Ribbon munications (RBBN) - 2025 Q2 - Quarterly Report

Cautionary Note Regarding Forward-Looking Statements This section warns that the report contains forward-looking statements subject to various risks and uncertainties, including revenue fluctuations, restructuring, tariffs, supply chain, geopolitical, and macroeconomic factors - This section highlights that the report contains forward-looking statements subject to various risks and uncertainties, including unpredictable fluctuations in revenue, impact of restructuring, tariffs, supply chain disruptions, geopolitical instabilities (Israel and Ukraine wars), interest rate fluctuations, cybersecurity incidents, competition, and macroeconomic conditions like inflation. The company cautions against relying on these statements and undertakes no obligation to update them[8] PART I FINANCIAL INFORMATION This part presents the unaudited condensed consolidated financial statements and management's discussion and analysis Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for Ribbon Communications Inc., including the Balance Sheets, Statements of Operations, Comprehensive Loss, Stockholders' Equity, and Cash Flows, along with detailed notes explaining the accounting policies, significant estimates, and specific financial line items for the periods ended June 30, 2025, and December 31, 2024 Condensed Consolidated Balance Sheets This section provides a snapshot of the company's assets, liabilities, and equity at specific points in time | Metric (in thousands) | June 30, 2025 | December 31, 2024 | Change ($) | Change (%) | | :-------------------- | :------------ | :---------------- | :--------- | :--------- | | Cash and cash equivalents | $60,450 | $87,770 | $(27,320) | -31.1% | | Total current assets | $433,940 | $463,662 | $(29,722) | -6.4% | | Total assets | $1,142,172 | $1,162,554 | $(20,382) | -1.8% | | Total current liabilities | $313,619 | $328,873 | $(15,254) | -4.6% | | Total liabilities | $771,737 | $757,933 | $13,804 | 1.8% | | Total stockholders' equity | $370,435 | $404,621 | $(34,186) | -8.5% | Condensed Consolidated Statements of Operations This section details the company's revenues, expenses, and net loss over specific reporting periods | Metric (in thousands) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Change ($) | Change (%) | | :-------------------- | :------------------------------- | :------------------------------- | :--------- | :--------- | | Total revenue | $220,583 | $192,620 | $27,963 | 14.5% | | Gross profit | $109,307 | $97,867 | $11,440 | 11.7% | | Income (loss) from operations | $4,226 | $(1,935) | $6,161 | 318.4% | | Net loss | $(11,093) | $(16,816) | $5,723 | -34.0% | | Basic loss per share | $(0.06) | $(0.10) | $0.04 | -40.0% | | Metric (in thousands) | Six months ended June 30, 2025 | Six months ended June 30, 2024 | Change ($) | Change (%) | | :-------------------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Total revenue | $401,862 | $372,284 | $29,578 | 7.9% | | Gross profit | $191,677 | $189,822 | $1,855 | 1.0% | | Loss from operations | $(15,384) | $(15,421) | $37 | -0.2% | | Net loss | $(37,320) | $(47,177) | $9,857 | -20.9% | | Basic loss per share | $(0.21) | $(0.27) | $0.06 | -22.2% | Condensed Consolidated Statements of Comprehensive Loss This section outlines the net loss and other comprehensive loss components, leading to the total comprehensive loss | Metric (in thousands) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net loss | $(11,093) | $(16,816) | $(37,320) | $(47,177) | | Other comprehensive loss, net of tax | $(58) | $(4,522) | $(148) | $(5,959) | | Comprehensive loss, net of tax | $(11,151) | $(21,338) | $(37,468) | $(53,136) | Condensed Consolidated Statements of Stockholders' Equity This section details changes in the company's equity, including common stock and total stockholders' equity | Metric (in thousands, except shares) | June 30, 2025 | December 31, 2024 | | :----------------------------------- | :------------ | :---------------- | | Common stock shares outstanding | 177,156,341 | 175,599,250 | | Total stockholders' equity | $370,435 | $404,621 | - For the six months ended June 30, 2025, key changes in stockholders' equity included a net loss of $37,320 thousand, stock-based compensation expense of $8,775 thousand, and a repurchase of common stock totaling $2,253 thousand[16] Condensed Consolidated Statements of Cash Flows This section summarizes the cash inflows and outflows from operating, investing, and financing activities | Cash Flow Activity (in thousands) | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash (used in) provided by operating activities | $(4,330) | $3,322 | | Net cash used in investing activities | $(17,831) | $(5,876) |\ | Net cash (used in) provided by financing activities | $(7,393) | $43,456 | | Net (decrease) increase in cash and cash equivalents | $(28,205) | $40,778 | | Cash, cash equivalents and restricted cash, end of period | $62,274 | $67,408 | - Supplemental disclosures show interest paid of $19,167 thousand in H1 2025 (vs. $12,222 thousand in H1 2024) and income taxes paid of $7,716 thousand (vs. $9,664 thousand in H1 2024)[22] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements (1) BASIS OF PRESENTATION This note describes the company's business, segments, and the basis for preparing the financial statements - Ribbon Communications Inc. is a global provider of communications technology, offering software and hardware products, network solutions, and services for secure data and voice communications and high-bandwidth networking. The company