SEC Filing | Ribbon Communications, Inc.

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rbbn-20220630

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, 2022
☐						TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-38267

RIBBON COMMUNICATIONS INC.

(Exact name of Registrant as specified in its charter)


Delaware						82-1669692
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

6500 Chase Oaks Boulevard, Suite 100, Plano, Texas 75023

(Address of principal executive offices) (Zip code)

(978) 614-8100

(Registrant's telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.0001	RBBN	The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act) o

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

As of July 22, 2022, there were 150,454,151 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, 2022

TABLE OF CONTENTS


Item		Page
	Cautionary Note Regarding Forward-Looking Statements	3


PART I FINANCIAL INFORMATION
1.	Financial Statements
	Condensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021 (unaudited)	4
	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2022 and 2021 (unaudited)	5
	Condensed Consolidated Statements of Comprehensive (Loss ) In come for the Three and Six Months Ended June 30, 2022 and 2021 (unaudited)	6
	Condensed Consolidated Statements of Stockholders' Equity for the Three and Six Months Ended June 30, 2022 and 2021 (unaudited)	7
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2022 and 2021 (unaudited)	9
	Notes to Condensed Consolidated Financial Statements (unaudited)	10
2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	37
3.	Quantitative and Qualitative Disclosures About Market Risk	50
4.	Controls and Procedures	50

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

Cautionary Note Regarding Forward-Looking Statements

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

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

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, 2022		December 31, 2021
Assets
Current assets:
Cash and cash equivalents	$	36,227	$	103,915
Restricted cash	2,037		2,570

Accounts receivable, net	258,116		282,917
Inventory	64,648		54,043

Other current assets	54,395		37,545
Total current assets	415,423		480,990
Property and equipment, net	48,504		47,685
Intangible assets, net	319,787		350,730
Goodwill	300,892		300,892
Investments	4,520		43,931
Deferred income taxes	56,961		47,287
Operating lease right-of-use assets	46,951		53,147
Other assets	37,636		23,075
	$	1,230,674	$	1,347,737
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of term debt	$	20,058	$	20,058

Accounts payable	102,518		97,121
Accrued expenses and other	99,951		100,752
Operating lease liabilities	16,078		17,403
Deferred revenue	106,463		109,119



Total current liabilities	345,068		344,453
Long-term debt, net of current	315,264		350,217

Operating lease liabilities, net of current	48,052		55,196
Deferred revenue, net of current	19,584		20,619
Deferred income taxes	8,117		8,116


Other long-term liabilities	43,245		41,970
Total liabilities	779,330		820,571
Commitments and contingencies (Note 17)
Stockholders' equity:
Preferred stock, $0.01 par value per share; 10,000,000 shares authorized, none issued and outstanding	—		—
Common stock, $0.0001 par value per share; 240,000,000 shares authorized; 150,459,784 shares issued and outstanding at June 30, 2022; 148,895,308 shares issued and outstanding at December 31, 2021	15		15
Additional paid-in capital	1,881,942		1,875,234
Accumulated deficit	(1,455,816)		(1,355,661)
Accumulated other comprehensive income	25,203		7,578
Total stockholders' equity	451,344		527,166
	$	1,230,674	$	1,347,737

See notes to the unaudited condensed consolidated financial statements.

RIBBON COMMUNICATIONS INC.

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

(unaudited)


	Three months ended				Six months ended
	June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021
Revenue:
Product	$	112,667	$	113,129	$	194,657	$	211,018
Service	93,129		98,081		184,337		192,964
Total revenue	205,796		211,210		378,994		403,982
Cost of revenue:
Product	58,151		46,641		109,360		91,086
Service	35,207		36,142		70,874		73,922
Amortization of acquired technology	7,888		9,700		16,155		19,761
Total cost of revenue	101,246		92,483		196,389		184,769
Gross profit	104,550		118,727		182,605		219,213
Operating expenses:
Research and development	51,103		46,797		103,793		94,207
Sales and marketing	35,843		34,881		73,462		72,099
General and administrative	12,901		12,734		25,763		28,287
Amortization of acquired intangible assets	7,513		7,481		14,788		13,243
Acquisition-, disposal- and integration-related	1,535		1,052		3,384		2,249
Restructuring and related	2,894		2,830		7,708		8,780
Total operating expenses	111,789		105,775		228,898		218,865
(Loss) income from operations	(7,239)		12,952		(46,293)		348
Interest expense, net	(4,602)		(3,048)		(8,603)		(8,867)
Other (expense) income, net	(10,228)		17,180		(39,028)		(8,268)
(Loss) income before income taxes	(22,069)		27,084		(93,924)		(16,787)
Income tax provision	(8,111)		(3,843)		(6,231)		(4,659)
Net (loss) income	$	(30,180)	$	23,241	$	(100,155)	$	(21,446)
(Loss) earnings per share:
Basic	$	(0.20)	$	0.16	$	(0.67)	$	(0.15)
Diluted	$	(0.20)	$	0.15	$	(0.67)	$	(0.15)
Weighted average shares used to compute (loss) earnings per share:
Basic	150,190		147,467		149,681		146,706
Diluted	150,190		154,160		149,681		146,706

See notes to the unaudited condensed consolidated financial statements.

