Q3 2024 Ribbon Communications Inc Earnings Call
Ladies and gentlemen, greetings and welcome to the Ribbon Communications third quarter 'twenty 'twenty full financial results conference call.
Speaker Change: At this time all participant lines are in a listen only mode.
Brief question and answer session will follow the formal presentation.
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Speaker Change: Please press star zero on your telephone keypad.
Speaker Change: As a reminder, this conference is being recorded.
Speaker Change: It is now my pleasure to introduce your host Joni Roberts Chief Marketing Officer. Please go ahead.
Joni Roberts: Good afternoon, and welcome to ribbons third quarter 2020 for finding all results conference call I'm, Tony Roberts, Chief marketing officer aren't raising to communicate.
Joni Roberts: Also on the call today, Bruce Mcclelland ribbons, Chief Executive Officer, and Jon Kaufman, who will shortly the role of Britain's Chief Financial Officer, today's call is being webcast live and will be archived on the investors relations section of our web site RV beyond Dot com, where both our press release and supplemental slides are currently available.
Joni Roberts: Certain matters, we'll be discussing today, including the business outlook and financial projections for fourth quarter of 2024 and beyond are forward looking statements such statements are subject to the risks and uncertainties that cause actual results to differ materially from those contained in these forward looking statements. These risks and uncertainties are dis.
Joni Roberts: In our documents filed with the FCC, including our most recent Form 10-K, I refer you to our safe Harbor statement, including the supplemental financial information posted on our website.
Joni Roberts: 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, we issued earlier today as well as the supplemental financial information we prepared for this conference call, which again are both available on the Investor Relations section of our website.
Speaker Change: And now I'd like to turn it over to Bruce Bruce.
Bruce: Great. Thanks, Tony Good afternoon, everyone and thanks for joining us today to discuss our Q3 results and outlook for the rest of the year.
Bruce: First as many of you know Mick Lopez announced his plan to retire and will be with us through the end of the month.
Bruce: As I've stated before Nick has been instrumental in maturing the operations of the company and accomplishing multiple strategic initiatives.
Bruce: Okay. Thank you for your leadership and contributions to ribbon and all the best to you in your retirement.
Bruce: I'd now like to welcome John Townsend, who is joining us as Chief Financial Officer effective November one.
Bruce: John is a proven financial leader with an impressive career that spans over 30 years, leading large complex financial organizations for several of the industry's largest service providers in multiple countries.
Bruce: Given our focus in this area and the continued gains we're making I'm really looking forward to the insight John more buoyant.
He'll be available in our Q&A session. This afternoon.
Bruce: Now onto Q3 results I'm very pleased with our performance in the quarter highlighted by the return to growth in our cloud managed business.
Bruce: As we indicated on our last earnings call. We have a number of tailwind that will support and underpin this business for years to come and we will have a positive effect on the overall margins for the company.
Bruce: And well IP optical network sales were lower year over year. This quarter. Following the suspension of product sales to eastern Europe, beginning last quarter, we are growing in other areas.
Bruce: In fact, we're having a very strong second half in the U S where our cross sell strategy is working well and we have numerous projects focused on expanding overall internet availability and capacity.
Bruce: We also continue to see more opportunities related to competitive shifts in the market where customers are assessing their options to replace incumbent suppliers and we have very good opportunities to gain market share.
Bruce: One of the most notable areas of growth for us across both businesses as the federal and defense industry.
Bruce: Year to date.
Bruce: For the 2023.
Bruce: Accounted for 13% of overall sales so far this year.
Bruce: Our portfolio of secure communication applications and network infrastructure is a great fit for this important market.
Bruce: In the U S Defense segment, we have developed a very strong position with multiple branches of the armed forces as they replace legacy systems with a modern cloud based voice solutions that provide the security and survivability needed to carry out their combat and peacekeeping missions.
And in Europe are secure IP and optical data networking platforms are widely deployed in countries, such as Israel, Switzerland in Finland.
Our combined portfolio has broad applicability across many more federal agencies in countries, creating opportunity for significant further growth.
