Q4 2024 Ribbon Communications Inc Earnings Call
Thank you.
Speaker Change: Greetings and welcome to the Ribbon Communication 4th Quarter and Full Year 2024 Financial Results Conference Call.
Thank you very much.
Speaker Change: A brief question and answer session will follow the formal presentation.
Speaker Change: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.
Speaker Change: As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Joni Roberts, Chief Marketing Officer. Thank you. You may begin.
Speaker Change: Good afternoon and welcome to Rubin's fourth quarter 2024 financial results conference call. I'm Joni Roberts, Chief Marketing Officer at Rubin Communications.
Speaker Change: Also on the call today, Bruce McClelland, Ribbon's Chief Executive Officer, and Jon Townsend, Ribbon's Chief Financial Officer. Today's call is being webcast live and will be archived on the Investor Relations section of our website at rbbn.com, where both our press release and supplemental slides are currently available.
Speaker Change: Certain matters we'll be discussing today, including the business outlook and financial projections for first quarter of 2025 and beyond, are forward-looking statements.
Speaker Change: Such statements are subject to the risks and uncertainties that could cause actual results to differ materially from those contained in these forward-looking statements.
Speaker Change: These risks and uncertainties are discussed in our documents filed with the SEC, including our most recent Form 10-K and Form 10-Q. I refer you to our Safe Harbor Statement included in the supplemental financial information posted on our website.
In addition, we'll present non-GAAP financial information on this call.
Speaker Change: Reconciliations to the applicable gap measure are included in the earnings press release we issued earlier today, as well as the supplemental financial information we've prepared for this conference call. This again can be found both available on our investor relations section of our website.
Bruce Mcclelland: And now I'd like to turn it over to Bruce. Bruce?
Bruce Mcclelland: Great. Thanks, Joni. Good afternoon, everyone, and thanks for joining us today to discuss our fourth quarter results.
Bruce Mcclelland: I'm very pleased to report strong performance across all key financial metrics including the highest levels of revenue and earnings in the history of the company.
Bruce Mcclelland: This is clear validation of our strategy to expand our presence in markets such as enterprise and federal and defense, while also successfully positioning the company in areas where increased capital is being invested by our service provider customers.
Business was robust across practically all regions and segments.
Bruce Mcclelland: But the primary driver behind the excellent performance in the quarter was sales of our CloudNedge portfolio.
Bruce Mcclelland: U.S. Tier 1 Service Provider cloud and edge sales doubled year-over-year and sales to global enterprises, including U.S. federal agencies, increased more than 60 percent.
Bruce Mcclelland: We also have a solid quarter in our IP optical network segment with continued growth in Europe, India, and Asia-Pacific.
Bruce Mcclelland: The strong mix of IP routers and management software resulted in good margins for this segment as well.
Bruce Mcclelland: A higher mix of cloud and edge sales in the quarter resulted in gross margins well above our expectations at 58 percent.
Bruce Mcclelland: As a result, overall profitability in the fourth quarter increased by 30% year-over-year. In the full year, we achieved adjusted EBITDA of $119 million at the very high end of the original range we established at the beginning of the year.
Bruce Mcclelland: Our cash generation in the quarter was very good, with year-end cash of $90 million.
Bruce Mcclelland: And bookings were also very good at 1.1 times sales and above 1.0 times for both segments.
Bruce Mcclelland: This creates a strong foundation for continued profitable growth in 2025 as the focus on network modernization and the investment in fiber networks drives an improving investment cycle.
Bruce Mcclelland: Just an excellent result and a big thank you to the Ribbon team, our customers, and partners.
Bruce Mcclelland: Now, a few more highlights on each of our operating segments.
Bruce Mcclelland: This was obviously an excellent quarter for our cloud and edge business with all aspects of the operation performing well. The business is solidly diversified with approximately two thirds of our sales to service providers and one third sales to enterprise and federal and defense customers.
Bruce Mcclelland: sales in the quarter grew 35% year-over-year and adjusted EBITDA grew 75% year-over-year.
Bruce Mcclelland: For the full year, sales grew 6% and EBITDA grew by 16%. Just a great year.
Bruce Mcclelland: The momentum and recovery we saw developing earlier in the year with our U.S. service provider customers translated into solid revenue growth in the second half.
Bruce Mcclelland: And we have a number of incremental projects in both the U.S. and Europe that we expect will maintain a solid growth trajectory in 2025.
Bruce Mcclelland: The Verizon Voice Network Modernization Project is a significant part of this major recovery.
Bruce Mcclelland: Sales to this key customer accounted for 17% of overall company revenue in the fourth quarter and grew 80% in the second half of the year.
