Ribbon Communications
Annual Report 2021

Plain-text annual report

2022 Notice of Annual Meeting of Stockholders and Proxy Statement We are Ribbon. $845M 2021 total revenue 1,000+ customers 140+ countries we serve 1,000+ patents $195M R&D spend (23% of total revenue) 3,600+ global employees 2017 established Ribbon Communications (Nasdaq: RBBN) is a global provider of real-time communications software and IP Optical networking solutions to service providers, enterprises and critical infrastructure sectors. We engage deeply with our customers, helping them modernize their networks for improved competitive positioning and business outcomes in today’s smart, always-on and data-hungry world. Our innovative, end-to-end solutions portfolio delivers unparalleled scale, performance and agility, including core to edge software-centric solutions, cloud-native platforms, leading-edge security and analytics tools, along with IP and optical networking solutions for broadband and mobile networks. To learn more about Ribbon visit rbbn.com. Our Culture At Ribbon, our culture defines us. Our relentless focus on the customer, coupled with our entrepreneurial spirit, has solidified our position as one of the market-leading solutions leaders in the global telecommunications industry. Our culture’s foundation is based on our core values of innovation, imagination, execution and ethical responsibility. These shared values provide the platform for our employees, allowing them to share a global connection while simultaneously celebrating our diversity. ® Dear Stockholder: Reflecting back on 2021, I am encouraged by the progress Ribbon has made on our strategy to establish ourselves as a significant supplier of IP Networking and Optical transport solutions to major telecom carriers throughout the globe. With major new wins with Service Providers such as Rogers, Optus, Singtel, MTN Group, Taiwan Mobile, Viaero Wireless, and others, we have broadened our foundation and established industry credibility. The industry backdrop has never been stronger. Investment in fiber networks is increasing dramatically to support expansion of consumer internet services and to provide the backbone needed to enable next generation wireless 5G services. Consumer and Enterprise adoption of video collaboration platforms is revolutionizing how people communicate, and putting unprecedented demand on the network. These are the market trends we are investing around and positioning the company for long term growth. Despite many accomplishments throughout the year, we were disappointed with our financial results in 2021. Escalating supply chain issues impacted revenue and profitability in the second half of the year, and we expect some of these effects to continue through most of 2022. It has also taken longer to convert our new IP Optical customer wins into sustainable revenue, while the investment that is needed to obtain and execute on the wins and develop our roadmap is an immediate investment. Looking forward into 2022, we have a strong funnel of opportunities, and a growing list of new strategic wins that have significant long-term growth potential. In the critical North America region, we grew IP Optical sales by 164% last year — and we are targeting greater than 50% growth again in 2022. Other regions such as Japan, India and Australia are also expected to contribute to our projected 10%+ growth outlook for the year in this business. To capitalize on these opportunities, we have been increasing our R&D intensity in the IP Optical Networks portfolio. We see significant opportunity for differentiation particularly around the software aspects of our products, and have refined our roadmap through extensive discussions with both existing and potential new customers. Our strategy is to lower total cost of ownership and reduce operational complexity by enabling a more open ecosystem and network architecture, with an end-to- end suite of products. We believe this is key to our differentiation and how we win. In our Cloud & Edge segment, the secure VoIP business continues to be a great foundation for the company. We expect continued investment by our Service Provider customers as they modernize their voice networks and address their aging infrastructure, also helping them meet increasing environmental and security regulatory requirements. The backdrop of accelerating usage of platforms such as Microsoft Teams and Zoom provide an excellent growth opportunity for our Cloud & Edge business. As Service Providers, Enterprises, and Federal Agencies increasingly adopt cloud computing paradigms, our investment to adapt our VoIP portfolio to leverage cloud- native technologies provides an additional growth opportunity for the business. We believe our strategy to leverage the traditional Ribbon VoIP business to position our full portfolio of IP Networking and Optical Transport products will continue to gain momentum and allow us to win important new customers each quarter. We cordially invite you to participate in our annual meeting of stockholders at 10:00 a.m. (Eastern Time) on Wednesday, May 25, 2022. Due to the continuing public health concerns related to the COVID-19 pandemic, and to allow more stockholders the opportunity to attend, this year’s annual meeting will be held in a virtual meeting format only. You will be able to attend the 2022 annual meeting online and submit your questions during the meeting by visiting www.virtualshareholdermeeting.com/RBBN2022. Whether you plan to attend the annual meeting virtually or not, it is important that your shares be represented and voted. Therefore, I urge you to promptly vote your proxy. Every stockholder’s vote is important. Thank you for your continued confidence in Ribbon, and we look forward to speaking with you at the annual meeting! Sincerely, Bruce McClelland President and CEO April 8, 2022 ® Ribbon Communications Inc. 6500 Chase Oaks Blvd, Suite 100 Plano, Texas 75023 NOTICE OF 2022 ANNUAL MEETING OF STOCKHOLDERS 2022 Annual Meeting Date and Time May 25, 2022 10:00 a.m. Eastern Time Virtual Meeting URL www.virtualshareholdermeeting.com/RBBN2022 Record Date Statement Agenda 1 Election of eight directors as named in the Proxy 2 Ratification of the appointment of Deloitte & Touche LLP as Ribbon Communications’ independent registered public accounting firm for 2022 compensation of our named executive officers 3 Approval, on a non-binding advisory basis, of the 4 Approval of an amendment to the Ribbon Communications Inc. Amended and Restated 2019 Incentive Award Plan to add additional shares You can vote electronically at, and are entitled to notice of, the 2022 Annual Meeting if you were a stockholder of record on April 1, 2022 5 Transaction of other business, if any, as may properly come before the meeting or any adjournment, continuation or postponement thereof Voting Internet www.proxyvote.com, 24/7 Telephone Toll-free 1 (800) 690-6903 Mail Mark, sign and date your proxy card or voting instruction form and return it in the postage- paid envelope During the Annual Meeting Enter the 16-digit control number you received with your proxy or voting instructions and attend the webcast of the meeting via the internet: www.virtualshareholdermeeting.com/ RBBN2022 A complete list of our stockholders as of the Record Date will be available for examination by any stockholder during the ten days prior to the 2022 Annual Meeting for a purpose germane to the 2022 Annual Meeting by sending an email to ir@rbbn.com, stating the purpose of the request and providing proof of ownership of Company stock. The list of stockholders will also be available during the virtual meeting after you enter the virtual meeting using the 16-digit control number you received with the Notice of Internet Availiability of Proxy Materials, proxy card or voting instructions for the 2022 Annual Meeting. For additional information, see “How can I attend the virtual meeting?” in the section entitled “Information about the Annual Meeting” in the Proxy Statement. Whether or not you expect to attend the 2022 Annual Meeting electronically, we urge you to vote your shares as promptly as possible to ensure your representation and the presence of a quorum at the 2022 Annual Meeting. If you send in your proxy card, you may still decide to attend the 2022 Annual Meeting and vote your shares electronically. Your proxy is revocable in accordance with the procedures set forth in the accompanying proxy statement. April 8, 2022 By Order of the Board of Directors, Patrick W. Macken Executive Vice President, Chief Legal Officer and Corporate Secretary This Proxy Statement, form of proxy and the 2021 Annual Report are first being made available to stockholders on or about April 8, 2022. TABLE OF CONTENTS 1 7 7 9 16 16 17 18 19 20 20 25 25 26 26 26 27 29 32 32 32 33 34 35 38 38 SUMMARY INFORMATION CORPORATE GOVERNANCE AND BOARD MATTERS PROPOSAL 1 — Election of Directors Director Nominees Corporate Governance Oversight of Risk Management Board Composition and Stockholders Agreement Director Experience and Tenure Director Independence Meeting Attendance Board Committees Director Nomination Process Stockholder Nominations and Recommendations of Director Candidates Board Leadership Structure Executive Sessions of the Board Additional Governance Matters Transactions with Related Persons Director Compensation AUDIT MATTERS PROPOSAL 2 — Ratificiation of the Appointment of Independent Registered Public Accounting Firm Deloitte Fees Policy on Audit Committee Pre-Approval of Audit and Non-Audit Services Audit Committee Report EXECUTIVE OFFICERS EXECUTIVE COMPENSATION PROPOSAL 3 — Approval, on a Non-Binding Basis, of the Compensation of our Named Executive Officers 39 56 72 73 73 74 76 77 79 81 82 83 83 85 85 91 91 91 92 92 PROPOSAL 4 — Approval of an Amendment to the Ribbon Communications Inc. Amended and Restated 2019 Incentive Award Plan Executive Compensation Information Compensation Discussion and Analysis Compensation Committee Report Executive Compensation Tables 2021 Summary Compensation Table Grants of Plan-Based Awards in 2022 Outstanding Equity Awards at Fiscal Year-End 2022 Stock Vested Severance and Change of Control Benefits Potential Payments Upon Termination or Upon Change in Control CEO Pay Ratio STOCK INFORMATION Beneficial Ownership of Our Common Stock ADDITIONAL INFORMATION Information about the Annual Meeting Stockholder Proposals for Inclusion in 2023 Proxy Statement Stockholder Nominations and Proposals for Presentation at 2023 Annual Meeting Stockholders Sharing the Same Address Form 10-K Other Matters A-1 APPENDIX A-1 APPENDIX A — Amendment to the Ribbon Communications Inc. Amended and Restated 2019 Incentive Award Plan IMPORTANT NOTICE REGARDING AVAILABILITY OF PROXY MATERIALS FOR THE STOCKHOLDER MEETING TO BE HELD ON MAY 25, 2022 This Proxy Statement and the 2021 Annual Report to Stockholders are available for viewing, printing and downloading at www.proxyvote.com. Ribbon Communications Inc. 2022 Proxy Statement | i Cautionary Note Regarding Forward-Looking Statements This proxy statement 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 proxy statement, including without limitation statements regarding projected financial results, customer engagement and momentum, and plans for future product development and manufacturing, are forward-looking statements. Without limiting the foregoing, the words “believes,” “estimates,” “expects,” “expectations,” “intends,” “may,” “plans,” “projects” and other similar language, are intended to identify forward-looking statements. 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, among others, risks related to supply chain disruptions resulting from component availability; the effects of geopolitical instabilities and disputes, including between Russia and Ukraine; risks related to the continuing COVID-19 pandemic, including delays in customer deployments as a result of rises in cases; risks that we will not realize estimated cost savings and/or anticipated benefits from our acquisition of ECI Telecom Group Ltd. (“ECI”); risks that we will not realize the estimated cost savings and/or anticipated benefits from our strategic restructuring and other cost-containment activities; failure to realize anticipated benefits from the sale of our Kandy Communications business (“Kandy”) or 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; 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; litigation; market acceptance of our products and services; rapid technological and market change; our ability to protect our intellectual property rights and obtain necessary licenses; our ability to maintain partner, reseller, distribution and vendor support and supply relationships; the potential for defects in our products; risks related to the terms of our credit agreement including compliance with the financial covenants; higher risks in international operations and markets; increases in tariffs, trade restrictions or taxes on our products; currency fluctuations; and failure or circumvention of our controls and procedures. These factors are not intended to be an all-encompassing list of risks and uncertainties that may affect our business and results from operations. Additional information regarding these and other factors can be found in our reports filed with the Securities and Exchange Commission, including, without limitation, our Form 10-K for the year ended December 31, 2021. In providing forward- looking statements, we expressly disclaim any obligation to update these statements publicly or otherwise, whether as a result of new information, future events or otherwise, except as required by law. ii | Ribbon Communications Inc. 2022 Proxy Statement Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix SUMMARY INFORMATION To assist you in reviewing the proposals to be acted upon at our 2022 annual meeting of stockholders (the “2022 Annual Meeting”), we would like to call your attention to the following summary information about Ribbon, our 2021 business and financial highlights and corporate governance highlights. It does not include all information necessary to make a voting decision, and you should read this proxy statement (“Proxy Statement”) in its entirety before casting your vote. Unless the content otherwise requires, references in this Proxy Statement to “Ribbon,” “Ribbon Communications,” “Company,” “we,” “us” and “our” refer to Ribbon Communications Inc. and its subsidiaries on a consolidated basis. Ribbon Overview Our Vision Customers trust us to solve their most challenging communications issues, enabling people and devices to connect seamlessly anytime, anywhere. Our customer-centric culture shapes all our activity and inspires our team members to make a positive impact with our clients, investors and communities. Our Mission To create a recognized global technology leader providing cloud-centric solutions that enable the secure exchange of information with unparalleled scale, performance and elasticity. We are a global provider of converged communications software and network solutions to service providers, enterprises, and critical infrastructure sectors. Our 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. 2021 In Review and Path Ahead Highlights 2021 Accomplishments Major New IP Optical wins Telco Cloud wins Strengthened go-to-market and created dedicated Enterprise Sales team Mitigated supply chain challenges New product launches including 400G ZR+ Optics Investing for Growth in 2022 10%+ IP Optical growth target in 2022 Growth in Enterprise Cloud and Edge secure VoIP market share Accelerate innovation with increased investment in IP Optical R&D Prioritize investment in Telco Cloud and Enterprise Streamline operations and lower corporate overhead Pro-active supply chain operations Hybrid work environment 2023 and Beyond Significant player in IP Optical Optical Transport IP Networking Transition to Open Networking Architecture Orchestration Software Cloud & Edge Resilience Enterprise Telco Cloud Network Transformation Software growth Support Services Ribbon Communications Inc. 2022 Proxy Statement | 1 Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix Key Technology Trends Underpinning our Strategy Environmental, Social & Governance (ESG) Practice Highlights As we have evolved and matured through both organic growth and acquisitions, we have adopted a more strategic approach to Environmental, Social and Governance (ESG) practices. In 2021, we undertook a comprehensive process to analyze the needs and expectations of our key stakeholders, and to identify the areas that contribute the most to our sustainability footprint. Ribbon aims to address the needs and expectations of stakeholders in a responsible, accountable and transparent manner. We believe that engaging with stakeholders is good for our business and our ability to deliver favorable results for them and for the broader needs of society and the environment in general. Our Material Impacts ESG Efforts Being Recognized Ranked #7 out of 39 So(cid:2)ware and Telecom Companies Ranked in Top 25% of the 500 Most Responsible Companies for 2022 2 | Ribbon Communications Inc. 2022 Proxy Statement Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix In 2021 we adopted three targets in areas we believe are the most critical for our future success and for the success of people and the planet. Our “Three by Thirty” Sustainability Targets Sustainability Targets Climate Change Diversity & Inclusion Supply Chain Reduce direct Carbon emissions by 30% by 2030 (Scope 1 and 2 CO2e, from a base year of 2018) Increase women in management to 30% of all management roles by 2025 Audit more than 30% of our Tier 1 suppliers with zero major non-conformances against Ribbon’s Supplier Audit Protocol Longer-Term Sustainability Aspirations Climate Change Diversity & Inclusion Supply Chain Net zero carbon emissions 40% women in management 100% Tier 1 suppliers compliant with Ribbon’s Supplier Audit Protocol and improving sustainability performance Executive Compensation The philosophy behind our executive compensation program is to promote alignment of the interests of our executive officers with the interests of our stockholders. The key factors considered in the creation of our compensation programs include: Strongly promote achievement of our corporate growth and business strategy 1 Effectively link pay with Company performance 2 Enable Ribbon to hire, retain and motivate talent in competitive markets 3 Significant portion of total compensation linked to both short- and long- term incentive programs 4 We believe that our executive compensation program supports our business strategies and talent management objectives and is consistent with sound governance practices that are intended to best serve our stockholders’ long-term interests. The components of the NEOs’ 2021 compensation (excluding the CEO) are: Average Targeted Compensation Performance Units Base Salary (Fixed) Bonus 32% 74% At Risk 26% 19% RSUs 23% 74% Performance-Based/Equity Linked Ribbon Communications Inc. 2022 Proxy Statement | 3 Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix In making its compensation decisions for 2021, the Compensation Committee considered, among other things: ◾ ◾ ◾ our financial and operational results for the year, the result of the say-on-pay vote at our 2021 annual meeting of stockholders, and the achievement of the compensation objectives set by the Compensation Committee. Corporate Governance HISTORICAL SAY-ON-PAY SUPPORT 92% average stockholder approval over last 4 years 100% 75% 50% 25% 0% 87.1% 90.6% 98.7% 92.3% 2018 2019 2020 2021 Ribbon is committed to operating ethically, efficiently and inclusively. It has always been paramount to our way of doing business to act with the utmost integrity, honesty and transparency. Our commitment to ethical business practices guides us in our compliance with national and international laws and regulations and we believe strong corporate governance is critical to our long-term success. Highlights of our corporate governance include: Six of nine current directors are independent Code of Conduct applicable to Board Majority voting for director elections Annual Board and committee self-assessments Best Practices No staggered Board Separate Chairman and CEO roles Lead independent director Independent directors meet regularly without management present Board review (through its standing committees) of ESG strategies, activities, policies and communications Share ownership guidelines for directors and Section 16 officers Standing Audit, Compensation and Nominating and Corporate Governance Committees comprised solely of independent directors Robust oversight of risk management 4 | Ribbon Communications Inc. 2022 Proxy Statement Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix Current Board of Directors and Committees Name and Principal Occupation Age Director Since Independent Other Public Company Boards Committee Membership Audit Compensation Nominating & Corporate Governance Technology & Innovation Mariano S. de Beer Former Chief Commercial and Digital Officer, Telefónica S.A. R. Stewart Ewing, Jr. Chief Financial Officer, InterMountain Management Bruns H. Grayson Managing Partner, ABS Ventures Beatriz V. Infante Chief Executive Officer, Business Excelleration LLC Bruce W. McClelland President and Chief Executive Officer, Ribbon Communications Inc. Krish A. Prabhu(1) Former Chief Technology Officer and President, AT&T Labs 51 June 2020 70 March 2020 74 October 2017 68 October 2017 55 March 2020 67 March 2020 Shaul Shani Founder and Chairman, Swarth Group 67 June 2020 Richard W. Smith Chairman of Private Capital, JPMorgan Chase & Co. Tanya Tamone Chief Executive Officer, Sogerco S.A. 69 October 2017 60 June 2020 0 0 1 2 0 1 0 0 0 Committee Chair Committee Member Chairman Lead Independent Director Audit Committee finanical expert (1) Mr. Prabhu will not stand for election at the 2022 Annual Meeting. Independence Gender Diversity Gender and/or Ethnic Diversity 3 67% 6 2 22% women 7 44% diverse 5 4 Age Tenure 70s 50s 5 yrs. 2 2 64.6 average age 5 60s 3 3 average tenure 6 2 yrs. Ribbon Communications Inc. 2022 Proxy Statement | 5 Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix Annual Meeting Proposals Proposal Board Recommendation Page Reference FOR each of the nominees FOR FOR FOR 7 32 38 39 Statement 1 Election of eight directors as named in this Proxy 2 Ratification of the appointment of auditors 3 Approval, on a non-binding advisory basis, of the compensation of our named executive officers 4 Approval of an amendment to the Ribbon Communications Inc. Amended and Restated 2019 Incentive Award Plan to add additional shares 6 | Ribbon Communications Inc. 2022 Proxy Statement Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix CORPORATE GOVERNANCE AND BOARD MATTERS 1 Proposal 1 — Election of Directors The Board has nominated the following eight director nominees for election to the Board to hold office until the 2023 Annual Meeting and until his or her respective successor is duly elected and qualified: Nominee R. Stewart Ewing, Jr. Richard W. Smith Mariano S. de Beer Shaul Shani Tanya Tamone Bruns H. Grayson Beatriz V. Infante Designated By JPM Stockholders (as defined below) JPM Stockholders Swarth (as defined below) Swarth Swarth Nominating and Corporate Governance Committee Nominating and Corporate Governance Committee Bruce W. McClelland Nominating and Corporate Governance Committee All of the nominees are currently directors. Each nominee agreed to be named in this Proxy Statement and to serve if elected. All nominees are expected to virtually attend the 2022 Annual Meeting. Krish Prabhu, a current director designated by the JPM Stockholders, has decided not to stand for election at the 2022 Annual Meeting. As a result, the Board has set the size of the Board of Directors, as of the 2022 Annual Meeting, at eight members and the JPM Stockholders will temporarily waive their right to designate three directors as described below under “— Designation Rights.” If the JPM Stockholders decide to designate a third director after the 2022 Annual Meeting, it is expected that the Board will take further action to increase the size of the Board to nine members with the additional director position being filled by the third JPM Stockholders designee. Designation Rights On March 3, 2020, we entered into a First Amended and Restated Stockholders Agreement (the “Stockholders Agreement”) with JPMC Heritage Parent LLC (“JPMC”), Heritage PE (OEP) III, L.P. (together with JPMC, entities affiliated with the Company’s largest stockholder, JPMorgan Chase & Co. (collectively with any successor entities, the “JPM Stockholders”)), and ECI Holding (Hungary) Kft (“Swarth”). Pursuant to the Stockholders Agreement, the Board of Directors is required to consist of: (i) three individuals designated by the JPM Stockholders, (ii) three individuals designated by Swarth, (iii) our Chief Executive Officer, and (iv) a number of other individuals designated by the Nominating and Corporate Governance Committee sufficient to ensure that there are no vacancies on the Board. Our Board currently consists of nine directors. However, as noted above, the Board has set the size of the Board of Directors, as of the 2022 Annual Meeting, at eight members and the JPM Stockholders have designated two current directors for election, temporarily waiving their right to designate a third director. The authorized number of directors is determined from time to time by the Board, subject to the requirements of the Stockholders Agreement. The directors designated for Ribbon Communications Inc. 2022 Proxy Statement | 7 Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix election by each of the JPM Stockholders and Swarth under the Stockholders Agreement are noted in the table above. The JPM Stockholders and Swarth owned 33.27% and 17.18%, respectively, of Ribbon’s common stock as of April 1, 2022. The Company has agreed to take all necessary actions within its control to include both the JPM Stockholders’ and Swarths’ designees in the slate of nominees recommended by the Board for election of directors and to cause the stockholders of the Company to elect the designees. For so long as the JPM Stockholders or Swarth has the right to designate a director under the Stockholders Agreement, with respect to any proposal or resolution relating to the election of directors, each of the JPM Stockholders and Swarth, respectively, has agreed to take all necessary actions within their control to vote their shares (A) affirmatively in favor of the election of the other’s designees and (B) with respect to each person nominated to serve as a director by the Nominating and Corporate Governance Committee, either affirmatively in favor of such nominee, or in the same proportion to all shares voted by other stockholders of the Company. Independence of Director Nominees Except for Bruce W. McClelland, our President and CEO, Shaul Shani and Richard W. Smith, each of our nominees is independent according to the director independence standards set forth in our Corporate Governance Guidelines, which meet the director independence standards of the Nasdaq Stock Market (“Nasdaq”). For more information, see “Corporate Governance and Board Matters — Director Independence.” We have no reason to believe that any of the nominees will be unable or unwilling to serve if elected. However, if any nominee should become unable to serve, or for good cause will not serve as a director, proxies may be voted for another person nominated as a substitute by the Board, or the Board may reduce the number of directors. In the event any director designated by either the JPM Stockholders or Swarth is unable to serve, the JPM Stockholders or Swarth, as the case may be, are entitled to designate a replacement director, subject to the conditions set forth in the Stockholders Agreement. Board Diversity Total Number of Directors 9 Nasdaq Board Diversity Matrix (As of April 1, 2022) Female Male Non-Binary Gender Undisclosed Gender Directors 2 Number of Directors Who Identify in Any of the Categories Below African American or Black Alaskan Native or Native American Asian Hispanic or Latinx Native Hawaiian or Pacific Islander White Two or More Races or Ethnicities LGBTQ+ Did Not Disclose Demographic Background 0 0 0 1 0 1 0 7 0 0 1 1 0 5 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 PROPOSAL 1 The Board of Directors recommends that stockholders vote FOR the election of each of the nominees listed above. 8 | Ribbon Communications Inc. 2022 Proxy Statement Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix Director Nominees The biographies below describe the skills, qualities, attributes and experience of the director nominees that led the Board and its Nominating and Corporate Governance Committee to determine that it is appropriate to nominate these individuals as directors. AGE 51 COMMITTEES ◾ Technology and Innovation (Chair) MARIANO S. DE BEER BACKGROUND Telefónica S.A., a large public multinational telecommunications company ◾ Chief Commercial and Digital Officer (2017 to 2019) ◾ Member of the Telefónica Group Executive Committee (2017 to 2019) ◾ served in different capacities at companies of the Telefónica Group Microsoft ◾ General Manager (President) of the multi-country Region LATAM New Markets (2015 to 2016) ◾ General Manager (President), Brazil (2013 to 2015) Independent Director Director since June 2020 RBS Educação, part of the Brazilian conglomerate RBS Group ◾ CEO (2012 to 2013) McKinsey & Co. ◾ Consultant EDUCATION ◾ Graduated from UADE in Argentina ◾ MBA, Georgetown University SKILLS AND EXPERTISE The Board believes Mr. de Beer is qualified to serve on the Board due to his extensive leadership experience in the telecommunications industry, in particular at Telefónica S.A., and his global business perspective. Ribbon Communications Inc. 2022 Proxy Statement | 9 Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix AGE 70 COMMITTEES ◾ Audit (Chair and Audit Committee Financial Expert) ◾ Nominating and Corporate Governance R. STEWART EWING, JR. Independent Director Director since March 2020 BACKGROUND InterMountain Management, a privately- owned hotel management company ◾ Chief Financial Officer (April 2020 to present) CenturyLink, Inc. (“CenturyLink,” now Lumen Technologies), a global technology company offering communications, network services, security, cloud solutions and voice and managed services ◾ Executive Vice President and Chief Financial Officer (1989 to November 2017) ◾ Vice President and Controller (1984 to 1989) ◾ Vice President of Finance (1983 to 1984) KPMG ◾ Accountant (1973 to 1982) BOARD SERVICE ◾ TelUSA, LLC, a subsidiary of CenturyLink (January 2020 to present) ◾ Louisiana Endowment for the Humanities (2019 to present) ◾ Progressive Bancorp, Inc., Chairman of the Audit Committee (2002 to present) EDUCATION ◾ BS, Northwestern State University SKILLS AND EXPERTISE The Board believes Mr. Ewing brings to the Board executive leadership experience at CenturyLink, along with extensive financial expertise. The Board believes Mr. Ewing is qualified to serve on the Board because of his experience as chief financial officer at CenturyLink and his experience leading the integration of acquired companies into CenturyLink’s corporate structure and philosophy. 10 | Ribbon Communications Inc. 2022 Proxy Statement Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix BRUNS H. GRAYSON Lead Independent Director Director since March 2020 BACKGROUND ABS Ventures, a venture capital firm ◾ Managing Partner (1983 to present) Adler & Co. ◾ Venture Capitalist (1980 to 1983) McKinsey & Co., a management consulting firm ◾ Associate (1978 to 1980) U.S. Army ◾ Captain (1970) BOARD SERVICE ◾ Everbridge, Inc., a provider of communications solutions (2012 to present) ◾ served as a director for many private and public companies over the last 30 years EDUCATION ◾ elected a Rhodes Scholar from California (1974) ◾ JD, University of Virginia School of Law ◾ Master’s degree, Oxford University ◾ BA, Harvard College SKILLS AND EXPERTISE The Board believes Mr. Grayson is qualified to serve on the Board based on his knowledge of the data communication and software industries, his investment experience as a Managing Partner at ABS Ventures, and his experience as a director of various public companies. AGE 74 COMMITTEES ◾ Audit ◾ Compensation ◾ Nominating and Corporate Governance (Chair) Ribbon Communications Inc. 2022 Proxy Statement | 11 Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix BEATRIZ V. INFANTE Independent Director Director since October 2017 AGE 68 COMMITTEES ◾ Audit ◾ Compensation (Chair) ◾ Technology and Innovation BOARD SERVICE (cont’d) ◾ Liquidity Services Inc., Chair of the Compensation Committee and Audit Committee member ◾ Ultratech, Nominating and Corporate Governance Committee member (until its acquisition by Veeco in May 2017) ◾ Emulex Corporation, Chair of the Nominating and Corporate Governance Committee (until its acquisition by Broadcom Limited in May 2015) and Compensation Committee member ◾ Synchron, Inc. (until its sale to an investor group in 2005) ◾ Aspect, Board Chair ◾ Previously served as a director at a number of privately held companies EDUCATION ◾ Master of Science degree, California Institute of Technology ◾ Bachelor of Science and Engineering degree, Princeton University SKILLS AND EXPERTISE The Board believes Ms. Infante is qualified to serve on the Board due to her executive leadership experience, including as a chief executive officer of various companies, along with extensive operational expertise and experience in engineering, sales, and marketing. BACKGROUND BusinessExcelleration LLC, a business consultancy specializing in corporate transformation and renewal ◾ Chief Executive Officer (2009 to present) ENXSUITE Corporation, a leading supplier of energy management solutions ◾ Chief Executive Officer (2020 until its acquisition by Infor in 2011) VoiceObjects Inc., a market leader in voice applications servers ◾ Chief Executive Officer (2006 until its acquisition by Voxeo Corporation in 2008) Sychron Inc., a data center automation company ◾ Interim Chief Executive Officer (2004 to 2005) Aspect Communications Corporation (“Aspect”), a market leader in communications solutions ◾ Chief Executive Officer (April 2000 to October 2003) ◾ Co-President and additional executive roles (October 1998 to April 2000) BOARD SERVICE ◾ Current National Association of Corporate Directors Board Leadership Fellow ◾ PriceSmart, Inc., Chair of its Digital Transformation Committee, Chair of its Compensation Committee and Audit Committee member ◾ Guardian Analytics, Advisory Board member ◾ Infrascale, Chair of the Advisory Board 12 | Ribbon Communications Inc. 2022 Proxy Statement Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix AGE 55 COMMITTEES ◾ None BRUCE W. MCCLELLAND Non-Independent Director Director since March 2020 BACKGROUND Ribbon Communications Inc. ◾ President and Chief Executive Officer, responsible for the strategic direction and management of Ribbon (March 2020 to present) CommScope Inc. (“CommScope”), a global network infrastructure provider ◾ Chief Operating Officer, responsible for the combined portfolio of products and services (April 2019 to August 2019) ARRIS International plc (“ARRIS”), a telecommunications equipment manufacturing company ◾ Chief Executive Officer (September 2016 until its sale to CommScope in April 2019) ◾ served in numerous leadership roles during 20 years at ARRIS and managed the successful acquisition and integration of the Ruckus Wireless and Brocade ICX Campus switching business from Broadcom Inc., a major step in diversifying the ARRIS business beyond the service provider market into the broader enterprise market, while strengthening the company’s wireless technology capabilities ARRIS (cont’d) ◾ held several other roles at ARRIS, including President of Network & Cloud and Global Services (April 2013 to August 2016) ◾ authored several communications- related patents Nortel Networks Corporation (“Nortel”) and Bell Northern Research (“BNR”) ◾ served in leadership roles for eleven years ◾ began his career with BNR in Ottawa, Canada, responsible for the development of Nortel’s SS7 switching products immediately prior to joining ARRIS EDUCATION ◾ BE, the University of Saskatchewan SKILLS AND EXPERTISE The Board believes Mr. McClelland is qualified to serve on the Board due to his executive leadership experience, including as a chief executive officer of ARRIS, along with extensive operational expertise and experience in engineering. Ribbon Communications Inc. 2022 Proxy Statement | 13 Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix AGE 67 COMMITTEES ◾ None SHAUL SHANI Non-Independent Director Director and Chairman of the Board since June 2020 BACKGROUND Entrepreneur Swarth Group, a private global investment company investing in public and private companies primarily in the communication services, technology, IT, cyber, renewable energy and real estate sectors as well as financial markets ◾ Founder and Chairman (2006 to present) Magnum Group, an investment group investing in telecom and tech ventures, including DSP Group (a major shareholder of AudioCodes which was taken public in 1999) ◾ Founder (1994 to 2006) Sapiens International Corporation, a software development company which was listed on the Nasdaq Stock Market in 1992 ◾ Founder and Chief Executive Officer (1989 to 1993) Eurosoft, an IT company ◾ Founder and Chief Executive Officer (1987 to 1985) Tecnomatix Technologies ◾ Founder (1983) Oshap Technologies Ltd., a developer of flexible automation software for robotics ◾ Founder and Chief Executive Officer (1982 to 1985) BOARD SERVICE ◾ ECI (where Swarth Group was the controlling shareholder) (2007 to 2012), holding the position of Chairman (2009 to 2012) ◾ Global Village Telecom, a telecommunications service provider in Brazil (where Swarth Group was the lead investor), Executive Chairman (1997 until its acquisition by the Vivendi Group in 2009) ◾ DSP Group (serving as director on behalf of the Magnum Group) (1999 to 2000) ◾ Sapiens International Corporation, Chairman (1989 to 1993) ◾ held board positions at many private and public companies in the field of telecommunications and technology over the last 30 years SKILLS AND EXPERTISE The Board believes Mr. Shani is qualified to serve on the Board due to his extensive background in finance and private equity, his extensive knowledge of ECI’s business and his experience serving as a director of companies in the telecommunications industry. 14 | Ribbon Communications Inc. 2022 Proxy Statement Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix RICHARD W. SMITH Non-Independent Director Director since October 2017 BACKGROUND JPMorgan Chase & Co., a multinational banking and financial services holding company ◾ Chairman, Private Capital, creating and guiding a series of investment entities focused initially on technology, sustainability and healthcare, funded by the bank and clients (February 2021 to present) ◾ Head of Private Investments, responsible for private and public company investments solely funded by the bank (November 2014 to January 2021) ◾ One Equity Partners, Partner (July 2002 to present) Allegra Partners and predecessor entities ◾ Managing Partner (1981 to 2013) Citicorp Venture Capital Ltd., a former venture and private equity investment division of Citigroup Inc. ◾ Senior Investment Manager (1979 to 1981) Morgan Guaranty Trust Company of New York ◾ worked in the International Money Management Group (1974 to 1979) BOARD SERVICE ◾ GENBAND (2014 to 2017) ◾ has over 40 years of experience as a board member of both public and private companies PUBLICATION ◾ Co-author of the book Treasury Management: A Practitioner’s Handbook, John Wiley & Sons, 1980 EDUCATION ◾ BA, Harvard College SKILLS AND EXPERTISE Mr. Smith has held positions as Managing Director and Managing Partner and General Partner at private equity and venture funds since 1981, and has over 40 years of experience as a technology investor. The Board believes Mr. Smith is qualified to serve on the Board due to his extensive background in finance and private equity and his experience serving as a director of companies in the telecommunications industry. TANYA TAMONE Independent Director Director since June 2020 BACKGROUND Sogerco S.A., a private trust company ◾ Chief Executive Officer (2007 to present) Bank Leu, Fuji Bank and Cedef S.A., in Switzerland ◾ Trader, specializing in currency and interest trading (1985 to 1996) BOARD SERVICE ◾ currently serves as a director for several privately held companies SKILLS AND EXPERTISE The Board believes Ms. Tamone is qualified to serve on the Board due to her experience as a Chief Executive Officer and her financial expertise. AGE 69 COMMITTEES ◾ None AGE 60 COMMITTEES ◾ Nominating and Corporate Governance Ribbon Communications Inc. 2022 Proxy Statement | 15 Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix Corporate Governance We are committed to strong corporate governance practices, which include building long-term value for our stockholders and assuring the success of the Company for our stockholders and stakeholders, including our employees, customers, suppliers and the communities in which we operate. To achieve these goals, our Board is charged with monitoring the performance of the Company and our officers as well as its programs and procedures to ensure compliance with law and our overall success. Governance is an ongoing focus at Ribbon, starting with the Board and extending to management and all employees. In addition, we solicit feedback from stockholders on governance and executive compensation practices in order to improve our practices. Strong Governance Practices Annual election of all directors Majority voting for director elections Separate Chairman and CEO Appointment of lead independent director Substantial majority of independent directors Independent directors meet without management Board with wide range of experience and skills Annual equity grant to non-employee directors Annual Board and committee self-assessments Annual advisory approval of executive compensation Disclosure Committee for financial reporting Review and approval policy for related party transactions Share ownership guidelines for our CEO, certain officers and our non-employee directors Clawback policy for recovering incentive-based compensation following an accounting restatement Insider trading policy that prohibits hedging, pledging and other similar actions for our executive officers and directors Oversight of Risk Management At Ribbon, we believe that innovation and leadership are impossible without taking risks. We also recognize that imprudent acceptance of risk or the failure to appropriately identify and mitigate risks could be destructive to stockholder value. The Board is responsible for assessing the Company’s approach to risk management and overseeing management’s execution of its responsibilities for identifying and managing risk. The Board exercises its responsibilities through discussions in Board meetings and also through its committees, each of which examines various components of enterprise risk as part of its responsibilities. THE FULL BOARD generally, oversees and evaluates: ◾ strategic risks, including risks relating to the Covid-19 pandemic and its impact on the Company, our employees, customers and suppliers, and the risks related to management delegation THE AUDIT COMMITTEE THE COMPENSATION COMMITTEE THE NOMINATING AND CORPORATE GOVERNANCE COMMITTEE THE TECHNOLOGY AND INNOVATION COMMITTEE oversees and evaluates: ◾ financial, internal control and cyber security risks oversees and evaluates: ◾◾ risks related to our compensation policies oversees and evaluates: ◾ risks related to governance oversees and evaluates: ◾ risks related to significant R&D decisions 16 | Ribbon Communications Inc. 2022 Proxy Statement Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix Each committee assesses identified risks and informs the Board about the risks as needed. Management also regularly reports on each such risk to the relevant committee or the Board. Moreover, an overall review of risk is inherent in the Board’s consideration of our long-term strategies and in the transactions and other matters presented to the Board, including capital expenditures, acquisitions and divestitures, and financial matters. Additional review or reporting on risks is conducted as needed or as requested by the Board or one of its committees. The Board believes that its role in the oversight of the Company’s risks complements our current Board structure, as our structure allows our independent directors, through our four fully independent Board committees, to exercise effective oversight of the actions of management in identifying risks and implementing effective risk management policies and controls. Board Composition and Stockholders Agreement Our Board currently consists of nine directors, one of whom is employed by the Company (Mr. McClelland). As previously noted in this Proxy Statement, the Company is party to the Stockholders Agreement with the JPM Stockholders and Swarth. The Stockholders Agreement provides, among other things, that: (i) the Board, including a majority of the independent directors as defined in the Stockholders Agreement, may approve a different number of directors that comprise the Board; (ii) with respect to the JPM Stockholders: (A) for so long as the JPM Stockholders beneficially own at least 43% of the Company’s common stock beneficially owned by the JPM Stockholders in the aggregate on March 3, 2020, the JPM Stockholders have the right to designate three directors to serve on the Board, at least two of whom must be independent directors as defined in the Stockholders Agreement; (B) from and after the first time that the JPM Stockholders beneficially own less than 43% and at least 29% of the Company’s common stock beneficially owned by the JPM Stockholders in the aggregate on March 3, 2020, the number of directors that the JPM Stockholders have the right to designate will be reduced to two, at least one of whom must be an independent director as defined in the Stockholders Agreement; (C) from and after the first time that the JPM Stockholders beneficially own less than 29% and at least 14% of the Company’s common stock beneficially owned by the JPM Stockholders in the aggregate on March 3, 2020, the number of directors that the JPM Stockholders have the right to designate will be reduced to one, who need not qualify as an independent director as defined in the Stockholders Agreement; and (D) from and after the first time that the JPM Stockholders beneficially own less than 14% of the shares of the Company’s common stock beneficial owned by the JPM Stockholders in the aggregate on March 3, 2020, the JPM Stockholders will have no right to designate any members of the Board; and (iii) with respect to Swarth: (A) for so long as Swarth beneficially owns at least 88% of the shares of the Company’s common stock beneficially owned by Swarth in the aggregate on March 3, 2020, Swarth has the right to designate three directors to serve on the Board, of which at least two must be independent directors as defined in the Stockholders Agreement; (B) from and after the first time that Swarth beneficially owns less than 88% and at least 58% of the shares of the Company’s common stock beneficially owned by Swarth in the aggregate on March 3, 2020, the number of directors that Swarth has the right to nominate will be reduced to two Board members, of which at least one must be an independent director as defined in the Stockholders Agreement; Ribbon Communications Inc. 2022 Proxy Statement | 17 Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix (C) from and after the first time that Swarth beneficially owns less than 58% and at least 29% of the shares of the Company’s common stock beneficially owned by Swarth in the aggregate on March 3, 2020, the number of directors that Swarth has the right to nominate will be reduced to one Board member, who needs not qualify as an independent director as defined in the Stockholders Agreement; and (D) from and after the first time that Swarth beneficially owns less than 29% of the shares of Company’s common stock beneficially owned by Swarth in the aggregate on March 3, 2020, Swarth will have no right to nominate any members of the Board. The Stockholders Agreement further provides that the Nominating and Corporate Governance Committee will designate the Company’s then-serving CEO as a director, as well as such additional number of directors as constitutes the full Board so that the Board has no vacancies. As previously noted, Krish Prabhu will not stand for election at the 2022 Annual Meeting. As a result, the size of the Board will be set at eight members effective as of the 2022 Annual Meeting and the JPM Stockholders have waived their right to designate a third director. If the JPM Stockholders decide to designate a third director after the 2022 Annual Meeting, it is expected that the Board will take further action to increase the size of the Board to nine members with the additional director position being filled by the third JPM Stockholders designee. In the event any director designated by the JPM Stockholders or Swarth is unable to serve, the JPM Stockholders are and/or Swarth is, as applicable, entitled to designate a replacement director, subject to the conditions set forth in the Stockholders Agreement. Director Experience and Tenure Our directors collectively possess a broad mix of skills, qualifications and proven leadership abilities. The Nominating and Corporate Governance Committee practices a long-term approach to board refreshment. The Nominating and Corporate Governance Committee regularly identifies individuals who would complement and enhance the current directors’ skills and experience. It is of great importance to the Company that the Nominating and Corporate Governance Committee recruit directors who help achieve the goal of an experienced, diverse Board that functions effectively as a group. The Nominating and Corporate Governance Committee expects each of the Company’s directors to have proven leadership skills, sound judgment, integrity, and a commitment to the success of the Company. In evaluating director candidates and considering incumbent directors for nomination to the Board, the Committee considers a variety of factors, including independence, financial literacy, personal and professional accomplishments, and experience in light of the needs of the Company. For incumbent directors, the factors also include attendance, past performance on the Board and contributions to the Board and its respective committees. 18 | Ribbon Communications Inc. 2022 Proxy Statement Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix BOARD EXPERTISE Director Skills and Experience Audit and financial reporting Corporate governance Executive leadership Financial industry, investments, M&A Global business Human capital management Legal, regulatory Other public company boards Sales and marketing Strategic planning, operations Risk management Technology, digital, communications de Beer Ewing Grayson Infante McClelland Shani Smith Tamone # 1 5 7 7 6 8 2 4 1 6 8 6 Director Independence Our Corporate Governance Guidelines provide that, in determining the independence of a director, the Board will be guided by the definitions of “independent director” in the listing rules of Nasdaq and applicable laws and regulations as well as the definition of “independent director” set forth in the Stockholders Agreement. During its annual review of director independence, the Board considers all information it deems relevant, including without limitation, any transactions and relationships between each director or any member of his or her immediate family and the Company and its subsidiaries and affiliates. The Board conducted an annual review of director independence and affirmatively determined that each of Mariano S. de Beer, R. Stewart Ewing, Jr., Bruns H. Grayson, Beatriz V. Infante, Krish A. Prabhu and Tanya Tamone met the definition of “independent director” under the Nasdaq listing rules and the Stockholders Agreement. Following a review of their respective relationships, including, with respect to Mr. Smith, his affiliation with the JPM Stockholders, and with respect to Mr. Shani, his affiliation with Swarth, the Board determined that none of Bruce W. McClelland, Shaul Shani or Richard W. Smith qualify as independent directors under the Nasdaq listing rules or the Stockholders Agreement. There are no family relationships among any of our directors, nominees for director and executive officers. Ribbon Communications Inc. 2022 Proxy Statement | 19 Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix Meeting Attendance Our Board recognizes the importance of director attendance at Board and committee meetings. Our Board held four meetings during 2021, all of which were regular meetings. Each of the incumbent directors attended at least 75% of the combined total meetings of the Board and its committees on which they served. While we do not have a formal policy regarding the attendance of directors at our annual meetings of stockholders, it is expected that, absent compelling circumstances, all of our directors will attend. All of the then-current members of the Board attended our 2021 annual meeting of stockholders. Board Committees Our Board has four standing committees: The Audit Committee The Compensation Committee The Nominating and Corporate Governance Committee The Technology and Innovation Committee Each of the standing committees is composed entirely of independent directors as defined under applicable rules, including the Nasdaq rules and, in the case of all members of the Audit Committee, the independence requirements of Rule 10A-3 under the Exchange Act and, in the case of all members of the Compensation Committee, the heightened independence requirements for Compensation Committee members under the Nasdaq rules. The following table shows the current composition of each of the Board’s standing committees: Director Independent Audit Compensation Nominating and Corporate Governance Technology and Innovation Committee Membership Mariano S. de Beer R. Stewart Ewing, Jr. Bruns H. Grayson Beatriz V. Infante Bruce W. McClelland Krish A. Prabhu(1) Shaul Shani Richard W. Smith Tanya Tamone Number of Meetings in 2021 Board — 8 8 7 4 4 Committee Chair Committee Member Chairman of the Board Lead Independent Director Audit Committee finanical expert (1) Mr. Prabhu will not stand for election at the 2022 Annual Meeting. Under the Stockholders Agreement and subject to the Company’s obligation to comply with any applicable independence requirements under the Nasdaq rules and the rules of the SEC, or unless waived by the JPM Stockholders, for so long as the JPM Stockholders have the right to nominate at least two directors to the Board: (i) the Nominating and Corporate Governance Committee will be comprised of three “independent directors” under the Stockholders Agreement, at least one of whom must be a designee of JPM Stockholders; 20 | Ribbon Communications Inc. 2022 Proxy Statement Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix (ii) a designee of the JPM Stockholders must be the Chairman of each of the Nominating and Corporate Governance Committee and the Compensation Committee; and (iii) only in the case that Swarth does not have the right to nominate at least two directors to the Board, a designee of the JPM Stockholders must be the Chairman of the Audit Committee. Also under the Stockholders Agreement and subject to the Company’s obligation to comply with any applicable independence requirements under the Nasdaq rules and the rules of the SEC, or unless waived by Swarth, for so long as Swarth has the right to nominate at least two directors to the Board: (i) the Nominating and Corporate Governance Committee must be comprised of three “independent directors” under the Stockholders Agreement, at least one of whom must be a designee of Swarth, (ii) a designee of Swarth must be the Chairman of the Audit Committee; and (iii) only in the case that the JPM Stockholders do not have the right to nominate at least two directors to the Board, a designee of Swarth must be the Chairman of each of the Nominating and Corporate Governance Committee and the Compensation Committee. The Nominating and Corporate Governance Committee determines the size and membership of each of the Audit Committee, the Compensation Committee, the Technology and Innovation Committee and all other committees established by the Board, provided that: (i) such determination will comply with mandatory legal and listing requirements; (ii) for as long as the JPM Stockholders have the right to nominate at least one director to the Board who is eligible to serve on such committee, at least one member of each such committee will be a designee of the JPM Stockholders; and (iii) for so long as Swarth has the right to nominate at least one director to the Board who is eligible to serve on such committee, at least one member of each such committee must be a designee of Swarth. Ribbon Communications Inc. 2022 Proxy Statement | 21 Summary Information Corporate Governance and Board Matters AUDIT COMMITTEE CURRENT COMMITTEE MEMBERS Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix All members of the Audit Committee are independent ◾ R. Stewart Ewing, Jr., Chair ◾ Bruns H. Grayson ◾ Beatriz V. Infante KEY RESPONSIBILITIES As described more fully in its charter, the Audit Committee’s responsibilities include, among other things: (i) appointing, evaluating, retaining, compensating or setting the compensation of, and overseeing the work of and, if appropriate, terminating the appointment of the independent auditor; (ii) overseeing the Company’s financial reporting, including reviewing and discussing with management, the independent auditor and a member of the internal audit function, prior to public release, the Company’s annual and quarterly financial statements to be filed with the SEC; (iii) overseeing management’s design and maintenance of the Company’s internal control over financial reporting and disclosure controls and procedures; and (iv) reviewing and discussing with management and the independent auditor the Company’s financial and cyber security risk exposures and assessing the policies and procedures management has implemented to monitor and control such exposures. CHARTER The Audit Committee operates pursuant to a written charter adopted by the Board that reflects standards and requirements adopted by the SEC and Nasdaq, a current copy of which is available at investors.ribboncommunications.com/corporate- governance/governance-highlights QUALIFICATIONS Our Board has determined that Mr. Ewing is an “audit committee financial expert” as defined in Item 407(d)(5) of Regulation S-K. This designation is a disclosure requirement of the SEC related to Mr. Ewing’s experience and understanding with respect to certain accounting and auditing matters, but it does not impose upon Mr. Ewing any duties, obligations or liability that are greater than are generally imposed on him as a member of the Audit Committee and the Board, and his designation as an audit committee financial expert pursuant to this SEC requirement does not affect the duties, obligations or liability of any other member of the Audit Committee or the Board. REPORT The Audit Committee Report is on page 34 of this proxy statement. 22 | Ribbon Communications Inc. 2022 Proxy Statement Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix COMPENSATION COMMITTEE CURRENT COMMITTEE MEMBERS All members of the Compensation Committee are independent ◾ Beatriz V. Infante, Chair ◾ Bruns H. Grayson ◾ Krish A. Prabhu The Compensation Committee may delegate its authority under its charter to one or more subcommittees or members of management, consistent with applicable law and SEC and Nasdaq rules. Specifically, the Compensation Committee may delegate to one or more executive officers of the Company the power to grant options or other equity awards pursuant to the Company’s equity plans to certain employees of the Company. CHARTER The Compensation Committee operates pursuant to a written charter adopted by the Board that reflects standards and requirements adopted by Nasdaq, a current copy of which is available at investors.ribboncommunications.com/corporate- governance/governance-highlights REPORT The Compensation Committee Report is on page 72 of this proxy statement. KEY RESPONSIBILITIES As described more fully in its charter, the Compensation Committee’s responsibilities include, among other things: (i) reviewing and approving the Company’s compensation plans, practices and policies for directors and executive officers, including a review of any risks arising from compensation practices and policies for employees that are reasonably likely to have a material adverse effect on the Company; (ii) reviewing the Company’s succession plans for executive officers, where requested to do so by the Board; (iii) making recommendations to the Board regarding the establishment and terms of any incentive compensation or equity-based plans and monitoring their administration; (iv) before selecting or receiving advice from a compensation advisor (other than in-house legal counsel), considering various factors relating to the independence of such advisor; and (v) reviewing the Company’s culture and policies and strategies related to human capital management, including with respect to diversity and inclusion initiatives, pay equity, talent and performance management and employee engagement. Ribbon Communications Inc. 2022 Proxy Statement | 23 Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix NOMINATING & CORPORATE GOVERNANCE COMMITTEE CURRENT COMMITTEE MEMBERS All members of the N&CG Committee are independent ◾ Bruns H. Grayson, Chair ◾ Stewart Ewing, Jr. ◾ Tanya Tamone KEY RESPONSIBILITIES As described more fully in its charter, the Nominating & Corporate Governance Committee’s responsibilities include, among other things: (i) identifying, screening and reviewing individuals qualified to serve as directors, consistent with criteria approved by the Board, and recommending to the Board candidates for: (a) nomination for election by the stockholders, and (b) any Board vacancies that are to be filled by the Board, subject to any rights regarding the selection of directors by holders of preferred shares and any other contractual or other commitments of the Company; (ii) developing and recommending to the Board, overseeing the implementation and effectiveness of, and recommending modifications as appropriate to, a set of corporate governance guidelines applicable to the Company; (iii) reviewing annually with the Board the composition of the Board as a whole and a succession plan in the event one or more directors ceases to serve for any reason; (iv) overseeing the annual self-evaluation of the Board, its committees, individual directors and management; (v) identifying appropriate director development and continuing education opportunities and making recommendations to the Board as appropriate; and (vi) reviewing the Company’s strategies, activities, policies and communications regarding ESG related matters and making recommendations to the Board as appropriate. CHARTER The Nominating and Corporate Governance Committee operates pursuant to a written charter adopted by the Board that reflects standards and requirements adopted by Nasdaq, a current copy of which is available at investors.ribboncommunications.com/corporate- governance/governance-highlights TECHNOLOGY & INNOVATION COMMITTEE CURRENT COMMITTEE MEMBERS All members of the T&I Committee are independent ◾ Mariano S. de Beer, Chair ◾ Beatriz V. Infante ◾ Krish A. Prabhu KEY RESPONSIBILITIES As described more fully in its charter, the Technology & Innovation Committee’s responsibilities include, among other things, reviewing and discussing with the Company’s management: (i) the Company’s overall corporate strategy and approach to leverage technological and commercial innovation to accomplish the financial and market goals established by the Company including business performance, market share growth and competitive leadership; (ii) significant investments in technology and software by the Company; (iii) technology risks, opportunities and trends that could significantly affect the Company and the businesses in which it operates; and (iv) the direction and effectiveness of the Company’s research and development operations. CHARTER The Technology and Innovation Committee operates pursuant to a written charter adopted by the Board, a current copy of which is available at investors.ribboncommunications.com/corporate- governance/governance-highlights 24 | Ribbon Communications Inc. 2022 Proxy Statement Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix Director Nomination Process The Nominating and Corporate Governance Committee screens and recommends candidates for nomination by the full Board, other than those directors designated pursuant to the Stockholders Agreement. There are no specific minimum qualifications for a recommended nominee to our Board; however, the Nominating and Corporate Governance Committee considers, among other skills and criteria, the following for nomination as a director: ◾ ◾ ◾ ◾ ◾ ◾ ◾ demonstrated business knowledge, technical skills and experience; an ability to exercise sound judgment in matters that relate to our current and long-term objectives; commitment to understanding us and our industry and to regularly attend and participate in meetings of our Board and its committees; a reputation for integrity, honesty and adherence to high ethical standards; diversity of background and other desired qualities; the ability and experience to understand the sometimes conflicting interests of our various constituencies and to act in the interests of all stockholders; and the absence of any conflict of interest that would impair the nominee’s ability to represent the interest of all our stockholders and to fulfill the responsibilities of being a director. In considering whether to recommend any particular candidate for inclusion in our Board’s slate of recommended director nominees, the Nominating and Corporate Governance Committee applies the criteria generally set forth in the Nominating and Corporate Governance Committee Charter. The process followed by the Nominating and Corporate Governance Committee to identify and evaluate director candidates includes requests to our Board members and others for recommendations, meetings from time to time to evaluate biographical information and background material relating to potential candidates and interviews of selected candidates by members of the Nominating and Corporate Governance Committee and our Board. Our Board believes that the backgrounds and qualifications of its directors, considered as a group, should provide a composite mix of experience, knowledge and abilities that will allow our Board to fulfill its responsibilities. In identifying potential director candidates, the Nominating and Corporate Governance Committee and the Board also focus on ensuring that the Board reflects diversity, including in experiences, backgrounds and skills. The Nominating and Corporate Governance Committee has the authority to engage independent advisors to assist in the process of identifying and evaluating director candidates, but has not engaged any such advisors to date. Stockholder Nominations and Recommendations of Director Candidates Stockholders who wish to recommend candidates to the Nominating and Corporate Governance Committee for consideration as potential director candidates should send their recommendation to: The Nominating and Corporate Governance Committee c/o Corporate Secretary Ribbon Communications Inc. 6500 Chase Oaks Blvd., Suite 100 Plano, Texas 75023 In considering candidates submitted by stockholders, the Nominating and Corporate Governance Committee will take into consideration the current make-up of the Board, what skills should be added (if any) and the qualifications of the candidate. The Nominating and Corporate Governance Committee will consider director candidates recommended by stockholders in the same manner as candidates recommended by the Nominating and Corporate Governance Committee, as described above in “Director Nomination Process.” Ribbon Communications Inc. 2022 Proxy Statement | 25 Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix Stockholders who wish to nominate director candidates or propose business to be considered directly at an annual meeting in accordance with the procedures set forth in our by-laws should follow the procedures set forth under the sections entitled “Stockholder Nominations and Proposals for Presentation at 2023 Annual Meeting.” Board Leadership Structure The Company’s Corporate Governance Guidelines provide that the Board leadership structure that is most appropriate for the Company at this time is a non-executive Chairman. The Board evaluates its leadership structure and role in risk oversight on an ongoing basis and makes decisions on the basis of what it considers to be best for the Company at any given point in time. Currently, our Board leadership structure consists of a non-executive Chairman, a separate CEO, a lead independent director and strong committee chairs. The Board believes its leadership structure provides for appropriate independence between the Board and management because the current leadership structure offers the following benefits: ◾ ◾ ◾ ◾ ◾ ◾ increasing the independent oversight of Ribbon and enhancing our Board’s objective evaluation of our CEO; focusing the CEO on company operations instead of Board administration; providing the CEO with an experienced sounding board; providing greater opportunities for communication between stockholders and our Board; enhancing the independent and objective assessment of risk by our Board; and providing an independent spokesperson for our Company. Executive Sessions of the Board The Company’s Board is structured to promote independence and is designed so that independent directors exercise oversight of the Company’s management and key issues related to strategy and risk. Under our Corporate Governance Guidelines, our independent directors are required to meet in executive session at regularly scheduled Board meetings without management present to discuss any matters the independent directors consider appropriate. We expect the Board to have a least four executive sessions each year. Additional Governance Matters Code of Ethics Our Board has adopted a written Amended and Restated Code of Conduct, which qualifies as a “code of ethics” as defined by SEC rules. The Amended and Restated Code of Conduct is intended to provide guidance on the conduct expected of Ribbon’s employees, officers and directors in the interests of preserving Ribbon’s reputation for integrity, accountability and fair dealing. To ensure that our business is conducted in a consistently legal and ethical manner, our Amended and Restated Code of Conduct applies to all of our directors, officers and employees. We intend to disclose any amendment to or waiver of a provision of the Amended and Restated Code of Conduct that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, by posting such information on our website at www.ribboncommunications.com. Public Availability of Corporate Governance Documents For more corporate governance information, you are invited to access our key corporate governance documents, including our Corporate Governance Guidelines, Amended and Restated Code of Conduct and the charters of our Audit Committee, Compensation Committee, Nominating and 26 | Ribbon Communications Inc. 2022 Proxy Statement Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix Corporate Governance Committee, and Technology and Innovation Committee on our corporate website at www.ribboncommunications.com, in the section entitled Company — Investor Relations — Corporate Governance — Governance Highlights. The references in this Proxy Statement to our corporate website are not intended to, and do not, incorporate by reference into this Proxy Statement any materials contained on such website. Stockholder Communications with the Board of Directors Stockholders may communicate with our Board by contacting our Investor Relations Department: Investor Relations Department Ribbon Communications Inc. 6500 Chase Oaks Blvd., Suite 100 Plano, Texas 75023 (978) 614-8050 ir@rbbn.com Our Investor Relations Department will review all such communications and will forward to the Lead Independent Director all communications that raise an issue appropriate for consideration by our Board. Transactions with Related Persons The Board adopted a written related person transaction policy, which sets forth our policies and procedures for the review, approval or ratification of any transaction required to be reported in our filings with the SEC. Under the policy, any potential related person transactions must be reported to our Chief Legal Officer, who is responsible for determining whether such transactions constitute related person transactions subject to the policy. Our Chief Legal Officer is required to present to the Audit Committee each proposed related person transaction. The Audit Committee may approve or ratify the transaction only if the Audit Committee determines that, under all of the circumstances, the transaction is in the best interests of the Company and its stockholders, as the Audit Committee determines in good faith. The Audit Committee may, in its sole discretion, impose such conditions as it deems appropriate on the Company or the related person in connection with approval of the related person transaction. If the Audit Committee does not approve or ratify a related person transaction, such transaction will not be entered into or will be terminated, as the Audit Committee directs. The following are certain transactions, arrangements and relationships with our directors, executive officers and stockholders owning 5% or more of our outstanding common stock since January 1, 2021. Stockholders Agreement On March 3, 2020, the Company entered into the Stockholders Agreement with the JPM Stockholders and Swarth. The Stockholders Agreement provides the JPM Stockholders and Swarth with certain Board and Board committee designation rights as described above under “Corporate Governance — Board Composition and Stockholders Agreement” and “Corporate Governance — Board Committees,” and contains certain voting commitments as described in “Proposal 1 — Election of Directors.” Standstill Restrictions The Stockholders Agreement contains certain standstill provisions restricting the JPM Stockholders and Swarth from acquiring (or seeking or making any proposal or offer with respect to acquiring) additional shares of Ribbon common stock or any security convertible into Ribbon common stock or any assets, indebtedness or businesses of Ribbon common stock or any of its subsidiaries. Certain customary exclusions apply, and acquisition of shares of Ribbon common stock by a Ribbon stockholder will be permitted so long as such acquisition would not result in such stockholder and Ribbon Communications Inc. 2022 Proxy Statement | 27 Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix its affiliates beneficially owning a number of Ribbon common stock that is greater than 120% of the number of voting shares of Ribbon common stock held by the JPM Stockholders or Swarth, as applicable, on March 3, 2020 (or such lower number as specified in the Stockholders Agreement). The standstill restrictions apply from the date of the Stockholders Agreement until the earlier of (i) the entry by Ribbon into a definitive agreement constituting a change of control transaction as discussed in further detail below and (ii) such date as the JPM Stockholders or Swarth, as applicable, no longer has a right to designate any members of the Board. Change of Control Without the approval of a majority of the disinterested directors serving on the Board, neither the JPM Stockholders nor Swarth may enter into or affirmatively support any transaction resulting in a change of control of Ribbon in which any such stockholder receives per share consideration as a holder of Ribbon common stock in excess of that to be received by other holders of Ribbon common stock. Transfer Restrictions Without the approval of a majority of the disinterested directors serving on the Board, until March 3, 2023, no JPM Stockholder nor Swarth may transfer any shares of Ribbon common stock that it beneficially owns if such transfer involves more than 15% of the outstanding shares of Ribbon common stock or if the transferee would own 15% or more of the outstanding shares of Ribbon common stock following such transfer, other than to a permitted transferee that agrees to be subject to the Stockholders Agreement or pursuant to a regulatory requirement. Termination The Stockholders Agreement will terminate by mutual consent of Ribbon, a majority in interest of the JPM Stockholders and Swarth (including the approval by a majority of Independent Directors) or with respect to either the JPM Stockholders or Swarth, on the date that such stockholder ceases to beneficially own 2% or more of the issued and outstanding Ribbon common stock. Registration Rights Agreement On March 3, 2020, the Company entered into a First Amended and Restated Registration Rights Agreement (the “Registration Rights Agreement”) with the JPM Stockholders and Swarth. Under the Registration Rights Agreement, certain holders of Ribbon common stock were granted certain registration rights, including: (i) the right to request that Ribbon file an automatic shelf registration statement and effect unlimited underwritten offerings pursuant to such shelf registration statement; (ii) unlimited demand registrations; and (iii) unlimited piggyback registration rights that allow holders of registrable shares to require that shares of Ribbon common stock owned by such holders be included in certain registration statements filed by Ribbon, in each case subject to the transfer restrictions contained in the Stockholders Agreement. In connection with these registration rights, Ribbon has agreed to effect certain procedural actions, including taking certain actions to properly effect any registration statement or offering and to keep the participating Ribbon stockholders reasonably informed with adequate opportunity to comment and review, as well as customary indemnification and contribution agreements. 28 | Ribbon Communications Inc. 2022 Proxy Statement Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix Director Compensation The Compensation Committee reviews the compensation of our non-employee directors periodically and, in consultation its independent compensation consultant regarding compensation on levels for peer companies and the broader market, recommends changes to the Board when it deems appropriate. In August 2021, the Board approved a new Non-Employee Director Compensation Policy (the “Director Compensation Policy”). Under the Director Compensation Policy, all fees payable for service on the Board and its committees remained unchanged except: (1) the annual cash fee payable to the Chairman of the Board was reduced from $100,000 to $50,000 (Mr. Shani, as Chairman of the Board, waived receipt of the cash fee in 2021); and (2) an additional annual fee was added for service as lead independent director (Mr. Grayson, as lead independent director, waived receipt of the additional cash fee for service as lead independent director in 2021). In addition, the Director Compensation Policy permits a director to elect to receive all or 50% of the cash fees payable to her or him in shares of the Company’s common stock and further permits a director to defer receipt of all or 50% of any shares payable to her or him upon vesting of equity awards until the 15th day of the month following the date on which the electing director ceases to serve on the Board (or earlier in connection with a change in control as defined under the Director Compensation Policy). Pursuant to the Director Compensation Policy, Mr. Grayson has elected, effective as of the first quarter of 2022, to receive 100% of the cash fees payable to him in shares of the Company’s common stock. The following table describes the components of the non-employee directors’ compensation for 2021: Compensation Element Annual Retainer Annual Equity Retainer Compensation Payment $60,000(1)(2) $120,000(1) in restricted stock units that vest after one year (or, if earlier, on the date of the next annual meeting if the non- employee director does not stand for re-election or is not re-elected by stockholders of the Company) Committee Fees(3) Audit Committee Compensation Committee Nominating and Corporate Governance Committee Technology and Innovation Committee Non-Executive Chairman Fee(3) Lead Independent Director Fee(3) Chair Fees(3) Audit Committee Compensation Committee Nominating and Corporate Governance Committee $15,000 $10,000 $5,000 $5,000 $50,000(2) $50,000(4) $25,000 $17,000 $10,000 Technology and Innovation Committee $10,000 New Director Retainer Stock Ownership Guidelines New non-employee directors will receive a pro rata annual equity award of restricted stock units, with the proration based on the number of months of service until the month of the Company’s next annual stockholders meeting Directors are expected to hold all of the shares of the Company’s common stock granted to them and to maintain such amount of stock ownership throughout their tenure as a director Ribbon Communications Inc. 2022 Proxy Statement | 29 Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix (1) Mr. Smith is not entitled to any annual director equity grants. In lieu of such grants, Mr. Smith is entitled to an annual cash retainer of $160,000. As described below, Mr. Smith waived receipt of this cash retainer effective April 1, 2020. Any compensation paid to Mr. Smith will be paid directly to Heritage PE (OEP) III L.P. (“Heritage III”). (2) Mr. Shani waived receipt of any cash compensation for his service as Chairman of the Board in 2021. (3) Compensation for service as the chairman of the Board, lead independent director or a committee member is in addition to the compensation paid for Board and committee service. (4) The fee for service as lead independent director was approved in September 2021, however Mr. Grayson waived payment of the pro rata portion of this fee for 2021. Total Director Compensation for 2021 The following table contains information on compensation earned by each non-employee member of our Board during 2021: Fees Earned or Paid in Cash ($) Stock Awards(1) ($) Director Mariano S. de Beer R. Stewart Ewing, Jr Bruns H. Grayson Beatriz V. Infante Krish A. Prabhu Shaul Shani(3) Richard W. Smith(4) Tanya Tamone 67,500 105,000 100,000 107,000 75,000 — — 65,000 120,004 120,004 120,004 120,004 120,004 120,004 — Total(2) ($) 187,504 225,004 220,004 227,004 195,004 120,004 — 120,004 185,004 (1) The amounts in this column do not reflect compensation actually received by the applicable director. Instead, the amounts reflect the grant date fair value of restricted stock awards, as calculated in accordance with Accounting Standards Codification 718, Compensation — Stock-Based Compensation (“ASC 718”). The amounts reported for each member of the Board represents the grant date fair value of his or her grants during 2021. The grants made to each director during 2021 were as follows: Director Mariano S. de Beer R. Stewart Ewing, Jr. Bruns H. Grayson Beatriz V. Infante Krish A. Prabhu Shaul Shani Richard W. Smith Tanya Tamone Restricted Stock Units (#) Grant Date Fair Value ($) 14,797(a) 14,797(a) 14,797(a) 14,797(a) 14,797(a) 14,797(a) — 14,797(a) 120,004 120,004 120,004 120,004 120,004 120,004 — 120,004 (a) Annual director RSU award granted on June 15, 2021 that vests on June 15, 2022 or, if earlier, on the date of the next annual meeting if the non-employee director does not stand for re-election or is not re-elected by stockholders of the Company. 30 | Ribbon Communications Inc. 2022 Proxy Statement Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix As of December 31, 2021, our non-employee directors (serving as of that date) held an aggregate of 103,579 unvested restricted stock units as follows Director Mariano S. de Beer R. Stewart Ewing, Jr. Bruns H. Grayson Beatriz V. Infante Krish A. Prabhu Shaul Shani Richard W. Smith Tanya Tamone Number of Unvested RSUs Held as of December 31, 2021 (#) 14,797 14,797 14,797 14,797 14,797 14,797 — 14,797 (2) Non-employee directors also are eligible to be reimbursed for reasonable out-of-pocket expenses incurred in connection with attendance at our Board or committee meetings. (3) Mr. Shani waived receipt of any cash compensation for his service as director in 2021. (4) Mr. Smith is not entitled to any equity compensation in connection with his services as a member of the Board. Effective April 1, 2020, Mr. Smith waived receipt of any compensation in connection with his service as a director. Ribbon Communications Inc. 2022 Proxy Statement | 31 Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix AUDIT MATTERS 2 Proposal 2 — Ratification of the Appointment of Independent Registered Public Accounting Firm The Audit Committee of the Board of Directors has appointed Deloitte & Touche LLP (“Deloitte”) as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2022. Deloitte has acted as the independent registered accounting firm of Ribbon since the closing of the GENBAND merger in 2017, and of Sonus Networks, Inc. from August 2005 until the closing of the GENBAND merger. We are asking our stockholders to ratify this appointment. Although ratification of our appointment of Deloitte is not required, we value the opinions of our stockholders and believe that stockholder ratification of our appointment is a good corporate governance practice. If this proposal is not approved at the 2022 Annual Meeting, our Audit Committee may consider this fact when it appoints our independent registered public accounting firm for the fiscal year ending December 31, 2023. Even if the proposal is approved at the 2022 Annual Meeting, the Audit Committee may, at its discretion, direct the appointment of a different independent registered public accounting firm at any time during the year if it determines that such change would be in the interests of the Company and its stockholders. Representatives of Deloitte are expected to virtually attend the 2022 Annual Meeting and will have the opportunity to make a statement and be available to respond to appropriate questions by stockholders. PROPOSAL 2 The Board of Directors recommends that stockholders vote FOR the ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for 2022. Deloitte Fees The following is a summary and description of fees for services provided by Deloitte in 2021 and 2020: Fee Category Audit fees(1) Audit-related fees(2) Tax fees(3) All other fees(4) Total Fiscal Year Ended 2021 ($) 2,551,006 15,000 150,494 3,790 2,720,290 2020 ($) 2,518,608 484,450 304,326 — 3,307,384 (1) Audit fees. These amounts for 2021 represent fees for the audit of our consolidated financial statements included in our 2021 Annual Report on Form 10-K (the “2021 Annual Report”), the review of financial statements included in our Quarterly Reports on Form 10-Q, the audit of our internal control over financial reporting and the services that an independent auditor would customarily provide in connection with subsidiary audits, statutory requirements, regulatory filing and similar engagements for the fiscal year, such as consents and assistance with review of documents filed with the SEC. Audit fees also include advice on accounting matters that may arise in connection with, or as a result of, the audit or the review of periodic consolidated financial statements and statutory audits that non-U.S. jurisdictions require. 32 | Ribbon Communications Inc. 2022 Proxy Statement Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix (2) Audit-related fees. Audit-related fees consist of fees related to due diligence services and accounting consultations regarding the application of generally accepted accounting principles to proposed transactions. (3) Tax fees. Tax fees consist of professional services for tax compliance, tax advice and tax planning. These services include assistance regarding federal, state and international tax compliance, value-added tax compliance, and transfer pricing advice and planning. (4) All other fees. All other fees consist of professional products and services other than the services reported above, including fees for our subscription to Deloitte’s online accounting research tool. Policy on Audit Committee Pre-Approval of Audit and Non-Audit Services The Audit Committee has adopted a policy to pre-approve audit and permissible non-audit services provided by the independent registered public accounting firm. These services may include audit services, audit-related services, tax services and other services. Prior to engagement of the independent registered public accounting firm for the next year’s audit, the independent registered public accounting firm and our management submit a list of services expected to be rendered during that year for each of the four categories of services to the Audit Committee for approval. Pre-approval is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of services. The independent registered public accounting firm and our management periodically report to the Audit Committee regarding the extent of services provided by the independent registered public accounting firm in accordance with this pre-approval process. The Audit Committee may also pre-approve particular services on a case-by-case basis. The Audit Committee pre-approved all of the services and fees of Deloitte set forth above in accordance with such policy. Our Audit Committee requires the regular rotation of the lead audit partner and concurring partner as required by Section 203 of the Sarbanes-Oxley Act of 2002 and is responsible for recommending to our Board policies for hiring employees or former employees of the independent registered public accounting firm. The Audit Committee has determined that the provision of services described above to us by Deloitte is compatible with maintaining Deloitte’s independence. Ribbon Communications Inc. 2022 Proxy Statement | 33 Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix Audit Committee Report The information contained in this report shall not be deemed to be “soliciting material” or “filed” or incorporated by reference in future filings with the U.S. Securities and Exchange Commission, or subject to the liabilities of Section 18 of the Securities Exchange Act of 1934, as amended, except to the extent that we specifically request that it be treated as soliciting material or specifically incorporate it by reference into a document filed under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended. We reviewed Ribbon’s audited financial statements for the fiscal year ended December 31, 2021 and discussed these financial statements with Ribbon’s management, including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments and the clarity of disclosures in the financial statements. Ribbon’s management is responsible for Ribbon’s financial reporting process, including its system of internal controls, and for the preparation of consolidated financial statements in accordance with generally accepted accounting principles. Ribbon’s independent registered public accounting firm, Deloitte, is responsible for performing an independent audit of Ribbon’s financial statements in accordance with standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”) and issuing a report on those financial statements and issuing a report on the effectiveness of Ribbon’s internal control over financial reporting as of the end of the fiscal year. Our responsibility is to monitor and review these processes. We also reviewed and discussed with Deloitte the audited financial statements and the matters required by the SEC and PCAOB. Deloitte provided us with, and we reviewed, the written disclosures and the letter required by the applicable requirements of the PCAOB that independent registered public accounting firms annually to disclose in writing all relationships that in the independent registered public accounting firm’s professional opinion may reasonably be thought to bear on independence, to confirm their independence and to engage in a discussion of independence. In addition to engaging in this discussion with Deloitte regarding its independence, we also considered whether Deloitte’s provision of other, non-audit related services to Ribbon is compatible with maintaining Deloitte’s independence. Based on our discussions with management and Deloitte, and our review of information provided by management and Deloitte, we recommended to the Ribbon Board of Directors that the audited financial statements be included in Ribbon’s Annual Report on Form 10-K for the year ended December 31, 2021. Submitted by, THE AUDIT COMMITTEE R. Stewart Ewing, Jr. (Chair) Bruns H. Grayson Beatriz V. Infante 34 | Ribbon Communications Inc. 2022 Proxy Statement Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix EXECUTIVE OFFICERS The executive officers of the Company as of the date hereof are listed below: Name Age Position Bruce W. McClelland Miguel (“Mick”) Lopez Steven Bruny Sam Bucci Patrick Macken Steve McCaffery Anthony Scarfo 55 62 63 57 48 55 61 President and Chief Executive Officer Executive Vice President, Chief Financial Officer Executive Vice President, Sales — Americas Region Executive Vice President and General Manager, IP Optical Networks Business Unit Executive Vice President, Chief Legal Officer and Corporate Secretary Executive Vice President, Sales — EMEA and APAC Regions Executive Vice President and General Manager, Cloud and Edge Business Unit Biographical information regarding each executive officer other than Bruce W. McClelland is set forth below. Mr. McClelland’s biographical information is set forth above under the section entitled “Proposal 1 — Election of Directors.” AGE 62 MIGUEL LOPEZ EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL OFFICER BACKGROUND Ribbon Communications Inc. ◾ Executive Vice President, Chief Financial Officer (July 2020 to present) Earlier in his career, he gained valuable experience as ◾ Vice President, Finance at Cisco Systems ◾ VP Business Development at Tyco Fire & Vista Outdoor Inc., outdoor sports and recreation consumer products ◾ Chief Financial Officer (2018 to April 2020) Veritas Technologies, corporate software ◾ Chief Financial Officer (2016 to 2017) Harris Corporation, global defense contractor ◾ Chief Financial Officer (2014 to 2016) Aricent Group/KKR Private Equity, outsourced networked engineering services ◾ Chief Financial Officer Security ◾ CFO of ADT Security North America ◾ Director of Finance at IBM Corp ◾ Auditor at KPMG EDUCATION ◾ Certified Public Accountant (1983) ◾ MBA, University of Chicago ◾ BSBA, Georgetown University Ribbon Communications Inc. 2022 Proxy Statement | 35 Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix EXECUTIVE VICE PRESIDENT, SALES — AMERICAS REGION Connexn Technologies, Inc., a telecommunications company ◾ Co-Founder IGS, a telecommunications software supplier ◾ Founder and CEO Information Graphics Systems, Inc., a GIS software provider ◾ Founder and CEO EDUCATION ◾ MBA, University of Colorado ◾ BS, Colorado State University STEVEN BRUNY BACKGROUND Ribbon Communications Inc. ◾ Executive Vice President, Sales — Americas Region (March 2020 to present) ◾ Executive Vice President, Global Sales and Services (January 2019 to March 2020) ◾ Interim Co-President and Chief Executive Officer (November 2019 to February 2020) ◾ Executive Vice President, Global Operations (October 2017 to January 2019) GENBAND ◾ Chief Operating Officer (January 2015 to October 2017) ◾ Senior Vice President of Major Accounts Sales Aztek Networks, Inc., a telecommunications company ◾ Chief Executive Officer (July 2005 to March 2012) SAM BUCCI EXECUTIVE VICE PRESIDENT AND GENERAL MANAGER, IP OPTICAL NETWORKS BUSINESS UNIT BACKGROUND Ribbon Communications Inc. ◾ Executive Vice President and General Manager, IP Optical Networks Business Unit (September 2020 to present) Nokia / Alcatel-Lucent, a global communications solutions company ◾ Director optical networking business unit (1994 to 2020) Nortel Networks, a global communications solutions company ◾ served in the optical business unit in various senior product management, sales and business development roles over several years EDUCATION ◾ Bachelor of Engineering, with distinction, McGill University in Canada PATRICK MACKEN EXECUTIVE VICE PRESIDENT, CHIEF LEGAL OFFICER AND CORPORATE SECRETARY BACKGROUND Ribbon Communications Inc. ◾ Executive Vice President, Chief Legal Officer and Corporate Secretary (June 2020 to present) ARRIS International plc, a global communications solutions company ◾ Senior Vice President, General Counsel and Secretary (2015 to 2019) Troutman Sanders LLP (now Troutman Pepper Hamilton Sanders LLP) ◾ Partner in the corporate practice EDUCATION ◾ JD, magna cum laude, Tulane Law School; member of the Order of the Coif ◾ BA, Tulane University AGE 63 AGE 57 AGE 48 36 | Ribbon Communications Inc. 2022 Proxy Statement Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix AGE 55 AGE 61 STEVE MCCAFFERY EXECUTIVE VICE PRESIDENT, SALES — EMEA AND APAC REGIONS BACKGROUND Ribbon Communications Inc. ◾ Executive Vice President, Sales — EMEA and APAC Regions (January 2021 to present) GOT2, a consulting business ◾ CEO (2019 to January 2021) ARRIS International plc, a global communications solutions company ◾ Director of international business (2013 to 2019) Motorola Home, a global communications solutions company (acquired by ARRIS in 2013) ◾ Vice President, Europe Native Networks, a data company ◾ Manager, Optical Networks business for EMEA EDUCATION ◾ BA, with honors, University of Warwick ANTHONY SCARFO EXECUTIVE VICE PRESIDENT AND GENERAL MANAGER, CLOUD AND EDGE BUSINESS UNIT Juniper Networks, Inc., network infrastructure products and services ◾ Vice President of Global Alliances and Partnerships Lucent Technologies, communications networking company ◾ held leadership roles, including VP Wireless Networking and VP Strategic Marketing Additional experience: ◾ AT&T Inc., a communications holding company ◾ VTCSecure, a global communications solutions company — Member of the Advisory Board (2012 to present) EDUCATION ◾ MBA, Seton Hall University ◾ BS, Manhattan College BACKGROUND Ribbon Communications Inc. ◾ Executive Vice President and General Manager, Cloud and Edge Business Unit (2020 to present) ◾ Executive Vice President, Products and Research and Development (January 2018 to March 2020) Sonus ◾ Executive Vice President, Services, Product Management and Corporate Development (October 2013 to October 2016) ◾ Senior Vice President, Technology Development ◾ Vice President and General Manager of Trunking, Policy and Business Development ◾ Vice President of Business Development Polycom, Inc., a communications and collaboration solutions provider ◾ Vice President of Global Services Providers and System Integrators ECI, communications platform provider ◾ Chief Strategy Officer and Head of Global Channels Ribbon Communications Inc. 2022 Proxy Statement | 37 Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix EXECUTIVE COMPENSATION 3 Proposal 3 — Approval, on a Non-Binding, Advisory Basis, of the Compensation of Our Named Executive Officers The Board is dedicated to excellence in governance and is mindful of the interests our stockholders have in our executive compensation program. As part of that commitment and pursuant to the rules of the SEC, our stockholders are being asked to approve a non-binding advisory resolution on the compensation of our named executive officers. This proposal, which is typically called the “Say-on-Pay” proposal, offers stockholders the opportunity to express their opinions on our 2021 executive compensation program and policies for our named executive officers through the following resolution: “RESOLVED, that the stockholders of Ribbon Communications Inc. (the “Company”) approve, on an advisory basis, the compensation paid to the Company’s named executive officers as disclosed pursuant to the compensation disclosure rules of the U.S. Securities and Exchange Commission, including the “Compensation Discussion and Analysis” section and the accompanying compensation tables and the related narratives in the Proxy Statement for the Company’s 2022 annual meeting of stockholders.” This vote is not intended to address any specific element of compensation, but rather the overall compensation policies and practices relating to the named executive officers. Even though the outcome of this advisory vote on the compensation of our named executive officers is non-binding, the Board and its Compensation Committee will, as they have done in prior years, consider the outcome of this vote when making future compensation arrangements. The outcome of this advisory vote does not overrule any decision by the Company or the Board (or any committee thereof), create or imply any change to the fiduciary duties of the Company or the Board (or any committee thereof), or create or imply any additional fiduciary duties for the Company or the Board (or any committees thereof). At the annual meeting held in 2021, stockholders cast 92% of the votes “for” this proposal at that meeting. We believe that for the reasons summarized in the “Compensation Discussion and Analysis” section of this Proxy Statement, we have a compensation program deserving of stockholder support. Unless the Board modifies its policy regarding the frequency of holding “say on pay” advisory votes, such votes will take place every year and the next such vote will occur at the 2023 Annual Meeting. PROPOSAL 3 The Board of Directors recommends that stockholders vote FOR the approval, on a non-binding, advisory basis, of the compensation of our named executive officers. 