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BUSINESS ACQUISITIONS | 12 Months Ended
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Dec. 31, 2022
Business Combinations [Abstract] |
BUSINESS ACQUISITIONS | BUSINESS ACQUISITIONS ECI On the ECI Acquisition Date, Ribbon completed its merger transaction with ECI in accordance with the terms of the Agreement and Plan of Merger, dated as of November 14, 2019, by and among Ribbon, ECI, an indirect wholly-owned subsidiary of Ribbon ("Merger Sub"), Ribbon Communications Israel Ltd. and ECI Holding (Hungary) Kft pursuant to which Merger Sub merged with and into ECI, with ECI surviving such merger as a wholly-owned subsidiary of Ribbon. Prior to the ECI Acquisition Date, ECI was a privately-held global provider of end-to-end packet optical transport and software-defined networking ("SDN") and network function virtualization ("NFV") solutions for service providers, enterprises and data center operators. As consideration for ECI, Ribbon issued the ECI shareholders and certain others 32.5 million shares of Ribbon common stock with a fair value of $108.6 million (the "Stock Consideration") and paid $322.5 million of cash (the "Cash Consideration"), comprised of $183.3 million to repay ECI's outstanding debt, including both principal and interest, and $139.2 million paid to ECI's selling shareholders. In addition, ECI shareholders received $33.4 million from the sale of certain of ECI's real estate assets. Cash Consideration was financed through cash on hand and committed debt financing consisting of a new $400 million term loan facility and $100 million revolving credit facility, which was undrawn at the ECI Acquisition Date. The ECI Acquisition has been accounted for as a business combination and the financial results of ECI have been included in the Company's consolidated financial statements for the period subsequent to the ECI Acquisition. The Company's financial results for the year ended December 31, 2020 included $260.5 million of revenue and $52.9 million of net loss attributable to ECI. The Company finalized the valuation of acquired assets, identifiable intangible assets and certain assumed liabilities in the fourth quarter of 2020. A summary of the allocation of the purchase consideration for ECI is as follows (in thousands):
Fair value of consideration transferred: |
Cash consideration: |
Repayment of ECI outstanding debt obligations | $ | 183,266 |
Cash paid to selling shareholders | 139,244 |
Payment to selling shareholders from sale of ECI real estate assets | 33,400 |
Less cash and restricted cash acquired | (9,058) |
Net cash consideration | 346,852 |
Fair value of Ribbon stock issued | 108,550 |
Fair value of total consideration | $ | 455,402 |
Fair value of assets acquired and liabilities assumed: |
Current assets, net of cash and restricted cash acquired | $ | 120,203 |
Property and equipment | 54,913 |
Intangible assets: |
In-process research and development | 34,000 |
Developed technology | 111,900 |
Customer relationships | 116,000 |
Trade names | 3,000 |
Goodwill | 191,996 |
Other noncurrent assets | 37,528 |
Deferred revenue | (4,369) |
Other current liabilities | (146,618) |
Deferred revenue, net of current | (3,726) |
Deferred tax liability | (13,308) |
Other long-term liabilities | (46,117) |
| $ | 455,402 |
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 in-process research and development, 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 ECI 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 12.38 years (see Note 10). Goodwill results from assets that are not separately identifiable as part of the transaction and is not deductible for tax purposes. Pro Forma Results The following unaudited pro forma information presents the combined results of operations of Ribbon and ECI for the years ended December 31, 2020 as if the ECI Acquisition had been completed on January 1, 2019, with adjustments to give effect to pro forma events that are directly attributable to the ECI Acquisition. These pro forma adjustments include an increase in research and development expense related to the conformance of ECI's cost capitalization policy to Ribbon's, additional amortization expense for the acquired identifiable intangible assets, a decrease in historical ECI interest expense reflecting the extinguishment of certain of ECI's debt as a result of the ECI Acquisition, and an increase in interest expense reflecting the new debt entered into by the Company in connection with the ECI Acquisition. Pro forma adjustments also include the elimination of acquisition- and integration-related costs directly attributable to the acquisition from the year ended December 31, 2020. 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 Ribbon and ECI. 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 ECI Acquisition occurred at January 1, 2019, nor are they intended to represent or be indicative of future results of operations (in thousands, except per share amounts):
| Year ended December 31, |  |
| 2020 |  |
| (unaudited) |  |
Revenue | $ | 869,002 |  |  |
Net income | $ | 97,036 |  |  |
Diluted earnings per share | $ | 0.65 |  |  |
Acquisition-, Disposal- and Integration-Related Expenses Acquisition-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. Disposal-related expenses are professional and services fees related to disposals of subsidiaries or portions of the business. 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 disposal-related expenses in the year ended December 31, 2022 primarily relate to costs incurred from the sale of one of our foreign subsidiaries. The disposal-related expenses in the year ended December 31, 2021 relate to the Kandy Sale (as defined below). The acquisition-related professional and services fees recorded in the year ended December 31, 2020 primarily related to the ECI Acquisition and the disposal-related expenses related to the Company's sale of the Kandy Communications Business. The components of Acquisition-, disposal- and integration-related expenses incurred in the years ended December 31, 2022, 2021 and 2020 were as follows (in thousands):
| Year ended December 31,
| 2022 |  | 2021 |  | 2020
Professional and services fees (acquisition-related) | $ | — |  |  | $ | 165 |  |  | $ | 13,441 |
Professional and services fees (disposal-related) | 414 |  |  | 329 |  |  | 1,890 |
Integration-related expenses | 5,872 |  |  | 7,138 |  |  | 1,833 |
| $ | 6,286 |  |  | $ | 7,632 |  |  | $ | 17,164 |

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI https://asc.fasb.org/topic&trid=2303972 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 5 -Subparagraph (b) -URI https://asc.fasb.org/extlink&oid=128092470&loc=d3e4946-128472 + Details
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