Bruce Mcclelland: The initial phase of the program continues to ramp and we're currently migrating approximately one voice switch every week and expect to scale further as the year progresses.
Bruce Mcclelland: In addition to the strong quarter with Verizon, network modernization sales to other U.S. service providers were up as well, growing 21% quarter over quarter.
Bruce Mcclelland: This included a new IMS mobile core win, which is an exciting new area of growth for us.
Bruce Mcclelland: and we were awarded a significant cloud migration project with a European Tier 1 service provider that highlights the technology leadership we have in leveraging a cloud-native operational and software delivery model.
Bruce Mcclelland: We had an outstanding quarter in our enterprise segment, led by large financial services companies such as JPMorgan Chase, Bank of America, Citibank, and others.
Bruce Mcclelland: We continue to transition customers to a flexible enterprise license agreement framework that simplifies how they consume our software products and technical support services and provides better revenue predictability.
Bruce Mcclelland: We expect the fourth quarter will continue to be the strongest in the year as we renew these enterprise term license agreements and recognize a significant amount of revenue.
Bruce Mcclelland: As anticipated, we had a very strong quarter with several new U.S. Defense Agency awards.
Bruce Mcclelland: In addition to expansion orders on a large voice network modernization project, we had a significant win with a new portable network-in-a-box communication platform that can be quickly deployed in a forward command and control environment.
Bruce Mcclelland: For the full year, our business with U.S. federal agencies increased almost 150% year over year.
Bruce Mcclelland: Finally, we're intensely focused on a pipeline of over 200 potential metaswitch replacement opportunities and had several additional smaller wins in the fourth quarter.
Bruce Mcclelland: Microsoft's decision to sell that business to a small cloud platform provider does not give service providers much comfort that the future of their regulated, on-premise, lifeline voice platform is secure. And this is really our sweet spot.
Bruce Mcclelland: In our IP Optical segment, we had a solid quarter, although the year-over-year comparison is tough, given the strong finish in 2023 that included a surge of spending from the Israeli Defense Force at the beginning of the war in the region, as well as sales into Eastern Europe.
Bruce Mcclelland: excluding those two regions, sales grew 9% year-over-year across other markets and regions.
Bruce Mcclelland: The highlight of the quarter was the continued improvement in India with sales increasing 30% quarter over quarter and 10% over year over year on the strength of continued business with Bharti and the renewed network investment by Vodafone Idea.
Bruce Mcclelland: our sales in India increased by more than 40% in the second half as compared to the first half of the year, contributing to our strong growth later in the year.
Bruce Mcclelland: We also had a strong quarter in the Asia-Pacific region with sales growing 30% quarter-over-quarter and 60% year-over-year.
Bruce Mcclelland: The project leverages our new 5 nanometer optical transponders that support up to 1.2 gigabit per second wavelengths. These were hard-fought wins against both Western and Chinese suppliers.
Bruce Mcclelland: In the U.S. sales increased approximately 5% year-over-year with continued momentum in the rural broadband fiber-to-the-home space.
Bruce Mcclelland: We're increasing our focus and investment in this area, adding additional resources to the sales organization and pre-sales specialists.
Bruce Mcclelland: It's also critical to establish strong relationships with the engineering firms that specialize in this area, and we've continued to expand our efforts here as well. We have over 30 active projects currently in deployment, with more than 30 additional opportunities at different stages here in the first quarter.
Bruce Mcclelland: From a product mix perspective, we had our strongest quarter to date of sales of our Neptune IP routing platform, growing 29% year-over-year as we continue to expand the number of customers and use cases for this strategic product line.
Bruce Mcclelland: Overall margins came in a little better than we expected in the IP optical segment at 40%, benefiting from a sizable sale of our Muse management software, which is a major differentiator for us.
Bruce Mcclelland: Overall, this resulted in a small loss in the quarter of $4 million of adjusted EBITDA.
Bruce Mcclelland: For the full year, gross margin improved by 300 basis points and EBITDA improved by $9 million for the IP optical segment, progressing towards our goal of profitability despite the suspension of shipments to Eastern Europe.
Bruce Mcclelland: With that, I'll turn it over to Jon to provide additional financial details on our fourth quarter and full year results, and then come back on to discuss outlook for 2025 in the first quarter.
Jon Townsend: Thanks Bruce and good afternoon everyone. We were exceptionally pleased with our financial performance in the fourth quarter of 2024 with revenue towards the high end of guidance.
Jon Townsend: Adjusted EBITDA was not only above guidance but also a new record high for the business, driven by the strong revenue performance and continued very healthy product margins. This helped to produce robust cash flow with a closing cash balance of $90 million.
