Q2 2022 Ribbon Communications Inc Earnings Call
Greetings and welcome to ribbon Communications second quarter 'twenty.
Actual results conference call at this time all participants are in.
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A question and answer session will follow the formal presentation, if anyone should require operator assistance during the.
Please press Star zero on your telephone keypad as a reminder, this conference is being recorded I would now like to turn the conference over to your house at all.
Senior Vice President of Global marketing. Please go ahead.
Good afternoon, and welcome to ribbon second quarter 'twenty to 'twenty, two financial results conference call.
Beat on Millennium SVP of marketing IDE Ribbon Communications also on the call today are Bruce Mcclelland Ribbon, Chief Executive Officer, and Mick Lopez ribbons Chief Financial Officer.
Today's call is being webcast live and will be archived on the Investor Relations section of our website at our B B M Dot com, where both our press release and supplemental slides are currently available.
Certain matters, we will be discussing today, including the business outlook and financial projections for the third quarter and full year 2022, our forward looking statements.
Such statements are subject to the risks and uncertainties that could cause actual results could differ materially from those contained in these forward looking statements.
These risks and uncertainties are discussed in our documents filed with the SBC, including our most recent Form 10-K.
I refer you to our Safe Harbor statement included on slide two of the supplemental slides for this conference call.
In addition, we will present non-GAAP financial information on this call.
Reconciliations to the applicable GAAP measure are included in the earnings press release issued earlier today as well as in our supplemental slides. We're prepared for this conference call, which again are both available on the Investor Relations section of our website.
Now I would like to turn the call over to Bruce Bruce.
Great. Thanks, Peter and thanks to everyone for joining us today to discuss our second quarter results and our outlook for the remainder of the year.
We had solid performance in the second quarter with financial results in line with our expectations and within our guidance.
Revenue was $206 million and adjusted EBITDA was $21 million.
Sales increased 19% versus the first quarter. This year, and we had a particularly strong quarter in North America with sales of our cloud and edge products and services, increasing 33% sequentially led by a $25 million increase in voice over IP or transformation sales quarter over quarter.
As anticipated we had a very good quarter with Verizon as well as with other tier one north American carriers.
A particular note Verizon wireless went into full scale production with our next generation Nvidia GPU based session border controller supporting tens of millions of voice trend cause Transco sessions per hour.
This was a major milestone and underscores the technology leadership ribbon has in the SBC space.
Our IP optical network sales increased 8% compared to the first quarter, even though we had two substantial deals in Europe moved from the end of June into July , which will get us off to a good start in the third quarter.
In particular sales in India, and Europe , where bright points this quarter, along with 13% sequential growth in North America.
Sales of IP routing equipment and software increased 25% as compared to the second quarter of 2021.
Our strategic focus area for us.
Based on the pipeline for the second half, we're projecting 20% plus growth in total IP optical sales in the third and fourth quarter versus our second quarter results.
IP optical margins were lower than we anticipated in the quarter, but mostly due to the lower sales related to the movement of European deals into the third quarter we.
We still expect meaningful improvement in margins in this segment in the second half of the year.
Earnings in the quarter benefited from the strong cloud and edge sales as well as product mix with software increasing to 58% of sales.
We continued to effectively manage a variety of supply chain and logistics challenges in the quarter with a comparable amount of shipments delayed to future quarters as we've seen over the last several quarters approximately $10 million.
We anticipate modest improvements as the year progresses, but are still managing long lead times on a variety of key components that we expect to continue with at least the rest of the year.
From a customer perspective, I'd like to highlight several notable accomplishments over the last several months.
As mentioned earlier, we had a very strong quarter with Verizon.
Organization of their voice infrastructure supporting Verizon business customers as well as the fixed voice network remains a high priority.
We have a similar engagement with Verizon wireless, adding SBC and network policy and routing management capacity for their network.
In addition to the core infrastructure upgrades, we continue to develop new applications, such as identity management and advanced analytics that leverage our large and growing deployed telecom infrastructure.
Another similar project was a win with Hong Kong broadband in Asia. This project includes an evolution to our telco cloud virtual see 'twenty solution.
Fully replacing competitor switches and gateways and is a great example of the opportunity ahead to transform the large base of legacy telecom infrastructure to a more modern cloud based technology platform.
And I was very pleased with three recent wins in France, with our identity management solution.
