PR Newswire | Oct 29, 2020 04:06PM EDT

10/29 15:05 CDT

Ribbon Communications Inc. Reports Third Quarter 2020 Financial ResultsPositive Net Income and Record Adjusted EBITDARevenue Grew 10% Sequentially WESTFORD, Mass., Oct. 29, 2020

WESTFORD, Mass., Oct. 29, 2020 /PRNewswire/ -- Ribbon Communications Inc. (Nasdaq: RBBN), a global provider of converged communications software and network solutions to Service Providers, Enterprises, and critical infrastructure sectors, today announced its financial results for the third quarter of 2020.

Revenue for the third quarter of 2020 was $231 million, compared to $138 million for the third quarter of 2019, an increase of 68%. Approximately $78 million of the year-over-year revenue increase was attributable to the acquisition of ECI Telecom Group, Ltd. (ECI), which closed on March 3, 2020.

"We are pleased to report strong third quarter results that exceeded our previous outlook," noted Bruce McClelland, President and Chief Executive Officer of Ribbon Communications. "We have continued on our path of improved profitability, demonstrated by our record Adjusted EBITDA during the third quarter. Our Cloud & Edge business continues to benefit from strong software sales and improved operating expenses. We are encouraged by the continued recovery we are seeing in our Packet Optical business and, based on our current pipeline, we expect to see further improvement in the fourth quarter and a solid finish to the year."

Financial Highlights1,2The following table summarizes the consolidated financial highlights for the three and nine months ended September 30, 2020 and 2019 (in millions, except per share amounts).

Three months ended Nine months ended

September 30, September 30,

2020 2019 2020 2019

GAAP Revenue $ 231 $ 138 $ 600 $ 402

GAAP Net income (loss) $ 6 $ 2 $ (35) $ 20

Non-GAAP Net income $ 24 $ 15 $ 33 $ 22

GAAP diluted earnings per share or (loss) $ 0.04 $ 0.01 $(0.26) $ 0.18per share

Weighted average GAAP shares 152 111 137 110

Non-GAAP Diluted earnings per share $ 0.16 $ 0.13 $ 0.23 $ 0.20

Weighted average diluted shares 152 111 141 110

Non-GAAP Adjusted EBITDA $ 43 $ 23 $ 82 $ 42

Cash was $111 million at September 30, 2020, compared with $94 million at June 30, 2020 and $40 million at September 30, 2019.

^1 Results for the three months ended September 30, 2020 represent three monthsof Ribbon and ECI. Results for the nine months ended September 30, 2020represent nine months of Ribbon and the period March 3, 2020 to September 30,2020 for ECI. Results for the nine months ended September 30, 2019 representnine months of Ribbon.

^2 Please see the reconciliations of non-GAAP financial measures to the mostdirectly comparable GAAP measures and additional information about non-GAAPmeasures in the section entitled "Discussion of Non-GAAP Financial Measures" inthe press release appendix.

"Our performance in the third quarter demonstrated continued strong execution amidst a challenging environment," said Mick Lopez, Chief Financial Officer of Ribbon Communications. "We achieved record Adjusted EBITDA of $43 million due to record software product sales and continued operational efficiencies. Packet Optical Networks contributed $78 million in revenue with positive profitability."

Customer and Company Highlights

* Secured eight new Packet Optical wins with critical Infrastructure and Enterprise customers * Indian telecom AGR resolution provides certainty over the operating environment in the country and provides path to improved 2021 outlook * Strong year-to-date growth of 25%+ in high performance Enterprise and Service Provider SBC platform sales (7K,5K, SWe and customized software) * Large software order from a major US-based multi-national bank to support their migration to Microsoft Teams and to increase call center capacity * Expanded cloud-native voice session security offers including the certification of intelligent edge SBCs by Zoom Phone Services, and the introduction of our SBC SWe Lite on AWS * Secured wins with six Tier 1 and Tier 2 Service Providers for our Call Trust(tm) solution, which mitigates robocalls and fraudulent calls

Business OutlookThe Company's outlook is based on current indications for its business, which are subject to change. For the fourth quarter of 2020, the Company projects revenue of $235 million to $245 million, non-GAAP operating expenses of approximately $105 million, non-GAAP earnings per share of $0.12 to $0.14, and Adjusted EBITDA of $36 million to $40 million. The current outlook provided excludes any potential effects of the proposed sale of Kandy and assumes existing COVID-19 conditions.

