Ribbon Communications Inc

Previous wording

Continued uncertain global economic conditions, may cause our customers to restrict spending or delay purchases for an indeterminate period of time and consequently cause our revenues to decline. Further, such factors may negatively impact our operating costs resulting in a reduction in net income. The degree to which the ongoing wars in Israel and Ukraine and the inflationary andhigh interest rate environment impacts our future business, financial position and results of operations will depend on developments beyond our control, including the duration of the global economic downturn that has resulted from these factors.

Current wording

Continued uncertain global economic conditions may cause our customers to restrict spending or delay purchases for an indeterminate period of time and consequently cause our revenues to decline. Further, such factors may negatively impact our operating costs resulting in a reduction in net income. The degree to which the ongoing wars in Israel and Ukraine and the inflationary and high interest rate environment impacts our future business, financial position and results of operations will depend on developments beyond our control.

Previous wording

The Ongoing Wars in Israel and Ukraine. The uncertainty resulting from the wars in Israel and Ukraine and the threat for expansion of one or both of these wars could result in some of our customers delaying purchases from us. As a result of safety concerns, we may close our offices in Israel from time to time. Although our employees in these offices have the ability to work remotely and business continuity plans are in place to address any medium- or long-term disruptions that could result from the closure of these offices, the office closures and general effects of employees operating in a region at war could have a negative impact on our operations. Further, a number of our employees in Israel are members of the military reserves and subject to immediate call-up in response to the war in Israel. Following the terrorist attacks in Israel in October 2023, a number of our employees have been activated for military duty and we expect that additional employees will also be activated if the war in Israel continues. While we have business continuity plans in place to address the military call-ups, it could affect the timing of projects in the short-term as the work is shifted to other team members both inside and outside of Israel.

Current wording

The Ongoing Wars in Israel and Ukraine. The uncertainty resulting from the wars in Israel and Ukraine, and the threat for expansion of one or both of these wars, could result in some of our customers delaying purchases from us. Further, a number of our employees in Israel are members of the military reserves and subject to immediate call-up in response to the war in Israel. Following the terrorist attacks in Israel in October 2023, a number of our employees have been activated for military duty and we expect that additional employees will also be activated if the war in Israel continues. While we have business continuity plans in place to address the military call-ups, it could affect the timing of projects in the short-term as the work is shifted to other team members both inside and outside of Israel.

Previous wording

Further, the U.S. and other European countries have imposed sanctions and trade restrictions against Russia in connection with the war in Ukraine. These sanctions and restrictions currently prohibit our ability to sell certain products and services. The sanctions continue to evolve and further changes in the current sanctions or trade restrictions could further limit our ability to sell products and services to customers in Russia and, our ability to collect on outstanding accounts receivable from such customers. If we are further limited in our ability to sell products and services to Russia and other countries for an extended period, it could have a material impact on our financial results.

Current wording

The U.S. and other European countries have imposed sanctions and trade restrictions against Russia in connection with the war in Ukraine. These sanctions and restrictions currently prohibit our ability to sell hardware products in Russia or provide any replacement parts in Russia. The sanctions continue to evolve and further changes in the current sanctions or trade restrictions could further limit our ability to sell products and services to customers in Russia, our ability to collect on outstanding accounts receivable from such customers, and our ability to repatriate funds. If we are further limited in our ability to sell products and services to Russia and other countries for an extended period, it could have a material impact on our financial results.

Previous wording

Inflation and Interest Rates. We continue to see near-term impacts on our business due to inflation, including ongoing global price pressures driving up energy prices, component costs, freight premiums, and other operating costs above normal rates. Although headline inflation in the United States and Europe appears to have reached a peak, core inflation (excluding food and energy prices) remains elevated and is a source of continued cost pressure on businesses and households. Interest rates have increased significantly as central banks in developed countries attempt to subdue inflation while government deficits and debt remain at high levels in many global markets. Accordingly, the eventual implications of higher government deficits and debt, tighter monetary policy, and potentially higher long-term interest rates may drive a higher cost of capital for our business.

