Greetings. And welcome to the Ribbon Communications Third Quarter 2021 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Tom Berry, Investor Relations.

Good afternoon. And welcome to Ribbon’s third quarter 2021 financial results conference call. I am Tom Berry, Investor Relations of Ribbon Communications. Also on the call today will be Bruce McClelland, Ribbon’s Chief Executive Officer; and Mick Lopez, Ribbon’s Chief Financial Officer. Today’s call is being webcast live and will be archived on the Investor Relations section of our website at ribboncommunications.com, where both our press release and our supplemental slides are currently available. Certain matters we will be discussing today, including the business outlook and financial projections for the fourth quarter of 2021 and beyond are forward-looking statements. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements. These risks and uncertainties are discussed in our documents filed with the SEC, including our most recent Form 10-K and Form 10-Q. I refer you to our Safe Harbor statement included on slide two of the supplemental slides for this conference call. In addition, we will present non-GAAP financial information on this call. Reconciliations to the applicable GAAP measure are included in the earnings press release we issued this afternoon, as well as in the supplemental slides for this conference call, which again, are both available on the Investor Relations section of our website. And now, I’d like to turn the call over to Bruce. Bruce?

Great. Thanks, Tom. Good afternoon, everyone. And thank you for joining us today to discuss our third quarter 2021 results and our outlook for the fourth quarter. The third quarter played out almost exactly as we expected, with the exception of increasing supply chain constraints. Revenue in the quarter was $210 million, with approximately $9.5 million moving to the fourth quarter due to supply chain-related constraints. Profitability was very solid, with both adjusted EBITDA and our non-GAAP earnings per share within our guided range, despite the lower sales and increased costs related to component pricing, transportation, and logistics. Without these issues, we would have been at the midpoint of our guidance on the revenue range and would have exceeded our guidance for both adjusted EBITDA and non-GAAP earnings per share. In our IP Optical Networks segment, we continue to add new customers with 12 new logos this quarter and to build our presence in the critical North American market, where sales in this region have increased 270% on a year-to-date basis. We have an exciting new win in the quarter with Viaero Wireless and Fiber Networks, a top 10 mobile network operator in the U.S. Viaero is deploying our entire IP Optical solution set, Apollo for DWDM transport, Neptune for IP/MPLS networking, and Muse for domain orchestration and network management. The deployment will support 1 gig and 10 gig client-side aggregation over a 200 gig optical transport network that easily scales up to 400 gig wavelengths. A converged IP Optical Network supports both broadband backhaul and 5G Xhaul services. We also announced a new win to Dakota Central, a long-time Ribbon Cloud and Edge customer based in North Dakota. They chose our IP Optical solution to increase broadband speeds and provide the ability to backhaul 5G mobile traffic. Outside of the U.S., we had a major new customer Megafon, the second-largest mobile phone operator in Russia. After an extensive RFP and trial process, they selected our Apollo DWDM solution for long-haul transport. We are in the early stages of deployment with this new Tier 1 customer. Similarly, we had a great win with Nortel, the second-largest fixed broadband provider in Indonesia. So, we are adding capacity to their network, as well as adding a new subsea cable, and we will utilize our Apollo DWDM platform. In Europe, we continue to win new critical infrastructure customers, signing deals with a large Swiss utility company and a major rail operator in Germany. These are all great examples of the strength of our IP Optical portfolio and our ability to compete and win against the installed incumbents. Our product bookings to revenue in the quarter was 1.17 times, signaling growing demand into the end of the year. Sales in India continued to be impacted by environmental factors, and while shipments in the quarter were consistent with the second quarter, this is still down approximately 20% from the run rate in the second half of 2020 and well below 2019. While the market is slowly improving, we now only anticipate modest improvements in the fourth quarter. We remain well-positioned to capture significant business once the market rebounds in 2022. In our Cloud and Edge business, sales were down approximately 5% from the third quarter last year, excluding Kandy, when we benefited from higher session border controller spending for both service providers and large enterprises during the peak of COVID. Gross margins in the third quarter were very strong, with a high mix of software, and when combined with a 14% reduction in our non-GAAP operating expenses, the adjusted EBITDA in this segment increased 7% compared to the third quarter of 2020. Demand for our voice over IP network transformation solutions was exceptionally strong again this quarter, growing 78% year-over-year, with higher shipments of our soft switch and leading gateway platforms. We have early visibility on several new major projects beginning in 2022 that will continue the momentum in this business, and we see growing interest in the adoption of cloud-centric technologies, what we are calling telco cloud. This trend is definitely breathing new life into this very important product segment. Session border controller sales decreased from the third quarter of last year, primarily due to a very large wireless transcoding deal last year and strong sales in our 5K and 7K products to large enterprises. I am very encouraged by the growing pipeline of opportunities following the creation of a dedicated enterprise sales team earlier this summer. We have new opportunities across a range of different verticals: healthcare, insurance, industrial, state and local government, and financials, and expect meaningful improvement in sales this quarter. Our Ribbon Connect SBC as a service solution supporting Microsoft Teams continues to gain traction with over 100 distributors and partners now onboarded. We also added a top three U.S. MSO to the platform in the quarter to support their growing business services offering and have several large international carriers evaluating the service. While it’s still early, paid subscriptions have more than doubled over the last 90 days, and we expect to continue to see sizable growth from this new recurring revenue service offering. And finally, in our recurring revenue maintenance business, we had another strong bookings quarter and continue to maintain a very high renewal rate, with bookings for the year now essentially at 100%.

