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BUSINESS ACQUISITONS | 12 Months Ended
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Dec. 31, 2019
Business Combinations [Abstract] |
Business Acquisitions | BUSINESS ACQUISITIONS Pending Merger On November 14, 2019, Ribbon entered into an Agreement and Plan of Merger (the "ECI Merger Agreement") with Eclipse Communications Ltd., an indirect wholly-owned subsidiary of the Company ("Merger Sub"), Ribbon Communications Israel Ltd., ECI Telecom Group Ltd. ("ECI") and ECI Holding (Hungary) kft, pursuant to which Merger Sub will merge with and into ECI, with ECI surviving such merger as a wholly-owned subsidiary of Ribbon (the "ECI Merger"). The Board unanimously approved the ECI Merger Agreement and the transactions contemplated thereby. Ribbon's stockholders approved the issuance of 32.5 million shares of the Company's common stock (the "ECI Stock Consideration") as partial consideration in the ECI Merger. As provided in the ECI Merger Agreement, at the time of the closing of the ECI Merger (the "Effective Time"), all equity securities of ECI issued and outstanding immediately prior to the Effective Time will be converted into the right to receive consideration consisting of $324 million in cash (the "ECI Cash Consideration") and ECI Stock Consideration, less the amount of indebtedness of ECI as of the Effective Time. ECI equityholders will also receive approximately $31 million from ECI's sale of real estate assets. Anova Data, Inc. On the Anova Acquisition Date, the Company acquired the business and technology assets of Anova, a private company headquartered in Westford, Massachusetts that provides advanced analytics solutions (the "Anova Acquisition"). The Anova Acquisition was completed in accordance with the terms and conditions of an asset purchase agreement, dated as of January 31, 2019 (the "Anova Asset Purchase Agreement"). The Company believes that the Anova Acquisition is reinforcing and extending Ribbon's strategy to expand into network optimization, security and data monetization via big data analytics and machine learning. As consideration for the Anova Acquisition, Ribbon issued 2.9 million shares of Ribbon common stock with a fair value of $15.2 million to Anova's sellers and equity holders on the Anova Acquisition Date and held back an additional 0.3 million shares with a fair value of $1.7 million, some or all of which could be issued subject to post-closing adjustments (the "Anova Deferred Consideration"). The Anova Deferred Consideration is included as a component of Accrued expenses and other current liabilities in the Company's consolidated balance sheet at December 31, 2019. The Anova Acquisition has been accounted for as a business combination and the financial results of Anova have been included in the Company's consolidated financial statements for the period subsequent to the Anova Acquisition Date. The results for the year ended December 31, 2019 are not significant to the Company's consolidated financial statements. The Company has not provided pro forma financial information, as the historical amounts are not significant to the Company's consolidated financial statements. As of December 31, 2019, the valuation of acquired assets, identifiable intangible assets and certain assumed liabilities was final. The finalization of this valuation resulted in a refinement of the allocation of purchase price between the identifiable intangible assets arising from the transaction, resulting in a $2.0 million reduction to the customer relationships intangible asset and an increase of $2.0 million to the developed technology intangible asset. The purchase consideration aggregating $16.9 million has been allocated to $11.2 million of identifiable intangible assets, comprised of $5.2 million of customer relationships and $6.0 million of developed technology, and working capital items aggregating $0.2 million of net assets acquired. The remaining unallocated amount of $5.5 million has been recorded as goodwill. The valuation of the acquired intangible assets is inherently subjective and relies on significant unobservable inputs. The Company used an income approach to value the acquired intangible assets relating to developed technology and customer relationships. The valuation for each of these intangible assets was based on estimated projections of expected cash flows to be generated by the assets, discounted to the present value at discount rates commensurate with perceived risk. The valuation assumptions take into consideration the Company's estimates of customer attrition, technology obsolescence and revenue growth projections. The Company is amortizing the identifiable intangible assets in relation to the expected cash flows from the individual intangible assets over their respective useful lives, which have a weighted average life of 6.25 years (see Note 9). The excess of purchase consideration over net tangible and identifiable intangible assets acquired