Current wording

Inflation and Interest Rates. We continue to see near-term impacts on our business due to inflation, including ongoing global price pressures resulting in higher energy prices, component costs, freight premiums, and other operating costs above normal rates. Although headline inflation in the United States and Europe appears to be easing, core inflation (excluding food and energy prices) remains elevated and is a source of continued cost pressure on businesses and households. Interest rates remain high as central banks in developed countries attempt to subdue inflation while government deficits and debt remain at

Previous wording

On March 28, 2023, we issued 55,000 shares of newly designated Series A Preferred Stock (the "Preferred Stock") to investors in a private placement offering at a price of $970 per share, along with 4.9 million warrants (the "Warrants") to purchase shares of our common stock, par value $0.0001 per share (the "Private Placement"), at an exercise price of $3.77 per share. The proceeds from the Private Placement were approximately $53.4 million, including approximately $10 million from existing related party stockholders. For additional detail on the Private Placement, see Note 16- Preferred Stock and Warrants to our consolidated financial statements.

Current wording

On March 28, 2023, we issued 55,000 shares of newly designated Series A Preferred Stock (the “Preferred Stock”) to investors in a private placement offering at a price of $970 per share, along with 4.9 million warrants (the “Warrants”) to purchase shares of our common stock, par value $0.0001 per share (the “Private Placement”), at an exercise price of $3.77 per share. The proceeds from the Private Placement were approximately $53.4 million, including approximately $10 million from existing related party stockholders. On June 25, 2024, we redeemed the Preferred Stock with a portion of the proceeds from the refinancing of the 2020 Credit Facility at a rate of 103% for a total of approximately $63.5 million. The Warrants remain outstanding and without modification. For additional detail on the Private Placement, see Note 16 - Preferred Stock and Warrants to our consolidated financial statements.

Previous wording

We reported a loss from operations of $24.3 million for 2023 and $48.3 million for 2022. We reported a net loss of $66.2 million for 2023 and $98.1 million for 2022.

Current wording

We reported income from operations of $16.9 million for 2024 and a loss from operations of $24.3 million for 2023. We reported a net loss of $54.2 million for 2024 and $66.2 million for 2023.

Previous wording

Our revenue was $826.3 million in 2023, comprised of $477.6 million attributable to Cloud and Edge and $348.7 million attributable to IP Optical Networks. Our revenue was $819.8 million in 2022, comprised of $508.2 million attributable to Cloud and Edge and $311.6 million attributable to IP Optical Networks. Our gross profit was $408.1 million in 2023, comprised of $300.0 million attributable to Cloud and Edge and $108.1 million attributable to IP Optical Networks. Our gross profit was $400.9 million in 2022, comprised of $310.3 million attributable to Cloud and Edge and $90.6 million attributable to IP Optical Networks. Our gross margin was 49.4% in 2023 and 48.9% in 2022. In 2023, our Cloud and Edge gross margin was 62.8% and our IP Optical Networks gross margin was 31.0%. In 2022, our Cloud and Edge gross margin was 61.1% and our IP Optical Networks gross margin was 29.1%.

Current wording

Our revenue was $833.9 million in 2024, comprised of $505.2 million attributable to Cloud and Edge and $328.7 million attributable to IP Optical Networks. Our revenue was $826.3 million in 2023, comprised of $477.6 million attributable to Cloud and Edge and $348.7 million attributable to IP Optical Networks. Our gross profit was $439.5 million in 2024, comprised of $329.2 million attributable to Cloud and Edge and $110.3 million attributable to IP Optical Networks. Our gross profit was $408.1 million in 2023, comprised of $300.0 million attributable to Cloud and Edge and $108.1 million attributable to IP Optical Networks. Our gross margin was 52.7% in 2024 and 49.4% in 2023. In 2024, our Cloud and Edge gross margin was 65.2% and our IP Optical Networks gross margin was 33.6%. In 2023, our Cloud and Edge gross margin was 62.8% and our IP Optical Networks gross margin was 31.0%. The higher revenue in 2024 compared to 2023 is due to $27.6 million of higher Cloud and Edge sales, primarily to U.S. service providers and Federal agencies, partially offset by $20.0 million of lower IP Optical Networks sales led by lower sales into Eastern Europe and India, which were partially offset by growth in the U.S. rural market.

