Ribbon Communications Inc. Reports Second Quarter 2021 Financial Results

PLANO, Texas -- Ribbon Communications Inc. (Nasdaq: RBBN), a global provider of real-time communications software and IP optical transport solutions to service providers, enterprises, and critical infrastructure sectors, today announced its financial results for the second quarter of 2021.

Sales for the first half of 2021 were up 10% versus the first half of 2020, while Adjusted EBITDA increased 60% and Non-GAAP diluted earnings per share increased 133% over the same time period. Revenue for the second quarter of 2021 was $211 million, compared to $210 million for the second quarter of 2020.    

"In the first half of the year, we made significant strides on the execution of our strategy, with new major IP Optical wins with Rogers, Optus, Singtel and several others," noted Bruce McClelland, President and Chief Executive Officer of Ribbon Communications. "These customer wins will significantly broaden our presence in this large addressable market and strengthen our foundation, establishing a clear path to growth in 2022 and beyond."

Mr. McClelland added, "Sales in India in the quarter were impacted by the surge in Covid infections and country-wide restrictions. Deployments have partially recovered in recent weeks, but timing of a full recovery in network investment is difficult to predict, so it is important for us to be prudent with our expectations for the remainder of the year."

Financial Highlights^{1, 2}
The following table summarizes the consolidated financial highlights for the three months ended June 30, 2021 and 2020 (in millions, except per share amounts).

Cash, cash equivalents and restricted cash was $115 million at June 30, 2021, compared with $109 million at March 31, 2021 and $94 million at June 30, 2020.  GAAP Net income of $23 million in the second quarter of 2021 includes a $12 million non-cash gain associated with the quarterly mark-to-market of the Company's investment in American Virtual Cloud Technologies, Inc. ("AVCT") from the sale of the Company's Kandy Communications business and a $2.8 million gain on the sale of our QualiTech business, which closed during the second quarter.

"We were very pleased with the earnings and cash generation in the quarter with both Adjusted EBITDA and Earnings per share well above our targets for the quarter. Sales were slightly less than expected primarily due to the Covid situation in India, while gross margins were stronger due to favorable product mix. Operating expenses trended lower with continued spending discipline and the benefit from several one-time items," said Mick Lopez, Chief Financial Officer of Ribbon Communications.

Customer and Company Highlights

• Strong 1H21 financial results:
  • 10% YoY revenue growth
  • 60% YoY Adj. EBITDA growth 
  • Strong gross margins in both business units and continued disciplined expense control
• Significant new IP Optical wins broadening Ribbon's global customer base:
  • Rogers Communications selected Ribbon's industry-leading 400G ZR+ optical networking and SDN solutions to upgrade its transport network
  • Optus and Singtel Telecommunications multi-service transport network DWDM tender award
  • Strong growth in North American markets with 1H21 sales exceeding sales in all of 2020, including Huawei replacement win with US wireless provider
• Continuing portfolio innovation:
  • Successful introduction and initial shipments of industry's first 400G ZR+ DWDM metro and long-haul transport solution
  • Integral contributor enabling industry to meet US robocalling June 30th deadline with complete portfolio including CallTrust and STIR/SHAKEN solutions

Business Outlook¹   
The Company's outlook is based on current indications for its business, which are subject to change.  For the third quarter of 2021, the Company projects revenue of $215 million to $225 million, non-GAAP gross margin of 57% to 58%, non-GAAP diluted earnings per share of $0.11 to $0.13, and Adjusted EBITDA of $32 million to $36 million.  For the full year 2021, earnings guidance remains unchanged with non-GAAP diluted earnings per share of $0.49 to $0.54, and Adjusted EBITDA of $145 million to $155 million.  Revenue is now projected to be approximately $900 million with increased non-GAAP gross margin of 58% to 59%. The current outlook assumes no worsening of conditions related to the COVID-19 pandemic, or supply chain disruptions.

Upcoming Investor Conference Schedule

• August 10-11, 2021 – Oppenheimer Technology, Internet & Communications Conference (virtual presentation and one-on-one institutional investor meetings).
• August 31-September 1, 2021 – Jefferies Virtual Semiconductor, IT Hardware & Communications Infrastructure Summit (virtual one-on-one institutional investor meetings).
• September 14-15, 2021 – Jefferies Virtual Software Conference (virtual presentation and one-on-one institutional investor meetings).
• November 15-18, 2021 – Needham Virtual Security, Networking & Communications Conference (virtual presentation and one-on-one institutional investor meetings).