38 | Ribbon Communications Inc. 2022 Proxy Statement Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix 4 Proposal 4 — Approval of the Amendment to the Ribbon Communications Inc. Amended and Restated 2019 Incentive Award Plan to Increase the Shares Available under the Plan Our Board believes that the future success of Ribbon depends, in large part, on our ability to maintain a competitive position in attracting, retaining and motivating key employees with relevant experience and superior ability. In June 2019, our stockholders approved the Ribbon Communications Inc. 2019 Incentive Award Plan (the “2019 Plan”), and further approved the amendment and restatement of the 2019 Plan in June 2020 (the “Amended and Restated 2019 Plan”). Awards granted under the Amended and Restated 2019 Plan are intended to attract, retain and motivate personnel who are expected to make important contributions to the Company, thereby promoting stockholder interests and enhancing stockholder value. On March 30, 2022, our Board adopted, subject to stockholder approval, an amendment to the Amended and Restated 2019 Plan (the “Plan Amendment” and, together with the Amended and Restated 2019 Plan, the “Stock Incentive Plan”) to increase the number of available shares. PROPOSAL 4 The Board of Directors recommends that stockholders vote FOR the approval of the Plan Amendment. Summary of Material Change to the Amended and Restated 2019 Plan The proposed Plan Amendment would: Increase in Aggregate Share Limit Our Amended and Restated 2019 Plan currently limits the aggregate number of shares of our common stock that may be issued pursuant to all awards granted under the Amended and Restated 2019 Plan to 15,551,611 shares, plus any shares subject to outstanding awards under the Prior Plans (as defined in the Amended and Restated 2019 Plan) which may become available for issuance under the Amended and Restated 2019 Plan as a result of such outstanding awards expiring or terminating or being cancelled or forfeited for any other reason pursuant to the terms of the Prior Plans (“Prior Plan Awards”). Our Plan Amendment will increase this limit by an additional 10,000,000 shares so that the new aggregate share limit for the Amended and Restated 2019 Plan will be 25,551,611 shares, plus any shares subject to Prior Plan Awards, which have, or may in the future, become available for issuance under the Amended and Restated 2019 Plan as a result of such Prior Plan Awards expiring or terminating or being cancelled or forfeited for any other reason pursuant to the terms of the Prior Plans. When we requested stockholders to approve the Amended and Restated 2019 Plan at our 2020 annual meeting of stockholders, we expected the aggregate share reserve under the Amended and Restated 2019 Plan to provide us with sufficient shares for awards through 2021, which it has. However, with the Company’s expansion of the number employees receiving awards under the Amended and Restated 2019 Plan, competitive market conditions for retention of employees and the price of our shares, we now anticipate that the existing share reserve under the Amended and Restated 2019 Plan will not be sufficient for awards through the 2022 Annual Meeting. As a result, we are requesting, through approval of the Plan Amendment, an increase in the aggregate share reserve under the Amended and Restated 2019 Plan, which we expect will be sufficient shares for awards for at least the remainder of 2022 and 2023, assuming we continue to grant awards consistent Ribbon Communications Inc. 2022 Proxy Statement | 39 Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix with our current practices and historical usage, as reflected in our historical share usage rate, and experience some increase in our stock price from the current level. Note, however, that future circumstances may require us to change our current equity grant practices and the sufficiency of the share reserve will be dependent on, among other things, the price of our shares, the occurrence of mergers or acquisitions, hiring activity, and forfeitures of outstanding awards. We cannot predict our future equity grant practices, the future price of our shares, future merger or acquisition activity, future hiring activity or the future forfeitures of outstanding awards with any degree of certainty at this time, and the share reserve under the Stock Incentive Plan, as increased pursuant to the Plan Amendment, could last for a shorter or longer time period. If stockholders do not approve the Plan Amendment, the existing Amended and Restated 2019 Plan will remain in effect in its current form. However, there will be insufficient shares available under the Amended and Restated 2019 Plan to make additional awards in 2022 and annual awards in 2023 and to provide grants to critical new hires. In this event, the Compensation Committee may be required to revise its compensation philosophy and formulate other cash-based programs to attract, retain, and compensate key employees, non-employee directors and critical new hires. Attached as Appendix A to this Proxy Statement is a copy of the Plan Amendment. This description of the effect of the proposed Plan Amendment and the Stock Incentive Plan is a summary and is qualified by the full text of the Plan Amendment and the Amended and Restated 2019 Plan. 40 | Ribbon Communications Inc. 2022 Proxy Statement Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix Reasons to Adopt the Proposed Plan Amendment 1 Shares currently available under the Amended and Restated 2019 Plan are insufficient to meet our current needs based on our historical grant rate, our recent growth and our anticipated hiring and retention needs. 2 Stock-based incentive compensation encourages and rewards performance while aligning our key employees’, consultants’, officers’ and directors’ interests with those of our stockholders. 3 Stock-based incentive compensation supports long-term tenure. Reasons ◾ We believe that our future success depends, in large part, upon our ability to maintain a competitive position in attracting, motivating and retaining key employees, consultants, officers and directors who are expected to make important contributions to the Company and by providing such key employees, consultants, officers and directors with equity ownership opportunities and performance-based incentives that are intended to align their interests with those of our stockholders. If we are not able to provide long-term equity value to our key employees, consultants, officers and directors, we will risk losing a capable and proven workforce. Based on our history of grants over the last several years and our current grant practices, the shares currently available under the Amended and Restated 2019 Plan are not sufficient to meet our needs through the 2022 Annual Meeting. In addition, other factors affecting share usage under the Amended and Restated 2019 Plan include: (i) an expansion of employees receiving awards as we adjusted our compensation practices to reflect market conditions and better align employee interests with those of our stockholders; (ii) the decrease in the share price of our common stock since January 2022; and (iii) the critical need to retain executives and employees during these uncertain times. ◾ We continue to believe that alignment of the interests of our stockholders and our key employees, consultants, officers and non- employee directors is best advanced through the issuance of equity incentives as a portion of their total compensation. Stock-based incentive compensation encourages and rewards performance by increasing the value of their compensation if our stock performance improves. This results in key employees, consultants, officers and non-employee directors being motivated to increase our share price. ◾ We believe that delivering a portion of total compensation in the form of equity compensation helps to encourage a long-term view. Imposing vesting requirements also encourages long-term retention, which is beneficial to our growth and success. We believe it is imperative to maintain the continued ability to use equity compensation to motivate existing high-performing employees, hire additional qualified employees and align the interests of our key employees, consultants, officers and directors with those of our stockholders. With the ECI acquisition, our workforce has nearly doubled in size and therefore we now believe it is important to reserve additional shares under the Amended and Restated 2019 Plan to retain and incentivize our executives and employees. Ribbon Communications Inc. 2022 Proxy Statement | 41 Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix Highlights of the Stock Incentive Plan (as Proposed to be Amended) Consistent with the existing Amended and Restated 2019 Plan, the following reflects certain highlights of the Stock Incentive Plan: Highlights NO “EVERGREEN” PROVISION Description ◾ Shares authorized for issuance under the Stock Incentive Plan are NO LIBERAL SHARE COUNTING NO REPRICING OF STOCK OPTIONS OR STOCK APPRECIATION RIGHTS NO DISCOUNTED STOCK OPTIONS OR STOCK APPRECIATION RIGHTS MINIMUM ONE-YEAR VESTING PERIOD ON ALL AWARDS AWARDS SUBJECT TO FORFEITURE/CLAWBACK NO DIVIDENDS OR DIVIDEND EQUIVALENTS ON UNVESTED AWARDS NO “LIBERAL” CHANGE IN CONTROL DEFINITION ADMINISTRATION BY AN INDEPENDENT COMMITTEE MATERIAL AMENDMENTS REQUIRE STOCKHOLDER APPROVAL not automatically replenished. ◾ The Stock Incentive Plan prohibits the reuse of shares withheld or delivered to satisfy the exercise price of an award or to satisfy tax withholding requirements with respect to any award. ◾ The Stock Incentive Plan prohibits the direct or indirect repricing of stock options or stock appreciation rights (“SARs”) without stockholder approval, including a prohibition on the exchange of “underwater” stock options or SARs for a cash payment or other awards. ◾ All stock options and SARs (other than substitute awards) must have an exercise price or measurement price equal to or greater than the fair market value of the underlying common stock on the grant date. ◾ Awards under the Stock Incentive Plan are subject to a minimum vesting period of one year, except awards granted, in the aggregate, for up to 5% of the maximum number of authorized shares under the Stock Incentive Plan and awards subject to certain other limited exceptions. ◾ All awards granted under the Stock Incentive Plan and payments made thereunder are subject to the Company’s Clawback Policy or any other clawback policy established from time to time by the Company. ◾ No participant will be paid dividends or dividend equivalents with respect to any award unless and until the applicable vesting conditions have been satisfied. ◾ The change in control definition in the Stock Incentive Plan is not “liberal” and, for example, would not occur merely upon stockholder approval of a transaction. A change in control must actually occur in order for the change in control provisions in the Stock Incentive Plan to be triggered. ◾ Administration of the Stock Incentive Plan has been delegated to the Compensation Committee, which is comprised of independent directors. ◾ Stockholder approval is required prior to an amendment of the Stock Incentive Plan that would: (i) materially increase the number of shares available, (ii) expand the types of available awards, or (iii) materially expand the class of participants eligible to participate. Analysis of Share Reserve In approving the Plan Amendment, the Compensation Committee and our Board, respectively, reviewed and relied upon the analysis prepared by Frederic W. Cook & Co., Inc. (“FW Cook”), the Compensation Committee’s independent compensation consultant, which analyzed the costs of the plan, the Company’s past practices regarding its equity compensation program (including share usage rate), provisions associated with the Stock Incentive Plan and trends, as well as practices of 42 | Ribbon Communications Inc. 2022 Proxy Statement Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix Company peers and other companies. Specifically, the Compensation Committee and our Board considered, among other things, the information set forth below. Stock Available for Awards The Stock Incentive Plan provides for the grant of incentive stock options intended to qualify under Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), non-statutory stock options, SARs, restricted stock, restricted stock units, and other stock unit awards and performance awards as described below (collectively referred to as “awards”). Awards may be made under the Amended and Restated 2019 Plan, prior to the Plan Amendment, for an aggregate number of shares equal to 15,551,611, plus any shares subject to Prior Plan Awards (which totaled 105,495 shares as of April 1, 2022) which may, in the future, become available for issuance as a result of such Prior Plan Awards expiring or terminating or being cancelled or forfeited for any other reason pursuant to the terms of the Prior Plans. There were 4,690,962 shares available for future issuance under the Amended and Restated 2019 Plan as of April 1, 2022. Our Board has approved, and recommends that stockholders approve, an increase of 10,000,000 shares so that the new aggregate share limit for the Stock Incentive Plan will be 25,551,611 shares, plus any shares subject to Prior Plan Awards, which have, or may in the future, become available for issuance under the Stock Incentive Plan as a result of such Prior Plan Awards expiring or terminating or being cancelled or forfeited for any other reason pursuant to the terms of the Prior Plans. Share Usage and Overhang The following table sets forth information regarding all awards, including stock options, restricted and fully-vested shares, restricted share units, and performance stock units granted over each of the last three fiscal years: Equity Award Information Stock Options/SARs Granted 2021 2020 2019 3-Year Average — — — — Stock-Settled Time-Vested Restricted Shares/Units Granted Stock-Settled Performance-Based Stock Units Earned Weighted-Average Basic Common Shares Outstanding 3,268,789 6,550,106 2,828,832 4,215,909 1,557,656 323,752 9,466 630,291 147,574,662 138,967,300 109,734,118 132,091,987 Share Usage Rate 3.3% 4.9% 2.6% 3.7% The Board recognizes that the increase in the number of shares under the Stock Incentive Plan will result in additional dilution or “overhang” for our stockholders, although we believe that the incremental dilution would be appropriate to continue to, among other things, recruit, motivate and retain our employees, non-employee directors, consultants and advisors. As commonly calculated, the total potential overhang resulting from the adoption of the Stock Incentive Plan would be approximately 14.1%, with the incremental overhang resulting from the share increase due Ribbon Communications Inc. 2022 Proxy Statement | 43 Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix to Plan Amendment equal to approximately 5.7%. This overhang is calculated as follows, as of December 31, 2021 (unless otherwise noted): (a) Stock Options Outstanding Weighted-Average Exercise Price of Outstanding Stock Options $ Weighted-Average Remaining Term of Outstanding Stock Options (Years) (b) Total Stock-Settled Full-Value Awards Outstanding (c) Shares Remaining Available for Future Issuance(1) (d) Incremental Share Request Subject to Stockholder Approval (e) Total Shares Authorized for, or Outstanding Under, Equity Awards (a + b + c + d) (f) Common Shares Outstanding as of the Record Date of April 1, 2022 (g) Total Fully-Diluted Overhang (e / (e + f)) 184,169 13.25 2.59 10,377,487 4,090,946 10,000,000 24,652,602 150,111,958 14.1% (1) Amount includes 4,090,046 shares of common stock were available for issuance under the Amended and Restated 2019 Plan and 105,495 shares available for issuance under the Edgewater Networks, Inc. Amended and Restated 2002 Stock Option Plan, as amended (assumed in connection with the Company’s August 3, 2018 acquisition of Edgewater) (the “2002 Plan”). The Company does not intend to make any future grants under the 2002 Plan. In 2020, in connection with Mr. McClelland’s commencement of employment, the Company awarded him 462,963 restricted stock units and 4,750,000 performance stock units. These restricted stock units and performance stock units were not granted pursuant to the Amended and Restated 2019 Plan, but may materially affect the current overhang for our stockholders. In light of the factors described above and the fact that the ability to continue to grant equity compensation is integral to our ability to continue to attract and retain talented employees in the markets in which we compete, the Compensation Committee and our Board have determined that the size of the share reserve under the Stock Incentive Plan, is reasonable and appropriate at this time. The Board will not create a subcommittee to evaluate the risks and benefits for issuing the additional authorized shares requested. Our Board believes that approving the Plan Amendment is appropriate and in the best interests of stockholders given, among other things, (i) the recent expansion of employees receiving awards under the Stock Incentive Plan; (ii) our current expectations of the number of shares likely to be needed for future grants, (iii) the importance of equity as a proportion of total compensation; and (iv) the need to effectively incent and motivate our employees and other service providers to drive stockholder value creation. Equity Compensation Plan Information The following table provides information as of December 31, 2021 with respect to the shares of our common stock that may be issued under our existing equity compensation plans: (A) (B) (C) Number of Securities to Be Issued Upon Exercise of Outstanding Options, Warrants and Rights (#) Weighted Average Exercise Price of Outstanding Options, Warrant and Rights ($) Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans (Excluding Securities Reflected in Column (A)) ($) Plan Category Equity Compensation Plans Approved by Stockholders Equity Compensation Plans Not Approved by Stockholders Total 10,561,656 6,960,820(1) — 3,600,836(3) 13.25(4) 3,985,451(2) 105,495(5) 4,090,946 (1) Consists of 5,389,611 RSUs and 1,571,209 PSUs at target, none of which have voting or other rights of ownership under the Amended and Restated 2019 Plan. 44 | Ribbon Communications Inc. 2022 Proxy Statement Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix (2) Consists of shares available for future issuance under the Amended and Restated 2019 Plan. In addition to being available for future issuance upon exercise of options that may be granted after December 31, 2021, the shares available under the Amended and Restated 2019 Plan may also be issued in the form of restricted stock, RSUs, PSUs, stock appreciation rights or other equity-based awards. (3) Includes 3,416,667 PSUs (the “Inducement PSUs”) issued to Mr. McClelland on March 15, 2020 as a material inducement for his employment. The Inducement PSUs were approved by the Compensation Committee in reliance on the employment inducement exception to stockholder approval provided under Nasdaq Listing Rule 5635(c)(4). Also includes 113,674 options outstanding under the 2008 Stock Incentive Plan (the “2008 Plan”, which was assumed in connection with the Company’s August 24, 2012 acquisition of Network Equipment Technologies, Inc. (“NET”)), 28,800 options outstanding under the 2012 Amended Performance Technologies, Incorporated Omnibus Incentive Plan (the “2012 Plan”, which was assumed in connection with the Company’s February 19, 2014 acquisition of Performance Technologies, Incorporated (“PT”)), and 41,695 options outstanding under the 2002 Stock Option Plan (the “2002 Plan”, which was assumed in connection with the Company’s August 3, 2018 acquisition of Edgewater Networks, Inc. (“Edgewater”) and, together with the 2008 Plan, the 2012 Plan, the 2002 Plan and the Company’s Amended and Restated Stock Incentive Plan (the “2007 Equity Plan”), the “Prior Plans”). These amounts include options that were either outstanding as of the respective dates of acquisition of NET, PT and Edgewater and assumed by the Company or granted under either the 2008 Plan or the 2012 Plan since the respective acquisition dates. No future awards may be granted under either the 2008 Plan or the 2012 Plan. (4) Represents the weighted average exercise price for options to purchase the Company’s common stock outstanding under the 2008 Plan, the 2012 Plan and the 2002 Plan. (5) Consists of shares available for future issuance under the 2002 Plan, which is further described in Note 20 to our 2021 Annual Report. The Company does not intend to make any future grants under the 2002 Plan. At the Company’s annual stockholder meeting on June 5, 2019, the Company’s stockholders approved the 2019 Plan that, among other matters, transferred all shares for future issuance from each of the Prior Plans and provided that any outstanding awards under the Prior Plans that expire, are terminated, cancelled, surrendered or forfeited, or are repurchased by the Company at their original issuance price pursuant to a contractual repurchase right under the Prior Plans will be returned to the Amended and Restated 2019 Plan. Summary of the Stock Incentive Plan (as Proposed to Be Amended) The following is a summary of the material terms of the Stock Incentive Plan, as proposed to be amended, and is qualified by its entirety by the full text of the Plan Amendment, a copy of which is attached as Appendix A to this Proxy Statement. References to our Board in this summary include the Compensation Committee or any similar committee appointed by our Board to administer the Stock Incentive Plan. Shares Available for Issuance Under the Stock Incentive Plan Awards may be made under the Stock Incentive Plan, after the Plan Amendment, for an aggregate number of shares equal to 25,551,611 shares, plus any shares subject to outstanding awards under the Prior Plans as of the date on which our stockholders approved the 2019 Plan, which may become available for issuance under the Stock Incentive Plan as a result of such outstanding awards expiring or terminating or being cancelled or forfeited for any other reason pursuant to the terms of the Prior Plans (as described below). The number of shares issuable under the Stock Incentive Plan is subject to adjustment for changes in capitalization, including stock splits and other similar events. No more than 25,551,611 shares of common stock may be issued as incentive stock options under the Stock Incentive Plan. If an award expires, terminates, is surrendered or cancelled or otherwise results in shares not being issued, the unused shares covered by such award will generally become available for future grant under the Stock Incentive Plan. However, any shares tendered to pay the exercise price of an award or to satisfy a tax withholding obligation will not become available for future grant under the Stock Incentive Plan. Furthermore, any shares repurchased by us on the open market using the proceeds from the exercise of an award will not increase the number of shares available for the future grant of awards under the Stock Incentive Plan. In addition, shares subject to a SAR that are not Ribbon Communications Inc. 2022 Proxy Statement | 45 Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix issued in connection with its share settlement on exercise thereof will not increase the number of shares of common stock available for the future grant of awards under the Stock Incentive Plan. If any award (or award under the Prior Plans) expires or is terminated, surrendered or canceled without having been fully exercised, is cash-settled, is forfeited in whole or in part (including as the result of shares of common stock subject to such award (or award under a Prior Plan) being repurchased by the Company at the original issuance price pursuant to a contractual repurchase right), then shares of common stock covered by such award (or award under a Prior Plan) will, to the extent of such termination, surrender, cancellation, cash-settlement or forfeiture, again become available for the grant of awards under the Stock Incentive Plan. In connection with a corporate transaction with another entity, such as a merger or consolidation of an entity with us or our acquisition of property or stock of an entity, our Board may grant awards under the Stock Incentive Plan in substitution for any options or other stock or stock-based awards granted by such entity or an affiliate thereof on such terms as our Board determines appropriate in the circumstances, notwithstanding any limitation on awards contained in the Stock Incentive Plan (subject to compliance with the applicable requirements of Section 424 of the Code and Section 409A of the Code (together with the Department of Treasury regulations and other interpretive guidance issued thereunder, “Section 409A”)). No such substitute awards will count against the overall share limits described above, except as required by Section 422 and related provisions of the Code. Administration of the Stock Incentive Plan The Stock Incentive Plan is administered by our Board, which has the authority to adopt, amend and repeal the administrative rules, guidelines and practices relating to the Stock Incentive Plan and to interpret the provisions of the Stock Incentive Plan. Pursuant to the terms of the Stock Incentive Plan and to the extent permitted by applicable law, our Board may delegate authority under the Stock Incentive Plan to one or more committees or subcommittees of our Board. Our Board has authorized the Compensation Committee to administer the Stock Incentive Plan. Subject to any applicable limitations contained in the Stock Incentive Plan, our Board, the Compensation Committee, or any other committee to whom our Board delegates authority, as the case may be, selects the recipients of awards and determines the terms of the awards. Subject to any requirements of applicable law, our Board may delegate to one or more of our officers the power to grant awards to our employees, officers, and non-executive directors (each, a “Director”), as well as consultants and advisors to the Company (as the terms consultants and advisors are defined and interpreted for purposes of Form S-8 under the Securities Act or any successor form) and to exercise such other powers under the Stock Incentive Plan as our Board may determine; provided that our Board will fix the maximum number of shares subject to awards that the officers may grant, and the time period in which such awards may be granted. No officer shall be authorized to grant awards to himself or herself or any of our other officers. Our Board may make equitable adjustments in connection with the Stock Incentive Plan and any outstanding awards to reflect stock splits, stock dividends, recapitalizations, combination or exchange of shares, consolidation, reclassification of shares, spin-offs and other similar changes in capitalization or event, or any other dividend or distribution other than an ordinary cash dividend, or any other change affecting the shares of common stock or the share price of the common stock (other than an Equity Restructuring, as such term is defined below). In the event of an Equity Restructuring, the Company will equitably adjust in the manner determined by our Board the number and class of security subject to each outstanding award and the exercise or purchase price thereof, if applicable (and such adjustments shall be nondiscretionary and final and binding) and/or the aggregate number and class of security that may be issued under the Stock Incentive Plan (including, without limitation, any share counting provisions related thereto). “Equity Restructuring” means a nonreciprocal transaction between the Company and our stockholders, such as a stock dividend, stock split, spin-off, rights offering or recapitalization through a large, nonrecurring cash dividend, that affects the number or kind of shares of common stock (or other securities of the Company) or the share price of common stock (or other securities) and causes a change in the per-share value of the common stock underlying outstanding awards. 46 | Ribbon Communications Inc. 2022 Proxy Statement Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix The Stock Incentive Plan also contains provisions addressing the consequences of a Reorganization Event, which is defined as: (i) any merger or consolidation of the Company with or into another as a result of which all of our common stock is converted into or exchanged for the right to receive cash, securities or other property, or is cancelled; (ii) any exchange of all of our common stock for cash, securities or other property pursuant to a share exchange transaction; (iii) any liquidation or dissolution of our Company; or (iv) certain capitalization events described in the Amended and Restated 2019 Plan or any other unusual or nonrecurring transaction or event affecting the Company or any of its subsidiaries (or their respective financial statements). In connection with a Reorganization Event, our Board may take any one or more of the following actions as to all or any (or any portion of) outstanding awards, on such terms as our Board determines: ◾ ◾ ◾ ◾ ◾ ◾ ◾ provide that awards will be assumed, or substantially equivalent awards will be substituted, by the acquiring or succeeding corporation (or an affiliate thereof); upon written notice, provide that all unexercised awards will terminate immediately prior to the consummation of such Reorganization Event unless exercised within a specified period following the date of such notice; provide that outstanding awards will become exercisable, realizable or deliverable, or restrictions applicable to an award will lapse, in whole or in part prior to or upon such Reorganization Event; in the event of a Reorganization Event under the terms of which holders of our common stock will receive upon consummation thereof a payment of cash and/or property for each share surrendered in the Reorganization Event (the value of such payment, the “Acquisition Price”), make or provide for a payment of cash and/or property to an award holder with a value equal to the excess, if any, of (A) the Acquisition Price times the number of shares of common stock subject to the holder’s awards (to the extent the exercise price does not exceed the Acquisition Price) over (B) the aggregate exercise price of all such outstanding awards and any applicable tax withholdings, in exchange for the termination of such awards (and, if as of the Reorganization Event, our Board determines in good faith that there is no such excess with respect to an award, then such award may be terminated by the Company without payment); provide that awards will be replaced with other rights or property selected by our Board (including in connection with a liquidation or dissolution of our company, conversion into the right to receive liquidation proceeds (if applicable, net of the exercise price thereof and any applicable tax withholdings); provide that awards cannot vest, be exercised or become payable after the Reorganization Event; and any combination of the foregoing. In taking any of the actions permitted directly above, the Board is not obligated by the Stock Incentive Plan to treat identically all awards, all awards held by a holder of such awards or all awards of the same type. The Stock Incentive Plan also contains provisions addressing a Change in Control and our Board’s authority to determine whether a Change in Control has occurred pursuant to the below definition, the date of the occurrence of a Change in Control, and any incidental matters related thereto. Under the Stock Incentive Plan, a Change in Control means: (i) a transaction or series of transactions (other than an offering of common stock to the general public through a registration statement filed with the SEC) whereby any “person” or related “group” of “persons” (as such terms are used in Sections 13(d) and 14(d)(2) of the Exchange Act) directly or indirectly acquires beneficial ownership (within the meaning of Ribbon Communications Inc. 2022 Proxy Statement | 47 Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix Rules 13d-3 and 13d-5 under the Exchange Act) of securities of the Company possessing more than 50% of the total combined voting power of the Company’s securities outstanding immediately after such acquisition; provided, however, that the following acquisitions shall not constitute a Change in Control under the Amended and Restated 2019 Plan: (A) any acquisition by the Company; (B) any acquisition by an employee benefit plan maintained by the Company, (C) any acquisition which is not a Change in Control under subsection (iii) below as a result of compliance with subsections (A), (B) and (C) of subsection (iii) below; or (D) in respect of an award held by a particular participant, any acquisition by the participant or any group of persons including the participant (or any entity controlled by the participant or any group of persons including the participant); or (ii) the Incumbent Directors cease for any reason to constitute a majority of our Board; (iii) the consummation by the Company (whether directly involving the Company or indirectly involving the Company through one or more intermediaries) of (x) a merger, consolidation, reorganization, or business combination, (y) a sale or other disposition of all or substantially all of the Company’s assets in any single transaction or series of related transactions or (z) the acquisition of assets or stock of another entity, in each case other than a transaction: (A) which results in the Company’s voting securities outstanding immediately before the transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the Company or the person that, as a result of the transaction, controls, directly or indirectly, the Company or owns, directly or indirectly, all or substantially all of the Company’s assets or otherwise succeeds to the business of the Company (the Company or such person, the “Successor Entity”)) directly or indirectly, at least a majority of the combined voting power of the Successor Entity’s outstanding voting securities, (B) after which no person or group beneficially owns voting securities representing 50% or more of the combined voting power of the Successor Entity; provided, however, that no person or group shall be treated for purposes of this subsection (B) as beneficially owning 50% or more of the combined voting power of the Successor Entity solely as a result of the voting power held in the Company prior to the consummation of the transaction; and (C) immediately after which at least a majority of the members of the board of directors (or the analogous governing body) of the Successor Entity were Board members at the time of our Board’s approval of the execution of the initial agreement providing for such transaction; or (iv) The effective date of a liquidation or dissolution of the Company. “Incumbent Directors” means for any period of 12 consecutive months, individuals who, at the beginning of such period, constitute our Board together with any new Director(s) (other than a Director designated by a person who shall have entered into an agreement with the Company to effect a transaction described in subsection (i) or (iii) above) whose election or nomination for election to our Board was approved by a vote of at least a majority (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for Director without objection to such nomination) of the Directors then still in office who either were Directors at the beginning of the 12-month period or whose election or nomination for election was previously so approved. No individual initially elected or nominated as a director of the Company as a result of an actual or threatened election contest with respect to Directors or as a result of any other actual or threatened solicitation of proxies by or on behalf of any person other than our Board shall be an Incumbent Director. Notwithstanding the foregoing, if a Change in Control constitutes a payment event with respect to any award (or any portion of an award) that provides for the deferral of compensation that is 48 | Ribbon Communications Inc. 2022 Proxy Statement Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix subject to Section 409A, to the extent required to avoid the imposition of additional taxes under Section 409A, the transaction or event described in subsection (i), (ii), (iii) or (iv) above with respect to such award (or portion thereof) will only constitute a Change in Control for purposes of the payment timing of such award if such transaction also constitutes a “change in control event,” as defined in Treasury Regulation Section 1.409A-3(i)(5). Our Board may at any time provide that any award will become immediately exercisable in full or in part, free of some or all restrictions or conditions, or otherwise realizable in full or in part, as the case may be, including, without limitation, (A) upon the death or disability of the holder of such award or (B) in connection with an Acquisition of the Company (as defined in the Stock Incentive Plan). Except as otherwise provided in the Stock Incentive Plan with respect to repricing outstanding stock options or SARs, our Board may amend, modify or terminate any outstanding award, including but not limited to, substituting another award of the same or a different type, changing the date of exercise or realization, and converting an incentive stock option to a non-statutory stock option, provided that the participant’s consent to any such action will be required unless our Board determines that the action, taking into account any related action, would not materially and adversely affect the participant or the change is otherwise permitted under the terms of the Amended and Restated 2019 Plan in connection with a change in capitalization or Reorganization Event. Descriptions of Awards The Stock Incentive Plan provides for the grant of incentive stock options intended to qualify under Section 422 of the Code, non-statutory stock options, SARs, restricted stock, RSUs and other stock unit awards and performance awards as described below. INCENTIVE STOCK OPTIONS AND NON-STATUTORY STOCK OPTIONS Optionees receive the right to purchase a specified number of shares of common stock at a specified option price and subject to such other terms and conditions as are specified in connection with the option grant. Options must be granted at an exercise price that is not less than the fair market value of our common stock at the close of trading on the date of grant. Options may not be granted for a term in excess of 10 years; provided that, notwithstanding the foregoing and unless determined otherwise by the Company, in the event that on the last business day of the term of an option (other than an incentive stock option) (i) the exercise of the option is prohibited by applicable law, as determined by the Company, or (ii) shares of common stock may not be purchased or sold by the applicable participant due to any Company insider trading policy (including blackout periods) or a “lock-up” agreement undertaken in connection with an issuance of securities by the Company, the term of the option shall be extended until the date that is thirty (30) days after the end of the legal prohibition, black-out period or lock-up agreement, as determined by the Company; provided, the extension will not last beyond the term of the applicable option (which will in no event exceed 10 years from the date of grant). The Stock Incentive Plan permits the following forms of payment for the exercise price of options: payment by cash or check (if determined appropriate by the Company, electronic payment); via broker-assisted sale; subject to certain conditions and if permitted by our Board, withholding of shares of our common stock otherwise issuable under an award or surrender to the Company of shares of our common stock held by the optionee; any other lawful means as provided for in the applicable option agreement or approved by the Board; or any combination of these forms of payment. Stock options granted under the Stock Incentive Plan may not provide for the payment or accrual of dividend equivalents or contain any provision entitling the grantee to the automatic grant of additional stock options in connection with the exercise of the original stock option. STOCK APPRECIATION RIGHTS A SAR is an award entitling the holder, upon exercise, to receive an amount in common stock or cash or a combination thereof determined by reference to appreciation, from and after the date of grant, in the fair market value of a share of common stock over the exercise price, which may not be Ribbon Communications Inc. 2022 Proxy Statement | 49 Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix less than the fair market value of the common stock on the date the SAR is granted. SARs may be granted independently or in tandem with an option granted under the Stock Incentive Plan. Each SAR granted under the Stock Incentive Plan will be exercisable subject to terms and conditions as the Board may specify in the applicable SAR agreement; provided that, notwithstanding the foregoing and unless determined otherwise by the Company, in the event that on the last business day of the term of an SAR (i) the exercise of the SAR is prohibited by applicable law, as determined by the Company, or (ii) shares of common stock may not be purchased or sold by the applicable participant due to any Company insider trading policy (including blackout periods) or a “lock-up” agreement undertaken in connection with an issuance of securities by the Company, the term of the SAR will be extended until the date that is thirty (30) days after the end of the legal prohibition, black-out period or lock-up agreement, as determined by the Company; provided, that the extension will not last beyond the term of the applicable SAR (which, in no event will exceed 10 years from the date of grant) SARs granted under the Stock Incentive Plan may not provide for the payment or accrual of dividend equivalents or contain any provision entitling the grantee to the automatic grant of additional SARs in connection with the exercise of the original SAR. RESTRICTED STOCK AWARDS Restricted stock awards entitle recipients to acquire shares of common stock, subject to our right to repurchase all or part of such shares at their issue price or other stated or formula price or to require forfeiture if issued at no cost if the conditions specified in the applicable award are not satisfied prior to the end of the applicable restriction period established by the Board for such award. Our Board will determine the terms and conditions of the applicable award, including the conditions for vesting and repurchase and the issue price, if any. Any dividends, whether paid in cash, stock or property, declared and paid by us with respect to shares of restricted stock will be paid to a participant only if and when such shares become free from the restrictions on transferability and forfeitability that apply to such shares. No interest will be paid on unvested dividends. RESTRICTED STOCK UNIT AWARDS RSU awards entitle the recipient to receive shares of common stock or cash to be delivered at the time such award vests pursuant to the terms and conditions established by our Board. The award agreement for RSUs may provide the participant with a right to receive dividend equivalents, which will be subject to the same restrictions on transfer and forfeitability as the underlying RSUs. No interest will be paid on dividend equivalents. OTHER STOCK OR CASH-BASED AWARDS Under the Stock Incentive Plan, our Board has the right to grant other awards of shares of common stock and other awards that are valued in whole or in part by reference to, or otherwise based on, shares of common stock or other property (“Other Stock-Based Awards”), which may include, without limitation, deferred shares or deferred stock units, as well as cash payments and other cash bonus awards (“Cash-Based Awards”), and dividend equivalents and awards entitling recipients to receive shares of common stock or cash to be delivered in the future (collectively, “Other Stock- Based Awards and Cash-Based Awards”). Other Stock-Based Awards and Cash-Based Awards will have such terms and conditions as our Board may determine. An Other Stock-Based Award may provide the participant with a right to receive dividend equivalents, which may be settled in cash and/or shares of common stock and will be subject to the same restrictions on transfer and forfeitability as the underlying Other Stock-Based Award. No interest will be paid on dividend equivalents. PERFORMANCE AWARDS Under the Stock Incentive Plan, any award may be made subject to the achievement of performance goals. For any performance award, our Board may specify that the degree of vesting, settlement and/or payout (or other term or condition of the performance award) shall be subject to the achievement of one or more performance measures established by the Board, which may include, without limitation, the relative or absolute attainment of specified levels of one or any combination of the following: 50 | Ribbon Communications Inc. 2022 Proxy Statement Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix ◾ bookings, ◾ backlog, ◾ revenue, ◾ gross margin ($), ◾ gross profit (%), ◾ operating expenses, ◾ operating income (loss), ◾ net income (loss), ◾ earnings (loss) per share, ◾ earnings before interest, taxes, depreciation and/or amortization (“EBITDA”), ◾ adjusted EBITDA, ◾ earnings before interest and/or taxes (“EBIT”), ◾ adjusted EBIT, ◾ cost reduction or savings, ◾ productivity ratios or other similar metrics, ◾ performance against budget, ◾ cash flow from operations, ◾ stock price, ◾ financial ratings, ◾ financial metrics and ratios, ◾ exit rate operating metrics, ◾ total stockholder return (whether in the absolute or measured against or in relationship to other companies comparably, similarly or otherwise situated), ◾ regulatory achievements or compliance (including, without limitation, regulatory body approval for commercialization of a product), ◾ implementation or completion of critical projects, ◾ economic value or economic value added, ◾ customer satisfaction, ◾ working capital targets, ◾ organization/transformation metrics, ◾ return measures (including but not limited to, return on assets, capital, invested capital, equity, sales or revenue), ◾ market share, and ◾ any other objective or subjective measure determined by our Board. The Board may specify that such performance measures shall be adjusted to consider events or circumstances determined appropriate by the Board. Performance measures may vary by participant and may be different for different awards and may be particular to a participant or the department, branch, line of business, subsidiary or other unit in which the participant works and may cover such period as may be specified by the Board. Performance measures may be calculated on generally accepted accounting principles (“GAAP”) or non-GAAP basis or otherwise in accordance with applicable accounting principles or such other methodology as determined appropriate by our Board. Additional Plan Terms Restrictions on Repricings Unless approved by our stockholders, our Board may not: (i) lower the exercise price of an option or a SAR; (ii) cancel an option or SAR when the exercise price per share exceeds the fair market value of one share in exchange for cash or another award (other than in connection with a change in control); or (iii) take any other action with respect to an option or SAR that would be treated as repricing under the rules and regulations of the principal U.S. national securities exchange on which the shares of common stock are listed. Transferability of Awards Awards, other than vested shares of restricted stock, may not be sold, assigned, transferred, pledged or otherwise encumbered by the person to whom they are granted, either voluntarily or Ribbon Communications Inc. 2022 Proxy Statement | 51 Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix by operation of law, except by will or the laws of descent and distribution or, other than in the case of an incentive stock option, pursuant to a qualified domestic relations order. During the life of the holder of an award, awards, other than vested shares of restricted stock, are exercisable only by such holder. Our Board may permit the gratuitous transfer of an award by the holder of an award to or for the benefit of any immediate family member, family trust or other entity established for the benefit of such holder or an immediate family member of such holder if, with respect to such transferee, the Company would be eligible to use a Form S-8 for the registration of the sale of the common stock subject to such award under the Securities Act of 1933, as amended. Eligibility to Receive Awards Our employees, non-employee directors, consultants and advisors and those of our subsidiaries are eligible to be granted awards under the Stock Incentive Plan. As of April 1, 2022, approximately 3,600 employees, 7 non-employee directors and zero consultants and advisors were eligible to receive awards under the Stock Incentive Plan, including our executive officers and non-employee directors. On April 1, 2022, the last reported sale price of common stock on the Nasdaq Global Select Market was $3.12. Director Award Limit During any calendar year, the sum of the grant date fair value of awards and the amount of any cash fees granted or paid to non-employee directors in respect of such director’s services for such year, may not exceed $650,000, provided that the Board may make exception to such limit in extraordinary circumstances. Clawback Policy All awards granted under the Stock Incentive Plan are subject to clawback pursuant to the Company’s Clawback Policy and any other clawback policy that the Company may adopt in the future. Minimum Vesting Periods Under the Stock Incentive Plan, no award (other than cash-based awards) will vest earlier than the first anniversary of its date of grant; provided, however, such minimum vesting requirement will not apply to: (i) any substitute award, (ii) shares of common stock delivered in lieu of full-vested cash-based awards (or other cash awards or payments), (iii) awards to non-employee directors of the Company that vest on the earlier of the one-year anniversary of the date of grant and the next annual meeting of stockholders which is at least 50 weeks after the immediately preceding year’s annual meeting, and (iv) any additional awards our Board may grant, up to a maximum of five percent (5%) of the available share reserve authorized for issuance under the Stock Incentive Plan (subject to adjustment for certain capitalization and reorganization events); and, provided, further, that the foregoing restriction does not apply to our Board’s discretion to provide for accelerated exercisability or vesting of any awards upon: (A) the death or disability of a participant, (B) in connection with retirement, termination of employment or other separation from service, or (C) in connection with a change in control. 52 | Ribbon Communications Inc. 2022 Proxy Statement Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix Treatment of Dividends and Dividend Equivalents on Unvested Awards Notwithstanding any other provision of the Stock Incentive Plan to the contrary, with respect to any award that provides for or includes a right to dividends or dividend equivalents, if dividends are declared during the period that an equity award is outstanding, such dividends (or dividend equivalents) shall either: (i) not be paid or credited with respect to such award, or (ii) be accumulated but remain subject to vesting requirement(s) to the same extent as the applicable award and shall only be paid at the time or times such vesting requirement(s) are satisfied. Provisions for Foreign Participants Our Board may modify awards granted to participants who are foreign nationals or employed outside the United States or establish subplans or procedures under the Stock Incentive Plan to recognize differences in laws, rules, regulations or customs of such foreign jurisdictions with respect to tax, securities, currency, employee benefit or other matters. Effective Date and Term of New Plan; Amendment or Termination The Stock Incentive Plan will be adopted upon stockholder approval at our 2022 Annual Meeting. Our Board may at any time amend, suspend or terminate the Stock Incentive Plan; provided that, to the extent determined by our Board, no amendment requiring stockholder approval under any applicable legal, regulatory or listing requirement will become effective until such stockholder approval is obtained. No awards will be granted under the Stock Incentive Plan after June 4, 2029, but awards previously granted thereunder may extend beyond that date. New Plan Benefits/Interest of Certain Persons Stockholders should understand that our executive officers and non-employee directors may be considered to have an interest in the approval of the Plan Amendment because they may in the future receive awards under such plan. In particular, to the extent the Plan Amendment is approved by our stockholders, certain of our named executive officers, other executive officers, non-executive directors and non-executive officer employees are expected to receive certain RSU and PSU grants in the amounts set forth below: Name and Position Dollar Value(1) ($) Number of Shares (#) Bruce McClelland, President and Chief Executive Officer — Miguel Lopez, Executive Vice President and Chief Financial Officer 1,393,750 Sam Bucci, Executive Vice President and General Manager, IP Optical Networks Business Unit Steven McCaffery, Executive Vice President, Sales — EMEA and APAC Regions Patrick Macken, Executive Vice President, Chief Legal Officer and Secretary Executive Group Non-Executive Director Group Non-Executive Officer Employee Group 1,342,465 998,980 1,100,000 7,650,770 720,000 3,500,000 — — — — — — — — (1) Number of shares underlying awards is not determinable at this time and will be determined by dividing the dollar value of each individual’s grant by the closing price of our common stock on the date of grant. The benefits that will be received by participants, including the named executive officers, other executive officers, non-executive directors and other non-executive officer employees, under the Ribbon Communications Inc. 2022 Proxy Statement | 53 Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix Stock Incentive Plan will depend on a variety of factors, including the fair market value of the Company’s common stock at various future dates and the Board’s or Compensation Committee’s discretion in granting awards. Therefore, except as set forth in the table above, it is not possible to determine the benefits that will be received by or allocated to, any participants, including the name executive officers, other executive officers, non-executive directors and other non-executive officer employees if the Plan Amendment is approved by our stockholders. For additional information regarding our equity grants in 2021, please see the tables entitled “Grants of Plan- Based Awards” and “Director Compensation” in this Proxy Statement. U.S. Federal Income Tax Consequences The following summarizes the United States federal income tax consequences that generally will arise with respect to awards granted under the Stock Incentive Plan. This summary is based on the federal tax laws in effect as of the date of this Proxy Statement. In addition, this summary assumes that all awards are exempt from, or comply with, the rules under Section 409A of the Code regarding nonqualified deferred compensation. Changes to these laws or assumptions could alter the tax consequences described below. Incentive Stock Options A participant will not have income upon the grant of an incentive stock option. Also, except as described below, a participant will not have income upon exercise of an incentive stock option if the participant has been employed by us or our corporate parent or a 50% or more-owned corporate subsidiary at all times beginning with the option grant date and ending three months before the date the participant exercises the option. If the participant has not been so employed during that time, then the participant will be taxed as described below under the section entitled “Non-Statutory Stock Options.” The exercise of an incentive stock option may subject the participant to the alternative minimum tax. A participant will have income upon the sale of the stock acquired under an incentive stock option at a profit (if sales proceeds exceed the exercise price). The type of income will depend on when the participant sells the stock. If a participant sells the stock more than two years after the option was granted and more than one year after the option was exercised, then all of the profit will be long-term capital gain. If a participant sells the stock prior to satisfying these waiting periods, then the participant will have engaged in a disqualifying disposition and a portion of the profit will be ordinary income and a portion may be capital gain. This capital gain will be long-term if the participant has held the stock for more than one year and otherwise will be short-term. If a participant sells the stock at a loss (sales proceeds are less than the exercise price), then the loss will be a capital loss. This capital loss will be long-term if the participant held the stock for more than one year and otherwise will be short-term. Non-Statutory Stock Options A participant will not have income upon the grant of a non-statutory stock option. A participant will have ordinary income upon the exercise of a non-statutory stock option equal to the value of the stock on the day the participant exercised the option less the exercise price. Upon sale of the stock, the participant will have capital gain or loss equal to the difference between the sales proceeds and the value of the stock on the day the option was exercised. This capital gain or loss will be long-term if the participant has held the stock for more than one year and otherwise will be short-term. Stock Appreciation Rights A participant will not have income upon the grant of a SAR. A participant will recognize ordinary income upon the exercise of a SAR equal to the amount of the cash and the fair market value of any stock received. Upon the sale of the stock, the participant will have capital gain or loss equal to the difference between the sales proceeds and the value of the stock on the day the SAR was 54 | Ribbon Communications Inc. 2022 Proxy Statement Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix exercised. This capital gain or loss will be long-term if the participant held the stock for more than one year and otherwise will be short-term. Restricted Stock Awards A participant will not have income upon the grant of restricted stock unless the participant voluntarily makes an election under Section 83(b) of the Code within 30 days of the date of grant. If a timely Section 83(b) election is made, then a participant will have ordinary income equal to the value of the stock on the date of grant less the purchase price. When the stock is sold, the participant will have capital gain or loss equal to the difference between the sales proceeds and the value of the stock on the date of grant, if a timely Section 83(b) election has been made. If the participant does not make a Section 83(b) election, then when the stock vests (i.e., the transfer restrictions and forfeiture provisions lapse) the participant will have ordinary income equal to the value of the stock on the vesting date less the purchase price. When the stock is sold, the participant will have capital gain or loss equal to the sales proceeds less the value of the stock on the vesting date, if no Section 83(b) election has been made. Any capital gain or loss will be long-term if the participant held the stock for more than one year following: (i) the day after the grant date if a timely Section 83(b) election has been made, or (ii) the day after the vesting date if no Section 83(b) election has been made, and otherwise will be short-term. Restricted Stock Units A participant will not have income upon the grant of an RSU. A participant is not permitted to make a Section 83(b) election with respect to an RSU award. When the RSU vests, the participant will have income on the vesting date in an amount equal to the amount of cash received or the fair market value of the stock on the vesting date less the purchase price, if any. When the stock is sold, the participant will have capital gain or loss equal to the sales proceeds less the value of the stock on the vesting date. Any capital gain or loss will be long-term if the participant held the stock for more than one year and otherwise will be short-term. Other Stock- or Cash-Based Awards and Performance Awards The tax consequences associated with any other stock- or cashed-based award or performance award granted under the Stock Incentive Plan will vary depending on the specific terms of such award. Among the relevant factors are whether or not the award has a readily ascertainable fair market value, whether or not the award is subject to forfeiture provisions or restrictions on transfer, the nature of the property to be received by the participant under the award and the participant’s holding period and tax basis for the award or underlying common stock. Tax Consequences to the Company There will be no tax consequences to us except that we will be entitled to a deduction when a participant has ordinary income. Any such deduction may be subject to the limitations of Sections 162(m) of the Code. Ribbon Communications Inc. 2022 Proxy Statement | 55 Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix Compensation Discussion and Analysis The following discussion and analysis contain statements regarding performance targets and goals of the Company. These targets and goals are discussed in the limited context of our compensation programs and should not be understood to be statements of management’s expectations or estimates of results or other guidance. Investors should not apply these statements to other contexts. CD&A CONTENTS 56 56 57 57 58 58 59 60 60 61 61 62 62 63 63 OVERVIEW 2021 NAMED EXECUTIVE OFFICERS SALES LEADERSHIP TRANSITION EXECUTIVE SUMMARY OF 2021 EXECUTIVE COMPENSATION DECISIONS Executive Compensation Highlights Our Guiding Compensation Philosophy Consideration of Stockholder Say-on-Pay Vote OVERVIEW OF THE COMPANY’S COMPENSATION PROGRAM Who Oversees the Company’s Compensation Program? Competitive Benchmarking COMPENSATION COMPONENTS Compensation Mix How Target Levels of Compensation Are Determined 2021 COMPENSATION PAYOUTS Base Salary Overview 63 65 66 69 69 70 70 70 70 71 71 71 71 Annual Cash Bonuses Equity-Based Incentives Performance Goals BENEFITS AND OTHER COMPENSATION SEVERANCE AND SEPARATION ARRANGEMENTS COMPENSATION POLICIES AND PRACTICES Stock Ownership Requirements Clawback Policy Transactions Involving Hedging, Monetization, Margin Accounts, Pledges, Puts, Calls and Other Derivative Securities TAX AND ACCOUNTING CONSIDERATIONS Accounting for Stock-Based Compensation Policy on Deductibility of Executive Compensation RISK MANAGEMENT AND OUR EXECUTIVE COMPENSATION PROGRAM This section explains our compensation philosophy, describes the material components of our executive compensation program for our named executive officers (“NEOs”), whose compensation is set forth in the 2021 Summary Compensation table and other compensation tables contained in this Proxy Statement, and provides an overview of our executive compensation philosophy and program. 2021 Named Executive Officers Current NEOs Bruce W. McClelland Miguel Lopez Sam Bucci President and Chief Executive Officer Executive Vice President and Chief Financial Officer Executive Vice President and General Manager, IP Optical Networks Business Unit 56 | Ribbon Communications Inc. 2022 Proxy Statement Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix Steven McCaffery Patrick Macken Executive Vice President, Sales — EMEA and APAC Regions Executive Vice President, Chief Legal Officer and Corporate Secretary Sales Leadership Transition On January 12, 2021, Mr. McCaffery joined Ribbon as Executive Vice President, Sales — EMEA and APAC Regions. Executive Summary of 2021 Executive Compensation Decisions We believe that our executive compensation program supports our business strategies and talent management objectives and is consistent with sound governance practices that are intended to best serve our stockholders’ long-term interests. In making its compensation decisions for 2021, the Compensation Committee considered, among other things: ◾ ◾ ◾ our financial and operational results for the year, the result of the say-on-pay vote at our 2020 annual meeting of stockholders, and the achievement of the compensation objectives set by the Compensation Committee. The components of the NEOs’ 2021 compensation and the key decisions underlying such components are described below: 2021 TARGET COMPENSATION COMPONENTS OF CURRENT NEOs EXCLUDING THE CEO (AS A PERCENTAGE OF TOTAL DIRECT COMPENSATION) Performance Units Base Salary (Fixed) Bonus 32% 74% At Risk 26% 19% RSUs(1) 23% 74% Performance-Based/Equity Linked (1) Excludes value of sign-on RSUs granted to Mr. McCaffery in connection with his employment with the Company (which would increase % “at risk” and “performance-based/equity-linked”) Our senior executives are responsible for achieving both short- and long-term performance goals critical to our long-term success. Accordingly, compensation is weighted more heavily towards rewarding variable compensation as an individual rises within the organization. In connection with his appointment as President and CEO of Ribbon on March 1, 2020, Mr. McClelland was awarded 4,750,000 performance-based restricted share units (the “McClelland Sign-On PSUs”) Ribbon Communications Inc. 2022 Proxy Statement | 57 Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix that are subject to achievement of specified share price thresholds on or prior to September 1, 2024. See “Equity-Based Incentives — McClelland Sign-On PSUs” below. The design of the award was intended to (i) to cover multiple years of equity awards that would otherwise be granted to Mr. McClelland, (ii) encourage sustained performance, (iii) be long-term oriented, and (iv) align with interests with our stockholders. Given the large number of shares Mr. McClelland could earn over the span of this award (a portion of which did vest in 2021), the Compensation Committee elected not to include additional equity-based awards for Mr. McClelland in 2021 given the significant alignment with Company performance and long-term stockholder value provided by the McClelland Sign-on PSUs. Executive Compensation Highlights The Compensation Committee reviews its pay practices to help ensure that they are aligned with the goals and objectives of the business established by the Board, and that such practices reflect what the Compensation Committee believes are good pay practices and support the Company’s strong governance and pay for performance compensation philosophy. No material changes were made to the pay practice structure in 2021. Our Guiding Compensation Philosophy Our compensation philosophy and practices are a critical part of our business strategy. We have a rigorous performance and compensation management system, and we believe our compensation processes and programs are aligned to provide strong incentives for success while appropriately balancing risk. In setting policies and practices regarding compensation, our guiding philosophy is that our compensation programs should: Help achieve our corporate growth and business strategy Compensate our executives based on Company performance Enable Ribbon to hire, retain and motivate talented executives with proven experience in an increasingly competitive market 1 2 3 Effectively tie a significant portion of executive compensation to short- and long- term incentive programs reflecting executive’s ability to impact Company performance 4 We seek to accomplish these objectives by: ◾ ◾ ◾ providing independent Compensation Committee oversight; encouraging and rewarding outstanding initiative, achievement, teamwork appropriate business- risk taking and a shared success environment; and reinforcing critical measures of performance derived from our business strategy and key success factors. These objectives, and our general compensation philosophy, are reviewed on an annual basis and updated as appropriate. Some of the highlights of our compensation programs and practices are as follows: 58 | Ribbon Communications Inc. 2022 Proxy Statement Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix Compensation Best Practices that We Follow PAY FOR PERFORMANCE ◾ A significant portion of the NEOs’ target compensation is performance-based, share-linked or both ◾ All annual cash incentive payouts to the NEOs and 50% of annual long-term equity awards (excluding sign-on inducement awards) and 100% of the special equity awards granted in 2021 are performance- based ◾ 40% of annual performance-based equity awards made in 2020 (excluding sign-on inducement awards) are tied to relative total stockholder return over a three-year period CONSERVATIVE SEVERANCE ARRANGEMENTS ◾ 12-months base salary payment for termination without cause for NEOs (24-months for CEO in connection with termination without cause following a change of control) ◾ “Double Trigger” for acceleration of equity awards upon a change of control COMPENSATION BENCHMARKING and review of market compensation data, including the compensation practices, of peer companies in evaluating the compensation of our NEOs MEANINGFUL STOCK OWNERSHIP REQUIREMENTS ◾ 6x for the President and CEO ◾ 2x for the remaining NEOs MINIMAL PERQUISITES are provided to our NEOs ROBUST AND LONG-STANDING CLAWBACK POLICY MITIGATE UNDUE RISK by utilizing defined maximum payouts for performance-based compensation in order to prevent out-sized payouts HOLD AN ANNUAL ADVISORY VOTE on the compensation paid to our NEOs INDEPENDENT COMPENSATION CONSULTING FIRM, engaged by the Compensation Committee, that provides no other services to the Company Compensation Best Practices that We Do Not Follow NO GUARANTEED BONUSES for our executive officers NO INDIVIDUAL PERFORMANCE OR NON-FINANCIAL METRICS for determining annual bonus for the NEOs NO DISCOUNTED STOCK AWARDS, RELOADS OR REPRICING without stockholder approval NO HEDGING OR PLEDGING of shares permitted for our executive officers and directors NO TAX GROSS-UP PAYMENTS with respect to any payments made in connection severance including any change of control NO BROAD SHARE RECYCLING under our stock incentive plans Consideration of Stockholder Say-on-Pay Vote The Compensation Committee has historically considered the outcome of the Company’s annual say-on-pay vote when making decisions regarding the Company’s executive compensation program, including engaging in stockholder outreach. Ribbon Communications Inc. 2022 Proxy Statement | 59 Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix STOCKHOLDER ENGAGEMENT HISTORICAL SAY-ON-PAY SUPPORT 92% average stockholder approval over last 4 years ◾ In 2021, we engaged with our two largest stockholders, through Messrs. Shani and Smith, two of our non-employee directors, to discuss matters relating to the compensation of our executive officers, generally. ◾ Additionally, in 2021, we met with investors regularly to discuss matters of interests to such stockholders. 100% 75% 50% 25% 0% 87.1% 90.6% 98.7% 92.3% 2018 2019 2020 2021 The Compensation Committee also engaged its independent compensation consultant to review our executive compensation program in a manner that we believe reflects the goals of our current business, and certain material aspects of the current compensation program are described in this Compensation Discussion and Analysis section. While we believe our updated program provides the appropriate incentives and pay-for-performance culture for our NEOs, the Compensation Committee intends to continue to review our compensation practices in the future based on the results of say-on-pay votes and to engage stockholders for input into the Company’s pay practices, where appropriate. Overview of the Company’s Compensation Program The Company’s executive compensation program is administered by the Compensation Committee. In addition to attracting and retaining high caliber executives, the components of the executive compensation program are designed to reward the successful execution of corporate strategies, foster and drive continuous improvement, and encourage a high-performance culture, both on an annual basis and over the long-term. Who Oversees the Company’s Compensation Program? THE COMPENSATION COMMITTEE The Compensation Committee is primarily responsible for overseeing the Company’s executive compensation program. Our Board sets the overall corporate performance objectives for each year, while the Compensation Committee determines and approves the compensation level for the CEO; reviews the recommendations of the CEO and approves compensation levels of other executive officers; evaluates the performance of these executives; and evaluates and approves all grants of equity-based compensation to the CEO and the other executive officers. All decisions regarding the CEO’s compensation are made by the Compensation Committee in executive session without the CEO present. After the end of the fiscal year, the Compensation Committee reviews the actual corporate performance to determine the appropriate cash incentive amount, if any, to be paid to each eligible executive officer. ROLE OF THE COMPENSATION CONSULTANT The duties of the compensation consultant we engage are generally to evaluate executive compensation, perform an analysis on realized pay alignment with financial and stock performance, discuss general compensation trends, provide competitive market practice data and benchmarking, participate in the design and implementation of certain elements of the executive compensation program, and assist our CEO in developing compensation recommendations to present to the Compensation Committee for the other executive officers. The Compensation Committee may accept, reject or modify any recommendations by compensation consultants or other outside advisors. 60 | Ribbon Communications Inc. 2022 Proxy Statement Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix Since December 2017, FW Cook has served as the compensation consultant of the Compensation Committee and has advised the Compensation Committee regarding its compensation decisions. The Compensation Committee assessed FW Cook’s independence relative to standards prescribed by the SEC and determined that no conflicts existed. ROLES OF THE CHIEF EXECUTIVE OFFICER AND THE SENIOR VICE PRESIDENT OF HUMAN RESOURCES The CEO, in consultation with the Senior Vice President of Human Resources, develops compensation recommendations for the Compensation Committee to consider for the Company’s other executive officers. The CEO considers various factors when making individual compensation recommendations, including the relative importance of the executive’s position within the organization, the individual tenure and experience of the executive, and the executive’s individual performance and contributions to the Company’s results. The Compensation Committee considers, but is not bound by, compensation recommendations made by the CEO. The Compensation Committee determines the CEO’s compensation in its sole discretion. Competitive Benchmarking As part of the ongoing assessment of our executive compensation program, the Compensation Committee, with the assistance of its compensation consultant, reviews market compensation data, including the compensation practices of selected similar companies. Accordingly, the Compensation Committee updates the peer group from time to time to ensure that the Company’s executive compensation program remains competitive and in line with market compensation data. The peer group generally consists of publicly-traded information technology companies that are in the communications equipment and related sub-industries with market capitalization and revenue in a similar range to that of the Company. The compensation consultant reviews the business descriptions of potential peer companies to identify businesses generally in the telecommunications and/or networking industries. Then, the Compensation Committee considers factors, such as executive talent and business-line competitors, global scope and complexity, research and development expenses, and market capitalization-to- revenue multiples, when selecting peers. The Compensation Committee reviewed the previously approved peer group in 2021 and, in consultation with FW Cook, determined that no changes were necessary to the peer group, which is outlined below. RIBBON FISCAL 2021 EXECUTIVE COMPENSATION PEER GROUP COMPANIES ADTRAN, Inc. CalAmp Corp. Calix, Inc. Casa Systems, Inc. CSG Systems International, Inc. Extreme Networks, Inc. F5 Networks, Inc. Harmonic Inc. Infinera Corporation NETGEAR, Inc. NetScout Systems, Inc. Plantronics, Inc. Sierra Wireless, Inc. ViaSat, Inc. Viavi Solutions Inc. FW Cook compiled and provided the Compensation Committee compensation information from the peer group based on the publicly-filed documents of each member of the peer group. While the Compensation Committee considers the compensation of our peer group companies’ senior executives, it does not benchmark a particular percentile for the total compensation of our NEOs or for any component thereof. Compensation Components The Compensation Committee annually reviews fixed and variable compensation received by our NEOs, including: Ribbon Communications Inc. 2022 Proxy Statement | 61 Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix ◾ ◾ ◾ ◾ base salary, annual and long-term incentives, equity awards, and total equity in the Company. Our executive compensation program has four major components that support the Company’s compensation objectives, each of which is discussed in detail below. Such major components reflect the compensation provided to our NEOs in 2021. Compensation Mix A significant portion of our executive officers’ total direct compensation (which includes base salary, cash bonus and equity-based incentives) opportunity is attributable to variable compensation — that is, the amount our executives earn is dependent upon Company performance. The 2021 equity-based component of our NEOs’ total compensation consisted primarily of (i) restricted stock units that are subject to time-based vesting (“RSUs”) and (ii) restricted stock units the vesting of which is subject to established performance metrics (“PSUs”), and in both cases the value of which is tied to the value of the Company’s common stock. These variable elements were intended to align the executives’ performance and interests with Company performance and long-term stockholder value. The table below generally summarizes the elements of our compensation program for our NEOs in 2021: Element BASE SALARIES Form of Compensation ◾ Cash Purpose ◾ Provide competitive, fixed Link to Company Performance ◾ Low ANNUAL CASH INCENTIVES ◾ Cash LONG-TERM EQUITY INCENTIVES ◾ RSUs ◾ PSUs compensation to attract and retain exceptional executive talent ◾ Provide a direct incentive to ◾ High achieve strong annual operating results ◾ Encourage executive officers to build and maintain a long-term equity ownership position in Ribbon so that their interests are aligned with those of our stockholders ◾ High HEALTH, RETIREMENT AND OTHER BENEFITS ◾ Eligibility to participate ◾ Benefit plans are part of a ◾ Low in benefit plans generally available to our employees, including 401(k) plan, premiums paid on long-term disability and life insurance broad-based employee benefits program ◾ Except in limited circumstances as discussed in the footnotes of our Summary Compensation Table, our executives do not generally receive any material nonqualified deferred compensation plans or perquisites How Target Levels of Compensation Are Determined In determining the amount of compensation to pay our NEOs, the Compensation Committee considers factors such as the executive officer’s role within the Company and the level of responsibility, skills and experiences required by the position, the executive officer’s qualifications, our ability to replace such individual and the overall competitive environment for executive talent. 62 | Ribbon Communications Inc. 2022 Proxy Statement ▶ D E X F ◀ I ▶ E L B A R A V ◀ I R E H T O ◀ I ▶ N O T A S N E P M O C Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix The Compensation Committee also considers the Company’s performance, the executive’s performance, the Compensation Committee’s view of internal equity and consistency and other considerations it deems relevant. In analyzing these factors, the Compensation Committee reviews competitive compensation data gathered in comparative surveys (benchmarking and peer group data). The Compensation Committee does not have a policy for allocating target compensation among the various elements in any particular ratio, but generally attempts to provide an allocation similar to that used by other companies with whom the Company competes for executive talent using the peer data provided by our outside compensation consultant. Of the elements of total direct compensation, only base salary is fixed compensation, while cash bonuses and equity-based awards are both variable compensation and contingent on Company or stock performance. 2021 Compensation Payouts The established targets for individual components and overall executive compensation are designed to be market competitive in order to attract, motivate and retain the executives necessary to drive and achieve the Company’s objectives. In some cases, individual components may be positioned higher or lower in the market range in order to emphasize a particular element or if individual circumstances dictate. The Compensation Committee believes that the overall compensation program serves to balance the mix of cash and equity compensation with the mix of short- and long-term compensation for our NEOs. Base Salary Base salaries are designed to reflect the scope of responsibilities, performance and competencies of the individual executives, and the relation of that position to other positions in the Company and the external benchmark data for similar positions at peer companies. Each NEO’s salary and performance are reviewed annually as well as at the time of a promotion or other change in responsibilities. For Mr. McCaffery, who joined the Company in January 2021, his base salary was determined at the time he was hired based on the factors identified above. No changes were made to any of the other NEOs’ base salaries for 2021 in connection with the annual compensation review or otherwise. Annual Cash Bonuses Annual cash incentives provide NEOs with the opportunity to earn additional cash compensation beyond base salary. The eligibility for an annual cash bonus creates an incentive to achieve desired near-term corporate goals that are in furtherance of the Company’s long-term objectives. The compensation program establishes target bonuses for each NEO. Cash bonuses are expected to represent a substantial part of total compensation for our NEOs, if earned. For 2021, the Company had one cash incentive plan for the NEOs — the Senior Management Cash Incentive Plan (the “SMCIP”). In February 2021, the Compensation Committee determined that the annual cash incentive under the SMCIP for each NEO, other than Mr. Bucci, would be calculated based on the achievement of two financial metrics: (i) the Company’s consolidated revenues and (ii) the Company’s consolidated pre-bonus Adjusted EBITDA, each based on the 2021 operating plan adopted by the Board. Ribbon Communications Inc. 2022 Proxy Statement | 63 Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix Pre-bonus Adjusted EBITDA 40% SMCIP For 2021 60% Revenues For Mr. Bucci, in light of his role as general manager of the IP Optical Networks segment, his annual cash incentive under the SMCIP would be based equally on both the IP Optical Networks segment results (50% weighting) and the Company’s consolidated results (50% weighting), using revenues (60% weighting) and adjusted EBITDA (40% weighting), for the IP Optical Networks segment and consolidated, respective, to determine the payout. Following completion of the year, the Compensation Committee determined the 2021 cash bonus payout for each NEO. Such payout was calculated by multiplying the aggregate percentage achievement of the applicable financial metrics for each NEO by the bonus target for that NEO. The performance targets relating to the Company’s pre-bonus Adjusted EBITDA and revenues under the SMCIP for each of the NEOs, as well as the actual results of these financial measurements for 2021, were as follows: Operating Unit Measured Full Company Consolidated Operating Unit Measured IP Optical Networks Full Company Consolidated NEOs other than Mr. Bucci Target SMCIP Bonus Metrics (in millions) Company Performance Payout Minimum 0% ($) Target 100% ($) Maximum 200% ($) Actual 2021 Results ($) Calculated Payout Results Weighting Pre-Bonus Adjusted EBITDA(1) Revenues 155.0 900.0 190.0 210.0 1,000.0 1,100.0 120,495 844,957 Total Potential Weighted Payout: 0% 0% 0% 40% 60% 100% Sam Bucci Target SMCIP Bonus Metrics (in millions) Company Performance Payout Minimum 0% ($) Target 100% ($) Maximum 200% ($) Actual 2021 Results ($) Calculated Payout Results Weighting Pre-Bonus Adjusted EBITDA(1) Revenues Pre-Bonus Adjusted EBITDA(1) Revenues 10.0 360.0 16.0 415.0 20.0 475.0 (33,638) 288,301 155.0 900.0 190.0 210.0 1,000.0 1,100.0 120,495 844,957 Total Potential Weighted Payout: 0% 0% 0% 0% 0% 20% 30% 20% 30% 100% (1) Adjusted EBITDA is calculated by excluding from (Loss) income from operations: depreciation; amortization of acquired intangible assets; stock-based compensation; acquisition-related inventory adjustments; certain litigation costs; impairment of goodwill; acquisition-, disposal- and integration- related expense; and restructing and related expense. 64 | Ribbon Communications Inc. 2022 Proxy Statement Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix As a result of the Company’s financial performance in 2021, as reflected in the tables above, no payouts were made under the SMCIP to the NEOs in 2021. Equity-Based Incentives Equity-based incentives are provided to executives whose decisions and actions have a direct impact upon our long-term performance and success. RSUs and PSUs were granted to our executive officers in 2021 to link a significant portion of their compensation directly to our long-term success, which aligns with the Compensation Committee’s philosophy. In determining the size of the RSU and PSU awards granted to each executive officer in 2021 (including inducement grants made in connection with the hiring of Mr. McCaffery), the Compensation Committee considered a multitude of factors including: ◾ ◾ ◾ ◾ the executive officer’s role, past performance, anticipated contribution to our long-term goals, areas of focus for the year, ◾ market data, ◾ equity granted in prior years, and ◾ existing levels of stock ownership. 