Ribbon Communications Inc.

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.

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?

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?