Q2 2025 Ribbon Communications Inc Earnings Call
Greetings and welcome to the ribbon Communications. Second quarter 2024 Financial results conference call at this time, all participants are listening only mode. A question and answer session will follow the formal presentation.
you may be placed into question Queue at any time by pressing star 1 on your telephone keypad,
If anyone should require operator assistance, please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
Speaker Change: It's not my pleasure to turn the call over to Fahad najam senior, vice president investor relations. Please go ahead.
Speaker Change: Good afternoon and welcome to Ribbons. Second quarter, 2025 Financial results conference call.
Speaker Change: I am Fahad mam svb, corporate strategy, and investor relations at ribbon Communications.
Bruce MLO: Also on the call today are Bruce mlo, ribbon CEO, and John Townson ribbons CFO.
Bruce MLO: Today's call is being webcast live and will be archived on the investment relations section of our website at rbbn.com. But both up press release and supplemental slides are currently available.
Bruce MLO: Certain matters, we will be discussing today including the business Outlook and financial projections for the third quarter of 2025 and beyond our forward-looking statements.
Bruce MLO: Such statements are subject to risks and our certainties that could cause actual results to differ materially from those contained. In these forward-looking statements,
Bruce MLO: These risks and uncertainties are discussed in our documents filed with the SEC.
Bruce MLO: Including our most recent form, 10K.
Bruce MLO: I refer you to our Safe Harbor, statement included in the supplemental, financial information posted on our website
Bruce MLO: In addition, we will also present non-gaap financial information on this call.
Bruce MLO: Reconciliations to the applicable Gap measures are included in the earnings press release. We issued earlier today, as well as in the supplemental financial information, we prepared for this call, which again are both available on the investor relations section of our website.
Speaker Change: and now, I would like to turn the call over to Bruce Bruce,
Bruce: Oh great, thanks bahad and and welcome to the ribbon team.
Speaker Change: Good afternoon, everyone and thanks for joining us today to discuss our Q2 results and I'll look for the rest of the year.
Speaker Change: I'm very pleased with our strong financial performance. In the second quarter with Revenue, reaching a new all-time high for the quarter.
Speaker Change: We're tracking. Well, in the first half of the year against the growth objectives. We set with Revenue year to date increasing 8% year-over-year, and adjusted ebra growth year to date of 13% year-over-year.
Speaker Change: Demand in the North American Market is very strong across both service, provider and Enterprise Market verticals.
Speaker Change: Including US federal agencies as we continue to win some of the largest and most challenging voice transformation opportunities in the industry, resulting in significant growth year-over-year in our cloud and Edge business.
Speaker Change: Our portfolio is the broadest in the market and supports an extensive number of use cases with a particular focus on elimination of Legacy. Copper networks, with modern cloud-centric unified communication systems, that can be deployed either on premise or in the cloud.
Speaker Change: Ribbons innovation in Cloud native voice and Edge routing Solutions as winning customers and gaining momentum.
Speaker Change: Building on the first quarter activity. We continue to see strong investment in Next Generation. Fibre Broadband networks, resulting in very good growth. In Asia Pac and North American markets.
Speaker Change: Excluding sales to Eastern Europe, our IP Optical business grew by 25% year-over-year in the first quarter. And we continue that momentum with sales increasing another 14% sequentially in the second quarter.
Speaker Change: Operators in India. Such as bi Airtel continued to invest in transforming their IP Services Network with new Advanced routing platforms and adding fiber capacity to support their growing mobile networks.
Speaker Change: And in North America, we continue to expand our IP networking footprint with expanded, deployments with regional service providers and critical infrastructure networks such as a
Speaker Change: So the demand picture remains strong and we continue to expect good growth this year.
In the second quarter, we delivered revenue and earnings at the high end of our expectations.
Speaker Change: Revenue was up, 15% year-over-year and 22% sequentially above the high end of our guidance.
Speaker Change: Sales to service providers, increased 18% year-over-year and 17% sequentially driven by our record quarter with Verizon and strong sales to party in India, as well as a new logo win with a tier 1 telecommunications, operator in Southeast Asia.
Speaker Change: Enterprise Revenue also increased 7% year-over-year or in 34% sequentially, as a result of strong sales to US federal agencies and new critical infrastructure wins including several deals that were delayed from the first quarter.
Speaker Change: Adjusted ibida increased, 47% year-over-year, an increase of 26 million sequentially right at the high end of our guidance.
Speaker Change: These results align with the plan, we laid out the beginning of the year.
Speaker Change: Our visibility into the second half of the year is solid with book to bill. In the second quarter above 1.0 times, similar to the last several quarters.
As we anticipated gross margin improved substantially in the quarter with a stronger, mix of software and better Regional profile.
Speaker Change: This was modestly below our guidance range with additional Hardware shipments and Professional Services in the quarter.
Now, a little more detail on each of our operating segments.