The voice Robo call issue is a global problem and Mr. Shaken protocol developed by the I E. T F with initial deployments in the U S is expanding into other countries.
We've really established ribbon as a thought leader in this important security area and have more opportunities in the pipeline.
Mr Shaken digitally validates the handoff of phone calls passing through the complex web of networks, ensuring that the consumer or enterprise receiving the call can be assured of the identity of the call originator.
We continue to have a very good pipeline of IP and optical opportunities in Europe . In particular are the critical infrastructure market vertical is very active is all types of infrastructure providers look to expand and harden their communications networks.
Working with our partner Telecom Italia mobile ribbon was selected for a significant network expansion at La Pita.
Building on the initial project announced in late 2020 with Peter provides the broadband infrastructure for a regional public entities in northern Italy.
Partnering with Swedish telecom, operator, Telia, we want a network upgrade project with Lithuania National Railway operator lit rail that includes both our IP and optical solutions.
And we also had a win with map so the electrical utility in Macedonia. This is a combined IP and optical deployment that leverages. The security features in our Neptune and Apollo product lines.
These new wins build on our strong industry, leading position in critical infrastructure with ongoing deployments with Expo S. N C F. The Swiss Army, the Israeli Defense force and many others.
In North America, our optical transport deployments with Rogers continue to go very well and we're expanding our presence with this customer in the commercial enterprise optical wavelength services that will be additive to the core transport network build out.
And we also had one of our first enterprise IP networking wins in North America at Texas, A&M, using our Neptune routing product.
This deployment will expand their IP network capacity as well as providing support for a new private five G mobile network across the University.
But more strategically we've been making significant incremental investments in R&D to position the company to capture a large share of the capex being spent by tier one service providers, who need to keep pace with the exponential growth in data traffic.
In a recent discussion with a large provider in North America. They reported the traffic is growing at almost 40% annually and there's really no choice, but to continue to invest and deploy new innovative technologies to drive down total cost of ownership and cost per bit.
We have a large pipeline of new products being introduced over the next several quarters.
In the second quarter, we delivered a major enhancement to our ribbon network operating system routing protocol stack and supportive five G mobile networking requirements and converged multi service broadband access aggregation.
This will significantly expand our addressable market and is a foundation to many of the customer trials, we have underway.
In the third quarter, we're introducing the first of a series of new IP routers, we call. The Neptune Xdr 2000 series Xdr stands for flexible disaggregated routing.
The first new platform as the Xdr, 'twenty 100, which is targeted at a variety of applications, including mobile networking Ethernet services for business Tdm to IP infrastructure transformation and extra U S pawn for business.
The Xdr 2100 is the first of a family of products with four additional platforms being introduced over the next nine months dramatically expanding the portfolio and our ability to win significant business in the large telecom IP routing industry.
As mentioned on our last earnings call, we have a high level of customer activity across all our regions.
Number of IP optical Rfps, we are competing for with major tier one mobile and telecom carriers has expanded from 12 to 18 over the last 90 days.
We expect to double the number of customer P. O sees in 2022 versus 2021, having already exceeded the number of trials from last year.
In particular, the number of IP trials have increased significantly.
The combined portfolio of both optical and IP technology is a real strength.
With 10, new wins in the quarter that included both IP routing and optical transport products.
And with the continued supply chain challenges and global political complexity, there's a heightened focus on supply assurance.
Muse platform is central to our strategy here simplifying the introduction of our products into an existing network and supporting a multi vendor environment.
As a result, we continue to anticipate a significantly stronger second half this year and.
And the continued increase in tier one service provider opportunities is evidenced that the increased R&D investment, we are making will pay off.
With that I'll turn it over to Mick to provide additional detail on our second quarter results and then come back on to discuss guidance for the third quarter.
Thank you very much Bruce in the second quarter of 2020 to our financial results were again in line with our guidance ribbon generated revenues of $206 million, which was within our guidance of $200 million to $250 million, we hit an adjusted EBITDA of $21 million, which was slightly above the midpoint of guidance at <unk>.
17 million to $23 million. This led to an adjusted earnings per share of <unk>, which was at the top of our guided range of three to six.
Please refer to our Investor Relations web site for supplemental slides summarizing our second quarter 2022, and historical financial performance as customary lets start with commentary about our GAAP results for the quarter.