2021 EQUITY AWARDS We made equity grants to our NEOs in 2021 as shown in the table below. Named Executive Officer Restricted Stock Units (#) Performance-Based Stock Units (# at Target Vesting, if Applicable) Mick Lopez Sam Bucci Steve McCaffery Patrick Macken 53,764 47,790 115,455 47,790 71,686 63,720 55,756 63,720 Given the intention that the McClelland Sign-on PSUs cover multiple years of equity grants that may otherwise have been made to Mr. McClelland, the Compensation Committee elected not to grant additional equity-based awards for Mr. McClelland in 2021. RSUS In general, the RSUs granted to the NEOs in 2021, with the exception of a portion of the RSUs granted to Mr. McCaffery, vest over three years, with one-third of the units vesting on the first anniversary of the grant date and one-sixth of the RSUs vesting every six months thereafter, subject to the NEO’s continued employment with the Company. In connection with his appointment and as an incentive to join Ribbon, Mr. McCaffery was granted a sign-on RSU award for 73,638 shares that vested in full on January 15, 2022, following the first anniversary of his employment with Ribbon. The remaining RSUs granted to Mr. McCaffery in 2021 are subject to vesting over three years as described above. PSUs Two grants of PSUs were made in 2021 to the executive officers, other than Mr. McClelland. The first was the annual PSU awards (the “2021 Annual PSUs”) that vest after three years and have both Ribbon Communications Inc. 2022 Proxy Statement | 65 Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix performance and service conditions. The performance conditions for the 2021 PSUs are based on key financial performance metrics and relative total stockholder return. Total shareholder return 40% 2021 Annual PSU Performance Weighting 60% Financial metrics The second PSU grant made to the NEOs in 2021, other than Mr. McClelland, was a special PSU grant (the “2021 Special PSUs”) tied to revenue growth in 2021, as described below. Performance Goals for Annual PSUs Due to the challenge of setting multi-year goals in our industry, the Compensation Committee establishes annual corporate performance goals at the start of each year of the three-year period covered by the annual awards (60% total weighting of the target award value for the 2021 Annual PSUs). While shares are earned at the end of each one-year performance period, they do not vest and become payable until the end of the full three-year period under the terms of the 2021 Annual PSU awards. For the performance period January 1, 2021 through December 31, 2021, the corporate performance goals established by the Compensation Committee for the 2021 Annual PSUs were consolidated revenue (60% weighting) and consolidated pre-bonus Adjusted EBITDA (40% weighting), with the same targets as outlined above in connection with the SMCIP. These corporate performance goals also applied to the 2021 performance period under PSUs granted to Messrs. Lopez, Bucci and Macken in 2020 (the “2020 Annual PSUs”). ◾ ◾ For the performance period January 1, 2022 through December 31, 2022, the corporate performance goals established by the Compensation Committee for the 2021 Annual PSUs and the 2020 Annual PSUs will again use revenue with a minimum threshold of pre-bonus Adjusted EBITDA required for any shares to be earned. The Compensation Committee will establish the corporate performance goals (and relative weighting) for the performance period January 1, 2023 through December 31, 2023 in early 2023. For 2021, based on the results discussed above for the SMCIP, the Company’s achievements would have resulted in none of the target shares for the 2021 performance period being earned under the 2021 Annual PSUs and the 2020 Annual PSUs, nor any of the target shares being earned and vested under the 2021 Special RSUs. RELATIVE TSR Relative total stockholder return (“Relative TSR”) is the return on the Company’s stock taking into account the change in the stock price over the three-year measurement period and assuming any dividends are reinvested. Ribbon’s stock performance over the three-year period is compared on a relative basis to a peer index and measured “point-to-point,” with the starting and ending points based on the average 20-trading day closing stock prices at the end of our fiscal years to smooth out any single day volatility. The table below provides the payout range for the Relative TSR portion of the 2021 Annual PSUs. This portion of the PSU awards cliff vest at the end of the three-year performance period with linear interpolation between each performance hurdle (e.g., 40th percentile Relative TSR performance yields 80% of target payout on this metric). 66 | Ribbon Communications Inc. 2022 Proxy Statement Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix Payout for Relative TSR Achievement Metric 200% 100% 50% Relative TSR Achievement 75th percentile 50th percentile 25th percentile The peer index used to measure Relative TSR for the 2021 PSUs, which is comprised of companies formerly included in the Russell 2500 Telecommunications Sub-Sector Index, is as follows: Acacia Communications, Inc. ADTRAN Inc. Anterix Inc. Applied Optoelectronics Inc. Avaya Holdings Corp. Bel Fuse Inc. CalAmp Corp. Calix Inc. Casa Systems Inc. Ciena Corporation Clearfield, Inc. CommScope Holding Company Inc. Comtech Telecommunications Corp. Digi International Inc. DZS Inc. EchoStar Corporation Extreme Networks Inc. GTT Communications Inc. Harmonic Inc. Infinera Corporation InterDigital Inc. Knowles Corporation KVH Industries Inc. Loral Space & Communications Inc. Lumentum Holdings Inc. Maxar Technologies Inc. NCR Corporation NeoPhotonics Corporation NETGEAR Inc. Ooma Inc. Plantronics Inc. Ribbon Communications Inc. RingCentral, Inc. Telenav Inc. Ubiquiti Inc. Viasat Inc. Viavi Solutions Inc. Vocera Communications Inc. 2021 Special PSUs For 2021, the Board wanted the Company to focus on growing revenues for the first full year of operations following the acquisition of ECI in March 2020. To further align the executives’ interests in achieving this goal with the stockholder value the Board believed would be created from the revenue growth, the Compensation Committee approved the grant of the 2021 Special PSUs. The PSUs would vest in full on March 15, 2022, based on the Company’s consolidated revenues for 2021. The Compensation Committee used the same consolidated revenue targets as outlined above in connection with the SMCIP for the 2021 Special PSUs. Based on the Company’s 2021 consolidated revenue, none of the target shares under the 2021 Special PSUs vested. MCCLELLAND SIGN-ON PSUS In connection with his appointment as President and CEO of Ribbon on March 1, 2020, Mr. McClelland was awarded the McClelland Sign-On PSUs that are subject to achievement of specified share price thresholds on or prior to September 1, 2024. The design of the award was intended to (i) to cover multiple years of equity awards that would otherwise be granted to Mr. McClelland, (ii) encourage sustained performance, (iii) be long-term oriented, and (iv) align with interests with our stockholders. The McClelland Sign-On PSUs are divided into four tranches, with the performance goals necessary to provide for the vesting of the awards based on the sustained achievement of a certain target closing price per share of our common stock as set forth in the table below (each such target, a “Target Stock Price”) during the applicable “Performance Period” (as set forth in the table defined below). The Company will have achieved the Target Stock Price during any Performance Period and the applicable PSUs vest only if the closing price per share of the common stock equals or exceeds the applicable Target Stock Price for a period of twenty (20) consecutive trading days. Upon achievement of the Target Stock Price during the applicable Performance Period (e.g., attainment of Target Stock Price of $7.50 during the First Performance Period), a number of the Ribbon Communications Inc. 2022 Proxy Statement | 67 Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix McClelland Sign-On PSUs will become vested as set forth in the table below and Mr. McClelland will receive a number of shares of common stock equal to the number of PSUs that become vested. Performance Tranche First Performance Tranche Second Performance Tranche Third Performance Tranche Fourth Performance Tranche Performance Period Value Awarded ($) Target Stock Price ($) Number of PSUs Eligible to Vest (#) March 16, 2020 – September 1, 2021 March 16, 2020 – September 1, 2022 March 16, 2020 – September 1, 2023 March 16, 2020 – September 1, 2024 10,000,000 7.50 1,333,333 15,000,000 12.00 1,250,000 25,000,000 15.00 1,666,667 10,000,000 20.00 500,000 Maximum Aggregate Number of Shares Eligible to Be Received: 4,750,000 The vesting described in the table above is referred to as “Target Stock Price Vesting.” Notwithstanding the foregoing, in the event that a Target Stock Price is not achieved on or before the conclusion of a Performance Period and Target Stock Price Vesting does not occur, the applicable portion of the McClelland Sign-On PSUs that have not vested in respect of such Performance Period (the “Prior Performance Period Unvested PSUs”) may still become vested as follows: ◾ ◾ if, on the first business day following the end of the applicable Performance Period, such Prior Performance Period Unvested PSUs remain outstanding and the “Look Back Percentage” (as defined below) for such Performance Period exceeds 0%, then a number of the Prior Performance Period Unvested PSUs relating to such Performance Period equal to (i) the product of (x) the Value Awarded for such Performance Period and (y) the Look Back Percentage for such Performance Period, divided by (ii) the Target Stock Price for the Performance Period shall become vested on the first business day following the end of such Performance Period (the “Look Back Vesting”). For the avoidance of doubt, the Look Back Vesting will only be applied to result in vesting of awards in respect of the applicable Performance Period and not for purposes of any McClelland Sign-On PSUs for prior Performance Periods (e.g., Look Back Vesting with respect to the Third Performance Tranche will in no event result in any vesting of any awards in respect of the Second Performance Tranche); and if (i) the higher Target Stock Price applicable to a subsequent Performance Period is achieved in such subsequent Performance Period (such vesting the “Catch-Up Target Vesting”) or (ii) on the first business day following the end of a subsequent Performance Period, such Prior Performance Period Unvested PSUs remain outstanding and the Look Back Percentage for such subsequent Performance Period equals or exceeds 50%, all Prior Performance Period Unvested PSUs for earlier Performance Period(s) that have not previously vested due to Look Back Vesting (the “Remaining Prior Performance Period Unvested RSUs”) will become vested (such vesting the “Catch-Up Look Back Vesting”); provided that, in the event the Remaining Prior Performance Period Unvested RSUs become vested, the number of shares of common stock to be received upon vesting of such Remaining Prior Performance Period Unvested PSUs in a subsequent Performance Period will equal (a) the “Value Awarded” set forth above for such Remaining Prior Performance Period Unvested PSUs divided by (b) the higher Target Stock Price applicable to such subsequent Performance Period. “Value Awarded” attributable to any awards is the prorated portion of the Value Awarded described in the table above (e.g., if 20% of the First Performance Tranche were Remaining Prior Performance Period Unvested PSUs, their allocable portion of the Value Awarded for the First Performance Tranche would equal $2,000,000 ($10,000,000 x 20%)). “Look Back Percentage” with respect to any Performance Period means the following (represented as a percentage): (a) (i) the Average Trading Price for such Performance Period minus (ii) 90% of the Target Stock Price for such Performance Period, divided by (b) 10% of the Target Stock Price; provided that the Look Back Percentage shall in no event exceed 100%. For illustrative purposes, in the event that the Target Stock Price of $7.50 was not achieved in the First Performance Period and no Prior Performance Period Unvested PSUs vested as a result of Look 68 | Ribbon Communications Inc. 2022 Proxy Statement Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix Back Vesting for the First Performance Period, but the Target Stock Price of $12.00 is achieved in the Second Performance Period, then, upon attainment of the Target Stock Price in the Second Performance Period, Mr. McClelland would become vested in the awards applicable to both the First Performance Period and Second Performance Period and such awards would be settled in a total of 2,083,333 shares of our common stock, consisting of (a) 833,333 shares of common stock in respect of the First Performance Tranche (i.e., a number of shares of common stock equal to the First Performance Period’s “Value Awarded” ($10,000,000) divided by $12.00 (i.e., the achieved Target Stock Price in the Second Performance Period)) plus (b) in respect of the Second Performance Tranche, 1,250,000 shares of common stock (i.e., a number of shares of our common stock equal to the Second Performance Period’s “Value Awarded” ($15,000,000) divided by $12.00 (i.e., the achieved Target Stock Price in the Second Performance Period)). Given the Company’s stock price at the time Mr. McClelland was hired and the difficulty in establishing meaningful long-term financial goals tied to the Company’s financial results in light of the expected closing of the ECI acquisition at that time, which would significantly change the Company’s operations, the Compensation Committee believed that the use of stock performance targets in the McClelland Sign-On PSUs would reward Mr. McClelland for significant improvement in the Company’s financial performance over an extended period (four years) and would align Mr. McClelland’s interests with those of the Company’s other stockholders. On February 26, 2021, the closing price for our common stock exceeded $7.50 for the 20th consecutive trading day. As a result, the performance condition for the First Performance Tranche was achieved and 1,333,333 shares vested under the McClelland Sign-On PSUs and were delivered to Mr. McClelland. BUCCI SIGN-ON PSUS In connection with his appointment as Executive Vice President and General Manager, IP Optical Networks business unit, on September 15, 2020, Mr. Bucci was awarded 133,333 performance- based restricted share units (the “Bucci Sign-On PSUs”). Subject to Mr. Bucci’s continued employment, the Bucci Sign-On PSUs were eligible to fully vest if the closing price for our common stock exceeded $7.50 for ten consecutive trading days. The Compensation Committee believed that the future operating results of the IP Optical Networks business unit, which Mr. Bucci was brought in to lead, would be critical to increasing the Company’s financial performance and stock price over the near-term. As a result, the Compensation Committee believed that the Bucci Sign-On PSUs reflected a strong correlation of pay for performance and would further align Mr. Bucci’s interest with those of the Company’s other stockholders. On February 12, 2021, the closing price for our common stock exceeded $7.50 for the 10th consecutive trading day and, as a result, 133,333 shares vested under the Bucci Sign-On PSUs and were delivered to Mr. Bucci. Benefits and Other Compensation We have various broad-based employee benefit plans. We do not typically offer perquisites or employee benefits to executive officers that are not also made available to employees on a broad basis. Our executive officers generally are eligible for the same benefits that are available to all employees, which include group health, dental and vision insurance, life and disability insurance, discretionary 401(k) matching contributions and paid holidays. We offer a 401(k) plan, which allows our employees to invest in a wide array of funds. Except for certain post-termination benefits in connection with severance, we do not provide pension arrangements or post-retirement health coverage for our NEOs. We have entered into indemnification agreements with our executive officers and directors. Severance and Separation Arrangements We are party to agreements with each of our NEOs, which generally provide that, upon a termination of the NEO’s employment by the Company without “cause” (as defined in the applicable NEO’s Ribbon Communications Inc. 2022 Proxy Statement | 69 Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix employment agreement), due to a resignation by the NEO for “good reason” (as defined in the applicable NEO’s employment agreement) or due to death or disability of the NEO, the NEO is entitled to certain severance payments and benefits. We believe the entry into such severance arrangements by Ribbon (or our predecessors) is generally consistent with market practice and allows our executives to remain focused on the Company’s objectives in times of potential uncertainty. For further discussion regarding the severance and separation agreements and arrangements, see “Severance and Change in Control Benefits” below. Compensation Policies and Practices Stock Ownership Requirements The Board believes that it is important to link the interests of our NEOs, among others, to those of our stockholders. Our stock ownership guidelines require our Chief Executive Officer and other Section 16 reporting officers to accumulate and hold a minimum amount of Company common stock within a certain number of years of joining the Company. Any Section 16 reporting officer who is subject to our stock ownership guidelines must satisfy these ownership guidelines within five years from the date he or she is appointed as a Section 16 reporting officer; provided, however, that the Chief Executive Officer must satisfy the ownership guidelines within six years from the date he or she is appointed as the Chief Executive Officer. Further, our non-employee directors must maintain the amount of common stock granted to them throughout their tenure as non-employee directors. As of the record date, each of our non-employee directors, Chief Executive Officer and the other Section 16 reporting officers of the Company has either satisfied these ownership guidelines or were on track to satisfy the requirement in the time remaining to do so. The specific stock ownership requirements for our directors, Chief Executive Officer and other Section 16 reporting officers are as follows: Title Chief Executive Officer Section 16 Reporting Officers Non-Employee Directors Stock Ownership Requirement Compliance Period 6 years from appointment, subject to the guidelines 5 years from appointment, subject to the guidelines Retain equity holdings for their tenure as non-employee directors 2x annual base salary 6x annual base salary The value of each such individual’s stock ownership will be measured annually by the Compensation Committee. Clawback Policy All awards granted under our equity plans are subject to clawback pursuant to the Company’s Clawback Policy and any other clawback policy that the Company may adopt in the future. Transactions Involving Hedging, Monetization, Margin Accounts, Pledges, Puts, Calls and Other Derivative Securities The Company’s insider trading policy contains stringent restrictions on transactions in Company common stock by directors and officers. All trades by directors and officers must be pre-approved by the Chief Legal Officer. Our current insider trading policy was amended and restated in 2019 to prohibit all executive officers and directors from engaging in transactions involving hedging, monetization, margin accounts, pledges, puts, calls and other derivative securities. 70 | Ribbon Communications Inc. 2022 Proxy Statement Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix Tax and Accounting Considerations Accounting for Stock-Based Compensation We account for stock-based compensation in accordance with ASC 718. Policy on Deductibility of Executive Compensation Section 162(m) of the Code generally disallows a tax deduction for annual compensation in excess of $1.0 million paid to certain executive officers of the Company. The Tax Cuts and Jobs Act, signed into law on December 22, 2017, repealed the “performance-based compensation” exception to such deduction limitation and expanded the scope of the executive officers who are covered by Section 162(m) of the Code. As a result, for tax years beginning after December 31, 2017, compensation previously intended to be “performance-based” and not subject to Section 162(m) may not be deductible unless it qualifies for limited transition relief applicable to certain remuneration payable pursuant to a written binding contract which was in effect on November 2, 2017. The Compensation Committee reviews the potential effect of Section 162(m) of the Code on the Company’s compensation practices periodically. However, the Compensation Committee has no obligation to limit compensation to that which is deductible under Section 162(m) of the Code and may use its judgment to authorize compensation programs and payments (or the modification of existing compensation programs or payments) that may not be deductible when it believes such programs and payments are appropriate and in the Company’s and our stockholders’ best interests. Further, due to uncertainties in the applications of Section 162(m) of the Code, there is no guarantee that deductions claimed under Section 162(m) of the Code will not be challenged or disallowed by the Internal Revenue Service and our ability to deduct compensation under Section 162(m) of the Code may be restricted. Risk Management and Our Executive Compensation Program The Compensation Committee monitors and manages our executive compensation program to help ensure that it does not encourage excessive risk taking. The Compensation Committee reviewed, analyzed and considered whether the Company’s compensation policies and practices create risks that are reasonably likely to have a material adverse effect on us, and concluded that no such material risks exist. Ribbon Communications Inc. 2022 Proxy Statement | 71 Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix Compensation Committee Report The information contained in this report shall not be deemed to be “soliciting material” or “filed” or incorporated by reference in future filings with the U.S. Securities and Exchange Commission, or subject to the liabilities of Section 18 of the Securities Exchange Act of 1934, as amended, except to the extent that we specifically request that it be treated as soliciting material or specifically incorporate it by reference into a document filed under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended. The Compensation Committee consists of Beatriz V. Infante, Bruns H. Grayson and Krish A. Prabhu. The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with our management. Based on this review and discussion, the Compensation Committee recommended to our Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement. Submitted by, THE COMPENSATION COMMITTEE Beatriz V. Infante (Chair) Bruns H. Grayson Krish A. Prabhu 72 | Ribbon Communications Inc. 2022 Proxy Statement Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix Executive Compensation Tables 2021 Summary Compensation Table The following table sets forth, for the year ended December 31, 2021 and for the two years prior thereto (if applicable), the compensation earned by our Chief Executive Officer, Chief Financial Officer, and the three most highly compensated executive officers serving as executive officers at December 31, 2021. Name and Principal Position Year Salary ($) Bonus ($) Stock Awards(1) ($) Option Awards ($) Non-Equity Incentive Plan Compensation(2) ($) All Other Compensation(3) ($) Bruce McClelland President and Chief Executive Officer Miguel Lopez Executive Vice President and Chief Financial Officer Sam Bucci Executive Vice President and General Manager, IP Optical Networks Business Unit Steve McCaffery Executive Vice President, Sales – EMEA and APAC regions Patrick Macken Executive Vice President and Chief Legal Officer 2021 750,000 — — 2020 478,846 — 3,631,842 2021 525,000 — 1,193,098 2020 235,442 — 1,160,692 2021 461,234 — 1,060,524 2020 122,772 101,496 1,810,353 — — — — — — 2021 437,238 — 1,427,978 — 2021 400,000 — 1,060,524 2020 210,154 50,000 1,188,046 — — — 783,812 — 250,129 — 133,942 — — 219,263 Total ($) 781,423 4,922,249 1,740,720 1,726,179 1,541,136 2,170,524 31,423 27,749 22,622 79,916 19,378 1,961 32,338 1,897,554 31,446 93,150 1,491,970 1,760,613 (1) The amounts shown in this column do not reflect compensation actually received by the NEO. Instead, the amounts primarily reflect the grant date fair value of each stock award granted to each NEO. The grant date fair values of stock awards were calculated in accordance with ASC 718. The methodology for calculating the grant date fair value of stock awards is discussed in Note 20 to our 2021 Annual Report. The grant date fair value of restricted stock units is equal to the closing price of our common stock on the date of grant. In 2021, we granted PSUs with both performance and service conditions to all of the NEOs except Mr. McClelland. In 2020, we granted PSUs with both market and service conditions to Messrs. McClelland, Lopez, Bucci, McCaffery and Macken. Mr. McClelland’s and certain of Mr. Bucci’s PSUs granted in 2020 include market conditions related to our stock price trading at or above certain thresholds for a specified amount of time. PSUs that include a market condition require the use of a Monte Carlo simulation approach to model future stock price movements based upon the risk-free rate of return, the volatility of each entity and, where applicable, the pair-wise covariance between each entity. These results are then used to calculate the grant date fair values of the respective PSUs. (2) The amounts shown in this column represent the amounts earned under our SMCIP. No bonus payments were made to the NEOs for 2021 as the performance objectives established for 2021 were not met. (3) This column includes the incremental cost of certain perquisites and other personal benefits provided to the NEOs. The components of All Other Compensation for 2021 are as follows: 2021 Compensation Components Health benefits(a) 401(k) matching contribution/pension and profit sharing contribution(b) Life, disability and excess liability Insurance(a) Car allowance Total All Other Compensation Bruce McClelland ($) 24,340 5,800 1,283 — 31,423 Miguel Lopez ($) 15,539 5,800 1,283 — 22,622 Sam Bucci ($) Steve McCaffery ($) Patrick Macken ($) 2,458 24,294 24,363 13,240 3,680 — 19,378 — — 8,044 32,338 5,800 1,283 — 31,446 (a) Represents the Company’s portion of such insurance benefits. (b) Represents the Company’s 401(k) matching contributions for Messrs. McClelland, Lopez, McCaffery and Macken and pension and profit sharing contributions for Mr. Bucci. Ribbon Communications Inc. 2022 Proxy Statement | 73 Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix Grants of Plan-Based Awards in 2021 The following table sets forth information about incentive plan awards made to the NEOs during the year ended December 31, 2021: Date of Compensation Committee Action(1) Name Bruce McClelland Grant Date Miguel Lopez Sam Bucci March 15, 2020 March 15, 2021 March 15, 2021 March 15, 2021 March 15, 2020 March 15, 2021 March 15, 2021 March 15, 2021 February 9, 2021 February 9, 2021 February 9, 2021 February 9, 2021 February 9, 2021 February 9, 2021 February 9, 2021 February 9, 2021 Steve McCaffery January. 15, 2021 March 15, 2021 March 15, 2020 March 15, 2021 March 15, 2021 February 9, 2021 February 9, 2021 February 9, 2021 February 9, 2021 Patrick Macken March 15, 2020 March 15, 2021 March 15, 2021 March 15, 2021 February 9, 2021 February 9, 2021 February 9, 2021 February 9, 2021 Estimated Future Payouts Under Non-Equity Incentive Plan Awards(2) Target ($) Threshold ($) Maximum ($) Estimated Future Payouts Under Equity Incentive Plan Awards(3) Target ($) Threshold ($) Maximum ($) Awards: Number of Shares of Stock or Units (#) Awards: Number of Securities Underlying Options (#) Exercise or Base Price of Option Awards ($/Sh) Grant Date Fair Value of Stock and Option Awards(4) ($) — — — — — — — — — — — — — — — — — — — — — — 750,000 393,750 — — — — 343,913 — — — — 298,572 — — — — — 300,000 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 53,764 32,259 64,518 21,505 43,010 17,922 35,844 — — — — 28,674 57,348 19,116 38,232 15,930 31,860 — — — — — — 25,090 50,180 16,727 33,454 13,939 27,878 — — — — 28,674 57,348 19,116 38,232 15,930 31,860 — — — — 47,790 — — — 73,368 41,817 — — — — 47,790 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 465,059 279,040 293,974 155,025 — 413,384 248,030 261,316 137,794 500,002 361,717 217,029 228,658 120,572 413,384 248,030 261,316 137,794 (1) Represents the date on which the Compensation Committee took action to approve the equity-based award or the performance metrics for achievement of such award, as applicable. (2) (3) “Target” amount represents the potential bonus payment under the SMCIP at target level of achievement. In 2021, we granted PSUs with both market and service conditions to Messrs. Lopez, Bucci, McCaffery and Macken. PSUs that include a market condition require the use of a Monte Carlo simulation approach to model future stock price movements based upon the risk-free rate of return, the volatility of each entity and, where applicable, the pair-wise covariance between each entity. These results are then used to calculate the grant date fair values of the respective PSUs. Each NEO’s 2021 Annual PSU grant based, in part, on performance is comprised of three consecutive fiscal year performance periods from 2021 through 2023 (each, a “Fiscal Year Performance Period”), with one-third of the 74 | Ribbon Communications Inc. 2022 Proxy Statement Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix Performance PSUs attributable to each Fiscal Year Performance Period. The number of shares that will vest for each Fiscal Year Performance Period will be based on the achievement of certain metrics related to the Company’s financial performance for the applicable year on a standalone basis (each, a “Fiscal Year Performance Condition”). The Company’s achievement of each Fiscal Year Performance Condition (and the number of shares of Company common stock to vest as a result thereof) is measured on a linear sliding scale in relation to specific threshold, target and stretch performance conditions. The Compensation Committee will determine the number of shares earned, if any, after the Company’s financial results for each Fiscal Year Performance Period are finalized. Upon the determination by the Compensation Committee of the number of shares that will be received upon vesting of the 2021 Annual PSUs, such number of shares will become fixed and the unamortized expense will be recorded through the remainder of the service period that ends on March 15, 2024, at which time the total Performance PSUs earned, if any, will vest, pending each executive’s continued employment with the Company through that date. Each NEO’s 2021 Special PSU grant is based on performance for the one-year period January 1, 2021 through December 31, 2021 (the “Special Performance Period”), with achievement for the Special Performance Period (and the number of shares of Company common stock to vest as a result thereof) measured on a linear sliding scale in relation to specific threshold, target and stretch performance conditions. The number of shares of common stock to be achieved upon vesting of the Performance PSUs will in no event exceed 200% of the Performance PSUs. Shares subject to the Performance PSUs that fail to be earned will be forfeited. In March 2021, as discussed in “Compensation Discussion & Analysis” above, the Compensation Committee determined that the performance metrics for the performance portion of the 2021 Annual PSUs and the 2021 Special PSUs had been achieved at the minimum level and, as a result, no shares were earned for either the 2021 Fiscal Year Performance Period nor the Special PSUs and the shares subject to the 2021 Special PSUs were forfeited. The TSR portion of the 2021 Annual PSUs have a single three-year performance period, which will end on December 31, 2023 (the “Market Performance Period”). The number of shares subject to the TSR portion of the 2021 Annual PSUs that will vest, if any, on March 15, 2024, will be dependent upon the Company’s TSR compared with the TSR of the peer companies identified by the Compensation Committee for the 2021 Annual PSUs, measured by the Compensation Committee after the Market Performance Period ends. The shares determined to be earned will vest on March 15, 2024, pending each executive’s continued employment with the Company through that date. The number of shares of common stock to be achieved upon vesting of the TSR portion of the 2021 Annual PSUs will in no event exceed 200% of the TSR portion of the 2021 Annual PSUs. Shares subject to the TSR portion of the 2021 Annual PSUs that fail to be earned will be forfeited. (4) Amounts reflect the grant date fair values of the RSUs and PSUs estimated in accordance with ASC 718 as of the respective grant dates. The methodology for calculating the grant date fair value of stock awards is discussed in Note 20 to the Company’s 2021 Annual Report. Ribbon Communications Inc. 2022 Proxy Statement | 75 Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix Outstanding Equity Awards at Fiscal Year-End The following table sets forth information concerning unvested stock awards held by the NEOs as of December 31, 2021 for those NEOs that held unvested awards as of such date: Name Bruce McClelland Miguel Lopez Sam Bucci Steve McCaffery Patrick Macken Number of Shares or Units of Stock Awards that Have Not Vested (#) Market Value of Shares or Units of Stock that Have Not Vested ($) Stock Awards Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights that Have Not Vested (#) 3,416,667(2) Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights that Have Not Vested(1) ($) 20,670,835 66,371(3) 53,764(3) 24,890(4) 66,823(6) 47,790(6) 25,059(7) 73,638(9) 41,817(9) 74,999(12) 47,790(12) 22,884(13) 401,545 325,272 150,585 404,279 289,130 151,607 445,510 252,993 453,744 289,130 138,448 19,911(4) 21,506(4) 39,823(5) 21,505(5) 20,048(7) 19,116(7) 40,094(8) 19,116(8) 16,727(10) 16,727(11) 18,306(13) 19,116(13) 36,614(14) 19,116(14) 120,462 130,111 240,929 130,105 121,290 115,652 242,569 115,652 101,198 101,198 110,751 115,652 221,515 115,652 (1) In accordance with SEC rules, the market value of unvested restricted stock units was determined by multiplying the number of such shares by $6.05, the closing market price of our common stock on December 31, 2021. (2) Mr. McClelland’s 3,416,667 unearned stock units represent shares underlying Performance PSUs, a portion or all of which will be earned and released if and when three separate stock price thresholds are achieved on or before September 1, 2024. The first share price threshold was achieved on March 1, 2021, and accordingly 1,333,333 shares were released to him. (3) Of Mr. Lopez’s 66,371 unvested RSUs, 16,593 vested on January 15, 2022, 16,593 will vest on July 15, 2022, 16,592 will vest on January 15, 2023 and 16,593 will vest on July 15, 2023. Mr. Lopez’s 53,764 unvested RSUs, 17,922 vested on March 15, 2022, 8,961 will vest on September 15, 2022, 8,960 will vest on March 15, 2023, 8,961 will vest on September 15, 2023 and 8,960 will vest on March 15, 2024. (4) The 24,890 unvested stock units represent the number of shares underlying Mr. Lopez’s unvested 2020 PSUs based on actual 2020 performance; these shares will vest on March 15, 2023. Mr. Lopez’s 19,911 unearned stock units represent shares underlying 2020 Annual PSUs that will vest upon achievement of target performance goals in a future performance period. Shares earned, if any, will vest on March 15, 2023. Mr. Lopez’s 21,506 unearned stock units represent shares underlying 2021 Annual PSUs that will vest upon achievement of target performance goals in future performance periods. Shares earned, if any, will vest on March 15, 2024. Mr. Lopez did not earn any shares in connection with the Company’s 2021 performance under either the 2020 Annual PSUs or the 2021 Annual PSUs, or under his 2021 one-year PSU. (5) The 39,823 unvested stock units represent the shares underlying Mr. Lopez’s unvested 2020 PSUs based on Relative TSR, which have a three-year performance period, and that will vest upon achievement of target performance. Shares earned, if any, will vest on March 15, 2023. The 21,505 unvested stock units represent the shares underlying Mr. Lopez’s unvested 2021 PSUs based on Relative TSR, which have a three-year performance period, and that will vest upon achievement of target performance. Shares earned, if any, will vest on March 15, 2024. (6) Of Mr. Bucci’s 66,823 unvested RSUs, 16,706 vested on March 15, 2022, 16,706 will vest on September 15, 2022, 16,705 will vest on March 15, 2023 and 16,706 will vest on September 15, 2023. Of Mr. Bucci’s 47,790 unvested RSUs, 76 | Ribbon Communications Inc. 2022 Proxy Statement Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix 15,931 vested on March 15, 2022, 7,965 will vest on each of September 15, 2022 and March 15, 2023, 7,964 will vest on September 15, 2023 and 7,965 will vest on March 15, 2024. (7) The 25,059 unvested stock units represent the shares underlying Mr. Bucci’s unvested 2020 PSUs based on actual 2020 performance; these shares will vest on March 15, 2023. Mr. Bucci’s 20,048 unearned stock units represent shares underlying 2020 Annual PSUs that will vest upon achievement of target performance goals in a future performance period. Shares earned, if any, will vest on March 15, 2023. Mr. Bucci’s 19,116 unearned stock units represent shares underlying 2021 Annual PSUs that will vest upon achievement of target performance goals in future performance periods. Shares earned, if any, will vest on March 15, 2024. Mr. Bucci did not earn any shares in connection with the Company’s 2021 performance under either the 2020 Annual PSUs or the 2021 Annual PSUs, or under his 2021 one- year PSU. (8) The 40,094 unvested stock units represent the shares underlying Mr. Bucci’s unvested 2020 PSUs based on Relative TSR, which have a three-year performance period, and that will vest upon achievement of target performance. Shares earned, if any, will vest on March 15, 2023. The 19,116 unvested stock units represent the shares underlying Mr. Bucci’s unvested 2021 PSUs based on Relative TSR, which have a three-year performance period, and that will vest upon achievement of target performance. Shares earned, if any, will vest on March 15, 2024. (9) Mr. McCaffery’s 73,638 unvested RSUs vested on January 15, 2022. Of Mr. McCaffery’s 41,817 unvested RSUs, 13,940 vested on March 15, 2022, 6,969 will vest on September 15, 2022, 6,970 will vest on March 15, 2023, and 6,969 will vest on each of September 15, 2023 and March 15, 2024. (10) Mr. McCaffery’s 16,727 unvested stock units represent the shares underlying 2021 Annual PSUs that will vest upon achievement of target performance goals in future performance periods. Shares earned, if any, will vest on March 15, 2024. Mr. McCaffery did not earn any shares in connection with the Company’s 2021 performance under the 2021 Annual PSUs, or under his 2021 one-year PSU. (11) The 16,727 unvested stock units represent the shares underlying Mr. McCaffery’s unvested 2021 PSUs based on Relative TSR, which have a three-year performance period, and that will vest upon achievement of target performance. Shares earned, if any, will vest on March 15, 2024. (12) Of Mr. Macken’s 74,999 unvested RSUs, 25,000 will vest on June 19, 2022, 24,999 will vest on December 19, 2022 and 25,000 will vest on June 19, 2023. Of Mr. Macken’s 47,790 unvested RSUs, 15,931 vested on March 15, 2022, 7,965 will vest on each of September 15, 2022 and March 15, 2023, 7,964 will vest on September 15, 2023 and 7,965 will vest on March 15, 2024. (13) The 22,884 unvested stock units represent the shares underlying 2020 Annual PSUs based on actual 2020 performance; these shares will vest on March 15, 2023. Mr. Macken’s 18,306 unearned stock units represent shares underlying 2020 Annual PSUs that will vest upon achievement of target performance goals in a future performance period. Shares earned, if any, will vest on March 15, 2023. Mr. Macken’s 19,116 unearned stock units represent shares underlying 2021 Annual PSUs that will vest upon achievement of target performance goals in future performance periods. Shares earned, if any, will vest on March 15, 2024. Mr. Macken did not earn any shares in connection with the Company’s 2021 performance under either the 2020 Annual PSUs or the 2021 Annual PSUs, or under his 2021 one-year PSU. (14) The 36,614 unvested stock units represent the shares underlying Mr. Macken’s unvested 2020 PSUs based on Relative TSR, which have a three-year performance period, and that will vest upon achievement of target performance. Shares earned, if any, will vest on March 15, 2023. The 19,116 unvested stock units represent the shares underlying Mr. Macken’s 2021 PSUs based on Relative TSR, which have a three-year performance period, and that will vest upon achievement of target performance. Shares earned, if any, will vest on March 15, 2024. 2021 Stock Vested The following table summarizes for the NEOs in 2021 the number of shares acquired upon the vesting of stock awards and the value realized, before payout of any applicable withholding tax. NEOs that did not have any stock awards vest in 2021 are excluded from the table. Name Bruce McClelland Miguel Lopez Sam Bucci Patrick Macken Stock Awards Number of Shares Acquired on Vesting(1) (#) Value Realized on Vesting(2) ($) 1,796,296 86,917 296,463 75,001 15,711,294 641,447 2,426,524 526,757 (1) We withhold and retire enough vesting shares to cover each NEO’s withholding tax obligations associated with the vesting of such shares. Of Mr. McClelland’s 1,796,296 shares that vested in 2021, 794,908 shares were returned to us to satisfy the tax withholding obligations associated with the vesting of the shares. Ribbon Communications Inc. 2022 Proxy Statement | 77 Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix Of Mr. Lopez’s 86,917 shares that vested in 2021, 33,940 shares were returned to us to satisfy the tax withholding obligations associated with the vesting of the shares. Of Mr. Bucci’s 296,463 shares that vested in 2021, 129,924 shares were returned to us to satisfy the tax withholding obligations associated with the vesting of the shares. Of Mr. Macken’s 75,001 shares that vested in 2021, 32,907 shares were returned to us to satisfy the tax withholding obligations associated with the vesting of the shares. (2) In accordance with SEC rules, the aggregate dollar amount realized upon vesting of shares of restricted stock was determined by multiplying the number of shares by the closing market price of our common stock on the day before vesting. 78 | Ribbon Communications Inc. 2022 Proxy Statement Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix Severance and Change of Control Benefits To attract and retain key executive officers, the Company has entered into executive agreements that include severance and change of control benefits. In the event or threat of a change of control transaction, we believe that these agreements reduce uncertainty and provide compensation for the significant levels of executive engagement and support required during an ownership transition that may result in the termination of their employment. The severance arrangements for the Current NEOs generally provide that, upon termination of the NEO’s employment by the Company without cause, by the NEO for good reason or due to death or disability of the NEO, the NEO is entitled to certain severance payments and benefits as described below. Bruce McClelland We have entered into a severance agreement with Mr. McClelland (the “McClelland Severance Agreement”). Upon a termination of Mr. McClelland’s employment by the Company without Cause or by Mr. McClelland for Good Reason (each as defined in the McClelland Severance Agreement), Mr. McClelland is entitled to: (a) severance payments equal to: (i) 100% of his annual base salary, payable over 12 months following termination, (ii) his target annual bonus, payable at the same time as such bonus would have been paid absent termination, and (iii) in the event such termination occurs more than six months following the commencement of the fiscal year, Mr. McClelland shall be entitled to receive a prorated portion of the annual bonus for the fiscal year of termination based on actual Company performance and target individual performance (such proration based on the number of days actually employed in such fiscal year) (the “Pro Rata Bonus”), and (b) a lump sum payment of an amount equal to the sum of the Company’s share of health plan premium payments for a period of 12 months following termination. In addition, upon such a termination, (A) Mr. McClelland’s equity awards that are subject to vesting based solely upon Mr. McClelland’s continued service with the Company and would have vested during the 12-month period following the date of Mr. McClelland’s termination of employment shall vest, and (B) (i) all awards that are subject to vesting in whole or in part based on the achievement of performance objective(s) (other than the McClelland Sign-On PSUs) (collectively, “Performance-Based Equity Awards”) with respect to any performance periods ending on or prior to the date of termination shall remain eligible to vest based on actual performance through the end of the applicable performance period, and (ii) a pro-rated portion of Performance-Based Equity Awards with respect to any performance periods in which the date of termination occurs shall remain eligible to vest based on performance through the end of the fiscal year in which the date of termination occurs based on actual performance through the end of such fiscal year (such proration based on the number of days actually employed during such performance period). Notwithstanding the foregoing, to the extent a termination by the Company without Cause or by Mr. McClelland for Good Reason occurs within 12 months following a Change in Control (as defined in the McClelland Severance Agreement), Mr. McClelland is entitled to receive a cash lump sum payment equal to: (a) 200% of (X) his annual base salary, and (Y) his target annual bonus, (b) in the event such termination occurs more than six months following the commencement of the fiscal year, the Pro Rata Bonus, and Ribbon Communications Inc. 2022 Proxy Statement | 79 Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix (c) a lump sum payment of an amount equal to the sum of the Company’s share of health plan premium payments for a period of 24 months following termination. In addition, upon such a termination, the vesting of all of Mr. McClelland’s outstanding equity awards (other than the Sign-on RSUs and the Sign-On PSUs) will accelerate, with Performance- Based Equity Awards vesting as if target performance had been achieved, pursuant to the McClelland Severance Agreement. Further, the Sign-on RSUs and Sign-On PSUs will be eligible to vest on or following a Change in Control (as defined in the McClelland Severance Agreement) in accordance with the terms of the underlying award agreements. Mick Lopez, Sam Bucci, Steve McCaffery and Patrick Macken We have entered into severance agreements with each of Messrs. Lopez, Bucci, McCaffery and Macken (each an “Executive Severance Agreement”). Each of the Executive Severance Agreements is subject to a three-year term, with automatic one-year renewals thereafter unless six months’ prior written notice of non-renewal is given before the term automatically renews. In no event will any of the Severance Agreements end before the first anniversary of the date of the closing of a Change of Control (as such term is defined in the respective Severance Agreements) of the Company. Under each of the Executive Severance Agreements, if the Company terminates the employment of Mr. Lopez, Mr. Bucci, Mr. McCaffery or Mr. Macken without Cause (as such term is defined in the respective Executive Severance Agreement) (other than due to death or Disability (as such term is defined in the respective Executive Severance Agreement)) or if Mr. Lopez, Mr. Bucci, Mr. McCaffery or Mr. Macken terminates his employment with Good Reason (as such term is defined in the respective Executive Severance Agreement) outside of a Change of Control Protection Period (such term is defined as the period beginning on the date of the closing of a Change in Control and ending on the first anniversary of such Change in Control), each of Messrs. Lopez, Bucci, McCaffery and Macken will be entitled, less applicable withholdings, to receive: (i) continued payment of his then-current base salary for a period of 12 months following the termination date; (ii) a one-time lump sum cash amount equal to his pro-rated annual bonus, payable at the same time annual bonuses are paid, if at all, to other executive officers of the Company; (iii) a one-time lump sum cash amount equal to the aggregate sum of the Company’s share of medical, dental and vision insurance premiums for such executive officer and his dependents for the 12-month period following the termination date; (iv) accelerated vesting of the executive officer’s unvested time-based equity awards that are scheduled to vest within twelve months following his termination date; and (v) continued eligibility to pro-rata vest unvested performance-based equity awards subject to the Company’s actual achievement of applicable performance conditions for the portion of the performance period through the executive officer’s termination date. If the Company terminates the employment of any of Mr. Lopez, Mr. Bucci, Mr. McCaffery or Mr. Macken without Cause (other than as a result of his death or Disability) or if any of these executive officers terminates his employment with Good Reason during a Change in Control Protection Period, then such executive officer will be entitled to receive: (i) a one-time lump sum cash amount equal to twelve months of his then-current base salary; (ii) a one-time lump sum cash amount equal to his then-target annual bonus; (iii) a one-time lump sum cash amount equal to his pro-rated annual bonus, payable at the same time annual bonuses are paid, if at all, to other executive officers of the Company; (iv) a one-time lump sum cash amount equal to the aggregate sum of the Company’s share of medical, dental and vision insurance premiums for such executive officer and his dependents for the 12-month period following the termination date; 80 | Ribbon Communications Inc. 2022 Proxy Statement Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix (v) full accelerated vesting of the executive officer’s unvested time-based equity awards; and (vi) full accelerated vesting of the executive officer’s unvested performance-based equity awards at a target level of achievement for each applicable performance condition. Equity Award Acceleration In addition to the severance benefits and payments described above, in the event of a Change in Control (as defined in the Amended and Restated 2019 Plan and referred to herein as a “change in control”), our forms of equity agreements under the Amended and Restated 2019 Plan provide for certain accelerated vesting of awards thereunder. Except as otherwise noted in the severance arrangements above, effective immediately prior to the occurrence of a change in control, an additional one-third of the number of shares covered by the restricted stock award will become vested and the remaining unvested shares subject to the restricted stock award will continue to vest pursuant to the vesting schedule set forth in the award, except that the vesting schedule will be shortened by 12 months. Potential Payments Upon Termination or Upon Change in Control The table below shows potential payments to the NEOs with severance or change in control arrangements upon termination or upon a change in control of our Company. The amounts shown assume that termination and/or change in control was effective as of December 31, 2021, the last day of our fiscal year, and are estimates of the amounts that would have been paid to or realized by the NEOs upon such a termination or change in control on such date. The actual amounts to be paid or realized can only be determined at the time of an NEO’s termination or following a change in control. Name Bruce McClelland Miguel Lopez Sam Bucci Steven McCaffery Patrick Macken Potential Payments Cash severance Stock awards(2) Health benefits Total Cash severance Stock awards(2) Health benefits Total Cash severance Stock awards(2) Health benefits Total Cash severance Stock awards(2) Health benefits Total Cash severance Stock awards(2) Health benefits Total Termination Without Cause or for Good Reason(1) ($) 1,500,000 Termination Upon Death or Disability ($) — Change in Control ($) — Termination Without Cause or for Good Reason following a Change in Control ($) 3,000,000 — 26,191 1,526,191 525,000 718,359 15,663 1,259,022 458,551 699,004 6,243 1,163,798 398,096 605,405 25,886 1,027,387 400,000 772,091 26,213 1,198,304 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 52,381 3,052,381 918,750 1,499,009 15,663 2,433,422 802,463 1,440,177 6,243 2,248,883 696,669 900,899 23,886 1,621,454 700,000 1,444,890 26,213 2,171,103 (1) Represents the severance benefits that the NEO would be eligible to receive absent a change in control. Ribbon Communications Inc. 2022 Proxy Statement | 81 Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix (2) These amounts represent the gains that would be realized on the acceleration of unvested restricted share units and performance-based stock units in accordance with the NEOs’ respective employment and/or grant agreements. The gains were calculated by multiplying our closing stock price of $6.05 on December 31, 2021 by the number of shares (or shares underlying PSUs) that would accelerate. For Mr. McClelland, the closing stock price of $6.05 on December 31, 2021 was used to determine any vesting of his McClelland Sign-On PSUs. CEO Pay Ratio As of November 30, 2021, the Company had a worldwide population of 3,709 employees (including full-time, part-time, seasonal and temporary employees). To determine the median annual compensation for all employees other than the CEO, a median employee was identified from the worldwide population of employees on November 30, 2021, excluding: (i) 185 employees from the following jurisdictions: ◾ Mexico (84 employees), ◾ Czechia (45 employees), ◾ Malaysia (26 employees), ◾ Philippines (24 employees), ◾ Vietnam (5 employees), and ◾ Togo (1 employee), which in the aggregate represent 5% or less of the Company’s total employee population. No employees were excluded from the employee population due to data privacy issues. To determine the median employee, we utilized the “regular earnings” of the applicable employees for 2021, which represents cash compensation excluding bonus, commissions and other similar incentive compensation. The Company did not utilize any cost of living or other material adjustments. In connection with our analysis, we utilized the foreign currency exchange rate used for our internal financial accounting purposes, as of November 30, 2021. Based on the foregoing, the median employee was determined to be a Program Management Engineering Technical Specialist working on a full-time basis in Canada. For 2021, the annual total compensation for the median employee was $91,135 and the annual total compensation for our CEO was $781,423, which reflects the total compensation paid to Mr. McClelland, the Chief Executive Officer for 2021. Based on the calculation of the annual total compensation for both the CEO and the median employee (as described above), the ratio of CEO pay to the median employee pay is approximately 8.6:1. The pay ratio provided is a reasonable estimate. Because the SEC rules for identifying the median employee and calculating the pay ratio allow companies to use different methodologies, exemptions, estimates and assumptions, our pay ratio may not be comparable to the pay ratio reported by other companies or our pay ratio in any future year. Employee 2021 Annual Total Compensation ($) Mr. McClelland, our Chief Executive Officer Our median employee (other than our CEO) 781,423 91,135 Pay Ratio Estimate 8.6:1 82 | Ribbon Communications Inc. 2022 Proxy Statement Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix STOCK INFORMATION Beneficial Ownership of Our Common Stock The following table sets forth information regarding beneficial ownership of our common stock as of April 1, 2022 by: ◾ ◾ ◾ ◾ each person who beneficially owns, to the best of our knowledge, more than 5% of the outstanding shares of our common stock; each of our named executive officers; each of our directors; and all of our current executive officers and directors as a group (together, the “Beneficial Holders”). Beneficial ownership is determined in accordance with the rules of the SEC, and includes voting or investment power with respect to shares. In computing the number of shares beneficially owned by each person named in the following table and the percentage ownership of that person, shares of common stock that the person has the right to acquire within 60 days of April 1, 2022 through the exercise of any stock option or other equity right, are deemed owned by that person and are also deemed outstanding. These shares are not, however, deemed outstanding for purposes of computing the percentage ownership of any other person. Unless otherwise indicated below, to our knowledge, all persons named in the table have sole voting and investment power with respect to their shares of common stock, except to the extent authority is shared by spouses under applicable law. The percentage of common stock outstanding as of April 1, 2022 is based upon 150,111,958 shares of common stock outstanding on that date. Unless otherwise indicated, the address of all listed stockholders is 6500 Chase Oaks Blvd, Suite 100, Plano, TX 75023. Name of Beneficial Owner Named Executive Officers Bruce McClelland Miguel Lopez Sam Bucci Steve McCaffery Patrick Macken Directors and Nominees Mariano S. de Beer R. Stewart Ewing, Jr. Bruns H. Grayson Beatriz V. Infante Krish A. Prabhu Shaul Shani Richard W. Smith Tanya Tamone Number of Shares Beneficially Owned (#) Percentage of Common Stock Outstanding 1,141,963 97,527 166,394 46,418 51,126 18,963 43,680 337,140 203,993 41,886(1) — — 27,089 * * * * * * * * * * — — * All current executive officers and directors as a group (15 persons) 2,661,349 1.77% Ribbon Communications Inc. 2022 Proxy Statement | 83 Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix Name and Principal Business Address and Principal Office Address of Beneficial Owner 5% Owners JPMorgan Chase & Co.(2) ◾ OEP II Partners Co-Invest 510 Madison Avenue, 19th Floor New York, NY 10022 ◾ JPMorgan Chase 383 Madison Avenue New York, New York 10179 ◾ Each of JPMC Heritage and Heritage III: 277 Park Avenue New York, New York 10172. Swarth Investments Inc.(3) ◾ Morgan & Morgan Building Pasea Estate Road Town, Tortola D8 Number of Shares Beneficially Owned (#) Percentage of Common Stock Outstanding 49,940,222 33.27% 25,796,395 17.18% Paradigm Capital Management, Inc.(4) 8,476,600 5.65% ◾ Nine Elk Street Albany, New York 12207 * Less than 1% of the outstanding shares of common stock. (1) Includes 14,797 shares subject to restricted stock units that will vest as of the 2022 Annual Meeting as a result of Mr. Prabhu not standing for election. (2) Based solely on a Schedule 13D/A filed with the SEC on May 5, 2020, reporting the beneficial ownership of 49,940,222 shares of our common stock. JPMorgan Chase & Co. (“JPMorgan Chase”) reported shared voting and dispositive power with respect to all 49,940,222 shares, JPMC Heritage Parent LLC (“JPMC Heritage”) reported shared voting and dispositive power with respect to 48,190,718 shares, OEP II Partners Co-Invest, L.P. (“OEP II Partners Co-Invest”) reported shared voting and dispositive power with respect to 1,749,504 shares, and Heritage III reported shared voting and dispositive power with respect to 47,048,711 shares. JPMorgan Chase, JPMC Heritage, OEP II Partners Co-Invest and Heritage III are collectively referred to as the “JPMorgan Reporting Persons.” JPMorgan Chase is a publicly traded entity listed on the New York Stock Exchange, which is the sole member of JPMorgan Chase Holdings LLC, which is the sole member of OEP Holdings LLC, which is the sole member of JPMC Heritage, which is the general partner of OEP General Partner III L.P., which is the general partner of Heritage III. As such, each of OEP Holding LLC, JPMC Heritage and OEP General Partner III L.P. may be deemed to have or share beneficial ownership of the common stock held directly by Heritage III. OEP II Partners Co-Invest is subject to certain contractual agreements and statutory obligations to acquire and vote shares side-by- side with Heritage III. By virtue of these agreements and obligations, JPMorgan Chase may be deemed to have or share beneficial ownership over the shares held directly by OEP II Partners Co-Invest. Notwithstanding the above, JPMorgan Chase does not directly or indirectly own any interest in OEP II Partners Co-Invest. (3) Based solely on a Form 3 filed with the SEC on July 29, 2020. (4) Based solely on a Schedule 13G/A filed with the SEC on February 7, 2022. 84 | Ribbon Communications Inc. 2022 Proxy Statement Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix ADDITIONAL INFORMATION Information about the Annual Meeting Date and Time Virtual Meeting URL Wednesday, May 25, 2022 10:00 a.m. Eastern Time www.virtualshareholder meeting.com/RBBN2022 Record Date April 1, 2022 Our Board of Directors is soliciting proxies for the 2022 Annual Meeting to be held on Wednesday, May 25, 2022, and at any adjournments, continuations or postponements thereof. This Proxy Statement contains important information for you to consider when deciding how to vote on the matters brought before the meeting. Please read it carefully. IMPORTANT NOTICE REGARDING AVAILABILITY OF PROXY MATERIALS FOR THE STOCKHOLDER MEETING TO BE HELD ON MAY 25, 2022 This Proxy Statement and the 2021 Annual Report to Stockholders are available for viewing, printing and downloading at www.proxyvote.com. This Proxy Statement, form of proxy and the 2021 Annual Report are first being made available to stockholders on or about April 8, 2022. Why am I receiving these materials? You have received these proxy materials because our Board is soliciting your vote at the 2022 Annual Meeting. This Proxy Statement includes information that we are required to provide to you under the rules of the U.S. Securities and Exchange Commission and that is designed to assist you in voting your shares. Our Board has made these proxy materials available to you over the Internet, or, at your request, has delivered printed versions of these materials to you by mail, in connection with the Board’s solicitation of proxies for use at the 2022 Annual Meeting. When and where is the meeting? The 2022 Annual Meeting will be held on Wednesday, May 25, 2022 at 10:00 a.m., Eastern Time. The 2022 Annual Meeting will be a completely virtual meeting, which will be conducted via live webcast. You will be able to attend the 2022 Annual Meeting online and submit your questions during the meeting by visiting www.virtualshareholdermeeting.com/RBBN2022 and entering your 16-digit control number, as described under “How can I attend the 2022 Annual Meeting” below. This solicitation is for proxies for use at the 2022 Annual Meeting or at any reconvened meeting after an adjournment or postponement of the 2022 Annual Meeting. Ribbon Communications Inc. 2022 Proxy Statement | 85 Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix Who may vote at the meeting? Stockholders of record at the close of business on April 1, 2022, the record date, or holders of a valid proxy, may attend and vote electronically at the meeting. Each stockholder is entitled to one vote for each share of common stock held on all matters to be voted. As of the close of business on April 1, 2022, an aggregate of 150,111,958 shares of our common stock were outstanding. How many shares must be present to hold the meeting? A majority of the 150,111,958 shares of our common stock that were outstanding as of the record date must be present at the meeting in order to hold the meeting and conduct business. This is called a quorum. For purposes of determining whether a quorum exists, we count as present any shares that are properly represented electronically at the meeting or that are represented by a valid proxy properly submitted over the Internet, by telephone or by mail. Further, for purposes of establishing a quorum, we count as present shares that a stockholder holds and that are represented by their proxy even if the stockholder does not vote on one or more of the matters to be voted upon. If a quorum is not present at the scheduled time of the 2022 Annual Meeting, the chairperson of the meeting is authorized by our by-laws to adjourn the meeting, without the vote of stockholders. What proposals will be voted on at the meeting, and how does the Board of Directors recommend that I vote? Three proposals will be voted on at the 2022 Annual Meeting: Proposal 1 The election of the eight nominees for director named in this Proxy Statement to hold office until the 2023 Annual Meeting 2 The ratification of the appointment of Deloitte & Touche LLP to serve as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2022 3 The approval, on a non-binding, advisory basis, of the compensation of our named executive officers 4 The approval of the amendment to the Ribbon Communications Inc. Amended and Restated 2019 Incentive Award Plan to add additional shares Board Recommendation Page Reference FOR each of the nominees FOR FOR FOR 7 32 38 39 86 | Ribbon Communications Inc. 2022 Proxy Statement Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix What vote is required to approve each matter, and how are votes counted? Proposal 1 Election of Directors 2 Ratification of the Appointment of Deloitte & Touche LLP to Serve as the Our Independent Auditors for the Fiscal Year 2022 3 Approval, on a Non-Binding, Advisory Basis, of the Compensation of Our Named Executive Officers 4 Approval of the amendment to the Ribbon Communications Inc. Amended and Restated 2019 Incentive Award Plan to add additional shares Vote Required In an uncontested election, such as the election of directors at the 2022 Annual Meeting, to be elected, each of the nominees for director must receive more votes “For” such nominee’s election than “Against” such election (with abstentions and broker non-votes not counted as a vote for or against). With respect to each nominee, you may vote “For,” “Against,” or “Abstain.” The affirmative vote of a majority of the shares of common stock present or represented at the 2022 Annual Meeting and entitled to vote on this proposal will be required to approve this proposal. You may vote “For,” “Against,” or “Abstain” from voting on this proposal. The vote on the compensation of the named executive officers is non-binding, as provided by law. However, our Board and its Compensation Committee will review and consider the outcome of this vote when making future compensation decisions for our named executive officers. The affirmative vote of a majority of the shares of common stock present or represented at the 2022 Annual Meeting and entitled to vote on this proposal will be required to approve this proposal. You may vote “For,” “Against,” or “Abstain” from voting on this proposal. The affirmative vote of a majority of the shares of common stock present or represented at the 2022 Annual Meeting and entitled to vote on this proposal will be required to approve this proposal. You may vote “For,” “Against,” or “Abstain” from voting on this proposal. Effect of Abstentions Abstaining will have no effect on the outcome of the election. Abstaining from voting on this proposal will have the effect of a vote against this proposal. Abstaining from voting on this proposal will have the effect of a vote against this proposal. Abstaining from voting on this proposal will have the effect of a vote against the approval of this proposal. For the proposals relating to the election of directors (Proposal 1), the approval, on a non-binding, advisory basis, of the compensation of our named executive officers (Proposal 3) and the approval of the amendment to the Ribbon Communications Inc. Amended and Restated 2019 Incentive Award Plan (Proposal 4), please note that if you are a beneficial owner of our common stock and your stock is held through a broker, bank or other nominee (in “street name”), under stock exchange rules a broker, bank or other nominee subject to those rules is not permitted to vote your shares on these three proposals without your instruction. Therefore, if a beneficial owner of our common stock fails to instruct such a broker, bank or other nominee how to vote on Proposals 1, 3 and 4, that beneficial owner’s shares cannot be voted on these matters — in other words, your broker, bank or other nominee’s proxy will be treated as a “broker non-vote,” which is explained in the following question and explanation. What are broker non-votes, and what is the effect of broker non-votes? Brokers, banks and other nominees have the discretion to vote shares held in “street name”— a term that means the shares are held in the name of the broker, bank or other nominee on behalf of its customer, the beneficial owner — on routine matters, such as the ratification of the appointment of our independent registered public accounting firm, but not on non-routine matters. Generally, broker non-votes occur when shares held by a broker, bank or other nominee for a beneficial owner are not voted with respect to a non-routine matter because the broker, bank or other nominee Ribbon Communications Inc. 2022 Proxy Statement | 87 Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix has not received voting instructions from the beneficial owner and the broker, bank or other nominee lacks discretionary authority to vote the shares because of the non-routine nature of the matter. The election of directors (Proposal 1), the approval, on a non-binding, advisory basis, of the compensation of our named executive officers (Proposal 3) and the approval of the amendment to the Ribbon Communications Inc. Amended and Restated 2019 Incentive Awards Plan (Proposal 4) are “non-routine” matters for which brokers, banks and other nominees, under applicable stock exchange rules, may not exercise discretionary voting power without instructions from the beneficial owner, and therefore broker non-votes will not affect the outcome of the vote on these proposals. The ratification of the appointment of our independent registered public accounting firm (Proposal 2) is a “routine” matter for which brokers have discretionary authority to vote. Therefore, we do not expect any broker non-votes in connection with this proposal. Broker non-votes are counted as shares present for purposes of determining the presence of a quorum. Your vote is very important, whether you hold directly or through a broker, bank or other nominee. We encourage you to read this Proxy Statement and the 2021 Annual Report carefully and if you are a beneficial owner, please be sure to give voting instructions to your broker, bank or other nominee. What happens if an incumbent director nominee fails to receive more “FOR” votes than “AGAINST” votes? Our Corporate Governance Guidelines require that as a condition to being nominated by the Board for re-election as a director, each incumbent director must deliver to the Board an irrevocable resignation from the Board that will become effective if, and only if, both: (i) in the case of an uncontested election, such nominee does not receive more votes “FOR” his or her election than votes “AGAINST” such election, and (ii) the Board accepts such resignation. The Board will decide (based on the recommendation of a committee of the Board) whether to accept the director’s resignation within 90 days after the election results are certified. An incumbent director who does not receive the required vote in an uncontested election will continue to serve as a director while the Nominating and Corporate Governance Committee and the Board decide whether to accept or reject such director’s resignation. If the Board accepts such resignation, the Board may fill the remaining vacancy or may decrease the size of the Board in accordance with our by-laws. Our Corporate Governance Guidelines are posted on our website at www.ribboncommunications.com. How can I attend the 2022 Annual Meeting? In light of the continuing COVID-19 pandemic, as part of our effort to maintain a safe and healthy environment for our stockholders, directors, and members of management, the 2022 Annual Meeting will be held entirely online. Stockholders may participate in the 2022 Annual Meeting by visiting the following website: www.virtualshareholdermeeting.com/RBBN2022. Whether you are a registered holder or if you hold your shares in “street name” through a broker, bank or other nominee, you will need to provide your name, email address, phone number and your 16-digit control number included in the Notice of Internet Availability of Proxy Materials, proxy card, or voting instruction form to enter the virtual meeting. We encourage you to access the meeting prior to the start time. The online portal will open approximately 15 minutes before the start of the 2022 Annual Meeting. 88 | Ribbon Communications Inc. 2022 Proxy Statement Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix How can I vote during the 2022 Annual Meeting? Please visit www.virtualshareholdermeeting.com/RBBN2022 in order to vote your shares during the 2022 Annual Meeting until the polls are closed. You will need your 16-digit control number in order to vote your shares. Your 16-digit control number can be found on your proxy card, Notice of Internet Availability of Proxy Materials or voting instruction form. For additional information regarding how to register for and attend the 2022 Annual Meeting, see “How can I attend the 2022 Annual Meeting?” above. How can I vote my shares without attending the meeting? If you are a stockholder of record, you may vote by proxy in any of the following ways: Submit your proxy by mail You may complete, date and sign the proxy card and mail it in the postage-prepaid envelope that you received. The persons named in the proxy card will vote the shares you own in accordance with your instructions on the proxy card you return. If you return the proxy card but do not give any instructions on a particular matter described in this Proxy Statement, the persons named in the proxy card will vote the shares you own in accordance with the recommendations of our Board. Submit your proxy over the Internet If you have Internet access, you may vote over the Internet at www.proxyvote.com by following the instructions set forth on your proxy card. If you submit your proxy over the Internet, it is not necessary to return your proxy card. Submit your proxy using your mobile device Scan the QR code to visit www.proxyvote.com on your mobile device Submit your proxy by telephone If you are located in the United States or Canada, you may vote by telephone by calling 1-800-690-6903 and following the instructions set forth on your proxy card. If you submit your proxy by telephone, it is not necessary to return your proxy card. The ability to vote by telephone or over the Internet for stockholders of record will be available until 11:59 p.m., Eastern Daylight Time on May 24, 2022. In light of potential delays in mail service, we encourage stockholders to submit their proxy via telephone or online. If your shares are held in the name of a broker, bank or other nominee, please follow the voting instructions on the forms you received from such broker, bank or other nominee. Ribbon Communications Inc. 2022 Proxy Statement | 89 Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix Who is serving as the Company’s inspector of elections? Broadridge Financial Solutions, Inc. has been engaged as our independent inspector of elections to tabulate stockholder votes for the 2022 Annual Meeting. How can I change my vote? You may revoke your proxy and change your vote at any time before the polls close at the meeting. You may do this by signing and submitting a new proxy card with a later date, submitting a proxy by telephone or submitting a proxy over the Internet (your latest telephone or Internet proxy is counted), by giving written notice of revocation to our Corporate Secretary prior to the 2022 Annual Meeting or by attending the meeting and voting electronically. If your shares are held in street name, you may change or revoke your voting instructions by following the specific directions provided to you by your bank or broker. Attending the meeting by itself, however, will not revoke your proxy. Why are you holding a virtual meeting? Due to the continued public heath impact of the ongoing COVID-19 pandemic and as part of our effort to support the health and well-being of our stockholders, directors, members of management and employees who wish to attend the 2022 Annual Meeting, we believe that hosting a virtual meeting is in the best interest of the Company and its stockholders. We have designed our virtual format to enhance, rather than constrain, stockholder access, participation and communication. For example, the virtual format allows stockholders to communicate with us in advance of, and during, the 2022 Annual Meeting so they can ask questions of our Board and/or management. You will be able to attend the 2022 Annual Meeting online and submit your questions by visiting www.virtualshareholdermeeting.com/RBBN2022. You also will be able to vote your shares electronically at the 2022 Annual Meeting by following the instructions above. What if during the check-in time or during the 2022 Annual Meeting I have technical difficulties or trouble accessing the virtual meeting website? If you encounter technical difficulties accessing the virtual 2022 Annual Meeting website, please call the technical support number that will be posted on the virtual meeting website. Will there be a question-and-answer session during the Annual Meeting? As part of the 2022 Annual Meeting, we intend to hold a live question and answer session, during which we expect to answer appropriate questions submitted during and in advance of the meeting that are pertinent to the Company and the meeting matters, as time permits. 90 | Ribbon Communications Inc. 2022 Proxy Statement Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix Stockholder Proposals for Inclusion in 2023 Proxy Statement To be considered for inclusion in the proxy statement relating to our annual meeting of stockholders to be held in 2023, stockholder proposals must be received at our principal executive offices no later than December 9, 2022, which is 120 calendar days before the date our proxy statement was released to our stockholders in connection with the 2022 Annual Meeting, and must otherwise comply with the rules promulgated by the SEC. If the date of next year’s annual meeting is changed by more than 30 days from the anniversary date of this year’s annual meeting on May 25, 2022, then the deadline is a reasonable time before we begin to print and mail proxy materials. Stockholder Nominations and Proposals for Presentation at 2023 Annual Meeting According to our by-laws, we must receive proposals of stockholders and director nominations intended to be presented at the 2023 Annual Meeting but not included in the proxy statement by the close of business on February 24, 2023, but not before January 25, 2023, which is not later than the ninetieth (90th) day nor earlier than the one hundred twentieth (120th) day prior to the first anniversary of the date of the 2022 Annual Meeting. Such proposals must be delivered to the Corporate Secretary of the Company at our principal executive office. However, in the event the 2023 Annual Meeting is scheduled to be held on a date before April 25, 2023, or after August 3, 2023, which are dates 30 days before or 70 days after the first anniversary of our 2022 Annual Meeting, then your notice must be received by us at our principal executive office not earlier than the close of business on the 120th day prior to such annual meeting and not later than the close of business on the later of the 90th day before the scheduled date of such annual meeting or the 10th day after the day on which we first make a public announcement of the date of such annual meeting. Any proposals that are not made in accordance with the above standards may not be presented at the 2023 Annual Meeting. Stockholders Sharing the Same Address We have adopted a procedure called “householding.” Under this procedure, we are delivering only one copy of the Notice of Internet Availability of Proxy Materials or, if requested, printed proxy materials to multiple stockholders who share the same address, unless we have received contrary instructions from an affected stockholder. Stockholders who participate in householding will continue to receive separate proxy cards. We will deliver promptly upon written or oral request a separate copy of the Notice of Internet Availability of Proxy Materials or, if requested, printed proxy materials, to any stockholder at a shared address to which a single copy of either of those documents was delivered. To receive a separate copy of these proxy materials, please submit your request to: Broadridge Financial Solutions by calling 1-800-579-1639 or in writing addressed to: Ribbon Communications Inc. Attn: Investor Relations 6500 Chase Oaks Blvd., Suite 100 Plano, Texas 75023 If you are a holder of record and would like to revoke your householding consent and receive a separate copy of the Notice of Internet Availability of Proxy Materials or printed proxy materials in the future, or are currently receiving multiple copies and would like to receive only one copy, please contact: Ribbon Communications Inc. 2022 Proxy Statement | 91 Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix Broadridge Householding Department 51 Mercedes Way Edgewood, New York 11717 or by calling Broadridge Householding Department at: 1-866-540-7095 A number of brokerage firms have instituted householding. If you hold your shares in “street name,” please contact your bank, broker or other holder of record to request information about householding. Form 10-K Our Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the SEC on March 11, 2022, is being delivered without charge to stockholders in connection with this proxy solicitation. With the payment of an appropriate processing fee, we will provide copies of the exhibits to our Annual Report on Form 10-K. Please address all such requests to our principal executive offices: Investor Relations Department Ribbon Communications Inc. Attn: Investor Relations 6500 Chase Oaks Blvd., Suite 100 Plano, Texas 75023 Other Matters Our Board knows of no other matters to be submitted at the meeting and the deadline under our by-laws for submission of matters by stockholders has passed. If any other matters properly come before the meeting, it is the intention of the persons named in the enclosed form of proxy to vote the shares they represent in their discretion. The accompanying proxy is solicited by and on behalf of our Board. We will pay the costs of soliciting proxies from stockholders. In addition to soliciting proxies by mail, by telephone and via the Internet, our directors, executive officers and other employees may solicit proxies, either personally or by other electronic means, on our behalf, without special compensation. We will also request brokerage houses, custodians, nominees and fiduciaries to forward copies of the proxy materials to those persons for whom they hold shares and request instructions for voting the proxies. We will reimburse such brokerage houses and other persons for their reasonable expenses in connection with this distribution. By Order of the Board of Directors, Patrick W. Macken Executive Vice President, Chief Legal Officer and Corporate Secretary Plano, Texas April 8, 2022 92 | Ribbon Communications Inc. 2022 Proxy Statement Summary Information Corporate Governance and Board Matters Audit Matters Executive Officers Executive Compensation Stock Information Additional Information Appendix APPENDIX A AMENDMENT NO. 1 TO THE RIBBON COMMUNICATIONS INC. AMENDED AND RESTATED 2019 INCENTIVE AWARD PLAN THIS AMENDMENT NO. 1 (this “Amendment”) to the Ribbon Communications Inc. Amended and Restated 2019 Incentive Award Plan (the “Plan”) is made as of March 31, 2022 by Ribbon Communications Inc., a Delaware corporation (the “Company”), to be effective as of the date of approval by the Company’s stockholders at its 2022 annual meeting of stockholders. WHEREAS, the Company previously established the Plan to permit the Company to award to Eligible Individuals (as defined in the Plan) equity ownership opportunities and performance-based incentives that are intended to align their interests with those of the Company's stockholders; and WHEREAS, the Company’s Board of Directors (the “Board”) has determined that it is advisable and in the best interests of the Company and its stockholders to amend the Plan pursuant to Section 12(d) thereof to increase the aggregate number of shares of common stock, $0.0001 par value per share, of the Company (the “Common Stock”) available under the Plan. NOW, THEREFORE, the Plan is hereby amended as follows: 1. Section 4(a) of the Plan is hereby amended and restated in its entirety to read as follows: “(a) Number of Shares. Subject to Section 4(b) and adjustment under Section 10, the aggregate number of shares of common stock, $0.0001 par value per share, of the Company (the “Common Stock”) reserved for Awards under the Plan shall be increased by an additional 10,000,000 shares of Common Stock, which will increase the number of shares of Common Stock authorized for Awards under the Plan from 15,551,611 shares of Common Stock to 25,551,611 shares of Common Stock. Notwithstanding anything to the contrary herein, no more than 25,551,611 shares of Common Stock may be issued as Incentive Stock Options (as defined below) under the Plan. Shares issued under the Plan may consist in whole or in part of authorized but unissued shares or treasury shares (if any).” 2. Except as expressly set forth above, the terms and conditions of the Plan shall remain unchanged by this Amendment and the Plan shall remain in full force and effect in accordance with its original terms as amended. 3. This Amendment is subject to approval by the stockholders of the Company at the 2022 annual meeting of the stockholders of the Company duly called for such purposes. The increase in the number of shares of Common Stock available for issuance may not be issued pursuant to the Plan unless and until such amendment is approved by the stockholders at the 2022 annual meeting of the stockholders of the Company. Ribbon Communications Inc. 2022 Proxy Statement | A-1 Ribbon Communications Inc. 6500 Chase Oaks Blvd, Suite 100 Plano, Texas 75023 (978) 614-8100 www.rbbn.com RBBN Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2021 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 001-38267 RIBBON COMMUNICATIONS INC. (Exact name of Registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 82-1669692 (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) Securities registered pursuant to Section 12(b) of the Act: Title of each class Common Stock, par value $0.0001 Trading Symbol(s) RBBN Name of each exchange on which registered The Nasdaq Global Select Market Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒ 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 ☒ No ☐ 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 ☒ No ☐ 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. ☐ Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ The aggregate market value of the common stock held by non-affiliates of Ribbon Communications Inc. was approximately $537,874,000 based on the closing price for its common stock on The Nasdaq Global Select Market on June 30, 2021. As of March 8, 2022, the Registrant had 148,957,278 shares of common stock, $0.0001 par value, outstanding. Portions of the definitive Proxy Statement to be delivered to stockholders in connection with the Registrant's 2022 Annual Meeting of Stockholders are incorporated by reference into Part III of this report. DOCUMENTS INCORPORATED BY REFERENCE Table of Contents RIBBON COMMUNICATIONS INC. FORM 10-K YEAR ENDED DECEMBER 31, 2021 TABLE OF CONTENTS Item 1. 1A. 1B. 2. 3. 4. 5. 6. 7. 7A. 8. 9. 9A. 9B. 9C. 10. 11. 12. 13. 14. 15. 16. Cautionary Note Regarding Forward-Looking Statements Presentation of Information Part I Business Risk Factors Unresolved Staff Comments Properties Legal Proceedings Mine Safety Disclosures Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Selected Financial Data Management's Discussion and Analysis of Financial Condition and Results of Operations Quantitative and Qualitative Disclosures About Market Risk Financial Statements and Supplementary Data Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Controls and Procedures Other Information Disclosures Regarding Foreign Jurisdictions that Prevent Inspections Part III Directors, Executive Officers and Corporate Governance Executive Compensation Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Certain Relationships and Related Transactions, and Director Independence Principal Accountant Fees and Services Part IV Exhibit and Financial Statement Schedules Form 10-K Summary Exhibit Index Signatures Page 3 3 4 16 32 32 33 33 34 36 36 56 57 116 116 118 118 118 118 118 118 118 119 119 120 124 Table of Contents Cautionary Note Regarding Forward-Looking Statements This report contains "forward-looking statements" within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, which are subject to a number of risks and uncertainties. All statements other than statements of historical facts contained in this report, including statements regarding our future results of operations and financial position, expected benefits from our acquisition of ECI Telecom Group Ltd. and the sale of our Kandy Communications business, business strategy, plans and objectives of management for future operations and plans for future product 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. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results to be materially different. We therefore caution you against relying on any of these forward-looking statements. Important factors that could cause actual results to differ materially from those in these forward-looking statements are discussed in this report, including in Item 1A., "Risk Factors" of Part I. Any forward- looking statement made by us in this report speaks only as of the date on which this report was first filed. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law. 3 Table of Contents Item 1. Business Company Overview PART I We are a leading global provider of communications technology to service providers and enterprises. We provide a broad range of software and high- performance hardware products, network solutions, and services that enable the secure delivery of data and voice communications, and high-bandwidth networking and connectivity for residential consumers and for small, medium, and large enterprises and industry verticals such as finance, education, government, utilities, and transportation. Our 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. We are headquartered in Plano, Texas, and have a global presence, with research and development, sales and support locations in over thirty-five countries around the world. Company History The Ribbon name was created by the merger of Sonus Networks, Inc. and GENBAND US LLC ("GENBAND") in October 2017, with both companies specializing in secure high-performance Voice Over Internet Protocol ("VoIP") technology and solutions. Prior to that, GENBAND had acquired assets of Nortel’s Carrier division in 2010, which include a world-class engineering and sales team, a broad deployment base of products and technology, and a recognized industry reputation and pedigree with customers around the world. Since our formation in 2017, we have completed several acquisitions to strengthen and expand our portfolio of product offerings to service providers and enterprises. Recent notable acquisitions include: Edgewater Networks Inc. (August 2018): Expanded our portfolio of security and signaling solutions for the enterprise network edge. • • Anova Data, Inc. (February 2019): Expanded our portfolio with additional network optimization, security, and data monetization applications, enabled • by an advanced Big Data Analytics and Machine Learning platform. ECI Telecom Group Ltd. ("ECI") (March 2020) (the "ECI Acquisition"): Further expanded our focus and strategy to include optical transport and Internet Protocol ("IP") networking, switching, and routing products and solutions, and helped us create an industry-leading communications software and networking company with a comprehensive portfolio of advanced voice, security, data and IP optical networking and transport solutions. Industry Background Today’s Communications Service Providers ("CSPs") and enterprises are investing in their networks to compete in an ever-changing technology and customer experience landscape driven largely by cloud computing, mobile workforces requiring hyper-connectivity, new high-performance applications and use cases, and an insatiable demand for bandwidth by end-customers and the applications they use. As a result, service providers and enterprises are adding key enabling technologies to their networks for increased flexibility, programmability, scalability, reliability, and to enable new applications and services with an expedited time to market. These investments provide a competitive advantage and bring value-added services to increase network efficiency, increase customer satisfaction and produce new revenue streams. Within these broad industry themes, investment in our products and services is driven by several key industry trends. Increased Adoption of Cloud Communications and Collaboration The shift to cloud-based communications began several years ago driven largely by the advantages of running applications in a virtual cloud environment and reducing dependency on on-premises computing and communications technologies. The Coronavirus Disease 2019 ("COVID-19") pandemic has accelerated this trend significantly, driven by the need for more remote working and commerce for many businesses and industries. As a result, businesses and consumers have rapidly shifted from brick-and-mortar facilities and travel to work-from-home, or hybrid work-in-the-office and work-from home, using cloud communications and collaboration platforms such as Microsoft Teams, Zoom Phone and others, and require these communications platforms to be highly secure and scalable. 