Q3 2023 Ribbon Communications Inc Earnings Call
Ladies and gentlemen, 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 question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star and Seattle 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 ribbon third quarter 2023 financial results Conference call I'm, Tony Roberts, Chief Marketing Officer at Ribbon Communications also on the call today are Bruce Mcallen, Rubin, Chief Executive Officer, and Mick Lopez ribbons Chief Financial Officer, today's call is being webcast.
Life and will be archived on the Investor Relations section of our website at RVP and Dot 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 stay.
Our 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 will present non-GAAP financial information on this call reconciliations to the Apple 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, Tony 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.
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 and our IP optical networks 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 U S. Tier one service providers offset by growth from other customers.
The shortfall in revenue this quarter relative to our guidance was largely due to the 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.
Now expected in 2024.
Despite the lower revenue lower product cost 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 performed a portion of our manufacturing with flex and Israel.
Following the attack several weeks ago, approximately 60 people or or 10% of our local team in Israel had been called up to the Israeli defense force or I D. F. We.
We don't currently expect this to increase significantly.
We have planned for this possibility and have our 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 a incredibly dedicated team and it's really amazing to see them adapt and overcome during this challenging time.
In constant communication with our team and our priority is the health and wellbeing of them and their families.
Our manufacturing partner Flex is also fully opened 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 continued to make good progress towards our goal of achieving profitability and 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 topline 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% year over year and overall sales in North America up 58% year to date.
The EMEA region was weaker in the third quarter than we had expected with several projects delayed to Q4 or early 'twenty 'twenty four.
However, we do expect a much stronger fourth quarter from this region.
Yeah.
We achieved a very important milestone this quarter.
The strategy from the beginning of the merger of ribbon and ACI.
Was to successfully penetrate U S tier one service providers with our IP optical portfolio.
Following 24 months of work and investment to adapt our 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 a transition T D M and copper networks to moderate and 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 ours mine 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 U S 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 carriers network.
We also continue to get good feedback on our new Apollo 9400 compact modular optical transport platform supporting industry, leading 1.2 terabits 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 one service provider customer.
The first variant of the solution is focused on high performance applications that maximize capacity over long distances.
Shipments will begin this quarter with the general availability planned for January 2024.
Our 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.
Yeah.
And 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.
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 U S 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 V. O E 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 a 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 one 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 'twenty 'twenty four 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, where at 1.0 times year to date following a strong Q1 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.
<unk>.
Thank you very much Bruce good afternoon, everyone. 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 that improved gross margins and continued expense reductions leading to non-GAAP adjusted EBITDA around the midpoint of our guidance. Please.
Please refer to our Investor Relations page on the urban 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.
non-GAAP 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 on 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 five cents, which is an increase of three sets versus prior year.
non-GAAP tax rate year to date is 35% are.
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.
Basic share count was 171 million shares and our fully diluted share count was 176 million shares for the quarter now lets 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 one 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 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 and about half for each of the past couple of quarters.
As we mentioned in our last earnings call, we 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 use cash for $3 million in capital expenditures and our quarterly $5 million term loan repayment.
Operator: Ladies and Gentlemen, 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.
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 balances $240 million, and we had $10 million drawn on our revolver loan, which has a $75 million capacity.
Joni Roberts: It is now my pleasure to introduce your host, Joni Roberts, Chief Marketing Officer. Please go ahead. Good afternoon and welcome to Ribbon's third quarter 2023 Financial Results Conference Call. I'm Joni Roberts, Chief Marketing Officer at Ribbon Communications. Also on the call today, our Bruce McClelland, 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 relation sections of our website at rbbn.com, where both our press release and supplemental slides are currently available.
Our preferred stock and warrants are valued at $55 million or 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.
Great. Thanks Mick.
We expect the fourth quarter to be a very important milestone for us with continued sales growth and improved gross margin and our IP optical business, resulting in the segment, reaching profitability on an adjusted EBITDA basis.
