Greetings and welcome to the Ribbon Communications Fourth Quarter and Full Year 2023 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. 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.

Good afternoon and welcome to Ribbon’s fourth quarter 2023 financial results conference call. I am Joni Roberts, Chief Marketing Officer at Ribbon Communications. Also on the call today are 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 rbbn.com, where both our press release and supplemental slides are currently available. Certain matters we’ll be discussing today, including the business outlook and financial projections for the first quarter of 2024 and beyond, are forward-looking statements. 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. 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’ll present non-GAAP financial information on this call. Reconciliations to the applicable GAAP measure are included in the earnings press release we issued earlier today, as well as in the supplemental slides we prepared for this conference call, which again are both available on our Investor Relations section of our website. And now, I’d like to turn the call over to Bruce.

Great. Thanks, Joni, and thanks to everyone for joining us today. I'm very pleased to report solid financial results for the fourth quarter, our strongest quarter of the year and our most profitable quarter in almost three years. Despite a challenging macro environment for telecom suppliers, we're really starting to see the results of our strategy and the investment we have made over the last several years. For the first time, our IP Optical business generated a profit on an adjusted EBITDA basis and was profitable for the entire second half of the year. Our strategy to cross-sell our portfolio to existing customers is working in all regions: U.S. rural, Tier 1 carriers, Japan, India, Europe, and the Middle East. And the focus that we have on the enterprise market vertical continues to offset this period of lower spending by U.S. Tier 1 Service Providers. I think we're really standing out and executing well. Earnings for the quarter were $43 million on an adjusted EBITDA basis, an increase of 48% year-over-year, and $91 million for the full year, or 11% of sales, a 41% increase versus 2022. Cash from operations were $20 million in the quarter. This is just a great accomplishment given the macro environment. Revenue in the quarter was up 11% sequentially with growth from both segments and up 1% for the full year. This was below our original expectations, but a very solid result given the lower spending from U.S. Tier 1 Service Providers across the entire industry. Excluding sales to our large U.S. Tier 1 customers, revenue from all other customers in 2023 grew 8% year-over-year. The shortfall in revenue this quarter relative to our guidance was due to the timing of a large U.S. Federal project that has now been awarded, and we expect to recognize revenue this quarter. The real highlight in the quarter was the strong performance in our IP Optical Network segment, the sixth straight quarter of year-over-year growth. Sales grew 7% year-over-year, exceeding $100 million for the first time since we acquired ECI. Gross margins were very strong at 44%, reflecting the improvement in product costs, favorable regional mix from North America and EMEA, and higher volumes. The result was a strong positive earnings contribution for the quarter and for the entire second half of 2023. The strategy is really working. The Cloud & Edge business continued to drive strong profitability due to higher software mix with gross margin up 400 basis points year-over-year, and with $34 million of EBITDA or 28% of revenue. In November, we held our annual Ribbon Tech Forum in Plano, Texas, with a significant number of customers in attendance. This was a great opportunity to showcase our latest new products and hear directly from our customers about their priorities and challenges. It was great to see many new names that have become customers over the last year and the solid foundation we've built going into 2024. Now a little more detail on each of our operating segments before I turn it over to Mick for more detail on our results. Sales of our Apollo optical transport products were very strong in the fourth quarter, increasing 47% quarter-over-quarter and 22% year-over-year. For the full year, optical sales increased 13%. We're continuing to innovate with the introduction of the new 1.2 terabit Apollo 9400 solution, which is definitely opening new opportunities and expanding the type of use cases we can address to include high metro and long-haul transport, as well as data center interconnect and subsea applications. We've reached general availability on the first version of the 9400, which is focused on high-performance applications that maximize capacity over long distances and have made initial