Speaker Change: We had a great quarter in our cloud and Edge business with sales growing 24% year-over-year and 27% sequentially.
Speaker Change: Including maintenance Revenue product and service sales increased 48% year-over-year.
Speaker Change: As.
The increased Revenue in the quarter was primarily a result of higher sales to Global service providers, increasing 28% year-over-year, highlighting the broad-based of interest that we have in network modernization and improving efficiency.
This includes our multi-year voice transformation program with Verizon which continues to progress very well and is focused on replacing hundreds of Legacy central office. Switches
In addition, we're working with Verizon to virtualize their existing wire line voice soft, switch Kors.
Our solution includes our virtual C20, call controller and our Neptune router for IP traffic, aggregation resulting in significant cost savings as compared to traditional architectures.
Speaker Change: Cloudnet sales to Enterprise customers also increase in the second quarter by 13% year-over-year and 32% sequentially driven by strong sales to several US federal agencies including a deal that was delayed from the first quarter.
Speaker Change: As expected cloud and Edge gross margins declined year-over-year and were down 60 basis points. Sequentially due to the higher mix of Professional Services and Hardware shipments
This included a significant number of media gateways to support the replacement of Legacy TDM switches and a higher demand for Enterprise Edge gateways.
Speaker Change: We expect an improvement in gross margin in the second half to the more typical mid-60s for the segment with a higher mix of software and continued improved service margins.
Speaker Change: In our IP Optical segment, we had a number of notable wins in the second quarter, which drove sales up, 13% sequentially and up 2% year-over-year.
In Eastern Europe, IP optical sales to all of the customers increased 5% year-over-year.
And presence in India, continues to grow with sales up more than 40% year-over-year in this region in the second quarter.
Speaker Change: In addition to expanding the footprint of our IP routing Solutions at by Tata and Vodafone idea, we have a new wind supporting the deployment of broadband internet access in rural India.
sales in Southeast Asia were also strong with multiple new projects across the region, including a new win with a tier 1, service provider that validates the competitiveness of our Optical portfolio
We continue to see new opportunities across the region partially due to vendor consolidation, as well as the need to build networks. That have no Chinese OEM equipment.
Speaker Change: IP optical sales in North America. We're also a standout this quarter growing over. 45% year-over-year.
Market segments and use cases including Regional and Rural broadband, internet expansion, critical infrastructure. Private secure networks for utility companies such as AEP.
Speaker Change: And TDM Voice network modernization and IP traffic aggregation with Telecom service providers.
Speaker Change: Sales in the EMA region were solid up, 42% sequentially. And essentially flat year-over-year mostly offsetting the loss of sales from Eastern Europe.
Speaker Change: As expected gross margins for the IP Optical segment. Improved significantly in the second quarter. Increasing over 700 basis points, sequentially.
Speaker Change: The Improvement was tied to several factors including higher North American Sales improved product, mix and margins in Asia pack and better fixed cost absorption related to higher volume.
Speaker Change: With that, I'll turn it over to John, to provide additional Financial details on our second quarter results. And then come back on to discuss outlook for the second half of the Year John.
John: Thanks Bruce and good afternoon everyone. Let's begin with Q2 Financial results of the Consolidated level. We had an exceptional quarter generating revenues at 221 million and increase of 15% from the prior year and above the top end of the guidance, we gave during our q1 earnings call.
Financials, clearly reflecting the operational momentum that we've built within the business.
Second quarter, non-gaap gross, margin was 52.1%, largely lower than we guided due to the mix of services and higher Hardware in cloud and Edge and the very strong performance. Once again, from our India team, where margins are usually a little lower.
Non-gaap operating expenses, were 87 million in the quarter, reflecting the seasonality and expenses such as sales, commissions, and variable employee compensation, which we expect to increase in the second half.
John: Second quarter, adjusted ebit da was 32 million again, top end of our guidance and an increase of 10 million, or 47% year-over-year.
John: And non-gaap tax rate for the quarter was 34%, and our interest expense was 11 million, including amortization of debt issuance costs both of these were in line with our expectations.
John: Quarterly non-gaap, net income was 10 million dollars compared to 9 million in the prior year.
John: This generated a non-gaap diluted earnings per share of 5 cents which was the same as the prior year.
A basic share count was 177 million shares and our fully diluted share count as 180 million shares per quarter.
John: Now, let's look at the results of our 2 business segments.
John: Our cloud and Edge business continue to deliver impressive growth in the second quarter as we execute it strongly with our service provider and US Federal agency customers maintaining the network transformation. Momentum that we've created.
John: Which generated revenues 137 million, an increase of 24%, Euro year and up 29 million q1.
John: Non-gaap growth profit at 85 million was up 16% year-over-year. Although the higher proportion of both hardware and Professional Services resulted in Nong, gross margin of 61.9%, which is down from the prior.
Adjusted ebit da for the segment, was 37 million or 27% of Revenue in the quarter.
John: At 43% Improvement, year-over-year.
Now on to our IP Optical networks results, we recorded second quarter of Revenue of 84 million at 2% increase versus the prior year.
Second quarter, non-gaap gross margin for IP Optical was within our normal range at 35.9% up 760 basis, point sequentially, but down approximately 300 places points from the prior year, reflecting the hardware and geographical mix between those quarters.
John: Notably, we had another excellent quarter in both India and North America.
John: IP Optical networks. Adjusted ebit Dar was loss of 5 million dollars versus a 4 million loss in the prior year.
John: Moving on to cash and capital expenditure.
John: Cash from operations, was a usage of 1 million and a quarter with a closing cash. Balance of 62 million down 12 million from the first quarter.
John: This was principally driven by high working capital is resulting from all sequential increase in sales and the capital expenditure in share repurchases, which I will cover momentarily.
John: We closed the quarter with the net debt, leverage ratio of 2.3 times.
John: Whilst we still need to complete our evaluation. We expect a near-term. Cash benefit from recent tax bill passed by Congress.
Broth is really appreciating the amount of time, and it also permits catch up on deferred deductions from prior periods.
John: This will result in an estimated cash tax saving of approximately 15 to 20 million dollars for 2025 compared to our projections coming into the year.
John: Total capex in the quarter was $6 million, including a final 2 million expenditure in relation to the new R&D facility in Israel that we mentioned last quarter.
John: We expect normal Catholics expansion for the year to be approximately 12 to 15 million dollars. In addition to the 8 million dollars, relating to our new Israel facility,
John: in the second quarter, we announced new stock repurchase program to use a portion of the company's free cash flow over the next several years, to be purchased up to 50 million of the company's common stock
during the quarter. We repurchased 573,000 shares under the program. For a total consideration of 2.3 million
John: The underlying Trends in our business continuing to prove and we continue to look at ways to accelerate shareholder value creation.
Bruce: With that, I'll turn the call back to Bruce.
John: Great. Thanks. John.
Speaker Change: As we look forward to the second half of the year, the demand picture remains robust.
Speaker Change: We anticipate a seasonally stronger, second half with Revenue, increasing 15 to 20% as compared to our first half results.
Speaker Change: Similar to fy24.
We continue to project Revenue in line with our full year, guidance of 870 to 890 million
visibility to this target remains. Good. Following a first half, year-to-date Revenue, growth of 8%.
Speaker Change: And higher backlog for the rest of the year as compared to the same point last year.
Speaker Change: Similar to last year, we expect the fourth quarter to be the strongest quarter of the Year. Given the timing of Enterprise deals and service provider projects
Speaker Change: longer term, we're in an upcycle and gaining momentum.
Speaker Change: We're in a multi-year investment period to modernize communication networks, across service providers and Enterprise verticals and are in a great position to win. A large share of this opportunity, as we continue to innovate to leverage our entire voice and IP networking portfolio, to differentiate our offering against larger entrenched competitors.
Speaker Change: And as our first half performance highlights, we continue to secure new wins with our IP Optical portfolio as customers invest aggressively to keep up with the growth in traffic driven by mobile broadband, fiber Network expansion.
Speaker Change: Data center growth.
Speaker Change: From a profitability perspective, the higher year-over-year sales, support continued growth in the bottom line.
Speaker Change: Although there is some potential pressure on Opex and gross margin in the second half of the year due to the weakening US dollar.
On a full year basis, both gross margin and i-bidder trending towards the lower end of our guidance range.
focusing specifically on the third quarter, we're projecting the business to look very similar to our exceptionally strong second quarter,
Speaker Change: And our Cloud Edge segment. We're projecting Revenue consistent with last year and in a similar range to the second quarter of this year.
Speaker Change: We expect to higher sales to a variety of Enterprise and US Federal customers offsetting lower shipments. This quarter to us Tier 1 service providers.
Speaker Change: Verizon, deployments are expected to continue at a very strong Pace with strong, Professional Service Revenue, but lower equipment and software Revenue, this quarter
Speaker Change: we're still early in the initial phase of this multi-year program with
Speaker Change: significant opportunity for multiple years Beyond this, as well as a large potential opportunity as Verizon completes their acquisition of Frontier.
In the IP Optical segment. We're projecting 5 to 10% year-over-year growth in the third quarter.
Speaker Change: A key trends in this business include the following areas.
In North America, we're continuing to build momentum with both critical infrastructure and regional service providers tied to the growth in fiber Networks.
We're also, effectively leveraging, our IP routing portfolio to further differentiate our voice core platform, creating opportunities to land and expand inside. Major service provider Networks,
Speaker Change: The latest product in our Innovation pipeline. Is our new modular. Neptune 2714 router that was recently entered
Speaker Change: We expect to achieve General availability this quarter and have a healthy sales, funnel and trials underway and have secured our first win.