Joni Roberts: Certain matters we'll be discussing today, including the business outlook and financial projections for fourth quarter of 2023 and beyond, are forward booking statements. Such statements are subject to the risks and uncertainties that could cause actual results to differ materially from those contained in these forward booking statements. These risks and uncertainties are discussed in our documents filed with the SEC, including our most recent form, 10K and form, 10Q. I refer you to our safe harbor statements included on slide two of the supplemental slides for this conference call.
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.
Joni Roberts: In addition, we'll present none of GAT financial information on this call. Recommendations to the actual GAT 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 relation section of our website.
We expect India to remain one of our strongest markets with consistent IP and optical shipments to Bharti and Ted a teller services.
We also expect strong IP optical gross margins in the fourth quarter benefiting from the higher sales better regional mix and lower product cost.
Joni Roberts: And now I'd like to turn the call over to Bruce. Bruce? Great.
As we look into 'twenty 'twenty four we expect to build on the momentum we have developed and gained share in multiple regions.
Bruce Mcclelland: 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 improve gross margins in both of our segments. And as a result of the restructuring plan we implemented earlier this year are operating expenses continue to improve and we're $87 million on an adjusted basis.
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, <unk> cell site routing and IP Mpls aggregation.
Bruce Mcclelland: The lowest point in over three years, combined at this result of an 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 continue to grow year-over-year for the fifth straight quarter, with sales increasing 6% and up 14% year-to-day. Sales in our cloud-and-edge segment were down 4% year-to-date, with reduced spending from US Tier 1 service providers offset by growth from other customers.
We have several additional tier one service provider opportunities that we expect will drive additional IP routing growth in 2024 building on the 30% plus growth we've accomplished this year.
And our cloud and edge segment. The work we've 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 projections somewhat to account for the length of time. It takes to evaluate an award these complex programs.
Bruce Mcclelland: The shortfall in revenue this quarter, relative to our guidance, was largely due to the 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.
In the U S.
Tier one 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.
Bruce Mcclelland: 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 percent 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.
Based on the above backdrop and assumptions for the fourth quarter, we're projecting revenue in a range of $230 million to $240 million non-GAAP gross margins of 54, and a half to 55, 5%.
Bruce Mcclelland: Following the attacks several weeks ago, approximately 60 people or 10 percent 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.
And non-GAAP adjusted EBITDA in a range of 40 million to $46 million for the quarter.
Operating expenses continued 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 sale reign sales range of $830 million to $840 million and adjusted EBITDA of $88 million 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 2020 for budget.
Let me wrap up by emphasizing the important role our service provider customers play in providing the foundation for highly reliable secure communications.
Bruce Mcclelland: We have an incredibly dedicated team and it's really amazing to see them adapt and overcome during this challenging time. We're in conflict 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.
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 Reuben this focus 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 challenges such as ribbon.
Bruce Mcclelland: 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 and 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.
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.
Operator that concludes our prepared remarks, and we can now take a few questions.
Thank you.
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 one on your telephone keypad.
A confirmation tone will indicate your line is it in the question queue you.
Bruce Mcclelland: Momentum in the U.S, rural segment was strong again this quarter with IP optical sales in the U.S, increasing 49% year-over-year and overall sales in North America up 58% 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.
You May press star two if you'd 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.
Ladies and gentlemen, we will wait for a moment, while we poll for questions.
Our first question comes from the line of Eric Somebody go with JMP Securities. Please go ahead.
Bruce Mcclelland: We achieved a very important milestone in 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 rotor inside the AT&T network. We've 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.
Yeah. Thanks for taking my question.
On the carrier spending in North America, any any thoughts in terms of timing how long this is going to stay kind of business.
State.
And then also any comments about the contribution level from your from your new products to the IP optical revenues.
Bruce Mcclelland: 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 osmine certification and live network testing. The solution can be used across hundreds of switching offices nationwide and even larger number of enterprise locations.
Yeah, Hi, Eric Thanks for the questions.
So on the tier one spending environment, Oh, I think we're in a.
Lower environment through the end of the year obviously.
