Ribbon Communications Inc.

Greetings and welcome to the Ribbon Communications second 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, Joni Roberts, Chief Marketing Officer. Thank you, Joni. You may begin.

Good afternoon and welcome to Ribbon's second quarter 2023 financial results conference call. I'm Joni Roberts, Chief Marketing Officer at Ribbon Communications. Also on the call today, Bruce McClellan, Ribbon's Chief Executive Officer, and Mick Lopez, Ribbon's Chief Financial Officer. Today's call is being webcast live and archived on the Investors Relations section of our website at rbbn.com. where both our press release and supplemental slides are currently available. Certain matters we'll be discussing today, including the business outlook and financial projections for the third quarter of 2023 and beyond, are forward-looking statements. Such statements are the subjects 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 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'll present non-GAAP financial information on this call. Reconcilations 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 section of our website. And now I'd like to turn the call over to Bruce.

Bruce? Great. Thanks, Joni. And welcome to the ribbon team. And thanks to everyone for joining us today. I'm pleased to report a very solid quarter with financial results above the midpoint of our guidance. Our focus on growing enterprise and cross-selling our IP optical portfolio is working with growth in both sales and earnings. For the first half of the year, sales have increased 5 percent year-over-year and earnings have improved 66 percent or $8 million on an adjusted EBITDA basis. In the second quarter, sales increased 2.3 percent year-over-year to $211 million with continued growth in India resulting in sales in Asia Pacific increasing 21%, while EMA sales were up 1%, and overall North American sales were down 2%. In the optical segment, we continued our trend of double-digit year-over-year growth for the fourth consecutive quarter, with sales increasing 24% year-over-year. In the cloud and edge segment, as expected, sales were down approximately 9% year-over-year, primarily due to lower sales to Verizon, as compared to the record sales a year ago. This was offset by continued strength in our enterprise business, with product sales increasing 94 percent year over year, reaching a new high of 44 percent of overall Cloud and Edge product sales in the quarter. This includes revenue from a very strategic win in the U.S. federal space, the first of what we believe will be many voice modernization projects. Government agencies need to transform their legacy communication infrastructure to modern cloud-based unified communication platforms with high levels of security and survivability. This initial project includes product and services exceeding $10 million, a substantial portion of which was recognized this quarter. As a result of the overall mix in the quarter, gross margins were strong at 52% and above the high point of our guidance. Combined with lower operating expenses, Adjusted EBITDA was also towards a high end of guidance at $23 million. Products and service booking to revenue for the first half of the year was 1.05 times, with the second quarter at 0.9 times, following strong bookings in the first quarter. Now, a little more detail on each of the operating segments. Financial performance for the IP optical segment continued to improve in the second quarter with sales of $85 million and margins increasing quarter-over-quarter and year-over-year to 31 percent. This resulted in a $10 million improvement in adjusted EBITDA as compared to last year. The growth in sales is directly related to the investment we have made in developing new products, resulting in a strong funnel of projects and projected continued growth, with the target of being breakeven on an adjusted EBITDA basis in the second half of the year. Our focus specifically on IP routing continues to show strong results with sales of IP routing products increasing 46% quarter-by-quarter and 41% year-over-year. Our expanding portfolio of routing solutions directly addresses a very large addressable market in multi-service edge aggregation and metro routing for both fixed broadband and mobile networks. Sales of optical transport products increased 21% year-over-year, and maintenance and services revenue increased 1%. India was once again our strongest market, with sales of IP optical products increasing 30% year-over-year, reaching the highest level since the acquisition of ECI in 2020. Shipments included a number of new products, including our 5G cell site router, Neptune XDR routers, and Apollo long-haul optical transport. Deployments of the new CSR router more than doubled in the second quarter versus Q1 as we scaled the program. We expect margins in these new products to improve as volumes increase and the mix of infrastructure and capacity cards is more balanced. Our cross-selling strategy continues to bear fruit in several regions. IP optical sales in North America reached a new high, increasing 94% year over year. and representing more than 15 percent of overall segment sales in the quarter. Following the trend in the first quarter, investment by rural broadband providers funded in part by federal programs was very strong with sales more than tripling versus last year. This has become a strategic market segment for us where we're leveraging the great presence and reputation that Ribbon has established. Our strong IP routing and optical transport portfolio is very well suited for these growing networks. Federal funding programs will increase dramatically over the next several years, as existing programs such as RDOF and ReConnect are augmented by the much larger $45 billion BEAD funding program. Another region where we've successfully implemented our cross-selling strategy, leveraging the local presence and relationships established by Riven is Japan. Following several strategic wins, sales of IP optical products in Japan exceeded 5 percent of overall IP optical sales in the second quarter, up from essentially zero in the first half of 2022. Finally, in the EMEA region, sales grew 6% in the first half of 2023 across a variety of critical infrastructure, telecom, and defense customers. We have a strong pipeline of projects planned for the second half across the region. From a supply chain perspective, issues remain localized to particular new high-demand products where we're still ramping production. We expect continued improvement in the second half of the year and start to see some benefit from cost improvements and full elimination of remaining expedite fees. As expected, IP optical segment margins improved from the low point in the first quarter but are still below our normalized target. We expect further improvement in the third and fourth quarter from both fixed cost absorption from higher sales and improving mix. Now some highlights from our cloud and edge business. Overall cloud and edge sales increased 9% quarter over quarter but were down 9% year-over-year after a record quarter with Verizon a year ago. Excluding Verizon, sales in the quarter actually increased year-over-year. Margins were very strong at 67% with a favorable mix of software licenses and enterprise sales in the quarter. Product and services booked to revenue was 1 times, 1.0 times for the quarter. As I mentioned, we were very excited to close a significant voice modernization deal for a major U.S. Department of Defense agency in the quarter. We anticipate this to be one of several projects starting this year as federal agencies transition from legacy on-premise TDM PBX or IP Centrix infrastructure to cloud-based unified communication solutions. The unique security and survivability requirements and multi-site complexity is very well suited to Ribbon's broad portfolio of session border controllers, telephony application servers, media gateways, and advanced analytics. Ribbon's expertise and experience is also a key differentiator. The sales process for these projects is certainly lengthy and complex, but working with key integration partners such as Dell and multiple managed service partners will allow us to scale and standardize a common solution for the market. The federal project helped contribute to the very strong quarter for sales to enterprise customers. The leading market vertical was once again financials, with multiple projects including a significant expansion project at J.P. Morgan and other projects at Goldman, Bank of America, and Barclays. This helped to contribute to a solid quarter for SBC sales, with shipments of core SBC platforms increasing 25 percent year-over-year. In addition, the service provider sell-through business also remained strong, with sales of enterprise edge SBC products up 8 percent year-over-year following the almost 60% increase in the first quarter. In addition to the high activity level with enterprise customers, we've seen an increased level of engagement with service providers, evaluating options to modernize their voice infrastructure. We were recently awarded significant projects totaling more than $10 million with four major service providers in multiple regions, including the US, Europe, Middle East, and Africa, that are all focused on replacing legacy voice infrastructure with modern software-centered platforms that provide immediate operating cost benefit and significant feature advances. In the case of these four operators, they have not made significant investments in this part of their network for years, but this is now a key part of their strategy to improve operating efficiency. The urgency to replace aging copper TDM networks with modern fiber-based IP networks while minimizing service disruptions continues to grow. 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 outlook for the second half. Mick?