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spk06: Greetings and welcome to the Ribbon Communications Third 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 and 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. Please go ahead.
spk01: Good afternoon and welcome to Riven's third quarter 2023 financial results conference call. I'm Joni Roberts, Chief Marketing Officer at Riven Communications. Also on the call today are Bruce McCollin, Riven's Chief Executive Officer, and Mick Lopez, Riven's Chief Financial Officer. Today's call is being webcast live and will be archived on the investor relations sections 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 fourth 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 and Form 10-Q. I refer you to our safe harbor statements included on slide two of the supplemental slides for this conference call. In addition, we'll 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 supplemental slides we prepared for this conference call, which, again, are both available on our investor relations section of our website. And now I'd like to turn the call over to Bruce. Bruce?
spk13: Great. Thanks, Joni, and thanks to everyone for joining us today. I'm pleased to report solid earnings in the third quarter, despite revenue coming in short of expectations. Positive customer and regional mix, lower product cost, and strong software sales all contributed to improved gross margins in both of our segments. And as a result of the restructuring plan we implemented earlier this year, our operating expenses continued to improve and were $87 million on an adjusted basis, the lowest point in over three years. Combined, this resulted in adjusted EBITDA earnings of $28 million, up 21% year-over-year, and near the midpoint of our guidance. This included an EBITDA improvement of $6 million in our IP optical network segment. Sales in our IP optical business continued to grow year over year for the fifth straight quarter with sales increasing 6% and up 14% year to date. Sales in our cloud and edge segment were down 4% year to date with reduced spending from US tier one service providers offset by growth from other customers. The shortfall in revenue this quarter relative to our guidance was largely due to timing of several IP optical projects in the EMEA region. Several of the projects are now planned for this quarter and the first quarter of 2024. We also had a large cloud and edge enterprise RFP that we expected to close in the third quarter that was paused and is now expected in 2024. Despite the lower revenue, Lower product costs and strong software mix resulted in very good gross margins for both businesses this quarter. Before I go on to the segment results, I'd like to update you on the status of our operation in Israel. As many of you know, we have a substantial presence in Israel with approximately 20% of our employees located in our office near Tel Aviv. The office is primarily focused on our IP optical business with the majority of employees in R&D and operations. We also perform a portion of our manufacturing with Flex in Israel. Following the attack several weeks ago, approximately 60 people or 10% of our local team in Israel have been called up to the Israeli Defense Force or IDF. We don't currently expect this to increase significantly. We have planned for this possibility and have a global R&D and operations capability with significant presence in India, Europe, and North America. Our main office in Israel is open, and employees are working both in the office as well as remotely. We have an incredibly dedicated team, and it's really amazing to see them adapt and overcome during this challenging time. We're in constant communication with our team, and our priority is the health and well-being of them and their families. Our manufacturing partner, Flex, is also fully open and operating at normal capacity. We have a global manufacturing capability and have already shifted a portion of our requirements to other locations. While logistics are certainly more challenging, we do not anticipate an impact to our operations at this time. Now on to the segment results. We continue to make good progress towards our goal of achieving profitability in our IP optical segment, with adjusted EBITDA improving to negative 3.9 million in the quarter an improvement of $6 million year over year and $8 million sequentially. Sales of our IP routing solutions increased 30% year over year and up 31% year to date, driving top-line growth for the segment. From a regional perspective, IP optical sales to India were once again strong and increased 51% year over year this quarter and are up 34% year to date. Momentum in the U.S. rural segment was strong again this quarter, with IP optical sales in the U.S. increasing 49 percent year over year, and overall sales in North America up 58 percent year to date. The EMEA region was weaker in the third quarter than we had expected, with several projects delayed to Q4 or early 2024. However, we do expect a much stronger fourth quarter from this region. We achieved a very important milestone this quarter. The strategy from the beginning of the merger of Ribbon and ECI was to successfully penetrate U.S. Tier 1 service providers with our IP optical portfolio. Following 24 months of work and investment to adapt the portfolio to better fit the U.S. market, we finally went live with our Neptune IP router inside the AT&T network. We have been working with AT&T on a number of use cases that leverage the Neptune platform to replace older routing platforms and to transition TDM and copper networks to modern IP technology. This will enable AT&T to significantly reduce costs and simplify their network, eliminating legacy transport networks and wiring centers over time, while maintaining existing residential and business service offerings, as well as helping to achieve environmental sustainability goals. The solution leverages products from both our voice and IP portfolios and has undergone extensive certification and system validation testing, including Ozmine certification and live network testing. The solution can be used across hundreds of switching offices nationwide and even larger number of enterprise locations. It's very exciting to finally reach this in-service milestone with a major US tier one. This multi-service edge routing capability is also being used by several other carriers in the US and is a great entry point for IP routing technology that allows us to land and expand inside a carrier's network. We also continue to get good feedback on our new Apollo 9400 compact modular optical transport platform, supporting industry-leading 1.2 terabit per second wavelengths. We received first orders for the product in the third quarter and have multiple trials in process in the fourth quarter including a European Tier 1 service provider customer. The first variant of the solution is focused on high-performance applications that maximize capacity over long distances. Initial shipments will begin this quarter with the general availability planned for January 2024. A lower power variant on the same platform aimed at supporting metro and regional transport applications is planned for availability in the second quarter of 2024. In our cloud and edge segment, despite the lower sales this quarter, we delivered solid earnings with strong gross margins and lower operating expenses. Sales to enterprise customers are up more than 40% year-to-date, and we have growing interest in our new pricing model that emphasizes software term licenses rather than perpetual licenses. While this lowers the initial revenue for the deal, it provides a base of future recurring revenue, which is very important to the business. In the US federal space, the voice modernization opportunity across multiple federal agencies continues to gain momentum. Following an initial significant win in the second quarter, we shipped additional expansion capacity this quarter as the project progresses, and we expect multiple additional phases over the next 12 months as legacy on-premise TDM infrastructure is replaced with modern cloud-based solutions. We have a great partnership with Dell Technologies that brings us major scale and reach across multiple public sector customers and with highly specialized partners such as VAE that have great technical depth and credibility in this space. We also had an initial shipment to another branch of the armed forces this quarter, which is just the beginning of another significant phase deployment. As I mentioned last quarter, we've seen increased activity internationally from service providers evaluating options to modernize their voice infrastructure. In the third quarter, we were awarded three new major international voice core modernization projects that together we expect to generate more than $25 million over the next 12 months. We had expected to recognize a portion of the deals in the third quarter, but contract discussions extended into the fourth quarter. Two of the three deals are now under contract, and we expect the third to be finalized in the next few months. with revenue recognized over the contract period. Similar to voice modernization projects in the U.S., these projects include the replacement of aging telecom infrastructure with modern software-centric platforms that significantly reduce the operating costs, improve reliability, and expand service capability. As expected, our U.S. Tier 1 service provider spending continues to be lower this year, impacting year-over-year comparisons. even as the rest of our customer base continues to grow. However, early planning for 2024 with our key U.S. customers gives me confidence this will recover next year. And in fact, there's a very good opportunity for growth with projects such as the AT&T Multi-Service Edge IP Routing Program. From an overall bookings perspective for the company, we're at 1.0 times year-to-date following a strong Q1 2020. Cloud and Edge bookings in the third quarter were 1.2 times, with several multi-quarter voice modernization projects booked that include deployment services. IP optical bookings were 0.7 times in the quarter, as we continue to ship against large orders from the first quarter to India and European defense customers. With that, I'll turn it over to Mick to provide additional detail on our third quarter results and then come back on to discuss Outlook for the fourth quarter. Mick?