RIBBON COMMUNICATIONS INC.

Condensed Consolidated Statements of Comprehensive (Loss) Income

(in thousands)

(unaudited)


	Three months ended				Six months ended
	June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021
Net (loss) income	$	(30,180)	$	23,241	$	(100,155)	$	(21,446)
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on interest rate swap	4,053		(205)		19,522		6,464
Foreign currency translation adjustments	(322)		(447)		(1,013)		(400)

Employee retirement benefits	(884)		—		(884)		—

Other comprehensive income (loss), net of tax	2,847		(652)		17,625		6,064
Comprehensive (loss) income, net of tax	$	(27,333)	$	22,589	$	(82,530)	$	(15,382)

See notes to the unaudited condensed consolidated financial statements.

RIBBON COMMUNICATIONS INC.

Condensed Consolidated Statements of Stockholders' Equity

(in thousands, except shares)

(unaudited)



Three months ended June 30, 2022
	Common stock
	Shares	Amount		Additional paid-in capital		Accumulated deficit		Accumulated other comprehensive income		Total stockholders' equity
Balance at April 1, 2022	150,111,958	$	15	$	1,877,677	$	(1,425,636)	$	22,356	$	474,412


Vesting of restricted stock units	396,148									—

Shares of restricted stock returned to the Company under net share settlements to satisfy tax withholding obligations	(48,322)			(134)						(134)





Stock-based compensation expense				4,399						4,399
Other comprehensive income								2,847		2,847
Net loss						(30,180)				(30,180)
Balance at June 30, 2022	150,459,784	$	15	$	1,881,942	$	(1,455,816)	$	25,203	$	451,344


Six months ended June 30, 2022
	Common stock
	Shares	Amount		Additional paid-in capital		Accumulated deficit		Accumulated other comprehensive income		Total stockholders' equity
Balance at January 1, 2022	148,895,308	$	15	$	1,875,234	$	(1,355,661)	$	7,578	$	527,166

Exercise of stock options	355									—
Vesting of restricted stock units	2,007,138									—
Vesting of performance-based stock units	175,751									—
Shares of restricted stock returned to the Company under net share settlements to satisfy tax withholding obligations	(618,768)			(1,946)						(1,946)





Stock-based compensation expense				8,654						8,654
Other comprehensive income								17,625		17,625
Net loss						(100,155)				(100,155)
Balance at June 30, 2022	150,459,784	$	15	$	1,881,942	$	(1,455,816)	$	25,203	$	451,344

See notes to the unaudited condensed consolidated financial statements.

RIBBON COMMUNICATIONS INC.

Condensed Consolidated Statements of Stockholders' Equity

(in thousands, except shares)

(unaudited)



Three months ended June 30, 2021
	Common stock
	Shares	Amount		Additional paid-in capital		Accumulated deficit		Accumulated other comprehensive (loss) income		Total stockholders' equity
Balance at April 1, 2021	147,358,590	$	15	$	1,864,107	$	(1,223,163)	$	1,774	$	642,733


Exercise of stock options	213									—
Vesting of restricted stock awards and units	802,576									—

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				4,790						4,790
Other comprehensive loss								(652)		(652)
Net income						23,241				23,241
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
	Common stock
	Shares	Amount		Additional paid-in capital		Accumulated deficit		Accumulated other comprehensive (loss) income		Total stockholders' equity
Balance at January 1, 2021	145,425,248	$	15	$	1,870,256	$	(1,178,476)	$	(4,942)	$	686,853


Exercise of stock options	13,602			24						24
Vesting of restricted stock awards and units	2,465,204									—
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	(1,372,434)			(12,064)						(12,064)






Stock-based compensation expense				9,850						9,850
Other comprehensive income								6,064		6,064
Net loss						(21,446)				(21,446)
Balance at June 30, 2021	148,057,301	$	15	$	1,868,066	$	(1,199,922)	$	1,122	$	669,281

See notes to the unaudited condensed consolidated financial statements.

