expense

$           114,420


$             74,293





  *  Less than 0.1% impact on gross margin.




 

RIBBON COMMUNICATIONS INC.

Reconciliation of Non-GAAP and GAAP Financial Measures

(in thousands, except percentages)

(unaudited)










Year ended


December 31,


December 31,


2018


2017





GAAP General and administrative expense

$          66,036


$          47,642

Stock-based compensation

(5,881)