Ribbon Communications Inc. (RBBN) Earnings Call Transcript & Summary

Hello, everyone. And welcome to the 2021 Annual Meeting of Stockholders of Ribbon Communications, Inc. Before we get started, I would like to go over a few items so you know how to participate in today's meeting. [Operator Instructions] We will collect these and address them during the Q&A session at the end of today's meeting. [Operator Instructions] The polls are now open. Please click on the link. If you would like to cast your vote during the meeting prior to the closing of the polls. Today's meeting is being recorded. I would now like to introduce Patrick Macken, Ribbon's Executive Vice President, Chief Legal Officer and Corporate Secretary.

Thank you, and good morning. Before we begin, I would like to remind all of you that our conversation today may include statements that constitute forward-looking statements. Such statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from these forward-looking statements as a result of various important factors, including those discussed in the Risk Factors section of our most recent annual report on Form 10-K, which is on file with the SEC. In addition, these forward-looking statements represent the company's expectations only as of today, and we assume no obligation to update them. I would now like to introduce Shaul Shani, Chairman of the Board of Directors of Ribbon Communications, who will be the chair of today's meeting.

Thank you, Patrick, and good morning, ladies and gentlemen. I hereby call Ribbon 2021 Annual Meeting of Stockholders to order. Today's annual meeting is being held virtually in light of the ongoing COVID-19 pandemic. Before proceeding with the business of the meeting, I would like to introduce you to other Board members of the company who are with us today in person or virtually. Mariano de Beer, Stewart Ewing, Bruns Grayson, Beatriz Infante, Bruce McClelland, Krish Prabhu, Richard Smith, Tanya Tamone. I would like also to introduce you to [ Michael Craiger ] from Deloitte & Touche, the company independent auditor. Now I will turn the meeting over to Bruce for additional information and to proceed with the business of the meeting.

Great. Thank you, Shaul, and good morning to everyone. Today's meeting will be conducted in the order specified in the agenda. The polls opened today, May 27, 2021 at 10:00 a.m. Eastern time for voting on all matters before the meeting. If you've not already voted and wish to vote, the polls will remain open until we finish presenting the proposals and close the polls. You do not need to vote during the meeting, if you've already voted and do not wish to change your vote. On the virtual meeting web page, you'll find the agenda for the meeting. You'll also find the rules of conduct for today's meeting. Please review these rules carefully. Note that only stockholders who are logged into the meeting and have their virtual control number, will be able to vote during today's meeting. The corporate secretary will file the proof of mailing of notice of the meeting with the records of the meeting. All stockholders of record at the close of the business on March 30, 2021, or holders of a valid proxy are entitled to vote at the meeting. A complete list of the holders of record of the outstanding shares of the company's common stock on the record of date -- record date for the meeting is available through the virtual meeting web page. I'd like to now introduce Frank Aaron of Broadridge Financial Solutions, the inspector of election for today's meeting. The inspector has signed the customary oath of office to execute its duties with strict impartiality, and the oath will be filed with the records of the meeting. I've been informed by the inspector of election that a quorum is present. Accordingly, the meeting has been duly constituted for the transaction of business. We'll now proceed to vote on the 3 items of business before the meeting: The election of directors, the ratification of the appointment of Deloitte & Touche to serve as the company's independent registered public accounting firm for 2021 and the approval, on a nonbinding advisory basis, of the compensation of our named executive officers. The Board recommends the stockholders vote for each of these proposals. If you wish to vote and you haven't already, please vote now. The polls will close in 30 seconds. You do not mean to vote electronically if you've already sent in your signed proxy or if you've voted by telephone or Internet. We'll pause for 30 seconds before closing the polls. [Voting]

Thank you. The polls are now closed for voting. Will the corporate secretary, please report the voting results.