RIBBON COMMUNICATIONS INC.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)


	Six months ended
	June 30, 2022		June 30, 2021
Cash flows from operating activities:
Net loss	$	(100,155)	$	(21,446)
Adjustments to reconcile net loss to cash flows (used in) provided by operating activities:
Depreciation and amortization of property and equipment	7,773		8,475
Amortization of intangible assets	30,943		33,004
Amortization of debt issuance costs	1,078		3,684
Stock-based compensation	8,654		9,850




Deferred income taxes	(9,900)		918
Gain on sale of business	—		(2,772)
Decrease in fair value of investments	39,411		9,171

Foreign currency exchange (gains) losses	(1,048)		2,013

Changes in operating assets and liabilities:
Accounts receivable	24,017		17,360
Inventory	(17,043)		(1,527)
Other operating assets	(319)		9,874
Accounts payable	4,090		(3,508)
Accrued expenses and other long-term liabilities	(8,196)		(57,739)

Deferred revenue	(3,692)		673
Net cash (used in) provided by operating activities	(24,387)		8,030
Cash flows from investing activities:
Purchases of property and equipment	(6,515)		(10,570)

Proceeds from sale of business	—		2,944







Net cash used in investing activities	(6,515)		(7,626)
Cash flows from financing activities:
Borrowings under revolving line of credit	20,000		—
Principal payments on revolving line of credit	(20,000)		—
Proceeds from issuance of term debt			74,625

Principal payments of term debt	(35,029)		(82,147)

Principal payments of finance leases	(341)		(507)
Payment of debt issuance costs	(1,046)		(789)

Proceeds from the exercise of stock options	—		24
Payment of tax withholding obligations related to net share settlements of restricted stock awards	(1,946)		(12,064)


Net cash used in financing activities	(38,362)		(20,858)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	1,043		(442)
Net decrease in cash, cash equivalents and restricted cash	(68,221)		(20,896)
Cash, cash equivalents and restricted cash, beginning of year	106,485		135,697
Cash, cash equivalents and restricted cash, end of period	$	38,264	$	114,801

Supplemental disclosure of cash flow information:
Interest paid	$	7,833	$	8,009
Income taxes paid	$	5,955	$	9,818
Income tax refunds received	$	25	$	974



Supplemental disclosure of non-cash investing activities:
Capital expenditures incurred, but not yet paid	$	3,478	$	2,090





Supplemental disclosure of non-cash financing activities:
Total fair value of restricted stock awards, restricted stock units and performance-based stock units on date vested	$	6,608	$	33,410

See notes to the unaudited condensed consolidated financial statements.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

(1) BASIS OF PRESENTATION

Business

Ribbon Communications Inc. ("Ribbon" or the "Company") is a leading global provider of communications technology to service providers and enterprises. The Company provides a broad range of software and high-performance hardware products, network solutions and services that enable the secure delivery of data and voice communications, and high-bandwidth networking and connectivity for residential consumer and for small, medium and large enterprises, and industry verticals such as finance, education, government, utilities and transportation. Ribbon's mission is to create a recognized global technology leader providing cloud-centric solutions that enable the secure exchange of information, with unparalleled scale, performance and elasticity. The Company is headquartered in Plano, Texas, and has a global presence with research and development or sales and support locations in over thirty-five countries around the world.

Basis of Presentation

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

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

Operating Segments

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

Reclassifications

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

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)


	Three months ended June 30, 2021						Six months ended June 30, 2021
	Prior presentation		Amounts reclassified		Revised presentation		Prior presentation		Amounts reclassified		Revised presentation
Product revenue	$	113,129			$	113,129	$	211,018			$	211,018
Service revenue	98,081				98,081		192,964				192,964
Total revenue	211,210		—		211,210		403,982		—		403,982
Cost of revenue - product	46,641				46,641		91,086				91,086
Cost of revenue - service	36,142				36,142		73,922				73,922
Amortization of acquired technology	—		9,700		9,700		—		19,761		19,761
Total cost of revenue	82,783		9,700		92,483		165,008		19,761		184,769
Total gross profit	128,427		(9,700)		118,727		238,974		(19,761)		219,213
Research and development	46,797				46,797		94,207				94,207
Sales and marketing	34,881				34,881		72,099				72,099
General and administrative	12,734				12,734		28,287				28,287
Amortization of acquired intangible assets	17,181		(9,700)		7,481		33,004		(19,761)		13,243

Acquisition-, disposal- and integration-related	1,052				1,052		2,249				2,249
Restructuring and related	2,830				2,830		8,780				8,780
Total operating expenses	115,475		(9,700)		105,775		238,626		(19,761)		218,865
Income from operations	$	12,952	$	—	$	12,952	$	348	$	—	$	348

Significant Accounting Policies

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

Principles of Consolidation

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

Use of Estimates and Judgments

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

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

Restricted Cash

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

The Company had $2.0 million and $2.6 million of restricted cash as of June 30, 2022 and December 31, 2021, respectively, representing restricted short-term bank deposits pledged to secure certain performance and financial bonds as security for the Company's obligations under tenders, contracts and to one of its main subcontractors.

