Hello, and welcome to the Ribbon Communications First Quarter 2024 Financial Results Conference Call. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Joni Roberts, Chief Marketing Officer. Please go ahead, Ms. Roberts.

Good morning, and welcome to Ribbon's First Quarter 2024 Financial Results Conference Call. I'm Joni Roberts, Chief Marketing Officer at Ribbon Communications. Also on the call today, 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, 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 second 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. I refer you to our safe harbor statement, included in the supplemental financial information posted on our website. In addition, we'll present non-GAAP financial information on this call. Reconciliations to the applicable GAAP measure are included in the earnings press release we issued earlier today, as well as the supplemental slides we prepared 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, Joni. Good morning, everyone, and thanks for joining us at this new time today to discuss our Q1 results and outlook for the year. I'd like to start with a few comments on the major announcement we just released with Verizon this morning. As I've mentioned on recent calls, there's a significant opportunity with telecom service providers and large enterprises, including the U.S. Federal Government to complete the replacement of legacy TDM voice switching platforms with modern cloud-based solutions. There's a strong ROI for our customers with multiple benefits, including improved overall quality and reliability of the service, significant cost savings from lower power consumption and cooling requirements, a reduction in facilities and floor space that can be repurposed to meet the exponential growth in data consumption for mobile and broadband services and lower engineering and operations effort needed to manage this complex network, all while significantly reducing the environmental footprint made from providing this critical communication service. We're very excited about this new multi-year program with Verizon. It's an extension of the ongoing work we've been doing together, but on a much larger scale. Ribbon will provide both product and professional services to rapidly decommission legacy central office equipment while fully maintaining current services and features. The initial deployment phase of the program will be over the next 3 years, leveraging our full portfolio of virtual and cloud-native call controllers and session border controllers, advanced analytics, line access, and universal media gateways. We expect the program to generate over $300 million in revenue for Ribbon over that period, with potential for follow-on programs to continue to support Verizon's efforts in building the most advanced networks. We've worked closely with the Verizon team to reduce the implementation cost by defining a focused large-scale project that has economy of scale benefits. This is a major endorsement of both Ribbon's portfolio and expertise in the migration of these complex communication networks. The measured approach Verizon is taking to migrate services and preserve significant revenue streams is applicable to practically all our other service provider customers, where we aim to develop similar programs and generate significant benefits from this cloud migration. Now on to our first quarter 2024 results. We had an excellent first quarter where our strategy to leverage our long-term relationships to diversify and grow our business continues to pay off. Profitability improved significantly year-over-year and exceeded the high end of our guidance range with adjusted EBITDA of $12 million. We benefited from a favorable mix of sales to customers in the quarter, particularly in the EMEA region where sales increased 24% as compared to the first quarter last year. The higher sales in EMEA resulted in strong gross margins exceeding 40% in the IP Optical segment as well as the seventh straight quarter of year-over-year sales growth. This includes customers across a number of markets including service providers, defense, and critical infrastructure. Gross margin in the Cloud & Edge business was also strong in the quarter, primarily due to continued growth in the enterprise market with product sales increasing 15% year over year. This includes a number of voice modernization projects with U.S. government Federal agencies. The strong gross margin and reduction in operating expenses of 5% year-over-year contributed to earnings exceeding the top end of our guidance for the quarter. Adjusted EBITDA over the trailing 12 months increased to $105 million for the company, a major improvement trend over the last several quarters. While lower spending from U.S. Tier 1 service providers continued to impact our Cloud & Edge results with sales declining 11% year-over-year this quarter, with our new Verizon program and the potential for similar engagements with other customers, we believe we've reached a low point and expect solid recovery in the business. We expect the new Verizon program alone to underpin this business for the next several years. This quarter, we also continued to increase the software content of our product sales, growing from 25% to 29% year-over-year increasing margins. The continued growth in the enterprise has been a key driver behind the higher software sales, improved margins, and solid earnings contribution. Overall, company sales in the quarter were at the lower end of our guidance with a few million dollars of equipment in transit at the end of the quarter and site readiness delays with a few smaller deployments for rural customers in the U.S. Now a little more detail on each of our operating segments. Building on the momentum from the second half of 2023, IP Optical Network sales increased 9% year-over-year in the first quarter, with the majority of the growth coming from the EMEA region. This resulted in stronger margins for the segment consistent with the previous quarter at 41% and a significant improvement of $17 million in adjusted EBITDA versus the first quarter last year. In EMEA, the critical infrastructure private networks market segment continues to be a great fit for our portfolio, where high performance and information security are major differentiators. We had a number of expansion projects in the defense sector with customers such as the Israeli Defense Force, the Swiss Army, and the Finnish Defense Forces. We also had several new projects with customers in segments such as energy distribution, railways, and education. This all complemented ongoing business with a number of service provider customers across the region. In the Asia Pac region, sales to key customers in India, including Bharti Airtel and Tata Teleservices, were down only slightly year-over-year and included the full portfolio of both optical transport and IP routing products. There are also very positive signs that Vodafone Idea will complete their long-awaited capital injection with the company's public offering successfully completing this week. They plan to invest aggressively in 5G upgrades, and we believe we are very well positioned to be a key supplier as they reinvest in their network, driving growth for the India region in the second half of this year. In the Americas region, IP Optical sales increased year-over-year in Canada and Latin America, while shipments into the U.S. were lower in the Rural Broadband segment this quarter due to customer timing and site readiness delaying revenue recognition into the second quarter. From a product line perspective, sales of our Apollo Optical Transport products were once again strong this quarter, increasing 9% year-over-year. This reflects the stronger mix of these products sold into the EMEA region and is a good start to the year. I expect this optical growth trend to continue as our new Apollo 9400 platform and shipments continue to grow, supporting the highest 1.2-terabit per second speeds available in the market today. We're effectively expanding our addressable market with this platform and are able to better address services such as data center interconnect, complementing the current 9600 platform that's favored by telecom operators. We shipped more than 50 9400 chassis so far and have a pipeline of more than 20 opportunities in process. Sales of our Neptune IP routers grew 2% year-over-year in the first quarter, reflecting lower rural sales this quarter. Also, the first quarter of 2023 marked the first volume shipments to Bharti for the 5G Cell Site Router last year, climbing their deployments and building some inventory. We expect this product line to continue to grow with a very good pipeline of new customer opportunities. Overall, IP Optical product and service bookings were 1.07x revenue in the quarter, building backlog for the second quarter. In our Cloud & Edge segment, as expected, lower spending from U.S. Tier 1 service providers continued to affect our year-over-year comparisons with the reduced spending starting midway through the second quarter last year. Excluding sales to our large U.S. Tier 1 customers, revenue in the first quarter from all other customers grew 1% year-over-year, despite lower overall industry investment. With the new Verizon program, we expect a significant improvement going forward. Enterprise Cloud & Edge product sales increased 15% year-over-year in the quarter with the continued expansion of a major voice modernization project with the U.S. Federal agency. We expect this trajectory to continue in the second quarter. The Cloud & Edge business continued to drive strong profitability due to higher software mix and product and service bookings were good in the quarter at 1.06x revenue. We expect a much stronger second half of the year in our Cloud & Edge business with the continued momentum in enterprise and a significant increase in sales to service providers. This includes the beginning of the new network modernization program with Verizon. We expect initial product shipments from that project to begin in the third quarter and deployment services to ramp as the program accelerates, exiting the year at a $100 million per year run rate, once again with this key customer, providing a strong foundation for growth in this segment. We continue to maintain a strong recurring maintenance business across our customer base and have approximately 80% of this year's maintenance revenue and backlog under contract for the Cloud & Edge business as well as for the IP Optical segment. With that, I'll turn it over to Mick to provide additional detail on our first quarter results and then come back on to discuss outlook for the second quarter. Mick?

Thank you, Bruce. Good morning, everyone. We were very pleased with our financial performance in the first quarter as we exceeded the high end of our guidance for gross margins and adjusted EBITDA on strong performance by IP Optical Networks in particular. On a trailing 12-month basis, our adjusted EBITDA is $105 million, back to levels over $100 million prior to the 2022 supply chain disruption. As always, please refer to our Investor Relations page on the Ribbon website for supplemental financial information. You will also see that we have now included an Excel worksheet to facilitate your analysis. Let's begin with financial results at the consolidated corporate level. In the first quarter of 2024, Ribbon generated revenues of $180 million, which is a decrease of 3.5% from the prior year. Non-GAAP gross margin was 55.1%, which is 700 basis points higher than the prior year due to a positive product and regional mix. As you will hear, both business segments had significant improvements in gross margin percentages versus the prior year. Non-GAAP operating expenses were $91 million, an improvement of $5 million, or 5% year-over-year, driven by continued reductions in R&D and sales expenses from last year's restructuring efforts. Non-GAAP net loss was negative $1 million, which is a $2 million improvement from the previous year. This generated non-GAAP diluted loss per share of negative $0.01, which is an increase of $0.01 versus the prior year. Our non-GAAP tax rate year-to-date was 35%. Our interest expense for the quarter was $6 million, consistent with the previous year. Adjusted EBITDA was $12 million in the quarter, which is a great $14 million improvement from last year's EBITDA loss of negative $2 million. This is the best first quarter profit performance in the last three years. Our basic share count was 172 million shares, and our fully diluted share count was 175 million shares for the quarter. Now, let's look at the results of our two business segments. In our Cloud & Edge business, first quarter revenue was $102 million, a decrease of 11% year-over-year, driven by lower product sales at U.S. Tier 1 service providers. We are increasingly confident that we can grow our revenues for this business segment with the incremental business from Verizon's network modernization program. The Cloud & Edge business had a strong first quarter non-GAAP gross margin of 66%, up about 500 basis points from the prior year. This improvement was driven by an increasing mix of software product sales, which were 68% of total product revenues. The Cloud & Edge business segment continues its steady cash and profit contribution with an adjusted EBITDA of $17 million, or 17% of revenues. Let's turn to our IP Optical Networks business results. We recorded first quarter revenue of $78 million, which was an improvement of $6 million, or a 9% increase versus the prior year. Non-GAAP gross margin for IP Optical Networks was 41%, up about 1,400 basis points from the prior year from 27% in the first quarter of 2023. This resulted in gross profit of $32 million, which is a $12 million or 64% improvement from the previous year, mostly driven by lower product costs and better regional mix from EMEA sales. If you recall, one year ago, we made sales of our initial long haul optical transport infrastructure equipment to India at lower margins. Adjusted EBITDA for the quarter was a loss of $6 million, which is an improvement of $17 million year-over-year. This is the seventh straight quarter of year-over-year improvement in IPON profitability. We continue to strive for positive adjusted EBITDA for this business segment in 2024 as it continues to grow. Let's now discuss total company cash flows and capital structure. Cash from operations was excellent with a positive $13 million in the quarter. That's now two positive cash flow quarters. 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 $31 million of cash and cash equivalents and increased $4 million from the end of 2023. Our senior term loan balance was at $230 million and the $75 million revolver loan had zero balance outstanding. 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 term loan covenant metrics in the first quarter. Our bank leverage ratio was at 2.71x, which is within our target range of 2x to 3x. The fixed charge coverage ratio was 1.77x. Speaking of debt, we have started the process of refinancing our capital structure, both the term loan and preferred shares. As part of this process, we have already received a B2 rating from Moody's and a B- from Standard and Poor's, both with a stable outlook. You may have noticed that we rescheduled this earnings call from the afternoon to the morning to accommodate the lenders' kickoff meeting this very afternoon. Assuming stable market conditions, we expect to have our refinancing done in several weeks. We remain confident in the continued support of our financial partners to obtain a flexible and long-term capital structure to sustain profitable growth. Now, I'll turn the call back to Bruce to provide more comments on our outlook for the second quarter.

Great. Thanks, Mick. As I said last quarter, I'm very confident in our ability to continue to grow revenue and improve profitability this year. The new Verizon program will provide a strong foundation for the company with opportunity for similar programs with other telecom operators. We expect revenue from the Verizon program to begin in the third quarter with deployment ramping over time. The improved margin trend over the last few quarters and the strong profitability in Q1 further increase our confidence of achieving our full-year guidance. In addition to the recovery in the Cloud & Edge telco business, we continue to add significant new wins with U.S. Federal agencies that are initiating their own voice modernization programs. In fact, we have a very strong and growing global government and defense business that leverages our entire portfolio of voice and data products and a strong professional services practice tailored for this market vertical. The scalability, reliability, and information security aspects of our products are significant differentiators and there's a larger market that we are not yet fully addressing. We have made this a strategic area of investment given the large opportunity, particularly in North America and Europe. Globally, the government and Federal market segment accounted for almost 10% of overall sales for Ribbon in 2023. From a portfolio perspective, I'm excited about our innovation pipeline. As I mentioned earlier, our new Apollo 9400 Compact Modular Optical Transport platform is gaining momentum and significantly expands the portion of the market that we can address, including long-haul transport, subsea networking, and data center interconnect. While we've already been successful penetrating these markets and have multiple deployments with customers such as Bharti, IPS, Ciena, and Telehouse. The 9400 platform has been purposely designed for the unique environmental requirements of these market segments. We conservatively estimate a $1 billion increase to our addressable market and are excited about the momentum behind this new product with the industry-leading 1.2 terabit per second coherent optics. At the recent Optical Fiber Communication Conference at San Diego, we made a joint announcement with Cisco, highlighting the interoperability between our 9400 platform and the Cisco NCS 1014 platform. Interoperability in optical networking is very rare and is a great endorsement of our open networking strategy. This will enable our customers to stay on the cutting edge of technology without being locked into proprietary solutions. In our IP Routing portfolio, we continue to expand our product line and just completed the introduction of the Neptune 2400 high-performance aggregation router. Leveraging a common network operating system, the 2400 is a great fit for middle mile and edge aggregation applications and supports a rich set of IP routing features and capabilities. This allows us to address a growing number of IP services. This 4.8 terabit non-blocking router supports a significant number of 100 gig and 400 gig client-side interfaces, making it an ideal platform for a number of high-capacity applications with coherent ZR+ optical uplinks. The lens by which our customers manage our portfolio of data networking products is our cloud-native Muse platform. With our customers, we've identified a number of practical applications that can benefit from the power of generative AI. Complex network planning, rapid false isolation and root cause analysis, and intelligent network optimization are great examples of the way we are leveraging generative AI to improve our products and differentiate our solutions. So we're off to a solid start in the first quarter and are making very good progress on our key strategic goals, including achieving sustainable profitability in our IP Optical business, returning to growth in our telco voice infrastructure business, diversifying and expanding sales in enterprise market verticals including financial, healthcare, and government information security, and accelerating innovation and capturing cost efficiencies with full integration of our product teams. For the second quarter, we expect sequential growth in both of our businesses. In IP Optical, we expect continued momentum in the EMEA region as well as growth in North America and Asia Pacific. We expect gross margins to continue to be in the high 30s or better. In Cloud & Edge, we expect improvement in the U.S. Tier 1 environment coupled with growth in enterprise as well as the additional U.S. Federal projects. Based on this, for the second quarter, we're projecting revenue in a range of $200 million to $210 million, non-GAAP gross margins of 53.5% to 54.5%, and non-GAAP adjusted EBITDA in a range of $20 million to $25 million. Our guidance for the full year remains unchanged, although as I mentioned earlier, we're definitely off to a good start to meet these financial objectives, along with a strong second half. Operator, that concludes our prepared remarks, and now we can take a few questions.

Our first question is from Christian Schwab with Craig-Hallum.

Congratulations on securing the significant Verizon order. I have a couple of questions regarding that. Firstly, what gross margin should we expect over time from this deal? Also, concerning the $300 million over a three-year period, will that be more heavily weighted towards the backend, or is it expected to ramp up significantly in 2025? Any insights on this would be appreciated.

Regarding the gross margin, we have a mix of products and services for the program, so it may vary a bit based on the activities of a specific quarter. Overall, it's likely a little below the current gross margin level for Cloud & Edge, which is in the high 60s range. This is mainly due to the increased hardware and services content, but it remains solid. Concerning the speed of the ramp, we will definitely start in earnest in the second half of this year, reaching full velocity as we move into 2025 and maintaining that pace for a couple of years. This is a significant program, and you can imagine the effort needed to seamlessly replace equipment at the switching centers. It’s quite a lengthy process, but it's going to be a great program.

Great. And then I just have one quick follow-up. Just on the real broadband stuff, you know, other people inside the space are kind of suggesting that, that really doesn't kick off till Q1 of '25. But it sounds like maybe some of the things that you're working on may start a little bit sooner than that. Did I hear that incorrectly? Or how should we be thinking about that?

Yes. So the BEAD program, the $42 billion BEAD program doesn't really start until next year timeframe. In fact, I think for us, it's kind of second half of next year. About half of the world broadband programs we have in process today are assisted in one form or fashion from other federal funding programs like RDOF and those sorts of programs. So we've got a nice base, a nice funnel of activity there, even prior to the larger funding program coming in.

Next question today is coming from Dave Kang from B. Riley Securities.

My first question is the follow-on on that Verizon win. So Verizon was a major customer. So just wondering, what's the delta between the old program versus the new one?

Dave, so this is obviously a major step up from the current run rate we're at today. I think I mentioned in the remarks that we'd exit the year at greater than $100 million per annum run rate with them, which is maybe where we were a few years ago, you know back when other programs were very active. So we get back to that level or better in the next few years here as this program really starts to gain energy.

So like, you know, back to where Verizon was several years ago, but what was the run rate in recent years, like, in the last year or two? Were they like $50 million going to $100 million or any color there?

Dave, yes, given they're a 10% plus customer, we actually break them out in our quarterly numbers. I can't remember the exact number for '23, but I think it was in the range of $75 million to $80 million.

Okay. All right. And then just a question on India, if you can talk about, you know, what's going on there. And also you mentioned the Vodafone Idea. What kind of opportunities do you see? Which products? Any color there would be great.

Yes, absolutely. So in the first quarter, sales in India were essentially flat to what we did a year ago. And if you recall a year ago, we had a really good quarter. We started to step up the deployments in India. I think we grew 30% total last year. So it's good to see that business continue to be solid. The key customers there today are names like Bharti and Tata and a little bit with Reliance and a few others. Vodafone, as you recall, is the third largest mobile operator in the region and needed to refinance their balance sheet, which has been a discussion now for probably a year. It was great to see, actually on Monday this week, they closed the equity raise process that they were doing, the secondary offer. I think it was well oversubscribed according to the articles I read. I think there's a debt funding that follows that. And then their strategy is to obviously work on catching up in the market, investing pretty heavily, both in 4G capacity as well as a 5G build out. And what we provide is some of the optical and IP infrastructure as well as we're a provider on the voice side, on the Cloud & Edge business as well. So we're glad to see that really start to move in the right direction and hope that business grows pretty substantially in the second half of the year.

And my last question is the Ciena sounded very cautious about the optical demand, optical market right now, even European market, but I didn't really get that from you guys. Is there like a market share shift going on? Why are you a little bit more optimistic than Ciena?

Yes, I think it depends on the segments, the part of the market where we're focused. Clearly, Ciena has a large business with the large carriers and a strong business with the ICPs, where we're doing well is critical infrastructure, defense segments and some of the carriers. So the diversification that we've got has helped us here. Having both an optical portfolio and an IP routing portfolio really helps us. And so the result was, yet again, another quarter of growth, seven quarters in a row now, where we've had year-over-year growth in that segment. I think it was 9% in the first quarter.