Previous wording

Our operating expenses were $432.4 million in 2023 and $449.3 million in 2022. Our 2023 operating expenses included $28.6 million of amortization of acquired intangible assets, $4.5 million of acquisition-, disposal- and integration-related expense, and $16.2 million of restructuring and related expense. Our 2022 operating expenses included $29.6 million of amortization of acquired intangible assets, $6.3 million of acquisition-, disposal- and integration-related expense, and $10.8 million of restructuring and related expense.

Current wording

Our operating expenses were $422.6 million in 2024 and $432.4 million in 2023. Our 2024 operating expenses included $26.0 million of amortization of acquired intangible assets, and $10.2 million of restructuring and related expense. Our 2023 operating expenses included $28.6 million of amortization of acquired intangible assets, $4.5 million of acquisition-, disposal- and integration-related expense, and $16.2 million of restructuring and related expense.

Previous wording

We recorded stock-based compensation expense of $21.8 million in 2023 and $18.7 million in 2022.

Current wording

We recorded stock-based compensation expense of $16.1 million in 2024 and $21.8 million in 2023. These amounts are included as components of both Cost of revenue and Operating expenses in our consolidated statements of operations.

Previous wording

In February 2023, our Board of Directors approved the 2023 Restructuring Plan to streamline our operations in order to support our investment in critical growth areas. The 2023 Restructuring Plan includes, among other things, charges related to a workforce reduction. Any potential positions eliminated in countries outside the United States are subject to local law and consultation requirements. We recorded restructuring and related expense of$9.9 million in 2023 in connection with the 2023 Restructuring Plan for severance related costs for approximately 200 employees. We anticipate that we will record nominal future expense for severance in connection with the 2023 Restructuring Plan.

Current wording

In February 2023, our Board of Directors approved a strategic restructuring program (the “2023 Restructuring Plan”) to streamline our operations in order to support our investment in critical growth areas. The 2023 Restructuring Plan includes, among other things, charges related to a workforce reduction. Any potential positions eliminated in countries outside the United States are subject to local law and consultation requirements. In connection with the 2023 Restructuring Plan, we recorded restructuring and related expense for severance related costs of $2.0 million and $9.9 million in 2024 and 2023, respectively. We anticipate that we will record nominal future expense for severance in connection with the 2023 Restructuring Plan.

Previous wording

In February 2022, our Board of Directors approved the 2022 Restructuring Plan to streamline our operations in order to support our investment in critical growth areas. The 2022 Restructuring Plan includes, among other things, charges related to a consolidation of facilities and a workforce reduction. Any positions eliminated in countries outside the United States are subject to local law and consultation requirements. In connection with the 2022 Restructuring Plan, we recorded restructuring and related expense of $6.3 million in 2023, comprised of $5.3 million for variable and other facilities-related costs and $1.0 million for accelerated amortization of lease assets no longer being used with no ability or intent to sublease. In 2022, we recorded $10.2 million of expense for the 2022 Restructuring Plan, comprised of $3.3 million for variable and other facilities-related costs, $1.6 million for accelerated amortization of lease assets no longer being used with no ability or intent to sublease, and $5.3 million for severance and related costs for approximately 70 employees. We anticipate that we will expense $5 million in 2024 related to the 2022 Restructuring Plan.

Current wording

In February 2022, our Board of Directors approved a strategic restructuring program (the “2022 Restructuring Plan”) to streamline our operations in order to support our investment in critical growth areas. The 2022 Restructuring Plan includes, among other things, charges related to a consolidation of facilities and a workforce reduction. Any positions eliminated in countries outside the United States are subject to local law and consultation requirements. In connection with the 2022 Restructuring Plan, we recorded restructuring and related expense of $6.1 million in 2024 for variable and other facilities-related costs. In 2023, we recorded $6.3 million of expense for the 2022 Restructuring Plan, comprised of $5.3 million for variable and other facilities-related costs, and $1.0 million for accelerated amortization of lease assets no longer being used with no ability or intent to sublease. In 2022, we recorded $10.2 million of expense for the 2022 Restructuring Plan, comprised of $3.3 million for variable and other facilities-related costs, $1.6 million for accelerated amortization of lease assets no longer being used with no ability or intent to sublease, and $5.3 million for severance and related costs. We anticipate that we will expense $5 million in 2025 related to the 2022 Restructuring Plan.