Speaker Change: In the third quarter overall sales were $210 million, increasing three 5% year over year, and 9% quarter over quarter led by the growth in cloud and edge, earning.
Speaker Change: Earnings were once again very solid and at the top end of our guidance with adjusted non-GAAP EBITDA of $30 million.
Speaker Change: non-GAAP gross margin of 55% exceeded expectations and was at the high end of guidance with a positive mix of product sales and good execution from our professional services team.
Speaker Change: non-GAAP operating expenses were $90 million in the quarter.
Speaker Change: Slightly year over year, mostly due to mid year employee compensation adjustments.
Speaker Change: Year to date profitability for the company as increased $15 million or 32% on an adjusted EBITDA basis as compared to 2023.
Speaker Change: Trailing 12 month adjusted EBITDA is now $106 million.
Speaker Change: Now a little more detail on our operating segments.
Speaker Change: In the cloud and edge business as expected sales to Verizon increased substantially in the quarter, reaching 15% of overall company sales.
Speaker Change: The initial three year phase of the voice network modernization project, we announced earlier this year is fully underway and the combined Verizon and within team are executing very well.
Speaker Change: Our revenue run rate is now exceeding $100 million per year with this key customer and is expected to grow.
Speaker Change: 25.
Speaker Change: In the U S Federal market, we announced an important project to modernize and secure the U S. Federal soft switch backbone with our state of the art voice communication infrastructure.
Speaker Change: We now have deployments in four branches of the U S. Military as we continue to expand our presence in defense networks across the globe.
Speaker Change: One of the key drivers behind the improved gross margin. This quarter was the increase in SBC sales and the greater software mix.
Speaker Change: This is one of the best quarters for SBC sales that we've had in several years up more than 60% from the third quarter last year.
Speaker Change: This included sales across a number of markets, including the U S and international service providers U S federal and a number of large enterprise customers.
Speaker Change: Also as I mentioned earlier, we're in active discussion with a number of customers regarding the replacement of Microsoft meta switch platforms, we have a large funnel of opportunities and we closed several initial deals this quarter.
Speaker Change: We also closed a sizeable project with our partner J S. C to provide a full IMS voice platform, leveraging our SBC and policy solutions.
Speaker Change: Along with their IMS core, it's a relatively new area for us and has the potential for us to gain share in a portion of the market, where we have not fully addressed in the past.
Speaker Change: Overall called net revenue in the third quarter was $128 million up 11% year over year and 16% quarter over quarter.
Speaker Change: non-GAAP gross margin in Europe.
Speaker Change: Percent and non-GAAP adjusted EBITDA contribution grew 20% year over year to $38 million or 30% of revenue for the quarter also near an all time high.
Speaker Change: Book to Bill was very strong at over 1.4 times with an increasing backlog associated with network transformation projects.
Speaker Change: In summary, this was a great quarter for our cloud and edge business and sets us up for an even stronger performance in the fourth quarter.
Speaker Change: And our IP optical segment the highlight of the quarter was certainly the increased business in the U S. As.
Speaker Change: As mentioned in our last earnings call, we had very good backlog entering the quarter in the U S market.
Particularly with regional and rural broadband providers.
Speaker Change: This resulted in our strongest quarter ever in the U S with revenue, increasing more than 100% both quarter over quarter and year over year.
Speaker Change: And accounted for more than 20% of IP optical sales.
Speaker Change: We expect the momentum in the U S to continue in the fourth quarter across a number of use cases and customers, including U S Rural and regional broadband middle mile Transport Tdm circuit emulation with an increasing number of service providers as well as critical infrastructure providers, such as American electric power.
Speaker Change: And we anticipate further growth in 2020 five as larger serves service providers accelerate their modernization of the tdm infrastructure and leverage our IP routing technology.
Speaker Change: IP optical sales to operators in India, including Bharti, and Vodafone idea increased 16% quarter over quarter, but are tracking a little below last year's level.
Speaker Change: We continue to expect the fourth quarter to be the best of the year in this region with the second half approximately 30% higher than the first half of the year.
