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
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7
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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
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Board Matters
Audit
Matters
Executive
Officers
Executive
Compensation
Stock
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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
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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
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Additional
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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
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Executive
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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
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Additional
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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
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Executive
Compensation
Stock
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Additional
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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
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Matters
Executive
Officers
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Stock
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Additional
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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
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Executive
Officers
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Stock
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Additional
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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
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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
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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
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Compensation
Stock
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Additional
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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
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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
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(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.
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AUDIT COMMITTEE
CURRENT COMMITTEE
MEMBERS
Audit
Matters
Executive
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Executive
Compensation
Stock
Information
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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.
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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.
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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
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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.”
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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
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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
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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.
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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
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(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.
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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.
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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.
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(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.
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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
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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
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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
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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
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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.
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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
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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.
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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.
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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
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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
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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.
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(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
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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.
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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
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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
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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
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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:
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◾ 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
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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.
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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
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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
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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.
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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
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60
61
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62
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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
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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”)
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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:
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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.
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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.
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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:
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◾
◾
◾
◾
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.
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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.
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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.
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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
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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).
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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 $7.50 during the First Performance Period), a number of the
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McClelland Sign-On PSUs will become vested as set forth in the table below and Mr. McClelland will
receive a number of shares of common stock equal to the number of PSUs that become vested.
Performance Tranche
First Performance Tranche
Second Performance Tranche
Third Performance Tranche
Fourth Performance Tranche
Performance
Period
Value Awarded
($)
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
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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
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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.
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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.
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Additional
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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
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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
($)
2,458
24,294
24,363
13,240
3,680
—
19,378
—
—
8,044
32,338
5,800
1,283
—
31,446
(a) Represents the Company’s portion of such insurance benefits.
(b) Represents the Company’s 401(k) matching contributions for Messrs. McClelland, Lopez, McCaffery and
Macken and pension and profit sharing contributions for Mr. Bucci.
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Grants of Plan-Based Awards in 2021
The following table sets forth information about incentive plan awards made to the NEOs during
the year ended December 31, 2021:
Date of
Compensation
Committee
Action(1)
Name
Bruce McClelland
Grant
Date
Miguel Lopez
Sam Bucci
March 15,
2020
March 15,
2021
March 15,
2021
March 15,
2021
March 15,
2020
March 15,
2021
March 15,
2021
March 15,
2021
February 9,
2021
February 9,
2021
February 9,
2021
February 9,
2021
February 9,
2021
February 9,
2021
February 9,
2021
February 9,
2021
Steve McCaffery
January. 15,
2021
March 15,
2021
March 15,
2020
March 15,
2021
March 15,
2021
February 9,
2021
February 9,
2021
February 9,
2021
February 9,
2021
Patrick Macken
March 15,
2020
March 15,
2021
March 15,
2021
March 15,
2021
February 9,
2021
February 9,
2021
February 9,
2021
February 9,
2021
Estimated Future Payouts
Under Non-Equity Incentive
Plan Awards(2)
Target
($)
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
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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.
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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,
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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.
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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.
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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
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(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;
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(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.
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(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
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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%
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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.
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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.
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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
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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
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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
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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.
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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.
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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:
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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
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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
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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
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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.
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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.
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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")
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•
•
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.
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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
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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.
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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
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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.
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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.
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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 %
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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.
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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).
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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.
•
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• 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.
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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.
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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.
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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
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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,
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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
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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
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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.
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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
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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:
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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
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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
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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
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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
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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
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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.
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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
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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.
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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.
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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
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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.
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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
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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
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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.
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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.
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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,
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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.
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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.
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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.
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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
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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
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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.
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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
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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.
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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.
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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
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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
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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.
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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
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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.
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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.
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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
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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.
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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.
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/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.
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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)
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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
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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.
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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.
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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
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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.
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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,
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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.
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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
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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
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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):
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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
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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
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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.
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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.
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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.
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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
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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.
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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
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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):
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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
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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
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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.
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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
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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
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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
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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:
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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):
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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
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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):
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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.
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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
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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
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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
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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) $
— $
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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.
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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
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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
$
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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.
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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):
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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
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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:
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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)
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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)%
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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.
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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
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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
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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.
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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.
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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.
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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
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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
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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)