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 expansion of, and the threat of continued 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.

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 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 be decreasing, 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. However, in September 2024, the Federal Reserve’s Federal Open Market Committee lowered the target range for the federal funds rate by 0.5% to 4.75% to 5%, noting that it has gained greater confidence that inflation is moving sustainability toward the Committee’s two percent objective. Yet, the economic outlook remains uncertain, and the 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.

Previous wording

We reported a loss from operations of $1.9 million and $6.6 million for the three months ended June 30, 2024 and 2023, respectively. We reported a loss from operations of $15.4 million and $41.8 million for the six months ended June 30, 2024 and 2023, respectively.

Current wording

We reported a loss from operations of $0.9 million and income from operations of $0.9 million for the three months ended September 30, 2024 and 2023, respectively. We reported a loss from operations of $16.3 million and $41.0 million for the nine months ended September 30, 2024 and 2023, respectively.

Previous wording

Our revenue was $192.6 million and $210.6 million in the three months ended June 30, 2024 and 2023, respectively. Our gross profit and gross margin were $97.9 million and 50.8%, respectively, in the three months ended June 30, 2024, and $101.5 million and 48.2%, respectively, in the three months ended June 30, 2023. The lower revenue in the three months ended June 30, 2024 compared to 2023 is due to$14.7 million of lower Cloud and Edge sales, primarily to enterprise customers and$3.3 million of lower IP Optical Networks sales. Our revenue was $372.3 million and $396.8 million in the six months ended June 30, 2024 and 2023, respectively. Our gross profit and gross margin were $189.8 million and 51.0%, respectively, in the six months ended June 30, 2024, and $182.9 million and 46.1%, respectively, in the six months ended June 30, 2023. The lower revenue in the six months ended June 30, 2024 compared to 2023 is due to$27.5 million of lower Cloud and Edge sales, primarily to U.S. service providers, partially offset by $3.0 million of higher IP Optical Networks sales.

Current wording

Our revenue was $210.2 million and $203.2 million in the three months ended September 30, 2024 and 2023, respectively. Our gross profit and gross margin were $109.6 million and 52.1%, respectively, in the three months ended September 30, 2024, and $103.5 million and 50.9%, respectively, in the three months ended September 30, 2023. The higher revenue in the three months ended September 30, 2024 compared to 2023 is due to $12.3 million of higher Cloud and Edge sales, primarily to U.S. service providers and Federal agencies, partially offset by $5.2 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. Our revenue was $582.5 million and $599.9 million in the nine months ended September 30, 2024 and 2023, respectively. Our gross profit and gross margin were $299.4 million and 51.4%, respectively, in the nine months ended September 30, 2024, and $286.4 million and 47.7%, respectively, in the nine months ended September 30, 2023. The lower revenue in the nine months ended September 30, 2024 compared to 2023 is due to $15.2 million of lower Cloud and Edge sales to both U.S. service providers and enterprise customers overall, partially offset by higher Federal agency sales, and $2.2 million of lower IP Optical Networks sales.

Previous wording

Revenue from our Cloud and Edge segment was$110.6 million and $125.3 million in the three months ended June 30, 2024 and 2023, respectively. Gross profit and gross margin for this segment were$70.4 million and 63.7%, respectively, in the three months ended June 30, 2024, and $79.3 million and 63.3%, respectively, in the three months ended June 30, 2023. Revenue from our Cloud and Edge segment was$212.2 million and$239.7 million in the six months ended June 30, 2024 and 2023, respectively. Gross profit and gross margin for this segment were$134.9 million and 63.6%, respectively, in the six months ended June 30, 2024, and$145.4 million and 60.7%, respectively, in the six months ended June 30, 2023.

Current wording

Revenue from our Cloud and Edge segment was $128.1 million and $115.8 million in the three months ended September 30, 2024 and 2023, respectively. Gross profit and gross margin for this segment were $84.3 million and 65.9%, respectively, in the three months ended September 30, 2024, and $74.7 million and 64.6%, respectively, in the three months ended September 30, 2023. Revenue from our Cloud and Edge segment was $340.3 million and $355.5 million in the nine months ended September 30, 2024 and 2023, respectively. Gross profit and gross margin for this segment were $219.2 million and 64.4%, respectively, in the nine months ended September 30, 2024, and $220.1 million and 61.9%, respectively, in the nine months ended September 30, 2023.