Conference Call Details
Conference call to discuss the Company's financial results for the second quarter ended June 30, 2021 on July 28, 2021, via the investor section of its website at http://investors.ribboncommunications.com, where a replay will also be available shortly following the conference call.

Conference Call Details:
Date: July 28, 2021
Time:  4:30 p.m. (ET)
Dial-in number (Domestic): 877-407-2991
Dial-in number (Intl): 201-389-0925
Instant Telephone Access:  Call me™  

Replay information:
A telephone playback of the call will be available following the conference call until August 11, 2021 and can be accessed by calling 877-660-6853 or 201-612-7415 for international callers. The reservation number for the replay is 137200791.

Investor Relations
Tom Berry
+1 (978) 614-8050
tom.berry@rbbn.com

North American Press
Dennis Watson
+1 (214) 695-2224
dwatson@rbbn.com

APAC, CALA & EMEA Press
Catherine Berthier
+1 (646) 741-1974
cberthier@rbbn.com 

Analyst Relations
Michael Cooper
+1 (708) 212-6922
mcooper@rbbn.com

About Ribbon
Ribbon Communications (Nasdaq: RBBN) delivers communications software, IP and optical networking solutions to service providers, enterprises and critical infrastructure sectors globally. We engage deeply with our customers, helping them modernize their networks for improved competitive positioning and business outcomes in today's smart, always-on and data-hungry world. Our innovative, end-to-end solutions portfolio delivers unparalleled scale, performance, and agility, including core to edge software-centric solutions, cloud-native offers, leading-edge security and analytics tools, along with IP and optical networking solutions for 5G. To learn more about Ribbon visit rbbn.com.

Important Information Regarding Forward-Looking Statements
The information in this release contains "forward-looking" statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, which are subject to several risks and uncertainties.  All statements other than statements of historical facts contained in this release, including without limitation statements regarding, projected financial results for the third quarter 2021 and beyond, sales trends, and plans and objectives of management for future operations are forward-looking statements.  Without limiting the foregoing, the words "believes", "estimates", "expects", "expectations", "intends", "may", "plans", "projects" and other similar language, whether in the negative or affirmative, are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions.  Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict.  Our actual results may differ materially from those contemplated in these forward-looking statements due to various risks, uncertainties and other important factors, including, among others, risks related to the continuing COVID-19 pandemic, including delays in customer deployments as a result of rises in cases risks that will not realize estimated cost savings and/or anticipated benefits from the acquisition of ECI; failure to realize anticipated benefits from the sale of our Kandy Communications business ("Kandy"); supply chain disruptions resulting from component availability and/or geopolitical instabilities and disputes; unpredictable fluctuations in quarterly revenue and operating results; failure to compete successfully against telecommunications equipment and networking companies; credit risks; the timing of customer purchasing decisions and our recognition of revenues; macroeconomic conditions; our ability to recruit and retain key personnel; the impact of restructuring and cost-containment activities; litigation; rapid technological and market change; our ability to protect our intellectual property rights and obtain necessary licenses; risks related to cybersecurity and data intrusion; the potential for defects in our products; risks related to the terms of our credit agreement; higher risks in international operations and markets; increases in tariffs, trade restrictions or taxes on our products; currency fluctuations; and failure or circumvention of our controls and procedures.

These factors are not intended to be an all-encompassing list of risks and uncertainties that may affect our business and results from operations. Additional information regarding these and other factors can be found in our reports filed with the Securities and Exchange Commission, including our Form 10-K for the year ended December 31, 2020. In providing forward-looking statements, the Company expressly disclaims any obligation to update these statements publicly or otherwise, whether as a result of new information, future events or otherwise, except as required by law.

Discussion of Non-GAAP Financial Measures
Our management uses several different financial measures, both GAAP and non-GAAP, in analyzing and assessing the overall performance of its business, making operating decisions, planning and forecasting future periods, and determining payments under compensation programs.  We consider the use of non-GAAP financial measures helpful in assessing the core performance of our continuing operations and when planning and forecasting future periods.  Our annual financial plan is prepared on a non-GAAP basis and is approved by our board of directors.  In addition, budgeting and forecasting for revenue and expenses are conducted on a non-GAAP basis and actual results on a non-GAAP basis are assessed against the annual financial plan.  By continuing operations, we mean the ongoing results of the business adjusted for certain expenses and credits, as described below.  We believe that providing non-GAAP information to investors will allow investors to view the financial results in the way our management views them and helps investors to better understand our core financial and operating performance and evaluate the efficacy of the methodology and information used by our management to evaluate and measure such performance.