spk17: Thank you very much, Bruce. Good afternoon, everyone. In the third quarter of 2023, we were pleased with our financial performance from a profitability perspective. While revenue was below expectations, we were able to compensate with an improved gross margins and continued expense reductions, leading to non-gap-adjusted EBITDA around the midpoint of our guidance. Please refer to our investor relations page on the Revenue website for supplemental slides summarizing our third quarter 2023 and historical financial performance. Let's begin with consolidated corporate financial results. In the third quarter of 2023, Ribbon generated revenues of $203 million, which is a decrease of 2% or $4 million from the prior year, as our growth in IP optical almost compensated for the decrease in cloud and edge products. Non-gap gross margin was 54.8%, which is 30 basis points higher than prior year, and a 280 basis point improvement from the previous quarter due to a positive mix and lower product royalties and costs. Non-GAAP operating expenses were $87 million, a decrease of $7 million, or 7% year-over-year, driven by reductions in R&D and sales expenses. This marks the third consecutive quarter of sequential expense reductions as a result of our restructuring efforts. Non-GAAP net income was $9 million, which is a $5 million increase from the previous year. This generated non-GAAP diluted earnings per share of 5 cents, which is an increase of 3 cents versus prior year. Our non-GAAP tax rate year-to-date is 35%. Our interest expense for the quarter was $7.1 million, which is a $2 million increase from the previous year, driven entirely by the increase in interest rates. Non-GAAP EBITDA was $28 million in the quarter, which is a $5 million, or about 20% improvement, both year-over-year and quarter-over-quarter. Our basic share count was 171 million shares, and our fully diluted share count was 176 million shares for the quarter. Now, let's look at the results of our two business segments. In our cloud and edge business, third quarter revenue was $116 million, a decrease of 7% year-over-year, driven by decreases by U.S. Tier 1 service providers. Our services business remained consistent year-on-year, delivering value to our customers and strong profit generation. The cloud and edge business had a strong non-GAAP gross margin of 68%, up 240 basis points from the prior year, driven by mix, and up 130 basis points from the second quarter as a result of higher software revenue percentage. adjusted quarterly EBITDA was $32 million, consistent with the previous year, although we had lower revenues this year. Let's turn to our IP Optical Networks business results. We recorded third quarter revenue of $87 million, which was an increase of $5 million, or 6% year-over-year, led by continued growth in India, North America, and Japan. Non-GAAP gross margin for IP Optical was 38%, which was in line with the prior year, and significantly higher by 680 basis points than the previous quarter. This was driven mostly by a one-time royalty adjustment, better product mix, and fixed cost absorption from higher revenues. As we noted in the last quarter, as we continue the revenue growth with improved sales in Europe and Americas, we aim to achieve our target gross margins in the mid to upper 30% range for the IP optical networks segments. Non-gap adjusted EBITDA loss for the quarter was reduced to $4 million, which is an improvement of about 60% or $6 million year-on-year and 68% or $8 million improvement over the previous quarter. We have cut the EBITDA loss in about half for each of the past couple of quarters. As we mentioned in the last earnings call, we're expected to have higher working capital requirements in the third quarter as we grow the IP optical business in the second half. Cash use from operations was $12 million. In addition, we used cash for $3 million in capital expenditures and our quarterly $5 million term loan repayment. Therefore, we ended the quarter with $25 million of cash and cash equivalents, which is a decrease of $10 million from the previous quarter. Our senior term loan balance is $240 million, and we had $10 million drawn on our revolver loan, which has a $75 million capacity. Our preferred stock and warrants are valued at $55 million. For the bank covenant calculations, which include preferred equity and total debt, among other adjustments, we've met both of the amended term loan covenant metrics in the quarter. Now, I'll turn the call back to Bruce to provide more comments on our outlook for the fourth quarter. Bruce?
spk13: Great. Thanks, Mick. We expect the fourth quarter to be a very important milestone for us, with continued sales growth and improved gross margin in our IP optical business, resulting in the segment reaching profitability on an adjusted EBITDA basis. We project IP optical sales in the quarter to exceed $100 million for the first time since 2019 and double-digit growth for the full year. We anticipate IP optical sales in Europe, the Middle East, and Africa to contribute the majority of the sequential growth across multiple market verticals. We also anticipate sequentially higher sales in North America with another strong quarter with rural broadband providers and a small amount of revenue associated with the AT&T project. We expect India to remain one of our strongest markets with consistent IP and optical shipments to BARTi and Tata Teleservices. We also expect strong IP optical gross margins in the fourth quarter, benefiting from the higher sales, better regional mix, and lower product costs. As we look into 2024, we expect to build on the momentum we have developed and gain share in multiple regions. And we're very excited about the new AT&T project and several adjacent programs where we will have an opportunity to expand our presence within their network. We're very focused on building out our portfolio of multi-service edge IP routing solutions, including TDM circuit emulation, 5G cell site routing, and IP MPLS aggregation. We have several additional tier one service provider opportunities that we expect will drive additional IP running growth in 2024, building on the 30% plus growth we've accomplished this year. In our Cloud and Edge segment, the work we have done to transition from perpetual licenses to renewable term licensing for enterprise customers will benefit us in the fourth quarter with a number of annual enterprise license agreements expected to close before the end of the year. We also anticipate another strong quarter for U.S. federal agencies, including new projects as well as expansion for active voice modernization projects, although we have reduced our projection somewhat to account for the length of time it takes to evaluate and award these complex programs. In the U.S., Tier 1 service provider spending is expected to remain constrained and lower than last year, but we do anticipate opportunity for this to rebound in 2024. Internationally, we expect to generate first revenue from the significant voice core modernization projects I mentioned earlier. Overall, we expect cloud and edge sales in the fourth quarter to increase sequentially from the third quarter, but to be lower year over year. Based on the above backdrop and assumptions, for the fourth quarter, we're projecting revenue in a range of 230 to $240 million. non-GAAP gross margins of 54.5 to 55.5 percent, and non-GAAP adjusted EBITDA in a range of $40 million to $46 million for the quarter. Operating expenses continue to exceed the lower spending targets we established for the year. For the full year, our Q3 results, along with the fourth quarter guidance, imply a sales range of $830 to $840 million, and adjusted EBITDA of $88 to $94 million. Our guidance assumes no significant impact from the war in Israel or disruptions in U.S. federal spending related to pending approval of the fiscal year 2024 budget. Let me wrap up by emphasizing the important role our service provider customers play in providing the foundation for highly reliable, secure communications. that's critical to practically all industries and consumers. The demand for bandwidth continues to grow exponentially, and the additional traffic that will be generated by new AI and machine learning technologies, particularly at the edge of the network where Riven is focused, will not be possible without continued investment and adoption of new networking technologies. I believe this is a very attractive market to invest in, and provides significant profitable growth opportunities, particularly for new challengers such as Ribbon. The major investments that we've made in the development of new products, combined with our broad customer base, puts Ribbon in an excellent position to capitalize on these macro trends.