was recorded as goodwill. The goodwill is deductible for tax purposes. Edgewater Networks, Inc. On the Edgewater Acquisition Date, the Company completed its acquisition of Edgewater, a private company headquartered in San Jose, California. The Edgewater Acquisition was completed in accordance with the terms and conditions of the Agreement and Plan of Merger, dated as of June 24, 2018, by and among Ribbon, Merger Sub, Edgewater and Shareholder Representative Services LLC, a Colorado limited liability company, solely in its capacity as the initial holder representative (the "Edgewater Merger Agreement”). Edgewater is a market leader in Network Edge Orchestration for the small and medium enterprise and UC market. The Company believes that the acquisition of Edgewater will allow it to offer its global customer base a complete core-to-edge product portfolio, end-to-end service assurance and analytics solutions, and a fully integrated software-defined SD-WAN service. As consideration for the Edgewater Acquisition, Ribbon paid, in the aggregate, $46.4 million of cash, net of cash acquired, and issued 4.2 million shares of Ribbon common stock to Edgewater's selling shareholders and holders of vested in-the-money options and warrants to acquire common stock of Edgewater (the "Edgewater Selling Stakeholders") on the Edgewater Acquisition Date. Pursuant to the Edgewater Merger Agreement and subject to the terms and conditions contained therein, Ribbon agreed to pay the Edgewater Selling Stakeholders an additional $30 million of cash, $15 million of which was to be paid 6 months from the closing date and the other $15 million of which was to be paid as early as 9 months from the closing date and no later than 18 months from the closing date (the exact timing of which would depend on the amount of revenue generated from the sales of Edgewater products in 2018) ("Edgewater Deferred Consideration"). The current portion of this deferred purchase consideration was included as a component of Accrued expenses and other, and the noncurrent portion was included as a component of Other long-term liabilities in the Company's consolidated balance sheet as of December 31, 2018. On February 15, 2019, the Company and the Edgewater Selling Stakeholders agreed to reduce the amount of Edgewater Deferred Consideration from $30 million to $21.9 million and agreed that all such deferred consideration would be payable on March 8, 2019. The Company paid the Edgewater Selling Stakeholders $21.9 million on March 8, 2019 and recorded the reduction to the Edgewater Deferred Consideration of $8.1 million in Other income (expense), net, in the Company's consolidated statement of operations and as a non-cash adjustment to reconcile net income to cash flows provided by operating activities in the Company's consolidated statement of cash flows for the year ended December 31, 2019. The Edgewater Acquisition has been accounted for as a business combination and the financial results of Edgewater have been included in the Company's consolidated financial statements for the period subsequent to its acquisition. As of December 31, 2019, the valuation of acquired assets, identifiable intangible assets and certain assumed liabilities was final, as the Company finalized the valuation of the assets acquired and liabilities assumed in the second quarter of 2019. A summary of the allocation of the purchase consideration for Edgewater is as follows (in thousands):
Fair value of consideration transferred: |
Cash consideration: |
Cash paid to Edgewater Selling Stakeholders | $ | 51,162 |
Less cash acquired | (4,773 | )
Net cash consideration | 46,389 |
Unpaid cash consideration | 30,000 |
Fair value of Ribbon stock issued | 30,000 |
Fair value of equity awards assumed (see Note 16) | 747 |
Fair value of total consideration | $ | 107,136 |
Fair value of assets acquired and liabilities assumed: |
Current assets, net of cash acquired | $ | 16,098 |
Property and equipment | 245 |
Intangible assets: |
Developed technology | 29,500 |
Customer relationships | 26,100 |
Trade names | 1,100 |
Goodwill | 48,053 |
Other noncurrent assets | 103 |
Deferred revenue | (2,749 | )
Other current liabilities | (9,926 | )
Deferred revenue, net of current | (669 | )
Other long-term liabilities | (719 | )
| $ | 107,136 |
