Ribbon Communications Inc.

Greetings, and welcome to Ribbon Communications' second quarter 2022 financial results conference call. At this time, all participants are in a question-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press 0 on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ada Selenian. Senior Vice President Global Marketing. Please go ahead.

Good afternoon and welcome to Ribbon's second quarter 2022 financial results conference call. I'm Bita Melanian, SVP of Marketing at Ribbon Communications. Also on the call today are Bruce McLennan, 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 rbbn.com, where both our press release and supplemental slides are currently available. Certain matters we will be discussing today, including the business outlook and financial projections for the third quarter and full year 2022, 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 these forward-looking statements. These risks and uncertainties are discussed in our documents filed with the SEC, including our most recent form 10-K. 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. Reconciliations to the applicable gap measure are included in the earning press release we issued earlier today, as well as in the supplemental slides we prepared for this conference call, which again are both available on the investor relations section of our website. And now I would like to turn the call over to Bruce. Bruce?

Great. Thanks, Bita. And thanks to everyone for joining us today to discuss our second quarter results and our outlook for the remainder of the year. We had solid performance in the second quarter with financial results in line with our expectations and within our guidance. Revenue was $206 million and adjusted EBITDA was $21 million. Sales increased 19% versus the first quarter this year. And we had a particularly strong quarter in North America with sales of our Cloud and Edge products and services increasing 33% sequentially. led by a $25 million increase in voice over IP network transformation sales quarter over quarter. As anticipated, we had a very good quarter with Verizon, as well as with other tier one North American carriers. Of particular note, Verizon Wireless went into full scale production with our next generation NVIDIA GPU based session border controller, supporting tens of millions of voice transcode sessions per hour. This was a major milestone and underscores the technology leadership Riven has in the SBC space. Our IP optical network sales increased 8% compared to the first quarter, even though we had two substantial deals in Europe move from the end of June into July, which will get us off to a good start in the third quarter. In particular, sales in India and Europe were bright points this quarter, along with 13% sequential growth in North America. Sales of IP routing equipment and software increased 25% as compared to the second quarter of 2021, a strategic focus area for us. Based on the pipeline for the second half, we're projecting 20% plus growth in total IP optical sales in the third and fourth quarter versus our second quarter results. IP optical margins were lower than we anticipated in the quarter, but mostly due to the lower sales related to the movement of European deals into the third quarter. We still expect meaningful improvement in margins in this segment in the second half of the year. Earnings in the quarter benefited from the strong cloud and edge sales, as well as product mix, with software increasing to 58% of sales. We continue to effectively manage a variety of supply chain and logistics challenges in the quarter, with a comparable amount of shipments delayed to future quarters as we've seen over the last several quarters, approximately $10 million. We anticipate modest improvements as the year progresses, but are still managing long lead times on a variety of key components that we expect to continue at least the rest of the year. From a customer perspective, I'd like to highlight several notable accomplishments over the last several months. As mentioned earlier, we had a very strong quarter with Verizon, Modernization of their voice infrastructure, supporting Verizon business customers as well as the fixed voice network remains a high priority. And we have a similar engagement with Verizon Wireless, adding SBC and network policy and routing management capacity for their network. In addition to the core infrastructure upgrades, we continue to develop new applications such as identity management and advanced analytics that leverage our large and growing deployed telecom infrastructure. Another similar project was a win with Hong Kong Broadband in Asia. This project includes an evolution to our Telco Cloud virtual C20 solution, fully replacing competitor switches and gateways, and is a great example of the opportunity ahead to transform the large base of legacy telecom infrastructure to a more modern cloud-based technology platform. And I was very pleased with three recent wins in France with our identity management solutions. The voice robocall issue is a global problem and the stir-shaken protocol developed by the IETF with initial deployments in the US is expanding into other countries. We've really established Ribbon as a thought leader in this important security area and have more opportunities in the pipeline. Stir-shaken digitally validates the handoff of phone calls passing through the complex web of networks, ensuring that the consumer or enterprise receiving the call can be assured of the identity of the call originator. We continue to have a very good pipeline of IP and optical opportunities in Europe. In particular, the critical infrastructure market vertical is very active as all types of infrastructure providers look to expand and harden their communications networks. Working with our partner, Telecom Italia Mobile, Ribbon was selected for a significant network expansion at Lapida building on the initial project announced in late 2020. Lapita provides the broadband infrastructure for regional public entities in Northern Italy. Partnering with Swedish telecom operator, Telia, we won a network upgrade project with Lithuania national railway operator, Litrail, that includes both our IP and optical solutions. And we also had a win with MEPSO, the electrical utility in Macedonia. This is a combined IP and optical deployment that leverages the security features in our Neptune and Apollo product lines. These new wins build on our strong industry-leading position in critical infrastructure with ongoing deployments with Axpo, SNCF, the Swiss Army, the Israeli Defense Force, and many others. In North America, our optical transport deployments with Rogers continue to go very well, and we're expanding our presence with this customer into commercial enterprise optical wavelength services that will be additive to the core transport network build out. And we also had one of our first enterprise IP networking wins in North America at Texas A&M using our Neptune routing product. This deployment will expand their IP network capacity as well as provide support for a new private 5G mobile network across the university. But more strategically, We've been making significant incremental investments in R&D to position the company to capture a large share of the capex being spent by Tier 1 service providers who need to keep pace with the exponential growth in data traffic. In a recent discussion with a large provider in North America, they reported that traffic is growing at almost 40% annually, and there's really no choice but to continue to invest and deploy new innovative technologies to drive down total cost of ownership and cost per bit. We have a large pipeline of new products being introduced over the next several quarters. In the second quarter, we delivered a major enhancement to our ribbon network operating system routing protocol stack in support of 5G mobile networking requirements and converged multi-service broadband access aggregation. This will significantly expand our addressable market and is a foundation to many of the customer trials we have underway. In the third quarter, we're introducing the first of a series of new IP routers we call the Neptune XDR 2000 series. XDR stands for Flexible Disaggregated Routing. The first new platform is the XDR 2100, which is targeted at a variety of applications, including mobile networking, Ethernet services for business, TDM to IP infrastructure transformation, and XGS Pawn for business. The XDR 2100 is the first of a family of products with four additional platforms being introduced over the next nine months, dramatically expanding the portfolio and our ability to win significant business in the large telecom IP routing industry. As mentioned in our last earnings call, we have a high level of customer activity across all our regions. The number of IP optical RFPs we are competing for with major tier one mobile and telecom carriers has expanded from 12 to 18 over the last 90 days. We expect to double the number of customer POCs in 2022 versus 2021, having already exceeded the number of trials from last year. In particular, the number of IP trials have increased significantly. The combined portfolio of both optical and IP technology is a real strength, with 10 new wins in the quarter that included both IP routing and optical transport products. And with the continued supply chain challenges and global political complexity, there's a heightened focus on supply assurance. Our MUSE platform is central to our strategy here, simplifying the introduction of our products into an existing network and supporting a multi-vendor environment. As a result, we continue to anticipate a significantly stronger second half this year. And the continued increase in Tier 1 service provider opportunities is evidence that the increased R&D investment we are making will pay off. With that, I'll turn it over to Mick to provide additional detail on our second quarter results and then come back on to discuss guidance for the third quarter.