Ribbon Communications Inc.

Hello and welcome to the Ribbon Communications first quarter 2024 financial results conference call. If anyone should require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation. You may be placed into question queue at any time by pressing star one on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Joni Roberts, Chief Marketing Officer. Please go ahead, Ms. Roberts.

Good morning and welcome to Riven's first quarter 2024 financial results conference call. I'm Joni Roberts, Chief Marketing Officer at Riven Communications. Also on the call today, Bruce McCollum, 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 section of our website, rvbn.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 second 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. I refer you to our safe harbor statement included in the supplemental financial information posted on our website. 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 the call over to Bruce. Bruce?

Great. Thanks, Joni. Good morning, everyone, and thanks for joining us at this new time today to discuss our Q1 results and outlook for the year. I'd like to start with a few comments on the major announcement we just released with Verizon this morning. As I've mentioned on recent calls, there's a significant opportunity with telecom service providers in large enterprises, including the U.S. federal government, to complete the replacement of legacy TDM voice switching platforms. with modern cloud-based solutions. There's a strong ROI for our customers with multiple benefits, including improved overall quality and reliability of the service, significant cost savings from lower power consumption and cooling requirements, a reduction in facilities and floor space that can be repurposed to meet the exponential growth in data consumption for mobile and broadband services, and lower engineering and operations effort needed to manage this complex network. all while significantly reducing the environmental footprint made from providing this critical communication service. We're very excited about this new multi-year program with Verizon. It's an extension of the ongoing work we've been doing together, but on a much larger scale. Ribbon will provide both product and professional services to rapidly decommission legacy central office equipment while fully maintaining current services and features. The initial deployment phase of the program will be over the next three years, leveraging our full portfolio of virtual and cloud-native call controllers and session border controllers, advanced analytics, line access, and universal media gateways. We expect the program to generate over $300 million in revenue for Riven over that period, with potential for follow-on programs to continue to support our efforts in building the most advanced networks. We've worked closely with the Verizon team to reduce the implementation costs by defining a focused large-scale project that has economy of scale benefits. This is a major endorsement of both Ribbon's portfolio and expertise in the migration of these complex communication networks. The measured approach Verizon is taking to migrate services and preserve significant revenue streams is applicable to practically all our other service provider customers. where we aim to develop similar programs and generate significant benefits from this cloud migration. Now onto our first quarter 2024 results. We had an excellent first quarter where our strategy to leverage our long-term relationships to diversify and grow our business continues to pay off. Profitability improved significantly year over year and exceeded the high end of our guidance range with adjusted EBITDA of $12 million. We benefited from a favorable mix of sales to customers in the quarter, particularly in the EMEA region, where sales increased 24 percent as compared to the first quarter last year. The higher sales in EMEA resulted in strong gross margins, exceeding 40 percent in the IP optical segment, as well as the seventh straight quarter of year-over-year sales growth. This includes customers across a number of markets, including service provider, defense, and critical infrastructure. Gross margin in the cloud and edge business was also strong in the quarter, primarily due to continued growth in the enterprise market, with product sales increasing 15% year-over-year. This includes a number of voice modernization projects with U.S. government federal agencies. The strong gross margin and reduction in operating expenses of 5% year-over-year contributed to earnings exceeding the top end of our guidance for the quarter. Adjusted EBITDA over the trailing 12 months increased to $105 million for the company, a major improvement trend over the last several quarters. While lower spending from U.S. Tier 1 service providers continue to impact our cloud and edge results, with sales declining 11% year-over-year this quarter, with our new Verizon program and the potential for similar engagements with other customers, we believe we've reached a low point and expect solid recovery in the business. We expect the new Verizon program alone to underpin this business for the next several years. This quarter, we also continue to increase the software content of our product sales, growing from 25% to 29% year-over-year, increasing margins. The continued growth in enterprise