Previous wording

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 $1.0 million, $1.6 million and $3.4 million of expense for accelerated rent amortization in the years ended December 31, 2023, 2022 and 2021, respectively. These amounts are included as components of Restructuring and related expense in our statements of operations, reducing our Operating lease right-of-use assets in our consolidated balance sheets at the end of each respective year. 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.

Current wording

For facilities that are part of a restructuring plan, and for which we have no intent or ability to enter into a sublease, we recognize accelerated rent amortization over the period from the date that we commence the plan to fully or partially vacate a facility through the final vacate date. We did not record accelerated rent amortization in 2024. We recorded $1.0 million and $1.6 million for accelerated rent amortization in the years ended December 31, 2023 and 2022, respectively. We continue to evaluate our properties included in our restructuring plans for accelerated amortization and/or right-of-use asset impairment. We may incur additional expense in the future if we are unable to sublease other locations included in these initiatives.

Previous wording

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 using all observable transactions, including when products and services are sold on a standalone basis.

Current wording

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 our proprietary hardware and software 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 (“SSP”) basis.

Previous wording

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.

Current wording

The software licenses typically provide a perpetual right to use our software. However, 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 related to our perpetual licenses is typically recognized 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. The product revenue related to our term-based software licenses is recognized over the license period. We begin to recognize revenue related to the renewal of term-based software licenses at the start of the renewal period. Revenue related to our SaaS-based software is recognized ratably over the service period as the customer does not take possession of the software or have the ability to take possession of the software.

Previous wording

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, 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.

Current wording

We generally use the input method to measure progress for our contracts and to recognize revenue because we believe this method, in general, best depicts the transfer of assets to the customer. The input method measures costs we have incurred in the period for the contracts. In some infrequent instances, we may engage a third-party to perform services for us and in those cases, we use the output method to recognize revenue because it best depicts the transfer of assets to the customer. Under the output method, there is a 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 can include internal labor as well as subcontractor costs.

Previous wording

We offer customer training courses, for which the related revenue is typically recognized as the training services are performed.

Current wording

We offer customer training courses, for which the related revenue is typically recognized over the period the training services are performed, typically over one to five days.

Previous wording

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, we may use information such as the size of the customer and geographic region in determining the SSP.

Current wording

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, current pricing practices, product specific business objectives, the cost to provide the performance obligation, and other observable inputs. We typically have more than one SSP

Previous wording

We grant performance-based stock units, some of which include a market condition, to certain of our executives and certain other employees. 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. We are required to record expense through the respective final vesting dates regardless of the number of shares that are ultimately earned. Once the grant date criteria have been met for a fiscal year performance period, we record stock-based compensation expense based on our 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 our financial results for each fiscal year performance period are finalized. Upon determination by the Compensation Committee of the number of shares that will be received upon vesting, such number of shares becomes fixed and the unamortized expense is recorded through the remainder of the service period, at which time any performance-based stock units earned will vest pending each executive's continued employment with us through that date.

Current wording

We grant performance-based stock units, some of which include a market condition, to certain of our executives and certain other employees. 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. We are required to record expense through the respective final vesting dates regardless of the number of shares that are ultimately earned. Once the grant date criteria have been met for a fiscal year performance period, we record stock-based compensation expense based on our 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 our financial results for each fiscal year performance period are finalized. Upon determination by the Compensation Committee of the number of shares that will be received upon vesting, such number of shares becomes fixed and the unamortized expense is recorded through the remainder of the service period, at which time any performance-based stock units earned will vest pending each employee’s continuing employment with us through that date.

Previous wording

Preferred Stock and Warrants. We account for the Preferred Stock and Warrants as liability-classified instruments based on an assessment of their specific terms in accordance with ASC Topic 480, Distinguishing Liabilities from Equity. The fair value option was elected for the Preferred Stock, as we consider fair value to best reflect the expected future economic value. These liabilities are remeasured to fair value at each reporting date using the same valuation methodology applied upon issuance. The Preferred Stock is considered to be debt for our Consolidated Net Leverage Ratio covenant calculation required under our 2020 Credit Facility.