Total revenue was $206 million down 3% from last year, but up 19% quarter over quarter as a pattern of revenues from new large telecom projects rebound at seasonally low levels in the first quarter.
Our GAAP loss for the second quarter includes a $12 million noncash loss associated with the quarterly Mark to market of the company's investment in American virtual cloud technologies.
<unk> from the sale of our Kandy communications business in 2020.
The a b C Tech investment is now worth $4 $5 million on our balance sheet.
In addition to the usual other factors contributing to the difference between our GAAP and non-GAAP results such as the amortization of intangible assets non cash compensation.
$3 million in restructuring expenses and $2 million in integration expenses.
Now, let's provide insights about our second quarter results on an adjusted non-GAAP basis.
non-GAAP gross margin was 54, 9%, which was above our guidance range of $53 five to 54, 5% due to strong software sales and cloud and edge there year over year 600 basis point decline is entirely attributed to IP optical networks, which benefited from.
Several one time accounting adjustments and product mix in the second quarter of.
2021.
non-GAAP operating expenses were $96 million down sequentially from the first quarter by $3 $4 million. After adjusting for one time accounting accruals that benefited opex in the second quarter of 2021 are comparable expenses were essentially flat year over year incremental investment we're making.
The optical R&D has been largely been offset by efficiencies in other areas.
non-GAAP adjusted EBITDA was $21 million in the quarter and non-GAAP diluted earnings per share was <unk>, our basic share count was 150 million shares.
Diluted share count was 154 million shares our non-GAAP tax rate for the quarter was 32%, giving us first half cumulative rate of 45%. We had previously guided to an overall rate of 35%. The increase in the rate is due to a change in our jurisdictional income towards North America.
Please note that our guidance for the remainder of 2022 I'll reflect a 45% adjusted non-GAAP tax rate.
Now looking at the results of our two business segments.
And our cloud and edge business second quarter revenue was $137 million down, 3% or $4 million year over year quarter over quarter sales grew by $27 million or up 25% driven by large network transformation projects with several of our major telecom customers.
Product revenue contributed $64 million maintenance revenue was $55 million and professional service revenue was $18 million product revenue was up 17% quarter over quarter and software as a percentage of total revenue was 58%.
non-GAAP gross margins remained steady at 68% versus prior year and up 600 basis points from the first quarter non-GAAP adjusted EBITDA for cloud and edge was $43 million with an EBITDA margin of 31% year over year operating expenses were lower by $2 million.
As we continue to see the results of our strategic restructuring initiatives.
Let's turn to our IP optical networks business results, we recorded second quarter revenue of $69 million, which was a $1 million decrease versus the prior year, but an increase of $5 million or 8% quarter over quarter.
non-GAAP gross margin for IP optical was 29% the same as the previous quarter, but significantly down from the record high of 48% in the second quarter of 2021.
Last year's gross margins benefited from grid product and regional mix lower service delivery costs and lower warranty costs. In 2022, we continue to experience supply chain disruptions that affect our component prices and transportation logistics costs.
Ever we see some stabilization of the supply chain and therefore expect gross margins to improve in the third quarter and throughout the year as our revenue increases and component expedite fees are mitigated.
Now here's some consolidated key metrics for the company in the second quarter.
Maintenance revenue represented 34% of total revenue.
10 customers were 50% of revenue service providers accounted for 80% of our product revenue and enterprise customers represented 20%.
International customers provided 52% of revenue.
We had a book to revenue excluding maintenance of approximately one times several large IP orders from Europe were delayed to the third quarter.
Turning to the balance sheet, we ended the quarter with cash cash equivalents of $38 million, including $2 million in restricted cash.
This is a decrease of $68 million from the beginning of the year as we continued to pay down our term loan optimize our business and invest for growth in IP optical networks major strategic cash outlays include $35 million for debt pay down of which 25 million has been voluntary $17 million increase in critical parts.
For inventory continuity.
$1 million in restructuring and integration charges for efficiencies and $7 million and capital expenditures, mainly for research and development.
Our term loan is currently at $340 million outstanding as we have paid off $60 million or 15% of the original balance or 100 million dollar revolver remained undrawn at quarter end.
We amended our credit facility during the second quarter, which increased our financial covenant metrics and gave us more flexibility as we continue to invest in our IP optical business as per our amended credit facility calculations for the second quarter of 2022, our leverage ratio was 483 times versus a maximum of five.