has been a key driver behind the higher software sales, improved margins, and solid earnings contributions. Overall company sales in the quarter were at the lower end of our guidance with a few million dollars of equipment and transit at the end of the quarter and site readiness delays with a few smaller deployments for rural customers in the US. Now a little more detail on each of our operating segments. Building on the momentum from the second half of 2023, IP optical network sales increased 9% year over year in the first quarter with the majority of the growth coming from the EMEA region. This resulted in stronger margins for the segment, consistent with the previous quarter at 41%, and a significant improvement of $17 million in adjusted EBITDA versus the first quarter last year. In EMEA, the critical infrastructure private networks market segment continues to be a great fit for our portfolio, where high performance and information security are major differentiators. We had a number of expansion projects in the defense sector with customers such as the Israeli Defense Force, the Swiss Army, and the Finnish Defense Forces. We also had several new projects with customers in segments such as energy distribution, railways, and education. This all complemented ongoing business with a number of service provider customers across the region. In the Asia-Pac region, Sales to key customers in India, including Bharti Airtel and Teta Teleservices, were down only slightly year over year and included the full portfolio of both optical transport and IP routing products. There are also very positive signs that Vodafone Idea will complete their long-awaited capital injection with the company's public offering successfully completing this week. They plan to invest aggressively in 5G upgrades. and we believe we are very well positioned to be a key supplier as they reinvest in their network, driving growth for the India region in the second half of this year. In the Americas region, IP optical sales increased year-over-year in Canada and Latin America, while shipments into the U.S. were lower in the rural broadband segment this quarter due to customer timing and site readiness, delaying revenue recognition into the second quarter. From a product line perspective, Sales of our Apollo optical transport products were once again strong this quarter, increasing 9% year-over-year. This reflects the stronger mix of these products sold into the EMEA region and is a good start to the year. I expect this optical growth trend to continue as our new Apollo 9400 platform shipments continue to grow, supporting the highest 1.2 terabit per second speeds available in the market today. We're effectively expanding our addressable market with this platform. and are able to better address services such as data center interconnect, complementing the current 9600 platform that's favored by telecom operators. We've shipped more than 50 9400 chassis so far and have a pipeline of more than 20 opportunities in process. Sales of our Neptune IP routers grew 2% year over year in the first quarter, reflecting lower rural sales this quarter. Also, the first quarter of 2023 were the first volume shipments to Bardi for the 5G cell site router last year, priming their deployments and building some inventory. We expect this product line to continue to grow with a very good pipeline of new customer opportunities. Overall, IP optical product and service bookings were 1.07 times revenue in the quarter, building backlog for the second quarter. In our cloud and edge segment, As expected, the lower spend from U.S. Tier 1 service providers continued to affect our year-over-year comparisons, with the reduced spending starting midway through the second quarter last year. Excluding sales to our large U.S. Tier 1 customers, revenue in the first quarter from all other customers grew 1% year-over-year, despite lower overall industry investment. With the new Verizon program, we expect a significant improvement going forward. Enterprise cloud and edge product sales increased 15% year-over-year in the quarter with the continued expansion of a major voice modernization project with a U.S. federal agency. We expect this trajectory to continue in the second quarter. The cloud and edge business continued to drive strong profitability due to higher software mix, and product and service bookings were good in the quarter at 1.06 times revenue. We expect a much stronger second half of the year in our cloud and edge business. with the continued momentum in enterprise and a significant increase in sales to service providers. This includes the beginning of the new network modernization program with Verizon. We expect initial product shipments from that project to begin in the third quarter and deployment services to ramp as the program accelerates, exiting the year at $100 million per year run rate, once again with this key customer, providing a strong foundation for growth in this segment. We continue to maintain a strong, reoccurring maintenance business across our customer base and have approximately 80% of this year's maintenance revenue in backlog or under contract for the cloud managed business, as well as for the IP optical segment. With that, I'll turn it over to Mick to provide additional detail on our first quarter results and then come back on to discuss outlook for the second quarter. Mick?