4 Table of Contents Evolution of Communications Service Provider Networks CSPs of all types continue to face challenges to their businesses because of the significant technological evolution, increasing competition, disruption by Over- the-Top ("OTT") providers (those providing video entertainment over the Internet rather than through traditional cable, telco and satellite networks), and shifts in customer expectations. They also need to drive new revenues with more digital, efficient, automated, secure, and reliable networks driven largely by software, automation, cloud networking, and other technologies such as analytics and machine-learning. All these factors are causing service providers to re- think and evolve, or even over-haul, the way networks are designed, architected, managed, and optimized to deliver services to their customers with disruptive economics. They are migrating their networks and services software to run on private and/or public clouds (referred to as the "Telco Cloud") using cloud-native technologies, architectures and operational processes with automation and concepts such as Continuous Integration and Continuous Delivery ("CI/CD"). Increasingly, network operators are also pursuing open, multi-layer optimized and disaggregated IP and Optical networking solutions, where they have the flexibility to assemble networks based on transport and control subsystems from different vendors with software-defined networking. The newest generation of broadband cellular technology ("5G"), and the corresponding promise of new revenue-generating applications and services for consumers and businesses, are key drivers of investment in the evolution of underlying mobile and fixed network infrastructures, and disruptions providing opportunity for new suppliers to be selected. Service providers in some global regions, as mandated by governments or voluntarily, are also replacing certain incumbent vendor communications equipment and technology in their networks because of concerns for security. This presents a significant growth and market share opportunity. Insatiable Demand for Hyper-Connectivity and Bandwidth Driven by New Services, Applications, and the Cloud Our global information society is overflowing with telecommunications data traffic, for business, entertainment, education, surveillance, industrial control, online retail, and many other applications. These applications, increasingly delivered from the cloud, generate a huge amount of data driven largely by the video and image components. This exponential growth in data traffic is expected to continue and even accelerate, enabled by 5G upgrades to the mobile radio network. New applications will emerge, such as Reality/Virtual Reality ("R/VR"), cloud gaming, tele-health, Internet of Things ("IoT"), and Industry 4.0, all made possible by the massive bandwidth increases, low latency and highly secure infrastructure. At the foundation, high performance Optical connections and advanced IP networking are needed to keep pace with the advancements in communications. This hyper-connectivity will be a key enabler and deliver disruptive ultra-low cost-per-bit communications within and between networks and the cloud, while also delivering on the promise of latency sensitive networking demanded by many of the applications. Need for Reliable, Secure, High-Bandwidth Enterprise and Critical Infrastructure Communications Companies and verticals that are classified as being part of a “critical infrastructure” are defined as those companies whose assets, systems, and networks, whether physical or virtual, are considered vital to a country’s national interest. Critical infrastructure providers are under increasing pressure to support new services, reduce carbon emission, improve security, expand automation, and increase safety. Achieving these goals requires a transition to a modernized, secure communications network that supports both IP and optical transport seamlessly. With a seamless integrated IP and optical transport solution, a critical infrastructure network operator can provide a highly reliable, secure, future proof communications solution optimized for critical industries. An essential requirement for this solution includes a security suite that incorporates state-of-the-art operational technologies protection measures, giving operators extra confidence in the security of their network. Data is the lifeblood of any business, and it must be easily accessible across the enterprise to power business applications and to support services to end- customers. It must also be replicated across multiple locations for business continuity and disaster recovery and must be protected from inappropriate access, theft, and corruption. Enterprises deploy optical networking, secured by optical encryption, to attain the needed performance and security. Similarly, command and control groups within today’s armed forces have a need for high performance secure networks as their strategic sensors and assault systems are becoming more integrated. In this ecosystem, effective decision-making requires the pooling and analysis of data from a vast array of sensors and other information sources. The data must be delivered securely, in real-time, to wherever it is required. These solutions integrate intelligent optical transport with agile IP networking to provide a converged, secure, communication network. 5 Table of Contents Addressing the “Digital Divide” with Rural Broadband and High-Speed Internet Connectivity Governments in many countries around the world are investing to address and help close the digital divide and extend ultra-broadband services and connectivity to underserved communities. As an example, in the United States, the Infrastructure Investment and Jobs Act, the FCC Rural Digital Opportunity Fund ("RDOF"), the 5G Fund for Rural America, and the USDA Rural Development Broadband ReConnect Program expect to provide billions of dollars in funding to deliver broadband connectivity to rural communities in the U.S. Whether working or learning from home, streaming 4K television, or playing the latest online video games, rural subscribers demand dependable, high-speed Internet access to participate and thrive in the digital world. Forward-looking service providers are taking advantage of government funding programs to expand network capacity and transform the communities they serve. Next- generation rural broadband networks help service providers grow their revenues by extending service reach and diversity, and by satisfying the massive pent-up demand for high-speed internet connectivity. Next-generation broadband networks will also leverage new technologies like fixed-wireless access, while laying the foundation for future revenue opportunities like 5G backhaul transport services. Strategy Overview Our mission is to create a recognized global technology leader providing open, cloud-centric solutions spanning multiple network layers that enable the secure exchange of communications and information, with unparalleled scale, performance, and elasticity. To realize this mission, we have begun the implementation of a focused strategy for our business underpinned by our transformative ECI Acquisition and migration of communications networks and software applications to the cloud. • Operational Integration - A key step of the strategy includes continuing to successfully drive the integration of ECI and Ribbon to achieve best-in-class • • • • • • operational efficiencies. We have made significant progress and largely completed this integration in 2021, including a revamped internal organization aligned along a business unit model with regional sales teams and integrated corporate functions, as well as the addition of new experienced members to our leadership team. Intellectual Property and Technology Integration - Beyond operational integration, we continue to explore opportunities to blend the intellectual property and technological know-how underlying the classic Ribbon business with that acquired as part of the ECI Acquisition to develop new products and services to meet the new challenges faced by our customers. Cross-Selling - We are laser-focused on marketing and selling our combined post-acquisition broad portfolio to our global deployed base of service provider and enterprise customers to expand our presence and share of the larger IP and Optical networking and transport market and cross-sell the complete portfolio. North American IP Optical Networks Market Share - We expect to continue to unlock the value of the former ECI portfolio by growing IP Optical Networks market share in the North American market by leveraging the extensive deployment base and ongoing business that we have with service providers and enterprise customers. We have already experienced some early cross-selling successes with new IP Optical customer wins in North America announced in the second half of 2020 and in 2021. Participate in the 5G Opportunity - The ECI Acquisition has also advanced our strategy of expanding into the service provider 5G data domain with the IP Optical Networks portfolio bundled with network analytics and intelligence, and security offerings. We believe 5G is a multi-year opportunity as global service providers roll out the new capital-intensive technology and build out the needed network infrastructure over the next decade. We want to be at the forefront of preparing our customers for the deployment of 5G on two major fronts: providing for metro, backhaul and long-haul transport and networking solutions in service provider networks, industrial verticals, and critical infrastructure; and supporting their needs as new applications, including IoT and AI, become a reality with 5G. Software-Centric and Cloud-Native Offerings - The value of virtual, cloud-native, and software-driven solutions deployable in the cloud has only grown because of the COVID-19 pandemic and the migration of network services to the Telco Cloud, which underscores another area of major focus for us. As a strategy, we continue to aggressively transition a significant portion of our product portfolio and business model towards more software, cloud-native offerings with automation and as-a-Service selling model. This transition is instrumental in continuing to improve profitability and competitiveness, and growing the recurring revenue portion of our business. Enterprise Offerings - The market need and growth rate are higher at the network edge than at the core. We are focused on growing this area of our business through our overall enterprise solutions for securing communications and our IP optical network connectivity solutions, which together are typically geared towards critical infrastructure, large enterprises, and small and medium businesses, building on our partnerships with key go-to-market channels and solutions providers such as Microsoft, as well as other popular unified communications and collaboration ("UC&C") 6 Table of Contents • • platforms such as Zoom Phone and similar service provider UC&C offerings. We have recently created a dedicated and expanded sales force focused on the enterprise market segment. Partnerships - We continually look to form industry partnerships that will enhance our current solution offerings to our customers. Focus - We maintain a constant feedback loop to ensure we stay focused on activities that support the strategy of our main business segments and ensure our investments in research and development are directly aligned to these goals. As part of this strategy, we completed the sale of our cloud-based enterprise communications services (the "Kandy Communications Business") in December 2020 to American Virtual Cloud Technologies, Inc. ("AVCT"). We believe that the sale enables us to be even more focused on executing our service provider and enterprise strategy to the benefit of our customers while allowing AVCT to unlock Kandy’s true value and strong potential and capitalize on the momentum the business has established. As part of the transaction, we became an investor in AVCT, which means that we have a continued opportunity to capitalize on the continued success of Kandy. We believe execution on this multi-faceted strategy will strengthen our financial foundation, will continue to improve our relationships and collaboration with our customers, and will further align us with our key stakeholders - customers, partners, employees, and investors. Customers Our customers are comprised of a diverse set of service providers and enterprises located in over 140 countries around the world. Service provider customers include telephone companies ("telcos") offering fixed and wireless communications services, cable Multi-System Operators ("MSOs") and Communications as a Service providers. Our service provider customers include many of the largest CSPs globally. Enterprise customers include small, medium, and large businesses and industry verticals such as transportation, utilities, government/public sector, finance, and education. Customers trust us to solve their most challenging communications requirements, enabling people and devices to connect anytime, anywhere. Our customer- centric culture shapes all of our activities and inspires our team members to make a positive impact with our clients, investors, and communities. In the year ended December 31, 2021, Verizon Communications Inc. ("Verizon") accounted for approximately 16% of our revenue. Verizon is a service provider that offers interconnect, fixed line and mobile communications services, and our software solutions are sold across their business divisions supporting their large enterprises, SMB and consumer telecommunications and cable-related offerings. Our top five customers represented approximately 34% of our revenue in the year ended December 31, 2021. Segment Information Effective in the fourth quarter of 2020 and in connection with the ECI Acquisition, our Chief Operating Decision Maker ("CODM") began to assess our performance based on the performance of two separate organizations within the Company: the Cloud and Edge segment ("Cloud and Edge") and the IP Optical Networks segment ("IP Optical Networks"). We had previously operated in a single segment. Cloud and Edge Business Segment The Cloud and Edge segment provides secure and reliable software and hardware products, solutions, and services for VoIP communications, Voice Over LTE ("VoLTE") and Voice Over 5G ("VoNR") communications, as well as UC&C services to both service provider and enterprise customers. Our Cloud and Edge products are increasingly software-centric and cloud-native for deployment on private, public, or hybrid cloud infrastructures, in data centers, on enterprise premises, and within service provider private networks. Cloud and Edge Products and Solutions Our Cloud and Edge portfolio delivers multiple solutions for enabling VoIP, VoLTE, VoNR, and UC&C in network, on-premises, or via the Telco Cloud for a broad range of service provider and enterprise customers. The solutions provided with this portfolio include those for: • Securing and providing resilient connectivity and calling via direct routing for Operator Connect - Microsoft Teams, Zoom and other cloud-based UC&C applications. 7 Table of Contents Securing contact center applications. Securing service provider hosted and managed unified communications ("UC") services. Securing network interconnects for communications services. • • • • Network transformation of fixed service provider voice services networks to help evolve, consolidate, and modernize legacy networks to VoIP and onto • virtualized network environments or the Telco Cloud. Implementing IP Multimedia Subsystem ("IMS") networks required by mobile service providers for VoLTE service deployments and for 5G voice services. • Modernizing, evolving, and securing enterprise and industry vertical UC environments, supporting both on-premises and cloud-based deployments. Securing voice sessions and protecting VoIP communications connectivity infrastructures, contact centers, Private Branch Exchanges ("PBX") and • media servers. • Providing identity assurance that helps mitigate robocalls, prevent fraud by determining phone caller identity, intent, and reputation. • Analytics to provide visibility, security, and service assurance to enhance communication network operations and customer experiences. Our Cloud and Edge market-leading product portfolio consists of two main categories – Session Border Controller ("SBC") products and Network Transformation products: Our SBC product portfolio encompasses a full range of deployment platforms including: • High performance carrier-grade compute platforms leveraging the latest advancements in silicon including NVIDIA GPU processors. • Feature-rich virtualized and cloud-native software products for deployment in both private and public cloud environments such as Amazon Web Services ("AWS"), Microsoft Azure and Google Cloud Platform ("GCP"). Fully cloud-native implementation supporting as-a-Service ("aaS") offers and business models. • • On-premises dedicated appliances that scale up and down to meet the most demanding performance and security requirements. Our SBC portfolio consists of the following categories of products: • • • Core network SBCs that are deployable by customers in their core networks, or on private or public clouds, and used to identify, manage, and protect voice communications traffic as it moves through and between communication networks. SBCs secure and interwork different voice communications protocols at IP network boundaries, both within and between service provider and enterprise networks. The portfolio also includes Policy and Routing products that work in heterogeneous voice networks and are used to intelligently manage communications sessions based on multiple policies such as least cost and Quality of Service routing, media type, source or destination, and time of day or week. Enterprise Session Border Controllers and Edge products, deployable on premises or in the cloud, to enable the deployment and migration to secure cloud-based UC&C applications such as Microsoft Teams, Zoom Phone and service provider UC&C offerings, as well as securing cloud contact center offerings. Enterprise SBCs provide service assurance and visibility within the enterprise for service-provider hosted and managed UC services. Offerings in this portion of our portfolio include Ribbon Connect for Microsoft Teams Direct Routing, a cloud-based aaS offering for securing calls to the public telephone network from the enterprise. TM Ribbon Call Trust elements including SBCs, helps mitigate robocalls and prevent fraud by determining phone caller identity, intent, and reputation. With this information, it is possible to help determine if a call is from a is an aaS offering for providing identity assurance. The identity assurance portfolio, using information from deployed network 8 Table of Contents legitimate person, for a legitimate purpose, and without malicious intent. Our customers utilize these capabilities to provide a better call experience to their end-customers. • A cloud-native Analytics Platform with applications that aid customers in gathering actionable intelligence from their communications network elements, including SBCs in the core and edge of their networks, to provide them with network performance visibility, service assurance, security, and fraud mitigation. Our Network Transformation product portfolio is deployed in the most demanding environments and enables the modernization of fixed, mobile and enterprise voice communications networks to support network and Telco Cloud-based services and the next generation of IP-based voice communications services and includes multiple software-centric platforms and products including: Signaling products that provide network signaling for communications services. Call Controllers that provide call processing within networks for voice communications services and applications. • • • Media Gateways that perform the interworking or translation of media, or voice sessions and the corresponding network protocols both within and across VoIP and legacy communications networks and use codecs (coder-decoder) and digital signal processors to do so. • A multi-tenant and highly scalable Application Server that enables the deployment of VoIP and UC&C services and applications. Cloud and Edge Competition Competition in the market for the Cloud and Edge portfolio remains strong. The market is shifting from an environment dominated by a few large telecommunications legacy hardware equipment companies, such as Ericsson LM Telephone Company ("Ericsson"), Huawei Technologies Co. Ltd. ("Huawei"), and Nokia Corporation ("Nokia"), to a market that is characterized by cloud-native software network function virtualization, hybrid private public cloud compute environments, and open interoperable interfaces. We believe this shift creates opportunities for us to differentiate and gain share from competitors such as: • Huawei, Ericsson, Nokia, Oracle Corporation, Cisco Systems, Inc. ("Cisco") and AudioCodes Ltd. for our SBCs, Enterprise Edge products and Ribbon Connect. • Neustar, Inc., Metaswitch Networks (acquired by Microsoft) ("Metaswitch"), First Orion Corp., Secure Logix Corporation, TransNexus, Inc. and Transaction Network Services, Inc. ("TNS") for our Identity Assurance and Call Trust offerings. • Guavus, Inc., NETSCOUT Systems, Inc., Niometrics Pte Ltd, Empirix Inc. and Ericsson for our Analytics offerings. • Huawei, Metaswitch, Nokia and Ericsson for our Network Transformation offerings. Other smaller private and public companies are also focusing on similar market opportunities. Mergers among any of the above companies or other competitors, as well as additional competitors with significant financial resources entering our markets, could further intensify competition. Mergers between service providers may also increase competition for a smaller number of more concentrated customers and channels for products and solutions. IP Optical Networks Business Segment The global information society is generating a very high volume of telecommunications traffic for business, entertainment, education, surveillance, industrial control, and other applications. Technologies like 5G, distributed cloud computing and corresponding applications are predicted to continue this exponential traffic growth. IP and Optical networks are at the foundation of this information economy, and indeed are one of its key enablers, delivering ultra-low cost-per- bit transport and multi-service flexibility. Our IP Optical Networks segment provides high-performance, secure, and reliable hardware and software products and solutions for IP networking, switching, and routing, and optical transport. This portfolio is offered to service provider, enterprise and industry verticals with critical transport network infrastructures including utilities, government, defense, transportation and education and research. 9 Table of Contents IP Optical Networks Products and Solutions Our IP Optical Networks portfolio delivers multiple solutions spanning access, metro, regional, and long-haul geographies, and using ring, mesh, and point-to- point topologies. IP Multiprotocol Label Switching ("MPLS") and other protocols provide a broad range of networking services for our customers. Our solutions for optical and IP transport and networking include 5G-native solutions for mobile-backhaul, metro and edge aggregation, core networking, data center interconnect, legacy network transformation and transport solutions for wholesale carriers. High availability and security also make the solutions ideal for critical infrastructure delivering mission-critical services. Our IP Optical Networks multi-layer product portfolio consists of: • • • The Apollo product line provides programmable and open Optical Transport Network ("OTN") capabilities over Dense Wavelength Division Multiplexing ("DWDM") support. The OTN layer maps Ethernet and other services into OTN bit streams for transparent optical transmission, and DWDM routes wavelengths of light containing the OTN-encapsulated bit streams across wide areas, greatly increasing the efficiency and capacity of fiber facilities. Our Apollo hardware and software products deliver reconfigurable and programmable low-latency optical transport that simultaneously speeds up provisioning of new services while maximizing traffic throughput at the lowest cost per bit. Apollo supports both capacity-reach optimized optical transmission with up to 1.2 Terabytes per second per channel, as well as power-cost optimized 400 Gigabytes per second optical transmission leveraging 400G ZR+ pluggables. The Apollo product line provides state-of-the-art transparent and flexible DWDM and OTN transport with integrated packet switching capabilities. A modular architecture allows optimized solutions across access, metro, regional, and long-haul networks. Apollo combines high performance, low-latency OTN transport, and OTN switching with software-configurable optical routing for maximum efficiency. Apollo can dynamically reconfigure optimal links in the event of fiber failures to maintain service availability. Apollo is “self-aware” with intelligent reporting for efficient and Software-Defined Networking ("SDN")-ready operations. Apollo also provides deployment choice, whether as an integrated solution or as standalone subsystems for disaggregated open architecture multivendor solutions. A key security feature of Apollo that is used broadly in critical infrastructure and enterprise deployments is Layer 1 Optical Encryption supported by standard and Post Quantum Computing algorithms. The Neptune product line of high-performance switching and routing solutions are optimized to provide a converged multi-access edge and the service aware routing needed for cost/performance optimized connectivity between consumers and the applications and services they are using. Neptune provides a converged multi-access edge by supporting multiple services delivered over multiple access network technologies. Ethernet interfaces ranging from Gigabit Ethernet ("GbE") through to 100GbE allow all IP/MPLS and Ethernet access networks to be supported, and pluggables providing XGS- PON, EPON and TDM circuit emulation allow PON access networks and legacy TDM access network to be supported. Traffic from the access networks is aggregated and connected to the services, applications, and compute platforms, meeting the specific service level agreements required for each service, including guaranteed latency, jitter, capacity, or reliability. To achieve this, Neptune uses a range of protocols such as IP/MPLS, MPLS-TP ("Transport Profile") and segment routing traffic engineered ("SR-TE"). As services, applications and compute platforms become increasingly distributed across the network, located in local data centers and multi-access Edge compute platforms, Neptune, in conjunction with MUSE, can dynamically route the connectivity wherever it is required, whilst still meeting the performance requirements. In addition, Neptune provides a 400G ZR+ pluggable capability, allowing it to support both single layer IP over DWDM ("IPoDWDM") connectivity or multi-layer optimized IPoOTN/DWDM connectivity, whichever best meets the network operator's needs. With these capabilities, Neptune is ideally suited for residential broadband backhaul, business services, MSOs and private enterprise networks. With Flexible Ethernet, enhanced timing and synchronization capabilities, 25GbE and 50GbE interfaces and high-capacity, high-density platforms, Neptune is also ideal for 5G deployments. These capabilities and unique form factors such as DIN- rail mounting, street cabinet deployment and environmental capabilities also make Neptune a compelling solution for mission critical enterprises. The Muse SDN multi-layer Domain Orchestrator and cognitive software is a suite of cloud-native applications that deliver SDN domain orchestration for underlying multi-layer Neptune IP and Apollo Optical networks. This covers complete lifecycle management and automation to speed up time to revenue, reduce Total Cost of Ownership, and facilitate integration into wider ecosystems. It is powered by a carrier-grade, cloud-native Platform as a Service ("PaaS") and works in conjunction with our LightSOFT network management system. Built for a 5G services world, Muse enables network operators to programmatically configure and combine hard and soft slicing technologies to create slices appropriate to different sets of 5G-enabled services and customer sub-networks. Then, using a rich set of tools, operators can design, provision, and assure a broad array of services on top of the slices. Muse's suite of advanced service and network control applications empower Service Providers to do more, through simple service creation and lifecycle management, proactive network assurance, network optimization, and automation. Muse ensures that people and TM 10 Table of Contents systems receive the right tools to monetize the network effectively through intuitive graphical user interfaces or industry-standard Application Programmable Interfaces. IP Optical Networks Competition Competition in the markets addressed by our IP Optical Networks products is strong. The market is shifting from an ecosystem dominated by a few large telecommunications legacy hardware equipment companies with proprietary solutions such as Ciena Corporation ("Ciena"), Cisco, and Nokia, to a market that is characterized by a combination of closed and open solutions, software-defined networking, and dis-aggregation ready for next generation networks, services and applications including 5G, that leverage commercial technology. We believe this shift creates opportunities for us to increase our share as compared to direct competitors such as Cisco, Juniper Networks, Inc., Huawei, Nokia, Ciena, Infinera Corporation, ADVA Optical Networking SE, and Fujitsu Limited. We believe a key differentiation from these competitors is our optimized and integrated multi-layer IP optical solutions. These solutions leverage our SDN, IP routing and optical networking and control plane technologies for both IP and Optical networking layers to create a truly integrated IP Optical Network that optimizes resource utilization in real time, and provides the best overall economics to customers differentiating us from our competitors. Advanced planning algorithms design multi-layer IP Optical networks that maximize traffic handling with failure resiliency by looking holistically at all network layers, providing the best return on Capex. These multi-layer optimized networks can then meet specific customer and service needs on a case-by-case basis. Services and Support As service providers and enterprises increasingly adopt telco-cloud, IP-based voice, multimedia, IP and optical transport networks and 5G communications solutions for their markets, they are challenged to find the expertise to install, maintain, and repair these platforms. We have a rich history of providing a broad offering of service-based solutions to complement our products and to help service providers and enterprises grow revenues, serve customers, reduce costs, and improve productivity. Our Global Services organization provides a wide range of services to enable our customers to achieve those goals. Professional and Project Management Services include hundreds of cloud communications, VoIP, IMS voice services and IP and Optical networking specialists and partners offering technical depth, network breadth and tools to assist customers in all aspects of network modernization, design, and deployment. Our Maintenance Support offerings deliver a comprehensive support strategy for all products, applications, and solutions purchased. Our Managed Services offer proactive monitoring to keep customers' production communications running smoothly so they can concentrate on running their business. In addition, our Education Services help ensure customers have the technical knowledge and skills necessary to achieve service readiness and delivery goals to accelerate time-to-market, manage costs, and get the most out of our products and solutions that they use. Sales and Marketing We sell our portfolio of products and solutions to service provider and enterprise customers around the globe through both direct sales and indirectly through channel partners, including independent resellers, distributors, service providers and system integrators. Most of our sales to service providers are done directly and most sales to enterprises are done through channel partners. Our direct sales team is organized geographically and by major customers and market to support customer requirements. The sales organization is divided into two regional sales teams – one responsible for the Americas, and one responsible for EMEA (Europe, Middle East and Africa) and APAC (Asia Pacific, including India). Our sales teams sell our full portfolio of products and solutions from both segments to customers in each salesperson's assigned region. Our direct sales force and resellers are supported by a highly trained technical sales engineering staff who work closely with our customers to develop technical proposals and design systems to optimize system performance and economic benefits for our customers. Our marketing organization is responsible for building awareness of our brand in the markets served and driving engagement with our strategies, solutions, and products. It promotes our brand and portfolio value propositions to key stakeholders, including our customers, channel partners, and prospects globally. The organization develops all of our corporate and portfolio messaging for different target audiences, and manages all customer and industry communication channels, including public relations, digital content (including for the web and social media), events, and trade shows, as well as demand generation and account-based marketing campaigns in conjunction with our sales force. Manufacturing We rely on global contract manufacturers and original design manufacturers to manufacture, assemble, test and ship our products. We typically utilize long- term relationships with our contract manufacturers and regularly review business relationships in an attempt to reduce cost of goods and supply risks. We employ formal quality, environmental and ethics management programs with all of our contract manufacturers. 11 Table of Contents Our leading manufacturers have presence in multiple international locations. This enables us to implement a flexible manufacturing and logistics landscape for each product line and target markets. This structure also facilitates redundancy and business continuity to mitigate risks related to adverse trade tariff, taxation, and natural disasters. Moreover, we wholly own the intellectual property related to fabrication files, assembly, testing algorithms and manufacturing operating procedures, thus reducing sole dependency on a specific contract manufacturer. Inventory Suppliers and Sourcing We work with strategic global suppliers for our key integrated circuit components, systems, and software. Certain of our networking products use third-party optical modules embedded on board or configured as pluggable units. These modules are designed and manufactured by leading optical technology vendors and supplied to us based on agreed-upon our controlled performance specifications. Our policy is to purchase major components directly from original suppliers or from authorized distributors. We regularly review market trends and volume demand for newly introduced products with our suppliers and distributors to negotiate reduced component pricing as the products mature. We carefully manage end-of-sale and end-of-life transitions to maximize return on investment and minimize wasted material, while maximizing customer satisfaction. When we must source such end-of-life components from distributors and brokers, we typically encounter increased component pricing. In some cases, when such parts cannot be sourced reliably any longer in the open market, we undertake costly redesign efforts with alternative components. In order to maintain competitive lead time for our customers, we employ sophisticated demand and supply management systems. We also utilize agility and safety stock processes to help meet higher-than-forecasted customer demand to stock raw material and sub-assembly inventory. We occasionally experience unforeseen demand drops of certain products or sub-assemblies due to technology evolution, customer consumption behavior, or shortened product lifecycle. For example, we encountered supply chain disruptions in 2021 due to component demand and logistics complications. We regularly review current inventory levels to ensure adequate reserves for excess and obsolete inventory arising from shortened product life cycle or demand drops. Research and Development Our global research and development ("R&D") workforce is geographically distributed across a balanced set of centers of excellence. This allows us to distribute work in a cost-effective manner and provide time-zone sensitive support to our global sales team and customers. We supplement our deep in-house expertise with a small set of long-term contracting partners, allowing us to flex up and down as required to match customer demand. To maintain our position as a technology leader, we continue to invest in our development methodologies, leveraging and adopting industry best practices in the domains of DevOPs, Continuous Integration and Continuous Delivery ("CI/CD"), cloud-native software, Security and Test Automation. In addition to delivering product-specific feature requests from our customers, our R&D resources that are focused on our Cloud and Edge business segment continue to focus on leading edge technology that will allow our customers to move from purpose-built appliances to fully virtualized and cloud-native solutions, including private, public, hybrid and multi-cloud deployment models as they modernize their networks. We are also investing in aaS variants of our products, fully integrated with cloud-native operational models. Our IP Optical Networks R&D team continues to focus on empowering our customers with better performance and cost-efficient solutions, improved cost-per- bit, and reduced power and space requirements to lower operating costs. We create innovative solutions that address the exponential increases in bandwidth consumption with improving operational efficiency. Our unique value-add is demonstrated by advanced well-integrated optical and packet solutions managed by state-of-the-art cross platform SDN management system. We are also investing in open and optimized IP and Optical solutions a well as disaggregated networking solutions for our customers. We leverage modern technologies and industry best practices across all of our products and solutions to provide security at each layer of the solution, enabling end to end security of the overall system. We continue to invest in analytics and automation to allow our customers to operate our solutions at scale with end- to-end visibility and control over the robustness, security, and efficiency of the solution. 12 Table of Contents Intellectual Property We believe intellectual property is fundamental to our business and success, and we depend upon our ability to develop, maintain and protect our technology. We seek to safeguard our investments in technology and rely on a combination of U.S. and foreign patent, trademark, trade secret and copyright law and contractual restrictions to protect the proprietary aspects of our technology. As of December 31, 2021, we had been issued 705 patents in the U.S, which expire between 2022 and 2040, and had 33 in-process patent applications in the U.S. As of such date, we also had 300 issued patents in foreign jurisdictions, and had 27 patent applications. As of December 31, 2021, we had 32 trademarks registered in the U.S. and 117 trademarks registered in foreign jurisdictions. In addition to the protections described above, we seek to safeguard our intellectual property by employing measures to protect against the unauthorized use or disclosure of the source and object code for our software, documentation and other written materials; licensing our software pursuant to signed license agreements, which impose restrictions on others' ability to use our software; and seeking to limit disclosure of our intellectual property by requiring employees and consultants with access to our proprietary information to execute confidentiality agreements. We have incorporated third-party licensed technology into certain of our products and may be required to license additional technology from third parties to develop new products or to enhance existing products. Although many companies are often willing to enter into such licensing agreements, no assurance can be provided that such licenses can be negotiated on reasonable terms, or at all. The failure to enter into technology development or licensing agreements, when necessary, could limit our ability to develop new products and could harm our business. Despite our efforts to protect our technology and proprietary rights as discussed above, unauthorized parties may still obtain and use our technology and software. We have defended, and intend to vigorously defend when necessary, our intellectual property from infringement. Other companies in the communications and technology industries frequently threaten litigation or file suit against us (directly or indirectly through customers to whom we could owe indemnification) based on allegations of infringement or other violations of intellectual property rights. We are currently subject to, and expect to face in the future, allegations that we have infringed the intellectual property rights of third parties, including those of our competitors and non-practicing entities. Regulatory Considerations As a company with global operations, we are subject to complex U.S. and foreign laws and regulations, including trade regulations, tariffs, import and export regulations, anti-bribery and corruption laws, antitrust or competition laws, cybersecurity, privacy and data protection, among others. In addition, our operations are also subject to a number of environmental regulations such as the Waste Electrical and Electronic Equipment Directive ("WEEE") and the Directive on the Restriction of the Use of Certain Hazardous Substances in Electrical and Electronic Equipment ("RoHS"). We have developed policies and procedures to assist us in complying with these laws and regulations. Our historical compliance costs, including those related to environmental regulations, have not resulted in a material adverse effect on our business, results of operations or financial condition. We expect the laws and regulations to which we are subject will continue to increase and the future costs of compliance with existing or new regulations could materially impact our business in the future. Our Employees As a global company, we continue to focus on improving our "One Team" approach, aligning around a work culture that reflects and expresses our values, with global processes and platforms that enable us to work efficiently across borders and functions. We aim to create a workplace that is engaging, inspiring, challenging and inclusive. We strive to be an employer of choice for our current employees and for future employees who are seeking an opportunity to join our dynamic business, positioned at the nexus of global communications technology and social transformation. As of December 31, 2021, we had a total of 3,685 employees worldwide, located geographically as follows: Asia North America EMEA LATAM Number of employees Percentage of total 1,509 997 1,058 121 41 % 27 % 29 % 3 % 13 Table of Contents Approximately 640 employees are covered by collective bargaining agreements or works councils, and we believe that our relations with the labor unions are generally good. Our values are focused on teamwork, passion (taking pride in our achievements), being a trusted advisor to our customers, innovation and being "TRUE" - Transparent, Respectful, Unpretentious and Empowered. Engaging our employees includes aligning with these values and providing a workplace that is one in which we all work toward shared objectives that contribute to a better world and a better society. We engage our employees by providing opportunities for personal and professional growth and maintaining a culture of open communications where everyone receives constructive performance feedback and is encouraged to offer new ideas about any aspect of the work we do and our ways of doing things. Diversity, Equity and Inclusion ("DEI"). We believe that having a diverse group of people who contribute different perspectives and viewpoints is a serious competitive advantage and critical to the success of any organization. In our most recent survey completed in 2021, 89% of employees responded that they feel comfortable working at Ribbon and 87% agreed that our employees appreciate others whose gender, backgrounds and beliefs are different from their own. We held our first annual Global Diversity Day in 2021 to engage employees in inspiring dialogue led by expert guest speakers on topics such as gender equality in the workplace and personal accountability for diversity. Our DEI strategy's initial focus is on achieving stronger representation of women in a variety of roles at all levels of the organization, with an emphasis on women in management. As of December 31, 2021, the percentage of employees in each region that identified as female was as follows: Asia North America EMEA LATAM Percentage of total employees identifying as female Percentage of employees identifying as female 26 % 20 % 23 % 18 % 23 % We have established a number of goals to increase the number of women in our workforce. For 2021, we established a goal that at least 25% of our new hires identify as female and we exceeded that goal with approximately 29% of our new hires identifying as female. Longer term, we also want to improve the number of women in management roles and have established a goal of at least 30% of management roles to be held by women by 2025 (and 40% long-term) from an initial baseline of 16%. Attracting women to technology careers has traditionally been a challenge, and we recognize the need to accelerate the hiring and advancement of women at Ribbon. To support our efforts, we have created the Ribbon Diversity Council that will develop our DEI strategy and create initiatives to deliver stronger diverse representation at Ribbon, including initiatives aimed at improving our outreach to female candidates, expanding options for professional and leadership development, and raising awareness at all levels of the organization to encourage an understanding of more balanced representation of women and other under- represented groups across the Company. Employee Turnover and Engagement. We believe one of the best ways to monitor our overall employee engagement is through monitoring employee turnover rates, as successful employee engagement helps increase employee tenure and reduce voluntary turnover. For the year ended December 31, 2021, our voluntary employee turnover was 11.6% globally. Like many companies in our industry, this is up significantly from our historical levels. While we have generally been able to successfully backfill these positions, we continue to review the reasons provided by employees as to their departure and have taken a number of steps to address these concerns, including implanting regional salary increases to remain competitive in local markets, reviewing employee benefits, introducing selective retention programs to ensure we retain our key employees in a very competitive employment market globally and providing additional targeted employee engagement in regional locations or functions with higher attrition. As a further way of measuring employee engagement, in 2022 we again conducted an employee pulse survey to better understand employees' views on items such as our strategy, communication and whether or not they would recommend Ribbon as a place to work. We intend to use the results from this and future surveys to look for ways to continually improve our employee engagement. In 2021, we also created Ribbon Engagement Committees, employee-led groups in each of our major locations, charged with delivering programs of locally relevant activities and events that facilitate networking, enable exchange of ideas and help enhance employee satisfaction, productivity and engagement in local communities. 14 Table of Contents Training and Development. We believe investing in our employees' professional development so that they can perform their current roles more effectively and can be prepared for roles of greater responsibility in the future. Our training programs utilize a combination of in-person and online programs and include core modules, some of which are mandatory, relating to ethical conduct, products and services, safety, human rights and anti-corruption, as well as additional tailored programs on topics such as leadership, management, project management and competency development. In 2021, we delivered approximately 18 training hours per employee across our workforce, up from approximately 12 hours in 2020. Safety, Health and Well-being. We strive for a workplace that is free of hazards for our employees. We take care to comply with applicable safety regulations and have a strong track record for safety that we reinforce through regular training modules in all of our locations. As a result of the ongoing COVID-19 pandemic, we have taken a number of steps to help ensure the safety and well-being of our employees. This included closing our offices and shifting most employees to work from home. We instituted a phased return to occupancy plan that provided for a gradual return of employees to our locations on a part-time basis (typically 2-3 days per week) based on the current conditions in the geographic region the office is located in, as well as local regulations. In certain locations, such as India, we also sponsored COVID-19 vaccination drives to assist employees and their families in being able to receive COVID-19 vaccines. We have provided regular communications to our employees to update them on our policies and created a COVID-19 resource site for them that includes information and resources on working from home and links to official resources from the World Health Organization, the Centers for Disease Control and others. Community Investment. We value the communities in which we work. We encourage a service mindset among our employees wherever they are and support community involvement and engagement. To that end, since 2010, we have provided a day of paid time off for all employees to participate in our Global Day of Service during which they are encouraged to volunteer and contribute to local non-profits in their communities. For additional information on our employees and our current engagement activities, please see our most recent sustainability report, which is available at ribboncommunications.com/company/company-policies/sustainability-report. Corporate Governance and Social Responsibility We are committed to operating ethically, efficiently and inclusively. We believe we contribute to the communities in which we operate through the mitigation of climate change and other global sustainable development priorities. We aim to help improve the quality of the lives of people, society and the health of the planet through leveraging our expertise in transforming networks, enhancing security and delivering world-class solutions. We believe that communications technology and continuous innovation form the backbone upon which sustainable development largely depends. Major technology trends supported by our solutions include the accelerated adoption of collaboration platforms such as Microsoft Teams and Zoom; the 5G revolution; accelerating customers' ability to transfer carbon-intensive data storage from using local physical environments to the cloud; supporting service providers’ increased network demands to allow more people to work from home; and using our analytics solutions to maximize network efficiencies. We have taken a more strategic position to our environmental, social and governance ("ESG") practices. Our recent materiality study reviewed the expectations and requirements of both our stakeholders and our competitors to focus on the ESG practices that are most critical to our business and those where we believe we can make the largest positive impact. From this materiality study, we published a strategy which we believe will positively impact our future environmental performance, and deliver social benefits for our customers, employees and society at large. Additionally, we believe the governance improvements made as a result of our strategy will result in enhancements in our accountability and that of our suppliers and partners. We have developed three initial targets to display both our confidence in delivery and our commitment to supporting the United Nations' Sustainability Development Goals: (1) reduction of our greenhouse gas emissions by 30% by 2030; (2) improvement in our workforce diversity with a specific goal to achieve at least 30% of women in management by 2025; and (3) enhancement of controls in our supply chain to improve ethical and sustainable conduct amongst our suppliers. We are committed to protecting the environment and preventing pollution within a product's lifecycle through responsible product design and requiring suppliers to adhere to sustainable practices. An example of this is our focus on continuously improving the power and space efficiency of our products to reduce overall energy consumption in our customers' networks at our own facilities. We align our compliance goals with component directives such as RoHS legislation in the European Union and China and with the European WEEE directive. We also hold a host of internationally recognized certifications for our global offerings, including ISO 9001: 2015 - Quality Management Systems; ISO 14001: 2015 - Environmental Management Systems; and SI 10000: 2013 - Social Responsibility (covering our sites in Israel). 15 Table of Contents It has always been paramount to our way of doing business to act with the utmost integrity, honesty and transparency. Our commitment to ethical business practices guide us in our compliance with national and international laws and regulations, including anti-corruption, anti-bribery and unfair competition, antitrust and human rights. We maintain a Code of Conduct that applies to all of our directors, employees, contractors and suppliers. We are committed to strong corporate governance practices, which include building long-term value and assuring success for our stockholders and other stakeholders, including employees, customers and the communities in which we operate. For additional information regarding our corporate governance and our social responsibility goals and initiatives, please see “Corporate Governance” on our investor relations website (investors.ribboncommunications.com) and our most recent sustainability report, which is available at ribboncommunications.com/company/company-policies/sustainability-report. Seasonality We have experienced quarterly fluctuations in customer activity due to seasonal considerations. We typically experience increases in order volume in the fourth quarter due to greater spending on operating and capital expenditures by our service provider customers. We typically experience reductions in order volume toward the beginning of the calendar year, when our service provider customers are operationalizing their annual budgets and plans, which may result in lower revenue in the first quarter. These typical seasonal effects may vary. Accordingly, they should not be considered a reliable indicator of our future operating results. Additional Information Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed with or furnished to the United States Securities and Exchange Commission (the “SEC”), are available free of charge through the SEC's Internet site (http://www.sec.gov) or our Internet site (http://www.ribboncommunications.com) as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Information contained on, or that can be accessed through, our website does not constitute a part of this annual report and is not incorporated by reference herein. Item 1A. Risk Factors Our business faces significant risks and uncertainties. Certain important factors may have a material adverse effect on our business prospects, financial condition and results of operations, and they should be carefully considered. Accordingly, in evaluating our business, we encourage you to consider the following discussion of risk factors in its entirety in addition to other information contained in or incorporated by reference into this Annual Report on Form 10-K and our other public filings with the Securities and Exchange Commission (“SEC”). Other events that we do not currently anticipate or that we currently deem immaterial may also affect our business, prospects, financial condition and results of operations. Risk Factors Summary The following is a summary of the principal risks that could adversely affect our business, operations and financial results: Risks Related to Our Business and Industry • Our quarterly revenue and operating results are unpredictable and may fluctuate significantly quarter to quarter. The continuing COVID-19 pandemic may have a material adverse impact on our business, financial position and results of operations. • • Failure to compete successfully could impair our ability to increase revenues and/or remain profitable. • Our future success is dependent on growing our base of customers and expanding our recurring revenue. Consolidation in the telecommunications industry could harm our business. • Restructuring activities could adversely affect our ability to execute our business strategy. • • Exposure to the credit risk of some of our customers and to credit exposures in fragile financial markets could result in material losses. • Disruptions to relationships with distributors, resellers, system integrators and other channel partners could adversely affect our revenues. • Failure to align our strategic plan with our customers' investments, or failure of products and services to meet customers' demands, could impact our revenues. Failure of our products to interoperate with our customers' existing networks could result in customer losses. • 16 Table of Contents • Delay in the anticipated shift to more virtualized networks, or failure for customers to adopt our new products and services focused on virtualized networks, could reduce our revenues. The market for some of our products depends on the availability and demand for other vendors' products. Failure by our strategic partners or by us in integrating products could harm our business. • • • We rely on contract manufacturers. • We rely on single or limited sources for supply of some components of our products. • • • Government sales are subject to potential delays and cutbacks, may require specific testing efforts, or impose significant compliance obligations. • Failure to correctly estimate future requirements for end-of-life products purchased from third parties could harm our operating results or business. Products may have errors or defects that we find only after full deployment. Combining ECI, or future companies, may be more difficult, costly or time-consuming than expected, and anticipated benefits and cost savings may not be realized. Future investments, mergers or acquisitions could be difficult to integrate, disrupt our business, dilute shareholder value and harm our financial condition. Failure to hire and retain key personnel could negatively impact our ability to meet our business objectives and impair future growth. • • Man-made problems, such as terrorism, and natural catastrophic events may disrupt our operations and harm our operating results. • Risks Related to Our International Operations • Worldwide efforts to contain capital spending and global economic conditions and uncertainties may have a material adverse impact on our business. • Growing tensions between Russia and Ukraine could materially impact our sales to customers in that region. • • • • • Use and reliance upon research and development resources in global locations may expose us to unanticipated costs and/or liabilities. Conditions in Israel may materially and adversely affect our business. Risks associated with our international operations could impair our ability to grow our international revenue. Increases in tariffs, trade restrictions or taxes on our products could have an adverse impact on our operations. Fluctuations in currency exchange rates could negatively impact our financial results and cash flows. Risks Related to Intellectual Property • Our business could be jeopardized if we are unable to protect our intellectual property. • Failure to obtain necessary licenses or ongoing maintenance and support of third-party technology at acceptable prices on acceptable terms, or at all, it could harm our operating results or business. • A breach of the security of our information systems or those of our third-party providers could adversely affect our operating results. Risks Related to Regulation • Data privacy issues, including evolving laws, regulations and associated compliance, may adversely impact our business and financial results. • Failure to comply with the Foreign Corrupt Practices Act ("FCPA") or the U.K. Bribery Act ("UKBA") could subject us to significant civil or criminal penalties. • Governmental export and import controls could subject us to liability, require a license from the U.S. government or impair our ability to compete in international markets. Changes in governmental regulation, especially with respect to the telecommunications industry, could harm our operating results and future prospects. • Risks Related to Our Indebtedness and Accounting Matters • • • • The terms of our credit agreement could adversely affect our operating flexibility and pose risks of default, which would negatively impact our liquidity and operations. The value of the securities received in connection with the sale of our Kandy Communications Business is volatile and can significantly impact our financial results. Impairment of our goodwill or intangible assets may require us to record a significant charge to earnings. Failure to maintain appropriate internal controls in the future may adversely affect our stock price and our business. 17 Table of Contents General Risk Factors Litigation and government investigations could result in significant legal expenses and settlement payments, fines or damage awards. • • Our stock price has been and may continue to be volatile. • We are party to a stockholders' agreement with certain stockholders which provides such stockholders with certain rights that may differ from the rights of our other stockholders. • Delaware law and our charter documents contain provisions that could discourage or prevent a potential takeover. For a more complete discussion of the material risks facing our business, see below. Risks Related to our Business and Industry Our quarterly revenue and operating results are unpredictable and may fluctuate significantly from quarter to quarter, which could adversely affect our business, results of operations and the trading price of our common stock. Our revenue and operating results may vary significantly from quarter to quarter due to a number of factors, many of which are outside of our control and any of which may cause our stock price to fluctuate. Material factors that may affect our revenue and operating results include those discussed below under “Risks Related to our Business and Industry.” Equipment purchases by CSPs and enterprises continue to be unpredictable. As with other telecommunications product suppliers, we typically recognize a portion of our revenue in a given quarter from sales booked and shipped in the last weeks of that quarter. As a result, delays in customer orders may result in delays in shipments and recognition of revenue beyond the end of a given quarter. Additionally, we rely on the revenue provided by certain large customers. It can be difficult for us to predict the timing of receipt of major customer orders, and we are unable to control their timing decisions. We have experienced significant variability in the spending patterns and purchasing practices of our customers on a quarterly and annual basis, and we expect that this variability will continue. Consequently, our quarterly operating results are difficult to predict, even in the short term, and a delay in an anticipated sale past the end of a particular quarter may negatively impact our results of operations for that quarter, or in some cases, that year. Therefore, we believe that quarter-to-quarter comparisons of our operating results are not a good indication of our future performance. If our revenue or operating results fall below the expectations of investors or securities analysts or below any guidance we may provide to the market, the price of our common stock could decline substantially. Such a stock price decline could also occur even if we meet our publicly stated revenue and/or earnings guidance. A significant portion of our operating expenses is fixed in the short term. If revenue for a particular quarter is below expectations, we may not be able to reduce costs and expenses proportionally for that quarter. Any such revenue shortfall would, therefore, have a significant effect on our operating results for that quarter. The continuing COVID-19 pandemic and resulting effects on global economic conditions may have a material adverse impact on our business, financial position and results of operations. In 2020, a novel strain of the coronavirus (COVID-19) was declared by the World Health Organization to be a global pandemic. The COVID-19 pandemic has had a negative effect on the global economy, disrupting the various manufacturing, commodity and financial markets and increasing volatility, and has impeded global supply chains. Continuing economic uncertainties as a result of the COVID-19 pandemic may cause our customers to restrict spending or delay purchases for an indeterminate period of time. Travel restrictions imposed as a result of the pandemic have also made it more difficult to meet with existing and potential customers. In addition, our ability to deliver our solutions as agreed with our customers depends on the ability of our global contract manufacturers, vendors, licensors, and other business partners to deliver products or perform services we have procured from them. When the COVID-19 pandemic impairs the ability of our business partners to support us on a timely basis, or negatively impacts the demand for our customers’ other products and services, our ability to perform our customer contracts as well as the demand for our solutions may suffer. In addition, disruptions from the COVID-19 pandemic has included the temporary closures of some of our facilities, as well as those of our contract manufacturers, vendors and suppliers. This workforce disruption has caused, in some cases, the inability to obtain key components of our products, the disruption of logistics necessary to import, export and deliver our solutions. Future waves and new variants of COVID-19, for which current vaccines may not be as effective or effective at all, could materially impact our business, financial position and results of operations, the degree to which will depend on future developments beyond our control. This includes the continued effect of COVID-19 on economic conditions, as well as workforce disruptions due to illness or compliance with local health and safety measures. 18 Table of Contents If we fail to compete successfully against telecommunications equipment and networking companies, our ability to increase our revenue and remain profitable will be impaired. Competition in the telecommunications market is intense. The market is shifting from an ecosystem dominated by a few large incumbent telecommunications equipment companies, such as Ericsson LM Telephone Company, Huawei Technologies Co. Ltd. and Nokia Corporation, to a market with competitors that are characterized by network virtualization, migration to the cloud, and open interfaces. We believe this shift creates opportunities for us, as well as our direct competitors in telecommunications and networking. The shift also creates opportunities for new entrants, including some that may currently be our strategic partners, that could become competitors in the industry. See Item 1. "Business – Competition". Mergers among any of these or other competitors could strengthen their ability to compete against us, and additional competitors with significant financial resources entering our markets could further intensify competition. To compete effectively, we must deliver innovative products that provide extremely high reliability and quality; deploy and scale easily and efficiently; interoperate with existing network infrastructures and multivendor solutions; provide effective network management, as well as comprehensive customer support and professional services; provide a cost-effective and space-efficient solution for enterprises and service providers; meet price competition from low cost equipment providers; and offer solutions that are timely for the market and support where the industry is heading. Many of our current and potential competitors have significantly greater selling and marketing, technical, manufacturing, financial and other resources than we have. Further, some of our competitors sell significant amounts of other products to our current and prospective customers and have the ability to offer lower prices to win business. Our competitors' broad product portfolios, coupled with already existing relationships, may cause our customers to buy our competitors' products or harm our ability to attract new customers. If we are unable to compete successfully against our current and future competitors, we could experience price reductions, order cancellations and loss of customers and revenue, and our operating results could be adversely affected. Our future success is dependent on growing our base of customers and expanding our recurring revenue from our existing customers. We rely on certain key customers, and our future success will depend on our ability to generate recurring business from our existing customers and to attract additional customers beyond our current customer base. One customer, Verizon Communications Inc., contributed approximately 16% of our revenue in the year ended December 31, 2021. Our top five customers contributed approximately 34% of our revenue in 2021. Factors that may affect our ability to grow our customer base include, but are not limited to, economic conditions that discourage potential new customers from making the capital investments required to adopt new technologies; deterioration in the general financial condition of service providers and enterprises, or their ability to raise capital or access lending sources; new product introductions by our competitors; and the success of our channel partner program. If we are unable to expand our customer base, the loss of any significant customer, or any substantial reduction in purchase orders or deferral of purchasing decisions from these customers, could materially adversely affect our results of operations and financial condition. Consolidation in the telecommunications industry could harm our business. The telecommunications industry, including many of our customers, has experienced consolidation, including, in the carrier space, the merger between T- Mobile US, Inc. and Sprint Corporation (April 2020) and the acquisition of Blue Face Ltd. by Comcast Corporation (January 2020). Further, consolidation has also occurred in the telecommunications supplier and vendor space, including the proposed combination of ADTRAN, Inc. and ADVA (expected to be completed in 2022), the acquisition of Acacia Communications, Inc. by Cisco Systems, Inc. (March 2021) and the closing of a strategic partnership between RingCentral, Inc. and Avaya Holdings Corp. (October 2019). We expect this trend to continue. Consolidation among our customers may cause delays or reductions in capital expenditure plans by such customers and/or increased competitive pricing pressures as the number of available customers declines and the relative bargaining power of customers increases in relation to suppliers. Any of these factors could materially adversely affect our business. Restructuring activities could adversely affect our ability to execute our business strategy. We recorded net restructuring expense of $11.7 million and $16.2 million in 2021 and 2020, respectively, including severance and related costs, facilities restructuring and accelerated amortization of lease assets. In 2022, we expect to record additional restructuring expense of approximately $20 million as we look to further streamline operations and consolidate our global footprint to reflect, among other things, a greater percentage of our workforce working from home on a go-forward basis. 19 Table of Contents Our current restructuring and any future restructuring, should it become necessary for us to further restructure our business due to market conditions or other factors that reduce the demand for our products and services, could adversely affect our ability to execute our business strategy in a number of ways, including through loss of key employees; diversion of management's attention from normal daily operations of the business; diminished ability to respond to customer requirements related to both products and services; disruption of our engineering and manufacturing processes, which could adversely affect our ability to introduce new products and to deliver products both on a timely basis and in accordance with the highest quality standards; and/or reduced ability to execute effectively internal administrative processes, including the implementation of key information technology programs. There can be no assurance that any restructuring actions we have taken in the past, or may take in the future, will improve our financial condition or results of operations. We are exposed to the credit risk of some of our customers and to credit exposures in fragile financial markets, which could result in material losses. Due to our reliance on significant customers, we are dependent on the continued financial strength of our customers. If one or more of our significant customers experience financial difficulties, it could result in uncollectable accounts receivable and our loss of significant customers and anticipated revenue. Most of our sales are on an open credit basis, with typical payment terms of 30 to 90 days. In our IP Optical Networks segment, some payment terms may be as long as 180 days or, in limited circumstances, even longer. We evaluate and monitor individual customer payment capability in granting such open credit arrangements, maintain reserves that we believe are adequate to cover exposure for doubtful accounts, and in some cases, insure credit risk. However, there can be no assurance that our open credit customers will pay the amounts they owe us or that the reserves we maintain will be adequate to cover such credit exposure. Our sales derived through distributors, in particular, represent sources of increased credit risk as distributors tend to have more limited financial resources than other resellers and end-user customers. Our customers' failure to pay and/or our failure to maintain sufficient reserves could have a material adverse effect on our results of operations and financial condition. Additionally, in the event that turmoil in the credit markets makes it more difficult for some customers to obtain financing, those customers' ability to pay could be adversely impacted, which in turn could have a material adverse impact on our business, results of operations and financial condition. Disruptions to, or our failure to effectively develop relationships with and manage, distributors, resellers, system integrators and other channel partners, and the processes and procedures that support them, could adversely affect our ability to generate revenue from the sale of our products and services. We continue to enhance our sales strategy, which we expect will include more partner sales engagements to resell our products and services through authorized distributors, value-added resellers ("VARs"), system integrators and other channel partners. Our future success is dependent upon establishing and maintaining successful relationships with a variety of distributors, VARs, system integrators and other channel partners. We may also need to pursue strategic partnerships with vendors that have broader technology or product offerings in order to compete with end-to-end solution providers. In addition, many of the enterprise markets we are pursuing require a broad network of resale partners in order to achieve effective distribution. Many of our distribution and channel partners sell competitive products and services, and the loss of, or reduction in sales by, these partners could materially reduce our revenue. Our sales through channel partners typically involve the use of our products as components of a larger solution being implemented by systems integrators. In these instances, the purchase and sale of our products are dependent on the channel partners, who typically control the timing, prioritization and implementation of projects. If we fail to maintain relationships with our distribution, VAR and systems integration partners, fail to develop new relationships with other partners in new markets, fail to manage, train or provide incentives to our existing partners effectively, or if these partners are not successful in their sales efforts, sales of our products and services may decrease and our operating results could suffer. Moreover, if we do not have adequate personnel, experience and resources to manage the relationships with our partners and to fulfill our responsibilities under such arrangements, any such shortcomings could have a material adverse impact on our business and results of operations. If our strategic plan, including our research and development of innovative new products and the improvement of existing products, is not aligned with our customers’ investments in the evolution of their networks, or if our products and services do not meet customers’ demands, customers may not buy our products or use our services. We spend a significant amount of time, money and resources both developing new technology, products and solutions and acquiring new businesses or business assets to help keep up with rapid technology and market changes. Our strategic plan 20 Table of Contents includes a continued shift in our investments from mature technologies that previously generated significant revenue for us toward certain next-generation technologies. Our choices of specific technologies to pursue, and those to de-emphasize, may prove to be inconsistent with our customers' investment spending. Moreover, if we invest in the development of technologies, products and solutions that do not function as expected, are not adopted by the industry, are not ready in time, are not accepted by our customers as quickly as anticipated or at all, mature more quickly than we anticipated or are not successful in the marketplace, our sales and earnings may suffer and, as a result, our stock price could decline. To achieve market acceptance for our products, we must effectively anticipate, and adapt in a timely manner to, customer requirements and offer products and services that meet changing customer demands. Prospective customers may require product features and capabilities that our current products do not have. The introduction of new or enhanced products also requires that we carefully manage the transition from older products in order to minimize disruption in customer ordering patterns and ensure that adequate supplies of new products can be delivered to meet anticipated customer demand. If we fail to develop products and offer services that satisfy customer requirements or if we fail to effectively manage the transition from older products, our ability to create or increase demand for our products and services could be seriously harmed, we may lose current and prospective customers and our results of operations and financial condition could be materially adversely affected. If our products do not interoperate with our customers' existing networks, we may not retain current customers or attract new customers. Many of our customers will require that our products be designed to interface with their existing networks, each of which may have different specifications. Issues caused by an unanticipated lack of interoperability may result in significant warranty, support and repair costs, divert the attention of our engineering personnel from our hardware and software development efforts and cause significant customer relations problems. If our products do not interoperate with those of our customers' networks, installations could be delayed or orders for our products could be canceled, which would seriously harm our gross margins and result in loss of revenue or customers. We believe the telecommunications industry is in the early stages of a major architectural shift to the virtualization of networks. If the architectural shift does not occur, if it does not occur at the pace we predict, or if the products and services we have developed are not attractive to our customers after such shift takes place, our revenue could decline. We believe the telecommunications industry remains in the early stages of transitioning to the virtualization of networks. While we anticipate that the industry shift to a software-centric cloud-based architecture is likely to happen, fundamental changes like this often take time to accelerate. In addition, our customers may adapt to such changes at varying rates. As our customers take time to determine their future network architectures, we may encounter delayed timing of orders, deferred purchasing decisions and reduced expenditures by our customers. These longer decision cycles and reduced expenditures may negatively impact our revenue or make it difficult for us to accurately predict our revenue, either of which could materially adversely affect our results of operations and cause our stock price to decline. Virtualization of our product portfolio, particularly in our Cloud and Edge segment, to increasingly focus on software-based products could also adversely impact our revenue growth. As we virtualize our product portfolio, we expect our margins to improve due to decreased costs tied to production and sales of our appliance products, however, our revenue may decline as a result of the decreases in sales of appliance products, many of which have generated higher revenue on a per-unit basis than certain of our software products. The market for some of our products depends on the availability and demand for other vendors' products. Some of our products, particularly those addressing the Unified Communications market, are designed to function with other vendors' products. In these cases, demand for our products is dependent upon the availability, demand for, and sales of the other vendors' products, as well as the degree to which our products successfully interoperate with the other vendors' products and add value to the solution being provided to the customer. If the other vendors change the design of their products, delay the issuance of new releases, fail to adequately market their products, or are otherwise unsuccessful in building a market for their products, the demand for our products will be adversely affected, which could adversely affect our business, results of operations and financial condition. Failure by our strategic partners or by us in integrating products provided by our strategic partners could harm our business. Our solutions include the integration of products supplied by strategic partners. We rely on these strategic partners in the timely and successful deployment of our solutions to our customers. If the products provided by these partners have defects or do not operate as expected, if the services provided by these partners are not completed in a timely manner, if our partners have organizational or supply issues, or if we do not effectively integrate and support products supplied by these strategic partners, 21 Table of Contents then we may have difficulty with the deployment of our solutions that may result in loss of, or delay in, revenue; increased service, support and warranty costs and a diversion of development resources; and/or network performance penalties. In addition to cooperating with our strategic partners, such as Microsoft, on specific customer projects, we also may compete in some areas with these same partners. If these strategic partners fail to perform or choose not to cooperate with us on certain projects, in addition to the effects described above, we could experience loss of customers and market share, or fail to attract new customers. If our contract manufacturers fail to perform, or if we change or consolidate manufacturers, we may fail to meet the demands of our customers and damage our customer relationships, which could materially adversely affect our business. We currently rely on a number of large global contract manufacturers to assemble our products according to our specifications and to fulfill orders on a timely basis. Reliance on a third-party manufacturer involves a number of risks, including a lack of control over the manufacturing process, inventory management and the potential absence or unavailability of adequate capacity. These risks are amplified by the current supply chain disruptions being experienced globally. As we do not have the internal manufacturing capabilities, any difficulties or failures to perform by our contract manufacturers could cause delays in customer product shipments, which could negatively affect our relationships with customers and result in delayed revenue. In addition, any future changes to or consolidations of our current contract manufacturers could lead to material shortages or delays in the supply of our products. Qualifying a new contract manufacturer to commence commercial scale production or consolidating to a reduced number of contract manufacturers are expensive and time-consuming activities and could result in a significant delay in the supply of our products, which could negatively affect our relationships with customers and result in delayed revenue. We and our contract manufacturers rely on single or limited sources for supply of some components of our products and if we fail to adequately predict our manufacturing requirements or if our supply of any of these components is disrupted, we will be unable to ship our products in a timely manner, or at all. We and our contract manufacturers both purchase several key components of our products. Depending upon the component, there may or may not be alternative sources of substitutes. If we overestimate our component and finished goods requirements, we could have excess inventory, which would increase our costs. If we or our contract manufacturers underestimate our requirements, we may not have an adequate supply, which could interrupt manufacturing of our products and result in delays in shipments and revenue. If any of our sole or limited source suppliers experiences capacity constraints, work stoppages or other reductions or disruptions in output, it may not be able to meet, or may choose not to meet, our delivery schedules. Moreover, we have agreed to compensate our contract manufacturers in the event of termination or cancellation of orders, discontinuance of product or excess material. We currently do not have long-term supply contracts with our component suppliers and they are not required to supply us with components for any specified periods, in any specified quantities or at any set price, except as may be specified in a particular purchase order. In the event of a disruption or delay in supply or our inability to obtain components, we may not be able to develop an alternate source in a timely manner or at favorable prices, or at all. While we regularly monitor our inventory of supplies, a failure to find acceptable alternative sources could hurt our ability to deliver high-quality products to our customers and negatively affect our operating margins. Reliance on our suppliers also exposes us to potential quality variations and unforeseen price increases. Any disruption in the supply of key components would seriously adversely affect our ability to meet committed delivery dates and could result in loss of customers, harm to our ability to attract new customers, or legal action. Additionally, any unforeseen increases in the prices of components could reduce our profitability or force us to increase our prices, which could result in a loss of customers or harm our ability to attract new customers and could have a material adverse effect on our results of operations. For example, in the fourth quarter of 2021, we estimate that higher component costs, expedite and production fees and logistics expenses resulting from the global supply chain disruption reduced our gross margin by approximately 220 basis points. Our customer contracts also generally allow customers to reschedule delivery dates or cancel orders within certain time frames before shipment without penalty and outside those times frames with a penalty. Because of these and other factors, there are risks of excess or inadequate inventory that could negatively affect our expenses and results of operations. If we are unable to correctly estimate future requirements for hardware products that we purchase from our third-party vendors that have reached the end of their life cycles, it could harm our operating results or business. Some of the hardware products that we purchase from our third-party vendors have reached the end of their life cycles. It may be difficult for us to maintain appropriate levels of the discontinued appliances to adequately ensure that we do not have a 22 Table of Contents shortage or surplus of inventory of these products. If we do not correctly forecast the demand for such appliances, we could have excess inventory and may need to write off the costs related to such purchases and such write-offs could materially adversely affect our operating results. However, if we underestimate our forecast and our customers place orders to purchase more products than are available, we may not have sufficient inventory to support their needs. If we are unable to provide our customers with enough of these products, it could make it difficult to retain certain customers, which could have a material and adverse effect on our business. Our products may have errors or defects that we find only after full deployment. Many of our products are sophisticated and are designed to be deployed in large and complex networks around the world. Because of the nature of our products, they can only be fully tested when substantially deployed in these networks. Some of our customers may discover errors or defects in the software or hardware, or the products may not operate as expected only after full deployment. Our customers expect us to establish a support infrastructure and maintain demanding support standards to ensure that their networks maintain high levels of availability and performance. As we continue to expand our distribution channel through distributors and resellers, we will need to rely on and support their service and support organizations. If we, or our distributors and resellers, are unable to fix errors or other performance problems that may be identified after full deployment of our products, or provide the expected level of support and service to our customers, we could experience increased service, support and warranty costs and a diversion of development resources, loss of customers, network performance penalties and/or legal actions by our customers, which could materially adversely affect our business and results of operations. Disruptions to, or our failure to effectively develop, manage and maintain our government customer relationships could adversely affect our ability to generate revenue from these customers. Further, such government sales are subject to potential delays and cutbacks, may require specific testing efforts, or impose significant compliance obligations. A portion of our total revenue from product sales comes from contracts with government agencies in the U.S. and other foreign countries. Disruptions to or our failure to effectively develop, manage and maintain our government customer relationships could adversely affect our ability to generate revenue from the sales to such customers. Governments routinely investigate and audit government contractors’ administrative processes, and any unfavorable audit could result in a government refusing to continue buying our products and services, a reduction of revenue or fines or civil or criminal liability if the audit uncovers improper or illegal activities, which could materially adversely impact our operating results. Factors that could impact federal government spending on our products and services include a significant decline in, or reapportioning of, spending by the federal government customers, changes, delays or cancellations of government programs or requirements, the adoption of new laws or regulations, government shutdowns or other delays in the government budget and/or appropriations process, changes in the political climate and general economic conditions. The loss or significant curtailment of any government contracts or subcontracts, whether due to our performance or due to interruptions or changes in governmental funding, could have a material adverse effect on our business, results of operations and financial condition. Further, sales to government customers may require specific testing efforts or impose significant compliance or certification obligations. For example, the U.S. Department of Defense ("DOD") has issued specific requirements for IP networking products for features and interoperability. In order for our products to be used to connect to the DOD network, that product must pass a series of significant tests and be certified by the Joint Interoperability Test Command (“JITC”). While certain of our products are certified by JITC, if we are unable to obtain future JITC certification as needed, our DOD sales and results of operations, may suffer. Combining ECI, or future companies, may be more difficult, costly or time-consuming than expected and the anticipated benefits and cost savings of the ECI Acquisition, or future mergers may not be realized. We have a history of significant mergers and acquisitions, including, most recently, the ECI Acquisition. The success of the ECI Acquisition, and any future merger or acquisition, including anticipated benefits and cost savings, will depend, in part, on our ability to successfully combine and integrate the businesses. It is possible that the integration process could result in the loss of key employees, higher than expected costs, diversion of management attention, the disruption of our ongoing businesses or inconsistencies in standards, controls, procedures and policies that adversely affect the combined company’s ability to maintain relationships with customers, vendors and employees or to achieve the anticipated benefits and cost savings of the ECI Acquisition or any future merger or acquisition. We have incurred and will incur transaction fees, including legal, regulatory and other costs associated with closing the ECI Acquisition as well as expenses relating to formulating and implementing integration plans, including facilities and systems consolidation costs and employment-related costs. Additional unanticipated costs may be incurred in the ECI Acquisition and the integration of the two companies’ businesses, or in future acquisitions. While we expect that the elimination of duplicative 23 Table of Contents operating costs as well as the realization of other efficiencies related to the integration of the businesses should allow us to offset integration-related costs over time, this net benefit may not be achieved in the near term or at all. As part of the integration process, we may also attempt to divest certain assets of the combined company, which may not be possible on favorable terms, or at all, or if successful, may change the profile of the combined company. If we experience difficulties with the integration process, the anticipated benefits of the ECI Acquisition, or any future acquisition, may not be realized fully or at all, or may take longer to realize than anticipated. The actual cost savings of the ECI Acquisition could also be less than expected. Any future investments, mergers or acquisitions we make or enter into, as applicable, could be difficult to integrate, disrupt our business, dilute shareholder value and seriously harm our financial condition. We have a history of significant acquisitions, including the recent ECI Acquisition, and we may merge with or acquire additional businesses, products or technologies in the future or sell a portion of our business. No assurance can be given that any future merger, acquisition or disposition will be successful or will not materially adversely affect our business, operating results or financial condition. We continue to review opportunities to merge with or acquire other businesses or technologies that would add to our existing product line, complement and enhance our current products, expand the breadth of our product and service offerings, enhance our technical capabilities or otherwise offer growth opportunities. If we enter into a merger or make acquisitions in the future, we could, among other things issue stock that would dilute existing stockholders' percentage ownership; incur significant debt or assume significant liabilities; materially reduce our cash; incur significant amortization expenses related to intangible assets; and/or incur large and immediate write-offs for in-process research and development and stock-based compensation. Mergers, acquisitions and dispositions are inherently risky and subject to many factors outside of our control. Therefore, we cannot be certain that we would be successful in overcoming problems in connection with our past or future acquisitions. Our inability to do so could significantly harm our business, revenue, and results of operations. Failure to hire and retain key personnel could negatively impact our ability to meet our business objectives and impair our future growth. Our business depends upon highly skilled technical, managerial, engineering, sales, marketing and customer support personnel. Competition for these personnel is intense, especially during times of economic recovery or growth. Any failure to hire, assimilate in a timely manner and retain key qualified personnel, particularly engineering and sales personnel, could impair our growth and make it difficult to meet key objectives, such as timely and effective product introductions. In addition, our ability to attract and retain key employees could be adversely impacted if we do not have a sufficient number of shares available under the Amended and Restated 2019 Stock Incentive Plan to issue to our employees. We may not be able to locate suitable employees for any key employee who leaves or offer employment to potential replacements on reasonable terms. Our future success also depends upon the continued services of our executive officers who have critical industry experience and relationships that we rely on to implement our business plan. None of our officers or key employees is bound by an employment agreement for any specific term. The loss of the services of any of our executive officers or key employees could delay the development and introduction of, and negatively impact our ability to sell, our products and achieve our business objectives. Man-made problems, such as terrorism, and natural catastrophic events may disrupt our operations and harm our operating results. The continued threat of terrorism and heightened security and military action in response to this threat, or any future acts of terrorism, may cause disruptions to the economies of the United States and other countries. Events such as work stoppages or widespread blackouts could have similar negative impacts. Such disruptions or uncertainties could result in delays or cancellations of customer orders or the manufacture or shipment of our products and have a material adverse effect on our business and results of operations. Natural catastrophic events, such as earthquakes, fires, floods, tornadoes, or pandemics (such as the COVID-19 pandemic) may also affect our or our customers' operations. For example, we have offices located in the San Jose area of Northern California; Mexico City, Mexico; and Tokyo, Japan, regions known for seismic activity. A significant natural disaster, such as wildfires, earthquakes or floods, could have a material adverse effect on our business in these locations. Risks Related to our International Operations Worldwide efforts to contain capital spending and global economic conditions and uncertainties in the geopolitical environment have been and may continue to be materially adverse to our business. 