Ribbon Communications’ Mixed Earnings Call: Growth Amid Challenges

Ribbon Communications ((RBBN)) has held its Q1 earnings call. Read on for the main highlights of the call.

Ribbon Communications’ recent earnings call painted a picture of mixed results, with notable growth in certain segments like Cloud & Edge and geographical regions such as India and Southeast Asia. However, the company also faced challenges, including flat sales year-over-year, lower margins due to product mix, and a decline in IP Optical segment revenue. Despite these hurdles, the anticipated improvement in gross margins and strong service provider sales offer a positive outlook, although financial losses and regional challenges remain concerns.

Cloud & Edge Business Growth

The Cloud & Edge segment demonstrated robust growth, with sales increasing by approximately 6% year-over-year. Both product and services sales saw a significant rise of about 17% year-over-year, contributing to a 17% increase in adjusted EBITDA for the segment.

IP Optical Business Excluding Eastern Europe

Excluding Eastern Europe, the IP Optical business experienced a 25% growth in the first quarter, reflecting strong demand and promising growth prospects in this segment.

Record Sales in India and Southeast Asia

Sales in India surged by 80% year-over-year, reaching the highest level in the past five years, while Southeast Asia saw an impressive over 200% increase year-over-year, driven by multiple new projects.

Strong Service Provider Sales

The company reported robust business with service providers, with sales increasing more than 10% year-over-year. When adjusted for the suspension of shipments to Eastern Europe, service provider sales rose by more than 30% year-over-year.

Improving Gross Margins Anticipated

Ribbon Communications expects consolidated gross margins to improve by more than 400 basis points sequentially in the second quarter, attributed to a better mix of software and regional profiles.

Sales Flat Year-over-Year

Sales in the first quarter remained flat year-over-year and fell short of expectations, primarily due to the timing of two enterprise projects in the U.S.

Lower Margins Due to Product Mix

The first quarter margins were lower than projected, attributed to the mix of shipments and lower sales volume. The Cloud & Edge sales were more concentrated in hardware products and higher professional services revenue.

IP Optical Segment Revenue Decline

Sales in the IP Optical segment decreased by approximately 6% year-over-year, mainly due to the suspension of shipments to Eastern Europe.

Non-GAAP Net Loss

The company reported a non-GAAP net loss of $5 million for the quarter, compared to a $1 million loss in the previous year, resulting in a non-GAAP diluted loss per share of $0.03.

Forward-Looking Guidance

CEO Bruce McClelland provided an optimistic outlook for the second quarter and the year, projecting a 12% year-over-year revenue increase in Q2 2025, reaching between $210 million to $220 million. Adjusted EBITDA is expected to rise 38% year-over-year to between $28 million and $32 million. The Cloud & Edge segment is projected to grow approximately 20% year-over-year, fueled by strong partnerships and federal network modernization opportunities. Despite previous challenges, IP Optical segment sales are expected to grow 5% to 10% sequentially in Q2.

In summary, Ribbon Communications’ earnings call highlighted a mix of growth and challenges. While the company faces hurdles like flat sales and lower margins, the growth in Cloud & Edge, strong service provider sales, and anticipated margin improvements provide a positive outlook. The forward-looking guidance suggests a promising trajectory for the company, with expected revenue and EBITDA growth in the coming quarters.