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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
        For the transition period from to
Commission File Number 001-38267
RIBBON COMMUNICATIONS INC.
(Exact name of Registrant as specified in its charter)
Delaware82-1669692
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification No.)

4 Technology Park Drive, Westford, Massachusetts 01886
(Address of principal executive offices) (Zip code)
(978614-8100
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes     No x

As of July 31, 2020, there were 145,148,368 shares of the registrant's common stock, $0.0001 par value per share, outstanding.



RIBBON COMMUNICATIONS INC.
FORM 10-Q
QUARTERLY PERIOD ENDED JUNE 30, 2020
TABLE OF CONTENTS
ItemPage
PART I FINANCIAL INFORMATION
1.
PART II OTHER INFORMATION



Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, which are subject to a number of risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future expenses, results of operations and financial position, integration activities, expected impacts of the COVID-19 pandemic, beliefs about our market capitalization, business strategy, statements about the potential impact of the merger and acquisition transactions described herein, 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 difficult to predict. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements including, but not limited to, risks related to the 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 ECI; potential litigation relating to the merger with ECI and disruptions from the integration efforts that could harm our business; unpredictable fluctuations in quarterly revenue and operating results; 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; difficulties supporting our strategic focus on channel sales; the impact of restructuring and cost-containment activities; litigation; actions taken by significant stockholders; 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; 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. 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 Report on Form 10-Q for the quarter ended June 30, 2020. Also, any forward-looking statement made by us in this Quarterly Report on Form 10-Q speaks only as of the date on which this Quarterly Report on Form 10-Q was first filed. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise.


3


PART I FINANCIAL INFORMATION

Item 1. Financial Statements
RIBBON COMMUNICATIONS INC.
Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)
(unaudited)
June 30,
2020
December 31,
2019
Assets
Current assets:
Cash and cash equivalents$80,992  $44,643  
Restricted cash13,052    
Accounts receivable, net204,601  192,706  
Inventory58,047  14,800  
Other current assets52,121  27,146  
Total current assets408,813  279,295  
Property and equipment, net48,004  28,976  
Intangible assets, net449,263  213,366  
Goodwill416,892  224,896  
Deferred income taxes6,416  4,959  
Operating lease right-of-use assets63,938  36,654  
Other assets34,736  26,762  
$1,428,062  $814,908  
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of term debt$14,850  $2,500  
Revolving credit facility  8,000  
Accounts payable73,066  31,412  
Accrued expenses and other130,727  56,700  
Operating lease liabilities18,300  7,719  
Deferred revenue105,694  100,406  
Total current liabilities342,637  206,737  
Long-term debt, net of current377,302  45,995  
Operating lease liabilities, net of current53,122  37,202  
Deferred revenue, net of current23,844  20,482  
Deferred income taxes17,720  4,648  
Other long-term liabilities68,660  16,589  
Total liabilities883,285  331,653  
Commitments and contingencies (Note 18)
Stockholders' equity:
Preferred stock, $0.01 par value per share; 10,000,000 shares authorized, none issued and outstanding
    
Common stock, $0.0001 par value per share; 240,000,000 shares authorized; 144,856,764 shares issued and outstanding at June 30, 2020; 110,471,995 shares issued and outstanding at December 31, 2019
14  11  
Additional paid-in capital1,863,374  1,747,784  
Accumulated deficit(1,308,488) (1,267,067) 
Accumulated other comprehensive (loss) income(10,123) 2,527  
Total stockholders' equity544,777  483,255  
$1,428,062  $814,908  

See notes to the unaudited condensed consolidated financial statements.

4


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

 Three months endedSix months ended
 June 30,
2020
June 30,
2019
June 30,
2020
June 30,
2019
Revenue:
Product$120,862  $72,059  $196,761  $119,539  
Service89,631  73,362  171,714  144,810  
Total revenue210,493  145,421  368,475  264,349  
Cost of revenue:
Product61,529  36,433  106,462  69,580  
Service36,647  28,315  68,126  57,507  
Total cost of revenue98,176  64,748  174,588  127,087  
Gross profit112,317  80,673  193,887  137,262  
Operating expenses:
Research and development51,796  35,301  94,091  71,234  
Sales and marketing37,617  28,893  73,968  58,952  
General and administrative15,094  12,466  32,299  31,160  
Acquisition- and integration-related857  1,965  13,241  5,164  
Restructuring and related5,361  9,144  7,436  14,076  
Total operating expenses110,725  87,769  221,035  180,586  
Income (loss) from operations1,592  (7,096) (27,148) (43,324) 
Interest expense, net(5,400) (1,262) (8,795) (2,626) 
Other (expense) income, net(2,407) 62,861  (3,251) 70,635  
(Loss) income before income taxes(6,215) 54,503  (39,194) 24,685  
Income tax provision(2,036) (5,033) (2,227) (6,047) 
Net (loss) income$(8,251) $49,470  $(41,421) $18,638  
(Loss) earnings per share:
Basic$(0.06) $0.45  $(0.31) $0.17  
Diluted$(0.06) $0.45  $(0.31) $0.17  
Weighted average shares used to compute (loss) earnings per share:
Basic144,483  110,394  132,737  109,239  
Diluted144,483  110,698  132,737  109,672  