Speaker Change: This is in large part due to the renewed investment being made by Vodafone idea to upgrade their network infrastructure.
Speaker Change: In Europe I P optical sales in the quarter increased 15% year over year and are up 17% year to date.
Speaker Change: Central Europe continues to be our strongest region, including Germany, Austria, and Switzerland, where we have a good mix of critical infrastructure service provider and defense customer supporting the business we.
Speaker Change: We also have a good pipeline of opportunities with service providers in southern Europe, including Italy, and Spain.
Speaker Change: Finally from an innovation perspective at the recent next generation optical networking event in Paris, we demonstrated the industry's first 400 gig ZR plus module that supports field upgrade ability to 800 gig ZR plus.
Speaker Change: This enables operators to cost effectively support both metro and long haul transport on a single module and <unk>.
Speaker Change: <unk> performance and cost efficiencies with an open interoperable architecture.
Speaker Change: Our new Apollo 90 poorly compact modular platform provides industry, leading density with 25, six terabits per two rack units and an impressive low power consumption of less than 107 watts per gigabit.
Speaker Change: Great platform ideally suited for growing data center demand.
Speaker Change: From a financial perspective, IP optical revenue in the third quarter was $82 million down 6% year over year and flat to the second quarter.
Excluding sales eastern Europe revenue from all other customers was up 4% year over year.
Speaker Change: As expected gross margins were lower at 36% as a result of the change in mix.
Speaker Change: Book to Bill was one point of times in the quarter after adjustments associated with Eastern Europe.
Speaker Change: non-GAAP adjusted EBITDA for IP optical was negative $8 million down $4 million from the prior year year to date adjusted EBITDA is $21.
Speaker Change: Three quarters of last year.
Speaker Change: Now, let me wrap up on our third quarter results with a few key operational metrics that Nick we'd normally comment on John will pick this up next quarter.
Speaker Change: Cash from operations was a negative $15 million and we ended the quarter with cash and cash equivalents of $40 million.
Speaker Change: This was lower than anticipated due to approximately $25 million of accounts receivable collections expected at the end of September that were delayed into October.
Increasing our quarter end, a or by approximately $40 million.
Speaker Change: More than half this amount was already received in the first few weeks of October and we expect positive cash generation. This quarter with a are staying at a similar level the significant increase in shipments this quarter.
Speaker Change: Interest expense in the quarter was $10 million, reflecting our new credit facility, while we will benefit from the 50 basis points. So for rate reduction recently implemented.
Speaker Change: We also invested $7 million this quarter as we prepare to relocate an R&D facility and $2 million in typical capex investment.
Speaker Change: We now estimate a non-GAAP tax rate for the full year of approximately 40% given shifts in regional profit and loss contributions.
Speaker Change: Now a few comments on the fourth quarter and outlook for 2025.
Speaker Change: The operating environment continues to improve and presents an excellent opportunity for us to maintain our momentum growing revenue and profitability.
Speaker Change: Pacific trends influencing our business include the following key areas.
First network modernization to drive down cost and retire obsolete infrastructure is a key factor behind the increasing investment from service providers enterprises and federal agencies to upgrade their voice communication infrastructure.
Speaker Change: Legacy Tdm and copper networks are increasingly expensive to support and programs such as the Verizon voice core modernization project are clear evidence of the priority now being placed on this part of the network.
Speaker Change: We have a growing number of sizable projects with other large service providers that will drive further growth in our cloud and edge secure communications business in 2025 and in years to come.
Speaker Change: Second as I mentioned earlier, we're having very good success in the federal and defense sectors in the U S and Europe.
Speaker Change: Mission critical applications that rely on highly secure networks that are always on and never fail.
Speaker Change: This is an area where ribbon really differentiates from the competition.
Speaker Change: Third there continues to be substantial investment to improve internet availability and performance for underserved segments of the broadband market.
Speaker Change: This is an area, where we're really executing well on our cross sell strategy.
Speaker Change: And the upcoming U S. B program will further increase funding across the entire ecosystem.