operates in two segments: Cloud and Edge, and IP Optical Networks[24][27] - The company uses estimates and judgments in financial statement preparation, including revenue recognition, inventory valuations, fair value of stock-based compensation, intangible asset and goodwill valuations, warranty accruals, legal contingencies, and deferred tax assets[30][31] | Factoring Activity (in thousands) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Accounts receivable sold | $25,957 | $25,970 | $54,723 | $46,962 | | Less factoring fees | $(577) | $(543) | $(1,050) | $(934) | | Net cash proceeds | $25,380 | $25,427 | $53,673 | $46,028 | - New accounting pronouncements include ASU 2024-03 (effective 2027) requiring disaggregation of expense captions and ASU 2023-09 (effective 2025) increasing income tax disclosure requirements[34][35] (2) EARNINGS (LOSS) PER SHARE This note provides details on the calculation of basic and diluted earnings per share | Metric (in thousands) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Weighted average shares outstanding—basic | 176,749 | 173,793 | 176,237 | 173,110 | | Weighted average shares outstanding—diluted | 176,749 | 173,793 | 176,237 | 173,110 | - Options and unvested restricted/performance-based stock units (13.6 million shares for H1 2025, 11.9 million for H1 2024) were excluded from diluted EPS calculation due to their antidilutive effect[37] - The company redeemed its Series A Preferred Stock on June 25, 2024, for approximately $63.5 million. Warrants outstanding totaled 4.7 million shares as of June 30, 2025, with 0.2 million exercised during the six months ended June 30, 2025[39][40] (3) INVENTORY This note details the composition and valuation of the company's inventory | Inventory (in thousands) | June 30, 2025 | December 31, 2024 | | :----------------------- | :------------ | :---------------- | | On-hand assemblies and finished goods inventories | $96,514 | $95,366 | | Deferred cost of goods sold | $3,228 | $2,430 | | Less noncurrent portion (included in Other assets) | $(19,443) | $(18,617) | | Current portion | $80,299 | $79,179 | (4) INTANGIBLE ASSETS AND GOODWILL This note provides information on the company's intangible assets and goodwill, including their carrying values and amortization | Intangible Assets (in thousands) | June 30, 2025 Net Carrying Value | December 31, 2024 Net Carrying Value | | :------------------------------- | :------------------------------- | :----------------------------------- | | Developed technology | $68,588 | $78,295 | | Customer relationships | $95,394 | $107,505 | | Trade names | $3 | $22 | | Software licenses | $757 | $1,715 | | Total | $164,742 | $187,537 | | Estimated Future Amortization Expense (in thousands) | | :----------------------------------- | | Remainder of 2025: $21,397 | | 2026: $39,143 | | 2027: $33,979 | | 2028: $23,400 | | 2029: $18,379 | | 2030: $7,722 | | Thereafter: $20,722 | | Total: $164,742 | | Goodwill (in thousands) | Cloud and Edge | IP Optical Networks | Total | | :---------------------- | :------------- | :------------------ | :---- | | Goodwill | $392,302 | $191,996 | $584,298 | | Accumulated impairment losses | $(167,406) | $(116,000) | $(283,406) | | Net Goodwill | $224,896 | $75,996 | $300,892 | (5) FAIR VALUE HIERARCHY This note explains the categorization of fair value measurements and the valuation of financial instruments - The company's term debt had a fair value of approximately $350.8 million at June 30, 2025, compared to a carrying amount of $346.5 million. The Warrant liability had a fair value of $6.3 million at June 30, 2025[45] - Fair value measurements are categorized into a three-tier hierarchy: Level 1 (quoted prices in active markets for identical assets/liabilities), Level 2 (observable inputs for similar assets/liabilities), and Level 3 (unobservable inputs significant to valuation). The company had no Level 1 assets/liabilities. Defined benefit plan assets used Level 2 input at December 31, 2024. Warrants used Level 3 input at June 30, 2025, and December 31, 2024[46][48] (6) ACCRUED EXPENSES AND OTHER This note provides a breakdown of accrued expenses and other current liabilities | Accrued Expenses (in thousands) | June 30, 2025 | December 31, 2024 | | :------------------------------ | :------------ | :---------------- | | Employee compensation and related costs | $33,178 | $44,948 | | Professional fees | $17,235 | $16,339 | | Taxes payable | $10,066 | $6,364 | | Other | $29,665 | $38,600 | | Total | $90,144 | $106,251 | (7) WARRANTY This note details the company's warranty accrual and related activity | Warranty Accrual (in thousands) | | :------------------------------ | | Balance at January 1, 2025: $12,300 | | Current period provisions: $3,209 | | Settlements: $(2,596) | | Balance at June 30, 2025: $12,913 | - At June 30, 2025, the warranty accrual was split between current liabilities ($5.5 million in Accrued expenses and other) and long-term liabilities ($7.4 million in Other long-term liabilities)[50] (8) RESTRUCTURING AND FACILITIES CONSOLIDATION INITIATIVES This note outlines expenses and accruals related to the company's restructuring and facilities consolidation plans | Restructuring Expense (in thousands) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Severance and related costs | $137 | $359 | $2,413 | $1,975 | | Variable and other facilities-related costs | $1,209 | $1,561 | $4,274 | $3,010 | | Total | $1,346 | $1,920 | $6,687 | $4,985 | - The 2025 Restructuring Plan, approved in Q1 2025, involves workforce reductions, incurring $0.2 million and $2.6 