Jon Townsend: For the full year, our consolidated adjusted EBITDA was $119 million at the high end of the original guidance provided in the beginning of 2024. As a reminder, please refer to our investor relations page on the Ribbon website for supplemental financial information.
Jon Townsend: Let's begin with financial results at the consolidated level. In the fourth quarter of 2024, Riven generated revenues of 251 million dollars, an increase of 11% from the prior year quarter.
Jon Townsend: For the full year, revenues were $834 million, an increase of 1% or $8 million year-to-year.
Jon Townsend: Fourth quarter non-gap gross margin was 58.1% up 130 basis points from the prior year quarter.
Jon Townsend: For the full year, non-GAAP gross margin was 55.9%, up 280 basis points from the prior year, driven by improvements in both business segments and segment mix.
Jon Townsend: For the fourth quarter, non-GAP operating expenses were $94 million, an increase of €4 million year-over-year, related to additional employee expenses partially due to the improved sales and earnings performance.
Jon Townsend: For the year, operating expenses were $361 million, a net reduction of $2 million from the prior year.
Jon Townsend: Quarterly non-gap net income was $28 million, a $7 million improvement year over year. This generated non-gap diluted earnings per share of 16 cents, which was an increase of 4 cents versus the prior year.
Jon Townsend: For year 2024, non-GAAP net income was $44 million, up 22% or $8 million from the prior year. Diluted earnings per share for 2024 was $0.25, up $0.04 from 2023.
Jon Townsend: Our normalised non-gap tax rate for the quarter was 40%, however we benefited from a one-time reassessment of tax reserves at year-end, resulting in net tax rates of 21% and 29% for the quarter and full year respectively.
Jon Townsend: Our interest expense for the quarter was $12 million and $34 million for the full year.
Jon Townsend: The record-breaking fourth quarter adjusted EBITDA was $55 million, above the upper end of our guidance.
Jon Townsend: This is an improvement of 30% over 13 million dollars year-over-year.
Jon Townsend: For the full year, Adjusted EBITDA was $119 million, which was a $28 million increase over the prior year. This is the second straight year with an EBITDA improvement over 30%.
Jon Townsend: Our basic share count was 175 million shares and our fully diluted share count was 179 million shares for the quarter.
Jon Townsend: Now let's look at the results of our two business segments.
Jon Townsend: Our Cloud and Edge business produced exceptional results with fourth quarter revenues of $165 million, an increase of 35% year-over-year, driven by network transformation engagements with Verizon as well as with defense and enterprise customers.
Jon Townsend: All year revenues were $505 million, which reflect a $28 million, or 6% increase from 2023. Our services and support business increased 5% to $294 million, or 58% of revenues.
Jon Townsend: Fourth quarter non-gap gross margins remained strong at 67.6% and for the full year gross margin was 66.9% up 100 basis points from the prior year.
Jon Townsend: Cloud and Edge continued its strong cash and profit contribution with an all-time high adjusted EBITDA of $60 million or 36% of revenues in the fourth quarter.
Jon Townsend: For the full year, Adjusted EBITDA increased 16% versus the prior year, ending at $141 million, or 28% of revenues. Now on to our IP Optical Networks business results.
Jon Townsend: We recorded fourth quarter revenue of $87 million, a 17% decrease versus the prior year. Revenues for the full year were $329 million, down 6% from 2023 due to the impact of suspending shipments to Eastern Europe.
Jon Townsend: Fourth quarter non-gap gross margin for IP Optical was 40%, which was at the high end of our target range, but was down 400 basis points from the prior year, primarily due to lower volumes.
Jon Townsend: For the full year gross margin was 39%, up 300 basis points from the previous year, reflecting the actions we have taken to improve profitability.
Jon Townsend: Before year 2025, we believe that we can continue to target gross margins in the high 30s or better.
Jon Townsend: IP Optical Networks adjusted EBITDA for the quarter with a loss of $4 million.
Jon Townsend: 13 million less year over year. For the full year, we improved adjusted EBITDA loss by $9 million to a loss of $22 million.
Jon Townsend: Touching on the cash flows for the company, the strong business performance and collections in the fourth quarter drove free cash flow of $54 million and resulted in a closing cash balance of $90 million and a net debt leverage ratio of 2.2 times.
Free cash flow for the full year was $28 million.
Speaker Change: So, for my first full quarter in the CFO seat, it has been extremely encouraging to see the team at Riven execute on our strategy and be embraced by carrier, enterprise and federal customers alike, especially our network transformation services.
Speaker Change: Our day-to-day execution focus is clearly paying off in the results that we post today. Now I'll turn the call back to Bruce.