Upcoming Fourth Quarter 2020 Virtual Investor Conference Schedule

* November 17, 2020 - Needham Security, Networking, and Communications Conference (presentation and one-on-one institutional investor meetings). * November 30, 2020 - Credit Suisse 24th Annual Technology Conference (one-on-one institutional investor meetings). * December 9, 2020 - Barclays Global Technology, Media and Telecommunications Conference (one-on-one institutional investor meetings). * December 14, 2020 - Cowen 7th Annual Networking Summit (one-on-one institutional investor meetings). * December 16, 2020 - MKM Partners Conference: "The Road Ahead, Preparation for 2021" (presentation and one-on-one institutional investor meetings).

Conference Call DetailsConference call to discuss the Company's financial results for the third quarter ended September 30, 2020 on October 29, 2020, via the investor section of its website at http://investors.ribboncommunications.com, where a replay will also be available shortly following the conference call.

Conference Call Details:Date: October 29, 2020Time: 4:30 p.m. (ET)Dial-in number (Domestic): 877-300-8521Dial-in number (Intl): 412-317-6026Instant Telephone Access: Call me(tm) Password: 5835757

Replay information:A telephone playback of the call will be available following the conference call until November 12, 2020 and can be accessed by calling 844-512-2921 or 412-317-6671 for international callers. The reservation number for the replay is 10149289.

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

North American PressDennis Watson+1 (214) 695-2224dwatson@rbbn.com

APAC, CALA & EMEA PressCatherine Berthier+1 (646) 741-1974cberthier@rbbn.com

Analyst RelationsMichael Cooper+1 (708) 212-6922mcooper@rbbn.com

About RibbonRibbon Communications (Nasdaq: RBBN) delivers global communications software and packet and optical network 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 IP solutions, cloud-native offers, leading-edge software security and analytics tools, as well as 5G-ready packet and optical networking solutions acquired via our recent merger with ECI Telecom. To learn more about Ribbon visit rbbn.com.

Important Information Regarding Forward-Looking StatementsThe information in this release contains "forward-looking" statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, which are subject to several risks and uncertainties. All statements other than statements of historical facts contained in this release, including without limitation statements regarding, projected financial results for the fourth quarter 2020 and beyond, recovery in sales of certain products, the proposed sale of the Kandy business, and plans and objectives of management for future operations are forward-looking statements. Without limiting the foregoing, the words "believes", "estimates", "expects", "expectations", "intends", "may", "plans", "projects" and other similar language, whether in the negative or affirmative, are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated in these forward-looking statements due to various risks, uncertainties and other important factors, including, among others, risks related to the COVID-19 pandemic; risks that the businesses of ECI will not be integrated successfully or that the combined companies will not realize estimated cost savings; failure to realize anticipated benefits of the merger with ECI; disruptions from the integration efforts that could harm our business; failure to consummate the proposed sale of the Kandy Communications platform; failure to satisfy closing conditions to the Kandy transaction; failure to realize anticipated benefits from the Kandy transaction; disruptions from the proposed Kandy transaction that could harm our business; our ability to recruit and retain key personnel; reductions in customer spending; geopolitical tensions, including those in India, that could disrupt shipments to customers; a slowdown in customer payments and changes in customer requirements, including the timing of customer purchasing decisions and our recognition of revenues; conditions in the credit markets, credit risks and risks related to the terms of our credit agreement; our international operations, which are subject to the risks of currency fluctuations and foreign exchange controls; unpredictable fluctuations in quarterly revenue and business from our existing customers; increases in tariffs, trade restrictions or taxes on our products; and currency fluctuations.

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 our Form 10-K for the year ended December 31, 2019 and our Form 10-Q for the quarter ended June 30, 2020. In providing forward-looking statements, the Company expressly disclaims 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.