million in restructuring expense for the three and six months ended June 30, 2025, respectively. Additional expenses are anticipated in 2025[55] - The 2022 Restructuring Plan, involving facilities consolidation and workforce reduction, resulted in $1.2 million and $4.3 million in variable and other facilities-related costs for the three and six months ended June 30, 2025, respectively[59] - Accrued restructuring balances were $0.8 million (current) and $0.6 million (long-term) at June 30, 2025[61] (9) DEBT This note describes the company's debt instruments, including the 2024 Credit Facility and its terms - On June 21, 2024, the company entered into a new $385 million Senior Secured Credit Facilities Credit Agreement (2024 Credit Facility), comprising a $350 million term loan and a $35 million revolving credit facility. Proceeds were used to repay the 2020 Credit Facility, redeem Preferred Stock, and cover related fees[62] - The 2024 Term Loan and Revolver mature on June 21, 2029, with variable interest rates based on ABR or SOFR, plus applicable margins. Quarterly installments for the term loan range from $0.9 million to $4.4 million, with a remaining principal balance of approximately $298.4 million due at maturity[63] | Debt Maturities (in thousands) | | :----------------------------- | | Remainder of 2025: $4,375 | | 2026: $8,750 | | 2027: $13,125 | | 2028: $17,500 | | 2029: $302,750 | | Total: $346,500 | - The company had $9.9 million in Guarantees under uncommitted facilities at June 30, 2025, supported by $1.8 million in restricted cash[71] (10) DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES This note explains the company's use of derivative financial instruments to manage interest rate exposure - The company uses derivative financial instruments, specifically interest rate swaps, to manage exposure to interest rate movements and stabilize interest expense, not for trading or speculative purposes[72][73][79] - An interest rate swap, entered in March 2020, converted a $400 million variable-rate term loan to a fixed rate. Gains from the sale of portions of this swap in 2022 and 2023 were amortized or immediately recognized, with remaining unamortized gains written off upon the 2020 Credit Facility refinancing in June 2024[76][77][78] - The company had no derivative assets or liabilities at June 30, 2025, or December 31, 2024, and recorded no hedge ineffectiveness over the life of the swap[80][81] (11) PREFERRED STOCK AND WARRANTS This note details the issuance, redemption, and fair value accounting of Preferred Stock and Warrants - The company issued 55,000 shares of Series A Preferred Stock and 4.9 million Warrants in March 2023. The Preferred Stock was redeemed on June 25, 2024, for approximately $63.5 million[82][83] - The Warrants are accounted for as liability-classified instruments and remeasured to fair value quarterly using the Black-Scholes Pricing Model (Level 3 input). Key assumptions for Warrants at June 30, 2025, included a stock price of $4.01, strike price of $3.77, risk-free rate of 3.74%, and volatility of 56.0%[84][85][86][87] | Warrant Liabilities (in thousands) | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :--------------------------------- | :----------------------------- | :----------------------------- | | Balance at beginning of year | $8,064 | $5,295 | | Exercise of warrants | $(150) | — | | Fair value change | $(1,641) | $875 | | Balance at end of period | $6,273 | $6,170 | - As of June 30, 2025, 4,681,432 Warrants remained outstanding, with 176,658 exercised in cashless exercises during the six months ended June 30, 2025, resulting in 32,573 common stock shares issued[89] (12) REVENUE RECOGNITION This note details the company's policies for recognizing revenue from products and services - Revenue is derived from two primary sources: products (proprietary hardware, software, and SaaS) and services (customer support, consulting, design, installation, training). Contracts often contain multiple performance obligations, allocated based on relative standalone selling price (SSP)[90][91][92] - Product revenue from perpetual and term-based software licenses is recognized when software is available for download. SaaS-based software revenue is recognized ratably over the service period. Hardware revenue is recognized upon transfer of control, typically delivery[93][94] - Service revenue from customer support is recognized ratably over the contract term (typically one year). Professional services revenue is recognized over time, primarily using the input method based on costs or labor expended[96][97][99] | Revenue Disaggregation (in thousands) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Product revenue | $115,057 | $99,133 | $197,048 | $186,743 | | Service revenue (maintenance) | $68,297 | $67,520 | $134,719 | $135,901 | | Service revenue (professional services) | $37,229 | $25,967 | $70,095 | $49,640 | | Total revenue | $220,583 | $192,620 | $401,862 | $372,284 | | Product Revenue by Customer Type (in thousands) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :---------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Sales to enterprise customers | $39,052 | $38,040 | $62,284 | $75,910 | | Sales to service provider customers | $76,005 | $61,093 | $134,764 | $110,833 | | Total product revenue | $115,057 | $99,133 | $197,048 | $186,743 | | Deferred Revenue (in thousands) | January 1, 2025 | June 30, 2025 | | :------------------------------ | :-------------- | :------------ | | Deferred revenue (current) | $119,295 | $115,212 | | Deferred revenue (long-term) | $20,991 | $31,749 | - The company expects to recognize approximately $75 million of revenue in the six months ended June 30, 2025, that was recorded as deferred revenue at December 31, 2024. A significant contract with an existing customer has remaining performance obligations of approximately $235 million as of June 30, 2025, with most revenue expected to be recognized from 2025 through 2028[112][113] (13) OPERATING SEGMENT INFORMATION This note provides financial information disaggregated by the company's two operating segments - The company operates in two reportable segments: Cloud and Edge, and IP Optical Networks. The Cloud and Edge segment provides secure software and hardware for VoIP, VoLTE, VoNR, and UC&C, focusing on cloud-centric solutions. The IP Optical Networks segment offers high-performance IP networking and optical transport solutions for wireless, metro, core, and data center interconnect[116][117][118][119] - The Chief Operating Decision Maker (CODM) evaluates segment performance using adjusted gross profit, which excludes amortization of acquired technology and stock-based compensation from cost of revenue[121] | Segment Revenue (in thousands) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :----------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Cloud and Edge | $137,048 | $110,555 | $244,639 | $212,224 | | IP Optical Networks | $83,535 | $82,065 | $157,223 | $160,060 | | Total Revenue | $220,583 | $192,620 | $401,862 | $372,284 | | Segment Adjusted Gross Profit (in thousands) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Cloud and Edge | $84,854 | $72,946 | $152,150 | $140,065 | | IP Optical Networks | $29,961 | $31,791 | $50,775 | $63,756 | | Total Segment Adjusted Gross Profit | $114,815 | $104,737 | $202,925 | $203,821 | (14) MAJOR CUSTOMERS This note identifies customers that contribute a significant portion of the company's revenue | Major Customer Revenue Contribution | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :---------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Verizon Communications Inc. | 21% | 12% | 18% | 11% | - No single customer accounted for 10% or more of the company's accounts receivable balance at June 30, 2025, or December 31, 2024[125] (15) COMMON STOCK REPURCHASES This note details the company's common stock repurchase program and activity - In Q2 2025, the Board approved a $50 million share repurchase program (2025 Repurchase Program) through December 31, 2027. The company repurchased 0.6 million shares for $2.3 million in Q2 2025, leaving $47.7 million for future repurchases[126] (16) STOCK-BASED COMPENSATION PLANS This note describes the company's stock-based compensation plans and related expenses - The 2025 Incentive Award Plan, approved by stockholders on May 28, 2025, authorizes awards of up to 14 million new shares plus certain shares from prior plans. Stockholders also approved increasing authorized common stock by 150 million shares to 390 million[127][128] - Stock-based compensation includes RSUs and PSUs, with vesting periods of one to three years. PSUs are 60% performance-based and 40% market-based[129] | Stock-Based Compensation Expense (in thousands) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :---------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Product cost of revenue | $33 | $64 | $99 | $170 | | Service cost of revenue | $198 | $274 | $484 | $746 | | Research and development | $455 | $616 | $1,180 | $1,684 | | Sales and marketing | $1,066 | $954 | $2,239 | $2,111 | | General and administrative | $2,725 | $1,586 | $4,773 | $3,305 | | Total | $4,477 | $3,494 | $8,775 | $8,016 | - Unrecognized stock-based compensation expense related to unvested RSUs and PSUs was $34.8 million at June 30, 2025, expected to be recognized over approximately two years[133] (17) LEASES This note provides information on the company's operating leases, including assets, liabilities, and expenses - The company has operating leases for corporate offices and R&D facilities, with terms expiring through 2036. Right-of-use assets and lease liabilities are measured based on the present value of future minimum fixed lease payments using the incremental borrowing rate[134][136][142] | Lease Assets and Liabilities (in thousands) | June 30, 2025 | December 31, 2024 | | :------------------------------------------ | :------------ | :---------------- | | Operating lease right-of-use assets | $47,383 | $34,544 | | Current Operating lease liabilities | $10,816 | $9,443 | | Non-Current Operating lease liabilities | $62,063 | $37,376 | | Total Operating lease liabilities | $72,879 | $46,819 | | Lease Expense (in thousands) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :--------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Operating lease cost | $3,597 | $4,107 | $6,822 | $8,306 | | Short-term lease cost | $3,553 | $3,413 | $7,080 | $6,854 | | Variable lease costs | $867 | $828 | $1,739 | $1,683 | | Sublease income | $(96) | $(217) | $(216) | $(477) | | Net lease cost | $7,921 | $8,131 | $15,425 | $16,366 | - Non-cash investing and financing activities related to operating leases resulted in $17.3 million of right-of-use assets and $28.0 million of operating lease liabilities added in the six months ended June 30, 2025[144] (18) INCOME TAXES This note provides information on the company's income tax provisions and deferred tax assets - The company recorded income tax provisions of $1.4 million and $4.9 million for the six months ended June 30, 2025, and 2024, respectively. The 2025 provision included a $3.7 million release of an