Speaker Change: And finally, the shifting competitive environment is creating further opportunity for ribbon to win new accounts across multiple regions.
Speaker Change: The IP optical space the merger of Nokia and Infinera introduces supply chain concerns that we expect to capitalize on.
And Microsoft has generated significant uncertainty around the medicine, which install base that introduce a substantial replacement opportunities for us.
Speaker Change: The focus we have on cross selling the entire portfolio to our broad base of customers continues to generate results as highlighted by the success, we're having with U S Rural broadband providers.
Speaker Change: And the integration of our Neptune IP router with our voice transformation portfolio has opened doors across the entire U S service provider landscape to modernize the aging Tdm voice network, leveraging our IP routing technology.
Speaker Change: While it's still early we expect the combination of these opportunities to enable us to grow revenue in 2025 in the mid single digit range, even after accounting for the reduction in sales to eastern Europe.
Speaker Change: Okay.
Speaker Change: The operating expenses, enabling the majority of the incremental margin to contribute directly to earnings where we expect to grow at a double digit rate.
Speaker Change: In the fourth quarter, we continue to expect an excellent finish to the year with sequential growth in both businesses.
Speaker Change: Wastewater is Asian programs with Verizon and multiple other carriers will continue to ramp and we anticipate several new awards with U S Federal defense agencies.
We expect the momentum in the U S Rural broadband segment to continue at similar levels to the third quarter.
Speaker Change: And we expect a seasonally strong quarter with enterprise customers as we renew annual enterprise license agreements.
Speaker Change: Our guidance for the fourth quarter projects year over year sales growth of approximately 8% at the midpoint, reflecting all of these positive trends.
Speaker Change: We anticipate gross margin to be slightly higher than the notable level, we posted in the third quarter due to the expected higher mix of cloud and edge sales.
Speaker Change: Based on this for the fourth quarter, we're projecting revenue in a range of $235 million to $255 million non.
Speaker Change: non-GAAP gross margins in a range of 55.5% to 56% and non-GAAP adjusted EBITDA in a range of $46 million to $52 million.
Speaker Change: We certainly recognize that our guidance for the fourth quarter implies significant sequential growth.
Speaker Change: But as I've outlined we have good momentum across multiple areas along with strong bookings in the third quarter that provide good visibility and confidence for an excellent finish for the year.
Speaker Change: Overall, we're making good progress on our key strategic goals, including returning to growth in our telco voice infrastructure business.
Speaker Change: Diversifying and expanding sales and enterprise market verticals, including financial Health care Energy transportation and government information security.
Speaker Change: Cross selling the entire portfolio, particularly in the U S and achieving sustainable profitable growth and our IP optical business.
And accelerating innovation and capturing cost efficiencies with the full integration of our product teams.
Speaker Change: Operator that concludes our prepared remarks, and we can now take a few questions.
Speaker Change: Thank you.
Speaker Change: Ladies and gentlemen, we will now be conducting a question and answer session.
Speaker Change: If you'd like to ask a question. Please press star and one on your telephone keypad.
Speaker Change: A confirmation tone will indicate your line is in the question queue.
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Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the stock east.
Speaker Change: Ladies and gentlemen, we will wait for a moment, while the question queue assembles.
Speaker Change: The first question is from the line of Christian Schwab with Craig Hallum Capital Group. Please go ahead.
Speaker Change: Great. Thanks for taking my question good quarter so.
Speaker Change: I'm just curious.
Speaker Change: Can you help us on the meta switch opportunity.
Speaker Change: It seems like.
Speaker Change: It means substantial Microsoft kind of walking away from that platform.
Speaker Change: Is there a dollar installed base.
Speaker Change: As a percentage of share that you think is reasonable.
Speaker Change: You know on a go forward basis, just any more color regarding our house.
Speaker Change: So that opportunity might be.
Speaker Change: Yeah, Hey, Kristian.
Speaker Change: So theres a couple of different metrics I think to look at this.