Thanks. As Bruce stated, we were very pleased with our performance this quarter, considering the challenging supply chain environment. Let’s start with commentary about our GAAP results for the quarter. Our GAAP net loss of $59 million includes a net negative impact of $55.6 million or $0.38 per share related to our investments in AVCT. As we have mentioned in the past, fluctuations in AVCT stock price affect our other income and expense line as we mark-to-market our investments every quarter. We have excluded this non-cash item from our non-GAAP results. Other factors contributing to the difference between our GAAP and non-GAAP results for the quarter include $2 million in restructuring expenses related mostly to the continuing downsizing of our real estate footprint, $2 million in integration expenses, and usual adjustments for amortization of intangible assets and non-cash compensation. On an adjusted non-GAAP basis, third quarter 2021 results were as follows. Total revenue was $210 million, down 7% year-over-year when adjusted for the sale of Kandy and negatively impacted by approximately $9.5 million from supply chain constraints during the quarter. Non-GAAP gross margin was 57% in the third quarter, within our guidance range, and down 2 percentage points from the prior year period. Cloud and Edge maintained strong margins of 67%, while IP Optical Networks margin of 37% was affected by component cost, freight increases, and other items that we will explain in detail. Non-GAAP operating expenses were $93 million in the quarter, up from $90 million in the second quarter due to one-time benefits we had last quarter, as well as incremental R&D investments in the IP Optical Networks segment, along with increased travel and marketing expenses. Non-GAAP adjusted EBITDA was $32 million at the low end of our guidance, with a good result given the supply chain constraints. Non-GAAP diluted earnings per share was $0.11 in the third quarter, within our $0.11 to $0.13 guided range. Our diluted share count was 148 million for GAAP and 154 million for non-GAAP earnings in the quarter. Now let’s turn to the results of our two business segments. In our Cloud and Edge business, third quarter revenue was $142 million, down 5% on an organic basis. We continue to trend strong gross margins with 67% in the quarter, up 1 percentage point from the third quarter of last year, and our fourth consecutive quarter at or above 57%. Non-GAAP adjusted EBITDA for Cloud and Edge was $45 million, up from $42 million in the third quarter of last year, with a margin of 32%. The year-over-year change was driven by higher software mix, the Kandy sale, restructuring savings, and discretionary expenses. Here are a few additional points on the Cloud and Edge performance in the quarter. Product revenue was $66 million, while service revenue contributed $77 million, with the majority of our service revenue again coming from our strong recurring maintenance business. Software accounted for 68% of total product revenue, up 12 percentage points from the second quarter. Now turning to our IP Optical Networks business, we recorded third quarter revenue of $68 million, down slightly from $70 million in the second quarter, due in part to supply constraints and logistic delays. Non-GAAP gross margin was 37% in the third quarter, which showed an 11-percentage-point decline compared to 48% in the second quarter. The lower gross margin in the quarter deserves a few comments, as this is not expected to be the go-forward run rate. We previously noted in the second quarter investor call that the strong gross margin for the second quarter of 48% benefited from a number of one-time items and unusually strong product and customer profitability mix. In the third quarter, these two matters reverted back to normal, and we had a further 3% decrease in margin due to supply chain incremental costs that included higher component prices, expedite fees, and freight costs. Our priority is to continue to deliver high-quality products to our customers with minimal delays or disruptions. We do expect continued cost pressure from suppliers and transportation over the next several quarters that we are actively working on mitigation. We estimate gross margins at or above 40% for the IP Optical segment for the fourth quarter as we increase our revenue volume. Now here are some consolidated key metrics for the company. Maintenance revenue represented 34% of total revenue in the third quarter, up 2 percentage points from the 32% in the third quarter last year. Service providers accounted for 82% of our revenue in the quarter, and enterprise customers represented 18%, compared to 71% and 29%, respectively, in the third quarter last year. International customers provided 56% of our total revenue in the third quarter, 1 percentage point above the 55% in the third quarter of 2020. Our book-to-revenue excluding maintenance was 0.98 times for the third quarter. Turning to the balance sheet, we ended the quarter with cash and cash equivalents of $104 million, including $3 million in restricted cash. This is a decrease of $11 million from the previous quarter, due primarily to a $16 million increase in accounts receivable due to the timing of collections at quarter end. Our $100 million revolver still remains undrawn. Once again, we comfortably met our quarterly financial covenants for our term loan. Our bank leverage ratio was 2.34 times, well below the 3.5 times maximum. Fixed charge coverage ratio was 3.9 times, more than 3 times the 1.25 times minimum. Capital expenditures were $4 million for the quarter, which had $600,000 of real estate leasehold improvements. We are really proud of the team this quarter for meeting customer demand and achieving our profitability guidance. Now, we’d like to turn the call back to Bruce to discuss the operating environment and our outlook for the quarter.

Great. Thanks, Mick. Before discussing our guidance for the fourth quarter, I’d like to provide a few comments about the progress we are making on our core strategy across selling our IP Optical portfolio to the broad base of traditional Ribbon customers utilizing our voice over IP solutions. We had very big ambitions for our IPO Optical business and have a deliberate strategy in each region to gain entry into large service providers that control the majority of the capital spend in the industry. In the last 12 months, we have had a series of material wins with significant operators such as Rogers, Optus, SingTel, Altice, Megafon, Telecom Italia, Taiwan Mobile, and Sony. The revenue growth associated with these wins is not yet reflected in our current financial results in a material way, but we are investing in both R&D and go-to-market to support these wins. It will be a strong addition to the base of customers currently supporting our business. Beyond that, we have significantly increased the number of Tier 1 customers we are actively engaged with and who are evaluating one or more elements of our portfolio. As highlighted on slide 12 of our third quarter investor presentation, the sales cycle will take time, but we expect many of these customers will be the next wave of wins, further increasing revenue in the second half of 2022 and full year 2023. And the list of potential additional targets beyond this is even longer and collectively represents an even larger addressable market. All-in, we estimate that we can address a $14 billion global market and are investing to capture a much larger share than we have today. Our disruptive approach to enable a more open ecosystem in network architecture, optimizing across both optical and IP layers of the network and providing a next-generation orchestration and automation control system is really resonating with customers and disrupting competitors. Extensive investments will be made in Fiber Network infrastructure over the next five years, enabling true 5G mobile networks and dramatic improvements in residential and commercial broadband service. At the same time, the investment in collaborative voice communication is also expected to continue at a robust rate as enterprises adapt to leverage a more mobile workforce and digitize all aspects of their business. Traditional service providers are adapting their business model to embrace cloud technology, modernize their infrastructure, and leverage public cloud platforms to accelerate new service introduction and lower costs. We are really entering a new phase for the company. We have completed the integration of ECI and Ribbon, and have done the hard work of building a new company. We are now in the second phase and beginning to see clear evidence that our strategy is working and will be a significant transformation of Ribbon. We are in a great industry with a favorable competitive environment and are super excited about the future of the company. In order to provide more detail on our technology and solutions, we will be hosting two virtual events on November 18th, as part of a series we are calling Ribbon Spotlights. We will focus on two specific topics that day, beginning with what we are calling IP Wave, how we envision the evolution of IP and Optical Networks, and our solutions that are leading this network transformation. We will then discuss the quickly growing trend for carriers to further leverage public cloud platforms and our Telco Cloud solutions. We will continue the series with additional events in 2022 and will keep the investor community posted on the details as we get closer to the events. So now for guidance, our sales team is now in front of customers on a regular basis, which is a big benefit as we compete for new business. And personally, I have face-to-face customer meetings across Europe, the U.K., India, and North America over the next 45 days. Our Q4 sales pipeline is very robust and we continue to have line of sight to significant growth in the quarter, with potential to exceed our updated guidance range depending on the end of year capital spend. However, it’s become more difficult to estimate the exact impact that global supply chain constraints will have on being able to fully meet demand. We also expect continued elevated costs in our IP Optical segment this quarter due to higher logistics and expedite fees, but still project gross margins for this business back above 40% in the fourth quarter. With these factors in mind, we are broadening our normal guidance range on both revenue and earnings. For the fourth quarter, our expectations are for revenue in a range of $240 million to $260 million, non-GAAP gross margins of 58%, non-GAAP adjusted EBITDA of $45 million to $51 million, and non-GAAP diluted earnings per share of $0.13 to $0.17. Just a note on tax rates, as we close on the end of the year, we are adjusting our non-GAAP tax rate assumption for the fourth quarter to approximately 39%, reflecting our projected regional income. This change results in a revised full year tax rate of about 31% versus our previous estimate of 27%, affecting the non-GAAP EPS calculation. While this updated guidance would put us short of our $900 million goal for the year, we expect to get very close to the adjusted EBITDA and EPS targets we established at the beginning of the year. As we look into 2022, we have a growing number of tailwinds as we begin to see the results of our significant 2021 customer wins and the benefit of a broader global base. I expect that supply chain constraints will be an ongoing theme for us and others to manage, but the fundamentals behind the business are very solid and I expect 2022 to be a strong growth year.