Thanks, Bruce. I have received a preliminary report from the inspector of election, which states that the votes have been counted and each of Mariano de Beer, Stewart Ewing, Bruns Grayson, Beatriz Infante, Bruce McClelland, Krish Prabhu, Shaul Shani, Richard Smith and Tanya Tamone have been reelected as directors of the company. The appointment of Deloitte & Touche to serve as Ribbon Communications' independent registered public accounting firm for the fiscal year ending the December 31, 2021, has been ratified, and the compensation of the company's named executive officers has been approved on an advisory nonbinding basis. The final tally of the votes will be published within the 4 business days in the current report on Form 8-K to be filed with the SEC.

Great. Thanks for that report, Patrick. This concludes the formal business to come before the meeting, and I now declare the meeting adjourned. With our official business completed, I wanted to take a few minutes to provide a brief update on the company, and then I'm happy to entertain any questions or comments that you may have regarding the company that have been submitted using the online chat feature. Please note that we will only be answering questions that are within the parameters of the rule of conduct. So with that, Patrick, you can go to the first page of our presentation this morning. Go to Slide 3. So as many of our investors are aware, Ribbon Communications is a global provider of software and network solutions, serving service providers, enterprises and critical infrastructure sectors. And we're enabling communications on high bandwidth networking and connectivity for our customers. Our headquarters are here in Plano, Texas, where we are today, and we serve over 1,000 customers around the globe. With approximately 3,700 employees in 140 countries. Intellectual property is a key aspect of our business, and we're proud to be holders of over 1,000 patents today. So if you go to the next slide, please, Patrick. 2020 was a -- completely a transformational year for the company with revenue growing over 50% year-over-year to almost $850 million. Including the newly acquired IP optical networks business following the close of our merger with ECI Telecom earlier in 2020. And it was a record year for the company with over $130 million of adjusted earnings before interest, tax, depreciation and amortization, up more than 50% year-over-year. And from a cash position perspective, very solid balance sheet with over $130 million in cash at the end of the year. Now the year was obviously a very challenging year in the middle of the COVID crisis. But we were able to execute very well. Global expansion with now more than 50% of our sales outside the U.S. in a very solid and diversified foundation. There was a lot of work within the portfolio in 2020 and a significant expansion in our addressable market. Part of the thesis behind the combination of ECI and Ribbon was really around being able to take the broader portfolio to our expanded customer base and the cross-selling of the whole portfolio is a key aspect of our strategy. It was great to see the momentum around that really start to show as the year progressed and into 2021. As part of the transformation of the company, we really have a world-class leadership team in place today to prosecute the strategy and really grow the company for the years to come. Go to the next slide, please. There's a variety of market trends that the company is focused on and disruptions in the market that we're taking advantage of that are really catalysts for our customers to invest in our solutions. Now clearly, the transition to working from home really emphasizes the importance of good broadband networks and good infrastructure and our customers have really doubled down and really focused around making sure their networks are in place to serve their customers. The transition to modernize networks is probably even a higher priority today than it was previously to make sure that they're supporting their customers, both residential and enterprise. Of course, the trend towards more mobile communication continues to grow and is expected to continue to increase exponentially more than 4.5x by 2026. And this introduction of 5G technology to really enable that as a catalyst for our types of products with our customers. Part of building out a stronger radio network includes a transition to more edge computing. And again, that's another market trend that the company is focused on capitalizing on the several years ahead. And kind of in lockstep with this transition to work from home, we're seeing many enterprise customers shift their strategy and their workloads from on-premise IT systems to the cloud and again, that just puts more strain on the communication infrastructure and is a real catalyst for investing in our products. We've been able to maintain a really strong engagement level with our customers despite the virtual world that we've all lived in and the introduction of the ECI portfolio, again, has really helped diversify the company. We have a really strong pipeline, a lot of activity with customers and really excited about the path ahead. Next slide please, Patrick. In 2021, those kind of big market trends really funnel into a variety of key factors for the year. We expect demand for more bandwidth to continue for the foreseeable future with COVID just accelerating that need with the adoption of unified communications and video networking collaboration platforms. The trend to upgrade 5G networks is just getting underway. We're really at the first couple of innings and the company has really built in a variety of differentiators into the portfolio to really go at that part of the market, and we're seeing great traction in the discussions with customers to help them basically refresh the entire infrastructure to support these higher speeds and capacities. We're seeing a real trend towards convergence. Between the optical infrastructure and the IP networking layer. And with the combined portfolio we have, that really plays to our strength and these networks are getting more complex and the ability to automate network management and really orchestrate the network is extremely important. And again, it's a critical part of our story and our differentiation against the competition. Of course, we're seeing increased dollars being allocated by many governments around the world to connect their consumers, to connect people to the network and again, it's an area that we're really focused on going after to make sure we capture a large portion of this federal and state spending that's allocated to the infrastructure. And as I mentioned, there's an increased emphasis around making sure that these networks are modernized to make sure that legacy TDM networks are upgraded to IP. And again, it's an area that we're really well positioned. And then finally, from a competitive perspective, it's really a unique time right now where there's a lot of political pressure around the types of suppliers that work and support these networks. And an area that we think we can really capitalize on and gain share with many of our customers around the world. Go to the next slide, Patrick. So finally, we've got a pretty bright outlook for 2021. The projections that we've supplied to our investors basically are a 10% growth rate versus what we did in 2020 growing both top line revenue and profitability for the company and really strengthening the financial profile for the company, so we can be positioned to really capture opportunities as it comes along. So really excited about the path ahead. I appreciate the investors joining us here today. Happy to take any questions that anyone has today. So with that, again, I really appreciate the support and look forward to keeping everyone updated throughout the year.

Could I have 1 second?

Yes, 1 question.

I think we do have a question coming in.

Looks like we have 1 question, so we'll see if we can navigate the online application here.

Can you read that? I'm sorry. Shall I narrate? Let me read it to you, Bruce.

Sure.

The question is, surprise that no analysts have asked about our dual announcement with AVCT regarding the partnership with the Orion Innovation.

Yes. We -- as our investors know, part of our portfolio rationalization was to find a path for our Kandy UCaaS business to really unlock the value, and we were successful in selling that business to a company called AVCT towards the end of 2020. Part of that engagement is an important R&D program that we have with a partner called Orion that we announced a couple of months ago now. And they're a great foundation. They support both the Ribbon business and the Kandy business. And when we are talking to shareholders, we have a really good discussion and I think a lot of positive feedback on the steps that we've made around the portfolio. So yes, I really appreciate that question, John. I can't read that Patrick.

Yes. The second question is just some statements around the revenue growth due to the ECI merger. And where do we see organic growth with the classic-driven business?

Yes. So that is a great question. We believe that the organic Ribbon portion of the portfolio has opportunity to grow particularly around our Enterprise business. We've traditionally done very well with that portfolio with the service providers. But there is significant opportunity for us to do better as we serve the Enterprise clients. Again, we do pretty well with the larger institutions, financial institutions, transportation, et cetera, but the longer tail of SMB and mid-market enterprise is a real opportunity for us to gain share. So we do believe we have a path to be able to grow that business at a lower rate. The larger revenue growth, we certainly anticipate from our new IP optical portfolio, particularly as we expand that business with existing Ribbon clients. And in fact, I mentioned on an investor call earlier this week that we're really seeing significant signs of success there. We've got 2 new wins here recently: one in North America, one in Asia Pacific, with significant sized carriers that serve more than 25 million subscribers. So that's a pretty big deal, and it's specifically on point with the strategy here. And as I mentioned, I think there's lots of room for us to grow, really excited about the potential going forward. So with that, John, really appreciate those questions [Audio Gap] and any other investors dialing in here today. And yes, I look forward to continuing the dialogue here as the year progresses. Thank you. So with that, maybe we can wrap up the call today.

Thank you for attending the meeting. You may now disconnect.