Quite a range they're deployed in kind of a broad range of smaller regional rural operators and then quite a few of the tier two operators.
Speaker Change: Frankly places where were not they are sort of thing right. There's a lot of kind of distribution across the curve.
Speaker Change: So these deals can range from a few hundred thousand dollars to several million dollars or larger depending on the scale and the scope.
Speaker Change: One of the metrics to look at is the last public filings that Microsoft maintains in the U K for that business and.
Just the ongoing maintenance revenue stream is pretty substantial from that installed base I forget the exact number but.
Speaker Change: And the $75 million range or more so I think it's a fairly substantial footprint of course some of that will just continue.
Speaker Change: We need to operate the way it is some of it will get upgraded and replaced and I can tell you. We've got a lot of focus on it.
Speaker Change: It's an opportunity that doesn't come along very often two to go capture some of that that real estate that footprint.
Speaker Change: Great.
Speaker Change: The question has to do with.
<unk> program it sounds like you're seeing some revenue Nokia on their conference call talked about recognizing their first revenue.
Speaker Change: In the December quarter.
Speaker Change: Seems a little bit earlier than a lot of people were thinking given the slow start to all the state approvals.
Speaker Change: Would you expect that 2025.
Speaker Change: No.
Speaker Change: You know.
Speaker Change: Stronger uptake.
Speaker Change: Spending.
Speaker Change: Where do you think.
Speaker Change: 2016.
Speaker Change: Yeah, I think it's gradual particularly for us given we're not on the access layer of the network.
Speaker Change: I'm kind of pleased to see the progress though over the last few months I think it was actually doing some reading. This morning, I think there are now nine states that have opened up their grant application windows and some are already processing applications and you could even see perhaps the first awards before the end of the year.
Speaker Change: So that's good progress compared to where we were say six months ago and you know.
Speaker Change: Again, I think the first half it's pretty.
Speaker Change: Pretty modest and kind of getting started on the construction portion of some of these programs and then accelerating in the second half and again our pieces a little bit later in the in the process as they start to build out the inter connectivity in the middle mile portion, but it's good to see the progress finally being made here.
Speaker Change: Great.
Speaker Change: Thank you.
Speaker Change: Thanks Christian.
Speaker Change: Thank you.
Speaker Change: Question is from the line of Michael Genovese from Rosenblatt Securities. Please go ahead.
Michael Genovese: Oh, great. Thanks, so much.
Yeah.
Michael Genovese: An encouraging quarter and we will go through all of the geographies.
Michael Genovese:
Michael Genovese: Really really promising data points, but I guess can I just start by asking you know where if anywhere in the quarter did not go to your expectations was there was there anywhere where you were sort of slightly disappointed by the demand.
Speaker Change: Well you know I'm really pleased with the profitability obviously the mix the margin the performance of our services team.
Speaker Change: Really outstanding in the quarter. So it was great to see that come through you know, obviously, we were a million and a half for 2 million below the midpoint of guidance. So we were you know a couple of million shy of where I thought we would be and maybe a few deals in Europe in particular that are there.
Speaker Change: What happened in the quarter.
Speaker Change: Good pipeline for the fourth quarter here, though obviously, good momentum and outlook.
Speaker Change: And you know the.
Speaker Change: Our margin mix, even a little better in the quarter, So really looking forward to a strong finish.
Speaker Change: So following up on that I mean, you know for the fourth quarter.
Speaker Change: It really looks like the U S. A is going to be the star again, but you've made positive comments about India as well I guess shall.
Speaker Change: Should we.
Should we should we think about some positive seasonality or is there anything I'm showing fundamental signs of improvement in the fourth quarter in Europe.
Speaker Change: Yeah, I think the way I describe that region is really seasonality. The way you just described it.
Speaker Change: Combination of critical infrastructure and service providers that service provider piece tends to be a little more seasonal. So I do think we have a stronger fourth quarter, which we typically do in that region.
Speaker Change: The U S. I think will be the strongest region I think we shifted back to the U S being more than 50% of revenue in the third quarter and probably the same in the fourth quarter and you know in India. You know last year. We grew substantially we were up 30% last year in India.
