Ribbon Communications Inc. · NASDAQ:RBBN
Ribbon Communications — Q2 2020 Earnings Presentation
39 slides from Ribbon Communications's earnings presentation, Aug 5, 2020
Slide 1: Second Quarter 2020 Results
Ribbon Communications Second Quarter 2020 Results Bruce McClelland Mick Lopez August 5, 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 (continued) and Use of Non-GAAP Financial Measures
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: 2Q20 Business Overview
2Q20 Business Overview Bruce McClelland President & CEO
Slide 5: Q2 FY 2020 Business Highlights
Q2 FY 2020 Business Highlights Customers ▪ Bharti Airtel (top 3 global mobile provider) 5G-ready IP/MPLS network deployment ▪ 5G/VoLTE transcoding win with Tier One North American Carrier ▪ Bandwidth Inc. leverages Ribbon cloud-based SBC using Amazon Web Services for rapid deployment ▪ Japanese mobi
Slide 6: Kandy Transaction Overview and Rationale
Kandy Transaction Overview and Rationale • Kandy portfolio addresses large and fast growing UCaaS, CPaaS and CCaaS markets but needs additional investment to scale • Sale to American Virtual Cloud Technologies (NASDAQ: AVCT) should unlock value and allow Ribbon shareholders to benefit from higher po
Slide 7: COVID-19 Update
COVID-19 Update Employees & Community Customers & Markets Business & Operations ▪ Majority of employees working from ▪ Service Providers and Enterprises ▪ 2H demand visibility improving home continue focus on digital ▪ Supply chain and logistics challenges transformation ▪ Phasing in voluntary parti
Slide 8: 2Q20 Financial Results
2Q20 Financial Results Mick Lopez EVP & CFO
Slide 9: Second Quarter 2020 Highlights
Second Quarter 2020 Highlights Growing Revenue Cash Flow and Balance Sheet Improving Profitability Sales of $210M, up $65M YoY1 Ending Cash of $94M Adjusted EBITDA2 of $30M, up $7M1 Includes $64M from Packet Optical Networks Cloud and Edge2 Packet Optical Networks2 $ Growing Software Sales Accelerat
Slide 10: Total Revenue
Total Revenue Revenue by Quarter: Cloud & Edge and Packet Optical Networks $ Millions Cloud and Edge Packet Optical Networks 250 210 200 158 64 150 30 100 145 161 147 138 128 50 119 0 1Q19 2Q19 3Q19 Q419 1Q20 2Q20 1 1Includes reduction of revenue related to Packet Optical Networks purchase accountin
Slide 11: GAAP Financial Highlights
GAAP Financial Highlights 1Q19 2Q19 1Q201 2Q201 Revenue $119M $145M $158M $210M Gross Margin 48% 55% 52% 53% OPEX $93M $88M $110M $111M Net income $(31)M $49M $(33)M $(8)M (loss) Diluted EPS $(0.29) $0.45 $(0.27) $(0.06) 1Please see the basis of presentation in the appendix. For the three months end
Slide 12: Non-GAAP Financial Highlights 2Q20
Non-GAAP Financial Highlights 2Q20 Packet Optical Networks Cloud and Edge (ECI Legal Entity) Consolidated 2Q20 2Q20 2Q20 Revenue $147M $64M $210M +1% YoY1 -26% YoY3 Non-GAAP Gross 67% + 5 ppts YoY1 39% 59% Margin2 Non-GAAP $64M - 10% YoY1 $34M $99M OPEX2 Non-GAAP Operating 23% (15%) 12% Margin2 +10
Slide 13: Quarterly Performance
Quarterly Performance Revenue and Non-GAAP Gross Margins Packet Optical Cloud and Edge1 Networks1 $161M $145M $147M $138M $128M $119M 68% 67% 64% 63% 62% 56% $64M $30M 39% 39% 1Q20 2Q20 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 Product Maintenance Professional Services NON GAAP GM 1Please see the basis of prese
Slide 14: Second Quarter 2020 Key Metrics
Second Quarter 2020 Key Metrics Bookings Revenue Mix Balance Sheet Cash Flow 39% Software Revenue4 Cash Balance $94M Improving 2H201 Visibility Cash From Operations ($3M) 33% Maintenance Revenue5 Term Loan $397.5M Product/PS Book to Bill2 Effective Rate 3.9% Unlevered Free Cash Flow ($6M) Ratio of 1