customer shipments. Availability is somewhat limited as we ramp production, but we have a good pipeline of customer trials over the next few months. Sales of our Neptune IP routers grew 16% in 2023, as we've made good progress on our strategy to grow in this product segment. We're focused on several key areas of differentiation that are securing new wins, including TDM circuit emulation, 5G cell site routing, secure network services, and IP/MPLS broadband access aggregation. As previously discussed, the Neptune router is now also a key component of our carrier voice core solution, which is a very strategic entry point to carriers such as AT&T. As expected, EMEA was by far the strongest region in the fourth quarter, with IP Optical sales increasing 50% versus the third quarter. This included a very strong quarter with the IDF in Israel and with MTN GlobalConnect in Africa, the seventh largest mobile operator in the world, providing telecom and data services throughout Africa. In North America, we continued our momentum with sales increasing 34% year-over-year, with a combination of both IP routing and optical transport product lines. Growth in this region has been a key part of our strategy, and so it's very satisfying to see the results. Sales to rural broadband providers grew 26% year-over-year in the quarter. Last week, we announced a strategic win in the U.S. with American Electric Power. AEP is one of the largest energy distributors in the U.S. and manages an extensive, highly secure, reliable network. That's a key part of our national infrastructure. After an extensive technical and commercial assessment, AEP has added the Ribbon networking portfolio to support their critical communication needs, which includes the Neptune, Apollo, and Muse products. We already have a strong presence in the critical infrastructure market segment in Europe and look to further expand in the U.S. with major providers such as AEP. In Asia-Pacific, sales to India in the quarter increased 34% year-over-year and for the full year. And in Japan, we've been successful winning several new accounts, resulting in revenue growth of over 300% in 2023. From a bookings perspective, we had a solid quarter in IP Optical with product and service bookings of 1.0 times revenue. Given the significantly higher revenue level, this was a pretty strong result. In our Cloud & Edge segment, the lower spending from U.S. Tier 1 Service Providers continued to affect our year-over-year comparisons. But excluding U.S. Tier 1s, sales to all other customers were up 4% for the full year. Even with the lower sales, contribution earnings were strong with full-year adjusted EBITDA of $121 million. Product and service bookings were good in the quarter and were 1.07 times revenue and 1.03 times for the full year. Sales to enterprise customers in 2023 grew 26% year-over-year, with the strongest growth related to voice modernization projects with the U.S. Federal agencies. We collaborate closely with several of our service provider customers, as well as a number of specialized secure Federal integration partners to address this market. In particular, we're working closely with Dell to provide a comprehensive solution, as we highlighted in a press release earlier this week. In the fourth quarter, we expected to win and generate revenue from the first phase of a large Federal project, but our integration partner was finally just awarded the project a few weeks ago. We now expect to recognize initial revenue on the project this quarter, as well as across the year. We have a number of additional opportunities that are in late stages that we anticipate being awarded over the next six months. In the financial market vertical, we had a significant project in the fourth quarter with one of the largest global banks that included deployment of Ribbon's on-prem SPCs and centralized policy routing for their data center network upgrades. And the EMEA region was strong in the fourth quarter for Cloud & Edge, with a significant win punctuated by an award we'd received from MTN Group called the Rise and Shine Award. The project includes a new cloud-centric voice core supporting interconnect traffic for MTN's wholesale group called Bayobab, and underpins the group's expansive telecommunications service across Africa. We continue to increase our focus on this region, as Africa is expected to be one of the fastest growing regions in the world in 2024. Finally, the fourth quarter is our strongest period for renewing maintenance and support contracts. Our renewal rates remain very high, and bookings were strong in the quarter. At this point, we have almost 70% of the year's maintenance revenue and backlog for Cloud & Edge. With that, I'll turn it over to Mick to provide additional detail on our fourth quarter and full year results, and then come back on to discuss the outlook for 2024 in the first quarter.