Previous wording

Revenue from our IP Optical Networks segment was$82.1 million and $85.4 million in the three months ended June 30, 2024 and 2023, respectively. Gross profit and gross margin for this segment were$27.4 million and 33.4%, respectively, in the three months ended June 30, 2024, and $22.1 million and 25.9%, respectively, in the three months ended June 30, 2023. Revenue from our IP Optical Networks segment was$160.1 million and$157.0 million in the six months ended June 30, 2024 and 2023, respectively. Gross profit and gross margin for this segment were$55.0 million and 34.3%, respectively, in the six months ended June 30, 2024, and$37.5 million and 23.9%, respectively, in the six months ended June 30, 2023.

Current wording

Revenue from our IP Optical Networks segment was $82.2 million and $87.4 million in the three months ended September 30, 2024 and 2023, respectively. Gross profit and gross margin for this segment were $25.3 million and 30.8%, respectively, in the three months ended September 30, 2024, and $28.8 million and 32.9%, respectively, in the three months ended September 30, 2023. Revenue from our IP Optical Networks segment was $242.2 million and $244.4 million in the nine months ended September 30, 2024 and 2023, respectively. Gross profit and gross margin for this segment were $80.2 million and 33.1%, respectively, in the nine months ended September 30, 2024, and $66.2 million and 27.1%, respectively, in the nine months ended September 30, 2023.

Previous wording

Our operating expenses were $99.8 million and $108.1 million in the three months ended June 30, 2024 and 2023, respectively, and $205.2 million and $224.7 million in the six months ended June 30, 2024 and 2023, respectively. The decreased operating expenses are primarily related to lower research and development ("R&D") and restructuring related expenses. Operating expenses for the three months ended June 30, 2024 included $6.5 million of amortization of acquired intangible assets, and $1.9 million of restructuring and related expense. Operating expenses for the three months ended June 30, 2023 included $7.3 million of amortization of acquired intangible assets, $0.5 million of acquisition-, disposal- and integration-related expense, and $4.3 million of restructuring and related expense. Operating expenses for the six months ended June 30, 2024 included $13.2 million of amortization of acquired intangible assets, and $5.0 million of restructuring and related expense. Operating expenses for the six months ended June 30, 2023 included $14.5 million of amortization of acquired intangible assets, $2.1 million of acquisition-, disposal- and integration-related expense, and $11.2 million of restructuring and related expense.

Current wording

Our operating expenses were $110.5 million and $102.6 million in the three months ended September 30, 2024 and 2023, respectively, and $315.8 million and $327.3 million in the nine months ended September 30, 2024 and 2023, respectively. The increased operating expenses in the three months ended September 30, 2024 compared to 2023 are primarily related to a $5.0 million legal settlement and associated legal fees related to certain specific legal matters. Operating expenses for the three months ended September 30, 2024 included $6.5 million of amortization of acquired intangible assets, and $3.8 million of restructuring and related expense. Operating expenses for the three months ended September 30, 2023 included $7.2 million of amortization of acquired intangible assets, $0.8 million of acquisition-, disposal- and integration-related expense, and $2.7 million of restructuring and related expense. The decreased operating expenses in the nine months ended September 30, 2024 compared to 2023 are primarily related to lower restructuring and related expense, acquisition-, disposal- and integration-related expense and amortization of acquired intangible assets. Operating expenses for the nine months ended September 30, 2024 included $19.7 million of amortization of acquired intangible assets, and $8.8 million of restructuring and related expense. Operating expenses for the nine months ended September 30, 2023 included $21.7 million of amortization of acquired intangible assets, $3.0 million of acquisition-, disposal- and integration-related expense, and $13.9 million of restructuring and related expense.

Previous wording

We recorded stock-based compensation expense of $3.5 million and $6.1 million in the three months ended June 30, 2024 and 2023, respectively, and $8.0 million and $12.0 million in the six months ended June 30, 2024 and 2023, respectively.

Current wording

We recorded stock-based compensation expense of $4.0 million and $5.0 million in the three months ended September 30, 2024 and 2023, respectively, and $12.1 million and $16.9 million in the nine months ended September 30, 2024 and 2023, respectively. These amounts are included as components of both Cost of revenue and Operating expenses in our condensed consolidated statements of operations.

Previous wording

See "Results of Operations" in this MD&A for a discussion of the changes in our revenue and expenses for the three and six months ended June 30, 2024 compared to the three and six months ended June 30, 2023.

Current wording

See "Results of Operations" in this MD&A for a discussion of the changes in our revenue and expenses for three and nine months ended September 30, 2024 compared to three and nine months ended September 30, 2023.