24 Table of Contents A factor that significantly affects our operating results is the impact of economic conditions on the willingness of our current and potential customers to make capital investments. Given the general uncertainty regarding global economic conditions and other factors, we believe that customers have tried to maintain or improve profitability through cost control and constrained capital spending, which places additional pressure on IT departments to demonstrate acceptable return on investment. Some of our customers have canceled or delayed, and current and prospective customers may continue to cancel and delay, spending on the development or roll-out of capital and technology projects with us due to economic uncertainty and, consequently, our results of operations have been, and may continue to be, adversely affected. In addition, current uncertain worldwide economic and political environments make it increasingly difficult for us, our customers and our suppliers to accurately forecast future product demand, which could result in an inability to satisfy demand for our products and a loss of market share. Our revenue is likely to decline in such circumstances, which may result in erosion of our profit margins and significant losses. Moreover, economic conditions worldwide may contribute to slowdowns in the communications and networking industries, as well as to specific segments and markets in which we operate, particularly the wireline sector, resulting in, among other things, reduced demand for our products and services as a result of our customers choosing to refrain from building capital intensive networks; increased price competition for our products, not only from our competitors, but also as a consequence of customers disposing of unutilized products; and risk of excess and obsolete inventories. Continuing turmoil in the geopolitical environment in many parts of the world may continue to put pressure on global economic conditions which in turn, could materially adversely affect our operating results. For example, following recent border clashes with China, India has enacted bans on the import of some goods manufactured in China. While the current import bans do not include our products, if India expands the bans to include the products we sell in India that are currently manufactured in China, we may be required to find new manufacturing locations for such products. While we have developed plans to relocate our manufacturing sites if needed, the timing required for relocation, or if we are not successful in relocating, could impact our ability to sell such products or timely deliver the products, and could result in lower or lost sales in India. The need to move manufacturing of such products could also negatively impact the margin earned on the sale of such products. If these or other sanctions are enacted, they may limit our ability to provide products and services in an important country or region for our business. The military action between Russia and Ukraine, and the sanctions imposed as a result, could materially impact our sales to customers in that region. For 2021, approximately 6% of our sales was to customers in Russia, Ukraine and surrounding countries. In February 2022, Russia commenced military action in Ukraine, and the uncertainty resulting from this military action and the threat for expansion of the conflict has resulted in some of our customers delaying purchases from us and is expected to result in additional delays or reductions in sales to customers in the impacted region. Further, the U.S. and other European countries have imposed sanctions against Russia in connection with the conflict. While these sanctions are in place, we believe they will severely limit, if not prohibit, our ability to sell our products and services to customers in Russia and, if expanded, could impact our ability to collect on outstanding accounts receivable from such customers. If the military action continues and the sanctions remain in place for an extended period, it could have a material impact on our financial results. Conditions in Israel may materially and adversely affect the Company’s business. We have a significant number of employees located in Israel. As a result, political, economic and military conditions in Israel may directly affect the Company’s business. In recent years, there have been hostilities between Israel and Hezbollah in Lebanon and Hamas in the Gaza Strip, both of which resulted in rockets being fired into Israel, causing casualties and disruption of economic activities. Popular uprisings in various countries in the Middle East and North Africa over the last few years has also affected the political stability of those countries and have led to a decline in the regional security situation. Such instability may also lead to deterioration in the political and trade relationships that exist between Israel and these countries. Any armed conflicts, terrorist activities or political instability involving Israel or other countries in the region could adversely affect our business, results of operations, financial condition, cash flows and prospects. Although the Israeli Government currently covers the reinstatement value of direct damages that are caused by terrorist attacks or acts of war, we cannot ensure shareholders that this coverage will be maintained or will be adequate in the event we submit a claim. A number of countries, principally in the Middle East, still restrict doing business with Israel and Israeli companies, and additional countries may impose restrictions on doing business with Israel and Israeli companies if hostilities in Israel or political instability in the region continue or increase. In addition, there have been increased efforts by activists to cause companies and consumers to boycott Israeli goods based on Israeli Government policies. Such actions, particularly if they become more widespread, may adversely impact our ability to sell our products. Our operations could also be disrupted by the absence for significant periods of one or more key employees or a significant number of other employees because of military service. Some of our employees in Israel are obliged to perform military reserve duty, which generally accumulates over a period of three years from several days to up to a maximum of 84 days (and 25 Table of Contents up to 108 days, in special circumstances specified under applicable law) and, in certain emergency circumstances, employees may be called to immediate and unlimited active duty. In response to increases in terrorist activity, there have been periods of significant call-ups of military reservists and it is possible that there will be similar large-scale military reserve duty call-ups in the future. Any of these circumstances could have a material adverse effect on our business, results of operations, financial condition, cash flows and prospects. We may face risks associated with our international operations that could impair our ability to grow our international revenue. We have expanded, and expect to continue to expand, our operations in international and emerging markets. International operations are a significant part of our business, accounting for approximately 56% of total revenues in 2021. We expect such operations to continue to require significant management attention and financial resources to successfully grow. In addition, our international operations are subject to other inherent risks, including: • • • • • • • • • • greater reliance on channel partners; difficulties collecting accounts receivable and longer collection cycles; difficulties and costs of staffing and managing international operations; impacts of differing technical standards; compliance with international trade, customs and export control regulations; foreign government regulations limiting or prohibiting potential sales or increasing the cost of doing business in such markets, including adverse tax policies, tariffs, customs regulations, trade protection measures, export quotas and qualifications to transact business; foreign currency exchange controls, restrictions on repatriation of cash and changes in currency exchange rates; any need to adapt and localize our products for specific countries; our ability to effectively price our products in competitive international markets; and political, social and economic instability, including as a result of the fragility of global financial markets, health pandemics or epidemics and/or acts of war or terrorism. Our international revenue, both as a percentage of total revenue and absolute dollars, may vary from one period to the next, and accordingly, current data may not be indicative of future periods. If we are unable to support our business operations in international and emerging markets, or their further expansion, while balancing the higher operational and financial risks associated with these markets, our business and results of operations could be harmed. In addition, we may not be able to develop international market demand for our products, which could impair our ability to grow our revenue. In many international markets, long-standing relationships between potential customers and their local suppliers and protective regulations, including local content requirements and approvals, create barriers to entry. We have limited experience marketing, distributing and supporting our products in certain international locations and, to do so, we expect that we will need to develop versions of our products that comply with local standards. Moreover, difficulties in foreign financial markets and economies and of foreign financial institutions, particularly in emerging markets, could adversely affect demand from customers in the affected countries. Increases in tariffs, trade restrictions or taxes on our products, as well as other risks of international operations, could have an adverse impact on our operations. We manufacture certain of our appliance products and purchase a portion of our raw materials and components from suppliers in Mexico, Malaysia, China and other foreign countries. The commerce we conduct in the international marketplace makes us subject to tariffs, trade restrictions and other taxes when the raw materials or components we purchase, and the products we ship, cross international borders. Import tariffs and/or other mandates recently imposed by the United States have and could in the future lead to retaliatory actions by affected countries, including China, resulting in “trade wars,” and could significantly increase the prices on raw materials, the manufacturing of our equipment, and/or increased costs for goods imported into the United States, all of which are critical to our business. While we have developed plans to adjust manufacturing locations, if necessary, to avoid tariffs or other restrictions, any such tariffs could reduce customer demand for our products if our customers have to pay increased prices for our products as a result of such tariffs. In addition, tariff increases may have a similar impact on other suppliers and certain other customers, which could increase the negative impact on our operating results or future cash flows. We are exposed to fluctuations in currency exchange rates that could negatively impact our financial results and cash flows. Because a portion of our business is conducted outside the United States, we face exposure to adverse movements in foreign currency exchange rates. These exposures may change over time as business practices evolve, and they could have a material adverse impact on our financial results and cash flows. An increase in the value of the U.S. dollar could increase the real cost to 26 Table of Contents our customers of our products in those markets outside the United States where we often sell in dollars, and a weakened U.S. dollar could increase the cost of local operating expenses and procurement of raw materials from sources outside the United States. Therefore, changes in the value of the U.S. dollar against other currencies will affect our revenue, income from operations, net income and the value of balance sheet items originally denominated in other currencies. There is no guarantee that our financial results will not be adversely affected by currency exchange rate fluctuations. Our use and reliance upon research and development resources in global locations may expose us to unanticipated costs and/or liabilities. We have research and development offices in various global locations, including the United States, Canada, India, Israel and China. Our development efforts and other operations in these locations could involve significant risks, including, among others, difficulty hiring and retaining appropriate engineering and management resources due to intense competition for such resources and resulting wage inflation; knowledge transfer related to our technology and resulting exposure to misappropriation of intellectual property or information that is proprietary to us, our customers and other third parties; and heightened exposure to changes in economic, security and global political conditions. Difficulties resulting from the factors noted above and other risks related to our global operations could increase our expenses, impair our development efforts, harm our competitive position and damage our reputation. Risks Related to Intellectual Property Our business could be jeopardized if we are unable to protect our intellectual property. Additionally, in some jurisdictions, our rights may not be as strong as those we currently enjoy in the United States. We rely on a combination of security countermeasures within our deployed products, as well as patent, copyright, trademark and trade secret laws and contractual restrictions on disclosure to protect our intellectual property rights. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy or otherwise misappropriate our products or technology. Monitoring unauthorized use of our products is difficult and we cannot be certain that the steps we have taken will prevent unauthorized use of our technology, particularly in foreign countries where the laws may not protect our proprietary rights as fully as in the United States. The legal systems of many foreign countries do not protect or honor intellectual property rights to the same extent as the legal system of the United States. It may be very difficult, time-consuming and costly for us to attempt to enforce our intellectual property rights, especially in these foreign jurisdictions. If competitors are able to use our technology, our ability to compete effectively could be harmed, which could have a material adverse effect on our business. If we are unable to obtain necessary licenses or on-going maintenance and support of third-party technology at acceptable prices, on acceptable terms, or at all, it could harm our operating results or business. We have incorporated third-party licensed technology, including open source software, into our current products. From time to time, we may be required to license additional technology from third parties to develop new products or product enhancements. Third-party licenses and on-going maintenance and support may not be available or continue to be available to us on commercially reasonable terms or may be available to us but only at significantly escalated pricing. Additionally, we may not be able to replace the functionality provided by third-party software currently offered with our products if that software becomes obsolete, defective or incompatible with future versions of our products or is not adequately maintained or updated. If we are unable to maintain or re-license any third-party licenses required in our current products or obtain any new third-party licenses to develop new products and product enhancements, or in the case of any defects in these third-party software products, we could be required to obtain substitute technology of lower quality or performance standards or at greater cost, and we may be delayed or prevented from making these products or enhancements, any of which could seriously harm our sales and the competitiveness of our products unless and until we can secure an alternative source. A breach of the security of our information systems or those of our third-party providers could adversely affect our operating results. We rely upon our information systems and, in certain circumstances, those of our third-party providers, such as vendors, consultants and contract manufacturers, to protect our sensitive or proprietary information and information of or about our customers, to develop and provide our products and services to customers, and to otherwise operate our business. Our information systems and those of our third-party providers are vulnerable to threats such as computer hacking, cyber-terrorism or other unauthorized activity that may result in third party access to or modification, corruption or deletion of our or our customers' sensitive or proprietary information or other disruptions to our business. Such cyberattacks and other cyber incidents are occurring more frequently, are constantly evolving, are becoming more sophisticated and can take many forms. For example, we are aware of a third party gaining unauthorized access to a portion of our network in the first quarter of 2021, although we do not believe they were able to obtain any material internal or customer data or otherwise disrupt our information 27 Table of Contents systems before the intrusion was detected and remediated. While we believe that we leverage appropriate detection and prevention systems and services and that we focus on continuous improvement based upon the latest attack vectors in the industry, we cannot guarantee that there will never be any information technology system failures, including future breaches of our or our third-party providers' data security measures through a cyberattack, other cyber incident or otherwise, or the theft or loss of laptops, other mobile devices or electronic records used to back up our systems or our third-party providers' systems, which could result in a disclosure of customer, employee, or our information or otherwise disrupt our ability to function in the normal course of business by potentially causing, among other things, delays in the fulfillment or cancellation of customer orders or disruptions in the manufacture or shipment of products or delivery of services, any of which could have a material adverse effect on our operating results. Additionally, the compromise of our information systems, or the information systems of our third party providers and our customers, could lead to unauthorized tampering with our products. Unauthorized tampering may result in, among other things, the disruption of our customers' businesses, errors or defects occurring in the software due to such unauthorized tampering, and our products not operating as expected after such unauthorized tampering. These types of security breaches could also create exposure to lawsuits, regulatory investigations, and increased legal liability. As a provider of secure real-time communications solutions, the reputational harm of any actual or perceived breach, compromise, defect or error relating to the security of our information systems and the products and services we provide may result in substantial harm to our reputation, even if the legal or regulatory impact is minimal. In addition, the costs to remediate any cyberattack could be significant. Such consequences could be exacerbated if we or our third-party providers are unable to adequately recover critical systems in a timely manner following a systems failure. Our insurance coverage may be insufficient to cover all losses related to cyberattacks. Risks Related to Regulation Risks associated with data privacy issues, including evolving laws, regulations and associated compliance efforts, may adversely impact our business and financial results. Legislation in various countries around the world with regard to cybersecurity, privacy and data protection is rapidly expanding and creating a complex compliance environment. We are subject to many privacy and data protection laws and regulations in the U.S. and around the world, some of which place restrictions on our ability to process personal data across our business. For example, the General Data Protection Regulation (the “GDPR”) has caused more stringent data protection requirements in the European Union. The GDPR imposes onerous accountability obligations requiring data controllers and processors to maintain a record of their data processing and implement policies as part of its mandated privacy governance framework. It also requires data controllers to be transparent and disclose to data subjects how their personal information is to be used; imposes limitations on retention of personal data; introduces mandatory data breach notification requirements; and sets higher standards for data controllers to demonstrate that they have obtained valid consent for certain data processing activities. We are subject to the supervision of local data protection authorities in those E.U. jurisdictions where we are established or otherwise subject to the GDPR. Certain breaches of the GDPR requirements could result in substantial fines. In addition to the foregoing, a breach of the GDPR could result in regulatory investigations, reputational damage, orders to cease/change our use of data, enforcement notices, as well potential civil claims including class action type litigation where individuals suffered harm. Similarly, California and other states have enacted privacy laws that purport to create individual privacy rights for consumers and increase the privacy and security obligations of entities handling certain personal data. These laws also provide for civil penalties for violations, as well as a private right of action for data breaches that is expected to increase data breach litigation. These laws may increase our compliance costs and potential liability. Many similar laws have been proposed at the federal level and in the other states. Any liability from our failure to comply with the requirements of these laws could adversely affect our financial condition. We have invested, and continue to invest, human and technology resources in our GDPR compliance efforts and our data privacy compliance efforts. These compliance efforts may be time-intensive and costly. Despite those efforts, there is a risk that we may be subject to fines and penalties, litigation and reputational harm if we fail to protect the privacy of third party data or comply with the applicable regimes. Failure to comply with the FCPA or the UKBA could subject us to significant civil or criminal penalties. We earn a significant portion of our total revenue from international sales generated through our foreign direct and indirect operations. As a result, we are subject to the FCPA and the UKBA, which prohibit bribery in the conduct of business. The FCPA generally prohibits U.S. companies and their intermediaries from making corrupt payments to foreign officials for the purpose of obtaining or keeping business or otherwise obtaining favorable treatment and requires companies to maintain adequate record-keeping and internal accounting practices to accurately reflect the transactions of the company. The UKBA is much broader and prohibits all bribery, in both the public and private sectors. Under the FCPA and the UKBA, U.S. companies, their subsidiaries, employees, senior officers and/or directors may be held liable for actions taken by strategic or 28 Table of Contents local partners or representatives. In addition, the U.S. government or the U.K. government, as applicable, may seek to hold us liable for successor liability violations committed by companies we have acquired or may in the future acquire. If we or our intermediaries fail to comply with the requirements of the FCPA and the UKBA, governmental authorities in the United States and the United Kingdom, as applicable, could seek to impose civil and/or criminal penalties, which could have a material adverse effect on our reputation, results of operations and the trading price of our common stock. We are subject to governmental export and import controls that could subject us to liability, require a license from the U.S. government or impair our ability to compete in international markets. Certain of our products with encryption technology are subject to export controls and may be exported only with the required level of export license or through an export license exception. Under these laws and regulations, we are responsible for obtaining all necessary licenses or other approvals, if required, for exports. If we were to fail to comply with existing or future export licensing, customs regulations, economic sanctions and other laws, we could be subject to substantial civil and criminal penalties, including fines and incarceration for responsible employees and managers, and the possible loss of export or import privileges. Similarly, various countries regulate the import of certain encryption technology and have enacted laws that could limit our ability to distribute our products or our customers' ability to implement our products in those countries. In addition, if our distributors fail to obtain appropriate import, export or re-export licenses or permits, we may also be adversely affected through reputational harm and penalties. Obtaining export licenses can be difficult and time-consuming, and in some cases a license may not be available on a timely basis or at all. Changes in import/export regulations could also lead to delays in new product introductions or limit our ability to sell existing or future products in certain locations, which could adversely impact our business. Export control laws and economic sanctions prohibit the shipment of certain products to embargoed or sanctioned countries, governments and persons, including Russia as a result of its military action against Ukraine. We cannot assure that a violation of these regulations will not occur, whether knowingly or inadvertently. Any such shipment could have negative consequences including government investigations, penalties, fines, civil and criminal sanctions, and reputational harm. Regulation of the telecommunications industry, or changes in governmental regulation, interpretation or legislative reform could harm our operating results and future prospects. The telecommunications industry is highly regulated and our business and financial condition could be adversely affected by changes in the regulations relating to the telecommunications industry. Currently, there are few laws or regulations that apply directly to access to or delivery of voice services on IP networks. We could be adversely affected by regulation of IP networks and commerce in any country where we operate, including the United States. Such regulations could include matters such as voice over the Internet or using Internet protocol, encryption technology, and access charges for service providers. The adoption of such regulations could decrease demand for our products, and at the same time increase the cost of selling our products, which could have a material adverse effect on our business and results of operations. Risks Related to Our Indebtedness and Accounting Matters The terms of our credit agreement could adversely affect our operating flexibility and pose risks of default, which would negatively impact our liquidity and operations. Our Senior Secured Credit Facilities Credit Agreement, as amended, provides $500 million of commitments, comprised of a $400 million term loan (the “2020 Loan Facility”) and a $100 million revolving facility (the “2020 Revolving Credit Facility” and, together with the 2020 Loan Facility, the "2020 Credit Facility"). Terms in the 2020 Credit Facility impose limitations on our ability to, among other things, incur additional indebtedness, create liens, make acquisitions or engage in mergers, enter into transactions with affiliates, dispose of assets, make certain investments and amend or repay certain junior debt. These terms could adversely affect our operating flexibility and pose risks of default which would negatively impact our liquidity and operations. In addition, we may not be able to refinance our debt or obtain additional financing on favorable terms, or at all. In addition, we are required to meet certain financial covenants customer for financings of this type, including a minimum Consolidated Fixed Charge Coverage Ratio and a maximum Consolidated Net Leverage Ratio (each as defined in the 2020 Credit Agreement) which are tested on a quarterly basis. The maximum Consolidated Net Leverage Ratio covenant uses our EBITDA (calculated in accordance with the 2020 Credit Agreement) for the last 12 months (as of the testing date) to determine compliance. While we remain in compliance with this covenant, sequential decreases in our EBITDA over the 12-month period compared to previous 12-month periods used for the calculation, as we experienced in the second half of 2021 and that may continue into the first quarter of 2022, could impact our ability to continue to satisfy this requirement in future periods if we are unable to obtain a waiver or further amendment to the terms of the covenant, or otherwise reduce our debt. Our failure to comply with these covenants may result in the declaration of an event of default, which could cause us to be unable to borrow 29 Table of Contents under the credit facility or result in the acceleration of the maturity of indebtedness outstanding under the 2020 Credit Facility at such time. If we are prevented from borrowing or if we are unable to extend, renew or replace the credit facilities under the 2020 Credit Facility by the maturity dates, on favorable terms, or at all, this could have a material adverse effect on our liquidity and cause our business, operations and financial condition to suffer. In addition, we may not have sufficient funds available for repayment or we may not have the ability to borrow or obtain sufficient funds to replace the indebtedness on terms acceptable to us, or at all. The United Kingdom's Financial Conduct Authority, which regulates the London Inter-bank Offered Rate ("LIBOR"), has announced that it intends to stop encouraging or requiring banks to submit LIBOR rates after 2023, and it is unclear if LIBOR will cease to exist or if new methods of calculating LIBOR will evolve. We have the option under the 2020 Credit Facility to determine our interest rate that includes either the LIBOR rate or the base rate. While we also have the ability under our current credit facility to switch to a new or alternative benchmark rate, if LIBOR ceases to exist or the methods of calculating LIBOR change from their current form, we may no longer have the ability to elect the LIBOR rate option under the 2020 Credit Facility, and our current or future indebtedness may be adversely affected. This could impact our interest costs and our ability to borrow additional funds under the 2020 Credit Facility. We cannot be sure that our current cash and available borrowings under our 2020 Credit Facility will be sufficient to meet our future needs. If we are unable to generate sufficient cash flows in the future, and if availability under our current facility is not sufficient to support our operations, we may need to refinance our debt or obtain additional financing. We may not be able to refinance our debt or obtain additional financing on favorable terms or at all. The value of the securities received in connection with the sale of our cloud-based enterprise communications service is based on the ongoing operations of the acquiring company and is volatile. Quarterly fluctuations in price can significantly impact our financial results. In connection with our sale of the Kandy Communications Business to AVCT, we received 43,778 units of AVCT securities (the "AVCT Units"), with each AVCT Unit consisting of (1) $1,000 in principal amount of AVCT's Series A-1 convertible debentures (the "Debentures"); and (ii) one warrant to purchase 100 shares of AVCT common stock, $0.0001 par value (the "Warrants. In the third quarter of 2021, the Debentures were converted, pursuant to their terms, into shares of AVCT common stock (the "AVCT Shares"). Since AVCT's common stock is publicly traded on NASDAQ, under U.S. GAAP ("GAAP"), we elected the fair value option to record our investment in AVCT, under which we value the AVCT Shares on our balance sheet based on the trading price of the AVCT common stock. Such trading price is also used to value the Warrants on an if-converted basis. We are also required under GAAP to revalue and mark to market the value of the AVCT Shares and Warrants on a quarterly basis, with any changes in value reflected in our statements of operations and, therefore, impacting our earnings. AVCT's stock price on NASDAQ has been volatile, with the closing price ranging from $0.85 to $9.26 during the year ended December 31, 2021. As a result, our financial statements may reflect significant swings in the value of the AVCT Shares and Warrants held on our balance sheet, which could have a material impact on our financial results, even though such changes in value would not reflect our current operating business. We continue to rely on AVCT for the provision of products and services to a number of customers we jointly share. AVCT reported that as of September 30, 2021 (the last period for which AVCT has reported financial results as of the date of this Annual Report on Form 10-K), AVCT's current liabilities exceeded its current assets by $26.6 million. AVCT has announced a number of initiatives designed to increase its liquidity, including a proposed sale of its Computex business, and AVCT believes that cash from continuing operations, taken together with these initiatives, will be sufficient to continue to fund its operations. However, if such activities are not successful, AVCT may be required to take other actions that could materially negatively affect the value of our investment in AVCT. Disruptions in AVCT's operations could also result in claims by our customers for failure to satisfy contractual service requirements and/or require us to find alternative solutions in order to satisfy our customer obligations. If our goodwill or intangible assets become impaired, we may be required to record a significant charge to earnings. As of December 31, 2021, we had $300.9 million of goodwill and $350.7 million of intangible assets. Goodwill is tested annually for impairment and, along with our intangible assets, is also reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Based on the results of our recently completed impairment test, we determined that the carrying value of our IP Optical Networks segment exceeded its fair value and accordingly, we recorded a goodwill impairment charge of $116.0 million, which had a material impact on both our net loss and loss per share for the year ended December 31, 2021. Based on the results of our 2019 annual impairment test, we determined that our carrying value for goodwill exceeded our fair value and accordingly, we recorded a goodwill impairment charge of $164.3 million, which had a material impact on both our net loss and loss per share for the year ended December 31, 2019. Factors that 30 Table of Contents may be considered a change in circumstances indicating that the carrying value of our goodwill or intangible assets may not be recoverable include significant underperformance relative to plan or long-term projections, strategic changes in business strategy, significant negative industry or economic trends, significant change in circumstances relative to a large customer, significant decline in our stock price for a sustained period and decline in our market capitalization to below net book value. Any additional material impairment of goodwill or intangible assets could adversely affect our results of operations. If we fail to maintain appropriate internal controls in the future, we may not be able to report our financial results accurately, which may adversely affect our stock price and our business. Section 404 of the Sarbanes-Oxley Act of 2002 and the related regulations require our management to report on, and our independent registered public accounting firm to attest to, the effectiveness of our internal control over financial reporting. We have committed and will be required to continue to commit significant financial and managerial resources in order to comply with these requirements. Further, we are required to integrate ECI and other acquired businesses into our system of disclosure controls and procedures and internal control over financial reporting. As may be the case with other companies we acquire, prior to the ECI Acquisition, ECI was not required to implement or maintain the disclosure controls and procedures or internal control over financial reporting that are required of public companies. We cannot provide assurance as to the effectiveness of those integrations. Internal control over financial reporting has inherent limitations, including human error, the possibility that controls could be circumvented or become inadequate because of changed conditions, and fraud. If we are unable to maintain effective internal controls, we may not have adequate or timely financial information, and we may be unable to meet our reporting obligations as a publicly traded company or comply with the requirements of the SEC or the Sarbanes-Oxley Act of 2002. This could result in a restatement of our financial statements, the imposition of sanctions, or investigation by regulatory authorities, and could cause investors to lose confidence in our reported financial information. Any such consequence or other negative effect of our inability to meet our reporting requirements or comply with legal and regulatory requirements, as well as any disclosure of an accounting, reporting or control issue, could adversely affect the trading price of our common stock and our business. General Risk Factors Litigation and government investigations could result in significant legal expenses and settlement payments, fines or damage awards. From time to time, we are subject to litigation regarding intellectual property rights or other claims and have indemnification clauses in most of our customer contracts that may require us to indemnify customers against similar claims. We have also been named as a defendant in securities class action and stockholder derivative lawsuits and have also been subject to investigations by the government. We are generally obliged, to the extent permitted by law, to indemnify our current and former directors and officers who are named as defendants in these lawsuits. Defending against litigation or government investigation may require significant attention and resources of management. Regardless of the outcome, such litigation or investigation could result in significant legal expenses. At this time, it is not possible to predict the outcome of the ongoing lawsuits, including whether or not any proceedings will continue, and when or how these matters will be resolved or whether we will ultimately receive, and in what sum, amounts previously awarded as a result of these proceedings. Regardless of whether we are ultimately successful in these lawsuits, we will likely elect to continue to incur substantial legal fees in connection with these matters. If the defenses we claim in our material litigation matters are ultimately unsuccessful, or if we are unable to achieve a favorable settlement with an adverse party or a government agency, we could be liable for large settlement payments, damage awards or fines that could have a material adverse effect on our business and results of operations. Our stock price has been and may continue to be volatile. Our common stock price has experienced substantial volatility in the past and may remain volatile in the future. Volatility in our stock price can arise as a result of a number of the factors discussed in this “Risk Factors” section. During 2021, our closing stock price ranged from a high of $11.14 per share to a low of $5.23 per share. The stock market has experienced significant price and volume fluctuation with such volatility often unrelated to the operating performance of these companies. Actual or perceived divergence between our actual results and our forward-looking guidance for such results, the published expectations of investment analysts, or the expectations of the market generally, can cause significant swings in our stock price. Our stock price can also be affected by market conditions in our industry as well as announcements that we, our competitors, vendors or our customers may make. These may include announcements by us or our competitors of financial results or changes in estimated financial results, technological innovations, the gain or loss of customers, or other strategic initiatives. 31 Table of Contents These and other factors affecting global economic conditions or financial markets may materially adversely affect the market price of our common stock in the future. We are party to a stockholders’ agreement with certain stockholders which provides such stockholders with certain rights that may differ from the rights of our other stockholders. In connection with the ECI Acquisition, we entered into a First Amended and Restated Stockholders Agreement (the “Stockholders Agreement”) with JPMC Heritage Parent LLC, Heritage PE (OEP) III, L.P. (together with JPMC, the “JPM Stockholders”), and ECI Holding (Hungary) Kft (“Swarth”). The Stockholders Agreement sets forth certain arrangements and contains various provisions relating to board size, board representation, standstill restrictions and transfer restrictions as further described therein, including the right of the JPM Stockholders and Swarth to each designate up to three directors for nomination to our nine-member board of directors, subject to the JPM Stockholders and Swarth maintaining certain levels of beneficial ownership of our common stock. Therefore, the JPM Stockholders and Swarth will be able to exert significant influence over matters requiring board approval, and our stockholders other than the JPM Stockholders and Swarth will have limited or no ability to influence the outcome of certain key transactions. The interests of the parties to the Stockholders Agreement may differ from those of other holders of our common stock. Additionally, the Company entered into a First Amended and Restated Registration Rights Agreement with the JPM Stockholders and Swarth. The JPM Stockholders and Swarth collectively own approximately 52% of our common stock as of December 31, 2021, and may decide to sell their shares in bulk or from time to time, except as provided under the Stockholders Agreement, which timing we cannot control. The sale of shares by the JPM Stockholders and/or Swarth may increase the volatility of our stock price, and our stock price could decline as a result. Delaware law and our charter documents contain provisions that could discourage or prevent a potential takeover, even if such a transaction would be beneficial to our stockholders. Some provisions in our amended and restated certificate of incorporation, our amended and restated by-laws, as well as provisions of Delaware law, may discourage, delay or prevent a merger or acquisition that may be deemed undesirable by our Board of Directors but that a stockholder may consider favorable. These include provisions, among others, • • • • • • authorizing the Board of Directors to issue shares of preferred stock; limiting the persons who may call special meetings of stockholders; prohibiting stockholder actions by written consent; permitting the Board of Directors to increase the size of the Board and to fill vacancies; requiring a super-majority vote of our stockholders to amend our amended and restated by-laws and certain provisions of our amended and restated certificate of incorporation; and establishing advance notice requirements for nominations for election to the Board of Directors or for proposing matters that can be acted on by stockholders at stockholder meetings. As a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the Delaware General Corporation law, which prevents some stockholders holding more than 15% of our outstanding common stock from engaging in certain business combinations without approval of the holders of substantially all of our outstanding common stock. These provisions of our amended and restated certificate of incorporation, our amended and restated by-laws or Delaware law could have the effect of delaying or deterring a change in control that some stockholders may consider beneficial and therefore could limit the opportunity for our stockholders to receive a premium for their shares of our common stock and could also affect the price that some investors are willing to pay for our common stock. Item 1B. Unresolved Staff Comments None. Item 2. Properties During 2019, we initiated a plan to consolidate and reduce the number of our facilities worldwide. This included plans to provide a new customer experience center for product demonstration and training, relocate and consolidate our laboratories, server farms and Cloud service infrastructure and condense research and development, sales, marketing, business operations and administrative functions into our new Plano campus. In February 2021, we relocated our corporate headquarters to our new 32 Table of Contents facility in Plano, Texas. We also lease smaller (under 50,000 square feet) office space in various countries around the world for sales, marketing, research and development/engineering, and customer services and support staff, as well as for warehouse purposes. We are exiting certain of these facilities. We believe our remaining facilities will be adequate for our current needs and that suitable additional space will be available as needed. As of December 31, 2021, we maintained the following principal facilities: Location Plano, Texas Plano, Texas (a) Westford, Massachusetts Research Triangle Park, North Carolina Ottawa, Canada (b) Petah Tikva, Israel (c) Petah Tikva, Israel (b) Bangalore, India Bangalore, India Principal use Corporate headquarters, sales, marketing, research and development/engineering, customer support, general and administrative Research and development/engineering, customer support Research and development, customer support, general and administrative Research and development/engineering, sales, customer support, general and administrative Research and development/engineering, customer support, general and administrative Research and development/engineering, sales, service Service, research and development/engineering, general and administrative Research and development/engineering, customer support, general and administrative Research and development/engineering, customer support, general and administrative Lease expiration September 2032 February 2022 February 2022 April 2027 December 2029 October 2023 October 2023 October 2024 December 2023 (a) The Company's relocation of this facility's operations to the Plano corporate headquarters facility was completed in the first quarter of 2021. (b) A portion of this facility was not in use at December 31, 2021 and is currently being subleased as part of a restructuring initiative. (c) A portion of this facility was not in use at December 31, 2021; a portion of this unused space is currently being subleased as part of a restructuring initiative that covers the entire unused space. Item 3. Legal Proceedings We are subject to legal proceedings and claims that have not been fully resolved and that have arisen in the ordinary course of business. Our material legal proceedings are described in Part II, Item 8 of this Form 10-K in the Notes to Consolidated Financial Statements in Note 26, "Commitments and Contingencies" under the heading "Contingencies". The outcome of litigation is inherently uncertain. If one or more legal matters were resolved against the Company in a reporting period for amounts above management's expectations, our financial condition and operating results for that reporting period could be materially adversely affected. We settled certain matters during the fourth quarter of 2021 that did not individually or in the aggregate have a material impact on our financial condition or operating results. Item 4. Mine Safety Disclosures Not applicable. 33 Table of Contents Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information PART II Effective November 29, 2017, our common stock was quoted on The Nasdaq Global Select Market under the symbol "RBBN." Our common stock began publicly trading on The Nasdaq Global Select Market on October 30, 2017 under the symbol "SONS," following the merger of Sonus Networks, Inc. and GENBAND. Holders At March 8, 2022, there were approximately 382 holders of record of our common stock. Recent Sales of Unregistered Securities None. Purchases of Equity Securities by the Issuer and Affiliated Purchasers The following table summarizes repurchases of our common stock during the fourth quarter of 2021: Period October 1, 2021 to October 31, 2021 November 1, 2021 to November 30, 2021 December 1, 2021 to December 31, 2021 Total Total Number of Shares Purchased (1) Average Price Paid per Share 4,522 $ 7,873 $ 71,009 $ 83,404 $ 6.35 6.06 5.75 5.81 Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs — $ — $ — $ — $ — — — — (1) Upon vesting of restricted stock awards, certain of our employees may return to us a portion of the newly vested shares to satisfy the tax withholding obligations that arise in connection with such vesting. During the fourth quarter of 2021, 83,404 shares of restricted stock were returned to us by employees to satisfy tax withholding obligations arising in connection with vesting of restricted stock, which shares are included in this column. 34 Table of Contents Performance Graph The following performance graph compares the cumulative total return to stockholders for our common stock for the period from October 30, 2017 (the date Ribbon's common stock began trading on Nasdaq) through December 31, 2021 with the cumulative total return over the same period on the Nasdaq Composite Index, the Nasdaq Telecommunications Index and the Russell 2000. The comparison assumes an investment of $100 on October 30, 2017 in our common stock and in each of the indices and, in each case, assumes reinvestment of all dividends, if any. The performance shown is not necessarily indicative of future performance. This graph is not deemed to be "filed" with the SEC or subject to the liabilities of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and should not be deemed to be incorporated by reference into any of our prior or subsequent filings under the Securities Act of 1933, as amended, or the Exchange Act. Ribbon Communications Inc. Nasdaq Composite Russell 2000 Nasdaq Telecommunications October 30, 2017 December 31, 2017 December 31, 2018 December 31, 2019 December 31, 2020 December 31, 2021 $ $ $ $ 100.00 $ 100.00 $ 100.00 $ 100.00 $ 92.13 $ 102.83 $ 102.47 $ 108.55 $ 57.45 $ 99.91 $ 91.18 $ 99.94 $ 36.95 $ 136.58 $ 114.45 $ 126.88 $ 78.19 $ 197.92 $ 137.30 $ 153.83 $ 72.11 241.82 157.65 161.29 35 Table of Contents Item 6. Reserved [Reserved] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Overview We are a leading global provider of communications technology to service providers and enterprises. We provide a broad range of software and high- performance hardware products, solutions and services that enable the secure delivery of data and voice communications for residential consumers and for small, medium and large enterprises and industry verticals such as finance, education, government, utilities and transportation. Our 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. Headquartered in Plano, Texas, we have a global presence with research and development and/or sales and support locations in over thirty-five countries around the world. Impact of COVID-19 on Our Business In 2020, a novel strain of the coronavirus (COVID-19) was declared by the World Health Organization to be a global pandemic. The COVID-19 pandemic has had a negative effect on the global economy, disrupting the various manufacturing, commodity and financial markets and increasing volatility, and has impeded global supply chains, including that of our IP Optical Networks operating segment. Continued dampened global economic conditions as a result of the COVID-19 pandemic, particularly in areas experiencing slower vaccine rollout, such as Australia and India, may cause our customers to restrict spending or delay purchases for an indeterminate period of time and consequently cause our revenues to decline. In addition, our ability to deliver our solutions as agreed upon with our customers depends on the ability of our global contract manufacturers, vendors, licensors and other business partners to deliver products or perform services we have procured from them. While, to date, we have not experienced material issues, if the ongoing COVID-19 pandemic impairs the ability of our business partners to support us on a timely basis, or negatively impacts the demand for our customers' other products and services, our ability to perform our customer contracts as well as the demand for our solutions may suffer. In addition, disruptions from the COVID-19 pandemic could include, and with respect to our IP Optical Networks operating segment have included, disruption of logistics necessary to import, export and deliver our solutions. The COVID- 19 pandemic continues to limit in some locations, including India, the ability of our employees to perform their work due to illness caused by the pandemic or local, state or federal orders requiring employees to remain at home. The degree to which the COVID-19 pandemic ultimately impacts our business, financial position and results of operations will depend on future developments beyond our control, including the effectiveness and timing of any vaccines, the frequency and duration of future waves of infection, the effectiveness and timing of any vaccines, the extent of actions to contain or treat the virus, how quickly and to what extent normal economic and operating conditions can resume, and the severity and duration of the global economic downturn that results from the pandemic. As a response to the ongoing COVID-19 pandemic, we have continued to implement plans to manage our costs. We have significantly reduced travel and marketing expenses except where necessary to meet customer or regulatory needs and acted to limit discretionary spending. To the extent the business disruption continues for an extended period, additional cost management actions will be considered. Any future asset impairment charges, increases in the allowance for doubtful accounts or restructuring charges could be more likely and will be dependent on the severity and duration of this crisis. Presentation Unless otherwise noted, all financial amounts, excluding tabular information, in this MD&A are rounded to the nearest million dollar amount, and all percentages, excluding tabular information, are rounded to the nearest percentage point. Reclassifications In 2021, we 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 Total cost of revenue under the caption "Amortization of acquired technology" in the consolidated statements of operations. Our management believes this presentation aids in the comparability of our financial statements to industry peers. These reclassifications did not impact our operating income (loss), net income (loss) or earnings (loss) per share for any historical periods. These reclassifications also did not impact our consolidated balance sheets or consolidated statements of cash flows. 36 Table of Contents These reclassifications resulted in $42.3 million recorded to Amortization of acquired technology within Total cost of revenue and a $42.3 million decrease to Amortization of acquired intangible assets within Total operating expenses in the year ended December 31, 2020. The increase to Total cost of revenue decreased our gross profit as a percentage of revenue ("gross margin") by approximately five percentage points. These reclassifications resulted in $37.6 million recorded to Amortization of acquired technology within Total cost of revenue and a $37.6 million decrease to Amortization of acquired intangible assets within Total operating expenses in the year ended December 31, 2019. The increase to Total cost of revenue decreased our gross margin by approximately seven percentage points. New Restructuring Initiative On February 14, 2022, our Board of Directors approved a strategic restructuring program (the "2022 Restructuring Plan") to streamline the Company's operations in order to support the Company's investment in critical growth areas. The 2022 Restructuring Plan is expected to include, among other things, charges related to a consolidation of facilities and a workforce reduction. Any potential positions eliminated in countries outside the United States will be subject to local law and consultation requirements. We currently expect to record approximately $20 million of restructuring and related expense associated with the 2022 Restructuring Plan, including approximately $6 million related to employee severance arrangements and approximately $14 million related to the facilities consolidation. We expect that the 2022 Restructuring Plan will be substantially completed in 2022. Business Acquisitions ECI Telecom Group Ltd. On March 3, 2020 (the "ECI Acquisition Date"), we completed the acquisition of ECI Telecom Group Ltd. ("ECI") in accordance with the terms of the Agreement and Plan of Merger, dated as of November 14, 2019, by and among Ribbon, an indirect wholly-owned subsidiary of Ribbon ("Merger Sub"), Ribbon Communications Israel Ltd., ECI, and ECI Holding (Hungary) Kft, pursuant to which Merger Sub merged with and into ECI, with ECI surviving such merger as a wholly-owned subsidiary of Ribbon (the "ECI Acquisition"). Prior to the ECI Acquisition Date, ECI was a privately-held global provider of end-to- end packet-optical transport and software-defined networking ("SDN") and network function virtualization ("NFV") solutions for service providers, enterprises and data center operators. Ribbon believes the ECI Acquisition positions the Company for growth and enhances its competitive strengths by expanding its product portfolio beyond solutions primarily supporting voice applications to include data applications and optical networking. As consideration for the ECI Acquisition, we issued the ECI shareholders and certain others 32.5 million shares of Ribbon common stock with a fair value of $108.6 million (the "Stock Consideration") and paid $322.5 million of cash, comprised of $183.3 million to repay ECI's outstanding debt, including both principal and interest, and $139.2 million paid to ECI's selling shareholders (the "Cash Consideration"). In addition, ECI shareholders received $33.4 million from the sale of certain of ECI's real estate assets. Cash Consideration was financed through cash on hand and committed debt financing consisting of a new $400 million term loan facility and new $100 million revolving credit facility, which was undrawn at the ECI Acquisition Date. The ECI Acquisition has been accounted for as a business combination and the financial results of ECI have been included in our consolidated financial statements for the periods subsequent to the ECI Acquisition Date. Anova Data, Inc. On February 28, 2019 (the "Anova Acquisition Date"), we acquired the business and technology assets of Anova Data, Inc. ("Anova"), a private company headquartered in Westford, Massachusetts (the "Anova Acquisition"). Anova is a provider of advanced analytics solutions and its next generation products provide a cloud-native, streaming analytics platform for network and subscriber optimization and monetization. The Company believes that the Anova Acquisition will reinforce and extend Ribbon's strategy to expand into network optimization, security and data monetization via big data analytics and machine learning. As consideration for the Anova Acquisition, we issued 2.9 million shares of our common stock with a fair value of $15.2 million to Anova's sellers and equity holders on the Anova Acquisition Date and held back an additional 330,000 shares of our common stock with a fair value of $1.7 million (the "Deferred Purchase Consideration"), of which 316,551 shares were issued 37 Table of Contents after post-closing adjustments on March 4, 2020. The Deferred Purchase Consideration was included as a component of Accrued expenses and other in our consolidated balance sheet at December 31, 2019. The Anova Acquisition has been accounted for as a business combination and the financial results of Anova have been included in our consolidated financial statements for the periods subsequent to the Anova Acquisition Date. Sale of Kandy Communications Business and Investment in AVCT On December 1, 2020 (the "Kandy Sale Date"), we completed the sale of our Kandy Communications Business to American Virtual Cloud Technologies, Inc. ("AVCT"). AVCT purchased the assets and assumed certain liabilities associated with the Kandy Communications Business, as well as all of the outstanding interests in Kandy Communications LLC, our subsidiary (the "Kandy Sale"). The assets acquired and liabilities assumed by AVCT in connection with the Kandy Sale were primarily comprised of accounts receivable, property and equipment, trade accounts payable and employee-related accruals. As consideration, AVCT paid us $45.0 million, subject to certain adjustments, in the form of units of AVCT's securities (the "AVCT Units"), with each AVCT Unit consisting of: $1,000 in principal amount of AVCT’s Series A-1 convertible debentures (the “Debentures”); and (ii) one warrant to purchase 100 shares of AVCT common stock, $0.0001 par value (the “Warrants”), as consideration for the Kandy Sale. We received 43,778 AVCT Units as consideration on the Kandy Sale Date. The Debentures bore interest at a rate of 10% per annum, which was being added to the principal amount of the Debentures. The entire principal amount of each Debenture, together with accrued and unpaid interest thereon, was due and payable on the earlier of the May 1, 2023 maturity date or the occurrence of a Change in Control as defined in the definitive purchase agreement, as amended (the "Amended Kandy Agreement"). Each Debenture was convertible, in whole or in part, at any time at our option into that number of shares of AVCT common stock, calculated by dividing the principal amount being converted, together with all accrued and unpaid interest thereon, by the applicable conversion price, which initially per share was $3.45. The Debentures were subject to mandatory conversion if the AVCT stock price was at or above $6.00 per share for 40 trading days in any 60 consecutive trading day period, subject to the satisfaction of certain other conditions. The conversion price was subject to customary adjustments including, but not limited to, stock dividends, stock splits and reclassifications. As of February 19, 2021, the stock price had traded above $6.00 for 40 days within a 60 consecutive trading day period, and accordingly, on September 8, 2021 (the "Debenture Conversion Date") upon the completion of customary regulatory filings by AVCT, the Debentures were converted into 13,700,421 shares of AVCT common stock (the "Debenture Shares"). The Warrants were independent of the Debentures and entitle us to purchase 4,377,800 shares of AVCT common stock at an exercise price of $0.01 per share. The Warrants were immediately exercisable on the Kandy Sale Date and expire on December 1, 2025. We had not exercised any of the Warrants as of December 31, 2021. We were also subject to a lock-up provision which limited our ability to sell any shares of the AVCT common stock underlying the AVCT Units prior to June 1, 2021 (the "Lock-Up Period"), except in certain transactions. We determined that the AVCT Units had a fair value of $84.9 million at the Kandy Sale Date, comprised of the Debentures with a fair value of $66.3 million and the Warrants with a fair value of $18.6 million. The value of the net assets sold to AVCT totaled $1.3 million, resulting in a gain on the sale of $83.6 million. We calculated the fair value of the Debentures using a Lattice-based valuation approach, which utilizes a binomial tree to model the different paths the price of AVCT's common stock might take over the Debentures' life by using assumptions regarding the stock price volatility and risk-free interest rate. These results were then used to calculate the fair value of the Debentures at each measurement date prior to the Debenture Conversion Date. We used the Black-Scholes valuation model for estimating the fair value of the Warrants at each measurement date. The fair value of the Warrants was affected by AVCT's stock price as well as valuation assumptions, including the volatility of AVCT's stock price, expected term of the option, risk-free interest rate and expected dividends. Both the Lattice and Black-Scholes valuation models are based on available market data, giving consideration to all of the rights and obligations of each instrument and precluding the use of "blockage" discounts or premiums in determining the fair value of a large block of financial instruments. After the expiration of the Lock-Up Period and prior to the Debenture Conversion Date, we valued the AVCT Units at each measurement date by multiplying the closing stock price of AVCT common stock by the number of shares upon conversion of the Debentures and Warrants. At December 31, 2021, we valued the Debenture Shares and Warrants (the "AVCT Investment") by multiplying the closing stock price of AVCT common stock by the number of Debenture Shares and Warrants we held. At December 31, 2021, the fair value of the AVCT Investment was $43.9 million, comprised of $33.3 million for the Debenture Shares and $10.6 million for the Warrants. We recorded a loss of $74.8 million in the year ended December 31, 2021 arising from the change in their aggregate fair value. This amount is included as a component of Other (expense) income, net, in our consolidated statement of operations. We recorded $3.5 million of interest income in the year ended December 31, 2021, respectively, which was added to the principal amount of the Debentures prior to the Debenture Conversion Date, and 38 Table of Contents which is included in Interest expense, net, in our consolidated statement of operations. At December 31, 2020, the fair value of the AVCT Units was $115.2 million. The fair value of the AVCT Investment at December 31, 2021 and the AVCT Units at December 31, 2020 are reported as Investments in our consolidated balance sheets. The AVCT Investment is classified as a Level 1 fair value measurement at December 31, 2021 and the AVCT Units are classified as Level 2 fair value measurements within the fair value hierarchy at December 31, 2020. We evaluated the nature of our investment in AVCT for the period from the Debenture Conversion Date through December 31, 2021 and determined that it represented an approximate 15% equity interest in AVCT on a diluted basis. Accordingly, we determined that we are not the primary beneficiary of AVCT as we do not have the power to direct the activities that most significantly impact the AVCT Investment's economic performance and therefore concluded that we had neither significant influence nor a controlling interest arising from the AVCT Investment. Litigation Settlement On April 22, 2019, we and Metaswitch Networks Ltd., Metaswitch Networks Corp and Metaswitch Inc. (collectively, "Metaswitch") agreed to a binding mediator's proposal that resolves the six previously disclosed lawsuits between the Company and Metaswitch (the "Lawsuits"). We and Metaswitch signed a Settlement and Cross-License Agreement on May 29, 2019 (the "Royalty Agreement"). Pursuant to the terms of the Royalty Agreement, Metaswitch agreed to pay us an aggregate amount of $63.0 million, which included cash payments of $37.5 million during the second quarter of 2019 and $25.5 million payable in three installments annually, beginning June 26, 2020, with such installment payments accruing interest at a rate of 4% per year. As part of the Royalty Agreement, we and Metaswitch have (i) released the other from all claims and liabilities; (ii) licensed each party's existing patent portfolio to the other party; and (iii) requested the applicable courts to dismiss the Lawsuits. We received $37.5 million of aggregate payments from Metaswitch in the second quarter of 2019 and recorded notes receivable for future payments of $25.5 million, comprised of $8.5 million in Other current assets and $17.0 million in Other assets in our consolidated balance sheet at December 31, 2019. We recorded the $63.0 million gain in Other (expense) income, net, in our consolidated statement of operations for the year ended December 31, 2019. We received $37.5 million of aggregate payments from Metaswitch in the second quarter of 2019 and $9.5 million, including $1.0 million of interest, in the second quarter of 2020. On July 6, 2020, we and Metaswitch signed a First Supplemental Agreement to the Settlement and Cross-License Agreement (the "Supplemental Agreement") under which Metaswitch could elect to repay the outstanding amounts under the Royalty Agreement early in exchange for a reduction of $0.25 million to the outstanding principal, from $17.0 million to $16.75 million, and the payment of no further interest by Metaswitch effective June 26, 2020. We recorded the reduction to the outstanding principal as a reduction to interest income. On July 14, 2020, Metaswitch paid us the remaining outstanding balance of $16.75 million. Operating Segments Our chief operating decision maker (the "CODM") is our president and chief executive officer. Effective in the fourth quarter of 2020 and in connection with the ECI Acquisition, our CODM began to assess our performance based on the performance of two separate organizations within Ribbon: the Cloud and Edge operating segment ("Cloud and Edge") and the IP Optical Networks operating segment ("IP Optical Networks"). We previously operated in a single segment, as our CODM made decisions and assessed performance at the company level, and for periods prior to the ECI Acquisition, there are no financial results for IP Optical Networks to report. Our Cloud and Edge operating segment provides secure and reliable software and hardware products, solutions and services for Voice over Internet Protocol ("VoIP") communications, Voice over Long-Term Evolution ("VoLTE") and Voice Over 5G ("VoNR") communications, and Unified Communications and Collaboration ("UC&C") services to both service provider and enterprise customers. Our Cloud and Edge products are increasingly software-centric and cloud-native for deployment on private, public or hybrid cloud infrastructures, in data centers, on enterprise premises and within service provider networks. Our Cloud and Edge product portfolio consists of our Session Border Controller ("SBC") products and our Network Transformation ("NTR") products. Our IP Optical Networks operating segment provides high-performance, secure solutions for IP networking and optical transport, supporting wireless networks including 5G, metro and edge aggregation, core networking, data center interconnect, legacy network transformation and transport solutions for wholesale carriers. This portfolio is offered to service provider, enterprise and industry verticals with critical transport network infrastructures including utilities, government, defense, transportation, and education and research. 39 Table of Contents Financial Overview Financial Results We reported a loss from operations of $117.8 million for 2021 and income from operations of $1.7 million for 2020. We reported a net loss of $177.2 million for 2021 and net income of $88.6 million for 2020. Our revenue was $845.0 million in 2021, comprised of $556.7 million attributable to Cloud and Edge and $288.3 million attributable to IP Optical Networks. Our revenue was $843.8 million in 2020, comprised of $583.3 million attributable to Cloud and Edge and $260.5 million attributable to IP Optical Networks. Our gross profit was $444.7 million in 2021, comprised of $343.5 million attributable to Cloud and Edge and $101.2 million attributable to IP Optical Networks. Our gross profit was $450.8 million in 2020, comprised of $353.5 million attributable to Cloud and Edge and $97.4 million attributable to IP Optical Networks. Our gross margin was 52.6% in 2021 and 53.4% in 2020. In 2021, our Cloud and Edge gross margin was 61.7% and our IP Optical Networks gross margin was 35.1%. In 2020, our Cloud and Edge gross margin was 60.6% and our IP Optical Networks gross margin was 37.4%. Our operating expenses were $562.5 million in 2021 and $449.1 million in 2020. Our 2021 operating expenses included $116.0 million for the impairment of goodwill, $28.3 million of amortization of acquired intangible assets, $7.6 million of acquisition-, disposal- and integration-related expense, and $11.7 million of restructuring and related expense. Our 2020 operating expenses included $18.6 million of amortization of acquired intangible assets, $17.2 million of acquisition-, disposal- and integration-related expense, and $16.2 million of restructuring and related expense. We recorded stock-based compensation expense of $19.4 million in 2021 and $13.9 million in 2020. See "Results of Operations" in this MD&A for additional discussion of our results of operations for the years ended December 31, 2021 and 2020. Restructuring and Cost Reduction Initiatives In 2020, we implemented a restructuring plan to eliminate certain positions and redundant facilities, primarily in connection with the ECI Acquisition, to further streamline our global footprint and improve our operations (the "2020 Restructuring Initiative"). In connection with this initiative, we have eliminated duplicate functions arising from the ECI Acquisition in support of our efforts to integrate the two companies. In connection with the 2020 Restructuring Initiative, we recorded restructuring and related expense of $4.7 million and $14.0 million in 2021 and 2020, respectively. The 2021 amount was comprised of $4.6 million for severance and related costs for approximately 60 employees and $0.1 million for variable and other facilities-related costs. The 2020 amount was comprised of $11.5 million for severance and related costs for approximately 190 employees, $2.0 million for variable and other facilities-related costs, and $0.5 million for accelerated amortization of lease assets. We expect these amounts will be fully paid in 2022. We expect to record additional restructuring and related expense approximating $1 million under the 2020 Restructuring Initiative in the aggregate for severance and planned facility consolidations. In June 2019, we implemented a restructuring plan to further streamline our global footprint, improve our operations and enhance our customer delivery (the "2019 Restructuring Initiative"). The 2019 Restructuring Initiative includes facility consolidations, refinement of our research and development activities, and a reduction in workforce. The facility consolidations under the 2019 Restructuring Initiative (the "Facilities Initiative") include a consolidation of our North Texas sites into a single campus, housing engineering, customer training and support, and administrative functions, as well as a reduction or elimination of certain excess and duplicative facilities worldwide. In addition, we intend to substantially consolidate our global software laboratories and server farms into two lower cost North American sites. We continue to evaluate our properties included in the Facilities Initiative for accelerated amortization and/or right-of-use asset impairment. We expect that the actions under the Facilities Initiative will be completed in 2023. In connection with the 2019 Restructuring Initiative, we recorded restructuring and related expense of $7.0 million and $2.3 million in 2021 and 2020, respectively. The amount recorded in 2021 was comprised of $5.7 million for variable and other facilities-related costs and $1.3 million of net expense for accelerated amortization of lease assets. The amount for accelerated amortization of lease assets was comprised of $3.4 million of expense and $2.1 million of income related to a lease modification for one of our restructured lease facilities. The amount recorded in 2020 was comprised of $0.5 million for severance and related costs for approximately 5 employees, $1.7 million for variable and other facilities-related costs and $0.1 million for accelerated amortization of lease assets. The amount accrued for severance and related costs was paid in 2021. We estimate that we will record nominal, if any, future expense related to this initiative. 40 Table of Contents Accelerated rent amortization is recognized from the date that we commence the plan to fully or partially vacate a facility, for which there is no intent or ability to enter into a sublease, through the final vacate date. We recorded $3.4 million and $0.6 million of expense for accelerated rent amortization in the years ended December 31, 2021 and 2020, respectively. These amounts are included as components of Restructuring and related expense, and reduced our Operating lease right-of-use assets in our consolidated balance sheets at December 31, 2021 and 2020. We continue to evaluate our properties included in the Facilities Initiative for accelerated amortization and/or right-of-use asset impairment. We may incur additional future expense if we are unable to sublease other locations included in the Facilities Initiative. Critical Accounting Policies and Estimates Management's discussion and analysis of the financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. We base our estimates and judgments on historical experience, knowledge of current conditions and beliefs of what could occur in the future given available information. We consider the following accounting policies to be both those most important to the portrayal of our financial condition and those that require the most subjective judgment. If actual results differ significantly from management's estimates and projections, there could be a material effect on our consolidated financial statements. The significant accounting policies that we believe are the most critical include revenue recognition, the valuation of inventory, debentures and warrants received as sale consideration, warranty accruals, loss contingencies and reserves, stock-based compensation, business combinations, goodwill and intangible assets and accounting for income taxes. Revenue Recognition. We derive revenue from two primary sources: products and services. Product revenue is generated from sales of our stand-alone software, as well as software with attached hardware that function together to deliver the products' essential functionality. Both software and hardware are also sold on a standalone basis. Services include customer support (software updates and technical support), consulting, design services, installation services and training. A typical contract includes both product and services. Generally, contracts with customers contain multiple performance obligations. For these contracts, we account for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. SSPs are typically estimated based on observable transactions when these services are sold on a standalone basis. The software licenses typically provide a perpetual right to use our software. We also sell term-based software licenses that expire and Software-as-as- Service ("SaaS")-based software, which are referred to as subscription arrangements. We do not customize our software nor are installation services required, as the customer has a right to utilize internal resources or a third-party service company. The software and hardware are delivered before related services are provided and are functional without professional services or customer support. We have concluded that our software licenses are functional intellectual property that are distinct, as the user can benefit from the software on its own. The product revenue is typically recognized upon transfer of control or when the software is made available for download, as this is the point that the user of the software can direct the use of, and obtain substantially all of the remaining benefits from, the functional intellectual property. We begin to recognize software revenue related to the renewal of subscription software licenses at the start of the subscription period. Service revenue includes revenue from customer support and other professional services. We offer warranties on our products. Certain of our warranties are considered to be assurance-type in nature, ensuring that the product is functioning as intended. Assurance-type warranties do not represent separate performance obligations. We also sell separately-priced maintenance service contracts which qualify as service-type warranties and represent separate performance obligations. We do not allow and have no history of accepting product returns. Customer support includes software updates on a when-and-if-available basis, telephone support, integrated web-based support and bug fixes or patches. We sell our customer support contracts at a percentage of list or net product price related to the support. Customer support revenue is recognized ratably over the term of the customer support agreement, which is typically one year. Our professional services include consulting, technical support, resident engineer services, design services and installation services. Because control transfers over time, revenue is recognized based on progress toward completion of the performance obligation. The method to measure progress toward completion requires judgment and is based on the nature of the products or services to be provided. We generally use the input method to measure progress for our contracts because we believe it best depicts the transfer of assets to the customer which occurs as we incur costs for the contracts. However, in some instances, we use the output method because it best depicts the transfer of asset to the customer. Under the cost-to-cost measure of progress, 41 Table of Contents the progress toward completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. When the measure of progress is based upon expended labor, progress toward completion is measured as the ratio of labor time expended to date versus the total estimated labor time required to complete the performance obligation. Revenue is recorded proportionally as costs are incurred or as labor is expended. Costs to fulfill these obligations include internal labor as well as subcontractor costs. We offer customer training courses, for which the related revenue is typically recognized as the training services are performed. Our contracts with customers often include promises to transfer multiple products and services to the customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. Judgment is required to determine the SSP for each distinct performance obligation. In instances where SSP is not directly observable, such as when we do not sell the product or service separately, we determine the SSP using information that may include market conditions and other observable inputs. We typically have more than one SSP for individual products and services due to the stratification of those products and services by customers and circumstances. In these instances, the Company may use information such as the size of the customer and geographic region in determining the SSP. Valuation of Inventory. We review inventory for both potential obsolescence and potential loss of value periodically. In this review, we make assumptions about the future demand for and market value of the inventory and, based on these assumptions, estimate the amount of any excess, obsolete or slow-moving inventory. We write down our inventories if they are considered to be obsolete or at levels in excess of forecasted demand. In these cases, inventory is written down to estimated realizable value based on historical usage and expected demand. Inherent in our estimates of market value in determining inventory valuation are estimates related to economic trends, future demand for our products and technical obsolescence of our products. If future demand or market conditions are less favorable than our projections, additional inventory write-downs could be required and would be reflected in the cost of revenue in the period the revision is made. To date, we have not been required to revise any of our assumptions or estimates used in determining our inventory valuations. We write down our evaluation equipment at the time of shipment to our customers, as it is not probable that the inventory value will be realizable. Investments. We received Debentures and Warrants (collectively, the "AVCT Units") as consideration in connection with the Kandy Sale, which we accounted for in accordance with Accounting Standards Codification ("ASC") 820, Fair Value Measurement ("ASC 820"). We were subject to a lock-up provision which limited our ability to sell any shares of the AVCT common stock underlying the Debentures and the Warrants prior to June 1, 2021 (the "Lock- Up Period"), except in certain transactions. On September 8, 2021 (the "Debenture Conversion Date"), the Debentures were converted into 13,700,421 shares of AVCT common stock (the "Debenture Shares"). We calculated the fair value of the Debentures using a Lattice-based valuation approach, which utilizes a binomial tree to model the different paths the price of AVCT's common stock might take over the Debentures' life by using assumptions regarding the stock price volatility and risk-free interest rate. These results were then used to calculate the fair value of the Debentures at each measurement date. We used the Black-Scholes valuation model for estimating the fair value of the Warrants at each measurement date. The fair value of the Warrants was affected by AVCT's stock price as well as valuation assumptions, including the volatility of AVCT's stock price, expected term of the option, risk-free interest rate and expected dividends. Both the Lattice and Black-Scholes valuation models were based on available market data, giving consideration to all of the rights and obligations of each instrument and precluding the use of "blockage" discounts or premiums in determining the fair value of a large block of financial instruments. After the expiration of the Lock-Up Period and prior to the Debenture Conversion Date, the Company valued the AVCT Units at each measurement date by multiplying the closing stock price of AVCT common stock by the number of shares upon conversion of the Debentures and Warrants. Since the Debenture Conversion Date, the Company is valuing the Debenture Shares and Warrants by multiplying the closing stock price of AVCT common stock by the number of Debenture Shares and Warrants (collectively, the "AVCT Investment") it is holding at each measurement date. Adjustments to the fair values of the AVCT Units (prior to the Debenture Conversion Date) and AVCT Investment (subsequent to the Debenture Conversion Date) are included in Other (expense) income, net. The fair values of the AVCT Investment and the AVCT Units are reported as Investments in our consolidated balance sheets at December 31, 2021 and 2020, respectively. 42 Table of Contents Warranty Accruals. We record warranty liabilities for estimated costs of fulfilling our obligations under standard limited hardware and software warranties at the time of sale. The liability for standard warranties is included in Accrued expenses and other and Other long-term liabilities in our consolidated balance sheet. The specific warranty terms and conditions vary depending upon the country in which we do business, but generally include material costs, technical support, labor and associated overhead over a period ranging from one to three years. We provide for the estimated costs to fulfill customer warranty obligations for certain of our products upon recognition of the related revenue. Warranty is included as a component of Cost of revenue in our consolidated statements of operations, and is determined based on actual warranty cost experience, estimates of component failure rates and our management's industry experience. Our sales contracts do not permit the right of return of the product by the customer after the product has been accepted. Loss Contingencies and Reserves. We are subject to ongoing business risks arising in the ordinary course of business that affect the estimation process of the carrying value of assets, the recording of liabilities and the possibility of various loss contingencies. An estimated loss contingency is accrued when it is probable that a liability has been incurred or an asset has been impaired and the amount of loss can be reasonably estimated. We regularly evaluate current information available to determine whether such amounts should be adjusted and record changes in estimates in the period they become known. We are subject to various legal claims. We reserve for legal contingencies and legal fees when the amounts are probable and reasonably estimable. Stock-Based Compensation. Our stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service period, which is generally the vesting period. We use the Black-Scholes valuation model for estimating the fair value on the date of grant of employee stock options. Determining the fair value of stock option awards at the grant date requires judgment regarding certain valuation assumptions, including the volatility of our stock price, expected term of the option, risk-free interest rate and expected dividends. Changes in such assumptions and estimates could result in different fair values and could therefore impact our earnings. Such changes, however, would not impact our cash flows. The fair value of restricted stock awards, restricted stock units and performance-based awards is based upon our stock price on the grant date. We grant performance-based stock units, some of which include a market condition, to certain of our executives. We use a Monte Carlo simulation approach to model future stock price movements based upon the risk-free rate of return, the volatility of each entity, and the pair-wise covariance between each entity. These results are then used to calculate the grant date fair values of the performance-based stock units. The amount of stock-based compensation expense recorded in any period for unvested awards requires estimates of the amount of stock-based awards that are expected to be forfeited prior to vesting, as well as assumptions regarding the probability that performance-based stock awards without market conditions will be earned. Business Combinations. We allocate the purchase price of acquired companies to identifiable assets acquired and liabilities assumed at their acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed and represents the expected future economic benefits arising from other assets acquired in the business combination that are not individually identified and separately recognized. Significant management judgments and assumptions are required in determining the fair value of assets acquired and liabilities assumed, particularly acquired intangible assets which are principally based upon estimates of the future performance and cash flows expected from the acquired business and applied discount rates. While we use our best estimates and assumptions as part of the purchase price allocation process to accurately value assets acquired and liabilities assumed at a business combination date, our estimates and assumptions are inherently uncertain and subject to refinement. If different assumptions are used, it could materially impact the purchase price allocation and our financial position and results of operations. Any adjustments to assets acquired or liabilities assumed subsequent to the purchase price allocation period are included in operating results in the period in which the adjustments are determined. Intangible assets typically are comprised of in-process research and development, developed technology, customer relationships, trade names and internal use software. Goodwill and Intangible Assets. Goodwill is not amortized, but instead is tested for impairment annually, or more frequently if indicators of potential impairment exist. Intangible assets with estimated lives and other long-lived assets are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of intangible assets with estimated lives and other long-lived assets is measured by comparing the carrying amount of the asset to future net undiscounted pretax cash flows expected to be generated by the asset. If these comparisons indicate that an asset is not recoverable, we will recognize an impairment loss for the amount by which the carrying value of the asset exceeds the related estimated fair value. 