Release Date: July 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Ribbon Communications Inc (RBBN, Financial) has successfully integrated the ECR acquisition, capturing significant savings and improving operational efficiency.
- The company has seen an increase in revenue in India by 30% last year due to investments in new products.
- Ribbon Communications Inc (RBBN) has secured significant multiyear voice modernization projects with US federal defense agencies.
- The IP Optical business has shown eight straight quarters of year-over-year higher earnings, contributing to a trailing 12-month adjusted EBITDA above $100 million.
- The company has a strong financial foundation after refinancing its credit facility, providing the flexibility to support growth initiatives.
Negative Points
- Revenue for Q2 came in below guidance at $193 million, primarily due to lower shipments to Eastern Europe and a delayed US federal deal.
- The ongoing war in Ukraine has created challenges in operating in Russia, leading to the suspension of new shipments and a more conservative outlook for the region.
- IP Optical revenue in Q2 was down $3 million year-over-year, marking the first year-over-year decline in eight quarters.
- Sales to India in the first half of 2024 were down approximately 20% year-over-year.
- The company has revised its full-year guidance towards the bottom of the range due to reduced sales to Eastern Europe.
Q & A Highlights
Q: Can you quantify the shortfalls in optical in 2Q, particularly regarding Eastern Europe and US revenue?
A: The largest shortfall was a significant federal deal that slipped out of Q2, which would have put us in the revenue guidance range. The year-over-year change in Eastern Europe was about negative $6 million. The US revenue was also soft but is expected to be stronger in the second half.
Q: Is the primary reason for the guidance change for the whole year due to Eastern Europe?
A: Yes, the primary negative factor is Eastern Europe, impacting revenue by approximately $20 million to $25 million in the second half. However, this is offset by other tailwinds such as the Verizon project and US rural broadband expansions.
Q: Are there more opportunities for similar deals like Verizon and Brightspeed in the industry?
A: Yes, there is a trend of network modernization across the industry. We have seen similar projects with MTN Group in Africa and another US MSO. The recent Microsoft Metaswitch portfolio discontinuation also opens up significant opportunities.
Q: How are you managing R&D requirements while restructuring aggressively?
A: We are focused on structural efficiencies, particularly in sustaining engineering. We've implemented technology to help customers upgrade their networks more efficiently, allowing us to support them better while maintaining a strong R&D engine.
Q: What is driving the strength in rural broadband, and is it related to the Bead program?
A: The Bead program is not contributing yet. About half of the current projects have some form of federal or state assistance, but not from the new Bead program. Our participation is more in the middle mile portion of the network, which tends to be staged later than initial investments.
Q: What products do you think have the opportunity to be disruptive in the marketplace due to recent M&A activities?
A: The Nokia-Infinera deal presents opportunities in the optical transport arena, particularly in Europe and Asia-Pac. The HP-Juniper deal opens opportunities in the metro middle mile and access aggregation layer, where we have designed products specifically for telecom networks.
Q: Can you provide any color on the multiyear opportunity with Brightspeed?
A: Brightspeed's footprint is smaller than larger Tier 1 providers, but there is substantial potential for modernizing their legacy TDM lines. The ROI for these projects is strong, and we expect to continue growing our footprint with them.
Q: What is required for the Eastern Europe business to return?
A: The business is impacted by increased restrictions on telecom equipment. We will monitor regulatory changes, but for now, we have removed it from our projections for the rest of the year.
Q: Is there anything that might trip up the continued drive towards profitability in IP Optical?
A: We are focused on customer satisfaction and selling at higher margins. Regional mix and optimizing R&D have also contributed positively. Continued growth is essential for sustained profitability.
Q: With the new capital structure, are there any new investment priorities?
A: We have a solid capital foundation and are focused on executing our existing plan. The new structure provides more flexibility for strategic discussions and potential future investments.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