Previous 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. We recorded restructuring and related expense of$0.4 million and$2.0 million in the three and six months ended June 30, 2024, in connection with the 2023 Restructuring Plan for severance related costs. 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 $0.1 million and $2.1 million in the three and nine months ended September 30, 2024, respectively, and $0.9 million and $9.4 million in three and nine months ended September 30, 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 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 $1.6 million and $3.0 million in the three and six months ended June 30, 2024, respectively. The amount for both the three and six months ended June 30, 2024 was related to variable and other facilities-related costs. We anticipate that we will record approximately $3 million of expense in the remainder of 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 $1.5 million and $4.5 million in the three and nine months ended September 30, 2024, respectively, for variable and other facilities-related costs, and we recorded restructuring and related expense of $1.9 million and $4.6 million in the three and nine months ended September 30, 2023, respectively. The amount for the three months ended September 30, 2023 was

Previous wording

For facilities that are part of a restructuring plan, 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 thethree and six months ended June 30, 2024. We recorded$0.4 million and $0.6 millionof accelerated rent amortization in thethree and six months ended June 30, 2023, 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 future expense if we are unable to sublease other locations included in these initiatives.

Current wording

For facilities that are part of a restructuring plan, 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 the three and nine months ended September 30, 2024. We recorded $0.2 million and $0.8 million for accelerated rent amortization in the three and nine months ended September 30, 2023, 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 future expense if we are unable to sublease other locations included in these initiatives.

Previous wording

The decrease in our product revenue in the three months ended June 30, 2024 compared to the three months ended June 30, 2023 was the result of$13 million of lower salesof our Cloud and Edge products and $5 million of lower sales of our IP Optical Networks products. The decrease in our product revenue in the six months ended June 30, 2024 compared to the six months ended June 30, 2023 was due to $24 million of lower salesof our Cloud and Edge products, partially offset by slightly higher sales of our IP Optical Networks products. The decrease in revenue from the sale of Cloud and Edge products in the three months ended June 30, 2024 was attributable to $8 million of lower sales to enterprise customers, including a slight delay in sales to a U.S. Federal agency to support voice network modernization that is now expected in the third quarter of 2024, and $4 million of lower sales to U.S. service providers. The decrease in revenue from the sale of IP Optical Networks products in the three months ended June 30, 2024 was attributable to $14 million of lower sales to service providers, partially offset by $9 million of higher sales to enterprise customers. The slight increase in revenue from the sale of IP Optical Networks products in the six months ended June 30, 2024 was attributable to $17 million of higher sales to enterprise customers, offset by just under $17 million of lower sales to service providers.

Current wording

The increase in our product revenue in the three months ended September 30, 2024 compared to the three months ended September 30, 2023 was the result of $11 million of higher sales of our Cloud and Edge products, partially offset by $7 million of lower sales of our IP Optical Networks products. The decrease in our product revenue in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 was due to $13 million of lower sales of our Cloud and Edge products and $7 million of lower sales of our IP Optical Networks products. The increase in revenue from the sale of Cloud and Edge products in the three months ended September 30, 2024 was attributable to higher sales to U.S. service providers and Federal agencies. The decrease in revenue from the sale of IP Optical Networks products in the three months ended September 30, 2024 was attributable to lower sales into Eastern Europe and India, partially offset by higher sales in the U.S. rural market. The decrease in revenue from the sale of Cloud and Edge products in the nine months ended September 30, 2024 was attributable to lower sales to both U.S. service providers and enterprise customers overall, partially offset by higher sales to Federal agencies for network transformation projects. The decrease in revenue from the sale of IP Optical Networks products in the nine months ended September 30, 2024 was attributable to lower sales into India, partially offset by higher sales in Europe, the Middle East and Africa (“the EMEA region”).

Previous wording

Revenue from sales to enterprise customers was 38% and 32% of our product revenue in the three months ended June 30, 2024 and 2023, respectively. These sales were made through both our direct sales team and indirect sales channel partners. Revenue from sales to enterprise customers was 41% and 31% in the six months ended June 30, 2024 and 2023, respectively. The increase in enterprise sales reflects stronger sales of our products to customers in the government sector.

Current wording

Revenue from sales to enterprise customers was 36% and 30% of our product revenue in the three months ended September 30, 2024 and 2023, respectively. These sales were made through both our direct sales team and indirect sales channel partners. Revenue from sales to enterprise customers was 39% and 30% in the nine months ended September 30, 2024 and 2023, respectively. The increase in enterprise sales reflects stronger sales of our products to customers in the Federal agencies.