You know I think budgets are still being set going into next year or so it's a little early.
What is obviously key for us is where those dollars get spent.
And as I mentioned on my remarks, you know the early planning we have for next year indicates theres opportunities for us to grow from where we're sitting here today and and rebound back to a more normalized level there were literally.
Lee thousands of.
Class five wiring centers and switches still that are 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 are the basically helps eliminate some of the legacy.
Bruce Mcclelland: 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.
So on it and and Tdm interfaces.
So I think we'll have obviously a much better view as we get towards the end of the year here.
On the on the contribution of new products I would 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's there are things like the new.
Long haul optical long haul platform sell.
Bruce Mcclelland: We receive first orders for the product in the third quarter and have multiple trials and process in the fourth quarter, including a European tier one 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.
Cell site routers the next generation.
Neptune 2000 series now all of those have combined to a 20% or in that in that order in the third quarter from a revenue perspective.
You still with us there.
Oh.
That's all my questions. Thank you.
Thank you Eric.
Thank you.
Our next question comes from the line of Greg <unk> with West Park Capital. Please go ahead.
Bruce Mcclelland: 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 more than 40 percent 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.
Yes. Thank you for taking my question.
Two part question on the AT&T win that you talked about.
Is that a multi vendor.
Award or are you. The primary supplier are you the sort of the second supplier how does that shake out and then I have a follow on.
Bruce Mcclelland: 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 ship 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 the space.
Yes, thanks, Greg So it's a fairly unique solution, where we combine our routing platform with our voice core and it basically.
It 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 you know the way we've architected it and then going through what they call <unk> certification, which is the back office provisioning and management makes it pretty unique so.
I think it's a unique solution in the market that this is not just applying to AT&T. It's really a broad use case for a more rapid replacement of of Tdm and copper links.
Bruce Mcclelland: 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 corps modernization projects that together we expect to generate more than $25 million over the next 12 months.
Well, while still preserving the functionality and the interface into the either the consumer or the enterprise side.
So I think it's a fairly unique solution that we put together.
And as.
As far as I know last quarter, you had some tier three smaller carrier ones in the U S. Can you talk about any progress there and generally speaking have your recent.
Bruce Mcclelland: 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.
Recent wins in IP optical been.
Marketshare 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.
Yeah. Thanks, Greg So I'm the U S Rural broadband space continues to be very robust I think we grew about 50% 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.
Bruce Mcclelland: 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. In fact, there's a very good opportunity for growth with projects such as the AT&T Multi-Service Edge IP routing program.
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. So.
And we think that continues going into next year as well.
Thank you and just just to follow on on you on my first question it sounds like from a feature.
Perspective.
Bruce Mcclelland: From an overall bookings perspective for the company, we're at 1.0 times year-to-date following a strong Q1 cloud-edge bookings in the third quarter were 1.2 times with several multi-quarter voice modernization projects 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.
Our IP optical products.
<unk> is their ability to emulate legacy protocols.
And combine them with with new.
Transport capabilities is that a fair statement is that kind of your secret sauce when you.
When you get into competitive bidding situations.
Yes, that's a good question and I think we've identified a spot in the market that are.
Mick Lopez: 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.
His unique perhaps a little unique to us and maybe underserved and so it's it's a great entry point into the carriers, both large and small where we can really differentiate.
Mick Lopez: Mick, thank you very much, Bruce.
Mick Lopez: 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 growth margins and continued expense reductions, leading to non-gap adjusted EBTA around the midpoint of our guidance.
Once a platform or an operating system and integrated and homologate It and network gets 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 were 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 IP mpls.
Mick Lopez: Please refer to our investor relations page on the ribbon website for supplemental slides, summarizing our third quarter 2023 and historical financial performance.
Metro aggregation I mean any of those provide an entry point for us to then grow.
Mick Lopez: Let's begin with consolidated corporate financial results. In the third quarter of 2023, ribbon generated revenues of $2003 million, which is a decrease of 2% or $4 million from the prior year as our growth and IP optical almost compensated for the decrease in cloud and edge products. Non-gap growth 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.