spk08: Operator, that concludes our prepared remarks, and we can now take a few questions.
spk07: Thank you.
spk06: Ladies and gentlemen, we will now be conducting a question and answer session. If you would like to ask a question, please press star and 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
spk07: Ladies and gentlemen, we will wait for a moment while we poll for questions. Our first question comes from the line of Eric Suppiger with JMP Securities.
spk06: Please go ahead.
spk18: Yeah, thanks for taking the question. On the carrier spending in North America, Any thoughts in terms of timing, how long this is going to stay in this state? Then also, any comments about the contribution level from your new products to the IP optical revenues?
spk13: Hi, Eric. Thanks for the questions. So on the tier one spending environment, I think we're in a lower environment through the end of the year, obviously. I think budgets are still being set going into next year, so it's a little early. What is obviously key for us is where do those dollars get spent? And as I mentioned on my remarks, the early planning we have for next year indicates there's opportunities for us to grow from where we're sitting here today and rebound back to a more normalized level. There are literally thousands of class five wiring centers and switches still that are yet to be modernized. And we're working on how do we help our customers go faster in enabling that, including the new routing solution I talked about that basically helps eliminate some of the legacy Sonnet and TDM interfaces. So I think, you know, we'll have obviously a much better view as we get towards the end of the year here. On the contribution of new products, I'd estimate about 20% of our product sales in the third quarter in IP optical were from new products that we introduced earlier this year. So there are things like the new long haul, optical long haul platform, cell site routers, the next generation Neptune 2000 series, you know, all of those have combined to 20% or in that order in the third quarter from a revenue perspective.
spk09: You still with us, Eric?
spk02: Oh, that's all my questions. I'm good. Thank you. Thank you.
spk06: Thank you. Our next question comes from the line of Greg Mesniff with West Park Capital. Please go ahead.
spk16: Yes, thank you for taking my question. Bruce, a two-part question on the AT&T win that you talked about. Is that a multi-vendor award or are you the primary supplier or are you the sort of the second supplier. How does that shake out? And I have a follow on.
spk13: Yeah, thanks, Greg. So it's a fairly unique solution where we combine our routing platform with our voice core. And it basically allows the interconnect for voice traffic, as well as functions like circuit emulation, allows you to terminate a TDM trunk and run it over top of IP. So the way we've architected it and then going through what they call Ozmine certification, which is the back office provision management, makes it pretty unique. So I think it's a unique solution in the market that's not just applying to AT&T. It's really a broad use case for a more rapid replacement of TDM and copper links while still preserving the functionality and the interface into either the consumer or the enterprise.
spk16: So I think it's a fairly unique solution that we've put together and As far as I know last quarter you had some tier three smaller carrier winds in the US can you talk about any progress there and generally speaking have your recent winds and IP optical been market share displacements or you know, additional being added to the to the existing vendor list. Can you just kind of give us some color on that? Thanks.
spk13: Yeah, thanks, Greg. So the U.S. rural broadband space continues to be very robust. I think we grew about 50 percent year over year in that segment and in the third quarter. So that's been very consistent growth this year. And we think the fourth quarter is, again, equally strong or more so in that market. So our U.S. business and our North American business in general has continued to increase and be a much more substantial amount of the business. And we think that continues going into next year as well.
spk16: Thank you. And just to follow on on my first question, it sounds like from a feature perspective, your IP optical products space Strength is their ability to emulate legacy protocols and combine them with new transport capabilities. Is that a fair statement? Is that kind of your secret sauce when you get into competitive bidding situations? Thanks.
spk13: Yeah, so that's a good question. And I think we've identified a spot in the market that is unique, perhaps a little unique to us, and maybe underserved. And so it's a great entry point into the carriers, both large and small, where we can really differentiate. Once a platform or an operating system is integrated and homologated in the network, it's a lot easier to expand to a lot of different use cases. And that's what I was referring to in my remarks, right, that I think once we're in with a use case, it could be a cell site router, or it could be circuit emulation, or it could be you know, IPMPLS, metro aggregation. I mean, any of those provide an entry point for us to then grow and find other places to expand the products. And to, you know, your other question on gaining share, for the most part, you know, I think these are share gains. In fact, you know, I think I saw the second quarter industry report showing us gaining share in the North American carrier service provider aggregation portion of the market. some good momentum and some independent statistics that show we're gaining share there.
spk15: Okay, thank you. Thanks very much, Greg.
spk06: Thank you. Our next question comes from Dave Tang with B. Reilly Securities. Please go ahead.
spk05: Thank you. Good afternoon. My first question is regarding AT&T. Just wondering who are the current incumbents and is this a displacement or just an addition by AT&T?