Previous wording

Revenue from indirect sales through our channel partner program was 32% of our product revenue in both the three months ended June 30, 2024 and 2023 and 41% and 35% of our product revenue in the six months ended June 30, 2024 and 2023, respectively. The increase in channel sales in the six months ended June 30, 2024 reflects stronger IP Optical Networks deployments through systems integrators as well as sell-thru our service provider channel partners in Eastern Europe.

Current wording

Revenue from indirect sales through our channel partner program was 34% and 33% of our product revenue in the three months ended September 30, 2024 and 2023, respectively, and 38% and 34% of our product revenue in the nine months ended September 30, 2024 and 2023, respectively. The increase in channel sales in the nine months ended September 30, 2024 reflects stronger IP Optical Networks deployments through systems integrators as well as sell-thru our service provider channel partners in Eastern Europe.

Previous wording

Service revenue for the three and six months ended June 30, 2024 and 2023 was comprised of the following (in thousands, except percentages):

Current wording

Service revenue for the three and nine months ended September 30, 2024 and 2023 was comprised of the following (in thousands, except percentages):

Previous wording

Segment service revenue for the three and six months ended June 30, 2024 and 2023 was comprised of the following (in thousands):

Current wording

Segment service revenue for the three and nine months ended September 30, 2024 and 2023 was comprised of the following (in thousands):

Previous wording

Maintenance revenue waslower in the three and six months ended June 30, 2024 compared to the three and six months ended June 30, 2023 primarily due to modestly lower renewal rates from decommissioning some older legacy equipment with several Cloud & Edge customers andthe timing of renewals in the IP Optical Networks segment.

Current wording

Maintenance revenue was lower in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 primarily due to modestly lower renewal rates from decommissioning some older legacy equipment with several Cloud & Edge customers.

Previous wording

Professional services revenue washigherin the three and six months ended June 30, 2024 compared to the same periods in 2023 primarily due to growing sales of IP Optical Networks services in the EMEA region.

Current wording

Professional services revenue was higher in the three and nine months ended September 30, 2024 compared to the same periods in 2023 primarily due to increased sales of Cloud and Edge services to U.S. service providers and a U.S. Federal agency for voice modernization projects and growing sales of IP Optical Networks services in the EMEA region.

Previous wording

The following customer contributed 10% or more of our revenue in the three and six months ended June 30, 2024 and 2023:

Current wording

The following customer contributed 10% or more of our revenue in the three and nine months ended September 30, 2024 and 2023:

Previous wording

Revenue from customers domiciled outside the United States was 58% and 53%in the three months ended June 30, 2024 and 2023, respectively, and 59% and 54% of revenue in the six months ended June 30, 2024 and 2023, respectively. Due to the timing of project completions, we expect that the domestic and international components as a percentage of revenue may fluctuate from quarter to quarter and year to year.

Current wording

Networks segments. Due to the timing of project completions, we expect that the domestic and international components as a percentage of revenue may fluctuate from quarter to quarter and year to year.

Previous wording

Our deferred product revenue was$10 millionand$17 millionat June 30, 2024 and December 31, 2023, respectively. Our deferred service revenue was$106 million and$116 million at June 30, 2024 and December 31, 2023, respectively. 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 $13 million and $17 million at September 30, 2024 and December 31, 2023, respectively. Our deferred service revenue was $100 million and $116 million at September 30, 2024 and December 31, 2023, respectively. 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 revenue primarily due to a stronger second half in both business segments, particularly with increased purchases from Verizon as part of a voice modernization project. From a regional perspective, we anticipate continued IP Optical Networks revenue growth in 2024 from North America, Europe, the Middle East and Africa, offset by lower revenue in Eastern Europe due to additional trade restrictions with this region. In the Cloud & Edge segment, we anticipate growth in enterprise, including U.S. Federal agencies, along with U.S. service provider spending that was lower in the first half of 2024, but is expected to rebound in the second half of the year.

Current wording

We expect that our total revenue in 2024 will increase modestly compared to our revenue in 2023 due to growth in the Cloud & Edge segment, particularly with the increased purchases from Verizon as part of a voice modernization project, as well as increased sales to Federal agencies, offset by lower revenue from our IP Optical segment. From a regional perspective, we anticipate continued IP Optical Networks revenue growth in 2024 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, including U.S. Federal agencies, as well as higher U.S. service provider spending.