Great. Thanks, Jon.
Speaker Change: As we enter the new year, Ribbon is in the strongest position we've been in over the last five years.
Speaker Change: Our customer base has expanded and diversified. We have deepened our relationship with current customers, and we've improved visibility on the year ahead.
Speaker Change: We have strengthened our balance sheet and finished 2024 with strong momentum across almost all parts of our business, and we expect this to continue into 2025.
Speaker Change: We have several important elements to our strategy that leverage our broad portfolio and global presence.
Speaker Change: First, we remain very focused on cross-selling our solutions and leveraging the presence we have with so many customers.
Speaker Change: This is increasing our relevance and better aligning our future with the areas that are most important to our customers.
Speaker Change: This includes an extra level of intensity to grow our business with the largest tier one service providers who control the majority of industry CAPEX.
Speaker Change: Second, we remain committed to improving and growing our IP routing and optical transport business in North America.
Speaker Change: We have a great IP routing solution that's very complementary to our voice infrastructure business in support of eliminating TDM and copper networks and have deployments with a growing number of service providers.
Speaker Change: In addition, the industry-wide investment being made to expand rural broadband across the U.S. is a perfect fit for our portfolio and a growing part of our business.
Speaker Change: Third, the continued exponential growth in mobile and fixed data traffic requires providers to constantly add more capacity to their network. And we continue to win new customers and grow share in the fiber transport market.
Speaker Change: Advancements in AI are already driving massive new investments in data center connectivity and are expected to move closer to the edge as AI applications begin to advance, exactly the area we're focused on.
Speaker Change: Fourth, our decision several years ago to increase go-to-market investment in enterprise and government is clearly paying off and will remain a key part of our strategy.
Speaker Change: In particular, we have a very strong presence in mission-critical networks with a differentiated solution portfolio and expertise.
Speaker Change: And we continue to invest in these areas to ensure we are industry leaders, not followers. This was a key element of the recent European Tier 1 win I mentioned earlier.
Speaker Change: All of these strategic initiatives are supported by the focused effort to integrate key areas in order to simplify and streamline the operation of the company.
Speaker Change: Of course it's crucial that we continue to innovate and differentiate and we have a robust roadmap for 2025 including advances in IP routing, network automation, information security, and cloud automation.
Speaker Change: We will also invest more in our professional services capabilities and practices where we have a unique employee talent pool that has knowledge across multiple generations of voice of data networking that's in very high demand and an important differentiator for us.
Thank you. Thank you. Thank you.
Speaker Change: Focusing specifically on our outlook for 2025, there are several key areas that we expect will drive profitable growth this year.
Speaker Change: The largest area of opportunity is clearly the investment being made by service providers, governments, and enterprises to modernize their communication infrastructure.
Speaker Change: We've been successful in securing several longer-term contracts that provide improved visibility and a very solid foundation of business over the next two to three years, with high probability of further contract extensions.
Speaker Change: Increasingly, we're not just selling products but complete solutions, including extensive planning and deployment services that provide significant differentiation and a competitive advantage.
Speaker Change: This covers a broad set of use cases from traditional fixed line voice services to unified cloud communications from enterprise desktop through to contact center applications.
Speaker Change: Within the government sector, we built a strong base of customers in the U.S., Europe, and the Middle East, but there's significant room to expand into other countries and regions.
Speaker Change: We're leveraging our entire portfolio of voice and data products to address these mission-critical, secure communication opportunities.
Speaker Change: Overall, we estimate that the addressable market opportunity for the cloud and edge secure voice communication segment to be at least $7.4 billion over the next four years.
Speaker Change: The second most important area for our business this year is to capture larger share of the investment in fiber networks.
Speaker Change: In addition to our traditional customer base supporting mobile data traffic growth and fiber broadband Internet expansion, our new optical portfolio is a great fit for data center interconnect, and we are increasing our go-to-market investment in this area.
Speaker Change: AI is expected to drive billions of dollars of opportunity for telecom providers over the next five years, growing at a 40% plus CAGR, and we're targeting a larger presence here.
Speaker Change: We're also applying AI to various aspects of our portfolio, such as our network planner, to reduce cycle times and network implementation costs for our customers.
Speaker Change: and our Service Assurance Analytics Solution will be significantly enhanced to provide improved automation and trouble resolution.
Speaker Change: From a competitive perspective, I think we're going stronger and look to take advantage of weaknesses in the market, as well as competitors who are distracted by consolidation activities.
Speaker Change: There also continues to be a long tail of opportunity related to replacement of Chinese suppliers that we continue to pursue.
