Ribbon Communications Inc.

Greetings and welcome to the Ribbon Communications 4th Quarter 2022 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief 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. It is now my pleasure to introduce your host, Bita Melanian, Senior Vice President, Global Marketing. Thank you, Bita. You may begin.

Good afternoon and welcome to Ribbon's fourth quarter 2022 financial results conference call. I am Bita Moulanian, 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 first quarter of 2023 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 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 GAAP measure are included in the earnings press release we issued earlier today, as well as 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?

Thanks, Peta, and thanks to everyone for joining us today to discuss our fourth quarter results and our outlook for 2023. I'm very pleased to report solid financial results for the fourth quarter, the strongest quarter of the year, with year-over-year growth in revenue and earnings. Overall, sales were above the midpoint of guidance, growing 13% sequentially and 1% year-over-year. Adjusted EBITDA increased 25 percent versus the third quarter and 11 percent versus the fourth quarter of 2021. And bookings momentum continued with book-to-revenue of 1.1 times, even with higher sales levels in the quarter. Operating expenses were slightly higher than we projected, primarily related to higher customer-related travel expenses and variable sales compensation. Continued elevated supply chain costs and component expedite fees along with customer and product mix resulted in gross margins a little below our initial projections. The highlight of the quarter was the continued improvement in our IP optical business, with sales improving across all regions and multiple new customer wins. In particular, momentum continued to grow in our IP routing portfolio, which we believe will only get stronger as additional new products enter the market this year. But we also posted good results in our Cloud and Edge segment with one of the strongest quarters ever for sales to enterprise customers and a strong quarter for session border controller sales. All of this resulted in $16 million of free cash flow in the quarter and $67 million of cash at year end. Overall, it was a very good quarter and sets a great foundation for 2023. Now, a little more detail on each of our operating segments. This was by far the strongest quarter for our IP optical networks business since the ECI acquisition in early 2020. Revenue was $97 million, growing 18% quarter-over-quarter, following growth of 20% in the third quarter. Sales of optical transport equipment grew 16% versus the third quarter and were up 6% year-over-year. Sales of our IP routing portfolio grew even faster, increasing 21% quarter-over-quarter, and 34 percent versus the fourth quarter of 2021. Production of several of our high-volume access routers continued to be limited by availability of very specific microcontroller parts, which would have further increased our Q4 revenue by approximately $10 million, but which has now moved into backlog for the first half of 2023. We expect to have a new design in production by the end of the second quarter, as well as additional supply eliminating this following. The EMEA region was once again the strongest region for IP optical sales across a broad range of customers in continental Europe, Africa, the UK, and the Middle East. Highlights include growth with the Israeli Defense Forces, Cicero Networks, formerly Corning Services, British Telecom, and the Finnish Defense Forces. We also had several new wins in Europe at the end of the quarter, including expansions with the Swiss Army and German railway operator Deutsche Bahn. as well as the Czech Republic Science and Education Network Operator. We believe these new wins will get us off to a good start in the first half of 2023. The most significant growth this quarter was in the Asia-Pac region with multiple key wins, including Eastern Telecom and InfiniiVan in the Philippines, Viettel in Vietnam, Taiwan Mobile, and multiple operators in Africa, including MTN Global Connect and Bofanen. And we were very excited to be awarded for the first time ever a portion of Bardi's optical transport long-haul DWDM network in India. This is a major accomplishment for the team and highlights the completeness of our portfolio in a highly competitive and fast-growing market. These are the exact type of Tier 1 operators we're targeting to provide additional scale and predictability for the business. We also continue to make progress on our strategic goal of gaining scale in the critical North American region, with full-year sales increasing more than 30 percent versus 2021 and exceeding 10 percent of overall IP optical sales for the year. Opportunities with additional major Tier 1 mobile and telecom operators also continue to progress. I count a total of six wins at this stage where we have now received orders and are at various stages of early deployment, and at least eight additional highly active engagements that have potential for incremental revenue in 2023, along with a variety of other engagements in early stages. This funnel is key to our strategy to drive longer term scale and growth for this business and incremental to the current base. Product and service bookings were strong again this quarter, keeping pace with increased shipments with a 1.05 times book to revenue in the quarter. Optical bookings were particularly strong on the back of several new customer wins in Asia back. Now some highlights from our Cloud and Edge business. Sales in the fourth quarter increased 10% versus the third quarter, but we're down 7% year over year. Despite the lower sales, adjusted EBITDA margin for the segment improved 117 basis points versus the fourth quarter of 2021, primarily due to spending improvements implemented throughout the year and continued strong mix of software sales. Product and service bookings were strong at 1.15 times. Our focus on the faster growing enterprise market segment showed positive results once again this quarter, with revenue growing 67% quarter over quarter and 7% year over year. reaching 37% of CloudMed's product and service sales in the quarter. Sales were distributed across a number of market verticals, including customers such as Liberty Mutual and Insurance, HCA and Healthcare, JP Morgan and Vanguard in financials, and Qualcomm in technology. We believe Ribbon is uniquely positioned to meet the large, complex communication needs of these Fortune 500 companies. Our business model in the enterprise market continues to evolve, with an increasing mix of annual enterprise-wide license agreements and as-a-service recurring monthly subscription revenue. Multiple significant opportunities in the federal government segment continued to progress in the quarter. We're working with a number of important channel integration partners, including Dell, to provide a comprehensive, pre-integrated federal solution. I remain very excited about the potential opportunity and expect revenue from these large, complex projects to begin to build throughout the year. From a product mix perspective, sales of session border controllers and associated policy routing products were strong in the quarter, increasing 59% from the third quarter. Shipments of both core high-performance SPCs as well as enterprise edge appliances were strong, serving both enterprise and service provider segments. We also had a strong quarter with cloud communication partners such as Bandwidth, SoftBank, IntelliQuint, and Peerless, and contact center providers such as InContact. We also continued the momentum behind our analytics offering. We had new international wins with Optus in Australia and Colt in France for our fraud and robocalling prevention application. By leveraging cloud technologies, these customers benefit from a fast and seamless deployment experience, helping them protect customers from a wide variety of annoying and potentially malicious calls. Shipments of our voice network transformation solutions were consistent with the previous quarter, with a continued shift towards telco cloud solutions such as our virtual C20 call controller. We were excited to announce a strategic win with Liberty Latin America as they consolidate multiple legacy platforms across their footprint onto our modern cloud-based architecture, while also leveraging our advanced analytics application suite. There remains a strong pipeline of similar network modernization opportunities that will provide a solid underpinning for the business in 2023. Revenue with our largest customer, Verizon, once again exceeded 10% of our overall sales and was consistent with the third quarter. Finally, fourth quarter is our strongest period for renewing maintenance and support contracts, and bookings were even stronger than usual and underpins the profitability and stability for this business. Our focus on securing multi-year agreements is a key part of our strategy, and we have broadened our offering to include a variety of value-added services, including software upgrade assurance, to further increase our value and attachment rate. With that, I'll turn it over to Mick to provide additional detail on our fourth quarter results, and then come back on to discuss outlook for the first quarter and 2023. Mick.