Slide 15: Key Trends and Outlook
Key Trends and Outlook
Slide 16: Cloud & Edge Portfolio
Cloud & Edge Portfolio Products & Services Looking Forward Core and Edge Solutions Key Trends ▪ Digital Network Transformation (NTR) ▪ Work-from-home driving continued higher network utilization and – Application Server, Call Control, Media GW, Policy & Routing, Signaling need for capacity augmentat
Slide 17: Packet Optical Networks Portfolio
Packet Optical Networks Portfolio Products & Services Looking Forward Apollo Key Trends ▪ Optical Transport ▪ Work-from-home driving continued higher network utilization and need for ▪ OTN Switching capacity augmentation ▪ Mobile network traffic growing exponentially and will increase 5x by 2025, Ne
Slide 18: Ribbon 5G Transport Portfolio – Rated Very Strong
Competitive Landscape Assessment from Global Data for 5G Transport Solutions July 21, 2020 Ribbon 5G Transport Portfolio – Rated “Very Strong” Emir Halilovic Buying Criteria Ratings Strengths ▪ Timing and Synchronization: Leader ▪ Solution portfolio providing multilayer-optimized packet and optical
Slide 19: 2020 Business Outlook
2020 Business Outlook Focused on serving customers and caring for our Cloud and Edge1 employees ▪ Good visibility with solid backlog ▪ 2-3% YoY sales growth with expanded margins Strong focus on Packet Optical Networks integration and transformation of Ribbon Packet Optical Networks1 to deliver sign
Slide 20: Appendix
APPENDIX g} riddon
Slide 21: 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 2Q20 GAAP FINANCIAL MEASURES Product Revenue 52 63 77 87 279 47 72 61 81 262 76 121 Service Revenue 70 74 75 80 299 71 73 77 80 301 82 90 Total Revenue 121 137 152
Slide 22: Ribbon Condensed Balance Sheets
Ribbon Condensed Balance Sheets USD Millions 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 ASSETS Cash and Investments1 85 55 43 51 46 51 40 45 110 94 Accounts Receivable, Net 126 136 151 188 135 155 163 193 206 205 Inventory, Net 21 19 22 23 19 17 14 15 67 58 Property Plant Equipment, Net 24 24
Slide 23: Ribbon Condensed Statements of Cash Flows
Ribbon Condensed2 Statements of Cash Flows USD Millions 1Q18 2Q18 3Q18 4Q18 FY18 1Q19 2Q19 3Q19 4Q19 FY19 1Q20 2Q20 Cash from Operations 3 (26) (1) 14 (10) 20 10 (6) 33 56 40 (3) Purchases of PP&E (2) (2) (2) (2) (8) (4) (2) (2) (2) (11) (6) (9) Stock Repurchase - - - - - - (5) - - (5) - - Business
Slide 24: Ribbon Revenue Key Statistics
Ribbon Revenue Key Statistics USD Millions except for percentages 1Q18 2Q18 3Q18 4Q18 FY18 1Q19 2Q19 3Q19 4Q19 FY19 1Q20 2Q20 GAAP Revenue Product 52 63 77 87 279 47 72 61 81 262 76 121 Service 70 74 75 80 299 71 73 77 80 301 82 90 Total Revenue 121 137 152 167 578 119 145 138 161 563 158 210 % of T
Slide 25: Basis of Presentation
Basis of Presentation Totals may not sum due to rounding. The terms “Cloud and Edge”, “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 r
Slide 26: 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 27: Discussion of Non-GAAP Financial Measures (continued)
Discussion of Non-GAAP Financial Measures (continued) Investors are cautioned that there are material limitations associated with the use of non-GAAP financial measures as an analytical tool. In particular, many of the adjustments to our financial measures reflect the exclusion of items that are rec
Slide 28: Discussion of Non-GAAP Financial Measures (continued)
Discussion of Non-GAAP Financial Measures (continued) Amortization of Intangible Assets We exclude the amortization of acquired intangible assets from non-GAAP expense and income measures. These amortization amounts are inconsistent in frequency and amount and are significantly impacted by the timin