See notes to the unaudited condensed consolidated financial statements.

5


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

Three months endedSix months ended
June 30,
2020
June 30,
2019
June 30,
2020
June 30,
2019
Net (loss) income$(8,251) $49,470  $(41,421) $18,638  
Other comprehensive (loss) income, net of tax:
Unrealized loss on interest rate swap(3,970)   (13,497)   
Foreign currency translation adjustments70  64  847  56  
Unrealized gain on available-for sale marketable securities, net of reclassification adjustments for realized amounts  577    590  
Employee retirement benefits  (32)     
Other comprehensive (loss) income, net of tax(3,900) 609  (12,650) 646  
Comprehensive (loss) income$(12,151) $50,079  $(54,071) $19,284  

See notes to the unaudited condensed consolidated financial statements.

6


RIBBON COMMUNICATIONS INC.
Condensed Consolidated Statements of Stockholders' Equity
(in thousands, except shares)
(unaudited)
Three months ended June 30, 2020
 Common stock
SharesAmountAdditional paid-in capitalAccumulated deficitAccumulated other comprehensive (loss) incomeTotal stockholders' equity
Balance at April 1, 2020144,351,304  $14  $1,860,150  $(1,300,237) $(6,223) $553,704  
Exercise of stock options10,188  18  18  
Vesting of restricted stock awards and units500,570    
Shares of restricted stock returned to the Company under net share settlements to satisfy tax withholding obligations(5,298) (16) (16) 
Stock-based compensation expense3,222  3,222  
Other comprehensive loss(3,900) (3,900) 
Net loss(8,251) (8,251) 
Balance at June 30, 2020144,856,764  $14  $1,863,374  $(1,308,488) $(10,123) $544,777  


Six months ended June 30, 2020
 Common stock
SharesAmountAdditional paid-in capitalAccumulated deficitAccumulated other comprehensive (loss) incomeTotal stockholders' equity
Balance at January 1, 2020110,471,995  $11  $1,747,784  $(1,267,067) $2,527  $483,255  
Exercise of stock options13,202  23  23  
Vesting of restricted stock awards and units1,517,552    
Vesting of performance-based stock units315,866    
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 expense6,198  6,198  
Other comprehensive loss(12,650) (12,650) 
Net loss(41,421) (41,421) 
Balance at June 30, 2020144,856,764  $14  $1,863,374  $(1,308,488) $(10,123) $544,777  


7


RIBBON COMMUNICATIONS INC.
Condensed Consolidated Statements of Stockholders' Equity (continued)
(in thousands, except shares)
(unaudited)
Three months ended June 30, 2019
 Common stock
SharesAmountAdditional paid-in capitalAccumulated deficitAccumulated other comprehensive (loss) incomeTotal stockholders' equity
Balance at April 1, 2019110,487,634  $11  $1,743,136  $(1,167,824) $3,740  $579,063  
Issuance of common stock in connection with employee stock purchase plan139,390  506  506  
Exercise of stock options18,652  39  39  
Vesting of restricted stock awards and units359,573    
Shares of restricted stock returned to the Company under net share settlements to satisfy tax withholding obligations(22,098) (112) (112) 
Repurchase and retirement of common stock(975,914) (4,536) (4,536) 
Stock-based compensation expense1,530  1,530  
Other comprehensive income609  609  
Net income49,470  49,470  
Balance at June 30, 2019110,007,237  $11  $1,740,563  $(1,118,354) $4,349  $626,569  