Speaker Change: This year as I talked about on the last call, we're down about 20% compared to last year, but the fourth quarter will be the strongest quarter of the year. So we've continued to improve as the year progressed.
Speaker Change: With Vodafone idea beginning to to reinvest in their network and build out both for <unk> and <unk> infrastructure.
Speaker Change: That's good for the whole vendor community. So looking forward to a stronger year going into next year as well there.
Speaker Change: Last question for me I mean, they're looking.
Speaker Change: I'm looking at it from the outside.
Speaker Change: I mean, I know, it's just started but it looks like.
Speaker Change: Maybe the most promising time ever or sort of soft switch architectures.
And then your basically your cloud and edge business in India.
Speaker Change: I'm not remembering.
Speaker Change: We're now sort of you know something good that happened 10, or 20 years ago, when the market, but I mean really fundamental seems to be going on there could you is this the best time ever for cloud and edge and why is it so.
Speaker Change: Well in that portion of that business, it's certainly the best that I've been here.
Speaker Change: I think we've gone through some fairly major upgrade cycles in this space back say seven eight years ago.
So it kind of the first phase of some of the modern soft switch architectures.
Speaker Change: There's a lot of focus on pulling cost out of the network operation and you know theres a bit of an issue around aging knowledge base knowledge workers in this space and so I think the motivation is really picked up.
Speaker Change: Of course, the other part of our business in this space is around unified communications dipped.
Speaker Change: Deploying.
Speaker Change: Session border controller and policy management to support Microsoft teams and zoom and those sorts of migrations and we've had a number of really strong years around that part, but the whole kind of network infrastructure upgrade process that we're seeing service providers and U S. Federal agencies go through it feels pretty unique for sure.
Speaker Change: Alright, great. Thanks, so much.
Speaker Change: Thanks Scott.
Speaker Change: Thank you.
Speaker Change: Ladies and gentlemen, a reminder, if you wish to ask a question. Please press star and one.
Speaker Change: The next question comes from the line of Tim sabotage from Northland Capital markets. Please go ahead.
Tim sabotage: Hi, good afternoon, and congrats on the quarter.
Speaker Change: I wanted to.
Speaker Change: A follow up on your mid single digit growth guidance.
Speaker Change: Yes for calendar 'twenty five.
Speaker Change: And try and get at.
Speaker Change: Some of the moving parts there obviously.
Speaker Change: Seen some declines in IP optical it this year I think you were expecting that to me maybe be flat to up now it seems like maybe down to single digits.
Given the U S strength do you expect a strong rebound there, but then again you've got a lot going on big orders and big opportunities in cloud and the edge. So I.
Speaker Change: I guess, how would you expect.
Speaker Change: This segment to grow around.
Speaker Change: Target and I'll follow up from there.
Speaker Change: Yeah, Hey, Tim Thank you.
Speaker Change: So theres a number of moving parts here, obviously to get to an overall corporate average growth for next year as you point out we had been on a approximately 10% per year growth rate on the IP optical over the last few years.
Speaker Change: With the eastern European business suspension that we implemented last quarter.
Speaker Change: Year over year going into 2025, we have to make up if you will the shipments that we had in the first part of the year in that region and you know your guesstimate that in the $25 million range. So to grow next year in that business. We've got to kind of make up that amount and then grow from there so that gets us to the kind of mid single.
Speaker Change: CIT range.
Speaker Change: Around that business.
Speaker Change: In the cloud and edge business voice infrastructure business.
Speaker Change: You know a portion of our total revenue there is obviously maintenance revenue and that tends to be fairly flat year over year.
So to get to a mid single digit growth rate around that we have to grow at a faster rate on that product and service portion.
Speaker Change: And again, so that the implied growth rate around the product side is actually higher than the mid single digit range. So.
Speaker Change: So between those two kind of pieces of the model that gets you to an overall average.
Speaker Change: In the mid single digit range.
Speaker Change: Got it thanks and.