spk13: Yeah, so I think there's, thanks Dave, a number of suppliers obviously in the mix in their kind of core routing and metro today. Again, this is kind of a new use case that we've identified, focused in on, obviously, where our strength is around the voice infrastructure portion of the network. And, you know, there's a lot of opportunity here to replace legacy class five end offices, collapse tandem switches, and then on the enterprise side, migrate customers from legacy TDM interfaces, could be Sonnet infrastructure, onto a pure IP network. And I think, you know, again, I think we've got a pretty unique solution here. I think some of the larger providers like a Cisco is clearly in the deployments there as well.
spk05: Got it. And just wondering if you can kind of quantify the opportunity here and when do you expect to start to ship to AT&T and for how long?
spk13: Yeah, so we're obviously early on the planning for next year. We're in, as I mentioned, early deployments now and deploying in a number of additional locations through the end of the year. I think we'll have better visibility later in the year on what next year looks like. Ultimately, these are tens of millions of dollars of opportunities for us, obviously potentially larger as we expand the number of use cases and really prove ourselves in the network.
spk05: Got it. And then regarding optical or IP optical in Europe, it was down 22%. I think you mentioned some of the projects being delayed. Is that related to macro headwinds? Is that uncertainty causing customers to kind of delay projects or any color on that situation? And what makes you think or – Are you expecting them to be then this quarter, in the fourth quarter?
spk13: Yeah, so this is not a, I'll call it a macro headwind in the context of excess inventory and those types of issues. I do think getting to a decision on an opportunity takes longer. Clearly, the interest rate environment creates more challenges. So people are being more careful in their spending. Um, but I, you know, from a, it's not so much really a macro trend issue, you know, as far as Q4, um, you know, our bookings velocity so far in the quarter has been very healthy. Uh, so we've got, I think better, better visibility, uh, better momentum into the quarter. Um, some regions like India were already, you know, kind of fully backlogged for the quarter. So I think the context here and the visibility we have into the different opportunities is pretty strong at this point, Dave.
spk05: Yeah, and speaking of India, some of the common equipment vendors that sell into India are pointing out that India could be peaking or slowing down already. Just wondering what you see from your Indian customers.
spk13: Yes, I think it depends on what part of the network you're in. If it's in the RAN portion of the network, I think that's fairly true. The piece of the network we're in, kind of optical transport, their IPMPLS network, and their cell site routers, you know, I think the capacity additions there are happening later in time than the original RAN infrastructure. So, you know, again, we've got very good visibility into the fourth quarter. You know, I think next year looks pretty positive as they continue to expand, in particular, things like cell site routers into the locations where they're adding 5G coverage. And obviously, the new share that we have around optical helps us as well, particularly around margins. Now that we've shipped a lot of the infrastructure elements, we can ship more of the capacity elements going forward.
spk10: Thank you. Thanks, Dan.
spk06: Thank you. Ladies and gentlemen, a reminder, if you wish to ask a question, please press star and 1. Our next question comes from the line of Tim Savage Girl with Northern Capital Markets. Please go ahead.
spk04: Hey, good afternoon, and congratulations on the win with AT&T. It's probably been a long time coming.
spk03: And not related, but somewhat so.
spk04: Just real quickly, any 10% customers in the quarter? And I'll go on from there.
spk13: Yeah, hey, Tim. So Verizon was a 10%-plus customer again in the quarter, in third quarter here.
spk04: Okay, just Verizon. And part of the reason I ask that is I don't know what it is about Q3 reports, but, you know, last year – on this call, you guys talked about a number of tier one wins and I think announced the, the Barty deal, um, somewhere around that, maybe in advance of that. And of course you're talking a lot about some incremental tier one opportunities. I guess they didn't make it to 10% in the quarter, but India is fairly strong. And I think you've already taken a crack at, at, um, sizing the opportunity with AT&T, at least the short-term opportunity. Um, But I was hoping maybe you could put it into context relative to some of those wins you announced last year and or what you're seeing in the current tier one pipeline. And maybe an update on that in general. I think last year you talked about, I don't know, 18 tier ones you were chasing and a certain number that you won and et cetera. So on the anniversary of that, maybe we can get an update there. And just, I guess, an overall question about that. besides the tier one pipelines and the 18 T opportunity in particular relative to some of what you already won.
spk13: Yeah. So, uh, we have a couple other customers that are, that are closing in on 10% plus. So, uh, um, and you can imagine who they are based on, on what we've discussed with, with the likes of Barty. Um, you know, one of the other major operators that we announced, uh, early this year, late last year was around MTN. you know, very, very large service provider in the African area, various different countries throughout Africa, and that business is very strong, continues to grow for us as well. You know, clearly adding AT&T into the pipeline is a major event for us. And as I mentioned, that solution we're using there really fits well to other carriers, large and small, and is a great way to enter into these accounts. So, you know, I think we'll have more to report on that as we get further along in the pipeline with some of those. The other area I mentioned, you know, on the call was around the new optical transport platform that we're introducing this year and testing in the tier one carrier in Europe today as well. So there's more like that, I think, as we've invested around the portfolio here and really become a much stronger platform that really fits into the Tier 1 carrier space. So, you know, I guess we'll have to kind of continue to keep you updated, obviously, Tim, as we have more to announce here over the next few quarters.
spk04: Great. And I think you kind of referenced it a little bit, and maybe take it by segments. You know, it sounds like you've got some pretty good orders in the book already on both sides. But, you know, from a trajectory standpoint, what do you expect out of orders in the quarter, I guess, in terms of what you've already talked about with the increased sequential revenue guide?
spk13: Yeah, so obviously we're expecting a pretty strong bookings quarter given a little softer in the third quarter. Like I mentioned, we expect a really strong IP optical number this quarter, greater than $100 million in revenue. So we do a fair amount of book ship in the quarter still. So a lot of that booking is happening inside the quarter. In the cloud and edge business, while the tier one service provider spending is weaker, we continue to see good momentum in enterprise. And that portion of our business is up substantially We expect Q4 to be a strong quarter in enterprise for the cloud and edge business and a number of additional federal opportunities which are sizable as well that will really contribute to a strong fourth quarter here.
spk09: Okay, thanks very much. Thanks, Tim.
spk06: Thank you. Ladies and gentlemen, a reminder,
spk07: If you wish to ask a question, please press star and 1.
spk06: As there are no further questions, I now hand the conference over to Mr. Bruce McClendon for his closing comments.
spk13: Thanks, Ryan, and thanks again for everybody being on the call today and your interest in Reuben. We look forward to speaking with many of you, several investor conferences coming up over the next month, so look forward to those discussions. Operators, thank you as well, and this concludes our call. Thank you.
spk06: Thank you. The conference of Ribbon Communications has now concluded. Thank you for your participation. You may now disconnect your lines. so so I'm sorry. I'm sorry. you Thank you.