And find other places to to expand the products and.
To your other question on on gaining share for the most part I think these are share gains in fact no.
I saw the second quarter industry report showing us gaining share in the North American carrier service provider aggregation portion of the market. So.
Some good momentum and some independent statistics that show were gaining share there.
Okay. Thank you.
Thanks, very much Greg.
Mick Lopez: Non-gap 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-gap net income was $9 million, which is a $5 million increase from the previous year. This generated non-gap diluted earnings per share of $5 cents, which is an increase of $3 cents versus prior year.
Thank you.
Our next question come from.
Tang with B Riley Securities. Please go ahead.
Thank you and good afternoon. My first question is.
Is regarding them AT&T.
I'm just wondering.
Who are the current incumbents and is this a displacement or just the addition by AT&T.
Yeah. So I think there's thanks, Dave.
Suppliers, obviously in the mix in there kind of core routing and Metro today again. This is kind of in the use case that we've identified focused in on obviously, where our strength is around the voice infrastructure portion of the network and there's a lot of opportunity here to replace legacy classified and offices.
Mick Lopez: Peter. Our non-gap 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-gap EBITDA was $28 million in the quarter, which is of $5 million, or about 20% improvement, both year over year and quarter over quarter. A basic share count was 171 million shares, and our fully deluded share count was 176 million shares for the quarter.
Collapsed tandem switches and then on the enterprise side migrate customers from legacy Tdm interfaces could be solid infrastructure onto a pure IP network.
Mick Lopez: 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 US tier one service providers. Our services business remained consistent year and year, delivering value to our customers and strong profit generation. The cloud and edge business had a strong non-gap 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 have lower revenues this year.
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 like a Cisco was clearly in the in the deployments there as well.
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 Paul for how long.
Yes, 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 up opportunities for us, but you know obviously potentially larger as we expand the number of use cases, and and really prove ourselves in the network.
Mick Lopez: Let's turn to our IP optical networks business results. We recorded their quarter revenue of $87 million, which was an increase of $5 million for 6% year over year, led by continued growth in India, North America, and Japan. Non-gap 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.
Got it and then.
Regarding optical or IP optical in Europe was down 22%.
You mentioned some of the projects being delayed is that related to the.
Macro headwinds.
That uncertainty, causing customers to kind of delayed projects or or.
Any color on the situation and what makes you think or.
They are.
Mick Lopez: As we noted in the last quarter, as we continue the revenue growth with improved sales in Europe and America, we aim to achieve our target gross margins in the mid-upper 30% range for the IP optical networks segment. Non-gap adjusted EBITDA loss for the quarter was reduced to $4 million, which is an improvement of about 60% or $6 million year and 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.
Are you expecting that to.
B than that this quarter in the fourth quarter.
Yeah. So this is not a I'll call it a macro headwind in the in the context of excess inventory in those types of issues I do think getting to a decision on a on a on an opportunity takes longer.
Clearly the you know the.
The interest rate environment creates more challenges so people are being more careful in their spending but you know from us 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.
Mick Lopez: As we mentioned in the last earnings call, we expected to have higher working capital requirements in the third quarter as we grow the IP optical business of the second half. Cash use from operations was $12 million. In addition, we use 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 equivalence, which is a decrease of $10 million from the previous quarter.
So we've got I think better better visibility better momentum into the quarter. Some regions like India, we're already kind of fully backlog for the quarter. So I think the <unk>.
Context here and the visibility we have into into the different opportunities is pretty strong at this point Dave.
Mick Lopez: 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 per the bank covenant calculations, which include preferred equity in total debt among other adjustments. We met both of the amended term loan covenant metrics in the quarter.
And then speaking of India from some of the.
Comm equipment vendors, they sell into India are pointing out that India could be peaking or slowing down already just wondering what you see from your Indian customers.
Yes, I think it depends on what part of the network you're in if it's in the Rand portion of the network I think that's that's fairly true the piece of the network, where in a kind of optical transport there.
