Ribbon Communications Inc.

Greetings and welcome to the Ribbon Communications fourth quarter and full year 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. You may begin.

Good afternoon and welcome to Ribbon's fourth quarter 2023 financial results conference call. I'm Joni Roberts, Chief Marketing Officer at Ribbon Communications. Also on the call today, Bruce McCullen, Ribbon's Chief Executive Officer and Mick Lopez, Ribbon's Chief Financial Officer. Today's call is being webcast live and will be archived on the investor relations section of our website at rbbn.com where both our press release and supplemental slides are currently available. Certain matters we'll be discussing today, including the business outlook and financial projections for first quarter of 2024 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 statement included on slide two of our 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 the supplemental slides we prepared for this conference call, which again are both available on the investor relations section of our website. And now I'd like to turn it over to Bruce. Bruce?

Great. Thanks, Joni, and thanks to everyone for joining us today. I'm very pleased to report solid financial results for the fourth quarter, our strongest quarter of the year and our most profitable quarter in almost three years. Despite a challenging macro environment for telecom suppliers, we're really starting to see the results of our strategy and the investment we have made over the last several years. For the first time, our IP optical business generated a profit on an adjusted EBITDA basis and was profitable for the entire second half of the year. Our strategy to cross-sell our portfolio to existing customers is working in all regions, U.S. rural, Tier 1 carriers, Japan, India, Europe, and the Middle East. And the focus that we have on the enterprise market vertical continues to offset this period of lower spend by U.S. Tier 1 service providers. I think we're really standing out and executing well. Earnings for the quarter were $43 million on an adjusted EBITDA basis, an increase of 48% year over year, and $91 million for the full year, or 11% of sales, a 41% increase versus 2022. Cash from operations were $20 million in the quarter. This is just a great accomplishment given the macro environment. Revenue in the quarter was up 11 percent sequentially with growth from both segments and up 1 percent for the full year. This was below our original expectations, but a very solid result given the lower spending from U.S. Tier 1 service providers across the entire industry. Excluding sales to our large U.S. Tier 1 customers, revenue from all other customers in 2023 grew 8 percent year over year. The shortfall in revenue this quarter relative to our guidance was due to timing of a large U.S. federal project that has now been awarded, and we expect to recognize revenue this quarter. The real highlight in the quarter was the strong performance in our IP optical network segment, the sixth straight quarter of year-over-year growth. Sales grew 7% year-over-year, exceeding $100 million for the first time since we acquired ECI. Gross margins were very strong at 44%, reflecting the improvement in product costs favorable regional mix from North America and EMEA and higher volumes. The result was a strong positive earnings contribution for the quarter and for the entire second half of 2023. The strategy is really working. The cloud edge business continued to drive strong profitability due to higher software mix with gross margin of 400 basis points year over year and with $34 million of EBITDA or 28% of revenue. In November, we held our annual ribbon tech forum in Plano, Texas with a significant number of customers in attendance. This was a great opportunity to showcase our latest new products and hear directly from our customers about their priorities and challenges. It was great to see many new names that have become customers over the last year and the solid foundation we've built going into 2024. Now a little more detail on each of our operating segments before I turn it over to Mick for more detail on our results. Sales of our Apollo optical transport products were very strong in the fourth quarter, increasing 47% quarter over quarter and 22% year over year. For the full year, optical sales increased 13%. We're continuing to innovate with the introduction of the new 1.2 terabit Apollo 9400 solution, which is definitely opening new opportunities and expanding the type of use cases we can address to include high-capacity metro and long-haul transport as well as data center interconnect and subsea applications. We've reached general availability on the first version of the 9400, which is focused on high performance applications that maximize capacity over long distances and have made initial customer shipments. Availability is somewhat limited as we ramp production, but we have a good pipeline of customer trials over the next few months. Sales of our Neptune IP routers grew 16% in 2023, as we've made good progress on our strategy to grow in this product segment. We're focused on several key areas of differentiation that are securing new wins, including TDM circuit emulation, 5G cell site routing, secure network services, and IP MPLS broadband access aggregation. As previously discussed, the Neptune router is now also a key component of our carrier voice core solution, which is a very strategic entry point to carriers such as AT&T. As expected, EMEA was by far the strongest region in the fourth quarter with IP optical sales increasing 50% versus the third quarter. This included a very strong quarter with the IDF in Israel and with MTN Global Connect in Africa, the seventh largest mobile operator in the world providing telecom and data services throughout Africa. In North America, we continued our momentum with sales increasing 34% year over year with a combination of both IP routing and optical transport product lines. Growth in this region has been a key part of our strategy, and so it's very satisfying to see the results. Sales to rural broadband providers grew 26% year-over-year in the quarter. Last week, we announced a strategic win in the U.S. with American Electric Power. AEP is one of the largest energy distributors in the U.S. and manages an extensive, highly secure, reliable network. That's a key part of our national infrastructure. After an extensive technical and commercial assessment, AEP has added the ribbon networking portfolio to support their critical communication needs, which includes the Neptune, Apollo, and Muse products. We already have a strong presence in the critical infrastructure market segment in Europe and look to further expand in the U.S. with major providers such as AEP. In Asia Pacific, sales to Indy in the quarter increased 34% year-over-year and for the full year. And in Japan, we've been successful winning several new accounts, resulting in revenue growth of over 300% in 2023. From a bookings perspective, we had a solid quarter in IP optical with product and service bookings of 1.0 times revenue. Given the significantly higher revenue level, this was a pretty strong result. In our Cloud and Edge segment, the lower spend from US Tier 1 service providers continued to affect our year-over-year comparisons. But excluding US tier ones, sales to all other customers were up 4% for the full year. Even with the lower sales, contribution earnings were strong with full year adjusted EBITDA of $121 million. Product and service bookings were good in the quarter and were 1.07 times revenue and 1.03 times for the full year. Sales to enterprise customers in 2023 grew 26% year over year. with the strongest growth related to voice modernization projects with the U.S. federal agencies. We collaborate closely with several of our service provider customers, as well as a number of specialized secure federal integration partners to address this market. In particular, we're working closely with Dell to provide a comprehensive solution, as we highlighted in a press release earlier this week. In the fourth quarter, we expected to win and generate revenue from the first phase of a large federal project. but our integration partner was finally just awarded the project a few weeks ago. We now expect to recognize initial revenue on the project this quarter as well as across the year. We have a number of additional opportunities that are in late stages that we anticipate being awarded over the next six months. In the financial market vertical, we had a significant project in the fourth quarter with one of the largest global banks that included deployment of Ribbon's on-prem SBCs and centralized policy routing. for their data center network upgrades. And the EMEA region was strong in the fourth quarter for CloudNedge with a significant win punctuated by an award we'd received from MTN group called the Rise and Shine Award. The project includes a new cloud-centric voice core supporting interconnect traffic for MTN's wholesale group called Baobab and underpins the group's expansive telecommunication service across Africa. We continue to increase our focus on this region, as Africa is expected to be one of the fastest-growing regions in the world in 2024. Finally, fourth quarter is our strongest period for renewing maintenance and support contracts. Our renewal rates remain very high, and bookings were strong in the quarter. At this point, we have almost 70 percent of the year's maintenance revenue in backlog for CloudNedge. With that, I'll turn it over to Mick to provide additional detail on our fourth quarter and full year results, and then come back on to discuss outlook for 2024 in the first quarter. Mick.