Ribbon Communications Inc.

Greetings and welcome to the Ribbon Communications fourth quarter and full year 2020 financial results. At this time, all participants are in listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Tom Berry, in Best Relations for Ribbon Communications. Please go ahead, sir.

Good afternoon and welcome to Ribbon's fourth quarter and full year 2020 financial results conference call. I'm Tom Berry, Investor Relations of Ribbon Communications. Also on the call today will be Bruce McClelland, Ribbon's Chief Executive Officer, and Mick Lopez, Ribbon's Chief Financial Officer. Today's call is being webcast live and will be archived on the Investor Relations section of our website at ribboncommunications.com, where both our press release and our supplemental slides are currently available. Certain matters we will be discussing today, including the business outlook and financial projections for the first quarter of 2021, the full year 2021, and beyond, are forward-looking statements. Such statements are subject to the risks and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements. These risks and uncertainties are discussed in our documents filed with the SEC, including our most recent Form 10-K and Form 10-Q. I refer you to our safe harbor statement included on slide two of the supplemental slides for this conference call. In addition, we will present non-GAAP financial information on this call. Reconciliation to the applicable GAAP measure are included in the earnings press release we issued this afternoon, as well as in the supplemental slides for this conference call, which again are both available on the investor relations section of our website. As we previously noted, we completed our acquisition of ECI Telecom on March 3rd, 2020, and completed the sale of Candy Communications on December 1, 2020. Further, in the fourth quarter of 2020, we began segment reporting for our Clouder and Edge and IP Optical Networks businesses. These items impact comparisons to prior periods. And now, I would like to turn the call over to Bruce. Bruce?