Discussion of Non-GAAP Financial MeasuresRibbon Communications' management uses several different financial measures, both GAAP and non-GAAP, in analyzing and assessing the overall performance of the business, making operating decisions, planning and forecasting future periods, and determining payments under compensation programs. We consider the use of non-GAAP financial measures helpful in assessing the core performance of our continuing operations and when planning and forecasting future periods. Our annual financial plan is prepared on a non-GAAP basis and is approved by our board of directors. In addition, budgeting and forecasting for revenue and expenses are conducted on a non-GAAP basis and actual results on a non-GAAP basis are assessed against the annual financial plan. By continuing operations, we mean the ongoing results of the business adjusted for certain expenses and credits, as described below. We believe that providing non-GAAP information to investors will allow investors to view the financial results in the way our management views them and helps investors to better understand our core financial and operating performance and evaluate the efficacy of the methodology and information used by our management to evaluate and measure such performance.

While our management uses non-GAAP financial measures as a tool to enhance their understanding of certain aspects of our financial performance, our management does not consider these measures to be a substitute for, or superior to, GAAP measures. In addition, our presentations of these measures may not be comparable to similarly titled measures used by other companies. These non-GAAP financial measures should not be considered alternatives for, or in isolation from, the financial information prepared and presented in accordance with GAAP. Investors are cautioned that there are material limitations associated with the use of non-GAAP financial measures. In particular, many of the adjustments to our financial measures reflect the exclusion of items that are recurring and will be reflected in our financial results for the foreseeable future.

Stock-Based CompensationThe expense related to stock-based awards is generally not controllable in the short-term and can vary significantly based on the timing, size and nature of awards granted. We believe that presenting non-GAAP operating results that exclude stock-based compensation provides investors with visibility and insight into our management's method of analysis and the Company's core operating performance.

Amortization of Intangible AssetsAmortization amounts are inconsistent in frequency and amount and are significantly impacted by the timing and size of acquisitions. We believe that excluding non-cash amortization of intangible assets facilitates the comparison of our financial results to our historical operating results and to other companies in our industry as if the acquired intangible assets had been developed internally rather than acquired.

Acquisition-Related Inventory AdjustmentAcquisition-related inventory adjustment amounts are inconsistent in frequency and amount and are significantly impacted by the then-current market prices of such inventory items. We believe that excluding non-cash inventory adjustments arising from acquisitions facilitates the comparison of our financial results to our historical operating results and to other companies in our industry as if the inventory had been acquired by us through our normal channels rather than acquired.

Litigation CostsWe have been involved in litigation with a certain competitor and with a former GENBAND business partner, and reached settlements in both cases. We believe that such costs of such litigation are not part of our core business or ongoing operations.

Acquisition- and Integration-Related ExpenseWe consider certain acquisition- and integration-related costs to be unrelated to the organic continuing operations of our acquired businesses and the Company, and such costs are generally not relevant to assessing or estimating the long-term performance of the acquired assets. We exclude such acquisition- and integration-related costs to allow more accurate comparisons of our financial results to our historical operations and the financial results of less acquisitive peer companies. In addition, we believe that providing supplemental non-GAAP measures that exclude these items allows management and investors to consider the ongoing operations of the business both with and without such expenses.

Restructuring and Related ExpenseWe have recorded restructuring and related expense to streamline operations and reduce operating costs by closing and consolidating certain facilities and reducing our worldwide workforce. We believe that excluding restructuring and related expense facilitates the comparison of our financial results to our historical operating results and to other companies in our industry, as there are no future revenue streams or other benefits associated with these costs.

Reduction to Deferred Purchase ConsiderationWe reached an agreement related to the outstanding cash deferred purchase consideration for Edgewater in the first quarter of 2019 and recorded the gain on the reduction in other (expense) income, net. We believe that such reductions to cash deferred purchase consideration are not part of our core business or ongoing operations, as they relate to specific acquisitive transactions and that excluding such reductions facilitates the comparison of our financial results to our historical results and to other companies in our industry.

Gain on Litigation SettlementWe were involved in litigation with a certain competitor with whom we reached a settlement in the second quarter of 2019. We believe that such gains are not part of our core business or ongoing operations and that excluding such gains facilitates the comparison of our financial results to our historical operating results and to other companies in our industry.

Tax Effect of Non-GAAP AdjustmentsNon-GAAP income tax expense is presented based on an estimated tax rate applied against forecasted annual non-GAAP income. The non-GAAP income tax expense assumes no available net operating losses or any valuation allowances for the U.S. because of reporting significant cumulative non-GAAP income over the past several years. Due to the methodology applied to our estimated annual tax rate, our estimated tax rate on non-GAAP income will differ from our GAAP tax rate and from our actual tax liabilities.

