Ribbon Communications Inc. · NASDAQ:RBBN
Ribbon Communications — Q1 2020 Earnings Presentation
38 slides from Ribbon Communications's earnings presentation, May 6, 2020
Slide 1: First Quarter 2020 Results
Ribbon Communications First Quarter 2020 Results Bruce McClelland Daryl Raiford May 6, 2020 President & CEO EVP & CFO
Slide 2: Cautionary Note Regarding Forward-Looking Statements
Cautionary Note Regarding Forward-Looking Statements This presentation contains “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, which are subject to a number of risks and uncertainties. All statements other than statements of historical f
Slide 3: Cautionary Note Regarding Forward-Looking Statements (continued)
Cautionary Note Regarding Forward-Looking Statements (continued) All of our forward-looking statements involve known and unknown risks, uncertainties (some of which are significant or beyond our control) and other important factors that may cause our actual results, performance or achievements to be
Slide 4: Business Overview
Business Overview May 6, 2020 Bruce McClelland President & CEO
Slide 5: Ribbon and ECI Merger Completed
Ribbon and ECI Merger Completed Global provider of converged communications software and network solutions to service providers, enterprises, and critical infrastructure sectors Expanded addressable market to include high growth datacom market Customers in over 140 countries1 Increased scale and bal
Slide 6: Ribbon and ECI
Ribbon and ECI Governments, Defense, The World's Utilities, Critical Leading Tier One Infrastructure, and Service Providers and More than 350 Independent Software U.S. Department The Largest Banks, Vendors of Defense Locations Airlines, Retailers and Manufacturers across the Globe $ 6
Slide 7: Completed Acquisition of ECI Telecom Group on March 3, 2020
Completed Acquisition of ECI Telecom Group on March 3, 2020 Transaction Summary • Ribbon Communications acquired all outstanding equity of ECI Telecom Group Ltd. on March 3, 2020 Transaction – Purchase consideration of 32.5 million newly issued Ribbon shares of common stock and $314 million cash pai
Slide 8: Organizing for Success
Organizing for Success Region-based Sales Organizations serving Ribbon’s key Service Provider and Enterprise markets through two strategic business pillars Cloud and Edge Packet Optical Networking Americas Region Sales + European and Asia-Pacific Sales Service Providers and Enterprises 8
Slide 9: First Quarter 2020 Performance
First Quarter 2020 Performance1 • Overall2 sales increased 33% year-over-year – Ribbon standalone2 sales increased 8% – Ribbon standalone2 software product revenue increased 55% • Overall2 Non-GAAP Gross Margins expanded 1 percentage point – Ribbon standalone2 increased 6 percentage points to 62% •
Slide 10: 1Q20 Results and 2020 Outlook
1Q20 Results and 2020 Outlook May 6, 2020 Daryl Raiford EVP & CFO
Slide 11: First Quarter 2020 Financial Results
First Quarter 2020 Financial Results 1Q19 1Q20 1Q20 Ribbon Overall1 standalone1 Revenue2 $119 million $128 million $158 million Non-GAAP Gross 56% 62% 57% Margin1,2 Non-GAAP Operating Margin1 -5% 5% 4% Non-GAAP $(0.08) $0.02 $0.01 Diluted EPS1,2 Non-GAAP Adjusted $(3) million $10 million $10 million
Slide 12: First Quarter 2020 Highlights
First Quarter 2020 Highlights1 Growing Improving Cash Flow and Revenue Profitability Margin Balance Sheet Sales of $158M, up $39M Adjusted EBITDA Margin2 Operating Cash Flow Unlevered Free Cash of 6%, up 8 ppts of $40M, up $20M Flow2 of $38M, up $21M Cloud and Edge2 Packet Optical Networking2 Growin
Slide 13: Revenue Components
Revenue Components Overall1 Cloud and Edge1 Revenue Revenue 180 $161M $158M $145M $138M 150 $128M Cloud and Edge1 $119M 120 software revenue 13% in 1Q20 90 accounted for $158M 48% 60 53% of product 39% revenue as 30 compared to 39% in 1Q19 0 1Q19 2Q19 3Q19 4Q19 1Q20 1Q20 Packet Optical Product Maint
Slide 14: Product Revenue by Market
Product Revenue by Market Overall1 Product Cloud and Edge1 Revenue Revenue 100 Overall1 Ribbon Enterprise revenue $81M grew to 36% of total $72M $76M 75 product revenue in 1Q20 compared to $61M 31% in 1Q19 $54M $47M 36% 50 $76M Within Cloud and 64% 58% Edge1, Service 79% 25 Provider revenue mix in 1