Speaker Change: We expect continued momentum in Asia pack with strong sales in India and Southeast Asia similar to the last several quarters.
Speaker Change: Barti Vodafone idea, Tata and others continue to expand network capacity and we see additional opportunity. These related to expansion of rural internet, access and data center interconnect in India, India.
Speaker Change: With both critical infrastructure and Defense Agency projects, expanding secure command and control networks which should contribute higher gross margins.
Speaker Change: We continue to make solid progress towards our goal of achieving a profitable contribution from our IP Optical segment.
Speaker Change: Overcoming the loss of revenue from Eastern Europe and we remain committed to achieving profitability in the near term.
Speaker Change: Overall, for the company. We expect continued Improvement in gross margin in the third quarter.
Speaker Change: While the remains a lot of uncertainty over where us tariffs will settle and any reciprocal trade barriers, that may be implemented at the current time. We're not projecting a material impact on our business.
Speaker Change: So based on the foregoing for the third quarter, we're projecting revenue and a range of 213 to 227 million.
Speaker Change: And non-gaap adjusted ibida in a range of 28 to 34 million.
Speaker Change: As I mentioned earlier, the overall demand picture remains robust and similar to last year. We expect the fourth quarter to be the strongest quarter of the Year. Given the timing of Enterprise deals and service provider projects
We are well positioned to benefit from the growing investment in fiber. Networks to meet the exponential increase in data consumption.
Speaker Change: And we expect the growth in our voice Communications business. To continue with investment across a wide range of service provider and Enterprise customers.
Operator, that concludes our prepared remarks and we can now take a few questions.
Speaker Change: Thank you, without the conducting a question and answer session. If you'd like, to be placed into question queue, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.
You may press star 2 if you'd like to move your question from the queue.
Speaker Change: For participants using speaker equipment and it may be necessary to pick up your handset. Before pressing star 1 1 moment, please while we pull for questions.
Our first question today is coming from Michael Genevie from rosenblat security. Your line is now live
Speaker Change: Uh, great. Thanks very much. Good afternoon, guys.
Um, I guess I really like everything I heard on the conference call that you just said, so I just need a couple of things explained to me. Um, what's your first of all, the gross margins being a little bit below, expectations, for the second quarter. What what happened there?
Yeah. Hey Mike. Um, so that was, you know, primarily just a shift uh, towards a little more Hardware in the cloud Niche, uh, segment the shipments there. Uh, it was part of the reason we ended up at the higher end of the guidance range, or above the guidance range. And so that just obviously just has a bit of an effect on the overall gross margin. That was the primary reason. Uh second we had a little more Professional Services in the quarter as well uh associated with some of the modernization programs. So both of those have a little less uh overall gross margin relative to selling software obviously.
Okay, that makes sense. And uh, and you know, similarly I mean, I understanding you beat the second quarter on revenues and the third quarter, you know, guided a little bit below consensus, but the year basically doesn't change. But just just just, I mean, I know you went through all this but there was so much information. You know, the idea that revenues could be sequentially down in the third quarter, what's what? Before you know, obviously coming back strongly in the fourth, what's, what's going on in the third quarter?
Speaker Change: Yeah, so if I just kind of compare it year-over-year first. Um so second quarter is up, 15% versus second quarter last year and then I think if you look at the midpoint of our guidance for third quarter, we'd be up about 5% relative to third quarter last year. So if you look at our full year, guidance up about 5 and a half percent versus 2024, we're kind of off to a good start first. You know, first, uh, half of the year is up.
Speaker Change: 8%. We got Q3 guided up about 5% and then you know, if we have a obviously a solid Q4 like we did last year, I think we're in really good shape. So that sequential you know, kind of flatness Q2 to Q3 primarily because Q3 ended up ahead of the head of the curve. Really?
Speaker Change: Um, got it. Um you know and then finally I'll just ask um you know, you know, obviously the
Speaker Change: Cloud Edge business Outlook is, you know, gotten much better, the last several quarters that, that it was previously, and it also seems like Optical is doing pretty well. I just want to kind of take your temperature on the um, you know, the idea that ribbon has these 2 kind of separate businesses and and you know how you're feeling about that or, you know, if you would prefer to focus more on 1 business, if you could get rid of the other 1, um you know any comments uh on on that would be helpful.
Speaker Change: Um, I know we covered a lot of material but uh, you know, we mentioned that at Verizon, the, uh, voice core, uh, upgrades that we're doing the modernization there. Moving to a virtual platform. Now, includes our IP router to do the IP traffic aggregation as part of that upgrade. So it's a perfect example, how we're able to Leverage The Technologies between the 2 different businesses and, uh, and really differentiate us. I don't think anybody else is doing that today. So, um, you know, yeah, I think, uh, all things, uh, moving the right direction there.
Speaker Change: Okay, perfect. I'll pass it on. Thanks, Mike.