Next question is coming from Trevor Walsh from JMP Securities.

Bruce, you mentioned last quarter about the larger Federal deal that had slipped into Q1. Just more for confirmation on that, did the bulk of the revenue expected from that deal then kind of fall in the quarter, or might there be more kind of that further ramps up, kind of, next quarter throughout the year? And then I've got a follow-up, just kind of a broader kind of Federal spending atmosphere.

Trevor, good question. So as it turned out, that deal that has been awarded the revenue is actually still coming. So we expect actually more of it here this quarter and throughout the year. In the first quarter, we actually closed another deal, another extension deal with another agency. So you can get the idea, there's a lot of these kinds going in parallel. And as I've mentioned a few times, trying to predict the timing on them tends to be a little bit of a challenge. But it's great to see that we've got, I'll say, multiple irons in the fire, right? All these agencies need to do a modernization program not unlike the program we talked about with Verizon, where we're replacing legacy TDM infrastructure with modern cloud-based technology. And so in the first quarter, we had another couple of really substantial deals close and go to revenue. And the one I talked about last quarter is still coming forward, which is great.

Great. That's super helpful and actually good segue to where I was going to kind of follow-up. Just we hear kind of different takes from companies that we cover that are doing business within the Federal kind of sphere around just the government funding via continuing resolution, et cetera, and some of the challenges there with the current Congress. Just curious to see what your take is and whether or not that is or isn't kind of affecting some of the timing on some of these things, and how you maybe see that progressing through the year? Obviously, not going to have you pontificate necessary along the election outcome, but just how you see that overall Federal business kind of flowing and kind of maybe some of the trends that you're seeing specific to Ribbon?

Yes, we definitely view it as a distraction. Even when funding is allocated and available for a specific program we are working on, which is usually the case, the continuing resolution process or the distractions surrounding shutdown threats from a few quarters ago tend to divert attention. It’s hard for the team not to be affected by it, especially with a potential shutdown looming, as they have to plan around it. Fortunately, we haven't encountered any programs that have been unfunded, canceled, or delayed; it usually comes down to whether a project completes in one quarter or the next. So far, it seems manageable. I want to highlight how significant the federal sector has become for our company. In addition to our work on voice modernization in the U.S., we have a substantial international business with various government agencies, both military and civilian. We're developing very secure information service networks, which is crucial, and we believe we are distinct in this area. The way we encrypt data and protect message flows is quite unique. This entire segment is growing for us and accounted for almost 10% of our sales last year, making it an essential part of diversifying the company.

Great. Maybe I have one last question before I get back in the queue. You mentioned some of the differentiators regarding the security and cyber aspects of your products. I'm curious if this is due to competitive products lacking support for customers in this area, or if they simply do not match what you are currently offering. Could you elaborate on how you see that differentiation manifesting in terms of security?

Yes. So I think it comes from kind of the close engagement with a number of these agencies where we're dialoguing with them on what are their requirements, what are their future needs, and then building some of that into the product. So it starts out with somewhat of a custom capability, and then we make it more general that we can bring it to market to other similar agencies. And it actually helps out the rest of our critical infrastructure business if we're selling to an energy company or an energy distribution company, like American Electric Power, AEP, we talked about last quarter, the capabilities that we've built in for a defense application end up differentiating us in that space as well. So it's a bit of a long sales cycle, but once you're in dialoguing, understanding the future requirements, it really makes the whole portfolio better.

Thank you. We reached the end of our question-and-answer session. I'd like to turn the floor back over to Bruce for any further or closing comments.

Okay. Great. Well, yes, thanks for that and thanks again for everyone being on the call here early this morning and for the interest in Ribbon Communications. We really look forward to speaking with many of you in the upcoming investor conferences. We have quite a slate coming up here in the second quarter and keeping you updated on our progress. So thanks very much and have a good week.

Thank you. That does conclude today's teleconference. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.