Bruce Mcclelland: Now, I'll turn the call back to Bruce to provide more comments on our outlook for the fourth quarter. Great, thanks, Mick. We expect the fourth quarter to be a very important milestone for us with continued sales growth and improved growth 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.
IP Mpls network and their cell site routers I think the capacity additions there are happening later in time than the original ran infrastructure.
So again, we've got very good visibility into the fourth quarter. You know I think next year it looks pretty positive as they continue to expand in particular things like cell site routers into the.
The locations, where they're adding five G coverage and obviously the new.
Bruce Mcclelland: 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 Bardi and Tatella services. We also expect strong IP optical growth margins in the fourth quarter, benefiting from the higher sales, better regional mix, and lower product cost.
Sure that we have around optical helps us as well, particularly around margins now that we shipped a lot of the infrastructure elements. We can ship more of the capacity elements going forward.
Yeah.
Thank you.
Thanks, Dan.
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 <unk>.
Average bill with Northern Northland Capital markets. Please go ahead.
Hey, good afternoon, and congratulations on the win with AT&T and it's been a.
Bruce Mcclelland: As we look into 2024, we expect to build on the momentum we have developed and gained 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 1 service provider opportunities that we expect will drive additional IP routing growth in 2024, building on the 30% plus growth we have accomplished this year.
Probably been a longtime coming.
And not related but somewhat so.
Just real quickly any 10% customers in the quarter.
And I'll go on from there.
Yeah, Hey, Tim So Verizon was a 10% plus customer again in the quarter.
And third quarter here.
Okay, just Verizon in the 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 BARDA deal.
Bruce Mcclelland: 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 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.
Somewhere around that maybe in advance of that.
And of course, Youre talking a lot about some incremental tier one opportunities I.
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 that.
Sizing the opportunity with AT&T at least the short term opportunity, but I was hoping maybe you could put it into context.
Bruce Mcclelland: In the US, 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.
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 in a certain number that you won.
Et cetera, so on the anniversary of that maybe we can get an update there and then just I guess, an overall question about that.
Besides the tier one pipelines in the AT&T opportunity in particular relative to some of what you've already won.
Yeah. So we have a couple of other customers that are that are closing in on 10% plus so.
Bruce Mcclelland: Based on the above backdrop and assumptions, for the fourth quarter, we're projecting revenue in a range of 230 to 240 million dollars, non-gap growth margins of 54.5 to 55.5 percent, and non-gap adjusted EBITDA in a range of 40 million to 46 million dollars 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.
And you can imagine who they are based on what we've discussed with.
With the likes of Bharti, one of the other major operators that we announced early.
Early this year or late last year was around MTN.
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 is a major event for us and as I mentioned that solution, we're using their really fits well to other carriers large and small and is a great way to enter into these accounts. So you know I think I think we'll have more to report on that as we get further along in the pipeline.
Bruce Mcclelland: 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 Ribbon is focused, will not be possible without continued investment and adoption of new networking technologies.
And with some of those the other area I mentioned on the call was around the new the.
The new optical transport platform that we're introducing this year and testing in the tier one carrier in Europe today as well so theres more like that I think as we've invested around the portfolio here and really become a much stronger platform.
It really fits into the tier one carrier space.
You know I guess, we'll have to kind of continue to keep you updated obviously, Tim is we have more to announce here over the next two quarters.
Bruce Mcclelland: I believe this is a very attractive market to invest in and provide 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, put Ribbon in an excellent position to capitalize on these macro trends.
Yeah.
Great and I think you kind of referenced it a little bit.
Right.
And maybe take it by segments.
It sounds.
It sounds like you've got some pretty good orders in the book already on both sides, but.
From a trajectory standpoint do you what do you expect out of orders in the quarter I guess.
Bruce Mcclelland: Operator that concludes our prepared remarks and we can now take a few questions. Thank you.
In terms of what you've already talked about with the increased sequential revenue guide.
