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STOCK-BASED COMPENSATION PLANS | 3 Months Ended
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Mar. 31, 2020
Share-based Payment Arrangement [Abstract] |
STOCK-BASED COMPENSATION PLANS | STOCK-BASED COMPENSATION PLANS 2019 Stock Incentive Plan The Company's 2019 Incentive Award Plan (the "2019 Plan") provides for the award of options to purchase the Company's common stock ("stock options"), stock appreciation rights ("SARs"), restricted stock awards ("RSAs"), performance-based stock awards ("PSAs"), restricted stock units ("RSUs"), performance-based stock units ("PSUs") and other stock- or cash-based awards. Awards can be granted under the 2019 Plan to the Company's employees, officers and non-employee directors, as well as consultants and advisors of the Company and its subsidiaries. 2007 Plan The Company's 2007 Plan provided for the award of stock options, SARs, RSAs, RSU, PSAs, PSUs and other stock-based awards to employees, officers, non-employee directors, consultants and advisors of the Company and its subsidiaries. On and following June 5, 2019, with the exception of shares underlying awards outstanding as of that date, no additional shares may be granted under the 2007 Plan. Assumed Stock Plans In connection with the Edgewater Acquisition, the Company assumed Edgewater's Amended and Restated 2002 Stock Option Plan (the "Edgewater Plan") to the extent of the shares underlying the options outstanding under the Edgewater Plan as of the Edgewater Acquisition Date (the "Edgewater Options"). The Edgewater Options were converted to Ribbon stock options (the "Ribbon Replacement Options") which are vesting under the same schedules as the respective Edgewater Options. In connection with the Company's acquisitions of Performance Technologies Inc. ("PT") in 2014, and Network Equipment Technologies, Inc. ("NET") in 2012, the Company assumed their stock plans (collectively, the "Assumed Plans"). Any outstanding awards under the Assumed Plans that in the future expire, terminate, are cancelled or surrendered, or are repurchased by the Company will be returned to the 2019 Plan. Accordingly, at March 31, 2020, no additional shares may be granted under the Assumed Plans. Executive Equity Arrangements Inducement Awards In connection with his appointment as President and Chief Executive Office of Ribbon, and as an inducement for Bruce McClelland's ("Mr. McClelland") commencement of employment, the Company awarded Mr. McClelland sign-on equity grants, comprised of an RSU grant and a PSU grant with both market and service conditions (the "Inducement PSUs") on March 16, 2020. Subject to Mr. McClelland's continued employment, 462,963 RSUs are eligible to vest on the earlier of March 16, 2021 or the date of the consummation of a change in control of the Company and, upon vesting, will be settled in shares of Ribbon's common stock. The RSUs had a fair market value of $1.0 million on the date of grant. Subject to Mr. McClelland's continued employment, the PSUs are eligible to vest and be settled in up to 4,750,000 shares of Ribbon common stock upon the achievement of specified share price thresholds on or prior to September 1, 2024. These grants are reported in the applicable tables below. Other Performance-Based Stock Grants In addition to granting RSAs and RSUs to its executives and certain of its employees, the Company also grants PSUs to certain of its executives, including the Inducement PSUs granted to Mr. McClelland as described above. 2019 PSU Grants. In March and April 2019, the Company granted certain of its executives an aggregate of 872,073 PSUs, of which 523,244 PSUs had both performance and service conditions (the "Performance PSUs") and 348,829 PSUs had both market and service conditions (the "Market PSUs"). Each executive's Performance PSU grant is comprised of three consecutive fiscal year performance periods from 2019 through 2021 (each, a "Fiscal Year Performance Period"), with one-third of the Performance PSUs attributable to each Fiscal Year Performance Period. The number of shares that will vest for each Fiscal Year Performance Period will be based on the achievement of certain metrics related to the Company's financial performance for the applicable year on a standalone basis (each, a "Fiscal Year Performance Condition"). In the third quarter of 2019, the Company adjusted the 2019 Performance PSU goals to reflect the changes to the Company's calculation of certain metrics. There was no incremental expense in connection with this modification. In March 2020, the Compensation Committee determined that the performance metrics for the 2019 Performance PSUs had been achieved at the 30.493% level. The Company's achievement of the 2019 Fiscal Year