Two five times and our fixed charge coverage ratio was one three times versus a minimum of one one times the leverage ratio maximum decreases to five times in the third quarter as we stated in previous earnings call given volatile financial markets geopolitical economic considerations we.
We'll continue to evaluate capital structure enhancements to ensure credit facility compliance, while we continue our strategic investments now we'd like to turn the call back to Bruce.
Great. Thanks, Nick.
Our results in the second quarter demonstrate the strong foundation, we have in our cloud and edge business with major carriers around the world.
As we entered the second half of the year, we expect to start to see the benefits of the significant investments, we're making in our IP optical product development supported by strong POC in customer activity.
We continue to project a stronger second half of the year with a large funnel of opportunities driving a particularly strong fourth quarter and further growth in 2023.
From a regional perspective, we expect Europe to grow significantly with a combination of both service provider and critical infrastructure IP optical projects.
We anticipate growth in India with the upcoming five G investment cycle, beginning and we expand our presence with key mobile operators in the region.
And we're finalizing an extension of our 10 year product and support agreement with the Israeli Defense forces setting the foundation for our future business with this important regional customer.
We expect continued growth in North America on the strength of key customers, such as Rogers and viral wireless as well as a host of regional telco providers are investing heavily to upgrade their broadband infrastructure and.
And the introduction of our new IP routing solutions.
And our cloud and edge business, we have several ongoing telco cloud and analytics projects with the U S service providers that should provide high margin revenue in the second half and establish a land and expand strategy for future growth.
The expertise we have in migrating traditional infrastructure to the cloud and enabling improved performance is driving strong demand for our professional services and we expect a seasonally strong fourth quarter contribution from this part of our portfolio.
Modernization of the U S. Federal government agencies unified communications infrastructure continues to present, a very large opportunity for us with projects expected to be awarded starting this quarter and we're well positioned with partners such as Verizon and AT&T to win a significant share.
Similarly, we expect continued growth in the second half of the year from the enterprise Unified Communications market.
Our funnel of opportunities with Fortune 2000 accounts continues to grow and we're projecting several larger deals to close in the fourth quarter.
The combination of the above activities and investment that we're making in new products establishes a great foundation for growth in 2023.
With that backdrop, our expectations for the third quarter are as follows.
Revenue in a range of $210 million to $225 million non.
non-GAAP gross margins of 55% to 56% and non-GAAP adjusted EBITDA of $26 million to $34 million.
We are also adjusting our full year targets based on our results to date, our outlook for the third quarter.
Our continued expectation of a strong fourth quarter.
As well as continued elevated supply chain costs and inflation pressure on operating costs.
For the full year, we now expect revenue in a range of $840 million to $870 million.
non-GAAP gross margins of 54% to 54.5%.
non-GAAP adjusted EBITDA of $90 million to $100 million.
I'd like to thank the entire ribbon team and our partners for navigating a complex operating environment and look forward to a stronger second half of 2020 to.
Operator that concludes our prepared remarks, and we can now take a few questions.
At this time, we'll be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
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I've been pleased so we poll for questions.
Our first question is from Paul Silverstein with Cowen and company. Please proceed with your question.
Thanks, Ive got a question I guess.
Primarily for you Bruce and then one primarily for Merck, but feel free to either one of you first of all but Bruce I. Appreciate all the disclosure can you give some additional insight on the IP optical business between the IP portion of the business.
Optical portion what youre seeing in terms of demand trends.
Yeah, Hey, Paul well.
Both are expected to grow as the second half you're progressing so you.
I think as I kind of indicated we're we're definitely kind of strategically focused on becoming a bar a larger presence around IP in particular, though.
And it's great to see the funnel of opportunities and in fact, the customer P. O sees increased really substantially around that business. So.
If I think about kind of in the midterm I would expect more growth out of the IP portion and that becomes a larger share.
It's a little less than half the revenue there optical is a little larger today.
And I assume the margin structure is pretty different between the two.
I think all things being equal we expect the margins around the IP products and some of the new products in particular to be a little stronger than traditional optical you know as you know it depends a little bit you know, if you're putting out and brand new optical transport network and you're putting out.
The optical line system and whatnot the margins are lower there. So it can move around a little bit depending on the mix, but all things being equal it tends to be a stronger portfolio.