Slide 29: Discussion of Non-GAAP Financial Measures (continued)
Discussion of Non-GAAP Financial Measures (continued) Impairment of Goodwill We performed our annual testing for impairment of goodwill in the fourth quarter of 2019. We operate as a single operating segment with one reporting unit and consequently we evaluate goodwill for impairment based on an eva
Slide 30: Discussion of Non-GAAP Financial Measures (continued)
Discussion of Non-GAAP Financial Measures (continued) Acquisition- and Integration-Related Expense We consider certain acquisition- and integration-related costs to be unrelated to the continuing operations of our acquired businesses and the Company, and such costs are generally not relevant to asse
Slide 31: Discussion of Non-GAAP Financial Measures (continued)
Discussion of Non-GAAP Financial Measures (continued) Gain on Litigation Settlement We were involved in litigation with a certain competitor with whom we reached a settlement in the second quarter of 2019, under which such competitor agreed to pay us an aggregate amount of $63.0 million (see “Litiga
Slide 32: Discussion of Non-GAAP Financial Measures (continued)
Discussion of Non-GAAP Financial Measures (continued) Tax Benefit Arising from Purchase Accounting In 2018, we assessed our ability to use our tax benefits and determined that it was more likely than not that some of these benefits will be recognized. As a result, we reduced our deferred tax asset v
Slide 33: Discussion of Non-GAAP Financial Measures (continued)
Discussion of Non-GAAP Financial Measures (continued) Unlevered Free Cash Flow We use Unlevered Free Cash Flow to measure the cash we generate or utilize from operations and to maintain our capital assets. We calculate Unlevered Free Cash Flow as net cash provided by (used in) operating activities e
Slide 34: GAAP to Non-GAAP Reconciliation
GAAP to Non-GAAP Reconciliation $000's 1Q18 2Q18 3Q18 4Q18 FY18 1Q19 2Q19 3Q19 4Q19 FY19 1Q20 2Q20 Adjusted EBITDA GAAP Net (loss) income $ (44,904) $ (19,922) $ (10,158) $ (1,826) $ (76,810) $ (30,832) $ 49,470 $ 1,650 $ (150,363) $ (130,075) $ (33,170) $ (8,251) Interest expense, net 599 735 1,420
Slide 35: GAAP to Non-GAAP Reconciliation (continued)
GAAP to Non-GAAP Reconciliation (continued) $000's 1Q19 2Q19 3Q19 4Q19 FY19 1Q20 2Q20 Cloud and Packet Optical Consolidated Cloud and Packet Optical Consolidated Edge Networks Edge Networks Revenue Product $ 47,480 $ 72,059 $ 61,152 $ 81,339 $ 262,030 $ 54,210 $ 21,689 $ 75,899 $ 72,310 $ 48,552 $ 1
Slide 36: GAAP to Non-GAAP Reconciliation (continued)
GAAP to Non-GAAP Reconciliation (continued) $000s 2Q19 2Q20 Cloud and Packet Optical Consolidated Edge Networks GAAP Operating expenses $ 87,769 $ 74,820 $ 35,905 $ 110,725 Stock-based compensation (1,357) (2,950) (74) (3,024) Amortization of intangible assets (2,555) (3,439) (280) (3,719) Litigatio
Slide 37: GAAP to Non-GAAP Reconciliation (continued)
GAAP to Non-GAAP Reconciliation (continued) ($000s, except (Loss) earnings per share) 2Q19 2Q20 (Loss) earnings per share GAAP (loss) per share or diluted earnings per share $ 0.45 $ (0.06) Stock-based compensation 0.01 0.02 Amortization of intangible assets 0.12 0.10 Litigation costs 0.01 (0.01) Ac
Slide 38: GAAP to Non-GAAP Reconciliation (continued)
GAAP to Non-GAAP Reconciliation (continued) Three m onths ending Septem ber 30, 2020 Outlook Range Revenue $ 210 $ 220 (Loss) earnings per share GAAP outlook $ (0.04) $ (0.02) Stock-based com pensation 0.02 0.02 Am ortization of intangible assets 0.11 0.11 Acquisition- and integration-related expens
Slide 39: Thank You
&} riddon Thank You
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