Speaker Change: I think you'd mentioned in the release and maybe a little bit on the on the call.
Speaker Change: About pursuing obviously you got the Verizon voice modernization deal and strong growth there but.
Speaker Change: Pursuing opportunities with multiple additional carriers.
Speaker Change: And you know I think we can sort of talk about pipelines in several different ways here, maybe you could try and.
Speaker Change: Quantifying those opportunities relative to what you were able to land with Verizon.
Speaker Change: And you know I might extend that.
Speaker Change: You kind of kind of did that with meta switch a little bit at least through a number out there.
Speaker Change: If it's possible to look at the opportunities that are emerging on the IP optical side with the Nokia and Infinera deal.
Speaker Change: Interesting to get a sense of that pipeline as well so.
Address it how you want but I'm looking.
Speaker Change: Looking for more color on the voice modernization opportunities and then the IP optical opportunities. Thanks.
Speaker Change: Yeah. So on the on the first one.
Speaker Change: You know, there's it would be hard to find another opportunity of the same scale as the Verizon project. So that's certainly the largest in our in our funnel.
Speaker Change: We've announced a few other ones that we've been able to talk about publicly like bright.
Speaker Change: [noise] bright speed, we talked about last quarter.
Speaker Change: There are modernizing some of their legacy voice infrastructure and migrating off of the lumen infrastructure as part of that separation.
Speaker Change: I've talked about some of the projects, we have going in Africa with operators like MTN.
Putting in a new voice interconnect hub into Africa.
Speaker Change: There's a number in Europe that we are that we haven't talked about publicly yet that are similar in nature and then others here in the U S. Obviously, some larger opportunities here to do similar network modernization I will say the each network is a little bit different.
Speaker Change: The regions that are that.
Speaker Change: That have deployments in much more rural areas with smaller line counts those sorts of things maybe the ROI on on upgrading those types of switching platforms isn't there. It makes more sense just to operate them as long as you can but there's a larger ones where it does make sense and there's a good ROI. So there's a there's a good pipeline of those types of additional.
Speaker Change: Our service provider opportunity.
Speaker Change: We're up that are that we're pursuing and will be lined up for next year.
Speaker Change: Of course, you add to that the U S. Federal that I commented on quite a bit around those types of opportunities very similar they are building out their own secure communication infrastructure.
Speaker Change: The discipline that we announced in the third quarter, basically, replacing and modernizing that soft switch backbone that operates the D. O D. Basically interconnect network for for voice Communications, Yes, just a good pipeline of those types of opportunities that are that are driving growth for the business.
Speaker Change:
Speaker Change: The other part of your question around the IP optical pipeline in and comment on the competitive environment. So certainly as we saw in the in the third quarter here with.
Speaker Change: 20% of our revenue in the U S for the first time, we're having good success, particularly in the regional and rural operators.
Speaker Change: Helping build out and add more capacity into the network.
Speaker Change: We've got a good pipeline for fourth quarter and I think those programs continue into next year.
Speaker Change: And then as the bead fund me actually starts to to move into our push into the network.
Speaker Change: That is R 26, 27 opportunities for us. So you know good runway going forward there.
Speaker Change: The other area, we havent talked too much about in the in the U S is around critical infrastructure.
Speaker Change: That's a real platform for our business in Europe has not been a big driver so far here in the U S.
Speaker Change: We announced American electric power earlier this year, a sixth largest energy transportation company here in the U S.
Speaker Change: Build out their own secure.
Speaker Change: Transport and IP routing network, and we're having a really good program with them. This year, helping modernize some of that so those are some of the other kind of related opportunities that the Nokia infinera opportunity, specifically I think takes a little longer time to develop it's not so much in North America. The opportunities we see are more.
Speaker Change: In Asia Pac and in Europe to some extent and typically it's an operator that has either both of them deployed in the network today or where perhaps you know migrating in a particular direction and and for whatever reason.
Speaker Change: Aren't sold on the combined roadmap of the strategy there.
I think the window of time as you know between now and when when that closes and they bring together a clearer roadmap. So while that uncertainties in the market. We're really hustling to go try and find some new wins in that space.