Bruce I apologize I may have a misunderstanding of the IP portion of the portfolio, but I would have expired I would've thought that the IP was not just me.
Modestly stronger, which is I'm getting from you, but from a gross margin perspective would have been significantly greater than the optical transport.
It's probably somewhere in between I don't want to undersell. It that's for sure the margins are.
It can be can be much more positive it got a little again, it depends a little bit on the mix and the timing so.
So in this way.
Would it be a reasonable assumption that the IP portions in the 50 twos, if not if not the <unk> gross margin for <unk>.
Yeah, I don't know if I want to really put a fine point on it that much but it's it's going to be better than the optical all things being equal Paul for sure.
Alright fair enough fair enough I'll move on.
For your mic.
Specialty margin structure, if I saw the numbers correctly optical was down on a pro forma basis to 29% to the Rebecca correctly.
Right. So we were at 29 are the same as where we were in the first quarter. This year.
Yes. So the question is the visibility as to improvement both from a glide path and.
And where you could get back to I understand that.
The same goes with others in terms of the supply chain impacts as well as other stuff, but what is your visibility as to improvement.
Yeah. So we have pretty good confidence that the second half of the year moved those margins back up into the mid to upper 30 range and half of that increase comes from just the the higher volume and the absorption of some of the fixed costs associated with manufacturing and the other half is around some modest improvement around cost as well.
As the mix of products and as you pointed out is the IP portion of the business grows that's that's going to be accretive for us. So.
We've got pretty good visibility in the second half of the year and the improvements that we're projecting.
Alright, one last one for me which is.
Everyone understand was worried about the macro.
Even if theres no currency translation issue, obviously, you and other U S suppliers or gears more expensive abroad.
Any signs of macro weakness where customers are going projects canceling projects are communicating to you that they're thinking about doing so at this point.
Say otherwise at this point, but what are you seeing what are you hearing.
Yeah, you know Paul I had been on the road a lot over the last 90 days several trips into Europe , Asia et cetera meeting with customers and I asked them. The exact same question I can tell you. The response I get is they're continuing to invest these projects tend to be longer term and so you know as you ramp up and you.
Start to do a broadband expansion of mobile capacity upgrade et cetera, you don't turn that on and off overnight more importantly are.
The bandwidth demand continues to grow exponentially and Theres really no choice, but to continue to add capacity move to the next technology curves you can lower the cost of ownership lower the cost per bit. So oh really absolutely no signs kind of at a macro level are pulling back on investment.
You know well.
We'll see obviously, how the world turns here over the next six to 12 months and whether there's more pressure on profitability and does that change capex plans et cetera, but I can tell you at this stage direct feedback from customers has been really robot.
And Bruce can you remind me have you all implemented or are you planning on implementing a price increase the way everybody else has.
Yeah, So I I remember Rod I think we had a question last call. We have raised prices really across the portfolio. Those don't kick into effect until you know you're on kind of the next cycle or the next contract renewal depending on maintenance contracts those sorts of things I will also comment though that.
You know a lot of our business route you know competing to win new business on a quarterly basis and our.
Our price increases.
Yeah.
Aren't necessarily going to flow through on every deal necessarily so.
Okay.
Hi.
And as you know you are out there to win yeah, you're right. The wind business. We don't have you don't kind of long term contracts, where you're able to adjust prices quite as effectively so.
We got to compete for business and we wanted to be an alternative in these major tier one accounts and so we're really being aggressive and and looking to grow the business here.
I assume that answers the related question, which is it sounds like we should not expect your price increases to translate at some point in time in the future and do some meaningful step up in margin structure.
Well I think we've describe where we think the margin growth comes from and we've got again good visibility on that.
You know I think there's a evolution over time as.
The base cost increase those have to flow through into the market and so I think we expect that to happen over time I do think from a competitive perspective, though again one of the key things that we've seen in the market internationally is around.
What suppliers are being deployed in the network and in particular as some of the Chinese Oems get removed from the network, that's a big opportunity.
To grow and gain share and I think all things being equal is positive from a pricing dynamics perspective as well.
Bruce if you have your security of those ones, where there anywhere else, where obviously, we've always been a huge presence in India.
Has have you yet to see if not revenue any awards that have been directly related to what we disclosed.