The valuation of the acquired intangible assets is inherently subjective and relies on significant unobservable inputs. The Company used an income approach to value the acquired developed technology, customer relationships and trade name intangible assets. The valuation for each of these intangible assets was based on estimated projections of expected cash flows to be generated by the assets, discounted to the present value at discount rates commensurate with perceived risk. The valuation assumptions take into consideration the Company's estimates of customer attrition, technology obsolescence and revenue growth projections. The Company is amortizing the identifiable intangible assets arising from the Edgewater Acquisition in relation to the expected cash flows from the individual intangible assets over their respective useful lives, which have a weighted average life of 8.38 years(see Note 9). Goodwill resulting from the transaction is primarily due to expected synergies between the combined companies and is not deductible for tax purposes. The Company's revenue for the year ended December 31, 2018 included $21.5 million of revenue and $4.3 million of net loss attributable to Edgewater since the Edgewater Acquisition Date. The Company has not provided pro forma financial information, as the historical amounts are not significant to the Company's consolidated financial statements. GENBAND Merger On October 27, 2017, Sonus consummated an acquisition as specified in the Merger Agreement with NewCo and GENBAND such that, following the Merger, each of Sonus and GENBAND became a wholly-owned subsidiary of NewCo, with Sonus deemed the acquirer in the transaction for accounting purposes. On November 28, 2017, the Company changed its name from "Sonus Networks, Inc." to "Ribbon Communications Inc." Prior to the Merger, GENBAND was a Cayman Islands exempted company limited by shares that was formed on April 7, 2010. Through its wholly owned operating subsidiaries, GENBAND created rapid communications and applications for service providers, enterprises, independent software vendors, system integrators and developers globally. A majority of GENBAND's shares were held by JPMorgan Chase & Co. and managed by One Equity Partners ("OEP"). GENBAND shares were not listed on an exchange or quoted on any automated services, and there was no established trading market for GENBAND shares. The Company believes that Sonus' and GENBAND's complementary products, solutions and strategies have positioned the combined company to deliver comprehensive solutions to service providers and enterprises migrating to a virtualized all-IP environment in an expanded customer and global footprint. Pursuant to the Merger Agreement, NewCo issued 50.9 million shares of Sonus common stock to the GENBAND equity holders, with the number of shares issued in the aggregate to the GENBAND equity holders equal to the number of shares of Sonus common stock outstanding immediately prior to the closing date of the Merger, such that former stockholders of Sonus would own approximately 50%, and former shareholders of GENBAND would own approximately 50%, of the shares of NewCo common stock issued and outstanding immediately following the consummation of the Merger. In addition, NewCo repaid GENBAND’s long-term debt, including both principal and unpaid interest, to a related party of GENBAND totaling $48.0 million and repaid GENBAND’s management fees due to an affiliate of OEP totaling $10.3 million. NewCo also issued a promissory note for $22.5 million to certain GENBAND equity holders (the "Promissory Note"). NewCo assumed the liability under GENBAND's Senior Secured Credit Agreement (the "GENBAND Credit Agreement") with Silicon Valley Bank ("SVB"), which had outstanding borrowings and letters of credit totaling $17.9 million and $2.9 million, respectively, at October 27, 2017. At October 27, 2017, the outstanding borrowings had an average interest rate of 4.67%. The Merger has been accounted for as a business combination and the financial results of GENBAND have been included in the Company's consolidated financial statements for the period subsequent to its acquisition. As of December 31, 2018, the valuation of acquired assets, identifiable intangible assets and certain assumed liabilities was final, as the Company finalized the valuation of the assets acquired and liabilities assumed in the third quarter of 2018. A summary of the final allocation of the purchase consideration for GENBAND is as follows (in thousands):
Fair value of consideration transferred: |
Cash consideration: |
Repayment of GENBAND long-term debt and accrued interest, related party | $ | 47,973 |
Payment of GENBAND management fees due to majority shareholder | 10,302 |
Less cash acquired | (15,324 | )
Net cash consideration | 42,951 |
Fair value of Sonus stock issued | 413,982 |
Promissory note issued to GENBAND equity holders | 22,500 |
Fair value of total consideration | $ | 479,433 |
Fair value of assets acquired and liabilities assumed: |
Current assets, net of cash acquired | $ | 99,126 |
Property and equipment | 16,770 |
Intangible assets: |
In-process research and development | 5,600 |
Developed technology | 129,000 |
Customer relationships | 101,300 |
Trade names | 900 |
Goodwill | 285,825 |
Other noncurrent assets | 6,732 |
Revolving credit facility | (17,930 | )
Deferred revenue | (32,390 | )
Other current liabilities | (80,023 | )
Deferred revenue, net of current | (6,804 | )
Other long-term liabilities | (28,673 | )
| $ | 479,433 |
