Ribbon Communications Inc.

Greetings and welcome to the Ribbon Communications first quarter 2023 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 first quarter 2023 financial results conference call. I am Pita 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 second 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 document 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 of 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 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, Vida, and thanks to everyone for joining us today. I'm very pleased with our performance to start off the year with financial results just above the midpoint of our guidance, building on the momentum from the second half of 2022. Overall, sales grew 7.5% year-over-year to $186 million, and adjusted EBITDA increased $6 million to minus $2 million in the quarter. Bookings were, once again, very strong, with a product and service book-to-revenue of 1.23 times for the company. This represents a 14% increase in bookings generated this quarter versus the first quarter of 2022. Non-gap operating expenses were lower by $4 million, or 4% year over year, in line with our strategy to reduce operating expenses and improve profitability. Gross margins were at the high end of our guidance for the quarter, reflecting consistent margins with our cloud and edge business, and lower margins as expected in our IP optical business from customer and regional mix. We ended the quarter with cash of $46 million, with cash from operations of $11 million, and a total $80 million reduction in our senior secured debt following a successful capital raise, which Mick will go through in more detail in a minute. The key business highlights for the quarter were the 7.5% year-over-year increase in total revenue, a strong IP optical book to revenue of 1.6 times, and a 62% growth in cloud and edge sales to enterprise customers. Now, let me go through a little more detail on each of our operating segments. This was the third quarter in a row that we've had double-digit year-over-year revenue growth for our IP optical segment and a book-to-bill well above 1.0 times. Sales increased 13% year-over-year and book-to-bill was 1.6 times in the quarter. Year-over-year sales growth included a 20% increase in IP routing products, a 14% increase in optical transport products, and an 11% increase in maintenance and service revenue. The continued growth in sales is directly related to the increased investment that we've made in new products. In our IP routing portfolio, we've introduced our new XDR 2000 series that supports a variety of applications, including multi-service edge aggregation and high-performance metro routing. Based on the latest generation of merchant routing silicon, these built-for-purpose platforms compare favorably on a cost, density, and power perspective. with a routing feature set to address the large telecom IP routing market. The portfolio scales from 800 gigabit edge aggregation routers through to 3 terabit and 8 terabit modular redundant platforms for metro aggregation and IP transport. Our unique pay-as-you-grow architecture allows additional switching capacity to be added as needed, providing a compelling total cost of ownership. Integrated optical interfaces, including 400 gig ZR and ZR plus coherent optical pluggables enables further convergence of the IP and optical layers of the network. We've also extended our Apollo optical platform to support additional long haul transport capabilities, further expanding our addressable market and resulting in several recent customer wins. Here are a few specific highlights from a customer and regional perspective for the first quarter. Our business in India continues to gain momentum as we execute on previously announced wins with Bharti Airtel in both optical transport and IP routing, as well as growth with other operators in the region, such as Tata Teleservices. Sales in India increased 18% year over year as we scale production of the new optical and IP products, and we had a strong quarter for new bookings, primarily for our new products. We expect this region to continue to grow given the long awaited investment in deploying 5G technology and the continued exponential growth in internet traffic. Our increased presence and scale in India also benefits our cloud and edge business with several voice infrastructure deals closing in the first quarter and a good funnel of enterprise opportunities. As we indicated last quarter, we're having good success in the EMEA region with sales increasing 10% year over year across a variety of critical infrastructure, telecom, and defense customers this quarter. Bookings were particularly strong in the region as we closed a new five-year agreement for products and services with our largest defense industry customer. The contract included a large $45 million order, a portion of which is included in the quarter's bookings total and scheduled for delivery in 2023. The remainder of the order will book in future periods as it's scheduled for delivery or completion. This is a great validation by this key customer that places the highest priority on quality, service, and security. In the U.S. region, we're seeing continued growth in investment from U.S. regional telecom and broadband providers with multiple different federal funding programs benefiting the industry. Our IP optical sales in the U.S. grew 78% year-over-year and reached a new high, with shipments to rural telecom providers nearly doubling a trend that we expect to continue throughout the year. From a supply chain perspective, we continue to manage a number of component shortages, particularly related to the ramp of new products. This limited shipments by approximately $10 million in the quarter, but more broadly, we've made good progress addressing other supply-related issues. As we expected, IP optical segment margins were below our normalized target this quarter, as we ramp several new products and supply the infrastructure elements for several new DWDM optical projects. We expect modest improvements in the second quarter, followed by more significant improvement in margin in the second half of the year. Now some highlights from our Cloud and Edge business. Sales in the first quarter increased 4% year over year, with sales to enterprise customers increasing more than 60%, and related SBC sales increasing 24% versus the first quarter last year. Gross margins were roughly in line with Q1 last year at 61%, despite a higher mix of enterprise edge SBC hardware platforms. Combined with lower OPEX of 6%, adjusted EBITDA for the segment increased $5 million, or 28% year-over-year, a very good start for the year. Product and service bookings were 0.9 times following strong bookings last quarter for professional services that's converted into revenue over several quarters. From a regional perspective, the growth in cloud and edge sales year over year was primarily in the US and European markets, along with another solid quarter of business in Japan. Sales to service providers were flat year over year, and enterprise sales accounting for the growth in the segment. Specifically in the US market, cloud and edge sales to our top tier one service provider accounts were up 2.5% year over year. We expect overall sales to U.S. service providers to increase sequentially in the second quarter, but to be lower than last year's very strong quarter. From an enterprise perspective, we partnered closely with Bank of America this quarter to provide a significant upgrade to their core SBC and policy routing infrastructure. This is a marquee customer force, and we have a prominent role in their communications infrastructure. We also continued several significant voice modernization and capacity expansion projects with customers such as Qualcomm, Wells Fargo, Citigroup, and ADT. We maintain good velocity with our service provider channel partners this quarter as we sell through a significant quantity of Enterprise Edge SPC servers to midsize enterprise customers for a variety of unified communications applications such as Microsoft Teams and Zoom, as well as hosted Centrix replacement. Enterprise Edge SPC revenue was up almost 60% year over year. Enabling our channel partners is a key part of our enterprise strategy, and we're supporting them as they transform their product offerings. Horizon, AT&T, SHI, and Converge One are strong examples of U.S. partnerships where we're enabling managed service offerings, leveraging ribbon products and services. Ultimately, the momentum in enterprise resulted in a very strong quarter for sales of session border controllers and related policy routing and analytics solutions. In fact, one of the key ways we differentiate our voice communication products is with our advanced analytics platform, supporting a variety of applications, including service assurance and fraud management. We had a number of expansion deals with both enterprise and service provider customers this last quarter, increasing revenue more than 100% year over year for our suite of application services. Our support services are also a key differentiator for us. and our cloud and edge maintenance revenue continued to hold steady and was consistent with last year. We now have almost 90% of our projected maintenance revenue for the year already in backlog or under contract. With that, I'll ask Mick to come on and provide additional detail on our first quarter results, and then come back to discuss outlook for the second quarter. Mick.