The short answer is yes. There's no question you know has it dramatically move the top line not yet I think there's lots of opportunities yet that have not flowing through.
Many of the Rfps that I mentioned are associated with finding new suppliers in the market. So I think most of its ahead of us still but we definitely had wins actually in both businesses associated with.
Some of the Chinese Oems being.
These are removed from the network or <unk>.
Competing for new business going forward.
Alright, and I really will make this my last question I apologize, but are waiting in queue, but mix has inflation impact deliver costs, yet or are you expecting a meaningful impact on your labor costs.
Yes, absolutely, we do see it not only in our own costs, but the costs that come towards us.
Obviously, the freight and transport has been off significantly and we've noticed that in our hardware components.
Now, we see labor costs are going up not just in our own.
Labor, but also in contract labor.
I'll just add to that comment as well from a FX perspective, we have some natural hedging and obviously, our non USD expenses are benefiting from the stronger U S. Dollar obviously any business we have priced in non USD can be impacted by that.
But that gives us a bit of a a helping hand, there as well and kind of keeps the balanced as Mick said inflation kind of hits everything and we've taken that into account as you've seen with our our full year outlook and our lower margin projections, so and if I could add to that we also benefit from our.
S dollar denominated sales were approximately.
<unk>, 90% of our sales are in dollars and you're absolutely correct, Paul that there might be a competitive pressure, but most of our competitors are also dollar denominated.
Understood I appreciate the response, thanks guys. Thanks.
Thanks, very much Paul.
Yeah.
Our next question is from Tim <unk> with Northland Capital markets. Please proceed with your question.
Yeah.
Hi, good afternoon I wanted to.
Start on the RFP pipeline I think in terms of number of Rfps, you've talked to a 50% increase.
From 12 to 18.
I Wonder if you could try and quantify that you know from.
Kind of Tam perspective, or dollar opportunity perspective, what sort of.
Increase you might have seen him there relative.
Relative to the additional Rfps and I think you mentioned.
And proof of concept I wonder if it's possible to maybe.
Give us a sense of you know what.
What sort of numbers, we're talking about there as well and I'll follow up.
Yes, so Tim I appreciate the question. So first of all the the Rfps I'm referring to here. These are these are the major tier one names obviously, we've got a whole funnel of activity with customers.
You know all different scales critical infrastructure in fact critical infrastructure has been really robust for us, particularly in Europe , but these are with the you know the large carriers.
In a global sense and so their you know their total spend in our types of products around optical and IP is in is in the you know as measured in billions of dollars on an annual basis, no I'm not saying, that's what we're going to win or necessarily even that's where where you know we have a sweet spot fit necessarily.
But that just gives you the level of analysis, that's going on out there as carriers evaluate their supplier base and look for a variety of different alternatives, partly because of the political situation around Chinese manufacturers, partly because of supply assurance concerns making.
Sure. They have alternatives, there's just a lot of activity as as our customers are reevaluating their their supply base and so it's a it's a really significant large opportunity for us a lot of which are you know when you any individual one would significantly move the needle for us.
A P O C perspective, I can't remember, whether we have it on one of the slides, but I think we're it's something like 70 unique proof of concept trials. This year and you know what does that mean it means our customers spending a considerable amount of time, either with our products in their lab or remotely working with our team and all.
Lab to evaluate our products how they perform how they inter operate with the competition and how do they work how do they maintain them and support them in the network, there's nothing like getting a customer engaged hands on on the product to help sell the product and so I think those are meaningful indicators.
We'll probably double the number of P. O sees that we do this year versus last year and one other metric related to that.
Seen a I think a doubling in the number of P. O sees we're doing on the IP routing portfolio and again, that's a real kind of key strategic area for us to grow into and so I'm real excited about that portion in particular.
Okay. So it sounds like it might be that these continue to be major tier one.
Deals that you're kind of grouping in this RFP pipeline so.
It sounds like it might be fair to say, if you know the number of Rfps increase by 50%.
The dollar opportunity.
May have as well or somewhere in that.
Range, yes.
Great and I also wanted to try and quantify to some degree the degree.
Or the amount of kind of push you saw from some of the big European deals you talked about in particular, maybe to help do that quickly.
Quickly what would you I guess what would your book to Bill have been had those deals come in in Q2 relative to what I think you reported last quarter, which was a 1.2.