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

RIBBON COMMUNICATIONS INC.

Consolidated Statements of Operations

(in thousands, except percentages and per share amounts)

(unaudited)

Three months ended

September 30, June 30, September 30,

2020 2020 2019

Revenue:

Product $ 128,926 $ 120,862 $ 61,152

Service 102,192 89,631 76,501

Total revenue 231,118 210,493 137,653

Cost of revenue:

Product 70,188 61,529 31,476

Service 37,619 36,647 27,300

Total cost of 107,807 98,176 58,776 revenue

Gross profit 123,311 112,317 78,877

Gross margin:

Product 45.6% 49.1% 48.5%

Service 63.2% 59.1% 64.3%

Total gross margin 53.4% 53.4% 57.3%

Operating expenses:

Research and 49,113 51,796 34,222 development

Sales and marketing 41,604 37,617 28,227

General and 16,021 15,094 9,673 administrative

Acquisition- and 1,366 857 1,697 integration-related

Restructuring and 3,290 5,361 2,372 related

Total operating 111,394 110,725 76,191 expenses

Income from 11,917 1,592 2,686operations

Interest expense, (6,854) (5,400) (726)net

Other income 407 (2,407) (507)(expense), net

Income (loss) before 5,470 (6,215) 1,453income taxes

Income tax benefit 782 (2,036) 197(provision)

Net income (loss) $ 6,252 $ (8,251) $ 1,650

Earnings (loss) pershare:

Basic $ 0.04 $ (0.06) $ 0.01

Diluted $ 0.04 $ (0.06) $ 0.01

Weighted averageshares used tocompute earnings(loss) per share:

Basic 144,948 144,483 110,080

Diluted 151,680 144,483 110,756

RIBBON COMMUNICATIONS INC.

Consolidated Statements of Operations

(in thousands, except percentages and per share amounts)

(unaudited)

Nine months ended

September 30, September 30,

2020 2019

Revenue:

Product $ 325,687 $ 180,691

Service 273,906 221,311

Total revenue 599,593 402,002

Cost of revenue:

Product 176,650 101,056

Service 105,745 84,807

Total cost of revenue 282,395 185,863

Gross profit 317,198 216,139

Gross margin:

Product 45.8% 44.1%

Service 61.4% 61.7%

Total gross margin 52.9% 53.8%

Operating expenses:

Research and development 143,204 105,456

Sales and marketing 115,572 87,179

General and administrative 48,320 40,833

Acquisition- and integration-related 14,607 6,861

Restructuring and related 10,726 16,448

Total operating expenses 332,429 256,777

Loss from operations (15,231) (40,638)

Interest expense, net (15,649) (3,352)

Other (expense) income, net (2,844) 70,128

(Loss) income before income taxes (33,724) 26,138

Income tax provision (1,445) (5,850)

Net (loss) income $ (35,169) $ 20,288

(Loss) earnings per share:

Basic $ (0.26) $ 0.19

Diluted $ (0.26) $ 0.18

Weighted average shares used tocompute (loss) earnings per share:

Basic 136,837 109,523

Diluted 136,837 110,100

RIBBON COMMUNICATIONS INC.

Consolidated Balance Sheets

(in thousands)

(unaudited)

September 30, December 31,

2020 2019

Assets

Current assets:

Cash and cash equivalents $ 103,698 $ 44,643

Restricted cash 7,198 -

Accounts receivable, net 207,813 192,706

Inventory 50,974 14,800

Other current assets 33,159 27,146

Total current assets 402,842 279,295

Property and equipment, net 48,432 28,976

Intangible assets, net 432,914 213,366

Goodwill 416,892 224,896

Deferred income taxes 8,750 4,959

Operating lease right-of-use assets 61,648 36,654

Other assets 34,600 26,762

$ 1,406,078 $ 814,908

Liabilities and Stockholders' Equity

Current liabilities:

Current portion of term debt $ 13,909 $ 2,500

Revolving credit facility - 8,000

Accounts payable 60,784 31,412

Accrued expenses and other 133,875 56,700

Operating lease liabilities 17,757 7,719

Deferred revenue 93,447 100,406

Total current liabilities 319,772 206,737

Long-term debt, net of current 373,026 45,995

Operating lease liabilities, net of 51,328 37,202current

Deferred revenue, net of current 21,285 20,482

Deferred income taxes 17,532 4,648

Other long-term liabilities 67,694 16,589

Total liabilities 850,637 331,653

Commitments and contingencies

Stockholders' equity:

Common stock 15 11

Additional paid-in capital 1,866,961 1,747,784

Accumulated deficit (1,302,236) (1,267,067)

Accumulated other comprehensive (9,299) 2,527 (loss) income

Total stockholders' equity 555,441 483,255

$ 1,406,078 $ 814,908

RIBBON COMMUNICATIONS INC.