Six months ended June 30, 2019
 Common stock
SharesAmountAdditional paid-in capitalAccumulated deficitAccumulated other comprehensive (loss) incomeTotal stockholders' equity
Balance at January 1, 2019106,815,636  $11  $1,723,576  $(1,136,992) $3,703  $590,298  
Issuance of common stock in connection with employee stock purchase plan139,390  506  506  
Exercise of stock options107,006  190  190  
Vesting of restricted stock awards and units1,166,386    
Vesting of performance-based stock units9,466    
Shares of restricted stock returned to the Company under net share settlements to satisfy tax withholding obligations(203,526) (1,080) (1,080) 
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 stock1,052  1,052  
Repurchase and retirement of common stock(975,914) (4,536) (4,536) 
Stock-based compensation expense5,669  5,669  
Other comprehensive income646  646  
Net income18,638  18,638  
Balance at June 30, 2019110,007,237  $11  $1,740,563  $(1,118,354) $4,349  $626,569  

See notes to the unaudited condensed consolidated financial statements.

8



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

Six months ended
June 30,
2020
June 30,
2019
Cash flows from operating activities:
Net (loss) income$(41,421) $18,638  
Adjustments to reconcile net (loss) income to cash flows provided by operating activities:
Depreciation and amortization of property and equipment8,260  5,891  
Amortization of intangible assets29,003  24,569  
Amortization of debt issuance costs2,554  175  
Stock-based compensation6,198  5,669  
Deferred income taxes97  4,358  
Reduction in deferred purchase consideration(69) (8,124) 
Foreign currency exchange losses3,463  521  
Changes in operating assets and liabilities:
Accounts receivable45,422  33,121  
Inventory773  6,159  
Other operating assets14,282  (21,026) 
Accounts payable(41,515) (12,763) 
Accrued expenses and other long-term liabilities9,111  (17,129) 
Deferred revenue554  (10,940) 
Net cash provided by operating activities36,712  29,119  
Cash flows from investing activities:
Purchases of property and equipment(14,891) (6,153) 
Business acquisitions, net of cash acquired(346,852)   
Maturities of marketable securities  7,295  
Proceeds from the sale of fixed assets43,500    
Net cash (used in) provided by investing activities(318,243) 1,142  
Cash flows from financing activities:
Borrowings under revolving line of credit615  92,000  
Principal payments on revolving line of credit(8,615) (112,000) 
Proceeds from issuance of term debt403,500  50,000  
Principal payment of debt, related party  (24,716) 
Principal payments of long-term debt(52,400)   
Payment of deferred purchase consideration  (21,876) 
Principal payments of finance leases(668) (500) 
Payment of debt issuance costs(10,573) (884) 
Proceeds from the sale of common stock in connection with employee stock purchase plan  506  
Proceeds from the exercise of stock options23  190  
Payment of tax withholding obligations related to net share settlements of restricted stock awards(808) (1,080) 
Repurchase of common stock  (4,536) 
Net cash provided by (used in) financing activities331,074  (22,896) 
Effect of exchange rate changes on cash, cash equivalents and restricted cash(142) 127  
Net increase in cash, cash equivalents and restricted cash49,401  7,492  
Cash and cash equivalents, beginning of year44,643  43,694  
Cash, cash equivalents and restricted cash, end of period$94,044  $51,186  
9



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

Six months ended
June 30,
2020
June 30,
2019
Supplemental disclosure of cash flow information:
Interest paid$6,275  $2,645  
Income taxes paid$4,014  $2,010  
Income tax refunds received$196  $224  
Supplemental disclosure of non-cash investing activities:
  Capital expenditures incurred, but not yet paid$3,522  $1,616  
  Acquisition purchase consideration - deferred payments$  $1,700  
  Shares of common stock issued as purchase consideration$110,180  $15,186  
Supplemental disclosure of non-cash financing activities:
Total fair value of restricted stock awards, restricted stock units and performance-based stock units $5,165  $6,078  

See notes to the unaudited condensed consolidated financial statements.
10


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

(1) BASIS OF PRESENTATION

Business

Ribbon is a leading 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 solutions to service providers and critical infrastructure sectors like utilities, government and defense. With over 1,000 customers 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.

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 March 3, 2020 (the "ECI Merger Date"), the Company merged with ECI (the "ECI Merger"). The financial results of ECI are included in the Company's condensed consolidated financial statements for the periods 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 (the "Annual Report"), which was filed with the SEC on February 28, 2020.

Significant Accounting Policies

The Company's significant accounting policies are disclosed in Note 2 to the Consolidated Financial Statements included in the Annual Report. There were no material changes to the significant accounting policies during the six months ended June 30, 2020, with the exception of policies on transfers of financial assets, warranty costs, and research and development grants: