Release Date: October 23, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Ribbon Communications Inc (RBBN, Financial) reported a 3.5% year-over-year increase in overall sales for the third quarter, with a 9% increase quarter-over-quarter, driven by growth in the cloud and edge business.
- The company achieved a non-GAAP gross margin of 55%, exceeding expectations and reaching the high end of guidance.
- Sales in the federal and defense industry grew by 60% year-to-date compared to 2023, accounting for 13% of overall sales.
- The cloud and edge business saw a significant increase, with revenue up 11% year-over-year and 16% quarter-over-quarter, and a non-GAAP gross margin near an all-time high at 68%.
- Ribbon Communications Inc (RBBN) has a strong pipeline of opportunities, particularly in the US, with a book-to-bill ratio of over 1.4 times, indicating strong demand and future growth potential.
Negative Points
- IP optical network sales were lower year-over-year due to the suspension of product sales to Eastern Europe.
- Cash from operations was negative $15 million for the quarter, with cash and cash equivalents ending at $40 million, lower than anticipated.
- Non-GAAP adjusted EBITDA for the IP optical segment was negative $8 million, down $4 million from the prior year.
- Interest expense in the quarter was $10 million, reflecting the new credit facility, which impacts profitability.
- The company faced delays in accounts receivable collections, which were expected at the end of September but were delayed into October, affecting cash flow.
Q & A Highlights
Q: Can you provide more details on the MetaSwitch opportunity and its potential impact?
A: Bruce McClelland, CEO, explained that the MetaSwitch opportunity is substantial, with a significant installed base. The ongoing maintenance revenue stream is around $75 million, indicating a large footprint. While some systems will continue as is, others will be upgraded or replaced, presenting a rare opportunity to capture market share.
Q: What are your expectations for the BEAD program's impact on revenue?
A: Bruce McClelland, CEO, noted that while the BEAD program is progressing, with nine states opening grant applications, the impact will be gradual. The first half of 2025 will see modest activity, with acceleration expected in the second half as construction begins, particularly in the middle mile portion of networks.
Q: Were there any areas in the quarter that did not meet expectations?
A: Bruce McClelland, CEO, mentioned that while profitability and margins were strong, revenue was slightly below guidance by $1.5 to $2 million. This shortfall was attributed to a few deals in Europe that did not close as expected, but the pipeline for Q4 remains strong.
Q: How should we view the growth prospects for the Cloud and Edge business?
A: Bruce McClelland, CEO, highlighted that this is the best period for the Cloud and Edge business, driven by network modernization and unified communications. The focus on cost reduction and the aging workforce in network operations are key motivators for upgrades, alongside strong demand for session border controllers and policy management solutions.
Q: Can you elaborate on the mid-single-digit growth guidance for 2025?
A: Bruce McClelland, CEO, explained that the growth guidance accounts for the need to offset the suspension of Eastern European business. The Cloud and Edge business will need to grow faster than the mid-single-digit rate on the product side to achieve overall corporate growth, with IP Optical expected to recover and contribute positively.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