uncertain tax position[145][211] - The company maintains a valuation allowance on its deferred tax assets and continues to evaluate the impact of OECD Pillar Two rules, not expecting a significant impact on future results[145][215] (19) RELATED PARTIES This note discloses transactions and balances with related parties - Revenue from the largest stockholder was $3.0 million for both the six months ended June 30, 2025, and 2024. Accounts receivable from this stockholder totaled $3.8 million at June 30, 2025[146] (20) COMMITMENTS AND CONTINGENCIES This note outlines the company's commitments and potential liabilities from legal proceedings - The company has a commitment to pay royalties to the Israeli Innovation Authority (IIA) on sales of products developed with their grants. At June 30, 2025, $1.3 million of unpaid royalties were accrued, with a maximum possible future commitment of $12.8 million[147] - The company is involved in litigation, including a breach of contract complaint by Charter Communications. The Delaware court granted the company's motion for summary judgment on May 14, 2025, which Charter has appealed. Discovery is ongoing in a related New York case[149][151] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Ribbon Communications Inc.'s financial condition and operational results for the three and six months ended June 30, 2025, compared to the same periods in 2024. It covers key trends, segment performance, revenue and expense drivers, restructuring initiatives, critical accounting policies, and liquidity and capital resources Overview This section provides a high-level summary of Ribbon Communications Inc.'s business and mission - Ribbon Communications Inc. is a global provider of communications technology, offering software, hardware, network solutions, and services for secure data and voice communications and high-bandwidth networking. The company's mission is to be a global technology leader in cloud-centric solutions[154] Key Trends and Economic Factors Affecting Ribbon This section discusses external factors and trends influencing the company's business and financial performance - The company faces risks from evolving U.S. tariffs and reciprocal tariffs from other countries, which could increase expenses or delay customer purchases[155] - Ongoing global economic uncertainty, including inflation, high interest rates, and geopolitical conflicts (Israel and Ukraine wars), continues to disrupt supply chains, increase volatility, and may cause customers to restrict spending[156][157][158] - The wars in Israel and Ukraine pose risks, including potential delays in customer purchases, military call-ups of employees in Israel, and sanctions against Russia impacting sales and fund repatriation[158][159][160] - Inflationary pressures continue to impact energy prices, component costs, freight premiums, and operating costs. High interest rates, though recently lowered by the Federal Reserve, may still lead to a higher cost of capital[161] Operating Segments This section identifies the company's two operating segments and how their performance is assessed - The company's performance is assessed based on two operating segments: Cloud and Edge, and IP Optical Networks[163] Financial Overview This section provides a summary of the company's financial performance, including revenue, gross profit, and operating income | Metric (in millions) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue | $220.6 | $192.6 | $401.9 | $372.3 | | Gross profit | $109.3 | $97.9 | $191.7 | $189.8 | | Gross margin | 49.6% | 50.8% | 47.7% | 51.0% | | Income (loss) from operations | $4.2 | $(1.9) | $(15.4) | $(15.4) | - The increase in Q2 2025 revenue was driven by higher Cloud and Edge revenue ($26.5 million, primarily product sales and professional services) and a slight increase in IP Optical Networks sales. For H1 2025, higher Cloud and Edge revenue ($32.4 million) was partially offset by lower IP Optical Networks sales ($2.8 million)[165] - Operating expenses increased to $105.1 million in Q2 2025 (from $99.8 million in Q2 2024) and $207.1 million in H1 2025 (from $205.2 million in H1 2024), primarily due to $3.9 million in legal and professional fees for corporate development activities and slightly higher general and administrative expenses[169] - Stock-based compensation expense was $4.5 million in Q2 2025 (vs. $3.5 million in Q2 2024) and $8.8 million in H1 2025 (vs. $8.0 million in H1 2024)[170] Restructuring and Cost Reduction Initiatives This section discusses the company's plans and expenses related to workforce reductions and facilities consolidation - The 2025 Restructuring Plan, approved in Q1 2025, involves workforce reductions and incurred $0.2 million and $2.6 million in related expense for the three and six months ended June 30, 2025, respectively. Additional expenses are anticipated in 2025[172] - The 2022 Restructuring Plan, focused on facilities consolidation and workforce reduction, resulted in $1.2 million and $4.3 million in variable and other facilities-related costs for the three and six months ended June 30, 2025, respectively. Approximately $2 million of additional expense is expected in the remainder of 2025[173][174][175] - No accelerated rent amortization was recorded in the three and six months ended June 30, 2025 or 2024, but the company continues to evaluate properties for potential future accelerated amortization or impairment[176] Critical Accounting Policies and Estimates This section identifies the key accounting policies and estimates that require significant management judgment - Key