43 Table of Contents Judgment is required in determining whether an event has occurred that may impair the value of goodwill, identifiable intangible assets or other long-lived assets. Factors that could indicate an impairment may exist include significant underperformance relative to plan or long-term projections, strategic changes in business strategy, significant negative industry or economic trends, a significant change in circumstances relative to a large customer, a significant decline in our stock price for a sustained period and a decline in our market capitalization to below net book value. We must make assumptions about future control premiums, market comparables, cash flows, operating plans, discount rates and other factors to determine recoverability. Prior to 2020, our annual test for impairment of goodwill was completed as of November 30. Effective in 2020, we changed our annual goodwill impairment test date from November 30 to October 1. This change did not have a material impact on our consolidated financial statements. As described above, effective in the fourth quarter of 2020, we determined that we had two operating segments: Cloud and Edge, and IP Optical Networks. For the purpose of testing goodwill for impairment, all goodwill is assigned to a reporting unit, which may be either an operating segment or a portion of an operating segment. We determined that the goodwill assigned to the Cloud and Edge reporting unit was $224.9 million and the goodwill assigned to the IP Optical Networks reporting unit was $192.0 million. We perform a fair value analysis using both an Income and Market approach, which encompasses a discounted cash flow analysis and a guideline public company analysis using selected multiples. We assess each valuation methodology based upon the relevance and availability of the data at the time the valuation is performed and the methodologies are weighted appropriately. Based on the results of our recently completed impairment test, we determined that the carrying value of our IP Optical Networks segment exceeded its fair value. We determined that the amount of the impairment was $116.0 million, and recorded an impairment charge in the fourth quarter of 2021. The impairment charge is reported separately in our consolidated statement of operations for the year ended December 31, 2021. We determined that there was no impairment of our Cloud and Edge segment. Upon completion of our 2020 annual test for goodwill impairment, we determined that there was no impairment of goodwill for either of our reporting units. We previously operated as a single operating segment with one reporting unit and consequently we evaluated goodwill for impairment based on an evaluation of the fair value of the Company as a whole. Based on the results of our 2019 annual impairment test, we determined that our carrying value exceeded our fair value. We performed a fair value analysis using both an income and market approach as described above. We determined that the amount of the impairment was $164.3 million and recorded an impairment charge in the fourth quarter of 2019. The impairment charge is reported separately in our consolidated statement of operations for the year ended December 31, 2019. Leases. We account for our leases in accordance with Accounting Standards Codification ("ASC") 842, Leases ("ASC 842"). We have operating and finance leases for corporate offices, research and development facilities, and certain equipment. Operating leases are reported separately in our consolidated balance sheets at December 31, 2021 and 2020. Assets acquired under finance leases are included in Property and equipment, net, in our consolidated balance sheets at December 31, 2021 and 2020. We determine if an arrangement is a lease at inception. A contract is determined to contain a lease component if the arrangement provides us with a right to control the use of an identified asset. Lease agreements may include lease and non-lease components. In such instances for all classes of underlying assets, we do not separate lease and non-lease components but rather, account for the entire arrangement under leasing guidance. Leases with an initial term of 12 months or less are not recorded on the balance sheet and lease expense for these leases is recognized on a straight-line basis over the lease term. For operating leases, lease expense for minimum fixed lease payments is recognized on a straight-line basis over the lease term. The expense for finance leases includes both interest and amortization expense components, with the interest component calculated based on the effective interest method and the amortization component calculated based on straight-line amortization of the right-of-use asset over the lease term. Lease contracts may contain variable lease costs, such as common area maintenance, utilities and tax reimbursements that vary over the term of the contract. Variable lease costs are not included in minimum fixed lease payments and as a result, are excluded from the measurement of the right-of-use assets and lease liabilities. We expense all variable lease costs as incurred. Accounting for Income Taxes. Our provision for income taxes is comprised of a current and a deferred portion. The current income tax provision is calculated as the estimated taxes payable or refundable on tax returns for 2021. We provide for deferred income taxes resulting from temporary differences between financial and taxable income. Such differences arise primarily from tax net operating loss ("NOL") and credit carryforwards, depreciation, deferred revenue, stock-based compensation expense, accruals and reserves. 44 Table of Contents We assess the recoverability of any tax assets recorded on the balance sheet and provide any necessary valuation allowances as required. In evaluating our ability to recover our deferred tax assets, we consider all available positive and negative evidence, including our past operating results, the existence of cumulative income in the most recent years, changes in the business in which we operate and our forecast of future taxable income. In determining future taxable income, we make assumptions, including the amount of state, federal and international pre-tax operating income, the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates we are using to manage our underlying businesses. Such assessment is completed on a jurisdiction-by- jurisdiction basis. In 2021, we released a portion of the valuation allowances of $28 million on U.S. federal attributes, including certain U.S. federal net operating loss carryforwards. Thus, at December 31, 2021, we had valuation allowances of $472 million to offset deferred tax assets of $598 million. These remaining valuation allowances primarily relate to our U.S. and Israel operations. In the event we determine it is more likely than not that we will be able to use a deferred tax asset in the future in excess of its net carrying value, the valuation allowance would be reduced, thereby increasing net earnings and increasing equity in the period such determination is made. We have recorded net deferred tax assets in some of our other international subsidiaries. These amounts could change in future periods based upon our operating results and changes in tax law. We have provided for income taxes on the undistributed earnings of our non-U.S. subsidiaries as of December 31, 2021, excluding Ireland and Israel. These subsidiaries, excluding Ireland and Israel, are cost-plus or limited risk distributors that are not anticipated to need to use excess funds locally. Accordingly, we are required to recognize and book deferred taxes for 2021. The deferred taxes are booked on the entire outside basis differences related to the foreign subsidiaries, the largest of these differences being undistributed earnings. We assess all material positions taken in any income tax return, including all significant uncertain positions, in all tax years that are still subject to assessment or challenge by relevant taxing authorities. Assessing an uncertain tax position begins with the initial determination of the position's sustainability and is measured at the largest amount of benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. As of each balance sheet date, unresolved uncertain tax positions must be reassessed, and we determine whether (i) the factors underlying the sustainability assertion have changed and (ii) the amount of recognized tax benefit is still appropriate. The recognition and measurement of tax benefits require significant judgment. Judgments concerning the recognition and measurement of a tax benefit might change as new information becomes available. Results of Operations Years Ended December 31, 2021 and 2020 Revenue. Revenue for the years ended December 31, 2021 and 2020 was as follows (in thousands, except percentages): Product Service Total revenue Year ended December 31, Increase (decrease) from prior year 2021 453,042 $ 391,915 844,957 $ 2020 467,912 $ 375,883 843,795 $ $ $ $ (14,870) 16,032 1,162 % (3.2)% 4.3 % 0.1 % Segment revenue for the years ended December 31, 2021 and 2020 was as follows (in thousands): Year ended December 31, 2021 IP Optical Networks $ $ 204,472 83,829 288,301 Cloud and Edge 248,570 $ 308,086 556,656 $ Total 453,042 391,915 844,957 $ $ Cloud and Edge 275,445 $ 307,825 583,270 $ Year ended December 31, 2020 IP Optical Networks $ $ 192,467 68,058 260,525 Total 467,91 375,88 843,79 $ $ Product Service Total revenue The decrease in our product revenue in 2021 compared to 2020 was primarily the result of $35 million of lower sales of our Cloud and Edge SBC products, coupled with the loss of $11 million of revenue due to the Kandy Sale. Supply chain and logistics issues, especially in the fourth quarter of 2021, impacted our ability to deliver products, accounting for $10 million of these lower sales and delaying these sales until 2022. These decreases were partially offset by $18 million of higher sales of 45 Table of Contents our Cloud and Edge network transformation products and $12 million of IP Optical Networks products. The increase in revenue from the sale of IP Optical Networks products was attributable to a full year of revenue included in 2021, compared to ten months of revenue in 2020. In 2021, 25% of our product revenue was attributable to sales to enterprise customers, compared to 30% in 2020. These sales were made through both our direct sales team and indirect sales channel partners. In 2021, 26% of our product revenue was from indirect sales through our channel partner program, compared to 29% in 2020. The timing of the completion of customer projects and revenue recognition criteria satisfaction may cause our product revenue to fluctuate from one period to the next. Service revenue is primarily comprised of software and hardware maintenance and support (“maintenance revenue”) and network design, installation and other professional services (“professional services revenue”). Service revenue for the years ended December 31, 2021 and 2020 was comprised of the following (in thousands, except percentages): Maintenance Professional services Total service revenue Year ended December 31, Increase from prior year 2021 286,321 $ 105,594 391,915 $ $ $ 2020 $ % 274,816 $ 101,067 375,883 $ 11,505 4,527 16,032 4.2 % 4.5 % 4.3 % Segment service revenue for the years ended December 31, 2021 and 2020 was comprised of the following (in thousands): Year ended December 31, 2021 Year ended December 31, 2020 Maintenance Professional services Total service revenue Cloud and Edge 228,321 $ 79,765 308,086 $ IP Optical Networks $ 58,000 25,829 83,829 $ Total 286,321 105,594 391,915 $ $ Cloud and Edge 229,035 $ 78,790 307,825 $ IP Optical Networks $ 45,781 22,277 68,058 $ Total 274,81 101,06 375,88 $ $ Total service revenue from our Cloud and Edge segment was relatively flat in 2021 compared to 2020. Service revenue from our IP Optical Networks segment increased by $16 million in 2021 compared to 2020. IP Optical Networks maintenance revenue and professional services revenue increased by $12 million and $4 million, respectively, in 2021 and 2020. This increase is primarily attributable to the inclusion of a full year of revenue in 2021, compared to 10 months of revenue in 2020. The following customer contributed 10% or more of our revenue in the years ended December 31, 2021 and 2020: Verizon Communications Inc. Year ended December 31, 2021 16% 2020 15% Revenue earned from customers domiciled outside the United States was 56% of revenue in 2021 and 55% of revenue in 2020. Due to the timing of project completions, we expect that the domestic and international components as a percentage of our revenue may fluctuate from quarter to quarter and year to year. Our total revenue for the years ended December 31, 2021 and 2020 was disaggregated geographically as follows (in thousands): Year ended December 31, 2021 United States Europe, Middle East and Africa Asia Pacific Other Product revenue Service revenue (maintenance) Service revenue (professional services) Total revenue $ $ 196,058 $ 138,203 92,803 25,978 453,042 $ 132,683 $ 79,475 41,945 32,218 286,321 $ 47,296 $ 30,349 18,183 9,766 105,594 $ 376,037 248,027 152,931 67,962 844,957 46 Table of Contents Year ended December 31, 2020 United States Europe, Middle East and Africa Asia Pacific Other Product revenue Service revenue (maintenance) Service revenue (professional services) Total revenue $ $ 201,347 $ 149,567 90,201 26,797 467,912 $ 132,661 $ 73,475 36,628 32,052 274,816 $ 48,611 $ 25,226 19,627 7,603 101,067 $ 382,619 248,268 146,456 66,452 843,795 Our deferred product revenue was $10 million at December 31, 2021 and $8 million at December 31, 2020. Our deferred service revenue was $120 million at December 31, 2021 and $115 million at December 31, 2020. Our deferred revenue balance may fluctuate as a result of the timing of revenue recognition, customer payments, maintenance contract renewals, contractual billing rights and maintenance revenue deferrals included in multiple element arrangements. We expect that our total revenue in 2022 will increase modestly compared to our 2021 total revenue as our strategy to grow our IP Optical market share in North America gains momentum and capital spending in India and Israel increases. Cost of Revenue/Gross Margin. Our cost of revenue consists primarily of amounts paid to third-party manufacturers for purchased materials and services, royalties, amortization of acquired technology, inventory valuation adjustments, warranty costs, and manufacturing and services personnel and related costs. Our cost of revenue, gross profit and gross margin for the years ended December 31, 2021 and 2020 were as follows (in thousands, except percentages): Cost of revenue: Product Service Amortization of acquired technology Total cost of revenue Gross profit Gross margin Year ended December 31, Increase (decrease) from prior year 2021 2020 $ % $ $ $ 214,745 $ 147,209 38,343 400,297 $ 204,772 $ 145,916 42,290 392,978 $ 9,973 1,293 (3,947) 7,319 444,660 $ 450,817 $ (6,157) 52.6 % 53.4 % 4.9 % 0.9 % (9.3)% 1.9 % (1.4)% Our segment cost of revenue, gross profit and gross margin for the years ended December 31, 2021 and 2020 were as follows (in thousands, except percentages): Product Service Amortization of acquired technology Total cost of revenue Gross profit Gross margin $ $ Year ended December 31, 2021 IP Optical Networks Total Cloud and Edge Year ended December 31, 2020 IP Optical Networks 134,934 $ 39,532 12,639 187,105 $ 214,745 147,209 38,343 400,297 89,883 $ 108,985 30,937 229,805 $ 114,889 $ 36,931 11,353 163,173 $ Cloud and Edge $ 79,811 $ 107,677 25,704 213,192 $ Total 204,772 145,916 42,290 392,978 343,464 $ 101,196 $ 444,660 353,465 $ 97,352 $ 450,817 61.7 % 35.1 % 52.6 % 60.6 % 37.4 % 53.4 % $ $ $ Our gross margin decreased by one percentage point in 2021 compared to 2020. This decrease was primarily the result of higher component costs, expedite and production fees, and logistics expenses (collectively, "production costs") in both of our segments, coupled with product and customer mix, which decreased our gross margin by approximately two percentage points in the aggregate. This decrease was partially offset by the absence of costs related to our Kandy products as a result of the Kandy Sale, which increased our gross margin by approximately one percentage point. The increase in our Cloud and Edge segment gross margin in 2021 compared to 2020 was primarily attributable to the absence of Kandy costs in the current year, partially offset by the aforementioned higher production costs in 2021. The decrease in our IP Optical segment gross margin in 2021 compared to 2020 was primarily attributable to the aforementioned higher production costs, partially offset by lower installation costs. 47 Table of Contents We believe that our gross margin may decrease in 2022 compared to 2021 as a result of higher expected sales from IP Optical Networks, which has lower margins due to the higher hardware content in their products, and higher production costs resulting from ongoing worldwide supply chain issues. Research and Development. Research and development ("R&D") expenses consist primarily of salaries and related personnel expenses and prototype costs for the design, development, testing and enhancement of our products. Research and development expenses for the years ended December 31, 2021 and 2020 were as follows (in thousands, except percentages): Year ended December 31, Increase from prior year 2021 194,948 $ 2020 194,525 $ $ $ 423 % 0.2 % Our research and development expenses were virtually flat in 2021 compared to 2020. Lower costs in our Cloud and Edge segment aggregated $25 million, primarily employee-related and product development costs, including the impact of the Kandy sale. These decreases were virtually offset by higher costs in our IP Optical Networks segment, primarily employee-related, product development and infrastructure -related expenses. These higher costs were primarily attributable to the inclusion of a full year of expenses in the current year, compared to ten months of expense in 2020, coupled with increased investment in our IP Optical Networks segment's product development. Some aspects of our R&D efforts require significant short-term expenditures, the timing of which may cause significant variability in our expenses. We believe that rapid technological innovation is critical to our long-term success, and we are tailoring our investments to meet the requirements of our customers and market. We believe that our R&D expenses in 2022 will increase modestly compared to 2021, primarily due to our incremental investment in critical growth areas, partially offset by cost savings from the 2022 Restructuring Initiative. Sales and Marketing. Sales and marketing expenses consist primarily of salaries and related personnel costs, commissions, travel and entertainment expenses, promotions, customer trial and evaluations inventory and other marketing and sales support expenses. Sales and marketing expenses for the years ended December 31, 2021 and 2020 were as follows (in thousands, except percentages): Year ended December 31, Increase from prior year 2021 150,279 $ 2020 139,318 $ $ $ 10,961 % 7.9 % The increase in sales and marketing expenses in 2021 compared to 2020 was primarily attributable to $7 million of higher employee-related expenses, $2 million of higher consulting fees, $1 million of higher infrastructure-related costs, and $1 million of net increases in other sales and marketing expenses. At the segment level, our IP Optical Networks segment sales and market expenses increased by $15 million in 2021, partially offset by $4 million of lower Cloud and Edge segment expenses. The increase in IP Optical Networks segment expense is primarily attributable to the inclusion of a full year of expense in the current year, compared to ten months of expense in 2020, principally employee-related, consulting and infrastructure-related costs. The decrease in Cloud and Edge segment expense was primarily attributable to lower employee-related expenses resulting from the Kandy Sale. We believe that our sales and marketing expenses 2022 will be consistent with 2021 levels. General and Administrative. General and administrative expenses consist primarily of salaries and related personnel costs for executive and administrative personnel, and audit, legal and other professional fees. General and administrative expenses for the years ended December 31, 2021 and 2020 were as follows (in thousands, except percentages): Year ended December 31, Decrease from prior year 2021 2020 $ $ 53,661 $ 63,286 $ (9,625) % (15.2)% The decrease in general and administrative expenses in the 2021 compared to 2020 was primarily attributable to $5 million of lower infrastructure-related expenses, $2 million each of lower employee- and litigation-related expenses, and $1 million of 48 Table of Contents net decreases in other general and administrative expenses. At the segment level, our Cloud and Edge segment expenses decreased by $8 million, while our IP Optical Networks segment expenses decreased by $2 million. The decrease in Cloud and Edge segment expenses was primarily attributable to lower infrastructure-related expense, the absence of approximately $2 million of litigation-related expense in the current year, and lower employee-related expenses and professional (i.e., consulting, legal and audit) fees. Lower infrastructure- and employee-related expenses for our IP Optical Networks segment were partially offset by higher general and administrative expenses resulting from the inclusion of a full year of expense in the current year, compared to ten months of expense in 2020. We believe that our general and administrative expenses in 2022 will decrease slightly compared to our 2021 levels, primarily due to cost savings from the 2022 Restructuring Initiative. Amortization of Acquired Intangible Assets included in Operating expenses. Amortization of acquired intangible assets included in Operating expenses for the years ended December 31, 2021 and 2020 was as follows (in thousands, except percentages): Year ended December 31, Increase from prior year 2021 2020 $ $ 28,283 $ 18,620 $ 9,663 % 51.9 % The increase in amortization of acquired intangible assets included in operating expenses was primarily due to the inclusion of amortization expense related to the ECI Acquisition for a full year, compared to ten months of expense in 2020, coupled with the scheduled recognition of such expense in relation to expected future cash flows, as the amortization of such intangible assets is not recorded on a straight-line basis. Impairment of Goodwill. Our annual testing for impairment of goodwill is completed as of October 1. Based on the results of our recently completed impairment test, we determined that the carrying value of our IP Optical Networks segment exceeded its fair value, and recorded an impairment charge of $116.0 million in the fourth quarter of 2021. We determined that there was no impairment of our Cloud and Edge segment. Our annual test for impairment in 2020 did not result in an impairment for either of our two reporting units. Impairment of goodwill is reported separately in the consolidated statements of operations. Acquisition-, Disposal- and Integration-Related. Acquisition-, disposal- and integration-related expenses include those expenses related to acquisitions that we would otherwise not have incurred. Acquisition- and disposal-related expenses include professional and services fees, such as legal, audit, consulting, paying agent and other fees. Integration-related expenses represent incremental costs related to combining the Company's systems and processes with those of acquired businesses, such as third-party consulting and other third-party services. Acquisition-, disposal- and integration-related expenses are reported separately in the consolidated statements of operations. We recorded $7.6 million of acquisition-, disposal- and integration-related expenses in 2021, comprised of $7.1 million of integration-related expenses, $0.3 million of disposal-related expenses an $0.2 million of acquisition-related expenses. We recorded $17.2 million of acquisition-, disposal- and integration- related expenses in 2020, comprised of $13.4 million of acquisition-related expenses, $1.9 million of disposal-related expenses and $1.8 million of integration- related expenses. The acquisition-related expenses primarily related to the ECI Acquisition and, to a lesser extent, other acquisition-related activities. The disposal-related expenses related to the Kandy Sale. The integration-related expenses related to our ongoing integration activities, primarily related to the ECI Acquisition. Restructuring and Related. We have been committed to streamlining operations and reducing operating costs by closing and consolidating certain facilities and reducing our worldwide workforce. Please see the additional discussion of our restructuring initiatives in the "Restructuring and Cost Reduction Initiatives" section of the Overview of this Management's Discussion and Analysis of Financial Condition and Results of Operations. Restructuring and related expense is reported separately in the consolidated statements of operations. We recorded restructuring and related expense of $11.7 million in 2021, comprised of $4.6 million for severance and related costs, and $7.1 million for variable and other facilities-related costs, including $1.3 million of net expense for the accelerated amortization of lease assets. We recorded $16.2 million of restructuring and related expense in 2020, comprised of $12.0 million for severance and related costs, and $4.2 million for variable and other facilities-related costs, including $0.6 million for the accelerated amortization of lease assets. 49 Table of Contents Although we have eliminated positions as part of our restructuring initiatives, we continue to hire in certain areas that we believe are important to our future growth. Interest Expense, net. Interest expense and interest income for the years ended December 31, 2021 and 2020 were as follows (in millions, except percentages): Interest income Interest expense Year ended December 31, Increase (decrease) from prior year 2021 2020 $ % $ $ 3,733 $ (19,564) (15,831) $ 471 $ (21,513) (21,042) $ 3,262 (1,949) 5,211 692.6 % (9.1)% (24.8)% Interest income in 2021 primarily represents paid-in-kind interest on the Debentures prior to the Debenture Conversion Date, which was recorded as an increase to the fair value of the Debentures. Interest expense in 2021 was primarily comprised of $13.8 million of interest on our outstanding term debt and $4.8 million in the aggregate related to amortization of debt issuance costs in connection with the 2020 Credit Facility (as defined below), including the write- off of $2.5 million of capitalized debt issuance costs in connection with the Third Amendment (as defined below), and interest expense in connection with the factoring of certain accounts receivable. Interest income in 2020 primarily represents interest earned on the outstanding note receivable from Metaswitch, which was paid in full in the third quarter of 2020. Interest expense in 2020 was primarily comprised of $14.4 million of interest on our outstanding term debt, and $4.2 million in the aggregate related to amortization of debt issuance costs, interest on other borrowings and finance leases, and interest expense in connection with the factoring of certain accounts receivable. Interest expense in 2020 also included the write-off of $2.9 million of debt issuance costs in connection with the amendment of the 2020 Credit Facility and the retirement of the 2019 Credit Facility (as defined below). Other (Expense) Income, Net. We recorded other expense, net, aggregating $74.5 million in 2021, primarily comprised of $74.8 million of losses resulting from the change in fair value of the AVCT Units for the period from January 1, 2021 to the Debenture Conversion Date and the AVCT Investment for the period from the Debenture Conversion Date to December 31, 2021. This loss was partially offset by a gain of $2.8 million on the sale of our QualiTech business, which operates compliance testing laboratories in Israel for reliability and standardization testing for the high-tech industry, including testing in medical equipment, military equipment and vehicles ("QualiTech"). We recorded $112.7 million of net other income in 2020, primarily in connection with the Kandy Sale, which was comprised of $83.6 million from the gain on the sale, and $30.3 million related to the increase in the fair value of the AVCT Units from the Kandy Sale Date through December 31, 2020. Income Tax Benefit (Provision). We recorded an income tax benefit of $31.0 million in 2021 and an income tax provision of $4.7 million in 2020. The benefit recorded in 2021 was primarily the result of the release of part of the valuation allowance against deferred tax assets in the U.S. and a reduction in the deferred taxes on the undistributed earnings of non-U.S. subsidiaries due to legal entity restructuring activities. The provision recorded in 2020 was primarily the result of the gain from the Kandy Sale and foreign operations. During 2021 and 2020, we performed an analysis to determine if, based on all available evidence, we considered it more likely than not that some portion or all of the recorded deferred tax assets will not be realized in a future period. As a result of our evaluations, in 2021, we released a portion of the valuation allowance on U.S. federal net operating loss carryforwards of $28 million. As a result, for the U.S. deferred tax assets, we concluded that deferred tax assets are generally realizable, with the exception of certain federal and state net operating loss carryforwards, as well as certain tax credits, that are not anticipated to be utilized. Accordingly, we have maintained a valuation allowance on our U.S. deferred tax assets of $30.5 million. As a result of our evaluations for Israel, we maintained a valuation against our deferred tax assets in Israel. 50 Table of Contents Liquidity and Capital Resources Our consolidated statements of cash flows are summarized as follows (in thousands): Net (loss) income Adjustments to reconcile net (loss) income to cash flows provided by operating activities Changes in operating assets and liabilities Net cash provided by operating activities Net cash used in investing activities Net cash (used in) provided by financing activities Year ended December 31, 2021 (177,185) $ 251,655 (55,288) 19,182 $ 2020 88,591 $ (17,903) 30,876 101,564 $ Change (265,776) 269,558 (86,164) (82,382) (14,188) $ (330,073) $ 315,885 (33,683) $ 319,303 $ (352,986) $ $ $ $ We had cash and restricted cash aggregating $106.5 million and $135.7 million at December 31, 2021 and 2020, respectively. We had cash held by our non-U.S. subsidiaries aggregating approximately $60 million and $46 million at December 31, 2021 and 2020, respectively. If we elect to repatriate all of the funds held by our non-U.S. subsidiaries as of December 31, 2021, we do not believe that the amounts of potential withholding taxes that would arise from the repatriation would have a material effect on our liquidity. On April 29, 2019, we, as guarantor, and Ribbon Communications Operating Company, Inc., as borrower, entered into a syndicated, amended and restated credit facility (the "2019 Credit Facility"), which replaced our previous credit facility, which we had entered into in 2018. The 2019 Credit Facility provided for a $50 million term loan facility that was advanced in full on April 29, 2019, and a $100 million revolving line of credit. We currently maintain the Senior Secured Credit Facilities Credit Agreement (as amended, the "2020 Credit Facility"), which we entered into on March 3, 2020, by and among us, as a guarantor, Ribbon Communications Operating Company, Inc., as the borrower ("Borrower"), Citizens Bank, N.A. ("Citizens"), as administrative agent, a lender, issuing lender, swingline lender, joint lead arranger and bookrunner, Santander Bank, N.A., as a lender, joint lead arranger and bookrunner, and the other lenders party thereto (each, together with Citizens Bank, N.A. and Santander Bank, N.A., referred to individually as a "Lender", and collectively, the "Lenders"). For additional details regarding the terms of the 2020 Credit Facility, see Note 10 to our consolidated financial statements. The proceeds from the 2020 Credit Facility were used, in part, to pay off in full all obligations of the Company under the 2019 Credit Facility. The 2020 Credit Facility provides for $500 million of commitments from the lenders to the Borrower, comprised of $400 million in term loans (the "2020 Term Loan Facility") and a $100 million facility available for revolving loans (the "2020 Revolving Credit Facility"). Under the 2020 Revolving Credit Facility, a $30 million sublimit is available for letters of credit and a $20 million sublimit is available for swingline loans. Under the 2020 Credit Facility, we were originally required to make quarterly principal payments aggregating approximately $10 million in the first year, $20 million per year for the following three years and $30 million in the last year, with the remaining balance due on the maturity date. The indebtedness and other obligations under the 2020 Credit Facility are unconditionally guaranteed on a senior secured basis by the Company, Edgewater Networks, Inc., a wholly-owned subsidiary of the Company, and GENBAND Inc., a wholly-owned subsidiary of the Company (together, the "Guarantors"). The 2020 Credit Facility is secured by first-priority liens on substantially all of the assets of the Borrower and the Guarantors, including substantially all of the assets of the Company. The 2020 Credit Facility requires compliance with certain financial covenants, including a minimum Consolidated Fixed Charge Coverage Ratio and a maximum Consolidated Net Leverage Ratio (each as defined in the 2020 Credit Agreement, and each tested on a quarterly basis). In addition, the 2020 Credit Facility contains various covenants that, among other restrictions, limit our and our subsidiaries’ ability to incur or assume indebtedness; grant or assume liens; make acquisitions or engage in mergers; sell, transfer, assign or convey assets; repurchase equity and make dividend and certain other restricted payments; make investments; engage in transactions with affiliates; enter into sale and leaseback transactions; enter into burdensome agreements; change the nature of its business; modify their organizational documents; or amend or make prepayments on certain junior debt. The 2020 Credit Facility contains events of default that are customary for a secured credit facility. If an event of default relating to bankruptcy or other insolvency events with respect to the Company or any of its subsidiaries occurs, all obligations 51 Table of Contents under the 2020 Credit Facility will immediately become due and payable. If any other event of default exists under the 2020 Credit Facility, the lenders can accelerate the maturity of the obligations outstanding under the 2020 Credit Facility and exercise other rights and remedies, including charging a default rate of interest equal to 2.00% per year above the rate that would otherwise be applicable. In addition, if any event of default exists under the 2020 Credit Facility, the lenders can commence foreclosure or other actions against the collateral. On August 18, 2020 (the "First Amendment Effective Date"), we entered into the First Amendment to the 2020 Credit Facility. Pursuant to an assignment and assumption agreement entered into by Citizens and certain affiliates of Whitehorse Capital on the First Amendment Effective Date (collectively, "HIG Whitehorse"), and consented to by Citizens and the Borrower, $75 million of the 2020 Term Loan Facility, designated as the Term B Loan (the "Term B Loan") was assigned from Citizens to HIG Whitehorse. The remaining $325 million of the 2020 Term Loan Facility that was not assigned to HIG Whitehorse was deemed the Term A Loan (the "Term A Loan" and, together with the Term B Loan, the "Amended 2020 Term Loan Facility"). The Term A Loan and amounts under the 2020 Revolving Credit Facility mature in March 2025. The Term A Loan and 2020 Revolving Credit Facility bear interest at the Borrower's option at either the LIBOR rate plus a margin ranging from 1.50% to 3.50% per year, or the base rate (the highest of the Federal Funds Effective Rate (as defined in the 2020 Credit Agreement) plus 0.50%, or the prime rate announced from time to time in The Wall Street Journal) plus a margin ranging from 0.50% to 2.50% per year (the "Applicable Margin"). The Applicable Margin varies depending on our Consolidated Net Leverage Ratio (as defined in the 2020 Credit Agreement). The base rate and the LIBOR rate are each subject to a zero percent floor. We are required to make quarterly principal payments on the Term A Loan aggregating approximately $10 million in the first year, $16 million in each of the next two years, $20 million in the fourth year and $16 million in the last year, with the final payment approximating $244 million due on the maturity date. The Borrower can prepay all amounts under the Term A Loan and the 2020 Revolving Credit Facility at any time without premium or penalty (other than customary LIBOR breakage costs), subject to certain notice requirements. The First Amendment did not change the terms applied to the Term A Loan or the Revolving Credit Facility under the 2020 Credit Facility. The Term B Loan was scheduled to mature in March 2026 and bore interest, at the Borrower's option, at either the LIBOR rate plus a margin of 7.50% per year, or the base rate (the highest of the Federal Funds Effective Rate (as defined in the 2020 Credit Facility) plus 0.50%, or the prime rate announced from time to time in The Wall Street Journal, plus a margin of 6.50% per year. The Term B Loan had a lower rate of amortization than the Term A Loan and was subject to a 1.0% premium if voluntarily repaid in connection with a repricing transaction (as defined in the First Amendment) occurring prior to the six month anniversary of the First Amendment Effective Date. We were required to make quarterly principal payments totaling approximately $1 million in the first year and $8 million in the aggregate over the next four and a half years, with the final payment approximating $66 million due on the maturity date. The First Amendment reduced the Borrower's ability to incur new tranches of term loans, or increases in commitments under the Amended 2020 Term Loan Facility or the 2020 Revolving Credit Facility. Specifically, such indebtedness can be incurred up to an aggregate dollar amount equal to 75% of the Company's Consolidated Adjusted EBITDA (as defined in the 2020 Credit Facility), reduced from 100% prior to the First Amendment, as of the most recently ended fiscal quarter for which financial statements have been delivered to the lenders, plus additional amounts, so long as the Borrower's Consolidated Net Leverage Ratio (as defined in the 2020 Credit Facility) does not exceed 2.25:1.00, reduced from 2.75:1.00 prior to the First Amendment. The First Amendment also reduced the amount of Unrestricted Cash (as defined in the 2020 Credit Facility) used in calculating the Borrower's Consolidated Net Leverage Ratio from $25 million to $10 million. On December 1, 2020, we entered into a Second Amendment to the 2020 Credit Facility to obtain consent for an equity exchange with AVCT in connection with the Kandy Sale, as well as amend certain provisions of the 2020 Credit Facility. At December 31, 2020, we had an outstanding Term A Loan balance of $318.5 million at an average interest rate of 3.4%, and the Term B Loan had an outstanding balance of $74.6 million at average interest rate of 8.40%. The 2020 Revolving Credit Facility did not have an outstanding balance but had $5.6 million of letters of credit outstanding with an interest rate of 2.5%. On March 3, 2021 (the "Third Amendment Effective Date"), we entered into a Third Amendment to Credit Agreement (the "Third Amendment"), which further amended the 2020 Credit Facility. The Third Amendment provided for an incremental term loan facility to us in the original principal amount of $74.6 million, the proceeds of which were used on the Third Amendment Effective Date to consummate an open market purchase of all outstanding amounts under the Term B Loan. Upon the consummation of the open market purchase, the Term B Loans were assigned to the Borrower and immediately canceled, such that the outstanding amount under the Term A Loan and incremental term loan facility were combined and held by the Lenders (the "2020 Term Loan"). We are required to make quarterly principal payments on the 2020 Term Loan aggregating 52 Table of Contents approximately $20 million per year in the first three years and $30 million in the fourth year, with the final payment approximating $300 million due on the maturity date. On March 10, 2022, we entered into a Fourth Amendment to the 2020 Credit Facility (the "Fourth Amendment") to increase the Maximum Consolidated Net Leverage Ratio (as defined in the 2020 Credit Facility) to 4.25:1.00 for the first quarter of 2022 and 4.50:1.00 for the second quarter of 2022, with reductions in subsequent quarters through the third quarter of 2023, when the ratio will be fixed at 3.00:1.00. In connection with the Fourth Amendment, we made a $15.0 million prepayment that was applied to the final payment due on the maturity date. At December 31, 2021, we had an outstanding 2020 Term Loan balance of $375.5 million at an average interest rate of 3.4% and $4.3 million of letters of credit outstanding with an interest rate of 2.5%. We were in compliance with all covenants of the 2020 Credit Facility at both December 31, 2021 and 2020. We are exposed to financial market risk related to foreign currency fluctuations and changes in interest rates. These exposures are actively monitored by management. To manage the volatility related to the exposure to changes in interest rates, we have entered into a derivative financial instrument. Management's objective is to reduce, where it is deemed appropriate to do so, fluctuations in earnings and cash flows associated with changes in interest rates. Our policies and practices are to use derivative financial instruments only to the extent necessary to manage exposures. We do not hold or issue derivative financial instruments for trading or speculative purposes. As a result of exposure to interest rate movements, during March 2020, we entered into an interest rate swap arrangement, which effectively converted our $400 million term loan with its variable interest rate based upon one-month LIBOR to an aggregate fixed rate of 0.904%, plus a leverage-based margin as defined in the 2020 Credit Facility. The notional amount of this swap as of December 31, 2021 was $400 million, and the swap matures on March 3, 2025, the same date the 2020 Credit Facility matures. Our objectives in using interest rate derivatives are to add stability to interest expense and to manage our exposure to interest rate movements. To accomplish this objective, we are using an interest rate swap as part of our interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income (loss) in the consolidated balance sheet and is subsequently reclassified into earnings in the period that the hedged forecasted transactions affect earnings. During the years ended December 31, 2021 and 2020, such a derivative was used to hedge the variable cash flows associated with the 2020 Credit Facility. Any ineffective portion of the change in fair value of the derivative would be recognized directly in earnings. However, during the years ended December 31, 2021 and 2020, we recorded no hedge ineffectiveness. Amounts reported in accumulated other comprehensive income (loss) related to our derivative are reclassified to interest expense as interest is accrued on our variable-rate debt. Based upon projected forward rates, we estimate as of December 31, 2021 that $2.1 million may be reclassified as an increase to interest expense over the next 12 months. We use letters of credit, performance and bid bonds in the course of our business. At December 31, 2021, we had $30.1 million of letters of credit, bank guarantees, performance and bid bonds outstanding (collectively, the "Guarantees"), comprised of the $4.3 million of letters of credit under the 2020 Credit Facility described above (the "Letters of Credit") and $25.8 million of bank guarantees and performance and bid bonds under various uncommitted facilities (collectively, the "Other Guarantees"). At December 31, 2020, we had $32.6 million of Guarantees, comprised of $5.6 million of Letters of Credit and $27.0 million of Other Guarantees. At December 31, 2021 and 2020, we had cash collateral of $2.6 million and $2.7 million, respectively, supporting the Guarantees under our uncommitted facilities. This cash collateral is included in Restricted cash in our consolidated balance sheets at December 31, 2021 and 2020. Our IP Optical Networks segment maintains customer receivables factoring agreements with a number of financial institutions. Under the terms of these agreements, we may transfer receivables to the financial institutions, on a non-recourse basis, provided that the financial institutions approve the receivables in advance. During the year ended December 31, 2021, we received $118.5 million of cash from the sale of certain accounts receivable and recorded $0.8 million of interest expense in connection with these transactions. During the year ended December 31, 2020, we received $119.8 million of cash from the sale of certain accounts receivable and recorded $0.9 million of interest expense in connection with these transactions. 53 Table of Contents In the second quarter of 2019, our Board approved a stock repurchase program (the "Repurchase Program") pursuant to which we could repurchase up to $75 million of our common stock prior to April 18, 2021. The Company did not repurchase any common stock in the year ended December 31, 2020 or in the period from January 1, 2021 though the expiration of the Repurchase Program on April 18, 2021. We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial position, changes in financial position, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources. Cash Flows from Operating Activities Our primary source of cash from operating activities has been from cash collections from our customers. We expect cash flows from operating activities to be affected by increases and decreases in sales volumes and timing of collections, and by purchases and shipments of inventory. Our primary uses of cash from operating activities have been for personnel costs and investment in our research and development and in our sales and marketing, and general and administrative departments. Our operating activities provided $19 million of cash in 2021, primarily the result of higher accounts payable and deferred revenue, and lower other operating assets, coupled with our non-cash operating expenses such as the impairment of goodwill, the decrease in the fair value of the AVCT Investment, amortization of intangible assets, stock-based compensation and depreciation. These amounts were partially offset by our net loss and a non-cash gain arising from the reversal of portions of our deferred tax asset, coupled with lower accrued expenses and other long-term liabilities and higher accounts receivable and inventory. The decrease in accrued expenses and other long-term liabilities was primarily due to employee-related cash payments and payments related to facilities, professional fees and royalties. Our operating activities provided $102 million of cash in 2020, primarily the result of our net income, lower other operating assets, inventory and accounts receivable, higher accrued expenses and other long-term liabilities, and our non-cash operating income and expenses such as the gain on the Kandy Sale, amortization of intangible assets, stock-based compensation, depreciation, and amortization of debt issuance costs. These amounts were partially offset by lower accounts payable and deferred revenue. The decrease in other operating assets was primarily due to the payments received from Metaswitch aggregating $26 million in connection with the 2019 litigation settlement and subsequent supplemental agreement to accelerate the payment of amounts outstanding. The increase in accrued expenses and other long-term liabilities was primarily due to the derivative liability we recorded in connection with our interest rate swap, which we entered into in the first quarter of 2020. Cash Flows from Investing Activities Our investing activities used $14 million and $330 million of cash in 2021 and 2020, respectively. Our 2021 investing activities were comprised of $17 million paid for purchases of property and equipment, partially offset by $3 million of proceeds from the sale of QualiTech. Our 2020 investing activities were comprised of $347 million of cash paid as cash consideration for ECI and $26 million paid for purchases of property and equipment, partially offset by $43 million of cash proceeds from the sale of land in connection with the ECI Acquisition. Cash Flows from Financing Activities Our financing activities used $34 million of cash in 2021. We received $75 million of proceeds from the incremental loan obtained in connection with the Third Amendment, which amount was used to consummate an open market purchase of all outstanding amounts under the Term B Loan. We used $92 million for principal payments of term debt, including the $75 million payoff of the Term B Loan in connection with the Third Amendment, $14 million for the payment of tax withholding obligations related to the net share settlement of restricted stock awards upon vesting, and $1 million each for principal payments of finance leases and payments of debt issuance costs. Our financing activities provided $319 million of cash in 2020, primarily due to $479 million of proceeds from term debt, which was comprised of $400 million from the 2020 Credit Facility, $75 million from the Term B Loan under the Amended 2020 Credit Facility (concurrent with the repayment of the same amount of original debt under the 2020 Credit Facility as noted below) and $4 million of proceeds from short-term loans in China for the financing of certain export activities. These proceeds were partially offset by the repayment of the $75 million of debt that was extinguished in connection with the First Amendment, the repayment of $57 million outstanding under the 2019 Credit Facility (comprised of $8 million under the revolving credit facility and $49 million of long-term debt), the payment of $14 million of debt issuance costs in connection with the 2020 Credit Facility and the First Amendment, and the repayment of principal aggregating $10 million related to the 54 Table of Contents 2020 Credit Facility and short-term loans in China. We also paid $2 million for withholding obligations related to the net share settlement of restricted stock awards upon vesting and $1 million for principal payments on finance leases. Based on our current expectations, we believe our current cash and available borrowings under the 2020 Credit Facility will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least twelve months. The rate at which we consume cash is dependent on the cash needs of our future operations, including our contractual obligations at December 31, 2021, primarily comprised of our debt principal and interest obligations as described above, and our operating lease and purchase obligations. Our operating lease obligations totaled $88 million at December 31, 2021, with payments aggregating $21 million in 2022, $18 million in 2023, $11 million in 2024 and $38 million thereafter. Our purchase obligations totaled $167 million at December 31, 2021, with estimated payments aggregating $139 million in 2022 and $28 million thereafter. We anticipate devoting substantial capital resources to continue our research and development efforts, to maintain our sales, support and marketing, to complete acquisition-related integration activities and for other general corporate activities. We further believe that our financial resources, along with managing discretionary expenses, will allow us to manage the ongoing impact of the COVID-19 pandemic on our business operations. Looking ahead, we have developed contingency plans to reduce costs further if the situation continues to deteriorate. The challenges posed by the COVID-19 pandemic on our business continue to evolve rapidly. Consequently, we continue to evaluate our financial position in light of future developments, particularly those relating to the COVID-19 pandemic. However, it is difficult to predict future liquidity requirements with certainty, and our cash and available borrowings under the 2020 Credit Facility may not be sufficient to meet our future needs, which would require us to refinance our debt and/or obtain additional financing. We may not be able to refinance our debt or obtain additional financing on favorable terms or at all. Recent Accounting Pronouncements In December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes ("ASU 2019-12"), which modifies Accounting Standards Codification ("ASC") 740, Income Taxes (Topic 740), to simplify the accounting for income taxes. ASU 2019-12 addresses the accounting for hybrid tax regimes, tax basis step-up in goodwill obtained in a transaction that is not a business combination, separate financial statements of legal entities not subject to tax, intraperiod tax allocation exception to incremental approach, ownership changes in investments - changes from a subsidiary to an equity method investment, ownership changes in investments - changes from an equity method investment to a subsidiary, interim period accounting for enacted changes in tax law and year-to-date loss limitation in interim period tax accounting. The adoption of ASU 2019-12 did not have a material impact on our 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. We believe that the adoption of ASU 2021-08 could have a material impact on our 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. We do not believe the adoption of ASU 2021-01 will have a material impact on our consolidated financial statements. 55 Table of Contents Item 7A. Quantitative and Qualitative Disclosures About Market Risk We are exposed to a variety of market risks, changes in interest rates affecting the return on our investments and foreign currency fluctuations. To manage the volatility related to the exposure to changes in interest rates, we have entered into a derivative financial instrument. Our objective is to reduce, where it is deemed appropriate to do so, fluctuations in earnings and cash flows associated with changes in interest rates. Our policies and practices are to use derivative financial instruments only to the extent necessary to manage exposures. We do not hold or issue derivative financial instruments for trading or speculative purposes. Amounts reported in accumulated other comprehensive income (loss) related to our derivative are reclassified to interest expense as interest is accrued on our variable-rate debt. Our derivative had a fair value of $1.8 million at December 31, 2021, comprised of $2.1 million included in Accrued expenses and other and $3.9 million included in Other assets on our consolidated balance sheet. Based upon projected forward rates, we estimate as of December 31, 2021 that $2.1 million may be reclassified as an increase to interest expense over the next twelve months. At December 31, 2021, we had outstanding debt totaling $375.5 million. A hypothetical movement of plus or minus 50 basis points in the interest rate of our outstanding debt would have changed our interest expense by approximately $2 million for the year ended December 31, 2021. Based on a hypothetical 10% adverse movement in all foreign currency exchange rates, our revenue and net loss for the year ended December 31, 2021 would have been adversely affected by approximately $25 million and $11 million, respectively, although the actual effects could differ materially from this hypothetical analysis. 56 Table of Contents Item 8. Financial Statements and Supplementary Data Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34) Consolidated Balance Sheets as of December 31, 2021 and 2020 Consolidated Statements of Operations for the years ended December 31, 2021, 2020 and 2019 Consolidated Statements of Comprehensive (Loss) Income for the years ended December 31, 2021, 2020 and 2019 Consolidated Statements of Stockholders' Equity for the years ended December 31, 2021, 2020 and 2019 Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020 and 2019 Notes to Consolidated Financial Statements 58 61 62 63 64 65 67 57 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of Ribbon Communications Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Ribbon Communications Inc. and subsidiaries (the "Company") as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income (loss), stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 11, 2022, expressed an unqualified opinion on the Company's internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Revenue Recognition — Refer to Notes 2 and 16 to the financial statements Critical Audit Matter Description The Company recognizes revenue from two primary sources: products and services. Generally, contracts with customers contain multiple performance obligations, consisting of products and services. For these contracts, the Company accounts for individual performance obligations separately if they are considered distinct. When an arrangement contains more than one performance obligation, the Company will allocate the transaction price to each performance obligation on a relative standalone selling price basis. The Company utilizes the observable price of goods and services when they are sold separately to similar customers in order to estimate standalone selling price. Management is required to use judgment to develop its estimates of standalone selling price. Auditing the Company’s estimates of standalone selling price required a high degree of auditor judgment and an increased extent of effort, including the need to involve our data analytics specialists to assist in the testing of the standalone selling price analyses given the judgment required by management in this area. 58 Table of Contents How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the testing of management’s estimation of standalone selling prices included the following, among others: • We tested the effectiveness of controls over revenue, including those over the determination of estimated standalone selling price. • We evaluated whether management’s significant accounting policies related to the estimation of standalone selling price were appropriate. • With the assistance of our data analytics specialists, we evaluated the estimated standalone selling price analyses prepared by the Company, including testing the underlying detail of standalone sales and the mathematical accuracy of the calculations. Goodwill – IP Optical Networks Reporting Unit — Refer to Notes 2 and 10 to the financial statements Critical Audit Matter Description The Company’s evaluation of goodwill for impairment involves the comparison of the fair value of each reporting unit to its carrying value. The Company used a combination of the income and market approaches to estimate reporting unit fair value. With respect to the income approach, management is required to make significant estimates and assumptions related to discount rates and forecasts of future revenue. Changes in these assumptions could have a significant impact on either the fair value, the amount of any goodwill impairment charge, or both. The goodwill balance was $417 million as of December 31, 2021, of which $192 million was allocated to the IP Optical Networks Reporting Unit (“IP Optical”). The carrying value of IP Optical exceeded its fair value as of December 31, 2021, and, therefore, $116 million of impairment was recognized. Given the significant judgments made by management to estimate the fair value of IP Optical, performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to the selection of the discount rate and forecasts of future revenue and profit margin required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the discount rate and forecasts of future revenue and profit margin, used by management to estimate the fair value of IP Optical, included the following, among others: • We tested the effectiveness of controls over management’s goodwill impairment evaluation, including those over the determination of the fair value of IP Optical, such as controls related to management’s selection of the discount rate and forecasts of future revenue and profit margin. • We evaluated management’s ability to accurately forecast future revenues and profit margins by comparing actual results to management’s historical forecasts. • We evaluated the reasonableness of management’s revenue and profit margin forecasts by comparing the forecasts to: ◦ Historical revenues and profit margins. ◦ ◦ Internal communications to management and the Board of Directors. Forecasted information included in Company press releases as well as in analyst and industry reports for the Company and certain of its peer companies. • We evaluated the impact of changes in management’s forecasts from the October 1, 2021, annual measurement date to December 31, 2021. • With the assistance of our fair value specialists, we evaluated the reasonableness of the discount rate by: Testing the source information underlying the determination of the discount rate and the mathematical accuracy of the calculation. ◦ ◦ Developing a range of independent estimates and comparing those to the discount rate selected by management. 59 Table of Contents /s/ Deloitte & Touche LLP Dallas, Texas March 11, 2022 We have served as the Company's auditor since 2005. 60 RIBBON COMMUNICATIONS INC. Consolidated Balance Sheets (in thousands, except share and per share data) Assets Liabilities and Stockholders' Equity Table of Contents Current assets: Cash and cash equivalents Restricted cash Accounts receivable, net Inventory Other current assets Total current assets Property and equipment, net Intangible assets, net Goodwill Investments Deferred income taxes Operating lease right-of-use assets Other assets Current liabilities: Current portion of term debt Accounts payable Accrued expenses and other Operating lease liabilities Deferred revenue Total current liabilities Long-term debt, net of current Operating lease liabilities, net of current Deferred revenue, net of current Deferred income taxes Other long-term liabilities Total liabilities Commitments and contingencies (Note 26) Stockholders' equity: Preferred stock, $0.01 par value; 10,000,000 shares authorized; none issued and outstanding Common stock, 240,000,000 shares authorized, $0.0001 par value, 148,895,308 shares issued and outstanding at December 31, 2021; 145,425,248 shares issued and outstanding at December 31, 2020 Additional paid-in capital Accumulated deficit Accumulated other comprehensive income (loss) Total stockholders' equity See notes to the consolidated financial statements. 61 December 31, 2021 December 31, 2020 $ $ $ $ 103,915 $ 2,570 282,917 54,043 37,545 480,990 47,685 350,730 300,892 43,931 47,287 53,147 23,075 1,347,737 $ 20,058 $ 97,121 100,752 17,403 109,119 344,453 350,217 55,196 20,619 8,116 41,970 820,571 128,428 7,269 237,738 45,750 28,461 447,646 48,888 417,356 416,892 115,183 10,651 69,757 20,892 1,547,265 15,531 63,387 134,865 17,023 96,824 327,630 369,035 72,614 26,010 16,842 48,281 860,412 — — 15 1,875,234 (1,355,661) 7,578 527,166 1,347,737 $ 15 1,870,256 (1,178,476) (4,942) 686,853 1,547,265 Table of Contents Revenue: Product Service Total revenue Cost of revenue: Product Service Amortization of acquired technology Total cost of revenue Gross profit Operating expenses: Research and development Sales and marketing General and administrative Amortization of acquired intangible assets Impairment of goodwill Acquisition-, disposal- and integration-related Restructuring and related Total operating expenses (Loss) income from operations Interest expense, net Other (expense) income, net (Loss) income before income taxes Income tax benefit (provision) Net (loss) income (Loss) earnings per share: Basic Diluted Shares used to compute (loss) earnings per share: Basic Diluted RIBBON COMMUNICATIONS INC. Consolidated Statements of Operations (in thousands, except per share data) 2021 Year ended December 31, 2020 2019 $ 453,042 $ 391,915 844,957 467,912 $ 375,883 843,795 214,745 147,209 38,343 400,297 444,660 194,948 150,279 53,661 28,283 116,000 7,632 11,653 562,456 (117,796) (15,831) (74,516) (208,143) 30,958 (177,185) $ 204,772 145,916 42,290 392,978 450,817 194,525 139,318 63,286 18,620 — 17,164 16,235 449,148 1,669 (21,042) 112,690 93,317 (4,726) 88,591 $ (1.20) $ (1.20) $ 0.64 $ 0.61 $ 147,575 147,575 138,967 144,650 $ $ $ 262,030 301,081 563,111 95,774 112,680 37,573 246,027 317,084 141,060 106,310 53,870 11,652 164,300 12,953 16,399 506,544 (189,460) (3,877) 70,444 (122,893) (7,182) (130,075) (1.19) (1.19) 109,734 109,734 See notes to the consolidated financial statements. 62 Table of Contents RIBBON COMMUNICATIONS INC. Consolidated Statements of Comprehensive (Loss) Income (in thousands) Net (loss) income Other comprehensive income (loss), net of tax: Unrealized gain (loss) on interest rate swap, net of reclassifications Foreign currency translation adjustments Unrealized gain on available-for-sale marketable securities, net of reclassification adjustments for realized amounts Employee retirement benefits Other comprehensive income (loss), net of tax Comprehensive (loss) income, net of tax $ $ See notes to the consolidated financial statements. 63 2021 (177,185) $ Year ended December 31, 2020 88,591 $ 12,759 (239) (10,948) 894 — — 12,520 (164,665) $ — 2,585 (7,469) 81,122 $ 2019 (130,075) — 194 590 (1,960) (1,176) (131,251) Table of Contents RIBBON COMMUNICATIONS INC. Consolidated Statements of Stockholders' Equity (in thousands, except share data) Common stock Shares Amount 106,815,636 $ 11 Additional paid-in capital 1,723,576 $ Accumulated deficit (1,136,992) $ Accumulated other comprehensive income (loss) Total stockholders' equity $ 3,703 $ 590,298 Balances, January 1, 2019 Issuance of common stock in connection with employee stock purchase plan Exercise of stock options Vesting of restricted stock awards and units Vesting of performance-based stock awards and units Shares of restricted stock returned to the Company under net share settlements to satisfy tax withholding obligations Shares issued as consideration in connection with the acquisition of Anova Data, Inc. Repurchase and retirement of common stock Stock-based compensation expense Reclassification of liability to equity for bonuses converted to stock awards Other comprehensive loss Net loss Balances, December 31, 2019 Exercise of stock options Vesting of restricted stock awards and units Vesting of performance-based stock units Shares of restricted stock returned to the Company under net share settlements to satisfy tax withholding obligations Shares issued as consideration in connection with the acquisition of ECI Telecom Group Ltd. Shares issued as consideration in connection with acquisition of Anova Data, Inc. Stock-based compensation expense Other comprehensive loss Net income Balances, December 31, 2020 Exercise of stock options Vesting of restricted stock awards and units Vesting of performance-based stock units Shares of restricted stock returned to the Company under net share settlements to satisfy tax withholding obligations Stock-based compensation expense Other comprehensive income Net loss 282,646 127,334 1,504,707 9,466 (240,673) 2,948,793 (975,914) 863 235 (1,193) 15,186 (4,536) 12,601 1,052 110,471,995 38,288 2,246,690 323,752 (472,028) 11 1 1,747,784 70 (1,674) 32,500,000 $ 3 108,547 316,551 145,425,248 13,815 3,653,552 1,557,656 (1,754,963) 1,630 13,899 15 1,870,256 24 (14,464) 19,418 Balances, December 31, 2021 148,895,308 $ 15 $ 1,875,234 $ See notes to the consolidated financial statements. 64 863 235 — — (1,193) 15,186 (4,536) 12,601 1,052 (1,176) (130,075) 483,255 70 1 — (1,674) 108,550 1,630 13,899 (7,469) 88,591 686,853 24 — — (14,464) 19,418 12,520 (177,185) 527,166 (130,075) (1,267,067) (1,176) 2,527 88,591 (1,178,476) (7,469) (4,942) (177,185) (1,355,661) $ 12,520 7,578 $ Table of Contents RIBBON COMMUNICATIONS INC. Consolidated Statements of Cash Flows (in thousands) Cash flows from operating activities: Net (loss) income Adjustments to reconcile net (loss) income to cash flows provided by operating activities: Depreciation and amortization of property and equipment Amortization of intangible assets Amortization of debt issuance costs Stock-based compensation Impairment of goodwill Deferred income taxes Gain on sale of business Decrease (increase) in fair value of investments Reduction to deferred purchase consideration Foreign currency exchange losses Changes in operating assets and liabilities: Accounts receivable Inventory Other operating assets Accounts payable Accrued expenses and other long-term liabilities Deferred revenue Net cash provided by operating activities Cash flows from investing activities: Purchases of property and equipment Business acquisitions, net of cash acquired Proceeds from sale of business Sales/maturities of marketable securities Proceeds from the sale of fixed assets Net cash used in investing activities Cash flows from financing activities: Borrowings under revolving line of credit Principal payments on revolving line of credit Proceeds from issuance of long-term debt Principal payment of debt, related party Principal payments of term debt Payment of deferred purchase consideration Principal payments of finance leases Payment of debt issuance costs Proceeds from the sale of common stock in connection with employee stock purchase plan Proceeds from the exercise of stock options 65 2021 Year ended December 31, 2020 2019 $ (177,185) $ 88,591 $ (130,075) 16,962 66,626 4,763 19,418 116,000 (45,596) (2,772) 71,252 — 5,002 (47,279) (9,029) 9,958 34,482 (50,324) 6,904 19,182 (17,132) — 2,944 — — (14,188) — — 74,625 — (92,176) — (903) (789) — 24 17,188 60,910 5,673 13,899 — (4,616) (83,552) (30,296) (70) 2,961 9,578 11,842 44,343 (49,561) 20,629 (5,955) 101,564 (26,721) (346,852) — — 43,500 (330,073) 615 (8,615) 478,500 — (134,188) — (1,258) (14,147) — 70 11,949 49,225 360 12,601 164,300 5,299 — — (8,124) 1,090 (3,936) 7,776 (17,849) (16,282) (18,538) (2,111) 55,685 (10,824) — — 7,295 — (3,529) 117,000 (164,000) 50,000 (24,716) (1,250) (21,876) (913) (891) 863 235 Table of Contents RIBBON COMMUNICATIONS INC. Consolidated Statements of Cash Flows (continued) (in thousands) Payment of tax withholding obligations related to net share settlements of restricted stock awards Repurchase of common stock Net cash (used in) provided by financing activities Effect of exchange rate changes on cash and cash equivalents Net (decrease) increase in cash and cash equivalents Cash, cash equivalents and restricted cash, beginning of year Cash, cash equivalents and restricted cash, end of year Supplemental disclosure of cash flow information: Interest paid Income taxes paid Income tax refunds received Supplemental disclosure of non-cash investing activities: Capital expenditures incurred, but not yet paid Property and equipment acquired under finance leases Business acquisition purchase consideration - common stock issued Business acquisition purchase consideration - deferred payments Supplemental disclosure of non-cash financing activities: Total fair value of restricted stock awards, restricted stock units, performance-based stock awards and performance-based stock units on date vested See notes to the consolidated financial statements. 66 2021 Year ended December 31, 2020 2019 (14,464) — (33,683) (523) (29,212) 135,697 106,485 $ 14,867 $ 14,447 $ 1,488 $ 2,269 $ — $ — $ — $ (1,674) — 319,303 260 91,054 44,643 135,697 $ 15,546 $ 9,293 $ 1,163 $ 3,749 $ — $ 108,550 $ 1,630 $ (1,193) (4,536) (51,277) 70 949 43,694 44,643 4,072 4,665 1,757 2,566 1,442 15,186 1,700 40,751 $ 7,927 $ 7,422 $ $ $ $ $ $ $ $ $ RIBBON COMMUNICATIONS INC. Notes to Consolidated Financial Statements (1) NATURE OF THE BUSINESS Ribbon Communications Inc. ("Ribbon" or the "Company") is a leading global provider of communications technology to service providers and enterprises. The Company provides a broad range of software and high-performance hardware products, network solutions, and services that enable the secure delivery of data and voice communications, and high-bandwidth networking and connectivity for residential consumers and for small, medium, and large enterprises and industry verticals such as finance, education, government, utilities, and transportation. Ribbon's mission is to create a recognized global technology leader providing cloud-centric solutions that enable the secure exchange of information, with unparalleled scale, performance, and elasticity. The Company is headquartered in Plano, Texas, and has a global presence with research and development, or sales and support locations in over thirty-five countries around the world. (2) BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The consolidated financial statements have been prepared in United States dollars, in accordance with accounting principles generally accepted in the United States ("GAAP"). On December 1, 2020 (the "Kandy Sale Date"), American Virtual Cloud Technologies, Inc. ("AVCT") completed the purchase of the Company's cloud- based enterprise service business (the "Kandy Communications Business"). The revenue and expenses of the Kandy Communications Business are excluded from the Company's consolidated financial statements for the period subsequent to the Kandy Sale Date. On March 3, 2020 (the "ECI Acquisition Date"), the Company merged with ECI Telecom Group Ltd ("ECI") (the "ECI Acquisition"). The financial results of ECI are included in the Company's consolidated financial statements for the period subsequent to the ECI Acquisition 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 consolidated financial statements for the period subsequent to the Anova Acquisition Date. Significant Accounting Policies Principles of Consolidation The accompanying consolidated financial statements include the accounts of Ribbon and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. Use of Estimates and Judgments The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Significant estimates and judgments relied upon in preparing these 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 assets, goodwill, debentures and warrants, 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. 67 Table of Contents Reclassifications RIBBON COMMUNICATIONS INC. Notes to Consolidated Financial Statements (Continued) 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 consolidated statements of operations. The Company's management believes this presentation aids in the comparability of its financial statements to industry peers. These reclassifications did not impact operating income (loss), net income (loss) or earnings (loss) per share for any historical periods. These reclassifications also did not impact the 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. These reclassifications for the years ended December 31, 2020 and 2019 were as follows (in thousands): Product revenue Service revenue Total revenue Cost of revenue - product Cost of revenue - service Amortization of acquired technology Total cost of revenue Gross profit Research and development Sales and marketing General and administrative Amortization of acquired intangible assets Impairment of goodwill Acquisition-, disposal- and integration-related Restructuring and related Total operating expenses Prior presentation 467,912 $ 375,883 843,795 204,772 145,916 — 350,688 493,107 194,525 139,318 63,286 60,910 — 17,164 16,235 491,438 Year ended December 31, 2020 Amounts reclassified Revised presentation Year ended December 31, 2019 Amounts reclassified $ — 42,290 42,290 (42,290) (42,290) (42,290) 467,912 375,883 843,795 204,772 145,916 42,290 392,978 450,817 194,525 139,318 63,286 18,620 — 17,164 16,235 449,148 1,669 Prior presentation 262,030 $ 301,081 563,111 95,774 112,680 — 208,454 354,657 141,060 106,310 53,870 49,225 164,300 12,953 16,399 544,117 (189,460) $ $ Revised presentation 262,030 301,081 563,111 95,774 112,680 37,573 246,027 317,084 141,060 106,310 53,870 11,652 164,300 12,953 16,399 506,544 (189,460) $ — 37,573 37,573 (37,573) (37,573) (37,573) — $ Operating income (loss) $ 1,669 $ — $ In addition, certain other reclassifications, not affecting previously reported net income (loss), have been made to the previously issued financial statements to conform to the current year presentation. Business Combinations The Company recognizes identifiable assets acquired and liabilities assumed at their acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed and represents the expected future economic benefits arising from other assets acquired in the business combination that are not individually identified and separately recognized. While the Company uses its best estimates and assumptions as part of the purchase price allocation process to accurately value assets acquired and liabilities assumed at the acquisition date, its estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill to the extent that it identifies adjustments to the preliminary purchase price allocation. Upon the conclusion of the measurement period or final determination of the values of assets acquired and liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated statements of operations. 68 Table of Contents Revenue Recognition RIBBON COMMUNICATIONS INC. Notes to Consolidated Financial Statements (Continued) The Company derives revenue from two primary sources: products and services. Product revenue includes the Company's hardware and software that function together to deliver the products' essential functionality. Software and hardware are also sold on a standalone basis. Services include customer support (software updates, upgrades and technical support), consulting, design services, installation services and training. Generally, contracts with customers contain multiple performance obligations, consisting of products and services. For these contracts, the Company accounts for individual performance obligations separately if they are considered distinct. When an arrangement contains more than one performance obligation, the Company will allocate the transaction price to each performance obligation on a relative standalone selling price basis. The Company utilizes the observable price of goods and services when they are sold separately to similar customers in order to estimate standalone selling price. The Company's software licenses typically provide a perpetual right to use the Company's software. The Company also sells term-based software licenses that expire and Software-as-a-Service ("SaaS")-based software which are referred to as subscription arrangements. The Company does not customize its software nor are installation services required, as the customer has a right to utilize internal resources or a third-party service company. The software and hardware are delivered before related services are provided and are functional without professional services or customer support. The Company has concluded that its software licenses are functional intellectual property that are distinct, as the user can benefit from the software on its own. Product revenue is typically recognized upon transfer of control or when the software is made available for download, as this is the point the user of the software can direct the use of, and obtain substantially all of the remaining benefits from, the functional intellectual property. The Company begins to recognize software revenue related to the renewal of subscription software licenses at the start of the subscription period. The Company offers warranties on its products. Certain of the Company's warranties are considered to be assurance-type in nature, ensuring the product is functioning as intended. Assurance-type warranties do not represent separate performance obligations. The Company also sells separately-priced maintenance service contracts which qualify as service-type warranties and represent separate performance obligations. The Company does not allow and has no history of accepting product returns. Services revenue includes revenue from customer support and other professional services. Customer support includes software updates on a when-and-if- available basis, telephone support, integrated web-based support and bug fixes or patches. The Company sells its customer support contracts at a percentage of list or net product price. Customer support revenue is recognized ratably over the term of the customer support agreement, which is typically one year. The Company's professional services include consulting, technical support, resident engineer services, design services and installation services. Because control transfers over time, revenue is recognized based on progress toward completion of the performance obligation. The method to measure progress toward completion requires judgment and is based on the nature of the products or services to be provided. The Company generally uses the input method to measure progress for its contracts because it believes such method best depicts the transfer of assets to the customer, which occurs as the Company incurs costs for the contracts. However, in some instances, the Company uses the output method because it best depicts the transfer of asset to the customer. Under the cost-to-cost measure of progress, the progress toward completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. When the measure of progress is based upon expended labor, progress toward completion is measured as the ratio of labor time expended to date versus the total estimated labor time required to complete the performance obligation. Revenue is recorded proportionally as costs are incurred or as labor is expended. Costs to fulfill these obligations include internal labor as well as subcontractor costs. Customer training includes courses offered by the Company. The related revenue is typically recognized as the training services are performed. Operating Segments The Company's chief operating decision maker (the "CODM") is its president and chief executive officer. Effective in the fourth quarter of 2020 and in connection with the ECI Acquisition, the CODM began to assess the Company's performance based on the performance of two separate organizations within Ribbon: the Cloud and Edge segment ("Cloud and Edge") and the IP Optical Networks segment ("IP Optical Networks"). Financial information for the IP Optical Networks segment is not 69 Table of Contents RIBBON COMMUNICATIONS INC. Notes to Consolidated Financial Statements (Continued) presented for any years prior to 2020, as this segment arose from the ECI Acquisition, and accordingly is not included in the Company's consolidated financial statements for the year ended December 31, 2019. Financial Instruments The carrying amounts of Ribbon's financial instruments approximate their fair values and include accounts receivable, equity securities and convertible warrants received as sale consideration, borrowings under a revolving credit facility, accounts payable and term debt. Financial instruments with remaining maturities or that are due within one year from the balance sheet date are classified as current. Financial instruments with maturities or that are payable more than one year from the balance sheet date are classified as noncurrent. Fair Value Option - Investment in AVCT The Company received debentures and warrants as sale consideration in connection with the sale of the Kandy Communications Business. On September 8, 2021 (the "Debenture Conversion Date"), the debentures were converted into 13,700,421 shares of AVCT common stock (the "Debenture Shares") (see Note 4 for a discussion of the valuation of the debentures, warrants and Debenture Shares). In connection with the conversion of the debentures to the Debenture Shares, the Company elected to use the fair value option to account for its equity investment in AVCT as permitted under Accounting Standards Codification ("ASC") 825, Financial Instruments ("ASC 825"), which then refers to ASC 820, Fair Value Measurement ("ASC 820") to provide the fair value framework for valuing such investments. In accordance with ASC 820, the Company is recording the investment in AVCT at fair value, with changes in fair value recorded as a component of Other (expense) income, net, in the consolidated statements of operations. Restricted Cash The Company classifies as restricted cash all cash pledged as collateral to secure long-term obligations and all cash whose use is otherwise limited by contractual provisions. At December 31, 2021, the Company had $2.6 million of restricted cash, 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. At December 31, 2020, the Company had $7.3 million of restricted cash, comprised of $4.6 million restricted in connection with a tax payment on certain fixed assets formerly held by ECI that were sold in connection with the ECI Acquisition, and $2.7 million of restricted short-term bank deposits pledged to secure certain performance and financial bonds as security for the Company's obligations under tenders, contracts and to one of its main subcontractors. Transfers of Financial Assets The Company's IP Optical Networks segment maintains customer receivables factoring agreements with a number of financial institutions. Under the terms of these agreements, the Company may transfer receivables to the financial institutions, on a non-recourse basis, provided that the financial institutions approve the receivables in advance. The Company maintains credit insurance policies from major insurance providers or obtains letters of credit from the customers for a majority of its factored trade receivables. The Company accounts for the factoring of its financial assets as a sale of the assets and records the factoring fees, when incurred, as a component of interest expense in the consolidated statements of operations, and the proceeds from the sales of receivables are included in cash from operating activities in the consolidated statements of cash flows. During the year ended December 31, 2021, the Company received $118.5 million of cash from the sale of certain accounts receivable and recorded $0.8 million of interest expense in connection with these transactions. During the year ended December 31, 2020, the Company received $119.8 million of cash from the sale of certain accounts receivable and recorded $0.9 million of interest expense in connection with these transactions. Foreign Currency Translation For foreign subsidiaries where the functional currency is the local currency, assets and liabilities are translated into U.S. 70 Table of Contents RIBBON COMMUNICATIONS INC. Notes to Consolidated Financial Statements (Continued) dollars at the current exchange rate on the balance sheet date. Revenue and expenses are translated at average rates of exchange prevailing during each period. Translation adjustments for these subsidiaries are included in Accumulated other comprehensive income. For foreign subsidiaries where the functional currency is the U.S. dollar, monetary assets and liabilities are translated into U.S. dollars at the current exchange rate on the balance sheet date. Nonmonetary assets and liabilities are remeasured into U.S. dollars at historical exchange rates. Revenue and expense items are translated at average rates of exchange prevailing during each period. Translation adjustments for these subsidiaries are included in Other expense (income), net. Realized and unrealized foreign currency exchange gains and losses arising from transactions denominated in currencies other than the subsidiary's functional currency are reflected in earnings. The Company records its foreign currency gains (losses) as a component of Other (expense) income, net. The Company recognized net foreign currency losses of $5.0 million, $3.0 million and $1.1 million for the years ended December 31, 2021, 2020 and 2019, respectively. Inventory Inventory is recorded at the lower of cost or market value using the first-in, first-out convention. The Company reduces the carrying value of inventory for those items that are potentially excess, obsolete or slow-moving based on changes in customer demand, technology developments or other economic factors. Ribbon writes down evaluation equipment (equipment at customer sites for testing and evaluation) at the time of shipment to its customers, as it is probable that the inventory value will not be realized. Deferred product costs represent deferred cost of revenue for product shipments to customers prior to satisfaction of Ribbon's revenue recognition criteria. The Company classifies inventory that is not expected to be consumed within one year from the balance sheet date as noncurrent and includes such inventory as a component of Other assets. Property and Equipment Property and equipment are stated at cost, net of accumulated depreciation. Expenditures for maintenance and repairs are charged to expense as incurred. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets, which range from two to five years. Leasehold improvements are amortized over the lesser of the lease term or five years. When an asset is sold or retired, the cost and related accumulated depreciation or amortization are eliminated, and the resulting gain or loss, if any, is recognized in (Loss) income from operations in the consolidated statement of operations. The Company reviews property and equipment for impairment in the same manner as intangible assets discussed below. Software development costs associated with internal use software are incurred in three stages of development: the preliminary project stage, the application development stage and the post-implementation stage. Costs incurred during the preliminary project and post-implementation stages are expensed as incurred. Certain qualifying costs incurred during the application development stage are capitalized as property and equipment. Internal use software is amortized on a straight-line basis over its estimated useful life of three years, beginning when the software is ready for its intended use. Intangible Assets and Goodwill The Company's intangible assets are comprised of in-process research and development, developed technology, customer relationships, trade names, and internal use software. Intangible assets are reviewed for impairment when events or changes in circumstances indicate that their carrying amounts may not be recoverable based upon the estimated undiscounted cash flows. Recoverability of intangible assets with estimated lives and other long-lived assets is measured by a comparison of the carrying amount of an asset or asset group to future net undiscounted cash flows expected to be generated by the asset or asset group. If these comparisons indicate that an asset is not recoverable, the Company will recognize an impairment loss for the amount by which the carrying value of the asset or asset group exceeds the related estimated fair value. Estimated fair value is based on either discounted future operating cash flows or appraised values, depending on the nature of the asset. The Company amortizes its intangible assets over their respective useful lives, with the exception of in-process research and development, 71 Table of Contents RIBBON COMMUNICATIONS INC. Notes to Consolidated Financial Statements (Continued) which has an indefinite life until the product is generally available, at which time such asset is typically reclassified to developed technology, and the Company begins to amortize this asset. See Note 10 for additional information regarding the Company's intangible assets. Goodwill is recorded when the consideration for an acquisition exceeds the fair value of net tangible and identifiable intangible assets acquired. Goodwill is not amortized, but instead is tested for impairment at least annually, or more frequently if indicators of potential impairment exist, by comparing the fair value of the Company's reporting unit to its carrying value. Prior to 2020, the Company's annual test for impairment of goodwill was completed as of November 30. Effective in 2020, the Company changed its annual goodwill impairment test date from November 30 to October 1. This change did not have a material impact on the Company's consolidated financial statements. As described above, effective in the fourth quarter of 2020, the Company determined that it has two operating segments: Cloud and Edge, and IP Optical Networks. For the purpose of testing goodwill for impairment, all goodwill is assigned to a reporting unit, which may be either an operating segment or a portion of an operating segment. The Company's reporting units are its operating segments. The Company performs a fair value analysis using both an income and market approach, which encompasses a discounted cash flow analysis and a guideline public company analysis using selected multiples. The Company assesses each valuation methodology based upon the relevance and availability of the data at the time the valuation is performed and the methodologies are weighted appropriately. Any impairment charges are reported separately in the Company's consolidated statements of operations. Stock-Based Compensation The Company's stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service period, which generally represents the vesting period, and includes an estimate of the awards that will be forfeited. The Company uses the Black-Scholes valuation model for estimating the fair value on the date of grant of stock options. The fair value of stock option awards is affected by the Company's stock price as well as valuation assumptions, including the volatility of Ribbon's stock price, expected term of the option, risk-free interest rate and expected dividends. The Company may grant to certain of its executives performance-based stock units ("PSUs") that include a market condition. The Company uses a Monte Carlo simulation approach to model future stock price movements based upon the risk-free rate of return, the volatility of each entity and the pair-wise covariance between each entity. These results are then used to calculate the grant date fair values of the PSUs. Concentration of Risk The financial instruments that potentially subject Ribbon to concentrations of credit risk are cash, restricted cash and accounts receivable. The Company's cash equivalents and investments were managed by one financial institution at December 31, 2021. Historically, the Company has not experienced significant losses due to such bank depository concentration. The Company's investments at December 31, 2021 and 2020 consisted of securities of AVCT (see Note 4). Certain components and software licenses from third parties used in Ribbon's products are procured from single sources of supply. The failure of a supplier, including a subcontractor, to deliver on schedule could delay or interrupt Ribbon's delivery of products and thereby materially adversely affect Ribbon's revenue and operating results. Advertising Costs Advertising costs are expensed as incurred and included as a component of Sales and marketing expense in the Company's consolidated statements of operations. Advertising expenses were $1.6 million for the year ended December 31, 2021, $0.8 million for the year ended December 31, 2020 and $0.5 million for the year ended December 31, 2019. 