Yes, just to bound that you know the the movement of those orders were in the range of $10 million, probably a little more than that not all of that would have shipped in the second quarter, but we probably would have gotten some of it out by the end of the quarter. So that would have added another I don't know tend to.
15 basis points on our book to bill or something like that.
Great I'll pass it along for now.
Okay. Thanks, Tim.
Our next question comes from Eric singer with J N. P. Securities. Please proceed with your question.
Yes. Thanks for taking the question just a quick follow up on that last one did you did you say what the book to Bill was for this this quarter yeah.
Yeah, Eric I think we were right at 1.0 basically for a book to Bill I'm not sure I think Nick mentioned it but it's in all right. It's in our deck on the on the website as well.
Okay great.
Can you talk a little bit about kind of the spend.
Spending on on five G right now.
Where are we in terms of kind of carrier a focus between the access and the transport part of the network.
Well I think it varies a lot by by region I mean, obviously here in the U S. All the major carriers of launch the <unk> service typically its a five G. Non standalone. So it's kind of an adjunct to the current <unk> network for additional capacity.
And a lot of cases, using our adjacent spectrum or farming extra spectrum that they're currently using.
And.
Uh huh.
As you know a good example, Verizon and AT&T has been very public about their five G launches and.
I think the infrastructure to support that obviously goes in prior to the spectrum being lit up in the mobile technology turned on.
Many of the regions were being deployed in today five G hasn't even started yet if you look at the India market.
The five G spectrum auctions are just starting this quarter so.
None of the infrastructure really has been put in place, yes to support five G and I think I even mentioned in my remarks, you know that's an area that where we're focused on capturing more share.
Because of the Ah.
Five G deployment, adding more capacity to the network, but secondly, the investment we're making in these new products really position us much better to to win more business in that space. So.
Long answer to your question, Eric, but I think it's it's quite different depending on the region and I think we're in the early innings still on the investment cycle around five G.
Alright good.
And then lastly.
On the on the Huawei discussion.
Which regions are I think you'd said, India, what about Europe , how much how much opportunity is there for displacement to go our way in Europe .
Well, there's a I think there's a very large opportunity.
It will change it'll be a little different depending on the country. There are some countries that have already decided.
Huawei is not allowed to be deployed in a major portions of the network. There are other major spends and other countries, Germany and.
Italy, Spain et cetera that have that have not banned Chinese equipment in the network, yet, but again I can tell you. The RFP activity. We have people are looking at alternatives and making sure. They have multiple sources because nobody knows you know both from a kind of a technology supply perspective, as well as a political perspective.
Things are going to evolve so just a lot of engagement looking at alternatives and making for making sure they have flexibility in their supply chain.
Okay, then last one on the supply chain front.
It didn't sound like you were suggesting there's too much incremental difference from a from a quarter ago is there any indication that things are improving or or any any any comments just in terms of constraints Ingram.
Incremental change.
Yeah, sorry, Yeah, Yeah, you know what we have been able to improve is the expedite related costs are where we're scrambling last minute to be able to find components to complete production, we've been able to limit that to a much smaller number.
In the first quarter unless lessen in the second quarter, certainly lessen in the second half of the year.
That's the base component cost increases that we've seen though.
We expect there they're here for quite a period of time, and we haven't seen any relaxation around the individual components or certainly logistics costs and whatnot.
You need to be elevated.
Sure.
Yeah. So you know that's that's what we're expecting going forward or not a lot of dramatic improvement there again, what we're expecting margin improvements on is a lot around the increased volume the absorption of some of the fixed costs in the in the cost to manufacture and deliver.
Very good thank you alright.
Alright, thank you.
Our next question comes from Tim <unk> with Northland Capital markets. Please proceed with your question.
Yes, just wanted to follow up with regard to.
The Q3 and an annual guide I think you mentioned you expect.
Just want to make sure I heard this right, 20% sequential increase in IP optical in Q3 versus Q2 levels and I guess that would imply a little moderation on the cloud side after.
Our strong Q2.
And do you expect that to repeat in a further sequential growth in IP and optical in Q4, I know you had been looking for I think.
Double digit growth there I don't know if some of these issues might change that outlook, but I just wanted to.
Kind of clarify mm.
The guidance commentary I'm on this segment for them. Thanks.
Yeah, No. Good question, Tim and I think as you kind of break down the numbers, you'll see yes, yes, we expect.