critical accounting policies and estimates include revenue recognition, inventory valuation, warranty accruals, loss contingencies, stock-based compensation, Preferred Stock and Warrants, business combinations, goodwill and intangible assets, leases, and income taxes. No significant changes occurred from January 1, 2025, through June 30, 2025[177] Results of Operations This section provides a detailed analysis of the company's financial performance for the reporting periods Revenue This subsection analyzes the company's revenue performance by product and service categories | Revenue (in thousands) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Change ($) | Change (%) | | :--------------------- | :------------------------------- | :------------------------------- | :--------- | :--------- | | Product | $115,057 | $99,133 | $15,924 | 16.1% | | Service | $105,526 | $93,487 | $12,039 | 12.9% | | Total revenue | $220,583 | $192,620 | $27,963 | 14.5% | | Revenue (in thousands) | Six months ended June 30, 2025 | Six months ended June 30, 2024 | Change ($) | Change (%) | | :--------------------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Product | $197,048 | $186,743 | $10,305 | 5.5% | | Service | $204,814 | $185,541 | $19,273 | 10.4% | | Total revenue | $401,862 | $372,284 | $29,578 | 7.9% | - Product revenue increased in Q2 2025 due to $17 million higher Cloud and Edge product sales, primarily to U.S. service providers and Federal agencies, partially offset by a slight decrease in IP Optical Networks products. For H1 2025, Cloud and Edge product sales increased by $17 million, while IP Optical Networks product sales decreased by $7 million, mainly due to lower sales in Eastern Europe offset by growth in India and the U.S[181] - Service revenue increased in both segments for Q2 and H1 2025. Cloud and Edge service revenue grew by $10 million (Q2) and $15 million (H1), driven by professional services for U.S. voice modernization projects (Verizon). IP Optical Networks service revenue grew by $2 million (Q2) and $4 million (H1), with professional services growth in EMEA, India, and North America[185][188] - Maintenance revenue was relatively flat due to lower Cloud and Edge revenue (modestly lower renewal rates from decommissioning older equipment) offset by higher IP Optical Networks revenue (cumulative growth in product revenues leading to a larger installed base)[186][187] - Verizon Communications Inc. contributed 21% of revenue in Q2 2025 (up from 12% in Q2 2024) and 18% in H1 2025 (up from 11% in H1 2024)[189] - The company expects total revenue in 2025 to increase compared to 2024, driven by growth in both Cloud & Edge (especially with Verizon) and IP Optical segments (North America, EMEA, India), and continued growth from Enterprise customers[191] Cost of Revenue/Gross Margin This subsection analyzes the cost of revenue and the resulting gross margin for the company | Cost of Revenue (in thousands) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Change ($) | Change (%) | | :----------------------------- | :------------------------------- | :------------------------------- | :--------- | :--------- | | Product | $66,746 | $54,845 | $11,901 | 21.7% | | Service | $39,253 | $33,376 | $5,877 | 17.6% | | Amortization of acquired technology | $5,277 | $6,532 | $(1,255) | -19.2% | | Total cost of revenue | $111,276 | $94,753 | $16,523 | 17.4% | | Gross profit | $109,307 | $97,867 | $11,440 | 11.7% | | Gross margin | 49.6% | 50.8% | | | | Cost of Revenue (in thousands) | Six months ended June 30, 2025 | Six months ended June 30, 2024 | Change ($) | Change (%) | | :----------------------------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Product | $124,639 | $100,639 | $24,000 | 23.8% | | Service | $74,881 | $68,740 | $6,141 | 8.9% | | Amortization of acquired technology | $10,665 | $13,083 | $(2,418) | -18.5% | | Total cost of revenue | $210,185 | $182,462 | $27,723 | 15.2% | | Gross profit | $191,677 | $189,822 | $1,855 | 1.0% | | Gross margin | 47.7% | 51.0% | | | - Overall gross margin decreased by 1% in Q2 2025 and 3% in H1 2025 compared to the prior year, driven by lower margins in both segments[195] - IP Optical segment's lower margin in H1 2025 was due to regional mix (lower sales in Eastern Europe, higher sales in India). Cloud and Edge segment's lower margin was due to product mix (higher hardware and professional services sales, which have lower margins than software products)[196] - Consolidated gross margin is expected to decrease slightly for the full year 2025 due to higher expected sales in the lower-margin IP Optical segment and a higher mix of lower-margin professional services revenue in the Cloud and Edge segment[197] Research and Development This subsection examines the company's research and development expenses and strategic focus | R&D Expenses (in thousands) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Change ($) | Change (%) | | :-------------------------- | :------------------------------- | :------------------------------- | :--------- | :--------- | | R&D expenses | $44,696 | $43,489 | $1,207 | 2.8% | | R&D Expenses (in thousands) | Six months ended June 30, 2025 | Six months ended June 30, 2024 | Change ($) | Change (%) | | :-------------------------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | R&D expenses | $88,264 | $89,252 | $(988) | -1.1% | - Q2 2025 R&D expenses increased due to higher employee and consulting costs in the Cloud and Edge segment. H1 2025 R&D expenses decreased primarily due to lower costs in the IP Optical Networks segment[198] - IP