Transfers of Financial Assets

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

Information regarding the Company's factoring of its financial assets for the three and six months ended June 30, 2022 and 2021 is as follows (in thousands):



	Three months ended				Six months ended
	June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021
Accounts receivable sold	$	22,747	$	32,329	$	40,714	$	63,647
Less factoring fees	(323)		$	(192)	(476)		(401)
Net cash proceeds	$	22,424	$	32,137	$	40,238	$	63,246

Going Concern Assessment and Management Plans

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

Under the 2020 Credit Facility (as defined in Note 9), the Company is required to maintain compliance with certain financial covenants (see Note 9). As of June 30, 2022, the Company was in compliance with its financial covenants. Due to the impact of market conditions, including supply chain disruptions, higher costs, and other geopolitical instabilities and disputes, the Company projects it may not maintain compliance with its financial covenants under the 2020 Credit Facility, as amended, for the quarter ended September 30, 2022. Failure to remain in compliance would be an event of default that would permit the Lenders (as defined in Note 9) to accelerate the maturity of the 2020 Credit Facility. As of the date of the issuance of these condensed consolidated financial statements, the Company does not have sufficient cash on hand or available liquidity to repay the outstanding balance of $340.5 million as of June 30, 2022 in the event the debt was accelerated.

Management plans to avoid any potential event of default include raising additional cash that would allow the Company to pay down debt in order to remain in compliance with its financial covenants. In addition, the Company has the ability to sell its derivative financial instrument, which had an aggregate fair market value of $21 million as of June 30, 2022. Lastly, the Company would evaluate the timing of its capital spending and extension of its payment terms with vendors as needed.

The Company believes its plans are probable of being successfully implemented, which along with its available cash on hand and liquidity from the factoring of receivables, will result in adequate cash to allow the Company to pay down debt to meet its financial covenant requirements.

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

Recent Accounting Pronouncements

In March 2022, the FASB issued ASU 2022-02, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”), which eliminates the accounting guidance on troubled debt restructurings (TDRs) for creditors in ASC 310, Receivables (Topic 310), and requires entities to provide disclosures about current period gross write-offs by year of origination. Also, ASU 2022-02 updates the requirements related to accounting for credit losses under ASC 326, Financial Instruments – Credit Losses (Topic 326), and adds enhanced disclosures for creditors with respect to loan refinancings and restructurings for borrowers experiencing financial difficulty. ASU 2022-02 is effective for the Company January 1, 2023, with early adoption permitted. The Company believes that the adoption of ASU 2022-02 will not have a material impact on its consolidated financial statements upon adoption.

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

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

(2) EARNINGS (LOSS) PER SHARE

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

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


	Three months ended		Six months ended
	June 30, 2022	June 30, 2021	June 30, 2022	June 30, 2021
Weighted average shares outstanding - basic	150,190	147,467	149,681	146,706
Potential dilutive common shares	—	6,693	—	—
Weighted average shares outstanding - diluted	150,190	154,160	149,681	146,706

Options to purchase the Company's common stock and unvested restricted and performance-based stock units aggregating

RIBBON COMMUNICATIONS INC.

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

15.4 million shares have not been included in the computation of loss per share for the three and six months ended June 30, 2022 because their effect would have been antidilutive. Options to purchase the Company's common stock aggregating 0.1 million shares have not been included in the computation of diluted earnings per share for the three months ended June 30, 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 12.1 million shares have not been included in the computation of diluted loss per share for the six months ended June 30, 2021 because their effect would have been antidilutive.

(3) INVENTORY

Inventory at June 30, 2022 and December 31, 2021 consisted of the following (in thousands):


	June 30, 2022		December 31, 2021

On-hand final assemblies and finished goods inventories	$	72,954	$	57,360
Deferred cost of goods sold	2,055		1,474
	75,009		58,834
Less noncurrent portion (included in other assets)	(10,361)		(4,791)
Current portion	$	64,648	$	54,043

(4) INTANGIBLE ASSETS AND GOODWILL

The Company's intangible assets at June 30, 2022 and December 31, 2021 consisted of the following (in thousands):


June 30, 2022	Weighted average amortization period (years)	Cost		Accumulated amortization		Net carrying value
In-process research and development	*	$	34,000			$	34,000

Developed technology	7.93	306,380		197,548		108,832
Customer relationships	11.86	268,140		91,949		176,191
Trade names	3.88	5,000		4,236		764

Internal use software	3.00	730		730		—
	9.17	$	614,250	$	294,463	$	319,787


December 31, 2021	Weighted average amortization period (years)	Cost		Accumulated amortization		Net carrying value
In-process research and development	*	$	34,000	$	—	$	34,000

Developed technology	7.93	306,380		181,393		124,987
Customer relationships	11.86	268,140		77,653		190,487
Trade names	3.88	5,000		3,744		1,256

Internal use software	3.00	730		730		—
	9.17	$	614,250	$	263,520	$	350,730