Speaker Change: From a macro perspective, there's more optimism across the industry as supply chain and inventory challenges abate, inflation slowly reverses, and interest rates normalize over time. There's also the promise of resolution of global conflicts in regions such as Israel and the Ukraine that would be a significant tailwind for our business.
Speaker Change: Finally, I'll note that we're in a substantially stronger position as a company with the ability to look more seriously at options to accelerate shareholder value through M&A.
Speaker Change: While we have a pretty tight criterion on what would make sense, it's certainly possible we'll find options that strengthen our portfolio and differentiation and add more scale to the business.
Now on to guidance for 2025.
Speaker Change: For the full year, we're projecting revenue in a range of $870 million to $890 million.
Speaker Change: This implies a consolidated year-over-year growth rate of approximately 5% at the midpoint of guidance But it's actually significantly higher after excluding low growth maintenance revenue and other regional adjustments
Speaker Change: For the cloud and edge segment, we're projecting approximately 10% growth of product and professional services revenue with maintenance revenue essentially flat year over year.
Speaker Change: For the IP optical segment, the year-over-year comparison is impacted by the suspension of shipments to Eastern Europe partway through 2024.
Speaker Change: We're projecting a net year-over-year growth rate of approximately 5%, but this implies a growth rate of greater than 10% for IP Optical after adjusting for Eastern Europe.
Speaker Change: We're currently projecting gross margin for the year to be approximately 100 basis points lower than full year 24, primarily due to the increased revenue from professional services.
Speaker Change: While lower margin than high margin software, our services are a real strategic advantage and create strong brand loyalty and product pull-through.
Speaker Change: We're projecting OPEX essentially flat year over year, as we continue to manage expenses carefully and absorb normal inflationary increases.
Speaker Change: As a result, adjusted EBITDA for the year is projected in a range of $130 to $140 million, which would be approximately 13% higher than 2024 at the midpoint.
Speaker Change: Once again, the year-over-year comparison is affected by the substantial shipments to Eastern Europe we had in the first quarter of 2024. Excluding those sales, the implied year-over-year growth rate is greater than 15%, a pretty strong start for the year.
Speaker Change: EBITDA is projected in a range of 12 to 18 million dollars, a year-over-year increase of approximately 28 percent at the midpoint. We expect cloud and edge margin consistent with recent trends but with lower IP optical gross margin due to mix and lower volume in the quarter.
Speaker Change: In conclusion, we have an exciting year ahead, and as our Q4 performance shows, our strategy is really working and we're gaining momentum.
Speaker Change: Operator, that concludes our prepared remarks and we can now take a few questions.
Speaker Change: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would 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.
One moment, please, while we poll for questions.
Speaker Change: Our first question comes from Michael Genovese with Rosenblatt Securities. Please proceed with your question.
you know, improving outlook for the company in general.
Michael Genovese: So that's nice to see. I guess I just want to start on the quarterly guide. I heard what you just said about Eastern European comparison being being harder in the in the first quarter. Is there anything else that we should take away from the guide about the seasonality that you expect in the first quarter? Like is it more seasonal than normal and then the year gets better as we move throughout the year or is that reading too much into it?
Speaker Change: Hey, Mike. No, I think the, you know, the biggest delta is the Eastern European piece and, as I said, we're up, you know, double digits, kind of backing that out. So, in general, I think we're kind of ahead of the curve.
Michael Genovese: It's just a tough comparer in Q1 and that will be the toughest comparer of the year so it will get easier as the quarters go forward here.
Speaker Change: Okay, great. And then, you know, on Eastern Europe, I mean, particularly if there were to be a breakthrough in Ukraine and how hostilities there would be to get better, could you...
Speaker Change: Could you start that business back up? Is that something that you're thinking about? You know, are your assets in place to be able to do that quickly or should we not be thinking about that possibility?
Speaker Change: Yeah, it's definitely a possibility. Of course, we don't know how fast a resolution happens and how fast the restrictions get lifted, but the
Speaker Change: You know the restrictions right now prevent us from shipping new hardware into the region, but we continue to
Speaker Change: to work with customers and support them. So we're prepared to start that business up again if we're in a position where we're allowed to do that. So, and that can happen fairly quickly. So, it's definitely a possibility as the year goes here.
Okay, great. And then I guess we'll just finish with...
If you could make a comment on both.
Speaker Change: both segments of the business, you know, starting with IP, you know, edge, sorry, cloud and edge.
Speaker Change: Starting with cloud and edge, like is the most important thing going forward here from here with all this momentum, is it winning new contracts or should we be looking for something else? And then just similarly on optical IP,
Speaker Change: What is the most important driver for the business for the next year? Thank you, and then I'll pass it on.