Operator: 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 one on your telephone keypad. Our confirmation tone will indicate your line is in the question queue. You may press star and two if you'd 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. Ladies and gentlemen, we will wait for a moment while we pull for questions.
Yeah. So obviously, we're expecting a pretty strong bookings quarter, given a little softer in the third quarter.
Yeah, I think I mentioned, we expect a really strong IP optical number this quarter greater than $100 million in revenue. So we.
We do have you know a fair amount of book ship in the quarter still so a lot of that bookings 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.
Eric Sapeger: Our first question comes from the line of Eric Sapeger with JMP Securities. Please go ahead. Thanks for taking the question.
And a number of additional federal opportunities, which are sizable as well, but will really contribute to.
Bruce Mcclelland: On the carrier spending in North America, any thoughts in terms of timing how long this is going to stay kind of in this state? And then also any comments about the contribution level from your new products to the IP optical revenues? Yes, hi, Eric. Thanks for the questions. On the tier one spending environment, I think we're in a lower environment through the end of the year. I think budgets are still being set going into next year, so it's a little early.
Our strong fourth quarter here.
Okay. Thanks very much.
Thanks, Tim.
Thank you.
Ladies and gentlemen reminder, if you wish to ask a question. Please press star and one.
As there are no further questions I now hand, the conference silver to Mr. Bruce Mike Glenn for his closing comments.
Hey, Thanks, Ryan and thanks, again for everybody being on the call today and your interest in and then we look forward to speaking with many of you are several investor conferences coming up over the next month. So look forward to those discussions operator, thank you as well and this concludes our call. Thank you.
Bruce Mcclelland: What is obviously key for us is where do those dollars get spent? 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 helped eliminate some of the legacy on it and TDM interfaces. So I think we'll have obviously a much better view as we get towards the end of the year here.
Okay.
Thank you.
The conference of Ribbon Communications has now concluded. Thank you for your participation you may now disconnect your lines.
Okay.
[music].
Eric Sapeger: On the contribution of new products, I'd estimate about 20% of our products fails in the third quarter in IP optical. We're from new products that we introduced earlier this year. So there are things like the new long haul optical long haul platform, Spell site rotors, the next generation, Neptune 2000 series, know all of those of combined to 20% or in that order in the third quarter from our revenue perspective. You're still with us, Eric?
Eric Sapeger: Oh, that's all my questions. I'm good. Thank you.
Greg Mesniaeff: Our next question comes from the line of Greg Mesniaeff with West Park Capital. Please go ahead. Yes. Thank you for taking my question. Bruce, 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 a second supplier? How does that shake at? And I have a follow-on. Yeah, thanks Greg. So it's a fairly unique solution where we combine our routing platform with our voice core.
Greg Mesniaeff: 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 osmine certification, which is the back office provisioning management makes it pretty unique. So it's, 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 the, either the consumer or the enterprise.
Greg Mesniaeff: So I think it's a fairly unique solution that we put together. And as far as I know last quarter you had some tier three smaller carrier wins in the US. Can you talk about any progress there? And generally speaking, have your recent wins in IP optical bin 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.
Greg Mesniaeff: Yeah, thanks Greg. So the US real broadband space continues to be very robust. I think we grew about 50% 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 US business and our North American business in general has continued to increase and, you know, be a much more substantial amount of the business. So we think that continues going into next year as well.
Bruce Mcclelland: Thank you. Just to follow on on my first question, it sounds like from a feature perspective, your IP optical products strengthen 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. Yeah, so that's 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.
Bruce Mcclelland: 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 and 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 fell site router or could be circuit emulation or it could be IPMPLS metro aggregation.
Bruce Mcclelland: I mean, any of those provide an entry point for us to then grow and find other places to expand the products and to your other question on gaining share. For the most part, I think these are share gains. In fact, 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. So some good momentum and some independent statistics that show we're gaining share there.
Greg Mesniaeff: Okay, thank you. Thanks very much, Greg.
Greg Mesniaeff: Thank you.