spk00: Ladies and gentlemen, greetings.
spk06: And welcome to the Ribbon Communications Third 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 and 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. Please go ahead.
spk01: Good afternoon and welcome to Riven's third quarter 2023 financial results conference call. I'm Joni Roberts, Chief Marketing Officer at Riven Communications. Also on the call today are Bruce McCollin, Riven's Chief Executive Officer, and Mick Lopez, Riven's Chief Financial Officer. Today's call is being webcast live and will be archived on the investor relations sections 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 fourth 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 and Form 10-Q. I refer you to our safe harbor statements included on slide two of the supplemental slides for this conference call. In addition, we'll 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 supplemental slides we prepared for this conference call, which, again, are both available on our investor relations section of our website. And now I'd like to turn the call over to Bruce. Bruce?
spk13: Great. Thanks, Joni, and thanks to everyone for joining us today. I'm pleased to report solid earnings in the third quarter, despite revenue coming in short of expectations. Positive customer and regional mix, lower product cost, and strong software sales all contributed to improved gross margins in both of our segments. And as a result of the restructuring plan we implemented earlier this year, our operating expenses continued to improve and were $87 million on an adjusted basis, the lowest point in over three years. Combined, this resulted in adjusted EBITDA earnings of $28 million, up 21 percent year over year, and near the midpoint of our guidance. This included an EBITDA improvement of $6 million in our IP optical network segment. Sales in our IP optical business continued to grow year over year for the fifth straight quarter with sales increasing 6% and up 14% year to date. Sales in our cloud and edge segment were down 4% year to date with reduced spending from US tier one service providers offset by growth from other customers. The shortfall in revenue this quarter relative to our guidance was largely due to timing of several IP optical projects in the EMEA region. Several of the projects are now planned for this quarter and the first quarter of 2024. We also had a large cloud and edge enterprise RFP that we expected to close in the third quarter that was paused and is now expected in 2024. Despite the lower revenue, Lower product costs and strong software mix resulted in very good gross margins for both businesses this quarter. Before I go on to the segment results, I'd like to update you on the status of our operation in Israel. As many of you know, we have a substantial presence in Israel with approximately 20% of our employees located in our office near Tel Aviv. The office is primarily focused on our IP optical business with the majority of employees in R&D and operations. We also perform a portion of our manufacturing with Flex in Israel. Following the attack several weeks ago, approximately 60 people or 10% of our local team in Israel have been called up to the Israeli Defense Force or IDF. We don't currently expect this to increase significantly. We have planned for this possibility and have a global R&D and operations capability with significant presence in India, Europe, and North America. Our main office in Israel is open, and employees are working both in the office as well as remotely. We have an incredibly dedicated team, and it's really amazing to see them adapt and overcome during this challenging time. We're in constant communication with our team, and our priority is the health and well-being of them and their families. Our manufacturing partner, Flex, is also fully open and operating at normal capacity. We have a global manufacturing capability and have already shifted a portion of our requirements to other locations. While logistics are certainly more challenging, we do not anticipate an impact to our operations at this time. Now on to the segment results. We continue to make good progress towards our goal of achieving profitability in our IP optical segment with adjusted EBITDA improving to negative 3.9 million in the quarter an improvement of $6 million year over year and $8 million sequentially. Sales of our IP routing solutions increased 30% year over year and up 31% year to date, driving top-line growth for the segment. From a regional perspective, IP optical sales to India were once again strong and increased 51% year over year this quarter and are up 34% year to date. Momentum in the U.S. rural segment was strong again this quarter, with IP optical sales in the U.S. increasing 49 percent year over year, and overall sales in North America up 58 percent year to date. The EMEA region was weaker in the third quarter than we had expected, with several projects delayed to Q4 or early 2024. However, we do expect a much stronger fourth quarter from this region. We achieved a very important milestone this quarter. The strategy from the beginning of the merger of Ribbon and ECI was to successfully penetrate U.S. Tier 1 service providers with our IP optical portfolio. Following 24 months of work and investment to adapt the portfolio to better fit the U.S. market, we finally went live with our Neptune IP router inside the AT&T network. We have been working with AT&T on a number of use cases that leverage the Neptune platform to replace older routing platforms and to transition TDM and copper networks to modern IP technology. This will enable AT&T to significantly reduce costs and simplify their network, eliminating legacy transport networks and wiring centers over time, while maintaining existing residential and business service offerings, as well as helping to achieve environmental sustainability goals. The solution leverages products from both our voice and IP portfolios and has undergone extensive certification and system validation testing, including Ozmine certification and live network testing. The solution can be used across hundreds of switching offices nationwide and even larger number of enterprise locations. It's very exciting to finally reach this in-service milestone with a major US tier one. This multi-service edge routing capability is also being used by several other carriers in the U.S. and is a great entry point for IP routing technology that allows us to land and expand inside a carrier's network. We also continue to get good feedback on our new Apollo 9400 compact modular optical transport platform, supporting industry-leading 1.2 terabit per second wavelengths. We received first orders for the product in the third quarter and have multiple trials in process in the fourth quarter including a European Tier 1 service provider customer. The first variant of the solution is focused on high-performance applications that maximize capacity over long distances. Initial shipments will begin this quarter with the general availability planned for January 2024. A lower power variant on the same platform aimed at supporting metro and regional transport applications is planned for availability in the second quarter of 2024. In our Cloud and Edge segment, despite the lower sales this quarter, we delivered solid earnings with strong gross margins and lower operating expenses. Sales to enterprise customers are up more than 40% year-to-date, and we have growing interest in our new pricing model that emphasizes software term licenses rather than perpetual licenses. While this lowers the initial revenue for the deal, it provides a base of future recurring revenue, which is very important for the business. In the US federal space, the voice modernization opportunity across multiple federal agencies continues to gain momentum. Following an initial significant win in the second quarter, we shipped additional expansion capacity this quarter as the project progresses, and we expect multiple additional phases over the next 12 months as legacy on-premise TDM infrastructure is replaced with modern cloud-based solutions. We have a great partnership with Dell Technologies that brings us major scale and reach across multiple public sector customers and with highly specialized partners such as VAE that have great technical depth and credibility in this space. We also had an initial shipment to another branch of the armed forces this quarter, which is just the beginning of another significant phase deployment. As I mentioned last quarter, we've seen increased activity internationally from service providers evaluating options to modernize their voice infrastructure. In the third quarter, we were awarded three new major international voice core modernization projects that together we expect to generate more than $25 million over the next 12 months. We had expected to recognize a portion of the deals in the third quarter, but contract discussions extended into the fourth quarter. Two of the three deals are now under contract, and we expect the third to be finalized in the next few months. with revenue recognized over the contract period. Similar to voice modernization projects in the U.S., these projects include the replacement of aging telecom infrastructure with modern software-centric platforms that significantly reduce the operating costs, improve reliability, and expand service capability. As expected, our U.S. Tier 1 service provider spending continues to be lower this year, impacting year-over-year comparisons. even as the rest of our customer base continues to grow. However, early planning for 2024 with our key U.S. customers gives me confidence this will recover next year. And in fact, there's a very good opportunity for growth with projects such as the AT&T Multi-Service Edge IP Routing Program. From an overall bookings perspective for the company, we're at 1.0 times year-to-date following a strong Q1 2020. Cloud and Edge bookings in the third quarter were 1.2 times with several multi-quarter voice modernization projects booked that include deployment services. IP optical bookings were 0.7 times in the quarter as we continue to ship against large orders from the first quarter to India and European defense customers. With that, I'll turn it over to Mick to provide additional detail on our third quarter results and then come back on to discuss Outlook for the fourth quarter.