Current wording

Preferred Stock and Warrants. We accounted for the Preferred Stock until it was redeemed on June 25, 2024 and we continue to account for the Warrants as liability-classified instruments based on an assessment of their specific terms in accordance with ASC Topic 480,Distinguishing Liabilities from Equity. The fair value option was elected for the Preferred Stock, as we considered fair value to best reflect its expected future economic value. These liabilities are remeasured to fair value at each reporting date using the same valuation methodology applied upon issuance using current input assumptions. The Preferred Stock was considered to be debt for our Consolidated Net Leverage Ratio covenant calculation required under our 2020 Credit Facility.

Previous wording

We perform a fair value analysis for each reporting unit using both an income and market approach, which encompasses a discounted cash flow analysis and a guideline public company analysis using selected multiples. We assesse 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 our consolidated statements of operations.

Current wording

We perform a fair value analysis for each reporting unit 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. Any impairment charges are reported separately in our consolidated statements of operations.

Previous wording

Based upon the completion of our 2023 and 2022 annual test for goodwill impairment, we determined that there was no impairment of goodwill for either of our reporting units. The results of our 2021 impairment test determined that the carrying value of our IP Optical Networks segment exceeded its fair value. The amount of the impairment of $116.0 million was recorded in the fourth quarter of 2021 and 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 in 2021.

Current wording

Based upon the completion of our 2024, 2023, and 2022 annual tests for goodwill impairment, we determined that there was no impairment of goodwill for either of our reporting units.

Previous wording

Leases. We account for our leases in accordance with Accounting Standards Codification ("ASC") 842, Leases ("ASC 842"). We have operating leasesfor corporate offices, and research and development facilities and historically had finance leases for certain equipment. Operating leases are reported separately in our consolidated balance sheets. Assets acquired under finance leases, if any, are included in Property and equipment, net, in the consolidated balance sheets.

Current wording

Leases. We account for our leases in accordance with Accounting Standards Codification (“ASC”) 842,Leases (“ASC 842”). We have operating leases for corporate offices, and research and development facilities and historically had finance leases for certain equipment. Operating leases are reported separately in our consolidated balance sheets. Assets acquired under finance leases, if any, are included in Property and equipment, net, in the consolidated balance sheets.

Previous wording

The increase in our product revenue in 2023 compared to 2022 was primarily the result of $33 million of higher sales of our IP Optical Networks products, offset by $31 million of lower sales of our Cloud and Edge products. The increase in revenue from the sale of IP Optical Networks products was primarily attributable to higher sales in India and the U.S. markets following the introduction of new products and capabilities, including support for Long Haul Optical Transport, 5G Cell Site Routers, and a new series of IP Routers. The decrease in revenue from the sale of Cloud and Edge products was primarily attributable to lower sales to U.S. Tier One service providers, partially offset by increased sales to Enterprise customers, including U.S. Federal agencies to support voice network modernization.

Current wording

The increase in our product revenue in 2024 compared to 2023 was primarily the result of $26 million of higher sales of our Cloud and Edge products, partially offset by $24 million of lower sales of our IP Optical products. The increase in revenue from the sale of Cloud and Edge products was primarily attributable to sales into U.S. service providers, U.S. Federal agencies and global enterprise customers. The decrease in revenue from the sale of IP Optical products was primarily attributable to lower sales in Eastern Europe and India.

Previous wording

Revenue from sales to enterprise customers was 32% and 28% of our product revenue in 2023 and 2022, respectively. These sales were made through both our direct sales team and indirect sales channel partners.

Current wording

Revenue from sales to enterprise customers was 39% and 32% of our product revenue in 2024 and 2023, respectively. These sales were made through both our direct sales team and indirect sales channel partners. The increase in enterprise sales reflects stronger sales of our products to customers in Federal agencies.

Previous wording

Revenue from indirect sales through our channel partner program was 35% and 30% of our product revenue in 2023 and 2022, respectively. The increase in channel sales reflects stronger deployments through systems integrators as well as sell-through from our Service Provider channel partners.

Current wording

Revenue from indirect sales through our channel partner program was 38% and 35% of our product revenue in 2024 and 2023, respectively. The increase in channel sales in 2024 reflects stronger IP Optical Networks deployments through systems integrators as well as sell-thru service provider channel partners in Eastern Europe.