The valuation of acquired intangible assets is inherently subjective and relies on significant unobservable inputs. The Company used an income approach to value the acquired developed technology, customer relationships and trade name intangible assets. The valuation for each of these intangible assets was based on estimated projections of expected cash flows to be generated by the assets, discounted to the present value at discount rates commensurate with perceived risk. The valuation assumptions took into consideration the Company's estimates of customer attrition, technology obsolescence and revenue growth projections. The Company will reclassify the in-process research and development intangible asset to a developed technology intangible asset in the period that the related product becomes generally available and will begin to record amortization expense for the developed technology intangible asset at that time. The Company is amortizing the identifiable intangible assets arising from the Merger in relation to the expected cash flows from the individual intangible assets over their respective useful lives, which have a weighted average life of 8.3 years (see Note 9). Goodwill resulting from the transaction is primarily due to expected synergies between the combined companies and is not deductible for tax purposes. Pro Forma Results The following unaudited pro forma information presents the condensed combined results of operations of Sonus and GENBAND for the year ended December 31, 2017 as if the Merger had been completed on January 1, 2016, with adjustments to give effect to pro forma events that are directly attributable to the Merger. These pro forma adjustments include a reduction of historical GENBAND revenue for the fair value adjustment related to acquired deferred revenue, an increase in amortization expense for the acquired identifiable intangible assets, a decrease in historical GENBAND interest expense reflecting the extinguishment of certain of GENBAND's debt as a result of the Merger, net of the interest expense recorded in connection with the promissory note issued to certain GENBAND equity holders as part of the purchase consideration and the elimination of revenue and costs related to sales transactions between Sonus and GENBAND. Pro forma adjustments also include the elimination of acquisition- and integration-related costs directly attributable to the acquisition and incremental stock-based compensation expense directly attributable to the acquisition from the year ended December 31, 2017. The unaudited pro forma results do not reflect any operating efficiencies or potential cost savings that may result from the consolidation of the operations of Sonus and GENBAND. Accordingly, these unaudited pro forma results are presented for illustrative purposes and are not intended to represent or be indicative of the actual results of operations of the combined company that would have been achieved had the Merger occurred at the beginning of the periods presented, nor are they intended to represent or be indicative of future results of operations (in thousands, except per share amounts):
| Year ended December 31,
| 2017
| (unaudited)
Revenue | $ | 615,286 |
Net loss | $ | (69,741 | )
Loss per share | $ | (0.69 | )
Acquisition- and Integration-Related Expenses Acquisition- and integration-related expenses include those expenses related to acquisitions that would otherwise not have been incurred by the Company, including professional and services fees, such as legal, audit, consulting, paying agent and other fees, and expenses related to cash payments to certain former executives of the acquired businesses in connection with their employment agreements. Integration-related expenses represent incremental costs related to combining the Company and its business acquisitions, such as third-party consulting and other third-party services related to merging the previously separate companies' systems and processes. The acquisition-related professional and services fees recorded in the year ended December 31, 2019 primarily related to the pending ECI Merger and, to a lesser extent, to the Anova Acquisition and other acquisition-related activities. The acquisition-related professional and services fees recorded in the year ended December 31, 2018 primarily related to the Merger, with nominal amounts related to the acquisition of Edgewater and other acquisition-related activities. The amounts recorded in the year ended December 31, 2017 primarily related to the Merger, with a nominal amount related to the acquisition of Taqua. The components of acquisition- and integration-related costs incurred in the years ended December 31, 2019, 2018 and 2017 were as follows (in thousands):
| Year ended December 31,
| 2019 |  | 2018 |  | 2017
Professional and services fees (acquisition-related) | $ | 8,657 |  |  | $ | 7,627 |  |  | $ | 11,916 |
Management bonuses (acquisition-related) | — |  |  | 1,972 |  |  | 931 |
Integration-related expenses | 4,296 |  |  | 7,352 |  |  | 1,916 |
| $ | 12,953 |  |  | $ | 16,951 |  |  | $ | 14,763 |

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