Yeah, thanks Mike. I appreciate the question.
Speaker Change: in the cloud and edge business, obviously the new contract that we have in place.
Speaker Change: So there's a lot of focus on good execution. You know, these are kind of large programs with a lot of resources. We're taking more of the services, more of the actual deployment work.
Speaker Change: and so there's a real focus on good execution as kind of the top priority.
Speaker Change: and you know we've got a pretty diversified business here now with both service providers as well as enterprise and federal customers.
Speaker Change: and, you know, just gives us a really strong platform going into this year. Not that we don't still need to win business, clearly we do, quarter to quarter, but we're just in a much stronger position and good backlog for the year.
Speaker Change: In the IP optical business, I think there are kind of two or three threads here. One is obviously here in the U.S. and growing our business in North America.
Speaker Change: We've made good progress on that in the second half of the year of 2024. A lot of investment going into expanding broadband, and it really fits our portfolio really well around rural broadband. So that's probably a big area to focus.
Speaker Change: We have a second obviously important region in India where the businesses
Speaker Change: continue to improve throughout 2024. We expect to have another, you know, good year in that region where we're expanding our presence and one of our larger customers, Vodafone Idea, is obviously investing in their network again pretty aggressively.
So, that's an important region for us.
Speaker Change: And then thirdly, you know, Europe is really strategic. We've got a very good presence with critical infrastructure customers.
Speaker Change: and we want to grow into a larger presence in service providers. So I think those are the three kind of big themes around that portfolio. So Mike, appreciate the questions.
Thank you.
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Speaker Change: Our next question comes from Tim Savageau with Northland Capital Markets. Please proceed with your question.
Tim Savageau: Okay, wrong button. Good afternoon and congrats on a great quarter and a really good outlook.
Tim Savageau: dig a little deeper and perhaps test my math skills here. On the Eastern Europe front, you know, given what you said about Q1 guide, looks like that was about 15 million last year, just in a quarter.
Tim Savageau: I mean, you know, should we see some positive developments in the relatively near term? You know, is that a quarterly run rate you can get back to? Is that...
Tim Savageau: something that was, you know, any one-timers in that or things we should know or what kind of addition to the business could we see in that scenario?
Speaker Change: Yeah, hey Tim, well your math is always good. So in in Q1, it was actually a little north of the 15 million number But you know you backed into the right number
based on the percentages, a little bit more than that.
Speaker Change: and you know I know we've always talked about Eastern Europe is about 5% of overall sales for the company. It was probably a little bit more than that on the run rate going in last year so
Speaker Change: you know on a normalized basis you know we're looking at 10 to 15 million a quarter so 40 to 50 million a year in that ballpark and and maybe more so I think there's you know there's there's more opportunity there for us if if we're able to restore the business
Speaker Change: I wanted to follow up, Bruce, on a comment that you made in the script there, and I think it was about carriers eliminating TDM and or copper networks.
Speaker Change: in driving potential opportunities on the cloud edge side of the business.
Speaker Change: and you know given that AT&T used those almost those exact same words in their recent analyst day in terms of their plans to you know simplify, modernize, you know change their networks.
Speaker Change: You know, I wonder if you see any opportunity. I know they're a current customer.
Speaker Change: probably not 10% but if you did have any other 10% customers just in Q4 I'd be interested.
Speaker Change: But what kind of potential do you see there, I guess?
Speaker Change: Yeah, yeah, good question, Tim. So we had one 10% customer Verizon in the fourth quarter. In general, we're seeing kind of two techniques to modernizing the traditional phone network. One is completely eliminating copper, and as you mentioned, AT&T mentioned that. You know, it's kind of their primary focus.
Speaker Change: And there's a couple of different ways of doing that. You can substitute a voice line for a wireless line, or you can move a voice line onto a voice over IP line on broadband, or you can...
Speaker Change: emulate the copper infrastructure over IP and they talked about being able to do circuit emulation effectively. You know what that allows them to do is preserve the POTS interface, the phone interface, on the enterprise. It's typically used for enterprises.
Speaker Change: So you don't force the customer to churn, they can continue to operate their traditional infrastructure. But you basically eliminate the copper or the sonnet infrastructure by emulating it all over IP.
Speaker Change: And so that's a great technique, you know, we've got a platform that's fantastic for that that's getting used by a variety of customers here now across the US for doing circuit emulation and complete copper elimination, if you will.
Speaker Change: The other methodology we're seeing very popular is really keeping the copper in place but modernizing the switching infrastructure to move to a much more software-centric architecture.
Speaker Change: and reduce the amount of power consumption dramatically that the switches are taking up today. And that's really the approach Verizon is taking.