Previous wording

Cost of Revenue/Gross Margin. Our cost of revenue consists primarily of amounts paid to third-party manufacturers for purchased materials and services, royalties, amortization of acquired technology, inventory valuation adjustments, warranty costs, and manufacturing and services personnel and related costs. Our cost of revenue, gross profit and gross margin for the three and six months ended June 30, 2024 and 2023 were as follows (in thousands, except percentages):

Current wording

Cost of Revenue/Gross Margin. Our cost of revenue consists primarily of amounts paid to third-party manufacturers for purchased materials and services, royalties, amortization of acquired technology, inventory valuation adjustments, warranty costs, and manufacturing and services personnel and related costs. Our cost of revenue, gross profit and gross margin for the three and nine months ended September 30, 2024 and 2023 were as follows (in thousands, except percentages):

Previous wording

Our segment cost of revenue, gross profit and gross margin for the three and six months ended June 30, 2024 and 2023 were as follows (in thousands, except percentages):

Current wording

Our segment cost of revenue, gross profit and gross margin for the three and nine months ended September 30, 2024 and 2023 were as follows (in thousands, except percentages):

Previous wording

Our gross margin was higher with a 3% increase overall in the three months ended June 30, 2024 compared to the three months ended June 30, 2023, due to an 8% increase in our IP Optical Networks segment and a slight increase in our Cloud & Edge segment. Our gross margin increased 5% in the six months ended June 30, 2024 compared to the same period in 2023 due to a 10% increase in our IP Optical Networks segment and a 3% increase in our Cloud & Edge segment. The higher margins in our IP Optical Networks segment were primarily attributable to favorable customer and product mix along with lower material, labor and royalty costs. Our Cloud and Edge segment's gross margin for the six months ended June 30, 2024 increased primarily due tofavorable product mix and lower amortization of acquired technology costs.

Current wording

Our gross margin was higher with a 1% increase overall in the three months ended September 30, 2024 compared to the three months ended September 30, 2023, due to a 1% increase in our Cloud & Edge segment, partially offset by a 2% decrease in our IP Optical Networks segment. Our gross margin increased 4% in the nine months ended September 30, 2024 compared to the same period in 2023 due to a 6% increase in our IP Optical Networks segment and a 3% increase in our Cloud & Edge segment. The higher margin in the nine months ended September 30, 2024 in our IP Optical Networks segment was primarily attributable to favorable customer and product mix along with lower material and labor costs. Our Cloud and Edge segment’s gross margin for the nine months ended September 30, 2024 increased primarily due to favorable product mix and lower amortization of acquired technology costs.

Previous wording

We believe that our IP Optical Networks segment gross margin will maintain approximate current levels dependent on customer and product mix for the remainder of 2024. Our overall corporate gross margin in 2024 is expected to be very similar compared to 2023 with the Cloud & Edge revenue growing in the second half of the year, which has higher margins due to the higher software content in its products.

Current wording

We expect gross margin in our IP Optical Networks segment to increase slightly in the fourth quarter of 2024. We expect our overall corporate gross margin in 2024 to be slightly higher compared to 2023 due to increased revenue from our Cloud & Edge segment and its higher margins due to the higher software content in its products, along with slightly higher margins from our IP Optical Networks segment due to favorable customer and product mix.

Previous wording

Research and Development. R&D expenses consist primarily of salaries and related personnel expenses and prototype costs for the design, development, testing, and enhancement of our products. R&D expenses for the three and six months ended June 30, 2024 and 2023 were as follows (in thousands, except percentages):

Current wording

Research and Development. R&D expenses consist primarily of salaries and related personnel expenses and prototype costs for the design, development, testing, and enhancement of our products. R&D expenses for the three and nine months ended September 30, 2024 and 2023 were as follows (in thousands, except percentages):

Previous wording

The decrease in our R&D expenses in the three and six months ended June 30, 2024 compared to the three and six months ended June 30, 2023 was attributable tolower expenses in both of our segments. However, our IP Optical Networks segment contributed the most to the improvement by decreasing costs by $3 million and $8 million in the three and six months ended June 30, 2024, respectively. The reduced expenses are a combination oflower employee headcount and outside subcontractors resulting from the cost savings implemented in the 2023 Restructuring Plan.