Double digit 20% like growth in the second half of the year on IP optical so both Q3 and Q4 versus the Q2 number.
The cloud and edge number I think in the in the second half is up a little bit from the first half as a totality. So I think as you kind of parse.
Parse the numbers you know the model will kind of fall out that way.
And if you again once you get a chance to kind of analyze the full year guidance you know effectively what we've done is moderated the topline a little bit of.
The earnings numbers come down a little more again, primarily because of the lower gross margin expectation.
Based on the discussion we just had on component cost and everything else. So I think that's what you'll see in the in the analysis here is.
There's not much change on the top line, but a little more conservatism on the earnings line.
Okay. Thanks very much.
Thanks, Tim.
Our next question comes from Dave Kang with B Riley. Please proceed with your question.
Thank you. Good afternoon first question is on India.
Now, what's the percentage of our revenue.
As India currently in and you talked about you're expecting.
Fairly good growth going forward and how big do you think can be maybe say one year from now.
Yeah, Hey, Dave.
Mick can check my numbers here, but I think India is in the you know the range of 10%, maybe a little less than 10% of total sales it'll be it'll vary obviously, a little quarter to quarter, but it's in that in that range that ballpark.
And as far as projections going forward, we had India increased a force in the second quarter fairly nicely and we anticipate continued growth in the second half both from kind of the core business that we have with the customers, but there's opportunities around additional long haul.
That business as well as with the five G deployments, there's a variety of project opportunities around cell site routers around the IP portion of the portfolio that in particular I'm pretty excited about.
And so we're you know we are looking forward to to more growth in that segment of our business not just in the second half, but as we get into 2023 as well.
Bruce just a follow up.
And how much Oh go ahead.
It is around 10% that we've been averaging 8% to 9% that's kind of a cool yeah. Okay.
And how much of that Opex.
Opportunities I mean would you say is attributable to you know Huawei slashes ETE.
Replacement.
Well I think the core business, we have there which are the companies had for for a number of years going up quite a bit quite a long history in the region there.
It is mostly related to that.
That consistent position, we had in the network.
I think there's much more opportunity for growth around Huawei replacement in that market. So we really haven't captured.
A significant portion of that at this point a lot of the focus was originally around the long haul portion of the optical network and putting a new vendors in place. There of course as you know we're more focused around metro and access and I think those opportunities are still ahead here for us.
Got it and then regarding your optical business what.
What is the rough mix between 100 versus 400 gig and how should we think about the growth opportunities for both products.
Okay.
Yeah, I actually don't have that number in my head, we'll have to go offline and see if we can pull more on that.
It's a it's a blend obviously.
400 gig solution that we have is getting lots of traction it's kind of a foundation for the next generation portfolio, but it's able to do sub rate. So it gets deployed at 400 200 100.
And we have more reach optimized and performance optimized solutions that will get used in other portions of the network. So I'll have to do some more analysis on that question Dave.
Okay, and then last question.
The tax rate.
Nick 45% for a second.
How should we think about next year is that there's going to be.
Level or does it come down.
We're hopeful that it will come down as we start improving our profitability.
Other jurisdictions.
Outside of the U S. So <unk> 45 per cent is incredibly high rate.
And I would say that what we guided to this year, we started guiding in that 28% range and that would put it at 35% range, that's more or less where I would say it would be a more normal prospects back next year with increased rates.
And then Nik if I can just tack onto that that's the non-GAAP tax rate. So it's not the cash tax rate, it's there's kind of a.
Other world tax rate, that's associated with how you get from obviously earnings too to the non-GAAP EPS number so I don't want to confuse it with the cash tax rate.
Cash taxes have been.
In the $8 million to $10 million range over the past years.
And this year, we expect it to be similar however, as you know there is a oh.
Legislation in relation out there that may increase it for not just thus far a lot of other goods.
Okay.
Thank you.
Ladies and gentlemen, we have reached the end of the question and answer session and I would now like to turn the call back over to Bruce to Mcmullen for closing remarks.
Hey, great. Thanks, very much operator, and thanks again for everyone being on the call with us and the interest in ribbon.
Really look forward to speaking with many of you at the upcoming conferences that we have over the next 60 or 90 days and keeping you abreast of our progress during future earnings calls.
With that operator, thank you very much and that concludes our call.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.