Thank you, Bruce. Good afternoon, everyone. We were very pleased with our financial performance in the fourth quarter and full year of 2023, as we met the midpoint of our adjusted EBITDA profitability guidance, due to very strong product gross margins and continued expense management. As always, please refer to our Investor Relations page on the Ribbon website for supplemental financial performance slides. Let's begin with financial results at the consolidated corporate level. In the fourth quarter of 2023, Ribbon generated revenues of $226 million, which is a decrease of 3% from the prior year. For the full year of 2023, revenues were $826 million, an increase of 1% versus the prior year. Fourth quarter non-GAAP gross margin was 56.8%, which is 440 basis points higher than the prior year, due to a very positive product mix, mostly in the IP Optical Networks business unit. For the full year, both business units increased gross margins, but as a result of a higher mix of IP Optical products, the gross margin remained at 53.1%, which is the same as the previous year. For the fourth quarter, non-GAAP operating expenses were $90 million, an improvement of $7 million, or 8% year-over-year, driven by reductions in R&D and sales expenses. For the year, operating expenses were $363 million, a net reduction of $24 million, driven by our restructuring programs. Quarterly, non-GAAP net income was $22 million, which is a $6 million increase from the previous year. This generated non-GAAP diluted earnings per share of $0.12, which is an increase of $0.03, or 39% versus the prior year. Full year 2023 net income was $36 million, which was more than double the prior year result. Diluted earnings per share was $0.21, up $0.10, or 93% higher than 2022. Our non-GAAP tax rate year-to-date was 34%. Our interest expense for the quarter was $7 million, which is a $1 million increase from the previous year, driven entirely by the interest rate increases. For the year, interest expense totaled $27 million, which is $8 million higher than the previous year. Adjusted EBITDA was $43 million in the quarter, which is a $14 million improvement year-over-year. For the full year 2023, adjusted EBITDA was $91 million, which is a $27 million increase from the previous year, mostly driven by the enhanced profitability for IP Optical Networks. Our basic share count was 172 million shares, and our fully diluted share count was 173 million shares for the quarter. Now, let's look at the results of our two business segments. In our Cloud & Edge business, fourth quarter revenue was $122 million, a decrease of 11% year-over-year, driven by capital expenditure cutbacks from our U.S. Tier 1 Service Providers. For the full year, revenue was $478 million, which reflects a $30 million, or 6% decrease from 2023. Our services business remained consistent at $293 million, or 61% of revenues, delivering value to our customers with strong profit generation. The Cloud & Edge business had a strong fourth quarter non-GAAP gross margin of 67.8%, up 400 basis points from the prior year, driven by a large number of software sales, which were 69% of total product sales. For the full year of 2023, gross margin was 65.9%, up 80 basis points from the prior year as we experienced lower cost of goods sold. For 2024, we would expect continued margins in the mid to high 60% range. We continued to drive consistent profit contributions from the Cloud & Edge business segment. For the fourth quarter, adjusted EBITDA percentage was 28%, or $34 million. This is a decrease of $2 million, or only 5% from the previous year, although revenue decreased 11%. For the full year 2023, adjusted EBITDA remained at 25%, or $121 million. Let's turn to our IP Optical Networks business results. We recorded fourth quarter revenue of $104 million, which was an increase of $7 million, led by continued growth in EMEA, India, North America, and Japan. For the year, revenues were $349 million for a strong 12% double-digit growth, driven by the same strategic geographies and new product introductions. Non-GAAP gross margin for IP Optical was 44%, up 770 basis points from the prior year. This was mostly caused by a better regional mix from EMEA sales, lower product costs, and increased fixed cost absorption from higher volumes. As we said in the last quarter, with higher revenues, and especially with a greater percentage of sales in EMEA than America, we would improve gross margins beyond our targeted mid to upper 30% range for IP Optical Networks. For the full year of 2023, gross margin was 35.7%, up 210 basis points. For 2024, we believe that we can achieve our targeted gross margin range of mid to upper 30%. Adjusted EBITDA for the quarter was a positive $8 million. This is an improvement of $16 million year-on-year. This stellar performance validates that the IP Optical Networks business can achieve positive adjusted EBITDA with quarterly revenues over $100 million and better regional sales mix. For full year 2023, we improved IP Optical Networks adjusted EBITDA loss from negative $64 million to negative $31 million. Please note that we improved adjusted EBITDA by $39 million from the first half to the second half of the 2023 year in this business segment. We continue to be focused on achieving profitability for IP Optical Networks. Let's now discuss total company cash flows and capital structure. Cash from operations was excellent, with a positive $20 million in the quarter and $17 million for the full year 2023. We used cash in the quarter of $3 million for capital expenditures and our quarterly $5 million term loan repayment. We ended the quarter with $27 million of cash equivalents and the $75 million revolver loan at zero balance outstanding. Our senior term loan balance was at $235 million, a decrease of $95 million from year-end 2022. Per the bank covenant calculations, which include $55 million of our preferred equity and total debt, among other adjustments, we comfortably met both of the amended term loan covenant metrics in the fourth quarter. The bank leverage ratio was 3.06 times and the fixed charge coverage ratio was 1.55 times. These covenant metrics are great improvements from December of 2022. The term loan A matures over one year from now, on March 3, 2025, and the preferred shares mature even later, on September 30, 2025. Given our 2023 financial performance and improved financial market conditions, our objective is to commence refinancing of our capital structure in the very near term. We are confident in the continued support of our financial partners to obtain a flexible and long-term capital structure to sustain profitable growth.

Great. Thanks, Mick. Entering the year, I'm very confident in our ability to continue to grow revenue and improve profitability. The investments that we've made in the IP Optical business have transformed Ribbon into a data networking company, complemented by a unique voice communications practice with significant differentiation and a high barrier to entry. The combination is very powerful with a large addressable market that is constantly undergoing change and disruption, providing an excellent opportunity to expand our share in both the telecom carrier and enterprise markets. We accomplished a number of strategic goals in 2023. First and foremost, we improved the financial performance of the IP Optical Networks business every quarter last year, culminating in a profitable second half of the year. This is a dramatic improvement over the previous three years. We grew sales of both our optical and IP routing product lines and had strategic wins in all regions. There are three key factors behind this success. First, the deep relationships Ribbon has with service providers, particularly in North America and markets like Japan and Australia, that we've leveraged to win and grow our IP Optical business. Second, the significant investment we've made to expand our portfolio with unique competitive advantages that have expanded our addressable market. And third, the focused strategy we have on the middle-mile segment of the market, where our combined IP and optical portfolio is a perfect fit as networks blur the lines between optical transport and IP routing. In the Cloud & Edge business, we made good progress on our goal to expand sales in the enterprise market vertical. In particular, we have a strong position with large financial and healthcare providers, and we had a number of very strategic wins with U.S. Federal agencies. And while our voice network transformation business was impacted by the lower spending by U.S. Tier 1 Service Providers, we had a very strong year internationally. Finally, we implemented a restructuring of the company early in the year, really the final phase of integration of Ribbon and ECI. This resulted in significant cost efficiencies, but more importantly, has improved execution and is helping unlock new innovation and product opportunities. Looking forward, we look to build on these accomplishments. The diversification in our business has been a key reason we're standing out from others in the industry. There are several key macro demand drivers driving investment and different ones that provide a clear roadmap for us. First, the investment being made to expand fiber reach is unprecedented and bolstered by governmental funding programs, particularly in the U.S. This was a major opportunity for us in 2023, and we expect continued growth this year. The middle-mile portion of the network is a perfect fit for our portfolio, and we have a great pipeline of opportunities that includes a wide variety of critical infrastructure customers. Second, the global investment in deploying 5G has dramatically increased the capacity of the mobile RAN network, and a similar investment is needed in the optical and IP access and aggregation networks. New generative AI applications are still in their infancy, but are expected to create dramatically more traffic on the network in coming years. The access and middle-mile parts of the network will require substantial investment to keep pace. Third, interactive platforms such as Microsoft Teams and Zoom have become second nature for many of us, and adoption will continue to grow. This is a key catalyst behind the growth in our enterprise business. And finally, there's a relentless focus on lowering the cost to operate networks in order to fund investment in bandwidth and new services, and our solutions are a key enabler. While CapEx spending by U.S. Tier 1 Service Providers continues to be limited in the first half of the year, we expect this to begin to improve in the second half and be additive to the growth we have seen internationally. We're having detailed discussions with several of our largest customers regarding their plans over the next several years to address their remaining TDM and copper networks, and we expect a big push in this area. We also expect practically all U.S. Federal agencies to initiate voice modernization projects in 2024, and we expect to build on the success and win rate from 2023. From an investment perspective, we expect 2024 to be very similar to our approach in 2023, including additional efficiencies to offset normal inflationary effects. R&D investment is prioritized to capture new customers and deliver on roadmap commitments, strongly focused on the middle-mile opportunity and the migration to cloud-native architectures. We have new products across the portfolio that will continue to improve our competitive positioning and differentiation. Now on to guidance. We expect continued improvement in the financial performance of our IP Optical business with high single-digit growth in sales. Excluding maintenance, product and service revenues are expected to grow more than 10% year-over-year. With the higher sales and improved mix and lower product costs, we're targeting gross margins in the high 30s for the year and the potential to be accretive to company adjusted EBITDA. In Cloud & Edge, we're conservatively projecting revenue flat year-over-year with similar margins and EBITDA contributions. Visibility from U.S. service providers for the second half of the year spending is still developing, so there's certainly an opportunity to do better than this as the year progresses. Our business has an element of seasonality with the second half typically much stronger than the first half, as we've experienced in 2023. We anticipate a similar pattern in 2024 with the first quarter being the lowest point of the year. Overall, we're projecting 2024 revenue in a range of $840 million to $870 million. Excluding maintenance, this implies a product and service revenue growth rate of 6% for the company, which really stands out relative to an overall market that's growing in low single digits. And as we continue to gain share in 2024 due to the investments we've made to modernize our product offerings. Adjusted EBITDA for the year is projected in a range of $110 million to $120 million, which would be more than 25% higher than 2023 at the midpoint. For the first quarter of 2024, we expect the lower U.S. Tier 1 Service Provider spending to continue and are therefore projecting revenue similar to last year, but with significantly better margins and stronger bookings. Based on this, we're projecting revenue in a range of $180 million to $190 million, non-GAAP gross margins of 51% to 52%, and non-GAAP adjusted EBITDA in a range of $5 million to $10 million for the quarter. As I stated earlier, demand for bandwidth and the growth in fiber networks is growing exponentially, and AI applications will supercharge this further with more stringent service level requirements. We believe this will be a catalyst for continued growth for Ribbon. As we continue to significantly improve our overall profitability, this should translate into significant value creation for our investors and our employees. Operator, that concludes our prepared remarks, and we can now take a few questions.