72 Table of Contents Loss Contingencies and Reserves RIBBON COMMUNICATIONS INC. Notes to Consolidated Financial Statements (Continued) Ribbon is subject to ongoing business risks arising in the ordinary course of business, including legal claims, that affect the estimation process of the carrying value of assets, the recording of liabilities and the possibility of various loss contingencies. An estimated loss contingency is accrued when it is probable that a liability has been incurred or an asset has been impaired and the amount of loss can be reasonably estimated. Ribbon regularly evaluates current information available to determine whether such amounts should be adjusted and records changes in estimates in the period they become known. An allowance for doubtful accounts is estimated based on the Company's assessment of the collectability of specific customer accounts. Ribbon accrues for royalties for technology that it licenses from vendors based on established royalty rates and usage. Ribbon is periodically contacted by third parties who claim that Ribbon's products infringe on certain intellectual property of a third party. Ribbon evaluates these claims and accrues amounts when it is probable that the obligation has been incurred and the amounts are reasonably estimable. Warranty The Company records warranty liabilities for estimated costs of fulfilling its obligations under standard limited hardware and software warranties at the time of sale. The specific warranty terms and conditions vary depending upon the country in which the Company does business, but generally includes material costs, technical support, labor and associated overhead over a period ranging from one to three years. The Company assumed ECI's warranty liability in connection with the ECI Acquisition. At December 31, 2021, the Company's liability for product warranties was $13.1 million, of which $5.9 million was current and included in Accrued expenses and other and $7.2 million was long-term and included in Other long-term liabilities in the Company's consolidated balance sheet. At December 31, 2020, the Company's liability for product warranties was $14.9 million, of which $6.5 million was current and included in Accrued expenses and other, and $8.4 million was long-term and included in Other long-term liabilities in the Company's consolidated balance sheet. Research and Development Grants The Company records grants received from the Office of the Innovation Authority of the Israeli Ministry of Economics (the "IIA") as a reduction to Research and development expense. Royalties payable to the IIA are recognized pursuant to sales of related products and are included in Cost of revenue - product (see Note 26). Accounting for Leases The Company accounts for its leases in accordance with Accounting Standards Codification ("ASC") 842, Leases ("ASC 842") (see Note 21). The Company has operating and finance leases for corporate offices, research and development facilities, and certain equipment. Operating leases are reported separately in the Company's consolidated balance sheets at December 31, 2021 and 2020. Assets acquired under finance leases are included in Property and equipment, net, in the consolidated balance sheets at December 31, 2021 and 2020. The Company determines if an arrangement is a lease at inception. A contract is determined to contain a lease component if the arrangement provides the Company with a right to control the use of an identified asset. Lease agreements may include lease and non-lease components. In such instances for all classes of underlying assets, the Company does not separate lease and non-lease components but rather, accounts for the entire arrangement under leasing guidance. Leases with an initial term of 12 months or less are not recorded on the balance sheet and lease expense for these leases is recognized on a straight-line basis over the lease term. For operating leases, lease expense for minimum fixed lease payments is recognized on a straight-line basis over the lease term. The expense for finance leases includes both interest and amortization expense components, with the interest component calculated based on the effective interest method and the amortization component calculated based on straight-line amortization of the right-of-use asset over the lease term. Lease contracts may contain variable lease costs, such as common area maintenance, utilities and tax reimbursements that vary over the term of the contract. Variable lease costs are not included in minimum fixed lease payments and as a result, are excluded from the measurement of the right-of-use assets and lease 73 Table of Contents RIBBON COMMUNICATIONS INC. Notes to Consolidated Financial Statements (Continued) liabilities. The Company expenses all variable lease costs as incurred. Accounting for Income Taxes Deferred tax assets and liabilities are recognized for the expected future consequences of events that have been reflected in the consolidated financial statements. Deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax basis of assets and liabilities and operating loss carryforwards, using tax rates expected to be in effect for the years in which the differences are expected to reverse. The Company records valuation allowances to reduce deferred income tax assets to the amount that is more likely than not to be realized. The Company has provided for income taxes on the undistributed earnings of its non-U.S. subsidiaries as of December 31, 2021, excluding Ireland and Israel. These subsidiaries, excluding Ireland and Israel, are cost-plus or limited risk distributors that are not anticipated to need to use excess funds locally. Accordingly, the Company is required to recognize and record deferred taxes in 2021. The deferred taxes are recorded on the entire outside basis differences related to the foreign subsidiaries, the largest of these differences being undistributed earnings. The Company determines whether it is more likely than not that a tax position will be sustained upon examination. If it is not more likely than not that a position will be sustained, no amount of the benefit attributable to the position is recognized. The tax benefit to be recognized of any tax position that meets the more likely than not recognition threshold is calculated as the largest amount that is more than 50% likely of being realized upon resolution of the contingency. The Company accounts for interest and penalties related to uncertain tax positions as part of its provision for income taxes. Defined Benefit Plans The Company has defined benefit plans for some of its employees at various international locations. The Company recognizes retirement benefit assets or liabilities in the consolidated balance sheets reflecting the funded status of pension and other retirement benefit plans. Retirement benefit assets and liabilities are adjusted for the difference between the benefit obligations and the plan assets at fair value (measured at year-end), with the offset recorded directly to stockholders' equity through accumulated other comprehensive income (loss), net of tax. The amount recorded in stockholders' equity represents the after-tax unamortized actuarial gains or losses, unamortized transition obligations and unamortized prior service costs. Recent Accounting Pronouncements In December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes ("ASU 2019-12"), which modifies Accounting Standards Codification ("ASC") 740, Income Taxes (Topic 740), to simplify the accounting for income taxes. ASU 2019-12 addresses the accounting for hybrid tax regimes, tax basis step-up in goodwill obtained in a transaction that is not a business combination, separate financial statements of legal entities not subject to tax, intraperiod tax allocation exception to incremental approach, ownership changes in investments - changes from a subsidiary to an equity method investment, ownership changes in investments - changes from an equity method investment to a subsidiary, interim period accounting for enacted changes in tax law and year-to-date loss limitation in interim period tax accounting. The adoption of ASU 2019-12 did not have a material impact on the Company's 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 74 Table of Contents RIBBON COMMUNICATIONS INC. Notes to Consolidated Financial Statements (Continued) 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 Company does not believe the adoption of ASU 2021-01 will have a material impact on its consolidated financial statements. (3) BUSINESS ACQUISITIONS ECI On the ECI Acquisition Date, Ribbon completed its merger transaction with ECI in accordance with the terms of the Agreement and Plan of Merger, dated as of November 14, 2019, by and among Ribbon, ECI, an indirect wholly-owned subsidiary of Ribbon ("Merger Sub"), Ribbon Communications Israel Ltd. and ECI Holding (Hungary) Kft pursuant to which Merger Sub merged with and into ECI, with ECI surviving such merger as a wholly-owned subsidiary of Ribbon. Prior to the ECI Acquisition Date, ECI was a privately-held global provider of end-to-end packet optical transport and software-defined networking ("SDN") and network function virtualization ("NFV") solutions for service providers, enterprises and data center operators. As consideration for ECI, Ribbon issued the ECI shareholders and certain others 32.5 million shares of Ribbon common stock with a fair value of $108.6 million (the "Stock Consideration") and paid $322.5 million of cash (the "Cash Consideration"), comprised of $183.3 million to repay ECI's outstanding debt, including both principal and interest, and $139.2 million paid to ECI's selling shareholders. In addition, ECI shareholders received $33.4 million from the sale of certain of ECI's real estate assets. Cash Consideration was financed through cash on hand and committed debt financing consisting of a new $400 million term loan facility and $100 million revolving credit facility, which was undrawn at the ECI Acquisition Date. The ECI Acquisition has been accounted for as a business combination and the financial results of ECI have been included in the Company's consolidated financial statements for the period subsequent to the ECI Acquisition. The Company's financial results for the year ended December 31, 2020 included $260.5 million of revenue and $52.9 million of net loss attributable to ECI. The Company finalized the valuation of acquired assets, identifiable intangible assets and certain assumed liabilities in the fourth quarter of 2020. A summary of the allocation of the purchase consideration for ECI is as follows (in thousands): 75 Table of Contents RIBBON COMMUNICATIONS INC. Notes to Consolidated Financial Statements (Continued) Fair value of consideration transferred: Cash consideration: Repayment of ECI outstanding debt obligations Cash paid to selling shareholders Payment to selling shareholders from sale of ECI real estate assets Less cash and restricted cash acquired Net cash consideration Fair value of Ribbon stock issued Fair value of total consideration Fair value of assets acquired and liabilities assumed: Current assets, net of cash and restricted cash acquired Property and equipment Intangible assets: In-process research and development Developed technology Customer relationships Trade names Goodwill Other noncurrent assets Deferred revenue Other current liabilities Deferred revenue, net of current Deferred tax liability Other long-term liabilities $ $ $ $ 183,266 139,244 33,400 (9,058) 346,852 108,550 455,402 120,203 54,913 34,000 111,900 116,000 3,000 191,996 37,528 (4,369) (146,618) (3,726) (13,308) (46,117) 455,402 The valuation of the acquired intangible assets is inherently subjective and relies on significant unobservable inputs. The Company used an income approach to value the acquired in-process research and development, developed technology, customer relationships and trade name intangible assets. The valuation for each of these intangible assets was based on estimated projections of expected cash flows to be generated by the assets, discounted to the present value at discount rates commensurate with perceived risk. The valuation assumptions take into consideration the Company's estimates of customer attrition, technology obsolescence and revenue growth projections. The Company is amortizing the identifiable intangible assets arising from the ECI Acquisition in relation to the expected cash flows from the individual intangible assets over their respective useful lives, which have a weighted average life of 12.38 years (see Note 10). Goodwill results from assets that are not separately identifiable as part of the transaction and is not deductible for tax purposes. Pro Forma Results The following unaudited pro forma information presents the combined results of operations of Ribbon and ECI for the years ended December 31, 2020 and 2019 as if the ECI Acquisition had been completed on January 1, 2019, with adjustments to give effect to pro forma events that are directly attributable to the ECI Acquisition. These pro forma adjustments include an increase in research and development expense related to the conformance of ECI's cost capitalization policy to Ribbon's, additional amortization expense for the acquired identifiable intangible assets, a decrease in historical ECI interest expense reflecting the extinguishment of certain of ECI's debt as a result of the ECI Acquisition, and an increase in interest expense reflecting the new debt entered into by the Company in connection with the ECI Acquisition. Pro forma adjustments also include the elimination of acquisition- and integration-related costs directly attributable to the acquisition from the year ended December 31, 2020 and inclusion of such costs in the year ended December 31, 2019. The unaudited pro forma results do not reflect any operating efficiencies or potential cost savings that may result from the consolidation of the operations of Ribbon and ECI. Accordingly, these unaudited pro forma results are presented for illustrative purposes and are not intended to represent or be indicative of the actual results of operations of the combined 76 Table of Contents RIBBON COMMUNICATIONS INC. Notes to Consolidated Financial Statements (Continued) company that would have been achieved had the ECI Acquisition occurred at January 1, 2019, nor are they intended to represent or be indicative of future results of operations (in thousands, except per share amounts): Revenue Net income (loss) Diluted earnings (loss) per share Anova Data, Inc. Year ended December 31, 2019 2020 (unaudited) 869,002 $ 97,036 $ 0.65 $ 944,915 (250,337) (1.76) $ $ $ On the Anova Acquisition Date, the Company acquired the business and technology assets of Anova, a private company headquartered in Westford, Massachusetts that provides advanced analytics solutions (the "Anova Acquisition"). The Anova Acquisition was completed in accordance with the terms and conditions of an asset purchase agreement, dated as of January 31, 2019 (the "Anova Asset Purchase Agreement"). The Company acquired Anova because it believed that the Anova Acquisition would reinforce and extend Ribbon's strategy to expand into network optimization, security and data monetization via big data analytics and machine learning. As consideration for the Anova Acquisition, Ribbon issued 2.9 million shares of Ribbon common stock with a fair value of $15.2 million to Anova's sellers and equity holders on the Anova Acquisition Date and held back an additional 0.3 million shares with a fair value of $1.7 million, of which 316,551 shares were issued after post-closing adjustments on March 4, 2020. The Anova Deferred Consideration was included as a component of Accrued expenses and other current liabilities in the Company's consolidated balance sheet at December 31, 2019. The Anova Acquisition has been accounted for as a business combination and the financial results of Anova have been included in the Company's consolidated financial statements for the period subsequent to the Anova Acquisition Date. The results for the year ended December 31, 2019 are not significant to the Company's consolidated financial statements. The Company has not provided pro forma financial information, as the historical amounts are not significant to the Company's consolidated financial statements. As of December 31, 2019, the valuation of acquired assets, identifiable intangible assets and certain assumed liabilities was final. The purchase consideration aggregating $16.9 million has been allocated to $11.2 million of identifiable intangible assets, comprised of $5.2 million of customer relationships and $6.0 million of developed technology, and working capital items aggregating $0.2 million of net assets acquired. The remaining unallocated amount of $5.5 million has been recorded as goodwill. The valuation of the acquired intangible assets is inherently subjective and relies on significant unobservable inputs. The Company used an income approach to value the acquired intangible assets relating to developed technology and customer relationships. The valuation for each of these intangible assets was based on estimated projections of expected cash flows to be generated by the assets, discounted to the present value at discount rates commensurate with perceived risk. The valuation assumptions take into consideration the Company's estimates of customer attrition, technology obsolescence and revenue growth projections. The Company is amortizing the identifiable intangible assets in relation to the expected cash flows from the individual intangible assets over their respective useful lives, which have a weighted average life of 6.25 years (see Note 10). The excess of purchase consideration over net tangible and identifiable intangible assets acquired was recorded as goodwill. The goodwill is deductible for tax purposes. Acquisition-, Disposal- and Integration-Related Expenses Acquisition-related expenses include those expenses related to acquisitions that would otherwise not have been incurred by the Company, including professional and services fees, such as legal, audit, consulting, paying agent and other fees, and expenses related to cash payments to certain former executives of the acquired businesses in connection with their employment agreements. Disposal-related expenses are professional and services fees related to disposals of subsidiaries or portions of the 77 Table of Contents RIBBON COMMUNICATIONS INC. Notes to Consolidated Financial Statements (Continued) business. Integration-related expenses represent incremental costs related to combining the Company and its business acquisitions, such as third-party consulting and other third-party services related to merging the previously separate companies' systems and processes. The disposal-related expenses in the year ended December 31, 2021 relate to the Kandy Sale (as defined below). The acquisition-related professional and services fees recorded in the year ended December 31, 2020 primarily related to the ECI Acquisition and the disposal-related expenses related to the Company's sale of the Kandy Communications Business. The acquisition-related professional and services fees recorded in the year ended December 31, 2019 primarily related to the ECI Acquisition and, to a lesser extent, to the Anova Acquisition and other acquisition-related activities. The components of Acquisition-, disposal- and integration-related expenses incurred in the years ended December 31, 2021, 2020 and 2019 were as follows (in thousands): Professional and services fees (acquisition-related) Professional and services fees (disposal-related) Integration-related expenses 2021 Year ended December 31, 2020 2019 $ $ 165 $ 329 7,138 7,632 $ 13,441 $ 1,890 1,833 17,164 $ 8,657 — 4,296 12,953 (4) SALE OF KANDY COMMUNICATIONS BUSINESS On August 5, 2020, the Company announced that it had entered into a definitive agreement (the "Kandy Purchase Agreement") with American Virtual Cloud Technologies, Inc. ("AVCT") to sell the Kandy Communications Business. Under the Kandy Purchase Agreement, AVCT would purchase the assets and assume certain liabilities associated with the Kandy Communications Business, as well as all of the outstanding interests in Kandy Communications LLC, a subsidiary of the Company (the "Kandy Sale"). On December 1, 2020, the Company completed the Kandy Sale. The assets acquired and liabilities assumed by AVCT in connection with the Kandy Sale were primarily comprised of accounts receivable, property and equipment, trade accounts payable and employee-related accruals. As consideration, AVCT paid Ribbon $45.0 million, subject to certain adjustments, in the form of units of AVCT’s securities (the “AVCT Units”), with each AVCT Unit consisting of: (i) $1,000 in principal amount of AVCT’s Series A-1 convertible debentures (the “Debentures”); and (ii) one warrant to purchase 100 shares of AVCT common stock, $0.0001 par value (the “Warrants”). The Company received 43,778 AVCT Units as sale consideration on the Kandy Sale Date (the "Kandy Sale Consideration"). The Debentures bore interest at a rate of 10% per annum, which was added to the principal amount of the Debenture. The entire principal amount of each Debenture, together with accrued and unpaid interest thereon, was due and payable on the earlier of the May 1, 2023 maturity date or the occurrence of a Change in Control as defined in the Kandy Purchase Agreement. Each Debenture was convertible, in whole or in part, at any time at the Company's option into that number of shares of AVCT common stock, calculated by dividing the principal amount being converted, together with all accrued and unpaid interest thereon, by the applicable conversion price, initially $3.45. The Debentures were subject to mandatory conversion if the AVCT stock price was at or above $6.00 per share for 40 trading days in any 60 consecutive trading day period, subject to the satisfaction of certain other conditions. The conversion price was subject to customary adjustments including, but not limited to, stock dividends, stock splits and reclassifications. As of February 19, 2021, the stock price had traded above $6.00 for 40 days within a 60 consecutive trading day period, and accordingly, on September 8, 2021 (the "Debenture Conversion Date"), upon the completion of customary regulatory filings by AVCT, the Debentures were converted into 13,700,421 shares of AVCT common stock (the "Debenture Shares"). The Warrants were independent of the Debentures and entitle the Company to purchase 4,377,800 shares of AVCT common stock at an exercise price of $0.01 per share. The Warrants expire on December 1, 2025, and were immediately exercisable on the Kandy Sale Date. The Company had not exercised any of the Warrants as of December 31, 2021. The Company was also subject to a lock-up provision which limited the Company's ability to sell any shares of the AVCT common stock underlying the AVCT Units prior to June 1, 2021 (the "Lock-Up Period"), except in certain transactions. 78 Table of Contents RIBBON COMMUNICATIONS INC. Notes to Consolidated Financial Statements (Continued) The Company determined that the AVCT Units had a fair value of $84.9 million at the Kandy Sale Date, comprised of the Debentures with a fair value of $66.3 million and the Warrants with a fair value of $18.6 million. The value of the net assets sold to AVCT totaled $1.3 million, resulting in a gain on the sale of $83.6 million. The gain on the Kandy Sale is included as a component of Other (expense) income, net, in the consolidated statement of operations for the year ended December 31, 2020. The Company calculated the fair value of the Debentures using a Lattice-based valuation approach, which utilizes a binomial tree to model the different paths the price of AVCT's common stock might take over the Debentures' life by using assumptions regarding the stock price volatility and risk-free interest rate. These results were then used to calculate the fair value of the Debentures at each measurement date. The Company used the Black-Scholes valuation model for estimating the fair value of the Warrants at each measurement date. The fair value of the Warrants is affected by AVCT's stock price as well as valuation assumptions, including the volatility of AVCT's stock price, expected term of the option, risk-free interest rate and expected dividends. Both the Lattice and Black-Scholes valuation models are based on available market data, giving consideration to all of the rights and obligations of each instrument and precluding the use of "blockage" discounts or premiums in determining the fair value of a large block of financial instruments. After the expiration of the Lock-Up Period and prior to the Debenture Conversion Date, the Company valued the AVCT Units at each measurement date by multiplying the closing stock price of AVCT common stock by the number of shares upon conversion of the Debentures and Warrants. At December 31, 2021, the Company valued the Debenture Shares and Warrants (collectively, the "AVCT Investment") by multiplying the closing stock price of AVCT common stock by the number of Debenture Shares and Warrants it held. At December 31, 2021, the fair value of the AVCT Investment was $43.9 million. At December 31, 2020, the fair value of the AVCT Units was $115.2 million. The Company recorded a loss of $74.8 million in the year ended December 31, 2021 arising from the change in the fair value of the AVCT Investment, and recorded a gain of $30.3 million in the year ended December 31, 2020 arising from the change in the fair value of the AVCT Units. These amounts are included as components of Other (expense) income, net, in the Company's consolidated statements of operations. The Company recorded $3.5 million of interest income in the year ended December 31, 2021, which was added to the principal amount of the Debentures prior to the Debenture Conversion Date, and which is included in Interest expense, net, in the consolidated statement of operations. The fair value of the AVCT Investment at December 31, 2021 and the fair value of the AVCT Units at December 31, 2020 are reported as Investments in the Company's consolidated balance sheets. The AVCT Investment is classified as a Level 1 fair value measurement at December 31, 2021 and the AVCT Units are classified as Level 2 fair value measurements within the fair value hierarchy at December 31, 2020 (see Note 6). The Company evaluated the nature of its investment in AVCT for the period from the Debenture Conversion Date to December 31, 2021 and determined that it represented an approximate 15% equity interest in AVCT on a diluted basis. The Company determined that it is not the primary beneficiary of AVCT as it does not have the power to direct the activities that most significantly impact the AVCT Investment's economic performance, and therefore concluded that it had neither significant influence nor a controlling interest arising from the AVCT Investment that would require consolidation as of December 31, 2021. The results of the Kandy Communications Business are excluded from the Company's consolidated results for the period subsequent to the Kandy Sale Date. (5) 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 income 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. 79 Table of Contents RIBBON COMMUNICATIONS INC. Notes to Consolidated Financial Statements (Continued) The calculations of shares used to compute basic and diluted earnings (loss) per share are as follows (in thousands): Weighted average shares outstanding—basic Potential dilutive common shares Weighted average shares outstanding—diluted 2021 Year ended December 31, 2020 147,575 — 147,575 138,967 5,683 144,650 2019 109,734 — 109,734 Options to purchase the Company's common stock and unvested restricted and performance-based stock units aggregating 10.6 million shares have not been included in the computation of diluted loss per share for the year ended December 31, 2021 because their effect would have been antidilutive. Options to purchase the Company's common stock aggregating 0.2 million shares have not been included in the computation of diluted earnings per share for the year ended December 31, 2020 because their effect would have been antidilutive. Options to purchase the Company's common stock and unvested shares of restricted and performance-based stock and stock units aggregating 4.6 million shares have not been included in the computation of diluted loss per share for the year ended December 31, 2019 because their effect would have been antidilutive. (6) INVESTMENTS AND FAIR VALUE HIERARCHY The Company's policy and historical practice has been to invest in debt instruments, primarily U.S. government-backed, municipal and corporate obligations, which management believes to be high quality (investment grade) credit instruments. At December 31, 2021, the Company's investments were comprised of the AVCT Investment. At December 31, 2020, the Company's investments were comprised of the Debentures and Warrants (see Note 4). On a quarterly basis, the Company reviews its investments, if any, to determine if there have been any events that could create a credit impairment. Fair Value Hierarchy Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. The three-tier fair value hierarchy is based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument's categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The fair value hierarchy is as follows: Level 1. Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities. Level 2. Level 2 applies to assets or liabilities for which there are inputs that are directly or indirectly observable in the marketplace, such as quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets). Level 3. Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities. The classification of each asset or liability fair value measurement within the fair value hierarchy is determined based on the lowest level input that is significant to the fair value measurement in its entirety. Market activity is presumed to be orderly in the absence of evidence of forced or disorderly sales, although such sales may still be indicative of fair value. Applicable accounting guidance precludes the use of blockage factors or liquidity adjustments due to the quantity of securities held by an entity. 80 Table of Contents RIBBON COMMUNICATIONS INC. Notes to Consolidated Financial Statements (Continued) The Company's marketable securities, when applicable, are valued with the assistance of valuations provided by third-party pricing services, as derived from such services' pricing models. Inputs to the models may include, but are not limited to, reported trades, executable bid and asked prices, broker/dealer quotations, prices or yields of securities with similar characteristics, benchmark curves or information pertaining to the issuer, as well as industry and economic events. The pricing services may use a matrix approach, which considers information regarding securities with similar characteristics to determine the valuation for a security. The Company is ultimately responsible for the consolidated financial statements and underlying estimates. Accordingly, the Company assesses the reasonableness of the valuations provided by the third-party pricing services by reviewing actual trade data, broker/dealer quotes and other similar data, which are obtained from quoted market prices or other sources. (7) ACCOUNTS RECEIVABLE, NET Accounts receivable, net, consisted of the following (in thousands): Accounts receivable Allowance for doubtful accounts Accounts receivable, net The Company's allowance for doubtful accounts activity was as follows (in thousands): December 31, 2021 2020 $ $ 284,187 $ (1,270) 282,917 $ 238,514 (776) 237,738 Year ended December 31, 2021 2020 2019 (8) INVENTORY Inventory consisted of the following (in thousands): On-hand final assemblies and finished goods inventories Deferred cost of goods sold Less noncurrent portion (included in Other assets) Current portion Balance at beginning of year $ $ $ 776 $ 913 $ 669 $ Charges to expense Charges (credits) to other accounts Write-offs Balance at end of year 553 $ 686 $ 738 $ 85 $ 94 $ 68 $ (144) $ (917) $ (562) $ 1,270 776 913 December 31, 2021 2020 $ $ 57,360 $ 1,474 58,834 (4,791) 54,043 $ 46,921 1,165 48,086 (2,336) 45,750 81 Table of Contents RIBBON COMMUNICATIONS INC. Notes to Consolidated Financial Statements (Continued) (9) PROPERTY AND EQUIPMENT Property and equipment consisted of the following (in thousands): Equipment Software Furniture and fixtures Leasehold improvements Less accumulated depreciation and amortization Property and equipment, net Useful Life 2-5 years 2-5 years 3-5 years Shorter of the estimated lease term or useful life December 31, 2021 2020 74,769 $ 32,804 3,188 34,640 145,401 (97,716) 47,685 $ 90,885 32,244 3,092 37,263 163,484 (114,596) 48,888 $ $ The Company recorded depreciation and amortization expense related to property and equipment of $17.0 million for the year ended December 31, 2021, $17.2 million for the year ended December 31, 2020 and $11.9 million for the year ended December 31, 2019. During each of these years, the Company disposed of certain property and equipment that was fully depreciated at the time of disposal, which resulted in reductions in both Cost and Accumulated depreciation. Property and equipment under finance leases included in the amounts above were as follows (in thousands): Cost Less accumulated depreciation Property and equipment under finance leases, net The net book values of the Company's property and equipment by geographic area were as follows (in thousands): United States Canada Asia/Pacific Europe Israel Other December 31, 2021 2020 2,050 $ (1,763) 287 $ 2,908 (1,925) 983 December 31, 2021 2020 24,683 $ 5,184 8,174 1,157 7,859 628 47,685 $ 27,211 4,584 6,078 1,171 9,613 231 48,888 $ $ $ $ (10) INTANGIBLE ASSETS AND GOODWILL The Company's intangible assets at December 31, 2021 and 2020 consisted of the following (in thousands): December 31, 2021 In-process research and development Developed technology Customer relationships Trade names Internal use software Cost 34,000 306,380 268,140 5,000 730 614,250 $ $ Weighted average amortization period (years) * 7.93 11.86 3.88 3.00 9.17 82 Accumulated amortization $ — 181,393 77,653 3,744 730 263,520 $ Net carrying value $ 34,0 124,9 190,4 1,2 $ 350,7 Table of Contents December 31, 2020 In-process research and development Developed technology Customer relationships Trade names Internal use software RIBBON COMMUNICATIONS INC. Notes to Consolidated Financial Statements (Continued) Weighted average amortization period (years) Cost Accumulated amortization Net carrying value * $ 7.93 11.86 3.88 3.00 9.17 $ 34,000 $ 306,380 268,140 5,000 730 614,250 $ — $ 143,050 50,627 2,487 730 196,894 $ 34,000 163,330 217,513 2,513 — 417,356 * An in-process research and development intangible asset has an indefinite life until the product is generally available, at which time such asset is typically reclassified to developed technology, at which time the Company begins to amortize the asset. In the fourth quarter of 2020, the Company reclassified an in- process research and development intangible asset related to developed technology, as the associated product became generally available. As previously discussed (see Note 2), for the year ended December 31, 2021, the Company reclassified amounts recorded for amortization of acquired intangible assets in prior period presentations from Amortization of acquired intangible assets, a component of Operating expenses, to Amortization of acquired technology, a separate line included in Cost of revenue, in the consolidated statements of operations. Total amortization of acquired intangible assets, comprised of the cost of revenue and operating expense components noted above, aggregated $66.6 million, $60.9 million and $49.2 million for the years ended December 31, 2021, 2020 and 2019 respectively. Estimated future amortization expense for the Company's intangible assets at December 31, 2021 was as follows (in thousands): Years ending December 31, 2022 2023 2024 2025 2026 Thereafter $ $ 60,449 53,966 46,899 40,338 36,489 112,589 350,730 Goodwill is recorded when the consideration for an acquisition exceeds the fair value of net tangible and identifiable intangible assets acquired. Effective in 2020, the Company began to perform its annual test for impairment of goodwill as of October 1. Previously, the Company's annual test for impairment of goodwill was completed as of November 30. The Company has determined that it has two operating segments: Cloud and Edge, and IP Optical Networks. For the purpose of testing goodwill for impairment, all goodwill is assigned to a reporting unit, which may be either an operating segment or a portion of an operating segment. The Company's reporting units are its operating segments. The Company determined that the goodwill assigned to the Cloud and Edge reporting unit was $224.9 million and the goodwill assigned to the IP Optical Networks reporting unit was $192.0 million. Based on the results of the Company's recently completed impairment test, the Company determined that the carrying value of its IP Optical Networks segment exceeded its fair value. The Company determined that the amount of the impairment was $116.0 million and recorded an impairment charge in the fourth quarter of 2021. The impairment charge is reported separately in the Company's consolidated statement of operations for the year ended December 31, 2021. The Company determined that there was no impairment of its Cloud and Edge segment. Upon completion of the Company's 2020 annual test for goodwill impairment, the Company determined that there was no impairment of goodwill in either of its reporting units. Prior to the fourth quarter of 2020, the Company operated as a single operating segment with one reporting unit and consequently evaluated goodwill for impairment based on an evaluation of the fair value of the Company as a whole. Based on the results of the Company's 2019 annual impairment test, the Company determined that its carrying value exceeded its fair value and accordingly, the Company recorded an impairment charge of $164.3 million. 83 Table of Contents RIBBON COMMUNICATIONS INC. Notes to Consolidated Financial Statements (Continued) At certain times during the years ended December 31, 2020 and 2019, the Company's market capitalization was below its book value. The Company regularly monitors for changes in circumstances, including changes to the Company's performance, that could result in impairment of goodwill. The changes in the carrying value of the Company's goodwill in the years ended December 31, 2021 and 2020 were as follows (in thousands): Balance at January 1, 2020 (1) Acquisition of ECI Balance at December 31, 2020 (1) Impairment of goodwill Balance at December 31, 2021 (1)(2) Cloud and Edge IP Optical Networks $ $ 224,896 $ — 224,896 — 224,896 $ — $ 191,996 191,996 (116,000) 75,996 $ Total 224,896 191,996 416,892 (116,000) 300,892 (1) Balance is presented net of accumulated impairment losses of $167.4 million for the Cloud and Edge segment. (2) Balance is presented net of an impairment loss of $116.0 million for the IP Optical Networks segment. The components of goodwill at December 31, 2020 and 2021 were as follows (in thousands): Balance at December 31, 2020 Goodwill Accumulated impairment losses Balance at December 31, 2021 Goodwill Accumulated impairment losses (11) ACCRUED EXPENSES AND OTHER Accrued expenses and other consisted of the following (in thousands): Employee compensation and related costs Other (12) WARRANTY Cloud and Edge IP Optical Networks $ $ $ 392,302 (167,406) 224,896 392,302 (167,406) 224,896 $ $ $ 191,996 — 191,996 191,996 (116,000) 75,996 Total 584,29 (167,40 416,89 584,29 (283,40 300,89 $ $ $ December 31, 2021 2020 $ $ 38,040 $ 62,712 100,752 $ 66,039 68,826 134,865 The changes in the Company's warranty accrual balance in the years ended December 31, 2021 and 2020 were as follows (in thousands): Year ended December 31, 2021 2020 Balance at beginning of year Assumed liability in connection with ECI Acquisition Provision Settlements Balance at end of year $ $ 14,855 $ — $ — $ 16,251 $ 3,777 $ 4,687 $ (5,512) $ (6,083) $ 13,120 14,855 84 Table of Contents RIBBON COMMUNICATIONS INC. Notes to Consolidated Financial Statements (Continued) (13) RESTRUCTURING AND FACILITIES CONSOLIDATION INITIATIVES The Company recorded restructuring and related expense aggregating $11.7 million, $16.2 million and $16.4 million in the years ended December 31, 2021, 2020 and 2019, respectively. Restructuring and related expense includes restructuring expense (primarily severance and related costs), estimated future variable lease costs for vacated properties with no intent or ability of sublease, and accelerated rent amortization expense. For restructuring events that involve lease assets and liabilities, the Company applies lease reassessment and modification guidance and evaluates the right-of-use assets for potential impairment. If the Company plans to exit all or distinct portions of a facility and does not have the ability or intent to sublease, the Company will accelerate the amortization of each of those lease components through the vacate date. The accelerated amortization is recorded as a component of Restructuring and related expense in the Company's consolidated statements of operations. Related variable lease expenses will continue to be expensed as incurred through the vacate date, at which time the Company will reassess the liability balance to ensure it appropriately reflects the remaining liability associated with the premises and record a liability for the estimated future variable lease costs. Accelerated amortization of lease assets is recognized from the date that the Company commences the plan to fully or partially vacate a facility, for which there is no intent or ability to enter into a sublease, through the final vacate date. Amounts of accelerated rent amortization that are included as a component of restructuring and related expense are not included in the tables below, as the liability for the total lease payments for each respective facility is included as a component of Operating lease liabilities in the Company's consolidated balance sheets at December 31, 2021 and 2020, both current and noncurrent (see Note 21). The Company may incur additional future expense if it is unable to sublease other locations included in the Facilities Initiative. The components of restructuring and related expense for the years ended December 31, 2021, 2020 and 2019 were as follows (in thousands): Severance and related costs Variable and other facilities-related costs Accelerated amortization of lease assets due to cease-use 2020 Restructuring Initiative 2021 Year ended December 31, 2020 2019 $ $ 4,618 $ 5,710 1,325 11,653 $ 12,025 $ 3,605 605 16,235 $ 11,179 1,528 3,692 16,399 In 2020, the Company implemented a restructuring plan to eliminate certain positions and redundant facilities, primarily in connection with the ECI Acquisition, to further streamline the Company's global footprint and improve its operations (the "2020 Restructuring Initiative"). The 2020 Restructuring Initiative includes facility consolidations and a reduction in workforce In connection with this initiative, the Company is eliminating functions arising from the ECI Acquisition and supporting its efforts to integrate the two companies. The Company recorded restructuring and related expense of $4.7 million and $14.0 million in connection with the 2020 Restructuring Initiative in the years ended December 31, 2021 and 2020, respectively. The 2021 amount was comprised of $4.6 million for severance and related costs for approximately 60 employees and $0.1 million for variable and other facilities-related costs. The 2020 amount was comprised of $11.5 million for severance and related costs for approximately 190 employees, $2.0 million for variable and other facilities-related costs, and $0.5 million for accelerated amortization of lease assets. The Company expects these amounts will be fully paid in 2022. The Company expects that it will record additional restructuring and related expense approximating $1 million under the 2020 Restructuring Initiative in the aggregate for severance and planned facility consolidations. Summaries of the 2020 Restructuring Initiative accrual activity for the years ended December 31, 2021 and 2020 are as follows (in thousands): 85 Table of Contents Year ended December 31, 2021 Severance Facilities Year ended December 31, 2020 Severance Facilities RIBBON COMMUNICATIONS INC. Notes to Consolidated Financial Statements (Continued) Balance at January 1, 2021 Initiatives charged to expense Adjustments for changes in estimate Cash payments Balance at December 31, 2021 5,237 $ 1,256 6,493 $ 4,618 $ 742 5,360 $ — $ (670) (670) $ (7,960) (1,268) (9,228) $ 1,895 60 1,955 Balance at January 1, 2020 Initiatives charged to expense Transfer to operating lease liability accounts Cash payments Balance at December 31, 2020 — $ — — $ 11,547 $ 2,478 14,025 $ — $ (535) (535) $ (6,310) (687) (6,997) $ 5,237 1,256 6,493 $ $ $ $ 2019 Restructuring and Facilities Consolidation Initiative In June 2019, the Company implemented a restructuring plan to further streamline the Company's global footprint, improve its operations and enhance its customer delivery (the "2019 Restructuring Initiative"). The 2019 Restructuring Initiative includes facility consolidations, refinement of the Company's research and development activities, and a reduction in workforce. The facility consolidations under the 2019 Restructuring Initiative (the "Facilities Initiative") include a consolidation of the Company's North Texas sites into a single campus, housing engineering, customer training and support, and administrative functions, as well as a reduction or elimination of certain excess and duplicative facilities worldwide. In addition, the Company is substantially consolidating its global software laboratories and server farms into two lower cost North American sites. The Company continues to evaluate its properties included in the Facilities Initiative for accelerated amortization and/or right-of-use asset impairment. The Company expects that the actions under the Facilities Initiative will be completed in 2023. In connection with the 2019 Restructuring Initiative, the Company recorded restructuring and related expense of $7.0 million, $2.3 million and $11.2 million in the years ended December 31, 2021, 2020 and 2019, respectively. The amount recorded in 2021 was comprised of $5.7 million for variable and other facilities-related costs and $1.3 million of net expense for accelerated amortization of lease assets. The amount for accelerated amortization of lease assets includes income of $2.1 million related to a lease modification for one of the Company's restructured facilities. The amount recorded in 2020 was comprised of $0.5 million for severance and related costs for approximately 5 employees, $1.7 million for variable and other facilities-related costs and $0.1 million for accelerated amortization of lease assets. The amount recorded in the year ended December 31, 2019 was comprised of $6.1 million for severance and related costs for approximately 120 employees, $1.4 million for variable and other facilities-related costs and $3.7 million for accelerated amortization of lease assets. The amount accrued for severance and related costs was paid in 2021. The Company estimates that it will record nominal, if any, future expense under the 2019 Restructuring Initiative. Summaries of the 2019 Restructuring Initiative accrual activity for the years ended December 31, 2021 and 2020 are as follows (in thousands): Year ended December 31, 2021 Severance Facilities Balance at January 1, 2021 Initiatives charged to expense Net transfer to operating lease liability accounts Cash payments Balance at December 31, 2021 $ $ 173 $ 766 939 $ — $ 9,006 9,006 $ — $ (1,325) (1,325) $ (173) (4,810) (4,983) $ — 1,594 1,594 86 Table of Contents Year ended December 31, 2020 Severance Facilities Merger Restructuring Initiative RIBBON COMMUNICATIONS INC. Notes to Consolidated Financial Statements (Continued) Balance at January 1, 2020 Initiatives charged to expense Transfer to operating lease liability accounts Cash payments $ $ 2,110 $ 991 3,101 $ 536 1,732 2,268 — $ (70) (70) $ Balance at December 31, 2020 173 766 939 (2,473) (1,887) (4,360) $ In connection with the GENBAND Merger, the Company implemented a restructuring plan in the fourth quarter of 2017 to eliminate certain redundant positions and facilities within the combined companies (the "Merger Restructuring Initiative"). The Company recorded $21.3 million in the aggregate in connection with this initiative, including $5.2 million of restructuring and related expense in 2019, virtually all of which was for severance and related costs for approximately 40 employees. The Merger Restructuring Initiative was completed in 2020. A summary of the Merger Restructuring Initiative accrual activity for the year ended December 31, 2020 is follows (in thousands): Year ended December 31, 2020 Severance Balance Sheet Classification Balance at January 1, 2020 Adjustments for changes in estimate Cash payments Balance at December 31, 2020 $ 409 $ (58) $ (351) $ — The current portions of accrued restructuring were $1.9 million and $6.6 million at December 31, 2021 and 2020, respectively, and are included as components of Accrued expenses in the consolidated balance sheets. The long-term portions of accrued restructuring are included as components of Other long-term liabilities in the consolidated balance sheets. The long-term portions of accrued restructuring were $1.6 million and $0.8 million at December 31, 2021 and 2020, respectively. (14) DEBT 2018 Credit Facility On June 24, 2018, the Company amended its previous outstanding credit facility to, among other things, permit the Edgewater Acquisition and related transactions (the "2018 Credit Facility"). The indebtedness and other obligations under the 2018 Credit Facility were unconditionally guaranteed on a senior secured basis by the Company and each other material U.S. domestic subsidiary of the Company (collectively, the "Guarantors"). The 2018 Credit Facility was secured by first-priority liens on substantially all of the assets of the Borrower and the Guarantors, including the Company. The 2018 Credit Facility required periodic interest payments on outstanding borrowings until maturity. The Borrower could prepay all revolving loans under the 2018 Credit Facility at any time without premium or penalty (other than customary LIBOR breakage costs), subject to certain notice requirements. Revolving loans under the 2018 Credit Facility bore interest at the Borrower’s option at either the Eurodollar (LIBOR) rate plus a margin ranging from 2.50% to 3.00% per year or the base rate (the highest of the Federal Funds rate plus 0.50%, or the prime rate announced from time to time in The Wall Street Journal) plus a margin ranging from 1.50% to 2.00% per year (such margins being referred to as the “Applicable Margin”). The Applicable Margin varied depending on the Company’s consolidated leverage ratio (as defined in the 2018 Credit Facility). The base rate and the LIBOR rate were each subject to a zero percent floor. The Borrower was charged a commitment fee ranging from 0.25% to 0.40% per year on the daily amount of the unused portions of the commitments under the 2018 Credit Facility. Additionally, with respect to all letters of credit outstanding under the 2018 Credit Facility, the Borrower was charged a fronting fee of 0.125% per year and an outstanding letter of credit fee 87 Table of Contents RIBBON COMMUNICATIONS INC. Notes to Consolidated Financial Statements (Continued) equal to the Applicable Margin for base rate loans ranging from 1.50% to 2.00% times the amount of the outstanding letters of credit. The 2018 Credit Facility was superseded by the 2019 Credit Facility, which was entered into on April 29, 2019 and which is discussed below. 2019 Credit Facility On April 29, 2019, the Company, as guarantor, and Ribbon Communications Operating Company, Inc., as borrower, entered into a syndicated, amended and restated credit facility (the "2019 Credit Facility"), which provided for a $50 million term loan facility that was advanced in full on April 29, 2019, and a $100 million revolving line of credit. The 2019 Credit Facility also included procedures for additional financial institutions to become syndicate lenders, or for any existing lender to increase its commitment under either the term loan facility or the revolving loan facility, subject to an aggregate increase of $75 million for incremental commitments under the 2019 Credit Facility. The 2019 Credit Facility was scheduled to mature in April 2024. At December 31, 2019, the Company had an outstanding term loan debt balance of $48.8 million and an outstanding revolving line of credit balance of $8.0 million with a combined average interest rate of 3.30%, and $5.4 million of outstanding letters of credit at an interest rate of 1.50%. The indebtedness and other obligations under the 2019 Credit Facility were unconditionally guaranteed on a senior secured basis by the Company and each other material U.S. domestic subsidiary of the Company (collectively, the “Guarantors”). The 2019 Credit Facility was secured by first-priority liens on substantially all of the assets of the Borrower and the Guarantors, including the Company. The 2019 Credit Facility required periodic interest payments on any outstanding borrowings under the facility. The Borrower could prepay all revolving loans under the 2019 Credit Facility at any time without premium or penalty (other than customary LIBOR breakage costs), subject to certain notice requirements. Revolving loans under the 2019 Credit Facility bore interest at the Borrower’s option at either the Eurodollar (LIBOR) rate plus a margin ranging from 1.50% to 3.00% per year or the base rate (the highest of the Federal Funds rate plus 0.50%, or the prime rate announced from time to time in The Wall Street Journal) plus a margin ranging from 0.50% to 2.00% per year (such margins being referred to as the “Applicable Margin”). The Applicable Margin varied depending on the Company’s consolidated leverage ratio (as defined in the 2019 Credit Facility). The base rate and the LIBOR rate were each subject to a zero percent floor. The 2019 Credit Facility was superseded by the 2020 Credit Facility, which was entered into on March 3, 2020, and which is discussed below. 2020 Credit Facility On March 3, 2020, the Company entered into a Senior Secured Credit Facilities Credit Agreement (as amended, the "2020 Credit Facility"), by and among the Company, as a guarantor, Ribbon Communications Operating Company, Inc., as the borrower ("Borrower"), Citizens Bank, N.A. ("Citizens"), as administrative agent, a lender, issuing lender, swingline lender, joint lead arranger and bookrunner, Santander Bank, N.A., as a lender, joint lead arranger and bookrunner, and the other lenders party thereto (each, together with Citizens Bank, N.A. and Santander Bank, N.A., referred to individually as a "Lender", and collectively, the "Lenders"). The proceeds of the Credit Agreement were used, in part, to pay off in full all obligations of the Company under the 2019 Credit Facility. The 2020 Credit Facility provides for $500 million of commitments from the Lenders to the Borrower, comprised of $400 million in term loans (the "2020 Term Loan Facility") and a $100 million facility available for revolving loans (the "2020 Revolving Credit Facility"). Under the 2020 Revolving Credit Facility, a $30 million sublimit is available for letters of credit and a $20 million submit is available for swingline loans. Under the 2020 Credit Facility, the Company was originally required to make quarterly principal payments aggregating approximately $10 million in the first year, $20 million per year for the following three years, and $30 million in the last year, with the remaining balance due on the maturity date. The 2020 Credit Facility also requires periodic interest payments until maturity. 88 Table of Contents RIBBON COMMUNICATIONS INC. Notes to Consolidated Financial Statements (Continued) The indebtedness and other obligations under the 2020 Credit Facility are unconditionally guaranteed on a senior secured basis by the Company, Edgewater Networks, Inc., a wholly-owned subsidiary of the Company, and GENBAND Inc., wholly-owned subsidiary of the Company (together, the "Guarantors"). The facilities under the 2020 Credit Facility are secured by first-priority liens on substantially all of the assets of the Borrower and the Guarantors, including substantially all of the assets of the Company. The 2020 Credit Facility requires compliance with certain financial covenants, including a minimum Consolidated Fixed Charge Coverage Ratio and a maximum Consolidated Net Leverage Ratio (each as defined in the 2020 Credit Facility, and each tested on a quarterly basis). In addition, the 2020 Credit Facility contains various covenants that, among other restrictions, limit the Company's and its subsidiaries' ability to incur or assume indebtedness; grant or assume liens; make acquisitions or engage in mergers; sell, transfer, assign or convey assets; repurchase equity and make dividend and certain other restricted payments; make investments; engage in transactions with affiliates; enter into sale and leaseback transactions; enter into burdensome agreements; change the nature of its business; modify their organizational documents; and amend or make prepayments on certain junior debt. The 2020 Credit Facility contains events of default that are customary for a secured credit facility. If an event of default relating to bankruptcy or other insolvency events with respect to the Company or any of its subsidiaries occurs, all obligations under the 2020 Credit Facility will immediately become due and payable. If any other event of default occurs under the 2020 Credit Facility, the lenders may accelerate the maturity of the obligations outstanding under the 2020 Credit Facility and exercise other rights and remedies, including charging a default rate of interest equal to 2.00% per year above the rate that would otherwise be applicable. In addition, if any event of default exists under the 2020 Credit Facility, the lenders can commence foreclosure or other actions against the collateral. On August 18, 2020 (the "First Amendment Effective Date"), the Borrowers entered into a First Amendment to the 2020 Credit Facility (the "First Amendment"). Pursuant to an assignment and assumption agreement entered into by Citizens and certain affiliates of Whitehorse Capital on the First Amendment Date (collectively, "HIG Whitehorse"), and consented to by Citizens and the Borrower, $75 million of the 2020 Term Loan Facility, designated as the Term B Loan (the "Term B Loan"), was assigned from Citizens to HIG Whitehorse as of August 18, 2020. The remaining $325 million of the 2020 Term Loan Facility that was not assigned to HIG Whitehorse was deemed the Term A Loan (the "Term A Loan" and, together with the Term B Loan, the "Amended 2020 Term Loan Facility"). The Term A Loan and the 2020 Revolving Credit Facility mature in March 2025. The Term A Loan and 2020 Revolving Credit Facility bear interest at the Borrower's option at either the LIBOR rate plus a margin ranging from 1.50% to 3.50% per year, or the base rate (the highest of the Federal Funds Effective Rate (as defined in the 2020 Credit Facility) plus 0.50%, or the prime rate announced from time to time in The Wall Street Journal) plus a margin ranging from 0.50% to 2.50% per year (the "Applicable Margin"). The Applicable Margin varies depending on the Company's Consolidated Net Leverage Ratio (as defined in the 2020 Credit Facility). The base rate and the LIBOR rate are each subject to a zero percent floor. The Company was required to make quarterly principal payments on the Term A Loan aggregating approximately $10 million in the first year, $16 million per year in each of the next two years, $20 million in the fourth year and $16 million in the last year, with the final payment approximating $244 million due on the maturity date. The Borrower could prepay all amounts under the Term A Loan and the 2020 Revolving Credit Facility at any time without premium or penalty (other than customary LIBOR breakage costs), subject to certain notice requirements. The Term B Loan was scheduled to mature in March 2026 and bore interest, at the Borrower's option, at either the LIBOR rate plus a margin of 7.50% per year, or the base rate (the highest of the Federal Funds Effective Rate (as defined in the First Amendment) plus 0.50%, or the prime rate announced from time to time in The Wall Street Journal, plus a margin of 6.50% per year. The Term B Loan had a lower rate of amortization than the Term A Loan and was subject to a 1.0% premium if voluntarily repaid in connection with a repricing transaction (as defined in the 2020 Credit Facility) occurring prior to the six month anniversary of the First Amendment Effective Date. The Company was required to make quarterly principal payments totaling approximately $1 million in the first year and $8 million in the aggregate over the next four and a half years, with the final payment approximating $66 million. The First Amendment reduced the Borrower's ability to incur new tranches of term loans, or increases in commitments under the Amended 2020 Term Loan Facility or the 2020 Revolving Credit Facility. Specifically, such indebtedness could be 89 Table of Contents RIBBON COMMUNICATIONS INC. Notes to Consolidated Financial Statements (Continued) incurred up to an aggregate dollar amount equal to 75% of the Company's Consolidated Adjusted EBITDA (as defined in the 2020 Credit Facility), reduced from 100% prior to the First Amendment, as of the most recently ended fiscal quarter for which financial statements had been delivered to the lenders, plus additional amounts, so long as the Borrower's Consolidated Net Leverage Ratio (as defined in the 2020 Credit Facility) does not exceed 2.25:1.00, reduced from 2.75:1.00 under the 2020 Credit Facility. The First Amendment also reduced the amount of Unrestricted Cash (as defined in the 2020 Credit Facility) used in calculating the Borrower's Consolidated Net Leverage Ratio from $25 million to $10 million. On December 1, 2020, the Borrowers entered into a Second Amendment to the 2020 Credit Facility to obtain consent for an equity exchange with AVCT in connection with the Kandy Sale, as well as to amend certain other provisions of the 2020 Credit Facility. At December 31, 2020, the Company had an outstanding Term A Loan balance of $318.5 million at an average interest rate of 3.4%, and an outstanding Term B Loan balance of $74.6 million at an average interest rate of 8.4%. The 2020 Revolving Credit Facility did not have an outstanding balance but had $5.6 million of letters of credit outstanding with an interest rate of 2.5%. On March 3, 2021 (the "Third Amendment Effective Date"), the Company, the Borrower and certain of its subsidiaries entered into a Third Amendment to Credit Agreement (the "Third Amendment"), which further amended the 2020 Credit Facility. The Third Amendment provided for an incremental term loan facility to the Borrower in the original principal amount of $74.6 million, the proceeds of which were used on the Third Amendment Effective Date to consummate an open market purchase of all outstanding amounts under the Term B Loan. Upon the consummation of the open market purchase, the Term B Loans were assigned to the Borrower and immediately cancelled, such that the outstanding amount under the Term A Loan and incremental term loan facility were combined and held by the Lenders (the "2020 Term Loan") with the same terms as the Term A Loan. The Company wrote off $2.5 million of capitalized debt issuance costs in connection with the Third Amendment, which is included in Interest expense, net, in the Company's consolidated statement of operations for the year ended December 31, 2021. The Company is required to make quarterly principal payments on the 2020 Term Loan aggregating approximately $20 million per year in the first three years and $30 million in the fourth year, with the final payment approximating $300 million due on the maturity date. The Third Amendment increased the Borrower's ability to incur new incremental revolving commitments or term loans. Such indebtedness can be incurred up to an aggregate dollar limit equal to 100% of the Company's Consolidated Adjusted EBITDA (as defined in the 2020 Credit Facility) as of the most recently ended fiscal quarter for which financial statements have been delivered to the Lenders, plus additional amounts, so long as the Borrower's Consolidated Net Leverage Ratio (as defined in the Credit Agreement) does not exceed 2.75:1.00, increased from 2.25:1.00 under the First Amendment. The Third Amendment also increased the amount of Unrestricted Cash (as defined in the 2020 Credit Facility) used in calculating the Borrower's Consolidated Net Leverage Ratio from $10 million to $25 million. On March 10, 2022, the Borrowers entered into a Fourth Amendment to the 2020 Credit Facility (the "Fourth Amendment") to increase the Maximum Consolidated Net Leverage Ratio (as defined in the 2020 Credit Facility) to 4.25:1.00 for the first quarter of 2022 and 4.50:1.00 for the second quarter of 2022, with reductions in subsequent quarters through the third quarter of 2023, when the ratio will be fixed at 3.00:1.00. In connection with the Fourth Amendment, the Company made a $15.0 million prepayment that was applied to the final payment due on the maturity date. At December 31, 2021, the Company had an outstanding 2020 Term Loan balance of $375.5 million at an average interest rate of 3.4% and $4.3 million of letters of credit outstanding with an interest rate of 2.5%. The Company was in compliance with all covenants of the 2020 Credit Facility at both December 31, 2021 and 2020. Short-Term Loan From time to time, the Company may enter into uncommitted and unsecured short-term loans which it uses for financing exports in China. Three of these loans, aggregating $3.5 million at a weighted average interest rate of 3.97%, were entered into in March 2020, two of which were with China Zheshang Bank and one of which was with Bank of Communications Hangzhou Branch. These loans expired and were paid in full at various dates in June and July 2020. In July 2020, the Company entered into an uncommitted and unsecured short-term loan in the amount of $0.7 million at an interest rate of 4.0% with Bank of 90 Table of Contents RIBBON COMMUNICATIONS INC. Notes to Consolidated Financial Statements (Continued) Communications Hangzhou Branch. This loan expired and was paid in full in November 2020. The Company did not have any such short-term loans outstanding at December 31, 2021 and 2020. Letters of Credit and Performance and Bid Bonds The Company uses letters of credit and performance and bid bonds in the course of its business. At December 31, 2021, the Company had $30.1 million of letters of credit, bank guarantees, and performance and bid bonds outstanding (collectively, "Guarantees"), comprised of the $4.3 million of letters of credit under the 2020 Credit Agreement described above (the "Letters of Credit") and $25.8 million of bank guarantees and performance and bid bonds (collectively, the "Other Guarantees") under various uncommitted facilities. At December 31, 2020, the Company had $32.6 million of Guarantees, comprised of the $5.6 million of Letters of Credit and $27.0 million of Other Guarantees under various uncommitted facilities. At December 31, 2021 and 2020, the Company had cash collateral of $2.6 million and $2.7 million, respectively, supporting the Guarantees under its uncommitted facilities, which are reported in Restricted cash in the consolidated balance sheets. Promissory Note In connection with the GENBAND Merger, on October 27, 2017, the Company issued a promissory note for $22.5 million to certain of GENBAND's equityholders (the "Promissory Note"). The Promissory Note did not amortize and the principal thereon was payable in full on the third anniversary of its execution. Interest on the Promissory Note was payable quarterly in arrears and accrued at a rate of 7.5% per year for the first six months after issuance, and thereafter at a rate of 10% per year. Interest that was not paid on the interest payment date would increase the principal amount of the Promissory Note. On April 29, 2019, concurrently with the closing of the 2019 Credit Facility as discussed above, the Company repaid in full all outstanding amounts under the Promissory Note, aggregating $24.7 million. The Company did not incur any early termination penalties in connection with this repayment. (15) DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES The Company is exposed to financial market risk related to foreign currency fluctuations and changes in interest rates. These exposures are actively monitored by management. To manage the volatility related to the exposure to changes in interest rates, the Company has entered into a derivative financial instrument. Management's objective is to reduce, where it is deemed appropriate to do so, fluctuations in earnings and cash flows associated with changes in interest rates. Ribbon's policies and practices are to use derivative financial instruments only to the extent necessary to manage exposures. Ribbon does not hold or issue derivative financial instruments for trading or speculative purposes. The Company records derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a specific risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Derivatives may also be designated as hedges of the foreign currency exposure of a net investment in a foreign operation. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge, or the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company may enter into derivative contracts that are intended to economically hedge certain of its risk even though hedge accounting does not apply or the Company elects not to apply hedge accounting. Cash Flow Hedge of Interest Rate Risk The 2020 Term Loan Facility had outstanding balances of $375.5 million and $393.1 million at December 31, 2021 and 2020, respectively. The 2020 Revolving Credit Facility was undrawn at both December 31, 2021 and 2020. Borrowings under the 2020 Credit Agreement have variable interest rates based on LIBOR (see Note 14). As a result of exposure to interest rate movements, during March 2020, the Company entered into an interest rate swap arrangement, which effectively converted its 91 Table of Contents RIBBON COMMUNICATIONS INC. Notes to Consolidated Financial Statements (Continued) $400 million term loan with its variable interest rate based upon one-month LIBOR to an aggregate fixed rate of 0.904%, plus a leverage-based margin as defined in the 2020 Credit Facility. The notional amount of this swap at December 31, 2021 and 2020 was $400 million, and the swap matures on March 3, 2025, the same date the 2020 Credit Facility matures. The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company is using an interest rate swap as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. The effective portion of changes in the fair value of designated derivatives that qualify as cash flow hedges is recorded in accumulated other comprehensive income (loss) in the consolidated balance sheet and is subsequently reclassified into earnings in the period that the hedged forecasted transactions affect earnings. During the years ended December 31, 2021 and 2020, such a derivative was used to hedge the variable cash flows associated with the credit facilities under the 2020 Credit Facility, and the Company has accounted for this derivative as an effective hedge. Any ineffective portion of the change in the fair value of the derivative would be recognized directly in earnings. Amounts reported in accumulated other comprehensive income (loss) related to the Company's derivative are reclassified to interest expense as interest is accrued on the Company’s variable-rate debt. Based upon projected forward rates, the Company estimates that as of December 31, 2021, $2.1 million may be reclassified as an increase to interest expense over the next twelve months. The impact of the Company’s derivative financial instrument on its consolidated statement of comprehensive income (loss) for the years ended December 31, 2021 and 2020 was as follows (in thousands): Gain (loss) recognized in other comprehensive income (loss) on derivative (effective portion) Amount reclassified from accumulated other comprehensive income (loss) to interest expense (effective portion) Year ended December 31, 2020 2021 $ $ 9,505 $ 3,254 12,759 $ (12,671) 1,723 (10,948) The fair values and locations in the consolidated balance sheet at December 31, 2021 and 2020 of the Company's derivative assets (liabilities) designated as a hedging instrument were as follows (in thousands): Interest rate derivative - liability derivative Interest rate derivative - liability derivative Interest rate derivative - asset derivative Balance sheet location Accrued expenses and other Other long-term liabilities Other assets December 31, 2021 2020 (2,054) $ — 3,865 1,811 $ (3,157) (7,791) — (10,948) $ $ The Company has classified the interest rate derivative net asset of $1.8 million at December 31, 2021 and a liability of $10.9 million at December 31, 2020 respectively, as Level 2 fair value measurements within the fair value hierarchy (see Note 6). (16) REVENUE RECOGNITION The Company's typical performance obligations include the following: Performance Obligation Software and Product Revenue Software licenses (perpetual or term) Software licenses (subscription) Hardware Software upgrades Customer Support Revenue Customer support Professional Services Other professional services (excluding training services) Training Significant Judgments When Performance Obligation is Typically Satisfied When Payment is Typically Due Upon transfer of control; typically, when made available for download (point in time) Upon activation of hosted site (over time) When control of the hardware passes to the customer; typically, upon delivery (point in time) Upon transfer of control; typically, when made available for download (point in time) Generally, within 30 days of invoicing except for term licenses, which may be paid for over time Generally, within 30 days of invoicing Generally, within 30 days of invoicing Generally, within 30 days of invoicing Ratably over the course of the support contract (over time) Generally, within 30 days of invoicing As work is performed (over time) When the class is taught (point in time) Generally, within 30 days of invoicing (upon completion of services) Generally, within 30 days of services being performed The Company's contracts with customers often include promises to transfer multiple products and services to the customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. Judgment is required to determine the standalone selling price for each distinct performance obligation. The Company typically has more than one standalone selling price ("SSP") for individual products and services due to the stratification of those products and services by customers and circumstances. In these instances, the Company may use information such as the size of the customer and geographic region in determining the SSP. Deferred Revenue Deferred revenue is a contract liability representing amounts collected from or invoiced to customers in excess of revenue recognized. This results primarily from the billing of annual customer support agreements where the revenue is recognized over the term of the agreement. The value of deferred revenue will increase or decrease based on the timing of invoices and recognition of revenue. Disaggregation of Revenue The Company disaggregates its revenue from contracts with customers based on the nature of the products and services and the geographic regions in which each customer is domiciled. The Company's total revenue for the years ended December 31, 2021, 2020 and 2019 was disaggregated geographically as follows: 92 Table of Contents Year ended December 31, 2021 United States Europe, Middle East and Africa Asia Pacific Other Year ended December 31, 2020 United States Europe, Middle East and Africa Asia Pacific Other Year ended December 31, 2019 United States Europe, Middle East and Africa Asia Pacific Other RIBBON COMMUNICATIONS INC. Notes to Consolidated Financial Statements (Continued) Product revenue Service revenue (maintenance) Service revenue (professional services) Total revenue 196,058 $ 138,203 92,803 25,978 453,042 $ 132,683 $ 79,475 41,945 32,218 286,321 $ 47,296 $ 30,349 18,183 9,766 105,594 $ 376,037 248,027 152,931 67,962 844,957 Product revenue Service revenue (maintenance) Service revenue (professional services) Total revenue 201,347 $ 149,567 90,201 26,797 467,912 $ 132,661 $ 73,475 36,628 32,052 274,816 $ 48,611 $ 25,226 19,627 7,603 101,067 $ 382,619 248,268 146,456 66,452 843,795 Product revenue Service revenue (maintenance) Service revenue (professional services) Total revenue 170,937 $ 42,262 30,617 18,214 262,030 $ 133,271 $ 43,186 27,798 29,973 234,228 $ 37,085 $ 12,279 10,721 6,768 66,853 $ 341,293 97,727 69,136 54,955 563,111 $ $ $ $ $ $ The Company's product revenue from its direct sales program and from indirect sales through its channel partner program for the years ended December 31, 2021, 2020 and 2019 was as follows (in thousands): Indirect sales through channel program Direct sales 2021 Year ended December 31, 2020 $ $ 117,065 $ 335,977 453,042 $ 134,876 $ 333,036 467,912 $ 2019 94,639 167,391 262,030 The Company's product revenue from sales to enterprise customers and from sales to service provider customers for the years ended December 31, 2021, 2020 and 2019 was as follows (in thousands): Sales to enterprise customers Sales to service provider customers 2021 Year ended December 31, 2020 $ $ 111,494 $ 341,548 453,042 $ 138,469 $ 329,443 467,912 $ 2019 70,548 191,482 262,030 The Company's product revenue and service revenue components by segment for the years ended December 31, 2021, 2020 and 2019 was as follows (in thousands): 93 Table of Contents Product revenue Cloud and Edge IP Optical Networks Total product revenue Service revenue Maintenance Cloud and Edge IP Optical Networks Total maintenance revenue Professional services Cloud and Edge IP Optical Networks Total professional services revenue Total service revenue Revenue Contract Balances RIBBON COMMUNICATIONS INC. Notes to Consolidated Financial Statements (Continued) 2021 Year ended December 31, 2020 2019 248,570 204,472 453,042 275,445 192,467 467,912 262,030 — 262,030 228,321 58,000 286,321 79,765 25,829 105,594 391,915 229,035 45,781 274,816 78,790 22,277 101,067 375,883 234,228 — 234,228 66,853 — 66,853 301,081 The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables, which are contract assets, and customer advances and deposits, which are contract liabilities, in the Company's consolidated balance sheets. Amounts are billed as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals or upon achievement of contractual milestones. Completion of services and billing may occur subsequent to revenue recognition, resulting in contract assets. The Company may receive advances or deposits from its customers before revenue is recognized, resulting in contract liabilities which are classified as deferred revenue. These assets and liabilities are reported in the Company's consolidated balance sheets on a contract-by-contract basis as of the end of each reporting period. Changes in the contract asset and liability balances during the years ended December 31, 2021 and 2020 were not materially impacted by any factors other than billing and revenue recognition. Nearly all of the Company's deferred revenue balance is related to services revenue, primarily customer support contracts. Unbilled receivables stem primarily from engagements where services have been performed; however, billing cannot occur until services are completed. In some arrangements, the Company allows customers to pay for term-based software licenses and products over the term of the software license. The Company also sells SaaS-based software under subscription arrangements, with payment terms over the term of the SaaS agreement. Amounts recognized as revenue in excess of amounts billed are recorded as unbilled receivables. Unbilled receivables that are anticipated to be invoiced in the next twelve months are included in Accounts receivable on the Company's consolidated balance sheets. The changes in the Company's accounts receivable, unbilled receivables and deferred revenue balances for the years ended December 31, 2021 and 2020 were as follows (in thousands): Balance at January 1, 2021 Increase (decrease), net Balance at December 31, 2021 Balance at January 1, 2020 Increase (decrease), net Balance at December 31, 2020 Accounts receivable Unbilled accounts receivable Deferred revenue (current) Deferred revenue (long-term) $ $ 179,331 $ 29,641 208,972 $ 58,407 $ 15,538 73,945 $ 96,824 $ 12,295 109,119 $ 26,010 (5,391) 20,619 Accounts receivable Unbilled accounts receivable Deferred revenue (current) $ $ 168,502 10,829 179,331 $ $ 24,204 34,203 58,407 $ $ 100,406 (3,582) 96,824 Deferred revenu (long-term) $ 20,48 5,52 26,01 $ The Company recognized approximately $94 million of revenue in the year ended December 31, 2021 that was recorded as deferred revenue at December 31, 2020 and approximately $99 million of revenue in the year ended December 31, 2020 that was recorded as deferred revenue at December 31, 2019. Of the Company's deferred revenue reported as long-term in its 94 Table of Contents RIBBON COMMUNICATIONS INC. Notes to Consolidated Financial Statements (Continued) consolidated balance sheet at December 31, 2021, the Company expects that approximately $12 million will be recognized as revenue in 2023, approximately $6 million will be recognized as revenue in 2024 and approximately $3 million will be recognized as revenue in 2025 and beyond. All freight-related customer invoicing is recorded as revenue, while the shipping and handling costs that occur after control of the promised goods or services transfer to the customer are reported as fulfillment costs, a component of Cost of revenue - product in the Company's consolidated statements of operations. Deferred Commissions Cost Sales commissions earned by the Company's employees are considered incremental and recoverable costs of obtaining a contract with a customer. The payments related to these costs have been deferred on our consolidated balance sheet and are being amortized over the expected life of the customer contract, which is five years. At December 31, 2021 and 2020, the Company had $3.8 million and $4.1 million, respectively, of deferred sales commissions capitalized. (17) OPERATING SEGMENT INFORMATION The Company has two reportable segments, which are intended to align with the manner in which the business is managed: Cloud and Edge, and IP Optical Networks. The Cloud and Edge segment provides secure and reliable software and hardware products, solutions and services for enabling Voice over Internet Protocol ("VoIP") communications, Voice over Long-Term Evolution ("VoLTE") and Voice Over 5G ("VoNR") communications and Unified Communications and Collaboration ("UC&C") within service provider and enterprise networks and from the cloud. The Cloud and Edge products are increasingly software- centric and cloud-native for deployment on private, public or hybrid cloud infrastructures, in data centers, on enterprise premises and within service provider networks. Ribbon's Cloud and Edge product portfolio consists of our Session Border Controller ("SBC") products and our Network Transformation ("NTR") products. The IP Optical Networks segment provides high-performance, secure solutions for IP networking and optical transport, supporting wireless networks including 5G, metro and edge aggregation, core networking, data center interconnect, legacy network transformation and transport solutions for wholesale carriers. This portfolio is offered to service provider, enterprise and industry verticals with critical transport network infrastructures including utilities, government, defense, transportation, and education and research. The Company has not provided segment asset information as such information is not provided to the CODM and accordingly, asset information is not used in assessing segment performance. Segment revenue and expense included in the tables below represent direct revenue and expense attributable to each segment. Please see Note 10 for information regarding the allocation of goodwill between segments. The CODM utilizes revenue and adjusted gross profit to measure and assess each segment's performance. The Company calculates adjusted gross profit by excluding from cost of revenue: amortization of acquired technology, stock-based compensation, acquisition-related inventory adjustments and acquisition- related facilities adjustments, and may also exclude other items in future periods that the Company believes are not part of the Company's core business. Adjusted gross profit is not a financial measure determined in accordance with U.S. GAAP, may not be comparable to similarly titled measures used by other companies; and should not be considered a substitute for gross profit or other results reported in accordance with U.S. GAAP. See below for a reconciliation of adjusted gross profit to gross profit which is the most directly comparable U.S. GAAP measure. Financial information for the IP Optical Networks segment is not presented for the year ended December 31, 2019, as this segment arose from the ECI Acquisition in 2020. The tables below provide revenue, adjusted gross profit and depreciation expense by reportable segment for the years ended December 31, 2021, 2020 and 2019 (in thousands): 95 Table of Contents Revenue Segment revenue: Cloud and Edge IP Optical Networks Total revenue Adjusted gross profit Segment adjusted gross profit: Cloud and Edge IP Optical Networks Total segment adjusted gross profit Stock-based compensation expense Amortization of acquired technology Acquisition-related inventory and facilities adjustments Gross profit Depreciation expense Segment depreciation expense: Cloud and Edge IP Optical Networks Total depreciation expense (18) MAJOR CUSTOMERS RIBBON COMMUNICATIONS INC. Notes to Consolidated Financial Statements (Continued) 2021 Year ended December 31, 2020 2019 556,656 $ 288,301 844,957 $ 583,270 $ 260,525 843,795 $ 563,111 — 563,111 2021 Year ended December 31, 2020 2019 370,504 $ 114,496 485,000 (1,997) (38,343) — 444,660 $ 385,137 $ 110,845 495,982 (875) (42,290) (2,000) 450,817 $ 355,211 — 355,211 (554) (37,573) — 317,084 2021 Year ended December 31, 2020 2019 12,269 $ 4,693 16,962 $ 12,111 $ 5,077 17,188 $ 11,949 — 11,949 $ $ $ $ $ $ The following customers contributed 10% or more of the Company's revenue in at least one of the years ended December 31, 2021, 2020 and 2019: Verizon Communications Inc. AT&T Inc. * Less than 10% of total revenue. 2021 16% * Year ended December 31, 2020 15% * 2019 17% 12% At December 31, 2021, one customer accounted for 10% or more of the Company's accounts receivable balance, representing approximately 15% of total accounts receivable. At December 31, 2020, one customer accounted for 10% or more of the Company's accounts receivable balance, representing approximately 12% of total accounts receivable. The Company performs ongoing credit evaluations of its customers and generally does not require collateral on accounts receivable. The Company maintains an allowance for doubtful accounts and such losses have been within management's expectations. (19) COMMON STOCK REPURCHASES In the second quarter of 2019, the Company's Board of Directors (the "Board") approved a stock repurchase program (the "Repurchase Program") pursuant to which the Company could repurchase up to $75 million of its common stock prior to April 18, 2021 (the "Program Expiration Date"). The stock repurchases were funded using the Company's working capital. During the year ended December 31, 2019, the Company spent $4.5 million, including transaction fees, to repurchase and retire 1.0 million shares of its common stock under the Repurchase Program. The Company did not repurchase any common stock during the year ended December 31, 2020 or in the period from January 1, 2021 through the Program Expiration Date. The Company had $70.5 million remaining for future repurchases upon the expiration of the Repurchase Program. 96 Table of Contents RIBBON COMMUNICATIONS INC. Notes to Consolidated Financial Statements (Continued) (20) STOCK-BASED COMPENSATION PLANS 2019 Stock Incentive Plan At the Company's annual meeting of stockholders held on June 5, 2019, the Company's stockholders approved the Ribbon Communications Inc. Incentive Award Plan (the "2019 Plan"). The 2019 Plan had previously been approved by the Board, subject to stockholder approval. At the Company's annual meeting of stockholders held on June 2, 2020, the Company's stockholders approved an amendment to the 2019 Plan to increase the number of shares of the Company's common stock authorized for issuance under the 2019 Plan by 7.5 million shares. Under the 2019 Plan, the Company may grant awards aggregating up to 14.5 million shares of common stock (subject to adjustment in the event of stock splits and other similar events), plus 5.1 million shares of common stock that remained available for issuance under the Company's Amended and Restated Stock Incentive Plan (the "2007 Plan") on June 5, 2019, plus any shares covered by awards under the 2007 Plan (or the Company's other prior equity compensation plans) that again become available for grant pursuant to the provisions of the 2007 Plan. The 2019 Plan provides for the grant of options to purchase the Company's common stock ("stock options"), stock appreciation rights ("SARs"), restricted stock awards ("RSAs"), performance-based stock awards ("PSAs"), restricted stock units ("RSUs"), performance-based stock units ("PSUs") and other stock- or cash-based awards. Awards can be granted under the 2019 Plan to the Company's employees, officers and non-employee directors, as well as consultants and advisors of the Company and its subsidiaries. At December 31, 2021, there were 3,985,451 shares available for future issuance under the 2019 Plan. 2007 Plan The Company's 2007 Plan provided for the award of stock options, SARs, RSAs, RSUs, PSAs, PSUs and other stock-based awards to employees, officers, non-employee directors, consultants and advisors of the Company and its subsidiaries. On and following June 5, 2019, with the exception of shares underlying awards outstanding as of that date, no additional shares may be granted under the 2007 Plan. 2002 Stock Option Plan In connection with the Edgewater Acquisition, the Company assumed Edgewater's Amended and Restated 2002 Stock Option Plan, converted all then- outstanding options to purchase Edgewater common stock (the "Assumed Options") to Ribbon stock options (the "Ribbon Replacement Options"), and subsequently renamed it the 2002 Stock Option Plan (the "2002 Plan"). The Ribbon Replacement Options are vesting under the same schedules as the respective Edgewater Options. The fair values of the Assumed Options were estimated using a Black-Scholes option pricing model. The Company recorded $0.7 million as additional purchase consideration for the fair value of the Assumed Options. The fair value of the Ribbon Replacement Options attributable to future service totaled $1.0 million, which will be fully expensed in 2022. At December 31, 2021, there were 105,495 shares available for future grant as stock options. 