Optical Networks R&D investment focuses on expanding IP Routing solutions, adding features to Optical Transport, and supporting next-generation SDN management. Overall R&D expenses are expected to increase modestly in 2025 due to higher employee and consulting costs for product modifications and cloud-native solutions[199][200] Sales and Marketing Expenses This subsection analyzes the company's sales and marketing expenditures | Sales and Marketing Expenses (in thousands) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Change ($) | Change (%) | | :------------------------------------------ | :------------------------------- | :------------------------------- | :--------- | :--------- | | Sales and marketing expenses | $32,536 | $32,984 | $(448) | -1.4% | | Sales and Marketing Expenses (in thousands) | Six months ended June 30, 2025 | Six months ended June 30, 2024 | Change ($) | Change (%) | | :------------------------------------------ | :----------------------------- | :----------------------------- | :--------- | :--------- | | Sales and marketing expenses | $64,324 | $67,700 | $(3,376) | -5.0% | - The decrease in sales and marketing expenses in 2025 compared to 2024 was primarily due to lower commissions, partially offset by higher travel expenses. These expenses are expected to remain relatively flat in 2025[201][202] General and Administrative Expenses This subsection reviews the company's general and administrative expenditures | G&A Expenses (in thousands) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Change ($) | Change (%) | | :-------------------------- | :------------------------------- | :------------------------------- | :--------- | :--------- | | G&A expenses | $16,630 | $14,901 | $1,729 | 11.6% | | G&A Expenses (in thousands) | Six months ended June 30, 2025 | Six months ended June 30, 2024 | Change ($) | Change (%) | | :-------------------------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | G&A expenses | $31,758 | $30,092 | $1,666 | 5.5% | - The increase in G&A expenses in 2025 was mainly due to higher employee-related costs and litigation expenses. These expenses are projected to decrease slightly in 2025 due to lower litigation expenses, partially offset by higher employee costs[202][203] Amortization of Acquired Intangible Assets included in Operating expenses This subsection details the amortization expense for acquired intangible assets within operating expenses | Opex Amortization (in thousands) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Change ($) | Change (%) | | :------------------------------- | :------------------------------- | :------------------------------- | :--------- | :--------- | | Opex Amortization | $5,975 | $6,508 | $(533) | -8.2% | | Opex Amortization (in thousands) | Six months ended June 30, 2025 | Six months ended June 30, 2024 | Change ($) | Change (%) | | :------------------------------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Opex Amortization | $12,130 | $13,214 | $(1,084) | -8.2% | - Amortization of acquired intangible assets included in operating expenses was lower in 2025 compared to 2024, as it is recorded in relation to expected future cash flows rather than on a straight-line basis[204] Acquisition-, Disposal- and Integration-Related This subsection reports expenses incurred from acquisition, disposal, and integration activities - The company recorded $3.9 million in acquisition-, disposal- and integration-related expenses in the three and six months ended June 30, 2025, primarily for legal and professional fees associated with contemplated corporate development activities. No such expenses were recorded in 2024[205][206] Restructuring and Related This subsection details expenses associated with the company's restructuring efforts - Restructuring and related expense was $1.3 million in Q2 2025 (vs. $1.9 million in Q2 2024) and $6.7 million in H1 2025 (vs. $5.0 million in H1 2024), reflecting ongoing efforts to streamline operations and reduce costs through facility consolidation and workforce reductions[207][208] Interest Expense, Net This subsection analyzes the company's net interest expense, including income and expense components | Interest Expense, Net (in thousands) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Change ($) | Change (%) | | :----------------------------------- | :------------------------------- | :------------------------------- | :--------- | :--------- | | Interest income | $322 | $48 | $274 | 570.8% | | Interest expense | $(11,299) | $(3,927) | $7,372 | 187.7% | | Interest expense, net | $(10,977) | $(3,879) | $7,098 | 183.0% | | Interest Expense, Net (in thousands) | Six months ended June 30, 2025 | Six months ended June 30, 2024 | Change ($) | Change (%) | | :----------------------------------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Interest income | $580 | $154 | $426 | 276.7% | | Interest expense | $(22,057) | $(10,020) | $12,037 | 120.1% | | Interest expense, net | $(21,477) | $(9,866) | $11,611 | 117.7% | - Interest expense, net, was significantly higher in 2025 compared to 2024, primarily due to higher margins under the 2024 Term Loan and the absence of amortization of gains from interest rate swap sales (which were fully written off in June 2024)[209] Other (Expense) Income, Net This subsection reports non-operating income and expenses, such as foreign currency gains/losses and fair value adjustments - Other expense, net, was $2.2 million in Q2 2025 (vs. $9.5 million in Q2 2024), mainly due to foreign currency exchange losses. Other income, net, was $1.0 million in H1 