Thank you. We will now be conducting a question-and-answer session. Our first question comes from the line of Eric Suppiger with JMP Securities. Please proceed with your question.

Thank you for taking the question, and congratulations on the strong performance in IP Optical. First, I wanted to ask if you had any customers accounting for 10% of sales in the fourth quarter and for the year, despite the weakness with your carriers.

Yeah. Hi, Eric. So in the fourth quarter, we didn't have a 10% customer. We did for the full year. Verizon was 10% for the full year.

Okay. And then on the carrier front, it sounds like you think North American carriers could pick up as we get into the second half. What makes you think that will happen in the second half, or what context do you have regarding the timing for improvements there?

Yeah. Thanks, Eric. Good question. What we primarily sell into the carriers today is our voice modernization products. And so what we've been working on is trying to lower the payback period, basically, for the deployment or the investment in those products. Today if you're modernizing a Class 4 or Class 5 switch, maybe the payback is seven or eight years. And a lot of it's related to the cost of real estate, power, and cooling, and those sorts of factors. Now, if we can get that cost down to three or four or five years, I think it helps really improve the business case. So that's one of the key things that we've been working on.

And will that be available as you get into the second half of the year?

Yes. I think with the right kind of level of volume, we're able to lower those costs and be in that range. And I mentioned the discussions we're having. I think there's definitely a path here where the spending that we're seeing today in the first half of the year, which is consistent with the second half of last year, starts to grow again in the second half of the year and get back to a little more historical levels.

Very good. Thank you.

Thanks, Eric.

Our next question comes from the line of Christian Schwab with Craig-Hallum. Please proceed with your question.

Thank you, everyone. My first question is a follow-up to the previous one. Regarding service provider revenue, with the second half showing improvement, could you provide insight into the expected distribution between the first half and the second half of the year?

Yeah, Mick, I don't know if you have that off the top of your head. It's probably, what, 40% to 45% in the first half and 50% to 55%.

Yeah. We've been averaging about 45% in the first half and 55% in the second half, and that follows the normal seasonal pattern of most telecom providers where they do their expenditures. They set their budgets in the first quarter and then do most of the expenditures in the third and fourth quarter.

Okay. So even though the first half is starting slow, the mix for the year looks to be relatively the same. Great. So, then we highlighted in the slides, the BEAD program and increased fiber investment could impact, as you talked about middle mile. Do you expect that to have a noticeable impact in the second half of '24, or is that more of a 2025 event?