Speaker Change: AT&T's conference they had back a few months ago, they talked about
Speaker Change: different regions and what their approach is, and California in particular, you know, a more challenging environment from a regulatory perspective, and obviously the most expensive power
Speaker Change: Okay, great. And just one more for me. I was interested in your comments about investing more...
and Data Center Interconnect.
And I imagine that's focused on, you know,
Speaker Change: telecom service providers that are maybe working with big cloud players or maybe you're going right for the cloud guys.
Speaker Change: but I'd love any more specifics on what investments you are making and what actions you are taking in that area.
Speaker Change: Yeah, it's, generally speaking, it's more the former than the latter. We're working through our telecom customers and, in many cases, the products being deployed.
in the data center or at the data center edge.
Speaker Change: Some of the deals in Asia-Pacific I mentioned right at the very end of the year using our new Apollo platform 1.2 terabit interconnect capabilities
Speaker Change: are exactly that. And so we're kind of getting at that data center application but through telecom providers as opposed to selling directly to large cloud providers.
Speaker Change: It's not the biggest part of our, you know, revenue stream yet today, but the new products that we launched last year that support, you know, very high speed and
Speaker Change: very extensive aggregation of client-side interfaces, 400 gig client-side interfaces, is very efficient. And so we're seeing a lot of interest around that type of application.
Thanks very much, Tim.
Go!
Speaker Change: Our next question comes from Christian Traub with Craig Hallam Capital Group. Please proceed with your question.
Speaker Change: Great, just to follow up on the last line of questioning, you know, AT&T is attempting to get rid of supporting all copper by the end of 2028, regardless of which technology solution or mix of technology solutions they use to satisfy that
Speaker Change: Could you quantify how big of an opportunity that could be for your company?
Speaker Change: Yeah, I hesitate to give any more color at this point, Christian. I just don't want to get ahead of our customers on their messaging and their strategy.
specifically with AT&T.
you know, as I mentioned, our
Speaker Change: The rest of our service provider segment in the fourth quarter was up over 20% quarter-over-quarter.
Speaker Change: So we're seeing good traction across the customer base with the Tier 1s as well as with the next level of operators across the region and hopefully we'll have more specificity as the year goes on here, but it's about as detailed as I can get on their strategy at this point.
Speaker Change: Great. Could you give us an idea of the range of revenue you anticipate shipping to Verizon this year for their modernization program?
Speaker Change: You know, so I know, you know, it's kind of referencing back to the comments I had at the end of the year In our last earnings call, you know, we're on a greater than a hundred million dollar per annum run rate with with with Verizon
Speaker Change: as the year's progressing. So, you know, we expect to grow from that level and, you know, a fairly sizable amount of the growth we're projecting for the year is directly related to that program. So hopefully that gives you at least directionally, you know, what we're thinking for the year there.
Speaker Change: Great, thank you. And then my last question has to do with Metaswitch.
Speaker Change: You know, if you did kind of a rip and replace on that, I assume that...
The transaction size could be anywhere from, you know...
and the Greens.
Speaker Change: Bruce McClelland, Joni Roberts, Bruce McClelland, Joni Roberts, Bruce McClelland, Joni Roberts,
Speaker Change: I think the range you just mentioned is exactly the way to think of it, you know, some of them are smaller There's quite a broad breadth of smaller operators
Speaker Change: that are hundreds of thousands of dollars and then there's certainly larger operators that are millions of dollars.
Speaker Change: that take a long to, you know, to develop and would be not in, maybe in one year, might be over a couple of different years. So I think, you know, the, maybe the total opportunity, not annualized necessarily, but total opportunity is in the ballpark that you, that you estimated, Christian.
Great, no other questions. Thanks guys, good quarter.
Thank you.
Speaker Change: Our next question is from Ryan Kuntz with Needham & Company. Please proceed with your question.
Speaker Change: Thanks, I'm going to pile on on cloud and edge here. Sounds like a great opportunity.
Speaker Change: You know, and obviously a real strong international quarter, it looked like in Q4 as well.
Speaker Change: Can you expand on the opportunity internationally? A lot of focus in your discussion on big domestic SPs.
Speaker Change: How should we think about the international opportunities there, and then is it a different set of competitors you'd face in the international domain?
for Voice Modernization.
Speaker Change: Hey Ryan, thank you for the question. Traditionally our business has been stronger in North America and it goes back historically to
Speaker Change: how the telecom networks have evolved and some of our heritage and the position we have in the networks.
Speaker Change: But we are seeing good traction internationally. It's not as large today as what we see in North America. I mentioned, you know, one nice win with the European Tier 1. Their network architectures tend to be a little different, so we're selling a little different version of our products into those markets.
