Ribbon Communications Inc. Q3 FY2025 earnings call

• New Product Announcement: Acumen AIOps automation platform was introduced, with Optimum integrating it to enhance network reliability. It ingests data from all network layers and combines various capabilities. - IP Optical Highlights: Sales in IP Optical Networks grew 11% YOY, with Europe and Middle East increasing almost $50% YOY, and Asia Pacific showing growth in multiple areas. IP Routing Solutions revenue grew over 20% YTD and represents ~50% of new product sales for the segment this year. - Cloud & Edge Highlights: Despite lower sales due to U.S. federal sales impact, year-to-date revenue grew nearly $9%. Service provider customers grew 5% YOY, and there was a significant first order from a new U.S. federal DoD agency. The company is seeing opportunities related to agentic and generative AI platforms, with notable wins like IBM embedding virtual SBC solutions.

IP Optical Networks Business

• Third quarter sales increased 11% year-over-year to $91 million, one of the strongest quarters in the last 5 years. Year-to-date, IP Optical revenues have grown 2%, but excluding Russia, revenues are up 13%. Third quarter non-GAAP gross margin was 39.4%, up 350 basis points sequentially and 330 basis points from the prior year. The segment had a positive EBITDA contribution of $1 million in the quarter. Revenue from IP Routing Solutions has grown by more than 20% year-to-date and represents approximately 50% of new product sales for this segment so far this year.

Cloud & Edge Business

• Third quarter revenue was $124 million, a decrease of 3% year-over-year and down 9% sequentially. Year-to-date, revenue is up almost $9% year-over-year. Non-GAAP gross profit was $77 million, producing a non-GAAP gross margin of 62.2%, an improvement of 27 basis points from the prior quarter.

• Fourth Quarter Outlook: Projected revenue range of $230 million to $250 million and non-GAAP adjusted EBITDA range of $42 million to $48 million.
• IP Optical: Projected sales to be at similar levels to the third quarter, increasing mid-single digit YOY, with India remaining a strong market and expecting first revenue from the new rural India broadband project. Margins expected to be in the mid-30s. - Cloud & Edge: Expect increased mix of software and services to contribute to significantly higher gross margins in the high 60s in Q4, similar to the previous year.

• U.S. Federal Government Shutdown: Delayed procurement process on several projects related to U.S. federal agencies in the third quarter, and majority of U.S. government-related sales removed from fourth quarter projection as purchases are assumed to occur in 2026.

Q: Is software and AI a driver of Cloud & Edge growth rate in the future and when will it become significant?

A: Bruce mentioned it's a new category. There's AIOps with an AI engine for building smart agents and convergence of voice and AI in the enterprise. For now, reported in Cloud & Edge segment but seen as a new category.

Q: Characterize Verizon Cloud and Edge business and U.S. IP Optical business for third and fourth quarters?

A: Verizon grew ~20% YOY in third quarter but was down from second quarter, with more services than products this quarter; U.S. IP Optical business is a bit lumpy with different programs, and the BEAD funding is starting to show with the first project identified.

Q: Quantify the impact of FX and tariffs?

A: FX impact was just under $3 million YOY due to shekel, and tariff impact was around $0.5 million per quarter with some costs on cables, shelving equipment, etc., due to tariffs.