Performance Conditions (and the number of shares of Company common stock to vest as a result thereof) was measured on a linear sliding scale in relation to specific threshold, target and stretch performance conditions. The Company is recording stock-based compensation expense for the Performance PSUs based on its assessment of the probability that each performance condition will be achieved and the level, if any, of such achievement. As of March 31, 2020, the Company determined that the grant date criteria for the 2020 and 2021 Fiscal Year Performance Periods had not been met, as the 2020 and 2021 Fiscal Year Performance Conditions had not been established by the Company. Accordingly, the stock-based compensation expense recorded in the three months ended March 31, 2020 in connection with the Performance PSUs is related only to those number of shares representing the final achievement level for the PSUs with 2019 Fiscal Year Performance Conditions. The Compensation Committee will determine the number of shares earned, if any, after the Company's financial results for each Fiscal Year Performance Period are finalized. Upon the determination by the Compensation Committee of the number of shares that will be received upon vesting of the Performance PSUs, such number of shares will become fixed and the unamortized expense will be recorded through the remainder of the service period that ends March 15, 2022, at which time the total Performance PSUs earned, if any, will vest, pending each executive's continued employment with the Company through that date. The number of shares of common stock to be achieved upon vesting of the Performance PSUs will in no event exceed 200% of the Performance PSUs. Shares subject to the Performance PSUs that fail to be earned will be forfeited. The Market PSUs have one three-year performance period which will end on December 31, 2021 (the "Market Performance Period"). The number of shares subject to the Market PSUs that will vest, if any, on March 15, 2022, will be dependent upon the Company's total shareholder return ("TSR") compared with the TSR of the companies included in the Nasdaq Telecommunications Index for the same Market Performance Period, measured by the Compensation Committee after the Market Performance Period ends. The shares determined to be earned will vest on March 15, 2022, pending each executive's continued employment with the Company through that date. The number of shares of common stock to be achieved upon vesting of the Market PSUs will in no event exceed 200% of the Market PSUs. Shares subject to the Market PSUs that fail to be earned will be forfeited. 2018 PSU Grant. In May 2018, the Company granted Franklin Hobbs, the Company's former President and Chief Executive Officer ("Mr. Hobbs"), 195,000 PSUs with both performance and service conditions (the "2018 PSUs"). Of the 195,000 2018 PSUs, one-half of such PSUs were eligible to vest based on the achievement of two separate metrics related to the Company's 2018 financial performance (the "2018 Performance Conditions"). The Company's achievement of the 2018 Performance Conditions (and the number of shares of Company common stock to be received upon vesting as a result thereof) were measured on a linear sliding scale in relation to specific threshold, target and stretch performance conditions. The number of shares of common stock to be received upon vesting of the 2018 PSUs would in no event exceed 150% of the 2018 PSUs. The Compensation Committee determined that the performance metrics for all of the 2018 PSUs had been achieved at the 150% level, for a total of 292,500 shares eligible to be issued. In connection with Mr. Hobbs' separation from the Company effective December 31, 2019, the vesting schedule for the 2018 Shares earned was accelerated and the shares were released on January 30, 2020. Accounting for PSUs with Market Conditions. PSUs that include a market condition require the use of a Monte Carlo simulation approach to model future stock price movements based upon the risk-free rate of return, the date 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 of the respective PSUs. The Company is required to record expense for the PSUs with market conditions through their respective final vesting dates, regardless of the number of shares that are ultimately earned. As of March 31, 2020, the calculation of the grant date fair value of the Inducement PSUs had not been completed. The Company used a grant date fair value of $2.16, the closing stock price on the date of grant, to calculate expense attributable to the three months ended March 31, 2020 for the Inducement PSUs. The Company is also using this stock price for PSU activity reported in the PSU table below. Upon completion of the Monte Carlo analysis and finalization of the grant date fair value of the Inducement PSUs, which it expects to complete in the second quarter of 2020, the Company will record a cumulative adjustment to expense and adjust their grant date fair value for subsequent reporting. The Company does not expect the cumulative adjustment to expense will have a material impact on its consolidated financial statements. Stock Options The activity related to the Company's outstanding stock options for the three months ended March 31, 2020 was as follows:
| Number of Shares |  | Weighted Average Exercise Price |  | Weighted Average Remaining Contractual Term (years) |  | Aggregate Intrinsic Value (in thousands)
Outstanding at January 1, 2020 | 297,124 |  |  | $ | 11.55 |  |  |  |  |
Granted | — |  |  | $ | — |  |  |  |  |
Exercised | (3,014 | ) |  | $ | 1.74 |  |  |  |  |
Forfeited | (1,470 | ) |  | $ | 1.80 |  |  |  |  |
Expired | (4,920 | ) |  | $ | 18.10 |  |  |  |  |
Outstanding at March 31, 2020 | 287,720 |  |  | $ | 11.59 |  |  | 4.33 |  | $ | 109 |
Vested or expected to vest at March 31, 2020 | 285,559 |  |  | $ | 11.66 |  |  | 4.31 |  | $ | 108 |
Exercisable at March 31, 2020 | 260,307 |  |  | $ | 12.58 |  |  | 4.03 |  | $ | 85 |
Additional information regarding the Company's stock options for the three months ended March 31, 2020 was as follows (in thousands):
Total intrinsic value of stock options exercised | $ | 5 |
Cash received from the exercise of stock options | $ | 5 |
Restricted Stock Awards and Units The activity related to the Company's RSAs for the three months ended March 31, 2020 was as follows:
| Shares |  | Weighted Average Grant Date Fair Value
Unvested balance at January 1, 2020 | 487,976 |  |  | $ | 6.87 |
Granted | — |  |  | $ | — |
Vested | (89,920 | ) |  | $ | 7.04 |
Forfeited | (4,499 | ) |  | $ | 7.04 |
Unvested balance at March 31, 2020 | 393,557 |  |  | $ | 6.83 |
The activity related to the Company's RSUs for the three months ended March 31, 2020 was as follows:
| Shares |  | Weighted Average Grant Date Fair Value
Unvested balance at January 1, 2020 | 2,790,060 |  |  | $ | 5.11 |
Granted | 4,123,151 |  |  | $ | 2.22 |
Vested | (927,062 | ) |  | $ | 4.81 |
Forfeited | (237,818 | ) |  | $ | 4.69 |
Unvested balance at March 31, 2020 | 5,748,331 |  |  | $ | 3.10 |
The total grant date fair value of shares of restricted stock granted under RSAs and RSUs that vested during the three months ended March 31, 2020 was $5.1 million. Performance-Based Stock Units
The activity related to the Company's PSUs for the three months ended March 31, 2020 was as follows:
| Shares |  | Weighted Average Grant Date Fair Value
Unvested balance at January 1, 2020 | 1,067,073 |  |  | $ | 5.94 |
Granted | 4,847,500 |  |  | $ | 2.23 |
Vested | (315,866 | ) |  | $ | 5.53 |
Forfeited | (359,777 | ) |  | $ | 5.51 |
Unvested balance at March 31, 2020 | 5,238,930 |  |  | $ | 2.52 |
The total grant date fair value of shares of restricted stock granted under PSUs that vested during the three months ended March 31, 2020 was $1.7 million. Employee Stock Purchase Plan The Company's Amended and Restated 2000 Employee Stock Purchase Plan ("ESPP") is designed to provide eligible employees of the Company and its participating subsidiaries an opportunity to purchase common stock of the Company through accumulated payroll deductions. The ESPP provides for six-month offering periods with the purchase price of the stock equal to 85% of the lesser of the closing market price on the first or last day of the offering period. The maximum number of shares of common stock an employee may purchase during each offering period is 500, subject to certain adjustments pursuant to the ESPP. The last purchase under the ESPP purchase period ended on November 30, 2019. Stock-Based Compensation The condensed consolidated statements of operations include stock-based compensation for the three months ended March 31, 2020 and 2019 as follows (in thousands):
| Three months ended
| March 31, 2020 |  | March 31, 2019
Product cost of revenue | $ | 27 |  |  | $ | 14 |
Service cost of revenue | 130 |  |  | 92 |
Research and development | 558 |  |  | 507 |
Sales and marketing | 752 |  |  | 984 |
General and administrative | 1,509 |  |  | 2,542 |
| $ | 2,976 |  |  | $ | 4,139 |
There was no income tax benefit for employee stock-based compensation expense for the three months ended March 31, 2020 or 2019 due to the valuation allowance recorded. At March 31, 2020, there was $26.3 million, net of expected forfeitures, of unrecognized stock-based compensation expense related to unvested stock options, stock awards and stock units. This expense is expected to be recognized over a weighted average period of approximately three years.

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