2025, primarily from $1.6 million in fair value adjustments of Warrants, partially offset by foreign currency exchange losses[210] - In H1 2024, other expense, net, was $17.0 million, largely due to fair value adjustments, accrued dividends, and a call premium on Preferred Stock (redeemed June 2024), and foreign currency exchange losses[210] Income Taxes This subsection discusses the company's income tax provisions and the impact of new tax legislation - Income tax provisions were $2.2 million in Q2 2025 (vs. $1.5 million in Q2 2024) and $1.4 million in H1 2025 (vs. $4.9 million in H1 2024). The H1 2025 tax expense included a $3.7 million release of an uncertain tax position[211] - The company is evaluating the impact of the recently enacted One Big Beautiful Bill Act (July 4, 2025), which reinstates bonus depreciation and allows full expensing of R&D, on its 2025 taxable position and financial results[216] Off-Balance Sheet Arrangements This section confirms the absence of material off-balance sheet arrangements - The company has no off-balance sheet arrangements that have or are reasonably likely to have a material effect on its financial position, results of operations, or cash flows[217] Liquidity and Capital Resources This section analyzes the company's cash flows, liquidity position, and ability to meet future financial obligations | Cash Flow Summary (in thousands) | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :------------------------------- | :----------------------------- | :----------------------------- | | Net cash (used in) provided by operating activities | $(4,330) | $3,322 | | Net cash used in investing activities | $(17,831) | $(5,876) | | Net cash (used in) provided by financing activities | $(7,393) | $43,456 | | Net (decrease) increase in cash and cash equivalents | $(28,205) | $40,778 | - Cash, cash equivalents, and restricted cash totaled $62 million at June 30, 2025 (down from $90 million at December 31, 2024). Non-U.S. subsidiaries held $25 million in cash, with no material withholding taxes expected upon repatriation[218] - Operating activities used $4.3 million in H1 2025, driven by variable employee compensation, higher inventory, and lower accrued expenses, partially offset by higher deferred revenue and accounts payable. In H1 2024, operating activities provided $3.3 million, despite a $6.7 million payment of accumulated dividends[237][238] - Investing activities used $17.8 million in H1 2025 (vs. $5.9 million in H1 2024), primarily due to increased purchases of property and equipment, including a new facility build-out in Israel[240] - Financing activities used $7.4 million in H1 2025, including $1.8 million in term debt principal payments, $3.4 million in tax obligations for stock awards, and $2.3 million for common stock repurchases. In H1 2024, financing activities provided $43.5 million, largely from the 2024 Credit Facility issuance ($342.3 million) used for refinancing and Preferred Stock redemption[241][242] - The company believes current cash balances and available borrowings under the 2024 Credit Facility will be sufficient to meet anticipated cash needs for at least the next twelve months, with contingency plans to reduce costs if conditions deteriorate[243][244] Recent Accounting Pronouncements This section outlines new accounting standards and their potential impact on the company's financial reporting - ASU 2024-03 (effective 2027) will require new footnote disclosures for expense disaggregation. ASU 2023-09 (effective 2025) will require additional income tax disclosures[245][246] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section states that the company is exposed to market risk related to changes in interest rates and foreign currency exchange rates, and there have been no material changes in market risk since the Annual Report on Form 10-K for the year ended December 31, 2024 - The company is exposed to market risk from interest rate and foreign currency exchange rate fluctuations. No material changes in market risk have occurred since the December 31, 2024, Annual Report on Form 10-K[248] Item 4. Controls and Procedures This section confirms that management, with the participation of the principal executive and financial officers, evaluated the effectiveness of the company's disclosure controls and procedures as of June 30, 2025, concluding they were effective. It also states there have been no material changes in internal control over financial reporting during the quarter - Disclosure controls and procedures were evaluated and deemed effective as of June 30, 2025[249] - No material changes in internal control over financial reporting occurred during the fiscal quarter ended June 30, 2025[250] PART II OTHER INFORMATION This part includes legal proceedings, risk factors, equity sales, other information, and exhibits Item 1. Legal Proceedings This section refers to the detailed description of legal proceedings and claims in Note 20 of the Condensed Consolidated Financial Statements. It reiterates that the outcome of litigation is uncertain and could materially affect financial condition, but no individually or aggregately material settlements occurred in the six months ended June 30, 2025 - Material legal proceedings are detailed in Note 20, 'Commitments and Contingencies,' of the financial statements[252] - The outcome of litigation is inherently uncertain, with potential material adverse effects on financial condition and operating results. No material settlements occurred in the six months ended June 30, 2025[252] [Item 1A. Risk Factors](index=82&type=s