While our management uses non-GAAP financial measures as tools to enhance their understanding of certain aspects of our financial performance, our management does not consider these measures to be a substitute for, or superior to, GAAP measures.  In addition, our presentations of these measures may not be comparable to similarly titled measures used by other companies.  These non-GAAP financial measures should not be considered alternatives for, or in isolation from, the financial information prepared and presented in accordance with GAAP.  Investors are cautioned that there are material limitations associated with the use of non-GAAP financial measures.  In particular, many of the adjustments to our financial measures reflect the exclusion of items that are recurring and will be reflected in our financial results for the foreseeable future.

Stock-Based Compensation
The expense related to stock-based awards is generally not controllable in the short-term and can vary significantly based on the timing, size and nature of awards granted.  We believe that presenting non-GAAP operating results that exclude stock-based compensation provides investors with visibility and insight into our management's method of analysis and the Company's core operating performance.

Amortization of Acquired Intangible Assets
Amortization amounts are inconsistent in frequency and amount and are significantly impacted by the timing and size of acquisitions.  We believe that excluding non-cash amortization of intangible assets facilitates the comparison of our financial results to our historical operating results and to other companies in our industry as if the acquired intangible assets had been developed internally rather than acquired.

Litigation Costs
We have been involved in litigation with a former GENBAND business partner and have reached a settlement with the other party.  We exclude the costs of such litigation because we believe such costs are not part of our core business or ongoing operations.

Acquisition-, Disposal- and Integration-Related Expense
We consider certain acquisition-, disposal- and integration-related costs to be unrelated to the organic continuing operations of our acquired businesses and the Company, and such costs are generally not relevant to assessing or estimating the long-term performance of the acquired assets.  We exclude such acquisition-, disposal- and integration-related costs to allow more accurate comparisons of our financial results to our historical operations and the financial results of less acquisitive peer companies and allows management and investors to consider the ongoing operations of the business both with and without such expenses.

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 believe that excluding restructuring and related expense facilitates the comparison of our financial results to our historical operating results and to other companies in our industry, as there are no future revenue streams or other benefits associated with these costs.

Gain on Sale of Business
On May 12, 2021, we sold our QualiTech business, which we had acquired as part of the ECI Acquisition, to Hermon Laboratories, Ltd.  As consideration, we received $2.9 million of cash and recorded a gain on the sale of $2.8 million.  We exclude this gain because we believe that such gains are not part of our core business or ongoing operations.

Interest Income on Debentures
We recorded paid-in-kind interest income on the Debentures, which increased their fair value.  We exclude this interest income because we believe that such a gain is not part of our core business or ongoing operations.

(Increase) Decrease in Fair Value of Investments
We calculate the fair value of the Debentures and Warrants at each quarter-end and record any adjustments to their fair values in Other income (expense), net.  We exclude these and any subsequent gains and losses from the change in fair value of the Debentures and Warrants because we believe that such gains or losses are not part of our core business or ongoing operations.

Tax Effect of Non-GAAP Adjustments
Non-GAAP income tax expense is presented based on an estimated tax rate applied against forecasted annual non-GAAP income.  Non-GAAP income tax expense assumes no available net operating losses or valuation allowances for the U.S. because of reporting significant cumulative non-GAAP income over the past several years.  We are reporting our non-GAAP quarterly income taxes by computing an annual rate for the Company and applying that single rate (rather than multiple rates by jurisdiction) to our consolidated quarterly results.  We expect that this methodology will provide a consistent rate throughout the year and allow investors to better understand the impact of income taxes on our results.  Due to the methodology applied to our estimated annual tax rate, our estimated tax rate on non-GAAP income will differ from our GAAP tax rate and from our actual tax liabilities.

Adjusted EBITDA
We use Adjusted EBITDA as a supplemental measure to review and assess our performance.  We calculate Adjusted EBITDA by excluding from Income (loss) from operations: depreciation; amortization of acquired intangible assets; stock-based compensation; certain litigation costs; acquisition-, disposal- and integration-related expense; and restructuring and related expense.  In general, we exclude the expenses that we consider to be non-cash and/or not part of our ongoing operations.  We may exclude other items in the future that have those characteristics.  Adjusted EBITDA is a non-GAAP financial measure that is used by our investing community for comparative and valuation purposes.  We disclose this metric to support and facilitate our dialogue with research analysts and investors.  Other companies may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.