Speaker Change: Thank you. Our next question. Today is coming from Ryan, coun, from Neiman company or Line is now live.
Ryan: Hey, great, thanks for the question. Um, you know, Bruce can you give us any more uh, caller on the on this class 5 replacement opportunity? As applies to, you know, other other large wins in the pipeline. Do you think there's International opportunities and then what do you correlate kind of these opportunities with? Is it do you directly correlate it with with fibre deployments and they're looking to kind of just radically reduce Opex uh in in a in a particular region uh be helpful. Thank you.
Speaker Change: Yeah, thanks Ryan. Um, yeah, there's definitely a correlation between the fibre upgrade and the class 5 upgrade. Uh, not so much because the technology is plugged into each other. But typically, what we'll see is, um, a Telco continuing to push, fiber deeper and deeper, uh, moving traditional copper lines to a Voiceover IP.
Speaker Change: The voiceover fiber, uh, capability. And then, um, you know, for the long tail. If you will of remaining lines, it makes a lot of sense to modernize that class 5 switch. So they don't have to wait until the entire fiber penetration is at 100%. They're able to capture some pretty significant cost savings by basically, doing the switch modernization in parallel with the fiber deployment. Um and as as you mentioned right that that kind of uh approach applies really to any W line operator. Uh, particularly in North America, where there's a traditional class 4 class 5 switch architecture, uh, that's been put in place, you know, 35 years ago.
Speaker Change: As you go to Europe, the network architectures, look a little bit different. You see more convergence between mobile and fixed lines through an IMS architecture and we participate in some of those uh, programs as well. More focused on a cloud, native implementation, uh, of our voice core our SBC, our policy server, Etc. So similar idea just probably a little different architecture and and implementation.
Speaker Change: Powerful. Thanks. And, uh, what what's, what's the general tone on, on capex? These days Bruce, I mean, we've been hearing some relatively positive, uh, commentary around accelerating. Maybe starts to open up a little more capex. You know, in the coming quarters.
Speaker Change: Uh, in any any commentary there you've heard from customers in the US? Yeah, you know, it's um, it's so fresh right now, you know, a few weeks old and I'm not sure how many people have read the, you know, thousand pages of the of the bill yet, but clearly that's a Tailwind for the industry. Uh, you know, as John mentioned, it benefits us being able to, uh, normally expense the R&D Investments that we're making and other other Capital Investments. But even more significantly for our customers where they're able to um, you know, fully expense the capital Investments that they're making in the, in the US, that's a huge deal. You know, I, I think the industry billions of dollars of additional cash flow. But again, as I say it's early, I'm not sure I've heard a lot of direct, uh, uh, Dialogue on it other than obviously, uh, you know, Mr. Stanky was pretty, uh, pretty vocal on that on his call today.
Speaker Change: Yeah, exactly. Great. And then on the uh, maybe last question and I'll pass it on, but commentary on, on private networks. I know you guys are pretty strong in Europe and some US Government. Um,
Projects, any any kind of broad commentary on what, what's the spending environment like around? Uh, you know, voice and and even uh, Optical and routing in the Enterprise?
Speaker Change: Yeah, yeah, great question. So we um, you know, in in North America kind of have 2 different initiatives, 1 focused on voice modernization with many of the, the large DOD agencies, and have a, you know, a really, uh, great Pipeline and series of programs going there. And, uh, We've are fairly early but now starting to see, uh, you know, a number of key wins in the US for critical infrastructure, energy companies, Transportation, uh, those sorts of areas. And we think that's a, that's a big opportunity for us because we haven't done a lot in that space, uh, historically.
Speaker Change: Uh, in Europe.
Speaker Change: Going through uh a series of large system integrators and kind of specialty providers. There has been uh you know, kind of obviously A Renewed focus in that space around making sure every dollar that's spent is being very efficiently, used in trying to reduce the amount of overhead in getting technology into the hands of of the agencies and kind of streamlining that whole sales process. Um in the short term that kind of I think delays decisions a little bit but in the longer term I think it really pays. If you know a place to the strength of the the technology oems and you know, makes our our uh our products more, more cost-effective and you know, achieve the goals that uh the government is trying to focus on here. So um
Speaker Change: I think in Europe um obviously there's uh a large step up in spending around Defence spending across Europe today. Uh you know countries like Germany and and several others are are going to spend and invest a lot more around defense than they have in the past. Uh, we've got a series of customers in that region that are uh, really strong, uh, businesses for us in Israel, and Switzerland, and Finland. And we're really looking to expand our presence there in both data transport as well as in, uh, voice modernization. So, uh, you know, I think we'll, we'll invest more there and, uh, try and replicate some of the success. We've had here in the US.
Speaker Change: That's great. Thanks so much, that's all I've got.
Ryan: Great. Thanks. Ryan.
Speaker Change: Thank you. Next question is coming from Dave Kang from B. Riley Securities. Your line is now live.