That concludes our prepared remarks, and we can now take a few questions.

Thank you. Bruce, regarding the $9.5 million in delayed shipments, if those had been recognized in Q3, would the fourth quarter outlook be $9.5 million lower, or is there a possibility of additional revenue, around $9 million or $10 million, being pushed from Q4 to Q1 due to logistics and related issues?

Yeah. Hey, Paul. That’s a good question. I would say, it’s a zero-sum, so if we had shifted in Q3, it would be a deduct from Q4. Having said that, as we look at the Q4 guidance, obviously, we are trying to take into account any restrictions and whatnot that we see and try to take that into account as we sit here today.

Okay. I appreciate the challenges with respect to visibility, et cetera, for you and all of your peers, but I want to keep you honest, when you talk about the third quarter would have been $9.5 million better, but for, I just want to make sure you are clearly saying that by definition, the fourth quarter outlook would have been $9.5 million worse, but for that?

Okay. That’s correct, Paul.

Yeah. Paul, so we noted that the impact to revenue was $9.5 million, and it’s about half and half related to each of the business segments. In regards to the margin erosion, that was a bigger impact on cost increases, logistic and transportation, expedite costs, and that was about 300 basis points on the IP Optical Network side.

Was that the 300 basis points of total impact, so it was all on IP Optical or is there also some on Cloud and Edge?

That was a little on Cloud and Edge. Obviously, with the margins where they are, it’s not as significant on the Cloud and Edge side.

Got it. Can you remind me of the outlook for the normalized gross margin of the IP Optical business? I recall that you had previously mentioned a mid-40s figure for that business. If we consider a steady state and normalize for the impacts from the supply chain, what are your expectations for that business?

Yeah. So we are estimating low-to-mid 40s. So it could be anywhere from 40% to 45%, depending on mix and volume, et cetera. And as Mick mentioned, the, let’s call it, 300 basis points impact of higher costs right now. We estimate that continuing in the fourth quarter, which is why we are projecting margins in that segment right around 40%.

But long-term, Bruce, do you think it can be a low-to-mid as much as mid-40s business normalized?

