Ribbon Communications Inc. Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Strong Financial Performance: Ribbon achieved the highest revenue and earnings in company history. Cloud & Edge portfolio sales drove growth, with US Tier 1 service provider Cloud & Edge sales doubling YOY and global enterprise sales (including US federal agencies) increasing over 60%.
• Segment Highlights: Cloud & Edge had strong Q4 revenues and adjusted EBITDA, driven by Verizon network transformation, defense, and enterprise customers. IP Optical Networks saw growth in regions like India, Asia Pacific, and US rural broadband, with Neptune IP routing platform sales growing 29% YOY.
• Strategic Initiatives: Focus on cross-selling to Tier 1 service providers, growing IP routing/optical transport in North America, capitalizing on fiber transport market growth, investing in enterprise/government, and leveraging cloud technologies for telecom networks.

Segment Performance

• Cloud & Edge Business: Q4 2024 revenues were $165 million, a 35% year-over-year increase. Full-year revenues were $505 million, a 6% increase from 2023. Fourth quarter non-GAAP gross margins were 67.6%, and full-year gross margin was 66.9% (up 100 basis points from prior year). Adjusted EBITDA in Q4 was $60 million (an all-time high), and full-year adjusted EBITDA was $141 million (up 16% from prior year).
• IP Optical Networks Business: Q4 2024 revenues were $87 million, a 17% year-over-year decrease. Full-year revenues were $329 million, a 6% decrease from 2023 due to suspension of shipments to Eastern Europe. Q4 non-GAAP gross margin was 40%, and full-year gross margin was 39% (up 300 basis points from prior year). Adjusted EBITDA in Q4 was a loss of $4 million, and full-year adjusted EBITDA was a loss of $22 million (improved by $9 million from prior year).

Guidance

• Full Year 2025: Projected revenue range $870M-$890M (+~5% midpoint, ex low growth maintenance). Cloud & Edge segment projected 10% growth in product and professional services (maintenance flat). IP Optical segment projected ~5% growth (excluding Eastern Europe >10% growth). Gross margin expected ~100 basis points lower than 2024 (due to professional services mix). OpEx flat. Adjusted EBITDA projected $130M-$140M (+~13% midpoint).
• Q1 2025: Projected revenue range $185M-$195M (+~5% midpoint, ex Eastern Europe >15% growth). EBITDA projected $12M-$18M (+~28% midpoint).

Risks

• Eastern Europe Shipment Uncertainty: Restrictions prevent shipping new hardware, but prepared to restart if allowed.
• General Uncertainties: Supply chain challenges, inflation, interest rate fluctuations, and global conflicts (e.g., Israel, Ukraine) affecting business operations.

Question and Answer

Q: Michael Genovese asks about Q1 guide seasonality and Eastern Europe impact.

A: Bruce McClelland says Q1 has tough compare due to Eastern Europe, but will improve as quarters go on.

Q: Tim Savageaux asks about Eastern Europe revenue potential.

A: Bruce McClelland says Eastern Europe was ~5% of sales, could be $10M-$15M per quarter if restored.

Q: Christian Schwab asks about Verizon revenue and Metaswitch opportunity.

A: Bruce McClelland says >$100M run rate with Verizon, Metaswitch opportunity ~$200M ballpark.

Q: Ryan Koontz asks about international Cloud & Edge and IP Optical growth.

A: Bruce McClelland says international traction with cloud-native products, IP Optical growth in India and Asia Pacific.

Q: Dave Kang asks about gross margin catalyst.

A: Bruce McClelland says margin expansion due to mix of Cloud & Edge (high margin) vs IP Optical (lower margin) and professional services mix.