Uh, thank you. Uh, good afternoon. Uh, first question is, uh, uh, did you guys have any um, uh, FX impact?
Speaker Change: Yeah. Hey Dave, um, John can probably comment a little more we, yeah, we definitely see. You know, this the weakening US dollar as a headwind from an Opex perspective in John, what was the impact in second quarter? So in the in the second quarter Dave it wasn't huge. Most of the sort of weakening of the dollar occurred during the second quarter. So probably on Opex, it was about a million dollars in the second quarter but clearly as you look forward for the rest of the year and if everything stays as it is and all this is relative to you know, the uh our expectations, the start of the year, and the guidance was set there. We do see headwinds roughly around 2 million dollars a quarter and that's, you know, really depends if the current exchange rates hold. And, you know, the currency we're seeing the pressure from our, the shackle, the Euro, and the Canadian dollar in particular. So obviously, you know, the 1 thing I can say is the exchange rates won't stay where they are but it's just, you know, but if they do then that's uh that's the
Black impact.
Speaker Change: Got it. And then, uh, regarding um, gross margin. It sounds like, you're guiding third quarter, gross margin to increase, 150 to maybe, uh, 200 bits sequentially, just if you can go over, um, uh, the Dynamics behind that?
Yeah, that's about right. I think, um, you know, it's really across both of the businesses, the mix that we're seeing in the third quarter and our IP Optical business should result in in, uh, you know, quarter or quarter Improvement in in that segment. And then in cloud and Edge, as I commented, we expect less Hardware shipments in the quarter, um, and less media, gateways and more of a software mix in the third quarter, which kind of moves us back to more. Maybe more a traditional uh gross margin mixes for the business. As as you know when we um we were awarded the Verizon contract last year. We did expect that uh the overall gross margin would come down as a result. Obviously super accretive you know, on the bottom line. But uh the additional services and Hardware. Um, just carry out a lower gross margin than software.
Speaker Change: Got it. And my last question is um, just wondering if you had any um, order Pullins uh, during the quarter
Speaker Change: No, I think it was a, you know, pretty, uh, middle of the road, I guess, I would say quarter for second quarter. Um, uh, you know, as we look into the second half of the year, uh, we've got a, you know, obviously a strong funnel and a projecting, you know, gut, you know, really strong growth, uh, versus the first half, getting the exact timing between Q3 and Q4 is always tricky. But we're, you know, pretty uh, pretty optimistic about the second half here obviously,
All right. Thank you.
Speaker Change: Thanks Dave.
Speaker Change: Thank you. Next question today is coming from Tim savageau from northern Capital markets. Your line is now live.
Hey, good afternoon. I want to I think you mentioned a record quarter.
At Verizon, I wonder if you can be a bit more.
Speaker Change: 20% of Revenue.
Speaker Change: I just wonder if you could talk to us in more detail,
Speaker Change: on where Verizon ended up and, um, and also what the Dynamics were across the rest of the service provider space, which is to say, if
Speaker Change: They grew as, as much as it appears they did. Looks like you might have seen some growth in, in the rest of the service provider world, and
Speaker Change: But anyway, and I'll follow up from there. Thanks. Yeah, thanks. Tim. Um, yeah. So your number is almost bang on and you'll see it in the queue as we publish our, you know, 10% plus customers. So Verizon was I think a little over 20% of total sales, uh, in the second quarter. Um, you know, with the last time we had a quarter of that strong was not that long ago, our fourth quarter was obviously, you know, very strong with them as well. But this was a little bit above that above that level. Um, you know, if you go back to kind of my commentary last quarter, uh, we projected that we knew we would, you know, we had a lot of activity. A lot of, a lot of work to do in the second quarter with Verizon. And, uh, you know, I I'd say, you know, we're extremely pleased and I think they're very pleased with how the upgrade in the modernization programs are progressing and the velocity at which we're, you know, getting after capturing the cost savings for them, uh, across their Network. So going very well. Um, at as I think, you know, you've already backed into the math accurately. Um,
Speaker Change: The other parts of our service provider business also increased in the quarter. I don't have the exact number. Uh, obviously not as large as Verizon, but, uh, you know, all of the other service providers increased as well, uh, in the quarter year-over-year. Um, the 1 I did comment on was obviously India, you know, with a, a very strong quarter in India with the uh, Tier 1 service providers there as well.
Speaker Change: Great. And I can maybe extend that commentary into Q3 I mean, it sounds like high level um,
a little bit of the flattish guide might be, you know, a little stronger Verizon Q2 and a little weaker and Q3 is
Speaker Change: That a reasonable way to look at it is that, you know, kind of pull back material.
Speaker Change: Um, for Verizon and then I would anticipate giving your expectations for the year that you would expect.