I think you will see that happen quarter-over-quarter, Paul. I think if you look over an extended period of time and do an average, it’s probably in the 40% to 43% range. It will just move around a little bit each quarter.

Got it. Before I hand it over, Bruce, could you elaborate on the recent customer wins you've mentioned, like Telecom Italia? I assume these projects differ in nature, but I would like to understand whether you are becoming the main optical supplier for metro or other builds. It's also possible that they could be more straightforward projects, and there's no issue if that's the case. Can you provide some insight into the types of projects with these customers in terms of revenue?

Yeah. It’s a great question, Paul. So some of them are project-based. They are more, let’s say, enterprise WDM services, so you will do one project at a time and you may have more in a quarter or less than a quarter, it can vary. I think the real potential here for us though is that we get into the core portion of the transport network, like we talked about with the Rogers opportunity. That ends up being a more consistent multiyear business and really starts to build a stronger foundation for us like we have with our other Tier 1 customers in Russia and India and other areas. And these are all for us to be meaningful opportunities, double-digit millions annually and really start to strengthen the business for us.

Each opportunity you would size it at least in double digits annually, somewhat...

No, I wouldn’t say some are probably less than that, but they tend to be more enterprise-oriented. The larger ones are in that range.

Bruce, could you provide us with the total value of the larger wins from the past quarter on an annual or quarterly basis?

Well, in a general sense, not to avoid the question, but obviously, it’s sensitive information. They contribute towards our goal of 10% plus growth on an annual basis. So that annual growth of 10% on $300 million plus is annually $330 million worth of growth. That gives you an idea of what we expect out of kind of the aggregate and hopefully more, right? I mean, we are really obviously putting a lot of effort into this space.

Got it. All right. I will pass it on. I may come back if no one asks questions. Thank you, guys. I appreciate.

Thanks, Paul.

Our next question is from Dave Kang with B. Riley. Please proceed with your question.

Thank you. Good afternoon. I guess, first question is regarding, Mick, tax you said 39% in fourth quarter. Is that just for the fourth quarter or should we use that for next year as well?

Yeah. Certainly, this will be only for the fourth quarter. We have had some changes in our regional jurisdictional tax mix. For the full year, it will then average out to be 31%. So effectively quarters one through three at 27% and adjustments in the fourth quarter so that the full year is at 31%.

So how should we think about next year’s tax rate back to 31% or?

I would say that, obviously, we would like to reduce it back to the 27%, with some further improvement, but keeping it in that range would be about right.

Okay. And then, I guess, I can’t figure out OpEx for the fourth quarter, but how should we think about OpEx fourth quarter and beyond?

Well, you have seen that we have managed OpEx fairly well. We had unusually low OpEx last quarter, about $90 million that did have some one-time beneficial effects. This quarter we were closer to the mid-90s. We do expect a fourth quarter as usual to have a lot of variable compensation and other seasonal aspects that will put it closer to $100 million. But our goal is to maintain our OpEx in that mid-90 range and certainly continue to drive efficiencies in some aspects in order to continue to drive R&D in our future growth areas.

And Dave, if I might just add a comment on that, so some of the increases are seasonal, if you will, rate variable comp, et cetera. But we are investing more, as I mentioned on the call, around R&D investment and go-to-market investment around IP Optical. As we win more of these customers and they all come with some roadmap commitments and things like that, I think, we will continue to invest more. We are really looking at that this as a growth area for us and a great place to invest.

Got it. And just a couple of questions regarding the supply chain situation, so how many chips are fairly tight or giving you problems, is it like 1Zs or 2Zs, which one of your competitors talked about or is it more broad-based?

The biggest area, I think, where we see pressure is around routing silicon, IP networking silicon. It’s probably the area that’s most challenging. But we had a variety of smaller things as well, really a handful of things. All it takes is obviously one component to cause an issue, so whether it’s a connector or a fan or PCB. What we are seeing and it really picked up in the third quarter is a tightness in a variety of different areas and so it puts a lot of focus on making sure we are planning appropriately or partnering closely with our manufacturing partners and getting good visibility from our customers on the demand, and I commented, we see pretty strong demand here in the fourth quarter, and part of the challenge is just making sure we can supply as much of it as we can.