Right. About half of the programs we're currently working on in the rural broadband area are utilizing some form of government-related funding program. It's not the case for all of them, but roughly half. Most of these funding programs are not related to BEAD; they include earlier programs like RDOF and ReConnect America. Therefore, BEAD would be an addition to the existing operating landscape. I don't anticipate that funding coming in 2024, and if it does, it will likely not pertain to our market segment, but rather to the access layer of the network. I believe it will be more relevant for us in 2025. The positive aspect is that we've seen significant growth in this business. Last year, we achieved about 88% year-over-year growth in the rural broadband segment without BEAD funding. So, we could expect to see further positive contributions from this.

Okay. Fantastic. No other questions. Thanks.

Thanks, Christian.

Our next question comes from the line of Dave Kang with B. Riley Securities. Please proceed with your question.

Thank you. Good afternoon. First question is on India and more specifically on Bharti. I believe you have three programs there. Just wondering if you can give us an update which program has started, which one is to follow. Any color on that?

Yeah. Hey, Dave. So the India business was, again, pretty strong in the fourth quarter. Very consistent with the third quarter for the year. I think in India we were up 34% for the full year and we were up 34% in Q4 relative to the prior year. So, a really solid year in India. Bharti being our largest customer there. As you mentioned, there's three kind of three areas of the business. One is around the optical transport, the second around cell site routers, and then the third around their IP networking, the IP/MPLS access layer, aggregation layer of the network. All of those are active today. The cell site router was the one that we were ramping throughout last year. Our production is in a good spot now. At this point, it's kind of balanced with the demand picture. And so I think it's kind of leveled out, if you will. It's not I don't expect it to grow at the same rate in 2024 as what we saw in 2023, but should still be a pretty solid business.

Some European vendors indicated that their third quarter was the peak, and they experienced a significant sequential decline in the fourth quarter. You are not observing that trend and still foresee some growth, although at a slower pace for 2024?

In the fourth quarter, we observed results that closely mirrored those of the third quarter. There is a seasonal pattern in that region, similar to others. Therefore, we anticipate a slower start to the year. The budget cycle in India concludes at the end of March, so we will gain a clearer understanding of the second half of the year after completing that process.

And was India 10% or greater than 10% for the quarter and for the year?

Mick can double check the numbers there. Certainly the growth, 30% plus growth year-over-year puts it right in that ballpark, Dave.

Yeah. Certainly for the company, it is above 10% and twice of that for the IP Optical business.

Got it. And just a quick update on Neptune and AT&T. I think you were pretty bullish about maybe an eight-figure opportunity. Can you give us an update on that? Maybe not this year, but can you reach that eight figures maybe by next year?

Yeah. So not a lot of new information to share. And I don't want to get ahead of our customer on their plans. Early deployments are continuing. It's not a fast process to do these migrations. So, it does take time to do the implementation. And I think we'll continue to grow the business there as the year progresses. And I still think the market opportunity is exactly as I described it on our last earnings call. And it will take a bit of time to get to those levels for sure, Dave. It's probably not a this year thing. But I think as we get into next year.

And my last question is regarding IP Optical on adjusted EBITDA for the first quarter. Is it going to be negative or positive?

Yeah. So we are expecting good margins in the first quarter, but at lower revenue levels than we had just in the fourth quarter, up considerably year-over-year, but not again, given the seasonality, it'll be lower than Q4. So, I think the adjusted EBITDA on the first quarter is likely negative. We'll see what the final mix looks like, but dramatically better than what it was a year ago.

Got it. Thank you.

Thanks, Dave.

Our next question comes from the line of Tim Savageaux with Northland Capital Markets. Please proceed with your question.

Hi, good afternoon. I'm trying to gather some numbers here, and there are quite a few. Regarding Cloud & Edge being up 4% excluding Tier 1s in '23, it seems to suggest that Tier 1s are down around 40%. Is that accurate? You've mentioned several anecdotal growth drivers that we aren't really seeing reflected in the guidance. However, if you can continue to grow Cloud & Edge outside of Tier 1s, particularly with the developments in federal and enterprise sectors, that appears promising. It seems you're anticipating another decline in Tier 1s based on this flat guidance. Am I misunderstanding anything? I will follow up.

