Ribbon’s Cloud & Edge business led the way to a profitable quarter

Oct. 30, 2024
IP Optical revenues took a hit, but other growth drivers improved gross margins.

During Ribbon Communications’ third-quarter earnings report, president and CEO Bruce McClelland expressed his satisfaction with the quarter, noting a return to growth in the company’s Cloud & Edge business.

“This was a great quarter for our Cloud & Edge business and sets us up for an even stronger performance in the fourth quarter,” he said.

Cloud & Edge revenue in the third quarter was $128 million, up 11% year-over-year.

“In the Cloud & Edge business, as expected, sales to Verizon increased substantially in the quarter, reaching 15% of overall company sales,” said McClelland. “The initial 3-year phase of the voice network modernization project we announced earlier this year is fully underway, and the combined Verizon and Ribbon team are executing very well.”

Overall sales in the third quarter were $210 million, a 3.5% year-over-year increase. Adjusted non-GAAP EBITDA was $30 million, and non-GAAP operating expenses were $90 million.

IP Optical revenue in the third quarter was $82 million, down 6% year-over-year, which McClelland ascribed to a suspension of product sales to Eastern Europe beginning last quarter; excluding sales to Eastern Europe, revenue from all other customers was up 4% year-over-year. In Europe, IP Optical sales in the quarter increased 15% year-over-year.

Ribbon also saw success in the federal and defense business, with a 60% growth in year-to-date sales compared to 2023.

“In the U.S. federal market, we announced an important project win to modernize and secure the U.S. federal softswitch backbone with our state-of-the-art voice communication infrastructure,” said McClelland. “We now have deployments in four branches of the U.S. military as we continue to expand our presence in defense networks across the globe.”

Growth drivers

McClelland reported that increased session border controller (SBC) sales helped improve gross margins in the quarter.

“This is one of the best quarters for SBC sales that we’ve had in several years, up more than 60% from the third quarter last year,” he said. “This included sales across a number of markets, including U.S. and international service providers, U.S. federal, and a number of large enterprise customers.”

McClelland said Ribbon has closed many initial deals during the third quarter and continues to have a large funnel of opportunities.

“We had a very good backlog entering the quarter in the U.S. market, particularly with regional and rural broadband providers,” he said. “This resulted in our strongest quarter ever in the U.S. with revenue increasing more than 100%, both quarter-over-quarter and year-over-year, and accounted for more than 20% of IP Optical sales.”

Riding the momentum

Ribbon expects U.S. momentum to continue in the fourth quarter, and the company anticipates even more growth in 2025, especially as larger service providers accelerate TDM infrastructure modernization.

“The operating environment continues to improve and presents an excellent opportunity for us to maintain our momentum, growing revenue and profitability,” said McClelland. “Network modernization to drive down cost and retire obsolete infrastructure is a key factor behind the increasing investment from service providers, enterprises, and federal agencies to upgrade their voice communication infrastructure. Legacy TDM and copper networks are increasingly expensive to support, and programs such as the Verizon voice core modernization project are clear evidence of the priority now being placed on this part of the network.”

McClelland reported that a combination of opportunities and trends reassures the company that revenue will grow in the mid-single-digit range in 2025.

“Overall, we’re making good progress on our key strategic goals, including returning to growth in our telco voice infrastructure business, diversifying and expanding sales in enterprise market verticals, including financial, health care, energy, transportation, and government information security, cross-selling the entire portfolio, particularly in the U.S. and achieving sustainable, profitable growth in our IP Optical business and accelerating innovation and capturing cost efficiencies with the full integration of our product teams.”

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About the Author

Hayden Beeson

Hayden Beeson is a writer and editor with over seven years of experience in a variety of industries. Prior to joining Lightwave and Broadband Technology Report, he was the associate editor of Architectural SSL and LEDs Magazine. 

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