Great. Thank you, Tom. Good afternoon, everyone, and thank you for joining us today to discuss our 2020 results and outlook for 2021. We announced preliminary results on January 25th as we felt it was important to communicate the stronger performance relative to our guidance and also due to the typically elongated fourth quarter reporting schedule. Before reviewing the details of our fourth quarter results, I wanted to take a minute to discuss our 2020 full year accomplishments. I'm very proud of the company's achievements during such a challenging and extraordinary year. When the COVID-19 pandemic began early last year, our sales organization quickly transitioned to remote selling and virtual product proof of concepts. This rapid response enabled us to grow revenue on an organic basis for the year, even with the challenges presented by the pandemic. And we have significantly increased our global presence with sales outside the US now well over 50% of total sales. From a product and technology perspective, We continue to work through our transition to a more software-centric portfolio with new products such as our virtualized C20 call session controller, our CallTrust robocall mitigation platform, and Ribbon Connect, supporting SBC as a service for Microsoft Teams deployments. And despite the challenges of dealing with COVID, we were very successful in the integration of ECI. repositioning Ribbon to participate in the very large IP optical systems market. As part of the integration, we streamlined the organization and realigned our portfolio to improve profitability and shift investment into higher growth areas. We've successfully completed the sale of our Candy UCAS business, improving our short-term financial profile, preserving the ability to share in the upside value creation from the business. The combination of these structural changes along with good execution on our strategy means Ribbon ended 2020 much stronger than where we started. And we're well positioned for growth in 2021 and beyond. Shifting to the details of our fourth quarter, we're very pleased to report strong results that exceeded our expectations and further demonstrate that we're progressing in our strategy. We're seeing the benefits of combining a strong software business with a higher growth IP optical business. giving strong profitability and increased diversification by selling our expanded portfolio to a broader range of customers. This quarter, we again achieved a new record level of adjusted EBITDA as we realized the benefits of the combined cloud and edge and IP optical businesses. Total sales increased 6% quarter over quarter and very encouraged by the improvement in our IP optical business with revenue increasing 15% versus the third quarter. and a positive adjusted earnings contribution for the second consecutive quarter. With the growth in IP optical sales, we further diversified our geographical presence by generating 60% of our total revenue from customers located outside of the U.S. I'd like to highlight some notable customer activity in the quarter beginning in North America. In our IP optical business, as reported in our last earnings call, we secured our first win with a top four cable MSO, Altice, and extended that momentum with new business from five regional telco carriers. We leveraged our existing ribbon relationships for customer wins in all but one of these cases. IP optical revenue in North America was up 105% from third quarter of 20, fourth quarter 20 revenue from the region nearly matching ECI sales for all of 2019. It's still early, but we're seeing clear signs of our strategy working. In the cloud and edge business, We continue to benefit from the migration to cloud communications with our session software solutions. Recent report that we commissioned shows a greater than 100% increase in interest among small and medium sized businesses in deploying Microsoft teams. And 70% of those surveyed indicated that they will implement direct routing for teams requiring certified SBCs to enable this connectivity. We continued with a variety of network transformation projects and SBC capacity expansion activities in the fourth quarter with over $35 million in new orders from North American Tier 1 service providers across our call processing, media gateways, SBCs, and services solutions. In Latin America, we embarked upon a network transformation project with a Tier 1 carrier using our new virtualized C20 call control platform. starting in four countries, with further expansion into three more countries planned this year. It's noteworthy that projects in two of the countries are rip and replace of Huawei systems. We're also pleased to announce wins with our software-based SBCs in Brazil, with Claro, part of American Mobile Group, and Vivo, Telefonica's Brazilian operation. In Europe, we worked with a systems integration partner in the region, to secure the first large-scale deployment of our new optical 9901 MetroEdge platform for a large defense customer. This was a multimillion-dollar project, and we shipped over 400 units in the fourth quarter. We announced this new product in Q4, and it efficiently extends OTN switching from the network core to the high-demand metro access network. Additionally, we continue to sell to and sell through divisions of Telecom Italia. We're working with them to implement metro optical networks, replacing legacy SDH networks with our multi-service platform in more than 20 cities worldwide. We're collaborating with them to win new regional enterprise optical opportunities in Europe. In India, overall sales in the fourth quarter were very consistent with the previous quarter, with improvements in several accounts. It's still too early to predict the timing of substantial spending recovery But the new fiscal year starts April 1st, so we're hopeful that momentum will pick up for the second half of 2021. We are benefiting from our Barty Airtel contract signed last summer, with multiple purchase orders in the quarter, and more expected as they prepare their network for 5G. These are multi-year contracts and will help propel our growth in 2021 and beyond. Initially, we both had ideas utilizing our Neptune platform for their 4G rollouts as they shift away from Huawei products. and we expect more business as part of this transition. Also in India, we continued our normal business with Tata, generating significant enterprise connectivity bookings. In Japan, we saw the culmination of a long sales cycle with several significant cloud med wins with tier one service providers valued at over $10 million. These projects are now underway and will conclude throughout 2021. I'll transition from a regional commentary to some additional detail on our product portfolio. The full year revenue in our core SPC portfolio grew 18% versus 2019. Overall SPC revenue grew 6% in 2020, as growth in the core products more than offset the decline in our on-premise enterprise edge CPE products, where demand was negatively impacted by the COVID-19 pandemic. Additionally, we launched our Ribbon Connect direct routing for Microsoft Team Service. I currently have seven distributors signed up and going through onboarding. and another nine in the pipeline. Our product sales to enterprise customers grew 3% quarter over quarter and represented 27% of total product revenue in the fourth quarter and 30% for the full year 20. Sales were particularly strong in the defense segment in the quarter. In addition, at the end of the year, we had booked nearly 60% of our maintenance renewals for 2021 across approximately 900 customers. By the end of January, we'd completed almost 70% of renewals for the year. And many of these contracts are multi-year in duration, de-risking our plans for 2021 and beyond. Our renewal rate for the business remains in the high 90% for direct customers. In the IP optical business, we had a surge in proof of concepts and demos evaluating our unique 5G capabilities late in the year. We were laser focused on converting these opportunities into sales in 2021. We've also progressed to the final stages on several important metro optical tier one service provider opportunities outside the US, giving us a clear path to share games in 2021, leveraging the strong historical ribbon presence. Now a few updates on our continued transformation efforts. We are making great progress on the integration of ribbon and ECI, and we are implementing organizational efficiencies across the company. During the fourth quarter, we enabled automated cross-selling processes and consolidated our sales CRM platforms. We also streamlined many of our other internal processes and tools, including security platforms and information systems. Last month, I announced that Steve McCaffrey had joined Ribbon to lead sales in our EMEA and AsiaPac regions. He brings over 30 years of experience helping carriers and enterprises evolve their business communications, and previously managed a $2.4 billion international business, addressing both carrier and enterprise customers at ARIS. And in December, Sean Matthews was appointed our EVP of Corporate Development and Strategy. Sean has extensive experience in successfully leading corporate strategy and business development for global companies. And prior to joining, we're at a health senior in McDonald's with Tebow and ARIS. I'm very excited to have both Sean and Steve join the team and look forward to partnering with them as we drive new growth initiatives to expand the presence of our cloud and edge and IP optical businesses. In December, we announced that we'd completed our sale of the Candy Cloud Communications business to American Virtual Cloud Technologies. And just this week, we announced a deal to sell a small product compliance and reliability testing business called Qualitech that is part of our Israeli operation. We're happy with the progress we've been making in shaping the Ribbon portfolio and sharpening the focus on our core strategy. Additionally, we are designating Plano, Texas as our global headquarters. Given our global operations and the changes in the business following the ECI acquisition last year, we believe the time is right to make this change. We recently opened a new facility in Plano that will serve as headquarters, and we're in the process of consolidating our research labs from several other locations. This move reflects how we have effectively been operating for the last six months, including the consolidation of offices to help reduce costs. Although the headquarters is relocating, we expect to continue to have a strong presence in Westford, Mass. Lastly, I'd like to note that we published our first global sustainability report earlier this month. We are committed to providing our stakeholders with increased visibility and responsiveness, and our report is a key milestone in that effort. You can read the report on our website and see how we account for our ESG performance through 2019 and 2020, as well as our support of the United Nations Sustainable Development Goals. I'll now ask Mick to comment in more detail on our Q4 and full-year 2020 performance, and then come back on to talk about our outlook for the business.