Current wording

The decrease in our R&D expenses in the three and nine months ended September 30, 2024 compared to the three and nine months ended September 30, 2023 was attributable to lower expenses in both of our segments. However, our IP Optical Networks segment contributed the most to the improvement by decreasing costs by under $1 million and $8 million in the three and nine months ended September 30, 2024, respectively. The reduced expenses are a combination

Previous wording

Our IP Optical Networks R&D investment is focused on significantly expanding our portfolio of IP Routing solutions, adding additional features and capabilities to our Optical Transport portfolio, and supporting features in our next generation

Current wording

Our IP Optical Networks R&D investment is focused on significantly expanding our portfolio of IP Routing solutions, adding additional features and capabilities to our Optical Transport portfolio, and supporting features in our next generation SDN management and orchestration platform.

Previous wording

Some aspects of our R&D efforts require significant short-term expenditures, the timing of which may cause 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 slightly in the second half of 2024 primarily due to annual employee compensation adjustments. However, we do expect that 2024 R&D expenses will be lower than 2023 overall, with reduced investment in both segments in areas such as sustaining engineering, as well as a full year benefit from 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 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. However, we do expect that 2024 R&D expenses will be lower than 2023 overall, with reduced investment in both segments in areas such as sustaining engineering, as well as a full year benefit from the cost savings implemented in the 2023 Restructuring Plan.

Previous wording

Sales and Marketing Expenses. Sales and marketing expenses consist primarily of salaries and related personnel costs, commissions, travel and entertainment expenses, promotions, customer trial and evaluations inventory and other marketing and sales support expenses. Sales and marketing expenses for the three and six months ended June 30, 2024 and 2023 were as follows (in thousands, except percentages):

Current wording

Sales and Marketing Expenses. Sales and marketing expenses consist primarily of salaries and related personnel costs, commissions, travel and entertainment expenses, promotions, customer trial and evaluations inventory and other marketing and sales support expenses. Sales and marketing expenses for the three and nine months ended September 30, 2024 and 2023 were as follows (in thousands, except percentages):

Previous wording

The decrease in sales and marketing expenses in 2024 as compared to 2023 is primarily a result of the global sales organization realignment that reduced management layers, as well as reduced investment in under-performing regions, with essentially equal reductions in both of our operating segments.

Current wording

The decrease in sales and marketing expenses in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 is primarily a result of the global sales organization realignment that reduced management layers, as well as reduced investment in under-performing regions, with essentially equal reductions in both of our operating segments.

Previous wording

We believe that our sales and marketing expenses in 2024 will be similar to 2023 as we continue to benefit from the realigned global sales structure.

Current wording

We expect our sales and marketing expenses in 2024 to be similar to 2023 as we continue to benefit from the realigned global sales structure.

Previous wording

General and Administrative Expenses. General and administrative expenses consist primarily of salaries and related personnel costs for executive and administrative personnel, and audit, legal and other professional fees. General and administrative expenses for the three and six months ended June 30, 2024 and 2023 were as follows (in thousands, except percentages):

Current wording

General and Administrative Expenses. General and administrative expenses consist primarily of salaries and related personnel costs for executive and administrative personnel, and audit, legal and other professional fees. General and administrative expenses for the three and nine months ended September 30, 2024 and 2023 were as follows (in thousands, except percentages):

Previous wording

The increase in general and administrative expenses in the three and six months ended June 30, 2024 compared to the three and six months ended June 30, 2023 was primarily attributable to higher legal fees related to certain specific legal matters.

Current wording

The increase in general and administrative expenses in the three and nine months ended September 30, 2024 compared to the three and nine months ended September 30, 2023 was primarily attributable to a $5.0 million legal settlement and associated legal fees related to certain specific legal matters, as well as increased employee costs.

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 2024 will increase compared to our 2023 levels primarily due to higher legal fees, settlement expense, employee costs, and as a result of inflation.

Previous wording

Amortization of Acquired Intangible Assets included in Operating expenses. Amortization of acquired intangible assets included in Operating expenses ("Opex Amortization") for the three and six months ended June 30, 2024 and 2023 was as follows (in thousands, except percentages):

Current wording

Amortization of Acquired Intangible Assets included in Operating expenses. Amortization of acquired intangible assets included in Operating expenses ("Opex Amortization") for the three and nine months ended September 30, 2024 and 2023 was as follows (in thousands, except percentages):

Previous wording

Opex Amortization was lower for the three and six months ended June 30, 2024 compared to the three and six months ended June 30, 2023. We record our amortization in relation to expected future cash flows rather than on a straight-line basis. Accordingly, such expense may vary from one period to the next.

Current wording

Opex Amortization was lower for the three and nine months ended September 30, 2024 compared to the three and nine months ended September 30, 2023. We record our amortization in relation to expected future cash flows rather than on a straight-line basis. Accordingly, such expense may vary from one period to the next.