Speaker Change: Kind of a
Speaker Change: a new record with them in Q4, maybe not percentage-wise, but maybe absolute Dollar Wise. It's interesting. Your thoughts in the
Speaker Change: Yes, I think the Q3 commentary is is accurate. I mean, we have a ton of projects obviously going with them, uh, and so we'll have a, you know, we'll have a strong Q3 but we're not anticipating shipping the same amount of product that we did as we did in the second quarter. Um you know we're spending time now getting it all deployed obviously um
Speaker Change: But we do see a, uh, you know, the diversification we have in the business, the strong Enterprise set of customers, whether it's, uh, you know, financial institutions Transportation or, uh, or defense, uh, all of those, we expect more growth in the third quarter. So we, you know, we see part of the business increasing part of it coming down the net. Net is, you know, a fairly consistent Q3 to uh, to what we just did in Q2. Uh, but up obviously year-over-year from last year.
Great. And I think you mentioned, you've got a
Speaker Change: A router in there and and not deployment. I think you've
Speaker Change: we're at least talking about the same kind of situation in AT&T, um, last year or
Speaker Change: maybe even prior to that, sort of, um, you know, inserting your routing solution into, uh,
Speaker Change: into the overall IP voice solution.
Speaker Change: When you I mean I guess can you give us an update there and is that indeed the case and you know I think it brings to mind the question.
Speaker Change: You know, can you extend that?
Speaker Change: Into the, you know, other elements of the routing product line or the transport product line. Or, you know, on the optical side. Proper is you you think about those 2, big US carriers.
Speaker Change: Yes, we have, you know, I'd say 2 primary use cases where we're using, uh, the routing platform. Uh, as part of our voice modernization 1 is that router becomes an aggregation router basically, to aggregate all of the, uh, voice core traffic. And, um, you know, that's a key part of of, of that system upgrade. And, you know, the reliability of the performance and everything are are really crucial, uh, to make sure that, you know, 911, you know, carrier grade traffic continues to flow properly.
Speaker Change: To help them, eliminate TDM infrastructure, across their Metro Network, move everything to an IP backbone if you will. Uh, and where they have to continue to provide TDM interfaces, just do it at the edge.
Speaker Change: So, you know, we see, uh, you know, really good, uh, interest or or uptake around that, and as I kind of said in the commentary, I think of that as a land and expand strategy. And once we're deployed in a couple of different use cases, you know, we really want to get deployed, you know, much more broadly into a broader set of uh, Edge aggregation, use cases, um, and uh, you know, just kind of part of the longer term strategy here to uh, to expand our our market share in that space.
Okay, thanks very much.
Speaker Change: Thanks Tim.
Speaker Change: Thank you. Our next question. Today is coming from Christian Schwab from Craig Holland Capital group. Your line is now live
Uh thanks for taking my question. Bruce this is a a meeting of clarity. We we talked about uh currency headwinds uh on Opex. But I thought I heard and you're prepared comments that you expected to be at the lower end of your gross margin and ebit of range for calendar 2025 due to currency. Did. Did I hear that correct?
Yes, yes exactly. Uh Christian. So we you know, as John said there's
Speaker Change: Things kind of continue that the level they're at today, and, of course, they'll change. We just don't know which way. But if they continue where they are today, it's about a 5 million dollar, uh, headwind on, uh, overall earnings relative to the original guidance that we set at the beginning of the year.
Speaker Change: Um, that's in I'll call it in Opex. Uh, obviously we have some fixed cost. Uh, also in the cogs line that goes into gross margin, so it's put some pressure on the gross margin line. That's not as significant as the Opex, uh, impact. But uh, you know, definitely contributes a little bit. So, you know, overall as we look at the rest of the year and try and project where we end, you know, I think on earnings we're, we're thinking we're lower, you know, lower in that range, uh, than than where we normally be without that headwind.
Speaker Change: Great. And then, as it as it relates,
Speaker Change: To Verizon, uh, strength this year? I mean, you're can you elaborate on your visibility? Uh, or bookings are backlogged out, like, however, you'd like to do that with that customer for calendar 2026, or is that too early?
Speaker Change: Yeah. No, we think. Uh, next year looks like a strong year. Um, you know, is we had the indicated last year. The original the initial phase of this program is a 3-year program. So we're kind of, you know, 1 year into implementation. Uh, and I know we got a ton of work to do just on what was part of the original, uh, the original defined program, uh, that only does a partial portion of their Network and, uh, assuming everything's going well and no other kind of, you know, macro changes. We would certainly expect to see that continue, you know, well beyond that, uh, you then layer in, uh, the opportunity around Frontier is that business gets integrated into the Verizon processes, um, you know, we would expect, you know, very likely that they would want to implement something similar there, uh, to go after the cost infrastructure in, in, in that business. So, you know, we feel, yeah, really good about the Outlook going into next year, uh, with Verizon.
Speaker Change: Great. Fantastic. No other questions. Thank you. Next question.