Slide 15: 2020 Business Outlook
2020 Business Outlook Current Operating Environment Focused on serving customers and caring for our • Cloud and Edge1 employees – Solid visibility to 2020 opportunities – Incremental demand from growth in voice and data traffic Strong focus on ECI integration and transformation of Ribbon to • Packet
Slide 16: The Path Ahead
The Path Ahead • Strengthen and grow software portfolio • Grow share of Enterprise market • Leverage Ribbon installed base to cross-sell entire portfolio • Expand Packet Optical sales in North America • Capture share of 5G network deployments • Portfolio rationalization and cost structure efficienci
Slide 17: Appendix
APPENDIX
Slide 18: Ribbon Condensed Statements of Operations
Ribbon Condensed Statements of Operations USD Millions except percentages and EPS 1Q18 2Q18 3Q18 4Q18 FY18 1Q19 2Q19 3Q19 4Q19 FY19 1Q20 GAAP FINANCIAL MEASURES Product Revenue 52 63 77 87 279 47 72 61 81 262 76 Service Revenue 70 74 75 80 299 71 73 77 80 301 82 Total Revenue 121 137 152 167 578 119
Slide 19: Ribbon Condensed Balance Sheets
Ribbon Condensed Balance Sheets USD Millions 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 ASSETS 1 Cash and Investments 85 55 43 51 46 51 40 45 110 Accounts Receivable, Net 126 136 151 188 135 155 163 193 206 Inventory, Net 21 19 22 23 19 17 14 15 67 Property Plant Equipment, Net 24 24 26 27 28 28 2
Slide 20: Ribbon Condensed Statements of Cash Flows
Ribbon Condensed Statements of Cash Flows USD Millions 1Q18 2Q18 3Q18 4Q18 FY18 1Q19 2Q19 3Q19 4Q19 FY19 1Q20 Cash from Operations 3 (26) (1) 14 (10) 20 10 (6) 33 56 40 Purchases of PP&E (2) (2) (2) (2) (8) (4) (2) (2) (2) (11) (6) Stock Repurchase - - - - - - (5) - - (5) - Business Acquisitions - -
Slide 21: Ribbon Revenue Key Statistics
Ribbon Revenue Key Statistics USD Millions except for percentages 1Q18 2Q18 3Q18 4Q18 FY18 1Q19 2Q19 3Q19 4Q19 FY19 1Q20 GAAP Revenue Product 52 63 77 87 279 47 72 61 81 262 76 Service 70 74 75 80 299 71 73 77 80 301 82 Total Revenue 121 137 152 167 578 119 145 138 161 563 158 % of Total GAAP Revenu
Slide 22: Basis of Presentation
Basis of Presentation Totals may not sum due to rounding The terms “Ribbon standalone”, “Ribbon’s organic business” and “organic” as used herein refer to the business, continuing operations and/or financial results, as the context dictates, of Ribbon Communications excluding the recently acquired EC
Slide 23: Discussion of Non-GAAP Financial Measures
Discussion of Non-GAAP Financial Measures Ribbon Communications’ management uses several different financial measures, both GAAP and non-GAAP, in analyzing and assessing the overall performance of the business, making operating decisions, planning and forecasting future periods, and determining paym
Slide 24: Discussion of Non-GAAP Financial Measures (continued)
Discussion of Non-GAAP Financial Measures (continued) Impact of New Revenue Standard For periods prior to the first quarter of 2019, we adjusted our non-GAAP financial measures for eliminated revenue resulting from our adoption of the new revenue recognition standard in 2018 and related cost of reve
Slide 25: Discussion of Non-GAAP Financial Measures (continued)
Discussion of Non-GAAP Financial Measures (continued) Acquisition-Related Facilities Adjustments GAAP accounting requires that the deferred rent liability of an acquired company be written off as part of purchase accounting and that a combined company’s rent expense on a straight-line basis begin as
Slide 26: Discussion of Non-GAAP Financial Measures (continued)
Discussion of Non-GAAP Financial Measures (continued) Settlement Expense In the first quarter of 2018, we recorded $1.7 million of expense related to settlements, comprised of $1.4 million for the settlement of litigation in connection with our acquisition of Taqua LLC and $0.3 million of patent lit
Slide 27: Discussion of Non-GAAP Financial Measures (continued)
Discussion of Non-GAAP Financial Measures (continued) Restructuring and Related Expense We have recorded restructuring and related expense to streamline operations and reduce operating costs by closing and consolidating certain facilities and reducing our worldwide workforce. We review our restructu