Dave Tang: Our next question comes from Dave Tang with B. Riley Securities. Please go ahead. Thank you. Good afternoon. My first question is regarding MAK&T. Just wondering who are the displacement or just the addition by AK&T? 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 use case that we've identified focused in on obviously where our strength is around the voice infrastructure portion of the network.
Dave Tang: 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 thawed in infrastructure onto a PRIP 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 like a Cisco is clearly in the in the deployments there as well.
Dave Tang: 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 pull for how long? Yes, 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.
Dave Tang: Ultimately, you know, these are tens of millions of dollars of opportunities for us, but you know, obviously potentially larger as we expand the number of use cases and really prove ourselves in the network. Got it. And then regarding optical or api optical in Europe, it was down 25%. I think you mentioned some of the projects being delayed. Is that related to like macro headwinds that are certainly causing customers to kind of delay projects or any color on that situation?
Dave Tang: And what you think, or have they, are you expecting that to be then this quarter in the fourth quarter? 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. But if not so much really a macro trend issue, as far as Q4, our bookings velocity so far in the quarter has been very healthy.
Dave Tang: 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 in the visibility we have into the different opportunities is pretty strong at this point, Dave. And speaking of India, some of the come equipment vendors that sell into India are pointing out that India could be peaking or slowing down already, just still wondering what you see for your Indian customers.
Dave Tang: 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 were in kind of optical transport, their IPMPLS network, and their self-right routers. I think the capacity additions there are happening later in time than the original ran infrastructure. So again, we've got very good visibility into the fourth quarter. 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.
Dave Tang: And obviously the new share that we have around optical health 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. Thank you. Thanks, Dave. 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 Savageville with Northern Capital Markets. Please go ahead.
Dave Tang: Hey, good afternoon, and congratulations on the win with AT&T. That's been probably been a long time coming. And not related. David, but somewhat so. Just real quickly. Any 10% customers in the quarter? And I'll go on from there. Yeah, he Tim. So Verizon was a 10% plus customer again in the quarter, in third quarter here. Okay, just Verizon. And the part of the reason I asked 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.
Dave Tang: And I think announced the party deal. 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's fairly strong. And I think you've already taken a crack at sizing the opportunity with AT&T, at least the short term opportunity. But I was hoping maybe you could put it in the context relative to some of those wins you announced last year, and or what you're seeing in the current tier one pipeline.
Dave Tang: 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 in a certain number that you want, and etc. So in the anniversary of that, maybe we can get an update there. And then just I guess an overall question about the size of the tier one pipelines and the AT&T opportunity in particular relative to some of what you already won.
Dave Tang: Yeah, so we have a couple other customers that are that are closing in on 10% plus so. And you could imagine who they are based on on what we've discussed with with the likes of party. You know, 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. Very different countries throughout Africa and that business is very strong continues to grow for us as well.
Dave Tang: 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 there's a great way to enter into these accounts. So, you know, I think 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 on the call was around the new the new optical transport platform that we're introducing this year and testing in the tier one carrier in Europe today as well.
Dave Tang: 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 few quarters. Great. And I think you kind of referenced it a little bit. But and maybe take it by segments.
Dave Tang: You know, it sounds. Sounds like you've got some pretty good orders in the book already on both sides, 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? Yes, so obviously we're expecting a pretty strong bookings quarter given a little softer in the third quarter. I think I mentioned, you know, we expect a really strong IP optical number this quarter greater than $100 million in revenues so we do a fair amount of bookship in the quarter still.
Dave Tang: So a lot of that bookings is happening inside the quarter in the cloud and edge business while the Tier 1 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. Okay, thanks very much. Thanks Tim. Thank you. Lady Benjamin or reminder, if you wish to ask a question, please press star and one.
Bruce Mcclelland: As there are no further questions, I now hand the conference over to Mr. Bruce McClendon for his closing comments. Thanks Ryan and thanks again for everybody being on the call today and 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. Thank you. The conference of ribbon communications has now concluded, thank you for your participation. You may now disconnect your lines.