Speaker Change: Great and last one for me real quick I mean, what could horizon acquiring frontier.
Speaker Change: From you guys from a fruit from a voice perspective.
Speaker Change: Yeah, I think it's a real opportunity I haven't been able to quantify it yet but we.
Speaker Change: So we are we don't do a lot of.
Speaker Change: Voice business, there today with frontier other than some maintenance they haven't.
Speaker Change: Best It a lot in modernizing that portion of their network and a lot of focus South East sound driving fiber you know very successfully.
Speaker Change: There's a good possibility Verizon will.
Speaker Change: Look at a similar playbook as they look at the frontier infrastructure.
Speaker Change: We won't know that until they are further along in the process, but that's certainly something as we look in to say the 2026 timeframe that could be a further catalyst for us.
Speaker Change: Okay. Thanks, a lot.
Speaker Change: Thanks, Tim.
Speaker Change: Thank you.
The next question is from the line of Trevor Walsh from citizens JMP. Please go ahead.
Speaker Change: Hi, This is Ross on for Trevor loss at citizens J M. P. Thanks.
Speaker Change: Thanks for the question in regard to that.
Speaker Change: Great year over year in IP optical aside from the sided rural broadband fiber initiatives you guys talked about.
Speaker Change: Success with the cross sell motion could you just unpack what's kind of the.
Speaker Change: Driving that success there.
Speaker Change: Yeah, So I guess two thoughts on that.
Speaker Change: The rural portion of the business.
Speaker Change: We think of as cross sell many of these customers, we actually have an installed base of voice infrastructure with them already today.
And they're not investing a lot in that but.
It's an ongoing support and maintenance and commercial relationship with them.
Speaker Change: They rely on us to help operate that network and so it's given us a bit of an unfair advantage in some ways to be able to go in and compete for this new business is theyre investing in these in these new areas. Many times of the decision makers are the same people that are that we work with already on the other part of the business and so that part of the cross sell is.
Speaker Change: Has really worked well.
Speaker Change: The other part is really being able to use the IP routing technology the routing platforms that we have.
Speaker Change: To be able to do.
Speaker Change: Replacement of Tdm in sonat infrastructure with a broader set of service provider customers and so we have a pretty active base now with customers that provide interconnect services in the U S between the different operators.
Speaker Change: That helped interconnect both data traffic and voice traffic and the cost of these interconnect networks. These traditional tdm networks in and Sonat networks is going up.
Speaker Change: Every year like disproportionately and so theres been a lot of interest in using our routers is basically a replacement for doing circuit emulation and again, that's a great example of cross sell where we've got a you know a new technology, a new platform that we're going to existing customers and selling are selling into the new space. So several examples.
Speaker Change: Like that Russ that we're focused on.
Speaker Change: That's great. Thanks, Brooks I think.
Speaker Change: We've heard a lot of answers on that a switch in an infinera, but I just wanted to touch on the the third competitive dynamic any revised thoughts or updates around that HPE.
Speaker Change: Junior Jennifer.
There hasn't been a you know a lot of new New news if you will there.
Speaker Change: Junipers position in the customer base that we're in today is relatively modest compared to Cisco Nokia and Huawei.
Speaker Change: So theres a few that are in the pipeline there or a couple of smaller wins Russ in that space, but not not dramatic so I didn't comment on what this go around.
Speaker Change: Great. Thank you so much.
Speaker Change: Thank you.
Speaker Change: Thank you as there are no further questions I now hand, the conference over to Mr. Bruce Mcclelland for his closing comments Bruce.
Bruce Mcclelland: Yeah, Thanks, very much Ryan Thanks, again for everybody being on the call and for your interest in Ribbon Communications, we look forward to speaking with with many of you at our upcoming Investor conferences, and keeping you updated on our progress. So operator, thanks very much this concludes our call.
Speaker Change: Thank you the conference I've really been communication has now concluded. Thank you for your participation you may now disconnect your lines.
Yeah.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: [music].