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

Nine months ended

September 30, September 30,

2020 2019

Cash flows from operatingactivities:

Net (loss) income $ (35,169) $ 20,288

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

Depreciation and amortization of 12,754 8,824 property and equipment

Amortization of intangible 45,352 36,829 assets

Amortization of debt issuance 4,915 268 costs

Stock-based compensation 10,167 8,154

Deferred income taxes (2,455) 4,559

Reduction in deferred purchase (69) (8,124) consideration

Foreign currency exchange losses 3,162 1,042

Changes in operating assets and liabilities:

Accounts receivable 42,489 25,598

Inventory 6,285 8,387

Other operating assets 36,416 (20,510)

Accounts payable (54,489) (20,260)

Accrued expenses and other 10,143 (21,535) long-term liabilities

Deferred revenue (14,253) (20,889)

Net cash provided by operating 65,248 22,631 activities

Cash flows from investingactivities:

Purchases of property and (18,685) (8,594) equipment

Business acquisitions, net of (346,852) - cash acquired

Maturities of marketable - 7,295 securities

Proceeds from the sale of fixed 43,500 - assets

Net cash used in investing (322,037) (1,299) activities

Cash flows from financingactivities:

Borrowings under revolving line 615 109,000 of credit

Principal payments on revolving (8,615) (130,000) line of credit

Proceeds from issuance of term 478,500 50,000 debt

Principal payments of term debt (131,279) (625)

Payment of deferred purchase - (21,876) consideration

Principal payment of debt, - (24,716) related party

Principal payments of finance (971) (698) leases

Payment of debt issuance costs (14,065) (891)

Proceeds from the sale of common stock in connection with employee - 506 stock purchase plan

Proceeds from the exercise of 29 233 stock options

Payment of tax withholding obligations related to net share (1,196) (1,082) settlements of restricted stock awards

Repurchase of common stock - (4,536)

Net cash provided by (used in) 323,018 (24,685) financing activities

Effect of exchange rate changes oncash, cash equivalents and 24 56restricted cash

Net increase (decrease) in cash,cash equivalents and restricted 66,253 (3,297)cash

Cash and cash equivalents, 44,643 43,694beginning of year

Cash, cash equivalents and $ 110,896 $ 40,397restricted cash, end of period

RIBBON COMMUNICATIONS INC.

Supplemental Information

(in thousands)

(unaudited)

The following tables provide the details of stock-based compensation andamortization of intangible assets included as components of other line itemsin the Company's Consolidated Statements of Operations and the line items inwhich these amounts are reported.

Three months ended Nine months ended

September 30, June 30, September 30, September 30, September 30,

2020 2020 2019 2020 2019

Stock-basedcompensation

Cost of revenue $ 57 $ 39 $ 26 $ 123 $ - product 62

Cost of revenue 204 159 124 493 367- service

Cost of 261 198 150 616 429 revenue

Research anddevelopment 868 738 521 2,164 1,359expense

Sales andmarketing 1,189 1,011 721 2,952 2,265expense

General andadministrative 1,651 1,275 1,093 4,435 4,101expense

Operating 3,708 3,024 2,335 9,551 7,725 expense

Total $ stock-based $ 3,969 $ 3,222 $ 2,485 $ 10,167 8,154 compensation

Amortization ofintangibleassets

Cost of revenue $ 11,643 $ 10,950 $ 9,522 $ 31,547 $ - product 29,259

Sales andmarketing 4,706 3,719 2,738 13,805 7,570expense

Total amortization $ 16,349 $ 14,669 $ 12,260 $ 45,352 $ of intangible 36,829 assets

RIBBON COMMUNICATIONS INC.

Reconciliation of Non-GAAP and GAAP Financial Measures

(in thousands, except per share amounts)

(unaudited)

Three months ended

September 30, June 30, September 30,

2020 2020 2019

Revenue $ 231,118 $ 210,493 $ 137,653

Less revenue (77,588) (63,586) -attributable to ECI

Ribbon standalone $ 153,530 $ 146,907 $ 137,653revenue

GAAP Total gross 53.4% 53.4% 57.3%margin

Stock-based 0.1% 0.1% 0.1%compensation

Amortization of 5.0% 5.2% 6.9%intangible assets

Acquisition-relatedinventory 0.9% 0.0% 0.0%adjustment

Non-GAAP Total 59.4% 58.7% 64.3%gross margin

GAAP Total gross $ 123,311 $ 112,317 $ 78,877profit

Less total grossprofit attributable (29,647) (21,611) -to ECI

Ribbon standalone $ 93,664 $ 90,706 $ 78,877gross profit

Ribbon standalonegross margin(Ribbon standalone 61.0% 61.7% 57.3%gross profit/Ribbonstandalone revenue)

Stock-based 0.1% 0.1% 0.1%compensation

Amortization of 5.3% 5.4% 6.9%intangible assets

Non-GAAP Ribbonstandalone gross 66.4% 67.2% 64.3%margin

GAAP Net income $ 6,252 $ (8,251) $ 1,650(loss)

Stock-based 3,969 3,222 2,485compensation

Amortization of 16,349 14,669 12,260intangible assets

Acquisition-relatedinventory 2,000 - -adjustment

Litigation costs - (937) (1,534)

Acquisition- andintegration-related 1,366 857 1,697expense

Restructuring and 3,290 5,361 2,372related expense

Gain on litigation - - -settlement

Tax effect ofnon-GAAP (9,346) (6,626) (4,256)adjustments

Non-GAAP Net income $ 23,880 $ 8,295 $ 14,674

Earnings (loss) pershare

GAAP Dilutedearnings per share $ 0.04 $ (0.06) $ 0.01or (loss) per share

Stock-based 0.03 0.02 0.02compensation

Amortization of 0.11 0.10 0.11intangible assets

Acquisition-relatedinventory 0.01 - -adjustment

Litigation costs - (0.01) (0.01)

Acquisition- andintegration-related 0.01 0.01 0.02expense

Restructuring and 0.02 0.04 0.02related expense

Gain on litigation - - -settlement

Tax effect ofnon-GAAP (0.06) (0.04) (0.04)adjustments

Non-GAAP Diluted $ 0.16 $ 0.06 $ 0.13earnings per share

Weighted averageshares used tocompute diluted 110,756earnings per shareor (loss) per share

GAAP Shares usedto compute diluted 151,680 144,483 110,756earnings per shareor (loss) per share

Non-GAAP Sharesused to compute 151,680 150,512diluted earningsper share

Adjusted EBITDA

GAAP Net income $ 6,252 $ (8,251) $ 1,650(loss)

Interest expense, 6,854 5,400 726net

Income tax (782) 2,036 (197)(benefit) provision

Depreciation 4,494 4,786 2,933

Amortization of 16,349 14,669 12,260intangible assets

Stock-based 3,969 3,222 2,485compensation

Acquisition-relatedinventory 2,000 - -adjustment

Litigation costs - (937) (1,534)

Acquisition- andintegration-related 1,366 857 1,697expense

Restructuring and 3,290 5,361 2,372related expense

Other expense (407) 2,407 507(income), net

Non-GAAP Adjusted $ 43,385 $ 29,550 $ 22,899EBITDA

RIBBON COMMUNICATIONS INC.

Reconciliation of Non-GAAP and GAAP Financial Measures

(in thousands, except per share amounts)

(unaudited)

Nine months ended

September 30, September 30,

2020 2019

Revenue $ 599,593 $ 402,002

Less revenue attributable to ECI (171,125) -

Ribbon standalone revenue $ 428,468 $ 402,002

GAAP Total gross margin 52.9% 53.8%

Stock-based compensation 0.1% 0.1%

Amortization of intangible assets 5.3% 7.3%

Acquisition-related inventory 0.3% 0.0%adjustment

Non-GAAP Total gross margin 58.6% 61.2%

GAAP Total gross profit $ 317,198 $ 216,139

Less total gross profit attributable (61,909) -to ECI

Ribbon standalone gross profit $ 255,289 $ 216,139

Ribbon standalone gross margin (Ribbonstandalone gross profit/Ribbon 59.6% 53.8%standalone revenue)

Stock-based compensation 0.1% 0.1%

Amortization of intangible assets 5.6% 7.3%

Non-GAAP Ribbon standalone gross 65.3% 61.2%margin

GAAP Net (loss) income $ (35,169) $ 20,288

Stock-based compensation 10,167 8,154

Amortization of intangible assets 45,352 36,829

Acquisition-related inventory 2,000 -adjustment

Litigation costs 2,101 5,967

Acquisition- and integration-related 14,607 6,861expense

Restructuring and related expense 10,726 16,448

Reduction to deferred purchase - (8,124)consideration

Gain on litigation settlement - (63,000)

Tax effect of non-GAAP adjustments (16,736) (1,631)

Non-GAAP net income $ 33,048 $ 21,792

(Loss) earnings per share

GAAP (loss) per share or diluted $ (0.26) $ 0.18earnings per share

Stock-based compensation 0.07 0.07

Amortization of intangible assets 0.33 0.34

Acquisition-related inventory 0.01 -adjustment

Litigation costs 0.01 0.05

Acquisition- and integration-related 0.10 0.06expense

Restructuring and related expense 0.08 0.15

Reduction to deferred purchase - (0.07)consideration

Gain on litigation settlement - (0.57)

Tax effect of non-GAAP adjustments (0.11) (0.01)

Non-GAAP Diluted earnings per share $ 0.23 $ 0.20

Weighted average shares used tocompute (loss) per share or dilutedearnings per share

GAAP Shares used to compute (loss)per share or diluted earnings per 136,837 110,100share

Non-GAAP Shares used to compute 141,498 110,100diluted earnings per share

Adjusted EBITDA

GAAP Net (loss) income $ (35,169) $ 20,288

Interest expense, net 15,649 3,352

Income tax provision 1,445 5,850

Depreciation 12,754 8,824

Amortization of intangible assets 45,352 36,829

Stock-based compensation 10,167 8,154

Acquisition-related inventory 2,000 -adjustment

Litigation costs 2,101 5,967

Acquisition- and integration-related 14,607 6,861expense

Restructuring and related expense 10,726 16,448

Other expense (income), net 2,844 (70,128)

Non-GAAP Adjusted EBITDA $ 82,476 $ 42,445

RIBBON COMMUNICATIONS INC.

Reconciliation of Non-GAAP and GAAP Financial Measures - Outlook

(unaudited)

Three months ending

December 31, 2020

Range

Revenue $ 235 $ 245

Operating expenses (in $ millions)

GAAP outlook $ 117.6 $ 117.6

Stock-based compensation (3.7) (3.7)

Amortization of intangible assets (4.8) (4.8)

Acquisition- and integration-related expense (2.1) (2.1)

Restructuring and related expense (2.0) (2.0)

Non-GAAP outlook $ 105.0 $ 105.0

(Loss) earnings per share

GAAP outlook $ (0.01) $ 0.02

Stock-based compensation 0.03 0.03

Amortization of intangible assets 0.10 0.10

Acquisition- and integration-related expense 0.01 0.01

Restructuring and related expense 0.01 0.01

Tax effect of non-GAAP adjustments (0.02) (0.03)

Non-GAAP outlook $ 0.12 $ 0.14

Weighted average shares used to compute (loss) pershare or diluted earnings per share (in thousands)

GAAP Shares used to compute loss per share or 145,300 151,700 diluted earnings per share

Non-GAAP Shares used to compute diluted earnings 151,700 151,700 per share

Adjusted EBITDA (in $ millions)

GAAP net loss (income) outlook $ (2.1) $ 1.9

Interest expense, net 6.5 6.5

Income tax provision 2.3 2.3

Depreciation 4.3 4.3

Amortization of intangible assets 15.5 15.5

Stock-based compensation 3.9 3.9

Acquisition- and integration-related expense 2.1 2.1

Restructuring and related expense 2.0 2.0

Other expense, net 1.5 1.5

Non-GAAP outlook $ 36.0 $ 40.0

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SOURCE Ribbon Communications Inc.