Previous wording

Revenue earned from customers domiciled outside the United States was 58% and 57% of total revenue in 2023 and 2022, respectively. 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, 2023 and 2022 was disaggregated geographically as follows (in thousands):

Current wording

Revenue earned from customers domiciled outside the United States was 53% and 58% of total revenue in 2024 and 2023, respectively. U.S. revenue is increasing due to higher sales into the U.S. market from both the Cloud and Edge and IP Optical Networks segments. 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, 2024 and 2023 was disaggregated geographically as follows (in thousands):

Previous wording

Our deferred product revenue was$17 millionat December 31, 2023 and$29 million at December 31, 2022. Our deferred service revenue was$116 million at December 31, 2023 and $104 million at December 31, 2022. 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.

Current wording

Our deferred product revenue was $14 million at December 31, 2024 and $17 million at December 31, 2023. Our deferred service revenue was $126 million at December 31, 2024 and $116 million at December 31, 2023. 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.

Previous wording

We expect that our total revenue in 2024 will increase compared to our 2023 total revenue as our IP Optical sales continue to grow. From a regional perspective, we anticipate continued IP Optical revenue growth in 2024 from North America, Europe, the Middle East and Africa, and Central and Latin America. In the Cloud & Edge segment, we anticipate continued growth in Enterprise including U.S. Federal agencies, offsetting lower spending from U.S. service providers.

Current wording

We expect that our total revenue in 2025 will increase compared to our revenue in 2024 due to the growth in the Cloud & Edge segment, particularly with the increased purchases from Verizon as part of a voice modernization project, as well as growth in IP Optical segment sales. From a regional perspective, we anticipate continued IP Optical revenue growth in 2025 from North America, and EMEA, offset by lower revenue in Eastern Europe due to additional trade restrictions. In the Cloud & Edge segment, we expect continued revenue growth from enterprise customers, as well as higher U.S. service provider spending.

Previous wording

Our gross margin was slightly higher with a 0.5 percentage point increase in 2023 compared to 2022. This increase was the result of higher margins in both of our segments. The higher margin in our IP Optical segment was due to higher sales volume, favorable mix, lower product costs and royalties, and improved absorption of fixed costs from higher sales. The higher margin in our Cloud and Edge segment was primarily attributable to favorable product mix and lower product costs, including lower amortization of acquired technology costs.

Current wording

Our gross margin was 3.3 percentage points higher in 2024 compared to 2023. This increase was the result of higher margins in both of our segments. The higher margin in our IP Optical segment was due to favorable regional mix, partially offset by lower sales volume and higher royalties. The higher margin in our Cloud and Edge segment was primarily attributable to favorable product mix and lower costs associated with an increase in software sales.

Previous wording

We believe that our IP Optical Networks segment gross margin will improve in 2024 compared to 2023. Our overall consolidated gross margin may decrease in 2024 as a result of higher expected sales from IP Optical Networks, which has lower margins due to the higher hardware content in its products and higher production costs.

Current wording

We expect our overall consolidated gross margin to decrease slightly in 2025 due to higher expected sales in our IP Optical segment, which has lower margins due to the higher hardware content in its products, as well as the higher mix of professional services revenue in our Cloud and Edge segment which generates lower gross margins than product sales.

Previous wording

The decrease in our research and development expenses in 2023 compared to 2022 was primarily attributable to approximately $8 million of lower expenses in our IP Optical Networks segment and approximately $5 million of lower expenses in our Cloud and Edge segment. The reduced expenses are a combination of lower employee headcount and outside subcontractors.

Current wording

The decrease in our research and development expenses in 2024 compared to 2023 was primarily attributable to approximately $9 million of lower expenses in our IP Optical Networks segment and approximately $2 million of lower expenses in our Cloud and Edge segment. The reduced expenses are a combination of lower employee headcount and outside subcontractors resulting from the cost savings implemented in the 2023 Restructuring Plan.

Previous wording

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 will continue to decrease modestly in 2024, with reduced investment in both segments in areas such as sustaining engineering, as well as a full year benefit of the cost savings implemented in the 2023 Restructuring Plan.

Current wording

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 will increase modestly in 2025 primarily due to higher employee and consulting costs related to modifying certain legacy products and certain of our cloud native solutions.

Previous wording

We believe that our general and administrative expenses in 2024 will increase slightly compared to our 2023 levels, primarily due to higher employee costs and as a result of inflation.