Okay. And my last question is on back to chips. My understanding is that some of these chips lead times are like I believe one, one-and-a-half years, one and a half might be a little bit drastic, but maybe one year or so. And if prices are going up, wouldn’t your gross margin be impacted when these higher chips go into production like one year from now. So like fourth quarter of next year, gross margin will be under incremental pressure because of higher chips, higher priced chips?

Yeah. Yeah. I do think we will see cost of goods pressure. We of course are attacking that on a daily basis with different programs across the company to continue to evolve the products and reduce cost and substitute less expensive parts, all those types of things, and really be able to try and manage that. You have seen a number of suppliers in the industry look at increasing prices and those sorts of things to also help offset the increased cost, and I think you will see more of that as the years progress here. You are correct, if you go out and place an unplanned order today in some components, you will get a one-year lead time on them. And so having again good visibility, good forecast, and long lead time orders on key components, all those kinds of regular things are part of the job these days. And we have seen this cycle before; the last big supply-demand balance issue was around memory and other components like that, and it does level out. It takes time to happen, but it does come back into balance particularly around core A6 and core silicon; of course, the fab houses are oversubscribed these days, and it really starts with that fundamental level that then drives restrictions and cost increases back into the whole supply chain. And what I do know is it levels out, and it will happen, and trying to predict exactly when that happens is almost a fool’s errand. You really just need to get on it and manage it.

Got it. Actually, let me squeeze in one more. Some of the rubber companies have raised prices. Do you have that kind of leverage to raise prices on some of your products?

Yeah. I don’t think of it so much as leverage as it’s really what’s the competitive balance and as we are all trying to win new business and position new products we are looking for ultimately for the best value for our customer, lowest cost for the best value, and that’s actually something we are really good at. The advanced tools we have for designing the network really allow us to drive to a really lowest possible bill of material cost. And part of as we are doing that pricing is looking at what are the target margins we are trying to generate. And so I do think there’s some flexibility; there would be more flexibility as more pressure increases around supply, for sure.

Got it. Thank you.

All right. Thanks, Dave.

Our next question is from Mike Latimore with Northland Capital. Please proceed with your question.

Hi. This is Aditya on behalf of Mike Latimore. Could you tell me how much the top 10 customers contribute to your overall revenue?

Yeah. We will look that up here for you; it’s in the low-50 range, but we will look it up here in just a second.

Yeah. It is about that the top 20 is usually around 60%.

But, Tom, will get that for you here in just a minute.

Yeah. It’s 47%. Bruce is almost exactly right 47%.

47%. All right. Thank you. Got it. And could you give me some color on how the situation is in India, like do you guys see a bit of improvement in 3Q compared to the previous quarter or just a little more color on what’s happening in India?

Yeah. Our third quarter was, I think, slightly better than the second quarter; it was very, very similar, and we saw our deployment rates kind of recover in the July timeframe from earlier in the second quarter. And we do expect a stronger fourth quarter certainly in India versus the third quarter, just not as strong as I thought maybe 45 days ago. It’s an interesting change over the last 30 days in India. The Department of Telecom there has provided some relief to the mobile carriers related to the adjusted gross revenue taxes that are owed over the next 10 years and it basically pushed out the timing of some of those payments. I think that’s going to provide some relief to the overall industry, which is great. The other comment I will make is that one of our large customers, Vodafone-idea, it’s pretty public knowledge that they have been working on trying to recapitalize a portion of the balance sheet for the company and there’s been kind of increased level of rumors around getting that done here part of it, I think, because of some of the relief that the government is providing. That’s an important element to our getting back to normal in the Indian environment that’s one of our largest historical customers there and getting them back into investing in the infrastructure is really key for growing our business and accelerating growth for the overall company next year. All right. Thanks very much.

Ladies and gentlemen, we have reached the end of the question-and-answer session, and I would like to turn the call back over to Bruce McClelland for closing remarks.

Yeah. Great. Well, thanks very much for everybody joining us today. We are really looking forward to the Ribbon Spotlight events coming up next month and really highlighting some of the differentiation in the portfolio and how Ribbon wins, so we are really excited about that. And as you have seen in our press release, we have a number of investor conferences over the next 45 days, so look forward to connecting with everyone. Thanks very much.

This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.