Speaker Change: The same challenges exist, you know, everybody wants to eliminate copper and save power.
Speaker Change: everyone wants to move from bespoke hardware solutions that take up real estate and and use a lot of power and move to a software architecture. We are seeing maybe a little more interest or
initiative to move to
Speaker Change: meeting our software might be running on standard compute within a private data center or might be running in a actually in a public cloud type environment. And so the investment that we've been making to modernize the products to be really cloud native has been pretty strategic and allowed us to start to win more share there.
Speaker Change: I did discuss a fairly large customer last year, MTN in Africa, where we're doing a voice interconnect hub. So there's a number of examples like that, including regions like Japan and India, where we have a good presence as well around our voice products.
Great, and just one other one on IP Optical.
You've talked about some tough comps, Eastern Europe in Q1.
If you were to exclude...
Speaker Change: Eastern Europe, what kind of growth rates would we have seen in 2024 and how do we think about that business?
25 excluding your Eastern Europe
Thanks for tuning in.
Speaker Change: It was less than 5% of total sales, but it was still fairly significant. So you would have added that one way or the other, you back it out of the previous year or kind of continue it as a run rate, it probably would have been another 3% to 4% of sales growth for us last year, and kind of a similar impact going into this year.
Speaker Change: Okay, great, that's all I've got. Thanks, Bruce. All right. Thanks, Ron.
Speaker Change: Our next question comes from Dave King with B. Reilly Securities. Please proceed with your question.
Dave King: Thank you. Good afternoon. First question is regarding channel inventories. Just wondering what you see from the channel inventory situations with your customers.
Speaker Change: Yeah, hey Dave. You know, for the most part, we didn't see the same sort of inventory build challenge that others had seen.
Speaker Change: maybe a little bit around our enterprise edge platforms, but that's probably six to 12 months ago at this stage. So.
Speaker Change: And a lot of, of course, as you know, a lot of what we're selling, at least on the cloud med side of software, so there's not really an inventory kind of concept there. So for the most part, we're not dealing with those types of challenges.
Got it. And then regarding the Vodafone idea, I mean...
Speaker Change: Just wanted to clarify, have they started to ramp or are they about to ramp, just more color on the timing?
right after they completed their refinancing.
and then, you know, a much stronger fourth quarter.
Speaker Change: As I think I mentioned, our revenue in the fourth quarter was up.
Speaker Change: I think 10% year-over-year and 30% quarter-over-quarter in India as a whole and Vodafone was certainly part of that. So it was great to see this customer. I mean, they've been a really important part of the business historically, so it's great to see them in a position they can reinvest in the network again. And we're providing both IP routing platforms as well as some optical transport with the customer.
Speaker Change: Got it. And my last question is regarding gross margin. So you're starting around 53, 53.5 first quarter and for the year you're guiding to 54, 55. So clearly in second half we're talking you know 55 or maybe even higher just to
Speaker Change: you know, finish the year at 54.5, you know, let's say. So what will be the catalyst to drive that, you know, the margin expansion from first half to second half?
Speaker Change: Yeah, so the most part, it's simply mix, you know, how much of in a particular quarter are we selling of high margin cloud and edge versus lower margin IP optical? And you know, it's amazing how much leverage you get in the model as the revenue line increases.
Speaker Change: There's not a big shift in the actual margin of each of the segments.
Speaker Change: other than a little lower here in the first quarter as I mentioned just with the lower volume on IP optical. So the one thing that's changing a little bit and I think I said it in my in my guidance remarks that
Speaker Change: We are seeing about 100 basis points lower margin year-over-year in aggregate for the year, primarily because of the higher mix of professional services, the larger portion of the work that we're taking on with our customers.
Speaker Change: Obviously, professional service margin isn't quite at the same level as selling software, which is, you know, very, very high margin. So there's a bit of that shift that we built into the model, but that's probably the biggest thing going on there.
Got it. Thank you.
Yeah, thanks Dave.
Speaker Change: We've reached the end of our question and answer session, and I would now like to turn the floor back over to Bruce McClelland for closing comments.
Bruce Mcclelland: Great, thank you Maria. Thanks again for everyone on the call and the interest in Ribbon. We look forward to speaking with many of you with our upcoming investor conferences.
Bruce Mcclelland: We also have our largest show of the year coming up in March in Barcelona, Mobile World Congress and another significant show OFC, Big Optical Conference in San Francisco
Bruce Mcclelland: So I look forward to seeing you. We're off to a good start and let's have a great 25. Operator Thank you, and that concludes our call
Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.