Yes. On the first part of the question, Tim, the Tier 1s were down in the mid-20s. That sort of ballpark. So not at the 40% range, kind of mid-20s. And what was the second part of the question? I'm sorry, Tim.

Yeah. That was U.S. Tier 1s I was talking about, by the way.

Yes.

I mean, for you or 20 doing these compares.

Yeah, no. Let me just be clear. The U.S. Tier 1 decline, we can describe it in two ways relative to the full company revenue or relative to Cloud & Edge. In the Cloud & Edge, all other customers, excluding U.S. Tier 1, were up 4% year-over-year for the full year. At the corporate level, it was 8% given the increase in IP Optical, obviously.

All right. Well, if you have IP Optical business with U.S. Tier 1s, it'd be a good time to tell us about that right now.

Well, I mentioned one of the programs on the last earnings call and don't have a lot of updates this go around.

I mean, for you or 20 doing these compares.

Yeah, no. Let me just be clear. The U.S. Tier 1 decline, we can describe it in two ways relative to the full company revenue or relative to Cloud & Edge. In the Cloud & Edge, all other customers, excluding U.S. Tier 1, were up 4% year-over-year for the full year. At the corporate level, it was 8% given the increase in IP Optical, obviously.

Okay. The rest of the question was, if you're indicating flat guidance, it seems like you're anticipating further declines in U.S. Tier 1s. My observation is that this appears to align with the relatively positive outlook for the second half.

Yeah. We're being cautious still on what the outlook is and when the incremental spend starts to come back. We are growing clearly in enterprise. We're growing in Federal. We're being cautious about what the service provider market looks like. Obviously, we've seen growth internationally in that segment. So, we'll see what we look like over the next few months here and we get a better visibility into the second half of the year.

Okay. Just to beat this completely to death and I should have started right here. So, you expect you'll be north or south of that 4% growth rate ex-Tier 1s in Cloud & Edge in '24.

It's probably a similar number, I think, Tim. The momentum internationally, the programs. In fact, as we book some of these deals, the revenue gets recognized over a period of time. So, we've got a good start on that. And so I think enterprise, international, Federal, they all grow this year relative to 2023.

Okay. Great. Just one and a half more here.

Yeah.

You've noted that IP Optical growth is slowing down despite a few significant wins you recently announced. Can you share the expected contribution from these wins? It seems like India presents a challenging comparison, but not excessively so. What contribution have you included from the major utility and telco deals you've mentioned over the past couple of quarters for 2024?

They're not dramatic tens and tens of millions of contributions. Each one of these contributes probably single digit millions this year to the revenue line, Tim. And so we need to keep adding those types of customers that will help us continue to grow. As I mentioned, we think the product piece of IP Optical grows at 10% or more this year. There'll be a piece of that. Of course, there'll be some regions that don't grow. So you've got to make that up in other areas. So, that's our best view at this point.

Okay. So combined, it looks like there are a significant chunk more than a third of your growth. Plus, you expect India to grow. I'm just trying to get down to what you're telling us about the rest of the world here. Last question for me. If indeed IP Optical can breakeven, looks like you're actually forecasting a pretty significant or at least modest margin decline for Cloud & Edge in next year. It seemed like the anecdotal commentary there was flat. So, I just want to try and reconcile those two.

Our current assessment is that the gross margin percentage for Cloud & Edge remains fairly stable, with only slight fluctuations of around 100 basis points based on the volume of hardware shipped. The majority of our offerings are software and services, so we do not anticipate any major changes. If there are any, they are likely to be within the 100 basis point range, which I believe is not significantly more than that.

Got it. Thanks.

Thank you, Tim.

Thank you. There are no further questions at this time. I would like to turn the floor back over to Bruce McClelland for closing comments.

Yeah. Thank you. And thanks for everyone being on the call and your interest in Ribbon Communications. We look forward to speaking with many of you at our upcoming investor conferences. We've got the large Mobile World Congress coming up in Barcelona in a few weeks, and we'll see some of you there and the Optical OFC Conference in San Diego towards the end of March. So with that, thank you, operator. And that concludes our call.

Thank you. You may disconnect your lines at this time. Thank you for your participation.