2012 Stock Incentive Plan In connection with the acquisition of Performance Technologies, Inc. ("PT"), the Company assumed PT's 2012 Amended Performance Technologies, Incorporated Omnibus Incentive Plan, and subsequently renamed it the 2012 Stock Incentive Plan (the "2012 Plan"). In December 2014, all of the unissued shares under the 2012 Plan were transferred to the 2007 Plan. Any outstanding awards under the 2012 Plan that in the future expire, terminate, are canceled, surrendered or forfeited, or are repurchased by the Company will be returned to the 2019 Plan. Accordingly, at December 31, 2021 there were no shares available for future issuance under the 2012 Plan. 2008 Stock Incentive Plan In connection with the acquisition of Network Equipment Technologies, Inc. ("NET"), the Company assumed NET's 2008 Equity Incentive Plan and subsequently renamed it the 2008 Stock Incentive Plan (the "2008 Plan"). In December 2014, all of the unissued shares under the 2008 Plan were transferred to the 2007 Plan. Any outstanding awards under the 2008 Plan that in 97 Table of Contents RIBBON COMMUNICATIONS INC. Notes to Consolidated Financial Statements (Continued) the future expire, terminate, are canceled, surrendered or forfeited, or are repurchased by the Company will be returned to the 2019 Plan. Accordingly, at December 31, 2021 there were no shares available for future issuance under the 2008 Plan. Executive Equity Arrangements Inducement Awards In connection with his appointment as President and Chief Executive Officer of Ribbon, and as an inducement for Bruce McClelland's ("Mr. McClelland") commencement of employment, the Company awarded Mr. McClelland sign-on equity grants, comprised of 462,963 RSUs and a PSU grant with both market service conditions (the "Inducement PSUs") on March 16, 2020. The RSUs vested and were released to Mr. McClelland on March 16, 2021. Subject to Mr. McClelland's continued employment, the Inducement PSUs are eligible to vest and be settled in up to 4,750,000 shares of Ribbon common stock upon the achievement of specified share price thresholds on or prior to September 1, 2024. The first share price threshold for Mr. McClelland's Inducement PSUs was achieved on February 26, 2021, and accordingly, 1,333,333 shares were released to him. These releases are included in the applicable tables below. Performance-Based Stock Grants In addition to granting RSAs and RSUs and the aforementioned Inducement PSUs, to its executives and certain of its employees, the Company also grants PSUs to certain of its executives. PSU Grants. In 2021, 2020 and 2019, the Company granted certain of its executives (the "2021 PSUs", "2020 PSUs" and "2019 PSUs", respectively), of which 60% of each executive's PSU grant had both performance service conditions (the "Performance PSUs") and 40% had both market and service conditions (the "Market PSUs"). Each executive's Performance PSU grant is comprised of three consecutive fiscal year performance periods beginning in the year of grant (each, a "Fiscal Year Performance Period"), with one-third of the Performance PSUs attributable to each Fiscal Year Performance Period. The number of shares that will be vest for each Fiscal Year Performance Period, if any, will be based on the achievement of certain metrics related to the Company's financial performance for the applicable year on a standalone basis (each, a "Fiscal Year Performance Condition"). The Company's achievement of the goals for each Fiscal Year Performance Condition (and the number of shares of Company common stock to vest as a result thereof) are being measured on a linear sliding scale in relation to specific threshold, target and stretch performance conditions, with any shares earned vesting in the first quarter of the fiscal year following the third Performance Period of the grant, pending each executive's continued employment with the Company through that date. The number of shares of common stock underlying the Performance PSUs that can be earned will in no event exceed 200% of the Performance PSUs. Shares subject to the Performance PSUs that fail to be earned will be forfeited. The Market PSUs have one three-year performance period, beginning January 1 in the year of grant and ending on December 31, three years thereafter (the "Market Performance Period"). The number of shares subject to the Market PSUs that will vest, if any, will be dependent upon the Company's total shareholder return ("TSR") compared with the TSR of the companies included in the Nasdaq Telecommunications Index for the applicable Market Performance Period, measured by the Compensation Committee after the Market Performance Period ends, with any shares earned vesting in the first quarter of the fiscal year following the respective Market Performance Period, pending each executive's continued employment with the Company through that date. The number of shares of common stock underlying the Market PSUs that can be earned will in no event exceed 200% of the Market PSUs. Shares subject to the Market PSUs that fail to be earned will be forfeited. In addition, in connection with his appointment as Executive Vice President and General Manager, Packet Optical Networking, the Company granted Sam Bucci 133,333 PSUs (the "Bucci Stock Price PSUs") with both market and service conditions. Subject to Mr. Bucci's continued employment, the Bucci Stock Price PSUs were eligible to vest and be settled in shares of Ribbon common stock upon the achievement of a specific share price threshold on or prior to January 31, 2022. The price share threshold was met on February 12, 2021 and the shares vested and were released on February 15, 2021. This release is included in the applicable table below. 2021 PSUs. In the year ended December 31, 2021, the Company granted certain of its executives an aggregate of 684,425 PSUs, of which 341,359 PSUs had both performance and service conditions (the "2020 Performance PSUs"), 227,571 PSUs 98 Table of Contents RIBBON COMMUNICATIONS INC. Notes to Consolidated Financial Statements (Continued) had both market and service conditions (the "2021 Market PSUs"), and 115,495 PSUs had both revenue performance and service conditions (the "2021 Revenue PSUs"). The three Fiscal Year Performance Periods for the 2021 Performance PSUs are the years ended December 31, 2021, 2022 and 2023 (respectively, the "2021 Performance Period", "2022 Performance Period" and "2023 Performance Period"). The 2021 Revenue PSUs had a one-year performance period, the year ended December 31, 2021, and shares earned, if any, will vest on March 15, 2022. 2020 PSUs. In 2020, the Company granted certain of its executives an aggregate of 823,369 PSUs, of which 494,020 PSUs had both performance and service conditions (the “2020 Performance PSUs”) and 329,349 had both market and service conditions (the “2020 Market PSUs”). The three Fiscal Year Performance Periods for the 2020 Performance PSUs are the years ended December 31, 2020, 2021 and 2022 (respectively, the “2020 Performance Period”, “2021 Performance Period” and “2022 Performance Period”). 2019 PSUs. In March and April 2019, the Company granted certain of its executives an aggregate of 872,073 PSUs, of which 523,244 PSUs had both performance and service conditions (the "Performance PSUs") and 348,829 PSUs had both market and service conditions (the "Market PSUs"). The three Fiscal Year Performance Periods for the 2019 Performance PSUs are the years ended December 31, 2019, 2020 and 2021 (respectively, the “2019 Performance Period”, “2020 Performance Period” and “2021 Performance Period”). In the third quarter of 2019, the Company adjusted the goals for the 2019 Performance Period to reflect the changes to the Company's calculation of certain metrics. There was no incremental expense in connection with this modification. At December 31, 2021, the Company determined that the grant date criteria for the 2022 Performance Period and 2023 Performance Period had not been met, as the goals for these performance periods had not been established by the Company. Accordingly, no expense has been recorded related to these performance periods. Accounting for Performance PSUs. Once the grant date criteria have been met for a Fiscal Year Performance Period, the Company records stock-based compensation expense for the respective shares underlying the PSUs based on its assessment of the probability that the respective performance condition will be achieved and the level, if any, of such achievement. The Compensation Committee determines the number of shares earned, if any, after the Company's financial results for each Fiscal Year Performance Period are finalized. Upon the determination by the Compensation Committee of the number of shares that will be received upon vesting of the related Performance PSUs, such number of shares becomes fixed and the unamortized expense is recorded through the remainder of the service period, at which time such Performance PSUs earned, if any, will vest, pending each executive's continued employment with the Company through that date. Accounting for Market PSUs. PSUs that include a market condition require the use of a Monte Carlo simulation approach to model future stock price movements based upon the risk-free rate of return, the volatility of each entity and the pair-wise covariance between each entity. These results are then used to calculate the grant date fair values of the respective PSUs. The Company is required to record expense for the PSUs with market conditions through their respective final vesting dates regardless of the number of shares that are ultimately earned. Employee Bonus Program For the year ended December 31, 2021, the Company added an equity component to its cash bonus program for eligible employees, under which RSUs with a grant date fair value equal to 50% of each employee's target cash bonus were granted to each such employee ("Bonus RSUs"). Correspondingly, cash target bonuses for eligible employees were reduced by 50%. The Company implemented this program to expand the opportunities for stock ownership more broadly throughout the Company. The Bonus RSUs will vest over three years, with the final vest occurring on March 15, 2024. The Bonus RSU grants are included in the applicable table below. Accelerated Vesting of Stock Units In connection with the separation of several executives from the Company in the years ended December 31, 2021, 2020 and 2019, the Company accelerated the vesting of certain of their outstanding RSUs and PSUs in accordance with their respective terms of employment with the Company. At December 31, 2021, there was the potential for a portion of certain other PSUs aggregating approximately 40,000 shares to be released to two of these former executives on a pro rata basis subject 99 Table of Contents RIBBON COMMUNICATIONS INC. Notes to Consolidated Financial Statements (Continued) to achievement of the related performance or market conditions for the performance periods through their respective 2021 separation dates. Stock Options The Company has not granted stock options since 2017. Outstanding stock options granted under the Company's plans expire either seven or ten years from the date of grant. The grant date fair value of stock options, adjusted for estimated forfeitures, is recognized as expense on a straight-line basis over the requisite service period, which is generally the vesting period. Forfeitures are estimated based on historical experience. The activity related to the Company's outstanding stock options during the year ended December 31, 2021 was as follows: Outstanding at January 1, 2021 Exercised Expired Outstanding at December 31, 2021 Vested or expected to vest at December 31, 2021 Exercisable at December 31, 2021 Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term (years) Aggregate Intrinsic Value (in thousands) 207,710 $ (13,815) $ (9,726) $ 184,169 $ 184,169 $ 184,134 $ 12.69 1.76 17.60 13.25 13.25 13.26 2.59 $ 2.59 $ 2.59 $ 174 174 174 The total intrinsic values of options exercised were $0.1 million for the year ended December 31, 2021, $0.1 million for the year ended December 31, 2020 and $0.5 million for the year ended December 31, 2019. The Company received cash from option exercises of approximately $24,000 in the year ended December 31, 2021, $0.1 million in the year ended December 31, 2020 and $0.2 million in the year ended December 31, 2019. Restricted Stock Grants - Restricted Stock Awards and Restricted Stock Units The Company's outstanding restricted stock grants consist of both RSAs and RSUs. Holders of unvested RSAs have voting rights and rights to receive dividends, if declared; however, these rights are forfeited if the underlying unvested RSA shares are forfeited. Holders of unvested RSUs do not have such voting and dividend rights. The grant date fair value of restricted stock grants, adjusted for estimated forfeitures, is recognized as expense on a straight-line basis over the requisite service period. The fair value of restricted stock grants is determined based on the market value of the Company's shares on the date of grant. The activity related to the Company's RSAs for the year ended December 31, 2021 was as follows: Unvested balance at January 1, 2021 Vested Unvested balance at December 31, 2021 100 Weighted Average Grant Date Fair Value 7.04 7.04 — Shares 86,983 $ (86,983) $ — $ Table of Contents RIBBON COMMUNICATIONS INC. Notes to Consolidated Financial Statements (Continued) The activity related to the Company's RSUs for the year ended December 31, 2021 was as follows: Unvested balance at January 1, 2021 Granted Vested Forfeited Unvested balance at December 31, 2021 Shares 6,531,110 $ 3,268,789 $ (3,566,569) $ (843,719) $ 5,389,611 $ Weighted Average Grant Date Fair Value 3.32 8.44 3.32 4.76 6.19 The total grant date fair value of vested restricted stock grant shares was $12.5 million in the year ended December 31, 2021, $11.2 million in the year ended December 31, 2020 and $9.9 million in the year ended December 31, 2019. Performance-Based Stock Units Holders of unvested PSUs do not have voting and dividend rights. The Company recognizes stock-based compensation expense for PSUs without market conditions on a straight-line basis, with the amount recorded based upon the expected level of achievement as of each period-end, recording cumulative adjustments in the period when the expected level of achievement changes. The Company recognizes the grant date fair value of PSUs on a graded attribution basis through the vest date of the respective awards so long as it remains probable that the related service conditions will be satisfied. The activity related to the Company's PSUs for the year ended December 31, 2021 was as follows: Unvested balance at January 1, 2021 Granted Vested Forfeited Unvested balance at December 31, 2021 Shares 6,035,931 $ 701,208 $ (1,557,656) $ (191,607) $ 4,987,876 $ Weighted Average Grant Date Fair Value 1.56 10.11 1.08 6.11 2.87 The total grant date fair value of vested performance-based stock grant shares was $1.7 million in the year ended December 31, 2021, $1.8 million in the year ended December 31, 2020 and $0.1 million in the year ended December 31, 2019. Stock-Based Compensation The consolidated statements of operations included stock-based compensation for the years ended December 31, 2021, 2020 and 2019 as follows (in thousands): Product cost of revenue Service cost of revenue Research and development Sales and marketing General and administrative 2021 Year ended December 31, 2020 2019 $ $ 313 $ 1,684 4,253 7,218 5,950 19,418 $ 174 $ 701 2,968 4,129 5,927 13,899 $ 76 478 1,898 3,028 7,121 12,601 There was an income tax benefit for employee stock-based compensation expense for the years ended December 31, 2021 and 2020. There was no income tax benefit for the year ended December 31, 2019 due to the valuation allowance recorded. At December 31, 2021, there was $25.4 million, net of expected forfeitures, of unrecognized stock-based compensation expense related to unvested stock options, RSUs and PSUs. This expense is expected to be recognized over a weighted average period of approximately two years. 101 Table of Contents Common Stock Reserved RIBBON COMMUNICATIONS INC. Notes to Consolidated Financial Statements (Continued) At December 31, 2021, there were 4,090,946 total shares of common stock reserved for future issuance under the Company's equity plans. However, of that amount 105,495 shares are only authorized for issuance as stock options. The Company's policy is to issue authorized but unissued shares upon the exercise of stock options, to grant restricted common stock, to settle restricted stock units and performance-based stock units. (21) LEASES The Company has operating and finance leases for corporate offices, research and development facilities, and certain equipment. Operating leases are reported separately in the Company's consolidated balance sheet at December 31, 2021 and 2020. Assets acquired under finance leases are included in Property and equipment, net, in the consolidated balance sheets at December 31, 2021 and 2020. The Company determines if an arrangement is a lease at inception. A contract is determined to contain a lease component if the arrangement provides the Company with a right to control the use of an identified asset. Lease agreements may include lease and non-lease components. In such instances for all classes of underlying assets, the Company does not separate lease and non-lease components but rather, accounts for the entire arrangement under leasing guidance. Leases with an initial term of 12 months or less are not recorded on the balance sheet and lease expense for these leases is recognized on a straight-line basis over the lease term. Right-of-use assets and lease liabilities are initially measured based on the present value of the future minimum fixed lease payments (i.e., fixed payments in the lease contract) over the lease term at the commencement date. As the Company's existing leases do not have a readily determinable implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of future minimum fixed lease payments. The Company calculates its incremental borrowing rate to reflect the interest rate that it would have to pay to borrow on a collateralized basis an amount equal to the lease payments in a similar economic environment over a similar term and considers its historical borrowing activities and market data from entities with comparable credit ratings in this determination. The measurement of the right-of-use asset also includes any lease payments made prior to the commencement date (excluding any lease incentives) and initial direct costs incurred. The Company assessed its right-of-use assets for impairment as of December 31, 2021 and 2020 and determined no impairment had occurred. Lease terms may include options to extend or terminate the lease and the Company incorporates such options in the lease term when it has the unilateral right to make such an election and it is reasonably certain that the Company will exercise that option. In making this determination, the Company considers its prior renewal and termination history and planned usage of the assets under lease, incorporating expected market conditions. For operating leases, lease expense for minimum fixed lease payments is recognized on a straight-line basis over the lease term. The expense for finance leases includes both interest and amortization expense components, with the interest component calculated based on the effective interest method and the amortization component calculated based on straight-line amortization of the right-of-use asset over the lease term. Lease contracts may contain variable lease costs, such as common area maintenance, utilities and tax reimbursements that vary over the term of the contract. Variable lease costs are not included in minimum fixed lease payments and as a result, are excluded from the measurement of the right-of-use assets and lease liabilities. The Company expenses all variable lease costs as incurred. In connection with the 2020 Restructuring Initiative, the Company accelerated amortization totaling $0.8 million in the year ended December 31, 2021 for leased facilities that were vacated in 2021 as part of the consolidation of certain sites following the ECI Acquisition. The Company did not record estimated future variable lease costs in the year ended December 31, 2021 related to the 2020 Restructuring Initiative. The Company did not record any accelerated amortization or estimated future variable lease costs in the year ended December 31, 2020 related to the 2020 Restructuring Initiative. In connection with the 2019 Restructuring Initiative, certain lease assets related to facilities are being partially or fully vacated as the Company consolidates its facilities. The Company has no plans to enter into sublease agreements for certain 102 Table of Contents RIBBON COMMUNICATIONS INC. Notes to Consolidated Financial Statements (Continued) facilities. The Company accelerated amortization of $3.4 million, $0.6 million and $3.7 million in the years ended December 31, 2021, 2020 and 2019, respectively, for leased facilities that were vacated in the respective years. The Company also recorded liabilities aggregating $1.4 million and $0.9 million in the years ended December 31, 2021 and 2019, respectively, for all future estimated variable lease costs related to these facilities. The Company did not record liabilities for future estimated variable lease costs in the year ended December 31, 2020. This incremental accelerated amortization and accrual for all estimated future variable lease costs are included in Restructuring and related expense in the Company's consolidated statements of operations for the years ended December 31, 2021, 2020 and 2019. At December 31, 2021 and 2020, the Company had accruals of $1.6 million and $0.8 million, respectively, for all future anticipated variable lease costs related to these facilities. The Company may incur additional future expense if it is unable to sublease other locations included in the Facilities Initiative. In addition, in the year ended December 31, 2021, this accelerated amortization and provision for future estimated variable lease costs was partially offset by the recognition of $2.1 million of income in conjunction with lease amendments that modified the Company's obligation and rentable square footage at a site in North Carolina. The Company leases its corporate offices and other facilities under operating leases, which expire at various times through 2032. In December 2020, the Company began relocating from its former leased Plano, Texas facility to its new leased facility on Chase Oaks Boulevard, also located in Plano, Texas. The Company's relocation to the new corporate headquarters was completed in the first quarter of 2021. The Company's right-of-use lease assets and lease liabilities at December 31, 2021 and 2020 were as follows (in thousands): Assets: Operating lease assets Finance lease assets* Total leased assets Liabilities: Current: Operating Finance Noncurrent: Operating Finance Total lease liabilities Classification Operating lease right-of-use assets Property and equipment, net Operating lease liabilities Accrued expenses and other Operating lease liabilities, net of current Other long-term liabilities December 31, 2021 2020 53,147 $ 287 53,434 $ 69,757 983 70,740 17,403 $ 503 55,196 64 73,166 $ 17,023 902 72,614 568 91,107 $ $ $ $ * Finance lease assets were recorded net of accumulated depreciation of $1.8 million and $1.9 million at December 31, 2021 and December 31, 2020, respectively. The components of lease expense for the years ended December 31, 2021, 2020 and 2019 were as follows (in thousands): Operating lease cost* Finance lease cost: Amortization of leased assets Interest on lease liabilities Short-term lease cost Variable lease costs (costs excluded from minimum fixed lease payments)** Sublease income Net lease cost 2021 Year ended December 31, 2020 2019 $ 21,828 $ 19,582 $ 13,865 695 67 13,250 4,030 (1,496) 38,374 $ 1,200 173 20,687 2,713 (1,087) 43,268 $ 1,106 265 19,460 3,264 (374) 37,586 $ 103 Table of Contents RIBBON COMMUNICATIONS INC. Notes to Consolidated Financial Statements (Continued) * Operating lease costs for the years ended December 31, 2021, 2020 and 2019 include $3.4 million, $0.6 million, and $3.7 million, respectively, of accelerated amortization for certain assets partially or fully vacated with no intent or ability to sublease. Operating lease cost for the year ended December 31, 2021 also includes $2.1 million of income related to a lease modification for one of these assets. ** Variable lease costs for the years ended December 31, 2021 and 2019 included accruals of $1.4 million and $0.9 million, respectively, for all future estimated variable expenses related to certain assets partially or fully vacated with no intent or ability to sublease. No such variable costs were accrued in the year ended December 31, 2020. Cash flow information related to the Company's leases for the years ended December 31, 2021 and 2020 was as follows (in thousands): Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases Operating cash flows from finance leases Financing cash flows from finance leases 2021 Year ended December 31, 2020 2019 $ $ $ 22,365 $ 67 $ 903 $ 19,161 173 1,279 10,559 265 913 Other information related to the Company's leases as of December 31, 2021 and 2020 was as follows (in thousands): Weighted average remaining lease term (years): Operating leases Finance leases Weighted average discount rate: Operating leases Finance leases Future minimum fixed lease payments under noncancelable leases at December 31, 2021 were as follows (in thousands): December 31, 2021 2020 6.25 1.00 5.61 % 4.15 % 6.59 1.70 5.67 % 6.15 % 2022 2023 2024 2025 2026 2027 and beyond Total lease payments Less: interest Present value of lease liabilities December 31, 2021 Operating leases Finance leases $ $ 20,729 $ 17,970 10,503 7,593 6,543 24,477 87,815 (15,216) 72,599 $ 517 63 — — — — 580 (13) 567 (22) EMPLOYEE DEFINED CONTRIBUTION PLANS The Company offers 401(k) savings plans to eligible employees. The Company matches 50% of each employee's contributions to the 401(k) program up to 4% of the employee's eligible earnings, for a maximum match of 2% of eligible earnings. The Company recorded expense related to its employee defined contribution plans aggregating $3.5 million, $3.4 million and $4.0 million in the years ended December 31, 2021, 2020 and 2019, respectively. 104 Table of Contents RIBBON COMMUNICATIONS INC. Notes to Consolidated Financial Statements (Continued) (23) NON-U.S. EMPLOYEE DEFINED BENEFIT PLANS The Company has defined benefit retirement plans that cover certain employees at various international locations. The Company's policy is to contribute amounts at least sufficient to satisfy the minimum amount required by applicable law and regulations or to directly pay benefits where appropriate. Benefits under the defined benefit plans are typically based either on years of service and the employee's compensation (generally during a fixed number of years immediately before retirement) or on annual credits. The range of assumptions that are used for these non-U.S. defined benefit plans reflect the different economic environments within the various countries. In the year ended December 31, 2020, the Company assumed ECI's defined benefit plans in connection with the ECI Acquisition. These plans exist in several international locations where severance pay is either required by law for voluntary terminations or upon reaching a statutory retirement age. The Company adopted ECI's policy to fund notional accounts each month in the name of each employee to satisfy not only the severance amounts required by the applicable laws and regulations in certain countries, but also to satisfy severance for other types of terminations not necessarily required by law, but paid in accordance with company policy. Benefits funded and paid under these plans are based upon years of service and the employees' current compensation. At the ECI Acquisition Date, ECI accounted for these plans under the shutdown approach allowed under ASC 715, Compensation - Retirement Benefits (Topic 715) ("ASC 715"). Beginning December 31, 2020, in order to be consistent with the accounting methodology utilized for Ribbon's other defined benefit plans, the Company began to account for the ECI assumed plans using the actuarial cost approach, which is also allowed under ASC 715 for these types of plans. The range of assumptions that are utilized for these plans reflects the different economic environments within each country where such severance indemnities are required. In 2020, regulatory changes occurred in the Netherlands that changed the Company's defined benefit pension plan there from a participating plan to a non- participating plan. This plan amendment triggered settlement accounting, resulting in a gain of $1.6 million, which is included in Other (expense) income, net, in the Company's consolidated statement of operations for the year ended December 31, 2020. Prior to the amendment, the Company's Netherlands pension plan provided defined benefit accruals which were financed by insurance contracts that had a profit sharing feature. The pension benefits accrued were subject to future increases based on final earnings at the end of employment (the final average earnings formula). With the amendment in 2020, the final average earnings formula was frozen and the insurance contracts were converted to fully paid contracts. Following the amendment, pension accruals are now based upon a new formula that only considers current earnings (the career earnings formula) with the benefits still financed through insurance contracts. Ribbon has no further liability for pension benefits earned prior to the amendment as they are fully paid contracts. In addition, the insurance contract for the new benefit accruals has no profit sharing feature. Therefore, Ribbon has no current or future obligation to pay pension benefits promised in the Netherlands beyond the payment of premiums to the insurance company. During the year ended December 31, 2019, in conjunction with the 2019 Restructuring Initiative, there were reductions in force that significantly reduced benefits that can be earned under the plan in one of our international locations that resulted in an immaterial curtailment loss. Settlement accounting was triggered in the year ended December 31, 2019 related to a reduction in force in one of the Company's locations in 2018, resulting in an immaterial settlement gain. A reconciliation of the changes in the benefit obligations and fair value of the assets of the defined benefit plans for the years ended December 31, 2021 and 2020, the funded status of the plans, and the amounts recognized in the consolidated balance sheets as of December 31, 2021 and 2020 were as follows (in thousands): 105 Table of Contents RIBBON COMMUNICATIONS INC. Notes to Consolidated Financial Statements (Continued) Changes in projected benefit obligations: Projected benefit obligation, beginning of year Business combination Service cost Interest cost Participant contributions Plan amendments Benefits and expenses paid Net actuarial loss on obligation Projected benefit obligation, end of year Changes in plan assets: Fair value of plan assets, beginning of year Business combination Actual return on plan assets Plan amendments Employer contributions Participant contributions Benefits paid Fair value of plan assets, end of year Funded status at end of year Amounts recognized in accumulated other comprehensive loss consist of: Net actuarial loss Amounts recognized in the consolidated balance sheets consist of: Accrued expenses and other (current pension liability) Other long-term liabilities (non-current pension liability) Net amount recognized Year ended December 31, 2020 2021 25,067 $ — 1,321 523 — (3,801) (1,040) 4,868 26,938 $ 14,350 $ — 981 — 989 23 (1,040) 15,303 $ 11,784 17,963 1,459 46 — (4,440) (1,976) 231 25,067 1,830 13,188 1,077 (588) 798 21 (1,976) 14,350 (11,635) $ (10,717) (4,045) $ (102) (461) $ (11,174) (11,635) $ (435) (10,282) (10,717) $ $ $ $ $ $ $ $ The increase in the underfunded status of the Company's defined benefit plans at December 31, 2021 compared to December 31, 2020 was primarily the result of the larger net actuarial loss in the current year, partially offset by lower benefit payments. Plans with underfunded or non-funded accumulated benefit obligations at December 31, 2021 and 2020 were as follows (in thousands): Aggregate projected benefit obligation Aggregate accumulated benefit obligation Aggregate fair value of plan assets December 31, 2021 2020 $ $ $ 26,938 $ 20,695 $ 15,303 $ 25,067 20,746 14,350 106 Table of Contents RIBBON COMMUNICATIONS INC. Notes to Consolidated Financial Statements (Continued) Net periodic benefit costs for the years ended December 31, 2021, 2020 and 2019 were as follows (in thousands): Service cost Interest cost Expected return on plan assets Plan asset expenses Curtailment charge (credit) Settlement (credit) charge Amortization of net loss Net periodic benefit costs 2021 Year ended December 31, 2020 2019 $ $ 1,321 $ 523 (314) — — — 81 1,611 $ 1,459 $ 46 (343) 20 — (1,557) — (375) $ 335 140 (14) 21 13 115 — 610 The Company made benefit payments of $1.0 million, $2.0 million and $0.7 million in the years ended December 31, 2021, 2020 and 2019, respectively. These benefit payments included $0.7 million of one-time lump sum payments to participants in the year ended December 31, 2019. No one-time lump sum payments were made to participants in the years ended December 31, 2021 and 2020. Expected benefit payments for the next ten years are as follows (in thousands): Years ending December 31, 2022 2023 2024 2025 2026 2027 to 2031 $ $ 2,644 1,465 1,230 1,498 1,235 10,673 18,745 The changes in plan assets and benefit obligations recognized in other comprehensive income (loss) before tax for the years ended December 31, 2021, 2020 and 2019 were as follows (in thousands): Net (gain) loss Settlement gain Total recognized in comprehensive income (loss) 2021 Year ended December 31, 2020 2019 $ $ 4,045 $ — 4,045 $ (558) $ (1,557) (2,115) $ 2,526 — 2,526 The Company defers all actuarial gains and losses resulting from variances between actual results and economic estimates or actuarial assumptions. The unrecognized actuarial gains and losses are recorded as unrealized pension actuarial gains (losses) in the Company's consolidated balance sheets as a component of Accumulated other comprehensive income. These unrecognized gains and losses are amortized as a component of net periodic benefit cost when the net gains and losses exceed 10% of the greater of the market value of plan assets or the projected benefit obligation at the beginning of the year. Amortization of the amount included in Accumulated other comprehensive income into net periodic benefit cost is expected to total $0.1 million for the year ended December 31, 2022. The principal weighted average assumptions used to determine the benefit obligation at December 31, 2021 and 2020 were as follows: Discount rate Rate of compensation increase December 31, 2021 2020 2.24 % 3.90 % 2.16 % 2.41 % The principal weighted average assumptions used to determine net period benefit cost for the years ended December 31, 2021, 2020 and 2019 were as follows: 107 Table of Contents RIBBON COMMUNICATIONS INC. Notes to Consolidated Financial Statements (Continued) Discount rate Expected long-term return on plan assets Rate of compensation increase 2021 Year ended December 31, 2020 2019 2.16 % 2.06 % 2.41 % 0.68 % 0.21 % 2.88 % 1.30 % 1.12 % 2.83 % Assumed discount rates are used in the measurement of the projected and accumulated benefit obligations, as well as the service and interest cost components of net periodic pension cost. Estimated discount rates reflect the rates at which the pension benefits could be effectively settled. For each defined benefit plan, the Company chooses an estimated discount rate from a readily available market index rate, based upon high-quality fixed income investments, specific to the country or economic zone in which the benefits are paid and taking into account the duration of the plan and the number of participants. The Company's plans in both the Netherlands and Switzerland are funded through insurance contracts, which have historically provided guaranteed interest credit. The fair value of these contracts is derived from the insurance companies' assessment of the minimum value of the benefits provided by the insurance contracts. The methodology used to value these plan assets has always assumed that the value of the plan assets equals the guaranteed insured benefits. For consistency, the same discount rate used in the valuation of the benefit obligations is used to place a value on the plan assets. The assets are assumed to grow each year in line with the discount rate, and therefore, the expected return on the assets is set equal to the discount rate. The fair value of the plan assets in Switzerland was $1.7 million at December 31, 2021 and $1.6 million at December 31, 2020. Due to the plan amendment in 2020 that changed the benefit structure of the Netherlands plan, the Company no longer has any obligation related to this plan beyond the payment of insurance premiums. Therefore, there is no projected benefit obligation and no plan assets in the Netherlands as of December 31, 2020. Plan assets for the Netherlands plan totaled $0.6 million at December 31, 2019. The Company classifies the fair value of its plan assets as Level 2 in the fair value hierarchy as discussed in Note 6. During the years ended December 31, 2021, 2020 and 2019, employees in the Netherlands and Switzerland made contributions to the respective pension plans aggregating $23,000, $21,000 and $24,000, respectively. Employee contributions to these plans are based on a fixed 5% of the relevant pensionable earnings. The Company funds these plans by contributing at least the minimum amount required by applicable regulations and as recommended by an independent actuary. During the years ended December 31, 2021, 2020 and 2019, the Company contributed $1.0 million, $0.8 million and $0.1 million, respectively, to its pension plans. The Company expects to contribute $1.2 million to its defined benefit plans in 2022. (24) INCOME TAXES The components of (loss) income from continuing operations before income taxes consisted of the following (in thousands): (Loss) income before income taxes: United States Foreign 2021 Year ended December 31, 2020 2019 $ $ (29,985) $ (178,158) (208,143) $ 123,817 $ (30,500) 93,317 $ (132,887) 9,994 (122,893) 108 Table of Contents RIBBON COMMUNICATIONS INC. Notes to Consolidated Financial Statements (Continued) The (benefit) provision for income taxes from continuing operations consisted of the following (in thousands): (Benefit) provision for income taxes: Current: Federal State Foreign Total current Deferred: Federal State Foreign Change in valuation allowance Total deferred Total 2021 Year ended December 31, 2020 2019 $ $ 5,033 $ 1,836 7,661 14,530 1,700 1,444 (23,484) (25,148) (45,488) (30,958) $ 677 $ 1,310 7,355 9,342 30,278 195 (16,117) (18,972) (4,616) 4,726 $ 11 128 1,744 1,883 9,790 1,630 383 (6,504) 5,299 7,182 A reconciliation of the Company's effective tax rate for continuing operations to the statutory federal rate is as follows: U.S. statutory income tax rate State income taxes, net of federal benefit Foreign income taxes Foreign deemed dividends Stock-based compensation Tax credits Uncertain tax positions Valuation allowance Goodwill amortization Tax reform Goodwill impairment Other permanent adjustments Permanent adjustments - foreign exchange Other, net Effective income tax rate 2021 Year ended December 31, 2020 2019 21.0 % (0.7) (1.4) 1.9 — 1.6 0.5 2.5 — — (11.7) 0.9 0.5 (0.2) 14.9 % 21.0 % 1.1 2.9 (2.7) 1.0 (2.8) 0.5 (20.3) 0.6 — — 1.8 1.8 0.2 5.1 % 21.0 % (0.2) (1.0) (0.4) (0.7) 2.8 (0.2) (0.7) 0.4 (0.1) (25.4) (1.5) — 0.2 (5.8)% 109 Table of Contents RIBBON COMMUNICATIONS INC. Notes to Consolidated Financial Statements (Continued) The following is a summary of the significant components of deferred income tax assets and liabilities (in thousands): Assets: Net operating loss carryforwards Capital loss carryforward Research and development and other tax credits Deferred revenue Accrued expenses Inventory Stock-based compensation Fixed assets Lease liabilities Mark-to-market investments Other temporary differences Valuation allowance Total deferred tax assets Liabilities: Intangible assets Operating lease right-of-use assets Mark-to-market investments Unremitted foreign income Total deferred tax liabilities Total net deferred tax assets December 31, 2021 2020 $ $ 437,669 $ 79,716 41,556 3,472 7,505 3,102 1,689 2,710 15,250 1,714 3,839 598,222 (471,515) 126,707 (65,647) (10,370) — (11,519) (87,536) 39,171 $ 447,101 71,182 51,431 3,184 13,557 2,603 1,668 4,613 — — 4,051 599,390 (496,439) 102,951 (75,794) — (17,631) (15,717) (109,142) (6,191) The deferred tax assets and liabilities based on tax jurisdictions are presented in the Company's consolidated balance sheets as follows: Deferred income taxes - noncurrent assets Deferred income taxes - noncurrent liabilities December 31, 2021 2020 $ $ 47,287 $ (8,116) 39,171 $ 10,651 (16,842) (6,191) The largest changes in the year ended December 31, 2021 compared to the year ended December 31, 2020 include an increase in recognized U.S. deferred tax assets due to a release of a portion of the valuation allowances, as well as a change in mark-to-market securities related to the AVCT Investment. At December 31, 2021, the Company had cumulative net operating losses ("NOLs") in the U.S. of $224.6 million. The Company, through the ECI Acquisition, also has $1.6 billion of Israel NOLs. The U.S. NOL carryforwards expire at various dates from 2022 through 2037. The Israel NOLs do not expire. The Company also has available federal, state and foreign income tax credit carryforwards of $23.4 million that expire in various periods. The Company has provided for income taxes on the undistributed earnings of its non-U.S. subsidiaries as of December 31, 2021, excluding Ireland and Israel. These subsidiaries, excluding Ireland and Israel, are cost-plus or limited risk distributors that are not anticipated to need to use excess funds locally. Accordingly, the Company is required to recognize and record deferred taxes in 2021. The deferred taxes are recorded on the entire outside basis differences related to the foreign subsidiaries, the largest of these differences being undistributed earnings. Undistributed profits of Ireland and Israel, as well as other outside basis differences in foreign subsidiaries, were indefinitely reinvested in foreign operations. Quantification of the deferred tax liability, if any, associated with indefinitely reinvested earnings and outside basis differences was not practicable. 110 Table of Contents RIBBON COMMUNICATIONS INC. Notes to Consolidated Financial Statements (Continued) Under the provisions of the Internal Revenue Code, the net operating losses and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service. Net operating losses and tax credit carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership of significant shareholders over a three-year period in excess of 50%, as defined under Sections 382 and 383 of the Internal Revenue Code, as well as a similar state provision. As a result of the Edgewater Acquisition in 2018, the Company acquired approximately $34 million of net operating loss carryforwards and approximately $6 million of tax credit carryforwards. As a result of the ECI Acquisition, an additional $129.6 million of NOL was acquired related to the ECI U.S. subsidiary. Edgewater and ECI U.S. incurred ownership changes as a result of their acquisition by the Company, and thus the acquired net operating losses and credits are subject to limitations under IRC Sections 382 and 383. During 2021 and 2020, the Company performed an analysis to determine if, based on all available evidence, it considered it more likely than not that some portion or all of the recorded deferred tax assets will not be realized in a future period. As a result of the Company's evaluation, the Company concluded that there was sufficient positive evidence to release a portion of the Company's valuation allowance on its U.S. federal deferred tax assets, as the Company expects to have sufficient taxable income in future periods to utilize a portion of its net operating losses. Accordingly, the Company has maintained a valuation allowance against its U.S. deferred tax asset amounting to $30.5 million at December 31, 2021 and $73.0 million at December 31, 2020. The Company also maintains a valuation allowance against certain of its foreign deferred tax assets, predominantly Israel, amounting to approximately $441 million at December 31, 2021 and $423 million at December 31, 2020. The deferred tax assets recognized with no valuation allowance at December 31, 2021 and 2020 primarily relate to other foreign subsidiaries where recoverability is concluded to be more likely than not based on the Company's cost-plus compensation policy, as well as net operating losses and credits in the U.S. that are expected to be utilized prior to expiration. A reconciliation of the Company's unrecognized tax benefits is as follows (in thousands): Unrecognized tax benefits at January 1 Increases related to current year tax positions Increases related to prior period tax positions Decreases related to prior period tax positions Unrecognized tax benefits at December 31 2021 Year ended December 31, 2020 2019 $ $ 14,054 $ 4,017 3,168 (3,426) 17,813 $ 2,932 $ 485 11,209 (572) 14,054 $ 3,461 292 — (821) 2,932 The Company accounts for interest and penalties related to uncertain tax positions as part of its provision for income taxes. The Company had $21.0 million, $15.3 million and $3.6 million of unrecognized tax benefits, including penalties and interest, at December 31, 2021, 2020 and 2019, respectively. Of these amounts, $12.7 million, $13.9 million and $2.0 million represent the amount of unrecognized tax benefits that, if recognized, would impact the effective income tax rate for the years ended December 31, 2021, 2020 and 2019, respectively. The Company recorded liabilities for potential penalties and interest of $1.9 million, $0.5 million and $0.1 million for the years ended December 31, 2021, 2020 and 2019, respectively. The Company had $3.2 million and $1.3 million accrued in Other long-term liabilities for penalties and interest at December 31, 2021 and 2020, respectively. The Company believes that it is reasonably possible that certain tax positions related to its unrecognized tax benefits will be effectively settled within the next twelve months. The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction as well as various state and foreign jurisdictions. Generally, the tax years 2017 through 2020 remain open to examination by the major taxing jurisdictions to which the Company is subject. The Company's federal NOLs generated prior to 2017 could be adjusted on examination even though the year in which the loss was generated is otherwise closed by the statute of limitations. As of December 31, 2021, the Company had ongoing income tax audits in certain foreign countries. Management believes that an adequate provision has been recorded for any adjustments that may result from tax examinations. (25) RELATED PARTIES As a portion of the consideration for the GENBAND Merger, on October 27, 2017, the Company issued a promissory note for $22.5 million to certain of GENBAND's equity holders who, following the GENBAND Merger. As described in Note 14 111 Table of Contents RIBBON COMMUNICATIONS INC. Notes to Consolidated Financial Statements (Continued) above, the promissory note did not amortize and the principal thereon was payable in full on the third anniversary of its execution. Interest on the promissory note was payable quarterly in arrears and accrued at a rate of 7.5% per year for the first six months after issuance, and thereafter at a rate of 10% per year. On April 29, 2019, the Company repaid in full all outstanding amounts under the Promissory Note, aggregating $24.7 million. The Company did not incur any early termination penalties in connection with this repayment. (26) COMMITMENTS AND CONTINGENCIES Litigation Settlement As previously disclosed, the Company was involved in six lawsuits (together, the "Lawsuits") with Metaswitch Networks Ltd., Metaswitch Networks Corp. and Metaswitch Inc. (collectively, "Metaswitch"). In five of the Lawsuits, the Company was the plaintiff, and in three of those five lawsuits, the Company was also a counterclaim defendant. In the sixth case, the Company was the defendant. On April 22, 2019, the Company and Metaswitch agreed to a binding mediator's proposal that resolved the six Lawsuits between the Company and Metaswitch (the "Lawsuits"). The Company and Metaswitch signed a Settlement and Cross-License Agreement on May 29, 2019 (the "Royalty Agreement"). Pursuant to the terms of the Royalty Agreement, Metaswitch agreed to pay the Company an aggregate amount of $63.0 million, which included cash payments of $37.5 million during the second quarter of 2019 and $25.5 million payable in three installments annually, beginning June 26, 2020, with such installment payments accruing interest at a rate of 4% per year. As part of the Royalty Agreement, the Company and Metaswitch (i) have released the other from all claims and liabilities; (ii) have licensed each party's existing patent portfolio to the other party; and (iii) have requested the applicable courts to dismiss the Lawsuits. The $63.0 million gain from the settlement is included in Other (expense) income, net, in the Company's consolidated statement of operations for the year ended December 31, 2019, and had notes receivable for future payments of $25.5 million, comprised of $8.5 million in Other current assets and $17.0 million in Other assets in the consolidated balance sheet. The Company received $37.5 million of aggregate payments from Metaswitch in the second quarter of 2019 and $9.5 million, including $1.0 million of interest, in the second quarter of 2020. On July 6, 2020, the Company and Metaswitch signed a First Supplemental Agreement to the Settlement and Cross-License Agreement (the "Supplemental Agreement") under which Metaswitch could elect to repay the outstanding amounts under the Royalty Agreement early in exchange for a reduction of $0.25 million to the outstanding principal, from $17.0 million to $16.75 million, and the payment of no further interest by Metaswitch effective June 26, 2020. The Company recorded the reduction to the outstanding principal as a reduction to interest income. On July 14, 2020, Metaswitch paid the Company the remaining outstanding balance of $16.75 million. Contingencies Liabilities for Royalty Payments to the IIA Prior to the ECI Acquisition, ECI had received research and development grants from the IIA. The Company assumed ECI's contract with the IIA, which requires the Company to pay royalties to the IIA on proceeds from the sale of products which the Israeli government has supported by way of research and development grants. The royalties for grants prior to 2017 were calculated at the rates of 1.3% to 5.0% of the aggregated proceeds from the sale of such products developed at certain of the Company's R&D centers, up to an amount not exceeding 100% of such grants plus interest at LIBOR. Effective for grants approved in 2017 and thereafter, interest was calculated at the higher of LIBOR plus 1.5% to 2.75%. At December 31, 2021, the Company's maximum possible future royalties commitment, including $4.3 million of unpaid royalties accrued at December 31, 2021, was $34.2 million, including interest of $1.9 million, based on estimates of future product sales, grants received from the IIA and not yet repaid, and management's estimation of products still to be sold. Litigation On November 8, 2018, Ron Miller, a purported stockholder of the Company, filed a Class Action Complaint (the "Miller Complaint") in the United States District Court for the District of Massachusetts (the "Massachusetts District Court") against the Company and three of its former officers (collectively, the "Defendants"), claiming to represent a class of purchasers of 112 Table of Contents RIBBON COMMUNICATIONS INC. Notes to Consolidated Financial Statements (Continued) Sonus common stock during the period from January 8, 2015 through March 24, 2015 and alleging violations of the federal securities laws. Similar to a previous complaint entitled Sousa et al. vs. Sonus Networks, Inc. et al., which was dismissed with prejudice by an order dated June 6, 2017, the Miller Complaint claims that the Defendants made misleading forward-looking statements concerning Sonus' expected fiscal first quarter of 2015 financial performance, which statements were also the subject of an August 7, 2018 Securities and Exchange Commission Cease and Desist Order, whose findings the Company neither admitted nor denied. The Miller plaintiffs are seeking monetary damages. After the Miller Complaint was filed, several parties filed and briefed motions seeking to be selected by the Massachusetts District Court to serve as a Lead Plaintiff in the action. On June 21, 2019, the Massachusetts District Court appointed a group as Lead Plaintiffs and the Lead Plaintiffs filed an amended complaint on July 19, 2019. On August 30, 2019, the Defendants filed a motion to dismiss the Miller Complaint and, on October 4, 2019, the Lead Plaintiffs filed an opposition to the motion to dismiss. The Defendants filed a reply to such opposition on November 1, 2019. There was an oral argument on the motion to dismiss on February 12, 2020, but to date, the court has not ruled on the motion. In addition, the Company is often a party to disputes and legal proceedings that it considers routine and incidental to its business. Management does not expect the results of any of these actions to have a material effect on the Company's business or consolidated financial statements. (27) SUBSEQUENT EVENT On February 14, 2022, the Company's Board of Directors approved a strategic restructuring program (the "2022 Restructuring Plan") to streamline the Company's operations in order to support the Company's investment in critical growth areas. The 2022 Restructuring Plan is expected to include, among other things, charges related to a consolidation of facilities and a workforce reduction. Any potential positions eliminated in countries outside the United States will be subject to local law and consultation requirements. The Company currently expects to record approximately $20 million of restructuring and related expense associated with the 2022 Restructuring Plan, including approximately $6 million related to employee severance arrangements and approximately $14 million related to the facilities consolidation. The Company expects the 2022 Restructuring Plan will be substantially completed in 2022. (28) QUARTERLY RESULTS (UNAUDITED) The following tables present the Company's quarterly operating results for the years ended December 31, 2021 and 2020. The information for each of these quarters is unaudited and has been prepared on the same basis as the audited consolidated financial statements. In the opinion of management, all necessary adjustments, consisting only of normal recurring adjustments, have been included to present fairly the unaudited consolidated quarterly results when read in conjunction with the Company's audited consolidated financial statements and related notes. 113 Table of Contents RIBBON COMMUNICATIONS INC. Notes to Consolidated Financial Statements (Continued) Year ended December 31, 2021 Revenue Cost of revenue (2) Gross profit (2) (Loss) income from operations Net (loss) income (Loss) earnings per share (3): Basic Diluted Shares used in computing (loss) earnings per share: Basic Diluted Year ended December 31, 2020 Revenue Cost of revenue (2) Gross profit (2) Loss (income) from operations Net (loss) income Loss (earnings) per share (3): Basic Diluted Shares used in computing loss (earnings) per share: Basic Diluted __________________________________ $ $ $ $ $ $ $ $ $ $ $ $ First Quarter Second Quarter Third Quarter Fourth Quarter (In thousands, except per share data) 192,772 $ 92,286 100,486 $ (12,604) $ (44,687) $ 211,210 $ 92,483 118,727 $ 12,952 $ 23,241 $ 210,398 $ 99,744 110,654 $ 1,992 $ (59,431) $ (0.31) $ (0.31) $ 0.16 $ 0.15 $ (0.40) $ (0.40) $ 145,936 145,936 147,467 154,160 148,184 148,184 230,577 115,784 114,793 (120,136) (96,308) (0.65) (0.65) 148,675 148,675 First Quarter (1) Second Quarter Third Quarter Fourth Quarter (In thousands, except per share data) 157,982 $ 76,412 81,570 $ (28,740) $ (33,170) $ 210,493 $ 98,176 112,317 $ 1,592 $ (8,251) $ 231,118 $ 107,807 123,311 $ 11,917 $ 6,252 $ (0.27) $ (0.27) $ (0.06) $ (0.06) $ 0.04 $ 0.04 $ 120,992 120,992 144,483 144,483 144,948 151,680 244,202 110,583 133,619 16,900 123,760 0.85 0.81 145,311 153,441 (1) (2) (3) Includes the results of ECI for the period subsequent to March 3, 2020. Reflects the increases to Cost of revenue arising from the reclassification of amortization of acquired technology from amortization of acquired intangible assets within operating expenses in 2021 of $10.1 million in the first quarter, $9.7 million in the second quarter and $9.7 million in the third quarter; and in 2020 of $9.0 million in the first quarter, $11.0 million in the second quarter, $11.6 million in the third quarter and $10.7 million in the fourth quarter. See Note 2 for a discussion of the reclassification. (Loss) earnings per share is calculated independently for each of the quarters presented; accordingly, the sum of the quarterly (loss) earnings per share amounts may not equal the total calculated for the year. 114 Table of Contents RIBBON COMMUNICATIONS INC. Notes to Consolidated Financial Statements (Continued) Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure None. Item 9A. Controls and Procedures Disclosure Controls and Procedures Our management, with the participation of our principal executive officers and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), as of the end of the period covered by this Annual Report on Form 10-K. Based on this evaluation, our principal executive officers and principal financial officer concluded that our disclosure controls and procedures were effective as of December 31, 2021. Management's Annual Report on Internal Control over Financial Reporting Our management, with the participation of our principal executive officers and principal financial officer, is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control system is designed to provide reasonable assurance to our management and Board of Directors regarding the preparation and fair presentation of published financial statements. Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2021. In making its assessment of internal control over financial reporting, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework (2013). Based on this assessment, management concluded that, as of December 31, 2021, our internal control over financial reporting was effective. Deloitte & Touche LLP, an independent registered public accounting firm that audited our financial statements included in this Annual Report on Form 10- K, has issued an attestation report on management's internal control over financial reporting, which is included in this Item 9A under the caption "Report of Independent Registered Public Accounting Firm." Changes in Internal Control over Financial Reporting There have been no changes in our internal control over financial reporting during the fiscal quarter ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 115 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of Ribbon Communications Inc. Opinion on Internal Control over Financial Reporting We have audited the internal control over financial reporting of Ribbon Communications Inc. and subsidiaries (the “Company”) as of December 31, 2021, based on criteria established in Internal Control —Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2021, of the Company and our report dated March 11, 2022, expressed an unqualified opinion on those financial statements. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Deloitte & Touche LLP Dallas, Texas March 11, 2022 116 Table of Contents Item 9B. Other Information None. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections Not applicable. Item 10. Directors, Executive Officers and Corporate Governance PART III Our board of directors has adopted a Code of Conduct applicable to all officers, directors and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. A copy of the code is available at the Investor Relations section of our website, located at investors.ribboncommunications.com, under "Corporate Governance - Governance Highlights." We intend to make any disclosure required by law or Nasdaq Stock Market rules regarding any amendments to, or waivers from, any provisions of the code at the same location of our website. The information required by this Item 10 is included in our definitive Proxy Statement with respect to our 2022 Annual Meeting of Stockholders to be filed with the SEC not later than 120 days after the end of the fiscal year ended December 31, 2021 and is incorporated herein by reference. Item 11. Executive Compensation The information required by this Item 11 is included in our definitive Proxy Statement with respect to our 2022 Annual Meeting of Stockholders to be filed with the SEC not later than 120 days after the end of the fiscal year ended December 31, 2021 and is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required by this Item 12 is included in our definitive Proxy Statement with respect to our 2022 Annual Meeting of Stockholders to be filed with the SEC not later than 120 days after the end of the fiscal year ended December 31, 2021 and is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions, and Director Independence The information required by this Item 13 is included in our definitive Proxy Statement with respect to our 2022 Annual Meeting of Stockholders to be filed with the SEC not later than 120 days after the end of the fiscal year ended December 31, 2021 and is incorporated herein by reference. Item 14. Principal Accounting Fees and Services The information required by this Item 14 will be included in our definitive Proxy Statement with respect to our 2022 Annual Meeting of Stockholders to be filed with the SEC not later than 120 days after the end of the fiscal year ended December 31, 2021 and is incorporated herein by reference. 117 Table of Contents Item 15. Exhibit and Financial Statement Schedules 1) Financial Statements PART IV The consolidated financial statements of the Company are listed in the index under Part II, Item 8, of this Annual Report on Form 10-K. 2) Financial Statement Schedules None. All schedules are omitted because they are not applicable, not required under the instructions or the information is contained in the consolidated financial statements, or notes thereto, included herein. 3) List of Exhibits The Exhibits filed as part of this Annual Report on Form 10-K are listed in the Exhibit Index immediately preceding the signature page of this Annual Report, which Exhibit Index is incorporated herein by reference. Item 16. Form 10-K Summary None. 118 Table of Contents Exhibit No. 2.1 ** 2.2 ** 2.3 ** 3.1 3.2 3.3 4.1 10.1 10.2 10.3 + 10.4 + 10.5 + 10.6 + 10.7 + 10.8 + 10.9 + 10.10 + 10.11 + 10.12 + EXHIBIT INDEX Description Agreement and Plan of Merger, dated June 24, 2018, by and among the Registrant, Kansas Merger Sub, Inc., Edgewater Networks, Inc. and Shareholder Representative Services LLC (incorporated by reference to Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q, filed August 1, 2018 with the SEC). Agreement and Plan of Merger, dated as of November 14, 2019, by and among the Registrant, Ribbon Communications Israel Ltd., Eclipse Communications Ltd., ECI Telecom Group Ltd. and ECI Holding (Hungary) Korlátolt Felelősségű Társaság (incorporated by reference to Exhibit 2.1 to the Registrant's Current Report on Form 8-K, filed November 14, 2019 with the SEC). Amended and Restated Purchase Agreement, dated December 1, 2020, among Ribbon Communications Inc., Ribbon Communications Operating Company, Inc., Ribbon Communications International Limited and American Virtual Cloud Technologies, Inc. (incorporated by reference to Exhibit 2.1 to the Registrant's Current Report on Form 8-K, filed December 7, 2020 with the SEC). Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.2 to the Registrant's Current Report on Form 8-K12B, filed October 30, 2017 with the SEC). Certificate of Amendment of the Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrant's Current Report on Form 8-K, filed November 28, 2017 with the SEC). Amended and Restated By-Laws of the Registrant (incorporated by reference to Exhibit 3.3 to the Registrant's Annual Report on Form 10-K, filed March 8, 2018 with the SEC). Description of Capital Stock (incorporated by reference to Exhibit 4.1 to the Registrant's Annual Report on Form 10-K, filed February 28, 2020). First Amended and Restated Stockholders Agreement, dated as of March 3, 2020, by and among the Registrant, JPMC Heritage Parent LLC, Heritage PE (OEP)Heritage Parent LLC, Heritage PE (OEP) III, L.P. and ECI Holding (Hungary) Kft (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K, filed March 3, 2020 with the SEC). First Amended and Restated Registration Rights Agreement, dated as of March 3, 2020, by and among the Registrant, JPMC Heritage Parent LLC, Heritage PE (OEP) III, L.P. and ECI Holding (Hungary) Kft (incorporated by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K, filed March 3, 2020 with the SEC). Form of Indemnity Agreement for Officers and Directors (incorporated by reference to Exhibit 10.5 to the registrant's Annual Report on Form 10-K, filed March 8, 2018 with the SEC). Amended and Restated 2000 Employee Stock Purchase Plan, (incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q, filed October 31, 2018 with the SEC). Senior Management Cash Incentive Plan, dated October 27, 2017 (incorporated by reference to Exhibit 10.7 to the Registrant's Annual Report on Form 10-K, filed March 8, 2018 with the SEC). 2008 Stock Incentive Plan of the Registrant (incorporated by reference to Exhibit 99.1 to the Registrant's Registration Statement on Form S-8, filed October 31, 2017 with the SEC). Form of Nonstatutory Stock Option Award Agreement Granted under the 2008 Stock Incentive Plan (incorporated by reference to Exhibit 10.29 to Sonus, Inc.'s Annual Report on Form 10-K, filed March 6, 2013 with the SEC). 2012 Amended Performance Technologies Incorporated Omnibus Incentive Plan (incorporated by reference to Exhibit 99.2 to the Registrant's Registration Statement on Form S-8, filed with the SEC effective October 31, 2017). Form of Non-Qualified Stock Option Award Agreement Granted under the 2012 Amended Performance Technologies, Incorporated Omnibus Incentive Plan (incorporated by reference to Exhibit 10.7 to Sonus, Inc.'s Quarterly Report on Form 10-Q, filed April 29, 2014 with the SEC). Amended and Restated Stock Incentive Plan of the Registrant (incorporated by reference to Exhibit 99.3 to the Registrant's Registration Statement on Form S-8, filed with the SEC on October 31, 2017). Form of Nonstatutory Stock Option Award Agreement Granted under the Amended and Restated Stock Incentive Plan (incorporated by reference to Exhibit 10.2 to Sonus, Inc.'s Quarterly Report on Form 10-Q filed July 29, 2016 with the SEC). Form of Restricted Stock Award Agreement Granted under the Amended and Restated Stock Incentive Plan (incorporated by reference to Exhibit 10.3 to Sonus, Inc.'s Quarterly Report on Form 10-Q, filed July 29, 2016 with the SEC). 119 Table of Contents 10.13 + 10.14 + 10.15 + 10.16 + 10.17 10.18 10.19 10.20 10.21 10.22 + 10.23 + 10.24 + 10.25 + 10.26 + 10.27 + 10.28 + Form of Restricted Stock Unit Award Agreement (Performance-Based Vesting) for Awards Granted under the Amended and Restated Stock Incentive Plan (incorporated by reference to Exhibit 10.4 to Sonus, Inc.'s Quarterly Report on Form 10-Q, filed July 29, 2016 with the SEC). Form of Restricted Stock Unit Award Agreement (Time-Based Vesting) for Awards Granted under the Amended and Restated Stock Incentive Plan (incorporated by reference to Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q, filed August 1, 2018 with the SEC). Edgewater Networks, Inc. Amended and Restated 2002 Stock Option Plan, effective as of April 8, 2010 (incorporated by reference to Exhibit 99.1 to the Registrant's Registration Statement on Form S-8, filed August 6, 2018 with the SEC). Amendment to the Edgewater Networks, Inc. Amended and Restated 2002 Stock Option Plan, dated December 7, 2016 (incorporated by reference to Exhibit 99.2 to the Registrant's Registration Statement on Form S-8, filed August 6, 2018 with the SEC). Senior Secured Credit Facilities Amended and Restated Credit Agreement by and among the Registrant, as a guarantor, Ribbon Communications Operating Company, Inc., as the borrower, Silicon Valley Bank, as administrative agent, issuing lender, swingline lender and joint lead arranger, Citizens Bank, N.A., as lender and joint lead arranger, SunTrust Bank, as lender and documentation agent, and the other lenders party thereto, dated April 29, 2019 (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K, filed May 2, 2019 with the SEC). Senior Secured Credit Facilities Credit Agreement, dated March 3, 2020, among the Company, as guarantor, Ribbon Communications Operating Company, Inc., as the borrower, Citizens Bank, N.A., as administrative agent, a lender, issuing lender, swingline lender, joint lead arrangers and bookrunner, Santander Bank, National Association, as a lender, joint lead arranger and bookrunner, and the other lenders party thereto (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K, filed March 4, 2020 with the SEC). First Amendment to Credit Agreement, dated August 18, 2020, among Ribbon Communications Operating Company, Inc., as the borrower and Citizens Bank, N.A., as administrative agent (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K, filed August 24, 2020 with the SEC). Second Amendment to Credit Agreement and Consent, dated December 1, 2020, among Ribbon Communications Operating Company, Inc., as the borrower and Citizens Bank, N.A., as administrative agent (incorporated by reference to Exhibit 10.23 to the Registrant's Annual Report on Form 10-K, filed February 26, 2021 with the SEC). Third Amendment to Credit Agreement, dated March 3, 2021, among Ribbon Communications Operating Company, Inc., as the borrower, the guarantors party thereto, the financial institutions party thereto as lenders, and Citizens Bank, N.A., as administrative agent (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K, filed March 4, 2021 with the SEC). Amended and Restated Employment Letter Agreement dated March 31, 2021, between the Registrant and Anthony Scarfo (incorporated by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K, filed April 2, 2021 with the SEC). Employment Letter Agreement, dated March 31, 2021, between the Registrant and Steven Bruny (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K, filed April 2, 2021 with the SEC). Severance Agreement, dated as of January 29, 2020, among Ribbon Communications Inc., Ribbon Communications Operating Company, Inc. and Steven Bruny (incorporated by reference to Exhibit 10.1 of the Registrant's Current Report on Form 8-K, filed January 30, 2020 with the SEC). Severance Agreement, dated as of January 29, 2020, among Ribbon Communications Inc., Ribbon Communications Operating Company, Inc. and Anthony Scarfo (incorporated by reference to Exhibit 10.2 of the Registrant's Current Report on Form 8-K, filed January 30, 2020 with the SEC). Ribbon Communications Inc. 2019 Incentive Award Plan (incorporated by reference to Exhibit 10.1 of the Registrant's Current Report on Form 8-K, filed June 11, 2019 with the SEC). Form of Non-Statutory Stock Option Award Agreement under the 2019 Incentive Award Plan (incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q, filed October 31, 2019 with the SEC). Form of Restricted Stock Award Agreement under the 2019 Incentive Award Plan (incorporated by reference to Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q, filed October 31, 2019 with the SEC). 120 Table of Contents 10.29 + 10.30 + 10.31 + 10.32 + 10.33 + 10.34 + 10.35 + 10.36 + 10.37 + 10.38 10.39 10.40 10.41 + 10.42 + 10.43 + 10.44 + 10.45 * 21.1 * 23.1 * Form of Restricted Stock Unit Award Agreement (Time-Based Vesting) under the 2019 Incentive Award Plan (incorporated by reference to Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q, filed October 31, 2019 with the SEC). Form of Restricted Stock Unit Award Agreement (Performance-Based Vesting) under the 2019 Incentive Award Plan (incorporated by reference to Exhibit 10.4 to the Registrant's Quarterly Report on Form 10-Q, filed October 31, 2019 with the SEC). Letter Agreement, dated as of February 18, 2020, among Ribbon Communications Inc., Sonus Networks, Inc. d/b/a Ribbon Communications Operating Company, Inc. and Bruce McClelland (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K, filed February 19, 2020 with the SEC. Severance Agreement, dated February 18, 2020, among Ribbon Communications Inc., Sonus Networks, Inc. d/b/a Ribbon Communications Operating Company, Inc. and Bruce McClelland (incorporated by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K, filed February 19, 2020 with the SEC). Form of Restricted Stock Unit Award Agreement (Performance-Based Vesting) between Ribbon Communications Inc. and Bruce McClelland (incorporated by reference to Exhibit 10.3 to the Registrant's Current Report on Form 8-K, filed February 19, 2020 with the SEC). Employment Agreement between the Registrant and Miguel Lopez, dated June 22, 2020 (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K, filed June 23, 2020 with the SEC). Severance Agreement between the Registrant and Miguel Lopez, dated June 22, 2020 (incorporated by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K, filed June 23, 2020 with the SEC). Form of Consent to Temporary Wage Reduction entered into with Executive Officers (incorporated by reference to Exhibit 10.4 to the Registrant's Quarterly Report on Form 10-Q, filed August 6, 2020 with the SEC). Ribbon Communications Inc. Amended and Restated 2019 Incentive Award Plan (incorporated by reference to Exhibit 99.1 to the Registrant's Form S-8 Registration Statement, filed June 2, 2020 with the SEC). Amended and Restated Voting Agreement, dated December 1, 2020, by and among Ribbon Communications Operating Company, Inc., Ribbon Communications International Limited and Pensare Sponsor Group, LLC (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K, filed December 7, 2020 with the SEC). Amended and Restated Voting Agreement, dated December 1, 2020, by and among Ribbon Communications Inc., Ribbon Communications Operating Company, Inc., Ribbon Communications International Limited and Stratos Management Systems Holdings, LLC (incorporated by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K, filed December 7, 2020 with the SEC). Investor Rights Agreement, dated December 1, 2020, by and among Ribbon Communications Inc., Pensare Sponsor Group, LLC and Stratos Management Systems Holdings, LLC (incorporated by reference to Exhibit 10.3 to the Registrant's Current Report on Form 8- K, filed December 7, 2020 with the SEC). Employment Agreement, dated May 26, 2020, between the Registrant and Patrick Macken (incorporated by reference to Exhibit 10.4 to the Registrant's Quarterly Report on Form 10-Q, filed April 30, 2021 with the SEC). Severance Agreement, dated May 26, 2020, between the Registrant and Patrick Macken (incorporated by reference to Exhibit 10.5 to the Registrant's Quarterly Report on Form 10-Q, filed April 30, 2021 with the SEC). Employment Agreement, dated July 21, 2020, between the Registrant and Sam Bucci (incorporated by reference to Exhibit 10.6 to the Registrant's Quarterly Report on Form 10-Q, filed April 30, 2021 with the SEC). Severance Agreement, dated September 7, 2020, between the Registrant and Sam Bucci (incorporated by reference to Exhibit 10.7 to the Registrant's Quarterly Report on Form 10-Q, filed April 30, 2021 with the SEC). Fourth Amendment to Credit Agreement, dated March 11, 2022, among Ribbon Communications Operating Company, Inc., as the borrower, the guarantors party thereto, the financial institutions party thereto as lenders, and Citizens Bank, N.A., as administrative agent. Subsidiaries of the Registrant. Consent of Independent Registered Public Accounting Firm, Deloitte & Touche LLP 121 Table of Contents 31.1 * 31.2 * 32.1 # 32.2 # 101.INS * 101.SCH * 101.CAL * 101.DEF * 101.LAB * 101.PRE * 104 * Certification of Ribbon Communications Inc. Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Certification of Ribbon Communications Inc. Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Certification of Ribbon Communications Inc. Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Certification of Ribbon Communications Inc. Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Inline XBRL Instance Document Inline XBRL Taxonomy Extension Schema Inline XBRL Taxonomy Extension Calculation Linkbase Inline XBRL Taxonomy Extension Definition Linkbase Inline XBRL Taxonomy Extension Label Linkbase Inline XBRL Taxonomy Extension Presentation Linkbase Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) _______________________________________ * Filed herewith. # Furnished herewith. + Management contract or compensatory plan or arrangement filed in response to Item 15(a)(3) of the Instructions to the Annual Report on Form 10-K. ** Certain schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Registrant hereby undertakes to furnish copies of any of the omitted schedules and exhibits upon request by the U.S. Securities and Exchange Commission. 122 Table of Contents Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SIGNATURES March 11, 2022 RIBBON COMMUNICATIONS INC. By: /s/ Bruce McClelland Bruce McClelland President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated: Signature /s/ Bruce McClelland Bruce McClelland /s/ Miguel A. Lopez Miguel A. Lopez /s/ Eric Marmurek Eric Marmurek /s/ Shaul Shani Shaul Shani /s/ Mariano S. de Beer Mariano S. de Beer /s/ Stewart Ewing Stewart Ewing /s/ Bruns H. Grayson Bruns H. Grayson /s/ Beatriz V. Infante Beatriz V. Infante /s/ Krish Prabhu Krish Prabhu /s/ Rick W. Smith Rick W. Smith /s/ Tanya Tamone Tanya Tamone Title Date President, Chief Executive Officer and Director (Principal Executive Officer) March 11, 2022 Executive Vice President and Chief Financial Officer (Principal Financial Officer) March 11, 2022 Senior Vice President, Finance (Principal Accounting Officer) March 11, 2022 Chairman March 11, 2022 March 11, 2022 March 11, 2022 March 11, 2022 March 11, 2022 March 11, 2022 March 11, 2022 March 11, 2022 Director Director Director Director Director Director Director 123 Exhibit 10.45 Execution Version FOURTH AMENDMENT TO CREDIT AGREEMENT THIS FOURTH AMENDMENT TO CREDIT AGREEMENT (this “Amendment”), dated as of March 10, 2022, is by and among (a) RIBBON COMMUNICATIONS OPERATING COMPANY, INC., a Delaware corporation formerly known as Sonus Networks, Inc. (the “Borrower”), (b) the Guarantors party hereto, (c) the Lenders (as hereinafter defined) party hereto, and (d) CITIZENS BANK, N.A., as administrative agent for the Lenders hereunder (in such capacity, the “Administrative Agent”). Capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed thereto in the Credit Agreement (as hereinafter defined). W I T N E S S E T H WHEREAS, the Loan Parties, certain banks and financial institutions from time to time party thereto (the “Lenders”) and the Administrative Agent are parties to that certain Credit Agreement dated as of March 3, 2020 (as amended, modified, extended, restated, replaced or supplemented from time to time prior to the date hereof, the “Existing Credit Agreement”; and, as amended by this Amendment, the “Credit Agreement”); WHEREAS, the Loan Parties have requested that the Administrative Agent and the Lenders (constituting the Required Lenders) amend certain provisions of the Existing Credit Agreement, in each case on the terms and conditions set forth herein; and WHEREAS, the Administrative Agent and the Lenders party hereto (constituting the Required Lenders) are willing to make such amendments to the Existing Credit Agreement, in each case in accordance with and subject to the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the agreements hereinafter set forth, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: 1.1 Amendment. The Maximum Consolidated Net Leverage Ratio grid set forth in Section 7.1(b) of the Existing Credit Agreement is hereby amended and restated in its entirety as follows: ARTICLE I AMENDMENTS TO CREDIT AGREEMENT |US-DOCS\130059268.3|| Fiscal Quarter Period Ending December 31, 2021 March 31, 2022 June 30, 2022 September 30, 2022 December 31, 2022 March 31, 2023 June 30, 2023 September 30, 2023 and each fiscal quarter ending thereafter Maximum Consolidated Net Leverage Ratio 3.50:1.00 4.25:1.00 4.50:1.00 4.25:1.00 4.00:1.00 3.25:1.00 3.25:1.00 3.00:1.00 2.1 Closing Conditions. This Amendment shall become effective as of the day and year set forth above (the “Amendment Effective Date”) upon satisfaction of the following conditions (in each case, in form and substance reasonably acceptable to the Administrative Agent): ARTICLE II CONDITIONS TO EFFECTIVENESS (a) Executed Amendment. The Administrative Agent shall have received a copy of this Amendment duly executed by each of the Loan Parties, the Lenders constituting Required Lenders and the Administrative Agent. (b) Prepayment. The Administrative Agent shall have received a voluntary prepayment in an aggregate amount equal to $15,000,000 (and, pursuant to Section 2.11 of the Credit Agreement, the Borrower hereby instructs the Administrative Agent to apply such prepayment to the prepayment of installments of the Term Loans in inverse order of maturity (including any amounts owed on the Term Loan Maturity Date)). (c) Fees and Expenses. The Administrative Agent shall have received all fees required to be paid on the Amendment Effective Date, and all reasonable and documented fees and expenses for which invoices have been presented (including the reasonable and documented fees and expenses of legal counsel to the Administrative Agent to the extent invoiced in reasonable detail at least two Business Days prior to the Amendment Effective Date (except as otherwise reasonably agreed by the Borrower). ARTICLE III MISCELLANEOUS 3.1 Amended Terms. On and after the Amendment Effective Date, all references to the Credit Agreement in each of the Loan Documents shall hereafter mean the Credit Agreement (as defined herein). Except as specifically amended hereby or otherwise agreed, the Credit Agreement is hereby ratified and confirmed and shall remain in full force and effect according to its terms. 2 3.2 Representations and Warranties of Loan Parties. Each of the Loan Parties represents and warrants as follows: (a) (i) Each Loan Party has the power and authority, and the legal right, to make, deliver and perform this Amendment; (b) each Loan Party has taken all necessary organizational or corporate action to authorize the execution, delivery and performance of this Amendment; (c) no material Governmental Approval or consent or authorization of, filing with, notice to or other act by or in respect of, any other Person is required in connection with the execution, delivery, performance, validity or enforceability of this Amendment, except Governmental Approvals, consents, authorizations, filings and notices that have been obtained or made and are in full force and effect; (d) this Amendment has been duly executed and delivered on behalf of each Loan Party party hereto; (e) this Amendment constitutes a legal, valid and binding obligation of each Loan Party party hereto, enforceable against each such Loan Party in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law). (b) Each of the representations and warranties made by each Loan Party in or pursuant to any Loan Document (i) that is qualified by materiality is true and correct in all respects, and (ii) that is not qualified by materiality, is true and correct in all material respects, in each case, on and as of the Amendment Effective Date as if made on and as of the Amendment Effective Date, except to the extent any such representation and warranty expressly relates to an earlier date, in which case such representation and warranty shall have been true and correct in all material respects as of such earlier date (or in all respects to the extent such representation and warranty is qualified by materiality). effect to this Amendment. (c) No Default or Event of Default has occurred and is continuing as of or on the Amendment Effective Date or after giving The Loan Documents continue to create a valid security interest in, and Lien upon, the Collateral, in favor of the Administrative Agent, for the benefit of the Secured Parties, which security interests and Liens are perfected in accordance with the terms of the Loan Documents and prior to all Liens other than Liens permitted pursuant to Section 7.3 of the Credit Agreement. (d) (e) offsets, defenses or counterclaims. Other than as set forth herein, the Obligations are not reduced or modified by this Amendment and are not subject to any 3.3 Reaffirmation of Obligations. Each Loan Party hereby ratifies the Credit Agreement and acknowledges and reaffirms (a) that it is bound by all terms of the Credit Agreement applicable to it, (b) that it is responsible for the observance and full performance of its respective Obligations, and (c) that the security interest granted to the Administrative Agent pursuant to the Loan Documents, as amended hereby, in all of its right, title, and interest in all then existing and thereafter acquired or arising Collateral in order to secure the payment and performance of the Obligations, is continuing and is and shall remain in full force and effect both immediately prior to and after entering into this Amendment. The parties hereto acknowledge and agree that the amendment of the Existing Credit Agreement pursuant to this Amendment and all other Loan Documents amended and/or executed and delivered in connection herewith shall not constitute a novation of the Credit Agreement and the other Loan Documents as in effect immediately prior to the Amendment Effective Date. 3.4 Loan Document. This Amendment shall constitute a Loan Document under the terms of the Credit Agreement. 3.5 Expenses. The Borrower agrees to pay all reasonable and documented out of pocket costs and fees and expenses of the Administrative Agent in connection with the preparation, execution and delivery of this Amendment, including without limitation the reasonable and documented out of pocket fees and expenses of the Administrative Agent’s outside legal counsel. 3.6 Further Assurances. The Loan Parties agree to promptly take such action, upon the request of the Administrative Agent, as is necessary to carry out the intent of this Amendment. 3 3.7 Entirety. This Amendment and the other Loan Documents embody the entire agreement among the parties hereto and supersede all prior agreements and understandings, oral or written, if any, relating to the subject matter hereof. 3.8 Counterparts; Telecopy. This Amendment may be executed in multiple counterparts, each of which shall constitute an original but all of which when taken together shall constitute one contract. Delivery of an executed signature page counterpart hereof by telecopy, emailed pdf. or any other electronic means that reproduces an image of the actual executed signature page shall be effective as delivery of a manually executed counterpart hereof. The words “execution,” “signed,” “signature,” “delivery,” and words of like import in or relating to any document to be signed in connection with this Amendment and the transactions contemplated hereby shall be deemed to include electronic signatures, the electronic association of signatures and records on electronic platforms, deliveries or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature, physical delivery thereof or the use of a paper-based recordkeeping system, as the case may be, to the extent and as provided for in any applicable law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act, any other similar state laws based on the Uniform Electronic Transactions Act or the Uniform Commercial Code, each as amended, and the parties hereto hereby waive any objection to the contrary, provided that nothing herein shall require the Administrative Agent to accept electronic signature counterparts in any form or format after the date hereof. 3.9 No Actions, Claims, Etc. As of the date hereof, each of the Loan Parties hereby acknowledges and confirms that it has no knowledge of any actions, causes of action, claims, demands, damages and liabilities of whatever kind or nature, in law or in equity, against the Administrative Agent, the Lenders, or the Administrative Agent’s or the Lenders’ respective officers, employees, representatives, agents, counsel or directors arising from any action by such Persons, or failure of such Persons to act under the Credit Agreement on or prior to the date hereof. 3.10 GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (INCLUDING SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW). 3.11 Successors and Assigns. This Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. 3.12 Submission to Jurisdiction; Waivers. The jurisdiction, service of process, venue and waiver of jury trial provisions set forth in Section 10.14 of the Credit Agreement are hereby incorporated by reference, mutatis mutandis. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 4 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. BORROWER: RIBBON COMMUNICATIONS OPERATING COMPANY, INC. By: /s/ Miguel A. Lopez Name: Miguel A. Lopez Title: President and Chief Executive Officer GUARANTORS: RIBBON COMMUNICATIONS INC. EDGEWATER NETWORKS, INC. GENBAND INC. ECI TELECOM INC. By: /s/ Miguel A. Lopez Name: Miguel A. Lopez Title: President and Chief Executive Officer [Signature Page to Fourth Amendment to Credit Agreement (Ribbon)] ADMINISTRATIVE AGENT: CITIZENS BANK, N.A. as the Administrative Agent By: /s/ Darran Wee Name: Darran Wee Title: Senior Vice President [Signature Page to Fourth Amendment to Credit Agreement (Ribbon)] LENDERS: CITIZENS BANK, N.A., as a Lender By: /s/ Darran Wee Name: Darran Wee Title: Senior Vice President SANTANDER BANK, N.A., as a Lender By: /s/ Irv Roa Name: Irv Roa Title: Managing Director SILICON VALLEY BANK, as a Lender By: /s/ John Ryan Name: John Ryan Title: Vice President M&T Bank, as a Lender By: /s/ Dan Lobdell Name: Dan Lobdell Title: Vice President BANK OF AMERICA, N.A., as a Lender By: /s/ Karen Virani Name: Karen Virani Title: Vice President HSBC BANK USA NATIONAL ASSOCIATION, as a Lender By: /s/ Kyle Patterson Name: Kyle Patterson Title: Senior Vice President Citibank, N.A., as a Lender By: /s/ Danio O’Hara Name: Danio O’Hara Title: Authorized Signor Fifth Third Bank, National Association, as a Lender By: /s/ Nick Meece Name: Nick Meece Title: Officer JPMORGAN CHASE BANK, N.A., as a Lender By: /s/ Vidita J. Shah Name: Vidita Shah Title: Vice President BARCLAYS BANK PLC, as a Lender By: /s/ Manuel Rubiano Name: Manuel Rubiano Title: Vice President Bank of Hope, as a Lender By: /s/ David Hill Name: David Hill Title: Senior Vice President [Signature Page to Fourth Amendment to Credit Agreement (Ribbon)] RIBBON COMMUNICATIONS INC. SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21.1 Name Laurel Networks Holdings Corporation Network Equipment Technologies, Inc. Ribbon Communications Federal Inc. Ribbon Communications Operating Company, Inc. Sonus Networks, Inc. GENBAND Inc. ECI de Argentina SA Ribbon Communications (Australia) Pty. Ltd. Ribbon Communications Belgium SPRL ECI Telecom DO Brazil Ribbon Communications do Brasil Ltda Ribbon Communications Canada ULC Ribbon Networks Communications Chile Limitada Ribbon Communications Shanghai Co., Ltd. Sonus Networks (Shanghai) Hangzhou ECI Telecommunication Co. Ltd. ECI Telecom Sur America Lta. ECI Telecom Costa Rica S.A. Ribbon Communications Czech Republic s.r.o. Ribbon Communications France EURL ECI Telecom (GmbH) ECI Telecom (HK) Ltd. Ribbon Communications Hong Kong Limited ECI Telecom India Private Limited GENBAND Telecommunications Private Limited Ribbon Communications Private Limited Ribbon Communications Israel Limited Enavis Networks Ltd. ECI IT Ltd. ECI Telecom 2000 Enterprise Ltd. Lightscape Networks Ltd. Ritbal Ltd. ECI - Tadiran Syncoronous System Company (199) Ltd. ECI Telecom Group Ltd. ECI Telecom Ltd. Negev Telecom Lt. ECI WaveInno Ltd. Ribbon Communications Italy SRL Jurisdiction of Incorporation Delaware Delaware Delaware Delaware Delaware Massachusetts Argentina Australia Belgium Brazil Brazil Canada Chile China China China Colombia Costa Rica Czech Republic France Germany Hong Kong Hong Kong India India India Israel Israel Israel Israel Israel Israel Israel Israel Israel Israel Israel Italy Ribbon Communications K.K. ECI Telecom Kenya Limited Ribbon Communications Malaysia Sdn. Bhd. Ribbon Communications Mexico, S. de R.L. de C.V. GENBAND Canada B.V. ECI Networks Solutions B.V. GENBAND NS B.V. Ribbon Communications B.V. Ribbon Networks Communications B.V. ECI Telecom (PH), Inc. ECI Telekom Polska sp.z o.o. ECI Telecom 2005 LLC Ribbon Communications Rus Limited Liability Company Japan Kenya Malaysia Mexico Netherlands Netherlands Netherlands Netherlands Netherlands Philippines Poland Russia Russia Ribbon Networks Saudi Arabia for Information Technology Saudi Arabia ECI Telecom (HK) Ltd. Singapore Branch Ribbon Communications Singapore Pte. Ltd. Ribbon Communications Spain SRL Ribbon Communications Switzerland GmbH Ribbon Networks Ltd. Co. ECI Telecom Ukraine LLC Ribbon Networks B.V. Dubai Branch ECI Telecom (UK) Ltd N.E.T. Europe Ltd. Ribbon Communications UK Limited Singapore Singapore Spain Switzerland Taiwan Ukraine United Arab Emirates United Kingdom United Kingdom United Kingdom CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM EXHIBIT 23.1 We consent to the incorporation by reference in Registration Statement Nos. 333- 238888, 333-237224, 333-232946, 333-226624, and 333-221240 on Form S- 8 of our reports dated March 11, 2022, relating to the financial statements of Ribbon Communications Inc. and the effectiveness of Ribbon Communications Inc. and subsidiaries’ internal control over financial reporting, appearing in this Annual Report on Form 10-K of Ribbon Communications Inc. for the year ended December 31, 2021. /s/ Deloitte & Touche LLP Dallas, Texas March 11, 2022 I, Bruce McClelland, certify that: 1. I have reviewed this Annual Report on Form 10-K of Ribbon Communications Inc.; CERTIFICATION EXHIBIT 31.1 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 11, 2022 /s/ Bruce McClelland Bruce McClelland President and Chief Executive Officer (Principal Executive Officer) I, Miguel A Lopez, certify that: 1. I have reviewed this Annual Report on Form 10-K of Ribbon Communications Inc.; CERTIFICATION EXHIBIT 31.2 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 11, 2022 /s/ Miguel A. Lopez Miguel A. Lopez Executive Vice President and Chief Financial Officer (Principal Financial Officer) CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 EXHIBIT 32.1 In connection with the Annual Report on Form 10-K of Ribbon Communications Inc. (the "Company") for the period ended December 31, 2021 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, Bruce McClelland, President and Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: March 11, 2022 /s/ Bruce McClelland Bruce McClelland President and Chief Executive Officer (Principal Executive Officer) CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 EXHIBIT 32.2 In connection with the Annual Report on Form 10-K of Ribbon Communications Inc. (the "Company") for the period ended December 31, 2021 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, Miguel A. Lopez, Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: March 11, 2022 /s/ Miguel A. Lopez Miguel A. Lopez Executive Vice President and Chief Financial Officer (Principal Financial Officer) 

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