spk14: Mick?
spk17: Thank you very much, Bruce. Good afternoon, everyone. In the third quarter of 2023, we were pleased with our financial performance from a profitability perspective. While revenue was below expectations, we were able to compensate with an improved gross margins and continued expense reductions, leading to non-gap-adjusted EBITDA around the midpoint of our guidance. Please refer to our investor relations page on the Revenue website for supplemental slides summarizing our third quarter 2023 and historical financial performance. Let's begin with consolidated corporate financial results. In the third quarter of 2023, ribbon generated revenues of $203 million, which is a decrease of 2% or $4 million from the prior year as our growth in IP optical almost compensated for the decrease in cloud and edge products. Non-gap gross margin was 54.8%, which is 30 basis points higher than prior year. and a 280 basis point improvement from the previous quarter due to a positive mix and lower product royalties and costs. Non-GAAP operating expenses were $87 million, a decrease of $7 million, or 7% year-over-year, driven by reductions in R&D and sales expenses. This marks the third consecutive quarter of sequential expense reductions as a result of our restructuring efforts. Non-GAAP net income was $9 million, which is a $5 million increase from the previous year. This generated non-GAAP diluted earnings per share of 5 cents, which is an increase of 3 cents versus prior year. Our non-GAAP tax rate year-to-date is 35%. Our interest expense for the quarter was $7.1 million, which is a $2 million increase from the previous year, driven entirely by the increase in interest rates. Non-GAAP EBITDA was $28 million in the quarter, which is a $5 million or about 20% improvement both year-over-year and quarter-over-quarter. Our basic share count was 171 million shares, and our fully diluted share count was 176 million shares for the quarter. Now, let's look at the results of our two business segments. In our cloud and edge business, third quarter revenue was $116 million, a decrease of 7% year-over-year, driven by decreases by U.S. Tier 1 service providers. Our services business remained consistent year-on-year, delivering value to our customers and strong profit generation. The cloud and edge business had a strong non-GAAP gross margin of 68%, up 240 basis points from the prior year, driven by mix, and up 130 basis points from the second quarter as a result of higher software revenue percentage. adjusted quarterly EBITDA was $32 million, consistent with the previous year, although we had lower revenues this year. Let's turn to our IP Optical Networks business results. We recorded third quarter revenue of $87 million, which was an increase of $5 million, or 6% year-over-year, led by continued growth in India, North America, and Japan. Non-GAAP gross margin for IP Optical was 38%, which was in line with the prior year, and significantly higher by 680 basis points than the previous quarter. This was driven mostly by a one-time royalty adjustment, better product mix, and fixed cost absorption from higher revenues. As we noted in the last quarter, as we continue the revenue growth with improved sales in Europe and Americas, we aim to achieve our target gross margins in the mid to upper 30% range for the IP optical networks segment. Non-GAAP-adjusted EBITDA loss for the quarter was reduced to $4 million, which is an improvement of about 60% or $6 million year-on-year and 68% or $8 million improvement over the previous quarter. We have cut the EBITDA loss in about half for each of the past couple of quarters. As we mentioned in the last earnings call, we're expected to have higher working capital requirements in the third quarter as we grow the IP optical business in the second half. Cash use from operations was $12 million. In addition, we used cash for $3 million in capital expenditures and our quarterly $5 million term loan repayment. Therefore, we ended the quarter with $25 million of cash and cash equivalents, which is a decrease of $10 million from the previous quarter. Our senior term loan balance is $240 million, and we had $10 million drawn on our revolver loan, which has a $75 million capacity. Our preferred stock and warrants are valued at $55 million. For the bank covenant calculations, which include preferred equity and total debt, among other adjustments, we've met both of the amended term loan covenant metrics in the quarter. Now, I'll turn the call back to Bruce to provide more comments on our outlook for the fourth quarter. Bruce?