Slide 28: Discussion of Non-GAAP Financial Measures (continued)
Discussion of Non-GAAP Financial Measures (continued) Tax Effect of Non-GAAP Adjustments Beginning with the second quarter of 2019, non-GAAP income tax expense is presented based on an estimated tax rate applied against forecasted annual non-GAAP income. The non-GAAP income tax expense assumes no av
Slide 29: Discussion of Non-GAAP Financial Measures (continued)
Discussion of Non-GAAP Financial Measures (continued) Adjusted EBITDA We use Adjusted EBITDA as a supplemental measure to review and assess our performance. We calculate Adjusted EBITDA by excluding from net income (loss): interest income (expense), net; income tax provision; depreciation; and amort
Slide 30: Discussion of Non-GAAP Financial Measures (continued)
Discussion of Non-GAAP Financial Measures (continued) Leverage and Net Debt Leverage This calculation utilizes Ribbon and ECI Adjusted EBITDA combined for the twelve months ended December 31, 2019, including pro forma net cost synergies and excluding the impact of any purchase accounting adjustments
Slide 31: Annual and Quarterly GAAP to Non-GAAP Reconciliation
Annual and Quarterly GAAP to Non-GAAP Reconciliation $000's 1Q18 2Q18 3Q18 4Q18 FY18 1Q19 2Q19 3Q19 4Q19 FY19 1Q20 1Q20 1Q20 Ribbon ECI Overall standalone standalone Revenue $ 128,031 $ 29,951 $ 157,982 Total gross profit $ 70,919 $ 10,651 $ 81,570 GAAP Gross margin - total (Total gross profit/Reven
Slide 32: Annual and Quarterly GAAP to Non-GAAP Reconciliation (continued)
Annual and Quarterly GAAP to Non-GAAP Reconciliation (continued) $000s 1Q18 2Q18 3Q18 4Q18 FY18 1Q19 2Q19 3Q19 4Q19 FY19 1Q20 1Q20 Ribbon Overall standalone GAAP Operating expenses $ 97,656 $ 91,747 $ 89,800 $ 94,537 $ 373,740 $ 92,817 $ 87,769 $ 76,191 $ 249,767 $ 506,544 $ 96,880 $ 110,310 Stock-b
Slide 33: Annual and Quarterly GAAP to Non-GAAP Reconciliation (continued)
Annual and Quarterly GAAP to Non-GAAP Reconciliation (continued) $000s 1Q18 2Q18 3Q18 4Q18 FY18 1Q19 2Q19 3Q19 4Q19 FY19 1Q20 1Q20 Ribbon Overall standalone GAAP Diluted earnings per share or (loss) per share $ (0.44) $ (0.20) $ (0.10) $ (0.02) $ (0.74) $ (0.29) $ 0.45 $ 0.01 $ (1.36) $ (1.19) $ (0.
Slide 34: Annual and Quarterly GAAP to Non-GAAP Reconciliation (continued)
Annual and Quarterly GAAP to Non-GAAP Reconciliation (continued) $000's 1Q18 2Q18 3Q18 4Q18 FY18 1Q19 2Q19 3Q19 4Q19 FY19 1Q20 1Q20 Ribbon Overall standalone Adjusted EBITDA GAAP Net income (loss) $ (44,904) $ (19,922) $ (10,158) $ (1,826) $ (76,810) $ (30,832) $ 49,470 $ 1,650 $ (150,363) $ (130,07
Slide 35: Annual and Quarterly GAAP to Non-GAAP Reconciliation (continued)
Annual and Quarterly GAAP to Non-GAAP Reconciliation (continued) $000's 1Q18 2Q18 3Q18 4Q18 FY18 1Q19 2Q19 3Q19 4Q19 FY19 1Q20 1Q20 Ribbon Overall standalone Adjusted EBITDA as a percentage of revenue ("Adjusted EBITDA margin") GAAP Net income (loss) as a percentage of revenue -37.1% -14.5% -6.7% -1
Slide 36: Annual and Quarterly GAAP to Non-GAAP Reconciliation (continued)
Annual and Quarterly GAAP to Non-GAAP Reconciliation (continued) $000's 1Q19 2Q19 3Q19 4Q19 FY19 1Q20 Unlevered Free Cash Flow GAAP Net cash provided by (used in) operating activities $ 19,579 $ 9,540 $ (6,488) $ 33,054 $ 55,685 $ 39,932 Interest expense 1,395 1,273 997 785 4,450 3,713 Purchases of
Slide 37: Computation of Leverage LTM EBITDA
Computation of Leverage LTM EBITDA (in millions, except leverage amounts) Debt as of March 3, 2020 $ 400 Ribbon Non-GAAP Adjusted EBITDA (1) 86 ECI Non-GAAP Adjusted EBITDA (2) 27 Consolidated Non-GAAP Adjusted EBITDA $ 113 Debt leverage (3) 3.5 Debt $ 400 Cash 88 Net debt $ 312 Net debt leverage (4
Slide 38: ECI Condensed Statements of Operations
ECI Condensed Statements of Operations USD Millions except percentages and EPS 1Q19 2Q19 3Q19 4Q19 FY19 GAAP FINANCIAL MEASURES Product Revenue 70 66 74 84 294 Service Revenue 20 20 21 26 88 Total Revenue 90 86 95 110 382 Gross Profit 30 31 38 45 144 Gross Margin % 33% 36% 40% 41% 38% Research and d
Ribbon Communications — Q1 2020 Earnings Presentation on 6ix