Greg misia: Thank you. Our next question, today, is coming from Greg misia from Kingswood Capital Partners, your line is now live.
Greg misia: Yes, thank you. Can you hear me?
We got you, Greg.
Good. Hey Bruce you mentioned uh when you talked about book book, the bill in the second quarter, you kind of gave us a a general statement of greater than 1
Greg misia: Um, when you look at your deferred revenues, uh, it's a pretty interesting bump up from Queue. At the end of q1 to, to this end of this current quarter, you you went from basically 23.5 million at the end of q1 to 31.7 at the end of this quarter, which is a much bigger pickup than from
Greg misia: Q4 of last year, year end of last year, 20.9 up to 23.5.
Greg misia: At the end of the first quarter, so obviously deferred revenue is starting to accelerate, I guess you could say, um, is that really kind of the setup for the fourth quarter, uh, or some of that Beyond? Can you just kind of give us some color on on that on that Trend? Thanks.
Greg misia: Venue pipeline. If you want to think of it that way. The largest portion is associated with our maintenance and support contracts and a large portion of those bookings tend to happen in Q4 so you see a big buildup and then that kind of bleeds off as the year progresses. But that can change depending on the timing of of when we um you know, when those uh kind of contracts get renewed or implemented, the other part is associated with product and services, uh deferred revenue. And um, particularly in the cloud and Edge business, we can have larger programs that, uh, that are implemented over multiple quarters and that can definitely influence our deferred revenue number. And, yeah, it's definitely an indicator of of, obviously, kind of future future Revenue. So, uh, an important element to look at, um,
Greg misia: And as you commented on book to bill, again, kind of above 1 times again in the quarter, I think that's a third or fourth quarter in a row. We've had that and it's particularly good to have that when we have a quarter where we beat the revenue number. So uh you know, both the numerator numerator and the denominator increased in that case. So thank you and just a quick follow-up. Um, you
Speaker Change: Guided to a fairly conservative, gross margin trend for the third quarter, All Things Considered. Um, but you also did say that the percentage of hardware sales in the second quarter was was up significantly.
Speaker Change: Shouldn't we assume that at some point? You get the whole Razer Blade effect versus the Razer, uh, and that should give us um, kind of a delayed pickup in margins.
Yeah, we certainly saw a little bit of that in Q2 in the IP Optical business where, you know, our gross margins were up, uh, almost 800 basis, points sequentially in Q2, you know, with a much improved mix particularly in in Asia Pac and part of its the razor razor blade, you know, analogy that you've used. So, um, you know, if I think about the third quarter in your comment on that, there's 2 comparisons, to think about 1 is the sequential gross margin and we expect that to improve Q2 to Q3 kind of continued, improving and gross margin given the higher mix of software and and less Hardware.
Speaker Change: But if you compare it to year-over-year, you know, we're still we're still lower from a gross margin perspective. Year-over-year primarily due to the increased Professional Services that we're doing in the business with some of these modernization programs. So a couple different factors to think about their
Speaker Change: Got it. Thank you for that. Nice job on the quarter.
Speaker Change: Thanks B.
Speaker Change: Your next question today.
Speaker Change: From rustam Congo from citizens. Your line is now live.
Good afternoon first and John thanks for taking my questions. Um, 1 point of clarification on the the the comment regarding the FX headwinds in relation to the Eva and gross margins.
the Assumption there is that those rates would hold and that that the reason for the call out is that fair
Speaker Change: Yeah that that that's right you know clearly what we've seen is as I referenced the exchange rate, it's moved you know fairly substantially during the second quarter but the the so it just trying to predict the rest of the year is quick, clearly, quite challenging, but they do hold those at the rates.
Speaker Change: Yeah, Ruston we have, you know, kind of 3 or 4, you know, 4 in currencies, where we have uh, Opex exposure that John mentioned, you know, India is probably the largest uh Israel. India, you know, those types of are um, Canada. So um,
Speaker Change: You know, and the Euro. So as we look today, you know what that current uh, exchange rate is relative to when we set guidance earlier the year. Uh, there's been a fairly material shift, it could all shift back, we just don't know.
Very clear. Appreciate it. And then secondarily, uh, in regards to the the call out or the optimism around the European Defence opportunity to what extent is that uh, largely driven by the, you know, recently uh increased NATO defense budget.
but you know, we certainly increased our Focus, their
Speaker Change: Thank you.
Thank you. We reached end of our question and answer session. I'd like to turn the floor back over to Bruce for any further. Closing comments.
Speaker Change: Yeah, well thanks. Uh operator. And thanks again for being on the call and your interest in ribbon. Uh, we really look forward to speaking with many of you at the upcoming investor conferences that we're at and updating you on our progress. So with that operator, thanks uh, and uh, that concludes our call.
Speaker Change: Thank you that does conclude today's teleconference webcast, you may disconnect your line at this time and have a wonderful day. We thank you for your participation today.