Current wording

We believe that our general and administrative expenses in 2025 will decrease compared to our 2024 levels, primarily due to lower litigation expenses, partially offset by higher employee costs related to annual merit increases.

Previous wording

We recorded $4.5 million of acquisition-, disposal- and integration-related expenses in 2023 compared to $6.3 million in 2022. These costs were related to integration following the ECI Acquisition and included license fees for systems in the process of being retired.

Current wording

We recorded no such expenses in 2024 compared to $4.5 million recorded in 2023. These costs were related to integration following the Company’s acquisition of ECI and included license fees for systems in the process of being retired.

Previous wording

Restructuring and Related. We are 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 MD&A.

Current wording

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 MD&A.

Previous wording

We recorded restructuring and related expense of $16.2 million in 2023, comprised of $9.9 million for severance and related costs, and $6.3 million for variable and other facilities-related costs, including $1.0 million of net expense for the accelerated amortization of lease assets. We recorded $10.8 million of restructuring and related expense in 2022, comprised of $5.3 million for severance and related costs, and $5.5 million for variable and other facilities-related costs, including $1.6 million of net expense for the accelerated amortization of lease assets. 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.

Current wording

million, comprised of $9.9 million for severance and related costs, and $6.3 million for variable and other facilities-related costs, including $1.0 million of net expense for the accelerated amortization of lease assets. 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.

Previous wording

Other (Expense) Income, Net. We recorded other expense, net, aggregating $3.8 million in 2023, primarily comprised ofthe $5.3 million fair value adjustment of our Preferred Stock and Warrants, including dividends on the Preferred Stock, and $3.5 million of costs incurred in the Private Placement, partially offset by the gain of $7.3 million recognized from Accumulated other comprehensive income in connection with the sale of our interest rate swap. We recorded other expense, net of $44.5 million in 2022, primarily comprised of $41.3 million of losses resulting from the change in the fair value of the AVCT Investment.

Current wording

Other (Expense) Income, Net. Our other expense, net in 2024 was $29.1 million and was primarily comprised of $9.1 of fair value adjustments to the Preferred Stock and Warrants, $2.7 of accrued dividends and the $1.8 million call premium on our Preferred Stock that we redeemed on June 25, 2024, the $6.3 million write-off of an expired tax indemnity asset associated with the ECI Acquisition, and foreign currency exchange losses of $5.7 million. We recorded other expense, net, aggregating $3.8 million in 2023, primarily comprised of $5.3 million fair value adjustments for our Preferred Stock and Warrants, including dividends on the Preferred Stock, and $3.5 million of costs incurred in the Private Placement, partially offset by the gain of $7.3 million recognized from Accumulated other comprehensive income in connection with the sale of our interest rate swap.

Previous wording

Income Taxes. We recorded an income tax provision of $10.8 million and income tax benefit of $14.5 million in 2023 and 2022, respectively. The change from a tax benefit in 2022 to a tax provision in 2023 is a result of changes in the jurisdictional mix of pre-tax book income between those jurisdictions that have a valuation allowance and those that do not.

Current wording

Income Taxes. We recorded an income tax provision of $8.2 million and $10.8 million in 2024 and 2023, respectively.

Previous wording

During 2023 and 2022, 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 2023, 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 $23.9 million. As a result of our evaluations for Israel, we maintained a full valuation allowance against our net deferred tax assets in Israel.

Current wording

During 2024 and 2023, 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 2024, 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 $18.6 million. As a result of our evaluations for Israel, we maintained a full valuation allowance against our net deferred tax assets in Israel.

Previous wording

We had cash and cash equivalents aggregating$27 million and $67 million at December 31, 2023 and 2022, respectively. We had cash held by our non-U.S. subsidiaries aggregating approximately$16 million and $15 million at December 31, 2023 and 2022, respectively. If we elect to repatriate all of the funds held by our non-U.S. subsidiaries as of December 31, 2023, 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.

Current wording

We had cash, cash equivalents, and restricted cash aggregating $90 million and $27 million at December 31, 2024 and 2023, respectively. We had cash held by our non-U.S. subsidiaries aggregating approximately $18 million and $16 million at December 31, 2024 and 2023, respectively. If we elect to repatriate all of the funds held by our non-U.S. subsidiaries as of December 31, 2024, 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.