spk13: Great. Thanks, Mick. We expect the fourth quarter to be a very important milestone for us, with continued sales growth and improved gross margin in our IP optical business, resulting in the segment reaching profitability on an adjusted EBITDA basis. We project IP optical sales in the quarter to exceed $100 million for the first time since 2019 and double-digit growth for the full year. We anticipate IP optical sales in Europe, the Middle East, and Africa to contribute the majority of the sequential growth across multiple market verticals. We also anticipate sequentially higher sales in North America with another strong quarter with rural broadband providers and a small amount of revenue associated with the AT&T project. We expect India to remain one of our strongest markets with consistent IP and optical shipments to BARTi and Tata Teleservices. We also expect strong IP optical gross margins in the fourth quarter, benefiting from the higher sales, better regional mix, and lower product costs. As we look into 2024, we expect to build on the momentum we have developed and gain share in multiple regions. And we're very excited about the new AT&T project and several adjacent programs where we will have an opportunity to expand our presence within their network. We're very focused on building out our portfolio of multi-service edge IP routing solutions, including TDM circuit emulation, 5G cell site routing, and IP MPLS aggregation. We have several additional tier one service provider opportunities that we expect will drive additional IP running growth in 2024, building on the 30% plus growth we've accomplished this year. In our Cloud and Edge segment, the work we have done to transition from perpetual licenses to renewable term licensing for enterprise customers will benefit us in the fourth quarter with a number of annual enterprise license agreements expected to close before the end of the year. We also anticipate another strong quarter for U.S. federal agencies, including new projects as well as expansion for active voice modernization projects, although we have reduced our projection somewhat to account for the length of time it takes to evaluate and award these complex programs. In the U.S., Tier 1 service provider spending is expected to remain constrained and lower than last year, but we do anticipate opportunity for this to rebound in 2024. Internationally, we expect to generate first revenue from the significant voice core modernization projects I mentioned earlier. Overall, we expect cloud and edge sales in the fourth quarter to increase sequentially from the third quarter, but to be lower year over year. Based on the above backdrop and assumptions, for the fourth quarter, we're projecting revenue in a range of 230 to $240 million. non-GAAP gross margins of 54.5% to 55.5%, and non-GAAP adjusted EBITDA in a range of $40 million to $46 million for the quarter. Operating expenses continue to exceed the lower spending targets we established for the year. For the full year, our Q3 results, along with the fourth quarter guidance, imply a sales range of $830 to $840 million, and adjusted EBITDA of $88 to $94 million. Our guidance assumes no significant impact from the war in Israel or disruptions in U.S. federal spending related to pending approval of the fiscal year 2024 budget. Let me wrap up by emphasizing the important role our service provider customers play in providing the foundation for highly reliable, secure communications. that's critical to practically all industries and consumers. The demand for bandwidth continues to grow exponentially, and the additional traffic that will be generated by new AI and machine learning technologies, particularly at the edge of the network where Riven is focused, will not be possible without continued investment and adoption of new networking technologies. I believe this is a very attractive market to invest in, and provides significant profitable growth opportunities, particularly for new challengers such as Ribbon. The major investments that we've made in the development of new products, combined with our broad customer base, puts Ribbon in an excellent position to capitalize on these macro trends.
spk08: Operator, that concludes our prepared remarks, and we can now take a few questions.
spk07: Thank you.
spk06: Ladies and gentlemen, we will now be conducting a question and answer session. If you would like to ask a question, please press star and 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
spk07: Ladies and gentlemen, we will wait for a moment while we poll for questions. Our first question comes from the line of Eric Suppiger with JMP Securities.
spk06: Please go ahead.
spk18: Thanks for taking the question. On the carrier spending in North America, Any thoughts in terms of timing, how long this is going to stay in this state? Also, any comments about the contribution level from your new products to the IP optical revenues?
spk13: Hi, Eric. Thanks for the questions. So on the Tier 1 spending environment, I think we're in a lower environment through the end of the year, obviously. I think budgets are still being set going into next year, so it's a little early. What is obviously key for us is where do those dollars get spent? And as I mentioned on my remarks, the early planning we have for next year indicates there's opportunities for us to grow from where we're sitting here today and rebound back to a more normalized level. There are literally thousands of class five wiring centers and switches still that are yet to be modernized. And we're working on how do we help our customers go faster in enabling that, including the new routing solution I talked about that basically helps eliminate some of the legacy Sonnet and TDM interfaces. So I think, you know, we'll have obviously a much better view as we get towards the end of the year here. On the contribution of new products, I'd estimate about 20% of our product sales in the third quarter in IP optical were from new products that we introduced earlier this year. So there are things like the new long haul, optical long haul platform, cell site routers, the next generation Neptune 2000 series, you know, all of those have combined to 20% or in that order in the third quarter from a revenue perspective.
spk09: You still with us, Eric?
spk02: Oh, that's all my questions. I'm good. Thank you.
spk06: Thank you. Thank you. Our next question comes from the line of Greg Mesniff with West Park Capital. Please go ahead.
spk16: Yes, thank you for taking my question. Bruce, a two-part question on the AT&T win that you talked about. Is that a multi-vendor award or are you the primary supplier or are you the sort of the second supplier. How does that shake out? And I have a follow on.
spk13: Yeah, thanks, Greg. So it's a fairly unique solution where we combine our routing platform with our voice core. And it basically allows the interconnect for voice traffic, as well as functions like circuit emulation, allows you to terminate a TDM trunk and run it over top of IP. So the way we've architected it and then going through what they call Ozmine certification, which is the back office provision management, makes it pretty unique. So I think it's a unique solution in the market that's not just applying to AT&T. It's really a broad use case for a more rapid replacement of TDM and copper links while still preserving the functionality and the interface into either the consumer or the enterprise.
spk16: So I think it's a fairly unique solution that we've put together and As far as I know last quarter you had some tier three smaller carrier winds in the US can you talk about any progress there and generally speaking have your recent winds and IP optical been market share displacements or you know, additional being added to the existing vendor list. Can you just kind of give us some color on that? Thanks.
spk13: Yeah, thanks, Greg. So the U.S. rural broadband space continues to be, you know, very robust. I think we grew about 50% year over year in that segment in the third quarter. So that's been, you know, very consistent growth this year. And we think the fourth quarter is, again, equally strong or more so in that market. So our U.S. business and our North American business in general has continued to increase and be a much more substantial amount of the business. And we think that continues going into next year as well.
spk16: Thank you. And just to follow on on my first question, it sounds like from a feature perspective, your IP optical products space Strength is their ability to emulate legacy protocols and combine them with new transport capabilities. Is that a fair statement? Is that kind of your secret sauce when you get into competitive bidding situations? Thanks.
spk13: Yeah, so that's a good question. And I think we've identified a spot in the market that is unique, perhaps a little unique to us, and maybe underserved. And so it's a great entry point into the carriers, both large and small, where we can really differentiate. Once a platform or an operating system is integrated and homologated in the network, it's a lot easier to expand to a lot of different use cases. And that's what I was referring to in my remarks, right, that I think once we're in with a use case, it could be a cell site router, or it could be circuit emulation, or it could be you know, IPMPLS, metro aggregation. I mean, any of those provide an entry point for us to then grow and find other places to expand the products. And to, you know, your other question on gaining share, for the most part, you know, I think these are share gains. In fact, you know, I think I saw the second quarter industry report showing us gaining share in the North American carrier service provider aggregation portion of the market. some good momentum and some independent statistics that show we're gaining share there.
spk15: Okay, thank you. Thanks very much, Greg.
spk06: Thank you. Our next question comes from Dave Tang with B. Reilly Securities. Please go ahead.
spk05: Thank you. Good afternoon. My first question is regarding AT&T. Just wondering who are the current incumbents and is this a displacement or just an addition by AT&T?
spk13: Yeah, so I think there's, thanks Dave, a number of suppliers obviously in the mix in their kind of core routing and metro today. Again, this is kind of a new use case that we've identified, focused in on, obviously, where our strength is around the voice infrastructure portion of the network. And, you know, there's a lot of opportunity here to replace legacy class five end offices, collapse tandem switches, and then on the enterprise side, migrate customers from legacy TDM interfaces, could be Sonnet infrastructure, onto a pure IP network. And I think, you know, again, I think we've got a pretty unique solution here. I think some of the larger providers like a Cisco is clearly in the deployments there as well.
spk05: Got it. And just wondering if you can kind of quantify the opportunity here and when do you expect to start to ship to AT&T and for how long?
spk13: Yeah, so we're obviously early on the planning for next year. We're in, as I mentioned, early deployments now and deploying in a number of additional locations through the end of the year. I think we'll have better visibility, you know, later in the year on what next year looks like. Ultimately, you know, these are tens of millions of dollars of opportunities for us, you know, obviously potentially larger as we expand the number of use cases and really prove ourselves in the network.
spk05: Got it. And then regarding optical or IP optical in Europe, it was down 22%. I think you mentioned some of the projects being delayed. Is that related to macro headwinds? Is that uncertainty causing customers to kind of delay projects or any color on that situation? And what makes you think or are you expecting them to land this quarter in the fourth quarter?
spk13: Yeah, so this is not a, I'll call it a macro headwind in the context of excess inventory and those types of issues. I do think getting to a decision on an opportunity takes longer. You know, clearly the, you know, the interest rate environment creates more challenges, so people are being more careful in their spending. But, you know, it's not so much really a macro trend issue As far as Q4, our bookings velocity so far in the quarter has been very healthy. So we've got, I think, better visibility, better momentum into the quarter. Some regions like India were already kind of fully backlogged for the quarter. So I think the context here and the visibility we have into the different opportunities is pretty strong at this point, Dave.
spk05: Yeah, and speaking of India, some of the common equipment vendors that sell into India are pointing out that India could be peaking or slowing down already. Just wondering what you see from your Indian customers.
spk13: Yes, I think it depends on what part of the network you're in. If it's in the RAN portion of the network, I think that's fairly true. the piece of the network we're in, kind of optical transport, their IPMPLS network, and their cell site routers. You know, I think the capacity additions there are happening later in time than the original RAN infrastructure. So, you know, again, we've got very good visibility into the fourth quarter. You know, I think next year looks pretty positive as they continue to expand in particular things like cell site routers into, the locations where they're adding 5G coverage, and obviously the new share that we have around optical helps us as well, particularly around margins. Now that we've shipped a lot of the infrastructure elements, we can ship more of the capacity elements going forward.
spk10: Thank you. Thanks, Dan.
spk06: Thank you. Ladies and gentlemen, a reminder, If you wish to ask a question, please press star and one. Our next question comes from the line of Tim Savage Girl with Northern Capital Markets. Please go ahead.
spk04: Hey, good afternoon, and congratulations on the win with AT&T. It's probably been a long time coming.
spk03: And not related, but somewhat so.
spk04: Just real quickly, any 10% customers in the quarter? And I'll go on from there.
spk13: Yeah, hey, Tim. So Verizon was a 10%-plus customer again in the quarter, in third quarter here.
spk04: Okay, just Verizon. And part of the reason I ask that is I don't know what it is about Q3 reports, but, you know, last year – on this call, you guys talked about a number of tier one wins and I think announced the, the Barty deal, um, somewhere around that, maybe in advance of that. And of course you're talking a lot about some incremental tier one opportunities. I guess they didn't make it to 10% in the quarter, but India is fairly strong. And I think you've already taken a crack at, at, um, sizing the opportunity with AT&T, at least the short-term opportunity. Um, But I was hoping maybe you could put it into context relative to some of those wins you announced last year and or what you're seeing in the current Tier 1 pipeline. And maybe an update on that in general. I think last year you talked about, I don't know, 18 Tier 1s you were chasing and a certain number that you won and et cetera. So on the anniversary of that, maybe we can get an update there. And just, I guess, an overall question about that. besides the Tier 1 pipelines and the AT&T opportunity, in particular relative to some of what you already won?
spk13: Yeah. So we have a couple other customers that are closing in on 10% plus, and you can imagine who they are based on what we've discussed with the likes of Barty. One of the other major operators that we announced early this year, late last year, was around MTN, you know, very, very large service provider in the African area, various different countries throughout Africa. And that business is very strong, continues to grow for us as well. You know, clearly adding AT&T into the pipeline is a major event for us. And as I mentioned, that solution we're using there really fits well to other carriers, large and small, and is a great way to enter into these accounts. So, you know, I think we'll have more to report on that as we get further along in the pipeline with some of those. The other area I mentioned, you know, on the call was around the new optical transport platform that we're introducing this year and testing in the tier one carrier in Europe today as well. So there's more like that, I think, as we've invested around the portfolio here and really become a much stronger platform that really fits into the tier one carrier space. So, you know, I guess we'll have to kind of continue to keep you updated, obviously, Tim, as we have more to announce here over the next two quarters.
spk04: Great. And I think you kind of referenced it a little bit, but and maybe take it by segments. You know, it sounds like you've got some pretty good orders in the book already on both sides. But, you know, from a trajectory standpoint, what do you expect out of orders in the quarter, I guess, in terms of what you've already talked about with the increased sequential revenue guide?
spk13: Yeah, so obviously we're expecting a pretty strong bookings quarter given a little softer in the third quarter. Like I mentioned, we expect a really strong IP optical number this quarter, greater than $100 million in revenue, so we do a fair amount of book ship in the quarter still, so a lot of that booking is happening inside the quarter. In the cloud and edge business, while the tier one service provider spending is weaker, we continue to see good momentum in enterprise, and that portion of our business is up substantially We expect Q4 to be a strong quarter in enterprise for the cloud and edge business and a number of additional federal opportunities which are sizable as well but will really contribute to a strong fourth quarter here.
spk09: Okay, thanks very much. Thanks, Tim.
spk06: Thank you. Ladies and gentlemen, a reminder,
spk07: If you wish to ask a question, please press star and 1.
spk06: As there are no further questions, I now hand the conference over to Mr. Bruce McClendon for his closing comments.
spk13: Thanks, Ryan, and thanks again for everybody being on the call today and your interest We look forward to speaking with many of you, several investor conferences coming up over the next month, so look forward to those discussions. Operators, thank you as well, and this concludes our call. Thank you.
spk06: Thank you. The Conference of Ribbon Communications has now concluded. Thank you for your participation. You may now disconnect your lines.
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